Provisions for exemptions u/s 10(23C) and 12AA are completely different and independent – High Court

Provisions for exemptions u/s 10(23C) and 12AA are completely different and independent Rejection of former did not automatically result in denial of later-High Court

ABCAUS Case Law Citation:
ABCAUS 2249 (2018) (03) HC

The respondent assessee was a society. The Assessing Officer during the course of the assessment proceedings u/s 143(2) noted that the CCIT had rejected the application of the assessee u/s 10(23C)(vi) of the Income Tax Act, 1961 (the Act). Further, the jurisdictional CIT had passed an  order u/s 12AA(3) withdrawing the registration granted to the assessee u/s 12AA of the Act.

The Assessing Officer was, therefore, of the view that the assessee was not entitled for claim of deduction u/s 11 of the Act. It was also noted that since the assessee was not engaged in educational activities, therefore, benefit of section 10(23C) cannot be granted and further the persons covered by the definition of “relative” as per section 13(3) were getting benefit. Therefore, the case of the assessee was hit by section 13 of the Act. Consequently, the deduction u/s 11 was denied and status of the assessee was considered as AOP and income was computed accordingly.

Before the CIT(A), the assessee contended that the provisions of section 10(23C) and section 11 are different and independent. It was also pointed out that against the said cancellation of the registration, the ITAT had allowed the appeal of the assessee, canceling the order passed by u/s 12AA(3) of the Act and restored the registration u/s. 12AA of the Act. The CIT(A0) allowed the appeal of the assessee society.

The Department challeneged the order of the CIT(A) before the Tribunal which confirmed the order of the CIT(A).

Aggrieved, the Revenue challenged the order of the ITAT before the Hon’ble High Court.

The Hon’ble High Court observed that the Tribunal has conclusively came to the conclusion that merely because the CIT had cancelled the registration of the assessee for grant of exemption under Section 10(23c)(vi) of the Act on the grounds that the assessee had received some money from sale of milk would not lead to the inevitable conclusion that the registration under Section 12AA of the Act could be cancelled. 

The Hon’ble High Court opined that the provisions for exemptions are completely different for that of registration under Section 12AA of the Act. The assessee was an educational institution which used to provide milk to its students. During the vacations the milk was surplus and was therefore, sold. For this reason, it cannot be said that the objects of the charitable society itself had failed or that for this reason the registration could be cancelled.

The Hon’ble High Court opined that the Tribunal had rightly come to the conclusion that registration could not have been cancelled.

The questions of law were answered in favour of the assessee and against the department.