Tribunal reinstates society's charitable status, emphasizing educational purpose of payments.

The Tribunal allowed the appeal, setting aside the order cancelling the registration under section 12A of the Income Tax Act. It held that the society's activities were charitable, emphasizing that the rejection of the application under section 10(23C)(vi) was not sufficient grounds for cancellation. The Tribunal found the payments to the contractor were for educational purposes, supported by evidence, and reinstated the society's registration under section 12A.

---

---

Issues Involved:
1. Cancellation of registration under section 12A of the Income Tax Act, 1961.
2. Determination of whether the activities of the society were charitable in nature.
3. Examination of payments made to a civil contractor and their impact on the charitable status.
4. Relevance of rejection of exemption under section 10(23C)(vi) for the purposes of section 12AA(3).
5. Legal precedents and their applicability to the case.

Issue-wise Detailed Analysis:

1. Cancellation of Registration under Section 12A:
The primary issue in the appeal was the cancellation of the registration granted under section 12A of the Income Tax Act, 1961. The Commissioner of Income Tax (CIT) cancelled the registration on the grounds that the activities of the society were not entirely charitable and were not being carried out in accordance with the aims and objects of the society. The CIT relied on the rejection of the society's application for exemption under section 10(23C)(vi) by the Chief Commissioner of Income Tax (CCIT), Allahabad, and on the findings from an inquiry into payments made to a civil contractor.

2. Charitable Nature of Activities:
The society argued that its activities had always been related to imparting education, which falls under the definition of 'charitable purpose' as per section 2(15) of the Act. The society maintained that there had been no change in its objectives since its inception and that its activities were genuine and covered by the provisions of section 2(15). The CIT, however, concluded that the society's activities were not entirely charitable based on the findings from the inquiry into payments made to the contractor and other observations.

3. Examination of Payments to Civil Contractor:
A significant point of contention was the payments made to Sri Rajan Yadav, a civil contractor. The CIT's inquiry revealed discrepancies in the transactions, such as unverifiable purchases and unexplained withdrawals. The society contended that the payments were for educational purposes, supported by bills and verified by the Income Tax Inspector. The CIT, however, viewed the payments as bogus and not for educational purposes, leading to the cancellation of the registration.

4. Relevance of Rejection of Exemption under Section 10(23C)(vi):
The CIT's decision to cancel the registration was influenced by the rejection of the society's application for exemption under section 10(23C)(vi) by the CCIT. The society argued that the rejection of the application under section 10(23C)(vi) should not impact the registration under section 12A, as both provisions operate independently. The Tribunal agreed with this argument, citing legal precedents and a CBDT circular clarifying that an entity with charitable objects is eligible for exemption under either section 11 or section 10(23C).

5. Legal Precedents:
The Tribunal referred to several legal precedents, including:
- *CIT v. Mahasabha Gurukul Vidyapeeth Haryana* [2010] 326 ITR 25 (P&H), which held that meeting conditions under section 11 suffices for exemption, irrespective of compliance with section 10(23C)(vi).
- *Vanita Vishram Trust v. CCIT & Anr.* [2010] 40 DTR (Bom.) 225, and *Pinegrove International Charitable Trust v. Union of India* [2010] 37 DTR (P&H) 105, which dissented from the judgment of the Uttarakhand High Court in *CIT v. Queens Educational Society* 319 ITR 160, relied upon by the CIT.

The Tribunal concluded that the CIT's reliance on the rejection of the application under section 10(23C)(vi) and the findings from the inquiry into payments to the contractor were not sufficient grounds for cancelling the registration under section 12A. The Tribunal set aside the CIT's order, reinstating the registration of the society under section 12A.

Conclusion:
The appeals were allowed, and the order cancelling the registration under section 12A was set aside. The Tribunal emphasized that the society's activities were charitable in nature, and the rejection of the application under section 10(23C)(vi) could not be a basis for cancelling the registration under section 12A. The Tribunal also noted that the payments to the contractor were for educational purposes and were duly supported by evidence.

---