M/S MANAGING COMMITTEE SWAMI PREMANAND MAHAVIDALYA,HOSHIARPUR vs. COMMISSIONER OF INCOME TAX (EXEMPTION),, CHANDIGARH

Per, Dr. M.L. Meena, A.M. :

This appeal emanates from the order of ld. CIT(E), Chandigarh,

dated 30.05.2017, where the appellant society has challenged the

I.T.A No.476/Asr/2017 rejection of its application seeking registration under section 12AA of the

Act.

The facts as per record are that the assessee society is an ongoing 2.

entity, being in operation since 01.01.1971. It has filed an application in

Form No. 10A in the office of the CIT(E) on 18.11.2016 seeking registration u/s 12AA of the Income Tax Act, 1961(In short “the Act”).

The stated aims and objects of the society are toimpart quality

education to both boys &girls without any distinction of caste or creed,

in accordance with the syllabus of the Punjab University, Chandigarh, as

may be prescribed from time to time, or the preuniversity three year degree course and Two year Postgraduate course, in the faculty of Arts,

Science, Commerce, Computer Science or other courses; to start,

establish, take-overand run all kind of schools and colleges/ chain of

schools or colleges both residential and no-residential to impart quality

education; to develop mind as well as physique of the children through

I.T.A No.476/Asr/2017 games and extra-curricular activities and create personality and

leadership traits in the children; to promulgate and to spread the

teaching of eminent personalities and develop active habits and produce

intelligent and good citizens; to organize cultural, social and sports meet

at various levels to promote national integration and produce good

sportsmen; to develop land for promoting club facilities recreational and

sports facilities arid for any other purpose; all the incomes, earnings,

movable and immovable properties of the college/school shall be solely

utilized and applied towards the promotion of its aim and objects only

as set forth in the memorandum of Association and no portion

thereof shall be paid ortransferred by way of dividends, profits, bonus

or in any manner to the present or past members of the Managing

committee or any person claiming through them. No members shall be

any personal claim on the personal properties of the society ormake

anyprofit by virtue of his membership. The Ld. CIT(E) rejected

registration u/s 12AA by observing as under:

I.T.A No.476/Asr/2017 3. With this background of the applicant it would be pertinent to point out the extant provisions guiding the grant of exemptions under section 12A. The provisions of section of 12AA are as under: The [Principal Commissioner or] Commissioner, on receipt of an application for registration of a society or institution made under clause (a) [or clause (aa) of sub-section (1)] of section 12A shall (a) Call for such documents or information from the society or institution as hethinks necessary in order to satisfy himself about the genuineness of activities ofthe society or institution and may also make such inquiries as he may deem necessan; in this behalf and (b) After satisfying himself about the objects of the society or institution and thegenuineness of its activities, he- (i) shall pass an order in writing registering tire society or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the society or institution. 4. The provisions necessitate examination of two basic conditions for grant of registration u/s 12AA. The same include, apart from the examination of objects of the society, satisfaction of the competent authority in respect of genuineness of activities as well particularly when the applicant is an ongoing entity. In additionit would also be relevant for the competent authority to come to the conclusion, on the basis of documents, accounts, post history etc. filed for the purpose, whether h&society deserves registration. The registration of a charitable trust/ society is not an idle formality [Anand MargaPracharakaSaughaVs CIT (1996) 218 ITR 254 (Cal)] 5. In order to appraise the activities and whether the same' were in sync with the stated objects an opportunity of personal hearing was accorded on, 09.05.2017 and the applicant was requested to file, the following details/ clarifications: i. Details of property vested in the society, as envisaged u/s 11 of the I. T. Act, income from which is sought to be exempted.

I.T.A No.476/Asr/2017 ii. Details of voluntary contributions received fry the society, as envisaged u/s 12 of the I.T. Act and whether any specific directions have been received by the persons making voluntary contributions. iii.The originals of MOA/Bye-laws of the society along with the Registration Certificate. iv. The copies of Bank statements through which activities are being propagated. The receipts and the different items of expenditure that are being claimed. v.The complete details of the Donations received or intended to be received and documentary evidence as regards to Grants received. vi.Copies of the I. T Returns for the last three assessment years i.e. A. Y. 2014-15 to A.Y. 201617 alongwith a note regarding any kind of exemptions under I. T. Act having claimed earlier during any of the past years. vii. Whether the applications for registration has been filed for the first time. The fate of the earlier application along with copy of the order. viii.If any donation under FCRA had been received, the relevant details of it. The copy of the return for FCRA and the copy of specified bank account (if any). ix. The details of corpus fund and whether the same are with any written specific directions. x.The details regarding charitable activities being conducted by the society. Clarification regarding as to which specific limb under section u/s 2(15) of the I.T. Act is being pursued. xi.The details regarding number of students class-wise for the last three years.

I.T.A No.476/Asr/2017 xii. Explanation regarding the section under which the earlier exemption has been claimed. Why there is a need for seeking exemption u/s 12AA where natural progression should have been claims for approval under section 10(23C) being an educational society. xiii. Elaboration about how the society is now claiming its charitable intent after 37years of its creation and operating without having registration under this section? Why is there sudden need for seeking exemption. xiv. The details of salary paid during the last three years and whether the same are guided by TDS provisions or not? . xv. Provide the copy of financial statements for the last three financial years i.e. from F.Y. 2013-14 t0 F.Y. 2015-16. xvi. The note on activities of the society. xvii.Taxability in the case along with full ITR with computation for A.Y. 2014-15 t0 2016-17. xviii. Explanation of the nature of various funds reflected in Balance Sheet as per section 11(6)) of IT Act. 6. In response Sh. Sunil Jain attended on 09.05.2017 and filed reply to the above stated show-cause letter. In the said reply, query regarding various funds were raised and Sh. Vikram Aggarwal, C.A. appeared and filed the reply on 12.05.2017. Further, a few more queries were raised to the applicant on 22.05.2017 regarding the applicant's contentions that its case was covered by section 10(23C)(iiiab) and the filing of application by the applicant for registration after nearly 46 years of itsexistence. On24.05.2017, Sh. Sunil Jain, Professor and Sh. Gurdyal Singh, Superintendent Swami PremanandMahavidyalaya attended and filed reply to the queries raised on 22.05.2017. In continuation to the previous queries posed to the applicant, some more queries based on the reply of the applicant dated 23.05.2017 were posed to the applicant through E-mail, reply to. which was received on 29.05.2017.

I.T.A No.476/Asr/2017 7. As per the reply submitted by the applicant, the society is running a college which is affiliated to Punjab University, Chandigarh and offers graduate and post graduate courses and a collegiate school which is affiliated to Punjab Education Board. It is also submitted that the college run by society is a government aided and financed institution and has been availing the exemption under section 10(23C)(iiiab) of the Income Tax Act, 1961. Further, the society perceives that the government grants are likely to decline in the coming years due to deficit in the revenue of the state government, it has applied for registration under section 12A of the Act. 8. Perusal of the reply submitted by the applicant reveals that the society was established on 01.01.1971 and has claimed to be existing solely for educational and charitable purposes. The society has filed its Income Tax Return for the first time in A.Y. 2016-17 showing exempt income of Rs. 7,59,62,719/-. The copies of financial statements of last three years reveal the following details:

F.Y. Gross Receipts Net Surplus (Rs) Govt. Grants (Rs) Received (Rs) 2013-14 7,54,86,375/- 1,40,85,291/- 3,52,29,445/-(46.7%) 2014-15 5,62,559,055/- (-)27,30,653/- 1,71,45,413/-(30.5%)

2015-16 7,59,62,719/- (-)41,97,005/- 4,17,58,543/-(55%)

The society has claimed itself to be an institution substantially financed by the Government and therefore has not filed its return of income “ As per Rule 2BBB (inserted w.e.f 12 Dec. 2014) of Income tax Rules 1962, for the purses of sub- clauses (iiiab) and (iiiac) of clause (23C)of section 10, any university or other educational institution, hospital or other intitutionreferred therein, shall be considered as being substantially financed by the Government for any previous year, if the Government grant to such university or other educational institution, hospital or other institution exceeds fifty percent of the total receipts including any voluntary contributions, of such university or other educational institution, hospital or other institution, as the case may be, during the relevant previous year." This is a

I.T.A No.476/Asr/2017 clarificatory amendment to reiterate the meaning of substantially financed. In the present case, as evident from the table, the grants exceed fifty percent of the total receipts only during FY. 2015-16. The earlier claims would separately be examined by the assessing officer. 9. In the instant case, the applicant has not filed its return of income except for A.Y. 2016-17 on the grounds that its income was exempt under section 10(23C)(iiiab) of the Act. The section 10(23C)(iiiab) of the Act mandates that the exemption claiming entity must be wholly or substantially financed by the Government, which in this case seem contradictory to the financial statements provided by the applicant where government grants are exceeding fifty percent mark in only one financial year. Moreover it is also an established dictum that benefits are allowable only when claims to that effect are made. 10. The applicant society has stated that it has not been filing income tax returns as it was claiming exemption under section 10(23C)(iiiab) of the Act and after the amendment vide clause no. 34 of the Finance Act, 2015 to section 139 (4C)(e) it was made mandatory to file the returns of income: Now, when filing the return of income has been made mandatory, the applicant society has proceeded to seek registration under section 12A of the Act. The reasons given by the applicant for seeking registration u/ s 12A are not comprehensible. It has stated that the government grants to the society are likely to decline in future and based on this sole reason the society has sought registration under section 12A. Evidently, the obligation that the entities claiming exemption under section 10(23C)(iiiab) has to file the returns of income has compelled the society, after 46 years of its existence, to seek registration under section 12AA. Registration, as is commonly understood, is a thing to be done at the initial stages. No other Act that entails registration envisages the same to be done after a lapse of 46 years. Moreover the provision of registration cannot be invoked after attaining a receipt base of around 7.5 crores and keeping the same way from any kind of scrutiny in the past. 11. In view of the above, the applicant society's quest for registration is not held to be tenable. This, however, shall not impinge on the exemption of

I.T.A No.476/Asr/2017 the applicant or otherwise if it files a return u/s 10(23C)(iiiab). The application for grant of registration u/s 12AA is rejected. 3. The Ld. AR for the assessee society submitted thatthe Ld. CIT(E) has

erred in law and on facts in rejecting registration under section 12AA of

the Act in arbitrary manner for the reason that no returns were being

filed which was not the requirement for claiming registration under

section 12 AA and as such the order is arbitrary and unjustified and that

such refused only on the basis of suspicion, conjectures and surmises in

view of the various unfounded findings as enumerated in the body of the

order are not permitted under the Law and as such the impugned order

refusing registration is illegal, arbitrary and unjustified.

an educational society, running a college providing various degree

courses and a collegiate school providing higher secondary education

(Classes 11th and 12th grade) to its students. It is admitted fact on record

that the College is affiliated to Panjab University, Chandigarh while the

I.T.A No.476/Asr/2017 collegiate school is affiliated to Punjab School Education Board. The

society had been claiming exemption u/s 10(23C)(iiiab). In compliance to

the query letters issued by the CIT(E), it was submitted that the assessee

society was imparting education to students as reproduced the aims and

objects of the Society in Para 2 of the impugned order which have not

been rebutted. Thus,the objects being imparting of education stands

accepted APB, Pg. 34-37, 39-40 and 42-46.

The Ld. AR contended that the CIT(E) mere observation that the 5.

assessee was not filing returns in earlier years, could not be a reason for

assumption that the assessee societies activities were not genuine. It was

submitted that filing of returns became mandatory only after the

amendment vide clause 34 of the Finance Act 2015 to Section 139(4C)(e)

and as such the returns were filed from AY 2016-17. The assessee was all

along maintaining duly audited accounts which were mandatory as per

law. In support, he placed reliance on the few decisions cited below:

I.T.A No.476/Asr/2017 1. CIT v Shri Shirdi Sai Darbar Charitable Trust 395 ITR 567(P & H), Pages 1-4. 2. CIT V Red Rose School, 163 Taxmann 19(All) Pages 5-15. 3. Arya Shiksha Mandal KMV Campus v CIT, ITA 522/Asr/2016 Pages 53-63. 4. Labana Sikh education society v CIT, 184 TTJ 433(Chd) Pages 27-32. 5. Kai Shri MahadevraoNaykudeDnyanvikasProbhodhini Trust, 94 DTR 353(Pune) pages 33-40. 6. CIT v Beant College of Engineering & Technology 265 Taxman 449(P&H)

citations relied in support. It is admitted fact that the main Object of the

applicant trust are to impart education by way of running a college

providing various degree courses and a collegiate school providing higher secondary education (Classes 11th and 12th grade) to its studentsamong the

society without any caste, creed and Colour. 8. It is admitted fact on record that the College is affiliated to Panjab

University, Chandigarh while the collegiate school is affiliated to Punjab

School Education Board. The observation of the CIT(E) that the assessee

I.T.A No.476/Asr/2017 society had received grants in excess 50% of total receipts only in FY

2015-16 and the earlier claims would separately be examined by the

Assessing Officer was unwarranted at this stage, becausesuch an

observation has no adverse bearing on the matter of grant of registration

u/s 12AA for which the assessee had filed an separate application in

prescribed formatted with the requisite details and had further complied

with the queries raised during the proceedings u/s 12A of the Act.

which reads as under:

[Percentage of Government grant for considering university, hospital etc. as substantially financed by the Government for the purposes of clause (23C) of section 10. 2BBB. For the purposes of sub-clauses (iiiab) and (iiiac) of clause (23C) of section 10, any university or other educational institution, hospital or other institution referred therein, shall be considered as being substantially financed by the Government for any previous year, if the Government grant to such university or other educational institution, hospital or other institution exceeds fifty per cent of the total receipts including any voluntary contributions, of such university or other educational institution, hospital or other institution, as the case may be, during the relevant previous year. ]

I.T.A No.476/Asr/2017 The Ld. AR argued that before the insertion of this rule, in the 10.

absence of specified percentage to be considered as substantially

financed, the High Courts have stated various percentages which would

be considered as being substantially financed. He relied on the decision of Hon’ble Karnataka High Court,in case of ‘Director of Income-

tax (Exemptions) Vs. DhamapakashaRajakaryaPrasakta B.M.

Sreenivasaiah Educational Trust’, [2015] 59 taxmann.com 33

(Karnataka).

Head note of the decision is reproduced below:

Section 10(23C) of the Income-tax Act, 1961 - Educational institutions (Institutions substantially financed by Government) - Assessment years 2003-04 and 2005-06 - Assessee was running a number of educational institutions - Assessing Officer declined to grant relief claimed by assessee under section 10(23C)(iiiab) - Material on record disclosed that Government had financed assessee-institutions and its share was 25 per cent - Further, it was not existing for sake of profit-making - Whether when 25 per cent of finance to assessee-institutions flowed from Government, it constituted substantial finance and it satisfied all legal requirements provided under section 10(23C)(iiiab) - Whether, therefore, assessee would be entitled to benefit provided under section

I.T.A No.476/Asr/2017 10(23C)(iiiab) - Held, yes[Para 5]

Section 10(23C) of the Income-tax Act, 1961 - Educational institutions (Sub-clause (iiiab)) - Assessment year 2007-08 - Assessee-society filed its return claiming exemption under section 10(23C)(iiiab) - Revenue authorities rejected assessee's claim - Tribunal found that there had been financing by Government when examined on individual institution basis to be ranging from 41 per cent to 82 per cent whereas when percentage was taken for society as a whole then it came to 44.52 per cent - Tribunal thus taking a view that Government was substantially financing and interested in management of assessee, allowed its claim for exemption - Whether since no perversity was pointed out by revenue in findings recorded by Tribunal, same did not require any interference - Held, yes [Paras 11 and 13] 12. Thus, there was no hard and fast rule as to what was the specific percentage being adopted for the purpose of “substantially financed”

I.T.A No.476/Asr/2017 till the insertion of Rule 2BBB inserted w.e.f. AY 12/12/2014.

grant of registration u/s 12AA and that of 10(23C) (iiiab). As such, the

scope of enquiry before grant of registration u/s 12AA was limited to

the objects being charitable in nature and activities were genuine.

Once the objects have been accepted to be educational, the

Commissioner is required to see that the activities are genuine and in

consonance with the objects at the time of grant of registration as held by the Hon’ble Jurisdictional High court in case of “CIT v Shri Shirdi Sai Darbar Charitable Trust”, Supra and Allahabad High Court in case of “CIT V Red Rose School”,(Supra). In CIT V Red Rose School, it was that-

"Section 12AA, which lays down the procedure for registration, does not speak anywhere that the Commissioner, while considering the application for registration, shall also see that the income derived by the trust or the institution is either not being spent for charitable purpose or such institution is earning profit. The language used in the section only requires that

I.T.A No.476/Asr/2017 activities of the trust or the institution must be genuine, which accordingly would mean that they are in consonance with the objects of the trust/institution, and are not mere camouflage but are real, pure and sincere and not against the proposed objects. The profit earning or misuse of the income derived by charitable institution from its charitable activities may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trust or the institution. [Para 34]

10(23C)(iiiab) and had applied for registration u/s 12A as it was

expecting a decline in Government grants. The assessee is free to avail

registration under any alternative provision if more than one

alternative were available, so it decided to apply for registration u/s

12A under the provisions of law as per principle approved by Jurisdictional High court in case of“CIT v Beant College of Engineering & Technology”, 265 Taxman 449(P&H), and same preposition followed by

I.T.A No.476/Asr/2017 the Coordinate Bench of ITAT, Amritsar Bench Amrisar, in case of “Arya Shiksha Mandal KMV Campus v CIT”, ITA 522/Asr/2016 Pages 53-63.

unsustainable and thus reversed. The Ld. CIT(E) is directed to grant

registration to the appellant forthwith, preferably within one month

time of furnishing copy of this order.

Order pronounced in the open court on 16/08/2021. Sd/- Sd/- (LALIET KUMAR) (DR. M.L. MEENA) JUDICIALMEMBER ACCOUNTANTMEMBER *doc* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT Sr. Private Secretary ITAT, Agra