2013 (6) TMI 402 - AT - Income Tax

Registration under S.12AA denied - Held that - It is an undisputed fact that the objects of the assessee society are to run an Annadana Satram, including poor feeding, to run a library, to work for charities for the benefit and upliftment of economically backward and down trodden people and to do social service for improving the living conditions and work for general welfare of the poor irrespective of caste, creed and colour. For carrying on its activities in pursuance of these objects, it is not necessary or imperative for the applicant society to be owner of the land or the building which is constructed on it. Therefore, the first objection of the DIT(Exemption) that the assessee society has merely been permitted to make construction on the land allotted and had no property of its own, is not valid, since ownership over the property does not in any way disturb the otherwise charitable nature of the assessee society. Notwithstanding such a condition stipulated by the devasthanam authorities, when the assessee is carrying on its activities in pursuance of its objects, which undisputedly are charitable in nature, assessee cannot be denied registration. Since the land was allotted by an authority for a specific purpose, certain conditions have been stipulated by the said authority to monitor and regulate the activity of the Society, to ensure that the objects for which land has been allotted are being pursued. Thus the objection of the DIT(E) with regard to control of the Devasthanam over the management and activities of the assessee-society, is also not sustainable. Even with regard to the last objection for rejection that the membership of the assessee-society is limited to Hindus considering relevant clause from the Rules and Regulations of the assessee society, prescribing the qualification to be a member, as extracted by DIT(Exemption) indicates that membership is open to a Hindu having full faith in Hindu Dharma, Samskruti and way of life . Thus nothing wrong in the said clause, which disqualifies the assessee from being eligible to registration under S.12AA Thus no justification in denying registration to the assessee society. In favour of assessee.

Summary

Issues:
- Registration under Section 12A of the Income Tax Act denied by the Director of Income-tax(Exemption) to the assessee society.
- Whether the denial of registration under Section 12AA was justified by the Director of Income-tax(Exemption).
- Whether the membership restriction to Hindus affects the eligibility of the assessee society for registration under Section 12AA.

Analysis:
1. The appeal challenged the order of the Director of Income-tax(Exemption) denying registration under Section 12A of the Income Tax Act to the assessee society, Sri Gowri Sankara Sathra (Uppara) Anna Sathra Sangham. The society aimed to run charitable activities for the benefit of economically backward individuals, irrespective of caste or creed. The Director raised concerns regarding the society's control over the land and building, as well as the membership restriction to Hindus only.

2. The Director noted that the society had limited control over the building constructed on land allotted by Srisailam Devasthanam, with management authority vested in the Devasthanam. The Director emphasized clauses in the agreement indicating Devasthanam's control over the choultry and management, leading to the denial of registration under Section 12AA on the grounds of lack of independence and control by the society.

3. The assessee contended that ownership of the land or building was not a prerequisite for charitable activities, and the society's charitable nature remained intact despite Devasthanam's control. The Tribunal agreed, stating that ownership did not affect the charitable objectives pursued by the society, and the society's activities being controlled by Devasthanam did not undermine its charitable nature.

4. Regarding the membership restriction to Hindus, the Director raised concerns about eligibility for registration under Section 12AA. However, the Tribunal found that the restriction was reasonable as it pertained to membership qualifications based on faith in Hindu Dharma, not the beneficiaries of the charitable activities. The Tribunal concluded that the society's charitable nature was not compromised by the membership restriction.

5. In the final judgment, the Tribunal set aside the Director's order and directed a reconsideration of the application for registration under Section 12AA, provided all other conditions were met. The Tribunal ruled in favor of the assessee society, emphasizing that the denial of registration was unjustified, and the society's grounds in the appeal were allowed.

6. The Tribunal's decision highlighted the importance of charitable activities' nature over ownership or control issues, affirming that the society's objectives and operations for the welfare of the economically disadvantaged justified its eligibility for registration under Section 12AA, irrespective of ownership or management control concerns.