2010 (5) TMI 829 - AT - Income Tax

Registration u/s 12AA Rejected - assessment of trust - university is not a competent person for making application for its registration u/s 12AA, it is not a charitable institution as it is intended to benefit only a limited number of persons, it is not meant to carry out any charitable purpose as there is no element of any benefit by way of donations to common man, and it will be charging substantial fees from the student -case of the learned counsel was that the university shall become a body corporate as soon as it is established as a private university under section 6 of that Act - whether, the assessee-university is competent to file an application for its registration? HELD THAT - Assessee came into existence by way of Ordinance No. 4 of 2009 promulgated by Governor, which was subsequently adopted by the Assembly of the State of Haryana on 20-3-2009. The name of the assessee has been added in the Schedule to that Act. Under section 7 of that Act, every university established by an Act of the State Legislature under section 6 shall be a body corporate by the name as specified in the Act and shall have perpetual succession and a common seal. It shall have the power to acquire and hold property and to make contract, and shall sue and be sued in its name. We find that that Act clothes the assessee-university with the character of a body corporate, an artificial juristic person with powers to hold properties, make contracts and sue or be sued. Therefore, the juristic person created under that Act may or may not be incorporated as a company or a society so as to be a person under the Act. Accordingly, we are of the view that the learned CIT erred in coming to the conclusion that the assessee-university is not a competent person to make an application for its registration. Sponsoring Body and the assessee university are two different persons during the life-time of the latter. Assuming for a moment that they are the same person, then it follows automatically that the activities of the university are entitled to exemption under section 11, as the Sponsoring Body has already been registered by the Director of Income-tax (Exemption) vide order dated 25-4-2005, a copy of which has been placed before us. Therefore, the objection of the learned CIT is merely technical, in nature. However, we are of the view that in view of section 7, the assessee is a separate juristic person, separate and apart from the Sponsoring Body. By virtue of this provision, it is a competent person u/s 12AA, to apply for its registration. Whether, the assessee university is a charitable institution as understood under the Act? - The expression charitable purpose was defined in an inclusive manner to include relief of poor, education, medical relief and advancement of any other object of general public utility. The objects of the assessee-university are mentioned in that Act, in section 3, all of which are educational in nature, primarily aimed awarding diplomas and degrees to the students. The funds of the university are to be applied in accordance with section 13, which are either in the nature of disbursement of expenses or granting fellowship, freeship, schoolship etc., to students belonging to weaker sections of the society. The only benefit granted to the Sponsoring Body is that in case of dissolution the assets and liabilities of the assessee university shall vest in it. However, as seen earlier, the Sponsoring Body itself is a charitable institution, registered u/s 12AA. Therefore, the net assets going to the Sponsoring Body amount to application of assets or accumulated income for charitable purpose. Therefore, when assets and liabilities get vested in the Sponsoring Body on dissolution, it can be said at that time also that the application of the assets or accumulated income is for charitable etc., purposes. Date of registration of the university - We have held that the objects are charitable in nature. The first step in setting up the university was acquisition of land for construction of building. We are not able to ascertain from the record the date on which the land was acquired. The construction on the land has commenced and as mentioned earlier, substantial expenditure has been incurred. Therefore, the learned CIT may ascertain the date of acquisition of land from the assessee. The assessee may be granted registration from the date on which it took first step i.e., acquired the land as it can be said that from that date it initiated process for achieving its objects. The assessee will be entitled to the registration from this date or the 1st day of April of the year in which the application for registration was moved. In view of the aforesaid discussion, we are of the view that the learned CIT erred in refusing to register the assessee university. University approval u/s 80G - HELD THAT - The provision contained in section 80G 5(iii) makes it clear that the approval can be granted only if the institution is formed wholly for charitable purposes and none of its object is of religious nature. Section 80G(5B) grants some concession in this matter that approval can be granted if not more than 5 per cent of the total income of a year is applied towards religious purposes. We find that there is no ceiling on religious expenditure in the objects of the Sponsoring Body. Considering the facts of this case, it is true that none of the objects of the assessee-university pertain to religious activities. However, on its dissolution, all its assets shall vest in the Sponsoring Body. Section 80G(5)(ii) contains the word do not contain any provision for the transfer or application at any time (emphasis supplied) of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose . We have supplied emphasis to the words at any time for the reason that transfer of its assets and liabilities on dissolution will fall within the ambit of the words at any time . The rules governing the assessee university contain a provision for transfer of its asset to the governing body, whose objects include a manifestly religious object. In view thereof, and in view of the aforesaid decision rendered by Hon ble Supreme Court in the case Upper Ganges Sugar Mills Ltd. v. CIT 1997 (8) TMI 4 - SUPREME COURT . Coming to the facts of this case, it is true that none of the objects of the assessee-university pertain to religious activities. However, on its dissolution, all its assets shall vest in the Sponsoring Body. Section 80G(5)(ii) contains the word do not contain any provision for the transfer or application at any time (emphasis supplied) of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose . We have supplied emphasis to the words at any time for the reason that transfer of its assets and liabilities on dissolution will fall within the ambit of the words at any time . The rules governing the assessee university contain a provision for transfer of its asset to the governing body, whose objects include a manifestly religious object - we are of the view that the assessee university is not entitled to approval u/s 80G.

Summary

Issues Involved:
1. Registration under Section 12AA of the Income-tax Act.
2. Approval under Section 80G(5) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Registration under Section 12AA of the Income-tax Act:

The assessee, a university, applied for registration under Section 12AA. The CIT-Rohtak rejected the application on grounds that the university was not a competent person to apply for registration, was not a charitable institution, and intended to benefit only a limited number of persons. The CIT's reasoning included that the power to dissolve the university lay with the sponsoring body, making the university an activity rather than an applicant, and that the university would charge substantial fees from students.

On appeal, the tribunal considered whether the university was a competent person to file the application. The tribunal noted that the university came into existence by an ordinance and was added to the schedule of the Haryana Private Universities Act, 2006. Under Section 7 of that Act, the university was established as a body corporate with perpetual succession and the power to sue and be sued. The tribunal concluded that the university was a separate legal entity capable of making the application for registration.

The tribunal also addressed whether the university was a charitable institution. The definition of "charitable purpose" in Section 2(15) of the Income-tax Act includes education. The tribunal noted that the university's objects, as per the Haryana Private Universities Act, were educational and aimed at awarding diplomas and degrees. The tribunal referred to the Supreme Court's decision in Sole Trustee Loka Shikshana Trust v. CIT, which defined "education" as systematic instruction to prepare students for work. The tribunal concluded that the university's objects were charitable and that charging fees did not negate its charitable status.

The tribunal further examined the genuineness of the university's activities, noting that substantial expenditure had been incurred on building construction for educational purposes. The tribunal held that the conditions for registration under Section 12AA were satisfied and directed the CIT to grant registration from the date the university acquired land or the 1st day of April of the year in which the application was made.

2. Approval under Section 80G(5) of the Income-tax Act:

The assessee also applied for approval under Section 80G(5)(vi), which the CIT denied based on the same reasons for rejecting the registration application. The CIT also noted that the assessee was not approved under Section 10(23C) or registered under Section 12AA.

The tribunal considered the relevant provisions of Section 80G(5) and Section 80G(5B), which require that the institution be wholly for charitable purposes and not have any objects of a religious nature. The tribunal noted that the sponsoring body, which would receive the university's assets upon dissolution, had objects that included religious activities. The tribunal referred to the Supreme Court's decision in Upper Ganges Sugar Mills Ltd. v. CIT, which held that even if one object of an institution is of a religious nature, it falls outside the scope of Section 80G.

The tribunal concluded that since the sponsoring body had religious objects, the university was not entitled to approval under Section 80G, despite its perpetual existence. The tribunal emphasized that the rules governing the university allowed for the transfer of assets to the sponsoring body, which included religious objects, making the university ineligible for approval under Section 80G.

Conclusion:

The tribunal allowed the appeal for registration under Section 12AA, finding that the university was a competent person to apply and had charitable objects. However, the tribunal dismissed the appeal for approval under Section 80G, citing the sponsoring body's religious objects as a disqualifying factor.