2018 (10) TMI 430 - AT - Income Tax

Tribunal directs registration under Income Tax Act, emphasizes CIT's limited role in verifying society's objects.

The Tribunal directed the CIT to grant registration under Section 12AA of the Income Tax Act to the society, emphasizing that the CIT's role at the ... Refusing the registration u/s 12AA - powers of the Commissioner in rejecting the registration - CIT (Exemption) holding that the society is existing for the purpose of profit of office bearers and not for charitable purposes - Assessee trust did not produce the books of account, bills and vouchers etc. for verification of the ld. CIT for which the ld. CIT held that the assessee society is not carrying out any charitable activities - Held that:- We find identical issue had come up before the Tribunal in the case of Bhartiya Kisan Sangh Sewa Niketan (2017 (8) TMI 1065 - ITAT DELHI ) Tribunal allowed the claim of registration by holding that at this stage on granting registration uls 12A the ld. CIT is required to see the objects of the society and not required to examine the application of income which will have to be undertaken by the Assessing Officer on a year to year basis after the assessee files the return of income claiming exemption u/s 11 of the 1. T. Act. The application submitted by the respondent was in consonance with the procedural requirement prescribed in this regard. From the trust deed which who filed before the CIT the objects of ,he trust coald be ascertained. From perusal of cl. (3) of the trust deed we find that the objects of the trust are charitable in nature and are in tune with s. 2 (15) of the Act and therefore, the Tribunal rightly opined that the order of the CIT rejecting the application under s.12A was unjustified. See COMMISSIONER OF INCOME TAX VERSUS D.P.R. CHARITABLE TRUST [2011 (8) TMI 1136 - MADHYA PRADESH HIGH COURT] - Decided in favour of assessee. Issues Involved:1. Whether the society exists for the purpose of profit of office bearers and not for charitable purposes.2. Whether the CIT (Exemption) was justified in refusing the registration under Section 12AA of the Income Tax Act.Issue-Wise Detailed Analysis:Issue 1: Purpose of the SocietyThe CIT (Exemption) held that the society exists for the purpose of profit of office bearers and not for charitable purposes. This conclusion was based on the observation that the society had taken on rent buildings from members of the society and paid excessive rent, thereby diverting funds for the personal gain of the office bearers. The CIT noted that rent agreements with office bearers did not provide for expenses on maintenance and taxes to be borne by the assessee, yet the assessee incurred these expenses. The CIT argued that this indicated the society was not operating for charitable purposes.The appellant contended that the main objective of the society is to spread education, running a Senior Secondary School affiliated with the M.P. Board. The appellant argued that the rent paid was reasonable and within the fair rental value assessed by the PWD office. They provided detailed explanations and supporting documents, including rent agreements and assessments, to counter the CIT's observations.Issue 2: Refusal of Registration under Section 12AAThe CIT (Exemption) refused the registration under Section 12AA, citing that the society's funds were being diverted for personal purposes of office bearers, thus questioning the genuineness of the society's charitable activities. The CIT emphasized that the rent paid to related parties was not on a pro-rata basis and that the society bore maintenance expenses, which should have been borne by the landlords.The appellant argued that at the stage of registration, the CIT should only verify the genuineness of the objects of the society and not delve into the application of income. They relied on judicial precedents, including the judgments of the jurisdictional High Court in CIT Vs. D.P.R. Charitable Trust and other cases, which held that the CIT's role at the registration stage is limited to verifying the objects of the society and ensuring they are charitable in nature.The Tribunal observed that the CIT is within his power to make inquiries to find out the genuineness of the society's objectives. However, it agreed with the appellant that the CIT's role at the registration stage is confined to verifying the genuineness of the objects and not the application of income. The Tribunal noted that the society is running a school, which is a charitable activity, and there was no adverse material regarding the genuineness of the society's objects.Conclusion:The Tribunal directed the CIT to grant registration under Section 12AA of the Income Tax Act to the assessee society, emphasizing that the revenue could examine the reasonableness of the rent paid to members during the assessment proceedings. The appeal filed by the assessee was allowed, and the Tribunal clarified that the CIT's role at the registration stage is limited to verifying the genuineness of the objects of the society.Final Order:The appeal filed by the assessee was allowed, and the CIT was directed to grant registration under Section 12AA of the Income Tax Act. The order was pronounced in the open court on 05.10.2018.