Case Law Details
Rajiv Gandhi Proudyogiki Vishwavidyalaya Vs CIT (Exemption) (ITAT Indore)
Conclusion: Since objects of assessee were duly charitable in nature and there was no dispute as to genuineness of its activities, therefore, no registration could be denied under section 12AA merely on the basis that assessee was not carrying out activities for charitable purposes.
Held:
CIT denied assessee’s application for registration on the basis that activity of assessee could not be termed as charitable as it had been systematic generating surplus from year to year and the amount had not been applied for its objectives. It was held merely because assessee was generating surplus could not be the basis for inferring that assessee was not carrying out activities for charitable purposes. At the stage of granting registration under section 12AA, CIT was not required to examine application of income. All that he might examine was whether application was made in accordance with the requirements of section 12A read with rule 17A and whether Form No. 10A has been properly filled up. He had also to examine whether objects of the trust were charitable or not. The stage of application of income was when such trust or institution files return. Since objects of assessee were duly charitable in nature and there was no dispute as to genuineness of its activities, therefore, no registration could be denied under section 12AA.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the assessee is directed against order of the CIT(Exemption), Bhopal dated 27.4.2018. The assessee has raised following grounds of appeal:-
1. “That the order dated 27.4.2018 passed by the Ld. CIT declining registration u/s 12AA to the appellant is vitiated in law and on facts.
2. That the order of Ld. CIT is perverse on account of consideration of facts which are not relevant for deciding an application u/s 12AA and also vitiated on account of non-consideration of vital information given by the appellant.
3. That on the facts and circumstances of the case and in the law, the Commissioner (Exemption) has grossly erred in denying registration to the assessee society under section 12AA of the Income Tax Act, 1961 (‘the Act’) as claimed. As the stage of grant of registration under section 12A, learned Commissioner is supposed to examine only the objects of the society/trust and it is not appropriate on the part of the Commissioner to examine the aspect of application of income at the stage of granting registration under section 12AA, which is to be examined by the assessing officer on a year to year basis at the time of claiming exemptions under section 11 of the Income Tax Act.
4. That section 2(15) defines the term ‘charitable purpose’ in an inclusive manner and includes within its ambit relief of poor, education, medical relief and advancement of any other object of general public utility. Education per se is a charitable purpose just like relief of poor or medical relief and the appellant university also does not exist for profit as there is no clause for distribution of profits or net assets in case of dissolution to members as it is fully government owned. Thus the emphasis of the Ld. CIT on profits and FDR’s was misplaced both on facts and in law in so far as deciding the application u/s 12AA was concerned.
5. That the Ld. Commissioner has picked up objects at s.no.(c)(d) and(e) from the object clause to arrive at the conclusion that the objects are not charitable. These objects (c),(d) and (e) are merely incidental objects and are well connected with the main object of providing technical education. The concentration of the Ld. CIT on incidental objects is contrary to the ratio in Surat Art Silk’s wherein the Supreme Court has that if the primary or dominant purpose of a trust is charitable another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent it from being valid charity.
6. That the test which has to be applied is whether the object which is said to be non charitable is the main or primary object of the trust or institution or its is ancillary or incidental to the dominant or primary object which is charitable and in the case of the appellant university the main object is clearly education which is charitable object as per section 2(15) of the Income Tax Act, 1961.”
2. The facts giving rise to the present appeal are that an application for registration u/s 12AA of the Income Tax Act, 1961 (hereinafter called as ‘the Act’) in form No.10A was submitted on 3.10.2017 to the Office of the Ld. Commissioner of Income Tax (Exemption). The said application was rejected by the Ld. CIT after giving opportunity to the assessee of hearing and considering the submission of the assessee. Ld. CIT rejected the application on the basis that activity of the assessee cannot be termed as charitable as it has been systematic generating surplus from year to year and the amount has not been applied for its objectives. Further, the accounts are not audited and higher interest income has been earned from the surplus so generated, etc.
3. The effective ground of appeal is against rejection of application by the Ld. CIT(Exemption). The Ld. Counsel for the assessee submitted that the reasoning for rejection of the application is contrary to the settled law. He submitted that the order is ex-facie perverse and contrary to the records. Ld. Counsel for the assessee vehemently argued that at the stage of registration u/s 12AA of the Act, the application of fund by the assessee or generation of the fund by the assessee should not be the ground for allowing or rejecting of the application. Ld. Counsel for the assessee submitted that the Ld. CIT(Exemption) has not given any finding on the objectives of the assessee. He submitted that merely because the assessee is generating surplus should not be a ground for rejection of application and it cannot be the basis for inferring that assessee is not carrying out activities for charitable purposes. Ld. Sr. Counsel in support of the arguments relied upon various judgements, more particularly, judgement of the Hon’ble M.P. High Court rendered in the case of CIT Vs. DPR Charitable Trust (2011) 61 DTR (M.P.) (410). He submitted that the assessee is a government organization. It cannot be by any stretch of imagination inferred that the assessee is created for the purpose of making profit. Ld. Counsel for the assessee also placed reliance on the judgement of Hon’ble Allahabad High Court rendered in the case of Fifth Generation Education Society Vs. CIT (1990) 185 ITR 634 (Allahabad).
4. Per contra, Ld. CIT(DR) vehemently opposed the submissions and supported the order of the Ld. CIT(Exemption). Ld. D.R. submitted that from the facts available on records, it cannot be inferred that the assessee is carrying out any charitable activities, where it has accumulated huge surplus funds, which have not been utilized for any educational or charitable purposes.
5. In rejoinder, Ld. Counsel for the assessee submitted that the submission of the Ld. CIT(DR) that no educational activity was carried out is patently wrong. He submitted that a detailed note of activity conducted by the assessee university in last 3 years as well as the purpose of fund accumulated was given to the CIT(Exemption) which has been conveniently ignored to be mentioned in the order. Ld. Counsel drew our attention to the statement of facts, wherein the contents of the notes placed before Ld. CIT is reproduced. Further, he submitted that the objection of the Ld. CIT(Exemption) that books are not audited is also patently false and perverse. He submitted that all the books are regularly maintained and show complete details of income and expenditure and balance at the end of the year. The accounts of a society are not required to adhere to section 145A of the Act are for business or professional income and are not applicable to societies and trusts, in fact the books have been scrutinized by C&AG audit team and no discrepancies have been pointed out.
6. We have heard the rival submissions, perused the materials available on records and gone through the orders of the authorities below. The Ld. CIT (Exemption) has rejected the application on the following grounds:
“7. In the light of above findings, it can be briefly summarized as under:
i. There is consistent and systematic generation of surplus/profits from year to year.
ii. The assessee has accumulated funds of almost rupees one thousand rupees from profits generated over the years.
iii. The profits earned from year to year are not being ploughed back for charitable purposes.
iv. The profits earned are invested in ever increasing FDRs to earn interest income instead of utilizing for charitable purposes.
v. The books of account are not being regularly/properly maintained and mixed system of accounting is followed by the assessee as per its sweet wish.
vi. The books of account are not regularly audited by any auditor; in fact it was last audited for FY 2009-10.
vii. There are several discrepancies pointed out by the auditors in working of the University.
viii. The Auditors pointed out that excess unreasonable payment was made to specified person u/s 13(3) of the Act.
ix. There are several non charitable objects in the object clause.
x. The major activities do not come under purview of the term education as used in section 2(15) of the Act. In fact, major receipts are from such activities wherein huge profits have been generated consistently which show the commercial nature of activities.
xi. There is negligible investment in fixed assets as compared to investments in FDRs or ploughing back into education or other charitable activity.
xii. The major application of surplus so far has been to invest in FDRs and earn interest thereupon and such benefits are not being passed on to the students by reducing the fees that the applicant is collecting from students and educational institutions.”
7. The moot question for our consideration is that whether application was rightly rejected seeking registration u/s 12AA of the Act on the basis of the reasons stated herein above. For the sake of clarity, relevant provision of law is reproduced herein below:-
“Section 12A:
“(1)] The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:—
(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the [***] Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, [whichever is later and such trust or institution is registered under section 12AA ] :
[Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution,—
(i) from the date of the creation of the trust or the establishment of the institution if the [***] Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons;
(ii) from the 1st day of the financial year in which the application is made, if the [***] Commissioner is not so satisfied:]
[Provided further that the provisions of this clause shall not apply in relation to any application made on or after the 1st day of June, 2007;]
[(aa) the person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form and manner to the Commissioner and such trust or institution is registered under section 12AA;]
Following clause (authorities below) shall be inserted after clause (aa) of sub-section (1) of section 12A by the Finance Act, 2017 w.e.f. 1.4.2018:
(ab) the person in receipt of the income has made an application for registration of the trust or institution, in a case where a trust or an institution has been granted registration under section 12AA or has its amendment by the Finance (No.2) Act, 1996 (33 of 1996)], and, subsequently, it has adopted or undertaken modifications of the objects which do not conform to the conditions of registration, in the prescribed form and manner, within a period of thirty days from the date of said adoption or modification, to the Principal Commissioner or Commissioner and such trust or institution is registered under section 12AA;
(b) where the total income of the trust or institution as computed under this Act without giving effect to [the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year], the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the pres-cribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.]
(c) [***]
[(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made.]
[Provided that where registration has been granted to the trust or institution under section 12AA, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the objects and activities of such trust or institution remain the same for such preceding assessment year:
Provided further that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non registration of such trust or institution for the said assessment year:
Provided also that provisions contained in the first and second proviso shall not apply in case of any trust or institution which was refused registration or the registration granted to it was cancelled at any time under section 12AA.]”
Section 12AA:
(1) The [Principal Commissioner or] Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) [or clause (aa) [or clause (authorities below)] of sub-section (1)] of section 12A, shall—
(a) Call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and
(b) After satisfying himself about the objects of the trust or institution and the genuineness of its activities, he –
Shall pass an order in writing registering the trust or institution;
Shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant:
Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.
[(1A) All applications, pending before the [Principal Chief Commissioner or] Chief Commissioner on which no order has been passed under clause (b) of sub section
(1) before the 1st day of June, 1999 shall stand transferred on that day to the [Principal Commissioner or] Commissioner and the [Principal Commissioner or]Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day.]
(2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) [or clause (aa) [or clause (ab)] of sub-section (1)] of section 12A].
[(3) Where a trust or an institution has been granted registration under clause (b) of section (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No.2) Act, 1996 (33 of 1996)]] and subsequently the [Principal Commissioner or] Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution:
Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.]
[(4) Without prejudice to the provisions of sub-section (3), where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No.2) Act, 1996 (33 of 1996)] and subsequently it is noticed that the activities of the trust or the institution are being carried out in a manner that the provisions of sections 11 and 12 do not apply to exclude either whole or any part of the income of such trust or institution due to operation of sub-section (1) of section 13, then, the Principal Commissioner or the Commissioner may by an order in writing cancel the registration of such trust or institution:
Provided that the registration shall not be cancelled under this sub-section, if the trust or institution proves that there was a reasonable cause for the activities to be carried out in the said manner.]”
8. As per the aforementioned provision, the CIT(E) has to satisfy himself about the objects of the Trust or Institution and the genuineness of its activities. For testing this, the Ld. CIT(E) is empowered to call for such documents or information as he thinks necessary and may also make such inquiries as he may deem necessary in this behalf. In the back drop of these provisions, it has to be examined as to whether the objects of the assessee are not charitable and also the activities undertaken are genuine or not. Undisputedly, the assessee is an institution created by the Government of Madhya Pradesh. Ld. Counsel for the assessee has placed reliance on the judgement of Hon’ble M.P. High Court in the case of CIT Vs. D.P.R. Charitable Trust (2011) 61 ITR (M.P.) 410, wherein the Hon’ble High Court has held as under:
7. We have considered the submissions made on both sides. Before proceeding to deal with the controversy we deem it appropriate to notice relevant provisions, namely, ss. 2(15), 12A and 12AA of the Act. Sec. 2(15) and 12A, as they stood at the relevant time, read as under : “2 Definitions. 2(15) ‘charitable purpose’ includes relief of the poor, education, medical relief and the advancement of any other object of general public utility. 12A. Conditions as to registration of trusts etc.—The provisions of s. 11 and s. 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely : (a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the CIT before the 1st day of July,1973 or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution whichever is later and such trust or institution is registered under s. 12AA : Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of the s. 11 and s. 12 shall apply in relation to the income of such trust or institution,— (1) From the date of creation of the trust or the establishment of the institution. If the CIT is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons; (ii) Where the total income of the trust or institution as computed under this Act without giving effect to the provisions of s. 11 and s. 12 exceeds fifty thousand rupees in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in Explanation below sub-s. (2) of s. 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of the such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.” Sec. 12AA which was inserted by the Finance Act, 1996 w.e.f. 1st April, 1997 reads as under : “12AA. Procedure for registration. (1) The CIT on receipt of an application `for legistration of a trust or institution made under cl. (a) or cl. (aa) of sub-s. (I) of s. I2A, shall— (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquires as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities he–
(1) shall pass an order in writing registering the trust or institution; (ii) shall if he is not satisfied pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant : Provided that no order under sub-cl. (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard. (1A) All applications, pending before the Chief CIT on which no order has been passed under cl. (b) of sub-s. (1) before the 1st day of June, 1999, shall stand transferred on that day to the CIT and the CIT may proceed with such applications under that sub-section from the stage at which they were on that day. (2) Every order granting or refusing registration under cl. (b) of sub-s. (1) shall be passed before the expiry of six months from the end of the month in which the application was received under cl. (a) or cl. (aa) of sub-s. (1) of s. I2A. (3) Where a trust or an institution has been granted registration under cl. (b) of sub-s. (1) and subsequently the CIT is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution : Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.”
8. Sec. 12A of the Act prescribes conditions for registration of the trust whereas s. 12AA of the Act prescribes the procedure for registration. A careful reading of the relevant provisions would reveal that application for registration under s. 12A has to be made in Form No. 10A prescribed by r. 17A before the expiry of one year from the date of creation of the trust or establishment of the institution whichever, is later. The application has to be made by a person in receipt of income of the trust. Thus while dealing with the applidation for registration the CIT has to examine whether the application is made in accordance with s. I 2A r/w r. 17A and whether Form No. 10A has been properly filled up. He may also examine whether objects of the trust are charitable or not. Sec. 12AA nowhere provides that. CIT while considering the application for registration is also required to examine whether the income derived by the trust is being spent for charitable purposes or the trust is earning profit. The language employed by the legislature in s. 12AA only requires that activities of the trust or institution must be genuine which should be in consonance with the object of the trust. At,,this stage, the CIT is not required to examine the application of income. All that he may examine is whether the application is made in accordance with the requirements of s. 12A r/w r. 17A and whether Fronnko. 10A has been properly filled up. He has also to see whether the objects of the trust are charitable or not. Our view finds support from the Division Bench decision of the Allahabad High Court rendered in the case of Red ROse School (supra) and the decisions in the cases of New Life in Christ Evangelistic Association (supra), Fifth Generation Education Society (supra) and Shantagaurf Ramniklal Trust (supra).
9. Ld. Counsel for the assessee has also placed reliance on the judgement of the Kerala High Court in the case of Anjaneya Medical Trust Vs. CIT, Kozhikode (2016) 382 ITR 399 (Kerala), wherein 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 assessees 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 judgements 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.”
10. The reliance is also placed on the Hon’ble Allahabad High Court rendered in the case of Fifth Generation Education Society Vs. CIT (1990) 185 ITR 634 (Allahabad) wherein the Hon’ble High Court has held as under:
“3. It is evident that at this stage, the Commissioner is not to examine the application of income. All that he may examine is whether the application is made in accordance with the requirements of section 12A read with rule 17A and whether Form 10A has been properly filled up. He may also see whether the objects of the trust are charitable or not. At this stage, it is not proper to examine the application of income.”
11. Further reliance is placed on the judgement of the Hon’ble High Court of Punjab & Haryana, wherein the Hon’ble High Court followed the judgement of the other branch of the same High Court rendered in the case of CIT Vs. Surya Educational & Charitable Trust, wherein the Hon’ble High Court held that the object of section 12AA of the Act, is to examine the genuineness of the objects of the Trust, but not the income of the Trust for charitable or religious purposes. The stage of application of income is when such Trust or Institution files its return. The Ld. Counsel has also placed reliance on the decision of the coordinate bench rendered in the case of Divine Siksha Samithi Vs. CIT in ITA No.1034/Ind/2016, where the coordinate bench of this Tribunal following the decision of the other coordinate bench directed the Ld. CIT to grant registration u/s 12AA of the Act. From the reading of the case laws as relied by the Ld. Counsel for the assessee, it emerges that at the age of granting registration, the Ld. CIT has to restrict himself to the objects of the assessee and genuineness of the activities. At the stage of granting registration, the CIT has not to examine whether the funds have been applied or not. In the case in hand, the Ld. CIT rejected the application substantially on the basis that the assessee has accumulated funds which are not been ploughed back for charitable purposes. The profits earned are invested in ever increasing FDRs to earn interest income instead of utilizing for charitable purposes. The explanation of the assessee for accumulating the funds is that it planned for future expansion of technical education in state. The assessee has also applied funds for constructing the hotels for boys and girls, auditorium with the sitting capacity of 3000, campus development to establish green campus. The assessee has also established UITs at Jhabua & Shadol for which the capital expenditure will be approximately Rs.100 crores. In our considered view, the Ld. CIT has not considered the explanation in the light of the binding precedents. We therefore, set aside the order of the Ld. CIT(E) and restore the issue of granting of registration to his file to consider the same after considering the facts as stated in the note on activity and the ratio laid down in the binding precedent as relied by the Ld. Counsel for the assessee. Grounds raised in this appeal are allowed for statistical purposes.
12. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order was pronounced in the open court on 08 .02.2019.
