2016 (6) TMI 1196 - AT - Income Tax

Registration under section 12A refused - Held that - Commissioner of Income Tax (Exemptions) has refused to grant registration to the assessee as the assessee has not been filing its income-tax returns in the earlier years is not a good reason to reject the application for registration since the two conditions which the Commissioner of Income Tax (Exemptions) has to satisfy while granting the registration under section 12A of the Act, are that the objects of the assessee are charitable in nature and the activities are genuine. Just because the assessee has not filed its income tax returns in earlier years, it can not be said that the activities of the assessee are not genuine. With regard to the second objection raised by the Commissioner of Income Tax (Exemptions) that as per clause-12 of the Memorandum of trust, the trustees have been given absolute powers to manage the property as perused the clause-12 of the Memorandum of the trust, whereby the trustees are authorized to demise the immovable property or properties of the trust either from year to year or for any fixed term or for any term of years or no monthly basis at such rent and subject to such conditions as they deem fit and proper and also accept surrender of lease and may manage the property as they think proper. From the perusal of this clause, we observe that the trustees have been given powers to give property of the trust on lease or on rent. We do not find anything wrong in this clause so as to deny the assessee the registration under section 12A of the Act. As regards the apprehension of the Commissioner of Income Tax (Exemptions) that his clause may attract the provisions of section 13 (1) (c) of the Act, we are of the view that the conditions as provided in section 13 or elsewhere are to be seen by the Assessing Officer at the time of assessment proceedings on yearly basis and not by the CIT (Appeals) while granting registration under section 12A of the Act. Section 13 comes into play at the time of granting exemption under section 11 of the Act and not at the time of granting registration under section 12A of the Act. Since we observe that no adverse remarks have been made by the Commissioner of Income Tax (Exemptions) with regard to the objects contained in Memorandum and as stated hereinabove that the observations of the Commissioner of Income Tax (Exemptions) do not lead to the conclusion that the activities of the assessee are not genuine, we here by direct the Commissioner of Income Tax (Exemptions) to grant registration under section 12A of the Act to the assessee. - Decided in favour of assessee

Summary

Issues:
- Registration under section 12AA of the Income Tax Act, 1961 denied by the Commissioner of Income Tax (Exemptions), Chandigarh.
- Reasons for denial: Non-filing of income tax returns in earlier years and absolute powers given to trustees to manage trust property.

Analysis:

Issue 1: Registration under section 12AA denied
The appeal was filed against the order of the Commissioner of Income Tax (Exemptions), Chandigarh, rejecting registration under section 12AA of the Income Tax Act, 1961. The Commissioner denied registration based on two primary reasons: non-filing of income tax returns in earlier years by the assessee and the provision of absolute powers to trustees to manage trust property.

Issue 2: Non-filing of income tax returns as a reason for denial
The Commissioner's first reason for denial was the non-filing of income tax returns by the assessee in earlier years, which was deemed to make the trust accounts unreliable and not genuine. However, the Tribunal disagreed with this reasoning, citing legal precedents such as the judgment of the Allahabad High Court and the Chennai Bench of the Tribunal. These cases established that non-filing of returns alone cannot be a valid reason to deny registration under section 12AA.

Issue 3: Absolute powers given to trustees
The second reason for denial was the provision in the trust's Memorandum granting trustees absolute powers to manage trust property. The Tribunal examined this clause and found that it authorized trustees to lease or rent trust property, which was deemed acceptable. The Tribunal clarified that concerns regarding the applicability of section 13(1)(c) of the Act should be addressed during assessment proceedings, not during the registration process under section 12AA.

Conclusion:
The Tribunal directed the Commissioner of Income Tax (Exemptions) to grant registration under section 12AA to the assessee, as the denial based on non-filing of income tax returns and the provision of powers to trustees were not valid reasons to reject the application. The decision was based on the charitable nature of the trust's objects and the genuineness of its activities, which were found to meet the requirements for registration under section 12AA. Ultimately, the appeal of the assessee was allowed, and the registration was granted.