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TMI Blog2023 (2) TMI 1365X X X X Extracts X X X X X X X X Extracts X X X X ..... he objects, so as to examine and verify charitable nature of activities in consonance to the objects of the Trust to Satisfy about the manner, the activities are carried were not profit making or fund generation for purpose of personal/commercial benefit as per the mandate. Restore the matter back to the file of the Ld. PCIT to adjudicate the matter afresh. Appeal of the assessee is allowed for statistical purpose. - DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER For the Appellant: Sh. Joginder Singh, C.A. For the Respondent: Smt. Rajinder Kaur, CIT-D.R. ORDER Per Dr. M. L. Meena, AM: The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Exemptions), Chandigarh dated 28.09.2018 in respect of Assessment Year 2018-19. 2. The assessee has raised the following grounds of appeal: 1. That on the facts and circumstances of the case and in the law, the CIT(Exemptions) has grossly erred in denying registration to the assessee trust u/s 12AA of the Income tax act, 1961 as claimed. 2. That the Ld. CIT (Exemptions) has not considered completely the information/ evidence brought on record, in correct perspectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the deserving people particularly to the children of the deprived sections of the society, to establish, promote, setup, run, maintain, assist, finance, support and/or aid to or help in the setting up and/or maintaining and/or running training centers, research institutions, schools, colleges (Academic Professional), MCA, MBA, Law, Nursing Paramedical Colleges, B.ED and M. Ed courses and the elementary teacher training courses and other institutions orphanages, widow houses or other establishment for relief and/or education or training to the persons connected with local administration or public health as well as other institutions, which are not specifically mentioned. The Ld. PCIT has denied registration to the assessee trust u/s 12AA of the Income tax act, 1961 as claimed by observing as under: 4. The provisions necessitate examination of two basic conditions for grant of registration u/s 12AA. The same include, apart from the examination of objects of the society, satisfaction of the competent authority in respect of genuineness of activities as well particularly when the applicant is an ongoing entity. On perusal of the applicant's submission it is observed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... returns and claiming exemption u/s 10(23C)(iiiad). Is it the case that the moment receipts exceeded Rs. One Crore the applicant society has ceased to be existing solely for educational purposes and not for profits ? Here it is also pertinent to mention that Judicial precedents have allowed pursuance of alternative claims either for 12AA or 10(23C) but at the same time haven't allowed shifting from one provision to the other when the applicant has consistently availed benefits for a number of year under section 10(23C)(iiiad). The alternatives had to be chosen from at the beginning a choice that has already been exercised. Natural progression entails and entitles the educational societies to go for 10(23C)(vi) in such cases. It is also the case that if such a shift is allowed the provisions of section 10{23C)(vi) would be rendered redundant and infructuous. This clearly is neither the legislative intent nor scheme of the Act that provisions for two different sets of codes with different parameters as also conditionalities. It's also relevant in the particular case that the character and objects of the applicant have not changed to warrant a change in the code of exemption th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicant has submitted copy of financial statements of the school for F.Y. 2014-15, 2015-16 2016-17. Further, on perusal of the Income and expenditure account for the last three years, it was observed that the surpluses of income over expenditure are between 34 to 45% of the gross receipts during the last three years. The table is given as under:- Financial Year 2014-15 2015-16 2016-17 Gross receipts 92,28,655/- 96,40,601/- 96,66,726/- Surpluses 41,12,297/- 36,49,284/- 33,48,726/- Percentage w.r.t. gross receipts 44.56 37.85 34.64 Admittedly it needs to be flagged that educational institutions have been allowed to generate reasonable surplus but the same needs to be redeployed into the stated objects of the entity at the time it was established. Permissible reasonableness has further been defined in the order of the Apex Court in the case of Islamic Academy of Education another vs. State of Karnataka and others (2003) 6 SSC 697 and further reiterated in the case of Visvesvaraya Technological University Vs ACIT in Civil appeal Nos. 4361-4366 of 2016 where the Hon'ble High Court held to be the permissible reasonable surplus at 6% to 15% of the gross receipt. In the present case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocal administration or public health as well as other institutions which are not specifically mentioned. (iii) (iv) etc. From the objects as enshrined in the Trust deed, it is clear that the aims and objects are in conformity with the provisions of section 2(15) of the Income tax Act, 1961. The copy of Trust deed is enclosed and is marked as page No 01 to 13. The purpose of provisions of section 12AA is to enable registration only of such trust or institution whose objects and activities are genuine. Since the section 12AA pertains to the registration of the Trust and not to assess of what a trust has actually done and the term activities in the provision includes proposed activities. That is to say, the registering authority is bound to consider whether the objects of the Trust are genuinely charitable in nature and whether the activities which the trust proposed to carry on are genuine in the sense that they are in line with the objects of the Trust. The only requirement for granting the registration is that the object of the society should be charitable in nature and its activities were genuine. The Hon'ble Supreme Court in the case of M/s Anand Social and Educational Trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee has not generated any surplus since assessment year 2015-16 to 2017-18. Asstt. Year Total Revenue Expenditure Capital expenditure Total expenditure Surplus 1. 2 3 4 5(3+4) 6(2-5) 2015-16 92,28,655 51,16,357 55,54,492 1,06,70,849 -)14,42,194 2016-17 96,40,601 59,91316 99,51,418 1,59,42,734 -)63,02,133 2017-18 96,66,726 63,18,170 40,39,308 1,03,57,478 -)6,90,752 From the above chart it is quite clear that the surplus generated over revenue expenditure is exclusively spent for construction of the trust building for furtherance of the objects of the trust. During the year referred by the Ld. CIT(E) that assessee has generated surplus of 44.46%, 37.85% and 34.64% in the assessment years 2015-16, 2016-17 and 2017-18 is factually incorrect whereas the net surplus generated by the assessee trust is negative in all the assessment years referred in the order. Even under the provisions of section 11, the surplus upto 15% of the total receipts is allowable. Copies of the Balance sheet are annexed herewith page No.14 to 35 of Paper book. 3. The Ld. CIT(E) has not pointed out any adversely on the object and activities of the Trust. The Ld. CIT(E) has to satisfy while granting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the Ld. PCIT has not considered the information/ evidence brought on record, in correct perspectives while denying the Registration u/s 12AA of the Income Tax Act and that PCIT Exemptions is required to see the objects of the trust and genuineness of the activities and not required to examine the other extraneous considerations. Since, the PCIT s quarries regarding the corpus donation received from trustees is being not for specific purpose; that the salaries and wages paid to the teaching staff were not as per minimum wages act and that the assessee trust earned huge surplus, which is not redeployed into education purpose and in furtherance of charitable activities if any besides clarification on surplus funds accumulation incurred on capital expenditure, in turn resulting into negative balance needs examination by the Ld. PCIT(E). We make it clear that since the appellant trust in ongoing activity, the ld. CIT(E) has been empowered to examine and verify that the activities carried out in lieu of the objects, so as to examine and verify charitable nature of activities in consonance to the objects of the Trust to Satisfy about the manner, the activities are carried were not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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