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:-
|F. Y.||Gross Income||Profit||Profit
It is clearly evident from the aforementioned profit percentage that the applicant trust is only engrossed in the business of education solely for the purpose of generating huge profits. Request for registration by an institute that exists for commercial interest without any act of charity when viewed in the light of the provisions mandated by law meets a dead end. The above facts clearly prove that the applicant society is primarily focused in maintaining and augmenting its business of education without any element of charity to the public at large. When asked about the detail of people receiving salary from the society and their corresponding entries in the books of accounts, the society could not provide any details which appears an attempt to bypass Section 13(1)(c) of the Income tax Act, 1961 which again is detrimental to the claim of the applicant. In this instances, the burden of proof lay on the applicant but the applicant has failed to provide satisfactory reply. Rather than pursuing the objects set forth in the memorandum, the applicant society is more concerned about augmenting its business of education. The applicant society has failed to showcase any programmes/initiative undertaken by it in pursuance to the objects set forth in the memorandum of the society. In order to verify the genuineness of various expenses claimed by it the applicant society was asked to provide vouchers/documentary evidence to prove that the said expenses were actually incurred by the society but unfortunately the applicant failed to prove the same. This clearly establishes that the activities as claimed to be carried out are not genuine and it that case the applicant fails to pass the test mandated by law for formation of satisfaction mandated by law for according registration. In addition to that no photograph or any other corroborating evidence has been provided by the applicant for any charitable initiatives/programmes. Merely declaring a set of lofty ideals with pious intentions is not enough for according the said recognition. It is only when acts of charity are established by cogent evidences like vouchers and production of books that an institution can be awarded the recognition of pursuing genuine charitable activities. The fact that needs consideration here is that despite providing ample opportunities the applicant has not been able to show case even a single voucher with respect to any activity as claimed to be carried out in addition to that the applicant society has not provided books of accounts despite ample opportunities being tendered. The consistent failure on the part of the applicant to bypass the production of genuine evidences is a clear indication That so called charitable acts of applicant have been merely fabricated on paper to secure the said registration. The applicant society needs to retrospect the fact that engaging itself in business of education on commercial lines without providing any element of charity to the people doing fake declaration of charity without carrying out any genuine charitable activities is not going to earn its eligibility for qualifying the test mandated by law for according the registration. It is also important to note here that huge amount out of income has been kept in banks with a view to make profit and enjoy bank interest on the same. The same is the case with other FYs wherein large amount of funds are being kept as deposits and substantial bank interest is earned through this practice. It is unfortunate to note that the applicant trust, instead of utilizing the funds for the pursuance of its objects, is engaged in channelizing the funds of the trust for generating further profit. Thus the applicant fails to form the satisfaction regarding it charitable nature which is essential ingredient for according the said registration. In light of above facts it is quite clear that neither the applicant society genuine nor are its business practices incidental to the attainment of its objects. Thus the applicant has not made a case for according the registration.
4. In the case of Dhakad Samaj Dharmshala Bhawan Trust vs. CIT (MP) 302 ITR 321 It was held that while considering for registration u/s 11, reference to any particular religious community or caste in section 13(1)(b) has to read ejusdem generis, with the charitable or religious purposes for which exemption is granted u/s 11 and Explanation to sec. 13 lifting the bar contained in sec. 13(1)(b) cannot be construed de hors the purpose contained in section 11. In absence of any nexus with religious or charitable purposes merely because the applicant is working majorly for a particular caste, it cannot be said that it is for charitable purpose. On perusal of the material available on record, it is found that the objective of the applicant is stated at serial 2(a) and it is stated as under:-
“Sarv sadha ran mei aur visheshtaya aggarwal samaj mei upyukut shiksha ka prachar karna”
This attracts the provisions of section 13(1)(b) of the Income tax Act, 1961 which states that nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof in the case of a trust for charitable purposes or a charitable institution if the trust or institution is created for the benefit of any particular religious community or caste. From the above mentioned object it is quite clear that the applicant society is primarily involved in benefitting a set of distinguished individuals belonging to the Agrawal community. The proof of burden lay on applicant society to prove that the beneficiaries of its pursuits was general public and not a set of distinguished individuals belonging to Agrawal community but the applicant failed to prove the same. The applicant has declared that its focus lies on a set of people not distinguishable from a specified set of individuals and this is where the provisions of section 13(1)(b) get attracted for the applicant. The important thing to note here is that the aforestated object has catered to the benefit of a distinguished set of individuals belonging to the Agrawal community and not the general public at large. This act of the applicant society stands in clear violation of the norms mandated by law which forbid the grant of registration to a charitable trust that exists for benefitting a particular religious community or caste. It can be easily inferred from the material available on record that the applicant society, despite claiming to be a charitable institute that exists for the benefits of all, is only involved in working towards the welfare and benefit of a set of individuals belonging to the Agrawal community. This kind of discrimination being pursued by the applicant society makes it deficient of the merit that is required for formation of satisfaction mandated by law for granting of said registration. This is fatal to the claim of the applicant as its objects and activities are majorly aiming towards the betterment of a particular cast and community rather than benefitting the public at large.
5. I have considered the material available on record. The applicant society has not been able to produce books of accounts, Bank statement and vouchers in respect of expenses claimed by the applicant for verification of objects and activities of the trust. On perusal of material available on record, it is seen that the applicant society is not carrying out any activities of charitable nature. In light of facts that the applicant society could not produce the books of accounts and vouchers, the genuineness of activities could not be verified. As per provisions of section 12AA(1)(b) of the Act, two factors namely the objects of charitable purpose and genuineness of activities has to be proved before granting of the registration. However, the applicant failed to prove the same. Hence, the applicant society has not made a case for granting the registration u/s 12AA(1)(b).
6. In the case of CIT vs. National Institute of Aeronautical Engineering Education Society 2009, 181 Taxman 205 (Uttarakhand) it was held that clause (a) of sub-section (1) of section 12AA empowers the CIT to call for such information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of the activities of the trust or institution and may make such inquiries as he may deem necessary in this behalf. Said provision in section 12AA makes it clear that CIT is not supposed to allow registration with blind eyes. On perusal of material available on record it is found that the applicant is doing a pretence of charity. ‘Charity’ is soul of the expression ‘charitable purpose’. Mere declaration of objects is not sufficient for according registration u/s 12A(1) of the Income-tax Act, 1961. Genuineness of the activities of the society is an essential ingredient for formation of satisfaction mandated by law. The applicant society has failed to prove the genuineness of the activities which it claims to be carrying out. In light of the above facts, the applicant has not made a case for granting registration u/s 12A(1) of the Income tax Act, 1961.
7. Reliance is also placed on the Hon ’ble Delhi High Court’s judgment in the case of Kirti Chandra Tarawati Charitable Society vs. DIT (Exemption) 232 ITR 11 in which it was held that there is no obligation on the CIT to grant registration merely by looking at the instrument creating the Society and shutting eyes on the actual activities carried out by On the perusal of Society’s Memorandum it is seen that there are several objects. However, failure on the part of the applicant to corroborate them with satisfactory evidences places fatal allegation on genuineness of the activities of the applicant. It clearly proves that the applicant has done a false declaration with respect to the objects set out in the memorandum and it is not actually working towards its attainment. Therefore the activities of the Trust are not in tandem with its memorandum.
8. The Hon’ble ITAT Lucknow bench in order ITA No. 809/LKW/2014 dated 26.02.2015 has held that “We have considered the submissions of Learned D. R. of the Revenue, perused the material available on record and gone through the impugned orders of learned CIT –II, Kanpur. It is noted by learned CIT-I the order passed by him for rejecting the claim for registration u/s 12AA that the material required for formation of the satisfaction mandated by the Act is unavailable and therefore, it is held that by learned CIT that the assessee has failed to fulfill the conditions for grant of registration u/s 12A of the Act. Similarly, in his order for rejecting the claim of the assessee for registration u/s 80G, he has given a finding that the assessee has failed to fulfill the conditions for approval u/s 80G of the Act. Hence, we do not find any justification to interference in these order of learned CIT”.
9. The law requires a conjunctive test whereby objects of the applicant society have to be charitable and genuineness of charitable activities should be established for registration of application u/s 12A. Mere recital of objects or activities with cogent or corroborative evidence is not sufficient by themselves to enable a registering authority to arrive at the satisfaction mandated by law. In the instant case, only part rely has been filed and the documents on record do not suffice to establish the genuineness of activities. As such the findings of fact regarding its charitable activities or rather lack thereof arrived at on the basis of the evidence filed and arguments addressed stand uncontroverted. This is fatal to the claim of applicant.
10. It is clear that applicant has failed to provide sufficient material to corroborate the charitable nature of the objects and genuineness of the activities. Despite being provided timely opportunity the applicant has not been able to substantiate its claim.
11. In view of the facts and above decisions, I am unable to accept the appellant’s claim in absence of sufficient material required for formation of satisfaction. Therefore, I do not find the case fit for grant of registration u/s 12A(1) of the Income tax Act, 1961.
12. Accordingly, the registration sought by the applicant u/s 12A(1) of the Income tax Act, 1961 is hereby rejected.”
13. The ld. CIT(E) has observed that only part reply was filed by the assessee before him. In this connection, letter / notice dated 12.08.20 17 had been sent to the assessee, raising specific queries. A Copy of this notice is contained at APB 6-7. It reads as under:
|1.||Photocopy of PAN card and evidence of filing return of income for last three years.|
|2.||A declaration that no part of the income of the Society ensures, directly or indirectly to the benefit of any person specified in Section 13(1)(c) of the ‘Act’ and that no part of the income or property of the Society was ever used or applied for the benefit of any person specified in section 13(1)(c) of the ‘Act’, duly signed by Authorized Signatory.|
|3.||A note specifying the main area of your charitable/religious activities and a projection/plan ofthe main charitable/religious activities to be undertaken in next two years.|
|4.||Please attach a ‘No Objection Certificate’ from the owner of the premises along with proof of his ownership or owned by the ‘Society’|
|5.||Please attach certified copy of annual accounts since inception/last three years|
|6.||Please attach a certified copy of Memorandum of Association and produce original copy for verification.|
|7.||Please attach a copy of the proof of identity of the Secretary of the Society.|
|8.||Please attach a note on activities conducted since inception/during last three years|
|9.||Please attach details of donations made since inception/during last three years|
|10.||Please attach details of donations received, including corpus donation, received since inception/last three years|
|11.||Please attach detail of your bank account including name of bank, branch, type of account and number of accounts.|
|12.||Please file an undertaking that there will be no infringement to the 1st proviso to section 2(15) of the ‘Act’.|
|13.||Please furnish your telephone number and e-mail address|
|Please specify the category of charitable purpose provided in section 2(15) of the ‘Act’ in which your case falls, i.e., whether your objective is relief to poor/education/yoga/medical elief/preservation of environment (including watersheds, forests and wildlife)/ preservation of monuments or place of artistic / historic interest/ advancement of any other object of general public utility/religious activities.|
|15.||Your Memorandum of Association does not have irrevocability clause. Please include this clause in your Memorandum of Association and file a certified copy of amended Memorandum of Association.|
|16.||Your Memorandum of Association does not have a clause that beneficiaries are a section of public and not specific individuals. Please include this clause in your Memorandum of Association and file a certified copy of amended Memorandum of Association.|
|17.||Your Memorandum of Association does not have clause providing that in the event of dissolution of Society, the funds/assets of the Society will be transferred to some other Trust/Society/Non Profit company having similar objects. Please include this clause in your Memorandum of Association and file a certified copy of amended Memorandum of
|Your Memorandum of Association does not have clause providing that the funds/property of the Society will be used only for the objectives of the Society. Please include this clause in your Memorandum of Association and file a certified copy of amended Memorandum of Association.|
|19.||In case, applying for registration under section 80G, please produce original registration certificate under section 12A/10(23C) of the ‘Act’.|
|20.||Please produce copy of bank statement/pass book as on date|
|21.||Please produce all relevant papers/documents/registers/ books of accounts, bill / vouchers in original for verification.|
|22.||Name of Society/Trust/Section 8 company, where any of your Member / Trustee is in that Society/Trust/Section 8 company with its PAN and copy of 12A/80G/10(23C), if any.|
|23.||Please explain whether any funds have been set apart / accumulated during last 3 years for any specific object of the trust as required under provisions of section 11(2) of the ‘Act’, if so please details thereof.|
4. A perusal of the above reply shows that the assessee duly responded to all the twenty three queries raised by the ld. CIT(E). Even as per the impugned order, no other question was raised. Thus, the ld. CIT(E) is wrong in observing that only a part reply was filed, without mentioning as how it was so and as to which query remained unanswered.
5. The ld. CIT(E) has observed that the assessee did not file ITRs till the date of passing of the impugned order, i.e., 19.09.2017. However, as at APB 18, 20 and 21, the assessee has filed acknowledgement evidencing E-filing of ITRs for A.Y. 2015-16 on 31.03.2017, A.Y. 2016-17 on 31.03.2017 and A.Y. 2017-18 on 18.09.2017. As such, this observation is also erroneous, being a result of non-reading of material documentary evidence placed on record. Even the certified copies (APB-9) of the CIT(E)’s order sheet entries dated 19.09.20 17 do not record any such objection of the CIT(E). Moreover, filing or non-filing of return of income or payment of tax has nothing to do with the genuineness of activities of an institution. It has been so held by the jurisdictional High Court in the case of ‘CIT vs. Shri Advait Ashram Society’, 28 taxmann.com18 (All). A similar view has also been taken by the Hon’ble Punjab & Haryana High Court in the case of ‘CIT vs. Shri Sai Darbar Charitable Trust’, 395 ITR 567 (P & H). In this case, it was found that the view of Tribunal that filing of return was not a relevant consideration and that application of section 13 is not be considered at the stage of granting of registration did not give arise to any substantial question of law.
6. The CIT(E) has also stated that books of account, bank statements and vouchers were not produced. However, in para 19 & 20 of the assessee’s reply (supra), it has been specifically mentioned that books of account, bank statements and vouchers were being produced. Neither the order sheet entries, nor the impugned order mentions this fact, much-less controverts it. On the other hand, APB 18 to 114 contain all these documents and details. The impugned order does not advert to even a single one of them. Thus, evidently, the impugned order is a result of complete non-reading of this material cogent documentary evidence and material filed by the assessee in response to query nos. 20 and 21 of the notice dated 12.08.2017 (APB 7).
7. All the above documents have been certified by the assessee to have been filed before the ld. CIT(E). No denial thereto has been put forward.
8. The impugned order also observes that ample opportunities were provided to the assessee to produce details, like details of salaries, etc. However, the notice and the order sheet entries do not mention any such opportunity. Rather, para 2 of the impugned order itself shows that the matter was fixed for hearing only once, i.e., on 19.09.2017, on which date itself, the impugned order was passed. So, this observation of the ld. CIT(E) is also erroneous, being against the record.
9. On merits, the CIT(E) has referred to one of the objects of the assessee, i.e., ‘Sarv Sadharan Mei Our Vishestaya Agrawal Samaj Mei Upyukt Shiksha Ka Prachar Karna’. He has interpreted this object to mean as for the benefit of a set of distinguished individuals belonging to the Agrawal Community. This conclusion is evidently wrong, as the object itself starts with the words ‘Sarv Sadharan’, which expression undeniably translates to mean ‘general public’. Read as a whole, this object is specifically directed towards the public in general, while it includes the Agrawal Community. Moreover, a perusal of the above details filed makes it clear that no expenditure was incurred by the assessee for the benefit of the Agrawal There has, thus, not been any discrimination in the imparting of education as per the objects of the assessee. Moreover, no query in this regard was ever raised and the material placed on record by the assessee has not been taken into consideration by the ld. CIT(E). As such, this objection of the ld. CIT(E) is not sustainable as being based on no evidence brought on record to support it.
10. In the above facts, the case laws relied on by the ld. CIT(E) are not applicable to the present case.
11. With regard to the objects of the appellant, the learned CIT(E) has stated that they are meant for the benefit of a particular caste or community and hence, they are hit by section 13(1)(b) of the Act. The appellant came into being on 22.12.1956, i.e., before the commencement of the Act. Section 13(1)(b) specifically applies to institutions created or established after the commencement of the Act and thus, the provisions of section 13(1)(b) do not apply to the appellant at all. In this regard, the Hon’ble Allahabad High Court, in the case of ‘CIT vs. Sri Sai Darbar Trust’, vide order dated 16.01.2017, passed in I.T. Appeal No. 427 of 2008, observed that ‘we are of the opinion that the tribunal rightly came to conclusion that at the stage of grant of the registration under section 12A and 12AA, the provisions of section 13(1)(b) would not apply. The questions are therefore, answered in favour of the assessee and against the department’.
12. In the case of ‘St. Joseph Academy vs. DIT (Exemption)’, 153 ITD 669 (Hyderabad), the main object of the society was to organize and establish schools, college training institutions, etc., for the benefit of the Christian minority community in particular and others in general. The registration under section 12AA was denied on the ground and that the Principal of the school was to be appointed only from the Christian community. The Tribunal, relying on Supreme Court and Allahabad High Court decisions, held that the objects of the Academy were of charitable nature. It was also held that section 13 falls within the exclusive domain of the Assessing Officer and the provisions contained therein can be invoked by him while framing assessment and not by the CIT while considering an application for registration under section 12AA.
13. The Hon’ble Supreme Court, in the case of ‘CIT vs. Dawoodi Bohara Jamat’, 364 ITR 31 (SC) has held that:-
“42. We would now proceed to examine the objects under the provisions of Section 13(1)(b) of the Act. It becomes amply clear from the language employed in the provisions that Section 13 is in the nature of an exemption from applicability of Sections 11 or 12 and the examination of its applicability would only arise at the stage of claim under Sections 11 or 12. Thus, where the income of a trust is eligible for exemption under section 11, the eligibility for claiming exemption ought to be tested on the touchstone of the provisions of section 13. In the instant case, it being established that the respondent-trust is a public charitable and religious trust eligible for claiming exemption under Section 11, it becomes relevant to test it on the anvil of Section 13.”
X X X
“49. In the present case, the objects of the respondent-trust are based on religious tenets under Quran according to religious faith of Islam. We have already noticed that the perusal of the objects and purposes of the respondent-trust would clearly demonstrate that the activities of the trust though both charitable and religious are not exclusively meant for a particular religious community. The objects, as explained in the preceding paragraphs, do not channel the benefits to any community if not the Dawoodi Bohra Community and thus, would not fall under the provisions of Section 13(1)(b) of the Act.”
14. In the case of ‘Shri Dhakad Samaj’ (supra), the ratio decidendi was that the requirements of section 11 were not met. The concluding paragraph of the order reads as under :-
“In the application of the appellant, before the Commissioner of Income-tax, the purpose shown was to provide dharamshala for persons from the Samaj and outsiders. It is not disputed that though the provision has been made for charging a token amount from the persons belonging to the Dhakad Samaj, the charges for stay in the case of persons not belonging to the Samaj are many times the charges for the persons belonging to the Samaj. Merely because the accommodation created is in a religious place, it cannot be said that providing dharamshala is for religious purposes. There should be something more to suggest its nexus with the religious or charitable purpose. It may not be with the intention to make money, but at the same time it does not fulfil the requirement of section 11. Under these circumstances, we find that the registration declined by the Commissioner of Income-tax and affirmed by the Tribunal, does not surfer from any infirmity, patent or latent. Thus, we answer the question against the appellant and in favour of the respondent and this appeal is dismissed.”
15. The only other objection of the learned CIT(E) is that the appellant was earning large surplus and it was not running any other initiative/programme of charity. The act of earning interest on deposits with bank has been termed as an act of business to channelize the business on commercial lines. In this regard, it is seen that:
a) Though, the appellant is charging fees as per norms prescribed by Government, undisputedly, there is large surplus owing to the fact that surplus includes substantial interest income on FDRs made over a period of time, no depreciation or cost of fixed assets has been charged to income & expenditure account and that there are no management fees or expenses debited in the accounts of the appellant.
b) The definition of ‘charitable purposes’, as contained in section 2(15) of the Act. This is an inclusive definition to include:
(i) relief to poor,
(iv) medical relief,
(v) preservation of environment including watersheds, forest and wildlife,
(vi) preservation of monuments or places or objects of artistic or historic interest; and
(vii) advancement of any other object of general public utility
The proviso to said section provides that advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on any activity in the nature of trade, commerce or business etc. Thus, the restriction with regard to activity in the nature of trade, commerce or business is restricted to only ‘advancement of other object of general public utility’ and not with regard to any other activity, i.e., ‘relief to poor’, ‘education’, ‘yoga’, etc. This view has been specifically reiterated by the Board by issuing Circular no. 11/2008 dated 19.12.2008. In para 2.1 of the Circular it has been stated that where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute ‘charitable purpose’ even if it incidentally involves carrying on of commercial activities. The objects of appellant being educational, they thus evidence the fact that it is existing for ‘charitable purposes’ only.
16. The following decisions are eloquent on the issue and have rightly been relied on by the assessee:
(i) ‘CIT vs. Red Rose School’, (2007) 212 CTR (All) 394.
(ii) ‘Kanchan Singh Bhuli Devi Shiksha Prasar Samiti vs. CIT’, (2013) 143 ITD 343 (Lucknow).
(iii) ‘Pinegrove International Charitable Trust vs. Union of India’, (2010) 327 ITR 73 (P & H)
(iv) ‘Queen’s Educational Society vs. CIT’, (2015) 372 ITR 669 (SC).
(v) ‘City Montessori School (Regd.) vs. Union of India’, (2009) 315 ITR 48 (All).
(vi) ‘ITO vs. Vipan Langer Educational Trust’, (ITA No. 503/Asr/20 14).
(vii) ‘CIT vs. Lucknow Educational and Social Welfare Society’, (2012) 340 ITR 86 (All.).
(viii) ‘Sree Anjaneya Medical Trust vs. CIT’, (2016) 382 ITR 399 (Kerala).
(ix) ‘Sanatan Dharam Shiksha Samiti vs. Chief CIT’, (2012) 253 CTR 518 (P&H).
(x) ‘CIT vs. Gaur Brahmin Vidya Pracharni Sabha’, (2011) 15 com250 (P&H).
(xi) ‘Chief CIT vs. St. Peter’s Educational Society’, (2016) 385 ITR 66 (SC).
(xii) ‘Bhai Gurudas Educational Trust vs. CIT’, (2016) 177 TTJ 25 (Chandigarh –Trib).
17. 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.
18. In view of the above, we hold that the ld. CIT(E) has erred in rejecting the assessee’s application for registration u/s 12AA of the IT Act. The impugned order is accordingly reversed. The ld. CIT(E) is directed to grant registration to the assessee forthwith.
19. In the result, the appeal is allowed.
Order pronounced in the open court on 13/03/2018.