Section 10(23C) read with section 12A — Rejection of an application u/s.10(23C)(vi) cannot be a reason to cancel registration u/s.12A.

Section 10(23C) read with section 12A — Rejection of an application u/s.10(23C)(vi) cannot be a reason to cancel registration u/s.12A.

The assessee-society was duly registered under the Societies Registration Act, 1860. It was granted registration u/s.12A. Subsequently, the assessee applied for exemption u/s.10(23C) to the CCIT. However, the CCIT rejected application since he was of the view that certain payments made by the assessee to one ‘R’ were bogus. Relying on the said order, the Commissioner cancelled the assessee’s registration u/s.12A, holding that the activities of the society had ceased to remain charitable in nature as defined u/s.2(15).

Held:

The CBDT in its Circular No. 11 of 2008, dated 12-12- 2008 has clarified that an entity with a charitable object is eligible for exemption from tax u/s.11 or alternatively u/s.10(23C) which clearly shows that both the proceedings are independent of each other. Therefore the rejection of application for grant of the exemption u/s.10(23C)(vi) cannot be the basis for cancelling the registration u/s.12A.

The Commissioner while granting the registration u/s.12A is only required to see as to whether objects are charitable and the activities are genuine and are carried out in accordance with the objects of the trust or institution. As regards exemption u/s.11, the Assessing Officer is required to verify the records as to whether the assessee has fulfilled the conditions and the income derived is utilised for charitable purpose. The Assessing Officer had done this and granted exemption in all the assessment years. In the instant case, the Commissioner mainly relied on the order of the CCIT, wherein it had been observed that the payments made to ‘R’ for construction purpose were bogus and not for charitable purpose. On the contrary, the contention of the assessee was that ‘R’ was filing returns of income regularly and the payments were made to him for constructing a building through cheques on the basis of bills submitted by him. Even TDS had been made u/s.194C. The said contention has not been rebutted.

Further, it was not the case of the Commissioner that the building constructed was not used for the objects of the trust. Furthermore, there was no change in the objects of the trust. Hence, the only reason for cancellation of registration u/s.12A was rejection of application u/s.10(23C)(vi). As already mentioned, this cannot be the ground for cancellation of registration u/s.12A.