2012 (12) TMI 187 - AT - Income Tax

Charitable Society - cancellation of registration on ground that Society is indulged in taking Forcible Donations - assessee, a registered society having one of the objects to establish and maintain the institutions for imparting education - donations collected from various persons including the parents of the students for the enhancement of the infrastructure on account of increase in the number of students - donations were also received from other members of the society under the head building funds - Held that - In the case of assessee, schools were imparting education as per aims and objects of the society. Poor and needy children are also admitted and imparted free education. The amounts of donations were duly reflected in the books of assessee. Donations were received from various other persons other than parents of wards. These donations were received during the year not only during admission period. These amounts have been included in computation of income. Hence, DIT (E) was not justified in cancelling the registration of the assessee society - Decided in favor of assessee

Summary

Issues Involved:
1. Legality and factual accuracy of the Director of Income Tax (Exemptions) [DIT(E)]'s order.
2. Allegation of the society taking forcible donations.
3. Determination of whether the society's income is exempt under Sections 11 and 12 of the Income Tax Act.
4. Validity of the cancellation of the society's registration under Section 12A from the assessment year 2008-2009 onwards.
5. Potential addition, alteration, amendment, or variation of the grounds of appeal.

Issue-wise Detailed Analysis:

1. Legality and Factual Accuracy of the DIT(E)'s Order:
The appellant society challenged the DIT(E)'s order on the grounds that it was "bad in Law and facts." The society argued that the DIT(E) wrongly concluded that the society's activities were not charitable and unjustly canceled its registration under Section 12A. The tribunal found that the society's activities were genuine and carried out in accordance with its objectives, thus the DIT(E)'s order was not justified.

2. Allegation of Forcible Donations:
The society was accused of taking forcible donations from parents of students. However, the society provided evidence showing that donations were not mandatory and were received from only a portion of the students. The donations were also received from other members of the society and were accounted for under the "building funds" head. The tribunal accepted the society's argument that these donations were voluntary and not related to admissions.

3. Determination of Income Exemption under Sections 11 and 12:
The DIT(E) concluded that the society's income was no longer exempt under Sections 11 and 12 of the Income Tax Act. The society countered this by showing that all receipts, including donations, were used for charitable purposes as defined in Section 2(15) of the Income Tax Act. The tribunal agreed with the society, noting that the donations were used for educational purposes and not for personal benefit, thus maintaining the society's exemption status.

4. Validity of Cancellation of Registration under Section 12A:
The DIT(E) canceled the society's registration under Section 12A retrospectively from the assessment year 2008-2009. The society argued that this cancellation was against established law, as the provisions for cancellation under Section 12AA(3) were not applicable retrospectively. The tribunal supported the society's view, citing various case laws that emphasized the need for the DIT(E) to follow the same parameters for cancellation as for granting registration. The tribunal found that the society's activities were genuine and in line with its objectives, and thus the cancellation was not justified.

5. Potential Addition, Alteration, Amendment, or Variation of Grounds of Appeal:
The appellant reserved the right to add, alter, amend, or vary any of the grounds of appeal. However, this issue was not specifically adjudicated upon as the primary grounds were sufficiently addressed.

Conclusion:
The tribunal allowed the appeal, setting aside the DIT(E)'s order of cancellation of the society's registration under Section 12A. It concluded that the society's activities were genuine and charitable, and the donations received were voluntary and used for educational purposes. The tribunal also noted that the retrospective application of the amended provisions for cancellation was not justified. The appeal was thus allowed, and the order was pronounced in open court on July 20, 2012.