Commissioner Of Income Tax-I Chandigarh v. Sti Guru Gorakh Nath Charitable Educational Society, Ropar

IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA No.336 of 2013 (O&M)Reserved on:235 O04. 7Date of decision:05.05.2015 Commissioner of Income Tax-I Chandigarh Versus ....Appellant Sti Guru Gorakh Nath Charitable Educational Society, Ropar ...... Responden CORAM:HON'BLE MR.JUSTICE S.J.VAZIFDAR, ACTING CHIEF JUSTICEHON'BLE MR.JUSTICE G.S.SANDHAWALIA Present:Ms.Urvashi Dhugga, Advocate, for the appellant. Ms.Radhika Suri, Sr.Advocate with Ms.Rinku Dahiya, Advocate, for the respondent, G.S.Sandhawalia J. 1111 The appeal, filed under Section 260A of the Income Tax Act, 1961(for short, the ‘Act') is directed against the order of the Income Tax AppellateTribunal, Chandigarh (for short, the "Tribunal'), passed in ITA No.1121/Chd/2012dated 19.02.2013 (Annexure A-2). Vide the said order, the appeal of therespondent-Society has been allowed by the Tribunal and a direction has beenissued to the Commissioner to grant registration to the Society under Section1ZAA otf the Act 2 The two questions of law, on which the appeal is admitted, read as under: “1. Whether on facts and in the circumstances of the case and inlaw the learned ITAT was correct in allowing the appeal of theassessee especially when the family run trust did not submit details ~).SAILESH RANJAN2015.05.05 18:20I attest to the accuracy andintegrity of this document of assets and properties tnat they possessed as well as thetreatment given to the assets of an old school being taken over bythem. 2. VWWnetner the ITAI was right In not upholding tne findings of Cu/s 12AA (1)(0)(I1) considering that assessee nad failed to complywith provision u/s 12AA(1)(a) in aS much as document andinformation called for was not submitted.” 3)The factual matrix of the case in hand is that the respondent-Societywas registered with the Registrar of the Societies on 19.04.2005. It applied forregistration under Section 12AA of the Act, in form No.10A on 16.03.2012. TheCommissioner, vide order dated 28.09.2012 (Annexure A-1), rejected theapplication by coming to the conclusion that the Society had not proved its casewhether the activities were being run in a charitable manner and that the Societywas not created wholly and exclusively for charitable purposes. The reasonswhich prevailed with the Commissioner was that fresh evidence had not beenfurnished to prove that there was any provision for free subsidized education forpoor and whether there was any element of public benefit. It was further foundthat the land and building on lease had been taken from the daughter of theGeneral Secretary of the Society and the power of attorney had been signed bythe father, namely, Amarjeet Singh Saini who was also the husband ofMrs.Madhuri Saini, the General Secretary. The complete details of land and theextent of the building like the number and measurement of rooms constructed onthe land etc., had not been furnished. The terms of the lease was also taken intoconsideration pertaining to the annual lease and the fact that the Society had alsotaken name of another school namely, St. Carmel School, Giani Zail Singh Nagar,Ropar, along with students, furniture and fixtures. It was noticed that thebuilding details were not furnished as such of the liability created and theexpenditure incurred on the creation of such assets. The tactum of the Societyfiling its returns since the year 2005-06 and claiming exemption under Section ITA No.336 of 2013 (O&M) -3- SAILESH RANJAN2015.05.05 18:20I attest to the accuracy andintegrity of this document ITA No.336 of 2013 (O&M) -3- SAILESH RANJAN2015.05.05 18:20I attest to the accuracy andintegrity of this document 10(23C) on the fact that the receipts were below |4l crore, was taken intoconsideration. It was further noticed that the amount of income is likely toexceed41 crore in the financial year 2012-13 and the details of the office bearersand the members of the general body had not been furnished along with theidentity of the office bearers. Accordingly, by holding that the Society wasearning profits and had nothing to do with charity and had no visible plans andhaving not been satisfied with the objects and genuineness of the society andkeeping in view the definition of charitable purpose under Section 2(15),registration was denied. As noticed, the Tribunal, vide the impugned order dated19.02.2013, has allowed the appeal and directed that registration be granted to thesociety. 4Counsel for the Revenue has, accordingly, contended that oncerelevant materials have not been furnished, the Commissioner was well justifiedin denying the registration and the Tribunal was not justified in directingregistration and even otherwise, the matter should have been remanded for a freshenquiry on the basis of some directions laid down and it was not appropriate forthe Tribunal, in such circumstances, to allow the appeal, in view the right of theCommissioner to go into the issue to Satisfy itself of the objects and thegenuineness of its activities, 5 Counsel for the assessee, on the other hand, vehemently assailed theorder of the Commissioner and submitted that the order was based on thejudgment of the Supreme Court inMCD Vs. Children Book Trust 1992 (G3) SC390. In a later judgment of the Supreme Court inM/s Queen§ FducationalSociety Vs. Commissioner of Income Tax 2015 (3) IMI 619>it had beenspecifically held that the earlier judgment of the Apex Court was dealing with theproperty tax provisions and therefore, could not have been relied upon and eventhe judgment of the Uttarakhand High Court had been reversed. Accordingly, the ITA No.336 of 2013 (O&M) reasoning given by the Tribunal was projected to be correct. 6.After hearing counsel for the parties, we are of the opinion that theTribunal was not justified in allowing the appeal and issuing necessary directionand should have sent the matter back to the Commissioner for fresh enquiry.Admittedly, the factum of the additional information being asked for was neverdenied by the respondent-Society. In appeal, the assessee had only raised theissue as to whether the order of the Commissioner is arbitrary and unjustified andwhether the activities of the Society did not qualify in the nature of charity andthe finding had been based on suspicion and conjectures. The additionalinformation being asked for, as such, was never controverted. It was notcontended that the information had been supplied but was not taken intoconsideration. Under Section 12AA, the procedure for registration is prescribed,which reads as under: “Procedure for registration. 12AA. (1) The [Principal Commissioner'Or' Commissioner, onreceipt of an application for registration of a trust or institutionmade under clause (a)for clause (aa) of sub-section (1)] ofsection192, snall— "a) call for such documents or information from the trust orinstitution as he thinks necessary in order to satisfy himself aboutthe genuineness of activities of the trust or institution and may alsomake such inquiries as he may deem necessary in this behalf; and "f) after satisfying himself about the objects of the trust orinstitution and the genuineness of its activities, he— "|) shall pass an order in writing registering the trust or institution;"I) shall, if he is not so satisfied, pass an order in writing refusing toregister the trust or institution, and a copy of such order shall be sent to the applicant : Provided that no order under sub-clause (iT) shall be passed unlessthe applicant has been given a reasonable opportunity of beingheard. "a) call for such documents or information from the trust orinstitution as he thinks necessary in order to satisfy himself aboutthe genuineness of activities of the trust or institution and may alsomake such inquiries as he may deem necessary in this behalf; and "f) after satisfying himself about the objects of the trust orinstitution and the genuineness of its activities, he— "|) shall pass an order in writing registering the trust or institution;"I) shall, if he is not so satisfied, pass an order in writing refusing toregister the trust or institution, and a copy of such order shall be sent to the applicant : Provided that no order under sub-clause (iT) shall be passed unlessthe applicant has been given a reasonable opportunity of beingheard. (1A) All applications, pending before the[Principal Chief Commissioner oriChief Commissioner on which no order has beenpassed under clause (f) of sub-section (1) before the 1st day ofJune, 1999, shall stand transferred on that day to the[PrincipalCommissioner oriCommissioner and the[Principal CommissionerOFiCommissioner may proceed with such applications under thatsub-section from the stage at wnich they were on that day.| (2) Every order granting or refusing registration under clause (D) ofsub-section (1) shall be passed before the expiry of six monthstrom the end of the montn in wnicn the application was receivedunder clause (a) [or clause (ad) of sub-section (1 )] ofsection 127' (3) Where a trust or an institution has been granted registrationunder clause (b) of sub-section (1) [or has obtained registration atany time undersection 127[as it stood before its amendment bythe Finance (No. 2) Act, 1996 (33 of 1996)]] and subsequently the[Principal CommissionerOf|Commissioner is satisfied that theactivities of such trust or institution are not genuine or are not beingcarried out in accordance with the objects of the trust or institution,as the case may be, ne shall pass an order In writing cancelling theregistration of such trust or institution: Provided tnat no order under tnis sub-section shall be passedunless such trust or Institution has been given a reasonableopportunity of being heard.]" vaA perusal of the above section would go on to show that theCommissioner has to satisfy himself of the objects of the trust and thegenuineness of the activities and after giving an opportunity of being heard to thetrust or the institution, a refusal can be made to register the trust. Thus, thesection gives power to the Commissioner to look into the genuineness of theactivities of the trust and to satisfy himself about its activities. Under Section12A, the provisions of Sections 11 & 12 shall not apply in relation to the incomeof any trust or institution unless various conditions are fulfilled. The saidsections provide that income from property held for charitable purposes shall notbe included in the total income of the previous year of the person in receipt of theincome. ITA No.336 of 2013 (O&M) -6-SAILESH RANJAN2015.05.05 18:20I attest to the accuracy andintegrity of this document § The provisions of Section 12AA, thus, also give the power undersub-section(3) to cancel the registration of the activities of the trust if it is notcarried out in accordance with the objects but the Commissioner has to keep inmind that it is not to act as an Assessing Authority while deciding the applicationunder Section 12AA and the enquiry regarding the genuineness of the activitiesof imparting education with a charitable purpose is to be kept in mind. Theobjects of the trust, thus, have to be taken into consideration. Section 2(15)defines charitable purpose and the same includes relief in education andadvancement of any other object of general public utility. In case the utility iscarried out in the nature of trade, commerce, business, the proviso provides thatthe same will not be a charitable purpose. Sub-section 2(15) reads as under: “oub-section 2 (15) - "charitable purpose" includes relief of thepoor, education, medical relief, [preservation of environment(including watersheds, forests and wildlife) and preservation ofmonuments or places or objects of artistic or historic interest,] andthe advancement of any other object of general public utility: Provided that the advancement of any other object of generalpublic utility shall not be a charitable purpose, if it involves thecarrying on of any activity in the nature of trade, commerce orbusiness, or any activity of rendering any service in relation to anytrade, commerce or business, for a cess or fee or any otherconsideration, irrespective of the nature of use or application, orretention, of the income from such activity:] [Provided further that the first proviso shall not apply if theaggregate value of the receipts from the activities referred totherein is [twenty-five lakh rupees] or less in the previous year;]" QO These aspects have not been taken into consideration by the Tribunal which has placed heavy reliance upon the judgment of this Court inPinegroveInternational Charitable Trust Vs. Union of India & others [2010] 327 ITR 73,which has now been upheld by the Apex Court in the case ofM/s Queen!2Educational Society(supra). However, it is also to be noted that a Division Bench of this Court inCommissioner of Income Tax Vs. Surya Educational & Charitable Trust [2013] 355 ITR 280,subsequently, held that the principles laiddown for excluding income under Section 10(23C) are not applicable whileconsidering the application for registration under Section 12AA. It was alsofurther held that the genuineness of the objects of the trust are to be taken intoconsideration. Relevant observations read as under: “On the other hand, Section 10(23C) of the Act are theprovisions of the Act in substitution of the earlier provisions ofsection 10(22) of the Act as to which income shall not be includedin computing the total income of any person. Therefore, theprovisions of Sections 11, 12 or Section 10(23C) of the Act, dealwith the Income of a Trust or of the Institution and thecircumstances as to when such Income its to be excluded focomputing the total income, but the basis of such benefit is theregistration under Section 12AA of the Act. Unless a Trust orInstitution is registered under Section 12AA of theAct, such Irustor Institution shall not be entitled to exclude from its total Income,deductions or contributions or from other sources. Therefore, theprinciples laid down for excluding the income from considerationunder Section 10(22) now 10(23)(C) or Sections 11 and17? are noapplicable while considering the application for registrationUndersection 12AA of the Act. The application for registration is requiredto be made within one year of the creation of the Trust. Section12AA of the Act, requires satisfaction in respect of the genuinenessof the activities of the Trust, which includes the activities which theTrust is undertaking at present and also which It may contemplateto undertake. The insertion of sub-section (3) to Section 12AA ofthe Act, clarifies the said fact, when it empowers the Commissionerto cancel the registration if the activities of the Trust are not carriedout In accordance witn such objects. Therefore, the object of Section 12AA of the Act, is toexamine the genuineness of the objects of the Trust, but not theincome of the Trust for charitable or religious purposes. The stagefor application of income is yet to arrive i.e. when such Trust orInstitution files its return. Therefore, we find that the judgmentsreferred to by the learned counsel for the appellant are notapplicable to the facts of the present case arising out of thequestion of registration of the Trust and not of assessment.| -§-SAILESH RANJAN2015.05.05 18:20I attest to the accuracy andintegrity of this document Therefore, the object of Section 12AA of the Act, is toexamine the genuineness of the objects of the Trust, but not theincome of the Trust for charitable or religious purposes. The stagefor application of income is yet to arrive i.e. when such Trust orInstitution files its return. Therefore, we find that the judgmentsreferred to by the learned counsel for the appellant are notapplicable to the facts of the present case arising out of thequestion of registration of the Trust and not of assessment.| -§-SAILESH RANJAN2015.05.05 18:20I attest to the accuracy andintegrity of this document 10)In such circumstances, the heavy reliance by the counsel for theassessee upon the judgment of the Division Bench in the case of|PinegroveInternational Charitable Trust(supra), aS has been done by the Tribunal, also,would be without any basis. The power of the Commissioner to look into theobjects of the Society and the genuineness of the same cannot be doubted whenthe basis is of non-supply of information. In such circumstances, it would beappropriate that the Commissioner undertakes the exercise afresh, on the basis ofthe application which has already been filed, keeping in view the material whichcan be produced by the respondent-assessee. 11)Accordingly, the order of the Tribunal dated 19.02.2013 is set asidewith a direction to the Commissioner to decide the application, filed undersection 12AA, afresh. Since the application was filed more than 3 years ago, itwould be appropriate that the same is decided expeditiously. With the above observations, the present appeal stands allowed. (S.J.Vazifdar)(G.S.Sandhawalia)Acting Chief JusticeJudge05.05.20152(.-52+