2023 (3) TMI 403 - AT - Income Tax

Exemption u/s 11 - application u/s 12A for grant of registration was rejected - Charitable activity u/s 2(15) - Objects of institutions or society trust AND genuineness of activities - PCIT (E ) stated that the applicant society has not submitted the certified copy of memorandum of association and bye-laws as submitted in the office of registrar of societies and firms/Joint stock Companies thus in the absence of which the genuineness of activities of the society can not be corroborated with the stated aims and objects and the genuineness of the activities thereof - contention of the appellant that he has been granted provisional registration in form 10AC - HELD THAT - The applicant trust has been created an arrangement whereby it is not only laundering its income but also diverting the same in the hands of the trustee/members. Thus the CIT(E) held that the applicant trust is not established for the purpose of charity as its activity are restrictive and not in the interest of public at large rather it is misused as an instrument in the hands of trustee/members and thus the activities carried out by it are not genuine by any definition. The assessee has merely alleged that PCIT(Exemptions) has not considered completely the information/ evidence brought on record in correct perspectives while denying the registration u/s 12AA - The assessee failed to file corroborative documentary evidence before the PCIT and even before us in rebuttal to the observation of the PCIT that the activities of Applicant trust were not in consonance to the objectives of the Trust. In our view the appellant Trust was not established for the purpose of charity. Meaning thereby that the appellant Trust was involved in activities which are not genuine by any definition. Since the appellant Trust is an ongoing entity at the stage of grant of registration u/s 12AA of the Act the Ld. CIT(Exemption) is supposed to examine both the objects of the Trust and genuineness of its activities in consonance to its objectives. In the present case the appellant Trust has been an ongoing entity actually carrying its activities therefore the Commissioner has been bound to record the finding to the effect whether the activity or activities actually carried on by the Trust were genuine and charitable in nature in accordance to the objects of the Trust - the instant appellant trust has although have undertaken activities but contrary to the objects of the Trust. In our view the PCIT while considering applications for grant of registration under section 12AA is bound to examine not only objects of institutions or society trust to ascertain genuineness of activities but he is also free to call for audited accounts or other such documents for recording satisfaction where society trust or institution genuinely seeks to achieve object which it professes. - Decided against assessee.

Summary

Issues Involved:
1. Legality and factual correctness of the CIT (Exemption)'s order.
2. Submission and adequacy of the Memorandum of Association (MoA) and other documents.
3. Restrictive nature of the society's aims and objectives.
4. Genuineness of the society's activities and their alignment with charitable purposes as per Section 2(15) of the Income Tax Act, 1961.
5. Examination of financial transactions and their implications on the society's charitable status.

Issue-wise Detailed Analysis:

1. Legality and Factual Correctness of the CIT (Exemption)'s Order:
The appellant contended that the order of the CIT (Exemption) was both factually and legally incorrect. However, the Tribunal upheld the CIT's decision, stating that the CIT (Exemption) is empowered to examine and verify the charitable nature of the activities and their alignment with the trust's objectives. The Tribunal found no merit in the appellant's claims and dismissed the appeal.

2. Submission and Adequacy of the Memorandum of Association (MoA) and Other Documents:
The appellant argued that they had submitted the MoA and other relevant documents electronically. The CIT (Exemption) noted that the appellant had not submitted a certified copy of the MoA and bye-laws as required, which hindered the verification of the society's activities. The Tribunal supported the CIT's observation, emphasizing the necessity of these documents for corroborating the genuineness of the society's activities.

3. Restrictive Nature of the Society's Aims and Objectives:
The CIT (Exemption) observed that the society's aims and objectives were restrictive, primarily benefiting the residents of Balluana village. The Tribunal agreed with this assessment, noting that the activities were limited to a specific group and did not serve the general public. This restrictive nature was a significant factor in denying the registration under Section 12A.

4. Genuineness of the Society's Activities and Their Alignment with Charitable Purposes:
The CIT (Exemption) found that the society's activities did not align with the definition of "charitable purpose" under Section 2(15) of the Income Tax Act, 1961. The Tribunal highlighted that the major expenditures were on specific activities like langer (community kitchen) for the village residents, with no substantial evidence of broader charitable activities. The Tribunal concluded that the society's activities were not genuinely charitable and were limited to a specific group, thus supporting the CIT's decision.

5. Examination of Financial Transactions and Their Implications:
The CIT (Exemption) raised concerns about financial transactions, particularly withdrawals made by Mr. Sadhu Singh and lease income. The Tribunal noted that the appellant failed to provide satisfactory explanations or documentary evidence for these transactions. The Tribunal inferred that the funds were potentially misused by the trustees/members, further supporting the decision to deny registration.

Conclusion:
The Tribunal upheld the CIT (Exemption)'s order, rejecting the appellant's application for registration under Section 12A. The Tribunal emphasized the necessity of genuine charitable activities benefiting the general public and the importance of proper documentation and financial transparency. The appeal was dismissed, and the CIT (Exemption)'s decision was sustained.