The Commissioner Of Income Tax (Exemptions), Chandigarh v. The Rural Education & Women Welfare Society, Sas Nagar

ITA-422-2017 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA-422-2017 Date of Decision: 22.10.2018 The Commissioner of Income Tax (Exemptions), Chandigarh ...Appellant. Versus The Rural Education & Women Welfare Society, SAS Nagar ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE AVNEESH JHINGAN. PRESENT: Mr. Denesh Goyal, Sr. Standing Counsel for the appellant. Mr. Sanjay Ghalawat, Advocate for Mr. Rohit Sud, Advocate for the respondent.Mr. Rohit Sud, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1. This appeal has been filed by the revenue under Section 260Aof the Income Tax Act, 1961 (in short “the Act”) against the order dated7.3.2017 (Annexure A-2) passed by the Income Tax Appellate Tribunal,Amritsar Bench, Amritsar (hereinafter referred to as “the Tribunal”) in ITANo. 546/(ASR)/2016, claiming the following substantial questions of law:- “I. Whether on the facts and circumstances of thecase, the order of the ITAT is not perverse inholding that the CIT has not made adverse remarkson the objects and activities of the applicant andthereby directing to grant registration to theapplicant whereas the CIT had clearly establishedthat the applicant was operating on commercialprinciples and eligible for registration?case, the order of the ITAT is not perverse inholding that the CIT has not made adverse remarkson the objects and activities of the applicant andthereby directing to grant registration to theapplicant whereas the CIT had clearly establishedthat the applicant was operating on commercialprinciples and eligible for registration? ITA-422-2017 -2- II.Whether on the facts and circumstances of thecase, the order of the ITAT is not perverse inholding that non filing of return of income is not avalid ground to deny registration u/s 12AA of theI.T. Act, 1961 when the CIT is fully empoweredu/s 12AA(1)(a) to call for such documents tosatisfy himself about the genuineness of theactivities of the applicant. Whether the term 'suchdocuments' would not include returns of incomefor the purpose of determination of genuineness ofactivities of a Trust?case, the order of the ITAT is not perverse inholding that non filing of return of income is not avalid ground to deny registration u/s 12AA of theI.T. Act, 1961 when the CIT is fully empoweredu/s 12AA(1)(a) to call for such documents tosatisfy himself about the genuineness of theactivities of the applicant. Whether the term 'suchdocuments' would not include returns of incomefor the purpose of determination of genuineness ofactivities of a Trust? III.Whether on the facts and circumstances of thecase, the powers conferred u/s 12AA(4) insertedw.e.f. 1.10.2014 cannot be exercised by the CITwhile granting registration u/s 12AA(1) even whenthe evidence adduced during proceedings, revealsinfraction of statute?case, the powers conferred u/s 12AA(4) insertedw.e.f. 1.10.2014 cannot be exercised by the CITwhile granting registration u/s 12AA(1) even whenthe evidence adduced during proceedings, revealsinfraction of statute? IV.Whether on the facts and circumstances of thecase, the ITAT has erred in directing theregistration to be accorded instead of reverting itback for re-examination in the light of its findings?case, the ITAT has erred in directing theregistration to be accorded instead of reverting itback for re-examination in the light of its findings? 2. A few facts necessary for adjudication of the instant appeal asmentioned therein may be noticed. The assessee filed an application underSection 12AA of the Act on 9.3.2016 in form No.10A for grant ofregistration in the office of Commissioner of Income Tax (Exemption),Chandigarh [for brevity 'the CIT(E)']. The CIT(E) vide order dated ITA-422-2017 IV.Whether on the facts and circumstances of thecase, the ITAT has erred in directing theregistration to be accorded instead of reverting itback for re-examination in the light of its findings?case, the ITAT has erred in directing theregistration to be accorded instead of reverting itback for re-examination in the light of its findings? 2. A few facts necessary for adjudication of the instant appeal asmentioned therein may be noticed. The assessee filed an application underSection 12AA of the Act on 9.3.2016 in form No.10A for grant ofregistration in the office of Commissioner of Income Tax (Exemption),Chandigarh [for brevity 'the CIT(E)']. The CIT(E) vide order dated ITA-422-2017 29.9.2016 (Annexure A-1) rejected the said application by noticing, interalia, that the assessee was operating on commercial principle and hadamassed capital funds of ` 5.59 crores and fixed assets to the extent of` 5.85 crores since it started its operation in 2007; the emphasis of thesociety was mainly on creation of assets rather than on re-deployment offunds towards education and to add their vehicles and buses; thetransportation charges being earned by the assessee were approximately40% of the fee income received from the students and the fee structure wasnot in sync with the instruction issued by the Central Board of SchoolEducation while providing affiliation to an entity; and that the assessee hadfaltered on statutory requirements of filing returns of income despitereceipts in excess of ` 2 crores every year. Feeling aggrieved by the order,Annexure A-1, the assessee filed an appeal before the Tribunal. TheTribunal vide order dated 7.3.2017 (Annexure A-2) allowed the appeal anddirected the CIT(E) to grant registration to the appellant-society forthwith,i.e. from the date of application. Hence, the present appeal by the revenue. 3.After hearing learned counsel for the parties, we do not findany merit in the appeal. 4.The Tribunal has noticed that the assets of the assessee, i.e., itsland and building etc. had been created out of the donations received for thesetting up of the school of the society and the objection of the CIT(E) thatthe assessee had amassed capital funds to the tune of ` 5.59 crores and fixedassets to the extent of ` 5.85 crores neither impinged on the objects nor thegenuineness of the activities of the assessee. The object of the society is 'ToPromote the Quality and Scope of Education in Rural Area and Manage theGURBACHAN SINGHaffairs of Sadhu Singh Rural Public School, Mukand Pur.' Therefore, the2018.11.12 14:15I attest to the accuracy andintegrity of this document ITA-422-2017 contention of the assessee that the corpus got created from such donationsas received for the setting up of the school, had not been rebutted byproducing any material to the contrary on record. Regarding creation ofassets, the Tribunal had recorded nothing had been brought on record toshow that the assets of the assessee were meant for any purposes other thanits aims and objects which included managing the affairs of the school andthat as per the balance sheets, the entire expenditure incurred by it had beenfor the purposes of school only. Further, at the time of considering the grantof registration, only the objects and genuineness of the activities of theassessee were to be got verified. Accordingly, the Tribunal directed the CIT(E) to grant registration to the respondent. The relevant findings recordedby the Tribunal in paras 6 to 8 of the order read thus:- “6.While refusing registration to the assessee society,the Objection raised by the ld. CIT(E) is that theapplicant has amassed capital funds to the tune of ` 5.59crore and fixed assets to the extent of ` 5.85 crore. Thisobservation, it is seen, impinges on neither the objects ofthe applicant, nor the genuineness of its activities. It hasbeen submitted before us that the assets of the applicant,i.e., its land and building etc., have been created out ofdonations received for the setting up of the school of thesociety. As per Object (APB-1), as set out in theMemorandum of Association of the applicant society, theapplicant is “To Promote the Quality and Scope ofEducation in Rural Area and Managed the Affairs ofSadhu Singh Rural Public School, Mukand Pur”. In its reply (APB 23-29) (Dated 12.08.2016) to theQuestionnaire (APB 21-22) (Dated 04.08.2016) theapplicant stated that the details of donations receivedwere being Annexed. The contention that the corpus gotcreated from such donations received for the setting up ofthe school, has not been rebutted based on anything tothe contrary on record. And be that as it may, the factremains that the observation in this regard in theimpugned order fails to carry out the statutory mandate ofsatisfaction regarding the objects and genuineness ofactivities of the applicant. It is, therefore, superfluousand not detrimental to the applicant's claim forregistration. 7.So far as regards, the observation that the feereceipts of the applicant have consistently been in excessof ` 2 crore, again, this objection does not pertain eitherto the objects or to the genuineness of the activities of theapplicant. The contention that the fees received havebeen spent on the running of the school has not beencontroverted with any material on record. Moreover, toreiterate, examination of application of income can beundertaken only at the time of assessment. 8.Likewise, the Objection regarding the emphasis ofthe applicant allegedly being on creation of assets, ratherthan, on deployment of funds for education, does notrender the claim for registration untenable, inasmuch as, -6- even if this observation is taken, for the sake of argumentto be correct, despite there being no basis for it spelt outin the order, nothing has been brought on record that theassets of the applicant are meant for any purposes otherthan its avowed aims and objects, which includemanaging the affairs of the school. Too it has not beenrefuted that as seen from the three balance sheets filed bythe applicant, the entire expenditure incurred by it, hasbeen for the purposes of the school only. Then, theassets of the applicant have also not been shown to beexisting, much less utilized, for any purposes other thanthat of the school. Further, once again, as to how thequestion of application of income is germane to the grantof registration, is not evincible from the order. 5.In view of the above, no illegality or perversity could bepointed out by the learned counsel for the appellant-revenue which maywarrant interference by this Court. No question of law, much less, thesubstantial question of law arises in this appeal. Accordingly, finding nomerit in the appeal, the same is hereby dismissed. (AJAY KUMAR MITTAL) JUDGE October 22, 2018gbs (AVNEESH JHINGAN) JUDGE Whether Speaking/ReasonedYesWhether ReportableYes