2014 (7) TMI 1304 - AT - Income Tax

Exemption u/s 11 - claim of registration under section 12A denied - charitable activity or not? - new society (the assessee) proposed to take on lease the management of existing school at Mohali to be run on day to day basis - HELD THAT - Running of a school falls within the scope of activities for which registration can be granted under Section 12AA of the Act. In fact the similar activities carried out by Shishu Niketan Model School have been granted registration which is running four institutions. The Society has been established to manage one of such schools. There cannot be any attempt of the assessee to evade tax liability as Shishu Niktan Model School has been granted registration and availing the benefit of tax. As relying on SUCHINTA EDUCATIONAL SOCIETY VERSUS COMMISSIONER OF INCOME TAX-I 2014 (5) TMI 155 - PUNJAB HARYANA HIGH COURT we find that the orders of the CIT and that of the Tribunal in declining the registration to the appellant are not sustainable in law. Consequently while answering the substantial question of law in favour of the appellant the present appeal is allowed

Summary

Issues:
1. Rejection of registration under section 12AA of the Income Tax Act, 1961 by the Commissioner of Income Tax-II, Chandigarh.
2. Assessment of the genuineness of charitable activities and objectives of the society.
3. Comparison with a similar case involving a sister concern before the Tribunal and the Punjab & Haryana High Court.

Issue 1: Rejection of registration under section 12AA:
The appeal was filed against the Commissioner of Income Tax-II, Chandigarh's order rejecting registration under section 12AA of the Income Tax Act, 1961. The assessee contended that the rejection was arbitrary and unjustified. The Commissioner observed that the society had not yet started any charitable activities, which was a prerequisite for registration. The Commissioner cited a Kerala High Court decision emphasizing the need for charitable work during the initial year of operation to grant registration under section 12AA. The Commissioner concluded that since no charitable work had been undertaken by the society, registration was denied.

Issue 2: Assessment of charitable activities and objectives:
The Commissioner noted that the society had only reached the preliminary stage of the registration process and had not commenced any charitable activities. Despite claims of conducting evening classes for underprivileged students, the society failed to provide sufficient evidence to support these activities. The absence of any charitable work led the Commissioner to reject the registration, as there was no verification of the genuineness of the society's objectives and activities.

Issue 3: Comparison with a similar case before the Tribunal and High Court:
A comparable case involving a sister concern was previously brought before the Tribunal, where registration under section 12AA was also denied. However, the Punjab & Haryana High Court overturned the Tribunal's decision, emphasizing that the mere absence of charitable work did not render the activities ingenuine. The High Court highlighted that managing a school fell within the scope of charitable activities eligible for registration. Relying on this precedent, the Appellate Tribunal held that the assessee was entitled to registration under section 12AA, aligning with the High Court's ruling.

In conclusion, the Appellate Tribunal allowed the appeal, granting registration to the assessee under section 12AA of the Income Tax Act, 1961, based on the precedent set by the Punjab & Haryana High Court in a similar case.