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Income Tax Appellate Tribunal, DEHRADUN CIRCUIT BENCH: DEHRADUN
PER M.BALAGANESH, AM: This appeal arises out of the order passed by the Learned Commissioner of Income Tax (Exemptions), Lucknow [hereinafter referred to as the ld. CIT(E) ] under section (u/s) 12AA(1)(b)(ii) of the Income Tax Act, 1961 [hereinafter referred to as the Act] dated 20.09.2018.
The assessee has raised the following grounds of appeal before us:-
“1. That having regard to the facts and circumstances of the case Ld. CIT(E) has erred in law and on facts in rejecting the registration u/s 12AA(1)(b)(ii) of the Act by observing that activities of the applicant are not genuine and has further erred in observing as under:-
(a) That the funds of the applicant society are being channalised for the benefit of the specified persons u/s 13(1)(c) read with section 13(3) of Income Tax Act, 1961.
(b) That the applicant society is merely a closed group of individuals that pool money so as to cater to their materialistic and leisurely needs of only its member which definitely is not characteristic of an institution that exists on charitable lines.
(c) That the assessee society is performing activities and services extended by a club.
(d) That the appellant society has not been able to produce the books of accounts, bank statement, vouchers for verification of object and activities of the trust.
(e) That the appellant society is not carrying out any activity of charitable nature.
2. That in any view of the matter and in any case, action of Ld. CIT(E) in rejecting the registration under section 12AA(1XbX) is bad in law and against the facts and circumstances of the case and is contrary to the principles of natural justice as the impugned order has been passed without granting adequate opportunity of hearing. by recording incorrect facts and findings and the appellant ought to have been granted benefit of registration under the law.
That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal
at the time of hearing and all the above grounds are without prejudice to each other.”
3. We have heard the rival submissions and perused the materials available on record. The assessee is a registered society granted certificate of registration by the Registrar of Societies, Uttarakhand on 03.05.2013. The main objects of the assessee society are as under:-
4) Aims and Objectives of Association
(a) To promote the welfare of the officers of Civil Services and to bring them together in order to secure complete integration of the services and to build a corps of officers Imbibed with the spirit of cooperation in all aspects of Civil Service. b) To hold, organize, arrange and conduct seminars, symposiums, talks, debates, lectures and other means of dispensing education to meet the needs and challenges of modem day Civil Administration. c) To print and publish journals, periodicals and manuals to keep the Civil Servants abreast of modem day development in Civil Administration. d) To acquire and promote modem skills of Civil Administration and to harmonize between the different fields of Civil Administration by disseminating or exchanging Aknowledge thereof, and by providing such other facilities as would lead to their Universal Application. e) To establish and maintain libraries and information services to facilitate the study of Civil Administration at World level and spreading information in regard thereto. f) To organize and maintain, on no-profit no-loss basis limited residential accommodation, for the members of the institute coming to participate in the activities of the association and of other bodies with cognate objectives as well as non-members invited to participate in the activities of the Association. g) To take over, establish and conduct, throughout Uttarakhand, clubs, institutes, hostels, canteens, libraries and reading room and other similar institutions for general use amongst the members. h) To purchase, take lease or in exchange or otherwise any movable or immovable property and any rights or privileges which the association may think necessary or convenient and in particular any land, buildings erections of all works. i) To enter into any arrangement with any institution, company or association or with any public authority which may seen calculated to further any of the objects of the Association and to obtain any rights or privileges which may seem conducive to any of the objects of the association. j) To grant salary, allowances, gratuities, bonus, contributory or otherwise to persons who are or have been in employment of the Associations.
K) To take such steps by personal or written appeals, public meeting or otherwise, as may from time to time be demanded to be expedient for the purpose of procuring contributions, annual subscriptions or otherwise. l) To establish and support and to aid in the establishment and support of any other Association formed for all or any of the objects of this Association. m) All the income, earnings, moveable immovable properties of the Association shall be solely utilized and applied towards the promotion of its aims and objects only as set forth in the Memorandum of Association and no profit or part of there shall be paid or transferred directly or indirectly by way if dividends, bonus, profit or in any manner whatsoever to the present or pair Members of Association. No members shall have any personal claim on any moveable or immovable properties the association or make any profits, whatsoever by virtue of his membership.
All the above mentioned aims and objectives of the Association would be charitable and non-profit, as per section 1 and 20 of Society Registration Act 1860.
The assessee society filed an application in Form No 10A o 31.03.2018 for obtaining registration u/s 12A(1)(aa) of the Act before the ld. CIT(E). In order to process the application, the ld. CIT(E) issued a detailed questionnaire dated 27.08.2018 seeking details and clarifications on 25 questions. From the perusal of the contents of the Paper Book, we find that the assessee had given replies vide letter dated 09.09.2018 for each of the questions raised by the ld. CIT(E) in his questionnaire. This letter had enclosures of 12 annexures together with the audited annual accounts of the assessee society for the last 5 years.
We find that the assessee had furnished complete details of each and every query raised by the ld. CIT(E) in his questionnaire.
Further we find that the ld. AR before us had met each and every averment of the ld. CIT(E) in his order which are as under:-
(i) The association/institute discriminates among the officers of central and state government by giving preference in grant of membership to officers of All India Services. It is submitted that membership to officers of central and state government is subject to the approval of governing board while there is no such limitation on serving or retired officers of All India Services of Uttarakhand cadre. This does not amount to infringement of any of the two conditions mentioned in section 12AA(1) about which the CIT(E) has to satisfy himself. Therefore, this objection cannot be a ground for rejection of the registration.
(ii) Such a discriminatory treatment at the time of admission to the institute cannot be expected to be fair and non-partial in its claimed activity of charity.
The criteria for admission to the membership do not have any nexus with subsequent treatment of members. All members stand at par and it cannot be said that they will be treated unfairly or partially
(ii) Membership does not extend to include people from all spheres of public and includes only the elite.
In the case of Ahmadabad Rana Caste Association (infra), we have seen that the activities need not be for the whole world or for all the people of the country or all the people of state. If the society exists for benefit of a large number of people but not for identifiable persons, the criterion of the residuary clause of general public utility is satisfied.
(iv) The society institute is undertaking a lot of activities which are similar in nature to the activities performed by a club.
The relevant point is whether the objects are charitable in nature. It is possible some clubs are performing the same activities as the assessee-institute but that does not come in the way of its being a charitable institution.
(v) All activities are routed through contractors and no money or expenditure is recorded in the income and expenditure account.
It is submitted that either the activities could be performed by the governing board or board may get the activities conducted through third party vendors. This does not make any difference as long as the activities are genuine and they are in pursuance of objects of the institute.
(vi) The funds of the society are channelized for the benefit of persons i.e., the members of society itself, covered u/s 13(3) and thus, provisions of section 13(1)(c) are violated.
This statement is not correct. Clause (m) of the aims and objects provides that all income, earning, movable and immovable properties shall solely be utilized and applied towards its aims and objects. Promotion of welfare of officers of civil services and to bring them together in order to secure integration is one of the main objects of the institute. The activities were primarily geared towards attainment of this object.
(vi) The institute has failed to place on record any evidence to prove that it exists solely for the purpose of serving people.
It has been stated earlier that "charitable purpose" inter-alia includes advancement of any object of general public utility. We have also seen that public does not mean the whole of mankind. It has also been stated earlier that the institute has conducted a number of activities mentioned on paper- book page nos. 169-180. Therefore, this objection is not correct in law. (viii) The institute has shown receipts under the head annual membership charges, FDR interest, savings bank interest and club receipts. Most of the expenses are in the nature of administrative expenses or expenses which catered to the leisure needs of the club members.
It has been pointed out earlier that the institute has organized a number of activities which are in the nature of charitable activities. The receipts and expenses show that institute has tried to meet the requirement of the members with a view to advance its objects of promotion of welfare of civil services, which is an object of general public utility. Therefore, this objection is not a legal view permissible on the facts of the case. (ix) The institute is not carrying on any activities of charity at all and is solely intended for profit motive.
It has already been discussed that the society is carrying on an object of general public utility. Its income and expenditure accounts have consistently shown deficits and therefore, it cannot be said that the institutes exists solely profit motive.
The ld. DR argued that books and vouchers were not produced by the assessee before the ld CIT(E). No charitable activities were carried out by the assessee society and only dinners were happening in the assessee club.
We find that the ld. CIT(E) had observed that the assessee institute could not produce books of accounts and vouchers and therefore, genuineness of activities could not be verified. In this regard, we find that the entire audited annual accounts of the assessee institute had been furnished for Asst Years 2014-15 to 2018-19 before the ld. CIT(E). Further we find that the books of accounts were indeed produced before the ld. CIT(E) as is evident from the order sheet noting dated 13.09.2018 enclosed in Page 272 of the Paper Book. Infact this is also evident from the reply letter filed by the assesesse on 09.09.2018 in tabular form wherein in response to query nos. 20 and 21, the assessee had replied that bank statements and books of accounts are produced for verification of the ld. CIT(E). However, the ld. AR before us fairly admitted that in view of voluminous vouchers, the vouchers could not be produced before the ld. CIT(E). The ld. CIT(E) granted only one day time to produce the vouchers and in view of huge volume, the same could not be furnished before the ld. CIT(E) on 20.09.2018, on which date the order rejecting the registration was passed by the ld. CIT(E). In our considered opinion, what is required to be seen at the time of grant of registration is that whether the objects mentioned in the bye laws are charitable in nature and whether the activities carried out are genuine. It is not in dispute that the assessee had duly furnished the complete list of activities carried out by it together with the audited financial statements for the years ended 31.3.2014 to 31.3.2018. The list of activities carried out by the assessee society on sample basis are also enclosed in Pages 169 to 170 of the Paper Book. The genuineness of the activities were not even commented by the ld. CIT(E) and hence it could be safely presumed that the ld. CIT(E) does not have any objection on the genuineness of the activities.
He only says that the objects are not charitable in nature from the objects. Hence non production of vouchers would in any way not hamper the decision making process of ld. CIT(E) on the aspect of objects not being charitable in nature.
We find that the ld. CIT(E) had denied the registration u/s 12A of the Act on the ground that the activities of the assessee society are not charitable in nature and that they are indulging only in leisure and pleasure activities which is the privilege of only few sections of the society and is not available for the welfare of the general public at large. We find that the ld. CIT(E) however conceded to the fact that this society is formed by a group of specified individuals who had pooled their funds into the society which were then utilized for the benefit of the members of the society. This act of the members of the society is not charitable in nature according to ld. CIT(E). To buttress this finding, it would be relevant to address the relevant objects as reproduced supra again.
We find that clause (m) of the objects of the assessee society provides that all the income, earnings, movable, immovable properties of the association shall solely be utilized and applied towards promotion of its aims and objects only as set forth in memorandum of association and no profit or part of their shall be paid or transferred directly or indirectly by way of dividend, bonus, profits or in any manner whatsoever to the present or past members of the association. No member shall have any personal claim or any movable or immovable properties of the association or make any profits whatsoever by virtue of his membership. We also find that the memorandum of association and its rules and regulations contained a clause on ‘dissolution’ wherein it is provided that the dissolution of the association and disposal of the property on dissolution will be done in accordance with provisions of section 13 and 14 of the Societies Registration Act, 1860. In this regard, it would be relevant to reproduce the provisions of Section 13 and 14 of Societies Registration Act, 1860 as under:-
Section 13 – Provision for dissolution of societies and adjustment of their affairs Any number not less than three-fifths of the members of any society may determine that it shall be dissolved, and thereupon it shall be dissolved forthwith, or at the time then agreed upon, and all necessary steps shall be taken for the disposal and settlement of the property of the society, its claims and liabilities according to the rules of the said society applicable thereto, if any, and if not, then as the governing body shall find expedient , provided that, in the event of any dispute arising among the said governing body or the members of the society, the adjustment of its affairs shall be referred to the principal court of original civil jurisdiction of the district in which the chief building of the society is situate ; and the court shall make such order in the matter as it shall deem requisite. Assent required: Provided that no societies shall be dissolved unless three-fifths of the members shall have expressed a wish for dissolution by their votes delivered in person, or by proxy, at a general meeting convened for the purpose. Government consent: Provided that whenever any Government is a member of, or a contributor to, or otherwise interested in any society registered under this Act, such society shall not be dissolved without the consent of the Government of the State or registration.
Section 14 : Upon a dissolution no member to receive profit If upon the dissolution of any society registered under this Act there shall remain, after the satisfaction of all its debts and liabilities, any property whatsoever, the same shall not be paid to or distributed among the members of the said society or any of them, but shall be given to some other society, to be determined by the votes of not less than three-fifths of the members present personally or by proxy at the time of the dissolution, or in default thereof, by such court as aforesaid. Clause not to apply to Joint-Stock Companies : - Provided, however, that this clause shall not apply to any society which has been founded or established by the contributions of share-holders in the nature of a Joint-stock Company.
Hence it could be seen that there is no scope for distribution of profits or surplus of the assessee society to be distributed to the members of the society even at the time of dissolution. Hence the assessee society is not existing for profit to be distributed to private parties. It is existing solely for public purposes only, eventhough its byelaws restrict the eligibility of the persons to become members of the club. There is no harm in having a restriction with regard to the eligibility of the persons to become members of the club. From the perusal of the objects of the assessee society, we find that the assessee society is created to promote welfare of officers of civil services and bring them together in order to secure integration of services and to build a corps of officers imbibed with the spirit of co-operation in all aspects of civil service. This object only promotes better understanding between the members of different services which will greatly assist in greatly enhancing operational efficiency in official work with better co-ordination and co-operation for the welfare of the nation at large. The next object of the assessee society is to upgrade the skills of civil servants, who are found wanting to discharge their official duties. This is again in the larger interest of the nation. The next object is to enhance the knowledge of civil servants about modern day developments in civil administration which would in turn enable them to compete globally and follow the universally recognized methods of administration in the true spirit of democracy, by means of dissemination of knowledge mutually. The next object is for maintaining libraries and information to facilitate study of civil administration. The next object is to maintain limited residential accommodation for members who come to participate in the activities of the institute and non-members who are invited to participate in the activities of the association. On a broader reading and understanding of the aims and objects of the assessee society, we find that that the objects mentioned therein are purely charitable in nature and are not meant for the benefit of any individual or any select persons. The predominant purpose is only to benefit the nation at large and since civil servants play a crucial role in that task, the assessee society is created to bring on record the congregation of various civil servants and use their individual skill sets by better co-operation and co-ordination. In our considered opinion, the objects carried out by the assessee fall within the residuary limb of the definition of charitable purpose as
per section 2(15) of the Act i.e advancement of any other object of general public utility. As stated earlier, no profit motive is involved in the carrying out of these objects as there is no scope for private distribution of profits , surplus, dividends, etc or in any manner whatsoever to the members of the society either during the subsistence of the society or on its dissolution, both under the byelaws of the society as well as under the Societies Registration Act, 1860.
As per the bye laws of the assessee society, the membership is open to all state government officers, officers of All India Services serving in Uttarakhand and officers of central government serving and residing in Uttarakhand. Hence we hold that the ld. CIT(E) is wrong in stating that the assessee society is meant only for the purposes to cater to the needs of particular section of the society.
This aspect in any case had been addressed by the Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association vs. CIT reported in 82 ITR 704 (SC) wherein it was held as under:-
It is well-settled by now that an object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose it is not necessary that the object should be to benefit the whole of mankind or all persons in a particular country or State. It is sufficient if the intention to benefit a section of the public as distinguished from a special individual is present. In the instant case, what had to be seen was whether the members of the Rana caste who were not natives of Ahmedabad but who came to reside there and were accepted as members of that caste according to its usage and custom could be said to have a relationship which was an impersonal one dependent on their condition as members of the Rana community. Such members of the Rana caste could not be regarded as having been introduced into that caste by consideration of their personal status as individuals. As a matter of fact that predominant contention and requirement of the clause defining 'beneficiaries' in the constitution of the assessee was the factum of their belonging to the Rana community of Ahmedabad. The common quality, therefore, uniting the potential beneficiaries into the class consisted of being members of the Rana caste or community of Ahmedabad whether as natives or as being admitted to that caste or community under custom or usage. The mere fact that a person of the Rana community who was not an original native of Ahmedabad had to prove his credentials according to the customs and usage of that community to get admitted into that community could not introduce a personal element. As regards the acceptance of such persons as members of the community or caste, according to custom and usage, it is well-known that whether a question arises whether a person belongs to a particular community or caste, the customs or usage prevailing in that community must play a decisive and vital part. That cannot be regarded as an element which would detract from the impersonal nature of the common quality. The appeals were accordingly allowed.
From the perusal of the audited accounts of the assessee society for various years, we find as under:- a) For the year ended 31.03.2014, the assessee had not actually started its functioning. b) For the year ended 31.03.2015, the assessee had a deficit of Rs 46.62 lakhs c) For the year ended 31.03.2016, the assessee had a deficit of Rs 136.37 lakhs after showing club receipts of Rs 8.88 lakhs and after meeting various expenses d) For the year ended 31.03.2017, the assessee had a deficit of Rs 160.94 lakhs. e) For the year ended 31.03.2018, the assessee had a deficit of Rs 171.73 lakhs.
11.1 We are not for a moment trying to state that since the assessee society had not made any surplus and hence there is no profit motive at all. What is required to be seen for a charitable trust or a charitable society is that even in the event of earning profits or surplus, such profits or surplus remain with the society itself and again ploughed back into the coffers of the society for furtherance of its charitable objects. As long as the profits or surplus are not distributed to the private individuals of the assessee society either directly or indirectly in any manner whatsoever for malafide purposes, there is no harm in any charitable society earning profits / surplus.
We find that the various case laws relied upon by the ld. CIT(E) in his rejection order are factually distinguishable and we do not even deem it fit to address those case laws as they are not germane to the issue in hand before us.
Further we find that the ld. AR before us placed on record the aims and objects of Civil Services Officers Institute (CSOI) New Delhi which are enclosed in Pages 242 to 243 of the Paper Book, wherein, we find that the aims and objects of CSOI New Delhi and assessee society are verbatim identical. Admittedly CSOI New Delhi had been granted registration u/s 12AA of the Act and is in force.
We find no logical reason for the ld. CIT(E) Lucknow to take a divergent stand in the case of the assessee society when the aims and objects of both the societies are exactly identical.
In view of the aforesaid observations and respectfully following the various judicial precedents relied upon hereinabove, we hold that the assessee society objects are charitable in nature and would be entitled for registration u/s 12AA of the Act. The ld. CIT(E) is hereby directed to grant registration to the assessee society.
Accordingly, the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 15th September, 2023.