Income Tax Appellate Tribunal - Pune
Dr. D.Y. Patil Education Society, ... vs Assessee
Author: G.S. Pannu
Bench: G.S. Pannu
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH " A", PUNE
BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER
AND SHRI G.S. PANNU, ACCOUNTANT MEMBER
ITA No 1280/PN/07
D.Y. Patil Education Society, .. Appellant
2126, E Tarabai Park, Kolhapur
Vs.
Commissioner of Income-tax (Central), Respondent
Pune
Appellant by: Shri M K kulkarni
Respondent by: Shri Tejindersingh (CIT) & Hareshwar
Sharma (CIT)
ORDER
PER G.S. PANNU, AM
This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Central), Pune (in short "the Commissioner) dated 29.08.2007 passed under section 12AA of the Income-tax Act, 1961 (in short 'the Act'), rejecting the assessee's application for registration under section 12A(a) of the Act.
2. Vide application dated 01.06.2011, the learned Counsel for the assessee has filed the following concised Grounds of appeal:
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"1. On the facts and circumstances of the case and in law, the ld CIT (Central) Pune was not justified in refusing the registration u/s 12AA to the appellant-Society without considering the exhaustive written submissions supported by precedents placed before him. The order passed by ld CIT (Central) is not a 'speaking order' and runs counter to the provisions of law.
2. On the facts and circumstances of he case and in law especially when ld CIT (Central) having recorded a finding that "There is no doubt that the Trust is running Educational institutions" inescapable conclusion should have been grant of registration as prayed for after condonation of delay. The appellant-Trust for a longer period of 20 years or so remained under bona fide impression that it was duly registered u/s 12A(a) of the Act.
3. on the facts and in the circumstances of the case and in law and since on the basis of the bona fide thinking that it was duly registered u/s 12A(a) but the registration Certificate was not traceable all the while such request to that effect was made to ld CIT, Pune. Since the ld. CIT's finding that the Trust is running Educational institutions then it was entitled to registration under sec. 12AA as prayed for.
4. On the facts and in the circumstances of the case and in law the ld CIT's order dated 29.8.2007 is vitiated in law since he failed to appreciate the legal position that source of funds is not important but application of funds towards objects of the Trust which are "Charitable in nature" is required to be considered in order to decide the genuinity of the activities of the Trust. The main reason relied upon by the ld CIT is that the appellant Trust is collecting Capitation fees, sans any finding that the such funds have been used for the purpose other than running the institutions. In matter of registration the law is well settled that the satisfaction of the Commissioner should e regarding the application of the Trust for the specified purposes which only entities the assessee to claim exemption. In he absence of such satisfaction the order of the ld CIT is contrary to the provisions of law and precedents.
5. On the facts and in the circumstances of the case and in law the Trust being an educational Institution and undisputedly imparting education, therefore, it was not justifiable on the part of the ld CIT to deny the registration.
6. On the facts and in the circumstances of the case and in law the scope and nature of enquiries at the stage of grant of registration are prescribed under section 12AA. Thus, CIT has no jurisdiction to conduct enquiries which fall beyond the pale of such statutory prescription.
7. On the facts and in the circumstances of the case and in law the benefit of the principles of 'promissory estoppel' cannot be denied to the assessee having enjoyed the exemption for the last so many years under the same facts and circumstances.
8. On the facts and in the circumstances of the case and in law the ld CIT refused granting of registration simply on the basis of AO's report dt 13.8.2007 that income earned by Society was totally on commercial lines and Society is not run for charitable purposes. The ld CIT ought to have applied his mind and could not have based his decision simply on the report of AO."
3. The relevant facts, in brief, leading to the dispute are that the assessee Trust filed an application for registration under section 12A(a) of the Act on 12.02.2007 accompanied by a letter dated 5.02.2007 written on the subject Re- application of Registration under section 12A and condonation of delay. It was stated that the assessee has been granted Certificate under section 80G of the Act and that during the course of assessment proceedings for the assessment year 1999-2000, the Assessing Officer disallowed the claim of the Trust for 3 exemption of its income under section 11 of the Act for the reason that the assessee was unable to produce registration certificate under section 12A of the Act. It was claimed that the assessee misplaced the Certification of Registration and could not produce it because the Certificate was given 20 years back and further that such certificate issued under section 12A must be available on the record of the Commissioner of Income-tax, Pune. It was also pleaded in the alternative that the assessee be granted registration with retrospective effect. i.e. from the date of creation of the Trust and the delay may be condoned. In order to verify the above facts, the Commissioner of income-tax called for a report from the Assessing Officer which was confronted to the assessee. The assessee filed detailed written arguments.
4. After considering the detailed submissions of the assessee, the Commissioner of Income-tax observed that the assessee known as D. Y. Patil Educational Society, Kolhapur, is duly registered under the Bombay Public Trusts Act, 1950 on 13.3.1987 and the Trust came into being from 23.11.196 as per Trust Deed. He further observed that "There is no doubt that the Trust is running Educational Institutions." According to the Commissioner of Income-tax, right from the date of inception, the Trust did not file any return of income and the returns were filed for the first time after issue of notice under section 148/153C of the Act. The main plea of the assessee before the Commissioner of Income-tax was that since the Trust has been granted 80G certificate bearing No 165/D- 88/0f 89-90 dated 09.06.1989 in response to application dated 23.4.1989 from 1.11.1988 to 31.3.1992, the Trust must have been registered by the Commissioner of Income-tax. As per the Commissioner of Income-tax, however, the relevant Section 80G(5)(vi) and the relevant Rule 11AA(2) of the Income Tax Rules,1962 according to which an application shall be accompanied by a copy of registration granted under section 12A or copy of notification issued under section 10(23) or 10(23C) of the Act was applicable post 1992. According to the Commissioner of Income-tax, there was no presumption that the assessee has 4 been registered under section 12A(a) merely by filing a certificate under section 80G issued by the Commissioner of Income-tax on 09.06.1989 on the basis of application dated 23.4.1989 because at that time it was purely administrative procedure. The Commissioner of Income-tax further held that the assessee failed to discharge its primary onus that it ever applied for registration under section 12A(a) of the Act and had also attached it while filing application under section 80G. He accordingly rejected such plea of the assessee. The Commissioner of Income-tax further rejected assessee's request for condonation of delay observing that he was not satisfied with the reason that registration was already allowed and since the papers are lost, the delay should be condoned. Further, it was observed by the Commissioner of Income-tax that assessee has not maintained books of account in the normal course of business of the Trust and has not been getting its account books audited which was mandatory. In the absence of any return of income having been filed by the assessee, the Commissioner of Income-tax held that the assessee has deliberately prevented the Department from visiting its activities and, therefore, the assessee did not deserve condonation of delay.
5. The Commissioner of Income-tax thereafter proceeded to consider as to whether the assessee was entitled to registration with effect from 12.2.2007, i.e. the date on which the application was received. After making detailed enquiry on all aspects of the matter, the Commissioner of Income-tax rejected the application for registration under section 12A(a) of the Act by holding as under:
"13.2 While granting registration, the assessee has not come with clean hands. I have also to see the past conduct of the assessee. For 19 years, the assessee has not filed its return of income. It has not allowed the department to examine either the veracity of the accounts or to find out whether the assessee has complied with the provisions of section 13 of the IT Act 1961. The assessee has filed an application for registration. But this application for registration has to be handled with utmost care. This is statedly because of the stand that the application for registration u/s 12AA is based upon written statement that since the assessee has been granted deduction u/s 80G it must have been registered u/s 12AA of the IT Act, 1961, which has been found to be .... Therefore is no guarantee that after granting of registration the assessee will come clean.
14. In the result, I have no hesitation in concluding that -
a) The assessee has never applied for registration as has been contended. 5
b) The assessee was never allowed registration u/s 12AA of the I.T. Act.
c) No case has been made out to condone the delay of 19 years 2 months 23 days or for that matter for any period.
15. The application for registration u/s 12A(a) of the IT Act, 1961 is rejected because while filing this application the assessee has not come with clean hands and in view of the provisions contained in section 12AA(1)(b(ii) because I am not satisfied about the genuineness of he activities of the Trust."
6. Being aggrieved by the aforesaid order of the Commissioner, assessee is in appeal before us.
7. Before us, the learned Counsel for the assessee has vehemently argued that the Commissioner has declined registration to the assessee under section 12AA of the Act without considering the relevant factors, which were pleaded before him. It is pointed out that though the Commissioner has accepted that assessee was engaged in carrying out educational activities, yet the registration has been denied on irrelevant considerations. It is further pointed out that the Commissioner has wrongly held that assessee was collecting any capitation fees and in any case, it is strongly urged that at the stage of grant of registration it is not important to examine the source of funds but what is important is to examine whether the application of funds is towards the objects which are charitable in nature. In this case, it is claimed that all the funds of the Trust are being utilized for the purposes of running the educational institutions and, therefore, the application is for the objects of the trust. It is also pointed out that it was wrong on the part of the Commissioner to hold that the activities of the trust were being carried out on commercial lines and that such an observation is based purely on the report of the Assessing Officer and there has been no independent application of mind by the Commissioner. Further, the learned Counsel submitted that assessee was under a bona fide belief that it was duly registered under section 12A(a) for the last 20 years or so, but since the relevant registration certificate was not traceable, it requested the Commissioner to get the old records verified or that the registration be granted with retrospective effect considering the aforesaid bona fide impression as a reasonable cause for the unintended delay in seeking registration.
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8. In the course of his submissions, the learned Counsel has relied upon the following decisions:
(i) Sanjeevamma Hanumanthe Gowda Charitable Trust v. DIT
(Exemption) 285 ITR 327 (Kar);
(ii) Rama Rao Adik Education Society, Mumbai v. CIT Cen.1, Mumbai,
vide ITA No 5742/Mum/07 dated 11.02.2008
(iii) Saint Kabir Educational Trust v. CIT 41 DTR (Asr)(Trib) 267; and,
(iv) Church of Our Lady Grace v. CIT 9 ITR (Trib) 505 (Mum)
9. On the other hand, the ld CIT-Departmental Representative, appearing for the Revenue, has defended the order of the Commissioner on all the points by pointing out that the pleas of the assessee have been examined by the Commissioner of income-tax on relevant considerations and found unacceptable. It was pointed out that merely because the assessee was granted recognition under section 80G vide certificate dated 09.06.1989 would not lead to a presumption that it was registered under section 12A(a) of the Act, inasmuch as at the relevant point of time the requirement of furnishing a copy of the registration certificate under section 12A at the time of seeking certificate under section 80G, was not applicable. The said requirement has been introduced by way of section 80G(5)(vi) read with Rule 11AA(2) of the Income-tax Rules, 1962 only with effect from 21.9.1992 and, therefore, when the certificate under section 80G dated 9.06.1989 was issued by the Commissioner, it was not mandatory that the assessee ought to have been registered under section 12A of the Act. Therefore, according to the CIT-Departmental Representative, the assessee has failed to establish that it enjoyed registration under section 12A(a) of the Act with the Commissioner on an earlier date. Secondly, even with regard to the merits of the application seeking registration, it was pointed out that the Commissioner has referred to the report of the Assessing Officer specifically in paras 12.2 to 12.3 wherein it is observed that income earned by the Society is totally on commercial lines and the society is not being run for charitable purposes. It was under these circumstances the Commissioner has concluded that the activities of 7 the assessee were not carried out in genuine manner and he rejected registration under section 12AA of the Act, In the alternative it was contended that if the assessee was to succeed in its plea seeking registration, there was no justification for the delay of more than 19 years in making the application and, therefore, the assessee's plea for registration with retrospective effect is untenable.
10. We have carefully considered the rival submissions. In this case, the appellant is a Society incorporated on 23.11.1986 and is duly registered under the Bombay Public Trusts Act 1950 on 13.3.1987. It also emerges from the impugned order of the Commissioner that the assessee is engaged in running educational institutions. On 12.2.2007, assessee applied for registration under section 12AA of the Act. The assessee also addressed a communication dated 5.2.2007 to the Commissioner stating that it had already been granted registration under section 12A in the past, but such certificate was not traceable because of the time lapse of 20 years or so. The assessee requested the Commissioner to call for the relevant record. In support of the plea that it was granted registration earlier, assessee referred to a certificate of recognition under section 80G dated 09.06.1989 issued by the Commissioner for the period 1.11.1988 to 31.3.1992. On this basis, the case made out was that since the recognition under section 80G of the Act was granted, the assessee would have enjoyed the registration under section 12AA of the Act also. In the alternative, the plea of the assessee was that the aforesaid impression of the assessee be treated a reasonable cause for the delay in approaching the Commissioner for registration and, therefore, the registration be granted with retrospective effect, i.e. from the date of incorporation of the Society and the delay be condoned. The Commissioner has denied the registration. Hence the assessee is in appeal before us.
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11. One of the conditions for claiming exemption under sections 11 & 12 of the Act in respect of income of a charitable or religious trust or institution is that the person in receipt of income shall make an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner within the specified time. Section 12AA provides for a procedure to be followed by the Commissioner for the grant of registration to a trust or an institution. According to this procedure, the Commissioner shall call for documents and information and conduct enquiries to satisfy about the genuineness of the activities of the trust or institution. After the Commissioner 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, the provisions of section 12AA require him to pass an order refusing such registration. Quite clearly, the phraseology of section 12AA of the Act prescribes the scope and ambit of the enquiry that the Commissioner is authorized to carry out at the time of grant of registration to a trust or institution. The scope and ambit of the enquiry revolves around the nature of the objects being charitable or religious, and the genuineness of the activities of the trust or institution. The judgment of the Hon'ble Karnataka High Court in the case of Sanjevamma Hanumanthe Gowda Charitable Trust (supra) has been relied upon by the assessee for the proposition that for the purposes of registration under section 12A the authorities have to be satisfied about the genuineness of the activities of the trust or institution and how the income derived from the trust property is applied to charitable or religious purpose and not the nature of the activity by which the income is being derived by the trust.
12. In this background, we may now examine the reasons put-forth by the Commissioner to deny registration to the assessee under section 12AA of the Act. The sum and substance of the plea of the Commissioner is that the assessee "has not come with clean hands". According to the Commissioner, assessee never applied for registration earlier, although it was incorporated on 9 23.11.1986 and its claim of having applied for registration earlier had remained unsubstantiated. According to the Commissioner, there is "no guarantee that after granting of registration the assessee will come clean". In our considered opinion, no doubt the assessee could not substantiate its plea that it was granted registration on an earlier date, and in our view, the onus in this regard was clearly on the assessee which it failed to establish. So, however, while examining merits of the application dated 12.2.2007 preferred by the assessee to seek registration under section 12AA, the aforesaid is not a relevant factor. The second reason which emerges from the order of the Commissioner is to the effect that the assessee society is said to be running on commercial lines and not for charitable purposes. In this regard, the Commissioner has relied upon the report of the Assessing Officer wherein two instances have been brought out to show that the assessee was charging capitation fees. Such details are contained in para 12.2 of the impugned order. The explanation of the assessee has also been reproduced by the Commissioner in para 12.4 of his order. However, the Commissioner was not satisfied with the explanation furnished. On this aspect, for the present, we do not dwell on the merits of the rival stands which we would do a little later. Pertinently, it is not disputed by the Commissioner and rather it is an accepted position that that the assessee society is engaged in running educational institutions. In fact, it is also emerging from the order of the Commissioner that there is neither an assertion of a view that the above activities carried on by the assessee are not genuine and nor it is the case of the Commissioner that the activities carried on by the assessee are not in consonance with its objects.
13. Though the assessee has denied receipt of capitation fee/donations and running on commercial lines, however, without going into the merits of such plea, the pertinent question is the consequences of acceptance of capitation fee/donations by the assessee at the stage of examining assessee's application for registration under section 12AA of the Act. Somewhat similar situation arose 10 before the Mumbai Bench of the Tribunal in the case of Ramarao Adik Education Society (supra) wherein the Commissioner of income-tax was considering cancellation of registration on the basis of the plea that the assessee was accepting capitation fee/donations. Following discussion by our co-ordinate Bench is relevant:
"48. Now the question is the legal consequence of the assessee accepting capitation fees / donations from students seeking admission to various courses offered by the Institutions run by the Assessee-Trust. Even in the matter of capitation fees / donations, the Commissioner of Income Tax has no case that the funds collected by the Assessee- Trust through capitation fees / donations have been used for the purposes other than running the Institutions managed by the Assessee Trust. It is to be seen that all the Institutions run and managed by the AssesseeTrust are carrying on the activities envisaged in the Memorandum of Association the Assessee-Trust. It is stated by the Commissioner in his order itself that the moneys collected by the Assessee-Trust by way of capitation fees / donations are used for the purpose of not only by the Assessee-Trust but also for other Institutions of similar nature It is to be seen that application of funds for the charitable activities of another eligible Institution amounts to application of funds for charitable purposes. The law has made it very clear that the charitable activities may be carried out directly by an eligible Institution or through another eligible Institution for that matter. Therefore, those observations of the Commissioner stated to be adverse to the Assessee-Trust are not in fact prejudicial to the case of the Assessee-Trust.
49. The Karnataka High Court in the case of Sanjeevamma Hanumanthe Gowda Charitable Trust Vs. Director of Income Tax (Exemption) [285 ITR 327] has considered that in matters of registration and exemption of Charitable Institutions, the satisfaction of the Commissioner should be regarding the application of the income of the trust for the specified purposes, which only entitles the assessee to claim exemption. The Court observed that for arriving at such satisfaction primarily he has to look at the object of the trust, when the same is reduced into writing in the form of trust deed. If on the date of the application the trust has received income from its property, then find out how the said income has been expended, and whether it can be said that the income is utilized towards charitable and religious purposes. Therefore, for the purposes of registration u/s. 12AA of the Act, what the authorities have to satisfy is the genuineness of the activities of the trust or institution and how the income derived from the trust property is applied to charitable or religious purposes and not the nature of the activity by which the income was derived to the trust.
50. The above judgment proposes that what is to be looked into is the character of application of funds and the character of the activities carried out by an assessee and not the colour and nature of the sources out of which necessary funds were collected by the assessee. In other words, the source of funds is not an important ingredient in assessing the character of the activities carried on by a Charitable Institution. The Allahabad High Court in the case of CIT Vs. Red Rose School [163 Taxmann 19] has held that educational activities carried on by a Society are for charitable purposes and not against the public policy. Therefore, the activities carried on by the Assessee-Society in the present case cannot in any way held as opposed to public policy. The objection expressed by the Commissioner could at a maximum be attributed to the question of accepting capitation fees / donations. In this context, the Commissioner-DR has raised a contention that the donations received by the Assessee-Trust are not voluntary and that fact also should be contributed to justify the cancellation of the registration."
On the basis of the aforesaid decision of the Tribunal, which has been rendered after considering the judgments of the Hon'ble Karnataka High Court in the case 11 of Sanjevamma Hanumanthe Gowda Charitable Trust (supra) and that of the Allahabad High Court in the case of CIT v Red Rose School 163 Taxmann 19 (All.), it is quite clear that the objection raised by the Commissioner with regard to the receipt of capitation fee/donations are factors to be considered at the time of assessments while examining the eligibility of the assessee trust for the benefit of section 11 & 12 and the same do not come into play in the course of the examination by the Commissioner for the purposes of grant of registration under section 12AA of the Act.
14. In view of the aforesaid discussion, in our considered opinion, the Commissioner has examined the application of the assessee on irrelevant considerations which were beyond the scope of enquiry envisaged under section 12AA of the Act. We, therefore, deem it fit and proper to set aside the order of the Commissioner and restore the matter back to his file to be examined afresh strictly in terms of the scope of the enquiry envisaged under section 12AA(1) of the Act.
15. In so far as the assessee's plea for condonation of delay for filing of the application is concerned, the same in our view also deserves to be revisited by the Commissioner in the light of the decision of our co-ordinate Bench in the case of Church of Our Lady Grace (supra). We may hasten to add here that our decision to remand the issue of condonation of delay back to the file of the Commissioner is no reflection on the merits which the Commissioner shall adjudicate appropriately in accordance with law.
16. In so far as the plea of the assessee that it had been granted registration earlier, the same in our view has been rightly rejected by the Commissioner and no fault can be found with the action of the Commissioner. The Commissioner shall examine the assessee's claim of registration on merits as contained in the application dated 12.2.2007 on the basis that the assessee did not enjoy any registration under section 12A(a) of the Act on an earlier date. Needless to say, 12 the Commissioner shall give a reasonable opportunity of being heard to the assessee in this regard, and thereafter adjudicate in accordance with law.
17. In the result, appeal of the assessee is partly allowed.
Decision pronounced in the open Court on this 27th Day of September, 2011.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (G.S. PANNU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, Dated: 27 th September, 2011
B
Copy to:-
1) Appellant
2) Respondent
3) The CIT(Central) Pune
4) DR, "A" Bench, ITAT, Pune.
5) Guard File
By Order
true copy
Asst. Registrar, I.T.A.T., Pune