2021 (1) TMI 467 - AT - Income Tax

Trust granted registration under Section 12AA for mixed charitable objectives

The Tribunal allowed the appeal, directing the Commissioner of Income Tax (Exemption) to grant registration under Section 12AA of the Income Tax Act. The ... Exemption u/s 11 - Denying the grant of registration u/s 12AA - appellant society was formed with the mixed objects like religious and non-religious activity and the appellant society was registered u/s 12A since 1977-78 - As stated that the original certificate of the registration u/s 12A was misplaced and on the legal advice filed fresh application in Form 10A for grant of registration u/s 12AA of the Act on 04.03.2020 - HELD THAT:- It cannot be said that merely because some of the objects of the appellant society are religious in nature it cannot be said that the objects are not charitable in nature. Thus, the order of the ld. Commissioner of Income Tax (Exemption) on this score cannot be upheld. Merely because the appellant society is in receipt of income from letting out Event Hall and Bhaktniwas it cannot be said that the activities of the appellant society are not genuine. Because, there is no bar under the law to earn income for the purpose of attaining the main objects of the trust. As regards to the reasoning of the ld. Commissioner of Income Tax (Exemption) that the appellant society had invested surplus funds of the trust in the form of FDs and applicability of the proviso to section 2(15) of the Act, it is settled proposition that the issue of grant of registration u/s 12AA of the Act and the examination of exemption u/s 11 of the Act are two different and distinct procedures prescribed under the Act. The issues of exemption u/s 11 of the Act cannot be examined at the stage of grant of registration u/s 12AA of the Act because the stage of examination of issues u/s 11 of the Act would arise only after grant of registration u/s 12AA of the Act. In Goa Industrial Development Corp. vs. CIT [2020 (2) TMI 366 - BOMBAY HIGH COURT] wherein the Hon’ble Jurisdictional High Court held that the mere introduction proviso to section 2(15) of the Act by itself would not render the activities of the assessee trust as non-genuine activities, so as to, entitle Commissioner of Income Tax (Exemption) to cancel and deny the registration u/s 12AA. We find from the impugned order except for stating that the activities are not genuine because of the applicability of the proviso to section 2(15) of the Act and the investments in the FDs out of the income there is no other allegation against the appellant society. In the circumstances, we set-aside the impugned order and direct the ld. Commissioner of Income Tax (Exemption) to grant the registration u/s 12AA - Decided in favour of assessee. Issues Involved:1. Denial of registration under Section 12AA of the Income Tax Act, 1961.2. Nature of the trust's objectives (religious vs. charitable).3. Application of income for charitable purposes.4. Receipt of rental income and its impact on the trust's charitable status.5. Investment of surplus funds in fixed deposits (FDs).Detailed Analysis:1. Denial of Registration under Section 12AA of the Income Tax Act, 1961:The appellant, a society registered under the Societies Registration Act, 1860, and later under the Bombay Trust Act, 1950, had been enjoying registration under Section 12A since 1977-78. The original registration certificate was misplaced, prompting a fresh application for registration under Section 12AA on 04.03.2020. The Commissioner of Income Tax (Exemption) denied the registration, concluding that the trust's activities and objectives were not charitable and questioning the genuineness of its activities.2. Nature of the Trust's Objectives (Religious vs. Charitable):The Commissioner of Income Tax (Exemption) held that the trust's objectives were religious in nature. However, the Tribunal referenced the Supreme Court's rulings in Fazlul Rabbi Pradhan vs. State of West Bengal and CIT vs. Dawoodi Bohra Jamat, which established that religious activities fall within the ambit of charitable purposes. The Tribunal consistently followed this precedent, noting that mixed objectives (religious and non-religious) do not disqualify a trust from registration under Section 12AA.3. Application of Income for Charitable Purposes:The Commissioner of Income Tax (Exemption) observed that the trust's income was not fully applied for charitable purposes, as surplus funds were invested in FDs. The Tribunal clarified that the examination of income application under Section 11 is distinct from the registration process under Section 12AA. The primary focus at the registration stage is on the genuineness of activities and the charitable nature of objectives, not on the application of income.4. Receipt of Rental Income and Its Impact on the Trust's Charitable Status:The Commissioner of Income Tax (Exemption) noted that the trust received rental income from letting out an Event Hall and Bhaktniwas, invoking the proviso to Section 2(15). The Tribunal emphasized that earning income does not negate the charitable status if the income is utilized for charitable purposes. The dominant purpose should be public utility, not profit-making. The Supreme Court's judgment in Surat Art Silk Cloth Manufacturers’ Association supported this view.5. Investment of Surplus Funds in Fixed Deposits (FDs):The Commissioner of Income Tax (Exemption) cited the investment of surplus funds in FDs as a reason for denying registration. The Tribunal reiterated that the registration process under Section 12AA is separate from the assessment of income under Section 11. The mere presence of surplus funds invested in FDs does not imply non-genuine activities or disqualify the trust from registration. The Tribunal referenced multiple judicial precedents, including CIT (Exemptions) vs. Mumbai Metropolitan Region Development Authority, which supported this distinction.Conclusion:The Tribunal concluded that the reasons provided by the Commissioner of Income Tax (Exemption) were not tenable. The denial of registration based on the religious nature of some objectives, receipt of rental income, and investment in FDs was not justified. The Tribunal set aside the impugned order and directed the Commissioner of Income Tax (Exemption) to grant registration under Section 12AA of the Act. The appeal was allowed in favor of the assessee.