2013 (11) TMI 903 - AT - Income Tax

Condition for denial of registration under section 12AA of the Income Tax Act Charitable purpose u/s 2(15) - Held that - Section 12AA of the Act provides procedure for registration of a trust/charitable institution. Clause (a) of subsection (1) of section 12AA empowers the CIT/DIT(E) to call for such documents or information from a trust/charitable institution as he thinks necessary in order to satisfy himself about genuineness of activities of a trust/charitable institution and may also make such enquiry, as he may deem necessary in this behalf. The said provisions in section 12AA make it clear that the CIT/DIT(E) is not supposed to allow registration with a blind eye. The DIT(E) after considering the record before him, has observed that the assessee is not an independent organisation, it is an extended wing of organisation of Canada functioning through local institution viz., LVPEI. This fact was also established from the letter dated 1.6.2011 issued by LVPEI. The identity of the assessee itself is in doubt. Being so, registration u/s. 12AA was not granted. Genuineness of the activities carried on by the assessee as charitable is doubtful - Brought on record by the DIT(E) that the assessee not at all maintained books of account, bills and vouchers in their original form. All original documents have been kept by LVPEI. Funds are received by the LVPEI from foreign organisation and thereafter funds are parted with by LVPEI to the present assessee which shows that the assessee has been used as a tool in the hands of LVPEI Assessee is not an independent organization functioning independently Accordingly, registration denied u/s 12AA of the Income tax act Decided against the Assessee.

Summary

Issues Involved:
1. Non-granting of registration under Section 12AA of the Income-tax Act, 1961.
2. Independence and genuineness of the assessee institution.
3. Compliance with procedural requirements for registration under Section 12AA.
4. Alleged violations of Section 13 of the Income-tax Act, 1961.

Detailed Analysis:

Non-granting of Registration under Section 12AA
The primary issue in this case is the denial of registration under Section 12AA of the Income-tax Act, 1961. The assessee, a charitable institution, applied for registration to avail tax benefits. The Director of Income-tax (Exemptions) [DIT(E)] rejected the application, leading to the present appeal.

Independence and Genuineness of the Assessee Institution
The assessee argued that it is an independent entity incorporated under the Companies Act, 1956, with the main objective of rendering medical relief, particularly in eye care and prevention of blindness. It claimed to operate independently despite using the premises of L.V. Prasad Eye Institute (LVPEI) and receiving funds from Operation Eyesight Universal (OEU), Canada. The DIT(E) contended that the assessee is an extension of OEU, Canada, and not an independent organization. The DIT(E) pointed to the substantial funding from OEU and the license agreement allowing the use of the "OE" brand as evidence that the assessee is not independent.

Compliance with Procedural Requirements for Registration under Section 12AA
The assessee submitted that it met all procedural requirements for registration under Section 12AA, including filing Form No. 10A and providing necessary documents such as the Incorporation Certificate and Memorandum of Association. The assessee argued that the DIT(E) should only verify whether the objects of the organization are charitable and whether its activities are genuine, as per Section 12AA and Rule 17A. The DIT(E) countered that it is empowered to make inquiries into the genuineness of the activities and the independence of the institution.

Alleged Violations of Section 13 of the Income-tax Act, 1961
The DIT(E) argued that the assessee violated Section 13 of the Income-tax Act, which disqualifies a trust or institution from tax benefits if its income is used for the benefit of certain specified persons. The DIT(E) pointed to the license agreement requiring the assessee to pay a fee to OEU, Canada, and the substantial contributions from OEU as evidence of such violations. The DIT(E) also noted that the original vouchers of expenses were with LVPEI, further questioning the independence and genuineness of the assessee's activities.

Conclusion
The Tribunal held that the DIT(E) is justified in making inquiries into the activities and independence of the assessee before granting registration under Section 12AA. It found that the assessee is not an independent organization, as it is substantially controlled by OEU, Canada, and operates through LVPEI. The Tribunal also noted violations of Section 13, as the assessee's income was used for the benefit of OEU, Canada. Consequently, the Tribunal upheld the DIT(E)'s decision to deny registration under Section 12AA.

Judgment
The appeal of the assessee was dismissed, and the order of the DIT(E) refusing registration under Section 12AA was upheld. The Tribunal concluded that the assessee failed to prove its independence and genuineness as a charitable institution, and there were violations of Section 13 of the Income-tax Act.