2017 (1) TMI 1092 - AT - Income Tax

Non granting registration u/s 12AA - Held that - What the learned Commissioner of Income Tax has found objectionable is that the applicant society, being liable to claim exemption under section 10(23C)(iiiab), since it is wholly financed by the State Government has not done so. Clearly, this is not a reflection on the genuineness of the activities being carried on by the applicant society. In fact, it is affirmation of the same since even as per the aforestated observation of the learned Commissioner of Income Tax, the applicant society is eligible to claim exemption under section 10(23C)(iiiab) of the Act which grants exemption to institutions existing solely for the purpose of imparting education. Other adverse finding of the learned Commissioner of Income Tax is vis- -vis the fact that the applicant society has wrongly claimed exemption under section 10(23C)(iiiad) of the Act since aggregating the income of the society, college and school run by it, the same exceeds ₹ 1 crore which is the limit set under the Statute for claiming exemption under section 10(23C)(iiiab) of the Act. Again we find that this has no reflection on the genuineness of the activities carried out by the applicant society, but is an affirmation of the genuineness of the activities since it calls into question the claim of exemption under section 10(23C)(iiiad) of the Act, which grants exemption from tax of incomes of institutions existing solely for the purpose of education and whose receipts during a financial year do not exceed a specified limit, on account of the income exceeding a particular limit but does not doubt the genuineness of the activities carried out by the assessee. Further the observation of the Ld.CIT that the institutions of the applicant society are being run on commercial lines ,we find has no basis. Ld.CIT has merely made a general comment on the above lines which is not supported by any facts or figures and hence in our view requires no consideration. Since the genuineness of both the object and activities of the assessee society having not been doubted, we are of the considered opinion that the order of the Ld.CIT cannot be sustained. Consequently we set aside the order passed by the CIT and direct that registration applied for by the applicant society u/s 12A of the Act be granted. - Decided in favour of assessee

Issues Involved:
1. Denial of registration under section 12AA of the Income Tax Act, 1961.
2. Genuineness of the appellant society's activities and objects.
3. Applicability of section 10(23C)(iiiab) versus section 10(23C)(iiiad) of the Act.
4. Allegation of running institutions on commercial lines.

Detailed Analysis:

1. Denial of Registration under Section 12AA:
The appellant society's application for registration under section 12AA was rejected by the Commissioner of Income Tax (Exemptions) on the grounds that the society's activities did not corroborate with its stated educational objectives. The appellant contested this, arguing that the Commissioner had erred in denying registration as the genuineness of the society's objects and activities had not been doubted.

2. Genuineness of the Appellant Society's Activities and Objects:
The society, established in 1981, aimed to provide balanced and wholesome education through institutions like Sant Mohan Singh Khalsa Labana Girls College and S.M.S. Public School. The Commissioner noted that the society's income was derived from donations and rent, while the schools earned from fees and rent. Despite this, the Commissioner did not find any adverse evidence against the society's objects and activities. The Tribunal emphasized that the scope of the Commissioner's power under section 12AA is limited to verifying the genuineness of the objects and activities, not the financial specifics. The Tribunal cited the Allahabad High Court's decision in Commissioner of Income Tax vs. Red Rose School, which clarified that the Commissioner should focus on the genuineness of the activities and objects when considering registration under section 12AA.

3. Applicability of Section 10(23C)(iiiab) versus Section 10(23C)(iiiad):
The Commissioner argued that the society should have claimed exemption under section 10(23C)(iiiab) instead of section 10(23C)(iiiad), as the aggregate receipts from the society's institutions exceeded ?1 crore. The Tribunal found that this issue did not affect the genuineness of the society's activities. The Tribunal noted that the society had been availing exemptions in previous years without issue and that the exemption claim under section 10(23C)(iiiad) was a separate matter from the registration under section 12AA.

4. Allegation of Running Institutions on Commercial Lines:
The Commissioner claimed that the appellant society's institutions were being run on commercial lines, which would disqualify them from registration under section 12AA. The Tribunal found this assertion to be unsupported by any concrete evidence or figures. The Tribunal concluded that the Commissioner’s general comment lacked basis and did not warrant consideration.

Conclusion:
The Tribunal held that the Commissioner of Income Tax had erred in denying the registration under section 12AA, as the genuineness of the society's objects and activities had not been doubted. The Tribunal set aside the Commissioner’s order and directed that the registration be granted to the appellant society. The appeal was allowed, and the order was pronounced in the open court.

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