2024 (10) TMI 33 - HC - Income Tax

Refusal of registration of the association u/s 12AA - charitable activities under Section 2(15) or not? - CIT observed that the society had not been carrying on with any charitable activity as the society was not imparting education as a charitable purpose within the meaning of Section 2 (15) - society had already been granted approval under Section 10 (23)(vi) of the Act but mere approval does not automatically entitle the assessee to registration under section 12AA - HELD THAT - In the case of New Noble Educational Society 2022 (10) TMI 855 - SUPREME COURT and Pinegrove International Chairtable Trust 2010 (1) TMI 49 - HIGH COURT OF PUNJAB AND HARYANA AT this Court has held that the powers available to the authorities to cancel the registration granted under Section 12AA (3) of the Act was only prospective and could not be applied retrospectively. In the present case, we find that the institute has been able to satisfy that it has already been registered under Section 10 (23) (vi) to be an educational institute and Section 12AA pertains to registration of the trust. Since the respondent institute is a duly registered educational trust and whatever earnings it receives are also utilized for the purpose of advancement of education, the institution could not have been denied the benefit of Section 12AA as mentioned in Ananda Social Educational Trust's case 2020 (2) TMI 1293 - SUPREME COURT We, therefore, do not find any error committed by the Income Tax Appellate Tribunal holding the respondent entitled for registration u/s 12AA. The appeal is accordingly dismissed.

Summary

Issues:
1. Refusal of registration of an association under section 12AA of the Income Tax Act, 1961.
2. Interpretation of charitable activities under Section 2(15) of the Act.
3. Applicability of judgments in determining charitable status.
4. Examination of factors for granting registration under Section 10(23C) and Section 12AA.
5. Scope of Section 12AA in examining charitable nature and genuine activities.
6. Powers available to authorities for canceling registration under Section 12AA(3) retrospectively.

Detailed Analysis:

Issue 1: The case involved the refusal of registration of an association under section 12AA of the Income Tax Act, 1961, based on the Commissioner of Income Tax's observation that the society was not carrying out charitable activities as required under Section 2(15) of the Act. The society had been generating a net surplus without elements of subsidy or alimony for the poor and needy, leading to the denial of registration.

Issue 2: The Tribunal overturned the CIT's decision, citing a judgment that emphasized the need to consider the mechanism contained in the Act for the utilization of surpluses by educational institutions. It was highlighted that systematic profits, even if utilized for charitable purposes, may not automatically qualify for exemption. The judgment differentiated between profits used for charitable purposes and the requirement to meet specific conditions for exemption.

Issue 3: The Court emphasized the importance of examining factors for both granting and canceling registration under Sections 10(23C) and 12AA, respectively. It was noted that the same factors considered for granting approval under Section 10(23C) should also be evaluated for canceling registration under Section 12AA, ensuring compliance with the conditions provided in the Act.

Issue 4: The Supreme Court's decision in Ananda Social and Educational Trust v. Commissioner of Income Tax clarified the scope of Section 12AA, highlighting the need to assess the charitable nature of the trust's objectives and the genuineness of its activities during the registration process. The Court differentiated between proposed and actual activities, emphasizing the need for alignment with the trust's objectives.

Issue 5: The judgment discussed the powers available to authorities for canceling registration under Section 12AA(3) and emphasized that such powers could not be applied retrospectively. The Court cited precedents where registration cancellations were deemed without jurisdiction due to the absence of empowering provisions at the time of cancellation.

In conclusion, the Court upheld the Income Tax Appellate Tribunal's decision, finding no error in granting registration under Section 12AA to the educational trust. The judgment emphasized the importance of examining charitable activities, complying with statutory conditions, and ensuring the genuineness of activities for registration under the Income Tax Act.