Case Law Details
CIT Vs Shekhawati Public School Samiti (Rajasthan High Court)
It has been categorically recorded by the Tribunal that the CIT(E) has to satisfy 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 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 CIT(E) 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 CIT(E) to grant registration under section 12AA of the Act.
FULL TEXT OF THE HIGH COURT ORDER / JUDGEMENT
By way of this appeal, the appellant has assailed the judgment and order of the tribunal whereby tribunal has allowed the appeal of the assessee society.
2. Counsel for the appellant has framed following substantial questions of law :–
1. Whether on the facts and circumstances of the case the Hon’ble ITAT was right in law in setting aside the rejection order of CIT(E) and directing him to grant registration to the assessee society notwithstanding that the assessee society has not complied with the provisions of section 12A(1)(b) of the Act consequences to which the activities of the assessee society become non-genuine?
2. Whether on the facts and in circumstances of the case and in law the Hon’ble ITAT is right in allowing 12AA registration to the assessee society in spite of the fact that the activities of the society are not genuine?
3. The facts of the case are that the application for seeking registration under section 12AA of the Act was filed before the learned CIT(E) on 31-3-2017. Subsequently, certain details and information were called for and on perusal of the same, it was gathered that the applicant is earning income exceeding Rs. 1 crore for the Financial Year 2013-14, 2014-15 and 2015-16. On perusal of the order under section 12(23C)(vi) of the Act dated 23-5-2017, it was noticed that assessee did not file the return of income for the assessment year 2015-16 and 2016-17, neither the assessee was registered under section 12AA nor approved under section 12(23C)(vi).
4. We have gone through the order of the tribunal.
5. While considering the matter, the tribunal has observed as under :–
18. A perusal of the above clarification issued by CBDT and which is binding on the learned CIT(E) shows that while examining that an educational institution exists solely for educational purpose or for the purpose of the profit, mere generation of surplus from year to year cannot be basis to hold that it exists for the purpose of the profit as sufficient safeguards have been provided whereby accumulation of income is permissible subject to the manner prescribed therein provided such accumulation is to be applied wholly and exclusively to the objects for which it is established. In our view, the view of the CBDT is in consonance with the express wordings provided and intended by the legislature in 10(23C)(vi) and in conformity with the law laid down by the Hon’ble Supreme Court in case of Queens Education Society where it is provided that where the surplus is ploughed back for education purposes, the educational institution exists solely for educational purposes and not for purposes of profit. The same will apply with equal force in context of registration under section 12AA as similar safeguards have been provided in terms of accumulation and utilisation of surplus so generated for the purposes of charitable purposes in terms of section 11(2) of the Act.
19. Further, there is no dispute that the objects of the assessee society are not chartiable or the activities of the assessee society are not being carried on in accordance with the stated objectives of imparting education for which it has been established. There is no adverse finding recorded by the learned CIT(E) in this regard.
20. In light of above discussions and in the facts and circumstances of the case, we are of the considered view that the learned CIT(E) was not correct in denying the registration to the assessee society under section 12AA of the Act.
21. Our view is fortified by the recent decision of the Hon’ble Punjab & Haryana High Court in case of Shri Shirdi Darbar Charitable Trust (supra) where the Hon’ble High Court has held as under :–
“4. The matter has been examined by the Tribunal after perusing the relevant statutory provisions. It has been categorically recorded by the Tribunal that the CIT(E) has to satisfy 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 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 CIT(E) 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 CIT(E) 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 of Income Tax (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 of Income Tax (Exemptions) has to satisfy while granting the registration under section 12A 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 12A of the Act. With regard to the second objection raised by the Commissioner of Income Tax (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 of for any fixed term or for any term of year 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 12A of the Act. As regards the apprehension of the Commissioner of Income Tax (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 12A of the Act.
8. Sections 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 12A 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 of Income Tax (Exemptions) with regard to the objects contained in Memorandum and as stated hereinabove that the observations of the Commissioner of Income Tax (Exemptions) do not lead to the conclusion that the activities of the assessee are not genuine, we hereby direct the Commissioner of Income Tax (Exemptions) to grant registration under section 12A of the Act to the assessee.” “
22. We also refer to the decision of the Hon’ble Kerala High Court in case of Sree Anjaneya Medical Trust (supra) where the Hon’ble High Court has held as under :–
“10. It is clear from a plain reading of sections 12A and 12AA of the Act that what is intended thereby is only a registration simpliciter of the entity of a trust. This has been made a condition precedent for the claiming of benefits under the other provisions of the Act regarding exemption of income, contribution, etc. No examination of the modus of the application of the funds of the Trust or an examination of the ethical background of its settlers is called for while considering an application for registration. The stage for consideration of the relevance of the object of the Trust and the application of its funds arises at the time of the assessment. Where benefits are claimed by assessee in terms of sections 11 and 12 of the Act, the question as to the nature of such contribution and income can be looked into. At the time of registration of the Trust, going by the binding judgments of the apex court, what is to be looked into is whether the Trust is a genuine one and whether it is a sham institution floated only to avail the benefits of exemption under the Act.
There is no such finding in the impugned order.”
6. In that view of the matter, we are in complete agreement with the view taken by the tribunal. Therefore, no substantial question of law arises.
7. The appeal stands dismissed.
