Jaibharat Mandal Ramlila and Dharmshala Society Vs ITO (ITAT Delhi)
Learned counsel for the assessee insisted that in the absence of any order of refusal of registration by the Competent Authority, the assessee trust may be treated as deemed to have been registered u/s 12AA of the Act. In support of this deposition learned counsel relied on various case laws.
Learned counsel for the assessee relied on the judgment of Hon’ble Supreme Court rendered in the case of CIT Vs. Society for Promotion of Education Adventure Sports and Conservation of Environment (2016) 382 ITR 6 (SC). Reliance was made on the judgment of Hon’ble Allahabad High Court in the case of Society for Promotion of Education Adventure Sports and Conservation of Environment Vs. CIT (2015) 372 ITR 222.
Admittedly Revenue has not placed any formal order by the Competent Authority regarding refusal of registration. The Revenue has also not rebutted the fact that assessee was allowed claim of exemption up to assessment year 2009-10. In the light of the undisputed fact that the application of the assessee was pending consideration as on 6.7.1999 and no formal order of rejection or grant of registration is available on record, it is to be decided whether in view of the case laws and provision of law, assessee can be treated as deemed to have been registered u/s 12AA and more particularly, under the peculiarity of facts of the present case.
In the case of Society for Promotion of Education Adventure Sports and Conservation of Environment Vs. CIT (2015) 372 ITR 222 (All), the Division Bench of the Hon’ble Allahabad High Court held that the effect of non-consideration of the application for registration within the time fixed by section 12AA(2) would be a deemed grant of registration.
In the present case application for registration was made way back in the year 1989 and after ten years the Competent Authority sought explanation regarding the application. Thereafter, claim of exemption was allowed for many years. All of sudden, the Officer wakes up out of slumber, issues notices for reopening of assessment purely on the ground that the assessee could not furnish the requisite certificate of registration u/s 12AA of the Act and proceeded to make assessment.
I am conscious of fact, there are divergent views on the issue of deemed registration amongst the Hon’ble High Courts of Allahabad, Madras, Karnataka, Rajasthan and Kerala. The Hon’ble High Court of Karnataka, Rajasthan and Kerala have ruled in favour of the assessee on the other hand Hon’ble High Courts of Gujrat, Madras and Full Bench of Hon’ble Allahabad High Court have ruled against the assessee.
Hence, the issue in hand is debatable and two views are possible. The Hon’ble Apex court however affirmed the decision of the Hon’ble Division Bench of Allahabad High Court in the case of Society for Promotion of Education Adventure Sports and Conservation of Environment (supra) by declaring that the registration of the application under section 12AA of the Act shall be with effect from 24.08.2003. It is seen that the case of the assessee stands at better footing as in the present case the Revenue itself has been treating the income of the assessee as exempt treating the assessee as a charitable society.
Under these peculiarity of facts and circumstances and respectfully following the judgment of Hon’ble Supreme Court rendered in the case of Society for Promotion of Education Adventure Sports and Conservation of Environment (supra), I hereby hold that action of the Assessing Officer for not treating the assessee society eligible for exemption is not justified under the facts and circumstances of the present case. Therefore, I direct the Assessing Officer to give benefit available u/s 11 and 12 of the Act. Before parting, it is clarified that this order would not preclude the Revenue Authorities from tracing the order, if any, passed in respect of application dated 3.11.1989 and take necessary action as prescribed under the law. The grounds raised in the appeal are allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
This is a bunch of six appeals, preferred by the assessee, pertaining to different assessment years, against different orders of the learned Commissioner of Income-tax (Appeals). Since the assessee has raised identical grounds in this bunch of appeals, all these appeals are taken up together.
2. ITA no. 5273/Del/2019 pertaining to assessment year 2008-09 is taken as lead case. The assessee has raised following grounds of appeal:
“1. That the orders of the Authorities below CIT(A)Hisar and that of the Assessing officer ITO(Exemption) Rohtak are liable to be quashed, being arbitrary, illegal, without jurisdiction and justification so far as impugned and additions as being sustained are concerned.
2. That the Ld. CIT (A) appeal was wrong in sustaining an arbitrary and illegal action’ of the Assessing officer ITO (exemption) Rohtak, in initiating the reassessment proceedings u/s 147 against the appellant deemed exempted public charitable society in order to hold the same being non exempted/unregistered entity and as such the same is liable to be quashed being, arbitrary, illegal, without jurisdiction and any justification / reasons.
3. That the Learned CIT (A) was not justified in brushing aside the contention of the appellant that the A.O. does not have jurisdiction over the appellant to issue notice u/s 148 after four years and initiating the reassessment proceedings u/s 147 of the Act, without any basis, reasons or material or record, specifically when all material facts and informations were on record as adduced by the appellant assessee at the time of processing/assessment. In as much as, the action of reopening/reassessment was initiated at the instant of Audit to the action law may not permit for that reason also the orders requires to be Quashed.
4. That the Ld. CIT (A) erred in holding that the A.O. ITO (exemption) is vested with relevant jurisdiction under the provisions of Income Tax Act 1961 to reassess the appellant deemed exempted society as an unexempted/ unregistered one by merely rejecting the contentions of the appellant and holding the same being non exempted charitable society.
5. That as per the provisions of the Income Tax Act, Income Tax authorities can exercise powers and functions conferred on, or, as the case may be assigned to such authority by or under the Act. Since in the instant case the decision of holding public charitable society being exempted or not exempted only vests with CIT(exemption) only for that reason also the impugned orders of the authorities below i.e. CIT (A) and that of A.O. ITO (exemption) Rohtak deserves to be annulled.
6. That the Ld. CIT (A) was also wrong in sustaining wrongly the self assumed authority jurisdiction for holding deemed exempted society as an non exempted one, since such authority vests with CIT (exemption) only for that reason also the order deserves to be annulled and the appellant society requires to be assessed as a deemed exempted society as before since AY 2000-01 till AY 2009-10 and consistency requires to be maintained by all means.
7. That the authorities below Ld. CIT (A) HISAR/LDH and A.O. ITO (exemption) Rohtak were absolutely wrong is not appreciating that the appellant society performed all which were required and prescribed to obtain registration/ exemptions u/s 12A/12AA of the Act. that is filing of form no 10 within the time prescribed under the Act and furnishing all relevant papers through AO, before concerned CIT (S)/ Panchkula as well as CIT (exemption) Chandigarh as prescribed and as directed from time to time and also by sending repeated reminders to procure the exemption certificate in physical form, but surprisingly the same was not received till date, nor any order of rejection of the application was ever communicated or sent to the appellant assessee, though the same is mandatory to be sent/served on the appellant assessee within six months from the date of application and not thereafter under the provisions of section 12AA of the Act. Accordingly, as such, the appellant society deserves to be assessed as deemed exempted entity as before since( AY 2000-01 till AY 2009-10) and consistency requires not to be disturbed.
8. That as such the authority below CIT (A) Hisar/ LDH was wrong in sustaining the finding of the A.O. ITO (exemption) Rohtak, that the appellant charitable society do not fulfill the conditions for claiming deduction u/s 11 of the IT Act 1961 without appreciating that all the conditions for the purpose stand fulfilled as mandate under the provisions of the Act. As such the orders require to be quashed.
9. That the Ld. CIT (A) as well as A.O. ITO exemption also misdirected themselves in not following the law laid down by the Allahabad High Court in the case “Society for The Promotion of Education V/S CIT(2015)372 ITR 222 A11 and the Honourable Apex Court in the case “CIT V/S Kanpur society for the promotion of Education( 2016) 67 Taxman.com264 S.C. and denied the status of deemed charitable society, by narrating wrong facts action being bad in law and void ab- initio requires to be annulled.
10. That the authorities below were also wrong and misdirected themselves by holding that activities of the society were not charitable and was that of commercial nature, contrary to the facts, assuming the donations of paltry sums received as voluntarily donations against use of Dharamshala hall for Condolence, Meetings like Rasam Pagrees, Shok Sabhas and other ceremonial social functions and gatherings etc. and assuming notional ly that the donations received were similar to the charges as received by owners of banquet hall, findings being perverse requires to be annulled, since no normal person can believe in this modem age that a commercial banquet hall can be made available with petty sums/donations ranging from Rs.100 to Rs. 1100 or as per the wishes of the donners and so on from which even the Electric expenses are not met.
11. That the Ld. CIT (A) Hisar was wrong in sustaining the action of A.O. ITO (exemption) Rohtak in holding that the purpose of society being not a charitable purpose, in spite of the fact that maintaining Dharamshala/ Inn/ Sarai for any public ceremonial purpose like Condolence meetings (RassamPagdi, ShokSabhas) and other social ceremonies etc. for the public at large which in itself certainly is a charitable purpose. The A.O. ITO (exemption) has no authority to interpret the purpose of the registered society in its own arbitrary way as such the impugned order being bad in law deserves to be modified being without jurisdiction.
12. That the authority below CIT (A) Hisar further erred in sustaining the arbitrary reassessment and wrongly determined additions, excess over receipt and expenses as income of the deemed charitable society at Rs.654890/- for the AY 2008-09 against the originally returned and assessed income of the said society at nil contrary to the law and facts of the case.
13. That the Authorities below CIT(A) as well as ITO(exemption) were also wrong in assessing the deemed exempted society at the maximum marginal rate as an AOP without appreciating that excess receipt over expenses were never distributed among the members and was always used for charitable purposes of the society as prescribed under the provisions of the Act.
14. That the authorities below were also grossly erred in opining and directing for initiation of penal proceedings u/s 271 (1) (c) of the Act against the appellant, action being bad in law requires to be set aside.
15. The order of the authorities below are also liable to be quashed being conjectural and not being a speaking order.”
3. The facts, giving rise to the present appeal are that the assessee is a registered charitable society, having its registered office at Hansi. An application seeking registration u/s 12A was moved to the Competent Authority on 3.11.1989, but no formal order was passed by the concerned authority. The Assessing Officer issued a notice u/s 148 of the Income-tax Act, 1961, hereinafter referred to as the “Act” on 30.3.2015. In response to the notice, the counsel for the assessee sought reasons for issuance of notice. The assessee stated before the Assessing Officer that the return of income filed on 30.9.2008 vide acknowledgement no. 09454 may be treated as return filed in response to notice u/s 148 of the Act. Thereafter, the Assessing Officer proceeded to make assessment. The Assessing Officer noticed that a perusal of income expenditure account and ledger of rent receipts revealed that during the year under appeal the assessee had earned income from rent receipts at Rs. 8,59,018/-, interest at Rs. 2,44,601/- and donation at Rs. 3,71,963/-. After debiting various expenses the net surplus was arrived at Rs. 6,54,889/-. The Assessing Officer observed that the assessee society was not registered u/s 12AA of the Act and, therefore, he was of the view that the assessee was not entitled for exemption u/s 11 & 12 of the Act. The Assessing Officer proceeded to assess the assessee as association of persons, by making an addition of Rs. 6,54,889/-.
4. Aggrieved against this, the assessee preferred appeal before the learned CIT(Appeals), Hisar. The learned CIT(Appeals) vide consolidated order pertaining to the assessment years 2008-09, 2009-10 & 2010-11 sustained the addition and dismissed the appeal. Now the assessee is in appeal before this Tribunal.
5. The only effective ground in this appeal is regarding disallowance of claim of exemption u/s 11 & 12 of the Act and thereby sustaining the addition of Rs. 6,54,889/-.
6. The learned counsel for the assessee reiterated the submissions as made in the synopsis and submissions dated 23.10.2021. For the sake of convenience the synopsis and submissions filed by the assessee are reproduced herein below:
“SYNOPSIS
The Appellant, a charitable society, is registered under the provisions of the Societies Registration Act, 1860 vide certificate no. 2 of 1988-89 and is engaged in charitable work including maintaining and running a Dharamshala for the benefit of the general public.
The assessee is in appeal against the Id. CIT(A)’s orders under section 250(6) upholding the assessment order(s).
Ground of Appeal No. 1, 2, 4-9 Deeming the assessee as non-registered u/s 12A contrary to the provisions of the Act
The primary issue in all the appeals pertains to wrongful denial of claim of exemption under section 11/12 of the Act by deeming the assessee as nonregistered u/s 12A on the ground that the assessee has not been able to produce any registration document in physical form u/s 12A of the Act.
The legislature with the intention of promoting the charitable work has provided for exemption of income from property held for charitable purposes under section 11 and income from voluntary contributions of trusts/institutions held for charitable purpose under section 12 of the Act upon complying with the mandate of section 12A of the Act which as it stood at the time of it becoming applicable to the charitable society mandated only that an application for registration is made in the prescribed form and in the prescribed manner. The legislature did not stress upon getting a registration certificate as a necessary condition for application of provisions of section 11 and 12, deliberately, on account of inordinate delays taken by the department in deciding the application u/s 12A. Therefore, unless the said application was specifically rejected, the trust/institution ought to be considered compliant with the section 12A.
The appellant, complied with the aforesaid condition and mandate of section 12A by making an application for registration u/s 12A on 03.11.1989 to the then jurisdictional authority, Commissioner of Income Tax, Rohtak which is duly acknowledged vide letter dated 08.06.1999 and 06.07.1999 from the department (refer pg. no. 29-30 of paper book).
The assessee has complied with the letters/notices of the concerned authority(s) for evaluation of the application (refer pg. no. 31-39 of paper book).
The assessee has filed multiple request letters/reminders times with the concerned authority for grant of registration document in physical form (refer pg. no. 31-39 of paper book).
The department has perused and examined the application on multiple occasions and even thereafter, has consciously taken the decision to not reject the application of the assessee (refer pg. no. 29-39 of paper book).
The letter from the office of JCIT, Hisar through the ITO specially requested the CIT, Panchkula to intimate in writing the outcome of application u/s 12A/12AA made by the assessee. The letter also acknowledged the receipt of application on 03.11.1989, examination of the said application by the department and the deemed grant of registration considered by the assessee.
Even upon receipt of above letter from office of JCIT, the concerned authority did not reject the application which further proves that the concerned authority had consciously taken the decision to not reject the application of the assessee.
There has been a dereliction of duty or lapse on the part of the concerned authority to not issue a registration certificate in physical form. On the other hand, there is no lapse on the part of the assessee. Therefore, if the department was to be allowed to deem the society as non-registered u/s 12A and deny the associated exemption u/s 11 and 12, for a failure on its part to carry out its duty to explicitly accept or reject the application, would not only tantamount to going against the intent of the legislature and object of the provisions of the Act but also would be synonymous to making the assessee pay for the lapse on the part of the department.
Section 12A was amended by the Finance (No. 2) Act, 1996 which substituted the words “whichever is later” with the words “whichever is later and such trust or institution is registered under section 12AA”. Further, the Finance (No. 2) Act, 1996 added a new section 12AA w.e.f. 01.04.1997 prescribing the procedure for registration. Section 12AA provided that the concerned authority on receipt of application u/s 12A shall call for such documents and make such inquiries as he may deem necessary but shall pass an order in writing, within 6 months, granting registration to the applicant or refusing such registration.
Therefore, the application of the assessee for registration u/s 12A dated 03.11.1989 if it is deemed to be pending as on 01.04.1997 before the concerned authority had to be decided within 6 months, that is, by 30.09.1997 by an order in writing either granting the registration or refusing such registration.
The query letter dated 16.03.1999, 08.06.1999 and 06.07.1999 regarding the application for registration moved by the assessee on 03.11.1989 is an evidence that the said application was not lifeless and that it was pending before the concerned authority and stood transferred u/s 12AA (refer pg. no. 29, 30, 34 of paper book).
Further, CBDT vide Instruction No.16/2015 [F.No.197/38/2015-Ita.l], dated 06.11.2015 prescribes that the aforesaid time limit of six months is to be strictly followed by the Commissioner of Income Tax (Exemptions) while passing order under section 12AA and in case of any laxity suitable administrative action may be initiated by the CCIT(Exemptions).
There is no alternative available with the department once the limitation period of six months has been expired, the concerned authority becomes Functus Officio as regards the application under consideration before him. If the worthy Commissioner does not pass an order either granting or refusing the registration within the prescribed six months period u/s 12AA, then the application is deemed to have been granted.
The aforesaid view has been upheld by the hon’ble Supreme Court, various High Courts and the Special bench of ITAT Delhi.
Reliance in this regard is placed on the following case laws:
Commissioner of Income-tax v. Society for Promotion of Education, Adventure Sport & Conservation of Environment [2016] 382 ITR 6 (SC)
Society for the Promotion of Education, Adventure Sport & Conservation of Environment v. CIT [2015] 372 ITR 222 (Allahabad High Court)
Director of Income-tax, (Exemptions) v. ST. Ann’s Education Society [2020] 425 ITR 642 (Karnataka)
CIT vs. TBI Education Trust [2018] 257 Taxman 355 (Kerala)
CIT vs. Sahitya Sadawart Samiti Jaipur [2017] 396 ITR 46 (Rajasthan High Court)
Bhagwad Swarup Shri Shri Devraha Baba Memorial Shri Hari Parmarth Dham Trust v. CIT [2007] 111 TTJ (Delhi) (SB) 424/17 SOT 281 (Delhi) (SB)
In regard thereof, it is humbly submitted that the application for registration u/s 12A dated 03.11.1989 which was pending before the concerned authority, as evidenced by the continuation of proceedings by the department (refer pg. no. 29-39 of paper book), and stood transferred under the jurisdiction of section 12AA as per its provisions ought to have been decided, in writing by 30.09.1999.
Without prejudice to the above, the assessee has been regularly filing its return of income declaring total income of Rs. Nil as a deemed registered charitable society for many decades and had been originally assessed as a registered charitable society eligible for exemption/s 11 up to AY 2009-10. The assessee has complied with all the requirements prescribed under section 11, 12, 12A of the Act and the rules framed there under applicable to registered charitable society u/s 12A including filing of Form 10B, audited account reports, financial statements, resolutions etc.
The issue of deemed registration had also been scrutinized and examined for the assessment of income of AY 2000-01,2001 -02 and 2002-03 (refer pg. no. 40-49 of paper book) by the respective AOs. In the statement of statutory income attached to the Income tax return and the reply to the query letters, it had been responded that the assessee had filed an application on 03.11.1989 and details of proceedings and examination were supplied. It was further stated in the response that based on the examination that has been conducted and time period that has expired the assessee should be deemed as a registered charitable society. This position had been accepted by the then AOs and had been the accepted position of the department upto original assessment of AY 2009- 10. In regard thereof, no adverse view was taken by the department in the assessment of income upto original assessment of AY 2014-15 (refer pg. no. 44-61 of paper book).
There is no change in the facts and circumstances justifying the revenue to take a different view of the matter. This not only is unjust to the assessee being against the principles of consistency but also to the members of the society whose personal reputation in the society would take a setback if the society is termed non charitable. Reliance in this regard is placed on the decision of the hon’ble Supreme Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) and in the case of Godrej & Boyce Manufacturing Company Ltd. v. DCIT [2017] 394 ITR 449 (SC).
In regard thereof, the Id. CIT(A) erred in law and on facts of the case to upheld the assessment order deeming the appellant society as non-registered u/s 12A of the Act and thereby, denying the benefit of exemption u/s 11 and 12 of the Act. Accordingly, it is respectfully submitted that the CIT(A)’s order being contrary to the provisions of law and against the intent of the legislature ought to be set aside.
Ground of Appeal no. 10-11: Holding the society as non charitable on the basis of surmises and conjectures
The CIT(A) has further upheld the view of the AO that the dharamshala was run on commercial basis by wrongly relating the voluntary donation receipts of nominal amounts varying amount between Rs. 100 to Rs. 1100 with the booking charges for marriages, ring ceremonies, Rasam pagdi, condolence meeting etc. Further, the CIT(A) holds that the rules of the society, proclaiming that dharamshala will be provided free of charge for short duration meetings and for others some charge might be made towards electricity, cleaning and maintenance charges, are suggestive that a business activity is being run.
It is necessary to point out that all the donations are made voluntarily there is no compulsion to pay any booking charge for the dharamshala. The rules clearly provide that no charge shall be taken for short duration meetings or condolence meetings. However, people on their own accord pay a nominal amount as voluntary donations towards the electricity supply charges, diesel charges for running generator to provide electricity, cleaning charges, etc. for marriages, social ceremonies and sometimes for Rasam pagdi (shok sabha). Sometimes the donation receipt is also taken to prove the booking is genuine and not frivolous.
The Ld. CIT(A) and the AO have made these allegations based on donation receipt which are as low as Rs. 51 in some cases and mostly is between Rs. 100 to Rs. 2000. In today’s time and age one cannot even find someone for one time cleaning in that amount let alone book a banquet hall. The comments made by the CIT(A), that the assessee’s contention that commercial banquet halls charge some thousands and lakhs for bookings is not relevant and charges depend upon location, ambience, area and other factors, is clear mockery of judicial position and responsibility provided upon them. Such statements reflect lack of practical knowledge, apathetic attitude towards one’s duties, devoid of rationality and abuse of position.
The donation receipt linked to bookings of social ceremonies is mostly of nominal amount covering part of electricity and cleaning expenses which also is made by the concerned party voluntarily as a surety that sufficient diesel for electricity and person for cleaning is available beforehand.
Further, to understand whether the trust/institution is created for charitable purpose which can be allowed the exemption u/s 11 and 12, one has to refer to the definition of charitable purposes in section 2(15) which provides an inclusive definition of the word charitable purposes which includes relief of the poor and advancement of any other object of general public utility. The purpose of assessee to manage and run dharamshala provided free of cost to the general public can be said to fit into these two specific references.
Further the first proviso to section 2(15) provides that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business.
The expression business is of wide scope and has been held, by the hon’ble Supreme Court in multiple cases, to denote an activity carried on with the intention of earning profit.
Reliance in this regard is placed on the decision of the hon’ble Supreme Court in the case of Senairam Doongarmall v. CIT [1961] 42 ITR 392 (SC) wherein it has been held that:
“The word “business” is not defined exhaustively in the Income-tax Act, but it has been held both by this court and the Judicial Committee to denote an activity with the object of earning profit. To say that a business is being carried on, means no more than that profit is to be earned by a process of production. ”
Reliance in this regard is further placed on the decision of the hon’ble Supreme Court in the case of Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC) wherein it has been held that:
“The difficult question, however, still remains: What is the meaning of “charitable purpose” which is only indicated but not defined by section 2(15) of the Act? It seems to me that a common concept or element of “charity” is shared by each of the four different categories of charity. It is true that charity does not necessarily exclude carrying on an activity which yields profit, provided that profit has to be used up for what is recognised as charity. The very concept of charity denotes altruistic thought and action. Its object must necessarily be to benefit others rather than one’s self. Its essence is selflessness. In a truly charitable activity any possible benefit to the person who does the charitable act is merely incidental or even accidental and immaterial. The action which flows from charitable thinking is not directed towards benefiting one’s self. It is always directed at benefiting others. It is this direction of thought and effort and not the result of what is done, in terms offinancially measurable gain, which determines that it is charitable. This direction must be evident and obligatory upon the trustee from the terms of a deed of trust before it can be held to be really charitable. ”
Even the institutions like ICAI, Bar Council of Delhi, etc. which charges in thousands to write exams or for getting enrolled or for annual membership fees have been held to be charitable because there is no profit motive. Reliance in this regard is placed on the decision of the hon’ble Delhi High Court in the case of Institute of Chartered Accountants of India v. Director General of Income-tax (Exemptions) [2013] 358 ITR 91 (Delhi).
The objects of the society provide clearly that income of the society if any is to be used for the objects of the society and no portion thereof is to be transferred to the members directly or indirectly. Further the members are also barred from being appointed to any salaried office of the society.
In regard thereof, no activity being carried in the nature of trade, commerce or business whereas there is no profit motive in providing the facility of dharamshala. The donations received are voluntary in nature and covers only part of the electricity and cleaning charges used by the concerned person.
Without prejudice to the above, the second proviso to section 2(15) provides that first proviso will not be applicable in case the aggregate value of the receipts from such activities referred to therein is twenty-five lakh rupees or less in the previous year. The amount alleged to be linked towards booking, electricity and cleaning charges by the AO in aggregate is much less than this prescribed limit as stated below:
