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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ NEW DELHI
Before: SHRI G.D. AGRAWAL & SHRI SUDHANSHU SRIVASTAVA
against the order dated 31.03.2015 passed by the ld. CIT(Exemption), Lucknow.
The assessee is a society created on 23.7.2014. The society had filed an application for registration u/s 12A(a) of the Income Tax Act, 1961 (Hereinafter called ‘the Act). On a perusal of the records before him, the ld. CIT (Exemptions) came to the conclusion that as per the income and expenditure account on 29.8.2014, the society had not carried out any charitable activity.
He has also given a finding that a perusal of income and expenditure account drawn for the period 10.7.2014 to 9.3.2015 could not reveal carrying out of any charitable or religious activity. He was of the opinion that both the objects as well as the genuineness of the activities could not be established. He, accordingly, denied the benefit of registration to the assessee society.
3. Aggrieved, the assessee society is in appeal before us. The assessee has taken as many as 10 grounds of appeal which are as under:-
“1. That the learned Commissioner of Income Tax (Exemptions), Lucknow has grossly erred both on facts and in law in refusing to grant registration to the appellant society under section 12AA(1)(b)(ii) of the Income Tax Act, 1961 vide an order dated 31.03.2015.
2. That the learned Commissioner of Income Tax (Exemptions) has grossly erred in failing to appreciate that objects of the appellant society is wholly charitable in nature and the assessee trust is existing wholly for charitable and religious purposes as such, the appellant society was entitled to the grant of registration under section 12A of the Income Tax Act.
That the learned Commissioner of Income Tax (Exemptions) has failed to comprehend that, the assessee is an educational welfare society and was also duly registered under the Societies Registration Act. 4. That the finding of the learned Commissioner of Income Tax (Exemptions) in the order that, the assessee has not filed all the requisite details as called for, are contrary to the written submissions filed before him dated 19.03.2015, 27.03.2015 and which 2 I.T.A. No. 2932/Del/2015
were duly supported by all documents as directed to be furnished.
5. That the findings of the learned Commissioner of Income Tax (Exemptions) that the applicant has not filed all the requisite details as called for and primary documents and registers are not being maintained by the society properly by the society are highly vague and it shows non application of mind.
6. That the learned Commissioner of Income Tax (Exemptions) has completely overlooked the income and expenditure account furnished by the assessee supported by necessary documents to establish that the activities carried on by it were genuine activities and were charitable in nature.
7. That the learned Commissioner of Income Tax (Exemptions) has erred in failing to appreciate that for the grant of registration, only objects of the appellant society is required to be examined and thus in the absence of any adverse material that the society was not engaged in any charitable activities, he has erred in rejecting the application. In fact, there is not any whisper that the objects of the appellant society were not charitable or it did not carry any other activity, as such, there was no justification either in law or on facts to have rejected the grant of registration.
8. That the learned Commissioner of Income Tax (Exemptions) has completely ignored that the society had organized a programme to distribute woolen blankets to the poor and needy in the winters and that it has held workshops in the remote area of Sahaswan, Wazirganj & Ughaiti of Budaun District to develop singing, dance and fine arts among kids, which all have been completely ignored.
9. That the learned Commissioner of Income Tax (Exemptions) has failed to appreciate that his finding I.T.A. No. 2932/Del/2015
that no charitable activities have so far been started, is factually incorrect, and is contrary to material on record. 10. That in any case and without prejudice, the mere allegation that no charitable activity has yet been started could not be a valid ground to deny the claim of registration.
It is thus prayed that the order of Commissioner of Income Tax (Exemptions) passed u/s 12AA(1)(b)(ii) of the Act be set aside and learned Commissioner of Income Tax (Exemptions) be directed to grant registration as there was no material to establish that the objects of the appellant society were not charitable.”
The Ld. AR submitted that the Ld. CIT(E) had failed to appreciate that the objects of the society were charitable and drew our attention to page 4 of the paper book which contains the Memorandum and spells out the objects of the society. He pointed out that even as per the submissions made before the Ld. CIT(E), the society, since its inception, was in the process of establishing an educational institution in the backward city of Bilsi under the name and style of ‘Baba International School’. He also submitted that the society had also organised a program to distribute blankets to the poor in winters which is duly evidenced by photographs and newspaper cuttings. He also submitted that the society had organised workshops in Sahaswan, Wazirganj & Ughaiti of Budaun District (remote areas of Budaun district) to develop singing, dance and fine arts among children. These activities were also duly evidenced through photographs and newspaper cuttings and were submitted before the Ld. CIT (Exemptions).
Ld. AR also submitted that till 9.3.2015, the society had purchased two school buses and three vans and had made an investment of Rs.1,22,796/- in fixtures and fittings and Rs.31,544/- in toys, apart from investment of Rs. 1,61,60,400/- in school building. He submitted that these facts were also brought to the notice of the Ld. CIT(Exemptions) along with relevant supporting evidences. Thus, the society had begun pursuing its charitable object in right earnest and the denial of benefit of registration was not justified. The Ld. AR also relied on the judgment of the Hon'ble Delhi High Court in the case of Ram Piyari Devi Charitable Trust & Anr. vs Director General of Income Tax, Delhi & Anr. in WP(C) 4725/2012 and CM No. 9795/2012 for the proposition that for the purposes of grant of an approval, the competent authority has to only examine whether there is in existence an educational institution and whether the application has been moved in the prescribed format. The matter of actual application of funds has to be considered at a later stage i.e. after the grant of approval. He also relied on the decision of the Hyderabad ‘A’ Bench of the ITAT in the case of George Institute of Global Health vs DIT(E) in I.T.A. NO. 1773/Hyd/2012.
The Ld. DR, on the other hand, relied on the order of the Ld. CIT(Exemptions) and submitted that the assessee had failed to establish the genuineness of the activities and hence the grant of registration was rightly refused.
Before adjudicating on the issue, it will be worthwhile to reproduce section 12AA of the Act at this juncture:- "12.AA (1) The Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) [or clause (aa) of sub-section (1)] of section 12A, shall—
call for such documents or information from (a) the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and after satisfying himself about the objects of (b) the trust or institution and the genuineness of its activities, he - shall pass an order in writing registering (i) the trust or institution; shall, if he is not so satisfied, pass an (ii) order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant: Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a 6 I.T.A. No. 2932/Del/2015 reasonable opportunity of being heard."
It is seen that Section 12AA confers power on the CIT, while considering the application for registration of trust or institution, to call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of the activities of the trust or institution and also to make such enquiries as he may deem necessary in this behalf and, after satisfying himself about objects of the trust or institution and the genuineness of its activities, he shall pass an order in writing, registering the trust or institution. If he is not satisfied, he would refuse the registration. In our view, while considering the issue of registration under section 12AA, the scope of enquiry of the Commissioner would be limited to the aforesaid extent. On the facts of the case, it is seen that this is the first year of the assessee society and at the time of filing of application for registration, there were no substantial activities.
The Ld. CIT (Exemptions) drew adverse inference on inactivity which was not germane at the time of filing of application for registration of trust u/s 12AA. In our considered opinion, merely not carrying of vigorous activities of the trust at the time of registration per se cannot be detrimental for registration of the trust u/s 12AA where the objects are charitable. It is seen from the order u/s 12AA of the Act that the CIT(Exemptions) has denied the benefit of registration on the ground that during the year, no charitable activities were carried out by the assessee trust. However, no inference about the objects being non- charitable in nature was drawn. The assessee has invested a substantial sum towards the setting up of a school and the Department has not controverted the same. Reference can be made to the decision of the Hon'ble Allahabad High Court in the case of Hardayal Charitable & Educational Trust vs. Commissioner of Income Tax reported in 355 ITR 534 (All) wherein the Hon'ble High Court has held as under:
“at the time of registration u/s 12AA of the Income Tax Act, which is necessary for claiming exemption u/s 11 & 12 of the Act, the Commissioner of Income Tax is not required to look into the activities, where such activities have not or are in the 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 u/s 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 have not commenced. 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 8 I.T.A. No. 2932/Del/2015 commenced. The Trust of society cannot claim exemption, unless it is registered u/s 12AA of the Act and thus at that such initial stage the test of the genuineness of the activity cannot be a ground on which the registration may be refused.”
So far as the allegation of the DIT(E) that the assessee has not conducted any charitable activity of its own is concerned, we
find that such finding of the DIT(E) is without any basis. The material placed on record clearly indicates that the assessee has undertaken activities in furtherance of its object as per the Memorandum of Association. Furthermore, at the stage of granting registration u/s 12A of the Act, the DIT(E) has to satisfy himself about the objects of the institution and genuineness of the activities. He is not required to look into the utilization of fund, commercial nature of activity etc. at this stage. These aspects can be looked into by the AO at the time of assessment.
As per the scheme of the Act, registration u/s 12A of the Act does not, ipso-facto, entitle an assessee to avail exemption u/s 11 of the Act. For availing exemption u/s 11, the assessee has to fulfill the conditions laid down u/s 11 to 13 of the Act. Therefore, whether the assessee is entitled for exemption u/s 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 u/s 12A cannot step into the I.T.A. No. 2932/Del/2015 shoes of the AO to examine whether the assessee has carried out any activity with profit motive or there is violation of conditions laid down u/s 11 of the Act. From the order of the DIT(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), the Hon’ble Allahabad High Court held as under:
“33. In regard to the genuineness of the activities of the trust or the institution, whose objects do 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 presumptions 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 12AA, 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 I.T.A. No. 2932/Del/2015
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 of the trust or the institution."
The Hon’ble Rajasthan High Court in case of CIT Vs. Digambar Jain Mandir vide of 2001 dated 25/02/2008 held that in order to get registration u/s 12A of the Act, the institution need not first establish its claim to exemption u/s 11 and 12. The question of exemption under section 11 and 12 would only come at the time when the trust/institution is assessed to tax. The aforesaid decision of the Hon’ble Rajasthan High Court was affirmed by the Hon’ble Supreme Court while dismissing the SLP filed by the Department (310 ITR 2 (St.).
Therefore, considering the facts of the present case in the light of the judicial precedents and also relevant statutory provisions, the only conclusion one can reach is that the DIT(E) was not correct in rejecting assessee’s application u/s 12A of the Act. In the aforesaid view of the matter, we direct the DIT(E) to grant registration u/s 12A of the Act to the assessee institution.
In the result, the appeal of the assessee is allowed.
I.T.A. No. 2932/Del/2015
Order pronounced in the open court on 18th of February, 2016.