2018 (10) TMI 55 - AT - Income Tax

Denial of registration u/s 12AA - proof of charitable objects of society - imparting of education - genuine trust - Held that - Careful perusal of the objects reveals that the objects of the Society primarily are of imparting education to all the classes of the Society. The order impugned is absolutely silent in respect of this material aspect of the matter. The law is fairly well settled that while granting Registration the Ld CIT is entitled to conduct enquiry and get himself satisfied with the objects stated in the memorandum of objects at this stage any enquiry with regard to the source of income or application thereof is beyond the scope of enquiry contemplated under the Act as per by the law evolved. It is an undisputed fact that the Society is running and maintaining a school upto Intermediate classes and is affiliated by the Government of U.P. Hon ble Karnataka High Court in the case of CIT vs. A.S. Kupparaju Brothers Charitable Foundation Trust 2011 (9) TMI 590 - KARNATAKA HIGH COURT has held that once it is admitted that in pursuance of the trust deed and in terms of the objects set out therein schools and colleges are being run and educational institution are being run nothing more requires to be established to show that the trust in question is a genuine trust. The registration under section 12AA is only fait accompli to the objects of the institution. 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 life time guarantee that it would remain so that is why the law prescribes procedure for withdrawal of registration once granted. Various findings as demonstrated by the Ld Counsel too were recorded in total ignorance of facts available on records. - Decided in favour of assessee

Issues Involved:
1. Rejection of application for registration under section 12AA of the Income Tax Act, 1961.
2. Failure to produce books of accounts and vouchers.
3. Allegation of conducting activities on a commercial basis with a profit motive.
4. Examination of the genuineness of the charitable activities.
5. Legal precedents regarding the scope of inquiry for registration under section 12AA.

Detailed Analysis:

Rejection of Application for Registration under Section 12AA:
The primary issue was the rejection of the assessee's application for registration under section 12AA of the Income Tax Act, 1961, by the Ld. CIT(Exemption) Lucknow. The CIT(E) observed that the appellant failed to show any act of charity, did not credit income from fees in the income and expenditure account, and was generating income from F.D. interest, rent, and bank interest, indicating a profit motive rather than charitable activities. The CIT(E) concluded that the society was engaged in education on a commercial basis and rejected the application.

Failure to Produce Books of Accounts and Vouchers:
The CIT(E) noted that the applicant society did not produce books of accounts, bank statements, and vouchers for verification, which led to doubts about the genuineness of its activities. The CIT(E) emphasized that under section 12AA(1)(b), both the charitable purpose of the objects and the genuineness of activities must be proven before granting registration. The failure to produce these documents was a significant factor in the rejection.

Allegation of Conducting Activities on a Commercial Basis with a Profit Motive:
The CIT(E) alleged that the society collected huge fees from students and made substantial profits, which contradicted its claim of charitable activities. The CIT(E) referenced legal precedents, including the case of CIT vs. National Institute of Aeronautical Engineering Education Society, to support the stance that mere declaration of charitable objects is insufficient without genuine charitable activities.

Examination of the Genuineness of Charitable Activities:
The Tribunal analyzed the CIT(E)'s approach and found it flawed. The Tribunal highlighted that the law requires the CIT to verify the objects and the genuineness of activities but not to delve into the source of income or its application at the registration stage. The Tribunal cited several legal precedents, such as Fifth Generation Education Society Vs CIT and CIT Vs Red Rose School, which clarified that the inquiry at the registration stage should focus on the objects and genuineness of activities, not on income application or profit generation.

Legal Precedents Regarding the Scope of Inquiry for Registration under Section 12AA:
The Tribunal referred to multiple judgments, including those from the Allahabad High Court, Karnataka High Court, Madhya Pradesh High Court, Kerala High Court, and Punjab & Haryana High Court. These judgments consistently held that the inquiry for registration under section 12AA should be limited to verifying the charitable nature of the objects and the genuineness of activities, without examining the application of income or profit motives at this stage.

Conclusion:
The Tribunal found that the CIT(E) had overstepped the scope of inquiry by focusing on income application and profit motives rather than the genuineness of the society's activities and its charitable objects. The Tribunal reversed the CIT(E)'s order and directed the CIT(E) to grant registration to the appellant society within a month.

Order:
The appeal was allowed, and the CIT(E) was instructed to grant registration under section 12AA of the Income Tax Act, 1961, to the appellant society forthwith. The order was pronounced in the open court on 27/09/2018.

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