2018 (11) TMI 875 - HC - Income Tax

Registration u/s 12AA denied - activities of the society are not genuine - property of the trust on lease or on rent given by trustee - ITAT allowed the claim - Held that - From the perusal of the clause, we observe that the trustees have been given powers to give property of the trust on lease or on rent. We do not find anything wrong in this clause so as to deny the assessee the registration under Section 12A of the Act. As regards the apprehension of the CIT (Exemptions) that his clause may attract the provisions of Section 13(1) (c) of the Act, we are of the view that the conditions as provided in Section 13 or elsewhere are to be seen by the Assessing Officer at the time of assessment proceedings on yearly basis and not by the CIT (Appeals) while granting registration under Section 12A of the Act. Since we observe that no adverse remarks have been made by the Commissioner of Income Tax (Exemptions) with regard to the objects contained in Memorandum and as stated hereinabove that the observations of the Commissioner of Income Tax (Exemptions) do not lead to the conclusion that the activities of the assessee are not genuine, we hereby direct the Commissioner of Income Tax (Exemptions) to grant registration under Section 12A - Decided against revenue.

Summary

Issues:
1. Registration u/s 12AA of the Act denied by CIT(E)
2. Tribunal's decision to grant registration to the assessee society
3. Compliance with provisions of section 12A(1)(b) of the Act
4. Activities of the assessee society not being carried out in accordance with stated objectives

Analysis:
1. The appellant challenged the tribunal's decision granting registration to the assessee society under section 12AA of the Act. The appellant contended that the assessee society did not comply with the provisions of section 12A(1)(b) of the Act, raising concerns about the genuineness of its activities. The tribunal, however, relied on CBDT's clarification and legal precedents to emphasize that the mere generation of surplus does not imply profit-making intent if the surplus is utilized for charitable purposes. The tribunal found no adverse findings regarding the charitable nature of the society's activities, leading to the conclusion that the registration should not have been denied by the CIT(E).

2. The tribunal's decision was further supported by referencing the judgment of the Punjab & Haryana High Court in a similar case. The High Court emphasized that non-filing of income tax returns in previous years should not be the sole reason to doubt the genuineness of an organization's activities. The High Court stressed that the CIT(E) must focus on the charitable nature of the organization's objects and the genuineness of its activities when granting registration under section 12AA, rather than delving into other aspects that are relevant during assessment proceedings.

3. Additionally, the Kerala High Court's decision highlighted that registration under sections 12A and 12AA is primarily a procedural step to enable entities to claim benefits under the Act. The court clarified that the assessment of the trust's activities and fund application should occur during assessment, not during the registration process. The court emphasized the importance of verifying the genuineness of the trust rather than scrutinizing its operational details at the registration stage.

4. In light of the tribunal's thorough analysis and alignment with legal precedents, the High Court upheld the tribunal's decision to grant registration to the assessee society under section 12AA of the Act. The court dismissed the appeal, concluding that no substantial question of law arose from the tribunal's decision. The judgment emphasized the need to focus on the charitable nature and genuineness of activities when considering registration under the relevant provisions of the Act.