Case Law Details

Case Name : Yashaswi Education Society Vs CIT (ITAT Pune)
Appeal Number : ITA No. 250/PUN/2014
Date of Judgement/Order : 13/04/2017
Related Assessment Year :
Courts : All ITAT (4463) ITAT Pune (129)

It is well-settled principle of law that the test to determine as to what would be a charitable purpose within the meaning of section 2 (15) of the Act, is to ascertain what is the dominant object of the activity; whether it is to carry out a charitable purpose or to earn profit. If the pre-dominant object is to carryout a charitable purpose and not to earn profit the purpose would not lose its charitable character merely because the some profit arises from the activity. (See CIT Andhra Pradesh v. APSRTC Hyderabad (1986) 2 SCC 391).

 Deemed registration has already been granted to the assessee in view of the fact that the original application made by the assessee was not disposed of by the Commissioner of Income Tax. The Commissioner of Income Tax while considering second application of the assessee for grant of registration should have examined the objects of the trust and the activities being carried out by the assessee to achieve those objects. The Commissioner of Income Tax misdirected the course of enquiry and concentrated on the surplus generated, leaving aside the objects and activities carried out by the assessee. Generation of surplus while carrying out charitable activities would not disentitle the assessee for registration under section 12A of the Act.

Full Text of the ITAT Order is as follows:-

This appeal by the assessee is directed against the order of Commissioner of Income Tax -I, Pune dated 29-11-2013 rejecting the application of the assessee for grant of registration under section 12AA(1)(b)(ii) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).

2. The brief facts of the case as emanating from records are: The assessee is a trust registered under the Bombay Public Trusts Act, 1950 and Societies Registration Act, 1860. The assessee trust was constituted vide Memorandum of Association dated 15-1-2007. The assessee made first application for registration under section 12A of the Act on 1-6-2007. The said application of the assessee was not disposed of by the Commissioner of Income Tax. Despite the fact that the assessee sent reminder to Commissioner of Income Tax on 5-3-2009 to decide the application, the said application remained unattended. In the meantime assessment orders under section 143(3) for the assessment years 2010-11 and 2011-12 were passed on 14-3-2013 and 14-11-2013, respectively treating as if registration has been granted to the assessee under section 12AA of the Act. The assessee filed second application for grant of registration under section 12A and for approval under section 80G on 29-5-2013. The Commissioner of Income Tax vide impugned order rejected the application of the assessee on the ground that the assessee has not paid taxes on the surplus earned during the financial years 2009-10 and 2010-11.

Aggrieved by the rejection of application for grant of registration under section 12A of the Act, the assessee is in appeal before the Tribunal.

3. Smt. Deepa Khare appearing on behalf of the assessee submitted that the assessee trust was formed with the object of imparting education. The learned Counsel for the assessee referred to object clause of Memorandum of Association of Society at page 7 of the paper book. The learned Counsel submitted that the main object of the assessee was to establish educational institutions for imparting pre-primary, primary, secondary, graduate and post-graduate courses. Further, the assessee intended to set up educational institutions for imparting professional courses in the field of management, medicine and engineering. The assessee made first application for grant of registration in the prescribed form to the Commissioner of Income Tax on 1-6-2007. No order was passed by the Commissioner of Income Tax on the said application. Thereafter, the assessee filed reminder application on 5-3-2009 (at page 100 of the paper book). The Commissioner of Income Tax took no pains to dispose of the aforesaid application of the assessee. On 24-1-2013 the assessee filed application under Right to Information Act, 2005 to know the status of application filed on 1-6-2007. The Central Public Information officer (CPIO) vide order dated 21-2-2013 passed under Right to Information Act informed that the application of the assessee for grant of registration under section 12A dated 1-6-2007 has not been disposed of. The order dated 21-2-2013 passed under Right to Information Act is at page 98 of the paper book. Thereafter, on 29-5-2013, the assessee made second application for grant of registration under section 12A of the Act. The Commissioner of Income Tax sought further information and certain documents from the assessee vide communication dated 14-10-2013. The assessee promptly responding to the queries raised by the Commissioner of Income Tax and furnished the requisite documents and information on 24-10-2013. The reply of the assessee is at pages 87 and 88 of the paper book. The learned Counsel contended that in the meantime the assessment orders under section 143(3) of the Act for assessment years 2010-11 and 2011-12 were passed by the assessing officer treating as if registration has been granted to the assessee. The assessing officer vide order dated 4-3-2013 for the assessment year 2010-11 and order dated 4-11-2013 for assessment year 2011-12 granted the benefit of deemed registration under section 12AA, as the application of the assessee was not disposed of by the Commissioner of Income Tax for the period more than 6 months.

3.1 The learned Counsel for the assessee submitted that the Hon’ble Supreme Court of India in the case of Commissioner of Income Tax v. Society for the Promotion of Education 382 ITR 6 has held that if the assessee has not been granted registration within the period of 6 months from the date of making application, it shall be presumed that deemed registration has been granted to the assessee. The learned Counsel further submitted that earning of significant profit is not relevant to disallow the application for grant of registration under section 12AA of the Act. The Commissioner of Income Tax at the time of registration has to see the objects of the trust. If the objects of the trust are charitable in nature, the Commissioner of Income Tax is bound to grant registration. Quantum of surplus generated by the assessee while carrying out charitable activities is not the relevant factor to determine whether registration under section 12A has to be granted or rejected. In support of her submissions, the learned. Counsel for the assessee has placed reliance on the following decisions: —

(i) Chief Commissioner of Income Tax v. St. Peter’s Educational Society, 385 ITR 66 (SC);

(ii) Queen’s Educational Society v. Commissioner of Income Tax, 372 ITR 699 (SC);

(iii) Visvesvaraya Technological University v. Assistant Commissioner of Income Tax, 384 ITR 37 (SC);

(iv) Director of Income Tax (Exemption) v. M/s. Lala Lajpatrai Memorial Trust, IT Appeal No. 2307 of 2013, dt. 13-4-2016.

4. On the other hand Shri K.K. Mishra representing the department vehemently supported the findings of Commissioner of Income Tax rejecting the application of the assessee under section 12A of the Act. The learned Department Representative submitted that the assessee was carrying on activities which were generating huge profits. A perusal of the records would show that the assessee is engaged in activities for profit and not for charity. The assessee has not furnished fee structure for various courses. The case laws on which the counsel of the assessee has placed reliance are distinguishable on facts. In the case of Chief Commissioner of Income Tax v. St. Peter’s Educational Society (supra) the decision was rendered by the Hon’ble Apex Court is in context of provisions of section 10(23C)(vi) of the Act. It was not a case where registration under section 12AA was denied. The learned Department Representative further submitted that the decision rendered in the case of Visvesvaraya Technological University v. Assistant Commissioner of Income Tax (supra) supports the case of Department, the appeal of the assessee therein was dismissed by the Hon’ble Apex Court. The learned Department Representative prayed for dismissing the appeal of the assessee.

5. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also considered the documents and case laws on which the learned Counsel for the assessee has placed reliance. It is an undisputed fact that the assessee made first application for grant of registration under section 12AA on 1-6-2007 and the said application remained un-adjudicated till date. As per the provisions of section 12AA(2) of the Act, the order granting or refusing registration should be passed before the expiry of 6 months from the end of the month in which the application was received. It is a well settled law that if the application for grant of registration under section 12A is not disposed of within the stipulated time, it shall be deemed that the registration is granted to the assessee. Recently, the Hon’ble Apex Court in the case of Commissioner of Income Tax & Ors. v. Society for the Promotion of Education (supra) has reiterated this position.

6. The learned Counsel for the assessee has pointed that during the course of assessment proceedings for assessment years 2010-11 and 2011-12 it was brought to the notice of assessing officer that the assessee had made an application for grant of registration under section 12A on 1-6-2007 and the same has not been disposed of by the Commissioner of Income Tax. The assessing officer applying the ratio of purposive interpretation to the language of statute rendered in the case of Commissioner of Income Tax v. Anjum M.H. Ghaswala 252 ITR 1 (SC) treated the assessee as registered under section 12A and accepted the return filed by the assessee. Thus, it was accepted that deemed registration has been granted to the assessee.

7. The assessee made second application for grant of registration on 29-5-2013. The said application of the assessee was rejected by the Commissioner of Income Tax on 29-11-2013 on the ground that the assessee has not paid taxes on the surplus earned in the financial years 2009-10 and 2010-11.

8. At the time of grant of registration under section 12AA the Commissioner of Income Tax has to satisfy only about the genuineness of the activities and the objects of the trust. The Commissioner of Income Tax in the present case has erred in traveling beyond the scope of enquiry while considering the application of the assessee for grant of registration under section 12A of the Act. The assessment order of assessment year 2010-11 in the case of assessee was passed prior to the date of passing of the impugned order. It is clearly emanating from the said assessment order that the first application of the assessee for grant of registration under section 12A has not been decided. Therefore, deemed registration has been granted to the assessee. The Commissioner of Income Tax ignoring all these facts and the scope of enquiry has rejected the application of the assessee merely on the ground that the assessee has generated surplus of Rs. 50,32,296 in financial year 2009-10 and Rs. 66,47,645 in financial year 2010-11 i.e. relevant to assessment years 2010-11 and 2011-12, respectively. The Commissioner of Income Tax has further observed that the assessee has not paid taxes for the said assessment years. Since, the assessing officer had accepted that the assessee has been granted deemed registration under section 12AA and no demand was raised, there was no question of paying any taxes on the surplus generated by the assessee.

9. The Hon’ble Karnataka High Court in the case of Sanjeevamma Hanumanthe Gowda Charitable Trust v. Director of Income Tax (Exemptions) 285 ITR 327 has held :–

“6. …………..Having regard to the scheme of sections 11, 12 and 13 ultimately what the Commissioner has to look into is not the source of income to the trust but whether such income is applied for charitable or religious purposes. The satisfaction of the Commissioner should be regarding the application of the income of the trust for the aforesaid purposes which only entitles the assessee to claim exemption. For arriving at such satisfaction primarily he has to look at the object of the trust, when the same is reduced into writing in the form of trust deed. If on the date of the application the trust has received income from its property, then find out how the said income has been expended, and whether it can be said that the income is utilized towards charitable and religious purposes, i.e., towards the object of the trust. Therefore, for the purpose of registration under section 12AA of the Act, what the authorities have to satisfy is the genuineness of the activities of the trust or institution and how the income derived from the trust property is applied to charitable or religious purpose and not the nature of the activity by which the income was derived by the trust.”

Thus, in view of the facts of the case and law laid down in the case of Sanjeevamma Hanumanthe Gowda Charitable Trust v. Director of Income Tax (Exemptions) (supra) we are of the considered opinion that the Commissioner of Income Tax has erred in rejecting the application of the assessee by merely referring to the quantum of surplus generated by the assessee during the course of charitable activities being carried out.

10. The Hon’ble Jurisdictional High Court in the case of Director of Income Tax (Exemption) v. M/s. Lala Lajpatrai Memorial Trust (supra) has held :–

“16. It is well-settled principle of law that the test to determine as to what would be a charitable purpose within the meaning of section 2 (15) of the Act, is to ascertain what is the dominant object of the activity; whether it is to carry out a charitable purpose or to earn profit. If the pre-dominant object is to carryout a charitable purpose and not to earn profit the purpose would not lose its charitable character merely because the some profit arises from the activity. (See CIT Andhra Pradesh v. APSRTC Hyderabad (1986) 2 SCC 391).”

11. Deemed registration has already been granted to the assessee in view of the fact that the original application made by the assessee was not disposed of by the Commissioner of Income Tax. The Commissioner of Income Tax while considering second application of the assessee for grant of registration should have examined the objects of the trust and the activities being carried out by the assessee to achieve those objects. The Commissioner of Income Tax misdirected the course of enquiry and concentrated on the surplus generated, leaving aside the objects and activities carried out by the assessee. Generation of surplus while carrying out charitable activities would not disentitle the assessee for registration under section 12A of the Act. In view of the facts of the case and the well settled law discussed above, we set aside the impugned order and direct the Commissioner of Income Tax to grant registration under section 12AA of the Act to the assessee.

12. In the result, the appeal of the assessee is allowed.

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Category : Income Tax (25557)
Type : Judiciary (10310)
Tags : ITAT Judgments (4643) section 12a (71) Section 12AA (88)

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