Ita/231/2016 Of Commissioner Of Income Tax (Exemptions) Chandigarh v. Mahavir Jain Society (Regd.) Daresi Road, Ludhiana

ITA No.231 of 2016 nnls IN THE HIGH COURT OF PUNJAB AND HARYANAAT CHANDIGARH Income Tax Appeal No.231 of 2016Date of decision: September 11, 2017 The Commissioner of Income Tax (Exemptions), Chandigarh ...Appellant VeTSUS Shri Mahavir Jain Society (Regd.), Daresi Road, Ludhiana .... Responden CORAM:HONBLE MR. JUSTICK AJAY KUMAR MITTALHONBLE MR. JUSTICHK AMITRAWAL Present:Mr. Denesh Goyal, Sr. Standing Counselfor the appellant-Revenue. Mr. S.K. Mukhi, Advocate|for the respondent-assessee. AJAY KUMAR MITTAL, J. 1]The appellant-Revenue has filed the instant appeal underSection 260A of the Income Tax Act, 1961 (in short, “the Act’) againstthe order dated 30.09.2015 (Annexure A-2) passed by the Income TaxAppellate Tribunal, Division Bench, Chandigarh (in short, ‘the Tribunal’)in ITA No.910/CHD/2013, claiming the following substantial questionsot law:- (1) Whether the order passed by the ITAT in contrary to the facts and law, hence the ITAT order is perverse? (11)Whether on the facts and circumstances of the case andin law the Hon'ble ITAT was justified in holding that theassessee was entitled to registration u/s 12A on the groundthat CIT has not commented adversely on the objects of theassessee society whereas documentary evidence asked for,that would have enabled examination of genuineness ofactivities, were not furnished by the assessee? (111)Whether on the facts and circumstances of the case andin law the Hon'ble ITAT was justified in holding that bona-fide registration of a society is not a pre-condition forgranting registration under Section 12AA even when it hadbeen brought on record that civil as well as criminalproceedings were going on in various courts, viS-a-visdisputes amongst the members of the society, which lead toconclusion that affairs of the society are not being run in amanner that enures to the benefit of general public?” ? A few facts relevant for decision of the controversy involvedas narrated in the appeal may be noticed. The respondent-assessee is asociety. It filed an application dated 26.02.2013 for grant of registration|under Section 12AA of the Act. The Commissioner of Income Tax-l,Ludhiana, [in short, ‘the CIT)], vide the order dated 27.08.2013(Annexure A-1), refused to grant registration to the Trust,inter alia, ONthe ground that the assessee failed to produce the documentary evidencein support of aims and objects of the society. The assessee did not submitaudited financial statements and offered no explanation regardingregistration of the society twice with the Registrar of Firms and Societies,Chandigarh on 12.09.1974 and 30.04.2009. Agerieved by the order, the assessee filed an appeal before the Tribunal. Vide order dated 30.09.2015(Annexure A-2), the Tribunal allowed the appeal and held the assesseeentitled to be granted registration under Section 12A of the Act. It was,inter alia,recorded by the Tribunal that the CIT had not commentedadversely on the objects of the assessee-Society. It was also noticed thatthe assessee-Society had filed no documentary evidence to prove that theaims and objects of the Society were being done by it. It was furtherrecorded that the non-furnishing of audited financial statements and beingregistered twice were not relevant for establishing whether the activitiesof the assessee were genuine or not and registration of a Society was notpre-condition for granting registration under Section 12AA of the Act.Hence, the instant appeal by the appellant-Revenue, 3.We have heard learned counsel for the parties, 4Section 1ZAA of the Act reads thus:- SIDAA.(1) The Principal Commissioner or Commissioner,on receipt of an application for registration of a trust orinstitution made under clause (6) or clause (ad) of subsection(1) of section 12A, shall— 3.We have heard learned counsel for the parties, 4Section 1ZAA of the Act reads thus:- SIDAA.(1) The Principal Commissioner or Commissioner,on receipt of an application for registration of a trust orinstitution made under clause (6) or clause (ad) of subsection(1) of section 12A, shall— (a) call for such documents or information from thetrust or institution as he thinks necessary in order tosatisfy himself about the genuineness of activities ofthe trust or institution and may also make suchinquiries as he may deem necessary in this behalf; and(b) after satisfying himself about the objects of thetrust or institution and the genuineness of its activities,he—trust or institution as he thinks necessary in order tosatisfy himself about the genuineness of activities ofthe trust or institution and may also make suchinquiries as he may deem necessary in this behalf; and(b) after satisfying himself about the objects of thetrust or institution and the genuineness of its activities,he— (]) shall pass an order in writing registering the trust or ITA No.231 of 2016 -4 institution; (71) shall, if he is not so satisfied, pass an order inwriting refusing to register the trust or institution,and a copy of such order shall be sent to the applicant :Providedthat no order under sub-clause (11) shall be passedunless the applicant has been given a reasonable opportunityof being heard. (1A) All applications, pending before the Principal ChietCommissioner or Chief Commissioner on which no order hasbeen passed under clause (b) of sub-section (1) before the Istday of June, 1999, shall stand transferred on that day to thePrincipal Commissioner or Commissioner and the PrincipalCommissioner or Commissioner may proceed with suchapplications under that sub-section from the stage at whichthey 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 applicationwas received under clause (G) or clause (ad) of sub-section(1) of section 12A. (3) Where a trust or an institution has been grantedregistration under clause (b) of sub-section (1) or hasobtained registration at any time under section 12A as itstood before its amendment by the Finance (No. 2) Act, 1996(33 of 1996) and subsequently the Principal Commissioner orCommissioner 1s 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: Providedthat no order under this sub-section shall be passed unless such trust or institution has been given a reasonableopportunity of being heard. (4) Without prejudice to the provisions of sub-section (3),where a trust or an institution has been granted registrationunder clause (b) of sub-section (1) or has obtainedregistration at any time under section 12A as it stood beforeits amendment by the Finance (No. 2) Act, 1996 (33 of 1996)and subsequently it is noticed that the activities of the trust orthe institution are being carried out in a manner that theprovisions of sections 11 and 12 do not apply to excludeeither whole or any part of the income of such trust orinstitution due to operation of sub-section (1) of section 13,then, the Principal Commissioner or the Commissioner mayby an order in writing cancel the registration of such trust orinstitution: Providedthat the registration shall not be cancelled underthis sub-section, if the trust or institution proves that therewas a reasonable cause for the activities to be carried out inthe said manner.” 5 section I2Z2AA of the Act prescribes procedure fregistration of trust or institution by the Principal Commissioner or theCommissioner of Income Tax after perusing the objects of the trust orinstitution and the genuineness of its activities. The order is required to bepassed in writing. Providedthat the registration shall not be cancelled underthis sub-section, if the trust or institution proves that therewas a reasonable cause for the activities to be carried out inthe said manner.” 5 section I2Z2AA of the Act prescribes procedure fregistration of trust or institution by the Principal Commissioner or theCommissioner of Income Tax after perusing the objects of the trust orinstitution and the genuineness of its activities. The order is required to bepassed in writing. 6.In the present case, the assessee had filed an application on26.02.2013 for grant of registration under Section 12AA of the Act beforethe CIT. Vide order dated 27.08.2013 (Annexure A-1), the CIT refusedto grant registration to the assessee-Society,inter alia,on the ground ofnon-production of documentary evidence in respect of aims and objects of the society, absence of audited financial statements and non-explanationregarding registration of the society twice with the Registrar of Firms andSocieties, Chandigarh. Aggrieved by the order, the assessee filed anappeal before the Tribunal. The matter was considered in detail by theTribunal. It has been categorically recorded by the Tribunal that one ofthe objects of the Society as mentioned in its bye-laws was to provide freemedical aid by opening hospitals, diagnostic centers, maternity home andby organizing special medical camps. These activities had also beendemonstrated in the previous three years by the respondent-assessee in itsBalance Sheet, Income & Expenditure account, Receipt & paymentAccount which were produced before the CIT. Further, the CIT had notcommented adversely on the documents placed before it. With regard tothe reason that the assessee had not furnished audited financialStatements, it has been recorded by the Tribunal that the same were notrelevant for establishing the fact whether the activities of the Trust weregenuine or not. Even the provisions of the Act do not require auditedfinancial statements to be furnished while seeking registration underSection IZAA of the Act. Rule 17A of the Income Tax Rules, 1962,provides the documents which should accompany the application underSection 12A of the Act for registration of charitable or religious trust orinstitution. As regards the plea that the assessee had offered noexplanation about the registration of the Society twice, it was recorded bythe Tribunal that registration of a society was not a pre-condition foreranting registration under Section 12AA of the Act. Thus, it was rightly concluded by the Tribunal that the CIT was not justified in rejecting theapplication for registration of the assessee-Society by insisting on theconditions not contemplated by the statute. The relevant findingsrecorded by the Tribunal in this regard read thus:- “13. We find that one of the objects of the assessee societyas stated at point no.6 in the bye laws reproduced above wasto provide free medical aid, by opening hospitals, diagnosticcenters, maternity home and by organizing special medicalcamps. We also find that the assessee society had clearlydemonstrated the carrying on of this activity in the previousthree years through its Balance Sheet, Income & Expenditureaccount, Receipt & payment Account, filed before the Ld.CIT. The Ld. CIT has not controverted or commentedadversely on these documents placed before it. Therefore wefind that the genuineness of the activities of the assesseesociety is also established. Further we find that the Ld. CIThas erred in stating that no documentary evidences were filedto substantiate the carrying on of the objects of the society,despite the voluminous documents and information placedbefore him during the proceedings as stated above. 14We also find that the Ld. CIT has erred in rejecting theassessee's application u/s 12A, for the reason that theassessee had not furnished audited statement and that theassessee society was registered twice. We find that 14We also find that the Ld. CIT has erred in rejecting theassessee's application u/s 12A, for the reason that theassessee had not furnished audited statement and that theassessee society was registered twice. We find that aforestated reasons are not pertinent for the purpose ofestablishing whether the activities of the assessee societywere genuine or not. Audited financial statements are notrelevant for establishing the fact whether the activities of thetrust were genuine or not, which is corroborated by the factthat even the provisions of the Income Tax Act, 1961, do notrequire audited financial statements to be furnished, whileseeking registration under Section I2AA. Rule 17A of theIncome Tax Rules, 1962, list the documents which shouldaccompany the application under section 12A for registrationof charitable or religious trust or institution. At point no.(b)of the Rules it is stated that ‘“‘where the trust or institution hbeen in existence during any year or years prior to thefinancial year in which the application for registration ismade, two copies of the accounts of the trust or institutionrelating to such prior year or years (not being more than threeyears immediately preceding the year in which the saidapplication is made) for which such accounts have beenmade up” have to be submitted. Clearly as per the Rules, therequirement is furnishing of only the accounts of the trust orinstitution seeking registration and nowhere the word“audited” accounts have been used. Therefore the nonfurnishing of audited financials cannot by itself be a criteriafor holding the activities of a Trust of society as not being ITA No.231 of 2016 -9- genuine and therefore refusing grant of registration undersection 12AA. Moreover, the Ld. AR demonstrated beforeus by referring to its paper book page no.61-65, that reasonfor non-furnishing of audited results was duly explained tothe Ld. CIT. The Ld. AR stated that the assessee hadappointed M/s Shammi Garg & Co. C.A., Ludhiana as itsauditors for the 2009-10, and referred to Page no.61 of thePaper Book, which was the appointment letter issued by theassessee society to the CA firm. The Ld. AR, thereafterreferred to paper Book No.62, which was the communicationof the new auditors, with the previous auditors i.e. M/s S.S.Periwal & Co., seeking no objection to their appointment asauditors of the society. At Paper book No.63, the Ld. ARreproduced the letter sent by the previous auditors to the newauditors, objecting to their appointment. At paper book 64,was placed the letter sent by the assessee society to theprevious auditors, strongly objecting to their refusal to grantNOC to the new auditors. The Id. AR further drew ourattention to the letter written by the assessee society to thePresident of the Institute of Chartered Accountant of India toresolve the dispute of appointment of auditors. The Ld. ARalso stated before us that the dispute had not been resolved todate. The Ld. AR stated that in view of the same the assesseewas prevented from getting its books audited. We find that the Ld. CIT has not controverted the explanation of theassessee. In view of the above facts and discussion, we holdthat non-furnishing of audited financials cannot be apertinent consideration for holding the activities of theassessee society as ingenuine. We therefore hold that thesame cannot be treated as a consideration for refusing togrant registration to the assessee society u/s 12AA. 15.We further find that the refusal of grant of registrationto the assessee society for offering no explanation regardingregistration of the society twice is also incorrect. The Ld.AR, during the course of arguments drew our attention toPaper Book 52, 58 and 60 whereby the assessee society hadvide its letter dt.27/05/2013 and 22/08/2013 explained asfollows: the Ld. CIT has not controverted the explanation of theassessee. In view of the above facts and discussion, we holdthat non-furnishing of audited financials cannot be apertinent consideration for holding the activities of theassessee society as ingenuine. We therefore hold that thesame cannot be treated as a consideration for refusing togrant registration to the assessee society u/s 12AA. 15.We further find that the refusal of grant of registrationto the assessee society for offering no explanation regardingregistration of the society twice is also incorrect. The Ld.AR, during the course of arguments drew our attention toPaper Book 52, 58 and 60 whereby the assessee society hadvide its letter dt.27/05/2013 and 22/08/2013 explained asfollows: “No enclosure of certificates dated 17/09/1974 and30/04/2009 are there as noted in your letter dated21/05/2013. The Society is working under thecertificate issued on 17/09/1974 and the presentworking is also under going under it. No badintentions are there. The Society in year 2009 wasformed by the Ex-President and Finance Secretary butwhich has no relevance as on date and the Societydocuments i.e. Governing Body list on yearly basis 1sbeing submitted to Registrar of Firms & Societies,Chandigarh for Society registered on 17/09/1974.” We therefore find that the contention of the Ld. CIT that theassessee had offered no explanation about the registration of the society twice is not correct. In any case registration of asociety is not a pre condition for granting registration underSection 12ZAA. A perusal of Rule 17A of the Income TaxRules 1962, referred to above would show that the onlyrequirement is to furnish the documents evidencing thecreation of the trust or establishment of the institute inoriginal, which we find, the assessee society has furnished inthe form of Trust Deed. 16.In view of the facts stated above we hold that Ld. CITwas not right in refusing registration to the assessee societyfor non-furnishing of explanation regarding registration ofthe assessee society twice. In case of CIT vs. R.M.S. Trust (Madras) [2010] 326 ITR310 it was held as under: “At this stage of considering application forregistration under §.12A, only inquiry which couldpossibly be made would be whether the applicant-trusthas made application and whether the accounts aremaintained in the manner as suggested in the saidsection CIT was not justified in rejecting applicationfor registration for want of amended trust-deed sinceit is not a prerequisite condition for registering theapplicant as a trust, Tribunal was justified in settingaside the order of CIT and remitting the matter fordecision afresh. registration under §.12A, only inquiry which couldpossibly be made would be whether the applicant-trusthas made application and whether the accounts aremaintained in the manner as suggested in the saidsection CIT was not justified in rejecting applicationfor registration for want of amended trust-deed sinceit is not a prerequisite condition for registering theapplicant as a trust, Tribunal was justified in settingaside the order of CIT and remitting the matter fordecision afresh. We therefore hold that the CIT was not justified in rejectingthe application for registration of the assessee society by insisting on conditions not contemplated by the statute.” 6.Learned counsel for the appellant-Revenue has not been ableto show that the view taken by the Tribunal is erroneous. He has also notbeen able to produce any material on record to show that the approachadopted by the Tribunal is legally unsustainable. Thus, no substantialquestion of law arises. Consequently, the appeal stands dismissed. (AJAY KUMAR MITTAL)JUDGE (AMIT RAWAL)JUDGE