2018 (3) TMI 809 - AT - Income Tax

Registration u/s 12AA denied - entitlement to CIT-A to reject application for registration - charitable activities of assessee - Held that - Under section 12AA the Commissioner is entitled to see as to whether the objects are charitable in nature, and also to see whether the activities are genuine or not. Examination of the genuineness of the activities would mean to see that the activities are not by way of camouflage or bogus or artificial and whether these are in accordance with the objects of the institution. The scope of such enquiry does not extend beyond that point. The registration granted by the Commissioner does not extend any exemption to an institution under section 11, except to the fact that such registration is mandatory for claiming exemption under section 11. Meaning thereby, exemption under section 11 can be availed of by institutions which are genuinely engaged in charitable activities . However, benefit of section 11 is subject to application of income for charitable activities and the Assessing Officer is well entitled to see whether such application has been done and the other conditions of section 11 have been complied. The registration under section 12AA is only fait accompli to the objects of the institution ACIT vs. Surat City Gymkhana , (2008 (4) TMI 16 - SUPREME COURT) . The activities of an institution, though genuine at the time of grant of registration, may not remain so during its life-span and the registration granted to it cannot be a life-time guarantee that it would remain so. That is why the law itself prescribes a procedure for withdrawal of the registration granted, in appropriate cases. CIT(E) has erred in rejecting the assessee s application for registration u/s 12AA of the IT Act - Decided in favour of assessee

Issues Involved:
1. Rejection of application for registration under section 12AA of the Income Tax Act, 1961.
2. Assessment of the genuineness of the activities and charitable nature of the applicant society.
3. Applicability of Section 13(1)(b) regarding benefits to a particular religious community or caste.
4. Examination of compliance with procedural requirements and submission of documents.

Issue-Wise Detailed Analysis:

1. Rejection of Application for Registration under Section 12AA:
The CIT(E) rejected the application for registration under section 12AA, citing that the applicant society is primarily engaged in running an educational institute on commercial lines, charging substantial fees without providing any element of charity. The society failed to pay taxes on surplus receipts exceeding ?1 Crore annually and did not file Income Tax Returns (ITRs) on time. The CIT(E) concluded that the society's activities were not genuine and were primarily for commercial interest.

2. Assessment of Genuineness and Charitable Nature:
The CIT(E) observed that the society did not produce books of accounts, bank statements, and vouchers for verification, which led to doubts about the genuineness of its activities. The society was also criticized for not showcasing any charitable initiatives or programs. The CIT(E) emphasized that mere declarations of charitable objectives without evidence of genuine activities do not qualify for registration under section 12AA.

3. Applicability of Section 13(1)(b):
The CIT(E) referred to one of the society's objectives, which he interpreted as benefiting a specific community (Agrawal community), thus attracting the provisions of Section 13(1)(b) of the Income Tax Act, which disallows benefits to trusts created for the benefit of a particular religious community or caste. However, the tribunal noted that the objective included "Sarv Sadharan" (general public), indicating that the society's activities were not exclusively for the Agrawal community. Furthermore, the society was established before the commencement of the Act, making Section 13(1)(b) inapplicable.

4. Compliance with Procedural Requirements:
The tribunal found that the society had responded to all 23 queries raised by the CIT(E) and provided necessary documents, including ITR acknowledgments and details of charitable activities. The CIT(E) was found to have erroneously observed that only a part reply was filed and that ITRs were not submitted. The tribunal also noted that the society had produced books of accounts, bank statements, and vouchers, contrary to the CIT(E)'s claims.

Judgment:
The tribunal held that the CIT(E) erred in rejecting the application for registration under section 12AA. The CIT(E) failed to consider the material evidence provided by the society and wrongly interpreted its objectives. The tribunal emphasized that the scope of inquiry under section 12AA is limited to verifying the charitable nature of the objectives and the genuineness of activities, which the society had demonstrated. Consequently, the tribunal directed the CIT(E) to grant registration to the society forthwith.

Conclusion:
The appeal was allowed, and the society was granted registration under section 12AA, as the tribunal found that the CIT(E) had made erroneous observations and failed to consider the evidence provided by the society. The tribunal also clarified the limited scope of inquiry under section 12AA and the inapplicability of Section 13(1)(b) to the society.

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