For grant of registration u/s 12A, non deduction of TDS on salary or salary paid in cash is irrelevant

For grant of registration u/s 12A if tax not deducted at source (TDS) from salary or salary paid partly in cash and partly by cheque is irrelevant

ABCAUS Case Law Citation:
ABCAUS 3259 (2020) (02) ITAT

In the instant case, the appeal had been filed by the Assessee against impugned order of Commissioner of Income Tax (Exemption) denying registration to the assessee under Section 12A read with Section 12AA of the Income Tax Act, 1961 (the Act).

The Assessee was a charitable society which filed application for registration under Section 12A of the Act read with Section 12AA.

The CIT(E) noted that the assessee had paid salary partly through Bank and partly in cash, but had not deducted tax at source in case of any of the employees.

The CIT(E) further noted that the application filed by the Assessee for registration under Section 12A read with Section 12AA of the Act was a change of mind because for three preceding years before that, the assessee had filed return as a purely business entity.

The CIT(E) further observed that the assessee claimed exemption under Section 10(23C)(iiiad) of the Act as long as the receipts of the assessee were below Rs. 1 crore. However, once the receipts exceeded Rs. 1 crore, the assessee filed return as a business entity for three years, and it was only because of the change of mind, the assessee had applied for registration under Section 12A.

Taking adverse view of the aforesaid facts, the CIT(E) held that the stand taken by the assessee was not commensurate with scheme of the Act; and he rejected the assessee’s application.

The Tribunal observed that it was not in dispute that the assessee was engaged in the activity of education which qualified as “charitable purpose” within the meaning of Section 2(15) of the Act. It was also not in dispute that there was no reference in the impugned order whatsoever, to any facts and circumstances which could be said to be violative of provision of Section 12A read with Section 12AA of the Act.

The Tribunal further noted that no materials was brought from the Revenue’s side either in the impugned order of CIT(E) or in the submissions made by the Revenue at the time of hearing to show how any of the provision under Section 12A read with 12AA were not fulfilled by the assessee.

For grant of registration u/s 12A, non deduction of tax (TDS) from salary is irrelevant

The Tribunal held that:

(i) it is of no relevance, for the purposes of registration under Section 12A read with Section 12AA of the Act, whether or not tax was deducted at source from salary of the staff.  

(ii) it is of no relevance, for registration under Section 12A read with Section 12AA, if salary has been paid partly in cash and partly by cheque.

(iii) there is nothing in law to prevent the assessee from applying for registration under Section 12A at a later stage, if such registration was not sought for by the assessee in earlier years.

(iv) Application for registration under Section 12A read with Section 12AA cannot be rejected on irrelevant considerations, it has to be supported by a speaking order stating in clear terms in what manner the requirements u/s 12A /12AA not fulfilled by the assessee.

The Tribunal held that the CIT(E) failed on the above criterions and hence his order could not be upheld.

Accordingly, the ITAT directed the CIT(E) to grant registration to the assessee under Section 12A and allowed the appeal of the assessee.

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