The Commissioner Of Income Tax-Ii, Jalandhar v. M/S. Apeejay Education Society, Jalandhar

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No. 402 of 2014 (O & M)Date of decision: 10.03.2015 The Commissioner of Income Tax-II, Jalandhar ....Petitioner(s) Versus M/s. Apeejay Education Society, Jalandhar ...Respondent(s) CORAM: HON'BLE MR. JUSTICE S.J. VAZIFDAR, ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE G.S.SANDHAWALIA Present:Mr. Vivek Sethi, Advocate,for the appellant. G.S. SANDHAWALIA (J.) The present judgment shall dispose of two Income Tax Appealsi.e. ITA Nos. 402 and 403 of 2014, as common questions of facts and laware involved in both the appeals. For the purpose of convenience, the factshave been taken from ITA No. 402 of 2014, Commissioner of Income Tax- II, Jalandhar vs. M/s. Appejay Education Society. The appeal by the revenue has been filed under Section 260Aof the Income Tax Act, 1961 (in short 'the Act') against the order of theIncome Tax Appellate Tribunal, Amritsar Bench passed in ITA No. 228(ASR)/2013 dated 08.05.2014. The revenue is aggrieved against the orderof the Tribunal whereby, the order dated 25.03.2013 passed by theCommissioner of Income Tax-II, Jalandhar withdrawing the registrationgranted under Section 12AA(3) of the Act to the assessee w.e.f. assessmentyear 2004-05 was set aside. Accordingly, the following substantial questions of law are sought to be raised by filing of the present appeals:- “(i)“Whether on the facts and circumstances ofcase, the Hon'ble Tribunal was right in law in allowingregistration rejected by CIT u/s 12AA(3) of the Income-tax Act, 1961 in view of the activities of the societyfound non-genuine during the years involved as thefunds of the assessee society were being siphoned off bydebiting bogus purchase of software?” (ii)“Whether on the facts and circumstances ofcase, the Hon'ble Tribunal was right in law in ignoringthe fact that the assessee society has takenaccommodation entries from M/s. Washington SoftwareLtd., in the form of bogus bills of computer softwareand thus the activities of the assessee are not genuineand in accordance with the objects of the society?” (iii)“Whether on the facts and circumstances ofthe case, the Hon'ble Tribunal was right in law inholding that since the assessee institute is impartingeducation, it is eligible for registration u/s 12AA of I.T.Act ignoring the fact that while granting registration,the CIT should satisfy himself not only about the objectsand main activity of imparting education but also aboutthe genuineness of all the activities of the institution?” The necessary facts for the decision of the present appeal wouldgo on to show that the assessee-society was granted registration underSection 12AA of the Act vide order dated 13.05.1999 w.e.f. 01.04.1998.Search and seizure operation under Section 132(1) of the Act was conductedby the Directorate of Income Tax (Investigation-II), Mumbai at the premisesof one Parag V. Mehta on 22.03.2011. It was accordingly found that tablespace to various bogus companies had been given who were not transactingany business but were engaged in providing accommodation entries to the The necessary facts for the decision of the present appeal wouldgo on to show that the assessee-society was granted registration underSection 12AA of the Act vide order dated 13.05.1999 w.e.f. 01.04.1998.Search and seizure operation under Section 132(1) of the Act was conductedby the Directorate of Income Tax (Investigation-II), Mumbai at the premisesof one Parag V. Mehta on 22.03.2011. It was accordingly found that tablespace to various bogus companies had been given who were not transactingany business but were engaged in providing accommodation entries to the needy persons. One M/s. Washington Softwares Ltd. (M/s. WSL) wasbeing run by Sanjay D. Sonawani, which was a bogus company and thestatement of the said person was recorded on 12.05.2011 who also furtheradmitted that he had provided accommodation entries to the assesseethrough his company. Accordingly, survey operations were also conductedon the business entities of the educational group of the respondent-assesseeand the genuineness of purchase of software by the assessee from M/s. WSLwas taken into consideration. The bogus bills were found entered in thebooks of accounts and accordingly, the Commissioner came to theconclusion that the activities of the society were not genuine as per theprovisions of Section 13(1)(c) read with Section 13(3) of the Act. Thestatement of Sh. Sanjay D. Sonawani was thus relied upon and theCommissioner of Income Tax came to the conclusion that an opportunityhad been provided to cross examine him and, therefore, the activities of thesociety were not genuine and its funds were misutilized for many years afterthe registration was granted and accordingly the registration was withdrawnand cancelled. The basis, thus, being that the funds of the assessee-societywere not being utilized for the objects of the society for the past many years. The matter was taken to the Tribunal by the assessee wherein, itwas held that admittedly 21 institutions were engaged in the activities ofimparting education to the students under various fields. No finding hadbeen recorded that the institute was not imparting education or not carryingout any activity which was the main object and expenses to the tune of95.66% of the receipts were also being incurred which was more than 85%as required under Section 11(1) of the Act. The genuineness of the Trust and, therefore, the withdrawal of registration was held to be bad andaccordingly set aside. Counsel for the appellant-department has vehemently arguedthat it was consistent conduct of the assessee from the year 2003-04 till2010-11 and, therefore, the Commissioner of Income Tax was well justifiedin passing the order dated 25.03.2013 which has wrongly been set aside. Heaccordingly submitted that the substantial question of law would arise thatthe activities of the society were not genuine and once accommodationentries had been taken from M/s. WSL, therefore, the order of the Tribunalwas not justified. Trust and, therefore, the withdrawal of registration was held to be bad andaccordingly set aside. Counsel for the appellant-department has vehemently arguedthat it was consistent conduct of the assessee from the year 2003-04 till2010-11 and, therefore, the Commissioner of Income Tax was well justifiedin passing the order dated 25.03.2013 which has wrongly been set aside. Heaccordingly submitted that the substantial question of law would arise thatthe activities of the society were not genuine and once accommodationentries had been taken from M/s. WSL, therefore, the order of the Tribunalwas not justified. After hearing counsel for the appellant-department, we are notconvinced that any substantial question of law would arise and the order ofthe Tribunal is well justified in the facts and circumstances of the case.Under Section 12AA of the Act, the Commissioner, at the relevant time inthe year 1999 had called for all documents and information from therespondent-assessee to satisfy himself about the genuineness of theactivities of the institution and after making enquires had passed the orderregistering the said institution and giving it the benefit under Section 12A ofthe Act, which made the institution eligible for exemption from theprovisions of Sections 11 and 12 of the Act. Under Section 12AA(3) of theAct, the Commissioner was to be satisfied about the activities of the saidinstitution and if they were not genuine and the same were not being carriedout in accordance with the objects of the institution he could pass the ordercancelling the registration. Admittedly, the respondent-society is running asmany as 21 institutes which are spread over the country from Punjab,Haryana and U.P. and also extend to Mumbai. The details of the studentsSHIVANI GUPTA2015.04.01 13:11I attest to the accuracy andintegrity of this documentChandigarh and the list of institutes affiliated with CBSE, AICTE, MDU and PTUwould be apparent from the table given below:- Thus, it cannot be disputed that the respondent-assessee is engaged in carrying out its objects and the genuineness of the same has never been doubted. The allegation is regarding the alleged supply of theinstallation of the software and whether the same was done by M/s. WSL ornot. Merely because Sh. Sanjay D. Sonawani had given a statement, theCommissioner as such is not justified in cancelling the registration grantedon 13.05.1999 w.e.f. the assessment year 2004-05. The assessee had placedvarious materials before the Tribunal to show that software modulespurchased were installed between 2004 to 2011 and the assessee hadincurred as much as 91.71% of the receipts for the assessment year 2004-05.The reliance placed upon the judgment of the Division Bench of the HighCourt in Sanjeevamma Hanumantha Gowda Charitable Trust vs. Director of Income Tax (Exemption), (2006) 285 ITR 37 (Kar) is of no avail sincethe said case pertains to a case where the authorities had denied theregistration and it observed that the authorities had not kept in mind themandatory provisions regarding the application of the income of the Trustand how it had been expended and whether it had been utilized to itscharitable and religious purposes. In such circumstances, the orders hadbeen set aside and it had been directed that fresh consideration be made. In Commissioner of Income Tax vs. Red Rose School, (2007) 163 TAXMAN 19 (All), it was held that the inquiry regarding thegenuineness of the activities have to be seen with regard to the objects ofthe Trust and whether they were in consonance with the public policy. Onlyon the ground of mere apprehension, the registration could not bewithdrawn. Accordingly, the order of the Tribunal allowing the appeal wasupheld. The relevant observations read thus;- “19. The objects of the trust can be had from thebye-laws or the deed of trust, as the case may be and In Commissioner of Income Tax vs. Red Rose School, (2007) 163 TAXMAN 19 (All), it was held that the inquiry regarding thegenuineness of the activities have to be seen with regard to the objects ofthe Trust and whether they were in consonance with the public policy. Onlyon the ground of mere apprehension, the registration could not bewithdrawn. Accordingly, the order of the Tribunal allowing the appeal wasupheld. The relevant observations read thus;- “19. The objects of the trust can be had from thebye-laws or the deed of trust, as the case may be and unless, of course, the objects of the trust apparentlymake out that they were not in consonance with thepublic policy or that they were not the objects of anycharitable purpose, registration cannot be refusedaccordingly on this ground. 20. In regard to the genuineness of the activitiesof the trust or the institution, whose objects do not runcontrary to public policy and are, in fact, related tocharitable purposes, the CIT is again empowered tomake enquiries as he thinks fit. In case the activities arenot genuine and they are not being carried out inaccordance with the objects of the trust/society or theinstitution, of course, the registration can again berefused. But on mere presumptions and on surmises thatincome derived by the trust or the institution is beingmisused or that there is some apprehension that thesame would not be used in the proper manner and forthe purposes relating to any charitable purpose,rejection cannot be made. 21. Section 12AA, which lays down the procedurefor registration, does not speak anywhere that the CIT,while considering the application for registration, shallalso see that the income derived by the trust or theinstitution is either not being spent for charitablepurpose or such institution is earning profit. Thelanguage used in the section only requires that activitiesof the trust or the institution must be genuine, whichaccordingly would mean, they are in consonance withthe objects of the trust/ institution, and are not merecamouflage but are real, pure and sincere, nor againstthe proposed objects. The profit earning or misuse ofthe income derived by charitable institution from itscharitable activities, may be a ground for refusingexemption only with respect to that part of the income but cannot be taken to be a synonym to the genuinenessof the activities of the trust or the institution.” Accordingly, keeping in view the peculiar facts andcircumstances as noticed above, we are of the opinion that theCommissioner of Income Tax was not justified in passing the impugnedorder for withdrawing the exemption as admittedly, the respondent-assesseeis carrying out educational activities by running a large number ofeducational institutions all over the country and, therefore, the questions oflaw sought to be raised do not arise. Accordingly, both the income tax appeals are dismissed. (S.J. VAZIFDAR) ACTING CHIEF JUSTICE (G.S. SANDHAWALIA) JUDGE 10.03.2015shivani