2017 (4) TMI 123 - HC - Income Tax

Eligibility of registration under Section 12AA - Held that - It has been categorically recorded by the Tribunal that the CIT (E) has to satisfy two conditions while granting registration under Section 12AA of the Act. Firstly, whether the objects of the assessee are charitable in nature and thus, the activities are genuine. It cannot be concluded on the basis that the assessee has not filed its income tax returns in earlier years that the activities of the assessee are not genuine. It has been further recorded that Section 13 of the Act comes into play at the time of granting exemption under Section 11 of the Act and not at the time of granting registration under Section 12AA of the Act. No adverse remarks have been recorded by the CIT (E) with regard to the objects contained in the memorandum of the assessee-trust to come to the conclusion that its activities are not genuine. Thus, it has been rightly directed by the Tribunal to the CIT (E) to grant registration under Section 12AA of the Act. - Decided in favour of assessee

Summary

Issues:
1. Appeal against order denying registration under Section 12AA of the Income Tax Act.
2. Validity of denying registration based on non-filing of income tax returns.
3. Interpretation of Section 13(1)(c) in relation to granting exemption under Section 11 and cancellation of registration under Section 12AA(4).
4. Exercise of powers under Section 12AA(4) during registration under Section 12AA(1).
5. Decision of the ITAT to grant registration instead of re-examining the case.

Analysis:
1. The appellant-revenue challenged the order denying registration under Section 12AA of the Income Tax Act. The Tribunal held that non-filing of income tax returns in previous years does not automatically imply lack of genuineness in the trust's activities. The Tribunal emphasized that the Commissioner of Income Tax (Exemptions) must only ensure the charitable nature of the trust's objects and the genuineness of its activities for registration under Section 12AA. The Tribunal directed the Commissioner to grant registration as no adverse remarks were made regarding the trust's objects.

2. The Tribunal found that the denial of registration based on non-filing of income tax returns was unjustified. It cited precedents stating that non-filing of returns alone cannot be a reason to deny registration under Section 12AA. The Tribunal highlighted that the focus should be on the charitable nature of the trust's objects and the genuineness of its activities, rather than past income tax return filings.

3. Regarding Section 13(1)(c), the Tribunal clarified that its provisions apply during exemption under Section 11 and not during registration under Section 12AA. The Tribunal explained that the Assessing Officer should assess Section 13 compliance during yearly assessment proceedings, not during the registration process under Section 12AA.

4. The Tribunal addressed the exercise of powers under Section 12AA(4) inserted from 01.10.2014. It ruled that these powers cannot be utilized by the Commissioner while granting registration under Section 12AA(1), even if statutory violations are revealed during proceedings. The Tribunal emphasized the need to focus on the trust's charitable objects and activities for registration.

5. The Tribunal's decision to grant registration instead of re-examining the case was upheld. The Tribunal found no legal basis to interfere with its findings, and the appeal by the appellant-revenue was dismissed as no substantial question of law arose from the Tribunal's judgment. The Tribunal's interpretation of the relevant statutory provisions was deemed appropriate, leading to the affirmation of the decision to grant registration to the trust.