Where the Commissioner does not pass any order even after six months from receipt of Tribunal’s order remitting the matter to him, the registration under section 12AA will be deemed to have been granted. This is subject to exercise of Commissioner’s power under Section 12AA(3) of the Act in appropriate cases.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
This Appeal under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) has been filed by the Revenue against judgment dated 28.09.2018 passed by the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur (for short ‘the Tribunal’) whereby the appeal filed by the respondent-assessee has been allowed.
Facts of the case are that the respondent-assessee is a society registered under the Rajasthan Societies Registration Act, 1958 vide registration certificate dated 03.01.2008. Its main object is to provide medical facilities in the State of Rajasthan. The respondent-assessee is running a hospital at Sikar in the name of Gettwell Hospital & Research Centre. The respondent-assessee filed an application in Form 10A of the Act seeking registration under Section 12AA of the Act on 19.01.2010. The Commissioner of Income Tax (Exemptions), [for short ‘the CIT(E)] rejected that application vide order dated 23.07.2010. The respondent-assessee challenged that order by filing appeal before the Tribunal which vide order dated 22.07.2011 set aside order dated 23.07.2010 and remanded the matter back to the CIT(E) on the premise that it had not communicated the assessing officer’s report to the assessee and therefore restored the issue of registration back on the file of the CIT (E) with direction that the assessee should be given an opportunity before deciding the issue of registration and should be confronted with all the materials which are considered adverse to him. After remand of the matter, the CIT (E) passed fresh order on 09.10.2015 and rejected application of the respondent-assessee holding that the assessee was running the hospital for the benefit of family members of Shri B.L. Ranwa and there was no charity in it. Being aggrieved, the respondent-assessee again filed an appeal before the Tribunal, which was allowed vide impugned judgment dated 28.09.2018. Hence, this appeal.
Learned counsel for the appellant submitted that the Tribunal has erred in ignoring the fact that so far as the rent is concerned, the CIT(E) concluded that the HUF was neither the owner, nor in the possession of the property, therefore, was not eligible to receive the rent of the property. It is undisputed that as per the lease deed, the rent was paid to the persons specified under Section 13(3) of the Act. Section 13 of the Act, in categoric and unambiguous terms lays down that any part of income, if used for the benefit of the person specified in sub-section 3 of Section 13 is prohibited. It is submitted that once, it has been established that the benefit has been extended to the person specified under Section 13(3), then even benefit of single penny would make the assessee ineligible for the benefit under Section 11 and 12 of the Act.
Learned counsel submitted that in the earlier round of litigation as also in subsequent round of litigation, the assessee failed to provide any detail of investment made in the building so as to reach to the conclusion that rent paid was reasonable or excessive. The CIT(E) has categorically held that the assessee did not comply with the directions issued by the Tribunal while restoring the matter back to the file of CIT(E). It is argued that the Tribunal has failed to appreciate the fact that the hospital is being run in a manner in which a private hospital is being run with a profit motive which cannot be held to be a charitable object and the funds of the hospital are being diverted for the personal benefits of the specified persons and therefore, objects as well as the activities of the trust are not genuine.
Learned counsel argued that the Tribunal has held that at the stage or registration under Section 12AA of the Act, only objects and genuineness of the trust can be examined, not the activities as well as application of fund of assessee’s trust whereas the intention of the legislature says “after satisfying himself about the objects of the trust or institution and the genuineness of the activities…” Moreover, the genuineness of the activities is always a subject matter of satisfaction of the CIT on which application of registration is to be decided and not the subject matter of assessment. While examining the nature of charitable activity, it is important to look into the application of funds. As the funds of the society are being diverted for the benefit of the specified person covered under Section 13(3) of the Act, the activities cannot be held as genuine charitable activity. The words, “nature of object” and “genuineness of activities” mentioned in Section 12AA of the Act are coupled together and word used in the statue is “and”. As the words in the statue are unambiguous, they cannot be given different interpretation. If the assessee satisfies one of the two conditions and violates the other one, then it cannot get the benefit of the provisions of section 12AA of the Act. Learned counsel submitted that once the Act has empowered the authority to cancel the registration with reference to section 13(1), it fundamentally indicates that if at the time of registration any of the conditions mentioned in under Section 13(1) of the Act is noticed then registration may not be granted.
Having heard learned counsel for the appellant and perused the material on record, we find that on merits of the case, the Tribunal while passing impugned judgment has held as under:
“Therefore, the income which would be deemed to have been used or applied for the benefit of the persons specified under section 13(3) is only to the extent if it was without any adequate security or interest or adequate service or consideration etc. In the case in hand, the assessee has paid the rent to the persons specified under section 13(3) on account of the hospital building in which the assessee is running its activities of providing medical facility being hospital. The area of the hospital building is not in dispute and, therefore, the assessee has taken the building which consists of five stories on a plot of 746 sq. yards. The ld. CIT (E) has not disputed this fact that the building in question comprising of five stories on a plot of 746 sq. yards and, therefore, if the rent paid by the assessee is unreasonable or excessive by comparing the fair market rent then to the extent of such excess rent paid by the assessee would constitute the income of the assessee society is applied or deemed to have been applied for the benefit of the persons referred under section 13(3) of the Act. However, the ld. CIT (E) without ascertaining or getting any report of the AO on this point has assumed that the rent paid by the assessee is the income deemed to have been used or applied for the benefit of the persons specified under section 13(3) of the Act. The ld. CIT (E) has not given the finding that the quantum of rent is excessive or unreasonable keeping in view the total constructed area under the tenancy of assessee society for running the hospital. Even otherwise, whether the rent paid by the assessee is excessive or unreasonable in comparison to the fair market rent, the same in our considered view, is a subject matter of assessment when the fact is not in dispute that the rent is paid against the hospital building taken on lease by the assessee society. Hence the mere payment of rent itself would not amount to violation of provisions of section 13(2) and 13(3) of the Act or section 13(1)(c) of the Act. What section 13(1) provides is that to the extent of income which is not applied for the charitable purposes of the Institution or Society the same would not get the benefit of section 11 of the Act. Therefore, to arrive at the conclusion whether an Institution or Trust has applied any part or any property of the Trust of Institution directly or indirectly of the benefit of the persons referred in section 13(3) of the Act, a proper investigation and enquiry is required when it is not a mere case of diversion of income but the payment is against the consideration or against the services. Therefore, subject to the provisions of section 13(2) of the Act and without conduction a proper enquiry about the fair market rent of the building in question it is not possible to come to the conclusion that the payment of rent of Rs.50,000/- per month by the assessee society in respect of the hospital building of such a big size or area is in violation of the provisions of section 13 of the Act. Even otherwise, the Tribunal while remanding the matter to the record of the ld. CIT (E) has expressed its inability to determine the issue for want of relevant record. However, once the matter was remanded to the ld. CIT (E), it ought to have first ascertained the fair market rent of the hospital building in question when the constructed area of hospital is not in dispute. Thus when the ld. CIT (E) has not given a finding about the fair market rent of the building in question then giving a finding in the impugned order that the payment of rent is in violation of provisions of section 13(3) read with section 13(1)(c) is based purely on assumption and conjectures and not based on the facts which can show that the rent paid by the assessee is excessive or unreasonable in comparison to the fair market rent of the building in question. Hence we do not approve the approach applied by the ld. CIT (E) in respect of the issue of payment of rent in question.
7. It is pertinent to note that the AO for the assessment years 2010-11 to 14-15 while passing the scrutiny assessment under section 143(3) read with section 147 and 143(3) respectively has not questioned or doubted the reasonableness of rent paid by the assessee to the related parties. Though the AO was not required to examine the issue in the light of the provisions of sections 11 to 13 of the Act, however, even in the normal assessment proceedings if the rent is paid to the related parties then it is always subject matter of scrutiny of the AO to ascertain whether the payment made by the assessee was reasonable or excessive in comparison to the fair market price or rent. Hence when the AO while passing the scrutiny assessment in all the assessment years repeatedly has not doubted the reasonableness of the rent paid by the assessee society, then the finding of the ld. CIT (E) without conducting any enquiry is based purely on assumption and conjectures and not on the correct facts.
8. The second objection raised by the ld. CIT (E) is regarding income from medical shop. It is not in dispute that the assessee never invested any amount in the medical shop but the shop was owned and run by Smt. Kamla Ranwa. Further it is also not an allegation of the ld. CIT (E) that Smt. Kamla Ranwa has charged excessive or unreasonable price of the medicines either from the assessee society or from the patients treated in the hospital. Thus mere running a medical shop by a person specified under section 13(3) of the Act would not ipso facto tantamount to diversion of income of the assessee society. Rather the medical shop is essential in providing the sevices to the patients and, therefore, it can be an aid to the activity of providing medical facility to the patients of the assessee society instead of considering it as diversion of income. There is no allegation that during the period when Smt. Kamla Ranwa was running the shop has got any favour or benefit in the shape of monetary or otherwise from the assessee society. The ld. CIT (E) has not disputed this fact that on 30.11.2011 the medicine stocks of medical shop in question was donated to the assessee society and, therefore, thereafter there is no question of even alleged benefit or diversion of income to the specified persons. The order in question has been passed in the month of October, 2015 whereas the said shop itself was donated to the hospital on 30.11.2011. In view of these facts, when there is no specific instance of any favour or diversion, then running a shop by the spedified person itself cannot be regarded as a violation of provisions of section 13 of the Act until and unless any benefit is provided in the shape of income applied on such persons. Hence we do not find any merit in the objection reaised by the ld. CIT (E) on this account.
9. The last objection of the ld. CIT (E) is regarding spurt in donation. The ld. CIT (E) recorded the details of the donations received by the assessee from the financial years 2008-09 to 2011-12 and then observed that there is a sudden increasse in the donations received by the assessee and further the assessee failed to produce the complete details including address, PAN of the donors leading to the finding that the activities carried out by the assessee are not genuine. It is pertinent to note that when the assessee has produced the bank details of the donations showing that the entire donation is received through cheque then the examination of the genuiness of the donation is not under the scope of the enquiry to be conducted by the ld. CIT (E) at the time of grant of exemptions. Prima facie, the donations received by the assessee through cheques satisfy the condition that the donations were received from the parties though it may be a subject matter of assessment proceedings to go into the deep enquiry and investigation to find out whether these donations are genuine or not and consequently the same can be treated as income and not eligible for deduction under section 11 of the Act r/w section 115BBC, however, at the stage of granting registration under section 12A if the assessee was able to establish that the entire donation was received through cheques and from the different persons then non providing of PAN and complete address at that point of time would not disentitle the assessee from registration when the other facts of charitable nature of objects and running the hospital by the assessee are not in dispute. Hence we find that the ld. CIT (E) has raised these objections only for sake of objections to deny the registration to the assessee instead of giving a concluding finding that the donations are actually bogus and assessee’s own income has been routed back in the garb of donation.“
While arriving on the aforesaid conclusion, the Tribunal also relied upon the judgment of the Karnataka High Court in CIT Vs. Islamic Academy of Education, 229 Taxman 274 (Kar.) and decision of this Court in CIT Vs. Vijay Vargiya Vani Charitable Trust, 232 Taxman 340 (Raj.). The Tribunal also noted that once the matter was remanded back to the CIT(E) then the limitation for passing the order/decision cannot be more than the limitation provided for deciding the application under Section 12AA of the Act. There is no dispute that as per the provisions of Section 12AA(2) of the Act, limitation for granting or refusing the registration is prescribed as before expiry of six months from the end of the month in which the application was received. Relying on the judgment of the Supreme Court in Commissioner of Income Tax, Kanpur & Others Vs. Society for the Promn. Of Edn. Allahabad, (2016) 382 ITR 6 (SC) which upheld the judgment of Allahabad Hgh Court and judgment of this Court in CIT Vs. Sahitya Sadawart Samiti (D.B. Income Tax Apeal No. 32/2008 decided on 19.05.2017), the Tribunal held that once the limitation prescribed under Section 12AA of the Act expired and the consequential default on the part of the CIT(E) in deciding the application would result deemed grant of registration is a settled proposition. Therefore, it has been held by the Tribunal that the judgment of the CIT(E) is reversed on merits and registration would stand granted to the assessee by prescription of law made in Section 12AA(2) of the Act. The Tribunal in this behalf relied on the judgment of Lucknow Bench of the Tribunal in Harshit Foundation Vs. CIT (ITA No. 104 & 105/Luck/2012 decided on 28.06.2013) in which case it was held that where the Commissioner does not pass any order even after six months from receipt of Tribunal’s order remitting the matter to him, the registration will be deemed to have been granted. This is subject to exercise of Commissioner’s power under Section 12AA(3) of the Act in appropriate cases.
In view of above, we hardly find any justification in admitting this appeal as in our considered view it does not raise any question of law much less substantial question of law. The appeal is therefore dismissed.