Rejection of S.10(23C) no ground for cancellation of S.12AA registration – Court decision

A series on Impact on Taxation of NPOs due to hardening of tax authorities’ attitude …..(2)

In today’s series we bring out a case where Varanasi Catholic Education Society’s registration under S. 12AA was cancelled on the ground that its S. 10(23C) application has been rejected. The Order of the Commissioner tax while cancelling S. 12AA registration stated that the activities of the Society are not entirely charitable in nature and that the same was not in accordance with the aim and objects of the Society. However no material for arriving at this conclusion was made available in the order.

The Society appealed to Tribunal against the cancellation of S.12AA who decided against the Commissioner’s order and set it aside. Tax authorities appealed to the High Court against the Tribunal Order. High Court agreed with the Tribunal order and rejected tax authorities’ appeal.

Reasoning by High Court
Reason that some activities being undertaken were not solely for charitable purpose may not be a ground for cancelling the S.12AA registration, although it may be a ground for rejection for the registration under S.10(23C). It observed that the Commissioner has not recorded any reason if the charitable activities being undertaken by the Society are not genuine or if the Society’s activities are not in accordance with its objects. The Order stated that the Commissioner has solely relied on the order of the Chief Commissioner of Income Tax passed under Section 10(23C) (vi) of the Act while cancelling exemption under S.12AA.

[citation: 2014 (6) TMI 48 – Allahabad HC: CIT Vs Varanasi Catholic Education Society]


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