Commissioner Of Income Tax, Faridabad v. Rajmala Educational Society, Shail Farms, Farukh Nagar, Gurgaon

of 2010-1- **** IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH Income-tax Appeal No. 820of 2010Date of decision: 12.10.2011 Commissioner of Income Tax, Faridabad...Petitioner Versus Rajmala Educational Society, Shail Farms, Farukh Nagar, Gurgaon ...Respondent CORAM: HON'BLE MR.JUSTICE HEMANT GUPTA HON'BLE MR.JUSTICE G.S.SANDHAWALIA Present: Mr. Tejinder K. Joshi, Advocate for the appellant. **** G.S.SANDHAWALIA, J. The present appeal is directed against the order dated29.1.2010 passed by the Income Tax Appellate Tribunal, Delhi Bench 'F',New Delhi (hereinafter referred to as “the Tribunal”) wherein the ITANo.4485/Del/2009 filed by the respondent was allowed and the Tribunalwhile allowing the appeal directed the Commissioner of Income Tax,Faridabad (for short “the CIT”) to grant approval under Section 80G to theassessee. The CIT while rejecting the application of the assessee videorder dated 9.10.2009 had based its order on the ground that respondent-society which is established on 24.2.2001 and filed an application forrenewal/exemption under Section 80G on 15.4.2009 was generating hugesurpluses year after year and making capital expenditure for the assets ofthe school out of this income. It was further noticed by the CIT that theapplication of funds was to be till 85% and the assessee was permitted toaccumulate only 15% of the receipts in normal course and the application **** of funds during financial year 2006-07, 2007-08 and 2008-09 fell short ofthe prescribed percentage in these years and since the assessee wasapplying its income towards building and assets in the form of constructionof school building or purchase of bus, therefore, it was not charitablepurpose. The CIT further noticed that the intimation in form 10 of Rule 17of the Income Tax Rules, 1962 (hereinafter referred to as “the Rules) hadnot been made to the Assessing officer and by placing reliance on the caseof Municipal Corporation of Delhi etc. Vs. Children Book Trust etc.[1992] 3 SCC 390 (SC) and the case of CIT Vs. Queen's EducationalSociety and CIT Vs. St. Pauls Sr. Secondary School2009 (319) ITR160 (Uttarakhand) held that there was violation of Section 11(2) of theIncome Tax Act, 1961(hereinafter referred to as “the Act”) and rejected theclaim of the society. On appeal filed by the respondent-society, the Tribunal hasnoticed the income in the hands of the assessee and that the assessee isentitled for depreciation and reproduced the aims and objects of the societyto hold that the assessee has incurred expenditure for construction ofschool building during said financial years and for acquiring the bus fortransportation of the children and held that the said activity was within theaims and objects of the assessee's educational society and if thedepreciation and capital expenditure is deducted out of the gross receiptshown in the chart reproduced by the CIT, the surplus in the hands of thesociety comes to a negative figure. Accordingly, it was held that question of intimation in form 10was not required to be submitted before the CIT and since the assesseewas also enjoying exemption under Section 12AA of the Act, the CIT wasnot justified in denying the approval under Section 80G of the Act. The revenue aggrieved against the said order of the Tribunal has in the present appeal framed the following substantial question of lawwhich in its opinion require adjudication by this Court:- Accordingly, it was held that question of intimation in form 10was not required to be submitted before the CIT and since the assesseewas also enjoying exemption under Section 12AA of the Act, the CIT wasnot justified in denying the approval under Section 80G of the Act. The revenue aggrieved against the said order of the Tribunal has in the present appeal framed the following substantial question of lawwhich in its opinion require adjudication by this Court:- “Whether, on the facts and in the circumstances of the case,the ld. ITAT was right in law in granting approval underSection 80G of the Income Tax Act, 1961 even though theapplicant society seeking exemption is applying its incometowards investment in the fixed assets like purchase of busesand construction of school building are the properties of thesociety and may be connected with the imparting of educationbut the same has been constructed and purchased out ofincome from imparting the education with a view to expand theinstitution and the earn more income and is contrary to thedecision of the Hon'ble Supreme Court in the case of MunicipalCorporation of Delhi Vs. Children Book Trust (1992) 3 SCC390 and decision of the Hon'ble Uttarakhand High Court in thecase of CIT, Haldwani Vs. Queen's Educational Society andCIT Vs. St. Pauls Sr. Secondary School reported at 319 ITR160?” A reading of the Rule 11AA of the Income Tax Rules, 1962 goesto show that application for approval of any institution under Clause (vi) ofsub-section (5) of Section 80G should be in Form 10G and the followingdocuments are necessary as per clause (2) of the said Rule. “(i)Copy of registration granted under section 12A or copyof notification issued under section 10(23) or 10(23C); (ii)Notices on activities of institution or fund since itsinception or during the last three years, whichever is less; (iii)Copies of accounts of the institution or fund since itsinception or during the last three years, whichever is less;inception or during the last three years, whichever is less; **** (3)The commissioner may call for such further documentsor information from the institution or fund or cause suchinquiries to be made as he may deem necessary in order tosatisfy himself about the genuineness of the activities of suchinstitution or fund. (4)Where the Commissioner is satisfied that all theconditions laid down in clauses (i) to (iv) of sub-section (5) ofsection 80G are fulfilled by the institution or fund, he shallrecord such satisfaction in writing and grant approval to theinstitution or fund specifying the assessment year or years forwhich the approval is valid. (5)Where the Commissioner is satisfied that one or more ofthe conditions laid down in clauses (i) to (v) of sub-section (5)of section 80G are not fulfilled, he shall reject the applicationfor approval after recording the reasons for such rejection inwriting. Provided that no order of rejection of an application shall bepassed without giving the institution or fund an opportunity ofbeing heard. (6)The time limit within which the Commissioner shall passan order either granting the approval or rejecting theapplication shall not exceed six months from the date on whichsuch application was made.an order either granting the approval or rejecting theapplication shall not exceed six months from the date on whichsuch application was made. Provided that in computing the period of six months, any timetaken by the applicant in not complying with the directions ofthe Commissioner under sub-rule (3) shall be excluded.” A perusal of the above goes to show that the discretion of theCommissioner is to consider whether the conditions prescribed above are **** (6)The time limit within which the Commissioner shall passan order either granting the approval or rejecting theapplication shall not exceed six months from the date on whichsuch application was made.an order either granting the approval or rejecting theapplication shall not exceed six months from the date on whichsuch application was made. Provided that in computing the period of six months, any timetaken by the applicant in not complying with the directions ofthe Commissioner under sub-rule (3) shall be excluded.” A perusal of the above goes to show that the discretion of theCommissioner is to consider whether the conditions prescribed above are **** satisfied from the application. This Court inSonepat Hindu Educationaland Charitable Society Vs. Commissioner of Income Tax and another(2005) 278 ITR 262 (P&H) has held that where the petitioner society hasbeen regularly allowed exemption under Section 80G and especially whereit is registered under Section 12A for charitable purposes then the positionhas to be sustained and not changed in subsequent years without anysufficient proof that the institution is not carrying its activities in furtheranceof its object. The relevant observations of the Division Bench inSonepat Hindu Educational and Charitable Society’scase (supra) are as under:- “We have no hesitation in holding that the scope of enquiry bythe Commissioner, while dealing with the application underSection 80G(5)(vi) of the Act, extends to eligibility to exemptionunder various provisions of the Act, referred to in that sub-section, but not to actual computation of Income under the Act,particularly when a society or a trust is claiming exemptionsunder sections 11 and 12 and not under section 10 of the Act.It needs little emphasis that the enquiry for the said purpsoerelates to whether the applicant is registered under section12A; whether it is a trust wholly for charitable purposes andwhether the income received by it is liable to be consideredunder section 11 of the Act. The enquiry whether at the end ofthe previous year, the donor will be able to sustain a claimbecause of non-fulfillment of some conditions by him woulddepend at the close of the relevant previous year, as it is notpossible to predicate these conditions in praesenti when thedonation is made.” Whether mere making of profit would be ground to denyregistration once the objects of the society are for charitable purpose and **** especially in the present case where the society which was registeredsince 24.2.2001 under the Societies Registration Act, 1860, and runningRajmala Senior Secondary School at Gurgaon and the aims and objects ofthe society were as under:- (A)To open Nursery, Primary, Higher & Higher SecondarySchools, Degree College for poor and needful people.Schools, Degree College for poor and needful people. (B)Teaching of modern arts and modern study. (C)Teaching & practicing from Orchard, Horticulture andother agro related activities.other agro related activities. (D)Teaching of ideology of great Indian Saints leaders andeducation.education. (E)To improve pupils mental, physical and moral growththough cultural activities.though cultural activities. (F)To help the pupils develop their inner qualities and spiritof a creative leadership.of a creative leadership. (G)To obtain money for the aims and objects of the societyin the lawful manner such as donations etc.in the lawful manner such as donations etc. (H)To do all such acts to promote study and research. (I)To do all such things as are identical and conductive forattainment of the above objects or any of them.attainment of the above objects or any of them. (J)To employ and/or remove any staff or employee of theschool/institution under the control of the society.school/institution under the control of the society. (K)To act for welfare of the students and to promote extracultural activities among the students.cultural activities among the students. (L)To receive and/or disburse and/or invest and arrange for (G)To obtain money for the aims and objects of the societyin the lawful manner such as donations etc.in the lawful manner such as donations etc. (H)To do all such acts to promote study and research. (I)To do all such things as are identical and conductive forattainment of the above objects or any of them.attainment of the above objects or any of them. (J)To employ and/or remove any staff or employee of theschool/institution under the control of the society.school/institution under the control of the society. (K)To act for welfare of the students and to promote extracultural activities among the students.cultural activities among the students. (L)To receive and/or disburse and/or invest and arrange for safe custody of the funds coming in the hands of thesociety.”society.” This Court in Pinegrove International Charitable Trust Vs. **** Union of India (UOI) and others(2010) 327 ITR 73 (P&H) has held thatwhere any amount spent on acquiring/constructing capital assets whollyand exclusively for the benefit of society like constructing a new buildingwould be utilisation of the income of the society and if it is done forfurtherance of the object of the society. That in the said case a Division Bench of this Court whileexamining the provisions of Section 10 (23C) (vi) of the Act and afterconsidering the judgments of Hon’ble Supreme Court Court inCIT (Addl.)v. SuratArt Silk Cloth Manufacturers Association, [1980] 121 ITR 1 (SC) andAditanar Educational Institution v.Additional Commissioner of Income-tax, [1997] 224 ITR 310has held that merely if an institution ismaking a profit it would not render itself ineligible for registration under theprovisions of Section 10 (23C) (vi) of the Act. The said principle can alsobe fully applied to the facts and circumstances of the present case. Merely, because there are some surplus with the respondent, this shouldnot be a ground to deny the registration under Section 80G (5)(vi) of theAct. In the present case, once the Tribunal has found that afterdeprication and deducting the capital expenditure out of gross receipts,there was no surplus in the hands of the society, therefore, there was noviolation of Section 11 of the Act and there was no requirement to furnishintimation in form 10 and once exemption had been granted under Section12AA of the Act on 29.8.2002 and the same was continuing the CIT was,therefore, not justified in denying the approval under Section 80G of Actand, therefore, all the conditions of Section 80G(5) of the Act are fulfilled inthe present case and, therefore, the trust was eligible for registration underSection 80G(5)(vi) of the Act. It is pertinent to notice that in PinegroveInternational Charitable Trust'scase (supra), the judgment of the Hon'ble **** Supreme Court in Municipal Corporation of Delhi'scase (supra) hasbeen discussed and the Division Bench judgment of Uttarakhand HighCourt in Queen's Educational Society'scase (supra) has not beenspecifically followed and the Division Bench held that it is unable topersuade itself to accept the view expressed by the Division Bench ofUttarakhand High Court in case of Queen's Educational Society Accordingly, no substantial question of law as contended in thepresent appeal arises for determination by this Court and the order dated29.1.2010 whereby the Tribunal held that the assessee's society is eligiblefor registration is upheld. Consequently, the appeal is dismissed. (G.S.SANDHAWALIA) Judge October 12, 2011Pka (HEMANT GUPTA) Judge