2013 (3) TMI 435 - AT - Income Tax

Registration u/s 12AA rejected - Commissioner observed that activities of the Society do not qualify in the nature of charity within the meaning of Section 2(15) - Held that - At the stage of application for registration, what is required is the authorities can pursue the objects of the society as well as verify the genuineness of the activities.From the Memorandum of Association of the Society, it becomes clear that the society is mainly floated for the purpose of education and also to provide scholarships to the students and to do other general charitable works like establishing and maintenance of parks, gardens, gymnasiums, sports clubs, Dharamshalas and rest houses and rest houses for the use of public in general. Thus it is clear that the society is mainly registered for the charitable purposes. The observation of Commissioner that mere provisions of education is not charitable, is not correct in view of the decision of High Court in case of Pinegrove International Charitable Trust V. Union of India 2010 (1) TMI 49 - HIGH COURT OF PUNJAB AND HARYANA . Further it has been observed by the Court that at the stage of registration only genuineness of the activities of the society, are required to be gone through. Thus as Commissioner has nowhere doubted the genuineness of the activities. Merely because the assessee society has taken over the furniture and fixtures of existing school, would not to alter the situation. It is wrongly observed that particulars regarding lease of land were not furnished when the lease deed itself was filed before him. He has further wrongly observed that lease rent was only Rs. 15,000 pa whereas same is shown at Rs. 15,000 pm for the first 10 years then Rs. 22,500 for the next 10 years and Rs. 30,000 for the llast 10 years. The contention of the revenue that after the lapse of lease period of 30 years, the building etc. would revert black to the lessor who is closely related to the General Secretary of the Society, would not make difference as at best, it can be construed a benefit which can be construed to have been passed on to a relation etc. in violation of various conditions in S 13(1)(d) of the Act. But this part cannot be examined at the time of granting registration and can be examined only while giving exemption u/s 11. Therefore, registration has been wrongly denied to the assessee - in favour of assessee.

Summary

Issues:
Denial of registration u/s 12AA of the Act based on educational activities not being considered charitable, lack of complete details regarding lease of land, suspicion of inadequate consideration for lease, and transfer of assets from another school.

Analysis:
1. The appeal challenged the Ld. Commissioner's decision to reject registration u/s 12AA of the Act, citing errors in law and facts. The Ld. Commissioner questioned the charitable nature of the society's educational activities based on a Supreme Court decision. Additionally, concerns were raised about incomplete details of land lease and suspicion of inadequate consideration for lease, leading to the denial of registration.

2. The appellant contended that education is recognized as a charitable purpose by the Punjab & Haryana High Court and provided lease details to refute the Ld. Commissioner's observations. The appellant argued that the transfer of assets from another school does not affect the charitable nature of providing education. The focus should be on the society's objects and the genuineness of its activities, which were not in question.

3. The High Court's detailed observations emphasized that educational institutions qualify for exemption if existing solely for educational purposes, regardless of generating surplus income. The monitoring provisions postulated the need for genuine activities and proper utilization of income. The determination of an institution's charitable nature should consider its objects and income utilization.

4. The Tribunal found that the society's Memorandum of Association highlighted charitable purposes, including education and scholarships. The Ld. Commissioner's doubts on the charitable nature of education were unfounded, as the society's activities were genuine. The Tribunal overturned the denial of registration, emphasizing that lease details and asset transfer issues should be examined during exemption u/s 11, not registration u/s 12AA.

5. The Tribunal concluded that the denial of registration was unjustified, directing the Ld. Commissioner to grant registration to the society. The decision highlighted the importance of focusing on the society's charitable objects and genuineness of activities during the registration process, separate from considerations related to lease agreements and asset transfers.

This comprehensive analysis of the judgment addresses the key issues raised in the appeal and provides a detailed breakdown of the arguments presented by both parties, the legal principles applied, and the Tribunal's decision in granting the appeal and directing the registration of the society.