2018 (1) TMI 134 - AT - Income Tax

Appeal allowed, registration granted under section 12AA. Assess section 13(1)(c) violations at assessment stage.

The Tribunal allowed the appeal, directing the CIT(E) to grant registration under section 12AA to the assessee-association. The Tribunal emphasized that ... Refusing to grant registration u/s.12AA - proof of charitable activities - Held that:- In the instant case, it is admitted in the impugned order that the objects of the assessee society are charitable in nature and in absence of pointing out any specific activities of the assessee society which were not genuine, in our considered view, rejection of application for registration u/s.12AA of the Act on the ground of diversion of funds for the benefit of executives of the association in violation of provisions of Section 13(1)(c) of the Act is not justified. The violation of provisions of Section 13(1)(c) of the Act is a matter which is to be looked into by the Assessing Officer while making assessment after grant of registration u/s.12AA of the Act and the Assessing Officer has to act as per the provisions of law. We, therefore, set aside the order of the CIT(E) and direct him to grant registration to the assessee society u/s.12AA of the Act. Thus, this appeal of the assessee is allowed. Issues Involved:1. Refusal to grant registration under section 12AA of the Income Tax Act, 1961.2. Alleged diversion of funds for personal benefit in violation of section 13(1)(c) of the Income Tax Act.3. Classification of receipts from BCCI as corpus fund versus revenue income.4. Activities of the association being of commercial nature rather than charitable.5. Denial of exemption under section 11 of the Income Tax Act due to the pending registration under section 12A.Issue-wise Detailed Analysis:1. Refusal to Grant Registration under Section 12AA:The central issue is the CIT(E)'s refusal to grant registration under section 12AA to the assessee-association. The assessee, registered under the Society Registration Act, 1860, applied for registration under section 12A on 31.03.2003. The CIT neither granted nor rejected this application. Following a series of appeals and remands, the CIT(E) ultimately refused registration, citing various reasons including the alleged non-genuine nature of the association's activities and the diversion of funds for personal benefit. The Tribunal, however, found that the objects of the association were charitable and directed the CIT(E) to grant registration under section 12AA.2. Alleged Diversion of Funds for Personal Benefit in Violation of Section 13(1)(c):The CIT(E) observed that the functioning of the association conferred financial benefits to its executives, violating section 13(1)(c). However, the Tribunal noted that the applicability of section 13(1)(c) should be examined during the assessment stage, not at the registration stage. The Tribunal cited the Delhi Bench's decision in Aggarwal Mitra Mandal Trust vs. DIT(E), which held that the provisions of section 13(1) are relevant only at the stage of assessment.3. Classification of Receipts from BCCI as Corpus Fund versus Revenue Income:The CIT(E) noted that the association treated receipts from BCCI as corpus funds instead of revenue income without proper evidence. The Tribunal emphasized that whether such receipts should be classified as corpus funds or revenue income is a matter to be examined during assessment and not at the registration stage. The Tribunal also noted that the association provided evidence from BCCI directing the treatment of these receipts as part of the corpus.4. Activities of the Association Being of Commercial Nature Rather Than Charitable:The CIT(E) argued that the association's activities, such as selling tickets and letting out infrastructure, were commercial rather than charitable. The Tribunal, however, found that these activities were incidental to the association's primary objective of promoting cricket. The Tribunal referenced the Madras High Court's decision in Tamil Nadu Cricket Association vs. DIT(E), which held that activities like selling tickets and receiving sponsorships do not convert a charitable activity into a commercial one if they are intrinsically linked to the charitable purpose.5. Denial of Exemption under Section 11 Due to Pending Registration under Section 12A:The CIT(A) denied the exemption under section 11 on the grounds that the association did not have registration under section 12AA. The Tribunal, having directed the CIT(E) to grant registration under section 12AA, restored the matter to the Assessing Officer to reframe the assessment in light of the newly granted registration.Conclusion:The Tribunal allowed the appeal regarding the refusal of registration under section 12AA, directing the CIT(E) to grant the registration. It also restored the assessment matter to the Assessing Officer to reconsider the exemption under section 11 in light of the granted registration. The Tribunal emphasized that issues related to section 13(1)(c) and the classification of receipts should be examined during the assessment stage, not at the registration stage.