HIGH COURT OF MADRAS
CIT v. Sarvodaya Ilakkiya Pannai
TAX CASE APPEAL NO. 641 OF 2011
JANUARY 25, 2012
D. Murugesan, J. – This Tax Case Appeal is at the instance of the Commissioner of Income Tax, Madurai, questioning the order dated 30.06.2011 passed by the Income Tax Appellate Tribunal in I.T.A.No.594/MDS/2011, by raising the following substantial questions of law.
(i) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the registration granted to the assessee under section 12A(a) would hold good, even though the assessee’s main object in publication, purchase and sale of books which are not definitely charitable activity and the activities are purely a commercial venture with profit motive is valid?
(ii) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in not considering the aggregate value of the receipts for the assessment years 2008-09, 2009-10 and 2010-11 exceeds the limit specified in Second proviso and hence first proviso does not apply to the facts of the case is valid?
2. The respondent Sarvodaya Ilakkiya Pannai is a Society and was granted registration by the Commissioner of Income Tax, Madurai vide his order dated 06.11.1989 under section 12A(a) of the Income Tax Act. The object for which the Trust was registered was to effect publication and sale of Sarvodaya Literature as also the Gandhian and Sarvodaya ideoloigies.
3. When the returns filed for the assessment years 2008-2009 to 2010-2011 were scrutinised, it was found that the Society was engaged in purchase and sale of books. On the ground that the above activities of the trust cannot be considered to be charitable activities, a show cause notice was issued by the Commissioner of Income Tax under section 12AA(3) of the Act, before an order of rejection was made. Thereafter, the Commissioner of Income Tax revoked the registration on the ground that the Society did not deserve exemption under section 11(1)(a) of the Act and accordingly, the registration granted under section 12A(a) was cancelled. On a challenge to the said order, the Appellate Tribunal has found that the order of the Commissioner was not justified as the power to cancel could be only traced out to section 12AA(3) and in the absence of any activity carried on by the trust contrary to the objects, the registration cannot be revoked. With that finding, the Tribunal has allowed the appeal filed by the Society. Challenging the said order, the present appeal has been filed.
4. The relevant provisions of section 12AA of the Income Tax Act read as under:
“12AA. Procedure for registration:Online GST Certification Course by TaxGuru & MSME- Click here to Join
(1) The Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) of sub-section (1) of section 12A, shall–
(a) call for such documents or information 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 register the trust or institution,
and a copy of such order shall be sent to the applicant.
(3) Where a trust or an institution has been granted registration under clause(b) of sub-section(1) or has obtained registration at any time under section 12A (as it stood before its amendment by the Finance (No.2) Act, 1996(33 of 1996)) and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution”.
5. In order to avail the benefit of exemption under section 11 of the Act, a Trust can make an application to the Commissioner for registration under section 12A of the Act. On receipt of the said application for registration of a trust or institution, the Commissioner should satisfy himself about the genuineness of the activities of the trust or institution. In order to satisfy himself, the Commissioner may also make such enquiry as he may deem necessary in that behalf. In the event the Commissioner satisfies himself that the trust is entitled to registration keeping in mind the objects, shall grant registration in writing in terms of section 12AA(1(b)(i) of the Act. In the event the Commissioner is not satisfied, he shall refuse such registration in terms of section 12AA(1)(b)(ii) of the Act. Once such a satisfaction is arrived at by the Commissioner to grant, such registration cannot be cancelled by following the very same provision of section 12AA(b)(i) of the Act to go into the genuineness of the activities of the trust. However, the Commissioner is empowered to revoke the certificate in terms of section 12AA(3) of the Act. As per the said provision, in the event the Commissioner is satisfied subsequently i.e. after registration that the activities of such trust or institution are not genuine or not being carried out in accordance with the objects of the trust or the institution as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution.
6. In order to apply the above provision, there must be a specific finding by the Commissioner that the activities of the trust or institution are not genuine or not being carried out in accordance with the objects of the trust or institution as the case may be. The question is, whether the order of the Commissioner of Income Tax could fall under the powers conferred on him under section 12AA(3) of the Act. The only reason given by the Commissioner of Income Tax to cancel the registration is that the activities of the trust were not charitable and therefore, the trust is not entitled to exemption under section 11 and consequently, cancelled the registration granted under section 12AA.
7. It is not as if that the registration was granted without considering the objects of the trust in question, namely,
(a) The publication, sale and spread of Sarvodaya Literature.
(b) To support all activities connected with the constructive programmes of the father of the nation, Mahatma Gandhi.
(c) To organize meetings, seminars, symposium and conferences to propagate Gandhian and Sarvodaya Ideologies.
(d) To do all other acts and things incidental to and necessary in the furtherance of the said objects.
(e) To apply the profit derived by the society to the activities connected with spreading and propagating of Gandhian and Sarvodaya Ideologies and to help the Sarvodaya movement”.
8. The Commissioner of Income Tax, before granting the registration, had gone into the above objects and satisfied himself for grant of registration. Subsequently, by the order of the Commissioner of Income Tax dated 31.06.2011, the very same objects were considered and were found not to be the activities which are charitable in nature. While carrying on the activities of publication and sale of Sarvodaya Literature and Gandhian Ideologies as charitable activities, referring the same objects as not charity, it cannot be brought under the provisions of section 12AA(3) of the Act. The cancellation was made not on the ground that the activities of the trust were not genuine but the activities of the trust were not in accordance with the objects of the trust. When the trust was registered with definite objects, carrying on such activities would be in terms of the objects for which the registration was made. In fact, if those activities are not carried on, the trust may violate the objects for which the registration was granted.
9. Under section 12AA, the Commissioner is empowered to grant or refuse the registration and after granting registration, would be empowered to cancel and that too, only on two conditions laid down under section 12AA(3) of the Act. Whether the income derived from such transaction would be assessed for tax and also whether the trust would be entitled to exemption under section 11 are entirely the matters left to the assessing officer to decide as to whether it should be assessed or exempted.
10. The Tribunal had allowed the case of the assessee with the finding that none of the conditions under section 12AA(3) were violated and therefore, the satisfaction which was arrived at by the Commissioner of Income Tax was not justified. In that view of the matter, we find no reason to interfere with the order of the Tribunal and accordingly, both the questions require no further consideration.
The tax case appeal is dismissed as devoid of merits.