2017 (8) TMI 1531 - AT - Income Tax

Grant of registration u/s 12AA - denial of registration as assessee would have applied u/s 10(23C) instead of Section 12AA as assessee was running hospital or school - scope of powers of the CIT(E) - either to apply for exemption under Section 10(23C) of the Act or claim exemption under Section 12AA ? - HELD THAT - It is settled law that for the purpose of granting registration u/s 12A, scope of powers of the CIT(E) is limited to be being satisfied about the objects and the genuineness of the activities of the assessee and once the CIT having accepted that the main aim of the society is running of college and educational institutions and made no adverse observation regarding genuineness of the objects or the activities carried on by the society then registration u/s 12AA could not be denied on the ground that it was entitled exemption under any other provision. In the case of CIT vs. Bosotto Brothers Limited 1939 (1) TMI 11 - MADRAS HIGH COURT held that if a case appears to be governed by either of two provisions, it is clearly the right of the assessee to claim that he should be taxed under that one which leaves him with a lighter burden. Meaning thereby, if, exemption is available to the assessee in two or more sections then the choice is for the assessee under which section exemption has to be claimed. Society has been mainly to add car, motorcycle and scooter - Another objection of Ld. CIT(E), our attention was drawn by the AR to the audited balance sheet, where it is clearly shown that during the F.Y. 2015-16 value of car, motorcycle and scooter were 2.17 lakh and in 2015-16 it were 2.30 lakh and the society surplus amount was @ 5.52 % only. We are in agreement with the assessee that the surplus @ 5.52 % cannot be termed as higher and certainly to run an institute, the vehicles are required, therefore, the observation of the CIT(E) is not correct to the extent that the emphasized of the society has been mainly to add car, motorcycle and scooter. In fact total receipts had been shown at ₹ 182,76,252/- during the F.Y. 2015-16, however, the value of the car, motorcycles and scooter were 2.30 lakh only, therefore, we are of the considered opinion that observation of the CIT(E) was not correct. Society is mainly emphasizing for creation of fixed assets rather than redeployment funds towards education - the apprehension and assumption of the CIT(E) that society must be charging some funds, just based on the assumption and surmises and have no logical reasoning. Further observation with regard to salary structure and quality of education, we are of the view that lower salary cannot be made best to conclude that quality of education has been comprised and not in sync with the instruction issued by Maharaja Ranjit Singh State Technical University, Bathinda, while providing affiliation to an entity. On the aforesaid observation and conclusion, we are of the considered view that the assessee is entitled to get registration u/s 12A of the Act and hence, we direct the Ld. CIT(E) to grant registration to the assessee society. - Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
- Rejection of application for registration under section 12A of the Income Tax Act, 1961.
- Grounds for rejection based on creation of assets, salary structure, and quality of education.
- Dispute over whether the society should have applied for registration under section 10(23C).
- Arguments presented by the appellant and respondent.
- Legal principles governing the grant of registration under section 12A.
- Analysis of the observations made by the Commissioner of Income Tax (Exemption).
- Assessment of the society's activities and compliance with educational norms.
- Conclusion and direction for granting registration to the appellant society.

Detailed Analysis:

The judgment pertains to an appeal filed against the rejection of an application for registration under section 12A of the Income Tax Act, 1961. The appellant, an educational society, had been granted exemption under section 10(23C) until its receipts exceeded the threshold limit in the assessment year 2016-17. The rejection was based on grounds related to the creation of assets, salary structure, and quality of education provided by the society.

The appellant argued that its main objective was to provide education, supported by the running of educational institutes and skill development programs. The appellant contended that the lower salary structure did not compromise the quality of education and that it was entitled to registration under section 12A. On the other hand, the respondent supported the reasoning of the Commissioner of Income Tax (Exemption) as logical and reasonable.

The Tribunal analyzed the legal principles governing the grant of registration under section 12A. It emphasized that the Commissioner's role is limited to ensuring the genuineness of the activities and objects of the assessee. The Tribunal cited precedents to establish that the choice of claiming exemption under different sections lies with the assessee.

Regarding the creation of assets, the Tribunal found discrepancies in the Commissioner's observations, noting that the society's surplus and asset values were not indicative of undue emphasis on acquiring vehicles. The Tribunal also examined the salary structure and quality of education provided by the society, concluding that lower salaries did not necessarily imply compromised education quality.

In light of the above analysis, the Tribunal held that the appellant was entitled to registration under section 12A and directed the Commissioner to grant the registration to the appellant society. The appeal was allowed for statistical purposes, and the order was pronounced on 31.08.2017.