2015 (8) TMI 912 - AT - Income Tax

Denial of registration u/s.12AA - membership of the assessee s society is open only for members of a religious community, i.e., Muslims, or the followers of the Islam faith - Held that - As explained in A. P. Christian Medical Association vs. State of Andhra Pradesh 1986 (4) TMI 343 - SUPREME COURT it is important and imperative that there must exist some real positive index to enable the institution to be identified as an educational institution of the minorities. That is, there should be a nexus between the institution and the particular minority to which it claims to be belonging a right to regulate admission thereto is an important right of a minority institution. However, we do not find the same expressed in the charter of the assessee-society; there being no reference to any percentage or any restriction or mandate in respect thereof in its Aims and Objects . Whatever implication this may have for its status as a minority institution, we can hardly countenance or subscribe to a proposition which, despite there being nothing either in its memorandum of association (object clause) or its conduct, sanctions a presumption that it is established for the benefit of the minority (Muslim) community, solely on the basis of it being granted the status of minority educational institution the only restriction in its charter being toward its membership extending only to the members of the said community. If the institution has, by admitting 90% non-minority (non-muslim) students, violated any specific provision or guideline in the matter and, accordingly, stands to lose its minority status, of which we have no clue, so be it. And which again does not help the Revenue s case in any manner; rather, only goes against it. Though, therefore, appearing anomalous in-as-much as the minority status implies an inherent right to serve the minority interest, a finding to it being set up or established for the benefit of a particular (Muslim) community cannot be a matter of presumption and rendered de hors any material on record. Notwithstanding, therefore, a minority status being accorded to its educational institutions, we are, both on the facts and in law, unable to regard it as being established for the benefit of a particular religious community. Even though the relevant provision (sec. 13(1)(b)) provides for exclusion of ss. 11 and 12 of the Act, the same could well be taken into consideration for the purpose of grant or otherwise of registration u/s.12AA in-as-much as it impinges on its public character. What, we are unable to comprehend, effect or purpose the registration would have where, notwithstanding the same, no benefit u/ss. 11 and 12 can be allowed in view of an abiding feature of the applicant s constitution or its inherent nature. The Revenue has also been unable to move us on the grounds of commerciality or as to the institution/s operating for the benefit direct or indirect, of the excluded/ specified persons.Finally, a bare reading of this order would disclose several differences between the case as made out before us and that before the tribunal (SMC Bench) in the assessee s case relied upon by the Revenue which order we have perused, even as the same is not binding on us. We, therefore, decide the issue of registration as a charitable institution under the Act to the assessee-society in its favour. Validity of reopening of assessment - Held that - The A.O. has an inherent right to assess the assessee s income, which includes reassessment of income (s. 2(8)). The only restriction is that he has to, in doing so, observe the procedure prescribed in law in its respect, with attendant consequences where not, as in the first instance, whereat the assessment was held null and void in the absence of the jurisdictional notice u/s.143(2). The appellate order dated 16.01.2009 quashing the assessment as framed, which stood upheld by the tribunal, was thus on the jurisdictional issue, i.e., the absence of jurisdiction to frame the assessment u/s.143(3)/144 r/w s. 147. There was no adjudication qua the reasons recorded or the merits of the assessment and, accordingly, no merger qua the assessment on its merits or qua the reasons recorded as to the escapement of income. The same, thus, survive, and the A.O., as the assessing authority, was fully competent to initiate fresh proceedings u/s.147, observing of course the due process of law, and which he does. We do not find any infirmity in either the procedure adopted for framing the assessment or qua its legality. The ld. CIT(A) has not decided the assessee s other grounds, on the merits of the assessment (i.e., the additions or the disallowances made), as he had quashed the assessment, which decision by him stands hereby reversed by us. The matter, accordingly, shall travel back to his file to decide the assessee s grounds of appeal. - Decided in favour of assessee by way of remand.

Summary

Issues Involved:
1. Denial of registration under Section 12AA of the Income Tax Act, 1961.
2. Validity of initiation of proceedings under Section 147 of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Denial of Registration under Section 12AA:

Background Facts:
The assessee, a society registered under the Societies Registration Act, 1860, and declared as a Minority Educational Institution (MEI), applied for registration as a charitable institution under Section 12AA. The Commissioner of Income Tax (CIT) denied the registration, citing several reasons, including the society's membership being restricted to Muslims, the commercial nature of its educational institutions, and interest-free loans to its founding members.

Principal Grounds for Denial:
a) Membership restricted to Muslims.
b) Educational institutions granted MEI status by NCMEI, with powers to regulate minority status and admissions.
c) Institutions run on commercial lines.
d) Interest-free loans to founding members, creating a source of income and augmenting their wealth.

Tribunal's Analysis:
- The Tribunal disagreed with the Revenue's case, noting that the educational institutions run by the society are MEIs and follow the guidelines set by the Supreme Court, which allow unaided minority institutions total freedom in admissions up to the undergraduate level.
- The Tribunal found no evidence of discrimination or commerciality in the society's operations, noting that 90% of the students and teachers were non-Muslims, which contradicts the claim of the society being established for the benefit of a particular religious community.
- The Tribunal also noted that the building fund and caution money deposits from students did not indicate commerciality, as the building fund was refundable and the caution money was to safeguard against financial injury.
- Regarding the interest-free loans to founding members, the Tribunal found that the loans were repaid and were intended to facilitate the construction of a building for the society's use, not to benefit the members.

Conclusion:
The Tribunal directed that the society be granted registration under Section 12AA, as it was found to be a charitable institution in law and fact, and the Revenue's grounds for denial were not substantiated.

2. Validity of Initiation of Proceedings under Section 147:

Background Facts:
The assessee filed its return of income for the relevant year, declaring nil income. The Assessing Officer (AO) issued a notice under Section 148, leading to an assessment denying the benefit of exemption under Section 10(23C). The Tribunal quashed the assessment due to the absence of a jurisdictional notice under Section 143(2). A fresh notice under Section 148 was issued, and the assessment was framed again.

CIT(A)'s Decision:
The CIT(A) quashed the second initiation of proceedings under Section 147, stating that the reasons recorded were substantially the same as the first instance, and the Revenue cannot be allowed a second innings for the same reasons.

Tribunal's Analysis:
- The Tribunal disagreed with the CIT(A), stating that the AO has an inherent right to reassess income, provided the due process of law is followed.
- The Tribunal noted that the first assessment was quashed due to a procedural issue (absence of notice under Section 143(2), not the merits of the assessment.
- The Tribunal found no infirmity in the procedure adopted for the second assessment and held that the AO was competent to initiate fresh proceedings under Section 147.

Conclusion:
The Tribunal reversed the CIT(A)'s decision, restoring the matter to the CIT(A) to decide the assessee's grounds of appeal on the merits of the assessment. The Revenue's appeal was disposed of accordingly, and the assessee's cross-objection was partly allowed.

Order Pronouncement:
The order was pronounced by listing the result on the Notice Board of the Bench under Rule 34(4) of the Appellate Tribunal Rules, 1963.