2025 (6) TMI 1326 - AT - Income Tax

Rejection of registration u/sec.12AB - activities are not commensurate with as per objectives of the registered deed/MOA/ AOA which is in violation of the provisions of the sec.12A - HELD THAT - CIT(E) has failed to appreciate that the assessee-society is running schools from the last 25 years and imparting Education to the economically lower and middle class students with the approval of the State Government. Imparting Education itself is a charitable activity and the Fundamental Right of every student of this country enshrined under Article 21A of the Constitution of India. CIT(E) without appreciating the relevant evidences filed by the assessee in a casual manner rejected the application filed in Form-10AB for registration of the assessee-society u/sec.12A of the Act even though the assessee-society s activities are charitable in nature and further the assessee-society is carrying-out it s activities in accordance with it s objectives. Therefore assessee is eligible for registration u/sec.12A of the Income Tax Act 1961. CIT(E) has not examined the activities of the assessee-society and rejected the application in a casual manner without considering relevant details. Matter needs to be remitted back to the learned CIT(E) to consider the application filed by the assessee society in light of our discussion hereinabove and to grant registration u/sec.12A - Appeal of the Assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the assessee-society is eligible for registration under section 12A of the Income Tax Act, 1961, given its activities of imparting education for economically weaker and middle-class students?

- Whether the learned CIT(E) was justified in rejecting the application for registration under section 12A on the ground that the activities were not commensurate with the objectives as per the registered deed/MOA/AOA?

- Whether the learned CIT(E) properly examined the evidences and activities of the assessee-society before rejecting the registration application?

- Whether the matter requires remand for fresh consideration in light of relevant judicial precedents and proper verification of activities and financials?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Eligibility of the Assessee-Society for Registration under Section 12A of the Income Tax Act, 1961

Relevant Legal Framework and Precedents: Section 12A of the Income Tax Act, 1961, provides for registration of charitable or religious trusts or institutions, which is a prerequisite for claiming exemption under section 11. The activity of imparting education is recognized as a charitable purpose under the Act and is further supported by constitutional provisions such as Article 21A, which enshrines the fundamental right to education.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee-society has been engaged in running schools for primary and high school education for economically weaker and middle-class students for over 25 years, with approval from the State Government. The Tribunal emphasized that imparting education itself is a charitable activity and is consistent with the objectives of the society as per its registered deed/MOA/AOA.

Key Evidence and Findings: The assessee maintained regular books of accounts, audited by Chartered Accountants, and filed income tax returns consistently. The society's activities were ongoing and aligned with its stated objectives of promoting education.

Application of Law to Facts: The Tribunal held that the society's activities fall squarely within the ambit of charitable purposes under section 12A, and the rejection of registration on the basis that activities were not commensurate with the objectives was not justified.

Treatment of Competing Arguments: While the Revenue contended that the assessee failed to prove its charitable activities with supporting documents, the Tribunal found that the Revenue did not point to any specific violations or discrepancies. The Tribunal also rejected the Revenue's submission that the society might have a profit motive, noting that no such evidence was placed on record.

Conclusions: The assessee-society is prima facie eligible for registration under section 12A of the Act, given its long-standing charitable educational activities.

Issue 2: Justification of the Learned CIT(E)'s Rejection of Registration Application

Relevant Legal Framework and Precedents: The procedure for registration under section 12A involves scrutiny of the activities of the applicant society to ensure they are charitable and in conformity with the objectives stated in the deed/MOA/AOA. The Hon'ble Supreme Court in Noble Education Society vs. CCIT & Another (2022) held that if a society exists for profit motive, it is not eligible for exemption.

Court's Interpretation and Reasoning: The Tribunal observed that the learned CIT(E) rejected the application in a casual manner without pointing out any specific violations or discrepancies. The CIT(E) merely stated that activities were not commensurate with the objectives without appreciating the detailed submissions and evidences filed by the assessee.

Key Evidence and Findings: The Tribunal noted the absence of any detailed examination or verification of the society's activities and financial statements by the CIT(E). The rejection was not supported by concrete findings or reasons.

Application of Law to Facts: The Tribunal held that the CIT(E)'s order was not in accordance with the principles of natural justice and proper administrative procedure, as the assessee was not given an adequate opportunity to be heard and the order lacked substantive reasoning.

Treatment of Competing Arguments: The Revenue argued that the society failed to discharge the onus of proving its charitable activities. However, the Tribunal found that the Revenue did not provide any specific evidence or findings to support this contention. The Tribunal also noted that the Revenue's suggestion for remand was appropriate due to the inadequate examination by the CIT(E).

Conclusions: The rejection by the CIT(E) was unjustified and required reconsideration after proper examination and opportunity of hearing.

Issue 3: Need for Remand and Fresh Consideration

Relevant Legal Framework and Precedents: The principles of natural justice and fair procedure require that an applicant be given an opportunity to present evidence and that the authority must record reasons for its decision. The Supreme Court's ruling in Noble Education Society underscores the necessity of verifying the genuineness of charitable activities before granting exemption.

Court's Interpretation and Reasoning: The Tribunal emphasized that since the CIT(E) did not conduct a proper examination of the activities and financials, the matter should be remanded for fresh consideration. The assessee should be given an opportunity to be heard and to submit further evidence if necessary.

Key Evidence and Findings: The Tribunal relied on the long-standing history of the society's educational activities and the absence of any adverse findings to support the need for a fair re-examination.

Application of Law to Facts: The Tribunal directed the CIT(E) to reconsider the application for registration under section 12A within three months from the date of receipt of the order, after providing the assessee an opportunity of hearing.

Treatment of Competing Arguments: While the Revenue supported confirmation of the CIT(E) order, it also suggested remand as an alternative. The Tribunal accepted the latter as the appropriate course.

Conclusions: The matter is remitted back to the learned CIT(E) for fresh consideration in accordance with law and after affording opportunity of hearing to the assessee.

3. SIGNIFICANT HOLDINGS

- "The activity of 'Education' itself is a charitable activity and the Fundamental Right of every student of this country enshrined under Article 21A of the Constitution of India."

- "The learned CIT(E) without appreciating the relevant evidences filed by the assessee, in a casual manner rejected the application filed in Form-10AB for registration of the assessee-society u/sec.12A of the Act, even though, the assessee-society's activities are charitable in nature and further, the assessee-society is carrying-out it's activities in accordance with it's objectives."

- "The learned CIT(E) has not examined the activities of the assessee-society and rejected the application in a casual manner without considering relevant details."

- "The matter needs to be remitted back to the learned CIT(E) to consider the application filed by the assessee society in light of our discussion hereinabove and to grant registration u/sec.12A of the Income Tax Act, 1961, after providing opportunity of hearing to the assessee within three months from the date of receipt of this order."

Core principles established include the recognition that educational activities qualify as charitable purposes under section 12A, the necessity of reasoned and substantiated orders by tax authorities, and the requirement to provide procedural fairness including opportunity of hearing before rejecting registration applications.

Final determinations: The Tribunal allowed the appeal for statistical purposes and remitted the matter to the learned CIT(E) for fresh consideration and decision on registration under section 12A of the Income Tax Act, 1961, within a stipulated time frame, ensuring compliance with principles of natural justice and proper scrutiny of the assessee's activities.