2017 (11) TMI 1722 - HC - Income Tax

Rejection of application u/s 12AA - Charitable object - Held that - Relevant aspect required to be examined by the CIT for the purpose of granting registration was with regard to the objects of the society being charitable in nature and if the activities are genuine i.e. in consonance with the charitable objects. Clearly, neither the Commissioner nor the Tribunal recorded any finding on the aforesaid aspects. The argument advanced by learned counsel for the assessee that since there is no finding in the order of the CIT therefore those conditions stood satisfied cannot be accepted as that being the only matter to be examined by the CIT, the same had to be specifically dealt with. No presumption can arise in favour of either party, in absence of any finding on that aspect or issue. However, there is force in the submission made by learned counsel for the assessee that the finding of the CIT was based on extraneous or irrelevant consideration and the order of the Tribunal, the order of CIT, to that extent, is wholly justified. In that view, the questions of law are answered accordingly. The matter is remitted to the Commissioner of the Income Tax to decide the petitioner s application for exemption afresh, in accordance with law keeping the scope of inquiry limited to the provisions under Section 12AA of the Act.

Summary

Issues:
1. Interpretation of Section 12-AA of the Income Tax Act, 1961.
2. Legislative powers of the Commissioner of Income Tax under Section 12-AA.
3. Examination of the nature of income and activities of the assessee for registration under Section 12AA.

Analysis:

Issue 1: Interpretation of Section 12-AA of the Income Tax Act, 1961
The appeal challenged the order of the Income Tax Appellate Tribunal (ITAT) regarding the misinterpretation of Section 12-AA. The Tribunal allowed the assessee's appeal against the Commissioner's order rejecting the registration application under Section 12AA. The Tribunal held that the CIT erred by doubting the genuineness of cash credits without examining the charitable nature of the assessee's activities. The Tribunal granted registration without independently verifying the assessee's entitlement to exemption under Section 12AA.

Issue 2: Legislative powers of the Commissioner under Section 12-AA
The appellant contended that the CIT should have granted registration only if satisfied with the charitable nature of the assessee's educational society. As neither the CIT nor the Tribunal recorded findings on the charitable objects of the society, the Tribunal's decision to grant registration was challenged. The appellant relied on a Division Bench judgment to remit the matter to the CIT for a fresh decision.

Issue 3: Examination of nature of income and activities for registration
The Tribunal's decision was based on the lack of findings by the CIT regarding the charitable nature of the society's objects and activities. The Court emphasized that the CIT should have examined whether the society's objects were charitable and if its activities were genuine. The absence of specific findings on these aspects did not warrant a presumption in favor of either party. The Court agreed that the CIT's rejection was based on extraneous considerations, justifying the Tribunal's decision.

In conclusion, the Court allowed the appeal, remitting the matter to the CIT for a fresh decision in accordance with the law. The Court emphasized that the CIT's inquiry for registration under Section 12AA should focus on the charitable nature of the society's objects and the genuineness of its activities, as per the provisions of the Act.