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TMI Blog2008 (1) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... with a list of its members, revised memorandum of aims and objects, and audit report in Form 10B accompanied by balance sheet, income and expenditure statement for the financial years 2003-04, 2004-05 and 2005-06. The CIT called for a report from the ITO-V(1), Lucknow and the Addl. CIT, Range-V, Lucknow. Both the above authorities reported that the main object of the society is running of a dental college ,and offering free dental treatment to the patients. The ITO-V(1), Lucknow, before sending his report through the range Addl. CIT, also examined the books of accounts etc. with reference to the claims raised in the application for registration and the activities of the society, which were found to be in accordance with its objects. During the course of hearing before the CIT, the assessee submitted details of the activities of Chandra Dental College and Hospital, including detailed working of income utilized during the financial year 2005-06. The society also filed a list, containing names, addresses of the students, who contributed sums towards the head 'Building development charges receipt' in the financial year 2005-06. The assessee, vide its written submission dt. 11th Sept., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g construction' and not as per the direction of donor. The CIT also observed that in the objectives of the society the fact of free treatment of patients and free imparting of health education has been emphasized even though in the accounts OPD receipts have been shown. He further observed that in the 'annexures' attached With the accounts submitted, donations of Rs. 7,60,000 and Rs. 22,00,000 for addition to college building have been mentioned. According to CIT, no details of such 'donations' have been furnished. The CIT concluded that the society has diverted the funds to building account on its discretion which is against the purpose for which parents have contributed to the corpus. He further held that since there is no restriction on application of funds, the assessee society ceases to be a society having its objects as charitable. The CIT has also cited the decision of Hon'ble Supreme Court (sic-Patna High Court) in the case of Bihar State Forest Development Corporation vs. CIT (1997) 224 ITR 757 (Pat). The CIT held that the assessee society was not engaged in any charitable work and therefore he refused the registration to assessee society under s. 12A of the IT Act, 1961. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentative the assessee had diverted a part of the fee for building construction and not as per the direction of donor. He further submitted that the objects of the society provides free treatment of patients and free imparting of health education. However, in the accounts of OPD, the assessee society had shown OPD receipts also. This gives the impression that real objective has been camouflaged. He further submitted that no details of donations of Rs. 7,60,000 and Rs. 22,00,000 were submitted before the learned CIT. How the above amounts were utilized is also not clear, submitted the learned Departmental Representative. In view of the above, learned Departmental Representative submitted that the learned CIT has rightly rejected the application of the assessee for registration under s. 12A of the IT Act, 1961. Accordingly, it was submitted that the order of CIT may be upheld. 5. We have carefully considered the rival submissions and have also perused the materials available on record. The assessee has come into existence with the purpose of setting up educational institutions providing treatment of persons suffering from illness. The assessee society received permission from D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of income derived by the assessee from its objects only. The Hon'ble Allahabad High Court, in the case of Red Rose School, held that "the objects of the trust can be had from the bye-laws or the deed of trust, as the case may be and unless, of course, the objects of the trust apparently make out that they were not in consonance with the public policy or that they were not the objects of any charitable purpose, registration cannot be refused accordingly on this ground." 7. The Hon'ble Allahabad High Court further held as under: "20. In regard to the genuineness of the activities of the trust or the institution, whose objects do not run contrary to public policy and are, in fact, related to charitable purposes, the CIT is again empowered to make enquiries as he thinks fit. In case the activities are not genuine and they are not being carried out in accordance with the objects of the trust/society or the institution, of course, the registration can again be refused. But on mere presumptions and on surprises that income derived by the trust or the institution is being misused or that there is some apprehension that the same would not be used in the proper manner and for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses or such institution is earning profit. The relevant observations as mentioned in para 21 of the report, read as under: "21. Sec. 12AA, which lays down the procedure for registration, does not speak anywhere that the CIT, while considering the application for registration, shall also see that the income derived by the trust or the institution is either not being spent for charitable purpose or such institution is earning profit. The language used in the section only requires that activities of the trust or the institution must be genuine, which accordingly would mean, they are in consonance with the objects of the trust institution, and are not mere camouflage but are real, pure and sincere, nor against the proposed objects. The profit earning or misuse of the income derived by charitable institution from its charitable activities, may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trust or the institution." 11. The Hon'ble Allahabad High Court in the case of Red Rose School further held that the enquiry by CIT shall remain restricted to the examination, as to w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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