2022 (7) TMI 995 - AT - Income Tax

Exemption u/s 11 - rejecting its application seeking registration u/s 12AA - voluntary contributions including corpus donations received - whether the objects of the assessee society were charitable in nature and whether the actual activities of the assessee society in pursuance of the stated objects were genuine or not? - HELD THAT - As far as voluntary contributions including corpus donations received by the assessee society and treatment thereof for tax purposes, prior to grant of registration is concerned, though the Ld. CIT(E) has expressed his reservation regarding treatment thereof by the assessee society by not disclosing the same as its income and paying taxes thereon, at the same time, he has himself stated that AO will be intimated to take remedial action in the matter which supports the contentions advanced by the Ld. AR that the same is a subject matter of examination by the AO at the time of assessment proceedings and cannot form the basis for denial of registration. Therefore, we agree that the said apprehension and reservation so expressed by the Ld. CIT(E) regarding treatment of donations for tax purposes where the remedy thereof admittedly and undisputedly lies with the Assessing officer at the assessment stage cannot act as the basis for denial of registration u/s. 12AA where the conditions for grant of such registration otherwise stand duly fulfilled. No adverse finding has been recorded by the Ld. CIT(E) regarding the objects of the assessee society being charitable in nature whereas the Ld. CIT D/R has contended that a presumption cannot be drawn in this regard and a specific finding is required to be recorded in this regard - On perusal of the provisions of section 12AA, we find that it talks about the Ld. CIT(E) satisfying himself about the objects of the assessee society and genuineness of its activities and thereafter, where he is satisfied, he shall pass an order in writing registrating the society and where he is not satisfied, he is again required to pass an order in writing refusing to grant the registration. We therefore find that the recording of satisfaction in either case has to be manifested by way of written order and the Ld. CIT(E) therefore has to pass an order specifying as to why he is satisfied or not satisfied in a particular case. Therefore, we agree with the contention of the Ld. CIT D/R that the Ld. CIT(E) has to record a specific finding as to his satisfaction regarding the objects of the assessee society being charitable in nature and genuineness of its activities carried out in pursuance of its stated objects. Therefore, for this limited purpose, the matter is set-aside to the file of the Ld. CIT(E) to examine and pass a speaking order after providing reasonable opportunity to the assessee.

Summary

Issues:
Appeal against rejection of registration under section 12AA of the IT Act, 1961.

Analysis:
1. The appeal was filed against the rejection of registration under section 12AA of the IT Act. The assessee argued that the CIT(E) should have only examined if the objects of the society were charitable and if its activities were genuine. The CIT(E) questioned the treatment of corpus funds in the Balance Sheets for previous years, suggesting they should have been treated as income. The assessee was willing to have this matter examined during assessment proceedings but argued against denial of registration solely based on this issue.

2. The CIT D/R contended that a specific finding regarding the charitable nature of the society's objects was necessary, and without it, the matter should be remanded. Regarding corpus donations, the CIT/DR relied on the CIT(E)'s findings that corpus donations should have been treated as income, citing relevant legal precedents. The CIT(E) concluded that the trust was not eligible for registration under section 12AA due to its treatment of corpus donations.

3. The Tribunal considered both arguments. It agreed that the treatment of donations for tax purposes should be examined during assessment proceedings and should not be a basis for denying registration. However, it acknowledged the need for a specific finding by the CIT(E) regarding the charitable nature of the society's objects. The Tribunal set aside the matter to the CIT(E) for further examination and directed the CIT(E) to pass a speaking order after providing a reasonable opportunity to the assessee.

4. Consequently, the appeal of the assessee society was allowed for statistical purposes, and the matter was remanded for the CIT(E) to re-examine and pass a specific order regarding the charitable nature of the society's objects.