M/S BABA BANDA BAHADUR MEMORIAL AND EDUCATIONAL SOCIETY,FARIDKOT vs. THE COMMISSIONER OF INCOME TAX (EXEMPTION), CHANDIGARH

Per Dr. M. L. Meena, AM:

This appeal of the assessee trust is directed against the order dated 30.12.2016 passed by the CIT(E), challenging rejection of its application seeking registration U/s 12AA of the Act.

.

2 I.T.A. No. 66/Asr/2017 “1. That the Ld. Commissioner of Income Tax (Exemptions) has erred in rejecting the application filed by the appellant society on Form No. 56D for grant of approval u/s 10(23C)(vi) of the Income Tax Act as per para 10 of his order.

3 I.T.A. No. 66/Asr/2017 6. That application for grant of approval u/s 10 (23C)(vi) has been rejected against the facts and circumstances.

4 I.T.A. No. 66/Asr/2017 availing exemption u/s 10(23C)(iiiad) on the income over expenditure earned during the past year and the same was not questioned even when the case of the concerned AY i.e., AY 2010-11 was assessed by the department u/sec 143(3) of the Act and no defect was pointed out by the department. He further submitted that in tabular form the CIT(E)’s reason of rejection of 4. its application and its contentions in tabular form as under.

Order of Worthy CIT(Ex.) Our Submissions

(i) The (i) The Worthy CIT Worthy CIT(Ex.), while (Ex.) has stated drawing this conclusion has that on Page totally overlooked the facts No. 3 in Para 7 of the case of the Assessee of the Society, firstly, imparting of impugned education is the main order that objective of the society as there is no stated the memorandum of mention of association vide point no. 1 & running any 2. (Copy of the school/college Memorandum of Association in the is forming part of the Paper Memorandum Book from Page 1 to 7). of Association Secondly, the main activity carried on by of the Society. the society is imparting education The Worthy through various schools, colleges and CIT(Ex.) also institutions is clearly evident from the relied upon the Balance Sheet and Income & judgment of Expenditure Account of the Assessee Hon’ble Punjab society of past many years duly filed & Haryana High before Worthy CIT(Ex.). (Copies of the Court in the Balance Sheets for AY 2013-14, 2014-15 case of & 2015-16 is forming part of the Paper

5 I.T.A. No. 66/Asr/2017 Pinegrove Book form Page no. 20 to 108). International Thirdly, the scope of inquiry is restricted Charitable Trust only to ascertain the genuineness of the in CWP No. activities of Assessee society. Once it 6031 of 2009. has been established that the Assessee Society is engaged in the activity of imparting education, it cannot be concluded that the Assessee Society does not exist for the purpose of imparting education when the Financial Statements are depicting a picture completely opposite to the conclusions of Worthy CIT(Ex.). Also, the complete list of all the institutions run by Assessee was filed before Worthy CIT(Ex.) along with the Balance Sheets and Income & Expenditure Account of each institution and consolidated Financial Statements as well. (ii) At the outset, your honour’s kind attention is invited to these points as recorded by Worthy CIT(Ex.) in the impugned order:  It is incorrect that no reply to the show cause notice dated 13.12.20106 was filed by the Assessee, whereas, the Assessee had duly filed the reply to the notice via email sent to the office of Worthy CIT(Ex.) on 20.12.2016 along with all the supporting documents as an attachment of the mail. (Evidence of filing reply to the notice via email is forming part of the Paper Book at page no.

6 I.T.A. No. 66/Asr/2017 19A)  Thereafter, the Assessee duly filed the consolidated accounts for the period under consideration alongwith the preceding two years were filed as attachment no.1 of the reply sent via mail (Placed on Page no. 19A of Paper (ii) The Worthy Book). CIT(Ex.) in Para 9 on page no. 4  Further, it is wrongly of the mentioned that the impugned Assessee had not filed any order referred explanation with regard to to show cause the inter unit transfers letter dated made by the society within 13.12.2016 the institutes supervised wherein certain and controlled by society details and itself, the assessee clarifications explained in point no. 4 of were asked for reply sent via mail (placed (copy of the on Page no. 19A of paper notice is book), it was duly clarified forming part of that: the paper book  all the institutions are from page no. 17 to page no. controlled and managed 18). Further to by the society and the the reply of the books of accounts of the Assessee, institutions are Worthy CIT(Ex.) consolidated into the quoted that: accounts of the society and the Return of “the applicant did not Income of the Society is produce the consolidated filed on the basis of the receipts and payments consolidated financials. account as asked for. Also  It is just like the branches there is no response provided by the Applicant of the Assessee Society on inter unit transfer of which are managing the

7 I.T.A. No. 66/Asr/2017 funds as well. To that different spheres of extent the genuineness of education for the activities of the applicant society. Therefore, it is a are not corroborated. It is case of single Assessee reiterated that the queries and the inter unit posed were very pertinent balances standing in one to examine what appeared or the other institution prima facie to be intra does not make any society and inter-unit difference since at the year end, the accounts machinations. One of the schools generating large are merged. surpluses without debiting  It is wrongly said that no salary is particularly stark. salary expense has been debited as vide point no. 5 of reply dated 13.12.2016, it was submitted that the teaching staff of BBB School of Nursing and BBB College of Nursing is same and therefore the salary of the staff is debited in the books of college instead of staff. Moreover, when the books of the institutes are consolidated at year end, it does not make any difference. Also, return of income is filed as per consolidated balance sheet. (Copy of the reply dated 13.12.2016, referred in the above paragraphs is forming part of the Paper Book at Page No. 19)

8 I.T.A. No. 66/Asr/2017 not an assessing authority and unless there is any specific defect in the application of the Assessee, the registration under section 12AA of the Act cannot be rejected. The defects as found by the CIT cannot be base for rejecting the application of the Assessee. 3. Further the following points are worth to consider: a) The CIT has not given any observation regarding the ongoing School/Colleges for past many years. b) The CIT has not given any comment regarding the imparting of education being the charitable activity and duly covered u/sec 2(15) of the Act. c) The CIT has not stated as to how the working of the Assessee Society is not a charitable activity. d) The CIT has not given any comment regarding the free education given to the students of the School/College. e) The CIT has not given any comment regarding the Assessment order passed by the department itself at Nil income u/sec 143(3) of the Act. f) The CIT has not given any comment regarding the working of the School/College. g) The CIT has not given any comment regarding any of the items of the Income and Expenditure A/c. The CIT has not doubted the payments as made by the Assessee in any of the year. h) So under such circumstances, the CIT is not correct in rejecting the application of the Assessee u/sec 12AA of the Act on some clerical defects without any defects in the aims and objects. 4. Thus, on the basis of above submissions, it is very much clear that the two major objections raised by the Worthy CIT(Ex.) as stated in Point 4(i) and

9 I.T.A. No. 66/Asr/2017 (ii) above are completely baseless and are not true as per the facts and documents placed before your Honor. 5. Reliance in this regard is being placed upon the following case laws wherein it has been held that declining the registration by reading the ancillary objects as its main objects as also on the basis of future of the assessee was only presumptuous and when nothing has been brought on record to prove that institution is involved in non-charitable activities, registration u/s 12AA cannot be denied. a) CIT(Exemption) vs. Shri Shirdi Sai Darbar Charitable Trust (Dharmshala), Barnala [2017] 81 taxmann.com 49 (Punjab and Haryana) (placed on Page no. 1-5 of judgment set) b) CIT vs. Surya Educational & Charitable Trust [2011] 15 taxmann.com 123 (Punjab and Haryana) (placed on Page no. 6-8 of judgment set) c) CIT vs. Baba Kartar Singh Dukki Educational Trust [2014] 42 taxmann.com 17 (Punjab & Haryana) (placed on Page no. 9-10 of judgment set) d) CIT vs. B.K.K Memorial Trust [2013] 29 taxmann.com 286 (Punjab and Haryana) (placed on Page no. 11-17 of judgment set) e) CIT vs. Niranjanbapu Education And Charitable Trust [2014] 52 taxmann.com 158 (Gujarat) f) Hardayal Charitable & Educational Trust vs. CIT [2013] 32 taxmann.com 341 (Allahabad) g) DIT(E Zzz vx.) vs. The North Indian Association 148 DTR 76 Bom HC (2017) (placed on Page no. 18-21 of judgment set) h) Society for Participatory Research in Asia vs. Income Tax Officer 47 CCH 0790 DelTrib (27.05.2016)

10 I.T.A. No. 66/Asr/2017 i) Saint Kabir Educational Trust vs CIT 41 DTR 27 Asr Trib(placed on Page no. 22-26 of judgment set) j) CIT vs. IILM Foundation Academy as reported in 389 ITR 148 order dated 16.09.2016 (placed on Page no. 27-32 of judgment set) k) CIT vs Baba Deep Singh Educational Society in ITA No. 881 of 2010 (P&H HC) (placed on Page no. 33-37 of judgment set) l) American Hotel and Lodging Association Educational Institute vs. CBDT 301 ITR 86(SC) m) Commissioner Of Income tax Vs. Mahasabha Gurukul Vidyapeeth Haryana (2010)326 ITR 25 (Pun) (placed on Page no. 38-39 of judgment set) n) Tishir Shiksha Prasar Samiti vs CIT in ITA No. 412/Agra/2011 order dated 18.05.2012 5. The Ld. CIT(DR) relied on the impugned order. He contended that the aims and objects mentioned at Para 4 of the MoA reads that the society is established to arrange social & religious programs, to organize cultural programs and to collect funds for public welfare schemes by issuing various schemes. These aims and object carried out by the society's were against its primary objective of education as claimed.

11 I.T.A. No. 66/Asr/2017 letter dated 13.12.2016 wherein certain details and clarifications were called for (APB, Pg,17-18). On the reply of the Assessee, the CIT(Ex.) stated that the applicant did not produce the consolidated receipts and payments account as asked for. Also, there was no response provided by the Applicant on inter unit transfer of funds as well. To that extent the genuineness of activities of the applicant are not corroborated. It is reiterated that the queries posed were very pertinent to examine what appeared prima facie to be intra society and inter-unit machinations. One of the schools generating large surpluses without debiting salary is particularly stark.

12 I.T.A. No. 66/Asr/2017 8. The Ld. AR again submitted that the finding recorded by the Ld. CIT(E) that no reply to the show cause notice dated 13.12.20106 was filed by the Assessee, is factually incorrect as the Assessee had duly filed the reply to the notice via email sent to the office of Worthy CIT(E) on 20.12.2016 along with all the supporting documents as an attachment of the mail. (APB, Pg.19A); that the Assessee duly filed the consolidated accounts for the period under consideration alongwith the preceding two years, as attachment no.1 of the reply sent via mail (APB, Pg. 19A) and that the assessee explained in point no. 4 of reply sent via mail (APB, Pg. 19A), that the inter unit fund transfers were made by the society within the institutes, supervised and controlled by society itself. He further explained that all the institutions are controlled and managed by the society, the books of accounts of the institutions are consolidated into the accounts of the society and the Return of Income of the Society is filed on the basis of such consolidated financials accounts; that there were branches of the Assessee Society which are managing the different spheres of education for the society and so it was a case of single Assessee and the inter unit balances standing in one or the other institution does not make any difference since at the year end, the accounts get merged. Regarding debiting of salary expense it was submitted that the teaching staff of BBB School of Nursing and BBB College of Nursing is same and therefore the salary of the staff is debited in the books of college instead of staff of school. Moreover, when the books of the institutes are consolidated at year end, it does not make any difference and also, return of income is filed as per consolidated balance sheet (APB, Pg. 19).

13 I.T.A. No. 66/Asr/2017 and thus to that extent the genuineness of activities of the applicant are not corroborated whereas the Ld. AR contended that the complete list of all the institutions run by Assessee was filed before Worthy CIT(E) along with the Balance Sheets and Income & Expenditure Account of each institution and consolidated Financial Statements of account through email. Thus, the order of Ld. CIT(E) refusing grant of registration u/s 12AA was passed without considering the details filed by the applicant society in compliance to the show cause notice. The Ld. AR contended that the finding recorded by the Ld. CIT(E) that no reply to the show cause notice dated 13.12.20106 was filed by the Assessee, is factually incorrect as the Assessee had duly filed reply to the notice via email sent to the office of Worthy CIT(E) on 20.12.2016 along with all the supporting documents as above. 10. From the MoA, we observe that the society was established to arrange social & religious programmes, to organize cultural programmes and to collect funds for public welfare schemes by issuing various schemes and not being existed for sole purpose of education as claimed. The finding of fact as recorded by the CIT(E) that Baba Banda Bahadur College of Nursing has shown an advance of 4.29 cr to the society and at the same time it has shown a liability of 1.29 cr from BBB school of Nursing and questioned the rationale for such intra-society transfers and that BBB School of Nursing has also advanced 2.81 cr to BBB MEM Society where the Income & Expenditure statement of the same school does not have any expenditure on salary etc. thereby allowing the unit to generate other expenditure required for running a school clearly point out to non-transparent accounting practices and unclear depiction of the activities, would require production of necessary books and statement of account to corroborate the charitable purpose of

14 I.T.A. No. 66/Asr/2017 activities to satisfy the object of imparting education as a charity and not profit earning.

15 I.T.A. No. 66/Asr/2017 The Hon’ble Jurisdictional of Punjab and Haryana High Court in the case of 13. “CIT-1, Chandigarh vs. Sri Guru Gorakh Nath Charitable Educational Society”, considering judgment of the Division Bench in the case of “Pinegrove International Charitable Trust (supra)”, had answered the question that Whether power of Commissioner to look into objects of society and genuineness of same could not be doubted when basis was of non-supply of information and as such it would be appropriate for Commissioner to undertake exercise afresh on basis of application which had been filed keeping in view material which could be produced by assessee and matter remanded back. Relevant para are extracted hereunder: “6. After hearing counsel for the parties, we are of the opinion that the Tribunal was not justified in allowing the appeal and issuing necessary direction and should have sent the matter back to the Commissioner for fresh enquiry. Admittedly, the factum of the additional information being asked for was never denied by the respondent-Society. In appeal, the assessee had only raised the issue as to whether the order of the Commissioner is arbitrary and unjustified and whether the activities of the Society did not qualify in the nature of charity and the finding had been based on suspicion and conjectures. The additional information being asked for, as such, was never controverted. It was not contended that the information had been supplied but was not taken into consideration. Under Section 12AA, the procedure for registration is prescribed, which reads as under: "12AA. Procedure for registration—(1) The Principal Commissioneror Commissioner, on receipt of an application for registration of a trust 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 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- (i) shall pass an order in writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or

16 I.T.A. No. 66/Asr/2017 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) of sub-section (1)] of section 12A. (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 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." 7. A perusal of the above section would go on to show that the Commissioner has to satisfy himself of the objects of the trust and the genuineness of the activities and after giving an opportunity of being heard to the trust or the institution, a refusal can be made to register the trust. Thus, the section gives power to the Commissioner to look into the genuineness of the activities of the trust and to satisfy himself about its activities. Under Section 12A, the provisions of Sections 11 & 12 shall not apply in relation to the income of any trust or institution unless various conditions are fulfilled. The said sections provide that income from property held for charitable purposes shall not be included in the total income of the previous year of the person in receipt of the income. 8. The provisions of Section 12AA, thus, also give the power under sub-section(3) to cancel the registration of the activities of the trust if it is not carried out in accordance with the objects but the Commissioner has to keep in mind that it is not to act as an Assessing Authority while deciding the application under Section 12AA and the enquiry regarding the genuineness of the activities of imparting education with a charitable purpose is to be kept in mind. The objects of the trust, thus, have to be taken into consideration. Section 2(15) defines charitable purpose and the same includes relief in education and advancement of any other object of general public utility. In case the

17 I.T.A. No. 66/Asr/2017 utility is carried out in the nature of trade, commerce, business, the proviso provides that the same will not be a charitable purpose. Sub-section 2(15) reads as under: 'Sub-section 2 (15) - "charitable purpose" includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity: Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is [twenty-five lakh rupees] or less in the previous year;' 9. These aspects have not been taken into consideration by the Tribunal which has placed heavy reliance upon the judgment of this Court in Pinegrove International Charitable Trust v. Union of India[2010] 327 ITR 73/188 Taxman 402 (Punj. & Har.), which has now been upheld by the Apex Court in the case of Queen's Educational Society (supra). However, it is also to be noted that a Division Bench of this Court in CIT v. Surya Educational & Charitable Trust[2013] 355 ITR 280/[2011] 203 Taxman 53/15 taxmann.com 123 (Punj. & Har.), subsequently, held that the principles laid down for excluding income under Section 10(23C) are not applicable while considering the application for registration under Section 12AA. It was also further held that the genuineness of the objects of the trust are to be taken into consideration. Relevant observations read as under: "On the other hand, Section 10(23C) of the Act are the provisions of the Act in substitution of the earlier provisions of Section 10(22) of the Act as to which income shall not be included in computing the total income of any person. Therefore, the provisions of Sections 11, 12 or Section 10(23C) of the Act, deal with the income of a Trust or of the Institution and the circumstances as to when such income is to be excluded for computing the total income, but the basis of such benefit is the registration under Section 12AA of the Act. Unless a Trust or Institution is registered under Section 12AA of the Act, such Trust or Institution shall not be entitled to exclude from its total income, deductions or contributions or from other sources. Therefore, the principles laid down for excluding the income from consideration under Section 10(22) now 10(23)(C) or Sections 11 and 12 are not applicable while considering the application for registration under Section 12AA of the Act. The application for registration is required to be made within one year of the creation of the Trust. Section 12AA of the Act, requires satisfaction in respect of the genuineness of the activities of the Trust, which includes the activities which the Trust is undertaking at present and also which it may contemplate to undertake. The insertion of sub-section (3) to Section 12AA of the Act, clarifies the said fact, when it empowers the Commissioner to cancel the registration if

18 I.T.A. No. 66/Asr/2017 the activities of the Trust are not carried out in accordance with such objects. 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 Trust or Institution files its return. Therefore, we find that the judgments referred to by the learned counsel for the appellant are not applicable to the facts of the present case arising out of the question of registration of the Trust and not of assessment." 10. In such circumstances, the heavy reliance by the counsel for the assessee upon the judgment of the Division Bench in the case of Pinegrove International Charitable Trust (supra), as has been done by the Tribunal, also, would be without any basis. The power of the Commissioner to look into the objects of the Society and the genuineness of the same cannot be doubted when the basis is of non-supply of information. In such circumstances, it would be appropriate that the Commissioner undertakes the exercise afresh, on the basis of the application which has already been filed, keeping in view the material which can be produced by the respondent-assessee. 11. Accordingly, the order of the Tribunal dated 19.02.2013 is set aside with a direction to the Commissioner to decide the application, filed under Section 12AA, afresh. Since the application was filed more than 3 years ago, it would be appropriate that the same is decided expeditiously.”

The Hon’ble Apex Court in the case of “Ananda Social &Education Trust 14. Vs. CIT”, [2020] 114 taxmann.com 693 (SC) has held that Even without any activity having been undertaken by trust, it is entitled to be considered for

registration under section 12AA and various high court on the issue for grant of

registration, that the CIT(E) has to be examine the genuineness of the objects only

the stage of registration, and not genuineness of activities.

above, we hereby set aside the order of the CIT(E) with a direction to decide

19 I.T.A. No. 66/Asr/2017 expeditiously, the application, filed for registration under Section 12AA, afresh with the following observation:

I. Verify that whether the objectives of the assessee trust are charitable in nature and activities carried out are genuine during the year for which the registration is sought for by the assessee society in the light of evidences prima facie relevant, for the year under consideration for the purpose of grant of registration u/s 12AA of the Act in the light of of “Ananda Social &Education Trust Vs. CIT”, [2020] 114 taxmann.com 693 (SC).

II. Aassessee shall cooperate in the proceedings, before the CIT(E).

III. All pleas available under the law shall remain so available to the assessee in the fresh proceedings before the Ld. CIT.

Order pronounced in the open court on 16.08.2021 Sd/- Sd/-

(Laliet Kumar) (Dr. M. L. Meena) Judicial Member Accountant Member

20 I.T.A. No. 66/Asr/2017

doc Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T.