VIJAY GANESH SEVA PRANYAS,JODHPUR vs. CIT (EXEMPTION),, JAIPUR

In ITA No. 242/Jodh/2024, the assessee has raised the following grounds of appeal:

The assessee also filed Form No. 10AB on 28.09.2023 seeking approval under section 80G. The learned CIT(E) rejected the application on the grounds that the assessee had been denied registration under section 12AB and that, although its activities had commenced in June 2022, the application was not filed within the period prescribed under clause (iii) of the first proviso to section 80G(5). Holding that he had no power to condone the delay, the learned CIT(E) treated the application as non-maintainable and also cancelled the provisional approval dated 03.08.2022.

The learned AR submitted that the assessee had earlier been granted provisional registration under section 12AB by an order dated 30.05.2022 for the period from the assessment year 2022-23 to the assessment year 2025-26. The assessee thereafter filed Form No. 10AB seeking regular registration within the prescribed time, being at least six months before the expiry of its provisional registration. According to him, no fresh adverse material or disqualifying circumstance was brought on record that could justify the rejection of regular registration.

The learned AR contended that the learned CIT(E) had incorrectly treated the objects of the assessee as commercial or profit-oriented. He submitted that the principal object of the assessee was the service and welfare of all living beings. The objects relating to parks, gardens, gymnasiums, sports clubs, Dharamshalas and rest houses were intended for the benefit of the general public. Similarly, the objects relating to

The learned AR submitted that the objects were covered by the definition of “charitable purpose” under section 2(15). According to him, a mere possibility that an amount may be charged while undertaking an activity cannot, without examining its predominant purpose and the manner in which it is actually carried on, justify the conclusion that the object itself is commercial.

The learned AR further submitted that the scope of inquiry at the stage of registration is confined to examining the charitable nature of the objects and the genuineness of the activities and whether such activities are in consonance with the stated objects. The learned CIT(E), according to him, had travelled beyond that scope by drawing conclusions based upon hypothetical future contingencies and by examining matters that would appropriately arise during the assessment proceedings.

Insofar as the appeal relating to section 80G is concerned, the learned AR submitted that the application had primarily been rejected as a consequence of the denial of registration under section 12AB. He contended that once the rejection of the application under section 12AB

The learned DR contended that, in the absence of a specific explanation, the learned CIT(E) was justified in drawing an adverse inference that the assessee intended to undertake commercial or profit- oriented activities under the guise of charity. He further relied upon the findings relating to the rent paid to a person connected with the trustees, the residential use of the premises and the failure of the assessee to

As regards the application under section 80G, the learned DR relied upon the findings that registration under section 12AB had been denied and that the application in Form No. 10AB was not filed within six months from the stated commencement of activities in June 2022. He submitted that the learned CIT(E) had no statutory power to condone the delay in filing the application and, therefore, the application was rightly treated as non-maintainable.

We have considered the rival submissions and perused the material placed on record. The learned CIT(E) rejected the application for registration under section 12AB principally on the grounds that certain objects of the assessee were commercial in nature and that the genuineness of its activities was not established. The learned CIT(E) examined the objects relating to the establishment and operation of parks, gardens, gymnasiums, sports facilities, Dharamshalas, rest houses, hospitals, clinics, blood banks, health centres, old-age homes, orphanages, skill-development centres, vocational training centres for women, computer laboratories and computer examination centres. Since

The learned AR submitted that the objects of the assessee were charitable and directly related to medical relief, relief to the poor, education, skill development and advancement of objects of general public utility. He contended that the mere possibility of charging an amount for a facility could not convert an otherwise charitable object into a commercial object. According to him, the predominant purpose of the assessee was public welfare and there was no clause permitting

The learned AR further submitted that the accounts and supporting material demonstrated that charitable activities were actually undertaken. According to him, the questions relating to the allowability of rent, reasonableness of payment to a related person and application of income were matters falling within the scope of assessment and could not, without a finding that the activities were fictitious or contrary to the objects, justify rejection of registration.

The learned DR, on the other hand, relied upon the impugned order. He specifically emphasised that the assessee had remained silent when called upon to clarify whether the activities contemplated under its objects would be undertaken free of cost. He submitted that such non-compliance justified the inference that the assessee intended to undertake commercial activities. The learned DR also relied upon the local verification and the findings concerning payment of rent to the husband of a trustee.

Upon examination of the objects, we find that the establishment and support of parks, gardens, sports facilities, Dharamshalas, medical

It is true that the assessee did not furnish a specific answer to the query whether every proposed facility would be provided free of cost. Such non-compliance warranted scrutiny. However, the statutory definition of “charitable purpose” does not require every charitable service to be provided entirely free of cost. The mere possibility of charging a fee does not establish that the predominant object is the carrying on of business. The character of the activity depends upon its predominant purpose, the manner in which it is actually carried on and the application of the resulting income.

The conclusion that the objects were commercial was drawn without any material showing that the assessee had actually undertaken the activities on a profit-oriented basis. In these circumstances, the

As regards the genuineness of the activities, the impugned order itself records that the assessee had undertaken food distribution, contributed towards the marriage of girls and carried out Gau Seva. Thus, the actual undertaking of charitable activities was not wholly disputed.

The payment of rent to the husband of a trustee is undoubtedly a relevant circumstance requiring verification. However, the impugned order does not record that the rent was fictitious, that the amount was returned to the assessee or its members, or that the rent was excessive when compared with the fair market value of the premises. The local verification also establishes that the assessee was operating from the said premises, though the premises were simultaneously used for residential purposes.

Merely because the office was situated in a premises partly used as a residence or because the landlord was related to a trustee, it could not be concluded, without further supporting material, that the entire

We find that the inquiry at the stage of registration is directed towards examining the charitable nature of the objects and the genuineness of the activities. The activities undertaken must be real and in consonance with the stated objects. Registration, however, cannot be refused merely on presumptions, surmises or apprehensions regarding the manner in which income may be earned or applied in future.

The examination at this stage also extends to the proposed activities of the assessee for determining whether they are genuinely aligned with its stated charitable objects. This position is distinct from cancellation proceedings, where the authority must record a definite finding that the activities actually carried on are not genuine or are contrary to the stated objects.

Questions concerning the application of income, allowability or adequacy of particular expenditure, accumulation of funds and the

In the present case, the objects of the assessee are charitable in nature and the impugned order itself acknowledges that certain charitable activities were undertaken. The inference that the objects were commercial is based primarily upon the absence of a specific statement that every facility would be provided free of cost. The mere possibility of charging a fee does not, by itself, convert an otherwise charitable object into a commercial object. What is relevant is the predominant purpose of the activity, the manner in which it is undertaken and the application of the resulting income.

Similarly, the finding regarding non-genuineness is based upon the relationship between the landlord and one of the trustees and the mixed use of the rented premises. The impugned order does not record a definite finding that the rent was fictitious, excessive or represented a return of funds to the trustees. These circumstances may justify

The earlier grant of provisional registration is not conclusive of the assessee’s entitlement to regular registration. Nevertheless, when the objects remained unchanged and the undertaking of certain charitable activities was acknowledged in the impugned order, rejection of regular registration required cogent material establishing that the objects were non-charitable or that the activities were not genuine. The material discussed in the impugned order does not establish either of these conditions.

The objects, accounts, details of activities and the local verification report were already available before the learned CIT(E). The conclusions drawn therefrom do not legally justify the rejection of registration. Therefore, no useful purpose would be served by restoring the application for another round of proceedings.

We accordingly set aside the order dated 30.03.2024 rejecting the application under section 12AB and cancelling the provisional registration dated 30.05.2022. The learned CIT(E) is directed to grant

We clarify that the grant of registration shall not preclude the Assessing Officer from examining the application of income, reasonableness of the rent, compliance with sections 11 to 13 and any other statutory requirement in the assessment proceedings for the relevant year.

In ITA No. 243/Jodh/2024, the learned CIT(E) rejected the application for approval under section 80G on two grounds. First, the assessee had been denied registration under section 12AB by a separate order of even date. Secondly, although the activities had commenced in June 2022, Form No. 10AB was filed on 28.09.2023 and was, therefore, treated as having been filed beyond the period prescribed under clause (iii) of the first proviso to section 80G(5). The learned AR submitted that the rejection of approval under section 80G was substantially consequential to the rejection of registration under section 12AB. He contended that once registration under section 12AB was granted, the consequential approval under section 80G ought also to be granted.

As regards the second objection, the CBDT, by Circular No. 7/2024 dated 25.04.2024, extended the due date for filing Form No. 10AB under clause (iii) of the first proviso to section 80G(5) up to 30.06.2024. The extension was granted in exercise of the powers conferred under section 119 with a view to mitigating genuine hardship. The assessee had filed Form No. 10AB on 28.09.2023, which was before the extended due date.

The benefit of the subsequent relaxation cannot be denied merely because the impugned order was passed before the issuance of the circular when the correctness of that order remained pending in appeal. In view of the extended due date, the application filed on 28.09.2023 cannot be treated as time-barred.

Thus, neither of the grounds recorded by the learned CIT(E) for rejecting the application under section 80G survives. The impugned order does not record any other independent disqualification against the assessee. We accordingly set aside the order dated 30.03.2024 rejecting the application under section 80G and cancelling the provisional approval dated 03.08.2022. The learned CIT(E) is directed to grant

Accordingly, the substantive grounds raised by the assessee in both appeals are allowed.

In the result, ITA Nos. 242/Jodh/2024 and 243/Jodh/2024 are allowed.