2017 (10) TMI 909 - HC - FEMA

Court overturns FCRA registration rejection, orders reprocessing due to lack of evidence.

The court held that the rejection of the petitioner's registration under Section 12 of the FCRA was unsustainable due to lack of material evidence. The ... Registration under Section 12 of the Foreign Contribution (Regulation) Act, 2010 (“FCRA”) rejected - Grant of certificate of registration under FCRA - the respondent is not satisfied that the foreign contribution is not likely to be used for personal gains - petitioner is a society registered under the Societies Registration Act, 1860 and has been registered under Section 12A of the Income Tax Act - Held that:- The question whether a society established for charitable/religious purpose is one of the principal considerations for grant of exemption under Section 11 and 12 of the Income Tax Act, 1961. One of the pre-condition for availing exemption from charge of Income Tax is that the charitable society/trust would utilise all funds for the purposes of its object and no part of it can be distributed as dividends or profits. Any society/trust which is run for the commercial benefits of its founders or trustees would plainly be ineligible for being accorded the certificate under Section 12A of the Income Tax Act. This is also the principal consideration, which is set out in Section 12(4)(vi) of the Act. Notwithstanding the registration granted to the petitioner under the Income Tax Act, the permission sought by the petitioner could have been refused if there was any evidence to show that the foreign contribution is likely to be used for personal gains or diverted for undesirable purposes. But, as stated earlier, there is no material to indicate that these conditions were satisfied. There is no material which would justify the conclusion that the petitioners were likely to divert the foreign contribution for personal gains or utilise it for any undesirable purposes. In this view, the impugned orders cannot be sustained and are consequently, set aside. The respondents are directed to process the petitioner's application for registration under Section 12 of the FCRA, as the only ground on which the same was denied is unsustainable. Issues Involved:1. Rejection of the petitioner's request for registration under Section 12 of the Foreign Contribution (Regulation) Act, 2010 (FCRA).2. Allegation that the petitioner operates on a commercial basis for personal gains.3. Compliance with the requirements under Section 12A and Section 80G of the Income Tax Act, 1961.4. Validity and sufficiency of the Intelligence Bureau (IB) report used to reject the application.Issue-wise Detailed Analysis:1. Rejection of Registration under FCRA:The petitioner, a Society registered under the Societies Registration Act, 1860, challenged the rejection of its application for registration under Section 12 of the FCRA through communications dated 01.08.2014 and 07.12.2015. The petitioner's application was initially rejected on the grounds that the organization was allegedly functioning on a commercial basis for personal gains. The petitioner sought reconsideration, which was again denied based on a report by the Intelligence Bureau (IB).2. Allegation of Operating on a Commercial Basis for Personal Gains:The respondent's primary ground for rejecting the petitioner's application was the assertion that the petitioner was operating purely on a commercial basis for personal gains. Despite requests, the respondent failed to provide concrete evidence to support this claim. The court noted that the impugned orders were based on a 'bald report' that merely stated the colleges were run for commercial purposes without substantiating this claim with material evidence.3. Compliance with Income Tax Act Requirements:The petitioner argued that it had been established for charitable purposes, as evidenced by its registration under Section 12A and approval under Section 80G of the Income Tax Act. These registrations indicate compliance with the conditions that the income is utilized solely for charitable purposes and not for personal gains. The court acknowledged that the Income Tax Act has an elaborate scheme to ensure that only institutions genuinely engaged in charitable activities receive tax exemptions. The petitioner's compliance with these provisions was seen as indicative of its charitable nature.4. Validity and Sufficiency of the IB Report:The court examined the IB report, which was cited as the basis for rejecting the petitioner's application. The report's vague assertions without substantial evidence were deemed insufficient to justify the rejection. The court emphasized that the respondents failed to show any material evidence indicating that the petitioner was likely to use foreign contributions for personal gains or undesirable purposes.Conclusion:The court concluded that the impugned orders rejecting the petitioner's application for registration under Section 12 of the FCRA were unsustainable due to the lack of material evidence. The respondents were directed to process the petitioner's application afresh, as the sole ground for denial was found to be unsupported. Each party was ordered to bear its own costs.