2015 (5) TMI 363 - HC - Income Tax

Registration u/s 12AA to society denied - ITAT allowing the appeal of the assessee especially when the family run trust did not submit details of assets and properties that they possessed as well as the treatment given to the assets of an old school being taken over by them - Whether the ITAT was right in not upholding the findings of CIT u/s 12AA (1)(b)(ii) considering that assessee had failed to comply with provision u/s 12AA(1)(a) in as much as document and information called for was not submitted - Held that - Tribunal was not justified in allowing the appeal and issuing necessary direction and should have sent the matter back to the Commissioner for fresh enquiry. Admittedly, the factum of the additional information being asked for was never denied by the respondent-Society. In appeal, the assessee had only raised the issue as to whether the order of the Commissioner is arbitrary and unjustified and whether the activities of the Society did not qualify in the nature of charity and the finding had been based on suspicion and conjectures. The additional information being asked for, as such, was never controverted. It was not contended that the information had been supplied but was not taken into consideration. Commissioner has to satisfy himself of the objects of the trust and the genuineness of the activities and after giving an opportunity of being heard to the trust or the institution, a refusal can be made to register the trust. Thus, the section gives power to the Commissioner to look into the genuineness of the activities of the trust and to satisfy himself about its activities. Under Section 12A, the provisions of Sections 11 & 12 shall not apply in relation to the income of any trust or institution unless various conditions are fulfilled. The said sections provide that income from property held for charitable purposes shall not be included in the total income of the previous year of the person in receipt of the income. These aspects have not been taken into consideration by the Tribunal which has placed heavy reliance upon the judgment of Pinegrove International Charitable Trust Vs. Union of India & others 2010 (1) TMI 49 - HIGH COURT OF PUNJAB AND HARYANA AT which has now been upheld by the Apex Court in the case of M/s Queen s Educational Society (2015 (3) TMI 619 - SUPREME COURT). However, it is also to be noted that in Commissioner of Income Tax Vs. Surya Educational & Charitable Trust 2011 (10) TMI 47 - PUNJAB AND HARYANA HIGH COURT 355 ITR 280, subsequently, held that the principles laid down for excluding income under Section 10(23C) are not applicable while considering the application for registration under Section 12AA. It was also further held that the genuineness of the objects of the trust are to be taken into consideration. The power of the Commissioner to look into the objects of the Society and the genuineness of the same cannot be doubted when the basis is of non-supply of information. In such circumstances, it would be appropriate that the Commissioner undertakes the exercise afresh, on the basis of the application which has already been filed, keeping in view the material which can be produced by the respondent-assessee. Accordingly, the order of the Tribunal dated 19.02.2013 is set aside with a direction to the Commissioner to decide the application, filed under Section 12AA, afresh.- Decided in favour of revenue.

Summary

Issues Involved:
1. Whether the ITAT was correct in allowing the appeal of the assessee despite the family-run trust not submitting details of assets and properties.
2. Whether the ITAT was right in not upholding the findings of CIT under Section 12AA(1)(b)(ii) considering the assessee's failure to comply with Section 12AA(1)(a).

Issue-wise Detailed Analysis:

1. ITAT's Decision on Appeal Despite Non-Submission of Asset Details:

The core issue revolves around whether the ITAT was justified in allowing the appeal of the respondent-Society, which is a family-run trust, despite it not submitting the necessary details of its assets and properties. The Commissioner had rejected the Society's application for registration under Section 12AA of the Income Tax Act, 1961, on the grounds that the Society failed to prove its charitable nature and did not provide fresh evidence of free subsidized education for the poor or any element of public benefit. Additionally, the Commissioner noted that the land and building were leased from the daughter of the General Secretary, and complete details of the land and buildings were not furnished. The Tribunal, however, directed the Commissioner to grant registration, which was contested by the Revenue.

2. ITAT's Non-Upholding of CIT's Findings under Section 12AA(1)(b)(ii):

The second issue concerns whether the ITAT erred in not upholding the CIT's findings under Section 12AA(1)(b)(ii), given that the assessee had not complied with the provisions of Section 12AA(1)(a). The CIT had found that the Society did not provide the necessary documents and information to prove the genuineness of its activities and objects. The Tribunal's decision to allow the appeal without remanding the matter for fresh enquiry was challenged by the Revenue, who argued that the Commissioner should have the opportunity to satisfy himself of the objects and genuineness of the Society's activities.

Tribunal's Reliance on Legal Precedents:

The Tribunal placed heavy reliance on the judgment in Pinegrove International Charitable Trust Vs. Union of India & others, which was upheld by the Supreme Court in M/s Queen's Educational Society Vs. Commissioner of Income Tax. However, it was noted that a Division Bench in Commissioner of Income Tax Vs. Surya Educational & Charitable Trust held that the principles for excluding income under Section 10(23C) are not applicable when considering an application for registration under Section 12AA. The genuineness of the objects of the trust must be examined, not the income.

Court's Conclusion:

The Court concluded that the Tribunal was not justified in allowing the appeal and issuing the necessary direction without remanding the matter for fresh enquiry. The Commissioner has the power to look into the genuineness of the activities and objects of the trust under Section 12AA. The Tribunal should have sent the matter back to the Commissioner for fresh enquiry, considering the additional information that was requested but not provided by the respondent-Society.

Final Judgment:

The order of the Tribunal dated 19.02.2013 was set aside. The Commissioner was directed to decide the application filed under Section 12AA afresh, considering the material that can be produced by the respondent-assessee. The application should be decided expeditiously, given that it was filed more than three years ago. The appeal was allowed with these observations.