SAHARA EDUCATION SOCIETY,HARYANA vs. CIT(E), CHANDIGARH

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ITA 3969/DEL/2016Status: DisposedITAT Delhi21 August 20185 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the CIT(E) rejected the registration application without a complete examination of the assessee society's activities as required by Section 12AA. The Tribunal noted from the audit report (Form 3CD) for AY 2013-14, 2014-15, and 2015-16 that the assessee runs computer training/educational and coaching institutes. It also observed from the income and expenditure account that the society received discounts, the nature of which the assessee's AR failed to explain. Furthermore, no membership fee was received from ordinary members as per the society's rules. The CIT(E)'s allegation of the society being run on commercial principles was made without a thorough examination of its activities and finances. Therefore, the Tribunal decided to remand the matter back to the CIT(E) for a de novo examination of the assessee's activities under Section 12AA read with Section 2(15) to ascertain if the activities are charitable and commensurate with the society's objects. If found to be charitable, registration may be granted from the date of application. The appeal was allowed for statistical purposes.

What were the facts?

The assessee, Sahara Education Society, filed an appeal against the order of the CIT(Exemption), Chandigarh, dated 31.05.2016, which refused to grant registration under Section 12AA of the Income Tax Act, 1961. The assessee society was registered in 2002 and its aims and objects were revised in 2013. It had obtained provisional affiliation from CBSE in February 2013 and filed an application for registration in Form 10A. The CIT(Exemption) noted that the assessee had filed returns in ITR-5 instead of ITR-7, carried forward losses, and started showing profits from Assessment Year 2014-15. The CIT(E) also raised concerns about salary disbursements not being covered by TDS provisions, despite CBSE affiliation requiring banking channels for salary payments. The assessee failed to provide corroboration for salary payments through bank accounts.

What were the issues?

1. Whether the action of the learned Commissioner of Income Tax (Exemptions) in refusing to grant registration under Section 12AA of the Income Tax Act, 1961, is arbitrary, erroneous, and unjust, and whether the registration should be granted. Assessee's Contentions: - The assessee society has been running an educational institution since its inception and has not engaged in any commercial activities or distributed surplus funds among members. - For granting registration, only the aims and objects of the society should be considered. - Filing returns in ITR-5 or ITR-7 in preceding years has no bearing on the charitable activities. - The matter should be remanded to the CIT(E) to examine the genuineness of the activities and grant registration from the date of application. Revenue's Contentions: - The assessee filed ITR-5, did not deduct TDS from salary payments, and applied for registration only when it started generating profit. - The order of the CIT(E) should be affirmed. - Relied on CIT vs. National Institute of Aeronautical Engg. Educational Society, Dawn Educational Charitable Trust vs. CIT, Rajah Sir Annamalai Chettiar Foundation vs. DIT, and CIT vs. A.R. Trust.

Which sections of the Income-tax Act were involved?

Section 12AA,Section 2(15),Section 72

AI-generated summary — verify with the full judgment below

Before: Shri Bhavnesh Saini & Shri L.P. Sahu

Hearing: 20.08.2018Pronounced: 21.08.2018

ORDER Per L.P. Sahu, A.M.: This is an appeal filed by the assessee against the order of the ld. CIT(E), Chandigarh dated 31.05.2016 on the following ground :

“That on the facts and in the circumstances of the case and in law, the action of the learned Commissioner of Income Tax (Exemptions) in refusing to grant registration u/s. 12AA of the Income tax Act, 1961 is most arbitrary, palpably erroneous and grossly unjust. It is prayed that this action must be quashed with directions to grant the registration as sought.”

2.

The brief facts of the case are that the assessee society is registered under the Registrar of Societies Act, 1860 vide registration No. 2489/2002-03 dated 19.12.2002. Later on, the registration of society was revised on 31st day of October, 2013 and the aims and objects of the assessee society were amended. The assessee society filed an application in form No. 10A seeking registration u/s. 12AA. The CBSE also granted provisional affiliation certificate bearing No. CBSE/Aff/SL-01436-1314/531079/2013/530150 dated 27.02.2013. Show cause notice was issued to the assessee on 06.05.2016 by the CIT(Exemption). Reply was also furnished by the assessee. After considering the submissions of the assessee, the ld. CIT(E) observed that the assessee was filing return in ITR-5 instead of ITR-7 and losses were being carried forward as per section 72 and the Society started profit from assessment year 2014-15 and 2015-16. Thereafter, he applied registration u/s. 12AA. The ld. CIT(E) has observed as under :

“The above clearly leads one to conclude that an entity unabashedly following commercial principles could not turn charitable overnight. Admittedly, charitable purpose as per section 2(15) of I.T. Act, 1961 includes education but there is no denying that charitable purpose has to be seen to be redeemed in the activities of the society. Had the intent of the society been charitable it would have sought registration at the time of starting its activities and not when in the final analysis its finances have come out of the red. The applicant has no cogent answer to a specific query directed in that direction. Its finances are also not above board when a predominant source of expenditure namely salaries is examined. The applicant's disbursements of salary are not covered by TDS provision it has been claimed. This is in spite of the affiliation granted by the CBSE which insists on salaries to be disbursed through banking channels. Despite asking for corroboration of the salaries being through bank accounts the same has not been furnished. In light of all of the above it is difficult to arrive at a conclusion that an entity being run on commercial principles hitherto has charitable purposes in its mind. The application for registration under section 12A is accordingly rejected.”

Accordingly, the ld. CIT(A) rejected the application of assessee society for registration u/s. 12AA. Aggrieved, the assessee is in appeal before the Tribunal.

3.

The ld. AR submitted that the assessee society is running educational Institution since its inception and no any commercial activity has been carried out by the society. No any surplus fund has been distributed amongst the members. He also submitted that for granting registration, only aims and objects of the society are to be seen. The ld. AR also submitted a paper book containing 134 pages. It is submitted that filing of return in the preceding years either in ITR-5 or ITR-7 would not have any bearing on the charitable activities of the society. The ld. AR submitted that the matter may be sent back to the CIT(E) to examine the genuineness of the activities carried out by the assessee society and also urged that the registration may be granted to the assessee society w.e.f. the date of application.

4.

On the other hand, the ld. DR relied on the order of the CIT(E) and submitted that the assessee society was filing ITR-5. He has not deducted any TDS from the salary payment and applied registration only when he started generating profit. Therefore, he requested that the order of the ld. CIT(E) should be affirmed. He has placed reliance on the following decisions :

(i). CIT vs. National Institute of Aeronautical Engg. Educational Society, 181 Tazman 205(Uttaranchal)

(ii). Dawn Educational Charitable Trust vs. CIT, 73 taxmann.com 61 (SC) (iii). Rajah Sir Annamalai Chettiar Foundation vs. DIT, 15 taxmann.com 313 (Chennai) (iv). CIT vs. A.R. Trust, 86 taxmann.com 6 (Allahabad)

5.

After hearing both the parties and perusing the material available on record, we observe that the ld. CIT(E) has rejected the registration application without complete examination of the activities of the assessee society as per section 12AA of the Act. While going through the audit report submitted by the Chartered Accountant in Form No. 3CD for assessment years 2013-14, 2014-15 and 2015-16, we find that the assessee-society is running computer training/educational and coaching Institutes. We also noted from the income and expenditure account that the society has received discount in all the three years. The AR was asked to explain the nature of discounts, which he failed to explain. We also observe from the financial statement that no membership fee has been received from the ordinary members as per rules and regulations of the Society. The ld. CIT(E) has also alleged that the society is running for commercial purpose without examining the activities of the assessee society and its income & expenditure with respect thereto. Looking to the above facts and circumstances, we think it fit to send the matter back to the file of CIT(E) to examine the activities of the assessee de novo as per provisions of section 12AA r.w.s. 2(15) to ascertain whether the activities of the assessee society are within the objects of the society and whether the activities carried out by the assessee are charitable in nature or not. If the assessee’s activities are found charitable and commensurate to the objects of the assessee society then the assessee may be granted registration w.e.f. the date of application as prayed for. Accordingly, the appeal of the assessee deserves to be allowed for statistical purposes.

6.

In the result, the appeal is allowed for statistical purposes.

Order pronounced in the open court on 21st August, 2018.

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