Society wins appeal against registration cancellation under Section 12AB for food distribution to poor and needy

ITAT AGRA allowed the appeal challenging cancellation of provisional registration under Section 12AB. The society operated food distribution activities, with CIT(E) rejecting registration claiming primary business activities violating Section 2(15) proviso. ITAT found the society legitimately engaged in charitable activities - providing free/subsidized food to poor, patients, and needy persons. The tribunal held that starting one charitable activity among multiple objects doesn't bar registration, and charging nominal amounts above cost for food distribution doesn't constitute business activity. CIT(E)'s findings regarding unauthorized operations and business nature were factually incorrect and legally misplaced.

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Issues Involved:

1. Rejection of registration of the Society under Section 12AB of the Income Tax Act, 1961.
2. Classification of the Society's activities as trade, commerce, or business under Proviso to Section 2(15) of the Income Tax Act, 1961.
3. Applicability of Proviso to Section 2(15) to the Society's activities.
4. Misplaced reliance on the Supreme Court judgment by the CIT(E).
5. Violation of principles of natural justice by not considering the adjournment application.
6. Alleged use of domestic LPG cylinders and its legal implications.

Summary:

1. Rejection of Registration under Section 12AB:
The Assessee's appeal challenges the order dated 03.11.2022 by the Learned Commissioner of Income Tax Exemptions (CIT(E)), Bhopal, which rejected the registration of the Society under Section 12AB. The appeal claims the order is arbitrary, unjust, and illegal.

2. Classification of Activities:
The CIT(E) held that the Society's activity of providing concessional food packets is in the nature of trade, commerce, or business, violating the Proviso to Section 2(15) of the Income Tax Act, 1961. The Society argued that the concessional rates do not cover the cost, indicating no profit motive, thus not constituting trade, commerce, or business.

3. Applicability of Proviso to Section 2(15):
The CIT(E) failed to appreciate that the Society's activities qualify as "Relief to Poor" rather than "advancement of an object of general public utility (GPU Charity)," making the Proviso to Section 2(15) inapplicable. The Tribunal agreed, stating that the Society's activities fall under "Relief to the poor" and not "GPU."

4. Misplaced Reliance on Supreme Court Judgment:
The CIT(E) selectively referred to parts of the Supreme Court judgment in Assistant Commissioner of Income Tax (Exemptions) Vs. Ahmedabad Urban Development Authority without considering the entire judgment. The Tribunal highlighted that the CIT(E) misapplied the judgment.

5. Violation of Principles of Natural Justice:
The CIT(E) did not consider the adjournment application dated 20.10.2022, thus passing the order without providing the appellant a proper opportunity to respond, violating principles of natural justice.

6. Alleged Use of Domestic LPG Cylinders:
The CIT(E) observed that the Society used domestic LPG cylinders for cooking, violating Section 12AB(1)(b)(1)(8) and the Liquefied Petroleum Gas (Regulation of Supply and Distribution) Order 2000. The Tribunal found this observation misplaced, as the Society used the cylinders as a customer, not unauthorizedly.

Conclusion:
The Tribunal concluded that the CIT(E) unjustly denied the registration under Section 12AB. The Society's activities were charitable and not commercial. The Tribunal set aside the CIT(E)'s order and directed the CIT(E) to grant approval under Section 12AB. The appeal was allowed, and the order was pronounced on 11th July 2023.

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