2019 (5) TMI 37 - HC - Income Tax

Grant of registration u/s 12AA - denial of registration as assessee would have applied u/s 10(23C) instead of Section 12AA as assessee was running hospital or school - either to apply for exemption under Section 10(23C) or claim exemption under Section 12AA ? - HELD THAT - For granting exemption under Section 12AA of the Act, the CIT(E) had to satisfied himself about the objects and the genuineness of the activities of the assessee and once the CIT(E) having accepted that the main aim of the society was running of college and educational institutions and made no adverse observation regarding genuineness of the objects or the activities carried on by the society, then the registration under Section 12AA could not have been denied holding that it was entitled to exemption under any other provision. With regard to the finding of the CIT(E) that the emphasize of the society was mainly creation of assets rather then redeployment of funds towards education, the Tribunal had noticed that during the financial year 2014-15 value of car, motorcycle and scooter were ₹ 2.17 lakhs and in 2015-16, it were ₹ 2.30 lakhs and the society surplus amount was @ 5.52% only, which cannot be termed as higher and certainly to run institute, the vehicles were required. Further, the apprehension and assumption of the CIT(E) that the society must be charging some funds, was based on the assumption and surmises and had no logical reasoning. Accordingly, the Tribunal has rightly directed the CIT(E) to grant registration under Section 12AA No illegality or perversity could be pointed out by learned counsel for the revenue in the findings recorded by the Tribunal which may warrant interference by this Court. No substantial question of law arises in the appeal. - Decided in favour of assessee.

Issues:
1. Interpretation of provisions under Income Tax Act, 1961 regarding registration under Section 12AA.
2. Assessment of charitable claims based on educational activities and salary structure.
3. Examination of the distinction between Section 10(23C)(iiiad) and Section 12A for seeking approval.
4. Evaluation of the genuineness of educational activities for registration under Section 12AA.
5. Emphasis on creation of assets over redeployment of funds towards education.
6. Review of the Tribunal's order for being contrary to evidence and material on record.

Issue 1: Interpretation of provisions under Income Tax Act, 1961 regarding registration under Section 12AA:
The appeal was filed by the revenue challenging the order of the Income Tax Appellate Tribunal directing registration under Section 12AA of the Act. The Tribunal held that the CIT(E) erred in suggesting the assessee should have applied under Section 10(23C) instead of Section 12AA. The Tribunal emphasized that the main aim of the society was educational, and registration could not be denied based on other provisions. The Tribunal found no merit in the revenue's appeal, upholding the direction for registration under Section 12AA.

Issue 2: Assessment of charitable claims based on educational activities and salary structure:
The Commissioner of Income Tax (Exemptions) rejected the application for registration under Section 12AA, citing concerns about the society's emphasis on creating assets over education. However, the Tribunal disagreed, noting that the surplus amount was minimal and necessary for running the institute. The Tribunal also dismissed assumptions about the society charging funds, highlighting the reasonable fee structure and compliance with government norms. The Tribunal found no compromise in education quality due to lower salaries, directing the CIT(E) to grant registration under Section 12AA.

Issue 3: Examination of the distinction between Section 10(23C)(iiiad) and Section 12A for seeking approval:
The Tribunal addressed the contention that cases historically availing benefits under Section 10(23C)(iiiad) should seek approval under Section 10(23C)(vi) instead of registration under Section 12A. However, the Tribunal clarified that the choice of exemption section lies with the assessee, and once the main aim is educational, registration under Section 12AA cannot be denied based on alternative provisions.

Issue 4: Evaluation of the genuineness of educational activities for registration under Section 12AA:
The Tribunal analyzed the CIT(E)'s observation regarding the society's focus on asset creation rather than education. By reviewing financial data, the Tribunal determined that the society's surplus amount was reasonable for institute operations, and assumptions about fund charging were baseless. The Tribunal concluded that the society met the criteria for registration under Section 12AA based on genuine educational activities.

Issue 5: Emphasis on creation of assets over redeployment of funds towards education:
The CIT(E) highlighted the society's emphasis on asset creation rather than education, raising concerns about the utilization of funds. However, the Tribunal found the society's financial allocations reasonable for running the institute, dismissing the notion of compromised education quality. The Tribunal directed the CIT(E) to grant registration under Section 12AA based on the genuine nature of the society's educational activities.

Issue 6: Review of the Tribunal's order for being contrary to evidence and material on record:
The High Court dismissed the revenue's appeal, finding no illegality or perversity in the Tribunal's findings. The Court upheld the Tribunal's decision to grant registration under Section 12AA, emphasizing the genuineness of the society's educational objectives. The Court concluded that no substantial question of law arose in the appeal, allowing the registration while reserving the right for the revenue to take action if activities deviate from charitable purposes.

This detailed analysis covers the various issues addressed in the legal judgment, providing a comprehensive understanding of the interpretation and application of the Income Tax Act, 1961 in the context of charitable registration for educational societies.

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