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2021 (11) TMI 417 - AT - Income TaxExemption u/s 11 - Denying of registration u/s 12A - HELD THAT - Assessee society was formed keeping in view the benefit of the small and marginal farmers. The main objective of the assessee society is involving in organizing small and marginal farmers as Farmers Interest Groups, Farmers Producers Organisation and Farmers Producers Company for endowing them with bargaining power and economies of scale. The assessee society s operation was for enhancing agriculture production and farmers profitability through agriculture undertaking and by establishing the effective connect between the farmers and the agriculture eco system developed by the Government of India. The objects of the assessee society are in the nature of advancement of any other object of the general public utility which fall in the definition of charitable purpose as defined u/s 2(15) - CBDT in Circular Number 11/2008 dt. 19/12/2008 clarify vide para 2.2 that the relief of the poor will include within its ambit the purposes such as relief to destitute orphas or the handicapped, disadvantaged women or children, small and marginal farmers etc. Welfare of small and marginal farmers also comes under the category relief of the poor which in the aforesaid Circular has been included under the definition of charitable purposes u/s 2(15) - In the present case, it is not in dispute that the assessee society is implementing the various new projects launched by the State Government as Crop Cluster Development Programme for Horticulture Clusters, which is to be implemented through FPO and this programme is aimed on the backward and forward integration by creating farm infrastructures and the FPO in turn enables the farmers in enhancing the productivity through efficient cost effective and sustainable resources, it also remove hurdles in enabling farmers access to the market both is buyers and sellers. Therefore the main object of the assessee society is to work for the benefit of the small and marginal farmers and to protect the interest of the farmers which comes under the definition of relief of the poor as clarified in Circular No. 11/2008 dt. 19/12/2008 issued by CBDT. Main object of the assessee society is to benefit the small farmers which comes under the category of relief to the poor and is a charitable activity therefore the assessee society fulfills the conditions laid down in Section 2(15). As per the Memorandum of Association and byelaws the assessee society was incorporated to carry out the objective which were essentially directed at protecting the interest of the farmers which comes under the category of relief to poor. In the present case, the Ld. CIT(E) while rejecting the application moved by the assessee for registration u/s 12AA commented on various expenses incurred by the assessee which he was not required to see at the time of granting the registration since the application of income by incurring the expenses has to be considered by the A.O. on year to year basis after the assessee files its return of income claiming exemption under section 11. CIT(E) was not justified in rejecting the application moved by the assessee for registration under section 12AA of the Act. Accordingly the impugned order is set aside and the Ld. CIT(E) is directed to grant the registration to the assessee society under section 12AA - Decided in favour of assessee.
Issues Involved:
1. Legality of the order passed by the Commissioner of Income Tax (Exemptions). 2. Denial of registration under section 12A on the grounds of not ensuring benefit to the public at large. 3. Allegation of non-utilization of expenditure for charitable purposes during FY 17-18. 4. Treatment of unspent grant-in-aid from the state government as income. 5. Filing of income tax return in Form No. ITR-5 instead of ITR-7. Issue-wise Detailed Analysis: 1. Legality of the Order Passed by the Commissioner of Income Tax (Exemptions): The appellant contested that the order passed by the Commissioner of Income Tax (Exemptions) [CIT(E)] was illegal, arbitrary, and against the facts of the case. The tribunal examined the grounds of appeal and the arguments presented by both the assessee and the revenue authorities. 2. Denial of Registration Under Section 12A: The CIT(E) denied the registration under section 12A, holding that the appellant's activities did not ensure benefit to the public at large and thus did not qualify as a "charitable purpose." The CIT(E) argued that the appellant's operations were for enhancing agriculture production and farmer profitability, which did not disseminate direct benefits to the predominant section of farmers and thus did not qualify as charitable. The tribunal, however, found that the appellant's objectives were in line with the definition of "charitable purpose" under section 2(15) of the Act, as they aimed at the welfare of small and marginal farmers, falling under "relief of the poor." 3. Allegation of Non-Utilization of Expenditure for Charitable Purposes During FY 17-18: The CIT(E) observed that the main expenses incurred by the appellant were for Agri Leadership Summit, Consultancy Charges, Foreign Tour, Professional Charges, Salary, and Management of FPOs, which did not qualify as utilization for charitable purposes. The tribunal noted that at the stage of granting registration under section 12AA, the CIT(E) is not required to examine the application of income but only to see if the objects of the society are charitable in nature. The tribunal found that the CIT(E) had overstepped by commenting on the expenses incurred. 4. Treatment of Unspent Grant-in-Aid from the State Government as Income: The CIT(E) treated the unspent grant-in-aid received from the state government as the income of the appellant, thereby denying registration under section 12A. The tribunal did not find sufficient grounds to support this treatment and emphasized that the primary objective of the appellant was to work for the benefit of small and marginal farmers, which falls under "relief of the poor" as per CBDT Circular No. 11/2008. 5. Filing of Income Tax Return in Form No. ITR-5 Instead of ITR-7: The CIT(E) noted that the appellant had filed its return of income for the AY 18-19 in Form No. ITR-5, which is required to be filled by firms, AOPs, and BOIs, instead of ITR-7, which is meant for entities working on the principle of "no profit no loss." The tribunal found that this alone was not sufficient to deny registration under section 12AA, as the main criterion was whether the appellant's objectives were charitable in nature. Conclusion: The tribunal concluded that the CIT(E) was not justified in rejecting the application for registration under section 12AA. The objects of the appellant society were charitable, aimed at the welfare of small and marginal farmers, and fell under the definition of "relief of the poor." The tribunal set aside the impugned order and directed the CIT(E) to grant registration under section 12AA of the Act. The appeal of the assessee was allowed.
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