2010 (3) TMI 1093 - AT - Income Tax

Appeals Successful: Tribunal Grants Section 12AA Registration, Overturns CIT's Denial Based on Misinterpretation of Law.

SAINT KABIR EDUCATIONAL TRUST Versus COMMISSIONER OF INCOME TAX

The Tribunal allowed the appeals, overturning the CIT's orders that denied registration under Section 12AA of the Income Tax Act, 1961. It found the CIT's ... Exemption u/s 11 - Rejected registration u/s 12AA - Charitable trust for imparting education - Whether, CIT is competent to make enquiries which fall beyond the purview of s. 12AA, specifying the nature and scope of enquiries contemplated u/s. 12AA - It has also been providing free education to economically weaker sections, women and handicapped students and also giving concession to the needy and meritorious students, as per evidence placed in the paper book - It is mentioned that not even a word commenting adversely about the genuineness of such activities has been recorded by the CIT in the impugned order. HELD THAT:- In the case of CIT vs. Red Rose School [2007 (2) TMI 575 - ALLAHABAD HIGH COURT], it has been held as under : ''Sec. 12AA does not speak anywhere that the CIT, while considering the application for registration, shall also see that the income derived by the trust or the institution was either not being spent for charitable purpose or such institution is earning profit; CIT was not justified in refusing registration u/s. 12AA to assessee educational society and Tribunal was justified in granting the same.' We are of the considered opinion that a bare perusal of the case law clearly supports the contentions of the assessee that the scope and nature of enquiries at the stage of grant of registration are prescribed u/s. 12AA. Thus, CIT has no jurisdiction to conduct enquiries which falls beyond the pale of such statutory prescription. It is settled legal position that the assessee-trust is entitled to claim exemption independently u/ss. 11 and 12 or u/s. 10(23)(iiiad), subject to satisfaction of relevant preconditions as laid down in the respective sections of the Act. There is no such scheme under the provisions of the Act, for automatic grant of exemption under such sections of the Act. Further, the deduction u/s.10(23)(iiiad) is available, as also the exemption u/ss. 11 and 12 subject to the satisfaction of the statutory conditions prescribed under the relevant sections of the Act. It is evident from the perusal of these sections that s. 11 is of wider amplitude regarding charitable institutions, whereas s. 10(23C)(iiiad) is specifically made for educational institutions, existing solely for educational purposes. So there is no bar under the scheme of the relevant provisions which prohibit the assessee to avail benefits under these two sections on alternative basis, as both these sections have different statutory preconditions to be satisfied. Section 12AA, contemplates enquiries about the objects of the trust or institution and genuineness of its activities. This section does not prescribe that enquiry u/s. 12AA will be the forum or stage for adjudication on the eligibility of exemption under ss. 11 and 12 of the Act. The proceedings before the CIT, u/s. 12AA pertain to the initial stage, intended to conduct prescribed statutory enquiries about the genuineness of the activities of the assessee, for the purpose of granting registration. The ld CIT is not statutorily competent to convert such proceedings for grant of registration u/s. 12A r/w s. 12AA into the proceedings for adjudication, on the issue of applicability of the provisions of ss. 11 and 12. Further, it is trite law that the said jurisdiction lies with the AO. It was further held by the Hon' ble High Court in CIT vs. Krishi Utpadan Mandi Samiti, Purva & Ors. [2009 (12) TMI 13 - HIGH COURT OF ALLAHABAD] that where a trust/institution fulfils all the conditions mentioned in s. 12A/12AA, registration cannot be denied on the ground that some conditions of ss. 11 and 12 are not fulfilled. Even after registration, unless the conditions set out in ss. 11 and 13 are complied with, no benefit would be available to the registered trusts or institutions. Therefore, in the facts of the instant case, the decision of the Tribunal that the assessees, who had fulfilled all the conditions, were entitled to registration, could not be faulted. The ld CIT has not pointed out any defect in the application made by the assessee, in Form No. 10 read with r. 17A of the IT Rules, 1962. Similarly, the ld CIT has not doubted the genuineness of the activities of the trust carried out in accordance with the objects of the trust. It is further pertinent to point out here that the provisions of s. 12AA(3) were introduced by Finance (No. 2) Act, 2004 w.e.f. 1st Oct., 2004, providing for cancellation of registration of trust or institution by the CIT granted u/s. 12AA(1)(b), subsequently, if the activities of such trust or institution are not being carried out in accordance with the objects of the trust. Therefore, it is evident that grant of registration u/s. 12AA is not absolute and is distinct and independent from grant of exemption u/ss. 11 and 12. We are of the considered opinion that the impugned orders of the CIT cannot be sustained. Consequently, we set aside these impugned orders passed by the CIT and direct that registration applied for by the applicants u/s. 12A be granted. Thus, these appeals are decided in favour of the assessees. Issues Involved:1. Denial of registration under Section 12AA of the Income Tax Act, 1961.2. Applicability of Sections 11 and 12 to the applicant societies.3. Consideration of submissions and evidence by the CIT.4. Eligibility for exemption under Section 10(23C)(iiiad) vs. Sections 11 and 12.Detailed Analysis:1. Denial of Registration under Section 12AA of the Income Tax Act, 1961:The primary issue in both appeals was the denial of registration under Section 12AA by the CIT, Bathinda. The CIT's orders dated 24th and 25th September 2009 were contested. The appellants argued that the CIT erred in not allowing the registration, which was deemed unjustified and contrary to law. The CIT's decision was based on the assessment that the societies did not qualify as charitable institutions under Section 11 read with Section 2(15) of the Act. The Tribunal noted that the CIT's refusal was based on irrelevant inquiries and conclusions not pertinent to the statutory requirements for registration under Section 12AA.2. Applicability of Sections 11 and 12 to the Applicant Societies:The CIT concluded that the provisions of Sections 11 and 12 were not applicable to the applicant societies, asserting that they were not charitable within the meaning of Section 2(15). The Tribunal found that the CIT's interpretation was flawed, especially in light of Circular No. 11 of 2008, which clarified that the proviso to Section 2(15) did not apply to trusts or institutions involved in education, relief of the poor, or medical relief, even if they incidentally carried on commercial activities.3. Consideration of Submissions and Evidence by the CIT:The appellants contended that the CIT did not properly consider their submissions and evidence. The Tribunal observed that the CIT's findings were based on irrelevant factors, such as the physical proximity of trustees and the addresses listed in the original memorandum of association. The Tribunal emphasized that the CIT should have focused on the genuineness of the activities and the charitable nature of the societies, as required under Section 12AA.4. Eligibility for Exemption under Section 10(23C)(iiiad) vs. Sections 11 and 12:The CIT argued that since the societies were educational institutions, they could only claim exemption under Section 10(23C)(iiiad) and not under Sections 11 and 12. The Tribunal rejected this view, stating that the societies were entitled to claim exemption under either Section 10(23C)(iiiad) or Sections 11 and 12, provided they met the respective statutory conditions. The Tribunal highlighted that the CIT's reliance on the income exceeding the maximum amount chargeable to tax in previous years was not relevant to the application for registration under Section 12AA.Conclusion:The Tribunal concluded that the CIT's orders denying registration under Section 12AA were based on irrelevant considerations and misinterpretations of the law. It directed that the registration applied for by the appellants under Section 12A be granted. The Tribunal emphasized that the scope of inquiry under Section 12AA was limited to the genuineness of the activities and the charitable nature of the objects of the trust or institution, and not on the eligibility for exemption under Sections 11 and 12, which fell within the jurisdiction of the Assessing Officer. Consequently, both appeals were allowed, and the registration under Section 12A was granted to the appellants.