admin November 15, 2019

Friends,  The decisions relied by the ld. AR to buttress the contention that the ld. CIT (E) should confine himself to the objects of the trust and not the actual activities are not relevant in the present context when the provisions of section 12AA have become applicable w.e.f. 1.4.1997 and more so when the registration was sought by the assessee after a period of ten years from the setting up of the assessee society and at that time the CIT(E) had the benefit of going through the genuineness of the activities of the society on touchstone of the assessee’s Income and expenditure accounts for the preceding three years. We are not confronted with a situation in which the application for registration was filed immediately after the setting up of the trust, in which case, obviously, there could not have been any possibility of examining the activities of the trust because of the very lack of such activities. We, therefore, jettison the contention of the ld. AR that the CIT(E) should have restricted himself only to examining the objects of the assessee trust and not the actual activities.

DANPUR HIMALAYAN RURAL & AGRICULTURE SOCIETY vs. COMMISSIONER OF INCOME TAX (EXEMPTIONS)

DELHI TRIBUNAL

R.S. SYAL, VP & SUCHITRA KAMBLE, JM.

ITA No. 2114/Del/2017

Mar 23, 2018

(2018) 52 CCH 0219 DelTrib

Legislation Referred to

Section 12AA

Case pertains to

Asst. Year-

Counsel appeared:

1. Sampath, Advocate for the Assessee.: Rachna Singh, CIT, DR for the Department
2. S. SYAL, VP.
3. This appeal by the assessee is directed against the order passed by the CIT(Exemptions) on 11.01.2017 denying the benefit of registration u/s 12AA(1)(b)(ii) of the Income-tax Act, 1961 (hereinafter also called ‘the Act’).
4. Briefly stated, the facts of the case are that the assessee-society filed an application for registration u/s 12A(a) of the Act on 26.07.2016. The ld. CIT recorded on page 2 of the impugned order that the assessee could not produce any books of account or vouchers for verification and, further, there were instances where payments in cash from five bank accounts of the society were made to the society members which established the fact that the applicant society was a closely held private group. The ld. CIT (E) also considered the Income and expenditure accounts of the assessee for the F.Y.s 2013-14, 2014-15 and 2015-16 and noticed that huge grants from various projects, namely, NRHM and IWMP etc. were received and the assessee could not show that the expenses were incurred in relation to implementation of respective projects. Considering these facts and relying on certain decisions referred to in the order, the ld. CIT(E) rejected the assessee’s application, against which the assessee has come up before the Tribunal.
5. We have heard both the sides and perused the relevant material on record. It is noticed that the assessee society was incorporated on 18.01.2006. Registration was applied for on 26.07.2016. At the time of filing application for registration, the assessee also filed its Income and expenditure accounts for the F.Y.s 2013-14, 2014-15 and 2015-16. It is on perusal of such Income and expenditure accounts that the ld. CIT(E) found that the assessee was availing grants and the expenses were not incurred in reference to the relevant projects. It has further been observed by the ld. CIT(E) that the assessee could not produce any books of account or vouchers for verification and there were certain payments in cash from bank accounts of the assessee to the society members themselves.
6. The ld. AR submitted that the ld. CIT(E) ought not to have travelled beyond the examination of the objects of the assessee society and granted the registration on the basis of such objects without calling for or examining the activities of the assessee or its books of account. In this regard, it is found that registration under section 12AA of the Act is a condition precedent for availing the benefit u/ss 11 and 12 of the Act. Section 12AA prescribes the procedure for registration. Relevant part of sub-section (1) of section 12AA reads as under :-

“12AA. (1) The Principal Commissioner or Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) or clause (ab) of sub-section (1) of section 12A, shall—

(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and

(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he—

(i) shall pass an order in writing registering the trust or institution;

(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution,

……………..

(emphasis supplied by us)”

5. A careful perusal of section 12AA inserted by the Finance (No.2) Act, 1996 w.e.f. 01.04.1997 incorporating the procedure for registration, transpires that the CIT shall pass an order allowing or refusing registration after passing through two stages enshrined in clauses (a) and (b). Rather the use of the word ‘shall’ in sub-section (1) mandates it on CIT to necessarily proceed through clauses (a) and (b) before passing an order granting or refusing registration. Clause (a) empowers the CIT ‘to satisfy himself aboutthe genuineness of the activities of the trust‘ by calling for such documents or information etc. from the trust as he thinks necessary and also by making such enquiries he deems necessary in this behalf. Clause (b) of section 12AA(1) provides that the registration shall be granted or refused by the CIT : “after satisfyinghimself about the objects of the trust or institution and the genuineness of its activities.” A mere glimpse at clauses (a) and (b) of section 12AA(1) amply deciphers that the CIT can not only call for any documents or information but is rather obliged to satisfy himself about the genuineness of the activities of the trust and also its objects before passing an order granting the registration. Au contra, if the CIT, on examination of documents or information is not satisfied ‘about the genuineness of the activities of the trust‘ after making necessary inquiries, he will have to refuse the registration. It is, thus, clear that after the insertion of section 12AA w.e.f. 01.04.1997, the power of the CIT is not only confined to examining the objects but also extends to inspecting the genuineness of the activities before taking a decision on the grant or refusal of registration.
6. The decisions relied by the ld. AR to buttress the contention that the ld. CIT (E) should confine himself to the objects of the trust and not the actual activities are not relevant in the present context when the provisions of section 12AA have become applicable w.e.f. 1.4.1997 and more so when the registration was sought by the assessee after a period of ten years from the setting up of the assessee society and at that time the CIT(E) had the benefit of going through the genuineness of the activities of the society on touchstone of the assessee’s Income and expenditure accounts for the preceding three years. We are not confronted with a situation in which the application for registration was filed immediately after the setting up of the trust, in which case, obviously, there could not have been any possibility of examining the activities of the trust because of the very lack of such activities. We, therefore, jettison the contention of the ld. AR that the CIT(E) should have restricted himself only to examining the objects of the assessee trust and not the actual activities.
7. Adverting to the facts of the instant case, we find that the ld. CIT(E) has recorded that the assessee did not produce books of account, bank statements and vouchers. As against this, the ld. AR submitted that the assessee did produce books of account, but, the ld. CIT(E) did not make necessary incorporation of this fact in the order. We find from the penultimate para of the impugned order which states:-

“11. In view of the facts and above decisions, I am unable to accept the applicant’s claim in absence of sufficient material required for formation of satisfaction. Therefore, I do not find the case fit for grant of registration u/s 12A(1) of the Income-tax Act, 1961.”

8. Since the ld. AR has put forth that necessary material for formation of satisfaction by the ld. CIT is available with the assessee and the books of account can be checked, we consider it expedient to set aside the impugned order and remit the matter to the file of CIT. We order accordingly and direct the ld. CIT(E) to examine the issue afresh as per law, after allowing a reasonable opportunity of being heard to the assessee.
9. In the result, the appeal is allowed for statistical purposes.

The order pronounced in the open court on 23.03.2018.