2013 (12) TMI 475 - AT - Income Tax

Rejection of application for registration u/s 12AA The object of the trusts is relief to the poor, education, medical relief, propagation of Christian belief, gospel work without distinction of caste or creed - Held that - Following Norka Roots 2009 (3) TMI 353 - KERALA HIGH COURT - Before deciding the entitlement for registration as charitable institution, the Commissioner should verify the source of funds and utilisation of the same - the object of the institution should be ascertained with reference to the source of funds and the application of the same - If in the name of promoting interests of non-resident Keralites, the appellant is engaged in collection of charges from them and making a profit, then certainly it is a profitable organization, no matter that no dividend is declared by virtue of registration granted under section 25 of the Companies Act The lower authorities have not examined the sources and application of funds - The matter set aside for fresh decision.

Summary

Issues:
1. Rejection of application for registration u/s 12AA of the Act based on the propagation of Christian belief.
2. Eligibility of the taxpayer for registration u/s 12AA of the Act.
3. Examination of sources of funds and utilization for the purpose of grant of registration.

Analysis:

1. The judgment deals with two appeals by independent taxpayers against the rejection of their registration applications under section 12AA of the Act by the Administrative Commissioner. The rejection was based on the grounds that the propagation of Christian belief is not eligible for registration under section 13(1)(b) of the Act. The taxpayers argued that their trusts had mixed charitable and religious objects, including relief to the poor, education, medical relief, and propagation of Christian belief. They contended that the Commissioner was wrong in rejecting their claims solely based on the religious aspect.

2. The ld.DR representing the Revenue argued that according to section 13(1)(b) of the Income-tax Act, institutions benefiting a particular religious community or caste are not eligible for exemptions under sections 11 & 12 of the Act. The Revenue pointed out that the taxpayers had received substantial donations post-establishment, but the source and utilization of these funds were not adequately examined by the Administrative Commissioner. The Revenue claimed that there was minimal charitable activity conducted by the taxpayers, which raised doubts about their eligibility for registration under section 12AA.

3. The Tribunal analyzed the provisions of section 13(1)(b) of the Act and the objects of the trusts in question. It noted that while the objects included propagation of Christian belief, they also encompassed relief to the poor, education, and medical relief without any restriction to a particular caste or religion. The Tribunal opined that as long as the activities were not limited to a specific community during implementation, the trusts could be eligible for exemptions under sections 11 & 12. However, due to the lack of examination regarding the sources of donations and their utilization, the Tribunal decided to remit the issue back to the Commissioner for a fresh decision in line with a similar judgment by the Kerala High Court, emphasizing the importance of verifying funds and their application for registration purposes.

In conclusion, the Tribunal allowed both appeals for statistical purposes and directed the Commissioner to reevaluate the registration issue considering the observations and directions provided in the judgment, particularly focusing on verifying the sources of funds and their application before making a final decision on the taxpayers' eligibility for registration under section 12AA of the Act.