2019 (5) TMI 614 - AT - Income Tax

Grant of registration u/s 12AA rejected - charitable activity or not? - aims and objects of the assessee society were to set up, run and maintain dispensaries and hospitals for the general public irrespective of caste or creed, and to do all such ancillary activities in order to facilitate furtherance of the said object - CIT(E) had expressed his doubts as to how setting up a multi-speciality hospital would qualify for medical relief as envisaged in Sec. 2(15) as he held a conviction that the same may be in the nature of a commercial activity with no element of medical relief whatsoever - HELD THAT - View taken by the CIT(E) that the envisaged activities of setting up a multispeciality hospital by the assessee society may turn out to be a commercial activity with no element of medical relief whatsoever, is an aspect which has to be looked into by the assessing officer at the stage when the assessee filed its return of income and also by the commissioner for cancelling the registration in exercise of his powers u/s 12AA(3), in case if the activities of the assessee society are at any stage found by him as not being carried out in accordance with its aims and objects. CIT(E) as per the mandate of law, at the stage of considering the application of the assessee society for grant of registration u/s 12AA was supposed to confine himself to two aspects viz. (i) examination of objects of the society or institution; and (ii) satisfaction of the registering authority about the genuineness of the activities of the society or institution on the basis of inquiries. As observed by us hereinabove, it was not correct on the part of the CIT(E) to have rejected the application filed by the assessee society for grant of registration u/s 12AA for the reason that the activities envisaged in the aims and objects had not been carried out by the assessee society, which as observed by us hereinabove was in its nascent stage. We thus in all fairness restore the matter to the file of the CIT(E), who shall dispose off the application filed by the assessee by confining himself to two aspects viz. (i) examination of objects of the society or institution; and (ii) satisfaction about the genuineness of the activities of the society or institution on the basis of inquiries as he may deem fit. Application filed by the assessee society for grant of registration u/s 12AA is restored to the file of the CIT(E) for fresh adjudication in terms of our aforesaid observations. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Whether the CIT(E) was justified in rejecting the grant of registration under Sec. 12AA of the Income Tax Act, 1961.
2. Whether the activities claimed by the assessee fall within the definition of Sec. 2(15) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Rejection of Registration under Sec. 12AA:

The assessee society filed an application for registration under Sec. 12A of the Income Tax Act, 1961. The CIT(E) rejected the application on the grounds that the society had not carried out any charitable activities and the financial statements did not reveal any expenditure towards charitable purposes. The CIT(E) also noted that there was no evidence of preparatory steps or necessary permissions/licenses for opening a hospital. The CIT(E) concluded that the genuineness of the activities of the assessee society was unverifiable at this stage and speculated that the activities could be purely commercial.

The Tribunal, however, observed that the CIT(E) had traversed beyond the scope of his jurisdiction by requiring the assessee to have already conducted activities. The Tribunal noted that the assessee society was in its nascent stage and had not yet carried out activities towards its aims and objects. The Tribunal referred to the provisions of Sec. 12AA, which mandate the examination of the objects of the society and the satisfaction of the genuineness of its activities. The Tribunal held that the CIT(E) should have confined himself to these aspects and not rejected the application based on non-conduct of activities.

2. Definition under Sec. 2(15):

The CIT(E) expressed doubts about whether the activities of setting up a multi-speciality hospital would qualify as 'medical relief' under Sec. 2(15) of the Income Tax Act, suggesting they might be commercial in nature. The Tribunal disagreed, stating that the aims and objects of the assessee society to set up, run, and maintain dispensaries and hospitals for the general public clearly fall within the realm of 'medical relief' as envisaged under Sec. 2(15).

The Tribunal also cited the Hon’ble High Court of Punjab & Haryana's decision in CIT-II, Chandigarh Vs. M/s Surya Educational and Charitable Trust, which held that an application for registration is required to be made within one year of the creation of the trust and there is no requirement that the trust should have started all its activities in the first year. The Tribunal emphasized that the CIT(E) should have evaluated the objects and the genuineness of the activities rather than speculating on future commercial activities.

Conclusion:

The Tribunal restored the application for registration under Sec. 12AA to the file of the CIT(E) for fresh adjudication. The CIT(E) was directed to confine his examination to the objects of the society and the genuineness of its activities based on inquiries. The appeal filed by the assessee society was allowed for statistical purposes.