2003-VIL-187-ITAT-DEL
Equivalent Citation: ITD 087, 126, TTJ 081, 942,
Income Tax Appellate Tribunal DELHI
Date: 29.01.2003
JYOTI PRABHA SOCIETY.
Vs
COMMISSIONER OF INCOME-TAX.
BENCH
Member(s) : PHOOL SINGH., KESHAV PRASAD.
JUDGMENT
Per Phool Singh, J.M.--This appeal, preferred by the assessee, is directed against order dated 24-4-2002, passed by the Commissioner of Income-tax Haldwani (Uttaranchal), by which application of the assessee, seeking registration under section 12A (a) of the Income-tax Act, 1961 (hereinafter referred to as the "Act"), as a charitable institution, was rejected.
2. To begin with, we are giving out the background of the assessee society. As transpires from the records, German Missionaries purchased properties inNorthern Indiafor educational activities some where in 1879 and a society by the name of "United Provinces Institute of the Blessed Virgin Mary" was registered in 1949. By 1972, the said institute was found running the St. Mary'sConventHigh School; St. Mary's Boarding Department; and Nirmala Balika Vidayalya, aHindiMediumSchoolfor poor children at Nainital. Similar activities were also being conducted by the said Institute at other places in the year 1972 itself, the activities of the Institute at Nainital were bifurcated for administrative convenience. The assessee society came into existence and got it registered with Registrar of Societies, U.P. under the Societies Registration Act, 1860. The assessee society had its memorandum of association and relevant portion of the objects are as under:
"(a) To heal and teach charity and truth and to establish, construct, organize, consolidate, support, develop, conduct, acquire, takeover, equip, endow, improve, alter, extend, administer educational institutions, research institutions for the benefit and uplift of all persons, irrespective of caste, creed, race or religion.
(b) To takeover, manage, establish, administer, carryon, conduct, develop, equip, improve, alter and close down or dispose of educational, scientific and technical institutions, works and activities of all kinds in any part of India in pursuance of this Memorandum for the benefit of the entire community, irrespective of caste creed, race or religion.
(c) To take over and dispose of, establish, maintain and develop schools, hostels, colleges other institutions for the diffusion of useful knowledge, work guilds, sewing, needlework classes, libraries, reading rooms, recreation centres and other educational and technical institutions of all kinds for the benefit of the entire community, irrespective of caste, creed, race or religion.
(d) To educate, train and instruct adults and children of the entire community, irrespective of caste, creed, race or religion, language or social status either by establishing conducting, administering or carrying on such schools, hostels, colleges, instructing and training centres and to equip, improve and develop, alter or close down such schools, colleges and other institutions.
(e) To support and promote the advancement of educational activities in all its branches, particularly schools, colleges, cultural, technical and social science centre and institutions for all persons, irrespective of religion, race, caste, community or social status."
3. Other general objects are also there and for achieving the objects clause 4 of Memorandum of Association provides that assessee-company shall take overall the properties, assets, funds and liabilities of the management as on31-3-1972. List of the properties, buildings are also mentioned in clause 4(b) of the said Memorandum of Association and details of the said assets are appearing at pages 36 to 37 of the paper book. The assessee society moved application on26-6-1973to the Commissioner of Income-tax, State ofV.P.,Lucknowfor registration under section 12A(a) of the Act and copy thereof is appearing at page 3. This application of the assessee remained pending and there had been correspondence in between the assessee and the relevant Assessing Officer. It appears that as early as on 31-8-1999 the CIT, Bareilly issued a letter to the assessee society calling for certain information and documents and the assessee vide its letter dated 20-9-1999, copy appearing at page 20 of the paper book, had given out the factual position from 26-6-1973 when application in form No. 10A seeking registration under section 12A(a) of the Act was moved to Commissioner and also furnished copies thereof as well as copies of letter received by the assessee and the replies submitted by the assessee. The learned Commissioner issued letter dated 26-3-2002 in which certain other information was called for and assessee vide its letter dated 10-4-2002, copy appearing at page 28 of the paper book submitted the relevant information. After considering all the factual position, the Commissioner passed the impugned order in which the learned Commissioner had taken into consideration the income of the assessee for the year ending 31-12-1999, 31-3-2000 and 31-3-2002 as well as the details of the expenses shown by the assessee and noted there from that assessee society was spending only a negligible amount towards charity and main activities of the society consisted of hiring on rent the buildings and other properties owned by it to St. Mary's High School; St. Mary Boarding Department; and Nirmala Balika Vidyalaya. The rent received by the society was being spent mainly on the extension of existing buildings; its repairs and renovation and construction of immovable properties. The Commissioner was of the view that section 12AA(1) of the Act required that object of the applicant society must be charitable and said society is to establish that its activities were genuinely of the charitable nature. Learned Commissioner was of the view, from the record, that object of the assessee may be charitable but its activities were not charitable and thus it was not eligible for grant of registration under section 12A of the Act. He also noted that assessee was receiving rent on hiring out of property and non-charitable nature of its activities did not undergo any change by virtue of the fact that the persons taking such properties on rent may be utilizing those properties for any charitable purpose. Accordingly, the application of the assessee was rejected purporting to be under section 12AA(1)(b)(ii) of the Act, against which the present appeal has been preferred.
4. Learned counsel for the assessee Smt. Aarti Vassanji, assailed the finding of the learned Commissioner on the ground that learned Commissioner was not justified to conclude that activities of the assessee society were not charitable. It was contended by her that assessee society had promoted the cause of education by providing Ramnee Educational society with the necessary infrastructure for running the school, boarding facilities and Balika Vidyalaya at Nainital at a nominal rent. The amount of rent so realized, had been utilized to upgrade and expand the facilities so provided and further it also extended financial assistance to the institution, carrying on educational activities atAllahabad. Not only this, the assessee had also utilized the funds for charitable purposes such as relief to Gujarat Earth quake victims which was to the extent of Rs. 1,50,000. Activities of letting out of properties to educational institutions was that of charitable nature and assessee being owner of the properties had let out the same for the benefit of another charitable trust and applied the income for charitable purposes viz., advance of object of general public utility. It was contended further that use of properties and funds solely for the benefit of another charitable trust must be considered as a charitable purpose as laid down in the case of Agarwal Shiksha Samiti Trust v. CIT [1987] 168 ITR 751 (Raj.). Facts ofthe case were that Agarwal Shiksha Samiti Trust and Agarwal Shiksha Samiti were two separate entities and trust was not found running any school or college but it was receiving donations and disbursing the same for the institutions run by the Agarwal Shiksha Samiti. The Hon'ble High Court granted exemption under section 10(22). The Hon'ble Supreme Court in the latest decision in the case of Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310 had impliedly approved the ratio rendered by Hon'ble Rajasthan High Court and the observation referred to by the learned counsel for the assessee relevant for the purpose of this case was appearing at page 317 of 224 ITR wherein Their Lordships of Supreme Court had observed that it would be rather unreal and hyper technical to hold that the assessee society was only a financing body and would not come within the scope of other educational institution. The learned counsel submitted that same analogy will be applicable to the present case as assessee society had supported educational institution and thereby fulfilled its test prescribed in section 12AA of the Act and it could not be said that assessee society acted merely as property owner.
5. About the nature of the activities of the assessee it was pointed out by the learned counsel that memorandum of association gives out the different objects of the assessee society and it is one of the objects that assessee society shall administer educational institution, support, develop and improve such eduational institutions for the benefit and uplifting of all persons irrespective of caste, creed, race or religion. Such type of activities are to be taken as of charitable nature and for this reference had been invited to the decision of Hon'ble Karnataka High Court in the case of CIT v. Saraswath Poor Students Fund [1984] 150 ITR 142 wherein Their Lordships concluded that education was also included in the definition of charitable purpose. In that case the assessee society was giving funds to poor students and Their Lordships concluded that assessee was entitled to exemption under section 11 of the Act. The contention on the basis of this ratio is that in the case in hand the assessee is extending financial help to educational institutions and making improvement in the existing properties so that students may get education in better atmosphere.
6. Learned counsel also referred to the order of learned Commissioner in which following observation appears in para 6 of his order--"Thus, whatever may be the objects of a society, if its activities are not charitable, it is not eligible for grant of registration under section 12A". From the above, the learned counsel submitted that learned Commissioner had not disputed the charitable nature of the object of the assessee. One objects of the assessee are charitable, registration should have been granted as activities of the trust are only relevant for grant of exemption under section 11. Placing reliance on the decision of Jurisdictional High Court in the case of Asstt. CIT v. Peare Lal Sharma Memorial Trust Society [2001] 77 ITD 50, the learned counsel submitted that at the stage of application for registration, the CIT was not supposed to examine the application of income aspect as observed by the said order as proceedings for registration were different from assessment proceedings as laid down by Hon'ble Madhya Pradesh High Court in the case of Madhya Pradesh Madhyam v. CIT [2002] 256 ITR 277.
7. The expenditure incurred in acquiring capital assets for carrying out the object of the assessee trust was also constituted as application of income in the case of Satya Vijay Patel Hindu Dharamshala Trust v. CIT [1972] 86 ITR 683 (Guj.). The learned counsel relied on this and contended that assessee had been incurring expenses in holding properties of the assessee society which are imparting education under Ramnee Educational Society.
8. Next Plea from the learned counsel for the assessee was that assessee society had obtained Registration under the Societies Registration Act, 1860 and copy of latest registration deal is also filed. The contention is that section one of the Societies Registration Act, 1860 provides that any seven or more persons associated for any literary, scientific, or charitable purpose, or for any such purpose as is described in section 20 of this Act, may, come forward seeking registration under the Societies Act. Section 20 thereof provides the societies which can be registered and all the charitable societies are to be registered under this Act. Learned counsel pointed out that section 3(2) of this Act gives power to Registrar to refuse to register a society if anyone or more of the objects of the society sought to be registered was not an object mentioned in sections 1 & 20. Each year such registration is to be renewed and at that time power is again given to the authorities not to renew the registration if society commits any violation of the provisions of the Act. The contention is that once the assessee got registration of the society under the Societies Registration Act, a prima facie case is made out in the favour of the assessee that assessee had got charitable object that is why it got registration otherwise Registrar could have refused the same.
9. Lastly, the learned counsel submitted that learned Commissioner has passed the order under section 12AA of the Act which had come into effect from assessment year 1997-98 while the application of the assessee was pending since 1973 and at that time section 12A alone was on statute. The decision of Jurisdictional High Court in the case of Fifth Generation Education Society v. CIT [1990] 185 ITR 634 (All.) is an authority for the provision of section 12A in which Their Lordships have held that application for registration under section 12A has to be made in form No. 10A prescribed by Rule 17A of the Income-tax Rules and at that stage the Commissioner is not required to examine the application of income. All that he may examine was whether the application was made in accordance with the requirement of section 12A, read with Rule 17A of the Income-tax Rules. On the basis of this ratio, it was submitted that application of the assessee was pending since 1973 and in view of this ratio of Jurisdictional High Court, the CIT was not expected to examine about the application of income. In view of this the application of registration should have been allowed.
10. Learned counsel submitted that on the basis of above, the order of the learned Commissioner is to be set aside and application of the assessee society for registration should be allowed.
11. As against this, the learned D.R. pointed out that learned Commissioner was justified in rejecting the application and that to under section 12AA of the Act. The contention of the learned D.R. is that there may be application of the assessee moved in 1973 but fact remains that assessee had moved fresh application under section 12A(a) of the Act on 18-2-2002 as is apparent from copy of that application, appearing at page No. 25 of the paper book. The contention is that this application dated 18-2-2002 does find mention in the impugned order of the learned Commissioner and learned Commissioner was justified to pass the order under section 12AA of the Act and this section provides that CIT while processing the application of the assessee society is to satisfy himself about the genuineness of the activities of the trust or institution and he may also make such enquiry as he may deem necessary in this behalf. Learned Commissioner had made enquiries and-found that amount of charity spent in the year ending31-3-1999,31-3-2000and31-3-2001was Rs. 16,535, Rs. 34,136 and Rs. 37,710 only. He rightly treated the same as negligible amount. There was no other charitable activities and learned Commissioner was justified in concluding that object of the assessee may be charitable but activities of the assessee society were not charitable and application was rightly rejected.
12. Referring to the memorandum of association the learned D.R. pointed out that clause 3 provides object of the assessee society and clause 3(a) to 3(e) thereof provides different objects relating to educational institutions and that cannot be treated as charitable and it takes out the case of the assessee from sections 11 and 12 of the Act. Remaining objects 3(f) to 3(x) are no doubt charitable but none of these objects was being pursued by the assessee and learned Commissioner was justified in observing that activities of the assessee were not of charitable nature.
13. The learned D.R. has placed reliance on the decision of Hon'ble Supreme Court in the case of Gangabai Charities v. CIT [1992] 197 ITR 416 in which it was held by Their Lordships that income derived from letting building as marriage mandap and running printing press was not exempt under section 11(10)(a) of the Act. The other decision relied upon by the learned D.R. is in the case of Ananda Marga Pracharaka Sangha v. CIT [1996] 218 ITR 254 (Cal.) in which Their Lordships have observed that registration of charitable society under section 12A is not an idle or empty formality but the authority has to look into all aspects as to whether assessee had complied with the requirement of that section or not. Another reliance of the learned D.R. was on the decision of Hon'ble Madras High Court in the case of CIT v. Kannika Parameswari Devasthanam & Charities [1982] 133 ITR 779 which is also on the provision of section 11 of the Act. Lastly, the learned D.R. placed reliance on the decision of Hon'ble Kerala High Court in the case of Self Employers Service Society v. CIT [2000] 247 ITR 18 which is direct on the provision of section 12AA of the Act. In that case conclusion was that no charitable work done by the society during first year of operation and there was proposal to carryon charitable object in future. Whatever activities were, these were for generating income for its members. Their Lordships concluded that activities were not charitable in nature and application for registration was held as rightly rejected. The contention of the learned D.R. is that assessee had not utilized the funds which are generated out of property of the assessee society and for that the learned D.R. referred to the copy of balance-sheet as on 31-3-2001, copy appearing at page 87 which shows that balance of the company is Rs. 76,23,748. The contention is that assessee had been cumulating the funds and not indulging the activities of charitable nature. Application was rightly rejected.
14. Learned counsel for the assessee in rejoinder had taken us to the copies of the balance-sheet appearing in the paper book and also pointed out that assessee had spent lot of amount in renovation and construction activities of the schools which assessee had given on rent to Ramnee Educational Society. Learned counsel further pointed out that impugned order of the learned CIT shall also reveal that huge amounts have been spent by the assessee in all the years ending 31-3-1999 to 31-3-2001 in repair and maintenance and huge amounts were given to different institutions running the educational institutions in each year out of Rs. 6 lakhs were given to United Provinces Institute of the Blessed Virgin Mary, Allahabad towards building fund. The amount of Rs. 1,25,000 was spent in assessment year 1999-2000 on construction of toilets in Nirmala Balika Vidyalaya, Rs. 1,25,000 was spent in assessment year 2000-2001 for construction of boundary wall. In assessment year 2001-2002 an amount of Rs. 11,62,888 was spent out of which boarding big house was constructed for Rs. 7,65,618, boundary wall Rs. 1,99,000 and construction of water tank Rs. 1,98,262. All these activities are of charitable nature and it could not be said that assessee was accumulating funds and further, once the assessee society is registered with Registrar of Societies, in case the assessee society is dissolved its property will not be going to its members but it will go to the government as prescribed under section 14A of the Societies Registration Act, 1860. On these facts, the learned counsel submitted that all the properties were being maintained by the assessee for charitable purposes and not for any commercial purpose. The object as well as activities of the assessee society are that of charitable.
15. We have considered the rival submissions and perused the record carefully and also gone through the case laws to which our attention was invited during the course of hearing. At the very beginning it is to be settled as to whether provisions of section 12AA of the Act are applicable or not. In this connection it is to be pointed out that provisions of section 12AA were brought on statute from1-4-1997. No doubt application of the assessee, seeking registration was pending since 26-6-1973 as is apparent from copy of application appearing at page 3 and it is also on record that Department issued letter as early as on 2-6-1982 to the assessee society seeking certain evidence so that registration application dated 26-6-1973 may be disposed off. Copy of this letter of ITO Nainital is appearing at page 9 and further page No. 20 of the paper book shall show that CIT had also called for certain documents for disposal of registration application. The assessee had given all the relevant information but it is also a fact that assessee moved application on28-2-2002, copy appearing at page No. 25 of the paper book and in that it was prayed that necessary certificate of registration may be issued at an early date. Learned Commissioner had taken cognizance of this application and provisions of section 12AA shall be applicable. Leaving aside this, even if, for the sake of argument, it is taken that application dated 26-6-1973 was pending disposal before the Commissioner, still provision of section 12AA being procedural one, shall be applicable to such proceedings as laid down by the Hon'ble Supreme Court in the case of CWT v. Sharvan Kumar Swarup & Sons [1994] 210 ITR 886, in which it was laid down that procedural law generally speaking is applicable to pending cases. Accordingly, we conclude that provisions of section 12AA will be applicable to the application of the assessee seeking registration and consequence thereof shall be that learned CIT was justified to verify the genuineness of the activities of the assessee.
16. Admittedly, the learned CIT had not doubted the genuineness of the objects of the assessee as is apparent from his observation. He had simply doubted the genuineness of the activities and concluded that there are not of charitable nature and that was the basis for rejection of the application. A perusal of the object of the assessee reproduced in the very beginning of this order shall show that assessee society had proceeded with main object to establish, construct, organize, consolidate, support, develop, acquire, take over, improve, and administer educational institutions. Other objects under clause 3 of memorandum of association up to 3(a) to 3(e) are in respect of advancement of educational activities any of its branches, particularly schools, colleges and institutions for all persons irrespective of religion, race, caste, community or social status. It has also come on record that assessee is owner of the properties which assessee society acquired in 1972 and these are listed at pages 36 to 38 of the paper book. The assessee had let out these properties to Ramnee Educational Institution on nominal rents and it is also not in dispute that Ramnee Educational Institution is running schools in these properties. So far as running educational institutions by Ramnee Educational Institute in the buildings owned by assessee society is concerned, the very purpose of Ramnee Educational Society will be the purpose of the assessee as held in the case of Agarwal Shiksha Samiti Trust and ratio of that decision was impliedly approved by Their Lordships of Hon'ble Supreme Court in the case of Aditanar Educational Institution. In the case of Agarwal Shiksha Samiti Trust case, the trust was simply receiving the donation and disbursing the amount of such donation for the institutions run by the society, another legal entity and Hon'ble High Court granted exemption and held that merely because the assessee did not manage and run the educational institution, it could not be said that the said condition was not fulfilled if we apply the same analogy to the facts of the present case, then purpose of Ramnee Educational Institution viz., running the educational institutions in the property owned by the assessee society will be the same for assessee society as well.
17. So far as educational society is concerned, learned counsel rightly relied upon the decision of Hon'ble Karnataka High Court in the case of Saraswath Poor Students Fund in which Their Lordships have included education in the words "charitable purpose". If imparting education is taken as charitable purpose, then the assessee who is owner of the so many buildings being used for educational purpose through its tenant Ramnee Educational Society, then the purpose of the assessee will be imparting education to all children irrespective of caste, creed then this will amount to charitable purpose.
18. The learned CIT had nowhere pointed out that any activities of the assessee was with motive to earn profit. No where he pointed out that any activities carried out by it was not relating to education. Contrary to it the assessee had given Rs. 1.50 lakhs to Prime Minister's Relief Fund; Earth Quake Victims Funds etc. All these facts if read together and in view of the fact that the whole of the amount of income of the assessee was being utilised for educational purposes as per its objects given out in the memorandum of association then these activities are of charitable purposes and at the time of processing the application seeking registration, the learned CIT was not expected to go in detail and prima facie the assessee was able to make out a case for registration. Even if registration is granted that will not be precluding the Assessing Officer to examine in detail the very object of the assessee and to give the finding in assessment proceedings as to assessee had complied with the requirement of section 11 or not. At the most registration certificate if granted, will make out a prima facie case in favour of assessee that its activities are of charitable but that will not be obstacle in the way of Assessing Officer at the time when assessment proceedings are to be taken up and to decide as to whether assessee is entitled for the benefit of section 11 or 12 of the Act as the case may be. That will be the second stage. But at this stage the objects and activities of the assessee make out a case for granting registration. Accordingly, the order of the CIT is reversed and we hold that assessee is entitled for registration under section 12A of the Act.
19. The result is that assessee's appeal is allowed accordingly.
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