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2021 (8) TMI 766 - AT - Income TaxExemption u/s 11 - Rejection of its application seeking registration u/s 12AA - HELD THAT - There was no hard and fast rule as to what was the specific percentage being adopted for the purpose of substantially financed till the insertion of Rule 2BBB inserted w.e.f. AY 12/12/2014. We understand that the issue before the CIT(E) was regarding grant of registration u/s 12AA and that of 10(23C) (iiiab). As such the scope of enquiry before grant of registration u/s 12AA was limited to the objects being charitable in nature and activities were genuine. Once the objects have been accepted to be educational the Commissioner is required to see that the activities are genuine and in consonance with the objects at the time of grant of registration as in case of CIT v Shri Shirdi Sai Darbar Charitable Trust 2017 (4) TMI 123 - PUNJAB AND HARYANA HIGH COURT and in case of CIT V Red Rose School 2007 (2) TMI 575 - ALLAHABAD HIGH COURT . In the case at hand the assessee was claiming exemption u/s 10(23C)(iiiab) and had applied for registration u/s 12A as it was expecting a decline in Government grants. The assessee is free to avail registration under any alternative provision if more than one alternative were available so it decided to apply for registration u/s 12A under the provisions of law as per principle approved in case of CIT v Beant College of Engineering Technology 2019 (5) TMI 631 - PUNJAB AND HARYANA HIGH COURT and same preposition followed by in case of Arya Shiksha Mandal KMV Campus v CIT 2017 (3) TMI 1765 - ITAT AMRITSAR We hold that the order under appeal is unsustainable and thus reversed. CIT(E) is directed to grant registration to the appellant forthwith preferably within one month time of furnishing copy of this order.
Issues Involved:
1. Rejection of the application for registration under section 12AA of the Income Tax Act, 1961. 2. Examination of the genuineness of the society's activities and its compliance with the stated objects. 3. Consideration of the society's financial history and government grants. 4. Legal interpretation of "substantially financed" by the government under section 10(23C)(iiiab). 5. The society's compliance with filing income tax returns. Detailed Analysis: 1. Rejection of the Application for Registration under Section 12AA: The appellant society challenged the rejection of its application seeking registration under section 12AA of the Income Tax Act, 1961. The CIT(E) rejected the application on the grounds that the society had not filed income tax returns for previous years and questioned the genuineness of its activities. 2. Examination of Genuineness of Activities and Compliance with Stated Objects: The CIT(E) highlighted the provisions of section 12AA, which necessitate the examination of the objects of the society and the genuineness of its activities. The society provided details of its property, voluntary contributions, MOA/Bye-laws, bank statements, donations, financial statements, and other relevant documents. Despite this, the CIT(E) raised concerns about the society's compliance and the timing of its application for registration after 46 years of existence. 3. Consideration of Society's Financial History and Government Grants: The society claimed exemption under section 10(23C)(iiiab) as it was substantially financed by the government. The financial statements revealed that government grants exceeded 50% of total receipts only in FY 2015-16. The CIT(E) questioned the society's claim of being substantially financed by the government and its decision to seek registration under section 12A due to anticipated decline in government grants. 4. Legal Interpretation of "Substantially Financed" by the Government: The CIT(E) referred to Rule 2BBB, which defines "substantially financed" as government grants exceeding 50% of total receipts. The CIT(E) noted that the society met this criterion only in FY 2015-16. The appellant argued that prior to the insertion of Rule 2BBB, various percentages were considered as substantially financed, citing decisions from Karnataka and Punjab & Haryana High Courts. These decisions indicated that even lower percentages of government financing could qualify as substantial. 5. Society's Compliance with Filing Income Tax Returns: The society had not filed income tax returns for previous years, claiming exemption under section 10(23C)(iiiab). The CIT(E) noted that filing returns became mandatory after the amendment in the Finance Act 2015. The appellant argued that the lack of filing returns should not be a reason to question the genuineness of its activities, as the society maintained audited accounts and complied with legal requirements. Conclusion: The Tribunal held that the CIT(E)'s observation regarding the society's financial history and government grants was unwarranted at this stage. The main object of the society was to impart education, and its activities were genuine and in consonance with its objects. The Tribunal noted that the society's decision to seek registration under section 12A was valid, given the anticipated decline in government grants. The Tribunal directed the CIT(E) to grant registration to the appellant society, reversing the order under appeal. The order was pronounced in the open court on 16/08/2021.
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