2006 (12) TMI 182 - AT - Income Tax

Summary

Issues Involved:
1. Rejection of application under Section 12A for registration as a charitable trust/institute.
2. Condonation of delay in filing the application for registration.
3. Determination of the charitable nature of the applicant's activities.
4. Compliance with the requirement of filing an audit report under Section 12A(b).

Issue-wise Detailed Analysis:

1. Rejection of Application under Section 12A:
The primary issue was the rejection of the application for registration under Section 12A of the Income Tax Act, 1961, by the Chief Commissioner of Income Tax (CIT). The CIT rejected the application on the grounds that the applicant did not meet the mandatory conditions laid down under Section 12A. The CIT observed that the predominant object and activities of the applicant were not charitable in nature, there was no restriction on the application of income, and the applicant was considered a profit-motive institution. The CIT also noted that the genuineness of the applicant's activities being charitable in nature was not verifiable, and the surplus of income over expenditure did not comply with the provisions of Sections 11 and 12 of the Act. Additionally, the audit report under Section 12A(b) was not furnished in the prescribed time along with the return of income.

2. Condonation of Delay:
The applicant argued that the delay in filing the application for registration was not deliberate or intentional but was due to bona fide reasons. The applicant was initially considered a 'local authority' under Section 10(20) of the Act and was exempt from filing returns of income. However, after the insertion of an Explanation to Section 10(20) by the Finance Act, 2002, effective from 1st April 2003, the applicant was called to file returns for the first time for the assessment year 2003-04. The decision to seek charitable exemption by filing the application under Section 12A was made at a high level within the organization, and the application was eventually filed on 21st November 2005. The Tribunal found reasonable cause for the delay and condoned it, directing that the application for registration be treated as filed from 1st April 2003.

3. Charitable Nature of Activities:
The applicant contended that its predominant object, as provided in the Agricultural Produce Markets Act, 1961, was for the better regulation of buying and selling agricultural produce and the establishment of markets for agricultural produce in the State of Rajasthan. The Tribunal noted that the functions and duties of the applicant, as defined under Sections 9 and 19 of the Markets Act, were charitable in nature and aimed at securing better prices for agriculturists and protecting them from exploitation. The Tribunal also referred to various judicial precedents where similar entities were considered charitable. The Tribunal concluded that the applicant's activities fell under the definition of "advancement of any other object of general public utility" under Section 2(15) of the Income Tax Act, 1961.

4. Compliance with Audit Report Requirement:
The CIT had also rejected the application on the grounds that the audit report under Section 12A(b) was not filed along with the return of income. The Tribunal referred to the CBDT Instruction No. 1/1148, which clarified that the exemption available to a trust under Sections 11 and 12 should not be denied merely due to a delay in furnishing the auditor's report if the delay was due to reasons beyond the control of the assessee. The Tribunal cited various judicial decisions to support the view that the requirement to file the audit report along with the return of income was directory and not mandatory. The Tribunal held that the CIT was not justified in rejecting the application on this ground.

Conclusion:
The Tribunal allowed the appeal, condoning the delay in filing the application for registration under Section 12A and directed the CIT to grant registration to the applicant with effect from the assessment year 2003-04. The Tribunal found that the applicant's activities were charitable in nature and fell under the definition of "advancement of any other object of general public utility" under Section 2(15) of the Income Tax Act, 1961. The Tribunal also held that the delay in filing the audit report should not disqualify the applicant from claiming exemption under Sections 11 and 12 of the Act.

Separate Judgment in ITA No. 773/Jp/2006:
In a similar case involving another applicant, the Tribunal followed the same reasoning and condoned the delay in filing the application under Section 12A. The Tribunal directed the CIT to grant registration for the assessment years 2003-04 to 2005-06, reaffirming that the objects and activities of the applicant were charitable in nature and fell under the definition of "advancement of any other object of general public utility" under Section 2(15) of the Income Tax Act, 1961.