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2015 (1) TMI 237 - AT - Income TaxDenial of grant of renewal u/s 80G(5)(vi) - cancellation of registration granted to the assessee u/s 12AA - Order passed by CIT u/s 80G is beyond the time limit prescribed in Rule 11AA(6) or not Held that - While granting the exemption or renewal of exemption u/s 80G(5) of the Act, the role of CIT is limited to look into the nature of activities being carried on by the institution or fund and the violation if any, of the provisions of section 13 of the Act and its various subsections are to be looked into by the AO while deciding the issue of grant of deduction u/s 11 and 12 - CIT while issuing the extension of exemption u/s 80G(5) of the Act has a limited role to play i.e. to see whether the activities of the assessee trust were charitable in nature - assessee was engaged in promoting educational activities by way of running schools, colleges, etc. - The activities carried on by the assessee were purely charitable in nature which entitled it to claim the exemption under section 80G(5) of the Act - merely because, the assessee had entered into an agreement for leasing out the part of its land to its sister concern M/s. ABL for establishing RMC Plant with the understanding that the RMC would be supplied to it at concessional rates and on priority basis, does not establish the case of the CIT that the assessee had allowed M/s. ABL to use its property for its benefit. Relying upon Orpat Charitable Trust Versus Commissioner of Income-Tax 2001 (12) TMI 36 - GUJARAT High Court - where the assessee was engaged in promotion of educational activities, which with within the domain of being charitable, the CIT at the time of grant of extension of exemption u/s 80G(5) of the Act was not empowered to deny the exemption to the assessee on the ground that it had violated the provisions of section 13(1) - the arrangement entered into by the assessee with M/s. ABL was a beneficial arrangement and was for the purpose of carrying on the activities of the trust by way of construction of the buildings of the educational institutes to be run by the assessee, and where there was benefit to the assessee by way of such arrangement, the same does not establishes that the assessee was not engaged in providing charitable activities i.e. education thus, the Commissioner is directed to grant renewal of exemption u/s 80G(5). The denial of registration u/s 12A by way of order passed u/s 12AA(3) of the Act was on similar grounds as in the case of exemption denied u/s 80G(5) thus, the CIT is directed to grant registration u/s 12AA, as at the time of grant of registration, the CIT was only empowered to look into the nature of activities carried on by the assessee and whether the same were charitable in nature and not to look into the applicability of the provisions of section 13(1) - the agreement entered into by the assessee with M/s. ABL was for the benefit of the society and it cannot be the ground for denial of registration to the assessee trust u/s 12A thus, the CIT is directed to allow the registration u/s 12AA Decided in favour of assessee.
Issues Involved:
1. Rejection of the application for renewal of the certificate under section 80G(5)(vi) of the Income Tax Act, 1961. 2. Invocation of the provisions of section 13(1)(c) of the Income Tax Act, 1961. 3. Cancellation of the certificate issued under section 12AA(1) without specific Show Cause Notice and violation of principles of natural justice. 4. Applicability of provisions under section 13(1)(c) read with section 13(2)(b) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Rejection of the Application for Renewal of the Certificate under Section 80G(5)(vi): The assessee trust had filed an application under section 80G of the Income Tax Act seeking extension of exemption. The CIT, Nashik observed that the trust had given its land to M/s. Ashoka Buildcon Ltd. (ABL), where several trustees of the assessee foundation held positions. The CIT found that the land was used for setting up a Ready Mix Concrete (RMC) Plant, which supplied materials for construction projects, including those not related to the trust's educational purposes. The CIT concluded that the trust's activities did not align with its stated educational objectives, thus denying the renewal under section 80G(5)(vi). 2. Invocation of the Provisions of Section 13(1)(c): The CIT invoked section 13(1)(c) of the Income Tax Act, stating that the trust's property was used for the benefit of specified persons, violating the conditions for exemption. The CIT highlighted that the trust did not obtain necessary permissions from the charity commissioner or municipal authorities, and there was no mention of such activities in the trust's Memorandum of Association. The CIT concluded that the trust had suppressed income and did not maintain proper accounting records, further justifying the denial of exemption. 3. Cancellation of the Certificate Issued under Section 12AA(1) Without Specific Show Cause Notice: The assessee contended that the CIT cancelled the certificate under section 12AA(1) without issuing a specific Show Cause Notice and without considering the trust's reply. The assessee argued that this action violated the principles of natural justice. The tribunal noted that the CIT's role was limited to verifying the genuineness of the trust's activities and not assessing compliance with section 13(1)(c) at the stage of granting or renewing registration. 4. Applicability of Provisions under Section 13(1)(c) Read with Section 13(2)(b): The tribunal examined whether the agreement between the trust and ABL violated section 13(1)(c). The assessee argued that the arrangement with ABL, which provided RMC at concessional rates for constructing school buildings, benefited the trust. The tribunal found that the trust's activities were charitable, focusing on education, and the arrangement with ABL did not violate section 13(1)(c). The tribunal held that the CIT's role was to ensure the charitable nature of activities and not to evaluate potential violations of section 13(1)(c) at the registration stage. Conclusion: The tribunal concluded that the CIT erred in denying the renewal of exemption under section 80G(5)(vi) and cancelling the registration under section 12AA(1). The tribunal directed the CIT to grant the renewal of exemption and registration, emphasizing that the CIT's role was limited to verifying the charitable nature of the trust's activities and not assessing potential violations of section 13(1)(c) at the registration stage. The appeals filed by the assessee were allowed.
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