2019 (12) TMI 1107 - AT - Income Tax

Registration application u/s 12A Rejected - charitable activity u/s 2(15) - as per CIT-E activities of the assesse-society are not charitable in nature - A R submitted that the assessee society has taken premises on nominal rent from M/s Brahampuri Refugee Co-operative Society and the said premises are provided to needy persons to perform social obligation and other activities at affordable rate on no profit and no loss basis and a copy of the rent deed/IKarnama - HELD THAT - Arrangement of taking premises on hire and giving it to needy persons as so claimed by the assessee society need to be examined afresh by the ld CIT(E). Further, the ld. AR has submitted that the predominant activity of the assessee-society is not hiring of the premises rather predominant activities of the assessee-society are holding of eye camps, yoga classes, celebration of festivals like Dushshera, Holi, Chetichand etc. and the receipts arising out of the hiring of premises are incidental receipts and the same are used for advancement of its main objectives. The predominant activities where so carried out by the assessee society as so claimed will not necessarily result in any receipts, rather the assessee society has to incur expenses towards carrying out such activities and in order to fund such activities, where the premises and other places are given on rent and receipt arising therefrom will only be reflected in the financial statements and are used for carrying out the main activities, the latter activities will qualify as ancillary and in fulfillment of main activities and not the main and predominant activities. However, we find that the said facts regarding carrying out main activities as so claimed by the assessee society are not emerging from the order of the ld. CIT(E) and thus not borne out of the records before us, though the assessee society has submitted some photographs which would again need verification. Therefore, in the interest of justice and fair play, we deem it appropriate that the matter is set-aside to the file of the ld CIT(E) to decide the matter afresh after providing reasonable opportunity to the assessee-society. Matter is set aside to the file of the ld. CIT(E) and the appeal filed by the assessee is allowed for statistical purpose.

Summary

Issues:
1. Rejection of registration application under section 12AA of the Income Tax Act by the ld. CIT(E).
2. Interpretation of commercial activities and income earned by the assessee society.
3. Jurisdiction of the ld. CIT(E) in examining the genuineness of the society and its objects.

Analysis:

Issue 1: Rejection of registration application under section 12AA:
The appeal was filed by the assessee against the order of the ld. CIT(E) rejecting the registration application under section 12AA of the Income Tax Act. The ld. CIT(E) held that the activities of the assessee-society were not charitable in nature, leading to the rejection of the registration application. The assessee contended that the society was engaged in various charitable and religious activities, such as holding eye camps, yoga classes, and promoting a harmonious atmosphere in society. The ld. CIT(E) based the rejection on the alleged commercial nature of hiring premises like Dharamshalla, Parks, and Utensils on rent, which he deemed as exceeding the permissible limit under section 2(15) of the Act.

Issue 2: Interpretation of commercial activities and income earned:
The assessee argued that the ld. CIT(E) misinterpreted the concept of commercial activities and income earned by the society. They contended that the society did not earn any income from the alleged commercial activities as claimed by the ld. CIT(E). The receipts and expenditure accounts showed no income from hiring premises, contrary to the ld. CIT(E)'s findings. The assessee emphasized that the society operated on a no-profit, no-loss basis and did not engage in commercial activities for consideration. They cited legal definitions to support their claim that the activities did not qualify as commercial under the Act.

Issue 3: Jurisdiction of the ld. CIT(E) in examining genuineness and objects:
The assessee challenged the ld. CIT(E)'s jurisdiction in examining the application of income at the registration stage under section 12AA. They argued that the ld. CIT(E) should only verify the genuineness of the society and the charitable nature of its objects. The assessee relied on legal precedents to support their contention that the ld. CIT(E) overstepped his jurisdiction by delving into the application of income, which should be assessed by the AO during exemption claims under section 11. The assessee maintained that the ld. CIT(E) should have focused solely on the genuineness of the society and its charitable objectives, which were not in dispute.

In the final judgment, the tribunal set aside the matter to the ld. CIT(E) for a fresh examination, considering the arguments presented by the assessee regarding the nature of their activities and income earned. The tribunal found merit in the assessee's claims that the predominant activities were charitable in nature, and the hiring of premises was incidental to funding the main objectives. The tribunal emphasized the importance of verifying the facts presented by the assessee regarding their charitable activities and directed the ld. CIT(E) to reevaluate the matter, providing a fair opportunity to the assessee.