Income Tax Appellate Tribunal - Lucknow
Dr. Bhim Rao Ambedkar Educational ... vs Commissioner Of Income Tax on 31 January, 2008
Equivalent citations: (2008)114TTJ(LUCK)965
ORDER
H.L. Karwa, J.M.
1. This appeal, filed by the assessee, is directed against the order of CIT-II, Lucknow dt. 19th Oct., 2007 passed under Section 12AA of the IT Act, 1961. The only ground raised by the assessee in this appeal reads as under:
1. The learned CIT-II, Lucknow (hereinafter referred to as the learned CIT) erred on facts and in law in refusing to register the appellant society under Section 12AA(1)(b) of the IT Act, 1961 in the present case.
2. Briefly stated, the facts of the case are that Dr. Bhim Rao Ambedkar Educational Society is registered with the Registrar of Societies U.P. w.e.f. 22nd March, 1994, which happens to be the date of its creation. Chandra Dental College and Hospital Safedabad, Barabanki is being run by the society. The assessee society moved an application on 11th April, 2007 in Form 10A (under the Rule 17A) for registration under Section 12A of the IT Act together with a list of its members, revised memorandum of aims and objects, and audit report in Form 10B accompanied by balance sheet, income and expenditure statement for the financial years 2003-04, 2004-05 and 2005-06. The CIT called for a report from the ITO-V(1), Lucknow and the Addl. CIT, Range-V, Lucknow. Both the above authorities reported that the main object of the society is running of a dental college and offering free dental treatment to the patients. The ITO-V(1), Lucknow, before sending his report through the range Addl. CIT, also examined the books of accounts etc. with reference to the claims raised in the application for registration and the activities of the society, which were found to be in accordance with its objects. During the course of hearing before the CIT, the assessee submitted details of the activities of Chandra Dental College and Hospital, including detailed working of income utilized during the financial year 2005-06. The society also filed a list, containing names, addresses of the students, who contributed sums towards the head 'Building development charges receipt' in the financial year 2005-06. The assessee, vide its written submission dt. 11th Sept., 2007 stated that it has set up the college solely for educational purposes and without any motive of profit. It was also stated that the fee being charged is just sufficient to meet the cost of maintaining and running the college. It was also submitted that the fee was being charged in terms of the fee prescribed by the CPMT for its affiliated colleges. The CIT observed that for imparting education in dental science, the assessee through dental college, charges certain fees. He further observed that the assessee has shown income from hostel fee, miscellaneous income, other fee, tuition fee and building fee. As per the income and expenditure statement, the assessee has shown its income from receipts from students and other income. During the financial year 2005-06 the assessee has also shown receipts from students viz. tuition fee, other fee, hostel charges and bus fee. According to CIT, there was no mention of 'building development charges receipt' in the financial year 2005-06. However, the assessee society submitted a list of 59 students having names of students, names of their parents, permanent address and amount paid for 'building development charges receipt in financial year 2005-06. As per the list all the 59 students have during the financial year 2005-06 paid Rs. 25,000 each towards the building development of Chandra Dental College and Hospital, Safedabad, Barabanki. The CIT observed that when the matter was enquired into, it came to notice that none of the parents ever paid any amount towards 'building development charges receipt in the financial year 2005-06. The CIT held that the assessee's claim that 59 students have during the financial year 2005-06 contributed a sum of Rs. 25,000 each has been found to be untrue. He further observed that the society has not issued receipt except the fee charged for providing the study of dental science. The CIT has also stated that the amount shown as 'building development charges receipt' was certainly not in the nature of donation from the parents of students. The society has also not been registered in IT Department as 'trust'. He therefore observed that the provisions of Sections 11 and 12 of the IT Act will not apply till the entity is granted registration. The CIT came to conclusion that the accounts have been fabricated and were unreliable as assessee had on its own diverted a part of the fee for 'building construction' and not as per the direction of donor. The CIT also observed that in the objectives of the society the fact of free treatment of patients and free imparting of health education has been emphasized even though in the accounts OPD receipts have been shown. He further observed that in the 'annexures' attached with the accounts submitted, donations of Rs. 7,60,000 and Rs. 22,00,000 for addition to college building have been mentioned. According to CIT, no details of such 'donations' have been furnished. The CIT concluded that the society has diverted the funds to building account on its discretion which is against the purpose for which parents have contributed to the corpus. He further held that since there is no restriction on application of funds, the assessee society ceases to be a society having its objects as charitable. The CIT has also cited the decision of Hon'ble Supreme Court (sic-Patna High Court) in the case of Bihar State Forest Development Corporation v. CIT . The CIT held that the assessee society was not engaged in any charitable work and therefore he refused the registration to assessee society under Section 12A of the IT Act, 1961.
3. Before us, Shri Kanchan Kaushal, learned Counsel for the assessee submitted that the learned CIT has accepted this fact that the assessee society is running a dental college and offering free dental treatment to the patients. He further submitted that CIT, after examination of books of account, accepted this fact that the activities of the society were found to be in accordance with its objects and therefore he was not justified in refusing the registration to the assessee society under Section 12A of the IT Act, 1961. He further submitted that in refusing the registration to assessee society, the CIT erred on facts in making alleged observation in relation to the accounts in the body of the order which are not at all relevant or material for deciding the scope of registration of society under Section 12A of the Act, He therefore submitted that the CIT was not justified in refusing the registration to the assessee society. Further it was also submitted by learned Counsel for the assessee that the CIT alleges that the assessee society had received fee from the students in lieu of providing dental education, had been partly accounted for under the 'building fund' and so the assessee fabricated the account and diverted the income. However there is no finding that the objectives of the trust are not charitable or against public policy, submitted the learned Counsel for the assessee. Learned Counsel for the assessee vehemently argued that on the contrary, the CIT accepts that the assessee is imparting education. All the funds have been duly recorded in the accounts. Merely accounting them in a particular head does not mean diversion of fund or fabrication of accounts. Learned Counsel for the assessee submitted that CIT's jurisdiction is limited to see the genuineness of the activities of the assessee society and not look into application of income derived by the assessee from its objectives only. Learned Counsel for the assessee heavily relied on the decision of Hon'ble Allahabad High Court in the case of CIT v. Red Rose School (2007) 212 CTR (All) 394.
4. On the other hand, Shri Debashish Chanda, learned senior Departmental Representative strongly supported the order of CIT. He further submitted that the learned CIT has rightly observed that the accounts of the assessee society have been fabricated and, therefore, not reliable. According to learned Departmental Representative the assessee had diverted a part of the fee for building construction and not as per the direction of donor. He further submitted that the objects of the society provides free treatment of patients and free imparting of health education. However, in the accounts of OPD, the assessee society had shown OPD receipts also. This gives the impression that real objective has been camouflaged. He further submitted that no details of donations of Rs. 7,60,000 and Rs. 22,00,000 were submitted before the learned CIT. How the above amounts were utilized is also not clear, submitted the learned Departmental Representative. In view of the above, learned Departmental Representative submitted that the learned CIT has rightly rejected the application of the assessee for registration under Section 12A of the IT Act, 1961. Accordingly, it was submitted that the order of CIT may be upheld.
5. We have carefully considered the rival submissions and have also perused the materials available on record. The assessee has come into existence with the purpose of setting up educational institutions providing treatment of persons suffering from illness. The assessee society received permission from DCI (Dental Council of India), New Delhi in the year 2003 and set up a dental college providing post graduate, five-year bachelor degree course in dental science. The college has been set up with the approval of State Government and registered with the DCI, New Delhi. The course is monitored by DCI and the examinations are conducted by the Avadh University, Faizabad. The admission to the college is also through the combined pre-medical entrance test conducted by the DGME. The college is allotted the students on the basis of their ranking and preference. Thus, the Government agencies have full control and check over the college. The society set up the college solely for educational purposes and without any motive of profit. The fee being charged by the college is just sufficient for maintaining and running the college. It is in terms of fee prescribed by the CPMT for its affiliated colleges. In addition, the college has set up a dental 100 chair OPD clinic with full qualified doctors and surgeons providing free treatment to the villagers at nominal registration fee of Rs. 5 only. The college daily attends to about 75-100 patients giving dental treatment. The society has also tied up with the Civil Hospital, Barabanki for indoor treatment of its patients and affiliation for treatment for oral surgery, pedodentics {sic) speciality cases and providing practical training to the students. Since inception the society has been organizing and running camps and health centres in village areas and remote areas for the promotion and improvement of the oral health.
6. We find that there is no finding by the CIT that the objects of the trust are not charitable or against the public policy. On the contrary the CIT accepts that the assessee society is imparting education. In our view, in the facts and circumstances of the present case, the CIT has wrongly refused the registration to the assessee society. In fact learned CIT has not given sufficient reason while refusing the registration to the assessee society. In our considered view, at the time of registration, the CIT was obliged only to see that (i) the objects of the society are not against public policy; and (ii) the activities of the society are genuine. Learned Counsel for the assessee has rightly pointed out that CIT's jurisdiction is limited to see the genuineness of the activities and not to look into application of income derived by the assessee from its objects only. The Hon'ble Allahabad High Court, in the case of Red Rose School (supra), held that "the objects of the trust can be had from the bye-laws or the deed of trust, as the case may be and unless, of course, the objects of the trust apparently make out that they were not in consonance with the public policy or that they were not the objects of any charitable purpose, registration cannot be refused accordingly on this ground."
7. The Hon'ble Allahabad High Court further held as under:
20. In regard to the genuineness of the activities of the trust or the institution, whose objects do not run contrary to public policy and are, in fact, related to charitable purposes, the CIT is again empowered to make enquiries as he thinks fit. In case the activities are not genuine and they are not being carried out in accordance with the objects of the trust/society or the institution, of course, the registration can again be refused. But on mere presumptions and on surmises that income derived by the trust or the institution is being misused or that there is some apprehension that the same would not be used in the proper manner and for the purposes relating to any charitable purpose, rejection cannot be made.
8. We have perused the objects of the assessee society which are available at p. 6 of the assessee's paper book. In our view, none of the objects of the assessee's society is against public policy and the main activity of the assessee society is to provide education to students. For this purpose, the assessee society has set up a dental college providing post graduate, five year bachelor degree course in dental science. We may also mention that the institutes set up by the assessee society are providing free treatment to persons suffering from illness. In the case of Red Rose School (supra), the Hon'ble Allahabad High Court held that education in itself is a charitable purpose and activities related thereto, which include both physical and mental development and also instilling of a feeling of self-confidence through exercise, sports and extensive reading of good books, cannot, in any manner, be described as a non-charitable purpose or much less a non-educational activity. The Hon'ble High Court further held that education means and includes not only knowledge of text books or prescribed educational courses but overall development of the child, which includes personality development and his physical fitness, apart from his capacity to analyse things and reach to logical conclusion on a given issue. In view of the above, we hold that the objects of the school are not against public policy and the activities of the society are genuine.
9. We also observe that there is no dispute that all the funds have been duly recorded in the accounts. Merely accounting them in a particular head does not mean diversion of fund or fabrication of accounts as alleged by the CIT. In the case of Red Rose School (supra), the Hon'ble Allahabad High Court has categorically held that on mere presumptions and on surmises that income derived by the trust or the institutes is being misused or there is some apprehension that the same would not be used in the proper manner and for the purpose relating to any charitable purpose, rejection cannot be made.
The Hon'ble Allahabad High Court in the Red Rose School (supra) held that Section 12AA does not speak anywhere that the CIT, while considering the application for registration, shall also see that the income derived by the trust or the institution is either not being used for charitable purposes or such institution is earning profit. The relevant observations as mentioned in para 21 of the report, read as under:
21. Section 12AA, which lays down the procedure for registration, does not speak anywhere that the CIT, while considering the application for registration, shall also see that the income derived by the trust or the institution is either not being spent for charitable purpose or such institution is earning profit. The language used in the section only requires that activities of the trust or the institution must be genuine, which accordingly would mean, they are in consonance with the objects of the trust institution, and are not mere camouflage but are real, pure and sincere, nor against the proposed objects. The profit earning or misuse of the income derived by charitable institution from its charitable activities, may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trust or the institution.
10. The Hon'ble Allahabad High Court in the case of Red Rose School (supra) further held that the enquiry by CIT shall remain restricted to the examination, as to whether the assessee, who has moved the application for registration under Section 12A, is actually in the activities which are genuine. The relevant observations of Hon'ble High Court are as under:
Genuineness of the activities of the trust or the institution has to be seen, keeping in mind the objects thereof, which necessarily means that the CIT shall satisfy himself about the fact that the activities are genuine and in consonance with the objects of the trust or the institution. In other words, if establishing and running a school is the object of the society, as given in its bye-laws, it has to be satisfied that the society has established the school, where education is being imparted as per rules and the factum of establishment and running school is a genuine activity. The enquiry regarding genuineness of the activities cannot be stretched beyond this.
11. In the case of Red Rose School (supra), the Hon'ble Allahabad High Court held that the profit earned or misuse of the income derived by the charitable institution from its charitable activities, may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trust or the institution. The Hon'ble High Court further held that the enquiry regarding the genuineness of the activities cannot be stretched beyond this. Sufficient safeguards having been given in Sections 11, 12 and 13 of the IT Act, 1961 for assessing the income which has not been applied to the purpose of the trust or the institution, the intention of the law maker and scope and purport of the provision is apparent while considering the question of registration.
12. Applying the ratio laid down by the Hon'ble jurisdiction High Court in the case of Red Rose School (supra), we hold that the CIT was not justified in refusing the registration to assessee society under Section 12A of the IT Act, 1961. Accordingly, we direct the concerned CIT, Lucknow to grant registration under Section 12A of the IT Act, 1961.
In the result, the appeal is allowed.