MAHAVIR FOUNDATION,,AHMEDABAD vs. THE PR. CIT (EXEMPTIONS),, AHMEDABAD

16.09.2019 सुनवाई क� तारीख/ Date of hearing: 17.09.2019 उ�ोषणा क� तारीख/Pronounced on आदेश /O R D E R

PER O. P. MEENA, AM:

Accordingly, application in Form No. 10B for approval under section 12AA of the Act was rejected.

The learned Counsel for the assessee has drawn our attention to para 4 of the order of the Pr. CIT (E), in which it was observed that on verification of reply it is noticed that that the Trust proposed to run institution in the name of Doon International Primary School, but no such details, as fee structure, number of students, study in various standards, detail of bifurcation of grants received and fee were received were not furnished.

The learned counsel for the assessee refer Paper Book Page No. 1 which is letter dated 10.07.2017 submitted before Pr. CIT (E) in which the assessee trust has clearly pointed out that it is proposed to run the institution. Since the assessee trust has not started functioning therefore, the details as observed by the learned Pr. CIT (E) were not available. Hence, same could not be furnished at the time of registration. The learned counsel for the assessee further placed reliance on the decision of Hon’ble Gujarat High Court in the case of Director of Income-tax (Exemption) v. Panna Lalbhai Mahavir Foundation v. Pr. CIT (E) Ahmedabad /I.T.A.No. 2831&2832/2017 4 Foundation [2013] 35 taxmann.com 104 (Gujarat) wherein it was held that only because trust has not commenced its activities, Commissioner would have no authority ipso facto reject the application for registration under section 12AA of the Act. The learned counsel for the assessee submitted copy of audit report in Form No.10B (PB-18-21) and audit report dated 31.03.2017 and audited accounts as on 31.03.2019 (PB-22-29) in which the assessee has shown fees received of Rs. 4,64,53,150 (PB-29). The learned counsel for the assessee further referred object of Trust (PB-12). Therefore, it was submitted that the trust was at nascent stage and that hardly any activity had taken place. However, the assessee thereafter, started functioning and doing activity of which audited accounts were already furnished vide letter dated 02.03.2017 and has given income and expenditure and balance sheet up to 31.03.2019 and activities undertaken by the assessee. It was, also stated that the decision in the case of Dawoodi Bohra Jamat (supra) is not applicable, as Trust has not started activities at the time. Therefore, it was urged that impugned order denying registration may be set-aside and matter be remanded back for disposal afresh to Pr.

CIT (E) after considering the activity and object of the assessee trust.

5. Per contra, learned CIT(D.R.) supported the order of the Pr. CIT (E) and submitted that the assessee can make fresh application for registration.

Mahavir Foundation v. Pr. CIT (E) Ahmedabad /I.T.A.No. 2831&2832/2017 5

The Hon`ble Allahabad High Court in the case of CIT v. Babu Ram Education Society [2018] 96 taxmann.com 606 (All) of which SLP has been dismissed by the Hon`ble Supreme Court reported at [2018] 96 taxmann.com 607 (SC) has observed as under: “4. Being aggrieved, the assessee carried the matter in appeal before the Tribunal. The Tribunal vide it's order dated 26.07.2013 has allowed the assessee's appeal by following the judgment of a division bench of this Court in the case of Hardayal Charitable and Educational Trust v. CIT [2013] 32 taxmann.com 341/214 Taxman Mahavir Foundation v. Pr. CIT (E) Ahmedabad /I.T.A.No. 2831&2832/2017 6

655/355 ITR 534. In that judgment that is quoted by the Tribunal in its order, this Court had held as below:

"The preponderance of the judicial opinion of all the High Court including this court is that at the time of registration under Section 12AA of the Income-tax Act, which is necessary for claiming exemption under Sections 11 & 12 of the Act, the Commissioner of Income Tax is not required to look into the activities, where such activities have not or are in the process of its initiation. Where a trust set up to achieve its objects of establishing educational institution, is in the process of establishing such institutions, and receives donations, the registration under Section 12AA cannot be refused, on the ground that the trust has not yet commenced the charitable or religious activity. Any enquiry of the nature would amount to putting the cart before the horse. At a stage only the genuineness of the objects has to be tasted and not the activities, which have not commenced. The enquiry of the Commissioner of Income Tax at such preliminary stage should be restricted to genuineness of the objects and not the activities unless such activities have commenced. The Trust or society cannot claim exemption, unless it is registered under Section 12AA of the Act and thus at that such initial stage the test of the genuineness of the activity cannot be a ground on which the registration may be refused.

It is not denied that for subsequent year the appellant has been granted exemption under Section 12AA and has been approved under Section 80G of the Act, subject to certain conditions. If the Commissioner of Income Tax was satisfied with the genuineness of the objects of the trust for the subsequent assessment year, the Mahavir Foundation v. Pr. CIT (E) Ahmedabad /I.T.A.No. 2831&2832/2017 7 refusal of the registration for the previous assessment year 2011-12 was not justified.

The question of exemption of the application of income received by way of donation is a separate issue and which may be required to be considered, when the return is filed by the Trust and is examined by the Income Tax Officer. The question as to whether the donations by the societies was the expenditure of the Trust for charitable and religious purposes will be examined at the time of examining the return.

In the result, the income tax appeal is allowed. All the three substantial questions of law formulated as above are decided in favour of the assessee, and against the revenue with a clarification that the registration under Section 12AA and approval under Section 80G would not by itself entitle the Trust for exemption of the income of its donors or of the Trust for the assessment year 2011-12. For claiming such exemption the returns of the donor and the Trust will be examined, for orders to be made in accordance with law."

6. Thereafter, the Tribunal has found that the assessee was set up to achieve its object of establishing educational institution or trust, which activity per se is a charitable purpose under Section 2(15) of the Act. The Tribunal has then reasoned that at this stage the Mahavir Foundation v. Pr. CIT (E) Ahmedabad /I.T.A.No. 2831&2832/2017 8 reasons given by the CIT to reject the application for grant of registration are not valid and those issues may arise separately at the stage of assessment proceedings.

7. In view of above, we find that registration of the trust does not involve enquiry into the actual activities or application of funds, etc.

Therefore, at this stage, the only enquiry required to be conducted was with respect to the object of the trust alone. The learned counsel for the assessee has relied on the decision of Hon’ble Gujarat High Court in the case of Director of Income-tax (Exemption) v. Panna Lalbhai Foundation [2013] 35 taxmann.com 104 (Gujarat) wherein it was held that only because trust has not commenced its activities, Commissioner would have no authority ipso facto reject the application for registration under section 12AA of the Act. The details called for by the Pr.CIT (E) pertained to Mahavir Foundation v. Pr. CIT (E) Ahmedabad /I.T.A.No. 2831&2832/2017 9 matters that may be examined at the stage of assessment. At that stage, if the assessee were to be found to have actually engaged in any non- charitable activity, the benefit of exemption may be denied at that stage in the manner provided by the Act. In the light of above, we are of the opinion that the matter of registration under section 12AA should be set-aside to file of the Pr. CIT(E) for examination the basic facts and pass fresh order in the light of details filed by the assessee and the ratio laid down in above discussed judgements. Nevertheless, the Pr. CIT (E) would give a proper opportunity of being heard and allow the assessee to furnish any material in support of its claim.

I.T.A.No. 2832/AHD/2017: Denial of approval u/s. 80G(5):