MAHATMA GANDHI STATE INSTITUTE OF PUBLIC ADMINISTRATION,CHANDIGARH vs. CIT(E), CHANDIGARH

PER ANNAPURNA GUPTA, A.M.:

This appeal has been preferred by the assessee against

the order of Ld. Commissioner of Income Tax (Exemptions),

Chandigarh (hereinafter referred to as (‘Ld.CIT(E) dated

“1. That the order of he Learned Commissioner of Income Tax is bad, against the facts & law.

filed by the assessee in this regard, held the applicant/assessee ineligible for grant of registration u/s 12AA of the Act since as per the Ld.CIT(E), the activities of the assessee society could not be termed to fall under the category of charitable purpose and the absence of dissolution clause in the Memorandum of Association of the applicant-assessee

for assessee drew our attention to the order of the Ld.CIT(E)

and pointed out therefrom the specific reasons for denial of registration. Taking up each finding of the Ld.CIT(E) one by one, leading to the denial of grant of registration u/s 12A,

the Ld. counsel for assessee first drew our attention to the findings of the Ld.CIT(E) that since the present application

was triggered by rejection of the claim of the assessee to exemption u/s 10(23C(iiiab) by the Assessing Officer, any decision at this stage would amount to subverting the due

process of law imbibed in the appellate proceedings and further that seeking registration after lapse of 39 years was anachronistic and registration should have been sought at the initial stage or at its inception. The Ld. counsel for assessee drew our attention to paras 7.1 & 7.2 of the order

of the Ld.CIT(E) in this regard as under:

“7. 1. The reply submitted by the applicant has been perused. The applicant vide its undated reply at para 3 has submitted the reason for forwarding the present application as the denial of exemption u/s 10(23C)(iiiab) of the Act by the jurisdictional assessing officer. The response to the query regarding seeking registration under section 12A after a lapse of 39 years' of existence is perfunctory. Mere denial of claims under section 10(23C)(iiiab) does not provide ample grounds for a 12A registration. The undated response received in this office on 7lh July 2017, clearly exemplifies that the entity claims to be mainly financed by die Government. If that be so, the applicability of 10(23C)(iiiab) is more pertinent. Given the fact that self-confessedly the present application was triggered by rejection of claims u/s 10(23C)(iiiab) by the Assessing Officer, any decision at this stage shall amount to subverting the due process of law imbibed in the appellate procedure.

claim of exemption u/s 10(23C(iiiab) pertaining to the assessment year 2013-14 referred to by the LD.CIT(E), had been allowed by the I.T.A.T. vide its order passed in ITA

No.270/Chd/2017 dated 30.10.2017. Copy of the order was placed before us. Further, the Ld. counsel for assessee

stated that the assessee is free to seek registration at any point of time and is not required under the Statute to necessarily seek the same only at the initial stage or at its inception. The Ld. counsel for assessee drew our attention

to the provisions of section 12A(1)(a)/12A(1)(aa) which are as under:

“[(1)] The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:— (a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the [***] Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, [whichever is later and such trust or institution is registered under section 12AA ] : [Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution,— (i) from the date of the creation of the trust or the establishment of the institution if the [***] Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons; (ii) from the 1st day of the financial year in which the application is made, if the [***] Commissioner is not so satisfied:] [Provided further that the provisions of this clause shall not apply in relation to any application made on or after the 1st day of June, 2007;] [(aa) the person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form and manner to the Commissioner and such trust or institution is registered under section 12AA;]”

that the assessee was always free to apply for registration

at any point of time both before 1.6.2007 which is governed

by the provisions of section 12A(1)(a) and after 1.6.2007

which is governed by the provisions of section 12A(1)(aa).

The Ld. counsel for assessee contended that there was no merit therefore in this ground of Ld.CIT(E) for denying grant

of registration to the assessee u/s 12AA of the Act.

could not controvert the contention of the Ld. counsel for assessee that it could seek registration at any point of time

and was not necessarily required to seek the same at the initial stage or at its inception only.

of denial of claim of exemption in earlier year u/s 10(23C(iiiab) and seeking registration after a lapse of 39

years , and hold the same as being immaterial and of no consequence for the purpose of grant of registration to the assessee u/s 12AA of the Act.

attention to para 8 of the order and pointed out therefrom

that the next reason for denial of registration was the findings of the Ld.CIT(E) that the applicant-assessee’s

activities of affording training to government employees did

not fit in the definition of education so as to be held as a charitable activity within the definition of the same u/s 2(15) of the Act. The relevant findings of the Ld.CIT(E) at para 8 of the order in this regard are as under:

“8. Moreover, there are other issues that do not render the applicant’s activities measuring upto the requirement of registration. Affording training to government employees does not fit into the definition of “education” laid down by the Supreme Court in the case of "Sole Trustee Lok Shikshan

Sansthan". The sense in which the word "education" has been used In section 2(15) as interpreted by the Apex Court in the case of Sole trustee, Loka Sikslian Sansthan (101 1TR 234) is systematic instruction, schooling or training given to the young in preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received. The word "education" has not been used in that wide and extended sense, according to which every acquisition of further knowledge constitutes education.”

for assessee pointed out that the I.T.A.T. in its order passed

in the case of the assessee, while granting exemption u/s 10(23C)(iiiab) in ITA No.270/Chd/2017 dated 30.10.2017,

had dealt with identical issue and had held the activity of affording the training to government employees as being in the nature of education. The Ld. counsel for assessee drew

our attention to paras 18 and 19 of the order of the I.T.A.T.

in this regard which are as under:

“18. Even otherwise, we find that the activity of training and conducting study courses, conferences, seminars and lectures to Public service administrative officers in the field of public administration tantamounts to nothing else but imparting education. All the stated objects of the assessee society are aimed at diffusing certain branch of knowledge i.e. Public administration by conducting training programmes, study courses, conferences, seminars, lectures or by promoting research and training, publishing papers and periodicals and maintaining libraries and information services in the area of Public administration. The undertaking of training and study courses is carried out in a structured manner by conducting regular courses for imparting instruction and training on various subjects related to public administration. The activities undertaken therefore is in the nature of imparting education. The Hon’ble Gujarat High Court dealt with an identical issue in the case of Gujarat State Co-operative Union vs CIT reported in195 ITR 279.In the said case also the assessee society was established with the object of spreading education relating to cooperative movement by conducting courses, training

programmes, research and study of the subject, opening libraries and publishing periodicals and literature on the subject. The question before the Hon’ble High court was whether the assessee had been rightly denied exemption u/s 10(22) of the Income Tax Act,1961,holding its activities to be not educational in view of the meaning given by the Supreme court in Sole Trustee, Loka Shikshana Trust vs CIT 101 ITR 234. The Hon’ble High Court held that the objects of the assessee indicated that the society was established for diffusion of certain branch of knowledge and therefore was in the nature of imparting education. Further referring to the decision of the supreme court in Lok Shikshana (supra), the court held that the observation of the apex court that education means schooling would mean, that schools, instructs or educates and the observations of the apex court were not intended to give a narrow or pedantic sense to the word education. The relevant finding of the High Court are as under: “The controversy which we are called upon to decide is, therefore, whether the assessee is an educational institution existing solely for educational purposes and not for purposes of profit within the meaning of s. 10(22) of the Act. Under s. 10(22) of the Act, it is provided that in computing the total income of a previous year of any person, any income falling within the said clauses, i.e., any income of a University or other educational institution existing solely for educational purposes and not for purposes of profit, shall not be included. The objects of the assessee-Co-operative Union as also the activities actually carried on by it will throw considerable light on the question whether the assessee-Co-operative Union is existing solely for educational purposes or not. Bye-Laws 2 of the assessee-Co-operative Union, a copy of which is placed on record by the consent of both the learned counsel for our consideration, enumerates therein eight objects of the assessee- Co-operative Union and they read as under:

(i) to impart education to members of co-operative societies and to workers in the Co-operative Movement;

(ii) to act as a co-ordinating agency on all matters pertaining to Co-operative education and function as a body of experts in matters relating to education;

(iii) to function as a focusing centre on non-official opinion on various subjects affecting the movement and for representing it in proper quarters;

(iv) to further the spread of the Co-operative Movement;

(v) to promote the study of problems connected with Co- operation and carry on research in the same;

(vi) to open circulating libraries, to publish periodicals, books, pamphlets, and literature in general on co-operation; rural development and allied subjects;

(vii) to conduct training classes, training centres, schools, colleges, prescribe courses of instruction for them, conduct examination and award certificates or diplomas; and (viii) to run a printing press.

The activities carried on by the assessee-Co-operative Union have been briefly summarised at Annexure ‘A' to the order of the CIT(A) dt. 22nd Nov., 1983 and the said list of activities is referred to in para 5 of the order of the CIT. The fact that these activities are carried on by the assessee-Co-operative Union has not been disputed. The list of activities at Annexure ‘A' gives particulars of the courses conducted by the assessee-Co- operative Union and their duration. The assessee conducts Courses for Higher Diploma in Co-operation (condensed)—18 weeks, Diploma in Land Development Banking—12 weeks, Certificate Course in Co-op. Credit & Banking—10 weeks, and Specialised short-term courses/Orientation Courses. The assessee also conducts Seminars. It also appears that the assessee has been running four co- operative training which conduct junior basic courses of 24 weeks duration for Diploma in Co-operation, Special Course for employees of Urban Co-op. Banks, Dist. Co-op. Banks and Market Class, and also Seminars. The assessee also conducts Co-operative Education Programme, Consumer Education Programmes (Project), Women Co-op. Education Programme, Special Training Classes in the District under Co-op. Education and Industrial Projects of the nature and duration as mentioned in detail in the said list of its activities. It is not suggested that the assessee-Co- operative Union is doing any activity other than those enumerated in the said list.

"The sense in which the word ‘education' has been used in s. 2(15) in the systematic instruction, schooling or training given to the young in preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received. The word ‘education' has not been used in that wide and extended sense, according to which every acquisition of further knowledge constitutes education. According to this wide and extended sense, travelling is education, because as a result of travelling you acquire fresh knowledge....... But that is not the sense in which the word ‘education' is used in cl. 15 of s.

The Supreme Court in the above observations by referring to the systematic instruction, schooling or training given to the young has only cited an instance in order to indicate as to what the word ‘education' appearing in s. 2(15) of the Act which defines ‘charitable purposes' is intended to mean. We are certain that these observations were not intended to keep out of the meaning of the word ‘education', persons other then ‘young'. The expression ‘schooling' also means "that schools, instructs or educates" (The Oxford English Dictionary, Vol. IX 217). The Supreme Court has observed that the word ‘education' also connotes the whole course of scholastic instruction which a person has received. This clearly indicates that the observations of the Supreme Court were not intended to give a narrow or pedantic sense to the word ‘education'. By giving further illustrations of a traveller gaining knowledge, victims of swindlers and thieves becoming wiser, the visitors to night clubs adding to their knowledge and hidden mysteries of life, the Supreme Court has indicated that the word ‘education' is not used in a loose sense so as to include acquisition of even such knowledge. The observations of the Supreme Court only indicate proper confines of the word ‘education' in the context of the provisions of s. 2(15) of the Act. It will not be proper to construe these observations in a manner in which they are construed by the Tribunal when it infers from these observations, in para 17 of its judgment, that the word ‘education' is limited to schools, colleges and similar institutions and does not extend to any other media for such acquisition of knowledge. The observations of the Supreme Court do not confine the word ‘education' only to scholastic instructions but other form of education also are included in the word ‘education'. As noticed above, the word ‘schooling' also means instructing or educating. It, therefore, cannot be said that the word ‘education' has been given an unduly restricted meaning by the Supreme Court in the said decision. Though in the context of the provisions of s. 10(22) the concept of education need not be given any wide or extended meaning, it surely would encompass systematic dissemination of knowledge and training in specialised subjects as is done by the assessee. The changing time and the ever widening horizons of knowledge may bring in changes in the methodology of teaching and a shift for the better in the institutional setup. Advancement of knowledge bring within its fold suitable methods of its dissemination and though the primary method of sitting in a class-room may remain ideal for most of the initial education, it may become necessary to have a different outlook for further education. It is not necessary to nail down the concept of education to a particular formula or to flow it only through a defined channel. Its progress lies in acceptance of new ideas and development of appropriate means to reach them to the recipients.”

attention to para 9 of the order of the Ld.CIT(E) pointing

out therefrom the next contention of the Ld.CIT(Exemptions)

that the assessee was not eligible for grant of exemption

u/s 12AA since its actions did not flow from an altruistic

intent but were part of its statutory obligations. The relevant findings of the Ld.CIT(E) at para 9 & 10 to which our attention was invited are as under:

“9. Further when the applicability of sections 11 & 12 is examined in the instant case it is evident that the government grants cannot be termed to be voluntary and are not free from encumbrances, It has been laid down in clause of the Memorandum of Association of the applicant society that the expenditure of grants would be subject to directions of the Government of Punjab emanating from time to time. Similarly, the society's functioning is hemmed in by the powers of the government to issue directions and the finality accorded to such decisions. Clause XV of tine Rules & Regulations are as under. "In the discharge of its functions, the General Council shall be guided by such directions on questions of policy as may be given to it by the Government of Punjab. The decision of the Government of Punjab whether a question is or is not a matter of policy shall be final. Such directions shall be in writing''. These impinge on the independence of the society. In order to qualify to be treated as an entity capable of redeeming its charitable intent and existing for the benefit of public at large, independence of that entity is a sine qua non. The various clauses of the MOA of the society as well as the composition enable the Government to issue directions, inquire into the affairs and control the finances of the applicant. To that extent the society's functional independence is impinged and the same seemingly is not amenable to Independent decision making. The composition of the society is again drawn from the Government Departments and. to that extent is a continuation of the said department. There is no scope for public participation in the composition of such society.

counsel for assessee contended that the fact that the applicant-assessee was governed in the discharge of its functions by the Government of Punjab did not take away

the fact that it had been formed to carry out charitable

activities and, therefore, no adverse view could be taken

vis-à-vis either the objects of the applicant-assessee or vis-

à-vis the genuineness of the activities carried out by it in pursuance of the stated objects on account of the aforestated observations of the Ld.CIT(E) regarding the independent functioning of the applicant-assessee.

of the Ld.CIT(E).

counsel for assessee. The fact that the activities carried

out by the applicant /assessee are charitable in nature

been confirmed by us in the earlier part of the order.

Merely because the functioning of the applicant/assessee is guided by the directions given by the Government of Punjab, does not take away the charitable character of the objects of the assessee, nor do they effect the genuineness

of the activities carried out by the applicant/assessee.

Even if the applicant/assessee is working under the directions of the Government as long as the activities

carried out by it are in sync with its stated objects, which have been held to be charitable by us in the earlier part of our order and as long as there is no other finding vis-à-vis

the genuineness of the activities carried by the assessee,

the independence of the assessee in decision making cannot

in any way effect the genuineness of the activities carried

out by the applicant/assessee. The aforesaid contention of the Ld.CIT(E) is, therefore, dismissed by us.

attention to para 11 of the order of the Ld.CIT(E) pointing

out therefrom that the grant of registration was also denied

for the reason that the Memorandum of Association had no dissolution clause as a consequence of which the provisions

of section 13(1)(c) of the Act were clearly attracted making

the assessee ineligible for grant of registration u/s 12AA of the Act. The relevant findings of the Ld.CIT(E) in this regard are as under:

“11. It is also observed that the MOA submitted by the applicant lacks dissolution clause. The provisions of section 13(l)(c) of the IT Act states that "in case of a trust/ society for charitable or religious purposes or a charitable or religious institution, any income thereof - (i) If such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) If any part of income or any property of the trust or the institution (whenever created or established) is during the previous used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3):”

Agenda Item No.XIX: Addition of Dissolution Clause in Memorandum of Association Approved Additional Agenda Item No.I: Eminent Chair Def erred Additional Agenda Item No.I: Documentation and Publication activities of the Institute. Def erred

AGENDA ITEM NO.XIX ADDITION IN THE MEMORANDUM OF ASSOCIATION, RULES & REGULATIONS OF MGSIPAP This agenda seeks the approval for insertion of dissolution clause in Memorandum of Association, Rules & regulation of the Institute

not survive. The Ld. DR could not controvert the same.

of the Ld.CIT(E) that in the absence of dissolution clause in the Memorandum of Association of the assessee, the provisions of section 13(1)(c) of the Act were attracted since

the said dissolution clause had been amended way back in 2008 itself providing for the transfer of the assets and funds of the society to another society with similar aims

and objects in the event of the dissolution of the applicant-

assessee.

therefore, allowed.

Order pronounced in the Open Court. (SANJAY GARG) ACCOUNTANT MEMBER Dated : 9th April, 2018 *Rati* Copy to: