2021 (9) TMI 840 - AT - Income Tax

Exemption u/s 11 - denial of registration 12AA - proof of charitable activity u/s 2(15) - Activity of running a school - showing the admission fees under the head reserve and surplus - HELD THAT - CIT(E), admittedly in the order has not objected to the charitable object of the society. In fact the applicant society is running school in the name and style of Sarashwati Public Senior Secondary School, and is registered with Punjab School Education Board. Thus the assessee's society is purely into imparting the education which is discernible from the activities undertaken by the society namely to run the educational school. The running of the school is undoubtedly a charitable purpose and falls within the four corner of section 2(15) of the IT Act. The objection raised by the ld. CIT(E) was with respect to showing the admission fees under the head reserve and surplus. The ld. CIT(E) was of the opinion that by showing the admission fees under the head reserve and surplus, the assessee has diverted the receipt to the balance sheet which should have been taken in the income and expenditure account. The above said wrong treatment of the admission fees under the head reserve and surplus, would not disentitle the assessee from getting the registration 12AA of the IT Act. As it is not the case of the CIT(E) that the activities of the assessee ceased to be charitable on account of the above said wrong diversion of admission fees in the balance sheet. For the purposes of registration, u/s. 12AA of the IT Act it is essential for the registration authorities to examine that the object of the assessee should be charitable and the activities of the assessee are genuine. In our view, in the present case the objects of the assessee are charitable and further the activities of the assessee are genuine. The wrong treatment of the assessee of the admission fees under the head reserve and surplus, undoubtedly an issue which the AO was required to be examined. It has a direct bearing on the eligibility of the assessee u/s. 10(23C) (iiiad). The financial year 2016-17 to 2018-19, are on record which shows that even if the admission fees is taken into the profit and loss account instead of balance sheet, then also the total aggregate receipt for the financial year 2016-17 and 2017-18 would below ₹ 1 crore. For the financial year 2018-19 the admission fees during the year was ₹ 506910/- and the total income for the year was 9240017/- thus the total aggregate annual receipt was ₹ 97,46927/-. (Page-22 and 23 of the paper book) thus even for the financial year 2018-19 relevant to the assessment year under consideration the assessee was eligible for u/s. 10(23C)(iiiad). As relying on DOCTOR MADAN LAL ATRI CHARITABLE TRUST VERSUS CIT EXMP. LUCKNOW (U.P.) 2021 (6) TMI 358 - ITAT AGRA we are of the opinion that the assessee is entitled registration accordingly we direct the CIT(E) to grant registration to the society from the date of application. - Decided in favour of assessee.

Summary

Issues Involved:
1. Refusal to register the appellant under Section 12AA of the Income Tax Act, 1961.
2. Rejection of the application for registration without proper consideration of facts and evidence.
3. Denial of a reasonable opportunity of being heard.
4. Validity of the order passed under Section 12AA(1)(b)(ii) post the insertion of Section 12AB.
5. The appellant's right to amend grounds of appeal.

Detailed Analysis:

1. Refusal to Register the Appellant under Section 12AA:
The appellant filed an application for registration under Section 12AA on December 23, 2019. The CIT (Exemption) rejected the application, stating that the applicant society was not eligible for registration under Section 12AA of the Act. The CIT (Exemption) did not doubt the charitable objects or the genuineness of the activities but raised concerns about the treatment of admission fees in the books of accounts. The appellant argued that the admission fees were treated as one-time receipts and credited to the balance sheet, which did not subvert the Income Tax Law or evade any tax.

2. Rejection of the Application Without Proper Consideration:
The appellant contended that the CIT (Exemption) disregarded the facts, submissions, and evidence provided. The CIT (Exemption) did not rebut the appellant's explanation regarding the treatment of admission fees. The appellant argued that the classification of one transaction in the books of accounts should not render the entire society ineligible for registration. The tribunal noted that the wrong treatment of admission fees under the head reserve and surplus should not disqualify the appellant from getting registration under Section 12AA, as the activities of the society remained charitable and genuine.

3. Denial of a Reasonable Opportunity of Being Heard:
The appellant claimed that no reasonable and proper opportunity of being heard was provided before refusing to register the society. The tribunal emphasized that Section 12AA requires the Commissioner to satisfy himself about the genuineness of the activities and compliance with other laws. The tribunal found that the CIT (Exemption) did not provide adequate opportunity for the appellant to present their case.

4. Validity of the Order Passed Under Section 12AA(1)(b)(ii):
The appellant argued that the order passed on September 23, 2020, under Section 12AA(1)(b)(ii) was invalid, as Section 12AB was inserted by the Finance Act, 2020, effective from June 1, 2020. The tribunal noted that the press note dated October 1, 2020, extended the applicability of Section 12AB to October 1, 2020. The tribunal rejected the appellant's contention, stating that the order was correctly passed under Section 12AA(1)(b)(ii) as per the prevailing law at the time.

5. The Appellant's Right to Amend Grounds of Appeal:
The appellant reserved the right to add, alter, or amend the grounds of appeal before the hearing. The tribunal did not specifically address this issue, as it was a procedural matter.

Conclusion:
The tribunal concluded that the CIT (Exemption) did not object to the charitable objects or the genuineness of the activities of the society. The wrong treatment of admission fees in the balance sheet should not disqualify the appellant from registration under Section 12AA. The tribunal directed the CIT (Exemption) to grant registration to the society from the date of application, emphasizing that the activities of the society were charitable and genuine. The appeal of the assessee was allowed.