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TMI Blog2018 (3) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... m via Speed Post calling for specific queries regarding its application for registration u/s 12A for compliance on 11.09.2017. On 06.09.2017, Shri M.M. Agrawal, CA was telephonically informed regarding re-fixation of hearing to 12.09.2017. On 11.09.2017 an application for adjournment was received from the applicant and subsequently date of hearing was re-fixed to 19.09.2017. On that date i.e., 19.09.2017, Shri M.M. Agrawal, CA appeared and filed part reply. The applicant has failed to pay taxes on surplus in spite of receipts being in excess of Rs. 1 Crore in each year. 3. On perusal of material available on record it can be seen that the applicant society is primarily engaged in running an educational institute on commercial lines and charges heavy fee from the students. It is noticeable from the Income and Expenditure Accounts for F.Y. 2014-15, F.Y. 2015-16 and F.Y. 2016-17 that huge amounts are being charged as fees to the tune of Rs. 3,90,45,107/-, Rs. 4,20,03,995/- and Rs. 5,22,62,020/- respectively in the FYs mentioned above. Clearly a substantial amount is being levied as fee on commercial basis without providing any element of charity to the Society. In spite of the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion without any element of charity to the public at large. When asked about the detail of people receiving salary from the society and their corresponding entries in the books of accounts, the society could not provide any details which appears an attempt to bypass Section 13(1)(c) of the Income tax Act, 1961 which again is detrimental to the claim of the applicant. In this instances, the burden of proof lay on the applicant but the applicant has failed to provide satisfactory reply. Rather than pursuing the objects set forth in the memorandum, the applicant society is more concerned about augmenting its business of education. The applicant society has failed to showcase any programmes/initiative undertaken by it in pursuance to the objects set forth in the memorandum of the society. In order to verify the genuineness of various expenses claimed by it the applicant society was asked to provide vouchers/documentary evidence to prove that the said expenses were actually incurred by the society but unfortunately the applicant failed to prove the same. This clearly establishes that the activities as claimed to be carried out are not genuine and it that case the applicant fails to pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dhakad Samaj Dharmshala Bhawan Trust vs. CIT (MP) 302 ITR 321 It was held that while considering for registration u/s 11, reference to any particular religious community or caste in section 13(1)(b) has to read ejusdem generis, with the charitable or religious purposes for which exemption is granted u/s 11 and Explanation to sec. 13 lifting the bar contained in sec. 13(1)(b) cannot be construed de hors the purpose contained in section 11. In absence of any nexus with religious or charitable purposes merely because the applicant is working majorly for a particular caste, it cannot be said that it is for charitable purpose. On perusal of the material available on record, it is found that the objective of the applicant is stated at serial 2(a) and it is stated as under:- "Sarv sadharan mei aur visheshtaya aggarwal samaj mei upyukut shiksha ka prachar karna" This attracts the provisions of section 13(1)(b) of the Income tax Act, 1961 which states that nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof in the case of a trust for charitable purposes or a charitable institution if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of section 12AA(1)(b) of the Act, two factors namely the objects of charitable purpose and genuineness of activities has to be proved before granting of the registration. However, the applicant failed to prove the same. Hence, the applicant society has not made a case for granting the registration u/s 12AA(1)(b). 6. In the case of CIT vs. National Institute of Aeronautical Engineering Education Society 2009, 181 Taxman 205 (Uttarakhand) it was held that clause (a) of sub-section (1) of section 12AA empowers the CIT to call for such information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of the activities of the trust or institution and may make such inquiries as he may deem necessary in this behalf. Said provision in section 12AA makes it clear that CIT is not supposed to allow registration with blind eyes. On perusal of material available on record it is found that the applicant is doing a pretence of charity. 'Charity' is soul of the expression 'charitable purpose'. Mere declaration of objects is not sufficient for according registration u/s 12A(1) of the Income-tax Act, 1961. Genuineness of the activities of the soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hemselves to enable a registering authority to arrive at the satisfaction mandated by law. In the instant case, only part rely has been filed and the documents on record do not suffice to establish the genuineness of activities. As such the findings of fact regarding its charitable activities or rather lack thereof arrived at on the basis of the evidence filed and arguments addressed stand uncontroverted. This is fatal to the claim of applicant. 10. It is clear that applicant has failed to provide sufficient material to corroborate the charitable nature of the objects and genuineness of the activities. Despite being provided timely opportunity the applicant has not been able to substantiate its claim. 11. In view of the facts and above decisions, I am unable to accept the appellant's claim in absence of sufficient material required for formation of satisfaction. Therefore, I do not find the case fit for grant of registration u/s 12A(1) of the Income tax Act, 1961. 12. Accordingly, the registration sought by the applicant u/s 12A(1) of the Income tax Act, 1961 is hereby rejected." 3. The ld. CIT(E) has observed that only part reply was filed by the assessee before him. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dum of Association and file a certified copy of amended Memorandum of Association. 16. Your Memorandum of Association does not have a clause that beneficiaries are a section of public and not specific individuals. Please include this clause in your Memorandum of Association and file a certified copy of amended Memorandum of Association. 17. Your Memorandum of Association does not have clause providing that in the event of dissolution of Society, the funds/assets of the Society will be transferred to some other Trust/Society/Non Profit company having similar objects. Please include this clause in your Memorandum of Association and file a certified copy of amended Memorandum of Association. 18. Your Memorandum of Association does not have clause providing that the funds/property of the Society will be used only for the objectives of the Society. Please include this clause in your Memorandum of Association and file a certified copy of amended Memorandum of Association. 19. In case, applying for registration under section 80G, please produce original registration certificate under section 12A/10(23C) of the 'Act'. 20. Please produce copy of bank statement/pass bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vouchers were being produced. Neither the order sheet entries, nor the impugned order mentions this fact, much-less controverts it. On the other hand, APB 18 to 114 contain all these documents and details. The impugned order does not advert to even a single one of them. Thus, evidently, the impugned order is a result of complete non-reading of this material cogent documentary evidence and material filed by the assessee in response to query nos. 20 and 21 of the notice dated 12.08.2017 (APB 7). 7. All the above documents have been certified by the assessee to have been filed before the ld. CIT(E). No denial thereto has been put forward. 8. The impugned order also observes that ample opportunities were provided to the assessee to produce details, like details of salaries, etc. However, the notice and the order sheet entries do not mention any such opportunity. Rather, para 2 of the impugned order itself shows that the matter was fixed for hearing only once, i.e., on 19.09.2017, on which date itself, the impugned order was passed. So, this observation of the ld. CIT(E) is also erroneous, being against the record. 9. On merits, the CIT(E) has referred to one of the objects of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general. The registration under section 12AA was denied on the ground and that the Principal of the school was to be appointed only from the Christian community. The Tribunal, relying on Supreme Court and Allahabad High Court decisions, held that the objects of the Academy were of charitable nature. It was also held that section 13 falls within the exclusive domain of the Assessing Officer and the provisions contained therein can be invoked by him while framing assessment and not by the CIT while considering an application for registration under section 12AA. 13. The Hon'ble Supreme Court, in the case of 'CIT vs. Dawoodi Bohara Jamat', 364 ITR 31 (SC) has held that:- "42. We would now proceed to examine the objects under the provisions of Section 13(1)(b) of the Act. It becomes amply clear from the language employed in the provisions that Section 13 is in the nature of an exemption from applicability of Sections 11 or 12 and the examination of its applicability would only arise at the stage of claim under Sections 11 or 12. Thus, where the income of a trust is eligible for exemption under section 11, the eligibility for claiming exemption ought to be tested on the touchstone of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnelize the business on commercial lines. In this regard, it is seen that: a) Though, the appellant is charging fees as per norms prescribed by Government, undisputedly, there is large surplus owing to the fact that surplus includes substantial interest income on FDRs made over a period of time, no depreciation or cost of fixed assets has been charged to income & expenditure account and that there are no management fees or expenses debited in the accounts of the appellant. b) The definition of 'charitable purposes', as contained in section 2(15) of the Act. This is an inclusive definition to include: (i) relief to poor, (ii) education, (iii) yoga, (iv) medical relief, (v) preservation of environment including watersheds, forest and wildlife, (vi) preservation of monuments or places or objects of artistic or historic interest; and (vii) advancement of any other object of general public utility The proviso to said section provides that advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on any activity in the nature of trade, commerce or business etc. Thus, the restriction with rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11, except to the fact that such registration is mandatory for claiming exemption under section 11. Meaning thereby, exemption under section 11 can be availed of by institutions which are genuinely engaged in 'charitable activities'. However, benefit of section 11 is subject to application of income for charitable activities and the Assessing Officer is well entitled to see whether such application has been done and the other conditions of section 11 have been complied. The Assessing Officer has to see whether exemption under section 11 is barred by application of section 13. An institute, though registered under section 12AA, would still be taxed on the income which has not been applied in accordance with section 11, or in respect of which section 13 comes into play. Even in respect of income hit by section 13, other provisions of the Act regarding levy of tax on maximum marginal rate would come into play. Thus, the registration under section 12AA is only fait accompli to the objects of the institution ['ACIT vs. Surat City Gymkhana', (2008) 300 ITR 214 (SC)]. The activities of an institution, though genuine at the time of grant of registration, may not remain so during its life-s ..... 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