2014 (8) TMI 1024 - AT - Income Tax

Rejection of request for registration under section 12AA - Held that - As carefully gone through the Memorandum of Association and also the reasons given by the learned DIT (Exemption) it is not in dispute that the main object, i.e. to promote and popularise education for the benefit of handicapped, housewives, etc. cannot be said to be non-charitable object. So long as the object is of charitable nature registration cannot be rejected mainly on the ground that it has not commenced it activity. Since commencement would invariably or in most of the cases depend upon gathering of funds which event can take place only upon obtaining necessary permission from the tax authorities such as approval of the charitable activity and registration under section 12AA of the Act. Having regard to the circumstances of the case we are of the view that it is a fit case for granting of registration. The AO is always free to consider allowability of exemption at the time of assessment. With these observations the matter is set aside to the file of the DIT. - Decided in favour of assessee

Summary

Issues:
1. Registration under section 12A of the Act for a non-profit organization.
2. Rejection of registration due to the nature of charitable activities and commencement of activities.
3. Interpretation of the main object clause and genuineness of intended activities.
4. Justification for rejection of registration by the DIT (Exemption).
5. Consideration of commencement of activities for granting registration under section 12AA.

Analysis:
1. The appeal concerned the rejection of registration under section 12A of the Act for a non-profit organization formed under section 25 of the Companies Act with the objective to promote and popularize education.

2. The rejection was based on the DIT (Exemption) finding that the Trust's objects extended beyond India and were commercial in nature. The DIT also noted that the Trust had not commenced any activities, which was considered a requirement for registration under section 12AA of the Act.

3. The assessee contended that the main object was to promote education broadly, benefiting various groups, and did not specify that this would be achieved solely by running a school. The Tribunal observed that as long as the object is charitable, registration should not be denied solely on the basis of non-commencement of activities, especially when funding is required, which often depends on obtaining necessary permissions.

4. The DIT (Exemption) justified the rejection by highlighting the lack of clarity in how the Trust would commence its activities and the absence of any actual activities being undertaken. However, the Tribunal emphasized that the charitable nature of the object should be the primary consideration for registration.

5. The Tribunal, in line with the Hon'ble Gujarat High Court's decision, held that registration should not be denied solely because activities had not commenced, especially when the object is charitable. The Tribunal set aside the rejection and deemed it a fit case for granting registration, leaving the AO to assess exemption at the appropriate time.

6. The appeal was allowed, and the order was pronounced in open court on 6th August 2014.