2006 (9) TMI 211 - AT - Income Tax

Exemption u/s 11 denied - lack of registration u/s 12AA - application not made for registration before the expiry of one year - Charitable activity u/s 2(15) - whether the DI(E) was justified in not granting registration with effect from 4-10-1999? - whether there were sufficient reasons which prevented the assessee from making the application for registration before the expiry of one year? - as argued assessee being unaware of the appeal procedure and office bearers and members of the assessee, with the permission of the Central Government, got fully involved in earthquake relief work from 28-1-2001, which continued till 31-3-2002. HELD THAT - It is the assessee's case that its office bearers and members were completely involved in charitable work since its inception and bona fide proceeded on the basis that there was no income-tax implication because the assessee merely received funds and spent them for charitable purposes. For about seven months during 2000-01 the assessee did not have a Secretary. The assessee came to know about the need for registration only in October 2001 when the person entrusted to perform the functions of Secretary learnt of it from other organisations in the field and immediately thereafter it applied for registration with a prayer for condonation of delay. There is no reason to disbelieve the said explanation. The commitment and involvement of the assessee's office bearers and members in charitable work since inception cannot be disputed. The assessee did not even have a Secretary during a large part of the financial year 2000-01. It is not implausible that all the persons who were heavily involved in the charitable work may not have addressed themselves to taxation aspects and bona fide proceeded on the commonsense point of view that there was no tax obligation since no income was being earned and the assessee was only spending contributions received for charitable purposes. There is nothing to suggest any deliberate or intentional delay in filing the application for registration. The assessee had nothing to gain by delaying the application. The assessee applied for registration as soon as it became aware of its obligation. This is a fit case where the delay should have been condoned and registration should have been granted from 4-10-1999 particularly since there is no dispute that the assessee had fulfilled all the conditions for grant of registration and is indisputably a public charitable institution. In St. Stephens School's case the Tribunal held that the benefit provided in the statute for exemption of certain income should not be denied to the assessee on mere technicalities provided the other conditions for grant thereof are satisfied and the conduct of the assessee is a bona fide one. In the facts of the instant case it has to be held that the delay in filing the application for registration was for sufficient reasons and is therefore to be condoned. The assessee has to be granted registration under section 12AA with effect from 4-10-1999 and the DI(E) is directed accordingly.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Justification for not granting registration from the inception date.

Detailed Analysis:

1. Delay in filing the appeal:

The appeal was delayed by 4 years, 4 months, and 12 days. The assessee explained the delay through a sworn affidavit, stating that the organization was heavily involved in charitable activities and unaware of the need for registration under section 12AA of the Income-tax Act, 1961. They acted on the advice of their lawyer, who suggested filing a rectification application instead of an appeal. The Tribunal noted that the office bearers and members were fully engaged in charitable work and were not conversant with the provisions of the Act. The Tribunal relied on the Supreme Court's judgment in Balakrishnan v. M. Krishnamurthy, which emphasized that the rules of limitation are meant to ensure timely action but should not destroy the rights of parties. The Tribunal found the explanation bona fide and held that the delay should be condoned.

2. Justification for not granting registration from the inception date:

The assessee applied for registration under section 12AA on 5-11-2001, requesting it from the inception date of 4-10-1999. The Director of Income-tax (Exemptions) granted registration from 1-4-2001, not considering it a fit case for condoning the delay. The Tribunal examined whether there were sufficient reasons for the delay in applying for registration. The assessee's affidavit detailed their continuous involvement in charitable work, the absence of a Secretary for a significant period, and their lack of awareness of the need for registration. The Tribunal found the explanation credible, noting that the assessee had nothing to gain from delaying the application and acted promptly once aware of the requirement. The Tribunal referenced the Supreme Court's judgment in N. Balakrishnan's case, which allows the Superior Court to consider the cause for delay afresh. The Tribunal concluded that the delay should have been condoned, and registration should be granted from 4-10-1999, as the assessee fulfilled all conditions for registration and was a genuine public charitable institution.

Conclusion:

The Tribunal condoned the delay in filing the appeal and directed the Director of Income-tax (Exemptions) to grant registration under section 12AA with effect from 4-10-1999. The stay petition was deemed infructuous as the appeal was allowed.