Registration u/s 12AA can not be denied for claiming exemption u/s 10(23C) earlier

Registration u/s 12AA can not be denied for claiming exemption u/s 10(23C) earlier. Trust running hospital/school can apply under either for Sections.

ABCAUS Case Law Citation:
ABCAUS 2895 (2019) (04) HC

Important Case Laws Cited/relied upon by the parties
CIT vs. Bosotto Brothers Limited [(1940) 8 ITR 0041(Mad)]
CIT Vs. M/s A.R. Trust

In the instant case, the appeal had been filed by the Revenue against the order passed by the Income Tax Appellate Tribunal (the Tribunal) directing the Commissioner of Income Tax (Exemption) grant the registration u/s 12AA of the Income Tax Act, 1961 (the Act) to the respondent society.

The respondent assessee was an educational society registered under the Societies Registration Act, 1860 and had been running educational institutes for education since last 13 years.  The assessee filed an application in Form 10A for registration under Section 12AA of the Act.

The CIT(E) observed that for past numerous years the society had been claiming exemption u/s 10(23C)(iiiad) and therefore, he was of the view that the respondent assessee should have applied for exemption under the provision of section 10(23C) (vi) rather than 12AA.

The CIT(E) opined that there were no fresh circumstances projected that would warrant examination of the eligibility of the institution under a different code with different conditions.

Also, he noted that the audited accounts revealed that over the period of time the emphasis of the society was mainly on creation of assets rather than on redeployment of funds towards education. According to him the financial statements indicated that the emphasis of the society had been mainly on adding to their car, motorcycle, scooter. He, accordingly rejected the said application.

Feeling aggrieved, the assessee filed an appeal before the Tribunal. The Tribunal allowed the appeal and directed the CIT(E) to grant registration under Section 12AA of the Act to the assessee.

Aggrieved, the Revenue approached the Hon’ble High Court and inter alia contended that the ITAT had erred in ignoring the contention that as per the scheme of the Act cases availing the benefits of Section 10(23C) (iiiad) historically and for a number of years should seek approval u/s 10(23C)(vi) and not registration u/s 12A, two being completely different codes in themselves one relying on income from property/voluntary donations and the other on receipts.

It was also one of the ground that the order of the ITAT was perverse in holding that an institution imparting education for the last 13 years without applying for grant of registration u/s 12A of the Act could not be alleged to  be an institute with a profit motive and is not a valid ground to deny registration u/s 12AA of the Act when the CIT is fully empowered u/s 12AA(1)(a) to look into the genuineness of the activities that would necessary entail enquiries whether the activities are driven by profit motive or not.

The Hon’ble High Court opined that The Tribunal had noticed that the CIT(E) was not correct to the extent that the assessee would have applied under Section 10(23C) of the Act instead of Section 12AA of the Act because the Apex Court as well as jurisdictional High Court had clearly held that where the assessee was running hospital or school and if both the options were available before it, i.e., either to apply for exemption under Section 10(23C) of the Act or claim exemption under Section 12AA of the Act, it was not justified to decline exemption under Section 12AA that it should have claimed exemption under Section 10(23C) of the Act.

The Hon’ble High Court observed that for granting exemption under Section 12AA of the Act, the CIT(E) had to satisfied himself about the objects and the genuineness of the activities of the assessee and once the CIT(E) having accepted that the main aim of the society was running of college and educational institutions and made no adverse observation regarding genuineness of the objects or the activities carried on by the society, then the registration under Section 12AA of the Act could not have been denied holding that it was entitled to exemption under any other provision.

With regard to the finding of the CIT(E) that the emphasize of the society was mainly creation of assets rather then redeployment of funds towards education, the Tribunal had noticed that value of car, motorcycle and scooter and also the society surplus was very low which could not be termed as higher and certainly to run institute, the vehicles were required.

Further, the apprehension and assumption of the CIT(E) that the society must be charging some funds, was based on the assumption and surmises and had no logical reasoning.

Accordingly, the Hon’ble High Court held that the Tribunal had rightly directed the CIT(E) to grant registration under Section 12AA of the Act to the assessee.

Also, the Revenue could not pointed out any illegality or perversity in the findings recorded by the Tribunal which might warranted interference by the High Court.

Accordingly, the Hon’ble High Court dismissed the appeal as no substantial question of law had arisen.

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