2018 (5) TMI 132 - AT - Income Tax

Grant of registration u/s 12A rejected - assessee had never in the past filed its return of income, claiming to be exempt u/s 10(23C)(iiiab) - proof of charitable activities - Held that - As submitted by the assessee and as is evident from the order of the CIT(E) also, the applicant had filed its Financial Statements before the CIT(E) and as stated that these Financial statements were audited and that even complete Books of accounts were maintained by the applicant. The examination of these documents would sufficiently reveal the activities carried out by the applicant and whether they are being carried out as per the stated objects of the applicant University. CIT(E) should have examined these documents for satisfying himself vis -vis the genuineness of the activities carried out by the assessee society and not rested his conclusion solely on the basis that no Income tax returns were filed by the applicant University. Therefore, we cannot subscribe with the action of the CIT(E) in rejecting the application of the assessee merely for the reason that he was unable to satisfy himself vis- -vis the genuineness of the activities carried out by the assessee society in the absence of the income tax returns filed by it in the earlier years. The assessee has not filed income tax returns in earlier years or had for that matter incorrectly claimed exemption u/s 10(23C)(iiiab), may call for some action to be taken as prescribed under the law but that does not and cannot lead to the conclusion that the activities of the assessee society are ingenuine so as to deny registration u/s 12AA of the Act to the assessee society. Similarly, the absence of PAN also cannot be a reason for denying the said registration. Moreover we find no merit at all in the contention of the CIT(E) that the applicant University should have claimed exemption under section 10(23C)(iiiad) or 10(23C)(vi) and not sought registration u/s 12AA so as to claim exemption u/s 11 of the Act. Thus we hold that the application be reconsidered afresh by the Ld.CIT(E) in the light of the conditions to be satisfied as per the provisions of section 12AA of the Act after examining the financial statements and other relevant documents which the Ld.CIT(E) considers necessary for arriving at the prescribed satisfaction of the genuineness of the objects and activities of the assessee university. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Rejection of the grant of registration under section 12A of the Income Tax Act, 1961.
2. Examination of the genuineness of the applicant society's activities and objects.
3. The relevance of filing income tax returns and having a PAN for registration under section 12A.
4. The applicant society's eligibility to claim exemption under section 10(23C)(iiiab) versus section 12A.
5. Allegations of commercial activities by the applicant society.

Issue-wise Detailed Analysis:

1. Rejection of the grant of registration under section 12A of the Income Tax Act, 1961:
The applicant society, operational since 1962, applied for registration under section 12A on 22.04.2016. The Ld. Commissioner of Income Tax (Exemptions) [Ld.CIT(E)] rejected the application on 24.10.2016, citing the applicant's failure to file income tax returns in the past and the absence of a Permanent Account Number (PAN). Additionally, the Ld.CIT(E) noted that the applicant society did not provide a valid reason for seeking registration under section 12A at this juncture.

2. Examination of the genuineness of the applicant society's activities and objects:
The Ld.CIT(E) expressed difficulty in appraising the activities of the applicant society due to the absence of income tax returns and other relevant documents. The Ld.CIT(E) argued that the genuineness of the activities could not be corroborated with the stated aims and objects of the society. However, the tribunal found that the Ld.CIT(E) had not made any adverse comments regarding the objects of the applicant society. The tribunal emphasized that the genuineness of the activities should be examined through financial statements and other relevant documents, not solely based on the filing of income tax returns.

3. The relevance of filing income tax returns and having a PAN for registration under section 12A:
The Ld.CIT(E) denied registration partly because the applicant society had never filed income tax returns and did not possess a PAN. The tribunal disagreed, stating that the absence of income tax returns and PAN cannot be valid reasons for rejecting the application for registration under section 12A. The tribunal highlighted that the primary conditions for granting registration are the genuineness of the objects and activities of the applicant society.

4. The applicant society's eligibility to claim exemption under section 10(23C)(iiiab) versus section 12A:
The Ld.CIT(E) contended that the applicant society incorrectly claimed exemption under section 10(23C)(iiiab) and should have claimed it under sections 10(23C)(iiiad) or 10(23C)(vi). The tribunal clarified that the applicant society could claim exemption under any section as long as it fulfilled the prescribed conditions. The tribunal found no merit in the contention that the applicant should not seek registration under section 12A to claim exemption under section 11 of the Act.

5. Allegations of commercial activities by the applicant society:
During the hearing, it was revealed that the applicant society was providing degrees to old students who could not complete their courses or wanted to improve their marks by collecting fees and conducting examinations. The tribunal instructed the Ld.CIT(E) to examine this activity and ensure that it did not involve earning profits, which would disqualify the applicant from registration under section 12A.

Conclusion:
The tribunal held that the Ld.CIT(E) should reconsider the application for registration under section 12A afresh, focusing on the genuineness of the objects and activities of the applicant society. The Ld.CIT(E) was directed to examine the financial statements and other relevant documents and provide the applicant with an opportunity for a hearing. The matter was restored to the file of the Ld.CIT(E) for a fresh examination and order in accordance with the law. The appeal of the applicant society was allowed for statistical purposes.