M/S. BAL KALYAN SAMITI SARASWATI VIDHYA MANDIR INTER COLLEGE,RAMPUR vs. CIT (E), LUCKNOW

This is an appeal against the order of CIT(Exemption), rejecting the application of the assessee under section 10(23C)(vi). The grounds of appeal preferred are as under:-

On the facts and circumstances of the case, the learned CIT (Exemption) has erred both on facts and in law in passing the order rejecting application u/s 10(23C)(vi) as the same is arbitrary, illegal and wholly without jurisdiction.

The facts of the case are that the assessee is a Society registered with the Society and Firms, Uttar Pradesh running educational institutions called, “Saraswati Shishu Mandir” and, “Saraswati Vidhya Mandir” at Milak, District Rampur. The assessee moved an application for registration 10(23C)(vi) of the Act and submits that it has filed all the necessary material to the ld. CIT(Exemption) required for registration of the society. However, as recorded by the ld. CIT(Exemption), nobody actually appeared before her on the dates of hearing. The ld. CIT(Exemption) recorded her satisfaction that there were no documents available on record for verification of ownership of land and building nor had any such asset been reflected in the balance sheet of the society. Furthermore, the ld. CIT(Exemption) recorded that the books of accounts, bills and vouchers had not been produced for verification by the applicant. Therefore, referring to the facts that the ld. Assessing Officer in his M/s Bal Kalyan Samiti Saraswati Vidhya Mandir Inter College report dated 30.04.2019 had also not mentioned anything about the production of books of accounts, bills and vouchers, she held that no documents were available on record to confirm the charitable activities of the trust. The ld. CIT(Exemption) quoted from the judgment of Hon’ble Supreme Court in the case of American Hotel And Lodging vs. Central Board Of Direct Taxes (Civil Appeal No.3468/2008) wherein in paragraph 32, the Hon’ble Supreme Court dealing with the second proviso to section 10(23C)(vi) had said as under:- "It is important to note that the second proviso also indicates the powers and duties of the PA. While considering the approval application in the second proviso, the PA is empowered before giving approval to call for such documents including annual accounts or information from the applicant to check the genuineness of the activities of the applicant of the applicant institution. Earlier that power was not there with the PA. Under the third proviso, the PA has to ascertain while judging the genuineness of the activities of the applicant institution as to whether the applicant applies its income wholly and exclusively to the objects for which it is constituted/established. Under the twelfth proviso, the PA is required to examine cases where an applicant does not apply its income during the year of receipt and accumulates it but makes payment there from to any trust of institution registered under section 12AA or to any fund or trust or institution registered under section 12AA or to any fund or trust or institution or university or other educational institution and to that extent the proviso states that such payments shall not be treated as application of income to the objects for which such trust or fund or educational institution is established." It is clear that the applicant has not cleared this test by repeatedly not attending at all, in compliance to so many opportunities given in this regard."

The assessee is aggrieved at this rejection of registration. Sh. P.K. Kapoor, C.A. (hereinafter referred to as the ‘ld. AR) appeared on behalf of the assessee and argued its case. It was submitted that the ld. CIT(Exemption) had asked the assessee to appear on 17.06.2019 with various details/information/evidences. All the 3 M/s Bal Kalyan Samiti Saraswati Vidhya Mandir Inter College required documents had been sent through email and also by post vide letter dated 12.07.2019 and had been duly acknowledged by the ld. CIT(Exemption) in the order dated 14.02.2020. The second notice was also complied with and the said response that was sent by speed post was delivered to the office of ld. CIT(Exemption) on 12.02.2020. However, the same had not been taken on record in the order dated 14.02.2020. It was submitted that the perusal of the activity report filed before the ld. CIT(A) would demonstrate that the society was carrying out only educational activities and was not for profit. As regards, ownership of land and building, it was submitted that the perusal of the income and expenditure account would show that all such expenditure was debited to the income and expenditure account and the details of building area were enclosed with the submission dated 12.07.2019. Besides the following were produced in original before the ld. CIT(Exemption), i. balance sheet for last three years, ii. income tax return for three years alongwith computation of income, iii. copy of bank accounts, iv. note on charitable activities for last three years, v. copy of affiliation documents with the prescribed board, vi. byelaws of the society. It was further submitted that for the purpose of report sought by ld. CIT(Exemption), the books of accounts along with, the bills and vouchers for the last three years were duly produced before the ld. ITO (Exemption), Bareilly, which had been checked and verified by him. It was further submitted that physical inspection of their educational activities had also been carried out at the school premises of the assessee and all requisite explanations had been duly submitted. Therefore, the ld. CIT(Exemption) had erroneously held that necessary information had not been filed and without providing opportunity of being heard to the assessee and without 4 M/s Bal Kalyan Samiti Saraswati Vidhya Mandir Inter College considering the material furnished, rejected the application of the appellant for registration under section 10(23C)(vi). Merely, because the ld. Assessing Officer in his report did not confirm the verification of books of accounts, bills and vouchers, the application of the assessee was rejected with the allegation that no documents were available on record to confirm the charitable activities of the trust, even though in para 3 of the order, the submission of the assessee dated 12.07.2019 are acknowledged and para 7 of the order clearly shows that the notes on charitable activities and accounts for the last three years were enclosed. In the same submissions, it had been duly informed to the ld. CIT(Exemption) that the ld. AO had verified the bills and vouchers, books of accounts and also carried out physical inspection of the assessee’s premises with regard to educational activities. Therefore, the trust being charitable in nature, it was prayed that in the interest of natural justice, the registration may be granted under section 10(23C)(vi).

The ld. AR also placed reliance on the judgments of the Hon’ble Allahabad High Court in the case of CIT vs. Reham Foundation (2019) 418 ITR 205 which held that the powers of the Appellate Tribunal are co-extensive with the power of the Commissioner under section 12AA of the Income Tax Act, 1961 and the if the Tribunal is convinced that the activities of the trust are genuine then it has a power under section 254(1) of the Act to direct the Commissioner to grant the registration, without remanding the matter back to the Commissioner.

On the other hand, the ld. CIT DR, pointed out that the examination of the final accounts of the assessee trust would show that no land and buildings, were reflected in the balance-sheet and therefore, there was no ownership of the same with the trust. He further submitted that the order of the ld. CIT(Exemption) showed that the relevant documents called for had not been filed before the ld. CIT(Exemption) and due compliance had not been made on the dates of hearing, therefore, the decision to reject the registration under section 10(23C)(vi) was justified. 5 M/s Bal Kalyan Samiti Saraswati Vidhya Mandir Inter College 7. We have duly considered the facts and circumstances of the case and the arguments of both parties. A perusal of the replies filed by the assessee before the Income Tax Officer (Exemption), Bareilly on 24.04.2019, show that the assessee stated that books of accounts were being produced along with all vouchers of expenses, registers, bank statement in original for the last three years. Separately, it is observed that the assessee trust had also furnished notes on activities / annual reports for the last three years, original copy of, “byelaws” and other relevant registration certificates (in original) for verification, ITR for assessment year 2018- 19 and computation of income for assessment years 2017-18 and 2016-17; copy of donations receipts, list of members of the society along with replies to the various questions raised by the Income Tax Officer. It is further seen that, in the reply dated 7.02.2020 which has been received in the office of ld. CIT(Exemption) on 12.02.2020, the assessee has pointed out to the ld. CIT(Exemption) that the books of accounts along with the bills and vouchers etc., for the last three years and till the date of hearing had been duly produced before the ld. ITO(Exemption), Bareilly and had been thoroughly checked and verified by him, besides which a physical inspection had been carried out at the school premises at Milak, (District Rampur) to verify the educational activities. The assessee has also stated that the books of accounts along with all vouchers and registers were ready for production before the Ld CIT(Exemption). It is also observed that this fact of production of books of accounts along with bills and vouchers for the last three years ,before the ITO (Exemption) Bareilly, had also been asserted by the assessee in its reply dated 12.07.2019. It does not appear that the ld. CIT(Exemption), at any point of time, communicated with the assessee to indicate that production of the books of accounts, bills and vouchers before the ld. Assessing Officer during the course of verification was not sufficient compliance to the terms of his/her notice. It also appears that the denial of registration is based on an incorrect assumption regarding the production of books, because the ld. Assessing Officer was silent in his report with regard to the production of books of accounts before him prior to 6 M/s Bal Kalyan Samiti Saraswati Vidhya Mandir Inter College submission of his report dated 30.04.2019. However we note that the Ld. Assessing Officer had not specifically stated that the books had not been produced and it does not appear that any clarification was sought from the ITO(Exemption), Bareilly as to the fact of production of books of accounts, bills, vouchers or registers, before concluding that proper compliance had not been made by the assessee. Furthermore, it is observed that as per the order, the ld. CIT(Exemption) had called for a report from the ld. AO, but nowhere in the course of her order has she stated that the ld. AO gave any adverse finding in that report regarding the activities of the applicant institution, as to whether the applicant applies its income wholly and exclusively to the objects for which it is constituted or established or that it had made a payment therefrom to any trust or institution registered under section 12AA. It is observed that the ld. ITO(Exemption), Bareilly had sought a detailed reply from the assessee on 16 points and the assessee had submitted a response to him on all the issues raised. It is not evident from the order of the ld. CIT(Exemption) that any adverse finding was recorded with regard to any of the points on which clarification had been sought by the ld. ITO(Exemption), Bareilly. A perusal of the notice issued by the ld. ITO(Exemption) on 9.04.2019 shows that the notice had been issued with reference to the application in Form 56D dated 10.02.2019 for grant of approval of registration under section 10(23C) of the I.T. Act, 1961 filed online before the ld. CIT(Exemption), Lucknow. It is, therefore, evident that the said enquiry / verification has been done at the instance of the ld. CIT(Exemption), Lucknow. We are, therefore, of the view that once the ld. CIT(Exemption) has got an enquiry conducted and not received any adverse report in the matter, it is not appropriate to conclude that the assessee has not submitted sufficient material required for forming satisfaction regarding educational purpose of the society unless the deficiencies in the said inquiry or lack of compliance during the same are pointed out. On the issue of verification of ownership of land and building, it is observed from the accounts submitted before us of Saraswati Vidhya Mandir Inter College, Milak, (Rampur) for the year ended 31.03.2017, that the 7 M/s Bal Kalyan Samiti Saraswati Vidhya Mandir Inter College assessee has shown an expenditure of Rs.36,94,925/- on the construction of a building and claimed it as application of income. Thereafter, by computing excess of expenditure over income of Rs.21,03,225.93/-, the assessee has reduced this amount from its liabilities while preparing its balance-sheet. Therefore, it cannot be said that the asset is not reflected in the balance-sheet of the assessee because it has contributed to the reduction of liabilities to that extent. Of course, the balance-sheet has not been drawn up in a traditional manner, reflecting details of all assets and liabilities, but one cannot conclude from that that the land and buildings have not been reflected. Further, it is seen that in response to the questionnaire issued by the ld. CIT(Exemption), the assessee has submitted that the land in which the educational society is running is owned by the society and hence no NOC was required. Be that as it may ,it is observed that the evidence regarding the ownership of land and building is not a pre-condition for a society to be regarded as existing solely for educational purposes and in our view, absence of ownership is not an impediment for grant of registration under section 10(23C)(vi). The Hon’ble Allahabad High Court in the case of CIT vs. Red Rose School (2007) 212 CTR 394 (All) has pointed out that the enquiry by the ld. CIT(Exemption) at the time of grant of registration should remain confined to whether the assessee who has moved the application is actually performing the activities for which the exemption has been claimed and the genuineness of the activities of the trust or institution has to be seen, keeping in mind the objects thereof. In respect of a school ,it stated that ld. CIT(Exemption) has to satisfy himself that the society has established the school, where education is being imparted as per rules and the factum of establishment and running of the school is a genuine activity. It also held that the enquiry regarding genuineness of activities cannot be stretched beyond this. It is seen that the Hon’ble Supreme Court in the case of American Hotel And Lodging vs. Central Board Of Direct Taxes (Civil Appeal No.3468/2008) have also held that there is a difference between stipulation of conditions and compliance thereof. In their view,”the threshold conditions are actual existence of an educational institution and approval of 8