MESERS BORDER PEOPLE EDUCATION SOCIETY ,FEROZPUR vs. COMMISSIONER OF INCOME TAX (EXEMPTIONS), CHANDIGARH

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR

BEFORE SH. N.K.CHOUDHRY, JUDICIAL MEMBER AND DR. A.L.SAINI, ACCOUNTANT MEMBER ITA No.469/Asr/2018 Assessment Year: NIL Border People Educational CIT(Exemptions) Society, Chandigarh. Ferozepur City, Vs. [PAN:AAABB 0422F] (Appellant) (Respondent)

Appellant by : Sh. P. N. Arora (Ld. Adv.) Respondent by: Smt. Prabjot Kaur (Ld. CIT-DR)

Date of hearing: 29.11 .2019 Date of pronouncement: 16.01.2020

ORDER PER N.K.CHOUDHRY, JM:

This appeal has been preferred by the Appellant Society against the impugned order dated 31.07.2018 passed by the Ld. CIT(Exemptions), Chandigarh, u/s 12AA (1)(b)(ii) of the I.T. Act, 1961 (hereinafter called as ‘the Act’), whereby the appellant's application filed u/s 12AA of the Act was rejected.

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under the provision of section 10(23C)(vi) following the statutory provisions. This issue needs to be seen in light of the fact that numerous years in the past the society has been filing returns and claiming exemption u/s 10(23C)(iiiad). The Ld. CIT(E) further observed that judicial precedents have allowed pursuance of alternative claims either for 12AA or 10(23C) but at the same time have not allowed shifting from one provision to the other when the applicant has consistently availed benefits for a number of years under section 10(23C)(iiiad). Natural progression entails and entitles the educational societies to go for 10(23C)(vi) in such cases. It is also relevant in the particular case that the character and objects of the applicant have not changed to warrant a change in the code of exemption that has a completely different set of conditions. This contention of the applicant is certainly not acceptable.

The Ld. CIT(E) also observed that the financial statements submitted by the applicant during the course of proceedings don't reflect the true picture and thus genuineness of activities is squarely impugned. As per the submissions by the applicant, it is seen that accumulation is shown by the applicant in every year from AY 2014- 15 onwards which also tantamount to not showing the correct picture if we go by the new claims that there were always deficits in the previous years.

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31.08. 2017) dealt with identical issue and analyzed the similar observation of the Ld. CIT(E) for declining the registration u/s 12AA of the Act and directed the Ld. CIT(E) to grant the registration to the then Society . The order passed by the Co- ordinate Bench in the aforesaid case was challenged before the Hon’ble Punjab & Haryana High Court and Hon'ble Court vide its judgment dated 8th April, 2019 in appeal No.141/2018 [2019]106 Taxmann.com 344 (P&H), upheld the finding of the Tribunal. For the sake of brevity and ready reference the relevant part of the order is reproduced herein below.

“2. A few facts necessary for adjudication of the instant appeal as narrated therein may be noticed. The assessee is an educational society registered on 19.9.2003 under the Societies Registration Act, 1860 and since 2003 has been running educational institutes for education. It filed an application dated 15.3.2016 in Form 10A for registration under Section 12AA of the Act. The Commissioner of Income Tax (Exemptions) [for brevity "the CIT(E)"] vide order dated 30.9.2016 (Annexure A-l) rejected the said application by observing as under:—

‘8 XX XX XX

(z) Self confessedly the sole object of the society has been projected as providing education. In that context the applicant had all reasons to apply for exemption under the provision of section 10(23C) (vi) rather than 12AA. This issue gets corroborated when for the past numerous years the society has been filling returns and claiming exemption u/s 10(23C)(iiiad). In answer to a specific query seeking the rationale for application u/s 12AA it has been stated that since the receipts are below 1 crore the society is claiming exemption u/s 10(23C)(iiiad). This following the statutory provisions would have necessitated an application u/s 10(23C)(vi) as per the scheme of the I.T. Act, 1961. Is it the case that the moment receipts exceeded Rs.1 crore the institution has ceased to be existing "Solely for educational purposes" and "not for profits".

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(ii) Although the Judicial precedents have allowed alternative claims either for 12AA or 10(23C) but at the same time have not allowed shifting from one provision to the other when the applicant has consistently availed benefits for a number of years under section 10(23C) (iiiad). Natural progression entails and entitles the educational societies to go for 10(23C)(vi) in such cases. There are no fresh circumstances projected that would warrant examination of the eligibility of the institution under a different code with different conditionalities.

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adverse observation regarding genuineness of the objects or the activities carried on by the society, then the registration under Section 12AA of the Act could not have been denied holding that it was entitled to exemption under any other provision. With regard to the finding of the CIT(E) that the emphasize of the society was mainly creation of assets rather then redeployment of funds towards education, the Tribunal had noticed that during the financial year 2014-15 value of car, motorcycle and scooter were Rs. 2.17 lakhs and in 2015- 16, it were Rs. 2.30 lakhs and the society surplus amount was @ 5.52% only, which cannot be termed as higher and certainly to run institute, the vehicles were required. Further, the apprehension and assumption of the CIT(E) that the society must be charging some funds, was based on the assumption and surmises and had no logical reasoning. Accordingly, the Tribunal has rightly directed the CIT(E) to grant registration under Section 12AA of the Act to the assessee. The findings recorded by the Tribunal read thus:—

"6. We have gone through the facts and circumstances of the case and rival submissions of the parties as well as documents available on record and order passed by the Ld. CIT(E). In the instant case, object of the assessee is not in doubt. The observation of the assessee CIT(E) is not correct to the extent that the assessee would have applied u/s 10(23C) of the Act instead of Sec.l2AA of the Act because the Apex Court as well as jurisdictional High Court clearly held that where the assessee trust running hospital or school and if both the options available before it i.e., either to apply for exemption u/s 10(23C) or claim exemption u/s 12AA of the Act therefore it is not justified to decline exemption u/s 12AA on the ground that it should have claimed exemption u/s 10(23C).

It is settled law that for the purpose of granting registration u/s 12AA, scope of powers of the Ld. CIT(E) is limited to be being satisfied about the objects and the genuineness of the activities of the assessee and once the CIT(E) having accepted that the main aim of the society is running of college and educational institutions and made no adverse observation regarding genuineness of the objects or the activities carried on by the society then registration u/s 12AA could not be denied on the ground that it was entitled exemption under any other provision. Further in the case of CIT v. Bosotto Brothers Limited [1940] 8 ITR 41 (Mad). Hon'ble

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Madras High Court held that if a case appears to be governed by either of two provisions, it is clearly the right of the assessee to claim that he should be taxed under that one which leaves him with a lighter burden. Meaning thereby, if, exemption is available to the assessee in two or more sections then the choice is for the assessee under which section exemption has to be claimed. With regard to the another objection of Ld. CIT(E), our attention was drawn by the Ld. AR to the audited balance sheet, where it is clearly shown that during the F.Y. 2015-16 value of car, motorcycle and scoter were 2.17 lakh and in 2015-16 it were 2.30 lakh and the society surplus amount was @ 5.52 % only. We are in agreement with the assessee that the surplus @ 5.52 % cannot be termed as higher and certainly to run an institute, the vehicles are required, therefore, the observation of the CIT(E) is not correct to the extent that the emphasized of the society has been mainly to add car, motorcycle and scooter. In fact total receipts had been shown at Rs. 182,76,252/- during the F.Y. 2015-16, however, the value of the car, motorcycles and scooter were 2.30 lakh only, therefore, we are of the considered opinion that observation of the CIT(E) was not correct.

Another observation of the CIT(E) was that the society is mainly emphasizing for creation of fixed assets rather than redeployment funds towards education. The Ld. AR drawn our attention regarding the receipts, the average annual fee for the F.Y. 2015-16 charged by the assessee was at Rs. 16,525 per student for IIT, B.Com students and Rs. 4,559 per student for B.CA Courses. Average annual fee for the F.Y. 2015-16 was Rs. 34,157 per student only and the fee being charged is quite reasonable and is less than the fees prescribed by the controlling Govt. Bodies. The Ld. AR also drew our attention that the Assessee's Institutes have also been approved/affiliated by/with Govt. Authorities on fulfillment of the norms and conditions and adherence thereto. On the aforesaid consideration, we are of the considered opinion, that the apprehension and assumption of the CIT(E) that society must be charging some funds, just based on the assumption and surmises and have no logical reasoning. Further observation with regard to salary structure and quality of education, we are of the view that lower salary cannot be made best to conclude that quality of education has been comprised and not in sync with the instruction issued by Maharaja Ranjit

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Singh State Technical University, Bathinda, while providing affiliation to an entity. On the aforesaid observation and conclusion, we are of the considered view that the assessee is entitled to get registration u/s 12AA of the Act and hence, we direct the Ld. CIT(E) to grant registration to the assessee society. 6. No illegality or perversity could be pointed out by the learned counsel for the revenue in the aforesaid findings recorded by the Tribunal which may warrant interference by this Court. No substantial question of law arises in the appeal. Consequently, finding no merit in the appeal, the same is hereby dismissed. Needless to say, it shall be open for the revenue to initiate action under sub-section (3) to Section 12AA of the Act for withdrawal/cancellation of the registration granted hereinabove, in case it comes to the notice of the revenue that the activities undertaken by the assessee are not genuine or are not being carried out in accordance with the objects of the trust or Institution or are not charitable in nature in terms of the provisions of the Act. "

3.1 The Hon’ble High Court has upheld the finding of the Tribunal to the effect that the Ld. CIT(E) was not justified to decline the exemption u/s 12AA on the ground that the applicant should have claimed exemption u/s 10(23C). The issue as raised by the Ld. CIT(E) in the instant case is exactly similar and identical which stands decided by the tribunal and affirmed by the Hon'ble High Court therefore respectfully following the judgment of the Jurisdictional High Court, we are unable to sustain the main ground of rejection of the application u/s 12AA of the Act, to the effect "Natural progression entails and entitles the educational societies to go for 10(23C)(vi) in such cases. Hence the ground of rejection under consideration is liable to be set aside.

2nd 4 Coming to the ground of rejection, the Ld. Commissioner has held that in regards to the claim of surplus of

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Rs. 42.53 Lakhs (Claimed as exempt by the applicant in the computation of income for AY 2017-18) pertaining to FY 2016-17 in the absence of either 10(23C) approval or 12AA registration, the applicant has replied that " the surplus of Rs.42.53 Lakhs is only from revenue operations but this has not described the full picture of our institutions because we have also spent Rs. 48.91 lakhs on Capital Expenditure so in fact there is no surplus their deficit ofRs.6.38 Lakhs (42.53-48.91)…..”. This contention of the applications is not acceptable. If we go by the new claims of the applicant that there is in fact no surplus, then it is clear that the financial statements submitted by the applicant during the course of proceedings don't reflect the true picture and thus genuineness of activities is squarely impugned. As per the submissions by the applicant, it is seen that accumulation is shown by the applicant in every year from AY 2014-15 onwards which also tantamount to not showing the correct picture if we go by the new claims that there were always deficits in the previous years.

4.1 The procedure for registration is prescribed Under Section 12AA, which reads as under:

"Procedure for registration." 12AA. (1) The [Principal Commissioner] or 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

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(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 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.

4.2 The jurisdictional High Court in the case of The Commissioner of Income Tax-I ...Vs Sri Guru Gorakh Nath Charitable (ITA No.336 of 2013 (O&M) decided on 5 May, 2015 ) has held as under:-

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 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.

4.3 The Jurisdictional High Court in Commissioner of Income Tax Vs. Surya Educational & Charitable Trust [2013] 355 ITR 280, has held that the principles laid down for excluding income

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under Section 10(23C) are not applicable, while considering the application for registration under Section 12AA. Further 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 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.

4.4 From the perusal of the provisions for grant of registration as enumerated in section 12AA of the Act, it transpires that the

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Commissioner has to satisfy himself of the objects of the trust or institution as the case may be 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 or the institution. 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. Jurisdictional High Court in the above referred cases, has reiterated that the principles laid down for excluding the income from consideration under Section 10(23) or Sections 11 or 12 are not applicable while considering the application for registration under Section 12AA of the Act and 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. These aspects have not been taken into consideration by the Ld. Commissioner. It is a fact the Ld. Commissioner did not raise any doubt qua objects of the Appellant Society, consequently the instant ground of rejection is also un-sustainable and liable to be set aside.

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Sd/- Sd/- (DR. A.L.SAINI) (N.K.CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 16/01/2020. /PK/ Ps. Copy forwarded to: 1. The Appellant 2. The Respondent 3. The CIT 4. Then CIT(E) 5. SR DR, I.T.A.T. Amritsar 6. Guard File True Copy By Order