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2021 (1) TMI 467 - AT - Income Tax


Issues Involved:
1. Denial of registration under Section 12AA of the Income Tax Act, 1961.
2. Nature of the trust's objectives (religious vs. charitable).
3. Application of income for charitable purposes.
4. Receipt of rental income and its impact on the trust's charitable status.
5. Investment of surplus funds in fixed deposits (FDs).

Detailed Analysis:

1. Denial of Registration under Section 12AA of the Income Tax Act, 1961:
The appellant, a society registered under the Societies Registration Act, 1860, and later under the Bombay Trust Act, 1950, had been enjoying registration under Section 12A since 1977-78. The original registration certificate was misplaced, prompting a fresh application for registration under Section 12AA on 04.03.2020. The Commissioner of Income Tax (Exemption) denied the registration, concluding that the trust's activities and objectives were not charitable and questioning the genuineness of its activities.

2. Nature of the Trust's Objectives (Religious vs. Charitable):
The Commissioner of Income Tax (Exemption) held that the trust's objectives were religious in nature. However, the Tribunal referenced the Supreme Court's rulings in Fazlul Rabbi Pradhan vs. State of West Bengal and CIT vs. Dawoodi Bohra Jamat, which established that religious activities fall within the ambit of charitable purposes. The Tribunal consistently followed this precedent, noting that mixed objectives (religious and non-religious) do not disqualify a trust from registration under Section 12AA.

3. Application of Income for Charitable Purposes:
The Commissioner of Income Tax (Exemption) observed that the trust's income was not fully applied for charitable purposes, as surplus funds were invested in FDs. The Tribunal clarified that the examination of income application under Section 11 is distinct from the registration process under Section 12AA. The primary focus at the registration stage is on the genuineness of activities and the charitable nature of objectives, not on the application of income.

4. Receipt of Rental Income and Its Impact on the Trust's Charitable Status:
The Commissioner of Income Tax (Exemption) noted that the trust received rental income from letting out an Event Hall and Bhaktniwas, invoking the proviso to Section 2(15). The Tribunal emphasized that earning income does not negate the charitable status if the income is utilized for charitable purposes. The dominant purpose should be public utility, not profit-making. The Supreme Court's judgment in Surat Art Silk Cloth Manufacturers’ Association supported this view.

5. Investment of Surplus Funds in Fixed Deposits (FDs):
The Commissioner of Income Tax (Exemption) cited the investment of surplus funds in FDs as a reason for denying registration. The Tribunal reiterated that the registration process under Section 12AA is separate from the assessment of income under Section 11. The mere presence of surplus funds invested in FDs does not imply non-genuine activities or disqualify the trust from registration. The Tribunal referenced multiple judicial precedents, including CIT (Exemptions) vs. Mumbai Metropolitan Region Development Authority, which supported this distinction.

Conclusion:
The Tribunal concluded that the reasons provided by the Commissioner of Income Tax (Exemption) were not tenable. The denial of registration based on the religious nature of some objectives, receipt of rental income, and investment in FDs was not justified. The Tribunal set aside the impugned order and directed the Commissioner of Income Tax (Exemption) to grant registration under Section 12AA of the Act. The appeal was allowed in favor of the assessee.

 

 

 

 

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