B.S.A. College Vs CIT (ITAT Agra)
Under section 12AA, CIT (E) was entitled to see as to whether objects of assessee were charitable in nature, and also whether activities were genuine or not. Examination of genuineness of activities would mean to see that activities were not by way of camouflage or bogus or artificial and whether same were in accordance with objects of the institution. However, scope of such enquiry did not extend beyond that point and filing or non-filing of books and vouchers had nothing to do with genuineness of activities.
Under section 12AA of the Act, the Commissioner is entitled to see as to whether the objects are charitable in nature, and also to see whether the activities are genuine or not. Examination of the genuineness of the activities would mean to see that the activities are not by way of camouflage or bogus or artificial and whether these are in accordance with the objects of the institution. The scope of such enquiry does not extend beyond that point. On the other hand, the registration granted by the Commissioner does not extend any exemption to an institution under section 11, except to the fact that such registration is mandatory for claiming exemption under section 11. Meaning thereby, exemption under section 11 can be availed of by institutions which are genuinely engaged in ‘charitable activities’. However, benefit of section 11 is subject to application of income for charitable activities and the Assessing Officer is well entitled to see whether such application has been done and the other conditions of section 11 have been complied. The Assessing Officer has to see whether exemption under section 11 is barred by application of section 13. An institute, though registered under section 12AA, would still be taxed on the income which has not been applied in accordance with section 11, or in respect of which section 13 comes into play. Even in respect of income hit by section 13, other provisions of the Act regarding levy of tax on maximum marginal rate would come into play. Thus, the registration under section 12AA is only fait accompli to the objects of the institution [‘ACIT vs. Surat City Gymkhana’, (2008) 300 ITR 214 (SC)]. The activities of an institution, though genuine at the time of grant of registration, may not remain so during its life-span and the registration granted to it cannot be a life-time guarantee that it would remain so. That is why the law itself prescribes a procedure for withdrawal of the registration granted, in appropriate cases.
Therefore, CIT (E) erred in rejecting assessee’s application for registration under section 12AA.
FULL TEXT OF THE ITAT JUDGMENT
This is assessee’s appeal against the order passed by the CIT(Exemption), rejecting the assessee’s application for registration under section 12AA of the I.T. Act.
2. We have heard the parties and have perused the material on record. The ld. CIT(E), while rejecting the assessee’s application, has observed as follows:
“Order under section 12AA(1)(b)(ii) of the Income tax Act, 1961
1. The above named society has filed an application for registration u/s 12A(a) of the Income tax Act, 1961 on 03.201 7 with the Commissioner of Income tax (Exemptions), Lucknow.
2. Subsequently, the applicant society was accorded an opportunity of being heard vide this office letter F. No. CIT (Exemp.)/Lko/12A/OL 149/2017-18/3749 dated 12.08.2017 sent to the applicant on address provided by him via Speed Post calling for specific queries regarding its application for registration u/s 12A for compliance on 11.09.2017. On 09.2017, Shri M.M. Agrawal, CA was telephonically informed regarding re-fixation of hearing to 12.09.2017. On 11.09.2017 an application for adjournment was received from the applicant and subsequently date of hearing was re-fixed to 19.09.201 7. On that date i.e., 19.09.201 7, Shri M.M. Agrawal, CA appeared and filed part reply. The applicant has failed to pay taxes on surplus in spite of receipts being in excess of Rs. 1 Crore in each year.
3. On perusal of material available on record it can be seen that the applicant society is primarily engaged in running an educational institute on commercial lines and charges heavy fee from the students. It is noticeable from the Income and Expenditure Accounts for F.Y. 2014-15, F.Y. 2015-16 and F.Y. 2016-17 that huge amounts are being charged as fees to the tune of Rs. 3,90,45,107/-, Rs. 4,20,03,995/- and Rs. 5,22,62,020/- respectively in the FYs mentioned above. Clearly a substantial amount is being levied as fee on commercial basis without providing any element of charity to the Society. In spite of the fact that huge sum is being levied as fee over past years none of the debit heads directly relate to any objects set forth in the memorandum of the society. Huge profits is being made via running an educational institute on commercial lines and channelizing the profits earned for augmenting the business without giving any element of charity to the public at large. It is worth noting that the gross receipts of the applicant for each of past three is well above the ceiling of Rs. 1 Crore and since receipts upto only Rs. 1 Crore are covered u/s 10(23C)(iiiad), it was expected of the applicant to have filed the ITRs in time and remitted the due taxes to the government but till date no tax has been paid and no ITR has been filed by the applicant which again places a question mark on the so claimed pious intentions of the applicant. Any institute that claims to exist for charitable or philanthropic purposes is expected to have inherent characteristic of a law abiding institution coherent with its claim of charity, but the applicant in the instant case has failed on dual fronts. Not only has it failed to establish genuineness of its activities nor has been able to corroborate the fact that it is not solely existent for commercial interest in the business of education that it currently is pursuing. In addition to the failure on the part of applicant to file ITRs and remit the taxes have dealt its claim a tarnishing blow which just expedite the process of rendering it deficient for the said registration and incapacitate its claims which appear nothing but a saga of lofty ideals lacking any pious intentions. In each of the last 3 FYs gross income and surplus/profit and the percentage thereof is as under:-
