2017 (4) TMI 1409 - AT - Income Tax

Application for approval u/s 10(23C)(vi) rejected - Scope of powers of the Chief Commissioner of Income Tax before granting approval under the said clause - reason given by the Chief CIT denying approval is that the dissolution clause mentioned in the Memorandum of Association stated that in the event of dissolution, all the movable and immovable property of the applicant society would remain with the Chairman, President and Secretary - Held that - We find no merit in this contention of the Ld.Chief CIT. Firstly, the provisions of Section 13 (3) of the Act are not relevant for the purpose of granting approval under section 10 (23C)(vi) of Income Tax Act. As stated above, the only issue to be examined is the genuineness of the activities of the Trust. The benefit accruing to persons specified under section 13 (3) cast no reflection on the genuineness of the activities of the Trust. Even otherwise Section 13 of Income Tax Act is relevant only for the purpose of exemption granted under section 11 and is not relevant for the purposes of exemption granted u/s 10 (23C)(vi) of the Act at all. Moreover even for the purposes of registration granted u/s 12AA for claiming exemption u/s 11 of the Act, courts have held that section 13 has no relevance and need not be considered while granting registration .It has been held that the provisions of section 13 become applicable only after registration has been granted and is relevant only for the purpose of denying exemption in certain circumstances as stated thereunder. In view of the above, we set aside the order of ld. Chief CIT and direct that the assessee society be granted approval under section 10(23C)(vi) of Income Tax Act, 1961. - Decided in favour of assessee.

Summary

Issues:
Grant of approval under section 10(23C)(vi) of the Income Tax Act, 1961.

Detailed Analysis:

1. Rejection of Approval by Chief CIT:
The assessee's appeal challenged the rejection of approval under section 10(23C)(vi) of the Act by the Chief CIT. The rejection was based on the clause in the Memorandum of Association stating that in case of dissolution, the property would remain with specific individuals, potentially leading to misuse. The Chief CIT held that this clause could benefit certain individuals specified in Section 13(3) of the Act, making the assessee ineligible for approval.

2. Grounds of Appeal:
The assessee argued that the rejection was not justified as the society's bonafides were not in question. The aims and objects of the society were solely for educational purposes, as evidenced by its activities such as running a Nursing College and affiliations with educational bodies. The assessee contended that the Chief CIT did not doubt the society's activities or its educational focus.

3. Scope of Powers for Granting Approval:
The Tribunal examined the scope of powers under the second proviso to Section 10(23C)(vi) of the Act. The Chief Commissioner's role is to ensure the genuineness of the activities of the fund, trust, or institution applying for approval. The Tribunal emphasized that the focus should be on the educational nature of the activities.

4. Examination of Activities:
The Tribunal found that the Chief CIT did not raise concerns about the genuineness of the society's educational activities. The society's objects and activities were clearly aimed at providing education in various fields, which was confirmed by affiliations and past assessments. Since the Chief CIT did not dispute the educational nature of the society's work, there was no reason to deny approval.

5. Dissolution Clause Issue:
The Chief CIT's reasoning based on the dissolution clause benefiting specific individuals was deemed irrelevant by the Tribunal. Section 13(3) was considered inapplicable to the approval process under section 10(23C)(vi). The Tribunal emphasized that the focus should be on the genuineness of educational activities, not potential future events. Denying approval based on a hypothetical future scenario was deemed unfounded.

6. Decision and Conclusion:
The Tribunal set aside the Chief CIT's order and directed the grant of approval under section 10(23C)(vi) of the Income Tax Act, 1961. The appeal of the assessee was allowed, emphasizing that the society's educational focus and activities met the requirements for approval under the relevant section.

In summary, the Tribunal overturned the Chief CIT's rejection of approval under section 10(23C)(vi) of the Income Tax Act, emphasizing the genuine educational nature of the society's activities and dismissing concerns related to a dissolution clause benefiting specific individuals.