2017 (12) TMI 867 - HC - Income Tax

Registration and exemption u/s 12-AA and 80-G(5) - assessee has not spent 85% of its income and furthermore has produced unreliable balance sheet and two separate list of donors which remained un-reconciled and no evidence regarding any charitable activity under taken - ITAT granted exemption as found that the assessee was set up to achieve its object of establishing educational institution or trust, which activity per se is a charitable purpose under Section 2(15) - Held that - we find that registration of the trust does not involve enquiry into the actual activities or application of funds, etc. The Tribunal has committed no error in following the earlier order. At that stage, the only enquiry required to be conducted was with respect to the object of the trust alone. The objection raised by the Commissioner pertain to matters that may be examined at the stage of assessment. At that stage, if the assessee were to be found to have actually engaged in any non-charitable activity, the benefit of exemption may be denied at that stage in the manner provided by the Act. - Decided against revenue

Summary

Issues:
1. Registration and exemption under sections 12-AA and 80-G(5) granted by ITAT despite alleged discrepancies and lack of evidence of charitable activities.
2. Jurisdiction of CIT in granting registration under section 12-AA and exemption under section 80-G(5).

Analysis:

Issue 1: Registration and exemption under sections 12-AA and 80-G(5)
The case involved an appeal under Section 260-A of the Income Tax Act against the order of the Income Tax Appellate Tribunal (ITAT) regarding the grant of registration and exemption under sections 12-AA and 80-G(5). The appellant's application for registration under Section 12A was initially rejected by the Commissioner citing various grounds such as non-submission of audit report, discrepancies in donor lists, and alleged deficiencies in documentary evidence. The Tribunal allowed the appeal, relying on a previous judgment of the High Court, emphasizing that registration under Section 12AA should focus on the genuineness of the trust's objects rather than its activities at the preliminary stage. The Tribunal held that denial of registration based on uninitiated charitable activities was unjustified, as long as the genuineness of the trust's objects was established. The Tribunal clarified that registration and approval under sections 12AA and 80G did not automatically entitle the trust to income exemption without further examination during assessment proceedings. The High Court upheld the Tribunal's decision, stating that registration primarily involves scrutinizing the trust's objects, while issues related to actual activities and fund application can be addressed during assessment.

Issue 2: Jurisdiction of CIT in granting registration under section 12-AA
The High Court addressed the question of the Commissioner's jurisdiction in granting registration under section 12-AA. The Tribunal found that the objections raised by the CIT were not relevant for registration purposes, as the focus should be on the trust's charitable purpose as defined in the Act. The Tribunal reasoned that the trust's objective of establishing educational institutions aligned with the charitable purpose under Section 2(15) of the Act. It emphasized that objections raised by the CIT could be examined separately during assessment proceedings if they pertained to non-charitable activities. The High Court concurred with the Tribunal's findings, emphasizing that registration of a trust does not require an inquiry into its actual activities or fund application. The Court reiterated that objections related to non-charitable activities could be addressed during assessment, potentially leading to denial of exemption as per the provisions of the Act. Ultimately, the appeal was dismissed, highlighting that the registration process primarily focuses on the genuineness of the trust's objects, with detailed examination of activities reserved for assessment proceedings.

In conclusion, the High Court affirmed the Tribunal's decision, emphasizing that registration under Section 12AA should primarily assess the genuineness of a trust's objects, while issues related to activities and fund application can be scrutinized during assessment proceedings. The judgment clarified that registration and approval under sections 12AA and 80G do not automatically guarantee income exemption, necessitating further examination during assessment for final determination.