2010 (2) TMI 731 - AT - Income Tax

Registration u/s 12A - non production of creditors does not effect the nature of activity (charitable activity) of the society therefore, withdrawal of registration U/s 12A granted to charitable institution cannot be said justified. Hence, withdrawal of registration is not justified as provision of section 12AA of the I.T. Act. The Learned Commissioner of Income-tax has to satisfy about the genuineness of the activities of the trust/institution and not about the income derived from such trust/institution and none of the activities or application of income has been held to be for non-charitable purpose by the learned CIT, the addition of Rs.4,03,500/- by the AO in the assessment proceedings for which the appeal is pending before the learned CIT(A) cannot be said to be an activity for non-charitable purpose and therefore, the society/institution in the present case cannot be held to be for non-charitable purpose on this ground. Decided in favour of Assessee.

Issues:
1. Registration under section 12A withdrawal based on unverified loans.
2. Compliance with Income Tax Act regarding registration withdrawal.
3. Charitable nature of society's activities.
4. Genuineness of loans and registration withdrawal justification.

Issue 1: Registration withdrawal based on unverified loans
The case involved the withdrawal of registration under section 12A due to unverified loans shown in the society's balance sheet. The Assessing Officer found that many creditors had given cash loans, which the society failed to prove as genuine. This led to suspicions that the loans were actually unexplained money from the society's promoters. The society was also found to lack charitable activities and educational affiliations, prompting the withdrawal of registration.

Issue 2: Compliance with Income Tax Act regarding registration withdrawal
The appellant argued that the withdrawal of registration was against the provisions of the Income Tax Act, as the CIT did not follow the directions of the ITAT to reassess the registration issue. The appellant contended that the withdrawal was unjustified under section 12AA of the Act. However, the withdrawal was based on the CIT's satisfaction that the society's activities were not genuine and did not align with its stated objectives.

Issue 3: Charitable nature of society's activities
The society claimed its purpose was to establish an educational institute for charitable purposes, supported by permissions from the university registrar. The appellant argued that non-production of creditors did not affect the charitable nature of the society's activities. However, the CIT found that the society failed to prove the genuineness of significant loans, casting doubt on the charitable intent behind the society's operations.

Issue 4: Genuineness of loans and registration withdrawal justification
The ITAT analyzed the genuineness of the loans, particularly focusing on unverified deposits amounting to a substantial sum. The appellant contended that the society's activities were not for non-charitable purposes, citing legal precedents emphasizing the obligation to spend money exclusively on charity. The ITAT concluded that the CIT's cancellation of registration lacked justification, as the society's activities did not violate charitable purposes, and the loans' source was not definitively proven to be from the society's promoters.

In conclusion, the ITAT allowed the appeal, quashing the CIT's order cancelling the registration and directing the restoration of the society's registration. The judgment highlighted the importance of verifying the genuineness of activities for charitable institutions and emphasized the distinction between income sources and charitable activities in assessing compliance with registration requirements under the Income Tax Act.

← Previous Next →