MARKAZUL IGHASATIL KHAIRIATIL HINDIYA SOCIETY,BAREILLY vs. CIT(EXEMPTIONS), LUCKNOW

In this appeal, the assessee has raised the following grounds: -

1. 1.The Learned Commissioner of Income Tax (Exemption) Lucknow has erred in rejecting the grant of registration u/s 12A of the Income Tax Act, 1961 to the assessee with total disregard to the facts and circumstances of the case.

The brief facts of the case as emanating from the record, the assessee Trust registered bearing Registration No. AAOAM6484BE20215. The assessee was granted Provisional Registration under section 12A of the Act vide order dated 10/03/2022 passed in Form No. 10AC. Subsequently, the assessee filed the application in Form No. 10AB seeking registration under section 12AB of the Act on 22/04/2022. Vide impugned order dated 03/10/2022 passed in Form No. 10AD, the learned CIT(E) rejected the application for registration under section 12A of the Act on the basis that in the Form No. 10A, i.e. application for Provisional Registration, in the “charitable purpose”. According to the Ld. CIT(E), a notice issued to the assessee on 27/08/2022, 03/10/2022 & 11/10/2022, requiring it to furnish the details of copy of Form no. 10A for F.Y. 2021-22 and copy of order received by you in Form No. 10AC. And also requiring it to furnish the necessary query vide order dated 03/10/2022, forming part of the paper book from page no. 3 to 5 of the paper book. According to the Ld. DR, from the perusal of income/expenditure account of the assessee for F.Y. 2019-20 to F.Y. 2021-22 shows that the activities of the assessee trust are not being carried out as per object of the trust. A huge amount is being collected as “Mess Fees” and also expenses have been increased under the head of “fooding expenses”. According to the Ld. DR, the income/expenditure account filed by the assessee for three years are the quantum of admission fees, mess fees and fooding expenses pertaining the relevant three years are as under: - F.Y Admission fees Mess fees Fooding expense 2019-20 2,15,130 48,19,210 27,15,120 2020-21 2,47,399 55,42,192 29,00,632 2021-22 2,71,254 60,48,254 31,85,647 Page 3 of 6 4. From a perusal of the income/expenditure account filed by the assessee for last three years that no expenditure has been made on the charitable activities as mentioned in the object of the trust deed. According to the Ld. DR, a perusal of receipt/payment account of the assessee for FY. 2021-22, that the assessee trust has collected mess fees at Rs.60,48,254/- and made expenses of Rs.31,85,647/- on fooding expenses. The total receipt of the trust is at Rs.71,23,134/- and collection from mess fees are at Rs.60,48,254/-. According to the provisions of section 2(15) of the Act, when the aggregate receipt from such activities exceeds 20% of total receipt, the object is not to be considered as “Charitable in nature”. The total receipt from mess fees are 84.9%. Therefore, the activities are in the nature of business purposes activity. It is clearly shows that the assessee is engaged in the activities which are of business nature. Accordingly, the Ld. CIT(E) has rightly rejected registration u/s 12A of the Act by passing impugned order dated 29/11/2022. Feeling Aggrieved by the order of the Ld. CIT(E), the assessee has filed this appeal before us.

In the course of appellate proceedings in ITAT, the assessee filed a paper book containing the following particulars: -

At the time of hearing before us, the Ld. Counsel for the assessee submitted that the assessees application for registration Page 4 of 6 u/s 12A/12AA of the Act was rejected owing the ground that the assessee trust had collected mess fees at Rs.60,48,254/-. He observed that the total receipt of the trust was Rs.71,23,134/-, and collection from mess fees at Rs.60,48,254/- was about 84.9% of the total receipt. These facts led the Ld. CIT(E) to the conclusion that the activities of the assessee trust were not genuinely charitable, leading to rejection of application for registration u/s 12A/12AA of the Act. The Ld. Counsel for the assessee submitted that the aforesaid amount of Rs.60,48,254/- was given the nomenclature of mess fees in the account of the assessee trust, but in fact included academic fees, fees for study material and other related expenses towards education of the students. In this regard, he drew our attention to the income and expenditure account of the assessee trust wherein besides fooding expenses, expenses under the head salary and honorarium, books and periodicals, painting and stationery etc were also incurred if these expenses related to education of the students is considered, the Ld. Counsel for the assessee submitted that the charitable nature of the assessee trust can be considered. The Ld. CIT-DR for revenue, after relying upon the impugned order of the Ld. CIT(E) contended that the submission made by the assessee needs to be verified. He drew our attention to the fact that no schedule giving break-up of mess fees is attached to the income and expenditure account of the assessee and therefore the submissions made by the Ld. Counsel for the assessee cannot be accepted without due verification at the end of the Ld. CIT(E). He submitted that the issue regarding grant of registration to the assessee trust u/s 12A/12AA of the Act may therefore be set aside to the file of the Ld. CIT(E) with a direction to pass fresh order in accordance to law after due verification and after providing reasonable opportunity to the assessee trust.

In the result, the appeal of the assessee is partly allowed for statistical purposes.