2020 (8) TMI 49 - AT - Income Tax

Exemption u/s 11 - denying registration u/s. 12AA and denial of approval u/s. 80G - Charitable activity u/s 2(15) - assessee is a Society registered under the West- Bengal Societies Registration Act, 1961 - HELD THAT - It is settled law that at the time of registration, the authority need to satisfy himself that the objects are charitable in nature and the activities being carried out are genuine, meaning thereby that the activities are in consonance for achieving the charitable objects and nothing else. Since we have seen from the objects of the assessee society that education one of the main objects which is a charitable object/activity as per the definition of charitable activity in section 2(15) and the genuineness of the society stands established by the assessee which is running educational institutions, which imparts engineering courses and is recognised by the All India Council for Technical Education as well as established Polytechnic College, we are of the considered opinion that assessee society was eligible for grant of registration u/s. 12AA Assessee society ought to have been granted the registration u/s 12AA of the Act, as per the settled position of law regarding grant of registration of section 12AA which the Ld. CIT, Durgapur erroneously has not given, therefore, his order is erroneous and also considering the fact that so many years have passed after the assessee has submitted the application/rejection of the application by the Ld. CIT, Durgapur and assessee is still running educational institution it would be a travesty of justice, if we remit the matter back to the Ld. CIT for fresh consideration. Direct the Ld. CIT/the competent authority to grant registration u/s. 12AA of the Act as per section 12A(2) of the Act, which states that where an application has been made on or after the 1st day of 1st June, 2007, the provisions of section 11 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made. So, since the assessee filed application for registration u/s. 12AA of the Act on 17.08.2012, the provisions of section 11 and 12 shall apply in relation to the income of such assessee society from the assessment year 2013-14 (FY 2012-13). Grant of approval for registration u/s. 80G - CIT has not discussed anything about merits for denying the claim and has simply re-produced the order rejecting assessee s application for registration u/s. 12AA of the Act, so we are unable to ascertain whether the assessee satisfies the conditions stipulated u/s 80G (5) read with Rule 11AA of the Rules - We remand this issue back to Ld CIT/competent authority to examine whether the assessee satisfies the conditions stipulated u/s 80G (5) read with Rule 11AA and if the Ld CIT/competent authority is satisfied, then assessee to be granted approval u/s 80G of the Act from FY 2012-13 i.e. AY 2013-14 - Appeal of assessee is partly allowed and for statistical purpose.

Summary

Issues Involved:
1. Denial of registration under Section 12AA of the Income-tax Act, 1961.
2. Denial of approval under Section 80G of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Denial of Registration under Section 12AA of the Income-tax Act, 1961:

The assessee, a society registered under the West Bengal Societies Registration Act, 1961, applied for registration under Section 12AA of the Income-tax Act, 1961. The Commissioner of Income-tax (CIT), Durgapur, denied the registration on the grounds that the society was collecting donations from students, which he treated as capitation fees. The CIT relied on the Supreme Court decision in TMA Pai Foundation Vs. State of Karnataka and the Hyderabad Tribunal decision in Vodithala Education Society Vs. ADIT (Exemptions)-II, concluding that the society was indulging in the sale of education and thus could not be considered a charitable institution under Section 2(15) of the Act.

The assessee argued that the donations were received voluntarily from students and their families for the development and expansion of the educational institution, Camellia Institute of Engineering and Technology (CIET). The donations were received six to seven months post-admission, indicating they were not linked to the admission process. The society also received substantial donations from companies, which were utilized for the expansion of educational facilities.

The Tribunal noted that the CIT did not conduct any inquiry to verify whether the donations were voluntary or coerced. No evidence or complaints suggested that the donations were capitation fees. The Tribunal emphasized that the CIT should have conducted an inquiry by summoning students or issuing notices under Section 133(6) of the Act to ascertain the nature of the donations. The Tribunal found that the CIT's assumption was unfounded and that the donations were voluntary and used for charitable purposes.

The Tribunal concluded that the CIT erred in denying the registration under Section 12AA, as the society's activities were genuine and aligned with its charitable objectives. The Tribunal directed the CIT to grant registration under Section 12AA from the assessment year 2013-14 (FY 2012-13).

2. Denial of Approval under Section 80G of the Income-tax Act, 1961:

The CIT denied the approval under Section 80G of the Act, merely reproducing the reasons for denying registration under Section 12AA without discussing the merits of the case. The Tribunal noted that the CIT did not examine whether the society met the conditions stipulated under Section 80G(5) read with Rule 11AA of the Income-tax Rules.

The Tribunal remanded the issue back to the CIT/competent authority to examine whether the society satisfied the conditions for approval under Section 80G. The CIT/competent authority was directed to provide the assessee with a proper opportunity before passing the order on this issue.

Conclusion:

The Tribunal allowed the appeal of the assessee partly, directing the CIT to grant registration under Section 12AA and remanding the issue of approval under Section 80G for re-examination. The order was pronounced in the open court on 31 July 2020.