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Facts
The assessee, Mangalayatan University, applied for registration under Section 12AB of the Income Tax Act. The CIT(Exemption) rejected the application based on the grounds that the assessee did not maintain proper books of accounts and had violated CSR Rules by receiving CSR funds before obtaining registration. The assessee argued that the loan interest was confirmed and the CSR compliance was belated but not a violation.
Held
The Tribunal found that the CIT(Exemption)'s conclusion regarding incorrect interest payable was premature as all facts were not on record. Regarding CSR violation, the Tribunal noted that the assessee received funds, applied for registration promptly, and eventually obtained it. The Tribunal questioned whether belated compliance amounted to a violation of law or mere irregularity, suggesting that such determination should be made by authorities implementing the Companies Act.
Key Issues
Whether the rejection of the registration application under Section 12AB was justified based on alleged improper maintenance of accounts and violation of CSR rules.
Sections Cited
12AB(1)(ac)(iii), 12AB(1)(b)(i)(B), 12AB(4)(f)
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Income Tax Appellate Tribunal, JABALPUR BENCH, JABALPUR
A.Y. 2022-23 Mangalayatan University, vs. Ld. CIT (Exemption), Bhopal, Jabalpur, Madhya Pradesh Madhya Pradesh PAN:AAAJM2753J (Appellant) (Respondent) Assessee by: Sh. K. Sampath & Sh. B. Rajkumar, Advocates Revenue by: Sh. Shrawan Kumar Meena, CIT DR Date of hearing: 20.05.2025 Date of pronouncement: 22.07.2025 O R D E R PER NIKHIL CHOUDHARY, A.M. This is an appeal filed by the assessee against the order of the learned CIT (Exemption), Bhopal against the rejection of the application filed by the assessee under section 12AB(1)(ac)(iii) of the Income Tax Act. The grounds of appeal are under:-
1. The learned Commissioner of Income Tax (Exemption) Bhopal, has erred in rejecting the application under section 12AB(1)(ac)(iii) of the Act filed by the Appellant Trust (M/s Mangalayatan University) on the ground that proper books of accounts have not been maintained the Appellant Trust. Based on the facts and circumstances of the case, the action of Ld. CIT(Exemption) of rejecting the application filed u/s 12AB(1)(ac)(iii) of the Act is incorrect and unlawful.
2. The learned Commissioner of Income Tax (Exemption) Bhopal has erred in rejecting the application filed by the Appellant Trust on the ground that the Appellant Trust have not complied with CSR Rules as per MCA Notification dated 22nd January 2021 and treated violation of section 12AB(1)(b)(i)(B) of the Income Tax Act. Based on the facts and circumstances of the case, the action of Ld. CIT(Exemption) of rejecting the application filed u/s 12AB(1)(ac) (iii) of the Act is incorrect and unlawful.
3. That on the facts and circumstances of the case, Ld. CIT (Exemption) be directed to consider the application and grant the registration under section 12AB(1)(ac)(iii) of the Act.
Magalayatan University A.Y. 2022-23 4. That the appellant craves leave to add, alter, adduce or amend any ground or grounds on or before the date of hearing of the appeal.”
The facts of the case are, that the assessee applied in Form No.10AB for registration under section 12AB of the Income Tax Act. While examining this application, the ld. CIT (Exemption) observed that the assessee had entered into an agreement on 16.03.2022 with Helpage Finlease Limited for a loan of Rs.42,00,000/- @ 7.5% per annum w.e.f. 1.04.2022. However, in the ledger account submitted by the assessee, no interest was found to be paid and interest of only Rs.72,400/- was shown as payable. From the same, the ld. CIT (Exemption) concluded that the books of accounts of the assessee were not proper and the assessee did not have any intention to pay the outstanding liabilities. The ld. CIT (Exemption) further noted that the assessee had received CSR funds without having CSR Registration and had in fact taken CSR Registration post the receipt of CSR funds. He, therefore, was of the view that the assessee was in violation of the CSR Rules as per MCA Notification dated 22.01.2021 and thus violative of section 12AB(1)(b)(i)(B) of the Income Tax Act, since the assessee had not followed any other law for the time being in force, which were material for the purposes of achieving its objects. Accordingly, he asked the assessee to show cause as to why the application for registration should not be rejected on these grounds. In response, the assessee enclosed a copy of the ledger confirmation from Helpage Finlease Limited and stated that there was no disagreement or dispute between the lender and the borrower with respect to repayment of loan or interest outstanding as on 31.03.2023. It also relied upon the case of Disha Education Society vs. CIT(Exemption) in and 165/Ind/2003 wherein the Indore Bench of the Tribunal had held that failure to pay interest on the loan by the assessee could be treated to be a contractual violation but could not be treated to be an infringement of law till the time the order, direction or decree by whatever name called held that such non-compliance had occurred and had become final. It was pointed out that in the case of the assessee, there was in fact no dispute regarding the amount payable to M/s Helpage Finlease Limited and therefore, there could not Magalayatan University A.Y. 2022-23 be said to be any violation of law on this account. On the issue of violation of CSR guidelines laid down by the MCA, the assessee pointed out that it had applied for registration as soon as it received the CSR fund and had in fact obtained the registration on 13.12.2022. It was further submitted that in view of the fact that it had subsequently obtained the CSR Registration and also submitted a statement of CSR utilization to the donor company for funds utilized in the course of the financial year, it could at best be said to be a case of delayed compliance and not a case of non-compliance. Furthermore, there was no order, direction or decree from any authority which held the said action of the assessee to be in violation of law. It was further argued that the MCA guidelines were primarily for the companies giving the CSR donation and the assessee could not be said to be in violation of the same only because a funds had been received prior of grant of registration. There was nothing in the Income Tax Act or in the CSR Rules which held that funds received prior to CSR Registration would not be treated as CSR activities. In any case, as far as the assessee was concerned, these were in the nature of donation which had been utilized by the assessee for its objects i.e. Education. Therefore, it was pleaded that no adverse inference should be drawn on this count and the application for registration of the assessee should not be rejected on this count.
The ld. CIT(Exemption) did not accept the arguments of the assessee. He held that as per section 12AB, the ld. CIT(Exemption) has to look into violation of any other law at two stages i.e. under section 12AB(4)(f) when no application is pending before the ld. CIT(Exemption) and under section 12AB(1)(b)(i)(B) when the application is pending before the ld. CIT(Exemption). He held that in the case of application pending before the ld. CIT(Exemption), the condition of the order or decree not being in dispute or having attained finality was not applicable. He noted that the Hon’ble ITAT in the case of Disha Education Society vs. CIT(Exemption) had primarily relied on the provisions of section 12AB(4)(f) but the present case was not covered under that section, since it was a case of fresh application and therefore that judgment would not apply to the facts of the present case. He held that by Magalayatan University A.Y. 2022-23 taking the CSR receipt and spending it prior to obtaining of registration, the assessee had violated the CSR rules as per MCA Notification dated 22.01.2021 and therefore, rendered itself ineligible for registration under section 12AB. Therefore, the registration was fit to be rejected on this account. Furthermore, he pointed out that in the matter of Helpage Finlease Limited, the allegation was not related to the violation of any other law, but for the non-maintenance of proper books of accounts and non-genuine activities of the assessee, which was demonstrated by the failure to record the correct interest payable in its books of accounts, which should have been 7.5% per annum w.e.f. 1.04.2022 but was only reflected at Rs.72,400/- in the accounts dated 31.03.2023. Therefore, since the accounts were incorrect, the application was fit to be rejected.
The assessee is aggrieved at this order of the ld. CIT(Exemption) and has accordingly come before us in appeal. Sh. K. Sampath and Sh. B. Rajkumar, Advocates appeared on behalf of the assessee and argued the case. Sh. Sampath, invited our attention to page 266 of his paper book in which the amount of interest due for the period 1.04.2022 to 31.03.2023 had been confirmed by Helpage Finlease Limited at Rs.72,400/-. Sh. Sampath submitted that in view of the fact that there was no dispute as to the amount of interest that was payable between the lender and the assessee trust, there was no occasion to hold that any other amount should have been entered into the accounts of the assessee, on the basis of the agreement as date of disbursal was an important factor for consideration. Therefore, it was submitted that the conclusion drawn by the ld. CIT(Exemption) was not on sound footing. Sh. Sampath also drew our attention to the judgment of the Hon’ble ITAT in the case of Disha Education Society vs. CIT(Exemption) in & 165/IND/2023 wherein the Hon’ble ITAT had held that the failure to pay any part of a loan may be violation of a contractual obligation but would not constitute a violation of law till such time as it was confirmed by an order, direction or decree of a Court that had attained finality. It was pointed out that in the present case, there was no dispute also and therefore, the ld. CIT(Exemption) was unjustified in coming Magalayatan University A.Y. 2022-23 to the conclusion that he had reached. On the issue of violation of the provisions of the MCA Notification dated 22.01.2021, Sh. Sampath submitted that Rule 4 of the said notification showed that the primary responsibility for routing CSR activities through registered entities rested on the company itself and not the entity. However, it was pointed out that the University fulfilled all the conditions laid down in Rule 4 of the said notification. It was an entity established under the Act of a State Legislature and it had registered itself with the Central Government by filing the Form CSR-1 electronically with the Registrar in the prescribed manner. Sh. Sampath submitted that the mere fact that the donation had been received from M/s Sterile Industries Limited before the registration, would not mean that the assessee was in violation of the instructions, because the assessee had immediately applied for registration, obtained the registration and thereafter submitted a statement of expenditure incurred on the CSR activity i.e. education to the donor company. Therefore, it could at best be called a case of delayed compliance, but certainly not a case of violation of the provisions of the notification. Sh. Sampath once again drew our attention to the decision of the Hon’ble ITAT in the case of Disha Education Society (supra) to point out that in the said case, the Hon’ble ITAT had held that the fact of non-compliance with the requirement of any other law as referred to in Item B of sub section 1 could only occur if the order or decree, by whatever name called, holding that such non-compliance had occurred had either not been in dispute or had attained finality. It was pointed out that in the case of the assessee, there was no such order from the MCA pointing out that either the assessee or the company donating to the assessee was in violation of the provisions of the MCA Notification dated 22.01.2021. Hence, there was no occasion for the ld. CIT(Exemption) to reject the application of the assessee on these grounds.
On the other hand, the ld. CIT (DR) Shri. Shrawan Kumar Meena pointed out that the ld. CIT(Exemption) had very clearly brought out in his order the fact that the books of the assessee were incomplete and incorrect as also the fact that the assessee had violated the CSR Rules under the Companies Act 2013 and Magalayatan University A.Y. 2022-23 therefore, was also in violation of Section 12AB(1)(b)(i)B). Accordingly, it was submitted that the ld. CIT(Exemption) had correctly rejected the application for registration.
We have duly considered the facts and circumstances of the case. On going through the order of the ld. CIT(Exemption), we find that all the facts relating to the amount of interest payable by the assessee trust to M/s Helpage Finlease Limited, New Delhi have not been clearly brought on record. Ongoing through the agreement dated 16.03.2022, it is seen that the loan was to be disbursed within one month of providing of all documents. The date of actual disbursal of this loan does not figure in the order of the ld. CIT(Exemption) and therefore, the conclusion that the amount of interest that has been shown by the assessee payable in its accounts is an incorrect figure, is premature without consideration of such facts. We observe that the assessee has furnished a confirmation before the ld. CIT(Exemption), duly signed by the authorized signatory of the finance company i.e. M/s Helpage Finlease Limited, wherein the lender has confirmed that the amount of interest payable to his company is only Rs.72,400/-. In the circumstances, we deem it appropriate to restore this matter back the file of the Ld CIT(E) so that all the facts may be brought on record before any conclusion is reached regarding the completeness or correctness of the assessee’s accounts.
On the issue of violation of law by accepting a donation prior to obtaining registration as a CSR entity under the MCA Notification dated 22.01.2021, we observe that the assessee received the CSR fund of Rs.2,20,00,000/- on 17.11.2022 from M/s Sterile Industries Limited and it obtained registration under CSR on 13.12.2022. Thus, the CSR donation was received prior to the date of registration and to that extent it appears to be a deviation from the terms of the MCA notification dated 22.01.2021. However, we note that immediately upon receiving these funds, the assessee applied for registration in CSR 1 and was granted this registration on 13.12.2022. We also note that the CSR funds were spent on Education and a statement of utilization was submitted to the donor company for enabling it to Magalayatan University A.Y. 2022-23 report the same to the MCA in CSR. The assessee has explained that it was always involved in rendering education and educational institutions were not required to register with the MCA. However, when the company that gave CSR funds to the assessee university, intimated it that it was required to register with the MCA, the assessee university promptly initiated the CSR registration process and got registration within a month of CSR receipt. It has submitted that that this demonstrates its bonafides and that there was no malicious intent on the part of the assessee to refrain from applying for CSR registration earlier. We also note the submission made before the CIT(Exemption), that the basic purpose of CSR registration was to enable the MCA to keep a record of such entities or institutions, who intend to undertake charitable activities in Schedule VII of the Companies Act and are of charitable nature and this was basically for ensuring that companies who are granting CSR funds should donate to genuine CSR implementing agencies. We note that that since the assessee has been granted CSR registration and submitted a statement of CSR utilization to the donor company, it has complied with the mandate of the MCA Notification dated 22.01.2021, albeit belatedly. Whether such belated compliance would amount to a violation of the law or a mere irregularity is something has to be decided by the authorities which implement the Companies Act. We also observe that companies undertaking CSR activities are required to file with the company law authorities, a detailed statement of CSR activities/ expenditure in Form CSR 2 and doubtlessly, the donor company would have filed a statement in CSR 2. There is no finding in the Ld CITs order that the authorities under the Companies Act 2013, have found any violation of the law in the details contained in such statement. To our mind this is relevant. Though the Ld. CIT(E) has drawn our attention to the fact that specific references to the orders, decrees and directions of such other authorities are not there in section 12AB(1)(b)(i)(B), unlike section 12AB (iv)(f), it is our understanding that it is implied whether specifically mentioned or not, because it is only the relevant authorities under the other laws that are competent to judge whether such laws have been violated or not and not the Income tax Authority.. Therefore, one cannot accept the proposition 7