2017 (3) TMI 1765 - AT - Income Tax

Registration u/s 12AA denied - assessee was already enjoying exemption u/s 10(23C)(iiiad) and was considered as engaged in the sole object of imparting education - HELD THAT - In Bharati Vidyapeeth Medical Foundation vs. ACIT 2012 (12) TMI 1062 - ITAT PUNE , it has been held that when the law permits the assessee trust to claim exemption either u/s 10(23C) or u/s 11 of the IT Act, the choice should be left to the assessee and the assessee cannot be denied exemption u/s 11 on the ground that it ought to have claimed exemption u/s 10(23C), more so, when it has been granted the benefit of exemption u/s 11 in the past. CIT(E) has given another reason for declining registration, in para 9, that two of the institutions, namely, Doaba College and Kanya Maha Vidayalaya, run by the assessee society, have been declined registration u/s 10(23C)(vi) on the ground that they are not solely established for the purpose of imparting education and are making systematic profits. This finding of the CIT(E) cannot be sustained, since in cases of both the institutions, the ITAT has allowed the exemption u/s 10(23C)(iiiab) by giving a finding of fact that both the institutions are solely engaged for the purpose of education and are not set up for profit making. CIT(E) has given a wrong finding that from the examination of the accounts of the society, it is seen that the society is engaged in providing loans to schools under its aegis, to earn interest income. This finding of the CIT(E) is totally misplaced, as is available from the copy of accounts of interest income filed before us, as before the Authority below, for the past 3 years, which clearly shows that interest has been earned only on FDRs and savings bank account and no interest has been charged on the loans granted to the schools. Order of the ld. CIT(Exemptions) is not sustainable in law. It is, accordingly, reversed. He is directed to grant registration u/s 12AA to the assessee forthwith. - Decided in favour of assessee.

Summary

Issues involved:
Appeal against rejection of application for registration u/s 12AA of the Income Tax Act.

Detailed Analysis:

1. Grounds of Appeal:
The appellant raised several grounds challenging the rejection of the application for registration u/s 12AA. The issues included the justification for rejection, consideration of irrelevant factors, exceeding the scope of enquiry, denial despite existing exemptions, and jurisdictional overreach by the CIT(E).

2. Facts of the Case:
The appellant, a society registered under the Societies Registration Act, primarily focused on establishing and running educational institutions. Despite enjoying exemptions under different sections previously, the application for registration u/s 12AA was rejected by the CIT(E), leading to the appeal.

3. CIT(E) Findings:
The CIT(E) highlighted that the society could have applied for exemption under section 10(23C)(vi) instead of 12AA due to past practices. The examination revealed that some institutions under the society had separate applications for exemptions, indicating a profit-making inclination not aligned with educational objectives.

4. Judicial Precedents:
Various judicial precedents were cited to emphasize that at the time of registration, only the genuineness of the trust's objects should be assessed, not the application of income. The CIT(E) was reminded that the focus should be on the trust's authenticity, not the utilization of funds or settlors' background.

5. Key Decisions:
Specific cases were referenced to clarify that denial of exemption under one section does not automatically disqualify the trust from seeking registration under another. The choice of exemption section should be left to the trust, especially if it has previously benefited from a different exemption provision.

6. Reversal of CIT(E) Order:
Ultimately, the Tribunal found the CIT(E)'s order unsustainable in law due to erroneous findings regarding profit-making activities, interest income generation, and misinterpretation of institution status. Consequently, the order was reversed, directing the grant of registration u/s 12AA to the appellant.

7. Conclusion:
The appeal was allowed, and the Tribunal pronounced the order in favor of the appellant on 27/03/2017, highlighting the importance of assessing trust genuineness and charitable objectives during registration processes while respecting the trust's choice of exemption provisions.