Income Tax Appellate Tribunal - Delhi
Hans Raj Smarak Society, New Delhi vs Assessee on 10 February, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'C' : NEW DELHI)
SHRI A.D. JAIN, JUDICIAL MEMBER
and
BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER
ITA No.1041/Del./2012
Hans Raj Smarak Society, vs. Director of Income-tax (E),
J - 5/2, Krishna Nagar, Delhi.
Delhi - 110 051.
(PAN : AAATH0351B)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Ms. Vibha Mahajan Seth, Advocate
REVENUE BY : Shri Satpal Singh, Senior DR
ORDER
PER B.C. MEENA, ACCOUNTANT MEMBER :
This appeal filed by the assessee emanates from the order of Director of Income-tax (Exemptions), Delhi dated 10.02.2012 on the following grounds :-
"1. The order of the Learned Director of Income Tax (E) is bad in Law and facts.
2. The Learned Director of Income Tax (E) has erred in Law and Facts in concluding that the Society is indulged in taking Forcible Donations.
3. The Learned Director of Income Tax (E) has erred in Law and Facts in concluding that the Income of the assessee (Society) is no longer exempt U/S 11 / 12 of the Income Tax Act.2 ITA No.1041/Del./2012
4. The Learned Director of Income Tax (E) has erred in Law and Facts in concluding that the activities of the society are not Charitable in nature and thereby cancelling the Registration U/S 12A of the Society w.e.f. assessment year 2008-2009 onwards.
5. The Appellant craves leave to add, alter, amend or vary any of the above grounds of appeal at or before the time of hearing."
2. The assessee is a society registered under the Societies Act in the year 1968. The main objects of the society are as under :-
a) To establish and maintain the institution for imparting education.
b) To establish and maintain the institution for providing medical relief to the needy.
c) To organize discourses on education and topics of moral character and other topic of general interest to print and or to publish literature on such subjects.
d) To undertake work of a charitable nature and of providing relief and general welfare in Society.
e) To hold and or acquire and maintain property in the name of the society, and
f) To do all such acts or things as may be incidental or conducive to the attainment of any or all of the aforesaid objects.
The assessee society registered under Section 12A(a) of the Income-tax Act vide its registration No.JE-3(14)/686/6778-80 dated 20.09.1973. At present, the assessee is running two schools, i.e., Hans Raj Smarak Sr. Secondary School, Dilshad Garden, Delhi and Hans Raj Smarak Middle School, Krishna Nagar, Delhi. While pleading on behalf of the assessee the ld. AR submitted that in these two schools run by the society, around 3 ITA No.1041/Del./2012 2700 students studying. Due to increase in the numbers of students seeking admission, the society decided to increase the number of class rooms and other infrastructure facilities in these schools. Some amount as donations was, therefore, invited from the parents of the students including parent of the students seeking admission in these schools, however, donations were not received from all the children who sought admission in these two schools. This fact is evident from the following :-
A.Y. 2008-09 A.Y. 2009-10 No. of students 467 353 No. of students who paid donation & 288 289 admitted No. of students who did not pay 179 64 donations & admitted
Ld. AR also pleaded that assessee society is also admitting 25% students from the economically weaker section of the society. These students are being provided free education without any grant from the Government in this regard. She also submitted that donations received by assessee were not in uniform pattern. Choice was given to the parents. This fact is evident from page 17, 25 and 43 of the paper book filed. This shows that these donations were voluntary. The proper receipts were duly issued to the donor parents and these amounts were duly accounted for in the books of account of the society under the head "building funds". These donations were not received only at the time of admissions. She submitted that the 4 ITA No.1041/Del./2012 donations were spread over the year and these were not related to the admissions in the schools. This fact is evident form pages 6 to 13 of the paper book. Ld. AR further pleaded that these donations constitute small percentage of the gross receipt of the society. This is evident from the following :-
A.Y. 2008-09 (`) A.Y. 2009-10 (`)
Gross Receipts 2,60,07,171.00 3,08,00,964.00
Donations 7,79,100.00 8,91,400.00
% age of donations to total gross
receipts 3.03% 2.89%
She also pleaded that the donations were also received from persons other than parents of the students. This fact is evident form the following :-
A.Y. 2008-09 (`) A.Y. 2009-10 (`)
Total Donations 9,77,137.00 10,14,200.00
Donations from members of society 1,98,037.00 1,22,800.00
The ld. AR also pleaded that even though the amount/donations were shown under the head "building fund", however, the same was included in the total income of the assessee while filing the computation of income. The ld. DIT (E) has wrongly cancelled the registration of the society u/s 12A w.e.f. 2008-09 onwards with retrospective effect vide its order dated 13.02.2012 which is against the established law. The DIT (E) is not justified in stating that the activities of the society are not charitable. The 5 ITA No.1041/Del./2012 assessee society is running these two schools and through which imparting the education. As per section 2(15) of the Income-tax Act, 1961, imparting education falls specifically within the charitable purposes. The assessee society is carrying out the activities of imparting education by means of these two schools. Imparting education is the first object of the society. Ld. AR submitted that it is incorrect to state that activities are not being carried out in accordance with the object of the society. Whatever money is received in whatever form / all receipts, be it in the form of fee or donations, be it voluntary or involuntary is indeed being used/spent for the charitable purposes as defined in section 2(15) of the Income-tax Act, 1961. These donations were not for the personal benefit of any trustee/member of the society. The DIT (E) has also not concluded so. In view of these facts, it is incorrect to state that the activities of the assessee are not genuine. She further pleaded that Rules 155 and 156 of Delhi School Education Act are applicable only to the aided schools while assessee's schools are running completely without any aid from the Government. The question of donations being voluntary or involuntary can be considered while considering the exemption u/s 11 & 12 of the Income-tax Act, 1961. She also distinguished the facts of the case from the cases relied upon by the DIT (E). She pleaded that in the case of Vodhithala Education Society vs. ADIT (E) - (2008) 20 SOT 353 (Hyd.), the facts were different. In that case, the issue was for exemption u/s 11 of 6 ITA No.1041/Del./2012 the Income-tax Act, 1961 and not of registration u/s 12AA of the Income- tax Act, 1961. Secondly, the money collected over a prescribed fee/capitation fee were handed over to the Chairman and other persons of the society and that is not used for charitable purposes of education which debarred the assessee from exemption u/s 11 of the Income-tax Act, 1961. But, in the case under consideration of this assessee, all the receipts were duly accounted for in the books of account and used for the purpose of imparting education only. She also pleaded that in the case of Rajah Sir Aannamalai Chettiar Foundation vs. DIT (E) (ITA No.2927/Mds./2010), the issue was also related to exemption u/s 11 of the Income-tax Act, 1961. Further, in that case, the fee structure was itself contemplates element of profit in its activities and no free education was imparted / concession granted even to the downtrodden and deserving persons. In that case, the object of the trust was to establish number of educational institutions in a particular brand name and run them on commercial lines. Ld. AR pleaded that this judgment relied upon by the DIT (E) for cancelling the registration u/ 12AA(3) is not justified as facts are at variance. Ld. AR also submitted that the case of CIT vs. M.P. Anaj Tilhan Vyapari Mahasangh supports assessee's case as profit making is not the predominate object of activity done by assessee. Assessee is imparting education to certain students without cost, therefore, the case of CIT vs. M.P. Anaj Tilhan Vyapari Mahasangh helps the assessee. She also relied 7 ITA No.1041/Del./2012 on the decision of Padanilam Welfare Trust vs. DCIT - 10 ITR (Trib) 479 (Chennai) and Maharashtra Academy of Engg. & Educational Research vs. CIT - ITAT, Pune 'A' Bench - (2010) 133 TTJ (Pune) 706. She also pleaded that while cancellation of the registration u/s 12AA(3), the principles to be followed must be the same which needs consideration while granting the registration u/s 12A read with section 12AA(1). For granting registration, CIT / DIET (E) has to satisfy himself about the genuineness of the activities of such institution and the same must be being carried out in accordance with the objects of the trust / institution. For this proposition, Ld. AR relied on the following judgments :-
(i) Aryan Educational Society - 281 ITR 71 (Delhi);
(ii) Director of Income-tax vs. Garden City Educational Trust -
330 ITR 480 (Karn); and
(iii) CIT vs. Red Rose School - 212 CTR (All) 394.
Alternatively, she also pleaded that amended section 12AA(3) w.e.f. 1.6.2010 wherein the scope of section has been enlarged for cancellation of the registration u/s 12A obtained prior to amendment by Finance (No.2) Act, 1996 does not have retrospective operation. The assessee society was registered since 1973. The provisions of section 12AA(3) was first time introduced in the Act w.e.f 1.10.2004 which gives the power for cancelling the registration. Initially, the scope of this provision was limited to the registration granted under clause (b) of sub-section (1) of section 12AA of the Income-tax Act, 1961. The scope of the provision was extended to the 8 ITA No.1041/Del./2012 trust or institutions which have been granted registration at any time u/s 12A as it stood before amendment by the Finance (No.2) Act of 1996. Therefore, the cancellation retrospectively is against the settled law in this regard. For this proposition, she relied on the decision of Ajit Education Trust vs. CIT - 134 TTJ (Ahd.) 483, Kapoor Educational Society vs. CIT - 134 TTJ (Lucknow) 250 and Oxford Academy for Career Development vs. Chief CIT - 226 CTR (All.) 606. Finally, she pleaded that the President of the society has filed an affidavit to stop taking the donation from July, 2011. She also submitted that assessee has already offered these donations for taxation u/s 115BBC. She pleaded to set aside the order of DIT(E).
3. Ld. DR relied on the order of the DIT (E).
4. We have heard both the sides on this issue. The assessee is registered as society under the name Hans Raj Smarak Society. One of the objects of the society is also to establish and maintain the institutions for imparting education. At present, the assessee is running two schools. For the enhancement of the infrastructure on account of increase in the number of students, the assessee collected donations from various persons including the parents of the students. It is a fact that donations were not received from all the students who got admission during the relevant period in the schools run by the society. Further, these donations were of a small percentage of the total receipts of the society. The donations were also received from other members of the society under the head "building 9 ITA No.1041/Del./2012 funds". These donations were not being used for personal benefit by any of the person of the trust or members of the society. These donations were duly reflected in the books of assessee society. The assessee schools run by society were not getting any aid from the Government of Delhi. Rules 155 and 156 of the Delhi School Education Act were not applicable to schools run by society. The case laws relied upon by the DIT (E) for cancellation of registration was on the issue of exemption under sections 11 and 12 of the Income-tax Act, 1961 or under these Acts. In our considered view, the ld. AR has successfully able to distinguish the case laws relied upon. We also find force in the pleadings of Ld. AR that the DIT (E) has to look into the same parameters which were necessary for granting the registration u/s 12A while canceling the same. The activities of any such institution must be genuine and the same are to be carried out in accordance with the object of the trust or institution. Assessee's activities are genuine and carried out in accordance with its objects. In the case of Padanilam Welfare Trust vs. DCIT, cited supra,, the ITAT, Chennai 'A' Bench has held as under :-
"The assessee-trust was registered under section 12AA of the Income- tax Act, 1961 as a charitable trust from the assessment year 1993-94 onwards, A search action was carried out by the Department at the premises of the assessee-trust as well as in the premises of the trustees and on the basis of the documents and materials found and seized in the course of search, the Commissioner came to a conclusion that the assessee-trust had collected capitation fees from students in excess of the donations admitted, that the capitation fees collected by the assessee-trust had not been brought in the books of account or reflected in the returns, that the funds of the assessee-trust were diverted as the 10 ITA No.1041/Del./2012 deposits were made for acquiring assets for the trustees and relatives. The objections filed by the assessee were overruled and the registration had been ultimately withdrawn by the Commissioner. On appeal :
Held, allowing the appeal, that the violation of the Prohibition of Capitation Fees Act could not be a ground to take away the registration of a charitable organization. The cancellation of registration by the Commissioner under section12A on the ground of accepting capitation fees was not sustainable in law. As far as the assessee-trust was concerned, the violation was that of the Anti Capitation Fees Act which was not a violation under the provisions of the Income-tax Act. There was no apparent distinction between legal and illegal income under the provisions of the Income-tax Act. If the income was taxable, it should be taxed. If the assessee had not applied the capitation fees collected even in violation of the Prohibition Act for the purposes for which the trust was established, there was a case for the Department. I f the assessee had applied its entire income including capitation fees exclusively for the purposes for which it was established, the Department had no case. As far as application of funds was concerned, there was no case made out by the Department against the assessee. According to the details furnished by the assessee-trust, the assessee had spent its entire receipts for the purposes of creating infrastructure facilities to run its educational institutions. The registered office of the trust was the residence of the Trustees. Therefore, it was very premature to hold that the cash found in the registered office/residential houses amounted to diversion of funds. It was only a holding of funds and not application if diversion of funds. All the balance cash remained with different educational institutions. Therefore, the cash found and seized in the course of search was not a ground to make an allegation that the trustees had diverted the funds of the assessee-trust for activities other than charitable activities. The assessee had furnished the details of payments made by one of the trustees towards capitation fee for obtaining a medical seat for his daughter as reflected in the account maintained with bank. All these transactions were reflected in .the books of account. Therefore the action of the Commissioner in withdrawing the registration granted to the assessee under section 12AA was not sustainable in law. Accordingly, the registration granted under section 12AA was to be restored."
In this case, acceptance of capitation fee has been considered not a ground of cancellation of a charitable trust till the assessee is not diverting the funds and the amount is reflected in the accounts maintained. All transactions were reflected in books of assessee and the same used for the objects of the trust.
11 ITA No.1041/Del./20124.1 In the case of Maharashtra Academy of Engineering & Educational Research (MAEER) vs. CIT, cited supra, the ITAT, Pune 'A' Bench has held as under :-
"In the recent past sub-s. (3) was inserted in S. 12AA w.e.f. 1st Nov., 2004 which gives power of cancellation of registration to the CIT, if he finds that the activities are not genuine or not being carried out in accordance with the object of the trust. These powers are conferred with a view to ensure t at if once a registration has been granted under s. 12AA, a trust or institution may not take any such liberty of misuse of the registration or the provisions by going haywire rather furthering the objects of the trust or genuinely not pursuing the activities for which it was established. The most important feature of s. 12AA is as also referred in this appeal for adjudication, that this section has only laid down the procedure of registration and this section nowhere speaks that while considering the application of registration, the CIT shall also look into the procedure of earning of income and sources from where receipts are derived. The power of enquiry, in respect of sources of receipts and the utilization of income is entrusted in separate sections. The language thus used in this section only confines to enquire about the activities of the trust and its genuineness, which means, in consonance with the objects for which created and those objects as also activities should not be a camouflage but pure, sincere, charitable and for public utility at large. What is implicit is that the CIT has to sincerely examine that the objects as also the activities should not be prima facie against the basic structure for which beneficial law is made and also be not in conflict with the general public utility. Naturally an institution if established to carry out an illegal activity or activities are causing any type of nuisance not in the interest of the public at large should definitely lead to cancellation of registration. The scheme of the Act otherwise do not subscribe and allow a trust to take the benefit of the provisions of ss. 11 and i2 unless establish the prescribed utilization of the income, even if, at all the trust holds the registration in its hands. Therefore at the stage of granting registration the CIT is not expected to bother himself about the other provisions of the Act and supposed to confine himself to the procedure of registration as laid down therein.
Nowhere the CIT has taken any objection to the charitable and educational nature of the institution. In fact, the objects of the institution as declared in the trust deed does reflect that all are philanthropic or benevolent in nature, precisely for the purpose of imparting education. Strange enough there is no finding recorded by the CIT contrary to this fact. Be that as it may, the real and the only substantial objection for refusal of registration was that the institution has collected donations thus adopted some wrong means of collection of fees. But whether at this preliminary stage he had the right to draw 12 ITA No.1041/Del./2012 an adverse inference so as to refuse registration or alternatively confine himself to the enquiry about the objects and the activities of the trust as per the limits of the jurisdiction of s. 12AA. Rather this is also not the case of the CIT that the institution is doing some other activity of earning profit other than the activity of running educational institutions. The established factual position is that the institution is not doing in any other activity except running educational institutions. In such circumstances, the action of cancellation of registration cannot be upheld. As far as the objective of the appellant is concerned this is not the case of the Revenue that the assessee was not imparting education. Since the question about the imparting of education has not been doubted or challenged by the Revenue therefore, the impugned order passed by the respondent is unsustainable in law. Strange enough there is nothing on record to prove sightlessly that the purpose of imparting of education was not fulfilled by this institute thus the Revenue Department has hopelessly failed to establish that there was any illegal activity or infringement of any law so that to doubt the genuineness of the activities. If it was so then it can be held that the allegations of the Revenue remained unsupported thus deserves dismissal. The CIT's approach for deciding the eligibility of registration of a trust should be different from the angle by which an assessment of an income is made by the AO. What purpose does it serve to Revenue by cancelling a registration if the activities are in public interest because in case of any breach of the laws the same is subject to tax under ss. 11 and 12. These two provisions and few other provisions are competent enough to tackle firmly a defaulter of philanthropic application of income or funds of the trust. The other adverse side of cancellation is that or; refusal of registration the entire receipts shall be subject to assessment without granting benefit of s. 11 and s. 12 to assess income which does not form part of total income though the factual position could be that major part might have been devoted towards achieving the objects i.e., imparting education, as in this case, but the AD shall be automatically forbidden to grant advantage of exemption consequent, upon the cancellation as is mandatory in statute. The outcome of the deliberation made in detail hereinabove is that percurian opinion is to debar the CIT to enter into the area of investigation of source of income and also application of income, so that the amount of correct exempt income be not prejudged. If the CIT had an information of some wrongful means of earning fees in the form of a donation or the information tells about excessive charging of fees; then the CIT in his rights can pass on the information to the concerned office bearers working under the Maharashtra Capitation Fees (Prohibition) Act. These authorities have enough power to deal with such nature of default, side by side the CIT is to limit his jurisdiction within the ambits of provisions of the Act and expected to give a finding on facts that either the objects are not for general public utility or not achieved as prescribed under law. However presently the situation is that the Revenue has not said about any immoral activity of the appellant or the collection of fees was by wrongful means. Prima facie no case was made out by the CIT 13 ITA No.1041/Del./2012 so as to even vaguely demonstrate that the activities of the appellant were not genuine or activity of imparting of education, for which the trust was created, were not carried out. Even the CIT has failed to establish that any part of the income/receipt of the trust was in any manner misutilized by the trustees for their personal benefit i.e., not in fulfillment of the object of the trust. Otherwise also there are three ways to look at this problem. One is, that the donations are raised but not utilized for achieving the objects i.e., towards imparting education; then such an institution must bear the consequence of cancellation of registration since ipso facto infringed s. 12AA(3) condition. Second aspect is, that though the donations received are meant to fulfill the objects but together with fees have infringed Anti Capitation Prohibition Act; that comes within the clutches of that Act but definitely not under s. 12AA(3) provisions. The third aspect is, that the donation plus fees do not exceed the prescribed limit of Anti Capitation Fee Act i.e., five times the normal fees; further that no evidence of misutilization other than the prescribed activity then no action can be suggested under s. 12AA(3). The assessee's case falls under the third category. With the result, totality of the circumstances thus warrants, in the light of the foregoing discussion, not to endorse the view of the CIT. The order of cancellation of registration is hereby revoked.-Aggarwal Mitra Mandai Trust vs. Director of IT (Exemption) (2007) 109 TTJ (Del) 128, Kalinga Institute of Industrial Technology vs. CIT (2008) 113 TTJ (Ctk) 906 : (2008) 1 DTR (Ctk) 273 and Himachal Pradesh Environment Protection & Pollution Control Board vs. CIT (2009) 125 TTJ (Chd) 98 : (2009) 28 DTR (Chd)(Trib) 289 relied on."
In this case also, the ITAT has held that CIT has no jurisdiction u/s 12AA (3) of the Income-tax Act, 1961.
4.2 In the case of assessee, schools were imparting education as per aims and objects of the society. Poor and needy children are also admitted and imparted free education. The amounts of donations were duly reflected in the books of assessee. Donations were received from various other persons other than parents of wards. These donations were received during the year not only during admission period. These amounts have been included in computation of income. Considering these facts and case laws relied upon, we hold that DIT (E) was not justified in cancelling the 14 ITA No.1041/Del./2012 registration of the assessee society. Since we have set aside the order of DIT (E) for cancellation of registration, therefore, we do not find any necessity to adjudicate on the issue of retrospective application of amended provisions for cancellation of the registration of the society.
5. In the result, the appeal of the assessee is allowed.
Order pronounced in open court on this 20th day of July, 2012.
Sd/- sd/-
(A.D. JAIN) (B.C. MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : the 20th day of July, 2012
TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.DIT (E), Delhi.
5.CIT(ITAT), New Delhi.
AR, ITAT
NEW DELHI.