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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ : NEW DELHI
Before: SHRI ANIL CHATURVEDI & SHRI KULDIP SINGH
Date of Hearing : 29.07.2021 Date of Order : 11.08.2021 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, Federation of Democratic Voice (hereinafter referred to as ‘the assessee’) by filing the present appeal sought to set aside the impugned order dated 02.01.2018 passed by the Commissioner of Income-tax (Exemption), Lucknow on the grounds inter alia that :-
“1. That the Ld. CIT (E) has erred in rejecting the application of the appellant to register the Trust U /S 12AA of the Income Tax Act.
2. That the Ld. CIT (E) has erred in rejecting the application of the appellant to register the Trust U /S 12AA of the Income Tax Act on irrelevant grounds.
3. That the Ld. CIT (E) has erred on facts as well as in law by erroneously concluding that the Company has violated Section 13(1)(c) read with Section 13(3) of the Income Tax Act, 1961.
That the Ld. CIT (E) has erred on facts as well as in law by erroneously concluding that the Company has failed to conduct / charitable activities and has ignored / failed to consider the facts and evidence on record in respect of the charitable activities conducted by the Company.
That the Ld. CIT (E) has erred on facts as well as in law as has failed to provide the Company a reasonable opportunity of being heard by way of show cause notice for defending its case against the observations made in the impugned assessment order.
6. That the impugned appellate order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence.”
Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee, Federation of Democratic Voice, being a company registered under section 8 of the Companies Act, 1956 engaged into the dissemination of its charitable activities moved an application dated 08.07.2017 for registration under section 12AA of the Income-tax Act, 1961 (for short ‘the Act’) before the ld. CIT(E) . ld. CIT(E) has declined the registration sought for by the assessee u/s 12AA of the Act on two grounds : (i) since the applicant company has came into existence on 13.06.2017 it failed to carry out charitable activities during this period and except for recital of charitable objects, nothing concrete has been done by the assessee trust in the field of charity; and (ii) one Shri Seemat Dadwal being Director has been found to have received a salary of Rs.40,000/- per month and thereby invoked the provisions contained u/s 13(1)(c) read with section 13(3) of the Act.
Feeling aggrieved, the assessee company has come up before the Tribunal by challenging the impugned order passed by ld. CIT(E) by way of filing the present appeal. 4. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 5. Undisputedly, assessee company being registered u/s 8 of the Companies Act, 2013 came into existence on 13.06.2017 and filed the application for registration u/s 12A (a) of the Act on 08.07.2017. It is also not in dispute that ld. CIT (E) has not disputed the objects of the assessee trust being charitable in nature. It is also not in dispute that assessee trust has been paying salary ofRs.40,000/- per month to one of its Directors, Shri Seemat Dadwal. It is also not in dispute that assessee company has been granted licence being a company registered u/s 8 of the Companies Act, 2013 by the Registrar of Companies and as per Clause 6 of the licence, available at page 33 of the paper book, assessee company is within its right to pay remuneration to any of its members in return of the services rendered by him.
When we examine the order passed by the ld. CIT (E) in the light of the undisputed facts narrated in preceding paras, we are of the considered view that registration u/s 12AA of the Act cannot be declined merely on the ground that the assessee company has not carried out any charitable activities particularly in the facts and circumstances of the case wherein assessee company has filed application for registration within one month of its incorporation because there is no such condition laid down under the Act to seek registration u/s 12A within the specified period of incorporation of section 8 company.
When ld. CIT (E) has not disputed the charitable objects of the assessee company declining the registration for the reason that the assessee company has not carried out any charitable activities is not permissible under law. Moreover, registration u/s 12AA of the Act is required to carry out charitable activities to further get benefit u/s 11 of the Act. All these facts are required to be examined during assessment proceedings.
Hon’ble High Court of Karnataka in case of Director of 8.
Income Tax (Exemptions) vs. Meenakshi Amma Endowment Trust (2013) 354 ITR 0219 decided the identical issue in favour of the assessee trust by returning following findings :-
“6. A trust could be formed today and within a week registration under Section 12A could be sought as there is no prohibition under the Act seeking such registration. The activities of the trust have to be considered if such registration is sought much later than the formation of the trust or after expiry of the earlier registration granted in favour of the trust. Therefore in a case of this nature where the trust has approached the authority for registration under Section 12A within a span of eight months of its formation, the above-mentioned criteria namely, the objects of the trust for which it was formed will have to be examined to be satisfied about its genuineness and activities of the trust cannot be the criterion, since it is yet to commence its activities.”
Second ground declining the registration u/s 11 & 12AA of the Act taken by ld. CIT (E) is that one of its Directors found to have received salary of Rs.40,000/- per month and thereby invoked the provisions contained u/s 13(1)(c) & 13 (3) of the Act. First of all, when assessee trust being a company registered u/s 8 of the Companies Act, 2013 is permitted to pay the prudent remuneration in good faith for the services rendered by a member, it is no ground to decline the registration. At the same time, this issue can be taken care of at the time of granting benefit, if any, u/s 11 of the Act during the assessment proceedings.
Hon’ble Allahabad High Court in case of Hardayal 10.
Charitable and Education Trust vs. CIT 355 ITR 534 (All.) decided the identical issue in favour of the assessee by returning following findings :-
“ The preponderance of the judicial opinion of all the High Court including this Court is that at the time of registration under Section 12AA of the Income Tax Act, which is necessary for claiming exemption under Section 11 and 12 of the Act, the Commissioner of Income Tax is not required to look into the activities, where such activities have not or are in the process of its initiation. Where a trust, set up to achieve its objects of establishing educational institution, is in the process of establishing such institutions, and receives donations, the registration under Section 12AA cannot be refused, on the ground that the Trust has not yet commenced the charitable or religious activity. Any enquiry of the nature would amount to putting the cart before the horse. At this stage only the genuineness of the objects has to be tasted and not the activities, which have not commenced. The enquiry of the Commissioner of Income Tax at such preliminary stage should be restricted to genuineness of the objects and not the activities unless such activities have commenced. The Trust or society cannot claim exemption, unless it is registered under Section 12AA of the Act and thus at that such initial stage the test of the genuineness of the activity cannot be a ground on which the registration may be refused.”
Hon’ble Allahabad High Court in case cited as CIT (E) vs. Yamuna Expressway Industrial Development Authority – (2017)
395 ITR 18 (All.) while discussing the scope of sections 11 & 12 of the Act has held that it is not within the purview of Commissioner to examine whether the assessee was entitled to exemption u/s 11 or 12 since that was within the jurisdiction of AO and not the Commissioner (E). Hon’ble High Court further held that, “A body or institution which is functioning for advancement of objects of general public utility and whose activities are not in the nature of trade, business or commerce or sheer profit making, is entitled to claim itself to be constituted for "charitable purposes" and seek registration under section 12A(1) of the Income-tax Act, 1961. Charitable purpose primarily means that the predominant object must be to promote welfare of general public. An ancillary activity, if any, to that general one performed by the institution would not render such institution "non-charitable".
In view of what has been discussed above, we are of the considered view inter alia that when charitable objects to be undertaken by the assessee trust are not in dispute, assessee company cannot be expected to start its charitable activities within a period of about 2 months; that to get the benefit of sections 11 & 12 of the Act, registration u/s 12AA is necessary; that so far issue as to paying remuneration of Rs.40,000/- to one of its Directors is concerned it can be decided during the assessment proceedings while examining the benefit u/ss 11 & 12 of the Act, the impugned order passed by the ld. CIT (E) is not sustainable in the eyes of law. Moreover, ld. CIT(E) is not required to look into the activities at the stage of registration, which can be well taken care of by the AO during the assessment proceedings and at this stage, only genuineness of the objects has to be examined by the ld. CIT(E) which he has not disputed in this case. So, impugned order passed by the ld. CIT (E) is set aside. Consequently, the appeal filed by the assessee is allowed directing the ld. CIT (E) to accord registration u/s 12AA of the Act to the assessee. Order pronounced in open court on this 11th day of August, 2021.