2018 (6) TMI 1657 - AT - Income Tax

Exemption u/s 11 - not granting registration u/s 12AA - charitable activity u/s 2(15) - assessee society is at nascent stage - HELD THAT - Where the assessee society is a nascent stage then it cannot be expected that the society must do some charitable work for grant of registration u/s 12AA Construction of Hospital will be for charitable purposes and for needy and deprived public at large. Further from reply No.2 it reflects that the Hospital running will be charitable and will be a medical relief for the needy and the public which cannot afford the costly medical facility in present day . The hospital will be charitable and not for commercial gains. However from the amended aims and objects and rules and regulations of the society it does not reflect that the hospital will be charitable and not for commercial gains. On specific query raised by the Bench which was acceded by the Assessee/Applicant Society that the assessee society shall get incorporate the condition that the Hospital will be charitable only and not for commercial gains in the aims and object/ MOU of society. We endorse the assent of the Ld. A.R. Set aside the order passed by the Ld. CIT(E) and feel it appropriate to remand the case in hand to the file of the ld. CIT(E) for deciding afresh while taking into consideration the facts circumstances and documents inter-alia the amended MOA whereby the aims and objects have already been amended and further incorporation of condition in the aims and objects of society to the effect that the Hospital will be charitable only and not for commercial gains. - Appeal filed by the assessee society is allowed for statistical purposes.

Summary

Issues Involved:
1. Justification for not granting registration under Section 12AA of the Income Tax Act, 1961.
2. Rejection of the society's objects as non-charitable.
3. Non-conduct of charitable activities by the society since its inception.
4. Inextricable link between the loan giver and office bearers of the society.
5. Queries raised by the CIT(E) regarding the hospital's charitable purpose and commercial gains.

Detailed Analysis:

1. Justification for Not Granting Registration under Section 12AA:
The appellant society filed an application for registration under Section 12AA of the Income Tax Act, 1961 on March 7, 2017. The CIT(E) declined the registration on the grounds that the society had not conducted any charitable activities since its inception, except for purchasing land. Additionally, the CIT(E) noted that the loan of ?1.06 crores taken by the society from a relative of the society was not clarified as interest-bearing or interest-free, raising concerns about potential misuse of public money.

2. Rejection of the Society's Objects as Non-Charitable:
The CIT(E) observed that the society's objects predominantly focused on education, with no mention of hospital construction in the initial object clause. However, the society amended its aims and objects to include "To open an educational/medical and researches Institutions/Hospitals for the health and welfare of mankind." This amendment addressed the CIT(E)'s objection regarding the absence of mention of hospital construction.

3. Non-Conduct of Charitable Activities Since Inception:
The society was formed on August 19, 2016, and applied for registration on March 7, 2017. The CIT(E) rejected the application, citing the society's lack of charitable activities. The tribunal noted that the society was at a nascent stage and could not be expected to commence high-level operations immediately. The purchase of land and preparation for hospital construction were seen as steps towards achieving its charitable objectives. Citing precedents, the tribunal emphasized that the absence of activities at the nascent stage should not be a ground for rejecting registration.

4. Inextricable Link Between the Loan Giver and Office Bearers:
The CIT(E) raised concerns about the loan of ?1.06 crores from a relative of the society's office bearers, suggesting a potential arrangement to pay the loan giver from charitable receipts. The tribunal noted that there is no legal embargo on such relationships and referenced the Delhi High Court judgment in Viswamohan Gupta vs. Registrar of Society, which supports this view.

5. Queries Raised by the CIT(E) Regarding the Hospital's Charitable Purpose and Commercial Gains:
The CIT(E) raised several queries, including how the hospital construction qualifies as a charitable purpose under Section 2(15) of the Act and whether the hospital running could be construed as an enterprise for commercial gains. The society responded that the hospital would be for charitable purposes and not for commercial gains, aiming to provide medical relief to the needy. The tribunal directed the society to incorporate a condition in its aims and objects that the hospital will be charitable only and not for commercial gains.

Conclusion:
The tribunal set aside the CIT(E)'s order and remanded the case for fresh consideration, taking into account the amended aims and objects and the incorporation of the condition that the hospital will be charitable only. The CIT(E) was directed to re-examine the case independently, without being influenced by the tribunal's observations, except as directed. The appeal filed by the society was allowed for statistical purposes.