TaxTMI 
TaxTMI 
TaxTMI 
2010 (3) TMI 1093
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....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 the IT Act, 1961." 4. Briefly stated, the facts of the appe....
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....e. 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. 12AA is not recommended.' (B) The matter was again referred to the AO to exami....
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....rust 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 whether the assessee is existing for charitable purpose or otherwise. The assessee has been deriving systematic profits which range upto ....
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....der 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 business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity." 6. In the course of present ap....
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...., 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. The learned counsel also placed reliance on the following decisions, to support his contention : (i) Acharya Sewa Niyas Uttaranchal vs. CIT (2006) 105 TTJ (Del) 761; (ii) Aggarwal Mit....
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....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 Trust, F.F. Road, P.O. Fazilka, Punjab, dt. 31st March, 2009 is hereby rejected." 9.1 In this context, it is pertinent to quote the undated written submissions filed by the assessee contending therein that the findings of t....
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....w 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 CIT is only required to satisfy himself about the objects of the trust and genuineness of its activities ' CIT having recorded no dissatisfaction on either of these two aspects, CIT refusing registration under s. 12A on grounds that dissoluti....
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....cerned 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 under s. 12AA of the Act. Thus, CIT has no jurisdiction to conduct enquiries which falls beyond the pale of such statutory prescription. 9.4 A perusal of the written submissions in the form of synopsis filed by the assessee reveals that the trust was forme....
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....her, 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 the counsel that members are residing at Chandigarh/Kapurthala is totally devoid of fact. From the details of members given, it is clear that actually the society is being run by one family to promote its business in education sector. From the above facts narrated by the AO, it is clea....
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....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 family details and household expenditure. (d) Whether member is assessed to tax ? If yes, proof of PAN and filing of IT returns for the last three years. Dt. 18th Aug., 2009 Yours faithfully, Sd/ (B.R. Madaan) Dy. CIT, Circle-II, Bathinda." 9.6 Necessary compliance was made by the assessee-trust vide letter dt. 27....
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....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 Supreme Court in the case of ITO vs. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209: (1992) 198 ITR 297(SC). The relevant para of the said decision is reproduced hereunder : "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the ....
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....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 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 under s. 10(23)(iiiad) of the Act is available, as also the exemption under ss. 11 and 12 subject to the satisfaction of the statutory conditions prescribed under the relevant sections of the....
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....e 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 Navnit Lal C. Javeri vs. K.K. Sen, AAC (1965) 56 ITR 198(SC), K.P. Varghese vs. ITO (1981) 24 CTR (SC) 358: (1981) 131 ITR 597(SC) and Ellerman Lines Ltd. vs. CIT 1972 CTR (SC) 71: (1971) 82 ITR 913(SC). It is, further, added that circulars issued by the CBDT, are intended to be utilised to understand the scope and meaning of the provisions, to which they relate. These circulars contain interpretation in respect ....
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....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 and not for purposes of profit. However, if the surplus can be used for non-educational purposes, it cannot be said that the institution is existing solely for educational purpose and such institution will not be liable for exemption under s. 10(22). But in such cases the applicability of s. 11 can be examined and if the conditions laid down therein are satisfied, the income will be exempt under s. 11." 9.16 Further, the ju....
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....us 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 by the second proviso. It is important to note that the second proviso also indicates the powers and duties of the prescribed authority. While considering the approval of application in the second proviso, the prescribed authority is empowered before giving approval to call for such documents including annual accounts or information from the applicant to check the genuineness of the activities of the applicant institution. Earlier that power....
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....n, 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 stipulation of conditions and compliance therein. It has been held that the threshold conditions are aimed at discovering the actual existence of an educational institution and approval of the prescribed authority for which application in the standardized form in terms of the first proviso has to be given by every applicant. If the prerequisite condition of actual existence of the educational institution is fulfilled then the question of compliance wi....
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....uthority 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 ' charitable purpose' in the aforesaid provision were interpreted. After analyzing various judgments and the Speech of the Finance Minister, it has been held as under : ' .........The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit making is the predominant object of the ac....
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.... 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 more than Rs. 1 crore then exemption in terms of s. 10(23C)(vi) is required. The unnumbered third proviso postulates the investment and deposits of surplus funds. An educational institution could make deposits and can also earn interest, which is permissible. There are certain limits imposed on the accumulations which of course have to be met. A Division Bench of Delhi High Court in the case of Director of IT (Exemptions) vs. Eternal Science of Man' s Society (2006) 205 CTR (Del) 381 : ....
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.... 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 its charitable character runs contrary to the clear ruling of the decision of the jurisdictional High Court, as reproduced above. The learned CIT placed reliance on the decision in the case of CIT vs. Saraswath Poor Students Fund (1985) 46 CTR (Kar) 107: (1984) 150 ITR 142(Kar). On perusal of the same, we are of the considered opinion that the ratio of the said decision is not applicable to the fact situation of the present case, being factually different and distinguished. The learned CIT, in last para, p. 5, wh....
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....he 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. Procedure for registration.' (1) The CIT, on receipt of an application for registration of a trust or institution made under cl. (a) or cl. (aa) of sub-s. (1) of s. 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 trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution a....
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....ted 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 fulfilled all the conditions, were entitled to registration, could not be faulted. 9.22 Further, the ratio of the various case law as discussed earlier conclusively and finally prescribes the scope and nature of enquiry to be conducted by the CIT, under this section, for the purpose of granting registration under s. 12A r/w s. 12AA of the Act. The CIT failed to adhere to such prescribed statutory limit. 9.23 The learned 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, ....