2013 (8) TMI 321 - AT - Income Tax

Registration u/s 12A - benefits of the research of the assessee s society was made available to the other two societies without any amounts being charged from them - Held that - the benefit of the judgement of the Hon ble High Court DIRECTOR OF INCOME TAX Versus SOCIETY FOR DEVELOPMENT ALTERNATIVES 2012 (1) TMI 77 - DELHI HIGH COURT was not available to the DIT(E) considering the consequent contradictions in the orders passed by the DIT(E) and assessment order namely non-maintenance of separate books of accounts which issue has traveled to the higher forums needs to be taken into consideration. The Hon ble High Court has considered the issue of offering funds of Rs. 12,00,000/- as collateral security and also the fact that the grants were not voluntary contribution as per section 12 of the Act and were tied up grants monitored by the funding agencies. However, it is also seen that the detailed findings that the benefits of the research of the assessee s society was made available to the other two societies without any amounts being charged from them and those societies were as such allowed to commercially exploit, the same have not been discussed or considered in the order of the Tribunal nor the judgement of the Hon ble High Court since facts need to be re-considered and reconciled with the finding in the light of the judgement of the Hon ble High Court in assessee s own case. - Matter remanded back.

Summary

Issues:
Appeal against rejection of registration u/s 12A of the Income Tax Act.

Analysis:
The appellant contested the rejection of registration u/s 12A, arguing that the DIT(E) erred in law and on facts by not appreciating the society's objects and activities. The DIT(E) initially granted registration based on the society's main objectives outlined in the Memorandum of Association. However, during renewal, discrepancies were found, including unspent amounts and pledging of funds as security. The AO noted violations of sections 13(1)(c) and 13(2) due to misused funds and diversion of income, leading to denial of exemption u/s 11. Subsequently, a show-cause notice was issued, and the DIT(E) concluded that the society failed to demonstrate genuine charitable activities, especially concerning commercial exploitation of research products by related entities. The DIT(E) highlighted the lack of separate project accounts, violation of section 11(4A), and direct benefits conferred on commercial organizations. Consequently, the registration u/s 12A was withdrawn since inception.

The appellant referenced a High Court judgment and previous ITAT orders supporting their case, emphasizing that the DIT(E) decision was not maintainable. The Ld. Sr. DR argued that the society's actions, such as offering funds as collateral and allowing commercial exploitation of research, were not charitable and justified the rejection of registration. The Tribunal observed that the DIT(E) lacked the benefit of subsequent ITAT and High Court judgments, leading to contradictions in decisions. The Tribunal directed a reconsideration of the matter by the DIT(E) in light of the new information and the need to reconcile findings with the High Court judgment, providing the appellant with a fair hearing opportunity.

In conclusion, the Tribunal allowed the appeal for statistical purposes and remanded the issue to the DIT(E) for a fresh decision in accordance with the law and after affording the appellant a reasonable opportunity to present their case.