2021 (8) TMI 1088 - AT - Income Tax

Exemption u/s 11 - denial of registration under section 12AA(1)(b)(ii) to ITAT Bar Association - CIT s jurisdiction to denied deduction - HELD THAT - So far as grant of registration u/s 12AA of the Act is concerned, the Ld. CIT s jurisdiction is only to verify the objects of the institution and genuineness of the activities, meaning thereby that he has to satisfy himself that objects are charitable in nature and activities being carried on or to be carried on are genuine, meaning thereby that they are in consonance for achieving of charitable objects and nothing else. From a reading of section 12A and 12AA of the Act what is intended thereby is only a registration simplicitor of the entity/trust. The registration u/s 12AA of the trust has been made a condition precedent for claiming the benefits of the exemption u/s 11 and 12 of the Act. While processing the application for registration u/s 12AA of the Act, no examination of the modus of the application of the funds of the assessee is called for. The stage for consideration of the application of the funds vis-a-vis objectives of the trust arises at the time of assessment by the A.O. where benefits are claimed by the assessee in terms of section 11 and 12 of the Act and AO can examine the question as to the nature of the contributions etc. at the time of assessment. At the time of registration of the assessee u/s 12AA is concerned what is to be looked into is whether the assessee trust is a genuine one or whether it is a sham institution floated only to avail the benefits of exemption under the Act. CIT(E) could have examined only the genuineness of the association and its activities postulated, are to achieve the objects for which it is created. There was no material to show that assessee (ITAT Bar Association) was not genuine or that its activities were not as professed in the MOA and AOA. There was no finding that assessee (ITAT Bar Association) was a sham entity and therefore, we are inclined to set aside the order of the Ld. CIT(E) with the direction to him to consider the application for registration u/s 12AA of the Act, de novo, by passing a speaking order in accordance to law and after giving adequate opportunity to the assessee in accordance to law. Appeal of the assessee is allowed for Statistical purposes.

Summary

Issues Involved:
1. Denial of registration under section 12AA(1)(b)(ii) of the Income Tax Act, 1961.
2. Requirement of registration with the Registrar of Public Trusts or as a Section 8 Company under the Companies Act.
3. Verification of the genuineness of the activities and objects of the assessee.

Detailed Analysis:

1. Denial of Registration under Section 12AA(1)(b)(ii):
The primary grievance of the assessee was that the Commissioner of Income Tax (Exemption) denied the registration under section 12AA(1)(b)(ii) despite fulfilling the conditions for registration. The CIT(Exemption) had rejected the application on the grounds that the assessee was neither registered with the Registrar of Public Trusts nor as a Section 8 Company under the Companies Act. Additionally, the CIT(Exemption) noted the lack of documentary evidence to verify the genuineness of the activities and their alignment with the stated objects.

2. Requirement of Registration with Registrar of Public Trusts or as a Section 8 Company:
The Tribunal considered whether it was necessary for the assessee to be registered with the charity commissioner or as a Section 8 Company for the purpose of registration under section 12AA. The Tribunal referred to the case of Panchkuva Cloth Merchant Association, where it was held that such registration was not necessary. The Tribunal noted that Rule 17A of the Income Tax Rules does not mandate the existence of a trust deed or its registration. The Rule requires only evidential documents to establish the creation of the trust or institution.

3. Verification of the Genuineness of Activities and Objects:
The Tribunal emphasized that the CIT(Exemption)'s jurisdiction is limited to verifying the objects of the institution and the genuineness of its activities. The Tribunal found that the CIT(Exemption) had not provided specific reasons for rejecting the documents submitted by the assessee. The Tribunal observed that the assessee's activities, such as holding seminars, constructing a library, and conducting study meetings, fall under the definition of "general public utility" as per section 2(15) of the Act. Therefore, the assessee is eligible for registration under section 12AA.

The Tribunal also noted that the CIT(Exemption) had incorrectly emphasized the lack of donations received or paid by the assessee. It was clarified that receiving or paying donations is not a necessary criterion for such associations. The focus should be on whether the activities are genuine and in line with the stated charitable objects.

Conclusion:
The Tribunal concluded that the CIT(Exemption) had erred in denying the registration. The Tribunal set aside the order of the CIT(Exemption) and directed a fresh consideration of the application for registration under section 12AA, taking into account the specific documents and the nature of the assessee's activities. The appeal was allowed for statistical purposes, and the CIT(Exemption) was instructed to pass a speaking order after providing adequate opportunity to the assessee.

Order Pronouncement:
The order was pronounced in the open court on 23/08/2021 by placing the result on the Notice Board as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963.