2008 (1) TMI 469 - AT - Income Tax

Summary

Issues Involved:
1. Refusal of registration u/s 12AA of the IT Act, 1961.
2. Examination of the genuineness of the activities of the society.
3. Alleged fabrication of accounts and diversion of funds.

Summary:

1. Refusal of registration u/s 12AA of the IT Act, 1961:
The appeal was filed by the assessee against the order of CIT-II, Lucknow, dated 19th Oct., 2007, refusing to register the appellant society u/s 12AA(1)(b) of the IT Act, 1961. The CIT observed that the society's accounts were fabricated and unreliable, and the funds were diverted to the building account against the purpose for which parents contributed to the corpus. Consequently, the CIT concluded that the society was not engaged in any charitable work and refused registration.

2. Examination of the genuineness of the activities of the society:
The assessee argued that the CIT accepted the fact that the society was running a dental college and offering free dental treatment. The CIT's jurisdiction was limited to verifying the genuineness of the activities and not the application of income derived from its objectives. The Hon'ble Allahabad High Court in the case of CIT vs. Red Rose School held that the CIT should only ensure that the objects of the society are not against public policy and the activities are genuine.

3. Alleged fabrication of accounts and diversion of funds:
The CIT alleged that the society received fees from students for dental education, partly accounted for under the 'building fund,' and thus fabricated accounts and diverted income. However, the assessee contended that all funds were duly recorded, and merely accounting them under a particular head does not imply diversion or fabrication. The Hon'ble Allahabad High Court in Red Rose School emphasized that rejection cannot be based on presumptions of misuse or apprehensions of improper use of income.

Conclusion:
The Tribunal found no evidence that the society's objects were against public policy or that its activities were not genuine. The CIT's refusal to grant registration was deemed unjustified. The Tribunal directed the CIT, Lucknow, to grant registration to the assessee society u/s 12A of the IT Act, 1961. The appeal was allowed.