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2020 (2) TMI 726 - HC - Income TaxExemption u/s 11 - grant the registration u/s 12A - Charitable activity u/s 2(15) - payment of the rent of the premises to related parties is not on pro rata basis though the premises are adjoining and the rent was being paid only to the office bearers of the Society - whether the society exists for the purpose of profit of the office bearers not for charitable purpose thus attracts proviso to section 13 (1) (c) ? - Tribunal concluded that the issue regarding payment of rent to the members could be examined at the time of the assessment proceedings - HELD THAT - We find that the learned Tribunal has rightly come to the conclusion that the genuineness of the objects of the assessee Society could not be doubted and has rightly directed the CIT, Bhopal to grant registration to the Society. Appellant failed to point out any illegality or perversity in the findings arrived at by the learned Tribunal warranting interference by this Court in exercise of power under Section 260-A of the Act. No substantial question of law arises
Issues Involved:
1. Whether the Income Tax Appellate Tribunal (ITAT) was correct in directing the Commissioner of Income Tax (Exemption) [CIT(E)] to grant registration under Section 12AA of the Income Tax Act, 1961, despite findings that the society exists for the profit of office bearers and not for charitable purposes. Issue-wise Detailed Analysis: 1. ITAT's Direction to Grant Registration under Section 12AA: The core issue in this case is the ITAT's directive to the CIT(E) to grant registration under Section 12AA of the Income Tax Act, 1961, to the assessee society. The CIT(E) had previously refused registration on the grounds that the society was operating for the profit of its office bearers rather than for charitable purposes, thus attracting the proviso to Section 13(1)(c) of the Act. CIT(E)'s Grounds for Refusal: - The CIT(E) observed that the society paid rent to related parties (office bearers) that was not on a pro-rata basis, thereby suggesting a diversion of income for personal benefit. - The CIT(E) noted that the rent agreements did not provide for maintenance and tax expenses to be borne by the assessee society, which had incurred significant maintenance expenses, indicating a diversion of funds for personal purposes. Assessee's Explanation: - The assessee society argued that it was primarily engaged in spreading education by running a Senior Secondary School. - It contested the CIT(E)'s observation about rent payments, providing detailed explanations and evidence that the rent paid was reasonable and within fair rental value norms as assessed by the Public Works Department (PWD). - The society clarified that maintenance expenses were incurred as per the rent agreements, which stipulated that the tenant (society) was responsible for such expenses. The detailed breakdown of these expenses was provided, showing that they were not exclusively for building repairs but also for various operational needs. ITAT's Findings: - The ITAT found that the CIT(E) should only consider the genuineness of the objects of the trust or institution while granting registration under Section 12AA, not whether the income is being applied for charitable purposes or if the trust is earning profit. - The ITAT referenced several judicial precedents, including CIT Vs. DPR Charitable Trust, Vidyadayani Shiksha Samiti Vs. CIT (Exemption), and DIT Vs. Venkatesh Education Society, to support its conclusion. - It was concluded that the issue of rent payments to members could be examined during assessment proceedings rather than at the stage of registration. High Court's Conclusion: - The High Court agreed with the ITAT's determination that the genuineness of the assessee society's objects could not be doubted. - The Court found no force in the appellant's arguments and noted that the CIT(E) should not have considered whether the income derived was being spent for charitable purposes at the registration stage. - The High Court dismissed the appeal, finding no substantial question of law warranting interference. Final Judgment: The appeal was dismissed, and the ITAT's order directing the CIT(E) to grant registration under Section 12AA to the assessee society was upheld. The High Court found no illegality or perversity in the ITAT's findings.
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