2018 (4) TMI 1512 - AT - Income Tax

Grant of registration u/s 12AA rejected - assessee society is controlled by one family for profit purpose and ordinary public is restricted from membership - Proof of charitable activities - Held that - Charitable nature of any society cannot be determined on this sole fact only rather all the aims and objects are required to be examined in entirety. Rather in case charitable society is run by a single unit may be member of one family, they can carry out the charitable activities more effectively to avoid any type of unnecessary hindrances. As in case of Maa Saraswati Education Society vs. CIT 2016 (12) TMI 1076 - ITAT DELHI while dealing with the identical issue held that a society controlled by close family members cannot be debarred from registration as society is a separate entity from its members having been governed by the Societies Registration Act, 1960. So, when we read the trust deed particularly aims and objects of the assessee society in entirety, it leads to the conclusion that the assessee society has been set up for carrying out the charitable activities under the Act. In case hefty fees is being charged by the assessee society and at the same time, it is providing free education to the needy students and free medical aid to the needy patients, it cannot change its nature from charitable society to profit making society. When the surplus funds are further being utilized to carry out the aims and objects of the society, a society cannot be denied registration u/s 12AA of the Act. Section 12AA provides for procedure for registration as to how the ld. CIT will provide the registration after getting satisfied about the aims and objects of the society and not to sit on the matter like the AO as all these facts are to be taken care of by the AO at the time of assessment. So, merely earning profit out of which only 15 16% are lying surplus with the assessee society cannot be a ground for refusal of registration in this case. CIT has not disputed the fact that aims and objects of the assessee society are charitable he cannot dispute the genuineness of the activities of the Trust on the basis of surmises only. - Decided in favour of assessee.

Summary

Issues Involved:
1. Refusal of registration under section 12AA of the Income Tax Act by the Commissioner of Income Tax.
2. Control of the society by one family and restriction on ordinary public membership.
3. Rejection of registration based on the society's profit motive and charging hefty fees.
4. Examination of aims and objects of the society for charitable nature.
5. Dispute regarding the genuineness of the society's activities.

Analysis:

Issue 1: Refusal of Registration under Section 12AA
The appellant, a society seeking registration under section 12AA, challenged the order of the Commissioner of Income Tax (CIT) rejecting the registration. The grounds for rejection included the society being controlled by one family, lack of comprehensive aims and objects, and earning profits indicating non-charitable purposes. The Tribunal analyzed the society's objectives, emphasizing education, voluntary services, and charitable activities. It held that the society's charitable nature should not be solely determined by family control, and the aims and objects must be examined comprehensively.

Issue 2: Control by One Family and Membership Restrictions
The Tribunal cited a previous case where a society controlled by close family members was not debarred from registration. It emphasized that society is a separate entity, and family control does not negate charitable activities. The Tribunal concluded that family control does not disqualify the society from registration under section 12AA.

Issue 3: Profit Motive and Hefty Fees
The CIT's contention that the society's surplus and charging hefty fees indicated profit motive was refuted by the Tribunal. It held that surplus funds utilized for charitable activities do not change the society's nature. The Tribunal referenced a Supreme Court case, stating that charging fees does not negate charitable status if funds are used for educational purposes. It emphasized that mere profit generation does not disqualify a society from registration under section 12AA.

Issue 4: Examination of Aims and Objects
The Tribunal addressed the CIT's claim of noncomprehensive aims and objects, stating that examination should consider all objectives collectively. It highlighted the society's focus on education, healthcare, and charitable activities. The Tribunal emphasized that denial of registration should not be based on isolated objectives but on the society's overall charitable nature.

Issue 5: Genuineness of Society's Activities
The Tribunal criticized the CIT for disputing the genuineness of the society's activities without substantial evidence. It referenced a High Court judgment emphasizing that the genuineness of activities should not be based on post-assessment income examination. The Tribunal concluded that the CIT erred in withholding registration and directed the CIT to provide registration under section 12AA to the society.

In conclusion, the Tribunal allowed the appeal, highlighting the society's charitable nature, genuine activities, and the improper basis for refusal of registration by the CIT.