Registration U/s. 12AA cannot be denied for non-filing of returns and audited accounts

This appeal filed by the assessee is directed against the order dated 22-12-2008 passed by the Commissioner, Rohtak rejecting the grant of registration under section 12AA(1)(b)(ii) of the Income Tax Act.

2. Facts of the case, in brief, are that the assessee- society moved an appli­cation under 12A(1)(aa) of the Income Tax Act in Form No. 10A before the Commissioner on 30-6-2008. The application was duly accompanied by the copy of certificate of the registration of the society under the Registration of Society Act, 1860, photocopy of the memoran­dum and articles of association, copy of income and expenditure account, receipt and payment account, balance-sheet for the financial year 2007-08 (without audit report in form No. 10B and annexures I, II, III). The accounts of the financial years 2005-06 and 2007-08 with annexures I, II, III to audit report in Form No. 10B were produced, later, at the time of hearing.

3. The learned Commissioner called for a report from the concerned assessing officer asking him to report as to whether the asses-see-applicant had fulfilled the conditions required for the grant of regis­tration. The report of the assessing officer through the Additional Commissioner did not clearly recommend the case for registration and left the matter to be decided on merit by the learned Commissioner.

4. From the various details furnished by the’’ assessee, the learned Commissioner noted that the assessee has not filed the return of income for the different years which is obligatory before seeking registration under section 12AA of the Income Tax Act. Further accounts are not audited although the total income of the applicant-society is more than the prescribed limit before giving effect to the provisions of sections 11 and 12 of the Act.

5. The learned Commissioner further noted that the process of the construction of the building does not correspond to the dates of different certificates and the dates of communications to the university/ higher education Department, Haryana with reference to the acquisition of land, conversation of land use, no-objection approval of maps, purchase of building materials, reasonable period for construction of the specified area, completion certificate, safety certificate, hygenic condition certificate, it does not lend genuineness to the activities of the society. j

6. He observed that the applicant-society claimed to have purchased land of 6K1.3M vide registration deed No. 7209 dated 14-3-2008 for Rs. 10,57,800 from the vice-president Smt. Sushila Devi w/o Sh. Bijender Singh, president of the applicant-society on 14-3-2008 but the trans­action was not made transparent through the cash flow statement from the seller as well as the purchaser and with the proof of the availability of the funds with them as on the date of transaction. Therefore, the activity of the society cannot be said to be genuine. Further, lease deed No. 84 dated 8-4-2003 reveals that the land about 2% acres was taken by the society on lease for 17 years at Rs. 6,000 a year up to 17-4-2020 but no such expenses have been reflected in the accounts of the society. This, according to him, means accounts of the society do not reflect the true and fair picture of the activities of the society and thus the activities of the society cannot be christened genuine.

7. The learned Commissioner noted that the society is like a private limited concern where the president Sh. Bijender Singh and vice-president Smt. Sushila Devi are husband and wife, joint secretary Smt. Santosh and member Smt. Sanehlata are wives of the real brothers of the President of the society. As to other members–Sh. Dilawer Singh is the president’s uncle, Sh. Joginder Singh is son of aunt of the president and secretary Sh. Bhim Sain, cashier, Sh. Navneet and member Sh. Mehtab Singh are close relatives of the president of the society. There is no provision in the memorandum of the society for independent internal check on the misuse of powers by the president of the society and thus the society is susceptible to use for purposes other than charitable ones.

8. He further noted that the assessee- society is charging exorbitant fees from the students. According to him such type of fees can be afforded by rich people. Therefore, the society is running the schools for the benefit of only a select few and therefore it cannot be considered as charitable in nature. According to him charging high fees does more harm to the social setup than it does good. Therefore, there is a clear profit motive on the part of the trust and it is definitely not for charity.

9. He observed that although the trust was established on 26-6-1998 with a petty capital however, the corpus capital of the society has grown to Rs. 76,59,235 up to 31-3-2008 as per the balance-sheet enclosed with the copy of the accounts of the society for the financial years 2005-06 to 2007-08. According to him the capital of the society increased by Rs. 69,09,235 merely in three years from 1-4-2005 to 31-3-2008 mainly due to diversion of general funds towards corpus without there being any donation towards corpus with specific directions of the donor. The confirmations produced by the assessee from the donors cannot be said to be the direction from the donors as per section 11(1)(d) of the Income Tax Act. The assessee also could not produce the counterfoils of the receipts issued to the corpus donors. According to the learned Commissioner, counterfoils of receipts of donations which were produced before him do not bear the details of the corpus donors as claimed nor do they bear the donation thereof. Computerized receipts produced subsequently were not accepted by him on the ground that these were not part of the printed receipts maintained. Therefore, he held that this was simply a diversion of general funds towards corpus and therefore is against the spirit of section 11.

10. On being questioned by the learned Commissioner to supply the details of the expenses debited to the income and expenditure account in respect of which deduction cannot be claimed, it was replied by the assessee that no such expenses have been debited. He observed that an analysis of the expenditure account of the society shows that nothing was spent by it for which a deduction could not be claimed by any private concern carrying on a profitable business. This according to him indicates the predominantly profit making character of the society, in view of the above and relying on various decisions, he held that the activities of the society are not charitable in nature but are commercial in nature. He, therefore, rejected the application for grant of registration under section 12AA.

11. Aggrieved with the order of the Commissioner, the asses­see is in appeal before the Tribunal with the following grounds :–

“1. That having regard to the facts and circumstances of the case, the learned Commissioner has erred in law and on facts in rejecting the application for registration under section 12AA of the Income Tax Act, 1961.

2. That having regard to the facts and circumstances of the case, the learned Commissioner has erred in law and on facts in establishing the motive of the society.

3. That the learned Commissioner has erred in rejecting the application for registration under section 12AA of the Income Tax Act, 1961 on the basis of mere presumption and surmise that income derived by trust is being misused or that there is some apprehension that the same would not be used in proper manner.

4. That the learned Commissioner in his order on page 5 paragraph (v) observed that The provision for obtaining money for the aims and objects vide object No. 4(viii) of the memorandum indicates that the real intention of the society in running the educational institutions is otherwise than charitable’. While if establishing and running school and colleges is the object of the society, it has to be satisfies that the society has established the school or colleges where education is being imparted as per Rules and factum of establishing and running the school or college is a genuine activity.

5. That the learned Commissioner in his order at page 4 observed that ‘the society is running senior secondary school as well as a B. Ed/D. Ed college to spread education. It charges high fee for imparting education and thus provides “aid” to those who can pay for the sendees obtained and thus cannot be called charitable’. Once it was established that the educational institution was set up by the assessee trust for imparting education which by itself was a charitable activity, it was not required for the assessee trust to provide for any concession in fee or other charges and the absence of such provision, in our opinion, would not make its activity of imparting education as non-charitable as alleged by the learned Commissioner.

6. That the appellant craves the leave to add, amend, modify, delete any of the ground of appeal before or at the time of hearing and all the above grounds are without prejudice to each other.”

12. The learned counsel for the assessee strongly objected to the denial of registration under section 12AA of the Income Tax Act. Referring to the first allegation of the learned Commissioner that the asses­see has not filed the return of income for years prior to financial year 2005-06 and did not file any return of income for the three latest years before ‘laiming registration under section 12AA of the Income Tax Act, the learned counsel for the assessee referring to the decision of the Hon’ble Punjab and Haryana High Court in the case of CIT (Exemptions) v. Shri Shirdi Sai Darbar Charitable Trust (Dharamshala) (2017) 395 ITR 567 (P&H) submitted that the Hon’ble High Court in the said decision has held that merely because the assessee- trust had not filed its return of income in the earlier years, it could not be said that the activities of assessee- trust were not genuine. It was accordingly held that denying of registration on grounds of non-filing of return was unjus­tified. He submitted that the assessee has filed the application on 30-6-2008. Referring to the provisions of section 12AA of the Income Tax Act, 1961, he drew the attention of the Bench to the procedure for registration of a trust or institution made under section 12A or 12AA of the Income Tax Act, 1961.

13. So far as the allegation of the learned Commissioner that the assessee has transferred its general donation to corpus donation or that the donations are anonymous, the learned counsel for the assessee refer­ring to the provisions of section 115BBC of the Income Tax Act submitted that the assessing officer can make the addition to the total income of the assessee during assessment proceedings. He submitted that the trust or the society was registered under the Registration of Societies Act, 1860 on 26-6-1998 vide Certificate No. 570 of 1989. So far as the allegation of the learned Commissioner that the assessee is charging huge amount for admission in various courses is concerned, the learned counsel for the assessee referring to the decision of the Hon’ble Supreme Court in the case of Queen’s Educational Society v. CIT (2015) 372 ITR 699 (SC) submitted that the Hon’ble Supreme Court in the said decision has held that where a surplus was made by the educational institution which was ploughed back for educational purposes, said institution was to be held to be existed solely for educational purpose and not for purpose of profit.

14. So far as the allegation of the learned Commissioner that the society is running like a private limited concern is concerned, the -learned counsel for the assessee referring to the decision of the Ahmedabad Bench of the Tribunal in the case of Jupiter Medical Research Centre Trust v. DIT (Exemption) (2010) 128 TTJ (Ahd) 118 (UO) submitted that the Tribunal in the said decision has held that merely because all the trus­tees are family members, it does not mean that the trust is not a public trust. It has further been held that merely because the assessee-trust has not carried out any activities, that would not mean that trust has totally stopped activities for ever. It was accordingly held that withdrawal of registration granted to assessee- trust under section 12AA on these two grounds could not be said to be justified.

15. Referring to the decision of the Delhi Bench of the Tribunal in the case of NLB Charitable Trust v. CIT (2010) 38 SOT 291 (Delhi), he submitted that the Tribunal in the said decision has held that where the objects of the assessee- trust were purely charitable in nature, mere fact that there was a perpetual succession to the properties of the trust or there was perpetual succession in appointment of trustees could not give it a colour of a private trust and thus it was entitled to registration.

16. Referring to the Central Board of Direct Taxes Circular No. 11 of 2008, date 19-12-2008 (See (2009) 308 ITR (St.) 5.), the learned counsel for the assessee drew the attention of the Bench to paragraph 2.1 of the Circular which reads as under :–

“2.1 The new inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, 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 the carrying on of commercial activities.”

17. Referring to paragraph 2.2 of the said Circular, he submitted that the Board has clarified that entities whose object is education or medical relief would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activities subject to the conditions mentioned therein. Referring to the decision of the Hon’ble Punjab and Haryana High Court in the case of CIT v. Spring Dale Educational Society in (IT Appeal No. 166 of 2011, date 18-10-2011), he submitted that the Hon’ble High Court in the said decision has held that while examining the application seeking registration under section 12AA, manner of appli­cation of funds of trust do not fall within purview of the Commissioner. He accordingly submitted that since the assessee- society is imparting education for which there is no dispute and since charity includes education and since the various objections raised by the Commissioner denying the registration has no relevance, there­fore, the assessee- trust should be granted registration under section 12AA of the Income Tax Act. ‘

18. The learned Departmental Representative on the other hand heavily relied on the order of the Commissioner. He submitted that the assessee is a family controlled trust. Referring to the decision of the Amritsar Bench of the Tribunal in the case of G.D. Kavita Singla Charitable Trust v. CIT vide I.T.A. No. 594/Amritsar/2013 order, date 3-2-2014 he submitted that the Tribunal in the said decision has held that registration under section 12AA cannot be granted to a trust that is controlled by a single family. He submitted that the assessee did not file income-tax return for financial years 2005-06, 2006-07 and 2007-08 as well as for earlier years despite the fact that its income was above taxable limit without giving effect to the provisions of sections 11 and 12. He submitted that the assessee did not get its books of account audited for the financial years 2005-06 to 2007-08 as well as for the earlier years despite the fact that its gross receipts exceeded the prescribed limits. He submitted that the confirmations filed for the corpus donation cannot be said to be directions from donors as envisaged under section 11(1)(d). The receipt does not make a mention of the mode of payment nor does it stipulate if it is dona­tion for a specific purpose or a loan. He submitted that the land purchased from the vice-president of the society is not transparent and no payment appears to have been made for land leased at Rs. 6,000 per year. Since the members of the society are relatives of the president, there is no provision for independent internal check. The learned Departmental Representative further submitted that the charitable nature of the trust is doubtful since it is charging high fees for imparting education. Further its memorandum makes it clear that the society would collect money for achieving its aims and objects. The increase in the capital of the society by Rs. 69.09 lakhs from 1-4-2005 to 31-3-2008 clearly shows that the profit is the dominant motive of the society. He accordingly submitted that the order of the learned Commissioner being in consonance with law should be upheld and the grounds raised by the assessee should be dismissed.

19. Referring to the judgment of the Hon’ble Delhi High Court in the case of Devki Devi Foundation v. DTT (Exemptions) (2015) 40 ITR (Trib) 1 (Delhi) he submitted that the Hon’ble Delhi High Court held that where assessee- society formed for providing concession/free treatment for poor people, was allotted land at very concessional rate but it gave its hospital to the Max group to exploit same commercially, the assessee’s registration was to be cancelled.

20. Referring to the decision of the Hon’ble Uttarakhand High Court in the case of CIT v. National Institute of Aeronautical Engineering Educational Society (2009) 315 ITR 428 (Uttarakhand) he submitted that the Hon’ble High Court in the said decision has held that in the expression “charitable purpose”, “charity” is soul of the expression and mere trade or commerce in the name of education cannot be said to be a charitable purpose.

21. Referring again to the judgment of the Hon’ble High Court in the case of CIT v. Queens’ Educational Society (2009) 319 ITR 160 (Uttarakhand) he submitted that the assessee was an educational society imparting educa­tion to children. During relevant assessment years, there was surplus in its account books after meeting all expenses incurred towards imparting education. It invested said surplus in fixed assets like furniture and build­ings with a view to expand the institution and to earn more income. The Hon’ble Uttaranchal High Court held that assessee would not be entitled to exemption under section 10(23C)(iiiad).

22. Referring to the judgment of the Hon’ble Kerala High Court in the case of Self Employers Service Society v. CIT (2001) 247 TTR 18 (Ker) he submitted that the Hon’ble High Court in the said decision held that since the petitioner-society had not done any charitable work during relevant period and its activities were only for purpose of generating income for its members, rejection of application could hardly be termed as illegal or arbitrary.

23. The learned counsel for the assessee in his rejoinder submitted that various decisions relied on by the learned Commissioner Departmental Representative are reversed by the higher courts and there­fore, those decisions have no relevance at all. The decision of the Hon’ble Uttaranchal High Court in the case of Queens’ Educational Society has been reversed by the Hon’ble Supreme Court as reported in 372 ITR 699. As regards the allegation of the learned Commissioner that Form 10B was not enclosed, the learned counsel for the assessee referring to the Form No. 10B for the year in the 31-3-2008 submitted that the same was duly filed. So far as the non filing of the returns for earlier years despite having sufficient surplus before application of the provisions of sec­tions 11 and 12 is concerned, he submitted that no action has been taken by the Revenue for the earlier years. As regards the various clauses of the trust deed are concerned, he submitted that these are the standard clauses in a trust deed, therefore, nothing more should be read into it. He accord­ingly submitted that registration should be granted to the assessee- society.

24. We have considered the rival arguments made by both the sides, perused the order of the learned Commissioner denying registration under section 12AA of the Income Tax Act and the paper book filed on behalf of the assessee. We have also considered the various deci­sions cited by both the sides. We find the applicant-society filed the appli­cation under section 12A(1)(aa) on 30-6-2008 for grant of registration under section 12AA. The various objections on which the learned Commissioner denied the registration have already been stated in the preceding paragraphs. However, for the sake of brevity, the same can be summarized as under :–

“(a) The assessee- trust had not filed its return of income for the preceding years.

(b). The accounts of the assessee trust were not audited for finan­cial years 2005-06 to 2007-08 as well as the earlier years despite the fact that its turnover/gross receipt exceeded the prescribed limits.

(c) The assessee- trust is a family controlled trust and is a like a private limited concern where family members are involved and there is no independent internal check on the misuse of power by the pres­ident of the society.

(d) There is no direction from the donors stipulating if the dona­tion is for any specific purpose or a loan.

(e). The applicant-society purchased land from the Vice-President of the society and the transactions is not transparent.

(f) The collection of membership fees is not reflected in accounts.

(g) Since the assessee is charging higher fees it shows that its activ­ities are profit motive and is not charitable in nature.

(h) The memorandum makes it clear that it would collect money for achieving its aims and objects.”

In view of the above, the learned Commissioner denied registration under section 12AA of the Income Tax Act.

25. So far as the first objection of the learned Commissioner that the assessee-trust has not got its account audited and that it has not filed its return of income for the preceding years is concerned, we find no action has been taken by the Revenue despite knowing the fact, if any, that the assessee- trust had surplus income before allowing the exemption under sections 11 and 12 of the Income Tax Act. We find the Hon’ble Punjab and Haryana High Court in the case of Shri Sai Darbar Charitable Trust (Dharamshala) (supra) has held that non-filing of returns by a trust in earlier years cannot be a ground for denying registration and the activ­ities of the assessee- trust cannot be said to be non genuine. The relevant observation of the Hon’ble Punjab and Haryana High Court from para­graph on wards read as under (page 570) :–

“The matter has been examined by the Tribunal after perusing the relevant statutory provisions. It has been categorically recorded by the Tribunal that the Commissioner (Exemption) has to satisfy the two conditions while granting registration under section 12AA of the Act. Firstly, whether the objects of the assessee are charitable in nature and thus, the activities are genuine. It cannot be concluded on the basis that the assessee has not filed its income-tax returns in the earlier years that the activities of the assessee are not genuine. It has been further recorded that section 13 of the Act comes into play at the time of granting exemption under section 11 of the Act and not at the time of granting registration under section 12AA of the Act. No adverse remarks have been recorded by the Commissioner (Exemption) with regard to the objects contained in the memorandum of the assessee- trust to come to the conclusion that its activities are not genuine. Thus, it has been rightly directed by the Tribunal to the Commissioner (Exemp­tions) to grant registration under section 12AA of the Act. The rele­vant observations recorded by the Tribunal read thus :–

‘We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The first reason on the basis of which the Commissioner (Exemptions) has refused to grant registration to the assessee is that the assessee has not been filing its income-tax returns in the earlier years. We do not find that it is a good reason to reject the application for registration since the two conditions which the Commissioner (Exemptions) has to satisfy while granting the registration under section 12AA of the Act are that the objects of the assessee are charitable in nature and the activities are genuine. Just because the assessee has not filed its income tax returns in earlier years, it cannot be said that the activities of the assessee are not genuine. Reliance placed by the learned coun­sel for the assessee on the judgment of the Allahabad High Court as well as the order of the Chennai Bench of the Tribunal are not out of place, whereby it has been held that non-filing of- return cannot be one of the reasons for denying registration under section 12AA of the Act, with regard to the second objection raised by the Commissioner (Exemptions) that as per clause 12 of the memorandum of trust, the trustees have been given absolute powers to manage the property. We have perused the clause 12 of the memorandum of the trust, whereby the trustees are authorized to demise the immovable property or properties of the trust either from year to year or for any fixed term or for any term of years or on monthly basis at such rent and subject to such conditions as they deem fit and proper and also accept surrender of lease and may manage the property as they think proper. From the perusal of this clause, we observe that the trustees have been given powers to give property of the trust on lease or on rent. We do not find anything wrong in this clause so as to deny the assessee the registration under section 12AA of the Act. As regards the apprehension of the Commissioner (Exemptions) that his clause may attract the provisions of section 13(1)(c) of the Act, we are of the view that the conditions as provided in section 13 or elsewhere are to be seen by the assessing officer at the time of assessment proceedings on yearly basis and not by the Commissioner (Appeals) while granting registration under section 12AA of the Act. …’

Section 13 comes Into play at the time of granting exemption under section 11 of the Act and not at the time of granting registra­tion under section 12AA of the Act The only two requirements as stated hereinabove while granting registration under section 12A of the Act, are with respect to the charitable nature of the objects of the assessee and genuineness of the activities. Since we observe that no adverse remarks have been made by the Commissioner (Exemptions) with regard to the objects contained in memorandum and as stated herein above that the observations of the Commissioner (Exemptions) do not lead to the conclusion that the activities of the assessee are not genuine, we hereby direct’ the Commissioner (Exemptions) to grant registration under section 12AA of the Act to the assessee.

The learned counsel for the appellant-Revenue has not been able to show that the findings recorded by the Tribunal are in any way ille­gal or perverse warranting interference by this court. Consequently, no substantial question of law arises and the appeal stands dismissed.”

Since the activities of the assessee trust are admittedly for imparting education, therefore, in view of the decision cited above it cannot be said that non-filing of returns for the preceding years on not getting the accounts audited dis entitles the assessee from being granted registration.

26. So far as the next objection of the learned Commissioner that the assessee trust is running like a private limited entity is concerned, we find the Ahmedabad Bench of the Tribunal in the case of Jupiter Medical Research Centre Trust (supra) following the decision of the Hon’ble Supreme Court in the case of Deoki Nandan v. Murlidhar, AIR 1957 SC 133 has held that merely because all trustees are family members, it does not mean that the trust is not a public trust and therefore regis­tration granted under section 12AA cannot be withdrawn. The relevant observation of the Tribunal at paragraph 4 of the order reads as under :–

“4. The learned counsel of the assessee has filed the copy of acknowledgment of return of income for the assessment years 2005-06 and 2006-07 along with audit report for the year ending 31-3-2005 and 31-3-2006. It is pointed out the perusal of the same, no activities are carried out by the trust. There is no violation of any of the provisions contained in the Act. Merely, all the trustees are family member it does not mean that trust is not a public trust This prop­osition finds support from the decision of the Hon’ble Supreme Court in the case of Deoki Nandan v. Murlidhar, AIR 1957 SC 133 (copy placed on record). As a matter of fact the trust genuine and because of this, the learned Director of Income Tax (Exemption) granted the exemption under section 12AA. There is no finding or allegation in the impugned order that activities carried out by the trust are not in accordance with the objects of the trust or institution. Merely because the assessee has not carried out any activities, that does not mean that the trust has totally stopped the activity forever. In these circumstances, in our considered opinion, the learned Director of Income Tax (Exemption) has not made out a case justifying cancel­lation of the registration granted under section 12AA. We, therefore, set aside the impugned order of the Director of Income Tax (Exemp­tion). However, we may clarify that the learned Director of Income Tax (Exemption) is at liberty to pass any order under sub-section (3) of section 12AA if any of the conditions under that section is fulfilled in future. Subject to this clarification, we allow the appeal of the asses­see.”

27. Similarly we find the Delhi Bench of the Tribunal in the case of NLB Charitable Trust v. CIT (2010) 38 SOT 291 (Delhi) from paragraphs 9 to 12 has observed as under :-

“9. In the light of the above facts, we have to examine that whether learned Commissioner was right in refusing the registration to the assessee. Section 12A regulates the conditions for applicability of sections 11 and 12 and section 12AA regulates the procedure for grant of registration. Section 12A inter alia stipulates that the provisions of sections 11 and 12 which regulates the income of charitable institutions will not apply in relation to income of any Trust or institution unless a person in receipt of income has made an application for registration of trust in the prescribed format in the prescribed manner which inter alia include the submission of appli­cation before the expiry of a period of one year from the date of the creation of trust or institution ; and such institution should be registered under section 12AA. Section 12AA stipulates that the Commissioner on receipt of an application as specified in section 12A shall call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about genuineness of the activities of the trust or institution and may also make such Inquiries as he may deem necessary in this behalf and after satisfying himself about the object of the trust or institution and the genuineness of its activity he shall pass an order in writing either registering the said trust or institution and if not so satisfied shall pass an order in writing refusing the registration to the said institution and a copy of such order shall be served on the applicant From the above provisions it is clear that a trust or institution which has submitted an application within the prescribed time, Commissioner, after examin­ing such application shall call for such documents or information so as to enable him to satisfy about the genuineness of the activities of the trust and may also make such inquiry as he may deem it neces­sary and after satisfying himself about the objects of such trust and the genuineness of its activity shall grant the said trust/institution the registration under section 12A of the Act.

10. Now, in the order passed by the learned Commissioner refusing to grant registration it is not his case that the objects of the trust or institution are not charitable in nature. Learned Commissioner is also not speaking of non-genuineness of the trust or its activity. The only objection raised by learned Commissioner is that succession to the trust properties and, thus, such perpetual succession has given a colour of private trust to the applicant, second objection of learned Commissioner is that the trustees would exercise full control over the working of the trust for all the time to come. Let us take an example of an ordinary institution created by some individual to carry out the charitable activity. A person who is contributing to the charitable cause may keep in his mind that the control of charitable activity may be with him or his family members, but that fact alone cannot dis entitle the institution from registration unless any material is brought on record to suggest that either the objects of the charitable trust are not charitable in nature or there is a clause in the trust deed according to which certain benefits can be given either to the settler or to the trustees or to the persons related to them. Here also it is not the case of the learned Commissioner that according to the conditions laid down in trust deed any of such contravention could be done or there is any possibility of applying any income or asset for the benefit of the settler, trustees or the persons related to them. Here, it will be relevant to mention that there is a prohibition clause in the trust deed which is clause No. 7 and which is described as under :–

‘7. Prohibition of trustees.–The trustees shall be prohibited from :–

(i) Making any distinction or discrimination in the beneficiaries on the ground of caste, race, area or religion except in favor of Scheduled Castes, Scheduled Tribes, backward classes and oppressed people of the country and the world.

(ii) Receiving any remuneration, for the conduct of the trust, subject however to clause 5(xiii) and 5(xiv) above.

(iii) Deriving any direct or indirect pecuniary advantage out of the trust properties, income or application thereof, for themselves and their relatives and associates.

(iv) Spending the trust properties on any object which is not enumerated in objects of the trust.

Acting against the interest of the trust.’

11. According to the above mentioned prohibition clause, the trus­tees are prohibited from making any distinction or discretion in the beneficiaries on the ground of caste, race, area or religion except favoring the Scheduled Castes, Scheduled Tribes, backward classes and oppressed people of the country and the world. Similarly, it prohibits grant of any remuneration for the conduct of trust subject to clause 5(xiii) and (xiv) which read as under :–

‘(xiii) To receive out of pockets expenses incurred by them in the course of discharging the objects of the trust. Any trustee can be paid honorarium for the work he does for carrying out the activities of the trust. The amount of honorarium will have to have approval of the Board of Trustees.

(xiv) To be indemnified and reimbursed for all lawful acts in the discharge of objects of the trust.’

12. These clauses describe only reimbursements of out-of-pocket expenses incurred by the trustees in the course of discharging the objects of the trust and for payment of honorarium for the work of a particular trustee do for carrying out the activities of the trust and honorarium will have to have the approval of board of trustees and other clause deals with indemnification and reimbursement for the lawful acts in the discharge of objects of the trust. The trustees are prohibited from deriving any direct of indirect pecuniary advantage out of trust properties, income or application thereof for themselves and their relatives and associates. The spending of trust properties on any object which is not enumerated in the objects of trust is also prohibited and the trustees’ act against the interest of trust is also prohibited. Thus, according to the prohibition clause trustees cannot derive any direct or indirect pecuniary advantage either out of prop­erty of the trust or from income or application thereof not only for themselves, but for their relatives and associates. In any case if later on it is found by the Department that the trustees or their relatives or their associates are deriving any direct or indirect pecuniary advan­tage out of trust property or its income and if any such property or income is applied for that purpose, then it will be contravention of the trust deed. Therefore in our opinion, the simple fact that there is – perpetual succession in the appointment of trustee, cannot disentitle the assessee institution from getting registration. Moreover, the trust deed has to be read as a whole according to well established law. It has been stated in clause 2(ii) that if any of the first trustees resigned during his/her lifetime, the vacant seat will be filled by the board of first trustees with 3/4fh majority and, thus, nominated will also be called first trustee. Clause 2(iii) provides that the number of trustees could be increased by moving an amendment of the trust and getting approval of 3/4th number of first trustees, however, the total number of trustees cannot exceed 10. In view of this clause also it cannot be said that there is perpetual succession of the post of the trustee.”

28. In view of the above decisions, the objection of the learned Commissioner that the society is a private limited concern and there­fore there can be misuse of power by the president and the society is susceptible to use for purpose other than charitable ones has no basis. The objection of the learned Commissioner on this issue thus has no legs to stand.

29. So far as the objection of the learned Commissioner that the activities of the societies are profit motive and non-charitable in nature is concerned, we find it is an admitted fact that the society is imparting education. While imparting education, the assessee- trust is charging fees from the students. The issue has already been decided by the Hon’ble Supreme Court in the case of Queen’s Educational Society (supra). It has been held therein that where a surplus was made by educational institution which was ploughed back for educational purposes, the said institution was held to be existed solely for educational purpose and not for purpose of profit. So far as the objection of the learned Commissioner that the confirmations filed for corpus donations cannot be said to be directions from the donors as envisaged under section 11(1)(d) is concerned, the same in our opinion can be taken care of by the assessing officer at the time of assessment and this cannot be a ground for denying the registration under section 12AA of the Income Tax Act. The various other objections by the learned Commissioner for denying grant of registration under section 12AA in our opinion are not justified at this stage. The learned Commissioner only has to see the objects of the assessee- trust as to whether they are charitable in nature or not. Since the assessee- society in the instant case is imparting education in various courses and it is not disputed by the learned Commissioner and since charity includes education, therefore, under the facts and circumstances of the case, the learned Commissioner in our opinion is not justified in denying registration under section 12AA of the Income Tax Act. The various decisions relied on by the learned Commissioner Departmental Representative are either not applicable to the facte of the present case or have been reversed by higher courts such as the Hon’ble High Court or the Hon’ble Supreme Court. In this view of the matter, the order of the learned Commissioner is set aside and he is directed to grant registration under section 12AA of the Income Tax Act to the assessee- applicant. The grounds raised by the assessee are accordingly allowed.

30. In the result, the appeal filed by the assessee is allowed.

NF