2006 (12) TMI 181 - AT - Income Tax

Summary

Issues Involved:
1. Condonation of delay in filing the application under Section 12A.
2. Non-audit of accounts and its impact on registration under Section 12A.
3. Non-furnishing of returns for specific assessment years.
4. Surplus of income over expenditure and its implications on the charitable nature of the institution.
5. Comparison with similar institutions granted registration under Section 12A.

Detailed Analysis:

1. Condonation of Delay in Filing the Application under Section 12A:
The primary issue was whether the CIT was justified in not condoning the delay in filing the application under Section 12A. The CIT rejected the application based on the premise that it had to be made within one year from the date of establishment and there was no reasonable cause for the delay. The assessee argued that they were under a bona fide belief that their income was not taxable under Section 10(20) of the Act until the amendment by the Finance Act, 2002. The Tribunal found substance in the assessee's explanation, noting that the delay was due to a change in statutory provisions and subsequent realization that registration under Section 12A was necessary. The Tribunal cited the decision in Market Committee, Sullar Gharat & Ors. vs. CIT, which condoned similar delays. Consequently, the Tribunal condoned the delay and decided to address the matter on its merits.

2. Non-Audit of Accounts and Its Impact on Registration under Section 12A:
The CIT raised an objection regarding the non-audit of accounts by a chartered accountant, which is a mandatory requirement under Section 12A(b). The assessee contended that their accounts were audited by the auditors of the Department of Local Self-Government and that the audit report could be furnished any time before the assessment. The Tribunal referred to the CBDT circular and the decision in Market Committee, Sullar Gharat & Ors. vs. CIT, which stated that the non-filing of audited accounts should not be a hurdle for registration. The Tribunal concluded that the CIT's objection was not sustainable and that the genuineness of the activities and charitable purposes should be the focus at the stage of registration.

3. Non-Furnishing of Returns for Specific Assessment Years:
The CIT also objected to the non-furnishing of returns for the assessment years 2004-05 and 2005-06. The assessee argued that filing returns was not a prerequisite for registration under Section 12A. The Tribunal agreed, citing decisions in Fifth Generation Education Society vs. CIT and M.K. Nambyar Saarc Law Charitable Trust vs. Union of India & Ors., which emphasized that the genuineness of objects and activities is the primary consideration for registration. The Tribunal found that the CIT's objection was outside the purview of Section 12A and not justified.

4. Surplus of Income Over Expenditure and Its Implications on the Charitable Nature of the Institution:
The CIT noted that the Board had a surplus of income over expenditure in various years, suggesting that its activities were not charitable. The assessee explained that the surplus was utilized for advancing the purpose of general public utility and not for personal benefit. The Tribunal referred to the decision in Market Committee, Sullar Gharat & Ors. vs. CIT, which held that the accumulation of surplus for charitable purposes does not negate the charitable nature of the institution. The Tribunal concluded that the CIT's objection was unfounded and that the Board's activities were indeed charitable.

5. Comparison with Similar Institutions Granted Registration under Section 12A:
The assessee highlighted that similar institutions like Punjab State Agricultural Marketing Board and Haryana State Agricultural Marketing Board had been granted registration under Section 12A. The Tribunal noted that the CIT had not brought any material to show that the activities of the assessee were not genuine. The Tribunal emphasized that the CIT's role at the stage of registration is to record satisfaction about the genuineness of the activities and the charitable nature of the institution. The Tribunal found that the CIT's objections were not substantiated and directed the CIT to grant registration under Section 12A.

Conclusion:
The Tribunal set aside the CIT's order and directed the CIT to allow the application for registration under Section 12A, thereby enabling the assessee to claim exemption under Sections 11 and 12 of the Act. The appeal was allowed in favor of the assessee.