2007 (2) TMI 575 - HC - Income Tax

Registration procedure - Whether registration under section 12AA does not necessarily entitle assessee to get income excluded from income of previous year for purpose of determination of tax liability, but it only entitles assessee to claim such exemption, which otherwise could not be claimed in absence of registration - Held that - If trust or institution is not registered under section 12AA, it would not be able to claim any exemption or exclusion of its income from total income of previous year, even if such income is otherwise liable to be excluded under any of clauses of section 11 or section 12.

Issues Involved:
1. Entitlement of the assessee Society for registration under section 12AA of the Income-tax Act.
2. Examination of the genuineness of the activities of the assessee Society.
3. Assessment of the objects of the assessee Society in relation to public policy and charitable purposes.
4. Consideration of procedural aspects and compliance with relevant sections of the Income-tax Act.

Detailed Analysis:

1. Entitlement of the Assessee Society for Registration under Section 12AA:
The appeal under section 260A of the Income-tax Act was filed by the revenue, challenging the ITAT's order that allowed the assessee's appeal for registration under section 12AA. The ITAT held that the assessee made a case for registration, setting aside the Commissioner of Income-tax's (CIT) rejection of the application. The assessee Society claimed it was running an institution solely for educational purposes and not for profit, thus entitled to registration under section 12AA.

2. Examination of the Genuineness of the Activities of the Assessee Society:
The CIT, based on the ITO's report, noted several points questioning the genuineness of the Society's activities. These included:
- Investment in library books, which the ITO deemed unsuitable for the school's standard.
- Transactions with Nav Chetna Kendra, another Society where funds were shown as educational contributions.
- Issues with fee bifurcation and reconciliation of the balance sheet.
- Non-deduction of Provident Fund from salaries, which the CIT saw as against public policy.

The ITAT, however, found these considerations insufficient to reject the registration plea, emphasizing that the CIT was only to ensure the Society's objects were not against public policy and that its activities were genuine.

3. Assessment of the Objects of the Assessee Society in Relation to Public Policy and Charitable Purposes:
The Tribunal reviewed the Society's objects, which included providing education from primary to degree levels, mental and social development of children, and supporting underprivileged children. The Tribunal concluded that these objects were not against public policy and were indeed charitable, as education itself is a charitable purpose. The Tribunal also noted that activities related to physical and mental development, sports, and library facilities were integral to the educational purpose.

4. Consideration of Procedural Aspects and Compliance with Relevant Sections of the Income-tax Act:
The Tribunal and the court reviewed the procedural requirements under sections 12A, 12AA, and related provisions. Section 12AA outlines the procedure for registration, requiring the CIT to be satisfied with the genuineness of the activities and the objects of the trust or institution. The Tribunal emphasized that the CIT's enquiry should be limited to ensuring that the activities are genuine and align with the stated objects, without delving into income utilization beyond the scope of registration.

The court highlighted that mere registration under section 12AA does not automatically entitle the assessee to exemption; it only allows the assessee to claim such exemption, subject to further scrutiny during assessment proceedings.

Conclusion:
The Tribunal found that the CIT's reasons for rejecting the registration were not valid. The objects of the Society were charitable and not against public policy, and the activities were genuine. The court upheld the Tribunal's decision, dismissing the revenue's appeal and affirming that the assessee Society was entitled to registration under section 12AA. The appeal was dismissed as it lacked merit.

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