2022 (5) TMI 1499 - AT - Income Tax

Exemption u/s 11 - denying registration to the assessee society u/s.12(A) (a) - Assessee has not done any charitable activity nor has shown any intention to do so - HELD THAT - A specific query was raised to ld AR about the fact that as to what has been done with the excess of income over expenditure, to which, ld AR replied that same was kept in fixed deposit. This clearly shows that there is no application of income for any charitable activity. Further the fact that the assessee has generated such huge funds in the form of income over expenditure and the same having not been used for the purpose of any charitable activity, the assessee is not entitled for registration u/s.12A - It is true that the assessee is the primary organization looking after the education requirement in the State of Odisha but that does not per se make it liable for registration u/s.12A of the Act. In these circumstances, we find no error in the order of the ld CIT(E) in refusing registration u/s.12A of the Act on the ground that the assessee has not done any charitable activity nor has shown any intention to do so. Additional Ground that the assessee is a State - We are not in agreement with the order of ld CIT(E) in respect of genuineness of the organization. Admittedly, the organization has been created by the Govt of Odisha and the claim of CIT(E) is farfetched. It is in fact questioning the act of State itself. We are also not in agreement with the findings of ld CIT(E) that the aassessee is not a State as required under Article 289 of the Constitution of India. The assessee is the Education State Council for imparting technical training in the State under Government of Odisha and Ex-Officio members are the employees of the State Government. Their term of posting with the assessee is at par with the employees of the Government of Odisha. Thus, the assessee is nothing but a State . Our view finds support from the decision of Co-ordinate Bench of ITAT Mumbai D in the case of Maharashtra State Board of Technical Education(supra). In these circumstances, we hold that the assessee is a State under the Article 289 of the Constitution of India and is entitled for immunity from taxation under the Income Tax Act, 1961. Appeal of the assessee is partly allowed.

Summary

Issues:
1. Denial of registration to the assessee society under section 12AA(1)(b)(ii) of the Income Tax Act, 1961.
2. Questioning the status of the assessee society as a "State" and its entitlement to tax immunity under the Income Tax Act, 1961.

Issue 1: Denial of registration under section 12AA(1)(b)(ii):
The appeal was against the order of the ld CIT(Exemptions) denying registration to the assessee society under section 12AA(1)(b)(ii) of the Income Tax Act, 1961 for the assessment year 2016-17. The grounds raised by the assessee included errors in denying registration under sections 12A(a) and 12AA(a) of the Act. The assessee, a State Council for Technical Education & Vocational Training Society in Odisha, was under the total control of the State Government, with key positions held by State Government employees. The CIT(E) questioned the genuineness of the assessee and its status as a "State" for tax immunity. The assessee argued that it believed it was a "State" and not liable for tax, citing a similar case in Maharashtra. The CIT(E) alleged that the assessee willfully defrauded revenue, leading to the denial of registration. The tribunal found no charitable activity by the assessee and denied registration under section 12AA(1)(b)(ii) due to the lack of charitable intent or activities.

Issue 2: Status of the assessee society as a "State" and tax immunity:
The additional ground raised was the status of the assessee society as a "State" and its entitlement to tax immunity under the Income Tax Act, 1961. The ld CIT DR opposed this claim, arguing against the charitable nature of the assessee's activities. The tribunal noted that the excess income over expenditure was kept in fixed deposits, indicating a lack of charitable application. However, the tribunal disagreed with the CIT(E)'s findings on the organization's genuineness and "State" status. It held that the assessee, being a State Council for technical education under the Government of Odisha, qualified as a "State" under Article 289 of the Constitution of India. This decision was supported by a similar case in Maharashtra. Therefore, the tribunal granted the assessee tax immunity as a "State" and allowed the appeal partly.

In conclusion, the tribunal upheld the denial of registration under section 12AA(1)(b)(ii) due to the lack of charitable activities by the assessee. However, it recognized the assessee as a "State" entitled to tax immunity under the Income Tax Act, 1961, based on its status and functions under the Government of Odisha.