2014 (7) TMI 264 - HC - Income Tax

Grant of registration u/s 12AA(3) of the Act Object of society Exemption u/s 10 (23C)(vi)of the Act - Held that - The registration u/s 12A of the Act can be sought either by the trust or by the institution - for the purposes of claim of exemption u/s 11 and 12 of the Act, the registration u/s 12A of the Act is necessary as provided by Section 12A of the Act - for the cancellation of registration, the satisfaction of the Commissioner to the extent that the activities of the trust or the institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, whether the income of trust or institution is liable to be exempted on the fulfillment of the requirement provided u/s 11 of the Act, the matter is to be examined by the assessing authority. No finding has been recorded with regard to the satisfaction that the activities of the assessee are not genuine or are not being carried out in accordance with the objects of the trust or the institution - The criteria to grant exemption u/s 10 (23C)(vi) and grant of registration u/s 12A is different and merely because the exemption u/s 10 (23C)(vi) is declined, it does not amount the refusal of registration u/s 12AA or in case if the registration has been granted, it may be cancelled on that ground - For the cancellation of registration, the requirements, as provided under sub-section (3) of Section 12AA, are to be fulfilled - the refusal of the exemption u/s 10 (23C)(vi) may be relevant for the purposes of cancellation of registration, but to arrive to the conclusion that the activities of the trust or the institution are not genuine or are not being carried out in accordance with the objects of the trust or the institution, finding in this regard is necessary, based on the relevant material thus, the matter is to be remitted back to the CIT for fresh adjudication Decided in favour of Revenue.

Summary

Issues Involved:
1. Justification of Tribunal's cancellation of the order under Section 12AA(3) of the Income Tax Act.
2. Tribunal's decision on the genuineness of the society's activities in accordance with its aims and objects.

Issue-wise Detailed Analysis:

1. Justification of Tribunal's Cancellation of the Order under Section 12AA(3):
The primary issue was whether the Tribunal was justified in canceling the order passed under Section 12AA(3) of the Income Tax Act. The Tribunal relied on a decision which was argued to be not applicable to the present case and did not record any independent findings against the CIT's recorded findings.

The society in question had been granted registration under Section 12A read with Section 12AA of the Act and claimed exemption under Section 10(23C)(vi) for various assessment years on the grounds of imparting education. However, the Chief Commissioner of Income Tax, Allahabad, rejected this claim, concluding that the society was not exclusively engaged in educational activities but also in other non-charitable activities. This decision became final after the rejection of the related writ petition.

The CIT issued a notice under Section 12AA(3) to cancel the registration, citing that the society's activities were no longer charitable as defined under Section 2(15) read with Sections 11 to 13 of the Act. The CIT found that the society had diverted funds to another society, which spent them on non-educational purposes, thus contravening the provisions of the Societies Registration Act. Consequently, the registration was canceled.

The Tribunal, however, allowed the appeal, stating that although the CIT referred to findings from the order under Section 10(23C)(vi), he had independently applied his mind to those findings. The Tribunal noted that the considerations under Sections 10(23C) and 12AA are similar, and thus, findings under Section 10(23C) could bear relevance to Section 12AA proceedings. However, the Tribunal found merit in the argument that spending on religious functions and maintenance could still be considered charitable, referencing the case of Ewing Christian College Society Vs. CCIT.

2. Tribunal's Decision on the Genuineness of the Society's Activities:
The second issue was whether the Tribunal correctly held that the society's activities were genuine and in accordance with its aims and objects despite the CIT's findings.

The Tribunal's decision was challenged on the grounds that the CIT had found the society's activities to be non-genuine and not aligned with its stated objectives. The Tribunal, however, did not find sufficient evidence to support this conclusion and emphasized that the mere spending on religious activities did not negate the society's charitable status.

The High Court examined the statutory provisions, particularly Section 12AA, which mandates the Commissioner to satisfy himself about the genuineness of the trust's activities and their alignment with its objects. The Court noted that the CIT had not recorded any specific findings regarding the lack of genuineness or deviation from the society's objects. The Court highlighted that the criteria for exemption under Section 10(23C)(vi) and registration under Section 12A are distinct, and refusal of exemption under one does not automatically justify cancellation of registration under the other.

The High Court concluded that the matter required fresh consideration by the Commissioner of Income Tax, Varanasi, as the necessary findings to support the cancellation of registration under Section 12AA(3) were not adequately recorded.

Conclusion:
The appeal was allowed, and the Tribunal's order was set aside. The matter was remanded to the Commissioner of Income Tax, Varanasi, for a fresh decision, emphasizing the need for specific findings on the genuineness of the society's activities and their adherence to its stated objects.