2021 (1) TMI 999 - AT - Income Tax

Exemption u/s 11 - denying of registration u/s 12AA - On examination of financial statements of last three financial years the ld. Commissioner of Income Tax Exemption Pune observed that the donation received towards corpus funds escaped assessment to tax and therefore denied the registration - HELD THAT - The grant of registration and the issue of assessment or exemption u/s 11 of the Act are separate and distinct. The process of registration is not on occasion for deciding the issue of exemption of donation u/s 11 of the Act. The issue of exemption cannot be examined during the process of registration CIT-E had lost sight distinction between the process of registration and the exemption or assessment of income u/s 11 of the Act. Therefore the reasoning of the ld. Commissioner of Income Tax Exemption Pune in denying the grant of registration u/s 12AA of the Act cannot be sustained in the eyes of law. In the circumstances we set-aside the order of the ld. Commissioner of Income Tax Exemption Pune and direct the ld. Commissioner of Income Tax Exemption Pune to grant the registration u/s 12AA of the Act. Accordingly the appeal of the assessee is allowed.

Summary

Issues:
Denial of registration under section 12AA of the Income Tax Act.

Analysis:
The appellant trust appealed against the order of the Commissioner of Income Tax, Exemption, Pune denying registration under section 12AA of the Income Tax Act. The main issue raised was the denial of registration by the Commissioner. The trust was registered under the Bombay Public Trust Act, 1950 with specific objectives related to conducting temple functions, yatras, providing medical facilities, education, and helping the needy. The Commissioner requested additional information regarding the trust's financial activities, including sources of funds and expenditure details. It was observed that the trust had not paid taxes on donations credited to the corpus fund, leading to the denial of registration.

The Commissioner relied on judicial precedents to assess the taxability of contributions towards the corpus funds, ultimately concluding that the trust's failure to pay taxes on donations led to the rejection of registration under section 12AA. The trust appealed the Commissioner's decision before the Appellate Tribunal, arguing that the grant of registration and assessment of income are separate matters. The trust cited relevant tribunal and high court judgments to support its case.

The Appellate Tribunal considered the primary issue of whether the Commissioner was justified in denying registration under section 12AA. It emphasized that during the registration process, the focus should be on the charitable nature of the trust's objects and the genuineness of its activities. The Tribunal referred to a Supreme Court judgment to support this principle. It highlighted that the grant of registration and the assessment or exemption under section 11 of the Act are distinct processes. The Tribunal referenced various decisions to reinforce this distinction.

Upon reviewing the Commissioner's order, the Tribunal found that the Commissioner had failed to differentiate between the registration process and the assessment of income under section 11. Therefore, the Tribunal set aside the Commissioner's decision and directed the Commissioner to grant registration under section 12AA to the trust. Consequently, the appeal of the assessee was allowed, and the trust's appeal stood successful. The judgment was pronounced on December 18, 2020.