2017 (5) TMI 1169 - HC - Income Tax

Registration under Section 12A/12AA - applications for registration rejected pointing out certain irregularities and that the societies are being run by the family members as a camouflage of charity - Held that - The tribunal on the basis of the objects of the societies and the fact that those objects were not disputed recorded satisfaction that the societies were for charitable purposes. However regarding the second aspect it only records that as no financial irregularity has been found the genuineness of the activities of the societies also stand established. The mere fact that there were no financial irregularities in running of the societies is not sufficient to infer that the societies are actually carrying activities of charitable purposes in consonance with their objects. The activities of the societies have to be examined independently before coming to the conclusion that they are actually and genuinely for charitable purposes. In the absence of any such finding we are of the opinion that this aspect of the matter was required to be considered by the tribunal before directing for the registration of the society. The profit earning or misuse of income derived by charitable institution from its activities may be a ground for refusing exemption under the Act which is a matter to be considered and decided at the time of assessment but at the time of grant of registration it is incumbent upon the registering authority to see if the activities of such institution or trust are in consonance with the objects of the trust or the institution and are not a camouflage but are real pure and sincere. We answer the question partly in favour of the society and partly in favour of the Revenue and while confirming the order of the tribunal in so far as it set aside the order of the Commissioner of Income Tax and that the objects of the society are of charitable nature we direct the tribunal to reconsider the matter with regard to the genuineness of the activities of the societies as to whether they are in consonance with the charitable objects for which they have been established and to pass a fresh order on this limited aspect within a period of three months.

Summary

Issues:
- Appeal against the order of the Income Tax Appellate Tribunal directing registration of respondent societies under Section 12A/12AA of the Income Tax Act, 1961.
- Whether tribunal justified in ordering registration without satisfying essential conditions.
- Examination of charitable and religious objects of the societies.
- Genuine activities of the societies in line with their charitable purposes.
- Interpretation of Section 12A/12AA and relevant case law.
- Decision on the registration of the societies based on the above considerations.

Analysis:
The High Court addressed three appeals by the Revenue challenging the Income Tax Appellate Tribunal's order directing registration of respondent societies under Section 12A/12AA of the Income Tax Act, 1961. The Commissioner of Income Tax had rejected the societies' registration applications citing irregularities and familial operation as a charity facade. The tribunal overturned this decision, prompting the present legal challenge.

The central legal question revolved around whether the tribunal acted justly in ordering registration without verifying if the societies met the essential registration criteria. Section 12A/12AA mandates that the registering authority ensures the charitable and religious nature of the trust's objects and the genuineness of its activities. The court emphasized that these two conditions are indispensable for registration approval.

While the tribunal acknowledged the charitable nature of the societies' objects, it failed to thoroughly assess the genuineness of their activities in alignment with their charitable goals. Merely lacking financial irregularities does not automatically establish genuine charitable activities. The court stressed the independent examination of the societies' operations to ascertain their charitable endeavors.

A crucial argument raised was whether the genuineness of the societies' activities should be scrutinized during the registration stage, as contended by the respondent's counsel citing legal precedents. The court referenced a pertinent decision emphasizing that the registering authority must ensure the activities are not a facade but genuine, real, and sincere, aligning with the trust's objectives.

In conclusion, the court partially sided with the society and partially with the Revenue. It upheld the tribunal's decision to set aside the Commissioner's order and confirmed the charitable nature of the societies' objects. However, it directed the tribunal to reassess the genuineness of the societies' activities in line with their charitable objectives within three months before finalizing the registration decision. The appeals were allowed to this extent, with no cost orders issued.