2023 (9) TMI 836 - AT - Income Tax

Denial of registration u/s 12A - activities are charitable in nature or not? - CIT(E) observed that they are indulging only in leisure and pleasure activities which is the privilege of only few sections of the society and is not available for the welfare of the general public at large - HELD THAT - We find that the ld. CIT(E) however conceded to the fact that this society is formed by a group of specified individuals who had pooled their funds into the society which were then utilized for the benefit of the members of the society. This act of the members of the society is not charitable in nature according to ld. CIT(E). To buttress this finding, it would be relevant to address the relevant objects as reproduced supra again. We find that clause (m) of the objects of the assessee society provides that all the income, earnings, movable, immovable properties of the association shall solely be utilized and applied towards promotion of its aims and objects only as set forth in memorandum of association and no profit or part of their shall be paid or transferred directly or indirectly by way of dividend, bonus, profits or in any manner whatsoever to the present or past members of the association. No member shall have any personal claim or any movable or immovable properties of the association or make any profits whatsoever by virtue of his membership. We also find that the memorandum of association and its rules and regulations contained a clause on dissolution wherein it is provided that the dissolution of the association and disposal of the property on dissolution will be done in accordance with provisions of section 13 and 14 of the Societies Registration Act, 1860. As per the bye laws of the assessee society, the membership is open to all state government officers, officers of All India Services serving in Uttarakhand and officers of central government serving and residing in Uttarakhand. Hence we hold that the ld. CIT(E) is wrong in stating that the assessee society is meant only for the purposes to cater to the needs of particular section of the society. We are not for a moment trying to state that since the assessee society had not made any surplus and hence there is no profit motive at all. What is required to be seen for a charitable trust or a charitable society is that even in the event of earning profits or surplus, such profits or surplus remain with the society itself and again ploughed back into the coffers of the society for furtherance of its charitable objects. As long as the profits or surplus are not distributed to the private individuals of the assessee society either directly or indirectly in any manner whatsoever for malafide purposes, there is no harm in any charitable society earning profits / surplus. We hold that the assessee society objects are charitable in nature and would be entitled for registration u/s 12AA. Appeal of the assessee is allowed.

Summary

Issues Involved:

1. Rejection of registration under section 12AA(1)(b)(ii) of the Income Tax Act, 1961.
2. Alleged non-genuine activities of the applicant society.
3. Alleged channeling of funds for the benefit of specified persons.
4. Alleged non-production of books of accounts, bank statements, and vouchers.
5. Alleged non-charitable nature of the society's activities.
6. Alleged failure to provide adequate opportunity of hearing.

Summary:

Issue 1: Rejection of registration under section 12AA(1)(b)(ii) of the Income Tax Act, 1961
The appeal arises from the order passed by the CIT(E) rejecting the registration of the assessee society under section 12AA(1)(b)(ii) of the Act, dated 20.09.2018.

Issue 2: Alleged non-genuine activities of the applicant society
The CIT(E) observed that the activities of the applicant society are not genuine, alleging that the society is performing activities similar to a club and not carrying out any activity of charitable nature. The tribunal noted that the society had furnished complete details of activities and audited financial statements, and the CIT(E) did not comment on the genuineness of the activities.

Issue 3: Alleged channeling of funds for the benefit of specified persons
The CIT(E) alleged that the funds of the society are being channeled for the benefit of specified persons under section 13(1)(c) read with section 13(3) of the Act. The tribunal found that the society's objects are charitable and that all income and properties are solely utilized for its aims and objects, with no distribution of profits to members.

Issue 4: Alleged non-production of books of accounts, bank statements, and vouchers
The CIT(E) noted that the society failed to produce books of accounts and vouchers. The tribunal found that the society had indeed produced books of accounts and bank statements, and the non-production of vouchers was due to the voluminous nature and limited time provided by the CIT(E).

Issue 5: Alleged non-charitable nature of the society's activities
The CIT(E) argued that the society's activities are not charitable and cater only to a privileged few. The tribunal held that the objects of the society, such as promoting welfare and upgrading the skills of civil servants, are charitable and benefit the nation at large. The tribunal referenced the Supreme Court's decision in the case of Ahmedabad Rana Caste Association, which held that benefiting a section of the public is sufficient for a charitable purpose.

Issue 6: Alleged failure to provide adequate opportunity of hearing
The assessee argued that the CIT(E) did not provide adequate opportunity for hearing. The tribunal noted that the CIT(E) granted only one day to produce vouchers, which was insufficient given their volume.

Conclusion:
The tribunal concluded that the objects of the assessee society are charitable in nature and directed the CIT(E) to grant registration under section 12AA of the Act. The appeal of the assessee was allowed.