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TMI Blog2018 (2) TMI 1371X X X X Extracts X X X X X X X X Extracts X X X X ..... for grant of registration under section 12AA of the Act vide application dated 29.3.2014 in form no.10A. On receipt of application the ld.DIT(E) called for necessary details. After an inquiry, ld.DIT(E) has observed that section 10 of GPUA authorises Govt. of Gujarat to establish institutions specified in column 2 of Schedule as a "Private University" of sponsoring body. Thus, in view of notification, institution "Indus University" Ahmedabad was established as private university under "GPUA" and sponsoring body as a Bhandari Charitable Trust ("BCT" for short). According to the ld.DIT(E) notification of Govt. of Gujarat simply declared institution, "Indus University" as a private university. He also observed that "GPUA" does not ensure that institution is non-profit organization. Hence, he called for further details, and thereafter examined various provisions of GPUA. The ld.DIT has assigned four reasons for not granting assessee registration under section 12AA of the Act. We deem it appropriate to take note of these four reasons, which read as under: "i) With respect to the control it is seen from clause 2 of Chapter 3; namely "Officers of Indus University" and read with Chapter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educational activities have been taken over by the University. Further the significant accounting policies of the Audit Report show that borrowing cost includes interest which the University is giving interest on the unsecured loans. The combined reading of Income-Expenditure Account and Balance Sheet does not make it clear as to whether the unsecured loan is part of the fixed assets transferred or it is a separate entity but it appears that it should be a part of the transferred assets. It is also not clear as to the value at which these assets have been transferred because the Sponsoring Body was running the college since 2006 and all these assets by now must be highly depreciated assets. iii) It is very pertinent to note that on winding up of University i.e. on dissolution of the University, assets of the University will go back to the Sponsoring Body i.e. Bhandari Charitable Trust. In fact section 41(1) of the Gujarat Private Universities Act says thai Sponsoring Body can dissolve itself and section 42(1) of the Gujarat private Universities Act says that Sponsoring Body can dissolve the University, hence the University is totally dependent upon the wishes of the Sponsoring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trust as stated above." 4. We have heard Shri Divetia for the appellant and ld.CIT-DR for the Revenue. While impugning order of the ld.DIT(E), Shri Divetia took us through various provisions of "GPUA" and pointed out that the ld.DIT(E) failed to comprehend complete scheme of establishment of a private unvieristy. He also pointed out that under similar circumstances registration to Rai University, Saroda Post, Dholka, Ahmedabad was denied by the DIT, but on appeal, it was allowed by the Tribunal. He placed on record copy of Tribunal's order in ITA No.1246/Ahd/2014. The Tribunal vide its order dated 10.6.2015 allowed appeal of the assessee and directed the DIT(E) to grant registration to the assessee-university. According to Shri Divetia, conditions enumerated by the ld.DIT(E) in the present case were identical in that case. 5. On the other hand, the ld.CIT-DR contended that in the case of Rai University its sponsoring body was enjoying registration under section 12AA of the Act, whereas in the case of the assessee "BCT" was not having registration under section 12AA. This sponsoring body could dissolve the university and nowhere it was provided that what will happen to the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; x x Section 12AA 12AA. (1) The Principal Commissioner or Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) [or clause (ab)] of sub-section (1)] of section 12A, shall- (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he- (i) shall pass an order in writing registering the trust or institution; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of any general public utility. Thus, in the case of assessee proviso is not applicable. Its activities fall within the meaning of expression "charitable purpose" provided in section 2(15) of the Act, because, it is solely engaged in imparting education. A bare perusal of section 12AA would indicate that when any trust or institution would apply for grant of registration under section 12AA then the ld.Commssioner shall call for such documents or information from trust or institution as they may be necessary to satisfy himself about the genuineness of activities of trust or institution and may also make such inquiry as he may deem necessary in this behalf. If the ld.DIT(E) is satisfied about the objects of the trust or institution and genuineness of activities, he shall pass an order in writing registering the trust or institution. If he has not satisfied then he would reject registration application. Thus, we have to evaluate whether reasons assigned by the ld.DIT(E) are sufficient to demonstrate doubt on the genuineness of assessee's objects. Let us take into consideration four reasons assigned by the ld.DIT(E) for refusing the registration. The first reasons assigned by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If some actions at the end of the assessee are being taken against the provisions of Income Tax Act and then section 13 etc. are already there to keep a check of misuse of powers. 8. Next reasons assigned by the ld.DIT is that university has shown unsecured loan of Rs. 3.15 crores from Bhandari Charitable Trust. Again, it is not a relevant factor to determine genuineness of objects. All financial affairs if misused can be considered at the time of assessment proceedings with the help of section 13. Similarly, in reason no.4, the ld.DIT made reference to various bank statements in order to demonstrate as to how funds have been paid to "BCT" or by the "BCT" to university. As observed earlier section 13 of the Income Tax Act contemplates that if certain issues falling within the ambit of this section are available in case of a charitable institution, then benefit of section 11 will not available. For example, if some undue benefit is being advanced to person, who is closely associated with the management or institution, then, the AO could always determine fair market value of the services by such person and restrict benefit to him in accordance with market price. Balance if any will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , awards. (2) On the dissolution of the University all the assets and liabilities of the University shall vest in the Sponsoring Body in the manner as may be prescribed, (3) Where the State Government decides under sub-section (1) to dissolve the University, it may vest the powers of the Governing Body in the prescribed manner to other societies having similar objects till the dissolution of the University takes effect under the proviso to subsection (1)." 10. Apart from above, if a charitable institution enjoying benefit under section 12A is being dissolved then either those assets would be given to other institutions being charitable trust and enjoying benefit under section 12A, In case the assets are being parted with either individual entity or institution, who are not having charitable objects or registration under section 12A, then under the scheme of the Act it will first suffer tax, only thereafter, it will vest in such individual or entity. This is not a valid reason for rejecting registration under section 12A. The ITAT in the case of Rai University (supra) has observed that at the time of registration, ld.DIT(E) has to satisfy with regard to genuineness of the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the object of Section 12AA of the Act, is to examine the genuineness of the objects of the Trust, but not the income of the Trust for charitable or religious purposes. The stage of application of income is yet to arrive i.e. when such Trust or Institution files its return. Therefore, we find that the judgment referred to by the learned counsel for the appellant are not applicable to the facts of the present case arising out of the question of registration of the Trust and not of assessment." 14. The issue has been examined that at the stage of registration and for exemption under Section 80G of the Act, the stated object of the trust is required to be examined. Whether the funds are properly applied or not, can be examined by the Assessing Officer at the time of framing the assessment." Therefore, we hereby set aside the order of the DIT(E) and direct him to grant the registration to the assessee-University. Thus, the assessee's appeal is allowed." 11. Taking into consideration all these facts and circumstances, we allow this appeal of the assessee and set aside the impugned order. We direct the ld.DIT(E) to grant registration to the assessee-university under section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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