Tribunal grants tax immunity to society despite denial of registration for lack of charitable activities

The tribunal upheld the denial of registration under section 12AA(1)(b)(ii) due to the lack of charitable activities by the assessee society. However, it recognized the society as a "State" entitled to tax immunity under the Income Tax Act, 1961, based on its status and functions under the Government of Odisha. The appeal was allowed partly, granting the society tax immunity as a "State" despite the denial of registration for not meeting charitable intent requirements.

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Issues:
1. Denial of registration to the assessee society under section 12AA(1)(b)(ii) of the Income Tax Act, 1961.
2. Questioning the status of the assessee society as a "State" and its entitlement to tax immunity under the Income Tax Act, 1961.

Issue 1: Denial of registration under section 12AA(1)(b)(ii):
The appeal was against the order of the ld CIT(Exemptions) denying registration to the assessee society under section 12AA(1)(b)(ii) of the Income Tax Act, 1961 for the assessment year 2016-17. The grounds raised by the assessee included errors in denying registration under sections 12A(a) and 12AA(a) of the Act. The assessee, a State Council for Technical Education & Vocational Training Society in Odisha, was under the total control of the State Government, with key positions held by State Government employees. The CIT(E) questioned the genuineness of the assessee and its status as a "State" for tax immunity. The assessee argued that it believed it was a "State" and not liable for tax, citing a similar case in Maharashtra. The CIT(E) alleged that the assessee willfully defrauded revenue, leading to the denial of registration. The tribunal found no charitable activity by the assessee and denied registration under section 12AA(1)(b)(ii) due to the lack of charitable intent or activities.

Issue 2: Status of the assessee society as a "State" and tax immunity:
The additional ground raised was the status of the assessee society as a "State" and its entitlement to tax immunity under the Income Tax Act, 1961. The ld CIT DR opposed this claim, arguing against the charitable nature of the assessee's activities. The tribunal noted that the excess income over expenditure was kept in fixed deposits, indicating a lack of charitable application. However, the tribunal disagreed with the CIT(E)'s findings on the organization's genuineness and "State" status. It held that the assessee, being a State Council for technical education under the Government of Odisha, qualified as a "State" under Article 289 of the Constitution of India. This decision was supported by a similar case in Maharashtra. Therefore, the tribunal granted the assessee tax immunity as a "State" and allowed the appeal partly.

In conclusion, the tribunal upheld the denial of registration under section 12AA(1)(b)(ii) due to the lack of charitable activities by the assessee. However, it recognized the assessee as a "State" entitled to tax immunity under the Income Tax Act, 1961, based on its status and functions under the Government of Odisha.

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