2023 (2) TMI 1365 - AT - Income Tax

Denial of registration to the assessee trust u/s 12AA - objects of the trust and genuineness of the activities not charitable - appellant trust main grievance is that the Ld. PCIT has not considered the information/ evidence brought on record, in correct perspectives while denying the Registration u/s 12AA HELD THAT - PCIT s quarries regarding the corpus donation received from trustees is being not for specific purpose; that the salaries and wages paid to the teaching staff were not as per minimum wages act and that the assessee trust earned huge surplus, which is not redeployed into education purpose and in furtherance of charitable activities if any besides clarification on surplus funds accumulation incurred on capital expenditure, in turn resulting into negative balance needs examination by the Ld. PCIT(E). Since the appellant trust in ongoing activity, CIT(E) has been empowered to examine and verify that the activities carried out in lieu of the objects, so as to examine and verify charitable nature of activities in consonance to the objects of the Trust to Satisfy about the manner, the activities are carried were not profit making or fund generation for purpose of personal/commercial benefit as per the mandate. Restore the matter back to the file of the Ld. PCIT to adjudicate the matter afresh. Appeal of the assessee is allowed for statistical purpose.

Issues Involved:

1. Denial of registration under Section 12AA of the Income Tax Act, 1961.
2. Examination of the genuineness of activities and objects of the trust.
3. Consideration of corpus donations and their specific purpose.
4. Compliance with the Minimum Wages Act regarding salaries.
5. Utilization of surplus funds for educational purposes.
6. Procedural aspects concerning the delay in filing the appeal.

Issue-wise Detailed Analysis:

1. Denial of Registration under Section 12AA:

The primary issue revolves around the denial of registration to the assessee trust under Section 12AA of the Income Tax Act, 1961. The Commissioner of Income Tax (Exemptions) [CIT(E)] rejected the application on the grounds that the trust failed to meet the necessary conditions for registration. The CIT(E) emphasized the need to examine both the objects of the trust and the genuineness of its activities. The trust's consistent surplus generation and lack of evidence for redeployment into educational purposes were significant factors in the denial.

2. Examination of Genuineness of Activities and Objects of the Trust:

The appellant contended that the CIT(E) should focus on the trust's objects and the genuineness of its activities rather than extraneous considerations. The trust's objectives, as per its deed, include setting up educational institutions and providing education to the deprived sections of society, aligning with Section 2(15) of the Income Tax Act. The appellant argued that the CIT(E) overstepped by examining aspects beyond the trust's objects and activities, which should be the primary focus at the stage of registration.

3. Consideration of Corpus Donations and Their Specific Purpose:

The CIT(E) questioned the corpus donations received from trustees, noting the absence of specific directions for their use as corpus funds. The appellant argued that these donations were specifically utilized for constructing the trust's building, thus serving the trust's objectives. However, the CIT(E) found the evidence insufficient to classify these donations as corpus funds, impacting the trust's eligibility for registration.

4. Compliance with the Minimum Wages Act Regarding Salaries:

The CIT(E) observed that the salaries and wages paid to the teaching staff were not in accordance with the Minimum Wages Act. The appellant countered that this observation was irrelevant to the registration process, as the focus should be on the trust's objects and activities. The trust maintained that salaries were paid based on qualifications and services rendered, though the CIT(E) noted inconsistencies and low wages compared to non-teaching staff.

5. Utilization of Surplus Funds for Educational Purposes:

The CIT(E) highlighted that the trust generated excessive surpluses, which were not redeployed into educational purposes. The appellant provided a financial breakdown, asserting that the surplus was reinvested in capital expenditures aligned with the trust's objectives. The CIT(E) disagreed, pointing to a lack of evidence supporting the reinvestment claim. The appellant argued that even under Section 11, a surplus up to 15% of total receipts is permissible, and their financial activities were within this limit.

6. Procedural Aspects Concerning the Delay in Filing the Appeal:

The appeal was filed with a delay of two days, attributed to logistical challenges faced by the appellant residing in a remote area. The tribunal acknowledged the delay as unintentional and condoned it, allowing the appeal to proceed.

Conclusion:

The tribunal remanded the case back to the CIT(E) for fresh adjudication, emphasizing the need to consider all evidence and submissions from the assessee trust. The CIT(E) is directed to focus on the objects and genuineness of the trust's activities and provide a fair opportunity for the appellant to present its case. The appeal is allowed for statistical purposes, pending further examination by the CIT(E).

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