CIT can look into genuineness of activities of trust to satisfy himself about its activities

Issue before High Court:

• Whether objects of the society can be held genuine especially when the family run trust did not submit details of assets and properties that they possessed as well as the treatment given to the assets of an old school being taken over by them.
• Whether the ITAT was right in not upholding the findings of CIT u/s 12AA (1)(b)(ii) considering that assessee had failed to comply with provision u/s 12AA(1)(a) in as much as document and information called for was not submitted.

Brief facts of the case:

• Assessee applied for registration under Section 12AAin form No.10A on 16.03.2012.
• CIT rejected the application by holding that society had not proved its case whether the activities were being run in a charitable manner and that the Society was not created wholly and exclusively for charitable purposes.
• CIT observed that fresh evidence had not been furnished to prove that there was any provision for free subsidized education for poor and whether there was any element of public benefit.
• It was further found that the land and building on lease had been taken from the daughter of the General Secretary of the Society and the power of attorney had been signed by the husband of general secretory.
• The complete details of land and the extent of the building like the number and measurement of rooms constructed on the land etc., had not been furnished.
• CIT observed that the school was taken on lease in the name of another school. It was noticed that the building details were not furnished as such of the liability created and the expenditure incurred on the creation of such assets.
• The society was filing its returns since the year 2005-06 and claiming exemption under Section 10(23C) on the fact that the receipts were below one crore. It was further noticed that the amount of income is likely to exceed Rs. One crore in the financial year 2012-13 and the details of the office bearers and the members of the general body had not been furnished along with the identity of the office bearers.
• Accordingly, by holding that the Society was earning profits and had nothing to do with charity and had no visible plans and having not been satisfied with the objects and genuineness of the society and keeping in view the definition of charitable purpose under Section 2(15), registration was denied.
• The Tribunal has allowed the appeal filed by assessee and directed that registration be granted to the Society.

Contention of the revenue:

• Once relevant materials have not been furnished, the CIT was well justified in denying the registration and the Tribunal was not justified in directing registration.
• The CIT has right to examine the nature of activities of the society and it was duty of the assessee to provide the requisite information sought by CIT.

Contention of the assessee:

• The order was based on the judgment of the Supreme Court in MCD Vs. Children Book Trust 1992 (3) SCC 390. In a later judgment of the Supreme Court in M/s Queen’s Educational Society Vs. Commissioner of Income Tax 2015 (3) TMI 619, it had been specifically held that the earlier judgment of the Apex Court was dealing with the property tax provisions and therefore, could not have been relied upon.

Held by the High Court:

• The Tribunal was not justified in allowing the appeal and issuing necessary direction and should have sent the matter back to the Commissioner for fresh enquiry.
• In appeal, the assessee had only raised the issue as to whether the order of the Commissioner is arbitrary and unjustified and whether the activities of the Society did not qualify in the nature of charity and the finding had been based on suspicion and conjectures. The additional information being asked for, as such, was never controverted.

Conclusion:

CIT was entrusted with powers under section 12 AA to look into the activities of the trust to satisfy himself regarding the charitable nature of activities. Under Section 12A, the provisions of Sections 11 & 12 shall not apply in relation to the income of any trust or institution unless various conditions are fulfilled. The provisions of Section 12AA, thus, also give the power under sub-section(3) to cancel the registration of the activities of the trust if it is not carried out in accordance with the objects but the Commissioner has to keep in mind that it is not to act as an Assessing Authority while deciding the application under Section 12AA and the enquiry regarding the genuineness of the activities of imparting education with a charitable purpose is to be kept in mind.