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TMI Blog2021 (9) TMI 840X X X X Extracts X X X X X X X X Extracts X X X X ..... e income and expenditure account. The above said wrong treatment of the admission fees under the head reserve and surplus, would not disentitle the assessee from getting the registration 12AA of the IT Act. As it is not the case of the CIT(E) that the activities of the assessee ceased to be charitable on account of the above said wrong diversion of admission fees in the balance sheet. For the purposes of registration, u/s. 12AA of the IT Act it is essential for the registration authorities to examine that the object of the assessee should be charitable and the activities of the assessee are genuine. In our view, in the present case the objects of the assessee are charitable and further the activities of the assessee are genuine. The wrong treatment of the assessee of the admission fees under the head reserve and surplus, undoubtedly an issue which the AO was required to be examined. It has a direct bearing on the eligibility of the assessee u/s. 10(23C) (iiiad). The financial year 2016-17 to 2018-19, are on record which shows that even if the admission fees is taken into the profit and loss account instead of balance sheet, then also the total aggregate receipt for the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore. 3. That no reasonable and proper opportunity of being heard has been allowed before refusing to register the Society. 4. That without prejudice to above grounds, the order passed U/s 12A4A4(1)(b)(ii) on 23.09.2020 is invalid, illegal and void-ab-initio as Finance Act, 2020 had inserted Sec. 12AB w.e.f. 01.06.2020 for disposing off all the pending applications, on which no order U/s 12AA(1)(b) was passed before 01.06.2020. The whole Sec. 12AA/remains redundant from 01.06.2020 to 28.09.2020. 5. That the Appellant craves leave to add, alter or amend the grounds of appeal at or before the hearing. Brief facts 1. An application in form 10 A was electronically filed by the assessee on 23 December 2019 seeking registration under section 12AA of the Income Tax Act 1961. 2. After receipt of the application from the assessee the respondent had sent a online questionnaire on 8 January 2020. On the date of hearing, on 11 February 2020 none appeared on we are of the assessee therefore the matter was adjourned to 19 February 2020. The assessee filed the reply to the query raised by the officer of the respondent however CIT exemption was not satisfied with the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstantial and there was no diversion of any funds towards non educational purposes. The appellant has not adopted any unethical methods/any wrong means for collection of fees and has not charged any capitation fee. e) That all expenditures are genuine/legitimate/bonafide/and charitable. f) That the Ld. CIT(E), had not doubted that the activity of imparting education has been completely demonstrated in all the previous years by the assessee society in its Financial Statements which were produced before Ld. CIT (E) and did not have doubted/recorded any of the activities which are not in accordance with the objects of the society. 9. In response to the observation of the learned CIT exemption reproduced hereinabove (para 5 of the impugned order), it was submitted by the AR, The Ld. CIT (E) has asked about why the admission fees directly credited in Balance Sheet vice Notice dated 11.06.2020. 1. The appellant replied that the schools normally receive one time charges i.e. the charges which are paid only once during the tenure of the studentship in the school. That is why it has been treated as One Time Receipts and credited to Balance Sheet. 2. Further, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der:- 12AA.- 19 (1) The 20 [***] 21 [Principal Commissioner or] Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) 22 -[or clause (aa) 23 -[or clause (ab)] of sub-section (1)] of section 12A. shall- 23a [(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about,- (i) the genuineness of activities of the trust or institution; and (ii) the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects, 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, 23b [as required under sub-clause (i) of clause (a) and compliance of the requirements under sub-clause (ii) of the said clause], he- (i) shall pass an order in writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been granted the provisional registration under the new regime. In our view the argument of the assessee was required to be noted for the purposes of summarily rejection. The press note issued by the respondent on 09.05.2020 was issued under the statutory power bestowed on the board under the act and the same is enforcible in the eyes of law. The press note release dated 09.05.2020 was instruction to the subordinate authorities u/s. 119 of the IT Act and the applicability of section 12AB has been deferred up to 31.03.2021. In view of the above the objection of the assessee that the order has been wrongly passed u/s. 12AA(1)(b) is rejected. Hence the ground 4 of the appeal is rejected. 16. The ld. CIT(E), admittedly in the order has not objected to the charitable object of the society. In fact the applicant society is running school in the name and style of Sarashwati Public Senior Secondary School, and is registered with Punjab School Education Board. Thus the assessee's society is purely into imparting the education which is discernible from the activities undertaken by the society namely to run the educational school. The running of the school is undoubtedly a charitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, the CIT(E) has to see whether the objects are charitable in nature, which has been well defined in the Act and also to see whether the activities are genuine or not. In the case of Ananda Social Educational Trust v. Commissioner of Income tax, [2020] 272 Taxman 7 (SC) the Hon'ble Supreme Court held as under: 9. Section 12AA undoubtedly requires the Commissioner to satisfy himself about the objects of the trust or institution and genuineness of its activities and grant a registration only if he is so satisfied. The said section requires the Commissioner to be so satisfied in order to ensure that the object of the trust and its activities are charitable since the consequence of such registration is that the trust is entitled to claim benefits under sections 11 and 12 of the Act. In other words, if it appears that the objects of the trust and its activities are not genuine that is to say not charitable the Commissioner is entitled to refuse and in fact, bound to refuse such registration 12. Since section 12AA pertains to the registration of the Trust and not to assess of what a trust has actually done, we are of the view that the term 'activities' in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that it is his satisfaction and definition of 'charitable activities' dehors requirement of law would only enable an institution to be granted registration under section 12AA of the Act as once registration is granted, the entire income of the institution would become exempt The said view, in the light of precedents referred above is wholly opposed to law. Under section 12AA of the Act, the Commissioner is entitled to see that whether the objects are charitable in nature, which term has been well defined in the Act and also to see whether the activities are genuine or not The genuineness of activities would mean to see that activities are not camouflage, bogus, artificial and whether these are in accordance with the objects of the institution. The scope of enquiry does not extend beyond that pint... 20. That the Hon'ble Allahabad High Court in the case of CIT v Red Rose School [2007] 163 Taxman 19 (Allahabad) held that: Section 12AA, which lays down the procedure for registration, does not speak anywhere that the Commissioner, while considering the application for registration, shall also see that the income derived by the trust or the institution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction raised by the ld. CIT(E), the Hon'ble Lucknow ITAT held as under: Now, coming to the powers of the Commissioner as to whether while granting registration u/s. 12A he is required to examine the books of account etc. or he is only to satisfy himself regarding the objects of the trust and genuineness of the activities of the trust, we find various courts have held that while granting registration u/s. 12A the ld. CIT is required to see only the objects of the assessee trust/society and not to examine the application of income. He is not required to examine whether the income derived by the trust is being spent for charitable purposes or the trust is earning profit while granting registration. He is only required to examine the objects of the trust. We find identical issue had come up before the Tribunal in the case of Bhartiya Kisan Sangh Sewa Niketan (supra). In the said case also the assessee trust did not produce the books of account, bills and vouchers etc. for verification of the ld. CIT for which the ld. CIT held that the assessee society is not carrying out any charitable activities. Due to non-compliance of assessee society, the genuineness of the activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iliation to the assessee, then the CBSE, had taken care of the compliance of norms of other statutory authorities. During the hearing We had asked the AR to file the documents from various authorities mentioned by the Commissioner exemption in paragraph 8.. 26. We have considered the rival contention of the parties and perused the material available on record, including the judgments cited at bar during the course of hearing by both the parties. Before we deal with the facts of the present case, it would be appropriate for us to reproduce the relevant provision of income tax act dealing with the registration of the charitable society/trust, which were applicable on the case of 'Assessee Trust'. 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,- (i) the genuineness of activities of the trust or institution; and (ii) the compliance of such requirements o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently it is noticed that 50[(a) the activities of the trust or the institution are being carried out in a manner that the provisions of sections 11 and 12 do not apply to exclude either whole or any part of the income of such trust or institution due to operation of sub-section (1) of section 13; or (b) the trust or institution has not complied with the requirement of any other law, as referred to in sub-clause (ii) of clause (a) of sub-section (1), and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality, then, the Principal Commissioner or the Commissioner may, by an order in writing, cancel the registration of such trust or institution:] Provided that the registration shall not be cancelled under this sub-section, if the trust or institution proves that there was a reasonable cause for the activities to be carried out in the said manner. Nothing contained in this section shall apply on or after the 1st da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the provisions of Sections 11, 12 or Section 10(23C) of the Act, deal with the income of a Trust or of the Institution and the circumstances as to when such income is to be excluded for computing the total income, but the basis of such benefit is the registration under Section 12AA of the Act. Unless a Trust or Institution is registered under Section 12AA of the Act, such Trust or Institution shall not be entitled to exclude from its total income, deductions or contributions or from other sources. Therefore, the principles laid down for excluding the income from consideration under Section 10(22) now 10(23)(C) or Sections 11 and 12 are not applicable while considering the application for registration under Section 12AA of the Act. The application for registration is required to be made within one year of the creation of the Trust. Section 12AA of the Act, requires satisfaction in respect of the genuineness of the activities of the Trust, which includes the activities which the Trust is undertaking at present and also which it may contemplate to undertake. The insertion of sub-section (3) to Section 12AA of the Act, clarifies the said fact, when it empowers the Commissioner to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he application for registration since the two conditions which the Commissioner of Income Tax (Exemptions) has to satisfy while granting the registration under Section 12A of the Act, are that the objects of the assessee are charitable in nature and the activities are genuine. Just because the assessee has not filed its income tax returns in earlier years, it cannot be said that the activities of the assessee are not genuine. Reliance placed by the learned counsel for the assessee on the judgment of the Allahabad High Court as well as the order of the Chennai Bench of the Tribunal are not out of place, whereby it has been held that non-filing of return cannot be one of the reasons for denying registration under Section 12A of the Act. With regard to the second objection raised by the Commissioner of Income Tax (Exemptions) that as per clause-12 of the Memorandum of trust, the trustees have been given absolute powers to manage the property. We have perused the clause-12 of the Memorandum of the trust, whereby the trustees are authorized to demise the immovable property or properties of the trust either from year to year at for any fixed term or for any term of years or on monthly ba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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