THE COMMISSIONER OF INCOME TAX (EXEMPTIONS), CHANDIGARH vs. M/S M.R. EDUCATIONAL TRUST, VILLAGE CHANDA KHERI, BILASPUR, YAMUNANAGAR (PAN: AACTM2567N)

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ITA/534/2017HC Punjab & HaryanaPHHC01135596201728 March 2019Author: MR. JUSTICE AJAY KUMAR MITTAL,MRS. JUSTICE MANJARI NEHRU KAUL5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court found no merit in the appeal filed by the Revenue. Regarding the dissolution clause, the Tribunal noted that Clause 14 of the Trust Deed mandated the transfer of remaining assets and liabilities to a similar trust upon dissolution, with no intention to benefit specific individuals. Concerning the family-run nature of the trust, the Tribunal held that there is no bar to registering such trusts under Section 12AA, and any diversion of benefit to the family could be addressed by the Assessing Officer during assessment under Section 11. On the issue of registration under the Haryana Societies Registration Act, the Tribunal observed that the assessee was a trust under the Indian Trusts Act, 1882, duly registered with the Sub-Registrar, and no provision mandates registration only for societies under Section 12AA. Addressing the RTE Act compliance, the Tribunal relied on its prior decision in Kids-R-Kids International Educational & Social Welfare Trust, which held that compliance with the RTE Act is not a relevant consideration for granting registration under Section 12AA. This decision was affirmed by the High Court and the Supreme Court. The Tribunal concluded that the CIT had not doubted the charitable nature of the objects or the genuineness of activities and directed the CIT to grant registration. The High Court agreed with the Tribunal's findings and dismissed the appeal, stating no substantial question of law arose. However, it noted that the Revenue could initiate proceedings for withdrawal or cancellation of registration if activities were found to be non-genuine or not in accordance with the objects.

What were the facts?

The Revenue, Commissioner of Income Tax (Exemptions), Chandigarh, filed an appeal under Section 260A of the Income Tax Act, 1961, against an order of the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench. The ITAT had directed the CIT to grant registration to the assessee, M/s M.R. Educational Trust, under Section 12AA of the Act for the assessment year 2011-12. The CIT had previously rejected the assessee's application for registration on grounds including the absence of a dissolution clause, the trust being run by one family with profit motive, non-registration under the Haryana Societies Registration Act, 2012, and non-compliance with the Right to Education Act, 2010. The assessee had appealed the CIT's order to the ITAT.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the ITAT was correct in directing registration without commenting on the genuineness of activities and their correlation with the assessee's objects. 2. Whether the ITAT was correct in holding that the CIT had not doubted the objects and genuineness of the trust's activities, despite the CIT's order expressing dissatisfaction. 3. Whether the ITAT was correct in holding that compliance with the RTE Act is not relevant for registration, when the CIT is empowered to call for information to examine if infractions of law affect claims of advancing education. 4. Whether the ITAT was correct in ignoring the CIT's findings about the restrictive composition of the society and the lack of a dissolution clause, which allegedly impinge on the character of an entity claiming public charity. The Revenue argued that the ITAT erred in granting registration without proper examination of the genuineness of activities and their alignment with the objects. The Revenue contended that the CIT had indeed raised doubts about the trust's activities and that compliance with the RTE Act and the presence of a dissolution clause were relevant factors for determining the charitable nature of the trust. The Assessee's arguments are not explicitly detailed in the judgment, but their appeal to the ITAT implies a contention that the CIT's objections were unfounded and that the trust met the requirements for registration.

Which sections of the Income-tax Act were involved?

Section 260A,Section 12AA,Section 11

AI-generated summary — verify with the full judgment below

ITA-534-2017 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA-534-2017 (O&M) Date of Decision: 28.3.2019 The Commissioner of Income Tax (Exemptions), Chandigarh ....Appellant. Versus M/s M.R. Educational Trust ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MRS. JUSTICE MANJARI NEHRU KAUL. PRESENT: Mr. Denesh Goyal, Senior Standing Counsel, for the appellant. Mr. Brij Mohan Monga, Advocate and Mr. Rohit Kaura, Advocate for the respondent. *** AJAY KUMAR MITTAL, J.

1.

Delay of 117 days in filing the appeal is condoned.

2.

This appeal has been filed by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 23.5.2016 (Annexure A-2) passed by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (hereinafter referred to as “the Tribunal”) in ITA No. 841/Chd/2014, for the assessment year 2011-12, claiming the following substantial questions of law:- I. Whether on the facts and circumstances of the case, the Hon'ble ITAT was right in directing the registration to be accorded instead of reverting it back for re-examination without itself commenting GURBACHAN SINGH 2019.04.25 12:44 integrity of this document

ITA-534-2017 -2- upon the genuineness of activities and their co- relation with the objects of the assessee-society? II. Whether on the facts and circumstances of the case, the Hon'ble ITAT was right in holding that the CIT had not doubted the objects and genuineness of the activity of the trust whereas the CIT in her order had expressly concluded that she was not satisfied about the genuineness of activities towards its objects? III. Whether on the facts and circumstances of the case, Hon'ble ITAT was right in holding that compliance with RTE Act is not a relevant factor for the grant of registration whereas the CIT was fully empowered by the provisions of Section 12AA to call for any 'information' before granting such registration and examine whether infraction of relevant laws impinges on the claims of advancing education? IV. Whether on the facts and circumstances of the case the Hon'ble ITAT was right in ignoring CIT's findings about the restrictive composition of the society and the lack of dissolution clause both severely impinging on the character of an entity claiming to be amenable for public charity?

3.

Briefly stated, the facts necessary for adjudication of the instant appeal as narrated therein may be noticed. The assessee moved an GURBACHAN SINGH 2019.04.25 12:44 integrity of this document

ITA-534-2017 -3- application in Form 10A seeking registration under Section 12AA of the Act in the office of Commissioner of Income Tax, Panchkula (for brevity “the CIT”) on 27.3.2014. The CIT rejected the application of the assessee for grant of approval under Section 12AA of the Act vide order dated 11.8.2014 (Annexure A-1), with the following objections:- a) That the trust deed had not provided for dissolution clause for use of net assets of the trust for its objects in case of dissolution and bar on reversion of net assets to founder, members, directors etc.; b) That the School is run by one family headed by father as 'Settlor'-cum-President and two sons as trustees. Having regard to the surplus as per receipt expenditure statement for the years ending on 31.3.2011, 31.3.2012 and 31.3.2013, profit was the main motive of the trust; c) That the assessee trust was not registered under the New Haryana Registration & Regulation of Societies Registration Act, 2012; and e) That the Right to Education Act, 2010 was not implemented by the School.

4.

Feeling aggrieved by the order, Annexure P-1, the assessee filed an appeal before the Tribunal. The Tribunal vide order dated 23.5.2016 (Annexure A-2) allowed the appeal and directed the CIT to grant registration to the assessee under Section 12AA of the Act. Hence, the present appeal by the revenue. GURBACHAN SINGH 2019.04.25 12:44 integrity of this document

ITA-534-2017 -4-

5.

After hearing learned counsel for the revenue, we do not find any merit in the appeal.

6.

The Tribunal while dealing with objection (a) put by the CIT, had noticed that as per clause 14 of the Trust Deed, the mandate of the said clause was to transfer the remaining assets and liabilities of the assessee to a similar trust at the time of dissolution. There was no intention of giving benefit to a specific person out of whatever remains in the hands of the assessee. Regarding objection (b), the Tribunal had recorded that even if a trust was run by only one family, there was no bar on such trust to be registered under Section 12AA of the Act. The CIT had only to see that the objects of the trust were charitable in nature and the activities of the same were genuine at the time of granting registration. Regarding the fact that the benefit directly or indirectly diverted to one family, can be taken care of by the Assessing Officer at the time of making the assessment and granting exemption under Section 11 of the Act. While dealing with objection (c), the Tribunal had observed that the assessee is a trust formed under the Indian Trust Act, 1882 and had been duly registered with the Sub Registrar, Bilaspur. There was no bar under the Act to give registration under Section 12AA of the Act to a trust and that no provision provided that only societies can be registered under Section 12AA of the Act. The Tribunal while meeting out objection (d) regarding Right to Education Act, 2010 (in short “2010 Act”) had concluded that the issue was covered by the order of the Tribunal in the case of Kids-R-Kids International Educational & Social Welfare Trust, wherein it was held that the issue of school complying with the provisions of 2010 Act was not a relevant consideration to be taken care of by the CIT at the time of granting registration under Section 12AA of the GURBACHAN SINGH 2019.04.25 12:44 integrity of this document

ITA-534-2017 -5- Act. It may be mentioned that this decision of the Tribunal was affirmed in ITA No. 6 of 2017 [Commissioner of Income Tax (Exemptions), Chandigarh v. M/s Kids-R-Kids International Education and Social Welfare Trust, Chandigarh] dated July 14, 2017. Even Special Leave Petition No. 22665 of 2018 was dismissed by the Apex Court on 23.07.2018. The Tribunal while holding that the CIT had not doubted about the charitable nature of the objects of the Trust as well as the genuineness of the activity, directed the CIT to grant registration to the assessee under Section 12AA of the Act.

7.

No error could be pointed out by learned counsel for the revenue in the findings recorded by the Tribunal warranting interference by this Court. In view of the above, accordingly, no question of law, much less, 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. (AJAY KUMAR MITTAL) JUDGE March 28, 2019 (MANJARI NEHRU KAUL) gbs JUDGE Whether Speaking/Reasoned Yes Whether Reportable Yes GURBACHAN SINGH 2019.04.25 12:44 integrity of this document

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