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 registration stage is limited to verifying the genuineness of the objects of the society. The appeal by the society was allowed, with the Tribunal clarifying that the revenue authorities could examine the reasonableness of rent payments during assessment proceedings. The order was pronounced on 05.10.2018.

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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 Society
The 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 12AA
The 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.

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