2011 (3) TMI 1242 - AT - Income Tax

Registration u/s 12AA refused - amendment to the original trust deed could not be accepted where original name and address of the trust was changed without seeking prior clearance from the Income-tax Department - Held that - None of the sections 11, 12 and 13 says any provision which says that an assessee cannot make any changes of the like mentioned, without getting prior clearance from the Income-tax Department. Related rules 17A, 17B and 17C of the Income-tax Rules also do not mention anywhere that an assessee has to get any previous sanction from the Income-tax Department before effecting any such amendments. 25 persons had initially invested in land by contributing entire money in cash and further brought in a sum of Rs. 25 lakhs - many of the trustees did not have taxable income and investments made by them were questionable in their respective hands - Held that - Act specifies a methodology where anonymous receipts are received by a trust. Section 115BBC of the Act specify a method for taxing anonymous donations. Thus even if we consider that the trustees did not have the wherewithal to contribute the sums mentioned and even if we treat such donations as coming from anonymous sources, it would not be reason to deny registration under section 12AA of the Act. Trust was charging exorbitant amounts as school fees and was spending only a small part towards the salary of the teachers and other related expenses - Held that - There is no finding by CIT(A) that any excess or surplus was used or diverted, for any purpose other than for educational needs. On the other hand, there is a clear finding that the funds were used for construction of the building of the school. Where education is itself is charitable under section 2(15) of the Act, construction of the building to carry on such education, or in other words spending money for raising necessary infrastructure would also be very much charitable. Trust was running hostel and transportation services not part of its educational activity - Held that - A school has to have a hostel and a mode of transporting the students. Surplus if any generated, as long as it was used for educational objects would not make the institution non-charitable. In favour of assessee.

Summary

Issues Involved:
1. Eligibility of the authorised representative to appear before the Tribunal.
2. Validity of the refusal to grant registration under section 12AA of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Eligibility of the authorised representative to appear before the Tribunal:

The assessee was represented by Shri Subbarayan, who claimed to be an authorised representative under section 288(1) of the Income-tax Act, 1961. He stated that he was a retired Deputy Commissioner of Income-tax and had passed an accountancy examination recognized by the Central Board of Direct Taxes. The Departmental representative contested this, citing rule 54 of the Income-tax Rules, 1962, which requires an authorised representative to apply for registration with the Chief Commissioner.

The Tribunal examined sub-sections (1) and (2) of section 288 of the Act and rule 50 of the Income-tax Rules. It concluded that an assessee could attend proceedings through an authorised representative, who could be any person passing an accountancy examination recognized by the Board. Rule 50 lists such recognized examinations, including Departmental examinations conducted by or on behalf of the Central Board of Direct Taxes. The Tribunal found no dispute on Shri Subbarayan having passed such an examination.

The Tribunal rejected the Department's contention that registration under rule 54 was mandatory for appearing before the Tribunal. It clarified that the term "authorised income-tax practitioner" does not appear in section 288 of the Act and is only mentioned in Part XI and rule 49 of the Rules. The Tribunal emphasized that the right to appoint an authorised representative under the Act cannot be restricted by the Rules. Therefore, Shri Subbarayan was deemed eligible to appear before the Tribunal as an authorised representative, and the Department's objection was overruled.

2. Validity of the refusal to grant registration under section 12AA of the Income-tax Act, 1961:

The learned Commissioner of Income-tax denied registration under section 12AA due to several reasons, including the absence of the original trust deed, questionable investments by trustees, charging exorbitant school fees, and running hostel and transportation services for profit.

The Tribunal addressed each reason:

- Absence of Original Trust Deed: The Tribunal found no provision in sections 11, 12, and 13 or related rules requiring prior clearance from the Income-tax Department for changes in the trust deed. It held that the Department cannot impose duties beyond the statute, making the Commissioner's reason invalid.

- Questionable Investments by Trustees: The Tribunal noted that even if trustees did not have taxable income, section 115BBC of the Act provides a method for taxing anonymous donations. Thus, this reason was not sufficient to deny registration.

- Exorbitant School Fees and Low Expenditure on Salaries: The Tribunal stated that running a school is not incidental but central to the trust's educational objective. There was no evidence of funds being diverted for non-educational purposes. The construction of school buildings was considered a charitable activity under section 2(15) of the Act.

- Profit from Hostel and Transportation Services: The Tribunal opined that these services are integral to running a school, and any surplus used for educational purposes does not negate the charitable nature of the trust.

The Tribunal concluded that none of the reasons cited by the Commissioner were relevant for denying registration under section 12AA. It quashed the Commissioner's order and directed the grant of registration to the assessee-trust.

Conclusion:

The appeal of the assessee was allowed, and the Tribunal directed the Commissioner to grant registration under section 12AA of the Income-tax Act, 1961.