2021 (1) TMI 157 - AT - Income Tax

Exemption u/s 11 - denial of registration u/s. 12AA - Survey proceedings - objects of trust were to establish educational institutions for providing training in professional, technical, information technology, medical and general education from nursery to degree classes and also higher education - HELD THAT - The Hon'ble Karnataka High Court in the case of Garden City Educational Trust 2009 (7) TMI 832 - KARNATAKA HIGH COURT has taken a view that grant of registration will not by itself confer benefits of exemption u/s. 11 and 12 of the Act to a trust and that so long as the activities are charitable in nature and if there is no evidence to show that the activities of the trust are not being carried out genuinely, then the registration has to be granted - CIT(E) seems to have taken recourse to the provisions of section 12AA(4) of the Act which was inserted by the Finance Act of 2014 w.e.f. 01.10.2014. We find that those provisions are applicable only when the CIT(E) seeks to cancel the registration already granted to a trust. Those provisions cannot be made applicable for grant of registration u/s. 12AA of the Act. None of the findings given in the survey report can justify the refusal of grant of registration to the assessee and the reasons given by the assessee in this regard are found to be acceptable. The CIT(E) has fallen into an error in concluding that the assessee did not adhere to the directions of the Tribunal and provide the necessary clarification. As assessee has also given clarification on other aspects, which will have a bearing on the grant of registration u/s. 12A of the Act. In the impugned order, the CIT(E) has neither dealt with those contentions nor has he found those contentions to be not correct, thus we are of the view that the assessee should be given the benefit of registration u/s.12AA - Appeal of assessee allowed.

Summary

Issues Involved:
1. Rejection of application seeking registration under Section 12AA of the Income-tax Act, 1961.
2. Survey findings under Section 133A and their impact on the registration application.
3. Application of Section 12AA(4) in the context of granting registration.
4. Examination of the genuineness of the activities of the trust.
5. Legal precedents and their applicability.

Detailed Analysis:

1. Rejection of Application Seeking Registration under Section 12AA:
The assessee, a trust established under a deed dated 30.11.2012 and amended on 1.9.2017, aimed to provide educational services. The application for registration under Section 12AA was initially rejected by the CIT(Exemptions) on 27.3.2019. The Tribunal remanded the case for fresh consideration, emphasizing the need for a thorough enquiry into the facts brought out during the survey and the charitable nature of the trust's activities.

2. Survey Findings under Section 133A and Their Impact on the Registration Application:
During a survey on 14.8.2017, it was found that the assessee had not obtained registration under Section 12AA and had not filed returns for several years. The assessee subsequently applied for registration and filed returns for AYs 2016-17 and 2017-18, claiming exemption under Section 11. The CIT(E) cited several issues from the survey, including non-maintenance of proper books, collection of fees in cash, failure to deduct TDS, and allegations against the chairman. The assessee countered these points, arguing they were irrelevant to the registration process.

3. Application of Section 12AA(4) in the Context of Granting Registration:
The CIT(E) referenced Section 12AA(4), introduced by the Finance Act, 2014, which allows for the cancellation of registration if the trust's activities violate provisions of Sections 11 and 12 or Section 13(1). However, the Tribunal clarified that Section 12AA(4) pertains to cancellation of existing registrations, not the initial grant. The CIT(E)'s reliance on this provision was deemed misplaced.

4. Examination of the Genuineness of the Activities of the Trust:
The CIT(E) concluded that the trust's activities did not align with its charitable objects, citing unexplained investments added under Section 69 in assessments for AYs 2016-17 and 2017-18. The Tribunal noted that these additions were under appeal and unrelated to the trust's activities. The Tribunal emphasized that the trust's educational objectives were charitable and there was no evidence of non-genuine activities.

5. Legal Precedents and Their Applicability:
The assessee cited the Karnataka High Court's decision in CIT v. M/s. Garden City Educational Trust, which held that trusts with educational objectives qualify for registration under Section 12A, provided their activities are charitable. The Tribunal agreed, stating that registration does not confer exemption benefits, which are subject to compliance with Sections 11 and 12. The Tribunal found no basis for the CIT(E)'s refusal to grant registration, given the lack of evidence against the trust's genuine charitable activities.

Conclusion:
The Tribunal concluded that the CIT(E) erred in refusing registration under Section 12AA. The assessee's explanations were found satisfactory, and the objections raised by the CIT(E) were not substantiated. The Tribunal directed the CIT(E) to grant registration to the assessee, emphasizing that the trust's activities were charitable and genuine.

Result:
The appeal by the assessee was allowed, and the Tribunal directed the grant of registration under Section 12AA of the Income-tax Act, 1961.