Celiac Society of India vs CIT(Exemption): Dispute Over 12A Registration for AY 2019-20

Case Overview: Celiac Society of India vs CIT(Exemption), New Delhi

Case Number: ITA 6240/DEL/2019

Appellant: Celiac Society of India, New Delhi

Respondent: CIT(Exemption), New Delhi

Assessment Year: 2019-20

Case Filed On: 2019-07-23

Order Type: Final Tribunal Order

Date of Order: 2019-10-15

Pronounced On: 2019-10-15

Introduction

The case of Celiac Society of India vs CIT(Exemption) revolves around the denial of registration under Section 12A of the Income Tax Act, 1961, to the Celiac Society of India by the CIT(Exemption), New Delhi. The society sought this registration to claim tax exemptions, asserting that its activities were charitable in nature. However, the CIT(Exemption) raised concerns regarding the genuineness of the society’s activities, primarily due to the nature of its sponsorship revenues.

Background of the Case

The Celiac Society of India was established as a society registered under the Societies Registration Act, 1860, in Delhi. The primary objective of the society is to create awareness about celiac disease and related conditions, representing the needs of those affected at a national level. To facilitate its activities and claim tax exemptions, the society applied for registration under Section 12A and recognition under Section 80G of the Income Tax Act.

On 5th December 2018, the society filed Form No. 10A for registration under Section 12A, followed by Form No. 10G on 11th December 2018 for recognition under Section 80G. The CIT(Exemption) requested the society to submit additional documents to support its application. Upon reviewing the submitted details, the CIT(Exemption) issued a show-cause notice questioning the society’s income sources, particularly focusing on the professional fees and sponsorship amounts received, which were subject to tax deduction at source (TDS) under Sections 194 and 194C of the Income Tax Act.

Grounds for Denial of 12A Registration

The CIT(Exemption) noted that the society had received a substantial portion of its income from sponsorships—Rs. 24,90,000 out of a total receipt of Rs. 27,50,500 in the financial year 2018-19, constituting over 90% of its total income. The CIT(Exemption) raised concerns that such sponsorships, which were not voluntary, could indicate that the society’s activities were not genuinely charitable as required under Section 2(15) of the Income Tax Act. As a result, the application for registration under Section 12A was rejected, and consequently, the request for recognition under Section 80G was also denied.

Appellant’s Arguments

The appellant, represented by its legal counsel, argued that the society’s activities were indeed charitable in nature, aiming to spread awareness about celiac disease—a recognized health condition. The appellant contended that the sponsorship amounts received were used for charitable purposes, specifically for organizing a symposium on 11th-12th January 2019, which incurred expenses of Rs. 46,50,000. The appellant further argued that the deduction of TDS by the sponsors did not undermine the genuineness of the society’s activities.

The appellant also emphasized that the CIT(Exemption)’s finding that the sponsorships were not voluntary and that there was a quid pro quo arrangement was not supported by any concrete evidence. Therefore, the denial of registration under Section 12A was unwarranted and should be reconsidered.

Tribunal’s Analysis and Findings

The ITAT Delhi bench, comprising Shri H.S. Sidhu (Judicial Member) and Shri Prashant Maharishi (Accountant Member), carefully reviewed the facts of the case, the grounds of appeal, and the submissions made by both parties. The Tribunal noted that the primary reason for the CIT(Exemption)’s denial of registration was the significant proportion of income derived from sponsorships and the subsequent questioning of the genuineness of the society’s activities.

The Tribunal acknowledged that the society’s primary objective of creating awareness about celiac disease is inherently charitable. The Tribunal further observed that the CIT(Exemption) had not provided sufficient evidence to substantiate the claim that the sponsorships were not voluntary or that there was a quid pro quo arrangement that compromised the charitable nature of the society’s activities.

Regarding the deduction of TDS by the sponsors, the Tribunal held that this alone could not be grounds for deeming the society’s activities non-genuine. The Tribunal emphasized that the focus should be on the nature of the activities and whether they align with the charitable purposes defined under Section 2(15) of the Income Tax Act.

Conclusion and Tribunal’s Decision

In light of the above analysis, the ITAT Delhi set aside the order of the CIT(Exemption) and remanded the case back for fresh consideration. The Tribunal directed the CIT(Exemption) to re-evaluate the application for registration under Section 12A, taking into account the society’s objectives and the genuineness of its activities. The Tribunal also instructed the society to fully cooperate with the CIT(Exemption) by providing all necessary documents and details to support its application.

Furthermore, the Tribunal granted the appellant the liberty to reapply for recognition under Section 80G upon receiving registration under Section 12A. The Tribunal’s decision allows the society another opportunity to substantiate its charitable nature and secure the tax exemptions it seeks.

Implications of the Decision

The remand of the case highlights the importance of thoroughly assessing the genuineness of an organization’s activities when determining eligibility for tax exemptions. The Tribunal’s decision underscores that mere procedural issues, such as the deduction of TDS by sponsors, should not be the sole basis for denying registration under Section 12A. This case also serves as a reminder to tax authorities to ensure that their decisions are supported by concrete evidence and aligned with the broader objectives of promoting charitable activities in society.

Order Pronounced in the Open Court on 15th October, 2019.

Judicial Member: H.S. Sidhu

Accountant Member: Prashant Maharishi

Celiac Society of India vs CIT(Exemption): Dispute Over 12A Registration for AY 2019-20