TaxTMI 
TaxTMI 
2019 (5) TMI 7
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....sessee society under section 12AA of the Income Tax Act, 1961 ('the Act') as claimed. As the stage of grant of registration under section 12A, learned Commissioner is supposed to examine only the objects of the society/trust and it is not appropriate on the part of the Commissioner to examine the aspect of application of income at the stage of granting registration under section 12AA, which is to be examined by the assessing officer on a year to year basis at the time of claiming exemptions under section 11 of the Income Tax Act. 4. That section 2(15) defines the term 'charitable purpose' in an inclusive manner and includes within its ambit relief of poor, education, medical relief and advancement of any other object of general public utility. Education per se is a charitable purpose just like relief of poor or medical relief and the appellant university also does not exist for profit as there is no clause for distribution of profits or net assets in case of dissolution to members as it is fully government owned. Thus the emphasis of the Ld. CIT on profits and FDR's was misplaced both on facts and in law in so far as deciding the application u/s 12AA was concerned. ....
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....cation. Ld. Counsel for the assessee submitted that the Ld. CIT(Exemption) has not given any finding on the objectives of the assessee. He submitted that merely because the assessee is generating surplus should not be a ground for rejection of application and it cannot be the basis for inferring that assessee is not carrying out activities for charitable purposes. Ld. Sr. Counsel in support of the arguments relied upon various judgements, more particularly, judgement of the Hon'ble M.P. High Court rendered in the case of CIT Vs. DPR Charitable Trust (2011) 61 DTR (M.P.) (410). He submitted that the assessee is a government organization. It cannot be by any stretch of imagination inferred that the assessee is created for the purpose of making profit. Ld. Counsel for the assessee also placed reliance on the judgement of Hon'ble Allahabad High Court rendered in the case of Fifth Generation Education Society Vs. CIT (1990) 185 ITR 634 (Allahabad). 4. Per contra, Ld. CIT(DR) vehemently opposed the submissions and supported the order of the Ld. CIT(Exemption). Ld. D.R. submitted that from the facts available on records, it cannot be inferred that the assessee is carrying out a....
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....s pointed out that excess unreasonable payment was made to specified person u/s 13(3) of the Act. ix. There are several non charitable objects in the object clause. x. The major activities do not come under purview of the term education as used in section 2(15) of the Act. In fact, major receipts are from such activities wherein huge profits have been generated consistently which show the commercial nature of activities. xi. There is negligible investment in fixed assets as compared to investments in FDRs or ploughing back into education or other charitable activity. xii. The major application of surplus so far has been to invest in FDRs and earn interest thereupon and such benefits are not being passed on to the students by reducing the fees that the applicant is collecting from students and educational institutions." 7. The moot question for our consideration is that whether application was rightly rejected seeking registration u/s 12AA of the Act on the basis of the reasons stated herein above. For the sake of clarity, relevant provision of law is reproduced herein below:- "Section 12A: "(1)] The provisions of section 11 a....
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....tion, to the Principal Commissioner or Commissioner and such trust or institution is registered under section 12AA; (b) where the total income of the trust or institution as computed under this Act without giving effect to [the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year], the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the pres-cribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.] (c) [***] [(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made.] [Provided that where registration has been granted to the trust or institution under secti....
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....ions under that sub-section from the stage at which they were on that day.] (2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) [or clause (aa) [or clause (ab)] of sub-section (1)] of section 12A]. [(3) Where a trust or an institution has been granted registration under clause (b) of section (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No.2) Act, 1996 (33 of 1996)]] and subsequently the [Principal Commissioner or] 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 cancelling 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.] [(4) Without prejudice to the provisions of sub-section (3), where a t....
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....nditions 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 of Income-tax 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 insti tution whichever is later and such trust or institution is registered under section 12AA : Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of section 11 and section 12 shall apply in relation to the income of such trust or institution,- (i) From the date of creation of the trust or the establishment of the institution. If the Commissioner of Income-tax is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons ; . . . (b) Where the total income of the trust or institution as computed under this Act without giving effect to the provision....
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....granted registration under clause (b) of sub-section (1) and subsequently the Commis sioner of Income-tax 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 cancelling 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 oppor tunity of being heard.' 8. Section 12A of the Act prescribes conditions for registration of the trust whereas section 12AA of the Act prescribes the procedure for registration. A careful reading of the relevant provisions would reveal that application for registration under section 12A has to be made in form No. 10A prescribed by rule 17A before the expiry of one year from the date of creation of the trust or establishment of the institution whichever is later. The application has to be made by a person in receipt of income of the trust. Thus while dealing with the application for registration the Commissioner of Income-tax has to examine whether the appli....
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....ion as to the nature of such contribution and income can be looked into. At the time of registration of the Trust, going by the binding judgements of the apex court, what is to be looked into is whether the Trust is a genuine one and whether it is a sham institution floated only to avail the benefits of exemption under the Act. There is no such finding in the impugned order." 10. The reliance is also placed on the Hon'ble Allahabad High Court rendered in the case of Fifth Generation Education Society Vs. CIT (1990) 185 ITR 634 (Allahabad) wherein the Hon'ble High Court has held as under: "3. 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 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." 11. Further reliance is placed on the judgement of the Hon'ble High Court of Punjab & Haryana, wherein the Hon'ble High Court followed the judgement of ....