2013 (5) TMI 911 - AT - Income Tax

Summary

Issues Involved:
1. Rejection of registration u/s 12AA.
2. Rejection of exemption u/s 80G.
3. Alleged violations of Sec. 11(5) and Sec. 13(3) of the Income Tax Act.
4. Genuineness of the activities of the trust.
5. Investment in shares and deposits.
6. Requirement for notification u/s 10(23C)(iiiad).

Summary:

1. Rejection of registration u/s 12AA:
The assessee's applications for registration u/s 12AA and exemption u/s 80G were rejected by the DIT(E), Delhi. The DIT(E) cited several reasons, including provisions in the MOA that allegedly violated Sec. 11(5) and Sec. 13(3) of the Income Tax Act, and the lack of regular charitable activities.

2. Rejection of exemption u/s 80G:
The DIT(E) also denied exemption u/s 80G, stating that the society's activities were not regular and continuous, and that the MOA did not provide for the allocation of functions and duties of office bearers.

3. Alleged violations of Sec. 11(5) and Sec. 13(3):
The DIT(E) noted that the society had invested Rs. 85 lakhs in a concern where the founder members had substantial interest, which was a clear violation of Sec. 11(5). However, the tribunal found that these investments were withdrawn and placed in HDFC Bank Ltd., and there were no such violations in the current or subsequent years.

4. Genuineness of the activities of the trust:
The tribunal held that the scope of enquiry for granting registration u/s 12AA is limited to examining the objects of the trust and the genuineness of its activities. The tribunal cited case laws, including CIT vs. Red Rose School and Sri Krishna Education and Welfare Trust vs. CIT, to support its view that the DIT(E) should not have denied registration based on potential future violations.

5. Investment in shares and deposits:
The tribunal observed that the MOA allowed investments in shares and debentures of certain companies, but these clauses were dormant and not acted upon. The tribunal held that denying registration based on such potential actions was not warranted.

6. Requirement for notification u/s 10(23C)(iiiad):
The tribunal found that the law does not require the society to be notified for availing benefits u/s 10(23C)(iiiad). Therefore, this was not a valid ground for disallowance.

Conclusion:
The tribunal directed the DIT(E) to grant registration u/s 12A read with Sec. 12AA of the Act and to grant exemption u/s 80G of the Act, as the objects of the society were charitable in nature and there were no violations of Sec. 11(5) or Sec. 13 during the relevant years. The appeals of the assessee were allowed.