SUCHINTA EDUCATIONAL SOCIETY CHANDIGARH vs. COMMISSIONER OF INCOME TAX CHANDIGARH

Facts

The appellant, Suchinta Educational Society, registered on April 13, 2012, applied for registration under Section 12AA of the Income Tax Act, 1961. The Commissioner of Income Tax-I, Chandigarh, declined registration, citing that the appellant had only a proposal to take over the management of an existing school on lease and had not yet commenced any activities. The Commissioner suspected this was an attempt to split assets of an existing society to evade tax. The Income Tax Appellate Tribunal upheld the Commissioner's order, noting that some objects of the society were not charitable and that no activities had started, making it impossible to verify the genuineness of the objects and activities.

Held

The High Court held that the orders of the Commissioner and the Tribunal declining registration were not sustainable in law. The Court distinguished the Kerala High Court case relied upon by the revenue, noting that in that case, the society had not done any charitable work and its activities were for generating income for members, unlike the present case where the proposed activity of running a school is charitable. The Court found that the appellant's proposed activity of running a school is a recognized charitable activity, and the existence of a similarly registered school (Shishu Niketan Model School) running multiple institutions further supported this. The Court concluded that there was no attempt to evade tax liability. Consequently, the substantial question of law was answered in favour of the appellant, and the appeal was allowed.

Key Issues

1. Whether, in the facts and circumstances of the case, the respondent erred in denying registration under Section 12AA of the Act to the appellant on the grounds that the appellant Society had not commenced its charitable functions? (Question of law) Assessee's arguments: The appellant argued that registration cannot be declined solely because the Trust has not commenced its activities. Reliance was placed on Gujarat High Court's judgment in Director of Income Tax (Exemption) Vs. Panna Lalbhai Foundation and this Court's judgment in Commissioner of Income Tax-II, Chandigarh Vs. M/s Surya Educational & Charitable Trust. It was contended that sub-sections (1A) & (2) of Section 12AA are procedural, and sub-section (3) allows cancellation if activities are not genuine or not in accordance with objects. Therefore, genuineness of activities should not be pre-judged before commencement. Revenue's arguments: The respondent referred to a Kerala High Court judgment in Self Employers Service Society Vs. Commissioner of Income Tax, where registration was declined.