Ita/182/2011 Of The Director Of Income Tax v. M/S. Venkatesha Education Society

IN THB HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 10 DAY OF JULY 2012 PRESENT THR HON BLE MR.JUSTICE D.V.SHYLENDRA KUMAR AN THR HON'BLB MR. JUSTICK B. MANOHAR ITA No.182/2011 BETWEEN: THE DIRECTOR OF INCOME TAX, EXEMPTIONS, C.R.BUILDING, QUEENS ROAD,BANGALORE. — APPRLLANT (BY SRI.M.V.SESHACHALA & SRI.K.V.ARVIND, ADVS) ANT) M/S.VENKATESHA EDUCATION SOCIETY, 125, ARMSTRONG ROAD,BANGALORE._ RESPONDEN (BY SRI.PARTHASARATHI, ADVOCATE) ITA FILED UNDER SEC-2600-A OF IT ACT, 196ARISING OUT OF ORDER DATED 28/01/2011 PASED INITA NO.1209/BANG/2002, FOR THE ASSESSMENT YEAR1997-98, PRAYING TO FORMULATE THE SUBSTANTIALQUESTIONS OF LAW STATED THEREIN AND TO ALLOWTHR APPBKEAL AND SBT ASIDE THR ORDERS PASSED THE ITAT, BANGALORE IN ITA NO.1209/BANG/2002DATEBED 28-01-2011 CONFIRMING THR ORDER OF TAPPELLATKH COMMISSIONER AND CONFIRM THE ORDEPASSED BY THER DEPUTY COMMISSIONER OF [NCOMTAX, CENTRAL CIRCLE-I, BANGALORE, IN THE INTERESTOF JUSTICE AND EQUITY. THIS APPEAL COMING ON FOR HEARING THIS DAY,SHYLENDRA KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT Appeal by the Revenue under Section 260-A of theIncome Tax Act, 1961 (the ‘Act’ for short). The Revenueis aggrieved by the order dated 28-1-2011 passed by theAppellate Tribunal allowing the appeal of the assesseeand directing the Registering Authority to grantregistration to the assessee under the provisions ofsection 12-A of the Act which had been denied by theRegistering Authority in terms of the order dated26-/-2J0O0 a2The assessee is a registered Society registeredunder the provisions of Mysore Registration of SocietiesAct and functioning since the year 1970 running several educational institutions. It appears, the assessee hadclaimed the benefit of exemption under Section 10(22) ofthe Act so long as the provisions was available on thestatute/rules and aiter the deletion of Section 10(22) ofthe act w.e.f. 1-4-1999 by the Finance Act No.2/1998.The assessee has made efforts to retain the benefit ofexemption in respect of its income under the provisionsof Sections 11 and 12 of the act and for such purpose, ithad made an application under Section 12-AA of theAct. 3.It is to be noticed here that the registration underSection 12-A of the Act is mandatory for claimingbenefit of exemption under Sections 11 and 12 of theAct. 4.The Registering Authority while examining onesuch application of the assessee found that the pastmanner of conduct of the assessee-Society was not verysatisfactory; that the application of funds of the Society was not fully tor the purpose of carrying on the activitiesof educational institutions run by the Society; that itwas virtually being run as a family trust and funds ofthe Society was being used or misused for the benefit ofthe members of the family who are responsible forconducting the affairs of the Society, and therefore, thesociety did not qualify for registration under Section12-A ot the Act. 5.The Registering Authority in fact has indicated anyreasons in the order to reject the registration underSection 12-A of the Act. 6.This order had been made subject matter of theappeal before the Appellate Tribunal. The Tribunal hadoccasion to go into various contentions urged by theappellant-assessee and in terms of its order found thatthe reasons for rejection was not one justifying refusalto register under Section 12-A of the Act; that the shortcomings noticed by the Registering Authority wasmore in the nature of irregularities, which did notamount to illegality in the manner of conduct of theaffairs of the Society and therefore thought it fit thatdenial of registration was not justified and accordinglyallowed the appeal and reversed the order of theRegistering Authority and directed grant of registration. 6.This order had been made subject matter of theappeal before the Appellate Tribunal. The Tribunal hadoccasion to go into various contentions urged by theappellant-assessee and in terms of its order found thatthe reasons for rejection was not one justifying refusalto register under Section 12-A of the Act; that the shortcomings noticed by the Registering Authority wasmore in the nature of irregularities, which did notamount to illegality in the manner of conduct of theaffairs of the Society and therefore thought it fit thatdenial of registration was not justified and accordinglyallowed the appeal and reversed the order of theRegistering Authority and directed grant of registration. T.In between, an earlier order to this effect passedby the Tribunal had been set aside by this court for thereason that the order not indicating the reasons and thematter had been remanded. It is the order oft theTribunal, which is passed after remand which has nowbeen made subject matter of appeal by the revenuebefore this court. 8.The Tribunal had passed the impugned order onexamination of all aspects, but the result being the same, the revenue is yet again before this court in thisappeal under Section 260-A of the Act. QOThis appeal had been admitted to examine severalquestions that had been raised by the Revenue in thememorandum of appeal. 10,We have heard Sri.M.V.Seshachala, learned Seniorstanding Counsel for the appellant-Revenue andori.S.Parthasarathy, learnedcounsel{Or45/respondent-assessee, 11)Mr.Seshachala has made submissions based onthe grounds raised in the appeal and pointing out thatthe Tribunal could not have characterised very weightyreasons and supported by the factual position, asnoticed by the Registering Authority as trivial reasonsfor rejecting the application for registration; that it isnot really so and it is the Tribunal which has assumed or proceeded on the surmise that it is a trivial reason.Therefore, the order of the Tribunal is not sustainable. 12,On the other hand, Sri.Parthasarathy, learnedcounsel appearing for the assessee submits that thesubject issue is covered by the earlier judgment of thisCourt rendered in the case ofDIRECTOR OF INCOMETAXv/sGARDENCITYEDUCATIONALTRUSTreported in (2009) 28 CTR (Kar) 139and contendedthat the observations as contained in paragraph 17 ofthejudgmentappliesTO thepresentsituation.Paragraph 17 reads as under: It is not the finding of the CIT that theapplicant-assessee had not complied withany of the procedural requirements. TheTribunal is fully justified in observing thatthe manner of application offunds and as towhether the applicant-assessee can claimthe benefit of exemption in terms of ss. 11and 12 is a question which has to beexamined by the AO at the stage when it isurged and not by the CIT when_ sucquestion is not before the CIT. It ts herebyclarifiedand|emphasizedthatwhile registration in accordance with the provisionsof s. 12A of the Act is a condition precedentfor claiming the benefits under ss. 11 and 12of the Act a registration as per s. 12A byitself, will not automatically confer thebenefits of ss. 11 and 12 ona trust, but thetrust will get the benefit only on complyingwith the requirements of ss. 11 and 12 of theAct, which compliance can be examined bythe assessing authority, while processing thereturn filed by the trust. Therefore, thisappeal has to be dismissed, Therefore, submits that the appeal should be dismissed. 13,Apart from the view taken by this Court in theearlier judgment relied upon by the assessee, what wehave to notice is that the relevant consideration forpassing the orders on an application under Section 12Aof the Act is as to whether and as is indicated in Section12AA of the Act, which is the procedure to be followedby the Registering Authority for granting registrationunder Section 12A of the Act has actually been adheredto by the Registering Authority. Section 12A reads as under' Therefore, submits that the appeal should be dismissed. 13,Apart from the view taken by this Court in theearlier judgment relied upon by the assessee, what wehave to notice is that the relevant consideration forpassing the orders on an application under Section 12Aof the Act is as to whether and as is indicated in Section12AA of the Act, which is the procedure to be followedby the Registering Authority for granting registrationunder Section 12A of the Act has actually been adheredto by the Registering Authority. Section 12A reads as under' 112A. (1) The provisions of section 11 ansection 12 shall not apply in relation to theincome of any trust or institution unless thefollowing conditions are fulfilled, namely:- (a)the person in receipt of the income hasmade an application for registration of thetrust or institution in the prescribed form andin the prescribed manner to the Commissionerbefore the l[St]day of July, 1973, or before theexpiry of a period of one year from the date ofthe creation of the trust or the establishment ofthe institution, [whichever is later and suchtrust or institution is registered under sectionI2AA| Section 12AA reads as under: I2AA. (1) The Commissioner, on receipt ofan application for registration of a trust orinstitution made under clause (a) for clause(aa) of sub-section (1) of section 12A, shall - (a)call forsuchdocuments.OTinformation from the trust or institution as hethinks necessary in order to satisfy himselfabout the genuineness of activities of the trustor institution and may also make_ sucinquiries as he may deem necessary in thisbehalf; and 1(2after satisfying himself about theobjects of the trust or institution and _ tgenuineness of its activities, he - (i)Shall pass an order in writingregistering the trust or institution; (i)Shall, if he is not so _ satisfiepass an order in writing refusing to registerthe trust or institution,and a copy of such order shall be sent to theapplicant; 13.The two relevant examinations are that theauthority should satisfy himself that the objects of theTrust should be in the nature of charitable purposesand the genuineness of the activities of such institution,and on being satisfied on both counts, the applicant canbe granted registration under Section 12-A of the Act.The object of the Trust so long as it fits into any one ofthe objects as mentioned under Section 2(195) of the Actthe first requirement is fulfilled and the secondrequirement will be met by the genuineness of theactivities of such institutions are also to the satisfaction of the authority. We do not find any recording by theRegistering Authority about the lack of genuineness ofactivities, but the Registering Authority did notice someshortcomings on the part of the Society, in the mannerof its functioning. 14|We are of the opinion that the shortcomings bythemselves cannot be put on par with lack ofgenuineness of the Society, in the activities of thesociety. However, as noticed in the judgment of thisCOUITTrendered|1n theCaSCoT|GARDENCITYEDUCATIONAL TRUST (Supra),this is the exercisewhich perhaps the assessing authority may have toindulge in at the time of examining the returns filed bya Charitable Organisation claiming exemption in termsof Sections 11 and 12 ot the Act. 15)It is therefore, we are not inclined to disturb theorder of the Tribunal. We find no error or illegality committed by the Tribunal in allowing the appeal anddismiss this appeal by opining that the questions reallyare not very germane for the purpose of Section 12-A ofthe Act. od/- JUDGE sd/-JUDGE mpk/-