2020 (8) TMI 359 - AT - Income Tax

Exemption u/s 11 - application for registration u/s 12AA rejected - reason specified by the Ld. CIT (E) for rejecting the assessee s application for registration u/s 12AA of the Act is that since no activities had been undertaken by the society, it was not possible to register it presumably because it was not possible to form satisfaction about whether the activities of the society were genuine - HELD THAT - This issue has been settled in the case of Ananda Social Educational Trust vs. CIT 2020 (2) TMI 1293 - SUPREME COURT as held that Commissioner would be bound to record the finding that an activity or activities actually carried on by the Trust are not genuine being not in accordance with the objects of the Trust. Similarly, the situation would be different where the trust has before applying for registration found to have undertaken activities contrary to the objects of the Trust. Undisputedly, in the present case, the Ld. CIT (E) has not recorded a finding that the activities of the Society were not genuine or were not in accordance with the objects of the Society. As per CIT (E) that no activities had been carried out by the assessee society. Therefore, it is our considered opinion that the Ld. CIT (E) has unnecessarily enlarged the scope of the mandate to be exercised by him at the time of grant of registration u/s 12AA. He has gone into an all together different consideration for grant of registration whereas he was only to consider whether the objects and the activities were genuine were not. Thus, the observation of the Ld. CIT (E) that since no activities were carried out, the registration cannot be granted, does not hold good. CIT (E) went on to make an irrelevant observation that the subscription fee of ₹ 3 ₹ 5 to be charged from various categories of members was high and, therefore, the activity of the society could not be considered charitable. We find ourselves unable to be in agreement with the Ld. CIT (E) as this being a valid reason for refusal to grant of registration u/s 12AA. The quantum of fee/subscription only without any other corroborating finding establishing that the activities are not charitable cannot be a ground for refusal for grant of registration and we hold that registration could not have been denied on this ground also. CIT (E) has given altogether invalid reasons for refusing the grant of registration u/s 12AA of the Act. He has also chosen not to comment adversely on the nature of the objects which strengthens the cause of the assessee society. We set aside the order of the Ld. CIT (E) by holding that the Ld. CIT (E) has dismissed the application for registration without any justifiable reason and by considering completely irrelevant factors. CIT (E) has also not recorded any adverse finding that the objects of the society were not charitable or were non-genuine. CIT (E) is directed to grant of registration u/s 12AA of the Act to the assessee Society. - Decided in favour of assessee.

Summary

Issues Involved:

1. Rejection of application for registration u/s 12AA of the Income Tax Act, 1961.
2. Assessment of the charitable nature of the society's objectives and activities.
3. Validity of the reasons provided by CIT (E) for rejecting the registration.
4. Consideration of the society's compliance with its rules and regulations.
5. Impact of temporary inactivity or suspension of activities on the charitable status.
6. Relevance of subscription fees in determining charitable status.

Detailed Analysis:

1. Rejection of Application for Registration u/s 12AA:
The assessee society appealed against the order dated 30.09.2019 by the CIT (E), New Delhi, which rejected its application for registration under section 12AA of the Income Tax Act, 1961. The society, established in 1941, sought registration to further its charitable objectives. The CIT (E) rejected the application, citing various reasons, including the society's lack of charitable activities over the years and the high subscription fees.

2. Assessment of Charitable Nature:
The society's memorandum of objectives included promoting educational, social, cultural, and recreational activities, cultivating literary and artistic talents, providing a common meeting place with a reading room and library, and promoting fine arts. Despite these objectives, the CIT (E) noted that the society had not carried out any charitable activities in recent years and used funds received from the Shriram Group for building construction rather than charitable purposes.

3. Validity of Reasons for Rejection:
The CIT (E) observed that the subscription fees were high, and membership required managing committee approval, suggesting the society was for specific persons' benefit rather than public charitable purposes. Additionally, the CIT (E) noted irregularities in the society's financial audits and compliance with rules from 2006 to 2010. However, the Tribunal found these reasons insufficient for denying registration, emphasizing that the CIT (E) did not record any findings that the society's objects were not genuine or charitable.

4. Compliance with Rules and Regulations:
The CIT (E) highlighted the society's non-compliance with certain rules and regulations, including delayed audits and unauthorized construction on the leased land. The Tribunal acknowledged these issues but noted that they did not undermine the society's genuine charitable nature, especially since the new governing body took steps to revive the society's activities and comply with regulations.

5. Impact of Temporary Inactivity:
The society argued that temporary inactivity due to unforeseen circumstances, such as the dilapidated building and legal disputes, should not negate its charitable status. The Tribunal agreed, citing the Supreme Court's ruling in Ananda Social & Educational Trust vs. CIT, which stated that proposed activities should be considered when assessing a trust's genuineness for registration purposes.

6. Relevance of Subscription Fees:
The CIT (E) considered the subscription fees too high for a charitable society. However, the Tribunal found this irrelevant, stating that the quantum of fees alone could not determine the charitable nature of the society's activities. Without any corroborating findings establishing non-charitable activities, the fees were not a valid ground for denying registration.

Conclusion:
The Tribunal concluded that the CIT (E) provided invalid reasons for rejecting the society's registration application. The CIT (E) did not find the society's objects non-charitable or non-genuine and focused on irrelevant factors such as subscription fees. Therefore, the Tribunal set aside the CIT (E)'s order and directed the grant of registration u/s 12AA of the Income Tax Act to the assessee society. The appeal was allowed, and the order was pronounced on 13/08/2020.