Income Tax Appellate Tribunal - Agra
Tishir Shiksha Prasar Samiti, Shivpuri vs Assessee on 2 May, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
AGRA BENCH, AGRA
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND
SHRI A.L. GEHLOT, ACCOUNTANT MEMBER
ITA No.412/Agr/2011
Tishir Shiksha Prasar Samiti, vs. Commissioner of Income Tax,
Shivpuri Public School, Gwalior (M.P.).
Fathepur Road,
Shivpuri (M.P.)
(PAN : AABTT 2411 R)
(Appellant) (Respondent)
Appellant by : Shri Rajendra Sharma &Shri Manuj Sharma,
Advocates
Respondent by : Shri A.K. Sharma, Jr. D.R.
Date of hearing : 02.05.2012
Date of pronouncement : 18.05.2012
ORDER
PER A.L. GEHLOT, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order dated 21.09.2011 passed by the Ld. CIT, Gwalior under section 12AA(1)(b)(ii) of the Income Tax Act, 1961 ('the Act' hereinafter).
2 ITA No.412/Agr/20112. The ground raised by the assessee in the appeal is in respect of rejection of assessee's application filed for granting registration under section 12AA of the Act.
3. The brief facts of the case are that the assessee is resisted Samiti under Madhya Pradesh Society Registration Act, 1973 w.e.f. 01.01.1996. The assessee filed application for registration under section 12A/ 12AA of the Act before the CIT on 07.03.2011. The CIT called the report from the Assessing Officer and documents or information from the Samiti in order to satisfy himself about the genuineness of activities of the Samiti. On perusal of record and others the CIT noted as under:-
"On perusal of case record it was noticed that the Samiti is accumulating funds more than 15% of total receipts for the F.Y.2007- 08 and 2008-09 which is in violation of section 11(1)(a) of the Income Tax Act. It was also observed that in spite of various objects, the society is only carrying out educational activities and no expenses regarding other activities has been reflected in the Income and Expenditure account."
4. The CIT rejected the assessee's application observing as under :-
"The surplus generated by the society continuously cannot be termed as incidental. This much profit and that too generated without any voluntary contribution toward corpus fund cannot be considered as incidental but it goes on to establish that the things have been so designed that there is an inbuilt profit mechanism through which systematic and regular profits are being generated every year.3 ITA No.412/Agr/2011
The assessee in its reply has claimed at one place that the objects of the society is of general public utility in nature and at the other place has contended that the objects must be regarded as existing solely for the purpose of education. The assessee is not sure of its objects.
Therefore, it is held that the appellant society exists only for the purposes of profit making and education is incidental objective.
In view of foregoing the application for registration u/s 12AA(1)(b(ii) of the Income Tax Act, 1961 deserves to be rejected. Registration u/s 12AA(1)(b(ii) of the Income-tax Act 1961 is accordingly not granted to the Society."
5. Ld. Authorised Representative submitted that the Samiti is registered under the Madhya Pradesh Society Registration Act, 1973. He submitted that the CIT is not correct in saying that the society exists only for the purpose of profit making and education is an incidental objective. He further submitted that the CIT wrongly noted that the Samiti has not invested its 85% of surplus. Ld. Authorised Representative drew our attention to page nos. 91 & 113 of assessee's Paper Book where percentage of saving charts for Assessment Year 2008-09 & 2007-08 has been given wherein percentage of saving is 6.23 & 8.38 respectively. Ld. Authorised Representative submitted that the CIT did not consider the application of income in capital expenditure. It was also submission of the Ld. Authorised Representative that the CIT did not appreciate the decision cited by the assessee before him.
4 ITA No.412/Agr/20116. The object of the Samiti is education, the Ld. Authorised Representative submitted. He further submitted that CIT has erred in not granting the registration under section 12AA of the Act. The Ld. Authorised Representative submitted that at the time of allowing registration under section 12AA, the Assessing Officer is to examine only whether the activities of the Samiti is genuine or not. He submitted that the CIT has examined charitable activities of the Samiti as he issued a query letter dated 12.9.2011 which has been replied in detail by the assessee. The Ld. Authorised Representative drew our attention on the objects of the Samiti and submitted that the objects of the Samiti are education and charity thus the assessee Samiti is entitled for registration under section 12A/12AA of the Act. The original deed is in Hindi, the relevant translation in English of object clauses of the Samiti submitted by the Ld. Authorised Representative are reproduced as under:-
"ENGLISH TRANSLATION IN RESPECT OF OBJECTS OF INSITITUTION (TISHIR SHIKSHA PRASAD SAMITI FATHEPUR ROAD, SHIVPURI, GWALIOR)
1. Organizing of Educational Institutions
2. Organizing and opening of Library
3. Education to illiterate persons
4. widening the scope of education with new technology
5. Organizing the education centers for illiterate adult persons
6. After obtaining recognition the Department of Education, providing of the education to Hindi speaking, English, Urdu and local and regional language, organizing of primary, secondary, high school and intermediate college, Madarsa and degree college with organizing of the library, open education centres, casual education 5 ITA No.412/Agr/2011 centre, adult training centre and adult women education centre, girls hostel for the students belonging to SC, ST, OBC, minority, organization of the residential school with coaching classes, widening and publicity of the literacy, running of engineering, medical and technical educational institutes.
7. After getting recognition from Madhaymik Shiksha MandaI, Madhya Pradesh, Government and University, organizing of teacher training, nurse training, professional teacher training centre, education for their welfare to victim widows, helpless persons, handicapped, needy, below the poverty level, residents of Chhugi Chhopri, hilly area, residents of slum area, SC, ST, OBC and of minority and organizing of stitching, knitting, weaving, typing, computer, beauty parlor, painting, music, handicraft, professional education, Jhhula Ghar, Aagan Bari, Bal Bari, Kresh centre and also Centre for child protection, Sneh Kutir, child hostel, orphan house and managing of child food. After obtaining recognition from the Department of Education, providing of the education to the Hhindi, English, Urdu and local and regional language speaking persons by organizing of the primary, secondary, high school, intermediate school Madarsa and degree college with library.
8. Organizing of the educational training centre for blinds, lame and mained, deaf, mute, dumb, physically and mentally handicapped, physically weak , orphan, dependant, persons, doing social service under Panchayat, awareness against intoxication and opening of consultation centre against intoxication, organizing of old age home centre, providing of the medicine and treatment to the drug addicted, programming against intoxication and drug addicted persons, organization of culture programmes to remove the bad habits of society.
9. Organizing of education centre organizing by the education department and organizing the classes and training centre for garment, making, hospital housekeeping repair of radio and T.V., office management steno typing, moped, scooter, motor cycle repair centre, repair of auto electric domestic appliances and electric motor recording, bakery and confectionary food and vegetable. Preservation, hotel management and computer diploma and degree course, night classes for the study of management of principal and 6 ITA No.412/Agr/2011 professional education with organization of shelter/homes for old age persons homes and brief Education programme, with organizing of professional education centre training and organization of plantation programme, establishment of home for orphan, helpless children and opening of Sneh Kuteer, training centre and opening of Hostel, houses, school, coaching centre for SC, ST children.
10. Organizing of education centre providing of opportunity to youth and training centre in respect of the different games like cricket, volleyball, hockey, table tennis, carom board, shatranj and athletics game and to organize the camps for playing of games and giving of prize and to encourage the talented players.
11. The awareness in respect of old and bad customs in society particularly anti dowry, intoxication, prostitution, untouchability and educate the person in respect of AIDS.
12. Organization of the seminars, festival exhibition on science and technology and also giving of the training related to the science and technology.
13. Organizing of the professional, university having course of - BBA, B.Ed. BCA, electronics and computer, B.A. mathematic electronic and computer, organizing of the diploma and degree college in respect of B.com, commerce along with subject relates to tourism and environment and also with MBA degree courses and MBI, masters of business economics, polytechnics college, engineering university, ayurvedic university, and modem professional diploma and degree courses, medical university and other technical education."
7. It was also submission of the Ld. Authorised Representative that at this stage the CIT is not empowered to examine application of income. The Ld. Authorised Representative in support of his contention relied upon following decisions:-
1) CIT vs. D.P.R. Charitable Trust, 18 ITJ 245 (M.P.).
2) Fifth Generation Educational Society vs. CIT, 185 ITR 634 (All).7 ITA No.412/Agr/2011
3) H.P. Government Energy Development Agency vs. CIT, 134 TTJ (Chd) (Uo) 33.
4) Chaturvedi Har Prasad Educational Society vs. CIT. 134 TTJ (Lucknow) 781.
5) Maharashtra Academy of Engineering & Educational Research (Maeer) vs. CIT, 133 TTJ (Pune) 706.
6) Saint Kabir Educational Trust vs. CIT, 41 DTR (Asr) (Trib) 267.
7) Raebareily Polytechnic Association vs. CIT, 48 DTR (Lucknow) (Trib) 1.
8) ACIT vs. M/s Ideal Educational Society & Others, Bhopal (2009) 12 ITJ 651 (Tribunal).
8. The Ld. Departmental Representative, on the other hand, relied upon the order of the CIT and submitted that the assessee has accumulated funds for more than 15%. Therefore, there is violation of section 11(1)(a) of the Act.
9. We have heard the learned Representatives of the parties and records perused. The crux of the matter under consideration is registration of trust/institution under section 12A/12AA of the Act. The Income-tax Act, 1961 confers benefit for contributions to approved charities in two ways, namely (i) to recipients of the voluntary contributions/donations for charitable purposes and also
(ii) in relation to those, who give such contributions/donations. The underlying philosophy in giving such tax benefits is to encourage private philanthropy for the common good. In other words, the Government contributes through tax giveaways partly for services, which it is expected to provide itself by direct spending for the benefit of the human community as whole. In India, charity work by public itself 8 ITA No.412/Agr/2011 is inherit public welfare activities. However, to ensure that the tax benefits through loss of tax revenue by the Government are properly utilized and not misused, the Act besides prescribing restrictions in the Act laying down conditions in sections 11, 12 and 13 which are to be complied with for claiming exemption also provides mechanism by way of registration of the institutions who could claim exemption in respect of their incomes and also tax benefits to those who donate to such bodies.
The trusts or institutions claiming exemption from taxation under the Income-tax Act, 1961, have to comply with certain obligations. With this back ground, to appreciate the issue under consideration, we would like to consider certain provisions contained in relevant sections and CBDT Circular which are as under :-
"12A. Conditions for applicability of sections 11 and 12. 12A (1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely :
(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later and such trust or institution is registered under section 12AA.
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Procedure for registration.
9 ITA No.412/Agr/201112AA. (1) The [***] Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) [or clause (aa) of sub-section (1)] of section 12A, shall--
(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and
(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he--
(i) shall pass an order in writing registering the trust or institution;
(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant :
Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.
[(1A) All applications, pending before the Chief Commissioner on which no order has been passed under clause (b) of sub-section (1) before the 1st day of June, 1999, shall stand transferred on that day to the Commissioner and the Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day.] (2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) [or clause (aa) of sub-section (1)] of section 12A.] [(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)]] and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the 10 ITA No.412/Agr/2011 objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution:
Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.] FINANCE (NO. 2) ACT, 1996 - CIRCULAR NO. 762, DATED 18.2.1998--
"Registration of charitable and religious trusts--
19.1 Under the existing provisions of the Income-tax Act, exemption from income-tax in respect of the income of a charitable or religious trust or institution is available only if the conditions specified in that section are satisfied. One of these conditions if that the person in receipt of the income shall make an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Chief Commissioner or Commissioner of Income-tax within the specified time. However, there was no provision in the Income-tax for processing of such an application and granting or refusal of registration to the concerned trust or institution.
Finance (No. 2), Act, 1996 19.2 Hence the Act now provides for a procedure to be followed for grant of registration to a trust or institution. According to this procedure, the Chief Commissioner or Commissioner shall call for documents and information and conduct enquiries to satisfy about the genuineness of the trust or institution. After he is satisfied about the charitable or religious nature of the objects and genuineness of the activities of the trust or institution, he will pass an order granting registration. If he is not so satisfied, he will pass an order refusing registration. However, an opportunity of being heard shall have to be provided to the applicant before an order of refusal to grant registration is passed by the Chief Commissioner or Commissioner. The reason for refusal of registration shall also have to be mentioned in that order. The order granting or refusing registration has to be passed within six months from the end of the month in which the 11 ITA No.412/Agr/2011 application for registration is received by the Chief Commissioner or Commissioner and a copy of such order shall be sent to the applicant."
9.1 Section 11 of the Act contemplates that the income as specified therein shall not be included in the total income of the previous year of the person in receipt of the income derived from the property held under the Trust wholly for charitable or religious purposes, whereas Section 12 of the Act, deals with the contributions received by the Trust or an Institution, established for charitable and religious purposes, receiving contribution, shall not be an income in terms of Section 11 of the Act. The benefit of Sections 11 and 12 of the Act are available only if such Trust or Institution is registered under Section 12A/12AA of the Act.
9.2 Section 10(23C) of the Act are the provisions of the Act in substitution of the earlier provisions of Section 10(22) of the Act as to which income shall not be included in computing the total income of any person. Therefore, the provisions of Sections 11, 12 or Section 10(23C) of the Act, deal with the income of a Trust or of the Institution and the circumstances as to when such income is to be excluded for computing the total income, but the basis of such benefit is the registration under Section 12A/12AA of the Act. Unless a Trust or Institution is registered under Section 12A/12AA of the Act, such Trust or Institution shall not be entitled 12 ITA No.412/Agr/2011 to exclude from its total income, deductions or contributions or from other sources.
Therefore, the principles laid down for excluding the income from consideration under Section 10(22) now 10(23)(C) or Sections 11 and 12 are not applicable while considering the application for registration under Section 12A/12AA of the Act.
As stated above that the application for registration is required to be made within one year of the creation of the Trust. Section 12AA of the Act, requires satisfaction in respect of the genuineness of the activities of the Trust, which includes the activities which the Trust is undertaking at present and also which it may contemplate to undertake. The insertion of sub-section (3) to Section 12AA of the Act, clarifies that, when it empowers the Commissioner to cancel the registration if the activities of the Trust are not carried out in accordance with such objects.
Therefore, the object of Section 12AA of the Act, is to satisfy by Commissioner about genuineness of activities and objects of trust/Samiti. The stage for examination of application of income is yet to arrive i.e. when such Trust or Institution files its return.
9.3 To appreciate the discussions, we would like to refer some judicial pronouncements which are as under:-
A) The Allahabad High Court in a reported decision in Fifth Generation Education Society vs. CIT [1990] 185 ITR 634, by the Chief Justice B. P. 13 ITA No.412/Agr/2011 Jeevan Reddy (as he then was) who, has taken a view in the following words :-
"It is evident that, at this stage, the Commissioner is not to examine the application of income. All that he may examine is whether the application is made in accordance with the requirements of section 12A read with rule 17A and whether Form No. 10A has been properly filled up. He may also see whether the objects of the trust are charitable or not. At this stage, it is not proper to examine the application of income."
B) The Allahabad High Court in the case of Commissioner of Income-tax vs. Red Rose School [2007] 163 TAXMAN 19 (All.) has held as under :-
"26. The moot question which has been pressed from both the sides, as per their own interests, is regarding the scope of authority and the extent of investigation by the Commissioner for the purpose of satisfying about the genuineness of the activities of the trust or institution, for the purpose of grant of registration.
27. The revenue has, in substance, pleaded that the Commissioner, while satisfying himself about the genuineness of the activities of the trust or institution, has got full power to make any such enquiries, which may reflect upon the genuineness of the activities of the trust or institution and for that purpose, the income derived by the trust or the institution, its expenditure and also other activities, in the matter of carrying out the objects of the trust, can be subjected to scrutiny before granting registration.
28. In response, the assessee submits that the Commissioner has to limit his enquiries only to the object of the Society, to see that the objects are not against public policy and they are, in effect, the objects for charitable purposes and it cannot be disputed that education is one such charitable purpose and that genuineness of the activities would only relate to the income derived by the institution and not in what manner the same has been spent.14 ITA No.412/Agr/2011
29. Elaborating the aforesaid argument, it has been submitted that since the provisions of section 12A debars a trust or an institution from claiming any exemption under section 11 or section 12 and consequently the applicability of section 13, in the absence of registration under section 12AA, the Commissioner was only to see that whether the income of the trust/institution falls within any of the heads under the aforesaid provisions of sections 11 and 12, and in case during the assessment proceedings, for any particular assessment year, the Assessing Officer finds that either the income derived cannot be said to be income from educational activities or its expenditure cannot be attributed to any educational purpose, he would be at liberty to assess that income and levy tax but on the contrary, in the absence of registration, the assessee would be deprived of claiming such benefit, even though it is otherwise entitled for the same either in respect of the entire income or a part thereof. Submission further is that the grounds taken by the Commissioner of Income-tax in the instant case, do not constitute any valid reason for rejection of registration and, therefore, also the order of the ITAT, cannot be interfered with nor any substantial question of law arises in the appeal so as to warrant any interference.
30. On a reading of provisions of sub-clauses (a) and (b) of section 12AA, it makes clear that the Commissioner has to satisfy himself about the genuineness of the activities of the trust or institution and also about the objects of the trust or the institution.
31. On being satisfied about the genuineness of the activities of the trust or the instruction and also about its objects, the Commissioner would either grant the certificate or would reject the prayer. In order to satisfy himself about the genuineness of the activities of the trust or the institution, he can call for such documents or information from the trust or the institution, as he thinks necessary and he is also empowered to make such enquiries as he may deem necessary in this behalf.15 ITA No.412/Agr/2011
32. 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.
33. In regard to the genuineness of the activities of the trust or the institutions, whose objects do not run contrary to public policy and are, in fact, related to charitable purposes, the Commissioner 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.
34. Section 12AA, which lays down the procedure for registration, does not speak anywhere that the Commissioner, 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.
35. This is more evident if we see the provisions of section 11, which, while exempting the income given in its various sub-16 ITA No.412/Agr/2011
clauses from being included in the total income of the previous year of the person in receipt of the income, for example, in sub- clause (1) says 'income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property.
36. The aforesaid provision thus, clarifies that all that income, which is derived from the property held under the trust wholly for charitable purposes or religious purposes, shall stand exempted to the extent to which such income is applied to such purposes in India but if the income is accumulated or set apart for application to such purposes in India, the same shall not be in excess of fifteen per cent of the income from such property.
37. Sub-section (2) of section 11 states about a situation where eighty five per cent of the income referred to in clause
(a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, and says that in such a situation, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the conditions given in sub-clauses (a) and (b) are complied with.
38. This also means that even that income, which could not be exempted under sub-clause (a) or (b) of sub-section (1), can still be exempted, if the conditions attached to sub-section (2) in its sub-clauses (a) and (b) are complied with.
39. Sub-section (3) again says that if any income referred to in sub-section (2) is applied to purposes other than charitable 17 ITA No.412/Agr/2011 or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof, or is credited or paid to any trust or institution registered under section 12AA or to any fund or institution or trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause ( via) of clause (23C) of section 10, shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be accumulated or set apart or ceases to remain so invested or deposited or credited or paid or, as the case may be, of the previous year immediately following the expiry of the period aforesaid.
40. Section 12 also only says that any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes, shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly.
41. The provision thus, emphasizes upon the income of the trust created wholly for charitable or religious purposes or an institution established wholly for such purposes and so is the case in sub-section (2) of the aforesaid section. The provisions of section 13 excludes the applicability of section 11 in certain cases.
42. A cumulative reading of the aforesaid provisions leaves no manner of doubt that exemption under the aforesaid provisions can be claimed with respect to the income derived by 18 ITA No.412/Agr/2011 the trust or the institution, which is being run for a charitable purpose and, therefore, while considering the registration under section 12AA, the scope of enquiry of the Commissioner, would be limited to the aforesaid extent.
43. Since in the absence of such registration, the trust or the institution would not be entitled to claim any exemption of the income derived, though it is being run for charitable purposes, the registration has to be considered in the light of the specific provisions aforesaid and in the manner that it furthers the object of the scheme of registration and, of course, exemption of the entire income or the part of the income, as the case may be, of a charitable trust or institution has to be considered during assessment proceedings.
44. It is significant to mention that registration under section 12AA, does not necessarily entitle the assessee to get the income excluded from the income of the previous year for the purpose of determination of tax liability but it only entitles the assessee to claim such exemption, which otherwise could not be claimed in the absence of registration. The enquiry by the Commissioner shall remain restricted to the examina-tion, as to whether the assessee, who has moved the application for registration under section 12A, is actually in the activities which are genuine. 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 Commissioner 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.
45. Sufficient safeguards having been given in sections 11, 12 and 13 for assessing the income which has not been applied 19 ITA No.412/Agr/2011 to the purpose of the trust or the institution, the intention of the law maker and the scope and purport of the provision is apparent while considering the question of registration.
46. The objects of the present Society, which have been reproduced in the order of the ITAT, are being reproduced hereunder :
1) Baalakon ka maansik, samajik, charitrik tatha naitik vikas karna.
2) Poorv Prathmik, Junior High School, High School, Intermediate va Degree star tak ki Shiksha ki vyavastha karna, jaisa ki samay-samay par shasan dwara uchit samjha jaega.
3) Samajik drishti se anaath, nirashrit, Harijan, pichhdi jaati aur apang baalakon ke sanrakshan va punarvas ki vyavastha karna.
4) Baalakon ke sharirik vikas hetu vyayam, khelkood aadi ki vyavastha karna.
5) Baalakon ke maansik vikas hetu pustakalaya aur vachnalaya ki sthapna karna.
6) Uprokt uddeshyon ki poorti hetu evam inse sambandhit anya aavashyak karya jo Societies Act ki dhara 20 ke antargat honge evam any aakasmik karyon ke liye prabandh karna.
47. The Tribunal has rightly found that the objects aforesaid show that none of the objects were against public policy and the main activity of the said Society was to provide education to children from Primary section to Degree level and to improve the mental, social and other development of the students.
48. A provision has also been made with respect to under- privileged children providing for their protection and rehabilitation and also physical development through exercise and sports, besides providing library and reading room for the development of the students. The objects, therefore, cannot be 20 ITA No.412/Agr/2011 said to be the objects, which run against public policy or do not fall within the category of activities, which are for charitable purposes. 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. 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. Schools may, for the purpose, organize various cultural and educational entertainment programmes, sports meet, debates and seminars etc. and all such activities shall form part of the education.
49. We thus find that the objects of the Society were well in consonance with the scheme of the Act.
50. In regard to the genuineness of the activities, the Commissioner of Income-tax has given very many reasons, which have been though discussed by the ITAT but we would also like to put on record in a summarized manner.
51. Based on the conclusion of the ITO that object No. 6 referred to above, gives unbridled power to spent money in the garb of emergent work, which may result into misappropriation of funds etc., the Commissioner has refused registration, for which suffice would be to mention that the aforesaid object, when read as a whole, lays down clear guidelines, under which the Management can exercise power for emergent works, namely, all such work would only be related or relatable to one or the other objects, referred to in object Nos. 1 to 5. In case any ancillary or related work is to be performed for achieving either of the aforesaid objects, for which an emergent work is to be carried out, the Management can do so, but if such a work is not relatable to any of the aforesaid objects, the Management would have no power to take recourse to aforesaid clauses.
21 ITA No.412/Agr/2011That being so, the view expressed by the ITO as well as by the Commissioner of Income-tax runs contrary to the aforesaid objects, and that too without any basis, as no such instance has been quoted nor found where Management has usurped and misused its power.
52. The purchase of books worth Rs. 1 lakh in the name of Nav Chetna Kendra has been found to be shady, firstly because these books were of a very high standard, not meant for the students up to XII class and secondly they were purchased in the name of Nav Chetna Kendra, which is a separate Society.
53. The Tribunal has rightly found that Nav Chetna Kendra is a Society, which has been formed for maintaining the library for the benefit of the students, being run by the assessee Society and if the books of high standard have been purchased, it cannot be presumed that no purchase was made nor it is the case of the revenue that books worth the amount were not purchased or the payments were not made. It has also not been disputed by the revenue that Nav Chetna Kendra, a Society which has been formed only for running the library for the institution, is not running the library.
54. The plea of the revenue that some funds have been given to Nav Chetna Kendra, which casts doubt about the genuineness of the activities of the assessee institution, is also of no substance, as admittedly the object of the Nav Chetna Kendra Society, is not against any public policy and it has also been brought on record that the amount advanced by the assessee to the Nav Chetna Kendra was not for any other object, except that mentioned in the objects of that Society. There is nothing on record to show that money so advanced was for personal benefit of any office bearers of the assessee Society or any other person. It not being in dispute that Nav Chetna Kendra Society runs the library of the institution, an object related to charitable purpose, where the money has been advanced by the assessee Society in furtherance of the said object i.e. for running a library, which is again an educational 22 ITA No.412/Agr/2011 purpose, it cannot be a ground for refusing registration of the assessee Society.
55. There is no finding that the aforesaid activities of the Society were not genuine.
56. The Tribunal has also considered that the balance sheet could not be reconciled as earlier the balance sheet was not audited and the audited balance sheets, which were filed before the Commissioner, did not show any discrepancy.
57. So far the non-deduction of provident fund from the salary paid to certain employees is concerned, that in it again would not constitute a ground for rejection, as no such requirement stands spelt out from provisions of section 12AA nor it makes the activities of the institution as non-genuine. In case the institution has defaulted or defaults in the matter of depositing, contributions of the employees' provident fund, the Act concerned shall take care of such default but in no case it can be a ground for refusal of registration.
58. The following facts, which are of real importance and which cannot be overlooked are; that the assessee Society was established and got Regis-tered in 1981-82. Initially the assessee started running a school up to class VIII with 60 students in residential house at C-212, Rajaji Puram, Lucknow and then U.P. Avas Vikas Parishad allotted a piece of land of 1880 sq. mtr. in assessment year 1986. After construction being raised on that plot, the school was shifted in this building in the year 1987. The strength of the students from 60 students raised up to 1,500 and later on, assessee Society obtained affiliation from CBSE, Delhi Board in the year 1993 up to Class X and subsequently up to Class XII in the year 1997 in various disciplines viz., Science, Commerce, Arts, Computer, Music, Entrepreneurship and Infor-mation Technology in both the English and Hindi medium up to Class XII. The assessee Society passed a resolution in the meeting held on 1-12-1998, copy of which was before the Tribunal, in which it was 23 ITA No.412/Agr/2011 mentioned that a library in the name of "Nav Jagriti Kendra"
be established for providing books to the school children. In this context, the assessee Society passed another resolution on 10-8-1999 providing monetary help to Nav Chetna Kendra for purchase of books by the assessee Society and in that context the books of higher studies were purchased and made available for students to inculcate knowledge. Such expenses, in purchase of books of higher standard, are not involving any monetary profit to assessee Society or its office bearers. The Society was running two branches of its schools, one at Rajajipuram and the other at Gomti Nagar, whereas the third branch was in the making at Vishnulok Colony, Kanpur Road, Lucknow.
59. So far the charge of fee is concerned, it was on record that the fee was being charged, which was prevailing in other schools and tuition fee etc. ranged from Rs. 225 to Rs. 700, excluding conveyance allowance, which cannot be said to be arbitrary and excessive.
60. The objects of the assessee Society undoubtedly are for charitable purposes and not against public policy. The genuineness of its activities is proved by the aforesaid facts, which conclusively show that the Society has established a school for the children in the year 1982 and thereafter it has opened its two more branches raising the standard of the school up to CBSE, Delhi Board and subsequently up to Class XII, with a large number of students and sufficient staff to whom salary is being paid.
61. The activities aforesaid cannot be doubted nor can be said to be non-genuine within the meaning of the provisions of section 12AA.
62. The scheme of section 12A and section 12AA does not allow any person/trust or institution to take benefit of the provisions of section 11, section 12, as the case may be, unless registration under section 12AA is obtained and that sub-clause (3) of section 12AA puts complete control over the activities of 24 ITA No.412/Agr/2011 the trust or the institution and if it is found at any subsequent stage, that its are not being carried as per the objects or they do not remain genuine, action for cancellation of registration activities can be taken.
63. For the reasons stated above, we do not find any illegality or infirmity in the order passed by the Income-tax Appellate Tribunal."
C) The Madras High Court in the case of Commissioner of Income-tax-I, Madurai vs. Sarvodaya Ilakkiya Pannai [2012] 20 taxmann.com 546 (Mad.) TAX CASE APPEAL NO.641 OF 2011 JANUARY 25, 2012 has held as under:-
"4. The relevant provisions of section 12AA of the Income Tax Act read as under :-
"12AA. Procedure for registration:
(1) The Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) of sub-section (1) of section 12A, shall--
(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and
(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he--
(i) shall pass an order in writing registering the trust or institution;
(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant.
(2) ..............25 ITA No.412/Agr/2011
(3) Where a trust or an institution has been granted registration under clause(b) of sub-section(1) or has obtained registration at any time under section 12A (as it stood before its amendment by the Finance (No.2) Act, 1996(33 of 1996)) and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution".
5. In order to avail the benefit of exemption under section 11 of the Act, a Trust can make an application to the Commissioner for registration under section 12A of the Act. On receipt of the said application for registration of a trust or institution, the Commissioner should satisfy himself about the genuineness of the activities of the trust or institution. In order to satisfy himself, the Commissioner may also make such enquiry as he may deem necessary in that behalf. In the event the Commissioner satisfies himself that the trust is entitled to registration keeping in mind the objects, shall grant registration in writing in terms of section 12AA(1(b)(i) of the Act. In the event the Commissioner is not satisfied, he shall refuse such registration in terms of section 12AA(1)(b)(ii) of the Act. Once such a satisfaction is arrived at by the Commissioner to grant, such registration cannot be cancelled by following the very same provision of section 12AA(b)(i) of the Act to go into the genuineness of the activities of the trust. However, the Commissioner is empowered to revoke the certificate in terms of section 12AA (3) of the Act. As per the said provision, in the event the Commissioner is satisfied subsequently i.e. after registration that the activities of such trust or institution are not genuine or not being carried out in accordance with the objects of the trust or the institution as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution.
6. In order to apply the above provision, there must be a specific finding by the Commissioner that the activities of the trust or institution are not genuine or not being carried out in accordance with the objects of the trust or institution as the case may be. The question is, whether the order of the Commissioner of Income Tax could fall under the powers conferred on him under section 12AA (3) 26 ITA No.412/Agr/2011 of the Act. The only reason given by the Commissioner of Income Tax to cancel the registration is that the activities of the trust were not charitable and therefore, the trust is not entitled to exemption under section 11 and consequently, cancelled the registration granted under section 12AA.
7. It is not as if that the registration was granted without considering the objects of the trust in question, namely, "(a) The publication, sale and spread of Sarvodaya Literature.
(b) To support all activities connected with the constructive programmes of the father of the nation, Mahatma Gandhi.
(c) To organize meetings, seminars, symposium and conferences to propagate Gandhian and Sarvodaya Ideologies.
(d) To do all other acts and things incidental to and necessary in the furtherance of the said objects.
(e) To apply the profit derived by the society to the activities connected with spreading and propagating of Gandhian and Sarvodaya Ideologies and to help the Sarvodaya movement".
8. The Commissioner of Income Tax, before granting the registration, had gone into the above objects and satisfied himself for grant of registration. Subsequently, by the order of the Commissioner of Income Tax dated 31.06.2011, the very same objects were considered and were found not to be the activities which are charitable in nature. While carrying on the activities of publication and sale of Sarvodaya Literature and Gandhian Ideologies as charitable activities, referring the same objects as not charity, it cannot be brought under the provisions of section 12AA(3) of the Act. The cancellation was made not on the ground that the activities of the trust were not genuine but the activities of the trust were not in accordance with the objects of the trust. When the trust was registered with definite objects, carrying on such activities would be in terms of the objects for which the registration was made. In fact, if those activities are not carried on, the trust may violate the objects for which the registration was granted.
27 ITA No.412/Agr/20119. Under section 12AA, the Commissioner is empowered to grant or refuse the registration and after granting registration, would be empowered to cancel and that too, only on two conditions laid down under section 12AA(3) of the Act. Whether the income derived from such transaction would be assessed for tax and also whether the trust would be entitled to exemption under section 11 are entirely the matters left to the assessing officer to decide as to whether it should be assessed or exempted.
10. The Tribunal had allowed the case of the assessee with the finding that none of the conditions under section 12AA (3) were violated and therefore, the satisfaction which was arrived at by the Commissioner of Income Tax was not justified. In that view of the matter, we find no reason to interfere with the order of the Tribunal and accordingly, both the questions require no further consideration."
D) Hon'ble Supreme Court of India in the case of American Hotel & Lodging Association Educational Institute vs. Central Board of Direct Taxes & Others, 301 ITR 86 (SC)(page 104) has held as under :-
"At the outset, we need to examine the scope of section 10(22), which is the predecessor of section 10(23C)(vi), without the provisos.
Actual existence of the educational institution was the pre- condition of the application for initial approval under section 10(22). On the grant of approval under section 10(22), sections 11 and 13 did not apply. Therefore, earlier prior to April 1, 1999, when exemption was given to the appellant, there was no assessment nor demand. Section 10(22) had an automatic effect. Once an applicant-institution came within the phrase "exists solely for educational purposes and not for profit" no other conditions like application of income were required to be complied with. The prescribed authority was only required to examine the nature, activities and genuineness of the institution. The above phrase was the only requirement for initial approval. The mere existence of profit/surplus did not disqualify the institution if the sole purpose of its existence 28 ITA No.412/Agr/2011 was not profit-making but educational activities as section 10(22) by its very nature contemplated income of such institution to be exempted. Under section 10(22), the test was restricted to the character of the recipient of income, viz., whether it had the character of educational institution in India, its character outside India was irrelevant for deciding whether its income would be exempt under section 10(22)."
E) The Delhi Bench of ITAT in the case of Aggarwal Mitra Mandal Trust vs. Director of Income Tax (Exemption), 293 ITR (AT) 259 (Delhi) (page 264) has held as under:-
"We have considered the rival submissions and also perused the relevant material on record. It is observed that any trust or institution seeking to avail of the benefit of the provisions of section
11 and 12 is required to apply for registration under section 12A. The procedure for registration is prescribed in section 12AA and as per the provisions of sub-section (1) of that section, the Commissioner of Income-tax [DIT (Exemption) in the present case] is empowered to satisfy himself about the object of the Trust and about the genuineness of the activities of the trust or institution before granting the registration under section 12A. Once the Commissioner of Income- tax has not doubted the genuineness of the activities of the assessee nor doubted its charitable object, he cannot refuse to grant registration under section 12A."
F) The Gujarat High Court in the case of Ahmedabad Urban Development Authority vs. Deputy Director of Income-Tax (Exemption) 335 ITR 575 (Guj.)( Page 578)has held as under:-
"Section 12AA of the Act lays down the procedure for registration in relation to the conditions for applicability of sections 11 and 12 as provided in section 12A of the Act. Therefore, once the procedure is complete as provided in sub-section (1) of section 12AA of the Act and a certificate is issued granting registration to the trust or institution it is apparent that the same is a document evidencing the satisfaction about: (1) genuineness of the activities of the trust or institution, and (2) about the objects of the trust or institution. Section 29 ITA No.412/Agr/2011 12A of the Act stipulates that the provisions of sections 11 and 12 shall not apply in relation to income of a trust or an institution unless the conditions stipulated therein are fulfilled. Thus, grunting of registration under section 12AA of the Act denotes, as per the legislative scheme, that the conditions laid down in section 12A of the Act stand fulfilled."
G) The Jharkhand High Court in the case of CIT vs. Karimia Trust [2008] 302 ITR 57 has observed that breach of the conditions of the trust deed even if committed by the assessee would not dis-entitle the assessee from getting the benefit which the assessee had been granted earlier being a charitable-cum- religious trust.
9.4 A cursory glance at the provisions of the Act and above judicial pronouncements, we find that unless a Samiti or society or trust, as the case may be, is registered under section 12A of the Act, it would not be entitled to claim the benefits under sections 11 and 12 of the Act. Thus there are two separate aspects of the scheme of the Act, one is registration under section 12A/12AA and another is after registration to see application of the income for the purpose of charitable objects of Samiti or society. As regards registration under section 12A/12AA, the caption of the section says conditions as to registration of trusts. The conditions which are provided are that the person concerned should have made an application for registration in the prescribed form and in the prescribed manner to the authorities named in that section before the first day of July, 1973, or before the expiry of the period of one year from the date of the creation of the trust or establishment of the institution. The language of the section 12AA does not show 30 ITA No.412/Agr/2011 that in order to be able to get registration under section 12A/12AA of the Act, there is necessity of first establishing as to how the concerned Samiti or institution or, as the case may be, the society would be able to claim the exemptions under section 11 or 12 of the Act. The question of exemptions under sections 11 and 12 of the Act would come only when the said exemptions are claimed by the Samiti or society at the time when it is assessed to tax. To consider whether the said society would be entitled to the benefits under sections 11 and 12 of the Act would be pre-
judging the issue before the grant of certificate. At the stage of grant of certificate under section 12A/12AA of the Act, the only enquiry which is to make by the Commissioner would be about the objects of the trust or institution and the genuineness of its activities. The procedure for registration of the Trust or Institution is prescribed under Section 12AA of the Act. In terms of Clause (a) of Section 12AA of the Act, the Commissioner is to satisfy himself about the genuineness of the activities and objects of the Trust on such inquiries as he may deem necessary.
9.5 In the light of above back ground of discussions, if we consider the facts of the case under consideration, we find that the main objection of the CIT in not granting registration under section12A was that the assessee trust has surplus more than 15% of total receipts. It was also observed by him that in spite of 31 ITA No.412/Agr/2011 various objects, the society is only carrying out educational activities and no expenses regarding other activities has been reflected in the Income and Expenditure account. On perusal of facts, we find that that the CIT has rejected the application for registration under section 12A/12AA on the ground of application of income which too is not correct. As the Ld. Authorised Representative demonstrated from various papers pointed out from the paper book and as per submissions made by the Ld. Authorised Representative which have been noted by us in his contention in paragraph no.5 of this order, undoubtedly the objects of the Samiti are for education and charitable purposes. The CIT has not doubted about the genuineness of activities as he did not point out any adverse things in this regard in his order. The CIT examined this aspect after issuing show cause notice and calling information from the Samiti. The genuineness of its activities is proved by the aforesaid facts. The object clauses and dissolution clause of the Samiti which conclusively show that the Society has established for education and other charitable activities. The dissolution clause of the society provides that in case of dissolution the assets and surplus will be given to other Samiti having similar objects. We find that on the basis of facts noted by the CIT, the activities of Samiti cannot be doubted nor can be said to be non-genuine within the meaning of the provisions of section 12AA of the Act. Thus, there was sufficient material before the CIT for satisfying himself about the genuineness of activities and 32 ITA No.412/Agr/2011 objects of the Samiti. The CIT has wrongly rejected the assessee, Samiti's application for registration under section 12A/12AA of the Act on the basis of incorrect facts, regarding application of income which is not the part of examination by him at the stage of granting registration under section 12A/12AA of the Act. The CIT is to follow only the procedure laid down in section 12AA of the Act. Since there are no adverse findings by the CIT in respect of requirement of section 12AA, rather he satisfied about that. Therefore, we direct the CIT to grant registration to the assessee, Samiti under section 12A/12AA of the Act.
10. In the result, appeal filed by the assessee is allowed.
(Order pronounced in the open Court on 18.05.2012) Sd/- Sd/-
(BHAVNESH SAINI) (A.L. GEHLOT)
Judicial Member Accountant Member
Date: 18th May, 2012
PBN/*
Copy of the order forwarded to:
Appellant/Respondent/CIT concerned/CIT (Appeals) concerned/ D.R., ITAT, Agra Bench, Agra/Guard File.
By Order Sr. Private Secretary Income-tax Appellate Tribunal, Agra True Copy