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TMI Blog2011 (3) TMI 867X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicant - Decided against the assessee - 1773 and 1774(Mad.) OF 2009 - - - Dated:- 18-3-2011 - U.B.S. BEDI, SANJAY ARORA, JJ. Velautham Raghavan for the Appellant. Shaji P. Jacob for the Respondent. ORDER Sanjay Arora, Accountant Member . These are a set of two Appeals by Applicant-Trust contesting the denial of registration under section 12AA and approval under section 80G of the Income-tax Act, 1961 ('the Act' hereinafter). 2.1 The assessee-applicant is a public charitable Trust registered under the Indian Trust Act, 1882 vide a Trust Deed dated 31-5-2007 on 1-6-2007 with the appropriate authority, being the Office of Sub-Registrar, Kovilpatti. The same stood amended per a deed of amendment dated 12-3-2008 by Mrs. Bala Ramachandran, the author and founder of the Trust, duly registered on the same date. Copies of both the deeds are on record. It moved simultaneous applications under sections 12AA and 80G of the Act with the competent authority, being the Office of the Commissioner of Income-tax-I, Madurai ('CIT') on 19-2-2009, which stood denied per identical worded separate orders of even date, i.e., 31-8-2009. The reason(s) for same, as ascertained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given either free or subsidized or without charging any consideration, etc. for it to qualify as being charitable, and for which reference is made to the decision in the case of Gaur Brahmin Vidya Pracharini Sabha v. CIT [2010] 34 SOT 371 (Delhi) 627. The decision in the case of Sole Trustee Lokashikshana Trust (supra), as its reading would show, yields the same conclusion; the Apex Court in that case being seized with the legal issue as to whether the words 'not involving the carrying on of any activity for a profit, following the words .. advancement of any other object of general public utility' occurring in section 2(15) defining the expression 'charitable purpose' under the Act (since amended by Finance Act, 1983, with effect from 1-4-1984) qualified only the activity qua the object of general public utility and not the other activities, viz. relief of the poor, education, and medical relief, with reference to which the word 'charitable purpose' stands inclusively defined thereunder. It, after an exhaustive deliberation on the subject, held of it as qualifying only the residuary activity, i.e., relating to the advancement of any object of public general utility. This view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commencing 1-4-2008), makes this explicit by carving out a proviso in respect of this activity; which forms part of the expression 'charitable purpose', excluding the same where it involved the carrying on of any business activity. The Apex Court in the case of Aditanar Educational Institutions v. Addl. CIT [1997] 224 ITR 310 2 explained that the profit making would not by itself be considered as an anathema, and where incidental to an activity being carried on for the attainment of the primary object of the educational institution, it will not cease to be one existing solely for the purposes of education; the object being not one to make profit. No doubt, the Apex Court, in that case, was concerned with the scope of the words 'existing solely for educational purposes and not for the purposes of profit' occurring in section 10(22). Though the section stands omitted since, the said words/expression finds reflection in section 10(23C)(iiiab , iiiad, vi) of the Act in the context of exemption from tax of income of educational institutions, including a University, where approved by the Government, or by the prescribed authority, or otherwise have a turnover less than the prescribed li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nautical Engineering Educational Society (supra) and CIT v. Queen's Educational Society [2009] 319 ITR 1604 (Uttarakhand). It has in rendering these decisions elaborated and explained this aspect of the law. The whole purport of the activities of the institutions should be (charitable), as explained by the Apex Court in the case of Municipal Corporation of Delhi v. Children Book Trust [1992] 3 SCC 3905; exhaustively dealing with the subject, emphasizing that charity must nevertheless prevade and inform the activities of the institution, i.e., should be its dominant object; the whole premise of the institution being only charitable. If not so considered every private institution (including schools and colleges) engaged in rendering education, though run on and guided by profit consideration, would answer the description of undertaking charitable activity, entitled to exemption of profit earned thus; it stating as: 'In other words, what we want to stress is, when a society or body is making systematic profit, even though that profit is utilized only for charitable purposes, yet it cannot be said that it could claim exemption. If, merely qualitative test is applied to section, eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g money through commercial borrowings, the inference could only be that it is to be run on a commercial basis. It cannot but be otherwise, and for the simple reason that, as afore-mentioned, the funds from voluntary sources cannot be predicated and are, at best, contingent, so that funds need to be generated, both for repayment of loans as well as for interest, essentially or primarily through internal accruals, necessitating it being run on commercial lines. No financial institution would extend loan/s on the premise that the borrower shall raise capital or funds through contributions to meet the obligations arising out of the loans. There could be exceptions, as of a bridge loan, which would require a firm arrangement for it being so granted. The same, improbable even for a business set-up, being granted only in case of reputed organizations, is inconceivable for a non-business, charitable organization, and a nascent one at that. The borrower has, thus, necessarily to satisfy the test of being a commercially viable enterprise, i.e., of it being able to generate surplus sufficient to meet the liability arising out of the loan(s), and which it must be therefore be regarded as havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not known. Though, therefore, this should normally be taken as a neutral factor, having no adverse implication, it would be relevant to state that the hon'ble court in the case of Municipal Corporation of Delhi (supra) has held that absence of such information would only lead to the presumption of it having been obtained from the beneficiaries, i.e., the parents of the students/beneficiaries, vitiating its application for registration and recognition in law as a public charitable institution. We do not venture to make any further comment; the information having apparently not been called for by the competent authority, though it may be relevant to state that the onus to prove its case, i.e., the genuineness of its activities, is only on the applicant. This aspect stands highlighted in the context of the foregoing observation that the beneficiaries could also be a source of the capital raised. 4. In view of the foregoing, in our considered view, the registration under section 12A stands rightly denied to the appellant in the present case. The denial of approval under section 80G would follow consequentially. We decide accordingly, upholding the impugned orders. 5. In the result ..... X X X X Extracts X X X X X X X X Extracts X X X X
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