2023 (7) TMI 459 - HC - Income Tax

Exemption u/s 11 - Registration u/s 12AA seeked in course of conducting its activities under the objects has suffered survey and, search and seizure of its honorary secretary - receipts from Board of Control for Cricket in India (BCCI) were shown as corpus fund instead of treating them as revenue receipts - CIT(E) refused to grant registration mainly on the ground that funds of the assessee were diverted for personal benefits of the executives of the society, in violation of provisions of section 13 (1)(c) - HELD THAT - We have given our anxious consideration to contentions put forth at the Bar. Assessment years under consideration are 1997-98 and 2011-12. The rejection appears to have been made in respect of these two assessment years. In this context, we have perused Tamil Nadu Cricket Association 2013 (12) TMI 833 - MADRAS HIGH COURT - We find that by clause (b) under sub-section (1) of section 12AA the Commissioner requires satisfaction about objects of the trust or institution and the genuineness of its activities. In considering the application for purpose of the satisfaction, the Commissioner had taken into consideration the facts regarding survey, search and seizure, respectively of the assessee s premises as well as its honorary secretary. We admit the appeal on the following question of law to be answered. Where an assessee seeking registration under section 12AA in course of conducting its activities under the objects has suffered survey and, search and seizure of its honorary secretary and there has been violation of provisions in section 13(1)(c), can the facts be considered for the purpose of satisfaction on the application for grant of registration? List on 13th July, 2023, for hearing of the appeal on the papers already on record.

Summary

Issues:
The issues involved in the judgment are the rejection of registration under section 12AA of the Income Tax Act, 1961 for assessment years 1997-98 and 2011-12, based on diversion of funds for personal benefits and misclassification of receipts, leading to substantial questions of law.

Issue 1: Rejection of Registration under Section 12AA:
The rejection of registration under section 12AA was based on the diversion of funds for personal benefits of executives of the society, in violation of section 13(1)(c) of the Income Tax Act, 1961. The Commissioner of Income Tax (CIT) Exemption refused to grant registration mainly due to the diversion of funds and misclassification of receipts from the Board of Control for Cricket in India (BCCI) as corpus fund instead of revenue receipts. The rejection was supported by findings from survey and search operations, where incriminating documents were found, and demands were raised for block periods. The Income Tax Appellate Tribunal (ITAT) set aside the rejection, stating that the violation of provisions of section 13(1)(c) should be addressed by the Assessing Officer during assessment after registration is granted.

Issue 2: Academic Nature of the Question:
The counsel for the assessee argued that the issues raised in the appeals had become academic due to the provisional registration granted for assessment years 2022-23 to 2026-27 under section 12A of the Income Tax Act, 1961. The counsel contended that the questions raised were no longer relevant in light of the provisional registration granted to the assessee.

Issue 3: Legal Precedents and Interpretations:
The counsel for the assessee relied on legal precedents, including a judgment of the Supreme Court and a decision of the High Court of Madras. The reliance was placed on the interpretation of charitable purposes and the requirements for registration under section 12AA of the Income Tax Act, emphasizing the need for genuine activities in accordance with the objects of the trust or institution for registration and potential grounds for cancellation.

Conclusion:
The High Court admitted the appeal based on the question of law regarding the consideration of facts such as diversion of funds and violation of provisions in section 13(1)(c) during the application for registration under section 12AA. The court directed the CIT(E) to grant registration to the assessee society, setting aside the earlier rejection. The matter was listed for further hearing to address the issues raised in the appeal based on the records available.