Ita/17/2015 Of Ms.sree Anjaneya Medical Trust v. The Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MRS. JUSTICE ANU SIVARAMAN THURSDAY, THE 11TH DAY OF FEBRUARY 2016/22ND MAGHA, 1937 ITA.No. 17 of 2015 () ---------------------- AGAINST THE ORDER/JUDGMENT IN ITA 85/2012 of I.T.A.TRIBUNAL,COCHINBENCH DATED 14-08-2014 APPELLANT(S): ------------- MS.SREE ANJANEYA MEDICAL TRUST, KANCHAS BUILDING, OPP:INDOOR STADIUM, KOZHIKODE BY ANIL KUMAR, CHAIRMAN & MANAGING TRUSTEE. BY ADV. SRI.PREMJIT NAGENDRAN RESPONDENT(S): -------------- THE COMMISSIONER OF INCOME TAX, KOZHIKODE - 673 006. R1 BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) R1 BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON29.1.2016, THE COURT ON 11-02-2016 DELIVERED THE FOLLOWING: THOTTATHIL B.RADHAKRISHNAN& ANU SIVARAMAN, JJ. -----------------------------------------------Income Tax Appeal.No.17 of 2015-----------------------------------------------Dated this the 11[th] February, 2016JUDGMENT Anu Sivaraman, J. The challenge in this appeal under Section 260A of the IncomeTax Act is against the order of the Income Tax Appellate Tribunalrejecting the appeal preferred against the order of the Commissioner ofIncome Tax refusing to register a Trust under Section 12AA of theIncome Tax Act (hereinafter referred to as 'the Act'). It is thecontention of the appellant, Sree Anjaneya Medical Trust, that the Trustwas registered on 27.05.2005 with education and relief of the poor asits principal objects and had made an application dated 12.12.2008 forregistration of the same under the Act to avail the benefits of Sections11 and 12 of the Act. Pursuant to the application, a survey wasconducted in the premises of the Trust in terms of Section 133A of theAct on 19.03.2009. Pursuant to the directions issued by the authoritiesunder the Act, a deed of modification was also executed on18.06.2009. However, on 25.06.2009 the application was rejectedrelying on the survey conducted on 19.03.2009. It was found that theTrust had received contributions prior to registration and theexpenditure of the Trust was not verifiable. On the ground that “the ITA.17/15 Trust is involved in continuous violation of the provisions of the I.T Act,eg., not filing the returns in time, not paying the tax etc. and alsobecause Trust deed has no provision to the effect that it is not forprofit”, it was found that the Trust cannot be granted registration. Onappeal, the Tribunal found that the reasons stated by the registeringauthority for refusal of registration are not relevant for the purpose ofregistration. It was held that the findings of the Commissioner ofIncome Tax, in so far as they relate to activities of the Trust, aregermane and relevant. It was further held that the acceptance ofamounts from prospective students towards tuition fee cannot by itselfbe a relevant ground, unless it is shown that what was collected wasnot tuition fees at all, but capitation fee. The factual aspect of thematter was directed to be ascertained with notice to the appellant. Itwas also held that the presence of profit by itself would not disentitlethe Trust for registration under the Act, since “there is no question ofexemption, if there is no scope of income”. The matter was thusremanded to the Commissioner of Income Tax to examine theassessee's case in its proper perspective after hearing the appellant asalso considering the deed of modification of Trust executed on18.06.2009. 2. The Commissioner of Income Tax thereupon took up thematter and considered the materials on record including the deed ofmodification and reiterated the findings in the earlier order that the ITA.17/15 2. The Commissioner of Income Tax thereupon took up thematter and considered the materials on record including the deed ofmodification and reiterated the findings in the earlier order that the ITA.17/15 survey has revealed unethical methods used by the Trust for collectionof funds especially from prospective employees and students. It wastherefore deduced that the activities of the Trust are purelycommercial in nature. It was also stated in the order that impartingeducation per se cannot be termed as a charitable purpose unless ithas a public character. Thus, finding that no charitable activities havebeen carried out by the Trust, the Commissioner of Income Taxrejected the application for registration yet again. This was taken inappeal by the Trust which has resulted in the impugned order. Theappellate authority also found that the assessee Trust had collectedmoney from various persons on the assurance of employment andadmission for medical education. On the ground that the objective ofregistration under Section 12AA of the Act and exemption underSections 11 and 12 is to encourage non governmental organizations toestablish educational institutions and to run the same in a charitablemanner and relying on precedents, the Tribunal rejected the appeal. 3. Heard Sri. Arshad Hidayathullah, learned Senior Counselappearing for the appellant and Sri.P.K.Ravindranatha Menon, learnedSenior Counsel appearing for the Revenue. We have heard the learnedcounsel on the specific question as to the nature of considerationrequired for the purpose of registration of a Trust under Section 12A ofthe Income Tax Act. ITA.17/15 4. It is urged by the learned Senior Counsel appearing for theappellant that the question whether the activities of the Trust, whichwas formed with the specific intention of imparting education and reliefto the poor, are actually charitable in nature or not would not arise forconsideration at the stage of grant of registration to the Trust underSection 12AA of the Act. Going by the specific wordings in Section12AA of the Act, what is germane to the issue is only as to thegenuineness of the Trust and its activities. It is therefore argued thatwhat is to be considered is only whether the Trust is a genuineregistered legal entity and whether it is capable of carrying out itsprofessed object. The question with regard to the nature of itsactivities would become relevant only at the time of assessment ofcontributions made to it or with regard to the application of its income.In the above view of the matter, it is argued that the reliance placed bythe Revenue on the survey report as well as the sworn statement ofthe Managing Trustee to state that the Trust had profit as its motivewas misconceived. It is further contended that going by the definitionof the word 'charitable purpose' contained in Section 2(15) of the Act,the purposes of the Trust being relief to the poor and education, thequestion whether there is an element of profit involved in the activitiesof the Trust would not arise. Education being a charity per se, includedin the first limb of the definition clause in Section 2(15) of the Act, thequestion of profit would be irrelevant, it is urged. ITA.17/15 ITA.17/15 5. Learned counsel for the appellant relied on the decisions ofthe apex court reported in Aditanar Educational Institution v.Addl.C.I.T [(1997)224 ITR 310], Additional Commissioner ofIncome-Tax, Gujarat v. Surat Art Silk Cloth ManufacturersAssociation [(1980)121 ITR 1) to contend that where the object of theTrust is establishing, running and managing of educational institutionsit would be entitled to registration under Section 12A of the Act. It iscontended that a five member bench of the Apex Court had, in SuratArt Silk Cloth Manufacturers Association's case (supra)specifically held that clause 15 of Section 2 of the Income Tax Actprovides that charitable purpose includes relief of the poor, education,medical relief and the advancement of any other object of generalpublic utility not involving the carrying on of any activity for profit. It isstated that it is well settled as a result of the decision of the apex courtin Dharmadeepti v. Commissioner of Income Tax, Kerala [(1978)114 ITR 454] that the words “not involving the carrying on of anyactivity for profit” qualify or govern only the last head of charitablepurpose and not the earlier three heads. It has therefore been heldthat where the purpose of a Trust is relief of the poor, education ormedical relief, the requirement of the definition of “charitable purpose”would be fully satisfied, even if an activity for profit is carried on in thecourse of carrying out the primary purpose of the Trust. The learnedcounsel also relied on the decision of the Delhi High Court in Income ITA.17/15 6 Tax v. Foundation of Ophthalmic & Optometry ResearchEducation Centre [(2013)355 ITR 361] to contend that whileexamining an application under Section 12AA(1)(b) read with Section12A, the concerned Commissioner is not required to examine thequestion whether the Trust has actually commenced and has, in fact,carried on charitable activities. It was held that the statute does notprohibit the Commissioner from registering a Trust solely based on itsobjects, without any activity and that the Court or tax authority oughtnot to impose restrictions which have not contained in the statute. Thisproposition has been reiterated by the Madras High Court in Directorof Exemptions Vs Sreevi Samaj Tambaram Trust. [(2014)362 ITR199] as well. The learned counsel also placed reliance on a benchdecision of the Karnataka High Court in Director of Income Tax(Exemptions) v. Meenakshi Amma Endowment Trust [(2013)354ITR 219] to contend that the objects of the Trust as contained in theTrust deed have to be taken into consideration by the authority whileconsidering an application for registration. In the subsequent returnsfiled by the Trust, if the Revenue finds that the Trust had notconducted any charitable activities, it is open to the authoritiesconcerned to withdraw the registration already granted under Section12AA(3) of the Act. In that case, the authority was directed to considerthe application made by the Trust within eight months of its formationwithout insisting on evidence of charitable activities conducted by it. ITA.17/15 ITA.17/15 6. Per contra, the learned Senior Counsel appearing for theRevenue would contend that there is no rationale in the argumentadvanced on behalf of the appellant that registration to a Trust has tobe granted without looking into the genuineness of its activities orobjects and contending that in case it is found in future that the Trustis not applying its income to charitable purposes, the registrationalready granted can be withdrawn. It is pointed out by the learnedcounsel that the requirements contained in Section 12AA of the Act forgrant of registration and the negative prescriptions in Section 12A(3)for withdrawal or cancellation of registration are almost identical innature and therefore no useful purpose would be served by firstgranting registration without considering the objects of the Trust or thegenuineness of its activities and then cancelling the same on findingthat the activities are in fact not genuine. It is contended that such atwo way traffic would be a futile exercise and it is more conducive tologic and reason that the genuineness of the activities of the Trust andits objects should be looked into at the stage of grant of registrationitself. The learned senior counsel would contend that registration wasrefused to the Trust on the basis of a survey conducted in its premisesand the sworn statement of its Managing Trustee admitting tocollection of huge amounts as deposits from intending employees tofind funds for the institution as well as collection of capitation fee fromfour intending NRI students even before recognition was granted for its ITA.17/15 medical college. It is contended that such an institution was evidentlyengaging in education only as a commercial activity and there is noelement of charity involved in the instant case. Going by the provisionsof Section 12AA of the Act, it is clear that what has been conductedwas an inspection as to the objects of the Trust and into thegenuineness of its activities. The registering authority was not satisfiedabout the objects of the Trust or about the genuineness of its activitiesand had therefore passed an order refusing to register the Trust orinstitution. In appeal, the Appellate Tribunal had examined thecontentions raised by the appellant also in detail and had come to theconclusion that the Trust was not entitled for registration in terms ofSection 12AA of the Act. In the above circumstances, it is contendedthat no substantial question of law arises for consideration in thisappeal under Section 260A of the Act and hence the appeal is liable tobe dismissed. The learned counsel also relied on the decisions of thisCourt in Self Employers Service Society v. Commissioner ofIncome-Tax [(2001)247 ITR 18], Dawn Educational CharitableTrust v. Commissioner of Income-Tax [(2015)370 ITR 724],Travancore Education Society v. Commissioner of Income-Tax[(2014)369 ITR 534]. Reliance is placed on the dictum of the apexcourt in J.B.Boda and Co. Pvt.Ltd. v. Central Board of DirectTaxes [(1997)223 ITR 271(SC)] to contend that a formal remittanceand a receipt of refund of the self same amount would be an empty ITA.17/15 formality. In Commissioner of Income-Tax v. National Instituteof Aeronautical Engineering Educational Society [2009)315 ITR428] a Division Bench of the Uttarkhand High Court held that where aTrust or charitable society is clearly an orgnisation floated with blatantprofit making as its object and indulges in illegal activities includingcollection of capitation fee, there is absolutely no error of law in aregistering authority refusing registration under Section 12A of the Act. 7. We have considered the arguments raised on either side aswell as the materials on record. It is pertinent to note that the wordingin Sections 12A and 12AA of the Act does not make any reference to'charity' or 'charitable purpose'. Section 2(15) of the Act defines'charitable purpose'. At the relevant time Section 2(15) reads as follows: 7. We have considered the arguments raised on either side aswell as the materials on record. It is pertinent to note that the wordingin Sections 12A and 12AA of the Act does not make any reference to'charity' or 'charitable purpose'. Section 2(15) of the Act defines'charitable purpose'. At the relevant time Section 2(15) reads as follows: “(15) 'Charitable purpose' includes relief of the poor,education, medical relief, and the advancement of any otherobject of general public utility.” 8. As stated earlier, it has been held that where the purpose of the Trust is one of the three declared charities, no question ofexamination of profit motive is required. Circular No.11 of 2008 dated19.12.2008 issued by the Department also provides that the proviso toSection 2(15) of the Act does not apply in respect of the first threelimbs of Section 2(15). Where purpose of Trust or institution is relief ofthe poor, education or medical relief, it will constitute charitablepurpose even if it incidentally involves carrying on of commercialactivities. Though a contra view is taken by a division bench of this ITA.17/15 Court in Dawn Educational Charitable Trust's case (supra) as wellas the Uttarkhand High Court in Commissioner of Income-Tax v.National Institute of Aeronautical Engineering EducationalSociety [(2009)315 ITR 428], we are of the view that the actualfunctioning of the Trust can be a relevant consideration only at a laterstage. 9. Sections 12A and 12AA of the Act read as under: “12A. Conditions for applicability of Sections 11 and 12.(1) The provisions of section 11 and section 12 shall not apply inrelation to the income of any trust or institution unless thefollowing conditions are fulfilled, namely:- (a) the person in receipt of the income has made an applicationfor registration of the trust or institution in the prescribed formand in the prescribed manner to the Commissioner before the1[st] day of July, 1973, or before the expiry of a period of one yearfrom the date of the creation of the trust or the establishmentof the institution, whichever is later and such trust or institutionis registered under section 12AA: Provided that where an application for registration of the trustor institution is made after the expiry of the period aforesaid,the provisions of sections 11 and 12 shall apply in relation tothe income of such trust or institution,- (i) from the date of the creation of the trust or theestablishment of the institution if the Commissioner is, forreasons to be recorded in writing, satisfied that the person inreceipt of the income was prevent3ed from making theapplication before the expiry of the period aforesaid forsufficient reasons; (ii) from the 1[st] day of the financial year in which the applicationis made, if the Commissioner is not so satisfied: Provided further that the provisions of this clause shall notapply in relation to any application made on or after the 1[st] dayof June, 2007; (aa) the person in receipt of the income has made anapplication for registration of the trust or institution on or afterthe 1[st] day of June, 2007 in the prescribed form and manner to ITA.17/15 the Commissioner and such trust or institution is registeredunder section 12AA; (b) where the total income of the trust or institution ascomputed under this Act without giving effect to the provisionsof section 11 and section 12 exceeds the maximum amountwhich is not chargeable to income-tax in any previous year, theaccounts of the trust or institution for that year have beenaudited by an accountant as defined in the Explanation belowsub-section (2) of section 288 and the person in receipt of theincome furnishes along with the return of income for therelevant assessment year the report of such audit in theprescribed form duly signed and verified by such accountantand setting forth such particulars as may be prescribed. ITA.17/15 the Commissioner and such trust or institution is registeredunder section 12AA; (b) where the total income of the trust or institution ascomputed under this Act without giving effect to the provisionsof section 11 and section 12 exceeds the maximum amountwhich is not chargeable to income-tax in any previous year, theaccounts of the trust or institution for that year have beenaudited by an accountant as defined in the Explanation belowsub-section (2) of section 288 and the person in receipt of theincome furnishes along with the return of income for therelevant assessment year the report of such audit in theprescribed form duly signed and verified by such accountantand setting forth such particulars as may be prescribed. (2) Where an application has been made on or after the Ist dayof June, 2007, the provisions of sections 11 and 12 shall apply inrelation to the income of such trust or institution from theassessment year immediately following the financial year inwhich such application is made. 12AA. Procedure for registration. (1) The Commissioner, on receipt of an application forregistration of a trust or institution made under clause (a) orclause (aa) of sub-section (1) of section 12A, shall- (a) call for such documents or information from the trust orinstitution as he thinks necessary in order to satisfy himselfabout the genuineness of activities of the trust or institution andmay also make such inquiries as he may deem necessary in thisbehalf; and (b) after satisfying himself about the objects of the trust orinstitution and the genuineness of its activities, he-(i) shall pass an order in writing registering the trust orinstitution; (ii) shall, if he is not so satisfied, pass an order in writingrefusing to register the trust or institution, and a copy of suchorder shall be sent to the applicant: Provided that no order under sub-clause (ii) shall be passedunless the applicant has been given a reasonable opportunity ofbeing heard. (1A) All applications, pending before the Chief Commissioner onwhich no order has been passed under clause (b) of sub-section(1) before the 1[st] day of June, 1999, shall stand transferred onthat day to the Commissioner and the Commissioner may ITA.17/15 proceed with such applications under that sub-section from thestage at which they were on that day. (2) Every order granting or refusing registration under clause(b) of sub-section (1) shall be passed before the expiry of sixmonths from the end of the month in which the application wasreceived under clause (a) or clause (aa) of sub-section (1) ofsection 12A. (3) Where a trust or an institution has been granted registrationunder clause (b) of sub-section (1) and subsequently theCommissioner is satisfied that the activities of such trust orinstitution are not genuine or are not being carried out inaccordance with the objects of the trust or institution, as thecase may be, he shall pass an order in writing cancelling theregistration of such trust or institution: Provided that no order under this sub-section shall be passedunless such trust or institution has been given a reasonableopportunity of being heard.” 10. It is clear from a plain reading of Sections 12A and 12AA of (3) Where a trust or an institution has been granted registrationunder clause (b) of sub-section (1) and subsequently theCommissioner is satisfied that the activities of such trust orinstitution are not genuine or are not being carried out inaccordance with the objects of the trust or institution, as thecase may be, he shall pass an order in writing cancelling theregistration of such trust or institution: Provided that no order under this sub-section shall be passedunless such trust or institution has been given a reasonableopportunity of being heard.” 10. It is clear from a plain reading of Sections 12A and 12AA of the Act that what is intended thereby is only a registration simpliciterof the entity of a trust. This has been made a condition precedent forthe claiming of benefits under the other provisions of the Act regardingexemption of income, contribution, etc. No examination of the modusof the application of the funds of the Trust or an examination of theethical background of its settlers is called for while considering anapplication for registration. The stage for consideration of therelevance of the object of the Trust and the application of its fundsarises at the time of the assessment. Where benefits are claimed byassessees in terms of Sections 11 and 12 of the Act, the question as tothe nature of such contribution and income can be looked into. At thetime of registration of the Trust, going by the binding judgments of the apex court , what is to be looked into is whether the Trust is a genuineone and whether it is a sham institution floated only to avail thebenefits of exemption under the Act. There is no such finding in theimpugned order. 11. On merits also, it is contended that the amount allegedlycollected as capitation fee from four prospective students was actuallycollected as tuition fee on the basis of the valid agreements enteredinto by the Trust undertaking to return the same in case admissionunder the NRI quota could not be made available to the concernedstudents. The amount so collected represented only a portion of thetuition fees which the Government had permitted the recognizedmedical colleges to collect during the relevant academic year and theagreement specified that the amounts could be adjusted towards thetuition fees payable by the students under the NRI quota. It is furtherstated that even with regard to amounts collected from employees, thesame were voluntary deposits made by employees and no action hadbeen taken by any authority against the Trust, since there was nocompulsion or illegality in the matter. 12. It is clear that taxing statutes are liable to be interpretedstrictly. The court cannot supply or detract from the provisionscontained in the statute. Where the provisions of the Act are clear,courts have no power to examine the purpose behind the enactment.The projected futility and inconvenience that may arise out of the ITA.17/15 application of a provision of law cannot, in a taxing statute, be a groundto deny a benefit which is evident from a plain reading of the statute. 13. Going by the provisions of Sections 12A and 12AA of theIncome Tax Act, we hold that the grounds raised by the registeringauthority and upheld by the appellate authority for rejection ofregistration to the appellant Trust cannot be sustained. The authoritiescould have examined only the genuineness of the Trust and itsactivities. They did not have material to hold that the Trust was eithernot genuine or its activities were not what was professed in the deedof Trust. ITA.17/15 application of a provision of law cannot, in a taxing statute, be a groundto deny a benefit which is evident from a plain reading of the statute. 13. Going by the provisions of Sections 12A and 12AA of theIncome Tax Act, we hold that the grounds raised by the registeringauthority and upheld by the appellate authority for rejection ofregistration to the appellant Trust cannot be sustained. The authoritiescould have examined only the genuineness of the Trust and itsactivities. They did not have material to hold that the Trust was eithernot genuine or its activities were not what was professed in the deedof Trust. Resultantly, In the light of the above findings, the impugnedorder is set aside. The respondent Commissioner of Income Tax isdirected to grant registration as requested by the appellant Trust interms of Section 12A of the Act. It is made clear that the Revenue is atliberty to pass appropriate orders in accordance with law inassessment on the returns to be filed by the Trust or persons makingcontributions to it in terms of Sections 10, 11 and 12 of the Act. Theappeal is ordered accordingly . THOTTATHIL B.RADHAKRISHNAN JUDGE ANU SIVARAMAN JUDGE