2016 (4) TMI 37 - AT - Income Tax

Registration under section 12AA denied - non charitable activities - siphoned off or misappropriation of income of the Society - Held that - It is clear that the assessee society unsuccessfully tried to justify that family members of the management committee members rendered any kind of services. The fact that the names of 4 ladies were appearing in the attendance registers of the teachers and no attendance was marked against their names since beginning of the year, was observed in the course of survey proceeding, however, the assessee tried to justify that those 4 ladies are not teaching staff and a separate attendance registers was being maintained. This explanation was not found convincing by the Assessing Officer, as no such attendance register was found or produced in the course of survey proceeding. Further, the name of 4 lady members was entered in the attendance register of the teachers and no attendance was marked against their name, clearly established that the subsequent explanation by the assessee society of having separate attendance register was not true. The Assessing Officer has observed that the remuneration paid to those family members was also more than arm s length remuneration. The facts of the case clearly show that the assessee society was engaged in siphoning of money under the garb of carrying out charitable activity in the name of education. Thus we are of considered opinion that the members of the management committee has siphoned off or misappropriated the income of the Society and thus the activity of the Society, cannot be termed as genuine and the Society in the garb of charitable activity of education, is engaged in enriching its members through undue means. It is evident that the Commissioner of Income Tax has not found the object of the society and genuineness of its activities as satisfactory, and refused the registration as per section 12AA(1)(b)(ii) of the Act. - Decided against assessee

Summary

Issues Involved:
1. Refusal to grant registration under Section 12AA of the Income-tax Act, 1961.
2. Allegations of non-genuine and commercial activities by the assessee society.
3. Siphoning of funds by the management committee members.
4. Comparison of cited case laws with the facts of the present case.

Issue-Wise Detailed Analysis:

1. Refusal to Grant Registration under Section 12AA of the Income-tax Act, 1961:
The appeal was directed against the order dated 11/09/2014 by the Commissioner of Income Tax, Haldwani, which rejected the registration under Section 12AA of the Income-tax Act, 1961. The assessee, a registered society running an educational institution, applied for registration on 16/04/2014. The Commissioner refused the registration, citing that the society's activities were not genuine and were driven by profit motives, contrary to the primary object of the society.

2. Allegations of Non-Genuine and Commercial Activities by the Assessee Society:
The Commissioner of Income Tax noted that a survey under section 133A of the Act conducted on 04/08/2010 revealed that four family members of the management committee were paid salaries without rendering any services. This was seen as a violation of the society's non-profit motive. The society's application for approval under section 10(23C)(vi) was also previously rejected on similar grounds.

3. Siphoning of Funds by the Management Committee Members:
During the survey, it was found that four lady teachers, who were family members of the management committee, did not sign the attendance register and were absent from duty. The Principal and Accountant of the school failed to provide convincing explanations or leave applications for these absences. It was established that these individuals were not employed in any teaching capacity, and their salaries constituted a diversion of the society's income. The remuneration paid was also found to be more than arm's length, indicating misappropriation of funds.

4. Comparison of Cited Case Laws with the Facts of the Present Case:
The assessee cited various case laws to support its contention for registration under Section 12AA. However, the Tribunal found that the facts of these cases were distinguishable from the present case. For instance:
- In the case of Fifth General Education Society, the court held that mere general charitable objects do not cease to be charitable. However, in the present case, the activities were carried out for a long time, and registration was refused due to non-genuine activities.
- In DCIT vs. Cosmopolitan Education Society, the court found no mis-utilization of funds, unlike the present case where misappropriation was established.
- In DIT vs. Parivar Sewa Sansthan, the court held that salary and rent were not excessive, whereas in the present case, salaries were paid without services rendered.
- Other cases cited by the assessee were also found not applicable due to differences in facts, such as the absence of misappropriation or the specific nature of charitable activities.

Conclusion:
The Tribunal concluded that the members of the management committee had siphoned off or misappropriated the society's income, making the society's activities non-genuine. Therefore, the Commissioner of Income Tax rightly refused to grant registration under Section 12AA of the Act. The appeal was dismissed, and the decision was pronounced on 30th March 2016.