2017 (10) TMI 1513 - AT - Income Tax

Exemption u/s 11 - refusing registration u/s 12AA - violation of section 40A(3) - HELD THAT - Order of the CIT that the reason on which registration has been denied is due to the fact that the assessee society used the funds of the society for the benefit of the members. AO had reported that the activities of the society are not in accordance with the objects as per the aims and objects of the Memorandum of Association. It is also the case of the Assessing Officer that the society had made numerous payments to a single party in cash in violation of section 40A(3). We find from the details furnished by the assessee that although the two ladies as per the order of the ld. CIT were housewives at the time of formation of the Trust however their qualification and experience has not been doubted. Salary paid to the two ladies are much less than the salary prescribed by the Government of Haryana. Therefore, it cannot be said that the Trust by giving salary to the two ladies, who are Post- Graduates and B. Ed. and who have been paid less salary than the amount prescribed by the Government, has used the funds of the society for the benefit of the members of the society. So far as the objection of the AO that the assessee trust has violated the provisions of section 40A(3) is concerned, the same is in our opinion can be taken care at the time of assessment and cannot be a ground for denying the registration u/s 12AA. So far as the objection of the Assessing Officer in his report that the activities of the assessee society are not in accordance with the objects as per the aims and objects in the Memorandum of Association is concerned, we do not find any activity carried out by the trust which is not in accordance with the aims and objects of the assessee trust. Even report of the Assessing Officer that the assessee has claimed corpus for donation of ₹ 3,41,000/- towards construction of building whereas the same were found to be regular donation and, therefore, there is violation in provisions of section 13(1)(c) is concerned, the same also in our opinion can be considered at the time of assessment and cannot be a ground for denying registration u/s 12AA. We hold that the ld. CIT was not justified in refusing the registration to the assessee society u/s 12AA - The grounds raised by the assessee are accordingly allowed.

Summary

Issues:
Refusal of registration u/s 12AA of the I.T. Act, 1961 based on inaccurate particulars of income, benefit to trustee/members, violation of section 40A(3), and non-charitable nature of society's objects.

Analysis:
The appeal was against the order of the Commissioner of Income Tax (CIT) denying registration u/s 12AA. The CIT found discrepancies in the society's activities, including members receiving higher salaries without justification. The society claimed corpus fund donations for building construction, which were deemed regular donations, violating section 13(1)(c). The Assessing Officer reported non-compliance with objects per the Memorandum of Association and cash payments to a single party against section 40A(3).

The assessee argued that the society, an educational institution, followed Haryana Govt. rules and deserved registration. The counsel presented evidence of salaries being below govt. rates, defending payments to qualified members. The CIT's denial was deemed unjust as the society's educational nature was not proven non-charitable.

Upon review, the Tribunal found the members' qualifications valid, salaries below govt. rates, and objected activities addressable during assessment, not as grounds for registration denial. No activities deviated from the society's objectives. The alleged corpus fund violation was considered assessable later, not for registration denial. Consequently, the CIT's refusal was deemed unjustified, and the appeal was allowed.

In conclusion, the Tribunal overruled the CIT's decision, stating the denial lacked merit. The society's compliance with educational objectives and valid payments to members justified registration u/s 12AA. The appeal was allowed, and the decision was pronounced on October 12, 2017.