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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SMT. DIVA SINGH & SHRI. T. S. KAPOOR
PER T. S. KAPOOR, AM
This appeal has been filed by the assessee against the order of Ld. CIT(E) passed u/s 12AA of the Act.
The assessee has taken various grounds of appeal. However, the crux of grounds of appeal is the grievance of the assessee in the action of Ld. CIT(E) by which he has not allowed the registration of the society u/s 12AA of the Act.
At the outset the Ld. AR submitted that under similar facts and circumstances, the Ld. CIT (E) had rejected the application of the assessee in the case of Regional Educational Development and Welfare Society. The Hon’ble Tribunal was pleased to reverse the order of Ld. CIT (E) vide its order dated 4/10/2017. The Ld. AR in this respect invited our attention to order of Ld. CIT (E) in the case of Regional Educational Development and Welfare Society placed at paper book Page No. 57 to 60 and also invited our attention to paper book Page No. 48 to 54 where a copy of the order of the Tribunal reversing the orders of Ld. CIT(E) was placed. The Ld. AR submitted that in that the above noted case, the Hon’ble Tribunal had noted in Para 6 that since the assessee was enjoying Exemption u/s 10(23C(iiiad) of the Act, and, therefore, there was no doubt that the objective of the assessee society was providing education which is a charitable activity. The Ld. AR submitted that in the present case also, the assessee was enjoying the exemption u/s 10 23C(iiiad) of the Act which is apparent from the fact that assessment of the assessee was completed u/s 143(3) for Assessment Year 2014-15 and 2013-14 in the assessment orders, the Assessing Officer has admitted that the assessee was engaged in the running of School & had also allowed exemption u/s 10(23C) iiiad of the Act. It was submitted that at the time of grant of registration, the Ld. CIT (E) is only required to enquire into the objects of the society and the genuineness of its activities with respect to achievement of those objects. It was submitted that admittedly the assessee is engaged into educational activities as it has been allowed Exemption u/s 10(23C(iiiad) of the Act and, therefore, it was argued that Ld.CIT(E) be directed to grant Exemption u/s 12AA of the Act.
The Ld. DR on the other hand submitted that it is wrong on the part of Ld. AR to claim that the issue was covered by the order of the Tribunal in the case of Regional Educational Development and Welfare Society as in the present case, besides the similar objections by Ld.CIT(E) there was an issue of land on which school building was constructed and in this respect our attention was invited to Page 6 of Ld. CIT(E)’s order and it was submitted that the President of the society was owner of said land and building and receipts of this school was being used for further construction of building and therefore, there was clear diversion of receipts to president of the society. It was further submitted that in the present case, the appellant society was non-cooperative also as is evident from the order of Ld. CIT(E) where at Page 11, he has noted that the assessee had not furnished evidence regarding compliance of free and compulsory education which envisages 25% admission for the students belonging to economically weaker sections. Ld. DR in this respect placed her reliance on the orders of the Delhi Tribunal in the case of DIT(E) Vs. Devki Devi Foundation 56 Taxmann.com 56 (Delhi-Trib.)and also relied on the order of Kerala High Court in the case of Self Employers Service Society Vs. CIT [2000]113 Taxman 703 (Kerala)
The Ld. AR in his rejoinder submitted that the building belonged to the President of society which he has been using for the purpose of running the school and which he had given to the society without any consideration and, therefore, the allegation of Ld. CIT(E) that the funds of the school were being diverted to the President of society are not correct and moreover the Assessing Officer during assessment proceedings could always verify these facts and if he is satisfied that there is diversion of funds he can deny exemption u/s 11 of the Act. As regards the case laws relied on by the Ld. DR, (it was submitted that in the case of DIT(E) Vs. Devki Devi Foundation 56 Taxmann.com 56 (Delhi-Trib.) the assessee was allotted land at very concessional rates and the Hon’ble Tribunal had held that hospital on such land was being utilized for commercial purposes which is not the fact in the present case as the assessee has not been granted any land or building on concessional rate and there is no allegation of using the same on commercial basis. Regarding the second case law of Self Employer Service Society, the Ld. AR submitted that in that case, the assessee had not done charitable work where as in the present case, it is an admitted fact that the assessee was carrying out the charitable activities through running of a school.
We have heard the rival parties and have gone through the material placed on record. We find that at the time of grant of registration u/s 12AA of the Act, the Ld. CIT(E) is empowered to look into the objects of the society and also the genuineness of its activities with respect to achievement of those objects. In the present case, it is an admitted fact by the Assessing Officer who vide order dated 19/02/2016 for Assessment Year 2014-15 had admitted that the assessee was engaged in running of a school in the name of Marigold High School and has also allowed deduction u/s 10 (23C) (iiiad) of the Act. The Assessing Officer in Assessment Year 2013-14 vide order dated 9/12/2015 has also admitted the same fact & had allowed exemption u/s u/s10 (23C) (iiiad) of the Act. By accepting the claim of Assessee the genuineness of its activities has also been accepted. Therefore, the factum of carrying charitable activities as also the genuineness of activities is established. Therefore, both conditions for getting satisfaction u/s 12AA are met with and therefore assessee is eligible for registration u/s 12AA of the Act.The Hon’ble Tribunal in the case of Regional Educational Development and Welfare Society vide its order dated 4/10/2017 after following a number of cases decided by Hon'ble Supreme Court and various High Courts vide Para 6 to 9 has allowed the appeal of the assessee by holding as under:-
“6. We have heard the rival submissions andhave also perused the material on record. It is an admitted fact that the assessee society exists for education purpose only which has been duly recorded in Para 2.3 of impugned order. Further, three consecutive orders passed u/sl43(3) of the Income Tax Act have accepted assessee’s claim of exemption u/s 10(23C)(iiiad). Thus, there remains no doubt that the objective of the assessee society is ‘education’. The Hon’ble Punjab & Haryana High Court made the following observations in the case of Sonepat Education Society (supra):
“....It is well-settled that for the purpose of construing the purpose of a trust, it is not necessary that one remains confined to the objects of the society or the trust, as set out in the memorandum of association or the trust deed, as the case may be. What is required to be found is the real purpose of establishment of the trust. There can be no quarrel with the proposition that the CIT, conferred with the power to grant exemption, is fully competent to find out the real purpose, as distinguished from, the ostensible purpose of establishment of the society or the trust. If the CIT is convinced that the purpose of the society or the trust is not charitable, nothing debars him from denying the approval but, at the same time, if he is satisfied that the objects of the trust, as set out in the deed of declaration, were charitable, then having regard to the object of the provision, the approval should not be denied on mere technicalities. As a matter of fact, the power to grant or negative the claim for approval is coupled with a duty..."
7. It is clearly, the Hon’ble Kerala High Court in case of Sree Anjaneya Medical Trust reported in 382 ITR 399 (Ker) observed as under:-
“It is clear from a plain reading of sections 12A and 12AA of the Act that what is intended thereby is only a registration simplicitor of the entity of a trust. This has been made a condition precedent for claiming the benefits of exemption. No examination of the modus of the application of the funds of the assessee or an examination of the ethical background of its settlors is called for, while considering an application for registration. The stage for consideration of the relevance of the object of the assessee and the application of its funds arises at the time of the assessment. Where benefits are claimed by assesses in terms of sections 11 and 12 of the Act, the question as to the nature of such contribution and income can be looked into. At the time of registration of the assessee what is to be looked into is whether the assessee is a genuine one or whether it is a sham institution floated only to avail of the benefits of exemption under the Act.”
8. Coming to the facts of the present case, the observations of the Ld. CIT in the impugned order are contradictory. The Ld. CIT, on the one hand, mentions that the assessee society has been running a school and on the other hand he mentions that the objects appear to exist only on paper. This coupled with the fact that the department has also accepted the assessee’s claim of exemption u/s 1023C (iiiad) for three consecutive years leaves no doubt about the genuineness of the objects of the society. We also find support from the observations of the Hon’ble Punjab and Haryana High Court and the Hon’ble Kerala High Court as reproduced above. Accordingly, we reverse the order passed by the Ld.CIT(A) and direct him to grant registration to the assessee society.”
The facts in the present case are para materia with the facts in the case law relied on by Ld. AR except the objection with regard to diversion of funds which though we feel that there do not seem to be any diversion as the building of President which he had given to society without consideration was being utilized for educational purposes and any expenditure thereon will again be said to be incurred for educational purposes only but even then Assessing Officer during assessment proceedings can always look into the provisions of Section 13 to disallow Exemption u/s 11 if he finds any violation including diversion of funds as mentioned in Section 13 of the Act.
The case laws relied on by Ld. DR are not applicable to the facts and circumstances of the case as in the case of DIT(E) Vs. Devki Devi Foundation 56 Taxmann.com 56 (Delhi-Trib.), the assessee was allowed the land at very concessional rates and the assessee had utilized the land for commercial purposes where as in the present case there is no allegation of utilizing the land for commercial purposes and also there is no allotment of land at concessional rates. The second case law is also not applicable as in that case, it was held that the assessee did not carry any charitable activity where as in the present case it is an admitted fact that the assessee was engaged in charitable activities. In view of the above facts and circumstances of the case, the Ld. CIT(E) is directed to grant registration to the assessee u/s 12AA of the Act .
In view of the above, the appeal filed by the assessee is allowed.
Order pronounced in the Open Court on 21st December, 2017.