Income Tax Appellate Tribunal - Chandigarh
Baba Gandha Singh Education Trust, ... vs Assessee on 3 February, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIG ARH BENCH ' A', CHANDIG ARH
BEFORE SHRI T.R. SOOD, A.M AND Ms. SUSHMA CHOWLA, JM
ITA No. 231/Chd/2012
Assessment Year : 2007-08
Baba Gandha Singh V C.I.T. Patiala
Educational Trust
ITI Chowk
Dhanaula Road
Barnala
AAATB 7399D
(Appellant) (Respondent)
Appellant by Shri H.R. Saldi
Respondent by: Smt. Jyoti Kumari
Date of hearing 1.11.2012
Date of Pronouncement 8.11.2012
O R D E R
PER T.R.SOOD, A.M
This appeal is directed against the order passed by the Commissioner of Income TAx, Patiala dated 3.2.2012.
2. In this appeal the assessee has raised the following grounds:
"1 That the ld. CIT has exceeded the jurisdiction by withdrawing the registration which was granted by the Hon'ble ITAT, Chandigarh vide its order dated 29.9.2010 in ITA No. 357/Chd/2010.
2. That the ld. CIT has committed the contempt of the Hon'ble ITAT, Chandigarh Bench by his decision as he has tried to over rule the judgment passed by the Jurisdiction ITAT in the same matter on the same issue and thereby it is prayed that the exemplary cost should be awarded in terms of submissions sec (2B) of Section 254 of the Act.
3. That the ld. CIT has not followed the directions of the Hon'ble ITAT issued vide order dated 20.20.2011 ITA No. 698/CHD/2011. The Hon'ble ITAT had directed him to decide on the issue of registration w.e.f. 1.4.12006 instead of 1.4.2007 by following the procedure in Section 12AA(1) of the IT Act but the ld. CIT have ignored the procedure laid down supra.2
4. The reason for withdrawing the registration is that activities of the Trust are not being carried out in accordance with the objects of the Trust which is wrong as the Hon'ble IRTAT has already decided the same issue for the same year in favour of the assessee.
5. The ld. CIT may kindly be directed to grant the registration w.e.f. 1.4.2006 to 1.3.2007 as the delay for the same has already been condoned by the On Bench of ITAT, Chandigarh."
3. Both the parties were heard in detail.
4. After considering the rival submissions we find that the assessee-society was created on 1.4.1999. The assessee applied for registration u/s 12A of the Act on 11.4.2007. Registration u/s 12A of the Act was granted to the assessee- society w.e.f. 1.4.2007 by the CIT vide order dated 27.8.2007. The application for condonation of delay for filing application u/s 12A of the Act before the CIT, was rejected vide order dated 29.8.2007. The assessee filed an appeal to the Tribunal for not considering the condonation of delay application filed by the assessee-society before the Commissioner of Income tax. The Tribunal vide its order dated 27.12.2007 in ITA No. 878/Chd/2007 restored the matter to the file of Commissioner for fresh adjudication after granting opportunity of being heard. The Commissioner vide order dated 8.6.2009 rejected the plea of the assessee for condonation of delay. This order was challenged by the assessee before the Tribunal. The Tribunal in ITA No. 803/Chd/2009 vide order dated 29.9.2010 again restored the matter of condonation of delay for readjucation by holding that opportunity allowed by the Commissioner to the assessee to appear before the AO, does not tantamount to affording an opportunity by the Commissioner himself. The Commissioner again refused to condone the delay by relying on the order dated 8.6.2009 of predecessor. Against this order the assessee again filed appeal before the Tribunal. The Tribunal vide order dated 20.10.2011 in ITA No. 707 & 698/Chd/2011 after considering the issue in detail held that delay has to be condoned and registration has to be granted w.e.f. 1.4.2006 . The relevant para 11 of the Tribunal reads as under:-
3"In view of the above discussion, we hold that ignorance of law can be taken as a reasonable excuse in filing the application for registration belatedly. However, we find that the entire relevant facts and evidence relating to genuineness of activities of the Trust are not on record. Even the aims and objectives of the Trust are not on record. In the absence of above evidence, the issue of granting registration to the assessee's Trust could not be decided at our level. Even we could not decide the issue whether the Trust is genuine or not particularly in the absence of relevant evidence. Considering the entire facts and circumstances of the present case, we condone the delay in filing the application for registration belatedly. As regards the grant of registration w.e.f. 1.4.2006, as prayed for by Shri H.R. Saldi, ld. counsel of the assessee, we direct the CIT to consider and decide the issue of granting registration to the assessee's Trust by following the procedure for registration as prescribed in Section 12AA(1) of the Income-tax Act, 1961. The ld. CIT(A) is also directed to give an opportunity of being heard to the assessee before deciding the issue of granting registration to the assessee's Trust w.e.f. 1.4.2006."
Since the facts on merits were not before the Tribunal, the issue regarding granting of registration was restored to the file of Commissioner by the above order. In the impugned order the registration has been cancelled by the Commissioner by stating that the assessee has continuously shown surplus which means the affairs of the society being run as commercial venture with the motive of earning profit by using educational business. It was also observed that education per-se is not charitable purpose. The contention that surplus should be determined after allowance of depreciation was also declined. In this background registration was cancelled.
5. Before us, the ld. counsel of the assessee submitted that on merits the issue has already been decided by the Tribunal vide ITA No. 357/Chd/2010 order dated 29.9.2010.
6. On the other hand, the CIT, DR for the revenue relied on the order of the Commissioner.
7. After considering the rival submissions we find that the issue of assessee being engaged in charitable activities and generation of surplus from such activities and consequent grant of registration u/s 12AA of the Act has already been adjudicated by the Tribunal in ITA No. 357/Chd/2010 in detail. The issue was decided in appeal filed by the assessee against the order of CIT dated 16.3.2010 passed u/s 12AA (3) of the Act canceling the registration 4 earlier granted to the assessee-society. The Tribunal vide para 5 to 10 of the said order has held as under:
"5. W e have considered the rival submissions carefully. The foremost issue in this appeal revolves around the justification for the Commissioner to pass the impugned order under section 12AA(3) of the Act canceling the registration earlier granted to the assessee under section 12AA(1)(b) of the Act. Sub-section 3 of section 12AA of the Act, which reads as under:-
"(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) 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 canceling 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."
empowers the Commissioner to cancel a registration granted under section 12AA(1)(b) of the Act. The scope and ambit of the power manifested in the Commissioner as per section 12AA(3) of the Act has been examined by the Chandigarh Bench 'A' of the Tribunal in the case of H. P. Government Energy Development Agency (ITA No. 889/Chandi/2009 dated 15.09.2010) in the following words:
"6. Section 12AA(1) of the Act prescribes the procedure for registration. In terms thereof, the Commissioner is empowered to call for such documents or information from the applicant and make such enquiries as may be deemed necessary in this behalf. It is quite clear from the said section that the Commissioner is to satisfy himself about the genuineness of the activities and the objects of the applicant, before he passes an order registering or refusing to register an applicant. As per the said scheme of the Act, at the time of registration the main ingredients required to be seen by the Commissioner are two-folds - firstly, that the objects of the applicant are for "charitable purpose" within the meaning of section 2(15) of the Act; and, secondly, that the activities of the applicant are genuine.
7. Sub-section (3) of section 12AA permits the Commissioner to cancel the registration granted in terms of section 12AA(1)(b) of the Act. In order to do so, Sub- section (3) mandates that the Commissioner ought to be satisfied on two counts, - firstly, that the activities of the Trust or Institution are not genuine; and, secondly, that the activities are not being carried out in accordance with the objects of the Trust or Institution, as the case may be. Notably, the Commissioner is empowered to invoke section 12AA(3) of the Act on being satisfied about either of the two 5 ingredients mentioned therein. Proviso below sub- section (3) of section 12AA of the Act further prescribes that no order canceling the registration shall be passed unless such Trust or Institution has been given a reasonable opportunity of being heard.
8. In view of aforesaid discussion, it is evident that the power of the Commissioner to cancel the registration is not unfettered. It is circumscribed by the conditions prescribed in section 12AA(3) of the Act. It is also clear that such power does not permit wholesale review of the ingredients which have been considered by the Commissioner while granting registration u/s 12AA of the Act. To illustrate, we may point out that at the time of evaluating the application of registration u/s 12AA(1) of the Act, the Commissioner is to satisfy himself on two conditions i.e. that the activities are genuine and, that the objects of the applicant fall within the meaning of "charitable purpose" as per section 2(15) of the Act. In contrast, at the time of canceling of registration under section 12AA(3) of the Act, the Commissioner has to satisfy himself about either of the two conditions prescribed therein, namely, that the activities are not genuine or that the activities are not being carried out in accordance with the objects of the Trust or Institution, as the case may be. Pertinently, the satisfaction about the objects of the Trust or Institution being as per Section 2(15) of the Act, is not a condition mentioned in section 12AA(3) of the Act to cancel the registration already granted under section 12AA(3) of the Act. The only ground available with the Commissioner to cancel the registration is to either establish that the activities of the Trust or Institution are not genuine or that the same are not being carried out in accordance with the objects of the Trust or Institution, as the case may be. In our considered opinion, the Commissioner is bound to function strictly in accordance with the provisions of the Act. A statutory authority has no power, jurisdiction or discretion to go beyond the statutory provisions. No power can be assumed in the absence of any specific provision. It is quite clear that as per sub-section (3) of section 12AA of the Act, Commissioner has power to rescind the registration only on being satisfied about either of the two points mentioned therein, and not for any other reason. We may conclude here that the registration already granted u/s 12AA(1)(b) of the Act can be cancelled only on the fulfillment of the conditions mentioned in section 12AA(3) of the Act and not for any other reasons.
6. From the aforesaid discussion, it is evident that in terms of section 12AA(3) of the Act, Commissioner has power to cancel registration granted under section 12AA(1)(b) of the Act on being satisfied on either of the two conditions, namely, that the activities of the trust or the institution are not genuine or that the activities are not being carried out in accordance with the objects of the trust or institution, as the case may be.
7. In this background, we now examine the reasons put forth by the Commissioner in this case to cancel the 6 registration already granted to the assessee under section 12AA(1)(b) of the Act. Firstly, as per the Commissioner assessee is not carrying out activities in accordance with its objects. The objects of the assessee are to carry out educational activities. According to the Commissioner assessee was not carrying out education as charity, but was doing trade and commerce in the name of education. Pertinently, the Commissioner does not dispute that assessee was carrying on education activity, which is admittedly the dominant objective of the assessee. Notably, the assessee is engaged in running of schools and the Commissioner has not pointed out any other activity being carried out by the assessee. The objection of the Commissioner is that the activity of education is being carried out as a trade and commerce. This is founded on plea that the assessee has earned systematic profits, as revealed by the financial accounts pertaining to the assessment years 2002-03 to 2007-
08. In other words, as per the Commissioner, generating of surplus income year after year in educational activity imputes a commercial angle and it cannot be said that the assessee is carrying on activities in accordance with its objects, although the activity carried out is in the field of education as stated in the objects of the assessee. In our considered opinion, the reasoning of the Commissioner is contrary to the ratio of the judgment of the Hon'ble Punjab & Haryana High Court in the case of Pinegrove International Charitable Trust & Others (supra). As per the Hon'ble High Court merely because an institution has earned profits, it would not be a deciding factor to conclude that such an educational institution existed for profit. The Hon'ble High Court specifically negated the interpretation of the Revenue that there has to be a reasonable profit only to make an institution not to be existing solely for the purposes of the profit. Though the issue before the Hon'ble High Court was in the context of section 10(23C)(vi) of the Act however the Court has specifically dealt with the question as to whether an educational institution ceases to exist solely for educational purposes and not for purposes of profit, merely because it has generated surplus income over a period of 4/5 years after meeting its expenditures. The Hon'ble High Court opined that merely because profits have resulted from the activity of imparting education, it would not result in change of character of institution that it exists solely for educational purposes.
Evidently, identical facet has been considered by the Commissioner to conclude that generating of surplus from educational activity year after year, changes the character of activity as a trade and commence. The proposition laid down by the Hon'ble jurisdictional High Court belies the argument of the Commissioner, and it is fully applicable in present case also. Notably, there is no allegation by the Commissioner that any activity other than education has been carried out by the assessee.
8. Thus following the party of reasoning laid down by the Hon'ble Punjab & Haryana High Court in the case of Pinegrove International Charitable Trust (supra), we disagree with the inference of the Commissioner that because the assessee has generated surplus income after meeting expenditure in its educational activities, such activity is to be regarded as "doing trade and commerce in the name of education", so as to invite cancellation of registration under section 12AA(3) of the Act. At this point we may refer to the reliance placed by the Commissioner on the judgment of the Hon'ble Uttarkhand High Court in the case of Queen's 7 Educational Society (supra), which has been dissented by the Hon'ble Punjab & Haryana High Court in the case of Pinegrove International Charitable Trust (supra). Following the principles of judicial discipline, the judgment of the Hon'ble Punjab & Haryana High Court is to be preferred, being the jurisdictional authority rather than the judgment of the non-jurisdictional High Court. In the final analysis, we are unable to uphold the conclusion drawn by the Commissioner that the activities of the assessee are not being carried out in accordance with its objects merely because it was generating profits from such activity. Therefore, invocation of section 12AA(3) of the Act by the Commissioner on this aspect has to fail.
9. Another reason taken by the Commissioner to cancel the registration is that the activity of education being carried out by the assessee, cannot be regarded as a "charitable purpose". According to the Commissioner, activity of education is perse not a charitable purpose as per the judgment of the Hon'ble Supreme Court in the case of MCD vs. Children Book Trust (1992) 3 SC 390. On this aspect, we have already noted in the case of H.P. Government Energy Development Agency, Shimla (supra) (relevant portion has been extracted earlier) that such a reason cannot form a basis to cancel registration in terms of Section 12AA(3) of the Act. Therefore, the action of the Commissioner on this aspect is beyond the jurisdiction envisaged under Section 12AA(3) of the Act and is accordingly liable to be ignored. In any case, in our view, the reasoning of the Commissioner is unsustainable having regard to the judgement of the Hon'ble Punjab & Haryana High Court in the case of Pinegrove International Charitable Trust (supra), wherein the Hon'ble Court has explained and distinguished the judgement in the case of Children Book Trust (supra), relied upon by the Commissioner. The following discussion is worthy of notice :
"The observations of Hon'ble Supreme Court quoted from para 82 of the aforesaid judgment to the effect that - "what we want to stress is where a society or body is making systematic profits, even though that prof it is ut ilized only for c har it able purpos es, y et it cannot be said that it could claim exemption"
deserves to be read in conjunction with the express provisions of the third proviso to s.10(23)(vi) f the Act which stipulate the retention of 15 per cent of the profits of the total income after quantification thereof, of the educational institution earned in each year provided 85 per cent of the total income is spent for the objects of the society. Infact, the judgement rendered by Hon'ble the Supreme Court in Children Book Trust case (supra) on the facts and in the circumstances of the case of the petitioner-society herein, is not at all applicable by virtue of the applicability of the mechanism contained in the third proviso to s. 10(23)(vi) of the Act. It may be clarified that Hon'ble the Supreme Court had decided the case of Children Book Trust (supra) under the Delhi Municipal Corporation Act, 1957 and had not dealt with the provisions of s. 10(23)(vi) of the Act which are a complete code in itself, interalia providing a mechanism for t he ut ilizat ion of sur pluses and pr ior to the ut ilizat ion det erm inat ion of t he ex ist ence of the educational institution solely for educational purposes and not for making profit."
8By the similar parity of reasoning, the judgement in the case of Children Book Trust (supra) can be said to be inapplicable to a case of Sections 11 and 12 of the Act, as it is a complete Code by itself as is the case with Section 10(23C(vi) noted by the Hon'ble High Court in the above discussion. Thus, the decision of the Hon'ble Supreme Court in the case of Children Book Trust (supra) has no application to the instant case under Sections 11 & 12 of the Act primarily for the reason that the provisions under which the aforesaid judgement was rendered by the Hon'ble Supreme Court are not parimateria to the provisions relating to Sections 11 & 12 of the Act, apart from the Scheme of the Act being different. Thus, the second reason taken by the Commissioner is unfounded and cannot be upheld. W e hold so.
10. Thus, in terms of our aforesaid discussion, the impugned order of the Commissioner is unsustainable. In the final analysis, we set aside the impugned order and the registration granted to the assessee vide order dated 29.08.2007 is hereby restored."
In our opinion, the registration u/s 12AA of the Act has to be granted to the assessee society as the assessee was engaged in the charitable activities of providing education and the issue on merits has been decided in favour of the assessee in ITA No. 357/Chd/2010. Further the said registration has to be granted to the assessee w.e.f. 1.4.2006 as the delay in filing the application u/s 12A of the Act has been condoned by the Tribunal in ITAs No. 707 & 698/Chd/2011. Accordingly we set aside the order of Commissioner and direct him to pass a consequent order or registration u/s 12AA of the Act w.e.f. 1.4.2006.
8. In the result, appeal of the assessee is allowed.
Order pronounced on 8.11.2012.
Sd/- Sd/-
(SUSHMA CHOWLA) (T.R. SOOD)
JUDICI AL MEMBER ACCOUNTANT MEMBER
Dated : 8 .11. 2012
SURESH
Copy to: The Appellant/The Respondent/The CIT/The CIT(A)/The DR 9