2022 (1) TMI 579 - AT - Income Tax

Exemption u/s 11 - rejection of application seeking registration u/s 12AA as well as u/s 80G - appellant is a company incorporated under the provisions of section 25 of the Companies Act, 1956 - main object of the appellant company is to promote commerce, art, culture, social development, social upliftment by way of bringing the tourism industry and craft based retailers together by organizing various type of festivals, workshops, events, dustkar programmes, design mart shows for rural craftspeople and to facilitate improved access to the folk arts and music of the region - what would be the situation where the trust/society is in existence for quite some time prior to seeking registration and is not a newly registered trust/society and at the same time, has claimed to have not undertaken any activities in pursuance of its objects in the past? - HELD THAT - We are of the view that ratio decidendi of the aforesaid decision of the M/S. ANANDA SOCIAL AND EDUCATIONAL TRUST VERSUS THE COMMISSIONER OF INCOME TAX ANOTHER 2020 (2) TMI 1293 - SUPREME COURT can be applied equally in the instant case where though the assessee company has been in existence for quite some time and is clearly not a newly registered company but at the same time, since no activities are carried on by it since its inception as so claimed by it, it can still apply for registration. However, in this case, where the assessee company is in existence for more than a decade, the ld CIT(E) is well within his jurisdiction to examine such claim of no-activity by the assessee company and where it is found that some activities were actually been carried on by the assessee company, he is bound to record his satisfaction as to whether the activities so carried on are genuine and in accordance with its stated objectives or not. Secondly, the ld CIT(E) is well within his jurisdiction u/s 12AA(1)(a)(ii) to examine whether the assessee company is compliant under the extant laws as applicable and whether there are any changes in the memorandum and articles of association, the objects clause and constitution etc. since its incorporation and at the time of seeking registration. And thirdly, what are the proposed activities of the assessee company and whether they are genuine in the sense that they are in line with the objects of the assessee company or not again needs to be examined and a finding has to be recorded by the ld CIT(E) before he actually accepts or reject the application seeking registration u/s 12AA of the Act. We therefore set-aside the matter to the file of the CIT(E) to examine the matter afresh in light of aforesaid discussions after providing reasonable opportunity to the assessee company. Application seeking registration u/s 80G on account of the fact that it has been denied registration u/s 12AA of the Act. Since we have set-aside the matter pertaining to registration u/s 12AA to the file of the ld CIT(E), this matter is also set-aside to the file of the ld CIT(E) to be decided afresh after providing reasonable opportunity to the assessee company. Appeals of the assessee are allowed for statistical purposes.

Summary

Issues Involved:
1. Delay in filing the appeals.
2. Rejection of application seeking registration under section 12AA.
3. Rejection of application seeking registration under section 80G.

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeals:
The assessee's appeals were delayed by 44 days due to the COVID-19 pandemic and consequent lockdown. The impugned orders were passed on 30.03.2021 and received the same day, with the appeal filed on 12.07.2021. The delay was attributed to the pandemic, and the assessee cited the Supreme Court's decision extending the limitation period due to COVID-19. The Revenue did not object, and the Tribunal found the delay reasonable, condoning it and admitting the appeals for adjudication on merits.

2. Rejection of Application Seeking Registration under Section 12AA:
The assessee, a company incorporated under section 25 of the Companies Act, 1956, aimed to promote commerce, art, culture, and social development. The application for approval under section 12AA was filed on 04.09.2020 and rejected by the CIT(E) on 30.03.2021. The rejection was based on the non-undertaking of charitable activities. The assessee argued that there is no legal requirement to undertake charitable activities before seeking approval under section 12AA, citing judicial precedents supporting this view. The Revenue contended that the CIT(E) must examine both the objects and the genuineness of the activities, and the assessee failed to provide complete details and evidence of charitable activities.

The Tribunal noted that the CIT(E) requested additional documentation and explanations from the assessee, who provided partial information. The CIT(E) concluded that the assessee did not establish the genuineness of its activities and rejected the application. The Tribunal referred to the Supreme Court's decision in Ananda Social & Educational Trust vs. CIT, which held that a newly registered trust could be granted registration based on its objects without having undertaken any activities. The Tribunal emphasized that the term "activities" includes "proposed activities" and that the CIT(E) must consider whether the trust's objects are genuinely charitable and whether the proposed activities align with these objects.

The Tribunal also addressed the situation where a trust has been in existence for some time without undertaking activities. It concluded that the CIT(E) could examine the claim of no-activity and verify compliance with extant laws and any changes in the trust's constitution. The matter was set aside to the CIT(E) for a fresh examination in light of these discussions.

3. Rejection of Application Seeking Registration under Section 80G:
The CIT(E) rejected the application under section 80G because the registration under section 12AA was denied. Since the Tribunal set aside the matter regarding section 12AA registration, the section 80G application was also remanded to the CIT(E) for reconsideration.

Conclusion:
Both appeals were allowed for statistical purposes, and the matters were remanded to the CIT(E) for a fresh examination, providing reasonable opportunity to the assessee. The order was pronounced in the open Court on 15/11/2021.