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Income Tax Appellate Tribunal, DELHI BENCH “G”, NEW DELHI
Before: SH. N. K. SAINI & SMT. BEENA A. PILLAI
Date of hearing : 06.02.2017 Date of Pronouncement: 09.02.2017 ORDER PER BENCH: The present appeal has been preferred by assessee 1. against the order dated 23.05.2013 passed by Ld. CIT, Muzaffarnagar on the following grounds of appeal:
1. That on the facts and in the circumstances of the petitioner's case, the learned Commissioner of Income Tax, Muzaffar Nagar (U.P.) erred in law and on the facts in passing the order of rejecting the application for the grant of the registration U/s 12AA of The Income Tax Act, 1961 of the trust by ignoring the law laid down by the jurisdictional High Court of Allahabad in the most recent case of Hardayal Charitable and Educational Trust V Commissioner of Income Tax-II, Agra reported as (2013) 32 TAXMANN.COM 341(Allahabad) the facts of which were entirely similar to that of the petitioner's case.
2. That on the facts and in the circumstances of the petitioner's case, the order passed by the learned Commissioner of Income Tax, Muzaffar Nagar (U.P.) deserves to be set-aside.
The brief facts of the case are as under:
It is observed from the order of Ld. CIT that assessee is a trust and had filed application for grant of registration under section 12AA of the Act on 23.05.2013. It was argued by assessee that it is a newly formed trust and was engaged in the construction of a school building and that the registration under section 12AA of the Act was in process. Ld. CIT on perusal of the income expenditure account filed by the assessee along with the balance sheet as on 31.03.2013, observed that, is there was no charitable activity that has been carried out, or any activity that could qualify for registration under section 12AA of the Act. He therefore, denied the registration on the ground that the genuineness of the activities did not arise.
Aggrieved by such findings of Ld. CIT, assessee is in appeal before us now
Ld. AR submitted that objects of the trust for charitable in nature and drew our attention to the trust deed clause 5, which reads as under:
To establish and run educational institutions in India and/or to contribute to such existing institution.
2. To establish libraries and reading rooms in India and/or contribute such existing institutions. 3. To grant scholarship and prize to deserving intelligent meritorious poor and needy students. 4. To create health consciousness among the public at large and for this purpose to establish health Centers Medical institutes and/or to contribute such institutions, 5. To improve ecology and sanitary conditions in the backward area of the country. 6. To promote and encourage cultural activities in India. 7. To promote research by establishing research institution. 8. To provide aid to poor and needy persons by way of financial help and by arranging desired such facilities. 9. To promote Indian culture. 10. To publish and distribute literature magazine etc., for enhancement of general knowledge of the public at large. 11. To run social projects beneficial to the society at large. 12. To develop institutions for the disabled persons to provide education food and clothing to them.
To run and maintain hospitals, schools and other institutions for benefit of public at large.
To get all such help donations funds and grants from central/Provincial Government and other such persons and institutions who want to give their contributions for development of the public at large. It is being clarified that in the implementation of the aforesaid object of the trust no discrimination will be made on the basic of religion, race caste & crede, sex or place of birth etc. 4. He submitted that the trust has been formed on 08.02.2012 by the trustee, and its main object was to promote education. Ld. AR submitted that for purpose of this object, assessee purchased land measuring 0.819 hact., which has been shown as fixed asset in the balance sheet as on 31.03.2013. He further submitted that the trust was in the process of constructing school. Ld. AR placed his reliance upon an order dated 18.02.2016 passed by coordinate bench of this Tribunal in the case of Baba Educational Welfare Society Vs. ITO in ITA No. 2932/del/2015. He also placed reliance upon the decision of Hon’ble Allahabad High Court in the case of Hardayal Charitable and Educational Trust vs. CIT, reported in 355 ITR 534.
On the contrary Ld. DR relied upon the order of Ld.CIT and submitted that assessee has failed to establish the genuineness of its activities and hence grant of registration under section 12AA of the Act was rightly refused.
We have perused the submissions advanced by both the sides in the light of their documents placed on record and the decisions relied upon by Ld. AR.
Hon’ble Allahabad High Court being the jurisdictional High Court for assessee, has held in the case of Hardayal Charitable and Educational Trust (supra) as under: at the time of registration under section 12AA of the income tax Act, which is necessary for claiming exemption under section 11 and 12AA of the Act, the Commissioner of Income Tax is not required to look into the activities, where such activities have not or are in 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 this stage only the genuineness of the objects has to be tested and not the activities, which has not commenced. At 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 of the society cannot claim exemption, unless it is registered under section 12AA of the Act and thus at such initial states that test of the genuineness of the activity cannot be a ground on which the registration may be refused.
It is observed that this is the first year of assessee, and at the time of filing of application for registration under section 12AA of the Act, there were no substantial activities. From the trust deed placed before us, clause 5 clearly indicates that assessee is going to establish and grant educational institutions in India and/or contribute to such existing institutions. It is also observed that Ld. CIT has not made any inference about objects of trust being non- charitable in nature. The balance sheet as on 31.03.2013 reproduced in the impugned order shows that the assessee has invested a substantial sum towards purchase of land for setting up of a school and also has received corpus donations.
In our considered opinion, the power of Ld. CIT under section 12AA of the Act, while considering the application for registration of trusts is limited to the extent of satisfying himself about the objects of trust, being charitable in nature. At this stage of granting registration under section 12AA of the Act, he has to satisfy himself about the objects of the institution and genuineness of the activities. He is not required to look into the utilisation of funds, commercial nature of activity etc., at that stage. These aspects are to be looked into by Assessing Officer at the time of assessment. This Tribunal in the case of Baba Educational Welfare Society (supra) has held as under:
“As per the scheme of the Act, registration under section 12 A of the Act does not ipso facto entitle an assessee to avail exemption under section 11 of the Act. For availing exemption under section 11, the assessee has to fulfill the conditions laid down under section 11 to 13 of the Act. Therefore whether the assessee is entitled for exemption under section 11 of the Act or not can only be looked into at the stage of assessment. DIT (E) at the time of grant of registration under section 12 A cannot step into the shoes of the AO to examine whether assessee has carried out any activity with profit motive or there is violation of conditions laid down under section 11 of the Act. From the order of the DDIT (E), it is clear that he has not found any adverse material to show that the main objects of the assessee are not of charitable nature or its activities are not genuine. That being the case the denial of exemption cannot be upheld. In case of CIT vs. Red Rose school (supra), Allahabad High Court held as under:
In regard to the genuineness of the activities of the trust or institution, whose objects to not run contrary to public policy and are in fact, related to charitable purposes, the Commissioner is again empowered to make enquiries as he thinks fit. In case the activities are not genuine and they are not being carried out in accordance with the objects of the trust/society or the institution, of course, the registration can again be refused. But on mere presumption and on surmises that come derived by the trust or the institution is being misused or that there is some apprehension that the same would not be used in the proper manner and for the purposes relating to any charitable purpose, rejection cannot be made.
Section 12 AA, which lays down the procedure for registration, does not speak anywhere that the Commissioner while considering the application for registration shall also see that the income derived by the trust or the institution is either not being spent for charitable purpose or such institution is earning profit. The language used in the section only requires that activities of the trust or the institution must be genuine, which accordingly would mean, they are in consonance with the objects of the trust/institution, and are not mere camouflage but are real, pure and sincere, nor against the proposed objects. The profit earning or misuse of the income derived by charitable institution from its charitable activities, may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities to the trust of the institution. ”
Respectfully following the decisions of Hon’ble Allahabad High Court, reproduced hereinabove, and the decision of this Tribunal in the case of Baba educational welfare society (supra), we direct Ld. CIT to grant registration under section 12AA of the Act to the assessee.
In the result appeal filed by the assessee stands allowed.
Order pronounced in the open court on 9th February, 2017.