2020 (2) TMI 580 - HC - Income Tax

Exemption u/s 11 - grant of registration u/s 12AA - Charitable activity u/s 2(15) - HELD THAT - The finding recorded by the Tribunal is not disputed that the vehicles added were school buses. Even if transportation was not specifically mentioned in the aims and objects of the society, the same will not make any difference. Carrying children to the schools and back home is an essential for running schools especially if the schools are in rural areas. The safety of students is of utmost importance. There is another aspect of the matter that purchase of school buses will not amount to amassing assets, rather it is in furtherance of the object of the society to provide quality education. The funds were utilised for education purposes. There is no challenge to the finding of the Tribunal that lower salary paid was not at the cost of quality of education, moreover this itself cannot be a consideration for refusing registration under Section 12AA of the Act. At this juncture, it would be pertinent to note that merely the fact that the society was earlier registered under Section 10(23C) of the Act cannot be taken as an adverse ground for consideration of the application for registration under Section 12AA of the Act. It is for the society to take prudent decision for itself as to which section would be more beneficial. The objects of the society were not doubted by the CIT except for the objections raised above. The denial was merely on surmises and conjectures. There is no error 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

Issues:
1. Registration under Section 12AA of the Income Tax Act, 1961
2. Eligibility of society for registration based on activities and objectives
3. Consideration of fleet expansion and salary structure in registration decision

Issue 1: Registration under Section 12AA of the Income Tax Act, 1961

The appeal was filed against the Income Tax Appellate Tribunal's order directing the Commissioner of Income Tax to grant registration under Section 12AA of the Act to the respondent-society. The Tribunal's decision was challenged by the revenue, raising substantial questions of law regarding the registration process. The Tribunal's order was based on the society's application for registration, which was rejected by the CIT citing reasons such as the society's previous registration under a different section of the Act and expenditure on fleet expansion not aligning with its objectives. The Tribunal found the rejection to be based on suspicion and allowed the appeal, emphasizing that the fleet expansion was for school buses and lower staff salaries did not compromise education quality.

Issue 2: Eligibility of society for registration based on activities and objectives

The society, established with the aim to educate rural children and provide modern education techniques, applied for registration under Section 12AA after availing benefits under Section 10(23C) for several years. The rejection by the CIT was primarily due to suspicions regarding the society's activities, including fleet expansion and salary structure. However, the Tribunal found that the society's objectives were genuine and the fleet expansion was essential for providing quality education, especially in rural areas. The Tribunal emphasized that the lower staff salaries did not impact education quality and that the society's previous registration under a different section should not be a hindrance to seeking registration under Section 12AA.

Issue 3: Consideration of fleet expansion and salary structure in registration decision

The revenue contended that the society's focus on adding vehicles, despite it not being a stated objective, raised concerns. However, the Tribunal clarified that the added vehicles were school buses, essential for student transportation and safety. The purchase of school buses was deemed as furthering the society's objective of providing quality education rather than amassing assets. The Tribunal also noted that lower staff salaries did not compromise education quality and should not be a basis for denying registration under Section 12AA. The Tribunal's decision to grant registration was upheld, with a caution that the revenue could take action if the society's activities were found to be non-charitable in the future.

In conclusion, the High Court dismissed the appeal, finding no substantial question of law and no interference warranted in the Tribunal's decision to grant registration to the society under Section 12AA of the Income Tax Act. The judgment emphasized the importance of considering the genuine objectives of a society and the essential nature of activities like fleet expansion for providing quality education, even if not explicitly mentioned in the society's aims and objects.

← Previous Next →