While granting registration u/s 12AA Commissioner not expected to see other provisions of the Income Tax Act, 1961
SUMMARY OF THE CASE LAWS
At the stage of granting registration u/s 12AA the Commissioner is not expected to bother himself about the other provisions of the Act and suppose to confine himself to the procedure of registration as laid down therein.
CASE LAWS DETAILS
DECIDED BY: ITAT, PUNE BENCH `A’, PUNE., IN THE CASE OF: Maharashtra Academy of Engineering and Educational Research v. CIT, APPEAL NO: ITA No. 1669/PN/2007, DECIDED ON: September 8, 2009
In the recent past the question of interpretation of newly inserted section 12AA( with effect from 01/04/1997) has always been perennial teaser not only to the trust or institutions but also to the Revenue Department as also faced by the judiciary. To get the answer we have heard both the sides at length, carefully perused the impugned order and also several correspondences filed in the compilation in the light of the case laws cited.
11.1 The Law now introduced is to streamline the “Procedure for Registration” and by saying so we do not want to enter into the controversy whether the applicability of section 12AA(3) was retrospective or prospective in nature Rather we can make an observation that this issue stood answered by coordinate benches. We want to express that earlier to this section there was no guidelines in the statute for refusal of registration, therefore it was considered eminent to introduce in the statute the said procedure What bothered the Tribunals and High Courts in the recent past is the scope and the purpose of introduction of section 12AA in the Statute. All those judgment as listed above, in agreement have said that the activities ought to be in fulfillment of the objects for which a trust is created Sentiments should be in line with the purpose for which the Trust is created The purpose should be philanthropic, charitable, or for public general utility Service without profit has to be motive As in the present case the objects are to undertake, to run and to improve the educational institution for imparting education in divergent fields; deliberated upon ante.
11.2 In any case we have to examine the purpose of enactment of sections 12A, 12AA, 12AA(3) , viz-a-viz section 11 and 12
While reading several case laws as cited supra an important point of view of the Hon’ble courts have come to “our notice that mere registration u/s 12 AA would not by itself be a ground for exclusion of such an-income from the total_ income of a Trust To our understanding, also acknowlged in the precedents; the provisions of section 12 AA prescribes conditions for registration of a trust and therefore in the absence of registration disentitles any trust from claiming any benefit of the provisions of section 11 and section 12 of the Act in relation to it’s income. Therefore the conclusion is that Section 12AA prescribes certain conditions for the registration of a trust and thereupon obligates a trust or an institution to seek, rather obtain, a registration u/s 12AA if such trust intends to have the benefits of the exemption as prescribed u/s 11 and 12 of the Act It is not the other-way round that the benefit of section 11 and 12 shall be automatic once the registration is granted Thus the outcome is that these provisions make it clear that if the trust is not registered u/s 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 for exclusion under any of the clauses of sec 11 and sec. 12 of the Act.
11.3 On due consideration of the rival arguments we can summarise the section of the Act governing the issue in hand. The purpose of framing the “Conditions for applicability of sections 11 and 12″ i.e. Sec.12A and framing the rules of “Procedure for registration” I.e. sec 12AA is basically meant to open the door to a trust to enter in to the frame-work of the provisions of the statute, in a way; an entitlement to enter into a room where the eligibility of exemptions is kept for adjudication Thus in a case of refusal of registration, the trust would even not be allowed to enter the room to seek a claim of such exclusion of a receipt from the total income. In simple words; in ease of no registration a “Trust is debarred by law to claim exemption. This is the first step to climb to the level where the exemptions are placed. At this first step the Commissioner is conferred With the powers to call for such “documents and information in order to satisfy-4iimself about the_ genuineness of the activities and also to enqurire that those genuine activities are as per the objects of the trust for which it is seeking registration The objects and activities should be philanthropic and not against the public interest must be for the benefit at large instead for the benefit of particular individual or group of individuals.
11.4 In the recent past sub-section (3) was inserted in sec 12AA with effect from 01/10/2004 which gives power of cancellation of registration to the Commissioner, if he finds that the activities are not genuine or not being carried out in accordance with the object of the trust The need for the enactment had arisen due to belief of some quarter that in the absence of explicit law the Commissioner cannot exercise the power of cancellation of registration To over-come this hurdle this sub-section is incorporated and now in operation Naturally these powers are conferred with a view to ensure that if once a registration has been granted u/s 12AA. a trust or institution may not take any such liberty of misuse of the registration or the provisions by going haywire rather furthering the objects of the trust or genuinely not pursuing the activities for which it was established.
11.5 Considering the arguments and the facts of this case we have noted that the most important feature of sec 12AA is, as also referred to us in this appeal for our adjudication, that this section has only laid down the procedure of registration and this section nowhere speaks that while considering the application “of registration, the Commissioner shall also look into the procedure of earning of income and sources from-where receipts are derived, .-the argument was, it also does- not “speak anywhere that while considering the registration and this section nowhere speaks that while considering the application of registration, the Commissioner shall also look into the procedure of earning of income and sources from where receipts are derived. The argument was, it also does not speak anywhere that while considering the registration the Commissioner shall also see the manner in which the receipt or the income is being spend by the trust. To our humble understanding of various related provisions, the power of enquiry, in respect of sources of receipts and the Utilization of income is entrusted in separate sections as already discussed ante The language thus used in this section only confines to enquire about the activities of the trust and its genuineness, which means in consonance with the objects for which created and those objects as also activities should not be a camouflage but pure, sincere, charitable and for public utility at large. What is implicit is that the Commissioner has to sincerely examine that the objects as also the activities should not be prima facie against the basic structure for which beneficial law is made and also be not in conflict with the general public utility Naturally an institution if established to carry out an illegal activity or activities are causing any type of nuisance not in the interest of the public at large should definitely lead to cancellation of registration. Therefore, this is the first requisite of the statute to mandate for the registration and in the absence of such registration disentitlement of exemption So what is explicit is thai though an institution may be doing charitable activities as prescribed but in the absence of registration can not be entitled for the exemptions or benefits of sec 11 and 12 of the Act. It is also explicit that Registration ipsofacto do not necessarily entitle an institution to get the receipts excluded from the income or exemption be granted automatically by just showing the registration certificate to the revenue authorities. In no way the registration certificate is a license to do any type of activity and to get away from the ambits of the tax An institution has to follow the norms as laid down in other related sections for availing prescribed benefits.
11 6 Procedure of registration is a first step and a preliminary stage where the Commissioner shall restrict the enquires as to whether the trust is actually and whole heartedly performing all the duties and activities for which it was created…On careful reading of this section it was gathered that at this initial stage there is no scope of any apprehension of mis-utilization of funds or to judge the taxability of income. The scheme of the Act otherwise do not subscribe and allow a trust to take the benefit of the provisions of sec 11 and 12 unless establish the prescribed utilization of the income, even if. at all the trust hold the registration in its hands. Therefore at the stage of granting registration the Commissioner is not expected to bother himself about the other provisions of the Act and supposed to confine himself to the procedure of registration as laid down therein For this view, we draw support from the order of the respected coordinate bench ITAT
New Delhi pronounced in the case of Aggarwal Mitra Mandal Trust 293 ITR 259(AT), a portion reproduced below (pg 186 pb)
” In this situation, if the registration applied for under section 12A is not granted to it for violation of the provisions of section 13(l)(b) and it is ultimately found that the assessee-trust actually accomplished the objects as indicated in clause No. 3(4) only for the benefit of public at large without there being any activity undertaken as per object clause No. 3(1) and 3(2), it would be deprived of any benefits which otherwise were available to it under section 11 or section 12. This certainly is not the legislative intention as reflected in the scheme laid down in sections 11, 12, 12A, 12AA and 13. On the contrary, the phraseology of section 13, as already discussed, makes it explicitly clear that the said provisions become operative or relevant only at the stage of assessment when the Assessing Officer is required to examine the claim of the assessee for benefits under section 11 or section 12 while computing the total income of the assessee of the relevant previous year. The application of section 13 thus falls within the exclusive domain of the Assessing Officer and the provisions contained therein can be invoked by him while framing the assessment^ and not by the Commissioner of Income-tax_ _ white considering the application for Registration under section-12AA. “
11.7 An another feature of the impugned order of the Ld J-Commissioner is in fact bothering us that nowhere he has taken any objection to the charitable and educational nature of the Institution In fact, the objects of the institution as declared in the trust deed, which are extracted earlier, does reflect that all are philanthropic or benevolent in nature, precisely for the purpose of impaling education Strange enough there is no finding recorded by the’ Ld Commissioner contrary to this fact Be that as it may. the real and the only substantial objection for refusal of registration was that the institution has collected donations thus adopted some wrong means of collection of fees But whether at this preliminary stage he had the right to draw an adverse inference so as to refuse registration or alternatively confine himself to the enquiry about the objects and the activities of the trust as per the limits of the jurisdiction of sec 12AA of the Act Rather this is also not the case of the Ld Commissioner that the institution is doing some other activity of earning profit other than the activity of running educational institutions The established factual position is that the institution is not doing in any other activity except running educational institutions In such circumstances, can we uphold the action of cancellation of registration? Answer is obvious no
11.8 While reading the precedents cited from the side of the appellant we come across a decision of a respected coordinate bench ITAT. Kolkata pronounced in the case of Kalinga Institute of Industrial Technology reported in 113 TTJ 906 and have found that almost on identical situation, as in the present appeal, it was held- that consequence upon-a search while the assessment proceedings are pending a cancellation ‘of “registration by invoking section 12AA(3) is a premature action on the part of Commissioner, .because it is expected from him to take -precaution to let the-assessment get completed, if possible ,expeditiously, instead of rushing to cancel the registration which shall effect and interrupt the other proceedings under the Act and so prematurely punish a person without judicious hearing as prescribed by the statute Held portion is worth reproduction as did in para (xii) page 35 ante
11.9 We have also gone through a decision referred from the side of the Revenue namely The J & K Bank Priority Sector Asset Risk Fund vs The CH Jammu (ITA No 61(ASR)/2006) order dated 01/09/2006, cited in support of the argument that firstly the Commissioner has been vested with the powers vide section 12AA(3), inserted with effect from 01/10/2004, to enquire about the genuineness of the activities of a Trust and to satisfy himself that such activities are being carried out in accordance with the objects of the Trust Secondly in case of dissatisfaction he is empowered to cancel the already granted registration. Thirdly in case it is found that the activities are not in conformity with the object that too is the good reason for cancellation of registration Fourthly the sweep of the section is wide enough to empower the Commissioner to examine the nature of the object whether for general public utility and philanthropic in nature In our conscientious view there is no disagreement about the above mentioned four legal proposition as eruditely laid down by the respected Amritsar Bench Undisputedly we have also to decide this appeal more or less within these parameters. But the basic question is that before stepping towards the cancellation of registration the heavy burden is on the Learned Commissioner to conclusively demonstrate that all had gone haywire i.e. objects are meant for personal benefits; that engaged the immoral activities or 1 that there is no element of public benefit. In the present appeal none of the above criteria of rejection of registration was in existence, however: mainly €0ftflned to the finding that-by charging donation the Trust-has infringed the rules of Prohibition of Capitation Foe Act.
11.12 Based upon the facts of this case, we now sum up above discussion. The sine-qua-non for cancellation of registration are two conditions prescribed in section 12AA(3) needs to be satisfied are
(a) That activities of the Trust / Institution are not genuine.
(b) That activities of the Trust are not carried out in accordance with the objects of the Trust / Institution
Thus the findings of the Learned Commissioner has not to be only conceptual or contextual but should be within the four corners of law so that not surpassing the power, as listed above, granted in sub-section (3) of section 12AA But unfortunately the fallacy is writ large as gathered on perusing the impugned order. We can hold that the commissioner’ s approach for deciding the eligibility of registration of a Trust should be different from the angle by which an assessment of an income is made by the A.O. We are afraid about the ramification if we approve the action of Learned CIT because in that case it may adversely affect the imparting of education especially when the Revenue has not made out a case that the very purpose creation of the trust was defeated^ Rather we wonder that what purpose does it serve to Revenue by cancelling a registration if the activities are in public interest because in ease of any breach of thB”1aws the same is subject to tax under section-11 and 12 of IT Act These two provisions and few other provisions are competent enough to tackle firmly a defaulter of philanthropic application of income or funds of the trust The other adverse side of cancellation is that on refusal of registration the entire receipts shall be subject to assessment without-granting benefit of section 11 and section 12 of IT. Act to assess income which do not form part of total income though the factual position could be that major part might have been devoted towards achieving the objects i e imparting education, as in this case, but the A O shall be automatically forbidden to grant advantage of exemption consequent upon the cancellation as is mandatory in statute, relevant section already reproduced ante The outcome of the deliberation made in detail hereinabove is that per-curian opinion is to debar the Commissioner to enter into the area of investigation of source of income and also application of income, so that the amount of correct exempt income be not prejudged.