2020 (3) TMI 1114 - AT - Income Tax

Exemption u/s 11 - registration u/sec. 12AA denied - Charitable activity u/s 2(15) - CIT(E) has observed that the trust in its MoA has been mentioned that on dissolution, the land will be given back to the heirs of the donors, which is not as per law - HELD THAT - Assessee-society is running an old age home in 03 acres of land situated in Vizianagaram. Assessee is providing paying guest accommodation for the needy. Paying guest accommodation is said to be provided to those who are admitted by their kids or nearby relatives. The expenditure for running the organization is from interest income earned on bank deposits held by it. The deposits held by the organization are said to be out of funds donated by the public. Enquiries revealed that some donors initially donated each ₹ 1.00 lakh to the Prema Samajam‟ as one time donation for the benefit of it and the donations so collected were deposited in bank accounts held by it. Some donations are extended by public for Annadhanam Scheme‟ for benefit of the assessee. Apart from the donations accepted from public, it also receives sponsorships for providing food from public on special occasions i.e. birthdays, marriage days etc. Prema Samajam collects ₹ 3,000/- from public to provide food to the inmates on the day of their choice who want to sponsor food for the inmates of it for arranging food for all the 100 inmates presently housed. Some Doctors are learnt to be visiting Prema Samajam extending their free service to treat the inmates on fortnightly basis. One more building also sponsored by the Visakha Dairy Trust, Visakhapatnam. After examining the objects and activities carried by the assessee and also report submitted by the ITO (Exemptions), Visakhapatnam which reveals that the assessee is running old age home providing free shelter and food to at least 50 destitutes and also extending services to the poor people and free medical treatment. The source of income of the assessee is donations collected from the public and interest income deposited in the banks. Assessee is solely existed for the purpose of running society to carry the charitable activities, even assessee is charging some amount from the people who are admitted in the paying guest accommodation and expenses borne by the children or relatives. Ultimately all the funds are used for the benefit of the people who are admitted in the society, no profit making activity is carried out by the assessee. Under these facts and circumstances of the case, we are of the opinion that without there being any doubt, the assessee is running its society in charitable lines and is deserves to be granted registration u/sec. 12A of the Act. CIT(E) rejected the 12A registration on the ground that clause mentioned in the gift deed is not in accordance with law is concerned; we find that the above reason given by the ld.CIT(E) is not correct in rejecting the 12A registration to the assessee. CIT(E) not at all examined what the assessee‟s activities whether assessee actually carrying charitable activities are not. Without doing so, the ld. CIT(E) picked up an irrelevant clause in the gift deed and rejected 12A, CIT(A) is not correct. We, therefore, granting 12A to the assessee. - Decided in favour of assessee.

Summary

Issues: Rejection of 12A registration by the Commissioner of Income Tax (Exemptions)

Analysis:
The appeal was against the rejection of 12A registration by the Commissioner of Income Tax (Exemptions), Hyderabad. The assessee, a society registered under the Societies Registration Act, sought registration under section 12AA of the Income Tax Act, 1961. The Commissioner observed that the trust's Memorandum of Association stated that the land would revert to the heirs of the donors on dissolution, which was deemed contrary to the law. The Commissioner rejected the registration based on this observation. On appeal, the assessee argued that it was engaged in charitable activities such as running an old age home, providing free education, and aiding individuals affected by leprosy. The Income Tax Officer (Exemptions) submitted a report supporting the rejection. However, the Tribunal found that the society, named "Prema Samajam," was indeed involved in charitable activities, including providing shelter and food for destitutes above 50 years of age. The Tribunal noted that the organization's income sources were donations from the public and interest income from bank deposits. It concluded that the society operated solely for charitable purposes, deserving registration under section 12A.

Conclusion:
The Tribunal disagreed with the Commissioner's reasoning for rejecting the registration based on a clause in the gift deed, emphasizing that the society's actual charitable activities should have been the primary consideration. Since the society was clearly engaged in charitable endeavors without any profit-making activities, the Tribunal granted the 12A registration to the assessee, overturning the Commissioner's decision. The appeal filed by the assessee was allowed, and the order was pronounced in open court on March 18, 2020.