2019 (6) TMI 705 - AT - Income Tax

Registration u/s 12AA - registration denied as assessee was not pursuing the charitable objects of education - no genuineness of activities of the society which can be corporate with the aims and objects of the society and the activities of the applicant got severely compromised when a society professing to be charitable is seen to utilize its receipt on assets of luxury of personal use - HELD THAT - In the present case, the applicant society is not deviating from its main object to utilize the resources of society for propagation of education, to establish and run education institutions for promotion of modern education in Haryana, to prepare buildings, hostels, sports ground and library for institutes of society. The Commissioner of Income Tax, at no point of time has pointed out that the applicant society is not doing these activities. The case laws referred by the Ld. AR are apt in the present case. Thus, CIT has not followed the proper guidelines given by Section 12AA when should be applied. Therefore, we are of the opinion that registration should have been granted u/s 12AA to the Applicant Society as the objects are charitable in nature and as there are no violations of either sec. 11(5) or Sec. 13 during this year or in the next year and possibility of the applicant society contravening the provisions is not a ground to reject the registration u/s 12AA - Decided in favour of assessee.

Summary

Issues:
1. Rejection of application for registration under section 12AA of the Income Tax Act, 1961.
2. Denial of exemption under sections 11 and 12 of the Act.
3. Alleged misutilization of funds and assets by the society.
4. Compliance with the objects and activities of the society for charitable purposes.

Issue 1: Rejection of application for registration under section 12AA:
The appeal was filed against the order rejecting the registration application under section 12AA of the Income Tax Act. The Commissioner observed that the society's activities did not align with its charitable objects, as it focused on acquiring luxury assets for personal use. The society's application was rejected due to the lack of genuineness in its activities that could be correlated with its stated objectives. The Appellate Tribunal noted that the society was primarily engaged in educational activities, and there was no deviation from its main objective of promoting education in Haryana. The Tribunal held that the Commissioner did not provide evidence that the society was not fulfilling its educational objectives, and thus, the registration should have been granted.

Issue 2: Denial of exemption under sections 11 and 12:
The Commissioner also denied exemption under sections 11 and 12 of the Act to the society. The Appellate Tribunal emphasized that the Commissioner's role during registration under section 12AA is limited to verifying the trust's objects and genuineness of its activities, not to delve into income application under sections 11 and 12. The Tribunal cited relevant case laws to support that the generation of surplus does not disqualify a trust from claiming exemptions if the surplus is utilized for the trust's objectives without benefiting trustees directly. The Tribunal directed the Commissioner to grant registration under section 12AA as the society's objects were charitable, and there were no violations of relevant provisions.

Issue 3: Alleged misutilization of funds and assets:
The Commissioner raised concerns about the misutilization of funds and assets by the society, including owning luxury cars registered under individuals' names. The Tribunal noted the Commissioner's allegations but focused on whether the society was fulfilling its educational objectives, which it found to be the case. The Tribunal did not find evidence of the society deviating from its core charitable purpose despite the concerns raised about asset ownership.

Issue 4: Compliance with charitable objects and activities:
The Tribunal stressed the importance of scrutinizing the activities of charitable institutions to ensure they align with their stated charitable purposes. It highlighted that the society's activities were genuine and in line with its objectives of promoting education in Haryana. The Tribunal emphasized that the registration should have been granted as there were no violations of relevant provisions and the society was operating within the scope of its charitable activities.

In conclusion, the Appellate Tribunal allowed the appeal, directing the Commissioner to grant registration to the society under section 12AA of the Income Tax Act, 1961.