2017 (8) TMI 723 - HC - Income Tax

Registration u/s 12AA(I)(b) denied - not carrying out activities wholly for religious and charitable purposes as per provisions of Section 2(15) - non commencement of trust activities - Held that - At the time of registration under section 12AA of the Income-tax Act, which is necessary for claiming exemption under sections 11 and 12 of the Act, the Commissioner of Income-tax is not required to look into the activities, where such activities have not or are in the process of its initiation. Where a trust, set up to achieve its objects of establishing educational institution, is in the process of establishing such institutions, and receives donations, the registration under section 12AA cannot be refused, on the ground that the trust has not yet commenced the charitable or religious activity. Any enquiry of the nature would amount to putting the cart before the horse. At this stage, only the genuineness of the objects has to be tested and not the activities, which have not commenced. The enquiry of the Commissioner of Income-tax at such preliminary stage should be restricted to the genuineness of the objects and not the activities unless such activities have commenced. The trust or society cannot claim exemption, unless it is registered under section 12AA of the Act and thus at that such initial stage the test of the genuineness of the activity cannot be a ground on which the registration may be refused. - Decided against Revenue.

Summary

Issues:
1. Appeal against rejection of registration under Section 12A(a) of the Income Tax Act, 1961.
2. Justification of directing the Commissioner of Income-tax (Exemptions) to grant registration u/s 12AA(I)(b) of the Act to the assessee society.

Analysis:
The case involved an income tax appeal against the rejection of registration under Section 12A(a) of the Income Tax Act, 1961. The U.P. Wrestling Association had applied for registration, which was initially rejected by the Commissioner of Income Tax (Exemptions) on the grounds that the association was not carrying out activities wholly for religious and charitable purposes as required by the Act. However, the Income Tax Appellate Tribunal (ITAT) allowed the appeal, stating that the association's activities for the advancement of sport (Wrestling) were within the term 'charitable.' The Tribunal directed the Commissioner to register the association under Section 12AA of the Act.

The appeal raised the question of whether the ITAT was justified in directing the Commissioner to grant registration under Section 12AA(I)(b) of the Act to the assessee society. The Tribunal's decision was based on the precedent set by a Division Bench judgment of the High Court, which emphasized that at the time of registration under Section 12AA, the Commissioner is not required to look into activities that have not yet commenced. The focus should be on the genuineness of the objects of the trust or society seeking registration. The judgment highlighted that the registration cannot be refused solely because the charitable activities have not started. The Tribunal's decision was in line with this legal principle, and the order of the Commissioner was found to be contrary to the law as laid down by the Division Bench.

The judgment also referred to other High Court cases to distinguish the facts of those cases from the present situation, emphasizing that the rejection of registration should be based on the genuineness of the objects and not the activities that have not yet commenced. The Tribunal's view, supported by the Division Bench judgment, was considered valid and in accordance with the law. Therefore, the Tribunal's decision to set aside the order of the Commissioner and direct the registration of the association under Section 12AA was upheld. The appeal was dismissed, affirming the Tribunal's decision and answering the question framed against the Revenue.