2018 (12) TMI 125 - HC - Income Tax

Denial registration u/s 12AA - non filing of return of income - proof of charitable activities - Whether the term such documents would not include returns of income for the purpose of determination of genuineness of activities of a Trust? - Held that - As noticed that the assets of the assessee, i.e., its land and building etc. had been created out of the donations received for the setting up of the school of the society and the objection of the CIT(E) that the assessee had amassed capital funds to the tune of ₹ 5.59 crores and fixed assets to the extent of ₹ 5.85 crores neither impinged on the objects nor the genuineness of the activities of the assessee. The object of the society is To Promote the Quality and Scope of Education in Rural Area and Manage the affairs of Sadhu Singh Rural Public School, Mukand Pur. Therefore, the contention of the assessee that the corpus got created from such donations as received for the setting up of the school, had not been rebutted by producing any material to the contrary on record. Regarding creation of assets, the Tribunal had recorded nothing had been brought on record to show that the assets of the assessee were meant for any purposes other than its aims and objects which included managing the affairs of the school and that as per the balance sheets, the entire expenditure incurred by it had been for the purposes of school only. Further, at the time of considering the grant of registration, only the objects and genuineness of the activities of the assessee were to be got verified. Accordingly, the Tribunal correctly directed the CIT (E) to grant registration to the respondent - decided against revenue

Summary

Issues:
1. Appeal filed by revenue under Section 260A of the Income Tax Act, 1961 against ITAT order.
2. Validity of ITAT's decision regarding registration under Section 12AA of the Income Tax Act.
3. Powers conferred under Section 12AA(4) in granting registration.
4. Direction by ITAT for registration instead of re-examination.

Issue 1:
The appeal was filed by the revenue under Section 260A of the Income Tax Act against the order passed by the Income Tax Appellate Tribunal (ITAT). The substantial questions of law raised in the appeal included the ITAT's decision on adverse remarks by CIT, non-filing of income tax return, and exercise of powers under Section 12AA(4) by the CIT. The ITAT directed the registration to be granted to the appellant-society, leading to the present appeal by the revenue.

Issue 2:
The ITAT allowed the appeal and directed the Commissioner of Income Tax (Exemption) to grant registration to the appellant-society. The rejection of the application by the CIT(E) was based on the society's operation on commercial principles, accumulation of capital funds, and failure to file income tax returns. However, the ITAT found that the assets were created from donations for setting up the school, and the society's activities were genuine. The Tribunal emphasized that registration was to be granted based on the objects and genuineness of the activities, which were verified to be in accordance with the law.

Issue 3:
Regarding the powers conferred under Section 12AA(4), the ITAT's decision highlighted that these powers could not be exercised by the CIT while granting registration under Section 12AA(1). The evidence presented during the proceedings did not warrant the CIT to invoke Section 12AA(4) in the registration process. The focus remained on verifying the objects and genuineness of the activities of the applicant-society, leading to the direction for immediate registration.

Issue 4:
The ITAT's decision to grant registration instead of reverting for re-examination was based on the findings that the society's assets were created from donations for educational purposes, and the expenditure was aligned with the school's objectives. The Tribunal found no basis to deny registration based on the society's financial status or fee receipts. The Court dismissed the appeal by the revenue, concluding that no illegality or perversity was identified to warrant interference, thereby upholding the ITAT's decision to grant registration to the appellant-society.