Charity from loan taken is Not a valid reason for denying sec 12AA registration

CA Prarthana Jalan

Hon’ble Agra ITAT while deciding a issue of 12AA registration has held We find that learned  Commissioner has rejected the application for registration under Section 12AA of the Act on the basis of sweeping generalization having doubts on the activities of the assessee applicant. In our considered view at the stage of granting registration under Section 12AA of the Act all that is required to be seen is whether the objects of the applicant are indeed charitable in nature or not, as  also the fact that activities of the applicant are genuine. There are no specific  adverse findings on any of these two aspects of the matter.

While learned  Commissioner has observed that there are doubts with regard to the notice of the society he has not elaborated on same. As per his observation that “no one can do  charity by taking loans”, we are unable to see any reliance of sweeping  generalization in the present context because it is not the charity, which is being  done out of the borrowed funds, but it is a charitable activity, which is being done  with the help of borrowing as may be necessary to conduct the activities of the  assessee applicant. It could perhaps make sense people do not borrow money to  give the same in charity, but in order to carryout a systematic activity, with  charitable objects, it may be possible to resort to borrowing.

In view of the  matter, merely because and institution has borrowed funds, one cannot conclude  that the objects of such institution cannot be charitable. The assessee may borrow funds for fulfillment of its objects, therefore, we have stated in framing words, the mere facts of borrowing cannot be against the assessee at the stage of grant of registration.