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TMI Blog2012 (6) TMI 876X X X X Extracts X X X X X X X X Extracts X X X X ..... for registration under section 12AA(1) of the Act and a report was called for by the ld. Commissioner of Income-tax. The ld. Commissioner of Income-tax noticed the financial position of the assessee-society for the last three years which are as under:- Sl. No. F.Y. Gross Receipt Profit/Surplus 1 2006-07 76,78,873.00 29,84,250.45 2 2007-08 99,16,083.54 45,53,345.38 3 2008-09 1,65,34,914.83 54,57,083.52 3. From the aforesaid financial position, the ld. Commissioner of Income-tax observed that the assessee-society is carrying on its activities in such a manner that it is in the nature of a commercial enterprise and not for charitable purpose. The assessee-society stated that it is engaged in the charitable activities like conducting combined marriage of poor girls and charge subsidized fees from students. From the perusal of the balance sheets, the ld. Commissioner of Income-tax observed that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxman 402 (Punj. Har.) 3 City Montessori School v. Union of India [2009] 315 ITR 481/[2010] 191 Taxman 208 (All.) 4 Vanita Vishram Trust v. CIT [2010] 327 ITR 121/192 Taxman 389 (Bom.) 5 Raebareily Polytechnic Association v. CIT [2010] 48 DTR 1 6 Dr. Virendra Swarup Educational Foundation v. CIT [2010] 43 DTR 267 7 CIT v. Gaur Brahmin Vidya Pracharini Sabha [2011] 203 Taxman 226/15 taxmann.com 250 (Punj. Har.) 8 ITO(E) v. Dharamshila Cancer Foundation and Research Centre [2010] 8 taxmann.com 285/[2011] 128 ITD 1 (Delhi) 9 St. Lawrence Educational Society v. CIT [2011] 197 taxman 504/9 taxmann.com 233 (Delhi) 10 American Hotel and Lodging Association Educational Institute v. CBDT [2008] 301 ITR 86/170 Taxman 306 (SC) 6. The ld. D.R., on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total income of the person/assessee or trust from income of the previous year. But the provisions of section 12A, which is under the heading (conditions as to registration of trusts etc.), disentitles any trust or institution from claiming any benefit of the provisions of section 11 and section 12, in relation to its income, unless, the person in receipt of the income, has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1-7-1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later and such trust or institution is registered under section 12AA. Rest of the provisions of section 12A. [Para 18] section 12A thus, prescribed conditions for registration of trusts and obligates the trust or the institution to seek registration under section 12AA, if such trust or institution intends to have the benefit of the provisions of section 11 and section 12. [Para 19] These provisions thus, make it clear that if the trust or the institution is not registered under section 12AA, it would not be able to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es as he may deem necessary in this behalf. [Para 31] 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. [Para 32] 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 Commissioner 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 surmises 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 purposes relating to any charitable purpose, rejection cannot be made. [Para 33] Section 12 AA, which lays down the procedure tor registra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eness of the activities of the trust or the institution has to be seen, keeping in mind the objects thereof, which necessarily means that the Commissioner shall satisfy himself about the fact that the activities are genuine and in consonance with the objects of the trust or the institution. In other words, if establishing and running a school is the object of the Society, as given in its bye-laws, it has to be satisfied that the Society has established the school, where education is being imparted as per rules and the factum of establishment and running school is a genuine activity. The enquiry regarding genuineness of the activities cannot be stretched beyond this. [Para 44] Sufficient safeguards having been given in sections 11, 12 and 13 for assessing the income which has not been applied to the purpose of the trust or the Institution, the intention of the law maker and the scope and purport of the provision is apparent while considering the question of registration. [Para 45] The Tribunal has rightly found that the objects show that none of the objects were against public policy and the main activity of the said Society was to provide education to children from Primary section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asts doubt about the genuineness of the activities of the assessee institution, is also of no substance, as admittedly the object of the Nav Chetna Kendra Society, is not against any public policy and it has also been brought on record that the amount advanced by the assessee to the Nav Chetna Kendra was not for any other object, except that mentioned in the objects of that Society. There is nothing on record to show that money so advanced was for personal benefit of any office bearers of the assessee Society or any other person. It not being in dispute that NCK Society runs the library of the institution, an object related to charitable purpose, where the money has been advanced by the assessee society in furtherance of the said object, i.e. for running a library, which is again an educational purpose, it cannot be a ground for refusing registration of the assessee society. [Para 54] There is no finding that the aforesaid activities of the society were not genuine. The Tribunal has also considered that the balance sheet could not be reconciled as earlier the balance sheet was not audited and the audited balance sheets, which were filed before the CIT, did not show any discrepancy. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that as long as an institution exists solely for educational purposes, it would qualify for grant of exemption under section 10(23C) (vi) of the Act. Merely because the profits have resulted from the activity of imparting education that would not change the character of the institution existing solely for educational purpose. 10. Again in the case of City Montessori School (supra), their Lordships of Hon'ble jurisdictional High Court have held that the word education used in section 2(15) of the Act means systematic instruction, schooling or training given to the young in preparation for the work of life. Similarly, extending financial assistance, scholarship, etc., to students for their educational purpose would fall within the connotation of education . 11. In the case of Vanita Vishram Trust (supra), their Lordships of Hon'ble Bombay High Court have observed while dealing with the issue of rejection of approval under section 10(23C) of the Act that though the Memorandum of Association contains varied objects, so long as the record demonstrates that the assessee only conducts educational institutions, it must be regarded as existing solely for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this behalf appearing in the said clause itself. Presence of surplus as a result of such activities and whether exemption under section 11 can become available to such surplus, are the subject-matter of assessment, i.e., it is the AO who is required to examine at the time of making assessment such issues. The CIT, at the time of granting registration under section 12A, is not required to go into these aspects. So far as the issue relating to one having income or surplus is concerned, the provision itself envisages the availability of the income/surplus otherwise, the provisions of sections 11, 12 and 13 become redundant. The only exception is that such income/surplus must be applied, either in that very year or in subsequent year, for charitable purposes. Thus, presence of income in the case of an institution existing for charitable purposes (education included therein) is envisaged by the legislation and to grant exemption of such income from taxation, the legislature itself has provided an elaborate code as has been laid down in section 11 and rules made thereunder. In case presence of income in a particular year is treated as disqualification for the purposes of registration un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as has been laid down in section 11 and rules made thereunder. [Para 8.8] If such an income can be treated as exempt under section 11, then it cannot be held to be disqualification for the purposes of registration under section 12A, which has been brought on the statute book simply for laying down a procedure for claiming such an exemption, and view expressed by the CIT and sought to be supported by the Departmental Representative, is wholly fallacious at the very face of it. In case presence of income in a particular year is treated as disqualification for the purposes of registration under section 12A, the provision of section 11 granting exemption of income shall be rendered as otiose, which is not the intention of law. Further, the ten words reading as not involving the carrying on of any activity for profit occurring at the end of section 2 (15) had been omitted by the Finance Act, 1983 with effect from 1-4-1984 and such an omission, continues to remain so omitted (as proviso below section 2(15) by the Finance Act, 2008 also does not cover education or activities connected with the education. This analysis itself goes to nullify the view taken by the CIT in the order under c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it motive - The assessee-society was carrying on the activity of running various educational institutions. Assessee had been granted registration under section 12A and was also granted exemption under section 80G from 1-4-2007 to 31-3-2009, for the assessment year 2010-11, CIT denied the approval under section 80G(5) to assessee for the reason that there was huge surplus available with assessee and a commercial institution. On the other hand, AO in the assessment orders for the assessment years 2005-06 to 2007-08 passed under section 143(3) clearly stated that the surplus was nil after considering the provisions of sections 11 and 11(2). It had categorically been stated in the said assessment orders that the income applied was more than 85 per cent of the gross receipts as per the provisions of the Act. As such the assessment was completed on nil income, therefore, this cannot be a ground to deny the exemption under section 80G that assessee was having surplus. Furthermore, the approval for exemption under section 80G(5) was granted to assessee upto 31-3-2009, however without bringing any material on record that there was a change in the facts for the year under consideration vis-a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utes run by the assessee was on commercial lines. Therefore, merely on this basis that there was a surplus, which was utilized as per the provisions contained in section 11 approval under section 80G(5) of the facts as discussed hereinabove, the assessee was entitled to renewal of approval under section 80G. In that view of the matter, the impugned order of the CIT is set aside and he is directed to grant the approval under section 80G (5). [Para 6.2] 14. Hon'ble Punjab Haryana High Court in the case of Gaur Brahmin Vidya Pracharini Sabha (supra) in Income Tax Appeal No.759 of 2010 vide its judgment dated 3.10.2011 has categorically held that mere making of profit cannot be a ground to deny registration once the objects of the society are of charitable nature and especially in the present case where five educational institutions are being run by the respondent which is registered on 29.9.1980 under the Societies Registration Act and solely because the respondent was charging fees and was getting surplus would not be the reason to deny registration in view of the judgment of this Court in the case of Pinegrove International Charitable Trust (supra). While dealing with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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