2017 (12) TMI 62 - HC - Income Tax

Income from property held for charitable or religious purposes - Held that - Assessee being a religious and charitable society, the expenses incurred by it relating to both religious as well as charitable activities were for the purpose for which the society was established and, therefore, the expenses incurred for religious purposes could not be disallowed for the purpose of exemption u/s 11 - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 13(1)(b) over Sections 11 and 12 for a society established for the benefit of a particular community.
2. Legality of the Tribunal's decision to set aside the CIT's order canceling the registration under Section 12AA(3) due to alleged irregularities and illegal activities.

Issue-wise Detailed Analysis:

1. Applicability of Section 13(1)(b) Over Sections 11 and 12:

The appellant challenged the Tribunal's dismissal of the department's appeal which confirmed the CIT(A)'s order. The core question was whether Section 13(1)(b), which overrides Sections 11 and 12, applies to the assessee society created for the benefit of Christians.

The court noted that the Assessing Officer (AO) had assessed the assessee's income at ?2,02,21,283/- after concluding that the society's activities were not genuine and primarily aimed at propagating Christianity. The AO disallowed various expenses, arguing that they were not incurred for charitable purposes but for the benefit of a particular religious community.

The CIT(A) found that the registration under Section 12A was still valid and the society had been operating in the same manner since its inception, with similar expenses allowed in previous years. The CIT(A) emphasized that Section 11 benefits both charitable and religious purposes, as supported by higher appellate authorities. The Tribunal concurred, stating that the expenses were for schools, orphanages, and other charitable activities, and thus, the society was entitled to exemption under Section 11.

2. Legality of Tribunal's Decision to Set Aside CIT's Order Canceling Registration Under Section 12AA(3):

The second issue involved the Tribunal's setting aside of the CIT's order canceling the society's registration based on alleged irregularities. The Tribunal noted that the CIT had the power to cancel registration if the activities were not genuine or not in accordance with the objects of the trust. However, the Tribunal found that the CIT's decision lacked sufficient grounds and that the AO's report, which the CIT relied on, was not provided to the assessee, violating principles of natural justice.

The Tribunal also highlighted that the Registrar of Societies had canceled the society's registration due to procedural irregularities and allegations of unconstitutional activities. However, the High Court had stayed this cancellation, questioning the Registrar's authority to do so.

The Tribunal concluded that the CIT's order needed reconsideration, taking into account the High Court's observations and ensuring the assessee's right to a fair hearing. The Tribunal directed the CIT to reassess the matter, considering the legal position and the society's compliance with its objectives.

Conclusion:

The High Court upheld the Tribunal's decisions, affirming that the society was entitled to exemptions under Sections 11 and 12, and the CIT's cancellation of registration under Section 12AA(3) required reevaluation. The appeals were dismissed, and the cross-objection by the assessee was also dismissed.