IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH ` D', NEW DELHI)
BEFORE SHRI G. C. GUPTA, HON'BLE VICE PRESIDENT
AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
I.T.A. No.6251 /Del/2013
Assessment year :
J K Education Samiti, Vs. CIT, Rohtak
JKR Public School,
Gudha Road,
Gohana 131301
GIR / PAN:
(Appellant) (Respondent)
Appellant by : Shri Ved Jain, CA
Respondent by : Ms. Sulekha Verma, CIT DR
Date of hearing : 12.05.2015
Date of pronouncement :_____________
ORDER
PER T.S. KAPOOR, AM:
This is an appeal filed by assessee against the refusal for granting
registration u/s 12A(1)(aa) of the I. T. Act, 1961. The assessee has taken six
grounds of appeal however the crux of grievance of assessee is the refusal of
CIT for granting registration u/s 12A(1)(aa).
2. The brief facts of the case are that the assessee is a society registered
under the Societies Registration Act and the society was registered vide
certificate dated 24.08.2000. The aims and objects as noted in the amended
constitution of the society we..f. 15.06.2010 as placed in paper book page 3
onwards, is to run schools beside other allied objects. Ld. A.R. at the outset
submitted that application for registration u/s 12A(1)(aa) was duly filed in
2 ITA No.6251/Del/2013
form 10A along with audited accounts for the past 3 years. However, Ld.
CIT has refused to grant registration on the basis that objects were not
charitable in nature and further holding that the assessee was charging hefty
fees and therefore, was not making any charity and instead was earning huge
profits. In this respect, Ld. A.R. took us to a copy of audited accounts for
the years ended 2010-11 to 2012-13 placed in paper book pages 33-77 and
invited our attention to the fact that assessee was not earning huge profits
and CIT has considered gross receipts onlywhereas the net profits earned by
the assessee were marginal at Rs.19479/-, Rs.4,15,579/- and Rs.5,43,905/-
respectively in the year ending 31.03.2010, 31.03.2011 and 31.03.2012. He
further submitted that such profits earned by the assessee were re-invested in
the school in the form of additional fixed assets which itself was a charitable
purpose. Ld. A.R. invited our attention to various replies filed by it during
proceedings before CIT and highlighted that all the queries raised by the
Commissioner were duly replied to and original certificate of registration of
society was also produced for his verification. Ld. A.R. submitted that the
issue is duly covered in favour of assessee as various Hon'ble High Courts
has held that at the time of registration, the commissioner has to examine the
objects of the society and if the objects of the society are found to be
charitable in nature then he is bound to grant registration under the Act. In
this respect, he invited our attention to various case laws as placed in paper
book pages 1-83. Our specific attention was invited to Hon'ble Supreme
Court order in the case of Queen's Educational Society vs CIT 275 CTR 449
placed at paper book page 4-15. Ld. A.R. submitted that Hon'ble Supreme
Court has settled the issue regarding registration u/s 12AA reversing the
order of Uttarakhand High Court. Ld. A.R. submitted that the
3 ITA No.6251/Del/2013
Commissioner had raised objection that unsecured loans were not confirmed
whereas confirmation from all unsecured lenders were filed vide letter dated
29.04.2013 as placed in paper book page 20.
3. Ld. D.R. on the other hand submitted that the Commissioner is
empowered to refuse registration where he finds that the activities were not
genuine. In this respect, she submitted that observations of CIT are very
important wherein he has raised certain important objection regarding
charging of hefty fees and regarding the explanation and source of unsecured
loans obtained by assessee. Moreover, she argued that assessee has placed
amended constitution and original has not been filed and examination of
original constitution is very important in this case. Ld. D.R. in this respect
filed a copy of judgement of Hon'ble High Court of Uttarakhand in the case
of National Institute of Aeronautical Engineering Educational Society
reported in 181 Taxman 205 (Uttaranchal) and submitted that the facts in the
above noted case as decided by Hon'ble High Court are peri-materia with
the facts in the present case and therefore, following the above said decision
of Hon'ble High Court, appeal filed by assessee needs to be dismissed.
4. Ld. A.R. immediately interrupted and invited our attention to the
judgement of Hon'ble Supreme Court in the case of Queens' Educational
Society 275 CTR 449placed at pages 4-15 of the paper book and submitted
that the findings of Hon'ble High Court in the case law as relied upon by Ld.
D.R. has been reversed by Hon'ble Supreme Court in this case. Ld. D.R.
interrupted and argued that the said judgement of Hon'ble Supreme Court is
with respect to exemption u/s 10(23C)(iiiad) of I. T. Act, 1961 whereas the
present case is with respect to registration u/s 12AA which deals with
exemption u/s 11 and therefore submitted that the case law cited by Ld. A.R.
is not comparable. Ld. A.R. submitted that u/s 10(23C)(iiiad) the exemption
4 ITA No.6251/Del/2013
is allowed to institutions where the turnover is less than Rs.1 crores and
where the turnover exceeds Rs. One crore, the exemption is available u/s 11
and 12 subject to registration u/s 12AA. He submitted that though the case
law of Queens' Educational society is with respect to section 10(23C)(iiiad)
but the Hon'ble Apex Court has held that it is difficult for an institution to
carry out an activity in such a way that no profit accrues to the institution
and has further held that mere earning of profits in the course of charitable
activities cannot be a reason to deny registration. Therefore, he argued that
the ratio of Hon'ble Supreme Court decision is squarely applicable to the
facts of the present case.
5. We have heard rival parties and have gone through the material placed
on record. We find that Section 12AA deals with the procedure for
registration which inter alia provides that on an application filed by assessee,
the Commissioner of Income Tax will make certain queries as he may deem
necessary in this respect and after getting satisfied about the objects of the
society/institution and the genuineness of activities, he shall pass an order in
writing registering the institution or on non satisfaction, refusing the
registration thereof as the case may be. However, before passing order for
refusal of registration, the assessee will be provided reasonable opportunity
of being heard. Therefore, from the above provision of law, we find that at
the time of registration u/s 12AA, the Commissioner is only required to
examine the objects of the society / institution as well as genuineness of
activities of the assessee and if he finds that the objects of the society are
charitable, and the activities as stated in the object clause of the society are
being carried out, then he is bound to grant registration u/s 12AA of the Act.
Hon'ble High Court of Uttarakhand as relied upon by Ld. D.R. in the case of
CIT VS National Institute of Aeronautics and Education 181 Taxman 205
5 ITA No.6251/Del/2013
has held that where the assessee was earning profits by charging hefty fees,
the assessee cannot be said to be engaged in charitable activities and was not
eligible for registration u/s 12AA of the Act. However, the Hon'ble
Supreme Court in the case of Queens' Educational Society Vs CIT 245 CTR
449 has held that mere earning of profit cannot be the reason for not
allowing registration under the provisions of Section 12AA. The findings of
Hon'ble Supreme Court as contained in para 19 are reproduced below:
"It is clear, therefore, that the Uttarakhand High Court has erred by
quoting a non-existent passage from an applicable judgment, namely,
Aditanar and quoting a portion of a property tax judgment which
expressly stated at rulings arising out of the Income Tax Act would
not be applicable. Quite apart from this, it also went on to further
quote from a portion of the said property tax judgment which was
rendered in the context of whether an educational society is supported
wholly or in part by voluntary contributions, something which is
completely foreign to Section 10(23C) (iiiad). The final conclusion
that if a surplus is made by an educational society and ploughed back
to construct its own premises would fall foul of section 10(23C) is to
ignore the language of the Sec 'on and to ignore the tests laid down in
the Surat Art Silk Cloth case, Aditanar case and the American Hotel
and Lodging case. It is clear that when a surplus is ploughed back for
educational purposes, the educational institution exists solely for
educational purposes and not for purposes of profit. In fact, in
S.RM.M.CT.M. Tiruppani Trust v. Commissioner of Income Tax,
(1998) 2 SCC 584, this Court in the context of benefit claimed under
Section 11 of the Act held"
6. Though, the above findings of Hon'ble Supreme Court are with
reference to Section 10(23C)(iiiad) and not in respect of Section 11 and 12
yet the ratio of decision is that mere earning of profit in the course of
carrying out charitable activities cannot be a reason for not granting
registration u/s 12AA of the Act.
6 ITA No.6251/Del/2013
7. Hon'ble Punjab & Haryana High Court in the case of CIT Bhatinda
Vs Baba Deep Singh Educational Society vide order dated 13.10.2011 has
held that the jurisdiction of the Commissioner at the stage of processing
application u/s 12AA of the Act is to examine the genuineness of the objects
of the Trust, whether they are genuine and in consonance with the objects of
the trust or institution and where education is being imparted as per the rules
and the factum of the establishment and running of schools is not disputed,
the same was a genuine activity and the enquiry regarding genuineness of
the activities cannot be stretched beyond this. The relevant findings of
Punjab and Haryana High Court are reproduced as under:
"2. The respondent-society applied for registration under Section
12AA of the Income Tax Act, 1961 (hereinafter referred to as "the.
Act") on 31.3.2009. The said application was declined by the
Commissioner of Income Tax, Bathinda (for short "the CIT") vide
order dated 25.9.2009. The CIT came to', the conclusion after
examining the income and expenditure and the balance sheet for the
period ending on 31.3.2006, 31.03.2007 and 31.3.2008 that the
society had received donations and the capacity of donors and
genuineness of transactions have not been explained. The CIT while
noticing that society was running a Polytechnic College further took
into consideration that the society was earning profits for the last two
year and had claimed exemption under Section 10(23C) of the Act.
The reasons to switch over to Section 11 of the Act remained
unexplained for claiming exemption under Section 12AA of the Act
and while taking into consideration Section 2 (15) of the Act the CIT
came to the conclusion that since the society was charging building
fund, development fund, sports fund and transportation costs etc., the
same could not be termed as charitable activity by any definition.
3. The society preferred an appeal before the Income Tax Appellate
Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as "the
Tribunal") which has allowed the appeal of the society and has set
aside the order passed by the CIT and directed that registration
applied for by the appellant under Section 12AA of the Act be granted.
The present appeal is directed against the said order and the
following questions of law have been formulated by the revenue:-
7 ITA No.6251/Del/2013
"1. Whether, in the facts and circumstances of the case, the Id. ITA T
was right in law to restrict the powers of the CIT for making the
enquiries u/s 12AA(a) of the Act despite the fact that the said section
provides that the CIT can make such enquiries as he may deem
necessary in this behalf.
2. Whether, in the facts and circumstances of the case the Id. ITA T
was right in law in granting registration to the assessee Trust when no
work of relief to the poor in the field of education was done as per
definition of "Charitable Purposes" provided u/s 2(15) of the Act."
4. The Tribunal while allowing the appeal has noticed at
Memorandum of Association and the objects of the society was to do
charitable work, projects and activities relating to education which
have not been considered while declining the application under
Section 12AA of the Act. It was further held that the CIT should have
only seen the genuineness of the activities of the society and circular
NO.11/2008 dated 19.12.2008 was also referred that the provisions of
Section 2(15) of the Act are not applicable to a society. Accordingly, it
was held that nature and scope at the stage of grant of registration
under Section 12AA of the Act is to only regarding the objects of the
society. The Tribunal also distinguished the provisions of Sections
10(23C) and 12AA of the Act and scope of the said sections and held
that it was open to the revenue authorities while processing the return
of the income of those assessees to examine their claim under Sections
11 and 13 of the Act and give such treatment to those societies as
warranted by the facts of the case. The power of the revenue
authorities to cancel registration under Section 12AA (3) of the Act
was also taken into consideration on the ground that same can be
resorted to if the Commissioner is satisfied that the activity of such
society or institution are not genuine or are not being carried out in
accordance with the objects of the society/institution.
5. The power of the CIT regarding the scope of Section 12AA of the
Act has been considered by this Court in the order dated 5.10.2011
passed in CIT Vs. Surya Educational & Charitable Trust [2011] 203
Taxman 53/15 taxmann.com 123 (Punj. & Har.) and it has been held
that Section 12AA of the Act, requires satisfaction in respect of the
genuineness of the activities of the Trust, which includes the activities
8 ITA No.6251/Del/2013
which the Trust was undertaking at present and also which it may
contemplate to undertake. The insertion of Sub Section 3 to section
12AA of the Act regarding the powers of the Commissioner to cancel
the registration if the activities of the trust are not carried out in
accordance with such objects was also noticed.
6. The Allahabad High Court in CIT Vs. Red Rose School [2007] 163
Taxman 19 has held that the jurisdiction of the Commissioner at the
stage of processing application under Section 12AA of the Act is
limited regarding whether the activities are genuine and in
consonance with the objects of the trust or institution and where
education is being imparted as per the rules and the factum of the
establishment and running of schools is not disputed the same was a
genuine activity and the enquiry regarding genuineness of the
activities cannot be stretched beyond this.
7. In view of above facts and circumstances, it would be clear that
respondent-society which was admittedly running a Polytechnic
90llege and the activities were interwoven for furthering the projects
and activities pertaining to education, the Tribunal rightly directed
that registration should be granted to the respondent- society with the
rider that the same could always be cancelled if it came to the notice
of the CIT that the society was not carrying on the activities as per its
objects. The Commissioner while processing the application under
Section' 12AA of the Act was not to act as an Assessing Authority and
thus, the Tribunal has rightly allowed the appeal filed by the society
In the facts and circumstances of the present case.
Accordingly, no substantial question of law as contended in the
present appeal arises for determination by this Court and the order
dated 31.3.2010 passed by the Tribunal is upheld. Consequently, the
appeal is dismissed."
8. Similarly, Hon'ble Delhi High Court in the case of CIT Vs O.P.Jindal
Global University, I.T.A. No. 190/2011 and 285/2012 dated 2.5.2013, under
similar circumstances, has held as under:
"Therefore, 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 for application of
income is yet to arrive i.e. when such Trusts or institution files its
return. Therefore, we find that the judgement referred to by the
9 ITA No.6251/Del/2013
Learned Counsel for the appellants are not applicable to the facts of
the present case arising out of the question of registration of the Trust
and not of assessment."
9. It is an undisputed fact that assessee is running educational institution
as is apparent from the assessment order of earlier years placed at paper
book pages 124-126 and moreover the object clause as placed in paper book
pages 3-14 suggests that assessee is running school for educational purposes.
The argument of Ld. D.R. that original constitution needs to be examined
with respect to objects clause does not hold much force as A.O. in
assessment orders of earlier years (as placed in paper book pages 124-126)
has noted that society was running a school. In view of above facts and
circumstances and in view of the judgements as noted above, we direct the
Commissioner to allow registration u/s 12AA of the Act. The A.O. during
assessment proceedings will however be entitled to examine the books of
accounts of assessee with a view to examine any violation of the Act and can
disallow exemption u/s 11 if anything adverse is found.
10. In view of above, appeal filed by assessee is allowed.
11. Order pronounced in the open court on 20th May, 2015.
Sd./- Sd./-
( G. C. GUPTA) (T.S. KAPOOR)
VICE PRESIDENT ACCOUNTANT MEMBER
th
Date: 20 May, 2015
Sp
Copy forwarded to:-
1. The appellant
2. The respondent
3. The CIT
4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.
True copy. By Order
(ITAT, New Delhi).
10 ITA No.6251/Del/2013
S.No. Details Date Initials Designation
1 Draft dictated on 13/5 Sr. PS/PS
2 Draft placed before author 14/5 Sr. PS/PS
Draft proposed & placed before the
3 JM/AM
Second Member
Draft discussed/approved by Second
4 AM/AM
Member
5 Approved Draft comes to the Sr. PS/PS 20/5/15 Sr. PS/PS
6 Kept for pronouncement 20/5 Sr. PS/PS
7 File sent to Bench Clerk 20/5 Sr. PS/PS
Date on which the file goes to Head
8
Clerk
9 Date on which file goes to A.R.
10 Date of Dispatch of order
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