TMI Blog2012 (6) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... A - CIT directed to grant registration. - IT Appeal No. 412 (Agra) of 2011 - - - Dated:- 18-5-2012 - BHAVNESH SAINI, A.L. GEHLOT, JJ. ORDER A.L. Gehlot, Accountant Member This is an appeal filed by the assessee against the order dated 21.09.2011 passed by the Ld. CIT, Gwalior under section 12AA(1)(b)(ii) of the Income Tax Act, 1961 ('the Act' hereinafter). 2. The ground raised by the assessee in the appeal is in respect of rejection of assessee's application filed for granting registration under section 12AA of the Act. 3. The brief facts of the case are that the assessee is resisted Samiti under Madhya Pradesh Society Registration Act, 1973 w.e.f. 01.01.1996. The assessee filed application for registration under section 12A/ 12AA of the Act before the CIT on 07.03.2011. The CIT called the report from the Assessing Officer and documents or information from the Samiti in order to satisfy himself about the genuineness of activities of the Samiti. On perusal of record and others the CIT noted as under:- "On perusal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as erred in not granting the registration under section 12AA of the Act. The Ld. Authorised Representative submitted that at the time of allowing registration under section 12AA, the Assessing Officer is to examine only whether the activities of the Samiti is genuine or not. He submitted that the CIT has examined charitable activities of the Samiti as he issued a query letter dated 12.9.2011 which has been replied in detail by the assessee. The Ld. Authorised Representative drew our attention on the objects of the Samiti and submitted that the objects of the Samiti are education and charity thus the assessee Samiti is entitled for registration under section 12A/12AA of the Act. The original deed is in Hindi, the relevant translation in English of object clauses of the Samiti submitted by the Ld. Authorised Representative are reproduced as under:- "English Translation in Respect of Objects of Insititution (Tishir Shiksha Prasad Samiti Fathepur Road, Shivpuri, Gwalior) 1. Organizing of Educational Institutions 2. Organizing and opening of Library 3. Education to illiterate persons 4. widening the scope of education with new technology 5. Organizing the educ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, moped, scooter, motor cycle repair centre, repair of auto electric domestic appliances and electric motor recording, bakery and confectionary food and vegetable. Preservation, hotel management and computer diploma and degree course, night classes for the study of management of principal and professional education with organization of shelter/homes for old age persons homes and brief Education programme, with organizing of professional education centre training and organization of plantation programme, establishment of home for orphan, helpless children and opening of Sneh Kuteer, training centre and opening of Hostel, houses, school, coaching centre for SC, ST children. 10. Organizing of education centre providing of opportunity to youth and training centre in respect of the different games like cricket, volleyball, hockey, table tennis, carom board, shatranj and athletics game and to organize the camps for playing of games 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. Organizatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... butes through tax giveaways partly for services, which it is expected to provide itself by direct spending for the benefit of the human community as whole. In India, charity work by public itself is inherit public welfare activities. However, to ensure that the tax benefits through loss of tax revenue by the Government are properly utilized and not misused, the Act besides prescribing restrictions in the Act laying down conditions in sections 11, 12 and 13 which are to be complied with for claiming exemption also provides mechanism by way of registration of the institutions who could claim exemption in respect of their incomes and also tax benefits to those who donate to such bodies. The trusts or institutions claiming exemption from taxation under the Income-tax Act, 1961, have to comply with certain obligations. With this back ground, to appreciate the issue under consideration, we would like to consider 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and subsequently the 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.] Finance (No. 2) Act, 1996 - Circular No. 762, dated 18.2.1998- "Registration of charitable and religious trusts- 19.1 Under the existing provisions of the Income-tax Act, exemption from income-tax in respect of the income of a charitable or religious trust or institution is available only if the conditions specified in that section are satisfied. One of these conditions if that the person in receipt of the income shall 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is registered under Section 12A/12AA of the Act, such Trust or Institution shall not be entitled to exclude from its total income, deductions or contributions or from other sources. Therefore, the principles laid down for excluding the income from consideration under Section 10(22) now 10(23)(C) or Sections 11 and 12 are not applicable while considering the application for registration under Section 12A/12AA of the Act. As stated above that the application for registration is required to be made within one year of the creation of the Trust. Section 12AA of the Act, requires satisfaction in respect of the genuineness of the activities of the Trust, which includes the activities which the Trust is undertaking at present and also which it may contemplate to undertake. The insertion of sub-section (3) to Section 12AA of the Act, clarifies that, when it empowers the Commissioner to 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st or an institution from claiming any exemption under section 11 or section 12 and consequently the applicability of section 13, in the absence of registration under section 12AA, the Commissioner was only to see that whether the income of the trust/institution falls within any of the heads under the aforesaid provisions of sections 11 and 12, and in case during the assessment proceedings, for any particular assessment year, the Assessing Officer finds that either the income derived cannot be said to be income from educational activities or its expenditure cannot be attributed to any educational purpose, he would be at liberty to assess that income and levy tax but on the contrary, in the absence of registration, the assessee would be deprived of claiming such benefit, even though it is otherwise 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not mere camouflage but are real, pure and sincere, nor against the proposed objects. The profit earning or misuse of the income derived by charitable institution from its charitable activities may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trust or the institution. 35. This is more evident if we see the provisions of section 11, which, while exempting the income given in its various sub-clauses from being included in the total income of the previous year of the person in receipt of the income, for example, in sub-clause (1) says 'income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be, of the previous year immediately following the expiry of the period aforesaid. 40. Section 12 also only says that any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes, shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly. 41. The provision thus, emphasizes upon the income of the trust created wholly for charitable or religious purposes or an institution established wholly for such purposes and so is the case in sub-section (2) of the aforesaid section. The provisions 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diate va Degree star tak ki Shiksha ki vyavastha karna, jaisa ki samay-samay par shasan dwara uchit samjha jaega. (3) Samajik drishti se anaath, nirashrit, Harijan, pichhdi jaati aur apang baalakon ke sanrakshan va punarvas ki vyavastha karna. (4) Baalakon ke sharirik vikas hetu vyayam, khelkood aadi ki vyavastha karna. (5) Baalakon ke maansik vikas hetu pustakalaya aur vachnalaya ki sthapna karna. (6) Uprokt uddeshyon ki poorti hetu evam inse sambandhit anya aavashyak karya jo Societies Act ki dhara 20 ke antargat honge evam any aakasmik karyon ke liye prabandh karna. 47. The Tribunal has rightly found that the objects aforesaid show that none of the objects were against public policy and the main activity of the said Society 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and misused its power. 52. The purchase of books worth Rs. 1 lakh in the name of Nav Chetna Kendra has been found to be shady, firstly because these books were of a very high standard, not meant for the students up to XII class and secondly they were purchased in the name of Nav Chetna Kendra, which is a separate Society. 53. The Tribunal has rightly found that Nav Chetna Kendra is a Society, which has been formed for maintaining the library for the benefit of the students, being run by the assessee Society and if the books of high standard have been purchased, it cannot be presumed that no purchase was made nor it is the case of the revenue that books worth the amount were not purchased or the payments were not made. 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 polic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Technology in both the English and Hindi medium up to Class XII. The assessee Society passed a resolution in the meeting held on 1-12-1998, copy of which was before the Tribunal, in which it was mentioned that a library in the name of "Nav Jagriti Kendra" be established for providing books to the school children. In this context, the assessee Society passed another resolution on 10-8-1999 providing monetary help to Nav Chetna Kendra for purchase of books by the assessee Society and in that context the books of higher studies were purchased and made available for students to inculcate knowledge. Such expenses, in purchase of books of higher standard, are not involving any monetary profit to assessee Society 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institution, and a copy of such order shall be sent to the applicant. (2) (3) Where a trust or an institution has been granted registration under clause(b) of sub-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 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". 5. In order to avail the benefit of exemption under section 11 of the Act, a Trust can make an application to the Commissioner for registration under section 12A of 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 registrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax, before granting the registration, had gone into the above objects and satisfied himself for grant of registration. Subsequently, by the order of the Commissioner of Income Tax dated 31.06.2011, the very same objects were considered and were found not to be the activities which are charitable in nature. While carrying on the activities of publication and sale of Sarvodaya Literature and Gandhian Ideologies as charitable activities, referring the same objects as not charity, it cannot be brought under the provisions of section 12AA(3) of the Act. The cancellation was made not on the ground that the activities of the trust were not genuine but the activities of the trust were not in accordance with the objects of the trust. When the trust 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tra Mandal Trust v. Director of Income Tax (Exemption), 293 ITR (AT) 259 (Delhi) (page 264) has held as under:- "We have considered the rival submissions and also perused the relevant material on record. It is observed that any trust or institution seeking to avail of the benefit of the provisions of section 11 and 12 is required to apply for registration under section 12A. The procedure for registration is prescribed in section 12AA and as per the provisions of sub-section (1) of that section, the Commissioner of Income-tax [DIT (Exemption) in the present case] is empowered to satisfy himself about the object of the Trust and about the genuineness of the activities of the trust or institution before granting the registration under section 12A. 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 registrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institution or, as the case may be, the society would be able to claim the exemptions under section 11 or 12 of the Act. The question of exemptions under sections 11 and 12 of the Act would come only when the said exemptions are claimed by the Samiti or society at the time when it is assessed to tax. To consider whether the said society would be entitled to the benefits under sections 11 and 12 of the Act would be pre-judging the issue before the grant of certificate. At the stage of grant of certificate under section 12A/12AA of the Act, the only enquiry which is to make by the Commissioner would be about the objects of the trust or institution and the genuineness of its activities. The procedure for registration of the Trust or Institution is prescribed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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