2019 (4) TMI 782 - HC - Income Tax

Deemed grant of registration u/s 12AA - limitation prescribed under Section 12AA expired - tribunal remanded the matter back to the CIT(E) on the premise that it had not communicated the assessing officer s report to the assessee - After remand of the matter CIT (E) passed fresh order and rejected application of the assessee holding that the assessee was running the hospital for the benefit of family members of Shri B.L. Ranwa and there was no charity in it - nature of object and genuineness of activities - HELD THAT - Once the matter was remanded back to the CIT(E) then the limitation for passing the order/decision cannot be more than the limitation provided for deciding the application under Section 12AA of the Act. There is no dispute that as per the provisions of Section 12AA(2) of the Act, limitation for granting or refusing the registration is prescribed as before expiry of six months from the end of the month in which the application was received. Relying on the judgment of the Supreme Court in Commissioner of Income Tax, Kanpur Others Vs. Society for the Promn. Of Edn. Allahabad 2016 (2) TMI 672 - SUPREME COURT which upheld the judgment of CIT Vs. Sahitya Sadawart Samiti (2017 (8) TMI 374 - RAJASTHAN HIGH COURT) held that once the limitation prescribed under Section 12AA expired and the consequential default on the part of the CIT(E) in deciding the application would result deemed grant of registration is a settled proposition. Therefore, it has been held by the Tribunal that the judgment of the CIT(E) is reversed on merits and registration would stand granted to the assessee by prescription of law made in Section 12AA(2) of the Act. The Tribunal in this behalf relied on the judgment of Lucknow Bench of the Tribunal in Harshit Foundation Vs. CIT (2014 (6) TMI 298 - ITAT LUCKNOW) in which case it was held that where the Commissioner does not pass any order even after six months from receipt of Tribunal s order remitting the matter to him, the registration will be deemed to have been granted. This is subject to exercise of Commissioner s power under Section 12AA(3) of the Act in appropriate cases.

Summary

Issues Involved:
1. Rejection of registration under Section 12AA of the Income Tax Act, 1961.
2. Alleged benefit extended to persons specified under Section 13(3) of the Act.
3. Reasonableness of rent paid by the assessee.
4. Income from a medical shop run by a specified person.
5. Sudden increase in donations and their genuineness.
6. Limitation period for granting or refusing registration under Section 12AA.

Detailed Analysis:

1. Rejection of registration under Section 12AA of the Income Tax Act, 1961:
The respondent-assessee, a society registered under the Rajasthan Societies Registration Act, 1958, sought registration under Section 12AA of the Income Tax Act, 1961. The Commissioner of Income Tax (Exemptions) [CIT(E)] initially rejected the application, and upon remand by the Tribunal, rejected it again, citing the hospital was run for the benefit of family members and lacked charitable intent. The Tribunal, however, allowed the appeal, leading to the current appeal by the Revenue.

2. Alleged benefit extended to persons specified under Section 13(3) of the Act:
The CIT(E) concluded that the hospital was run for the benefit of specified persons under Section 13(3), making the assessee ineligible for benefits under Sections 11 and 12. The Tribunal found that the CIT(E) did not provide evidence that the rent paid was excessive or unreasonable. The Tribunal emphasized that mere payment of rent does not constitute a violation unless it is proven to be excessive or unreasonable.

3. Reasonableness of rent paid by the assessee:
The Tribunal noted that the CIT(E) failed to ascertain the fair market rent of the hospital building and based conclusions on assumptions. The Tribunal held that the reasonableness of rent should be subject to proper enquiry and assessment, not mere conjecture. The Tribunal also pointed out that the Assessing Officer (AO) had not questioned the reasonableness of the rent in scrutiny assessments for multiple years.

4. Income from a medical shop run by a specified person:
The CIT(E) objected to the income from a medical shop run by Smt. Kamla Ranwa, a specified person under Section 13(3). The Tribunal found no evidence of excessive or unreasonable pricing of medicines or any benefit provided to the specified person. The shop's stock was donated to the hospital, negating any benefit post-2011. The Tribunal concluded that running the shop did not violate Section 13 provisions without evidence of benefit or income diversion.

5. Sudden increase in donations and their genuineness:
The CIT(E) raised concerns about a sudden increase in donations and lack of complete donor details. The Tribunal noted that all donations were received through cheques, and the genuineness of donations is a matter for assessment proceedings, not for registration under Section 12AA. The Tribunal found the CIT(E)'s objections to be without merit and aimed at denying registration without conclusive evidence.

6. Limitation period for granting or refusing registration under Section 12AA:
The Tribunal highlighted that the CIT(E) failed to decide within the six-month limitation period prescribed under Section 12AA(2). Citing judgments from the Supreme Court and High Courts, the Tribunal held that the delay resulted in deemed grant of registration. The Tribunal relied on precedents where non-decision within the prescribed period led to automatic registration.

Conclusion:
The Tribunal reversed the CIT(E)'s judgment on merits and granted registration to the assessee, citing lack of evidence for excessive rent, absence of benefit from the medical shop, and procedural lapses in handling donations. The Tribunal emphasized that objections raised by the CIT(E) were based on assumptions and not supported by proper enquiry or facts. The High Court dismissed the Revenue's appeal, finding no substantial question of law, thereby upholding the Tribunal's decision.