2022 (5) TMI 1146 - AT - Income Tax

Tribunal rules in favor of registration application, rejects reasons for denial under Section 12A.

M/s Shaheed Bhagat Singh Educational Society Versus CIT (Exemption) Chandigarh

The Tribunal held that the absence of a dissolution clause in the Memorandum of Association should not be a reason for rejecting registration under ... Exemption u/s 11 - registration u/s 12A denied - Absence of dissolution clause - HELD THAT:- As relying on various case M/S SHREE DURGA MATA MANDIR [2020 (3) TMI 501 - PUNJAB & HARYANA HIGH COURT], M/S AJIT EDUCATIONAL AND PUBLIC WELFARE SOCIETY [2018 (10) TMI 1039 - PUNJAB AND HARYANA HIGH COURT],GEETA LALWANI FOUNDATION [2018 (7) TMI 2053 - BOMBAY HIGH COURT] AND SETCO FOUNDATION [2019 (2) TMI 532 - BOMBAY HIGH COURT] it is not obligatory for the assessee for maintain dissolution clause which will not be the issue for rejection of registration u/s 12A of the Act. Accordingly the registration U/s 12A could not be denied to the assessee-society for non maintain the dissolution clause. The aims and objects of the trust includes running of coaching centre, technical and professional institute which are not covered u/s 2(15) for charitable purpose - As in the factual matrix the activity of the assessee-society had never run coaching centre. Also, a CBSE School cannot run a coaching centre as per the guideline of Board. Also income of the expenditure account of assessee no such income was reflected from coaching centre. The number of years the assessments were done by the revenue authorities u/s 143(3) for assessee. But no specific point was pointed out related to maintain of coaching centre. So, the rejection of the registration on the basis of ancillary object i.e. running coaching centre is uncalled for. The accounts of assessee are not being maintained in systematic manner - The assessing authority did not raise any question during assessment U/s 143(3) of the Act related maintenance of books of accounts. The ld CIT(E) did not recognise any specific lacuna in the books of assessee. All three reasons are not proper indication for rejecting the application of registration u/s 12A. For registration u/s 12A the steerage of the Act is that the identity of assessee and the activity relating to the main object of the society. In following two points was not properly considered by the ld. CIT(E). The maintaining a coaching centre only was incorporated in the order of the CIT(E). But no proper verification was done from the books of account and from the activities of the assessee by revenue. Related to maintenance of proper accounts no specific lacuna was found out by revenue. CIT (E) has erred in rejecting the application for registration u/s 12AA of the Act filed by the applicant. Hence ld. CIT (E) is directed to grant registration u/s 12AA of the Act to the assessee/applicant - Appeal of assessee allowed. Issues:1. Absence of dissolution clause in the Memorandum Of Association.2. The aims and objects of the trust include running a coaching center, technical, and professional institute not covered under charitable purposes.3. The accounts of the assessee are not being maintained in a systematic manner.Analysis:Issue 1: Absence of dissolution clause in the Memorandum Of AssociationThe appellant argued that the dissolution clause is not mandatory for maintaining the society. They presented an amended Memorandum of Association (MOA) with the dissolution clause inserted on 02/12/2013. The appellant highlighted that the certified copy of the amended MOA was submitted after the rejection order, denying a reasonable opportunity. The appellant relied on various decisions to support their argument. The Tribunal concluded that the absence of a dissolution clause should not be a reason for rejecting registration under Section 12A of the Act.Issue 2: The aims and objects of the trust not covered under charitable purposesThe appellant contended that although the MOA mentioned running a coaching center, no such activity was conducted. They provided evidence from the Income and Expenditure Account to support their claim. The appellant referenced legal precedents to argue that ancillary objects should not be a basis for denying registration. The Tribunal noted that the revenue authorities did not pinpoint any specific instances of running a coaching center. It was established that rejection based on the ancillary object of running a coaching center was unjustified.Issue 3: The accounts of the assessee are not being maintained in a systematic mannerThe appellant defended against the allegation of non-maintenance of financial statements systematically. They highlighted that the department accepted their income tax returns for previous years without any issues. The appellant emphasized that even if accounts were not perfectly maintained, it should not impact the genuineness of the trust's activities. Legal references were cited to support this argument. The Tribunal observed that the assessing authority did not raise concerns about bookkeeping during assessments. The rejection based on the alleged lack of systematic financial maintenance was deemed unwarranted.In conclusion, the Tribunal found that the rejection of the application for registration under Section 12AA was erroneous. The ld. CIT(E) was directed to grant registration to the assessee. The appeal of the assessee was allowed, and the order was pronounced on 10.05.2022.