2020 (2) TMI 579 - HC - Income Tax

Exemption u/s 11 - grant registration u/s 12AA - proof of charitable activity u/s 2(15) - HELD THAT -CIT while processing the application for registration has to look into the genuineness of the activities of the trust and satisfy himself about the genuineness of the activities. The issues raised with regard to the security deposit being not in comparison vis-a-vis the rent received will not have impact on the genuineness of the activities. It is an admitted case that the security received was duly reflected in the books of account. Similarly, the enrouting of advance fee is also an issue with regard to the accounting. These having been shown in the books can be dealt with in detail by the Assessing Officer while framing the assessment and allowing exemption under Section 11 of the Act. The present stage would not be appropriate for the same. Additional land purchased, the Tribunal rightly observed that CIT has a power under Section 12AA(3) of the Act in case of utilisation of the said land against the aims and objects of the society. The grievance against the surplus income not being reasonable is baseless in absence of any challenge to the finding recorded by the Tribunal that excess income has been ploughed back by the society for furtherance of its object. There is no illegality in the order of the Tribunal directing grant of registration to the society. However, it would be needless to state that in case the revenue subsequently comes to the conclusion that the activities of the society are not for charitable purposes, it would always be at liberty to initiate action in accordance with law including invoking of sub-section (3) of Section 12AA of the Act. No substantial question of law

Summary

Issues:
1. Appeal against the order of the Income Tax Appellate Tribunal directing registration under Section 12AA of the Income Tax Act.
2. Interpretation of the Tribunal's decision in light of judgments by other High Courts.
3. Discrepancies in the treatment of advance rent, advance fee, and surplus income by the Commissioner of Income Tax.
4. Relevance of additional land purchase for educational purposes.
5. Allegation of perversity in the Tribunal's order based on evidence and material on record.

Issue 1:
The appeal was filed against the Income Tax Appellate Tribunal's order directing registration under Section 12AA of the Income Tax Act. The Tribunal held that the genuineness of activities should be assessed when the return is filed, and any violation could be addressed under Section 12AA(3) of the Act. The Tribunal found that the advance fees and security deposits did not impact the genuineness of activities and that surplus income was reinvested for the society's objectives.

Issue 2:
The appellant raised concerns regarding the Tribunal's reliance on judgments by other High Courts and the direction to grant registration instead of re-examining the application. The Tribunal's decision was based on the scope of assessing registration applications and the application of income in line with the society's objectives.

Issue 3:
The Commissioner of Income Tax had rejected the registration application citing discrepancies, including the treatment of advance rent, advance fee, and surplus income. However, the Tribunal found these issues to be immaterial for the registration process and noted that the assessment could address these concerns under Section 11 of the Act.

Issue 4:
The relevance of the additional land purchase for educational purposes was questioned. The Tribunal clarified that the CIT could intervene under Section 12AA(3) if the land use deviated from the society's objectives, indicating that the land purchase did not impact the genuineness of activities.

Issue 5:
The appellant alleged perversity in the Tribunal's order, claiming it contradicted the evidence and material on record. However, the Tribunal's findings regarding the reinvestment of surplus income for the society's objectives were upheld, dismissing the appeal and emphasizing the possibility of subsequent actions by the revenue authorities if charitable purposes were not met.

In conclusion, the High Court dismissed the appeal, stating that no substantial question of law arose, and no interference was warranted in the Tribunal's order directing registration under Section 12AA of the Income Tax Act.