2015 (2) TMI 441 - AT - Income Tax

Application for registration u/s 12A rejected - assessee is a society registered under the Societies Registration Act - Held that - The provisions contained u/s 12A and 12AA would make it clear that at the time of grant of registration u/s 12AA, the CIT/DIT(E) can only look into the charitable object and genuineness of activities of a trust or institutions. At that stage the CIT/DIT(E) cannot step into the shoes of AO to examine whether assessee has violated any of the conditions of section 13 of the Act. That aspect can be examined by the AO at the time of computation of total income in an assessment proceeding while considering assessee s claim of exemption u/s 11. Grant of registration u/s 12AA does not automatically entitle the assessee for exemption u/s 11 though, it is one of the conditions. It is only the AO who can examine assessee s claim of exemption u/s 11 at the time of assessment subject to fulfillment of conditions imposed u/s 11 to 13 of the Act. It is evident from the order of DIT(E), he has not raised any doubt whatsoever with regard to the charitable object of the society or genuineness of its activity. In the aforesaid view of the matter, we hold that the DIT(E) was not correct in rejecting assessee s application for grant of registration u/s 12A of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Rejection of registration u/s 12A of the Act based on the society being established for the benefit of only one community, the Kurni caste.
2. Rejection of registration due to membership restrictions to the Kurni community.

Issue 1: Rejection based on single community benefit:
The DIT(E) rejected the registration application under section 12A of the Act, citing the society's establishment for the sole benefit of the Kurni caste. The DIT(E) interpreted the explanation 2 to section 13 narrowly, stating that since it refers to scheduled castes, backward classes, and scheduled tribes in plural, the society focusing on one community does not qualify for an exception. However, the ITAT Hyderabad disagreed, emphasizing a broader interpretation of legislative intent. They noted that the society's focus on the Kurni community, recognized as a backward class, falls within the exception provided in explanation 2 to section 13. Referring to the General Clauses Act, they highlighted that backward classes in the explanation should be understood to include any backward class, not limited to multiple classes. Thus, the ITAT held that the restriction under section 13(1)(b) does not apply to the society, making it eligible for registration under section 12AA.

Issue 2: Membership restrictions to the Kurni community:
The DIT(E) also raised concerns about the society's membership being limited to the Kurni community, suggesting it did not qualify as a public charitable trust. In response, the ITAT Hyderabad reasoned that the society's establishment for the benefit of the Kurni community, representing a section of the public, did not negate its public charitable trust status. They referenced legal precedents emphasizing that benefiting a section of the public suffices for charitable purposes, not requiring universal public benefit. Citing the Supreme Court's stance in similar cases, the ITAT concluded that the society's membership restriction did not compromise its public character. Furthermore, they clarified that the DIT(E) overstepped by considering section 13 conditions during the registration process, as those are pertinent to assessment proceedings. As the DIT(E) did not question the society's charitable objectives or activities' genuineness, the ITAT directed the grant of registration under section 12AA, overturning the DIT(E)'s decision.

In conclusion, the ITAT Hyderabad allowed the appeal, setting aside the DIT(E)'s rejection and instructing the grant of registration under section 12AA to the society.