Whether if Revenue declines to grant exemption u/s 10(23C)(vi), such denial automatically leads to refusal of registration u/s 12AA - NO: HC

THE issues before the bench are - Whether if the exemption under Section 10 (23C)(vi) is declined, it would amount to refusal of registration under Section 12AA and whether registration u/s 12A can be denied without recording the reasons for satisfaction that the activities of assessee are not genuine or are not being carried out in accordance with the objects of the trust or the institution. And the verdict goes against the Revenue.

Facts of the case

The assessee is a society registered under the Societies Registration Act since 1991. It was also registered u/s 12A and claimed exemption u/s 10 (23C) (vi) on the income for the AYs 2004-05 to 2006-07 & 2007-08 to 2009-10 on the ground that the society was imparting education. The said claim had been rejected by the Chief Commissioner of Income Tax, Allahabad vide order dated 25.3.2008. Against the said order, Writ Petition No. 1210 of 2009 had been rejected and the order of the Chief Commissioner of Income Tax, Allahabad had become final.

Then the Commissioner of Income Tax issued notice to the assessee under Section 12AA(3) of the Act as to why the registration under Section 12A of the Act be not cancelled, since the activities of the society had ceased to remain charitable in nature, as defined under Section 2(15) read with Sections 11 to 13 of the Act. By the order dated 15.1.2010, the registration under Section 12A read with Section 12AA of the Act has been cancelled.

On appeal, Tribunal had observed that though the CIT had referred to the findings recorded in the order u/s 10(23C)(vi) but he had not simply lifted the said finding from that order. As submitted by counsel for the assessee, that some of the portions of the order u/s 10(23C)(vi) in verbatum had been incorporated but CIT had independently applied his mind to those findings and then reached the necessary conclusion. It was true that the proceedings u/s 10(23C) and section 12AA were independent but the considerations under both the provisions were almost similar. Therefore, the facts and findings u/s 10(23C) had bearing in regard to the proceedings u/s 12AA and the objection of assessee was not sustainable. On merits, Tribunal found considerable force in the arguments of assessee that merely because amounts were spent on repairs and maintenance of places of worship, religious functions, maintenance of priests preachers/ other religious functionaries etc. and on construction and maintenance of Churches, it cannot be held that the society does not exist solely for charitable purposes.

Before HC, the assessee's counsel had submitted that the writ petition against the order of CCIT rejecting the exemption u/s 10(23C)(vi) had been rejected, therefore, the order of CCIT had become final. The CCIT had doubted the activities of the society being charitable. The CCIT also found that the activities of the society ceased to be charitable. On the facts and circumstances, the CCIT had arrived to the conclusion that the activities of the institution were not genuine and were not being carried out in accordance with the objects of the society.

On the other hand, the Revenue's counsel had submitted that for the purposes of grant of registration u/s 12A to the trust or the institution, the Commissioner has to satisfy about the genuineness of the activities of the trust or the institution. It was submitted that under subsection (3) of Section 12AA, the registration can only be cancelled if the Commissioner was satisfied that the activities of such trust or institution were not genuine or were not being carried out in accordance with the objects of the trust or institution, as the case may. No such finding had been recorded in this regard and, therefore, the Tribunal had rightly set aside the order of CIT.

Held that,

++ the registration under Section 12A of the Act can be sought either by the trust or by the institution. It appears that for the purposes of claim of exemption under Sections 11 and 12 of the Act, the registration under Section 12A of the Act is necessary as provided by Section 12A of the Act. Section 12AA(1) provides that the Commissioner, after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he shall pass an order in writing registering the trust or institution. Sub-section (3) of Section 12AA of the Act provides that if the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, he shall pass an order in writing cancelling the registration of such trust or institution. Therefore, for the cancellation of registration, the satisfaction of the Commissioner to the extent that the activities of the trust or the institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, whether the income of such trust or institution is liable to be exempted on the fulfillment of the requirement provided under Section 11 of the Act, the matter is to be examined by the assessing authority;

++ from the perusal of the order of the Commissioner, we find that no finding has been recorded with regard to the satisfaction that the activities of the present respondent are not genuine or are not being carried out in accordance with the objects of the trust or the institution. The criteria to grant exemption under Section 10 (23C)(vi) and grant of registration under Section 12A is different and merely because the exemption under Section 10 (23C)(vi) is declined, it does not amount the refusal of registration under Section 12AA or in case if the registration has been granted, it may be cancelled on that ground. For the cancellation of registration, the requirements, as provided under sub-section (3) of Section 12AA, are to be fulfilled. It is true that the refusal of the exemption under Section 10 (23C)(vi) may be relevant for the purposes of cancellation of registration, but to arrive to the conclusion that the activities of the trust or the institution are not genuine or are not being carried out in accordance with the objects of the trust or the institution, finding in this regard is necessary, based on the relevant material. In view of the above, we are of the considered opinion that the matter requires consideration afresh by the Commissioner of Income Tax, Varanasi. In the result, the appeal is allowed. The order of the Tribunal is set aside and the matter is relegated to the Commissioner of Income Tax, Varanasi for taking a fresh decision.