TMI Blog2007 (2) TMI 575X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax, rejecting his application filed under section 12AA of the Act. 2. The assessee Society moved an application under section 12AA of the Act, claiming registration saying that the assessee was running an institution solely for educational purposes and not for the purpose of profit and, therefore, was entitled for being registered. 3. The Commissioner of Income-tax called for a report from the concerned ITO, who stated that the assessee Society was registered on 29-3-1982, of which Smt. Shashi Mishra was the President and Sri R.C. Mishra, her husband, was Mantri/Manager of the Society. The said Society was running school at Rajajipuram, Lucknow and at Gomti Nagar, Lucknow. The third branch of the institution was under construction at Vishnulok Colony, Kanpur Road, Lucknow. 4. The ITO, however, found that the assessee Society had been making investment in purchase of library books and noted that books worth Rs. 50,000 were purchased by the assessee from Orient Longman Pvt. Ltd. on 1-12-2000 and again books were purchased for Rs. 50,100 vide bill dated 31-7-2000. The ITO was of the view that these books were for higher studies and not fit for the standard of schoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant of registration under section 12AA of the Act is a privilege and not a right and that the assessee Society having not been able to prove on record that the activities of the assessee Society were solely for educational purpose, rejected its claim for registration. 9. The Commissioner also relied upon the case of Sat Pal Co. v. Lt. Governor of Delhi AIR 1979 SC 1550 for the aforesaid proposition of law. 10. The Income-tax Appellate Tribunal relying upon the scope of enquiry as propounded by its Bench at Lucknow in the case of St. Don Bosco Educational Society v. CIT [2004] 90 ITD 477 held that considerations made by the Commissioner of Income-tax and report submitted by the ITO were, in fact, not sufficient to reject the plea of registration and that at the time of registration, the Commissioner was obliged only to see that ( i ) the objects of the Society are not against public policy; and ( ii ) the activities of that Society are genuine. 11. The Tribunal also held that it was the duty of the Assessing Officer to examine the case of the assessee for exemption under section 11/13 of the Act when assessee files necessary return in the relevant years and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause ( a ) or clause ( b ) or clause ( c ) or clause ( cc ) or clause ( d ) of sub-section (3) of section 13, shall be deemed to be income of such trust or institution derived from property held under trust wholly for charitable or religious purpose during the previous year in which such services are so provided and shall be chargeable to income-tax notwithstanding the provisions of sub-section (1) of section 11. 15. Sub-section (3) of section 13 provides as under: "(3) The persons referred to in clause ( c ) of sub-section (1) and sub-section (2) are the following, namely: ( a ) the author of the trust or the founder of the institution; ( b ) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees; ( c ) where such author, founder or person is a Hindu undivided family, a member of the family; ( cc ) any trustee of the trust or manager (by whatever name called) of the institution; ( d ) any relative of any such author, founder, person member, trustee or manager as aforesaid; ( e ) any concern in which any of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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. Rest of the provisions of section 12A, not being relevant for the present controversy, are not being referred to. 19. Section 12A thus, prescribed conditions for registration of trusts and obligates the trust or the institution to seek registration under section 12AA, if such trust or institution intends to have the benefit of the provisions of section 11 and section 12 of the Act, which have been referred to above. 20. These provisions thus, make it clear that if the trust or the institution is not registered under section 12AA, it would not be able to claim any exemption or exclusion of its income from the total income of the previous year, even if such income is otherwise liable to be excluded under any of the clauses of section 11 or section 12 of the Act. 21. Thus, in a case where registration is refused, the trust or the institution would not be allowed to claim any such e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2004. 23. The aforesaid provision confers power on the Commissioner while considering the application for registration of a trust or institution made under clause ( a ) of section 12A to 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 also to make such inquiries as he may deem necessary in this behalf and after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he shall pass an order in writing registering the trust or institution and if he is not satisfied, he would refuse the registration. 24. Sub-section (3) inserted with effect from 1-10-2004, gave power of cancellation of registration to the Commissioner, if subsequently he finds and is satisfied that 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. 25. Power of cancellation of registration has been conferred with a view to ensure that if once a registration has been granted under section 12AA, the trust or the institution may no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entitled for the same either in respect of the entire income or a part thereof. Submission 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied to such purposes in India; and where any such income is accumulated or set apart for application 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 incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 13 excludes the applicability of section 11 in certain cases. 42. A cumulative reading of the aforesaid provisions leaves 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 previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty was to provide education to children from Primary section to Degree level and to improve the 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 log ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It has also not been disputed by the revenue that Nav Chetna Kendra, a Society which has been formed 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 findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty or its office bearers. The Society was running two branches of its schools, one at Rajajipuram and the other at Gomti 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 ..... 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