2021 (4) TMI 293 - AT - Income Tax

Denying the registration u/s.12AA - Charitable activity u/s 2(15) - CIT(E) holding that the activities of Trust are not charitable in nature and thereby refusing to grant registration u/s.12AA - whether the activities of the Trust are charitable in nature and Trust is eligible for registration u/s. 12AA? - HELD THAT - The mere fact that the bills for the expenditure in the name of third party does not lead to the conclusion that the expenditure was not incurred by the appellant society. As rightly submitted by the ld. AR, it can be instance of reimbursement of expenditure incurred by resource person/speaker at the seminar. In any event, it is an item of assessment which can only be considered at the time of assessment. The other reason assigned by the ld. CIT (Exemption) to come to the conclusion that the funds collected remain unutilized for the purpose of pursuit of the objects of the appellant society but were utilized only for the purpose of making the FDs with the bank. Again this is an issue of assessment which can only be considered at the time of assessment, not at the time of grant of registration. The very basis of order of the ld. CIT (Exemption) cannot be sustained in the eyes of law. In any event, CIT (Exemption) should not have come to conclusion that the objects of the appellant society are not charitable in nature and the genuineness of the activities are not established based on the above observations, these observations even are held to be correct cannot lead to the conclusion that the objects are not charitable and genuineness of the activities are in doubt. Commissioner of Income Tax (Exemption) had not referred to any material on record to show that income of trust was applied for the purposes other than the purposes for which the appellant society was formed. Therefore, the order of the ld. Commissioner of Income Tax (Exemption) is set-aside. The ld. Commissioner of Income Tax (Exemption) is directed to grant the registration u/s. 12AA - Decided in favour of assessee.

Summary

Issues:
Denial of registration u/s. 12AA of the Income Tax Act based on the charitable nature of activities and genuineness of the appellant society's operations.

Analysis:
The appeal was against the denial of registration u/s. 12AA by the Commissioner of Income Tax (Exemption) due to doubts on the charitable nature of the appellant society's activities. The Commissioner observed that the society mainly conducted doctor seminars, had expenditures in third parties' names, and funds were used for fixed deposits instead of charitable purposes. The appellant argued that conducting seminars was a charitable activity, and third-party bills were reimbursements. The Tribunal noted that the denial was based on lack of activity and improper fund usage. However, the Tribunal referred to a Supreme Court case, stating that even proposed activities could be considered charitable. The Tribunal also emphasized that registration and assessment are distinct procedures, and expenditure proof is an assessment item, not a registration consideration.

The Tribunal highlighted that the Commissioner's denial was unfounded as the society's objects were charitable, and activities' genuineness was not disproven. The Commissioner failed to show misuse of trust income for non-charitable purposes. The Tribunal referenced various court decisions emphasizing the separation of registration and exemption assessment. It concluded that the Commissioner's reasoning lacked legal basis, and the denial was unjustified. Therefore, the Tribunal set aside the Commissioner's order and directed the grant of registration u/s. 12AA to the appellant society.

In summary, the Tribunal's decision overturned the denial of registration u/s. 12AA based on the misconception of charitable activities and fund usage by the appellant society. The Tribunal clarified the legal distinction between registration and assessment, emphasizing that proof of expenditure is not a registration criterion. The Commissioner's doubts regarding the society's activities were deemed unfounded, leading to the allowance of the appellant's appeal and the grant of registration u/s. 12AA.