2017 (10) TMI 1514 - AT - Income Tax

Exemption u/s 11 - denial of registration u/s 12AA - land and complex of which the assessee society is carrying out development and maintenance belongs to the government - HELD TAT - No motive of profiteering is involved in such types of activities as the assets created are not owned by the society but are passed on to the public at large for common use and benefit. Since as per the provisions of section 11 to claim exemption from taxation, the income should be derived from property held under the trust wholly for charitable or religious purposes and to the extent to which such income is applied to such purposes in India'. Admittedly in this case, the society has constructed the building of Mandir complex and community hall etc. The property, though is not owned by the trust, yet, it has been held under the trust, wholly for charitable and religious purpose, the income from which, as per the objects of the society, is to be applied for such purposes only. There is a copy of the advertisement on behalf of the said Association inviting the members of the public at large and the handicapped persons in particular, to join the conference at the complex, Mandir Shree Mahakali, Sangrur and further a note at the bottom of the advertisement has been given that free tea and food will be served . There are also placed copies of letters from the individuals as well from organizations for booking of rooms and providing of utensils and beddings etc. These evidences on the file prove beyond doubt that the use of community hall and the Mandir complex is not limited to any particular section or limb of the society, rather, the same is open to all and offered for utilization not only to the individuals but also to social, charitable and religious organizations as observed above. Further, a perusal of the objects of the society reveal that none of the objects gives any presumption that any activity of the assessee society is restricted to a particular caste, community or religion. So far as the observation of the CIT(E) that the Society s main focus is on religious ethics is concerned, there is no bar u/s 11 or 12A of the Act for giving registration to a religious trust. Rather for claiming exemption u/s 11, the application of the income is required to be for charitable or religious purposes. It is proved that not only the objects of the assessee Society are charitable in nature but the society is also carrying the activities of religious and charitable in nature. Assessee has brought our attention to resolution dated 17.12.2015 wherein it has been resolved in the General Body meeting that in case the society is dissolved, any asset whether movable or immobile will be transferred to some other religious trust whose objects will be similar to that of the assessee trust and that the name of such trust will be decided in the general body meeting with the consent of 3/4th of its members. So far as the discrepancy in accounts pointed out by the Ld. CIT (E) is cornered, the Ld. AR of the assessee has explained that the liability shown as on 31.3.2013 has been discharged in subsequent years. In our view the examination of the account in detail / application of income is to be seen at the time of giving exemption u/s 11 of the Act and not at the time of granting of registration u/s 12A of the Act. While granting registration u/s 12A of the Act, it is to be seen whether the objects of the assessee society are charitable or religious in nature and the activities carried out by the assessee are in furtherance of such objects. In view of the above discussion, we direct the Ld. CIT (E) to grant registration u/s 12AA of the Act to the assessee society. - Decided in favour of assessee

Summary

Issues Involved:
1. Denial of registration under section 12AA of the Income-tax Act, 1961.
2. Ownership and use of property for charitable purposes.
3. Evidence of charitable activities.
4. Inclusion of dissolution clause in the society's memorandum.
5. Examination of accounts and application of income.

Detailed Analysis:

1. Denial of Registration under Section 12AA of the Income-tax Act, 1961:
The assessee society appealed against the order of the Commissioner of Income Tax (Exemptions) [CIT(E)], Chandigarh, which denied registration under section 12AA of the Income-tax Act, 1961. The CIT(E) had rejected the application on several grounds, including the lack of ownership of the property, insufficient evidence of charitable activities, and the absence of a dissolution clause in the society’s memorandum.

2. Ownership and Use of Property for Charitable Purposes:
The CIT(E) noted that the land and complex used by the society belonged to the government, and no evidence was provided to show that the government had bestowed rights to the society for using the property. The tribunal, however, found this reasoning unconvincing. It was observed that the property was a public Mandir complex, and the society was maintaining and developing it for public use without claiming ownership. The tribunal held that the society’s activities, such as constructing buildings and community halls for public use, were charitable in nature, even though the property was not owned by the society.

3. Evidence of Charitable Activities:
The CIT(E) argued that the society did not provide reliable evidence of its charitable activities and that its activities were primarily religious. The tribunal disagreed, noting that the society had provided substantial evidence, including request letters from various social and religious organizations, showing that the community hall was used for a variety of charitable activities such as blood donation camps, medical camps, and social awareness programs. The tribunal found that the society’s activities were not restricted to any particular caste, community, or religion, and thus were charitable in nature.

4. Inclusion of Dissolution Clause in the Society's Memorandum:
The CIT(E) pointed out the absence of a dissolution clause in the society’s memorandum, which could lead to the presumption that the assets would be distributed among members if the society were dissolved. The tribunal noted that the society had passed a resolution stating that in the event of dissolution, the assets would be transferred to another trust with similar objectives. The tribunal accepted this resolution, noting that it addressed the CIT(E)’s concerns.

5. Examination of Accounts and Application of Income:
The CIT(E) highlighted discrepancies in the society’s accounts, particularly a liability shown in one year but not in subsequent years. The tribunal clarified that the detailed examination of accounts and the application of income should be considered at the time of granting exemption under section 11 of the Act, not during the registration process under section 12AA. The tribunal emphasized that the focus should be on whether the society’s objects are charitable or religious and whether its activities further those objects.

Conclusion:
The tribunal directed the CIT(E) to grant registration under section 12AA of the Income-tax Act, 1961, to the assessee society, finding that the society’s objects and activities were charitable and religious in nature and that the concerns raised by the CIT(E) had been adequately addressed. The appeal of the assessee was allowed, and the order was pronounced in the open court on 11.10.2017.