2018 (8) TMI 1257 - AT - Income Tax

Rejection of registration u/s. 12AA - educational institution - CIT(E) observed that the assessee was filing return in ITR-5 instead of ITR-7 and losses were being carried forward as per section 72 and the Society started profit from assessment year 2014-15 and 2015-16. Thereafter, he applied registration u/s. 12AA. - Held that - CIT(E) has rejected the registration application without complete examination of the activities of the assessee society as per section 12AA of the Act. While going through the audit report submitted by the Chartered Accountant in Form No. 3CD for assessment years 2013-14, 2014-15 and 2015-16, we find that the assessee-society is running computer training/educational and coaching Institutes. We also noted from the income and expenditure account that the society has received discount in all the three years. Matter remanded back to CIT(E) to examine the activities of the assessee de novo as per provisions of section 12AA r.w.s. 2(15) to ascertain whether the activities of the assessee society are within the objects of the society and whether the activities carried out by the assessee are charitable in nature or not. - Decided in favor of assessee.

Summary

Issues:
1. Refusal of registration u/s. 12AA of the Income Tax Act, 1961 by the ld. CIT(E)
2. Allegations of commercial activities by the assessee society
3. Examination of the activities of the assessee society under section 12AA

Analysis:
1. The appeal was filed against the order of the ld. CIT(E) refusing registration u/s. 12AA. The assessee society, registered under the Registrar of Societies Act, sought registration under section 12AA after amending its aims and objects. The ld. CIT(E) observed that the society was filing returns in ITR-5 instead of ITR-7, carrying forward losses, and turning profitable in recent years. The ld. CIT(E) concluded that the society did not demonstrate charitable intent from the outset, especially regarding salary disbursements. Consequently, the application for registration was rejected.

2. The ld. AR contended that the society solely operated as an educational institution without engaging in commercial activities or distributing surplus funds. The AR emphasized that the registration decision should be based on the society's aims and objects. The matter was debated on the society's financial activities, return filings, and compliance with TDS provisions. The ld. DR supported the CIT(E)'s decision, citing precedents to justify the denial of registration due to alleged commercial operations.

3. Upon review, the ITAT noted deficiencies in the examination of the society's activities by the ld. CIT(E). The ITAT found that the audit reports indicated the society's educational and coaching institutes, receiving discounts, and lacking membership fee receipts. The ITAT directed a fresh assessment by the CIT(E) to determine if the society's activities aligned with charitable objectives under section 12AA and section 2(15). If found charitable, registration should be granted retroactively from the application date. The appeal was allowed for statistical purposes, emphasizing the need for a comprehensive evaluation of the society's activities.

In conclusion, the ITAT's decision highlighted the importance of a thorough examination of an organization's activities to ascertain its eligibility for registration under section 12AA. The judgment emphasized the need to align activities with charitable objectives and ensure compliance with relevant provisions to warrant registration.