TaxTMI 
TaxTMI 
2012 (6) TMI 35
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....sal 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. 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 tha....
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....; 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 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 le....
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.... 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 v. D.P.R. C....
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....sider 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. ** ** **" Procedure for registration. 12AA. (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 ....
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....all 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 ....
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....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 v. CIT [1990] 185 ITR 634, by the Chief Justice B. P.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 Incom....
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....ion 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. 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, ....
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....ion 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 ....
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....s no manner of doubt that exemption under the aforesaid provisions can be claimed with respect to the income derived by 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 coul....
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....e 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 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 ed....
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....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 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....
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....omti 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 ....
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....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 t....
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....st 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. 9. 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 I....
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.... 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 v. 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 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 pe....
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.... 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 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 ....