COMMISSIONER OF INCOME TAX EXEMPTINOS vs. J B S SHIKSHAN SANSTHAN

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 172 / 2017 Commissioner of Income Tax (Exemptions), 3rd Floor, Kailash Heights, Lal Kothi, Tonk Road, Jaipur. ----Appellant Versus J.S.B. Shikshan Sansthan, 112-A, Shakti Nagar, Kota. ----Respondent _____________________________________________________ For Petitioner(s) : Shri Sameer Jain with Shri Daksh Pareek For Respondent(s) : Shri Sanjay Jhanwar with Ms Arachana _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 07/11/2017 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal preferred by the assessee and directed to grant registration under Section 12AA of the Income-Tax Act, 1961. 2. This Court while admitting this appeal on 18.7.2017, framed following substantial questions of law: “Whether on the facts and circumstances of the case, the Hon’ble ITAT was correct in law in ignoring the intention of law behind inserting the Section 12AA(4) w.e.f. 01.10.2014 under the provisions “Procedure for Registration” which inherently empowers the CIT to examine the violation of Section 13(1) of the Act at the time of registration itself which was established in the present case.”

(2 of 4) [ITA-172/2017] 3. Counsel for the appellant has taken us to the order of CITA who taking into consideration the different grounds has observed in Paras 11 and 12:- “11. For the above services the society is paying fee to the Career Point Ltd. As under (Annexure B of the agreement):- On having a careful look on all the activities which is being performed by the M/s Career Point Limited, it can very well be understood that the whole activity of school education and administration is being run by M/s Career Point Limited. M/s Career Point Limited is a public Ltd company engaged in the field of giving coaching to the students for preparing for various competitive examinations like Engineering, Medical etc. M/s Career Point Limited is a profit making company where profit is distributed to the shareholders.

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present agreement, M/s Career Point Limited has practically taken over whole of running of the school and the society is simply acting as a facilitator to allow the M/s Career Point Limited to run such activity. 12.From the discussions made in the preceding paragraphs it can be seen that M/s Career Point Limited has constructed the school building and is practically running the school by entering into agreement with the society. In other word the fee received by the society is passed through to M/s Career Point Limited either in the form of rent or in the form of service providing fee. If a society wants to do a charitable activity I should do in a fair manner. All the profit generated by charitable activity should be used towards the object of the society and no profit should be distributed to any of the stake holders. In the present situation the society in collaboration with M/s Career Point Limited has created a scheme where only the name of the society is being used and the funds of the society is

(3 of 4) [ITA-172/2017] reaching in the hands of M/s Career Point Limited and the same will be distributed as profit to the share holders of the company. If such scheme is allowed to function, the basic purpose of the charitable activity will itself be lost. Whether the society and M/s Career Point Limited are connected directly or indirectly has no impact in deciding the charitable nature of the activities because as discussed in the preceding paragraphs, the funds of the society are being diverted and distributed to the shareholders of the company i.e. M/s Career Point Limited, which is against the basic norms of Section 2(15) of the IT Act 1961 and such activities cannot be held as genuine charitable activities.” and further contended that in view of amended provisions of Section 12AA, the CIT Commissioner of Income-Tax has all powers looking to the object and activities read with Section 12AA. It is contended that the Tribunal has committed serious error while observing as under:- “It is noteworthy to mention that the registration u/s 12AA and the assessment are separate proceedings. At the stage of registration u/s 12AA only object and genuineness of the trust can be examined and not the activities as well as application of the funds of the assessee trust. This view has been taken by this Coordinate Bench vide its order dated 3-11-2016 in the case of IMC of ITI Chhabra Vs. CIT (Exemptions) I ITA No.816/JP/2015. In view of the above facts, circumstances of the case and the case laws cited (supra), the CIT (exemptions) is directed to grant registration to the assessee society. Thus the appeal of the assessee is allowed.” 4. Counsel for the respondents Mr.Jhanwar relied upon the decision of this Court in Commissioner of Income-Tax, Jaipur-III Vs. M/s Shyam Mandir Committee Khatushyam Ji, Sikar, D.B. Income-Tax Appeal No.224/2010 where while considering the identical issues, this Court observed as under:-

(4 of 4) [ITA-172/2017] “13. Before proceeding with the matter, it will not be out of place to mention here that in all the questions of law, the question which consideration before us is whether taking into account, the observations made in paragraph 10, the view taken by the tribunal is just and proper. At the time of registration, the authority is required to look whether it is registered under the state Act or under any other Act. There is no distinction between private trust and public trust. The contention which has been raised by counsel for the appellant regarding the expenses, diversion or control by the private people will come only when the assessment has taken place. For the purpose of trust registered and the income used is for the charitable purpose or not and whether income from public trust if it is going for any private use will negative the very object of the Trust Act which is the main intention of the legislation, is not to be considered at this stage.” 5. We have heard both the sides contentions raised by Mr. Jain regarding, Sub-Section (4) of Section 12AA will come into operation after the registration is carried out in consonance with the provisions of object of the trust not at the time of registration. 6. In that view of the matter, registration will be given to trust and the observations made by the Tribunal are just and proper. 7. The issue is answered in favour of assessee and against department. 8. The appeal stands dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Chauhan/44