Registration u/s 12AA cannot be denied questioning profit motive

Registration u/s 12AA cannot be denied questioning profit motive intention from educational activities

Brief of the case:

• The Hon’ble Kerala High Court in the above cited case held that while disposing off an application for registration u/s 12AA , the CIT is required only to verify the geniuses of the trust’s activity so as to ensure that the same matches with the objects stated in the trust deed. At that point of time no examination of the modus of the application of the funds of the Trust or an examination of the ethical background of its trustees is required. Thus, questioning the profit motive of the trust merely by taking hint from the sources and application of funds , application for registration could not be rejected.
• Further, proviso to Sec (15) also indirectly clarify that where the purpose of Trust or institution is inter alia,  carrying out educational activities  it will constitute charitable purpose even if it incidentally involves carrying on of commercial activities.
  

Facts of the case:

• The appellant Sree Anjaneya Medical Trust, that the Trust was registered on 27.05.2005 with education and relief of the poor as its principal objects and had made an application dated 12.12.2008 for registration of the same under the Act to avail the benefits of Sections 11 and 12 of the Act.
• In response to the application, a survey was conducted in the premises of the Trust in terms of Section 133A of the Act on 19.03.2009. Pursuant to the directions issued by the authorities under the Act, a deed of modification was also executed on 18.06.2009. However, on 25.06.2009 the application was rejected relying on the survey conducted on 19.03.2009.
• On remanding back of the matter by tribunal, CIT reiterated the findings in the earlier order that the survey has revealed unethical methods used by the Trust for collection of funds especially from prospective employees and students. It was therefore deduced that the activities of the Trust are purely commercial in nature. It was also stated in the order that imparting education per 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.
• The tribunal also found that the assessee Trust had collected money from various persons on the assurance of employment and admission for medical education. As such, relying on the precedents the tribunal rejected the trust’s appeal.
• Aggrieved trust is in appeal before High court.
  

Contention of the Assessee:

• It was contended by the learned counsel appearing for the applicant trust 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 under Section 12AA of the Act.
• Going by the specific wordings in Section 12AA of the Act, what is relevant at the stage of disposing application for registration is only to check the genuineness of the Trust and its activities. It is therefore argued that what is to be considered is only whether the Trust is a genuine registered legal entity and whether it is capable of carrying out its professed object.
• It was 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 there is an element of profit involved in the activities of the Trust would not arise. Education being a charity per se, included in the first limb of the definition clause in Section 2(15) of the Act, the question of profit would be irrelevant.

Contention of the Revenue:

• It was contended that registration to a Trust cannot be granted without looking into the genuineness of its activities or objects and withdrawing the same in future in case it is found in future that the Trust is not applying its income to charitable purposes. Such a two way traffic would be a futile exercise and it is more conducive to logic and reason that the genuineness of the activities of the Trust and its objects should be looked into at the stage of grant of registration itself.
• 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 its medical college clearly show that such an institution was engaged in education only as a commercial activity and there is no element of charity involved in the instant case.
• The registering authority after finding so on inspection of the trust’s premises and taking statements from the Managing trustee was not satisfied about the objects of the Trust or about the genuineness of its activities and had therefore passed an order refusing to register the Trust or institution.
  

Held by Hon’ble High Court:

• The High court held that it is pertinent to note that the wording in Sections 12A and 12AA of the Act does not make any reference to ‘charity’ or ‘charitable purpose’. Sec (15) defines charitable purpose which inter alia includes relief of the poor, education, medical relief.
• Proviso to Sec (15) also indirectly clarify that where the purpose of Trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose even if it incidentally involves carrying on of commercial activities.
• The plain reading of Sec 12AA which governs the procedure to be followed by the CIT in disposing off an application for registration clarifies that no examination of the modus of the application of the funds of the Trust or an examination of the ethical background of its trustees is required for while considering an application for registration. At the time of registration, 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.
• The CIT was required only to examine the genuineness of the Trust and its activities and he 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. Thus, rejecting application for registration merely on the ground of the the projected futility and inconvenience that may arise out of the application of a provision of law cannot, in a taxing statute, be a ground to deny a benefit which is evident from a plain reading of the statute.
• In result the CIT was directed to grant registration as requested by the appellant Trust in terms of Section 12AA of the Act.