2024 (4) TMI 582 - AT - Income Tax

Exemption u/s 11 - rejection of assessee s application for registration u/s 12A - application rejected primarily on the basis that the assessee would be promoting business of manufacturing and marketing of pharmaceutical drugs of the entities who had sponsored the research work - whether the objectives of the assessee are charitable or not? - HELD THAT - CIT(Exemption) has not doubted about the charitable nature of the objectives, but rejected the application primarily on the basis that the assessee would be promoting business of manufacturing and marketing of pharmaceutical drugs of the entities who had sponsored the research work. There cannot be any doubt that imparting awareness amongst the patients in respect of diseases which badly affected the health of the individual, is certainly a charitable activity. In our considered view at the stage of registration the learned CIT(Exemption) is required to examine the objectives of the assessee, whether such objectives would fall under the category of charitable or not. Whether the assessee incurred expenses on such activity or not can be verified by the assessing authority and if it is found that the assessee is not carrying any charitable activity and the expenditure is incurred for promotion of business of other entity, the AO is empowered to disallow the expenditure and request for cancellation of registration. See FIFTH GENERATION EDUCATION SOCIETY VERSUS COMMISSIONER OF INCOME-TAX 1990 (5) TMI 38 - ALLAHABAD HIGH COURT Commissioner is not to examine the application of income. All that he may examine is whether the application is made in accordance with the requirements of section 12A read with rule 17A and whether Form No. 10A has been properly filled up.The order impugned does not say that the objects of the society are not charitable in nature; it merely says that they are general in nature. Just because they are general, they do not cease to be charitable. The Commissioner has also observed that no activity has been carried on by the society. It is also not the requirement of section 12A of the Act We restore the application to the file of learned CIT(Exemption) to grant registration in accordance with law. Decided in favour of assessee.

Summary

Issues Involved:
The rejection of the assessee's application for registration under section 12A of the Income-tax Act, 1961 for the assessment year 2019-20.

Grounds of Appeal:
1. The order passed by CIT Exemption under section 12AA(1)(b) r.w.s 12A is challenged as being without jurisdiction and illegal.
2. CIT Exemption erred in not correctly appreciating the nature of activities carried out by the appellant institution.
3. Failure of CIT(Exemptions) to satisfy himself about the objects and genuineness of the appellant institution's activities.
4. CIT(Exemptions) erred in rejecting the application based on the purpose of the appellant institution.
5. Rejection of the application for registration under section 12A on assumptions without appreciating the legal and statutory position.

Judgment Details:
The appeal was against the rejection of the application for registration under section 12AA of the Act. The counsel for the assessee argued that rejection was unjustified and based on suspicion without credible material. On the other hand, the Department supported the CIT(Exemption)'s order.

The CIT(Exemption) rejected the application citing that the activities of the appellant institution did not meet the conditions for registration under section 12AA. The main receipts were from sponsorship by pharmaceutical companies, and certain payments to doctors were deemed non-charitable activities.

The Tribunal noted that while the CIT(Exemption) did not doubt the charitable nature of the objectives, the rejection was based on potential promotion of pharmaceutical businesses. The Tribunal emphasized that awareness activities for diseases are charitable, and the CIT(Exemption) should focus on the nature of objectives during registration. Referring to a judgment, the Tribunal set aside the order and directed the CIT(Exemption) to grant registration in accordance with the law.

In conclusion, the appeal of the assessee was allowed, and the application for registration was restored to the file of the CIT(Exemption) for proper consideration.

Separate Judgment:
No separate judgment was delivered in this case.