2020 (2) TMI 576 - HC - Income Tax

Exemption u/s 11 - registration under Section 12AA - violation of Section 40A(3) - HELD THAT - The finding recorded by the Tribunal that Smt. Sunita and Smt. Sangeeta were possessing qualifications for being Teachers has not been controverted. There is no challenge to the fact that during the relevant time as per the circular issued by the Government, salary of PGT Teacher was fixed as ₹ 31,240/-, whereas both the teachers were receiving salary of ₹ 20,000/- and ₹ 18,000/- respectively. In such circumstances, there is no violation of Section 13(1)(c). It is pertinent to mention here that the salary paid is much less than the prevailing salary. There is no direct or indirect benefit given to the members, rather they were being paid consideration for the services rendered. The scope at the time of processing the application u/s 12AA of the Act is to satisfy with regard to the objects of the trust or the institution and the genuineness of its activities. Apart from the objections mentioned above, the CIT had not recorded any dissatisfaction with regard to the objects of the assessee or with regard to the genuineness of its activities. Tribunal rightly concluded that the issue with regard to violation of Section 40A(3) of the Act and the nature of donations received can be duly considered while finalising the assessment for the relevant period. There is no illegality or error in the view taken by the Tribunal. However, we may hasten to add that subsequently if the revenue is satisfied that the activities of the assessee are not for charitable purpose, it can always initiate action for cancellation of registration under sub-section (3) of Section 12AA - No substantial question of law arises.

Issues involved:
1. Interpretation of Section 12AA of the Income Tax Act, 1961 regarding registration of a trust or institution.
2. Examination of violation of Section 13(1)(c) of the Act in relation to payment of salaries to trust members.
3. Consideration of objections raised by the Commissioner of Income Tax regarding the genuineness of activities of the assessee society.
4. Assessment of the Tribunal's decision on the refusal of registration under Section 12AA based on alleged violations.
5. Analysis of the Tribunal's order in light of evidence and material on record.

Issue 1: Interpretation of Section 12AA of the Income Tax Act:
The High Court examined the application for registration under Section 12AA of the Act by a society and the subsequent refusal of registration by the Commissioner of Income Tax. The Court analyzed the provisions of Section 12AA, emphasizing the need to satisfy the genuineness of activities of the trust or institution before registration. The Court upheld the Tribunal's decision that objections unrelated to the trust's objects or genuineness of activities could be addressed during assessment, not as grounds for refusal of registration under Section 12AA.

Issue 2: Violation of Section 13(1)(c) in Salary Payments:
The Court considered the alleged violation of Section 13(1)(c) due to salary payments to trust members. The Tribunal found that the salaries paid were lower than prevailing rates and were reasonable for the services rendered. It was established that no direct or indirect benefit was given to the members, and the payments were for services. The Court concluded that there was no violation of Section 13(1)(c) based on the facts presented.

Issue 3: Objections by Commissioner of Income Tax:
The Commissioner raised objections regarding the salary payments to trust members and the nature of donations received by the society. However, the Tribunal found that these objections did not warrant refusal of registration under Section 12AA. The Court agreed with the Tribunal's assessment that these issues could be addressed during the assessment process and did not justify the rejection of registration.

Issue 4: Tribunal's Decision on Refusal of Registration:
The Tribunal's decision to set aside the rejection of registration under Section 12AA was challenged by the revenue. The Court, after thorough analysis, found that the Tribunal's decision was legally sound. It emphasized that objections unrelated to the trust's objects or genuineness of activities should not be grounds for refusal of registration. The Court dismissed the appeal and upheld the Tribunal's order.

Issue 5: Tribunal's Order in Light of Evidence:
The Court reviewed the evidence and material on record to assess the Tribunal's decision. It found that the Tribunal's conclusions were based on factual analysis and legal interpretation. The Court determined that no substantial question of law arose from the Tribunal's order, and no interference was warranted. Consequently, the Court dismissed the appeal.

In summary, the High Court's judgment clarified the interpretation of Section 12AA, addressed alleged violations of Section 13(1)(c), considered objections raised by the Commissioner of Income Tax, upheld the Tribunal's decision on refusal of registration, and analyzed the Tribunal's order in light of evidence on record. The Court concluded that the Tribunal's decision was legally sound, and no substantial question of law arose, leading to the dismissal of the appeal.

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