Commissioner Of Income Tax-Ii, Chandigarh … v. Ii)Ita

IN THE HIGH COURT OF PUNJAB AND HARAYANA ATCHANDIGARH Date of Decision: 5.10.2011 (i)ITA No. 701 of 2010 (O&M) Commissioner of Income Tax-II, Chandigarh …..Appellant Versus M/s Surya Educational & Charitable TrustRespondent ….. (ii)ITA No. 189 of 2011 (O&M) Commissioner of Income Tax-II, Chandigarh …..Appellant Versus Bahara Educational & Charitable Society …..Respondent CORAM:HON’BLE MR. JUSTICE HEMANT GUPTAHON’BLE MR. JUSTICE G.S. SANDHAWALIA 1. Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? Present:Ms. Urvashi Dugga, Advocate, for the appellant-Revenue. HEMANT GUPTA, J. This order shall dispose of ITA No. 701 of 2010 and ITANo. 189 of 2011, wherein the learned Income Tax Appellate Tribunal,Chandigarh (for short `the Tribunal’), granting registration to the respondent under Section 12AA of the Income Tax Act, 1961 (for short`the Act’), for carrying on its object of establishing educationalInstitutions. The question raised in both the appeals is identical, butfor the facility of reference, the facts are taken from ITA No. 701 of2010. The respondent-assessee applied for registration underSection 12A of the Act on 19.8.2008, after registration of the Societyon 12.8.2008. The learned Commissioner of Income Tax, thecompetent authority to grant of registration, sought explanation fromthe respondent, as to why registration has been sought when it is stillin the process of acquiring land; construction of building ofeducational Institution is yet to start; various other steps for raisingthe appropriate infrastructure have yet not been taken and that theapproval of the All India Council for Technical Education has yet notbeen received. The Commissioner declined registration on the groundthat expenditure to the extent of Rs.17.25 crores has been incurredby the respondents for purchase of the land, whereas substantialexpenditure is still to be incurred on construction of the building andother infrastructure and that the expenditure on the charitableactivities, is only Rs.1500/-. The Commissioner, inter-alia, held asunder:- “Every detail and facts on the file point out that theintention of the applicant society is to start and runeducational Institutions and all time, energy andexpenditure is geared towards meeting this objective.” After considering various judgments and considering thefact that that the amendment in the aims and objects of the Society inrespect of Clause (5), is doubtful having been carried out in one day i.e. on 19.1.2009, the Commissioner found that when the Society ispaying reasonable salary/wages to its workers than to have theobjective of arranging help and aid for the family of the workers canbe good activity, but it cannot be considered as charitable activity forpublic at large. The Commissioner concluded as under:- “From the above, it is appropriate to conclude that allthe money, time and energy of the society is gearedtowards establishing educational institutes. It seemsthat a meager amount of Rs.1500/- has been spenttowards donation in an attempt to strengthen its claimfor registration under Section 12A of the IT Act. If all thefacts are analysed in a dispassionate manner, it reallypoints to realization on the part of the society itself thatits claim of registration under Section 12A with respectof its dominant objective of establishing educationalinstitutes is premature as it is still in the process ofpurchase of land for this purpose; construction ofbuilding of educational institutes have still not startedand no action has been taken for raising infrastructureand no permission from AITEC has been received.” In appeal, the learned Income Tax Appellate Tribunal, foundthat the Commissioner of Income Tax/Director of Exemption isempowered to satisfy himself about the objects of the Trust orgenuineness of the activities of the Trust or Institution, beforegranting the registration under Section 12A of the Act. The power ofthe Commissioner of Income Tax under Section 12AA of the Act, doesnot extend to examining the other conditions of exemption of incomeunder Sections 11 and 12 of the Act, which are to be seen in theassessment proceedings. The application for registration of theTrust/Institution has to be made within a period of one year from thedate of creation of the Trust, but there is no requirement that theTrust or the Institution should have started all its envisaged activities in the first year itself. The quantum of activities undertaken by theTrust after its creation, cannot be the basis for examining registrationapplication under Section 12AA of the Act. The Tribunal alsoconsidered sub-section (3) of Section 12AA of the Act, inserted videFinance Act, 2004, which contemplated that where registration hadbeen granted to a Trust or Institution and subsequently theCommissioner is satisfied that the activities of such Trust orInstitution are not genuine or are not being carried out in accordancewith the objects of the Trust or Institution, the Commissioner isempowered to cancel the registration to such Trust or Institution. Onsuch basis, the learned Tribunal set aside the order passed by theCommissioner and the ordered granting of registration to therespondent. Learned counsel for the appellant has relied upon ajudgment of the Madras High Court reported as Commissioner ofIncome Taxv. Devi Educational Institution and others,1985(153) ITR570, to contend that before an educational Institution claimsexemption, the existence of educational Institution, is a must and,therefore, till such time, the educational Institution startsfunctioning, i.e. raising of construction and necessary infrastructuresand approvals from AIETC, the respondents cannot be grantedregistration under Section 12A of the Act. Reliance is also placedupon the judgment of the Supreme Court in Aditanar EducationalInstitutionv. Additional Commissioner of Income Tax, 1995(224) ITR310. We have heard learned counsel for the appellant, but findno merit in the present appeals. As per Section 12AA of the Act, anapplication for registration of the Trust and Institution is required tobe made within one year from the date of creation of the Trust or theEstablishment of such Institution. The procedure for registration of the Trust or Institution is prescribed under Section 12AA of the Act.In terms of Clause (a) of Section 12AA of the Act, the Commissioner isto satisfy himself about the genuineness of the activities of the Truston such inquiries as he may deem necessary. Sub-section (1A) and(2) of Section 12AA of the Act, are procedural in nature, whereasSub-section (3) of Section 12AA of the Act, empowers theCommissioner to cancel the registration of the Trust or Institution, ifhe is satisfied that the activities of such Trust or Institution are notgenuine or are not carried out in accordance with the objects of theTrust or Institution. Section 11 of the Act contemplates that the income asspecified therein shall not be included in the total income of theprevious year of the person in receipt of the income derived from theproperty held under the Trust wholly for charitable or religiouspurposes, whereas Section 12 of the Act, deals with the contributionsreceived by the Trust or an Institution, established for charitable andreligious purposes, receiving contribution, shall not be an income interms of Section 11 of the Act. The benefit of Sections 11 and 12 ofthe Act, are available only if such Trust or Institution is registeredunder Section 12AA of the Act. Section 11 of the Act contemplates that the income asspecified therein shall not be included in the total income of theprevious year of the person in receipt of the income derived from theproperty held under the Trust wholly for charitable or religiouspurposes, whereas Section 12 of the Act, deals with the contributionsreceived by the Trust or an Institution, established for charitable andreligious purposes, receiving contribution, shall not be an income interms of Section 11 of the Act. The benefit of Sections 11 and 12 ofthe Act, are available only if such Trust or Institution is registeredunder Section 12AA of the Act. 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 included incomputing the total income of any person. Therefore, the provisions ofSections 11, 12 or Section 10(23C) of the Act, deal with the income ofa Trust or of the Institution and the circumstances as to when suchincome is to be excluded for computing the total income, but the basisof such benefit is the registration under Section 12AA of the Act.Unless a Trust or Institution is registered under Section 12AA of theAct, 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 fromconsideration under Section 10(22) now 10(23)(C) or Sections 11 and12 are not applicable while considering the application for registrationunder Section 12AA of the Act. The application for registration isrequired to be made within one year of the creation of the Trust.Section 12AA of the Act, requires satisfaction in respect of thegenuineness of the activities of the Trust, which includes the activitieswhich the Trust is undertaking at present and also which it maycontemplate to undertake. The insertion of sub-section (3) to Section12AA of the Act, clarifies the said fact, when it empowers theCommissioner to cancel the registration if the activities of the Trustare not carried out in accordance with 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 stage forapplication 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 not applicableto the facts of the present case arising out of the question ofregistration of the Trust and not of assessment. In view of the above, we do not find that any substantialquestion of law arises for consideration in the present appeals. Hence,the same are dismissed. (G.S. Sandhawalia) 5.10.2011 ds