2017 (8) TMI 1327 - AT - Income Tax

Registration u/s 12AA and application for approval u/s 80G denial - CIT(Exemptions)'s power refusal to the registration - Held that - CIT(Exemptions) can refuse the registration of a trust of institution u/s 12AA of the Act only when (a) he should be satisfied that the objects of the trust or institution are not charitable in nature or he finds that the activities of the trust of institution are not genuine. In our view registration cannot be denied on the ground that there is no clause prescribing that as dissolution of the institution, the income and assets of the assessee shall be transferred to another similar institution which is registered under section 12AA of the Act. Thus we hold that the order of ld. CIT(Exemptions) was an error in rejecting the application of the assessee for registration u/s 12AA of the Act. We are also convinced with the arguments the assessee that section 115TD(1)(a) of the Act protects the interest of the revenue and the findings of the ld. CIT(Exemptions) on this issue is not correct. In view of the above discussion we direct the ld. CIT(E) to grant registration to the assessee u/s 12AA of the Act. Consequently we also direct the ld. CIT(E) to grant approval u/s 80G of the Act to the assessee university.

Summary

Issues Involved:
1. Rejection of registration under section 12AA of the Income Tax Act, 1961.
2. Rejection of approval under section 80G of the Income Tax Act, 1961.
3. Interpretation of the dissolution clause in the Neotia University Act, 2014.
4. Scope of the powers of the Commissioner of Income Tax (Exemptions) in granting registration under section 12AA.
5. Applicability of section 115TD(1)(a) of the Income Tax Act, 1961.
6. Relevance of case laws cited by both parties.

Detailed Analysis:

1. Rejection of Registration under Section 12AA:
The Commissioner of Income Tax (Exemptions), Kolkata, rejected the registration of the assessee university under section 12AA of the Income Tax Act, 1961, on the grounds that the dissolution clause in the university's constitution was not proper. The Commissioner argued that the State Government would have full discretion over the distribution of the university's accumulated income/funds upon dissolution, which contradicts section 115TD(1)(c) of the Act. The Commissioner also relied on a decision by the Hon’ble Jammu & Kashmir High Court in the case of Jammu Development Authority vs. CIT, which held that the absence of restrictions on the application of assets for charitable purposes upon dissolution means the objects of the institution cannot be considered charitable.

2. Rejection of Approval under Section 80G:
Consequently, the application for approval under section 80G of the Income Tax Act, 1961, was also rejected. The Commissioner’s decision was based on the same reasoning used to deny the registration under section 12AA.

3. Interpretation of the Dissolution Clause:
The assessee’s counsel argued that the objects of the university are charitable in nature, which was not disputed by the Commissioner. The counsel contended that the requirements for registration under section 12AA do not refer to a dissolution provision. He pointed out that the procedure for registration involves examining the charitable nature of the objects and the genuineness of the activities, not the dissolution clause. He further clarified that section 45 of the Neotia University Act, 2014, provides for the appointment of an administrator by the State Government in the event of dissolution, ensuring the endowment fund is used appropriately.

4. Scope of Powers of the Commissioner:
The counsel cited several case laws to argue that the Commissioner’s scope of inquiry under section 12AA is limited to examining the objects and genuineness of activities of the trust or institution. The Allahabad High Court in Fifth Generation Education Society vs. CIT held that at the registration stage, the Commissioner should not examine the application of income. The Punjab & Haryana High Court in CIT vs. Surya Education and Charitable Trust and the Karnataka High Court in Sanjeevamma Hanumanthe Gowda Charitable Trust vs. Director of Income Tax (Exemption) supported this view, emphasizing that the focus should be on the genuineness of the objects and activities, not the income application.

5. Applicability of Section 115TD(1)(a):
The counsel argued that section 115TD(1)(a) protects the revenue's interest by imposing a tax when a trust or society converts to a non-charitable organization or transfers its assets to a non-charitable organization upon dissolution. This provision ensures that the revenue’s interests are safeguarded, countering the Commissioner’s concerns about the dissolution clause.

6. Relevance of Case Laws:
The counsel distinguished the Jammu Development Authority case, stating that it was based on the authority’s profit motive, which is not applicable to the assessee university. The tribunal agreed, noting that the Jammu Development Authority case involved an organization with profit motives and commercial activities, unlike the assessee university.

Conclusion:
The tribunal held that the Commissioner erred in rejecting the registration under section 12AA and the approval under section 80G based on the dissolution clause. The tribunal directed the Commissioner to grant the registration and approval, emphasizing that the focus should be on the charitable nature of the objects and the genuineness of the activities, not the dissolution clause. The tribunal also noted that section 115TD(1)(a) protects the revenue’s interests, addressing the Commissioner’s concerns. Consequently, both appeals of the assessee were allowed.