The Ahmedabad Bench of Income Tax Appellate Tribunal(ITAT) set aside the Commissioner of Income Tax(Exemption)[CIT(E)]’s order, emphasizing that the applicability of Section 13 should only be examined during the income tax assessment phase and not at the registration stage under Section 12A of the Income Tax Act,1961.
Jito Bhavnagar Chapter Foundation,the appellant-assessee,had been provisionally registered under Section 12A(1)(ac)(vi) of the Act from 02-10-2021, valid forAssessment Year(AY) 2022-23 to 2024-25. On 27-06-2023, it had applied for full registration under Section 12A(1)(ac)(iii) of the Act.
The CIT(E) reviewed the assessee’s objectives and activities and observed that they primarily focused on member welfare instead of serving the public. He found the activities to be commercial rather than charitable, specifically highlighting Objects 37, 38, and 43 of the Memorandum of Association (MOA).
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Citing Section 13(3) of the Act and referencing the judgment in CIT vs. Truck Operators Association, the CIT(E) determined that the assessee acted as a service provider for its members, not as a public charity. Consequently, he rejected the application for registration under Section 12A and cancelled the provisional registration.
The assessee being aggrieved by the order of the CIT(E) appealed before the tribunal.
The tribunal reviewed the rival contentions and the record, focusing on the CIT(E)’s interpretation of the MOA and the application of Sections 13(1)(c) and 13(3). It identified two main issues: the charitable nature of the objects and the timing of invoking Section 13.
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The bench noted that the CIT(E) primarily relied on Clauses 37, 38, and 43 of the MOA, concluding that the activities were limited to member welfare. However, it emphasized that these clauses should have been considered in conjunction with the foundation’s broader objectives, including public projects like the JITO Awas Yojna.
It pointed out that organizations could have composite objects serving both members and the public without being disqualified from registration. The tribunal reiterated that Sections 13(1)(c) and 13(3) should have been applied during assessment, not at the registration stage, which should have focused solely on whether the activities were charitable.
Citing judicial precedents such as Anjuman E Nusratul Muslimin Tankaria vs. CIT(E) and Bargahe Husaini Trust vs. CIT(E), the tribunal concluded that the CIT(E) had prematurely invoked Section 13(1)(c) without considering the charitable nature of the assessee’s objects. It confirmed that the applicability of Section 13 should only have been examined during assessment, not registration under Section 12A.
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The two member bench comprising Suchitra Kamble (Judicial Member) and Makarand V.Mahadeokar(Accountant Member) set aside the CIT(E)’s order and directed a fresh evaluation of the registration application, focusing solely on the charitable nature of the assessee’s objects without invoking Sections 13(1)(c) or 13(3) and ensuring the assessee had a reasonable opportunity to be heard.
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