2018 (4) TMI 1359 - AT - Income Tax

Denying grant of registration u/s 12AA - denial of claim of exemption in earlier year u/s 10(23C)(iiiab) - absence of dissolution clause - seeking registration after a lapse of 39 years - altruistic intent - Held that - The fact that the activities carried out by the applicant /assessee are charitable in nature been confirmed by us in the earlier part of the order. Merely because the functioning of the applicant/assessee is guided by the directions given by the Government of Punjab does not take away the charitable character of the objects of the assessee nor do they effect the genuineness of the activities carried out by the applicant/assessee. Even if the applicant/assessee is working under the directions of the Government as long as the activities carried out by it are in sync with its stated objects which have been held to be charitable by us in the earlier part of our order and as long as there is no other finding vis- -vis the genuineness of the activities carried by the assessee the independence of the assessee in decision making cannot in any way effect the genuineness of the activities carried out by the applicant/assessee. The aforesaid contention of the Ld.CIT(E) is therefore dismissed by us. No merit in the contention of the Ld.CIT(E) that in the absence of dissolution clause in the Memorandum of Association of the assessee the provisions of section 13(1)(c) of the Act were attracted since the said dissolution clause had been amended way back in 2008 itself providing for the transfer of the assets and funds of the society to another society with similar aims and objects in the event of the dissolution of the applicant assessee. - Decided in favour of assessee.

Issues Involved:
1. Denial of registration under section 12AA of the Income Tax Act.
2. Opportunity of being heard.
3. Rejection of application for registration under section 12AA.
4. Absence of a dissolution clause in the Memorandum of Association.

Detailed Analysis:

1. Denial of registration under section 12AA of the Income Tax Act:
The appellant's application for registration under section 12AA was denied by the Commissioner of Income Tax (Exemptions) [CIT(E)] on grounds that the activities of the assessee society did not fall under the category of charitable purposes. The CIT(E) also noted the absence of a dissolution clause in the Memorandum of Association, which impinged on the public charitable character of the society. The Tribunal, however, found that the CIT(E)'s reasons were immaterial and of no consequence for the purpose of granting registration under section 12AA. The Tribunal held that the assessee could seek registration at any point of time and was not required to seek the same only at the initial stage or at its inception. The Tribunal also noted that the rejection of the claim of exemption under section 10(23C)(iiiab) had been reversed by the ITAT, making the CIT(E)'s reliance on this ground unjustified.

2. Opportunity of being heard:
The appellant contended that the CIT(E) had not given an opportunity of being heard before denying the registration. The Tribunal did not specifically address this issue in the detailed analysis but focused on the substantive grounds for denial of registration.

3. Rejection of application for registration under section 12AA:
The CIT(E) rejected the application on the grounds that the activities of the assessee did not qualify as charitable under section 2(15) of the Act. Specifically, the CIT(E) argued that affording training to government employees did not fit the definition of education as laid down by the Supreme Court in the case of "Sole Trustee Lok Shikshan Sansthan." The Tribunal, however, referred to its previous order granting exemption under section 10(23C)(iiiab), where it had held that the activity of affording training to government employees was in the nature of education. The Tribunal cited the decision of the Gujarat High Court in the case of "Gujarat State Co-operative Union vs CIT," which supported the view that such training activities amounted to education.

4. Absence of a dissolution clause in the Memorandum of Association:
The CIT(E) also denied registration on the ground that the Memorandum of Association lacked a dissolution clause, invoking the provisions of section 13(1)(c) of the Act. The Tribunal found that this issue had been addressed by the assessee, as the Executive Committee had amended the Memorandum of Association to include a dissolution clause in its meeting held on 25.11.2008. The Tribunal noted that the amendment provided for the transfer of the assets and funds of the society to another society with similar aims and objectives in the event of dissolution, thus rendering the CIT(E)'s contention invalid.

Conclusion:
The Tribunal set aside the order of the CIT(E) and directed the grant of registration under section 12AA of the Act to the applicant society. The appeal filed by the assessee was allowed, and the order was pronounced in the open court.

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