2024 (10) TMI 856 - AT - Income Tax

Rejecting application for registration u/s 12A(1)(ac)(iii) and cancelling the provisional registration u/s 12AB - charitable activity or not? - HELD THAT - In the present case, CIT(E) prematurely invoked the provisions of Section 13(1)(c) without giving due consideration to the charitable objects of the assessee. This mirrors the errors in the decisions seen in the aforementioned cases. As in CIT(E) vs. Bayath Kutchhi Dasha Oswal Jain Mahajan Trust 2016 (9) TMI 8 - GUJARAT HIGH COURT further confirmed this principle, holding that Section 13 would only be applicable at the time of assessment, not during the registration stage. CIT(E) s order is flawed both in its interpretation of the assessee s objects and in the premature invocation of Section 13(1)(c) and 13(3) of the Act. Judicial precedents clearly establish that the applicability of Section 13 should only be examined during assessment and not at the registration stage u/s 12A of the Act. We set aside the order of the CIT(E) and restore the matter to his file for de novo consideration. CIT(E) is directed to evaluate the application for registration afresh, focusing solely on the charitable nature of the assessee s objects, without invoking the provisions of Section 13(1)(c) or Section 13(3) at this stage. CIT(E) shall provide the assessee with a reasonable opportunity of being heard before passing the order. Appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues:
1. Rejection of application for registration under Section 12A(1)(ac)(iii) of the Income Tax Act, 1961.
2. Cancellation of provisional registration under Section 12AB of the Act.

Detailed Analysis:

1. The appeal arose from the Commissioner of Income Tax (Exemption), Ahmedabad's order rejecting the application for registration under Section 12A(1)(ac)(iii) of the Income Tax Act, 1961, and canceling the provisional registration under Section 12AB of the Act. The Commissioner found that the company's activities, as per its Memorandum of Association (MOA), were more focused on the welfare of its members than the broader public. The Commissioner relied on Section 13(3) of the Act, which prohibits organizations serving specific persons' interests from obtaining charitable registration. The Commissioner concluded that the company was operating more as a service provider for its members rather than a public charity, leading to the rejection of the registration application.

2. The Appellate Tribunal noted two key issues raised by the Commissioner's interpretation: the charitable nature of the objects and the application of Section 13 at the registration stage. The Tribunal observed that while some activities may benefit members, they do not preclude broader charitable objectives. It emphasized that the focus at the registration stage should solely be on whether the trust's objects and activities are charitable in nature, rather than speculating on potential benefits to members. The Tribunal referred to judicial precedents, such as Anjuman E Nusratul Muslimin Tankaria vs. CIT(E) and Bargahe Husaini Trust vs. CIT(E), which clarified that Section 13 should not be invoked during registration but during assessment when the actual use of funds is evaluated.

3. The Tribunal found the Commissioner's order flawed in its interpretation of the trust's objects and the premature invocation of Section 13(1)(c) and 13(3) of the Act. It set aside the Commissioner's order and directed a fresh evaluation of the registration application, focusing solely on the charitable nature of the trust's objects without invoking Section 13 provisions at the registration stage. The Tribunal emphasized providing the assessee with a reasonable opportunity to be heard before passing a new order. Consequently, the appeal of the assessee was treated as allowed for statistical purposes.

This judgment highlights the importance of focusing on the charitable nature of a trust's objects during the registration stage and not prematurely invoking provisions related to benefits to specific persons. It underscores the need for a thorough evaluation based on legal principles and judicial precedents to ensure fair treatment in registration decisions.