SUKHMANI SOCIETY FOR CITIZEN SERVICES,BARNALA vs. CIT (EXEMPTIONS), CHANDIGARH

Per Sanjay Garg, Judicial Member:

The captioned appeal has been preferred by the

appellant/applicant against the order dated 22.09.2015 of the

Commissioner of Income Tax (Exemptions), Chandigarh

[hereinafter referred to as ‘CIT(A)].

The assessee in this appeal has taken the following 2.

grounds:-

i) The learned CIT(Exemptions) has erred in refusing the registration u/s 12AA to the assessee society on the ground that assessee society is doing business by charging f acilitation charges from the public for the services provided by it and by virtue of amendment made in the

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def inition of Charitable Purpose u/s 2(15) of the Income Tax Act, 1961 by Finance Act, 2008 applicable w.e.f 01.04.2009 the assessee is doing an activity in the nature of a business hence the activity no longer f alls in the ambit of def inition of section 2(15) of the act without considering the latest judgments of honorable high courts as relied upon by the assessee in his submissions on the issue of amendment made in section 2(15) by Finance Act, 2008. ii) The appellant is a public sector organization performing state function having no prof it motive & is providing public utility services to the society at a large. iii) The learned CIT (Exemptions) has erred in interpretation of law by erroneously treating the appellant as a commercial organization carrying on the objects in the nature of trade, commerce or business.

consideration are that the appellant before us is a society

registered with the Additional Registrar cum General

Manager, Distt. Industries Centre, Barnala under Societies

Registration Act 1860. As per memorandum of the society,

the primary objective of the society is to establish, manage,

operate, maintain and control the service centres, namely

Sukhmani centres in the District Barnala for providing

integrated citizen services pertaining to all departments

under one roof to the public in efficient, transparent,

convenient and friendly manner. All the service centres in

the district have been established, managed and run by the

Sukhmani Society on a self-sustaining revenue model.

Sukhmani society is one stop shop for all Government

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services in an integrated manner. The appellant applied for

registration u/s 12AA of the Income Tax Act to the CIT(E)

pleading that it has been carrying out the activities

towards advancement of object of general public utility and

the same falls within the definition of ‘charitable purposes’

as defined under section 2(15) of the Income Tax Act. The

Ld. CIT(E), however, rejected the application of the assesse

observing that as per clause 4(e) of the memorandum of

association of the applicant society, the objective of

society was to work out and recommend the service fee or

user charges that could be charged from the end customers

for the approval of the competent authority and concerned

departments/organisations over and above the prescribed

bill amount/fee/statutory fee for providing the services

through Sukhmani Centres/ Financial Institutions or

Franchises. He observed that the above objective of the

society showed that there was a service provider and

customer relationship between the Sukhmani society

(appellant) and public. That the user charges being

charged from the end customers were over and above the

prescribed bill amount/fee/statutory fee. The Ld. CIT(E)

has given the details of the some of the user charges

charged by the appellant society for FY-2014-15 in a chart

which is reproduced as under:

Service Fee charged from the end customer for FY 2014-15.

Sr. Name of Service No of Rate/Fe Services e per No Rendered Service

The Ld. CIT(E) from the above chart observed that the

above services charges were apart from statutory fee/other

fee fixed by various government departments. He observed

that that the user charges being collected by the society

were as high as Rs 1400/-. Where the user charges on

services like Aadhar Cards or E-Aadhar cards were nil, the

Society had been getting commission from various

agencies. That as per Income and Expenditure Statement

filed, the society had got Rs 9,50,544/-from E-Aadhar and

Rs 1,25,320/ - from electricity Bills as commission.

6 4. The Ld. CIT(E) while relying upon the amended

provisions of Section 2(15) of the Act (w.e.f. 01.04.2009)

observed that an object of general public utility which

involved carrying on of an activity in the nature of Trade,

Commerce or Business or any activity of rendering any

service in relation to any Trade, Commerce or Business for

a cess or fee or any other consideration, irrespective of the

nature of use or application, or retention, of the income

from such activity had ceased to be a charitable purpose.

He observed that since the society had been giving services

by charging fees and thus it was an activity in the nature

of a business and hence by virtue of this amendment, the

activity did not fall within the ambit of the definition of

Section 2(15) of the Act. He also observed that the

applicant society had been earning huge profits and its

application of Income on society was much below 85% as is

envisaged in the Act. The Ld. CIT(E) further relied upon the

decision of the Amritsar Bench of the Tribunal in the

identical cases of ‘Sukhmani Society for Citizen Services

Vs. CIT. Bathinda’ in I.T.A. No. 551/ASR-2011 and

‘Sukhmani Society for Citizen Services Saheed Bhagat

Singh Nagar, Nawanshahar’ in I.T.A. No. 297(Asr)/2012)

wherein the Tribunal has upheld the orders in favour of

the department. He therefore concluded that the activities

of the assessee-society were not charitable in nature within

the meaning of provisions of Section 2(15) of the Act and

7 accordingly rejected the application of the appellant for

registration U/s 12AA of the Income Tax Act.

application for registration by the Ld. CIT(E), the appellant

society has come in appeal before us.

gone through the record. A perusal of the objects of the

society, reveals that it has been established to provide/

facilitate services of the Government Departments against

receipt of fees. The fees for various items as has been

listed in the impugned order of CIT(E) shows that in some

cases, it is very much excessive and seems to be

unreasonable. Even the fees received by the appellant

society are in addition to the nominal statutory/

Government fees payable by the citizens for availing the

services. The Govt. Departments cannot charge more than

the statutory/Government fees prescribed for such

services/functions discharged by them on behalf of the

Government. However, by way of, establishing the assessee

society, the citizens are forced to apply for the requisite

works / services through the appellant society and subject

to the payment of fees/ processing charges fixed by the

appellant society. It is a commonly and well known fact

that there are unwritten instructions to every department

that they should not directly accept the applications of the

8 citizens for providing services rather it has been made

mandatory for the citizens to avail/apply for certain type of

services, as detailed in the chart above, through the

service centers of the appellant society on payment of

charges fixed by the society over and above the

statutory/Government fees prescribed for such

functions/services. The counsel for the appellant could not

bring before us any data showing that the services as

enumerated in the chart above are also offered / provided

by the concerned departments directly to the citizens

without intervention of the society. In our view, rather

than rendering any services for charity, the appellant

society is causing extra financial burden upon the citizens

in respect of services to which they are otherwise

statutorily entitled to at much lower nominal Government /

statutory fees/charges. In relation to certain services, the

additional charges collected by the society are exorbitant

e.g. for processing applications for NOC building plan of

local bodies, fee has been fixed at Rs.1,400/. Similarly a

fee of Rs.1,400/- has been fixed the processing the

application for issuance of NOC for petrol pump and for

applications for sanction building plans/revised plans. The

fees for processing application of license for ticketing agent

has been fixed at Rs. 1,000/- and that for marriage

certificate at Rs. 700/-. The fees for sending application to

the Department for issue new Arms license has been fixed

9 at Rs. 700/-. There is no explanation offered as to why

such hefty fees has been fixed for merely processing the

applications. Not only aforesaid fees but apart from that

the assessee society has been receiving commission from

various agencies. This clearly shows that the predominant

object of the appellant society is to earn profit or income

and not charity.

of the appellant society further reveals that concerned

Deputy Commissioner of the District/ has been made the

Chairman (CEO) of the society and the concerned

Additional Deputy Commissioner as Member Secretary of

the society. In our view, to make available the requisite

Government schemes and services to the citizen of the

country is the statutory function of the Government and

the concerned Deputy Commissioners/Additional Deputy

Commissioners being Government servant are duty bound

to arrange for / provide for the requisite services offered by

the concerned Government departments under their

jurisdiction. They are supposed to ensure that the

Government Department under their jurisdiction should

discharge their functions/duties to the public without any

harassment to the public, but, surprisingly, they instead

acting as officials of the appellant society are collecting

charges through and in the name of the society for

processing the applications of the citizens to the concerned

10 departments. This, in our view, is in conflict to their

statutory functions.

the appellant society has been brought into existence as

one stop shop for all Government services to be provided in

whole district in an integral manner and is tasked to act as

agency of the state in public duties which cannot be

discharged by private bodies, and therefore, the appellant

society performs sovereign and regulatory function in its

capacity as an instrumentality of the state government and

its designated functions fall under the category of

‘advancement of object of general public utility, in our

view, is misconceived. In our view, in democratic country,

there cannot be and should not be any shop for all

Government Services from where the people should be

forced to purchase the Government Services on payment of

price in addition to and other than the statutory

Government fees prescribed for issuance of such services

like issue of certificates etc. Even the appellant society, is

not performing any sovereign functions of the State. Even

sovereign functions are not supposed to be done by the

State for a price or fees. Sovereign functions are those

actions of the State for which it is not answerable before

the Court of Law. Matters such as defence of the country,

raising and maintaining armed forces, making peace in

retaining territory, police functions including maintenance

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of law and order, legislative functions etc. are sovereign

functions and are primarily inalienable functions, which

the State only could exercise. The State is engaged with

various functions, but all of them cannot be construed as

primary inalienable functions. The sovereign functions of

the state cannot be and should not be delegated to a third

party or a society. The Deputy Commissioner and the other

Govt. officers through whom the Govt. is supposed to carry

out its functions including sovereign functions are

supposed to provide the Govt. Services to the citizens and

make the Government Department function in normal

course without harassment to the public, rather than to

delegate these functions to a society like appellant of

which they themselves are the controlling officers and that

too against charging of hefty fees. In our view, it is nothing

but a modus oprandi to charge citizens more that they are

bound to pay. Even the amount collected does not go to the

Govt. treasury so that it may be utilized for the welfare of

the citizens of the country. This activity of charging of fees

from the citizens of the country in the name of facilitation

to avail of Govt. services, which the citizens otherwise are

not supposed to pay, in our view, involves no charity. The

Co-ordinate Amritsar Bench of the Tribunal in the cases of

‘Sukhmani Society for Citizen Services Vs. CIT, Bathinda’

vide order dated 26.09.2012 passed in in ITA No.

551/ASR/2011 has rightly held that the activity of the assesse society were not charitable in nature within the

meaning of the provisions of section 2(15) of the Act.

Similar observations have been made by the Amritsar

Bench in the case of ‘Sukhmani Society for Citizen Services

Vs. CIT, Jalandhar’ in ITA No. 297/Amritsar/2012 vide

order dated 22.04.2013, relevant part of the said order is

reproduced as under:

"We have also thoroughly gone through the object of the assessee-society which clearly mentions that the assessee society is charging service fee or user chargers from the customers for the approval of the competent authority and the concerned departments/organizations over and above the prescribed bill amount / fee /statutory fee for providing the services through Sukhmani Centres/Financial Institutions or Franchisees. For the sake of convenience, one of the main objects of the society from the written submission dated 03.04.2013 i.e (e) is reproduced as under:

"(e) To work out and recommend the service fee or user charges that could be charted from the end customers for the approval of the competent authority / and concerned departments/organizations over and above the prescribed bill amount/fee/statutory fee for providing the services through Sukhmani Centres/Financial Institutions or Franchisees."

20) Keeping in view the aforesaid object of the society, we are of the view that this society has been established for maintaining the agencies and franchisees in the district to conduct business of the society, which clearly establishes that the present society is doing business with other agencies and franchisees in the district. We have not seen any object of the society which shows that the present society is doing any charitable activities for the general public utility. Even otherwise the assessee- society has failed to establish before the CIT-I, Jalandhar, as well as before us that assessee-society is doing any charitable work keeping in view its object. Merely, mentioning about various objects in the nature of charitable activities in the Memorandum of Association, does not mean that the society is doing any charitable activities for the 21 general public utility and is entitled for registration under Section 12A(a) of the Act.

21) Keeping in view of the aforesaid discussion, we are of the considered view that the activities of the assessee-society are not charitable in nature within the meaning of provisions of Section 2(15) of the Act it does not qualify to treat as charitable institution. Since the assessee has not established that its society is formed with objects of any charitable purpose, then the question of discussion of citation relied upon by the assessee's counsel does not arise, even otherwise these judgments are different from the facts of present case and are not helpful to the society. The present society is doing its business and charging huge fees from the public which is in addition to the prescribed fee of the Punjab government. Even otherwise, the fees charged by the present society are in addition to the burden forced upon the common man. Because of this, service has to be rendered by the Punjab Government free of cost to the public against the fee prescribed in the chart as reproduced in tire foregoing paragraphs. We are of the considered opinion that no interference is called for in the well-reasoned order passed by learned CIT-l, Jalandhar. Therefore, we uphold the impugned order dated 26.04.2012 by dismissing the present appeal filed by the assessee-society."

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ordinate Benches of the Tribunal in the above mentioned

cases (supra).

assessee on the decision of the Tribunal in the case of

‘Kapurthala Improvement Trust Vs. CIT’ in ITA No.

732/Amritsar/2013 dated 11.06.2015 and in the case of

‘Improvement Trust Bathinda Vs. CIT, Bathinda’ in ITA No.

366/Amritsar/2012 dated 31.08.2015 is concerned, in our

view, the said decisions are not applicable to the facts and

circumstances of this case. In view of the discussion made

above, the appellant society, in our view, is not carrying

out any object of General Public Utility and its activities

cannot be said to be charitable in nature. We, therefore, do

not find any infirmity in the order of the CIT(E) in rejecting

the application of the assessee for registration u/s 12(AA)

of the Income Tax Act.

In the result, appeal of the appellant society is hereby

dismissed.

Order pronounced in the Open Court on 11.07.2018.

Sd/- Sd/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 11.07.0218 Ganesh Kumar Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR