2019 (9) TMI 459 - AT - Income Tax

Exemption u/s 11 - application filed u/s 12AA denied - charitable activity u/s 2(15) - assessee society is at nascent stage - HELD THAT - Where the assessee society is at nascent stage then it cannot be expected that the society must do some charitable work before seeking grant of registration u/s 12AA of the Act and consequently consideration of genuineness of the activities by the Ld. CIT does not arise. In the instant case the Ld. CIT(E) has that no charitable activity has been conducted by the applicant society since its inception except purchasing land. We have given our thoughtful consideration to this reason of rejection. Though the assessee society though has not started construction of its hospital yet but it is a case that the assessee society has been formed only on 19.08.2016 and has already purchased the land and is in the process of constructing hospital for which site plan has already been prepared and placed before the CIE(E) as well as before us for perusal which further strengthen the contention of the assessee that the purchase of land for construction of Hospital and starting process for construction of Hospital is certainly in pursuance to the aims and objections of the society and sought registration u/s 12AA Thus the assessee society is at nascent stage but even otherwise carried out small charitable activities such as providing medical aid and Langer to the needy people during the F.Y. 2017-18, therefore, the observation of the CIT(E) that the applicant society did not conduct any charitable activity since its inception, is not sustainable.- Decided in favour of assessee

Summary

Issues Involved:
1. Rejection of the application for registration under Section 12AA of the Income Tax Act, 1961.
2. Examination of the genuineness of the activities of the assessee society.
3. Compliance with the objectives of the society, specifically regarding international operations.
4. Submission of necessary documentation and evidence.
5. The nascent stage of the society and its impact on the registration process.
6. Involvement of family members and its implications on the genuineness of the activities.

Issue-Wise Detailed Analysis:

1. Rejection of Application for Registration under Section 12AA:
The CIT(Exemptions) rejected the application for registration under Section 12AA of the Income Tax Act, 1961, filed by the assessee society. The rejection was based on the grounds that the society did not provide sufficient documentary evidence to support the donations received and the expenses incurred on charitable activities.

2. Examination of the Genuineness of the Activities:
The CIT(E) noted that the society's main objective was the construction of a hospital, which had not yet commenced. The CIT(E) required verification of other charitable activities claimed by the society, such as providing Langer for needy people and educational aid. The society failed to provide adequate documentary evidence for these activities, leading to doubts about the genuineness of its activities.

3. Compliance with Objectives and International Operations:
The CIT(E) observed that the society's objectives included conducting operations internationally, which was not compliant with the restrictions of Sections 11 and 12 of the Act, as these sections are restricted to India. The CIT(E) suggested that the essential elements necessary for the proper constitution of a public charitable society were missing. However, the tribunal opined that the CIT(E) could impose conditions to restrict the society's operations to India only, making this ground for rejection unsustainable.

4. Submission of Necessary Documentation and Evidence:
The CIT(E) mentioned that the society had not submitted the necessary documentation, such as the erstwhile Memorandum of Association (MoA) and the amended MoA approved by a competent authority. The tribunal found that the society had indeed submitted these documents, and the CIT(E)'s observation on this ground was not sustainable.

5. Nascent Stage of the Society:
The tribunal referred to judicial precedents indicating that a newly established society or trust at a nascent stage cannot be expected to have carried out extensive charitable activities. The tribunal noted that the assessee society was formed on 19.08.2016, had purchased land, and was in the process of constructing a hospital. The tribunal concluded that the society's nascent stage should not be a ground for rejecting the registration application.

6. Involvement of Family Members:
The CIT(E) raised concerns about the involvement of family members in the society, as the directors of the company providing the loan to the society were related to the president and finance secretary of the society. The tribunal acknowledged this concern but emphasized that the CIT(E) could cancel the registration if the society's activities were later found to be not genuine or not in accordance with its objectives.

Conclusion:
The tribunal directed the CIT(E) to grant the registration under Section 12AA of the Act to the assessee society, with the liberty to impose conditions or restrictions as deemed necessary. The CIT(E) was also authorized to cancel the registration if the society's activities were found to be not genuine in the future. The appeal filed by the assessee was allowed with these observations.