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2016 (3) TMI 30 - KERALA HIGH COURT

2016 (3) TMI 30 - KERALA HIGH COURT - [2016] 382 ITR 399 - Eligibility for registration in terms of Section 12A - Held that:- The amount allegedly collected as capitation fee from four prospective students was actually collected as tuition fee on the basis of the valid agreements entered into by the Trust undertaking to return the same in case admission under the NRI quota could not be made available to the concerned students. The amount so collected represented only a portion of the tuition fee .....

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Going by the provisions of Sections 12A and 12AA of the Income Tax Act, we hold that the grounds raised by the registering authority and upheld by the appellate authority for rejection of registration to the appellant Trust cannot be sustained. The authorities could have examined only the genuineness of the Trust and its activities. They did not have material to hold that the Trust was either not genuine or its activities were not what was professed in the deed of Trust.

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raman, J. The challenge in this appeal under Section 260A of the Income Tax Act is against the order of the Income Tax Appellate Tribunal rejecting the appeal preferred against the order of the Commissioner of Income Tax refusing to register a Trust under Section 12AA of the Income Tax Act (hereinafter referred to as 'the Act'). It is the contention of the appellant, Sree Anjaneya Medical Trust, that the Trust was registered on 27.05.2005 with education and relief of the poor as its prin .....

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19.03.2009. It was found that the Trust had received contributions prior to registration and the expenditure of the Trust was not verifiable. On the ground that "the Trust is involved in continuous violation of the provisions of the I.T Act, eg., not filing the returns in time, not paying the tax etc. and also because Trust deed has no provision to the effect that it is not for profit", it was found that the Trust cannot be granted registration. On appeal, the Tribunal found that the .....

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ctual aspect of the matter was directed to be ascertained with notice to the appellant. It was also held that the presence of profit by itself would not disentitle the Trust for registration under the Act, since "there is no question of exemption, if there is no scope of income". The matter was thus remanded to the Commissioner of Income Tax to examine the assessee's case in its proper perspective after hearing the appellant as also considering the deed of modification of Trust exe .....

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se cannot be termed as a charitable purpose unless it has a public character. Thus, finding that no charitable activities have been carried out by the Trust, the Commissioner of Income Tax rejected the application for registration yet again. This was taken in appeal by the Trust which has resulted in the impugned order. The appellate authority also found that the assessee Trust had collected money from various persons on the assurance of employment and admission for medical education. On the gro .....

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on the specific question as to the nature of consideration required for the purpose of registration of a Trust under Section 12A of the Income Tax Act. 4. It is urged by the learned Senior Counsel appearing for the appellant that the question whether the activities of the Trust, which was formed with the specific intention of imparting education and relief to the poor, are actually charitable in nature or not would not arise for consideration at the stage of grant of registration to the Trust u .....

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r with regard to the application of its income. In the above view of the matter, it is argued that the reliance placed by the Revenue on the survey report as well as the sworn statement of the Managing Trustee to state that the Trust had profit as its motive was misconceived. It is further contended that going by the definition of the word 'charitable purpose' contained in Section 2(15) of the Act, the purposes of the Trust being relief to the poor and education, the question whether the .....

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Association [(1980)121 ITR 1) to contend that where the object of the Trust is establishing, running and managing of educational institutions it would be entitled to registration under Section 12A of the Act. It is contended that a five member bench of the Apex Court had, in Surat Art Silk Cloth Manufacturers Association's case (supra) specifically held that clause 15 of Section 2 of the Income Tax Act provides that charitable purpose includes relief of the poor, education, medical relief an .....

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rpose of a Trust is relief of the poor, education or medical relief, the requirement of the definition of "charitable purpose" would be fully satisfied, even if an activity for profit is carried on in the course of carrying out the primary purpose of the Trust. The learned counsel also relied on the decision of the Delhi High Court in Income Tax v. Foundation of Ophthalmic & Optometry Research Education Centre [(2013)355 ITR 361] to contend that while examining an application under .....

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as High Court in Director of Exemptions Vs Sreevi Samaj Tambaram Trust. [(2014)362 ITR 199] as well. The learned counsel also placed reliance on a bench decision of the Karnataka High Court in Director of Income Tax (Exemptions) v. Meenakshi Amma Endowment Trust [(2013)354 ITR 219] to contend that the objects of the Trust as contained in the Trust deed have to be taken into consideration by the authority while considering an application for registration. In the subsequent returns filed by the Tr .....

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rationale in the argument advanced on behalf of the appellant that registration to a Trust has to be granted without looking into the genuineness of its activities or objects and contending that in case it is found in future that the Trust is not applying its income to charitable purposes, the registration already granted can be withdrawn. It is pointed out by the learned counsel that the requirements contained in Section 12AA of the Act for grant of registration and the negative prescriptions i .....

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he Trust and its objects should be looked into at the stage of grant of registration itself. The learned senior counsel would contend that registration was refused to the Trust on the basis of a survey conducted in its premises and the sworn statement of its Managing Trustee admitting to collection of huge amounts as deposits from intending employees to find funds for the institution as well as collection of capitation fee from four intending NRI students even before recognition was granted for .....

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had therefore passed an order refusing to register the Trust or institution. In appeal, the Appellate Tribunal had examined the contentions raised by the appellant also in detail and had come to the conclusion that the Trust was not entitled for registration in terms of Section 12AA of the Act. In the above circumstances, it is contended that no substantial question of law arises for consideration in this appeal under Section 260A of the Act and hence the appeal is liable to be dismissed. The l .....

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und of the self same amount would be an empty formality. In Commissioner of Income-Tax v. National Institute of Aeronautical Engineering Educational Society [2009)315 ITR 428] a Division Bench of the Uttarkhand High Court held that where a Trust or charitable society is clearly an orgnisation floated with blatant profit making as its object and indulges in illegal activities including collection of capitation fee, there is absolutely no error of law in a registering authority refusing registrati .....

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d the advancement of any other object of general public utility." 8. As stated earlier, it has been held that where the purpose of the Trust is one of the three declared charities, no question of examination of profit motive is required. Circular No.11 of 2008 dated 19.12.2008 issued by the Department also provides that the proviso to Section 2(15) of the Act does not apply in respect of the first three limbs of Section 2(15). Where purpose of Trust or institution is relief of the poor, edu .....

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tion only at a later stage. 9. Sections 12A and 12AA of the Act read as under: "12A. Conditions for applicability of Sections 11 and 12. (1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions 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 bef .....

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the creation of the trust or the establishment of the institution if the Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevent3ed from making the application before the expiry of the period aforesaid for sufficient reasons; (ii) from the 1st day of the financial year in which the application is made, if the Commissioner is not so satisfied: Provided further that the provisions of this clause shall not apply in relation to any appli .....

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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 prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. (2) Where an application .....

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ormation 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 and the genuineness of its activities, he- (i) shall pass an order in writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to r .....

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tions 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) of sub-section (1) of section 12A. (3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) and subsequently the Commissioner is satisfied that the a .....

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ntended thereby is only a registration simpliciter of the entity of a trust. This has been made a condition precedent for the claiming of benefits under the other provisions of the Act regarding exemption of income, contribution, etc. No examination of the modus of the application of the funds of the Trust or an examination of the ethical background of its settlers is called for while considering an application for registration. The stage for consideration of the relevance of the object of the T .....

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ere is no such finding in the impugned order. 11. On merits also, it is contended that the amount allegedly collected as capitation fee from four prospective students was actually collected as tuition fee on the basis of the valid agreements entered into by the Trust undertaking to return the same in case admission under the NRI quota could not be made available to the concerned students. The amount so collected represented only a portion of the tuition fees which the Government had permitted th .....

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