Case Law Details
Chokhraj Tulasyan Sarswati Vidya Mandir Inter College Vs. CIT (ITAT Lucknow)
This is an appeal filed by the assessee against the order of CIT (Exemptions) passed u/s 12AA of the Act.
2. At the outset, Learned A. R. submitted that assessee is a non profit association registered under the Societies Registration Act, 1860 for carrying out charitable activities. The assessee had applied for registration u/s 12AA which the CIT (Exemptions) has refused. Learned A. R. submitted that at the time of registration u/s 12AA the only aspect which CIT (Exemptions) is expected to examine is object of the assessee and genuineness of the activities of the assessee for achieving of these objects. It was submitted that objects of the society are charitable in nature and a copy of the objects was placed in paper book pages 62 to 72. He submitted that vide para 8 of his order, CIT (Exemptions) has held that mere recital of objects or activities without cogent or corroborative evidence is not sufficient by themselves to enable a registering authority to grant registration. In this respect, Learned A. R. submitted that assessee had filed copies of audited financial statements for the financial year 2013-14 to 2015-16, copy of which was placed at pages 50 to 61 of the paper book and had also submitted copies of income tax return for the financial year 2014-15 and 2015-15, copy of which is available at pages 35 and 36 of the paper book, which itself proves that the assessee was running a college which was in consonance with the objects of the society. Learned A. R. in this respect relied on a judgment of Hon’ble Allahabad High Court in the case of CIT vs. Red Rose School as reported in 212 CTR 394 for the proposition that at the time of granting registration the CIT (Exemptions) is empowered to examine the objects of the society and the genuineness of its activities. Therefore, it was prayed that CIT (Exemptions) be directed to grant registration to the society.
3. Learned D. R., on the other hand, relied on the order of CIT (Exemptions).
4. We have heard the rival parties and have gone through the material placed on record. We find that is an admitted fact that the objects of the society, as mentioned in the bye-laws placed at pages 62 to 72 of the paper book, are charitable in nature. The CIT (Exemptions) has also not doubted the charitable nature of the objects and he has rejected the application by holding that there was no cogent or corroborative evidence to prove the genuineness of activities whereas the fact remains that the assessee had filed copies of audited financial statements for the financial year 2013-14 to 2015-16 and had also filed copies of income tax return which clearly establish that assessee was running a college. Therefore, this finding of CIT (Exemptions) that genuineness of the activities could not be verified is not based upon the facts.
4.1 At the time of granting registration u/s 12AA, the CIT (Exemptions) is empowered to examine the objections of the assessee and also the genuineness of the activities of society with respect to achievement of those objects. Hon’ble Allahabad High Court in the case of CIT vs. Red Rose School [2007] 212 CTR (All) 394 has exhaustively examined the provisions of section 12AA of the Act and has held that CIT (Exemptions) has to satisfy himself about the genuineness of the activities of the trust and also the objects of the trust or institution. The Hon’ble court has further held that CIT (Exemptions) is empowered to make inquiries, as he thinks fit, to verify as to whether the activities are genuine or not but on mere presumption and surmises that income derived by the trust or institution will be misused or that there is some apprehension that the same would not be used in a proper manner, cannot be made a basis for rejection of registration. Hon’ble court has further held that the genuineness of the activities of trust or institution has to be seen keeping in mind the objects thereof which necessarily means that the CIT (Exemptions) shall satisfy himself about the fact that the activities are genuine and in consonance with the objects of the trust or institution. The relevant findings of Hon’ble court are reproduced below:
“21. Section 12AA, which lays down the procedure for registration, does not speak anywhere that the CIT, while considering the application for registration, shall also see that the income derived by the trust or the institution is either not being spent for charitable purpose or such institution is earning profit. The language used in the section only requires that activities of the trust or the institution must be genuine, which accordingly would mean, they are in consonance with the objects of the trust/ institution, and 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.
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 (i) 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.
22. 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.
23. 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 (i) 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 income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the conditions given in Sub-clauses (a) and (b) are complied with.
This also means that even that income, which could not be exempted under sub-clause (a) or (b) of Sub-section (i), can still be exempted, if the conditions attached to Sub-section (2) in its Sub-clauses (a) and (b) are complied with.
24. Sub-section (3) again says that if any income referred to in Sub-section (2) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or ceases to remain invested or deposited in any of the forms or modes specified in Sub-section (5), or is not utilized for the purpose for which it is so accumulated or set apart during the period referred to in Clause (a) of that sub-section or in the year immediately following the expiry thereof, or is credited or paid to any trust or institution registered under Section 12AA or to any fund or institution or trust or institution registered under Section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in Sub-clause (iv) or Sub-clause (v) or Sub-clause (vi) or Sub-clause (via) of Clause (230 of Section 10, shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be accumulated or set apart or ceases to remain so invested or deposited or credited or paid or, as the case may be, of the previous year immediately following the expiry of the period aforesaid.
25. 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.
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.
26. 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 inquiry of the CIT, would be limited to the aforesaid extent.
27. 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.
28. 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 previous year for the purpose of determination of tax liability but it only entitles the assessee to claim such exemption, which otherwise could not be claimed in the absence of registration. The inquiry by the CIT shall remain restricted to the examination, as to whether the assessee, who has moved the application for registration under Section 12A, is actually in the activities which are genuine. Genuineness of the activities of the trust or the institution has to be seen, keeping in mind the objects thereof, which necessarily means that the CIT shall satisfy himself about the fact that the activities are genuine and in consonance with the objects of the trust or the institution. In other words, if establishing and running a school is the object of the society, as given in its bye-laws, it has to be satisfied that the society has established the school, where education is being imparted as per rules and the factum of establishment and running school is a genuine activity. The inquiry regarding genuineness of the activities cannot be stretched beyond this.”
4.2 In the present case, undoubtedly the objects of the assessee are charitable in nature and the assessee is running a college for achievement of its objects as given in the bye-laws. Therefore, the registration cannot be denied by holding that the activities of the assessee were not genuine. In view of the above, CIT (Exemptions) is directed to grant registration to the assessee u/s 12AA of the Act.
5. In the result, the appeal of the assessee is allowed.
(Order pronounced in the open court on 22/02/2018)
