TaxTMI 
TaxTMI 
2010 (3) TMI 1093
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....has erred in not giving proper consideration to our submissions before disposing and disallowing our application for grant of registration under s. 12AA. 4. That without prejudice to our submissions of abovesaid grounds of appeal, it is submitted that the worthy CIT, Bathinda has erred in giving his finding that assessee can claim exemption either under s. 11 or under s. 10(23C)(iiiad) and in the present case as assessee is an educational institution carrying on specific activities covered under s. 10(23C)(iiiad), provisions of s. 11 for grant of registration under s. 12AA are not applicable. 5. That the appeal is within time and copy of order along with receipt of Rs. 500 deposited as appeal fee is also enclosed. 6. That the appellant craves leave to add or amend any of the grounds of appeal before the appeal is finally heard or disposed of." 3. In ITA No. 493/Asr/2009, the assessee has raised following grounds : "1. That the order of the learned CIT, Bathinda, is against facts and law. 2. That the learned CIT, Bathinda, erred on facts and law while rejecting the application of registration under s. 12A of the assessee by passing order under s. 12AA(1)(b)(ii) of ....
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....lying thereby that by not filing return he was not doing any irregularity/lapse. Ultimately undersigned issued provisional attachment order of assessee' s bank account having due permission of your goodself and then assessee filed the return of income on 31st March, 2009 which is now under scrutiny. Assessee has now furnished bank guarantee of Rs. 10 lacs to get released his bank account, as desired by the undersigned in the interest of Revenue. From the above it is apparent that the assessee is non' co-operative and hardly caring for his legal obligations. So far he has not cared to file the return taking as if all his income is tax-free and he is not bothered about legal consequences. Apparently, it seems that to manipulate the things he was avoiding to furnish return and attend the proceedings. Since a survey under s. 133A was conducted, he seems in a hurry to get registration either under s. 12AA or exemption under s. 10(23C) or exemption under s. 10(23C)(iiiad), before the survey proceedings are finalised by making assessment under s. 143(3). Therefore, granting of registration under s. 12AA may not be in the interest of Revenue and hence, registration under s....
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.... in ITA No. 493/Asr/2009 (M/s Aklia Educational & Research Society) are that the assessee trust had applied for registration under s. 12AA of the Act, on 31st March, 2009. The application was accompanied by income and expenditure account and balance sheet for the period ending on 31st March, 2006, 31st March, 2007 and 31st March, 2008. The issues and facts having a bearing on registration of the applicant under s. 12A r/w s. 12AA of the Act, as obtaining in the CIT order, dt. 25th Sept., 2009, are reproduced hereunder : "(A) The society is running three educational institutions namely, Aklia College of Education for Women, Aklia Degree College and Aklia Senior Secondary School. Consolidated income and expenditure account and balance sheet of all the three institutions have been furnished from time to time. Total amounts of receipts and profits derived are given as under : Asst. yr. Gross receipts Profit Percentage Addition to fixed assets 2006-07 33,62,659 8,66,345 25.76% 14,06,639 2007-08 37,49,833 9,97,805 26.61% 2,42,433 2008-09 79,37,111 36,10,738 45.50% 30,07,219 A plain reading of the above chart will reveal wh....
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....nexplained. The applicant is running three educational institutions and hence, it can claim its income as exempt under s. 10(23C) by following the conditions prescribed under the law. The provisions of s. 11, under which the applicant intends to claim its income as exempt by getting itself registered under s. 12AA, are not applicable to it as discussed in para (D) of this order. (D) The society is running three educational institutions. As per s. 11(1)(a) of the Act, income derived from property held under trust holding for charitable purpose shall not be included in the total income of the person in receipt of such income. Further, w.e.f. 1st April, 2009 i.e., for asst. yr. 2009-10 s. 2(15) of IT Act, defines the charitable purpose as under : ' Charitable purpose includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, provided that the advancement of any other object of general public utility shall not be charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or busine....
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....g on of commercial activities." 6.1 The learned counsel also contended that the latest list of trustees/office bearers of the assessee applicant was duly submitted to the CIT. However, the CIT misdirected himself, in tracing the addresses and relying thereon which were furnished along with original memorandum of association of 1992. The learned counsel also filed copies of the questionnaires issued by the AO and submissions made thereto, indicating that the concerned authorities exceeded their jurisdiction, in making inquiries, which were not relevant for the purpose of granting registration under s. 12AA of the Act. It was also pointed out by the learned counsel that the acknowledgments of the IT returns filed by the trustees, as called for, were also filed. However, the learned counsel of the assessee stated that such details are irrelevant, as the same do not fall within contemplation of provisions of s. 12AA of the Act, It was vehemently argued that the genuineness of the activities of the assessee as contemplated under s. 12AA of the Act was not doubted by the CIT, in his impugned order. The CIT merely proceeded on the irrelevant inquiries and conclusions drawn therefrom. T....
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....ired, in the years 1992 and 1999, as per evidences furnished before the CIT and placed in the paper book at pp. 31 to 42. The trust has been imparting education to various students from all walks of life. 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. The para of the impugned order containing finding of the CIT regarding refusal for grant of registration is reproduced hereunder : "From the facts given on record, the applicant society does not fit into the definition of charity as described above. The provisions of ss. 11 and 12 are not applicable in this case as discussed in para (D). In view of the facts on the record, applicant society does not qualify to be charitable society within the meaning of s. 11 r/w s. 2(15) of the IT Act, 1961. Hence, as such the request for grant of registration under s. 12AA is not allowed and the application of Saint Kabir Educational ....
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....(Exemptions) (supra), it has been held as under : "Charitable trust' Registration under s. 12A' Scope of enquiry under s. 12AA' Under s. 12AA, the powers of Director of IT (Exemptions) are limited to make enquiries with a view only to satisfy himself about genuineness of activities and object of the trust' The action of the Directors of IT (Exemptions) in refusing to grant registration to the assessee on the ground of violation of the provisions of s. 13(1)(b) was not justified, especially when he had not doubted either the genuineness of the activities of the assessee or the nature of its object being charitable. Under s. 12AA, the powers of Director IT (Exemptions) are limited to make enquiries with a view only to satisfy himself about genuineness of activities and object of the trust; application of s. 13 falls within the exclusive domain of the AO and registration cannot be refused on the ground of violation of the provisions of s. 13(1)(b)." (iii) In the case of Dream Land Educational Trust vs. CIT (supra), it has been held as under : "Charitable trust' Registration under s. 12AA' Scope of enquiry by CIT' In accordance with s. 12AA, the ....
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.... children from primary section to degree level and to improve the mental, social and other developments of the students' In case institution has defaulted in the matter of depositing contributions of the employees' provident fund, the Act concerned shall take care of such default but in no case it can be a ground for refusal of registration' Fee charged by the institution could not be said to be arbitrary' Objects of the assessee society undoubtedly were for charitable purposes and not against public policy. Conclusion : 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 under s. 12AA to assessee educational society and Tribunal was justified in granting the same." 9.3 We are of the considered opinion that a bare perusal of the rulings of the above discussed 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 und....
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....end the proceedings before the AO. The counsel submitted that since most of the members are residing at Chandigarh and Kapurthala, they could not attend the proceedings. However, the counsel could not explain why he did not seek adjournment from the AO. Further, when most of the members are residing outside Fazilka, the present place of functioning of the society, how do the members contribute to the charitable cause of the society ? From the perusal of the list of members as per the memorandum of association, following names and addresses are given : Sl. No. Name and address 1. Smt. Pritam Chahal W/o Shri Shaminder Chahal, K.K. Road, Muktasar. 2. Shri Joginder Singh Sidhu S/o Shri Puran Singh, K.K. Road, Mukatsar. 3. Shri Inderjit Singh S/o Shri Harbans Singh, Street No. 6, Mukatsar. 4. Shri Sukhwinder Singh S/o Shri Joginder, Singh Sidhu, K.K. Road, Mukatsar. 5. Smt. Surjeet Kaur W/o Shri Harbans Singh, Street No. 6, Mukatsar. 6. Smt. Reet Singh W/o Shri Shivender Singh, Bangalore. From the above, it is clear that almost all the members have given the address of Mukatsar, except Smt. Reet Singh, who is of Bangalore. Thus, contention of....
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....knowledgments evidencing returns of income filed by the trustees were filed as is evident from pp. 4 to 65 of the paper book. The ITO (Technical), Bathinda, vide letter dt. 4th Aug., 2009, requisitioned the information mentioned at serial Nos. 1 to 7 and the necessary compliance was made by the assessee-trust vide letter dt. 14th Sept., 2009. In that questionnaire at serial No. 7, the details about the students belonging to SC/BC category were also required, which was submitted. It is pertinent to mention that the Dy. CIT, Circle II, Bathinda, vide letter dt. 18th Aug., 2009, called for the following details : "The President, St. Kabir Educational Trust, F.F. Road, Fazilka. Sub : Application for grant of registration under s. 12A of the IT Act, 1961' Regarding. In connection with application for grant of registration under s. 12AA of the IT Act, 1961, all the office bearers and members of the trust are requested to present before the undersigned on 27th Aug., 2009 at 10.30 a.m. with the following information : (a) Total annual income and sources of income. (b) Name and address of the business entity of member, if any. (c) Complete famil....
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....0A is required to comply with the statutory conditions prescribed under s. 12A r/w s. 12 AA of the Act and the statutory conditions as contemplated under s. 10(23C)(iiiad) of the Act are not relevant. Hence, the same cannot be imported to draw adverse inference, pertaining to the provisions of s. 12A r/w s. 12AA of the Act, which are applicable to the instant case. 9.8 In para C of the impugned order, the learned CIT has quoted the decision of the Hon' ble Supreme Court in the case of CIT vs. Bar Council of Maharashtra (1981) 22 CTR (SC) 106: (1981) 130 ITR 28(SC) and placed reliance thereon to draw support to his findings to rebut the contention of the assessee that there is nothing in ss. 11 and 10(23C) to suggest that they cannot operate simultaneously. In this context, it is pertinent to state that the decision of the Hon' ble Supreme Court in the case of CIT vs. Bar Council of Maharashtra (supra) has to be read as a whole and a sentence or phrase or word cannot be picked out from the judgment divorced from the context and made the ratio in itself, and subsequently applied to the facts of any case. This view has been categorically laid down by the Hon' ble Suprem....
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....ee-council under s. 11 but on merits found that there was no material or evidence on record to show whether or not the securities were held by the assessee-council for any of the charitable purposes and, therefore, it remanded the case. The remand order was never challenged by the Revenue by seeking a reference on the ground that a remand was unnecessary because s. 11 was ruled out by reason of exemption having been obtained by the assessee-council under s. 10(23A) of the Act nor was any such contention raised when reference was sought by the assessee council nor when the matter was being argued in the High Court. In these circumstances it is clear to us that the Revenue acquiesced in the view taken by the Tribunal that the claim for exemption under s. 11 of the Act could not be said to be ruled out by reason of the provisions of s. 10(23A). We, therefore, proceed to deal with the second contention which was principally argued before us in these appeals." 9.10 It is settled legal position that the assessee-trust is entitled to claim exemption independently under ss. 11 and 12 of the Act or under s. 10(23)(iiiad) of the Act, subject to satisfaction of relevant preconditions as la....
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.... 221 CTR (St) 1] explains and interprets the said amendment and para 2 of the same is reproduced hereunder : "2.1. The newly inserted proviso to s. 2(15) will not apply in respect of the first three limbs of s. 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose even if it incidentally involves the carrying on of commercial activities." 9.13 In view of the above, such findings of the CIT, in the context of charitable purpose are not supported by Circular No. 11 of 2008, dt. 19th Dec., 2008, which clearly interprets the amended definition, as contained under s. 2(15) of the Act. Therefore, the findings of the CIT are not in consonance with the said circular of the Board. The learned CIT ignored the implications of the said circular, as explained above by the highest tax administrative body of the income-tax i.e. CBDT, whose circulars are binding, on the IT authorities, executing provisions of the Act. The circulars issued by the CBDT are binding on all persons employed in the execution of the Act, as held in the cases of ....
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....plicant. It has also been provided that the grant of registration shall be one of the conditions for grant of income-tax exemption." 9.15 The issue of simultaneous operation of the provisions of s. 10(23C) and s. 11 has been explained by the CBDT in Instruction No. 1112, dt. 29th Oct., 1977, which is relevant even under the altered circumstances of merger of s. 10(22) and 10(22A) with s. 10(23C) of the Act. It reads as under : "The question for consideration is whether an educational institution existing solely for educational purposes but which shows some surplus at the end of the year is eligible for this exemption. If the profit of the educational institution can be diverted for the personal use of the proprietor thereof, then the income of the educational institution will be subject to tax. However, there may be cases where the educational institutions may be owned by trusts or societies to whom the provisions of s. 11 may be applicable. Where all the objects of these trusts are educational and the surplus, if any, from running the educational institution is used for educational purposes, it can be held that the institution is existing solely for educational purposes a....
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....9 ITR 46(Del). The Division Bench of Delhi High Court held that the gross receipt collected by the assessee' s branch office in India is income chargeable to tax. It was further held that such income was required to be applied for educational purposes in India and on its repatriation outside India, the assessee lost the entitlement to seek exemption. It was in the aforesaid background that Hon' ble Supreme Court analysed various provisos added w.e.f. 1st April, 1999 and proceeded to observe that ' with the insertion of the provisos to s. 10(23)(vi) the applicant who seeks approval has not only to show that it is an institution existing solely for educational purposes which was also the requirement under s. 10(22) but it has now to obtain initial approval from the prescribed authority, in terms of s. 10(23C)(vi) by making an application in the standardized form as mentioned in the first proviso to that section' . Hon' ble the Supreme Court then proceeded to examine various provisos by observing as under : ' ........With the insertion of the first proviso, the prescribed authority is required to vet the application. This vetting process is stipulated ....
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....ing with the procedure mentioned therein.' 7.2 From the aforesaid view expressed by the Hon' ble Supreme Court, it is evident that at the initial stage when the application for exemption is filed by an educational institution the scope of inquiry is restricted only to ascertain the genuineness of the activities of such an institution. Such an inquiry as per the proviso may even extend to the examination of accounts of the institution, application of its income to the object and purposes of education and other cognate aspects as has been indicated in the observation made by their Lordships. Once on the basis of genuineness of the activities of an educational institution approval is granted for exemption then the monitoring provisions would come in place and the AO has to examine whether the conditions on which the exemption was given, have been fulfilled or not. The aforesaid opinion is also supported by the Speech of the Finance Minister as reported in (1998) 147 CTR (St) 9 : (1998) 232 ITR (St) 13. 7.3 Hon' ble Supreme Court in para 32 of the judgment rendered in American Hotel & Lodging Association (supra) has further held that there is difference between stipul....
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.... on the ground that the third proviso has not been complied with. However, after grant of approval if it is brought to the notice of the prescribed authority that conditions on which approval was given are breached or that circumstances mentioned in the thirteenth proviso exist then the prescribed authority can withdraw the approval earlier given by following the procedure mentioned in that proviso. The view we have taken, namely, that the prescribed authority can stipulate conditions subject to which approval may be granted finds support from sub-cl. (ii)(B) in the thirteenth proviso.' 7.4. The question then is whether accumulation of income year after year extending over 4/5 years would deprive an educational institution existing solely for education purpose, its character as an educational institution solely for education purpose and not for profit. In the five Judge Constitution Bench judgment rendered in the case of Surat Art Silk Cloth Manufacturers Association (supra), the question of interpretation of cl. (15) of s. 2 of the Act was involved. The words ' not involving the carrying on any activity for profit' occurring at the end of the definition of ' cha....
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....n Hotel & Lodging Association (supra), which reads thus : ' 28. In Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378: (1980) 121 ITR 1(SC), it has been held by this Court that test of predominant object of the activity is not to earn profit. However, the purpose would not lose its character merely because some profit arises from the activity that it is not possible to carry on educational activity in such a way that the expenditure exactly balances the income and there is no resultant profit, for, to achieve this, would not only be difficult of practical realization but would reflect unsound principles of management. In order to ascertain whether the institute is carried on with the object of making profit or not it is duty of the prescribed authority to ascertain whether the balance of income is applied wholly and exclusively to the objects for which the applicant is established.' (emphasis, italicized in print, added) 7.6 It is further appropriate to point out that r. 2BC of the Rules has prescribed the limit of Rs. 1 crore where the requirement of seeking approval for exemption would not be applicable. If the turnover is m....
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.... followed by a Division Bench of Allahabad High Court in the case of City Montessori School (supra), as has been rightly contended by the learned counsel for the petitioner(s). Even Special Leave Petition against the aforesaid judgment has been dismissed. Accordingly, the question of law has to be answered in favour of the assessee and against the Revenue." 9.17 Thus, the Hon' ble jurisdictional High Court has summarised the principle laid down in the said decision and the relevant part of the same is reproduced hereunder : "8.13 From the aforesaid discussion, the following principles of law can be summed up : (1) It is obligatory on the part of the Chief CIT or the Director, which are the prescribed authorities, to comply with the proviso thirteen (unnumbered). Accordingly, it has to be ascertained whether the educational institution has been applying its profit wholly and exclusively to the object for which the institution is established. Merely because an institution has earned profit would not be deciding factor to conclude that the educational institution exists for profit." 9.18 The finding of the learned CIT that profit earned by the assessee denudes it....
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....nd CBDT Circular No. 1112, dt. 29th Oct., 1977 support the contention of the assessee on the issue of claiming alternative exemption under ss. 11 and 12 or s. 10(23C) of the Act. Needless to say that the learned CIT has failed to adversely comment on the genuineness of the activities of the assessee/applicant carried on in accordance with the objects as incorporated in the memorandum R of association. A bare perusal of the ratio laid down by the various judicial decisions, as discussed above, would clearly reveal the nature and scope of enquiries to be conducted by the CIT for grant of registration under s. 12A r/w s. 12AA of the Act. The provisions of s. 12AA of the Act, which contains procedure for registration, clearly specify the scope of enquiries to be conducted by the CIT, for his satisfaction, under the said section, for the purpose of granting registration. The scope of the jurisdiction of the CIT, under the said section of the Act, is restricted to objects of the assessee-applicant and genuineness of its activities. The text of the said section is reproduced hereunder, which clearly prescribes the scope and nature of enquiries, to be conducted by the CIT. "12AA. Proced....
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.... material on record to show that the assessees were non-charitable institutions established for personal or private gains. Therefore, there was no objectionable material to treat those institutions as non-charitable ones. The registration under s. 12A is mandatory to claim exemption under ss. 11 and 13 but registration alone cannot be treated as conclusive. It is always open to the Revenue authorities while processing returns of income of those assessees to examine their claim under ss. 11 and 13, and give such treatment to those institutions as warranted by the facts of the case. The Revenue authorities are always at a liberty to cancel the registration under s. 12AA(3). 9.21.2 It was further held by the Hon' ble High Court 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 fulfille....