2017 (8) TMI 175 - AT - Income Tax

Tribunal grants registration to educational trust, emphasizes charitable activities over surplus generation.

Yashaswi Education Society Versus Commissioner of Income Tax-I, Pune

The Tribunal allowed the appeal, directing the Commissioner to grant registration to the trust formed for educational purposes. Emphasizing the charitable ... Grant of registration u/s. 12AA(1)(b)(ii) - quantum of surplus generated by the assessee during the course of charitable activities - Held that:- Deemed registration has already been granted to the assessee in view of the fact that the original application made by the assessee was not disposed of by the Commissioner of Income Tax. The Commissioner of Income Tax while considering second application of the assessee for grant of registration, should have examined the objects of the trust and the activities being carried out by the assessee to achieve those objects. The Commissioner of Income Tax misdirected the course of enquiry and concentrated on the surplus generated, leaving aside the objects and activities carried out by the assessee. Generation of surplus while carrying out charitable activities would not disentitle the assessee for registration u/s. 12A of the Act. We set aside the impugned order and direct the Commissioner of Income Tax to grant registration u/s. 12AA of the Act to the assessee. Appeal of the assessee is allowed. Issues:Application for registration u/s. 12AA(1)(b)(ii) of the Income Tax Act, 1961 rejected by Commissioner of Income Tax - Whether rejection justified based on non-payment of taxes on surplus earned - Whether deemed registration granted due to delay in processing application - Whether Commissioner erred in considering surplus generated as a ground for rejection.Analysis:Issue 1: Delay in Processing ApplicationThe appeal concerned the rejection of the assessee's application for registration u/s. 12AA by the Commissioner of Income Tax. The assessee, a trust formed for educational purposes, had applied for registration on 01-06-2007, but the application remained pending without a decision from the Commissioner. As per section 12AA(2) of the Act, registration should be granted or refused within 6 months of the application. The Hon'ble Apex Court has established that failure to decide within the stipulated time results in deemed registration, as reiterated in the case of Commissioner of Income Tax and Others Vs. Society for the Promotion of Education.Issue 2: Rejection Based on Surplus GeneratedThe Commissioner rejected the application citing non-payment of taxes on surplus earned in financial years 2009-10 and 2010-11. The assessee argued that the focus should be on the genuineness of activities and trust objects, not the quantum of surplus generated. Case laws highlighted by the assessee emphasized that the nature of activities, not profit generation, determines charitable status. The Karnataka High Court and Jurisdictional High Court rulings supported this view, stating that the primary consideration should be the application of income towards charitable purposes.Issue 3: Misdirection in EnquiryThe Tribunal found that the Commissioner erred in rejecting the application based solely on surplus generated, overlooking the trust's objects and activities. Deemed registration had already been granted due to the delay in processing the initial application. The Tribunal emphasized that generating surplus during charitable activities does not disqualify a trust from registration u/s. 12A. Consequently, the Tribunal set aside the rejection and directed the Commissioner to grant registration to the assessee.In conclusion, the Tribunal allowed the appeal, emphasizing the importance of focusing on the charitable nature of activities rather than the quantum of surplus generated. The judgment highlighted the significance of timely processing of registration applications and the need for a thorough examination of trust objects and activities for registration under section 12AA of the Income Tax Act, 1961.