2015 (9) TMI 655 - AT - Income Tax

Eligibility for registration u/s 12A - whether the society is not being run according to the objects and thus contravenes the provisions of section 12AA(3)? - CIT(A) denied registration - Held that - When the object clause shows that the education and treatment has to be provided free of cost and the assessee society is charging fees for those facilities, it has to be accepted that the assessee society is not being carrying out its activities as per its object clause and once this is found that activities of the assessee society are not being carried out in accordance with the objects of the trust, the CIT shall pass an order in writing cancelling the registration of the assessee society u/s 12AA(3) of the Act. In the facts of the present case, we find no infirmity in the order of CIT in denying registration u/s 12A. - Decided against assessee.

Summary

Issues:
- Appeal against order passed by learned CIT-II, Lucknow u/s 12AA (3) of the Income Tax Act.
- Grounds raised by the assessee challenging the CIT's decision.
- Examination of the society's activities and compliance with its objects.
- Interpretation of sub section (3) of section 12AA regarding cancellation of registration.
- Relevance of previous Tribunal decision in granting registration u/s 12AA.
- Impact of State Government fee structure on the society's activities.

Analysis:

The appeal was directed against the order of the learned CIT-II, Lucknow, under section 12AA(3) of the Income Tax Act. The assessee raised multiple grounds challenging the CIT's decision. The CIT held that the society was not being run in accordance with its objects and was operating as a commercial venture, leading to the cancellation of its registration. The issue revolved around whether the society's activities aligned with its stated charitable objectives. The CIT cited discrepancies between the society's actual receipts and its purported charitable intentions as per the amended objects of the society. The CIT concluded that the society had contravened section 12AA(3) of the Act.

The interpretation of sub section (3) of section 12AA was crucial in determining the cancellation of registration. The section mandates cancellation if the activities of the trust or institution do not align with its stated objects. The Tribunal found that the society's actions, such as charging fees for services meant to be provided free of cost, demonstrated non-compliance with its object clause. This non-alignment justified the CIT's decision to cancel the registration.

The Tribunal dismissed the relevance of a previous Tribunal decision cited by the assessee, emphasizing that the focus for granting registration under section 12AA is on the genuineness of the trust's activities. In contrast, cancellation under section 12AA(3) hinges on whether the trust's activities align with its objects. The Tribunal clarified that the judgment of the Hon'ble Allahabad High Court supported this distinction, underscoring the importance of activities complying with the trust's objects.

Regarding the State Government fee structure, the Tribunal rejected the argument that charging lower fees than the government's prescribed rates justified the society's actions. The Tribunal reiterated that the society's obligation to provide free education and treatment superseded any comparison with external fee structures. Ultimately, the Tribunal upheld the CIT's decision, finding no fault in the cancellation of the society's registration.

In conclusion, the Tribunal upheld the CIT's order, dismissing the appeal of the assessee. The decision was based on the society's failure to align its activities with its charitable objectives, leading to the cancellation of its registration under section 12AA(3) of the Income Tax Act.