2017 (12) TMI 1720 - AT - Income Tax

Cancelling registration granted u/s 12A - holding the activities of the assessee society as not being genuine and not being carried out in accordance with the objects of the trust - assessee is indulging in the activity of giving donations to other institutions - HELD THAT - The assessee admittedly has given donations to various organizations as reproduced in earlier part of out order. When asked to show during proceedings before the Ld. Commissioner of Income Tax as to how they were actually utilized by the donee societies/institutions nothing was shown by the assessee. The assessee has therefore neither established the user of the donations for charitable purposes nor demonstrated that the said donee society was a charitable society registered u/s. 12A of the Act. Meaning thereby that the assessee society has not demonstrated the application of its funds for charitable purposes. The assessee therefore is not entitled to claim the donations as application of its income. In view of the above we agree with the Ld. Commissioner of Income Tax that the assessee is indulging in the activity of giving donations to other institutions which is not in consonance with the approved objects of the assessee society. We therefore uphold the action of the Ld. Commissioner of Income Tax in cancelling the registration granted u/s. 12A of the Act by invoking the provisions of section 12AA(3) of the Act. - Decided against assessee.

Issues Involved:
1. Cancellation of registration under Section 12A of the Income-tax Act, 1961.
2. Assessment of the genuineness of the activities of the assessee society.
3. Evaluation of the application of income by way of donations.
4. Legitimacy of salary payments.

Detailed Analysis:

Issue 1: Cancellation of registration under Section 12A of the Income-tax Act, 1961
The appeal was filed against the order passed by the Commissioner of Income Tax-I, Chandigarh, canceling the registration granted to the assessee society under Section 12A of the Income-tax Act, 1961. The registration was initially granted on 03.05.1995. The Commissioner invoked his powers under Section 12AA(3) of the Act to cancel the registration, citing that the activities of the society were not genuine and not carried out in accordance with the objects of the trust.

Issue 2: Assessment of the genuineness of the activities of the assessee society
The Commissioner found the activities of the assessee society to be primarily involved in trading mutual funds, which was not in line with carrying out any charitable activity. The financial data from the audited financial statements for the assessment years 2008-09, 2009-10, and 2010-11 indicated minimal expenditure on charitable purposes and significant involvement in financial trading activities. The society's main activities were not aligned with its stated charitable objectives.

Issue 3: Evaluation of the application of income by way of donations
The Commissioner observed that the society’s income was primarily utilized by giving donations to other institutions, which was not considered a proper application of income under Section 11(1)(a) of the Act. The assessee contended that donations to other charitable institutions should be considered an application of income as per Section 11(1)(a) and CBDT Instruction No. 1132 dated 05-01-78. However, the assessee failed to demonstrate that the donations were utilized for charitable purposes or that the recipient institutions were registered under Section 12A of the Act. The Tribunal upheld the Commissioner’s view that the donations did not constitute a proper application of income for charitable purposes.

Issue 4: Legitimacy of salary payments
The Commissioner questioned the genuineness of the salary payments made by the assessee society. The assessee defended the salary payments, stating that they were made to an accountant managing the society's accounts and correspondence. Receipts for the salary payments were provided. However, the Tribunal found that the assessee did not sufficiently demonstrate the genuineness of these payments in the context of its overall charitable activities.

Conclusion:
The Tribunal upheld the Commissioner’s decision to cancel the registration granted under Section 12A of the Income-tax Act, 1961. The Tribunal concluded that the assessee society’s activities were not genuine and not in accordance with its stated objects, primarily due to its involvement in financial trading and inadequate demonstration of the proper application of income for charitable purposes. The appeal of the assessee was dismissed.

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