Vildirect: IncomeTax-caselaws-2010-VIL-424-ITAT-ART

2010-VIL-424-ITAT-ART

Income Tax Appellate Tribunal AMRITSAR

ITA No. 488/Asr/2009

Date: 31.03.2010

SAINT KABIR EDUCATIONAL TRUST

COMMISSIONER OF INCOME TAX

Sudhir Sehgal & A. K. Periwal, for the Appellants.
Y. K. Saxena, for the Respondent.

BENCH

H. S. SIDHU J.M. and MEHAR SINGH A.M.

JUDGMENT

MEHAR SINGH, A.M. :

These two appeals filed by different assessees are directed against different orders of the CIT, Bathinda, dt. 24th and 25th Sept., 2009, passed under s. 12AA(1)(b)(ii) of the IT Act, 1961 (hereinafter referred to in short 'the Act').

2. In ITA No. 488/Asr/2009, the assessee has raised following grounds of appeal :

"1. That the worthy CIT, Bathinda, has erred in not allowing registration under s. 12AA of the IT Act, 1961, which is totally unjustified and not according to law.

2. That the worthy CIT has erred in giving his finding that provisions of ss. 11 and 12 are not applicable to the applicant society and same is not charitable society within the meaning of s. 11 r/w s. 2(15) of the IT Act, 1961 and same is without any basis.

3. That the worthy CIT, Bathinda, has erred in not giving proper consideration to our submissions before disposing and disallowing our application for grant of registration under s. 12AA.

4. That without prejudice to our submissions of abovesaid grounds of appeal, it is submitted that the worthy CIT, Bathinda has erred in giving his finding that assessee can claim exemption either under s. 11 or under s. 10(23C)(iiiad) and in the present case as assessee is an educational institution carrying on specific activities covered under s. 10(23C)(iiiad), provisions of s. 11 for grant of registration under s. 12AA are not applicable.

5. That the appeal is within time and copy of order along with receipt of Rs. 500 deposited as appeal fee is also enclosed.

6. That the appellant craves leave to add or amend any of the grounds of appeal before the appeal is finally heard or disposed of."

3. In ITA No. 493/Asr/2009, the assessee has raised following grounds :

"1. That the order of the learned CIT, Bathinda, is against facts and law.

2. That the learned CIT, Bathinda, erred on facts and law while rejecting the application of registration under s. 12A of the assessee by passing order under s. 12AA(1)(b)(ii) of the IT Act, 1961."

4. Briefly stated, the facts of the appeal in ITA No. 488/Asr/2009 are that Saint Kabir Educational Trust, F.F. Road, P.O. Fazilka, Punjab, has applied for registration under s. 12AA of the IT Act, 1961 on 31st March, 2009. The application was accompanied by the income and expenditure account and balance sheet for the period ending 31st March, 2006, 31st March, 2007 and 31st March, 2008. In order to verify the genuineness of activities of the society, the CIT made necessary enquiries through the concerned AO. The assessee/trust furnished the requisite documents/ information from time to time. The issues and facts having a bearing, on registration of the application under s. 12A r/w s. 12AA of the Act, as obtaining in the CIT order dt. 24th Sept., 2009 are reproduced hereunder :

"(A) The application for registration made by the assessee under s. 12AA of the Act was referred to the Dy. CIT, Circle II, Bathinda, the jurisdictional AO, for his comments and report. The AO submitted detailed report on 13th July, 2009. The relevant paras of the same are reproduced hereunder for the purpose of proper appreciation :

'Survey under s. 133A was conducted on the business premises of the assessee, on 13th Dec., 2006. During the course of survey, books of account and other documents were impounded with previous approval of the Chief CIT, Amritsar, which are still in possession of the Department. The return of income for the asst. yr. 2007-08 was due on or before 31st July, 2007. The assessee did not care to file the return of income.

Therefore, a notice under s. 142(1) was issued on 11th June, 2008. Assessee sought adjournment on one excuse or other. Consequently, a notice under s. 271F, dt. 23rd June, 2008 was issued to which the assessee did not bother to reply. Therefore, a penalty under s. 271F was imposed on 27th Aug., 2008. Even then the assessee was least concerned to file return of income. Again assessee was reminded that assessment proceedings will be taken ex parte as he is least concerned to file the return. Even then assessee remained silent. Consequently assessee was issued show-cause for launching prosecution under s. 276CC of the IT Act. Assessee again came with excuse that his hard disc was damaged and it will take 2-3 months to file return. He also pleaded that his income is exempt under s. 10(23C)(iiiad) implying thereby that by not filing return he was not doing any irregularity/lapse. Ultimately undersigned issued provisional attachment order of assessee's bank account having due permission of your goodself and then assessee filed the return of income on 31st March, 2009 which is now under scrutiny. Assessee has now furnished bank guarantee of Rs. 10 lacs to get released his bank account, as desired by the undersigned in the interest of Revenue.

From the above it is apparent that the assessee is non'co-operative and hardly caring for his legal obligations. So far he has not cared to file the return taking as if all his income is tax-free and he is not bothered about legal consequences. Apparently, it seems that to manipulate the things he was avoiding to furnish return and attend the proceedings. Since a survey under s. 133A was conducted, he seems in a hurry to get registration either under s. 12AA or exemption under s. 10(23C) or exemption under s. 10(23C)(iiiad), before the survey proceedings are finalised by making assessment under s. 143(3). Therefore, granting of registration under s. 12AA may not be in the interest of Revenue and hence, registration under s. 12AA is not recommended.'

(B) The matter was again referred to the AO to examine the trustees and office bearers of the applicant trust regarding total income and source of the trustees, their contributions to the cause of charity etc. The AO reported that the trustees were required to attend his office on 27th Aug., 2009. However, the trustees failed to attend his office and no application for adjournment was received by him. As regards to non-appearance of the trustees during proceedings before the AO, it was submitted that since most of the members are residing at Chandigarh and Kapurthala, they could not attend the proceedings. Further, when most of the members are residing outside Fazilka, the present place of functioning of the society, how do the members contribute to the charitable cause of the society. From the memorandum of association, it is clear that almost all the members have given the address of Mukatsar, except Smt. Reet Singh, who is of Bangalore. Thus, the contention of the counsel that members are residing of Chandigarh/Kapurthala is totally devoid of facts. From the details of members given, it is clear that actually the society is being run by one family to promote its business in education sector.

From the above facts narrated by the AO, it is clear that the applicant has not cared to honour its legal obligations, which is not a characteristic of a charitable society. The plea of the applicant that his income his exempt under s. 10(23)(iiiad) has no merit as its income exceeds the maximum amount which is not chargeable to income-tax in the previous years 2005-06 and 2006-07 and hence, it was required to get its accounts audited under proviso to s. 10(23C) and file its return of income as required under s. 139(4C) of the Act. Hence, the applicant has failed to fulfil the conditions specified under proviso to s. 10(23C) of the Act and hence, s. 10(23C)(iiiad) is not applicable in the case of the applicant. Similarly, s. 12A prescribes the conditions of applicability of ss. 11 and 12. As per cl. (b) of sub-s. (1) to this section, the applicant was required to get its accounts audited and file its return of income as required under s. 139(4C) of the Act. These conditions are also not fulfilled by the applicant and hence, it is not entitled to get registration under s. 12AA of the Act."

5. The brief facts pertaining to appeal in ITA No. 493/Asr/2009 (M/s Aklia Educational & Research Society) are that the assessee trust had applied for registration under s. 12AA of the Act, on 31st March, 2009. The application was accompanied by income and expenditure account and balance sheet for the period ending on 31st March, 2006, 31st March, 2007 and 31st March, 2008. The issues and facts having a bearing on registration of the applicant under s. 12A r/w s. 12AA of the Act, as obtaining in the CIT order, dt. 25th Sept., 2009, are reproduced hereunder :

"(A) The society is running three educational institutions namely, Aklia College of Education for Women, Aklia Degree College and Aklia Senior Secondary School. Consolidated income and expenditure account and balance sheet of all the three institutions have been furnished from time to time. Total amounts of receipts and profits derived are given as under :

Asst. yr.	Gross receipts	Profit	Percentage	Addition to fixed assets
2006-07	33,62,659	8,66,345	25.76%	14,06,639
2007-08	37,49,833	9,97,805	26.61%	2,42,433
2008-09	79,37,111	36,10,738	45.50%	30,07,219

A plain reading of the above chart will reveal whether the assessee is existing for charitable purpose or otherwise. The assessee has been deriving systematic profits which range upto more than 45 per cent Hence, it is clear that no element of charity is involved in its activities. In the case of Safdarjung Enclave Educational Society vs. Municipal Corporation of Delhi (1990) 181 ITR 154(Del), the Hon'ble Delhi High Court held that the society running on purely commercial lines and in receipt of income generated from this activity in the form of building fund and donations etc. which were forced on the students and their guardians, cannot be termed as charitable society.

(B) Perusal of balance sheets for the asst. yr. 2006-07 onwards goes to reveal that the following loans have been raised by the society :

1.	Shri Gurtej Singh Brar	Rs. 20,27,605
2.	Shri Amar Nath	Rs. 2,50,000
3.	Shri Aswani Kumar	Rs. 4,55,000
4.	Shri Bahadur Singh	Rs. 9,70,000
5.	Shri Iqbal Singh	Rs. 6,86,950

Out of the above list, Shri Gurtej Singh Brar is the chairman of the society, Shri Iqbal Singh, vice chairman, Shri Bahadur Singh is member and Shri Aswani Kumar former chairman of the society. Perusal of income and expenditure account for the last 3 years of the society goes to reveal that the members of the society have not contributed anything from their hard earned income for the charitable cause of the society. If the members/office bearers of the society were so interested in the charitable cause of the society, they should have donated the above amounts to the society instead of advancing the same in the form of loans, thus, creating a liability on the society. It clearly shows that the members are not interested in the charitable cause of the society but are interested only in the promotion of education business of the society.

(C) The society was registered with the Sub-Registrar of the Societies, Bathinda on 16th Oct., 2003. The applicant has furnished copies of income and expenditure account for the last 3 years. The society has earned substantial profits for all the 3 years and the same have been claimed as exempted under s. 10(23C) of the Act. The applicant has applied for registration, on 30th March, 2009. There has been no change in the activities and conduct of the society since its inception. Hence, the reason for switch over from s. 10(23C) to s. 11 remains unexplained. The applicant is running three educational institutions and hence, it can claim its income as exempt under s. 10(23C) by following the conditions prescribed under the law. The provisions of s. 11, under which the applicant intends to claim its income as exempt by getting itself registered under s. 12AA, are not applicable to it as discussed in para (D) of this order.

(D) The society is running three educational institutions. As per s. 11(1)(a) of the Act, income derived from property held under trust holding for charitable purpose shall not be included in the total income of the person in receipt of such income. Further, w.e.f. 1st April, 2009 i.e., for asst. yr. 2009-10 s. 2(15) of IT Act, defines the charitable purpose as under :

'Charitable purpose includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, provided that the advancement of any other object of general public utility shall not be charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity."

6. In the course of present appellate proceedings, the learned counsel for the assessee vehemently contended in respect of appeal in ITA No. 488/Asr/2009 that rejection of application for grant of registration under s. 12AA of the Act, is founded purely on surmises and conjectures, irrelevant material and consideration thereof. The learned counsel for the assessee argued that provisions of s. 12AA of the Act clearly prescribe preconditions essential for grant of such registration and the scope of enquiry, to be conducted at this stage by the CIT. It was contended that the CIT can call for such document or information from the trust or institution as he thinks necessary, in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries, as he may deem necessary, in this behalf; and after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he can decide the fate of such application. The learned CIT is not competent to make inquiries which are integral part of exemptions, as the same fall under the exclusive jurisdiction of the AO. He pointed out that the requisite documents prescribed under the Act, were filed along with the application as indicated by the CIT in the impugned order. It was further contended that applicant has been rendering educational services, since 18th March, 1992. The learned counsel for the assessee referred to the synopsis and the paper book filed to support his contention. The learned counsel also referred to the circular issued by the CBDT bearing No. 11 of 2008, dt. 19th Dec., 2008 [(2009) 221 CTR (St) 1], which explains the amendment to the provisions of s. 2(15) of the Act. The said circular is binding on the IT authorities. The relevant part of the said circular as quoted by the learned counsel is reproduced hereunder :

"2.1. The newly inserted proviso to s. 2(15) will not apply in respect of the first three limbs of s. 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose even if it incidentally involves the carrying on of commercial activities."

6.1 The learned counsel also contended that the latest list of trustees/office bearers of the assessee applicant was duly submitted to the CIT. However, the CIT misdirected himself, in tracing the addresses and relying thereon which were furnished along with original memorandum of association of 1992. The learned counsel also filed copies of the questionnaires issued by the AO and submissions made thereto, indicating that the concerned authorities exceeded their jurisdiction, in making inquiries, which were not relevant for the purpose of granting registration under s. 12AA of the Act. It was also pointed out by the learned counsel that the acknowledgments of the IT returns filed by the trustees, as called for, were also filed. However, the learned counsel of the assessee stated that such details are irrelevant, as the same do not fall within contemplation of provisions of s. 12AA of the Act, It was vehemently argued that the genuineness of the activities of the assessee as contemplated under s. 12AA of the Act was not doubted by the CIT, in his impugned order. The CIT merely proceeded on the irrelevant inquiries and conclusions drawn therefrom. The learned counsel also placed reliance on the following decisions, to support his contention :

(i) Acharya Sewa Niyas Uttaranchal vs. CIT (2006) 105 TTJ (Del) 761;

(ii) Aggarwal Mitra Mandal Trust vs. Director of IT (Exemptions) (2007) 109 TTJ (Del) 128 : (2007) 106 ITD 531 (Del);

(iii) Dream Land Educational Trust vs. CIT (2007) 109 TTJ (Asr) 850;

(iv) CIT vs. Red Rose School (2007) 212 CTR (All) 394: (2007) 163 Taxman 19(All).

6.2 It was argued by the learned counsel for the assessee that the facts and circumstances obtaining in the period prior to the period for which application for registration under s. 12AA of the Act, was made, are irrelevant consideration, while considering grant of such registration. The application for registration as discussed earlier was filed on 31st March, 2009. It was argued that the Department is competent to take permissible action under the Act, for the period prior to the application made on 31st March, 2009. It was also argued that the alleged non'co-operation on the part of the assessee cannot be made the basis for rejection of the application made for grant of registration under s. 12AA of the Act. He also referred to and discussed various paras of the impugned order of the CIT.

7. As regards ITA No. 493/Asr/2009 is concerned, the verbal submissions made by the assessee are duly incorporated in the written synopsis. In both the cases written submissions have been filed. Both the learned counsel for the assessee and the learned Departmental Representative, in the course of appellate proceedings admitted and pointed out that as the issues involved in this appeal are similar to the issues in appeal in ITA No. 488/Asr/2009, submissions made in the case of ITA No. 488/Asr/2009 may be considered for this appeal also for necessary adjudication.

8. The learned Departmental Representative, however, relied upon the order of the CIT.

9. We have carefully perused and considered the facts of the case, rival submissions, paper book and the case law relied upon by the rival parties. The brief facts of the case as culled out from relevant records are that the trust was formed on 18th March, 1992, for the purpose of imparting education at Fazilka, duly affiliated to The Punjab State Board of Technical Education & Industrial Training, Chandigarh and for that purpose, the land was acquired, in the years 1992 and 1999, as per evidences furnished before the CIT and placed in the paper book at pp. 31 to 42. The trust has been imparting education to various students from all walks of life. It has also been providing free education to economically weaker sections, women and handicapped students and also giving concession to the needy and meritorious students, as per evidence placed in the paper book. It is mentioned that not even a word commenting adversely about the genuineness of such activities has been recorded by the CIT in the impugned order. The para of the impugned order containing finding of the CIT regarding refusal for grant of registration is reproduced hereunder :

"From the facts given on record, the applicant society does not fit into the definition of charity as described above. The provisions of ss. 11 and 12 are not applicable in this case as discussed in para (D). In view of the facts on the record, applicant society does not qualify to be charitable society within the meaning of s. 11 r/w s. 2(15) of the IT Act, 1961. Hence, as such the request for grant of registration under s. 12AA is not allowed and the application of Saint Kabir Educational Trust, F.F. Road, P.O. Fazilka, Punjab, dt. 31st March, 2009 is hereby rejected."

9.1 In this context, it is pertinent to quote the undated written submissions filed by the assessee contending therein that the findings of the CIT are not legally correct, in view of the following reasons :

"(a) Sec. 12AA only speaks about the genuineness of the activities of the trust and, therefore, this finding of the CIT is not relevant or correct.

(b) The contention of the CIT that the application of society does not qualify as a charitable society within the meaning of s. 11 r/w s. 2(15) is also not correct because of the clarification made in Circular No. 11 of 2008, dt. 19th Dec., 2008, wherein it has been clearly laid down that the newly added proviso to s. 2(15) is not applicable to the education.

(c) Therefore, the discussion of the CIT is not applicable at all and by virtue of this circular, the imparting of education is charitable in nature within the definition of s. 2(15) of the Act. Thus, the basis of rejection by the CIT is totally unjustified and not sustainable and the circular of the Board is binding upon him should have been followed."

9.2 The learned counsel of the assessee placed reliance on the following decisions to support his contention that CIT is not competent to make enquiries which fall beyond the purview of s. 12AA of the Act, specifying the nature and scope of enquiries contemplated under s. 12AA of the Act.

(i) In the case of Acharya Sewa Niyas Uttaranchal vs. CIT (supra), it has been held that under s. 12AA the jurisdiction of the CIT is confined to satisfying himself about the objects of the trust and the genuineness of its activities'CIT has not taken any objection to the charitable nature of the trust'Sufficiency or otherwise of the initial contribution made by the founder of the trust is not a relevant factor while dealing with an application for registration under s. 12AA'That apart, the trustees have already collected a substantial amount towards contribution to the trust which has been deposited with a bank'Sufficient funds are available with the trust to carry out charitable activities'Reasons given by the CIT for refusal to grant registration are extraneous to s. 12AA. Therefore, registration is allowed to assessee-trust.

(ii) In the case of Aggarwal Mitra Mandal Trust vs. Director of IT (Exemptions) (supra), it has been held as under :

"Charitable trust'Registration under s. 12A'Scope of enquiry under s. 12AA'Under s. 12AA, the powers of Director of IT (Exemptions) are limited to make enquiries with a view only to satisfy himself about genuineness of activities and object of the trust'The action of the Directors of IT (Exemptions) in refusing to grant registration to the assessee on the ground of violation of the provisions of s. 13(1)(b) was not justified, especially when he had not doubted either the genuineness of the activities of the assessee or the nature of its object being charitable.

Under s. 12AA, the powers of Director IT (Exemptions) are limited to make enquiries with a view only to satisfy himself about genuineness of activities and object of the trust; application of s. 13 falls within the exclusive domain of the AO and registration cannot be refused on the ground of violation of the provisions of s. 13(1)(b)."

(iii) In the case of Dream Land Educational Trust vs. CIT (supra), it has been held as under :

"Charitable trust'Registration under s. 12AA'Scope of enquiry by CIT'In accordance with s. 12AA, the CIT is only required to satisfy himself about the objects of the trust and genuineness of its activities'CIT having recorded no dissatisfaction on either of these two aspects, CIT refusing registration under s. 12A on grounds that dissolution deed of the firm of which property was settled on trust was not registered, that no transfer deed was executed regarding property transferred to trust, that the takeover action was unilateral, that no objection certificate was not obtained from bankers and that on dissolution of firm, it was left to the trustees to decide the fate of net assets'All these objections of CIT were irrelevant for purposes of grant of registration under s. 12A."

(iv) In the case of CIT vs. Red Rose School (supra), it has been held as under :

"Charitable trust'Registration under s. 12A'Scope of enquiry by CIT'Sec. 12AA confers power on the CIT while considering the application for registration of a trust or institution made under cl. (a) of s. 12A to call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution, and also to make such inquiries as he may deem necessary in this behalf and after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he shall pass an order in writing registering the trust or institution and if he is not satisfied, he would refuse the registration'Sec. 12AA does not speak anywhere that the CIT, while considering the application for registration, shall also see that the income derived by the trust or institution is either not being spent for charitable purpose or such institution is earning profit'Profit earning or misuse of the income derived by charitable institution from its charitable activities may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trust or the institution'While considering the registration under s. 12AA, the scope of enquiry of the CIT would be limited to the aforesaid extent'Tribunal had rightly found that the objects of the assessee society showed that none of the objects was against public policy and the main activity of the said society was to provide education to children from primary section to degree level and to improve the mental, social and other developments of the students'In case institution has defaulted in the matter of depositing contributions of the employees' provident fund, the Act concerned shall take care of such default but in no case it can be a ground for refusal of registration'Fee charged by the institution could not be said to be arbitrary'Objects of the assessee society undoubtedly were for charitable purposes and not against public policy.

Conclusion : Sec. 12AA does not speak anywhere that the CIT, while considering the application for registration, shall also see that the income derived by the trust or the institution was either not being spent for charitable purpose or such institution is earning profit; CIT was not justified in refusing registration under s. 12AA to assessee educational society and Tribunal was justified in granting the same."

9.3 We are of the considered opinion that a bare perusal of the rulings of the above discussed case law clearly supports the contentions of the assessee that the scope and nature of enquiries at the stage of grant of registration are prescribed under s. 12AA of the Act. Thus, CIT has no jurisdiction to conduct enquiries which falls beyond the pale of such statutory prescription.

9.4 A perusal of the written submissions in the form of synopsis filed by the assessee reveals that the trust was formed on 18th March, 1992, and was registered as per certificate of registration of societies under the Societies Registration Act, 1860, on 18th March, 1992. Memorandum of association of the trust spells out the main aims and objects. It is affiliated to the Punjab State Board of Technical Education and Industrial Training, Chandigarh, for the purpose of imparting education at Fazilka. The land was acquired in the years 1992 and 1999, as per evidences filed before the CIT and since then the trust has been imparting education to various students, in all walks of life. The learned CIT has not doubted the genuineness of the activities of the trust and objects of the trust. The contention of the learned counsel for the assessee that the finding of the CIT that the society is not charitable institution within the meaning of s. 11 r/w s. 2(15) of the Act is not legally correct, having regard to the clarification issued by the CBDT vide Circular No. 11 of 2008, dt. 19th Dec., 2008. The CIT, Bhatinda, marked the application dt. 31st March, 2009 filed by the assessee society for registration under s. 12AA of the Act to the AO for making necessary enquiries. The AO submitted detailed report on 13th July, 2009, which was relied upon by the CIT, in drawing inferences, to support his conclusions. Para A of the order of the CIT, dt. 24th Sept., 2009, speaks about non-co-operation rendered by the assessee society, in not filing the return of income despite issuing notices under s. 142(1) of the Act for the asst. yr. 2007-08. The CIT, observed as under :

"(B) The matter was again referred to the AO to examine the trustees and office bearers of the applicant trust regarding total income and source of the trustees, their contributions to the cause of charity etc. The AO has again reported that the trustees were required to attend his office on 27th Aug., 2009. However, the trustee failed to attend his office and no application for adjournment was received by him. The counsel of the applicant society was required to explain by this office during the course of proceedings, the reasons as to why the trustees/members did not attend the proceedings before the AO. The counsel submitted that since most of the members are residing at Chandigarh and Kapurthala, they could not attend the proceedings. However, the counsel could not explain why he did not seek adjournment from the AO. Further, when most of the members are residing outside Fazilka, the present place of functioning of the society, how do the members contribute to the charitable cause of the society ? From the perusal of the list of members as per the memorandum of association, following names and addresses are given :

Sl. No.	Name and address
1.	Smt. Pritam Chahal W/o Shri Shaminder Chahal, K.K. Road, Muktasar.
2.	Shri Joginder Singh Sidhu S/o Shri Puran Singh, K.K. Road, Mukatsar.
3.	Shri Inderjit Singh S/o Shri Harbans Singh, Street No. 6, Mukatsar.
4.	Shri Sukhwinder Singh S/o Shri Joginder, Singh Sidhu, K.K. Road, Mukatsar.
5.	Smt. Surjeet Kaur W/o Shri Harbans Singh, Street No. 6, Mukatsar.
6.	Smt. Reet Singh W/o Shri Shivender Singh, Bangalore.

From the above, it is clear that almost all the members have given the address of Mukatsar, except Smt. Reet Singh, who is of Bangalore. Thus, contention of the counsel that members are residing at Chandigarh/Kapurthala is totally devoid of fact. From the details of members given, it is clear that actually the society is being run by one family to promote its business in education sector.

From the above facts narrated by the AO, it is clear that the applicant has not cared to honour its legal obligations, which is not a characteristic of a charitable society; The plea of the applicant that its income is exempt under s. 10(23C)(iiiad) has no merit as its income exceeds the maximum amount which is not chargeable to income-tax in the previous years 2005-06 and 2006-07 and hence, it was required to get its accounts audited as required under proviso to s. 10(23C) and file its return of income as required under s. 139(4C) of the IT Act, 1961. Hence, the applicant has failed to fulfil the conditions specified under proviso to s. 10(23C)(iiiad) is not applicable in the case of the applicant. Similarly, s. 12A prescribes the conditions for applicability of ss. 11 and 12. As per cl. (b) of sub-s. (1) to this section, the applicant was required to get its accounts audited and file its return of income as required under s. 139(4C) of the IT Act, 1961. These conditions are also not fulfilled by the applicant and hence, it is not entitled to get registration under s. 12AA of the IT Act, 1961."

9.5 The concluding observations of the learned CIT, in the para reproduced above, are irrelevant for the purpose of grant of registration under s. 12AA r/w s. 12A of the Act. The provisions of s. 12A(1)(b) of the Act are applicable at the stage of considering eligibility of exemption of the income of the assessee. It is further stated that in today's world physical proximity of the trustee is not essential for rendering charitable services, as contended by the CIT. The assessee has filed copies of returns for the last three years, vide letter dt. 27th Aug., 2009/14th Sept., 2009. Further, the asst. yr. 2007-08 is not covered by the impugned application, as the registration under s. 12AA of the Act would be governed by the amendment to s. 12A(1)(aa) and its sub-s. (2). Further, in para B of the impugned order of the CIT, it is observed that the CIT got the enquiries conducted in respect of total income and source of the trustees and office bearers of the assessee applicant. In response to such enquiries, photocopies of the acknowledgments evidencing returns of income filed by the trustees were filed as is evident from pp. 4 to 65 of the paper book. The ITO (Technical), Bathinda, vide letter dt. 4th Aug., 2009, requisitioned the information mentioned at serial Nos. 1 to 7 and the necessary compliance was made by the assessee-trust vide letter dt. 14th Sept., 2009. In that questionnaire at serial No. 7, the details about the students belonging to SC/BC category were also required, which was submitted. It is pertinent to mention that the Dy. CIT, Circle II, Bathinda, vide letter dt. 18th Aug., 2009, called for the following details :

"The President,

St. Kabir Educational Trust,

F.F. Road, Fazilka.

Sub : Application for grant of registration under s. 12A of the IT Act, 1961'Regarding.

In connection with application for grant of registration under s. 12AA of the IT Act, 1961, all the office bearers and members of the trust are requested to present before the undersigned on 27th Aug., 2009 at 10.30 a.m. with the following information :

(a) Total annual income and sources of income.

(b) Name and address of the business entity of member, if any.

(d) Whether member is assessed to tax ? If yes, proof of PAN and filing of IT returns for the last three years.

Dt. 18th Aug., 2009

Yours faithfully,

Sd/

(B.R. Madaan)

Dy. CIT, Circle-II, Bathinda."

9.6 Necessary compliance was made by the assessee-trust vide letter dt. 27th Aug., 2009. After examination of the aforesaid details, as contained in the said letter, the CIT failed to detect any misappropriation of funds by the office bearers or the trustees, as no such findings are recorded by the CIT in the said order. The learned CIT relied upon the addresses, as contained in the list of members, annexed to the memorandum of association. The assessee-trust also filed latest addresses of the members along with submissions. Further, the learned CIT made such addresses as the foundation of his conclusion, in the matter. It would be pertinent to mention here that in para B of the impugned order, it is observed that income of the assessee-trust exceeds the maximum limit, for the previous years 2005-06 and 2006-07, whereby it was required to get its accounts audited. Hence, the assessee has failed to fulfil the conditions specified under proviso to s. 10(23C) of the Act. Consequently, the learned CIT observed that s. 10(23)(iiiad) is not applicable to the case of the trust. In this context, it is pertinent to mention here that the assessee-trust has not applied for registration under s. 12A r/w s. 12AA of the Act, for the previous years 2005-06 and 2006-07 and hence, the observations as regard to the applicability of s. 10(23C)(iiiad) of the Act are not relevant and applicable to such application. The assessee-trust, in para 2 of the application for registration under s. 12AA of the Act, has categorically mentioned as under :

"2. Two copies of the accounts of the trust/institution for the last one/ two/three years.

Audited accounts of last (3) years enclosed (in duplicate)."

9.7 Thus, the assessee applicant satisfied the statutory preconditions, as laid down under s. 12A r/w r. 17A of the IT Rules, 1962. Consequently, the observations of the learned CIT, in the matter, on non-compliance with the conditions of s. 12A of the Act, are not supported by cogent evidences and are not in consonance with the relevant provisions of the Act. An application filed in Form No. 10A is required to comply with the statutory conditions prescribed under s. 12A r/w s. 12 AA of the Act and the statutory conditions as contemplated under s. 10(23C)(iiiad) of the Act are not relevant. Hence, the same cannot be imported to draw adverse inference, pertaining to the provisions of s. 12A r/w s. 12AA of the Act, which are applicable to the instant case.

9.8 In para C of the impugned order, the learned CIT has quoted the decision of the Hon'ble Supreme Court in the case of CIT vs. Bar Council of Maharashtra (1981) 22 CTR (SC) 106: (1981) 130 ITR 28(SC) and placed reliance thereon to draw support to his findings to rebut the contention of the assessee that there is nothing in ss. 11 and 10(23C) to suggest that they cannot operate simultaneously. In this context, it is pertinent to state that the decision of the Hon'ble Supreme Court in the case of CIT vs. Bar Council of Maharashtra (supra) has to be read as a whole and a sentence or phrase or word cannot be picked out from the judgment divorced from the context and made the ratio in itself, and subsequently applied to the facts of any case. This view has been categorically laid down by the Hon'ble Supreme Court in the case of ITO vs. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209: (1992) 198 ITR 297(SC). The relevant para of the said decision is reproduced hereunder :

"It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of questions which were before the Court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case Courts must carefully try to ascertain the true principle laid down by the decision."

9.9 To have comprehensive and correct view, it is relevant and essential to reproduce the relevant part of the decision of Hon'ble Supreme Court in the case of CIT vs. Bar Council of Maharashtra (supra) :

"At the outset, it may be stated that we were not inclined to permit counsel for the Revenue to urge his first contention as, in our view, the Revenue must be deemed to have given up the same. We may point out that precisely this very contention was raised by the Revenue before the Tribunal and was negatived by it. The Tribunal on a detailed analysis of the concerned provisions took the view that the two provisions were not mutually exclusive but operated under different circumstances, that s. 11 was relatively wider in its scope and ambit, that while s. 10(23A) granted absolute exemption in respect of particular types of income, s. 11 imposed certain conditions for the exemption but such exemption was available for all sources and there was nothing inherently improbable or inconceivable about the two provisions operating simultaneously and as such the claim for exemption under s. 11 was available to the assessee council provided it satisfied all the requirements of that provision. We may point out that there are allied provisions like, for instance, sub-s. (23C) in s. 10 which clearly indicates that the legislature did not intend to rule out s. 11 when exemption was claimable under such specific provisions of s. 10. It was after negativing the contention in this manner that the Tribunal went on to consider the claim for exemption made by the assessee-council under s. 11 but on merits found that there was no material or evidence on record to show whether or not the securities were held by the assessee-council for any of the charitable purposes and, therefore, it remanded the case. The remand order was never challenged by the Revenue by seeking a reference on the ground that a remand was unnecessary because s. 11 was ruled out by reason of exemption having been obtained by the assessee-council under s. 10(23A) of the Act nor was any such contention raised when reference was sought by the assessee council nor when the matter was being argued in the High Court. In these circumstances it is clear to us that the Revenue acquiesced in the view taken by the Tribunal that the claim for exemption under s. 11 of the Act could not be said to be ruled out by reason of the provisions of s. 10(23A). We, therefore, proceed to deal with the second contention which was principally argued before us in these appeals."

9.10 It is settled legal position that the assessee-trust is entitled to claim exemption independently under ss. 11 and 12 of the Act or under s. 10(23)(iiiad) of the Act, subject to satisfaction of relevant preconditions as laid down in the respective sections of the Act. There is no such scheme under the provisions of the Act, for automatic grant of exemption under such sections of the Act. Further, the deduction under s. 10(23)(iiiad) of the Act is available, as also the exemption under ss. 11 and 12 subject to the satisfaction of the statutory conditions prescribed under the relevant sections of the Act. It is evident from the perusal of these sections that s. 11 is of wider amplitude regarding charitable institutions, whereas s. 10(23C)(iiiad) is specifically made for educational institutions, existing solely for educational purposes. So there is no bar under the scheme of the relevant provisions which prohibit the assessee to avail benefits under these two sections on alternative basis, as both these sections have different statutory preconditions to be satisfied.

9.11 The definition of charitable purpose has been amended by the Finance Act, 2008, w.e.f. 1st April, 2009, and the same reads as under :

"2(15) 'Charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility :

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity."

The Finance Minister has referred to the amendment (para 180) in following words :

"180. 'Charitable purpose' includes relief of the, poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under 'charitable purpose'. Obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases, genuine charitable organisations will not in any way be affected."

(emphasis, italicized in print, supplied)

9.12 The Circular No. 11 of 2008, dt. 19th Dec., 2008 [(2009) 221 CTR (St) 1] explains and interprets the said amendment and para 2 of the same is reproduced hereunder :

9.13 In view of the above, such findings of the CIT, in the context of charitable purpose are not supported by Circular No. 11 of 2008, dt. 19th Dec., 2008, which clearly interprets the amended definition, as contained under s. 2(15) of the Act. Therefore, the findings of the CIT are not in consonance with the said circular of the Board. The learned CIT ignored the implications of the said circular, as explained above by the highest tax administrative body of the income-tax i.e. CBDT, whose circulars are binding, on the IT authorities, executing provisions of the Act. The circulars issued by the CBDT are binding on all persons employed in the execution of the Act, as held in the cases of Navnit Lal C. Javeri vs. K.K. Sen, AAC (1965) 56 ITR 198(SC), K.P. Varghese vs. ITO (1981) 24 CTR (SC) 358: (1981) 131 ITR 597(SC) and Ellerman Lines Ltd. vs. CIT 1972 CTR (SC) 71: (1971) 82 ITR 913(SC). It is, further, added that circulars issued by the CBDT, are intended to be utilised to understand the scope and meaning of the provisions, to which they relate. These circulars contain interpretation in respect of the amended provisions of the Act, are in the nature of contemporaneous exposition furnishing legitimate aid in the construction of the provisions.

9.14 Further, the scope of enquiry to be conducted by the CIT has been explained by the Board's Circular No. 762, dt. 18th Feb., 1998 [(1998) 230 ITR (St) 12], which reads as under :

"Under the existing provisions of the IT Act, exemption from income-tax in respect of the income of a charitable or religious trust or institution is available only if certain conditions are satisfied. One of these conditions is that the person in receipt of the income shall make an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Chief CIT or CIT within the specified time However, there is no provision in the IT Act for processing of such an application and granting or refusal of registration to the concerned trust or institution.

Hence, the Act now provides for a procedure to be followed for grant of registration to a trust or institution. According to this procedure the Chief CIT or CIT shall call for documents and information and conduct enquiries to satisfy about the genuineness of the trust or institution. After he is satisfied about the charitable or religious nature of the objects and genuineness of the activities of the trust or institution, he will pass an order granting registration. If he is not so satisfied, he will pass an order refusing registration. However, an opportunity of being heard shall have to be provided to the applicant before an order of refusal to grant registration is passed by the Chief CIT or the CIT. The reasons for refusal of registration shall have to be mentioned in that order. The order granting or refusing registration has to be passed within six months from the end of the month in which the application for registration is received by the Chief CIT or the CIT and a copy of such order shall be sent to the applicant.

It has also been provided that the grant of registration shall be one of the conditions for grant of income-tax exemption."

9.15 The issue of simultaneous operation of the provisions of s. 10(23C) and s. 11 has been explained by the CBDT in Instruction No. 1112, dt. 29th Oct., 1977, which is relevant even under the altered circumstances of merger of s. 10(22) and 10(22A) with s. 10(23C) of the Act. It reads as under :

"The question for consideration is whether an educational institution existing solely for educational purposes but which shows some surplus at the end of the year is eligible for this exemption. If the profit of the educational institution can be diverted for the personal use of the proprietor thereof, then the income of the educational institution will be subject to tax. However, there may be cases where the educational institutions may be owned by trusts or societies to whom the provisions of s. 11 may be applicable. Where all the objects of these trusts are educational and the surplus, if any, from running the educational institution is used for educational purposes, it can be held that the institution is existing solely for educational purposes and not for purposes of profit.

However, if the surplus can be used for non-educational purposes, it cannot be said that the institution is existing solely for educational purpose and such institution will not be liable for exemption under s. 10(22). But in such cases the applicability of s. 11 can be examined and if the conditions laid down therein are satisfied, the income will be exempt under s. 11."

9.16 Further, the jurisdictional High Court of Punjab & Haryana has decided the issue of charity, in the case of Pinegrove International Charitable Trust vs. Union of India & Ors. in CWP No. 6031 of 2009, dt. 29th Jan., 2010 [reported at (2010) 230 CTR (P&;H) 477 : (2010) 37 DTR (P&H) 105'Ed.], in favour of the assessee. The question of law raised before the Hon'ble High Court, is reproduced hereunder :

"(A) Whether an educational institution would cease to exist 'solely' for educational purposes and not for purposes of profit merely because it has generated surplus income over a period of 4/5 years after meeting expenditure ?"

The Hon'ble High Court has given following findings on the said question of law :

"7.1. In the preceding paras it has already been noticed, by referring to the views of Hon'ble the Supreme Court in the cases of Aditanar Eductional Institution's case (supra) and American Hotel & Lodging Association (supra) that the character of the recipient of income must be that of an educational institution which is to be ascertained from the nature of activities. In the case of American Hotel & Lodging Association (supra), Hon'ble Supreme Court considered the scope of inquiry by the prescribed authority under s. 10(23)(vi) read with unnumbered third proviso of the Act. In that case the AO during the assessment proceedings had accepted that excess income over and above the expenditure shown in its accounts was not to be taken as assessee's income. When the matter travelled to the CBDT it was held that there is a surplus income, which has been repatriated outside India. Therefore, the assessee did not apply for its income for the purpose of education in India. The view of the CBDT was accepted by the Delhi High Court by dismissing the writ petition, filed by the assessee, which is reported as American Hotel & Lodging Association Educational Institute vs. CBDT (2006) 206 CTR (Del) 601: (2007) 289 ITR 46(Del). The Division Bench of Delhi High Court held that the gross receipt collected by the assessee's branch office in India is income chargeable to tax. It was further held that such income was required to be applied for educational purposes in India and on its repatriation outside India, the assessee lost the entitlement to seek exemption. It was in the aforesaid background that Hon'ble Supreme Court analysed various provisos added w.e.f. 1st April, 1999 and proceeded to observe that 'with the insertion of the provisos to s. 10(23)(vi) the applicant who seeks approval has not only to show that it is an institution existing solely for educational purposes which was also the requirement under s. 10(22) but it has now to obtain initial approval from the prescribed authority, in terms of s. 10(23C)(vi) by making an application in the standardized form as mentioned in the first proviso to that section'. Hon'ble the Supreme Court then proceeded to examine various provisos by observing as under :

'........With the insertion of the first proviso, the prescribed authority is required to vet the application. This vetting process is stipulated by the second proviso. It is important to note that the second proviso also indicates the powers and duties of the prescribed authority. While considering the approval of application in the second proviso, the prescribed authority is empowered before giving approval to call for such documents including annual accounts or information from the applicant to check the genuineness of the activities of the applicant institution. Earlier that power was not there with the prescribed authority. Under the third proviso, the prescribed authority has to ascertain while judging the genuineness of the activities of the applicant institution as to whether the applicant applies its income wholly and exclusively to the objects for which it is constituted/established. Under the twelfth proviso, the prescribed authority is required to examine cases where an applicant does not apply its income during the year of receipt and accumulates it but makes payment therefrom to any trust or institution registered under s. 12AA or to any fund or trust or institution or university or other educational institution and to that extent the proviso states that such payment shall not be treated as application of income to the objects for which such trust or fund or educational institution is established. The idea underlying the twelfth proviso is to provide guidance to the prescribed authority as to the meaning of the words 'application of income to the objects for which the institution is established'. Therefore, the twelfth proviso is the matter of detail. The most relevant proviso for deciding this appeal is the thirteenth proviso. Under that proviso, the circumstances are given under which the prescribed authority is empowered to withdraw the approval earlier granted. Under that proviso, if the prescribed authority is satisfied that the trust, fund, university or other educational institution etc. has not applied its income in accordance with the third proviso or if it finds that such institution, trust or fund etc. has not invested/deposited its funds in accordance with the third proviso or that the activities of such fund or institution or trust etc. are not genuine or that its activities are not being carried out in accordance with the conditions subject to which approval is granted then the prescribed authority is empowered to withdraw the approval earlier granted after complying with the procedure mentioned therein.'

7.2 From the aforesaid view expressed by the Hon'ble Supreme Court, it is evident that at the initial stage when the application for exemption is filed by an educational institution the scope of inquiry is restricted only to ascertain the genuineness of the activities of such an institution. Such an inquiry as per the proviso may even extend to the examination of accounts of the institution, application of its income to the object and purposes of education and other cognate aspects as has been indicated in the observation made by their Lordships. Once on the basis of genuineness of the activities of an educational institution approval is granted for exemption then the monitoring provisions would come in place and the AO has to examine whether the conditions on which the exemption was given, have been fulfilled or not. The aforesaid opinion is also supported by the Speech of the Finance Minister as reported in (1998) 147 CTR (St) 9 : (1998) 232 ITR (St) 13.

7.3 Hon'ble Supreme Court in para 32 of the judgment rendered in American Hotel & Lodging Association (supra) has further held that there is difference between stipulation of conditions and compliance therein. It has been held that the threshold conditions are aimed at discovering the actual existence of an educational institution and approval of the prescribed authority for which application in the standardized form in terms of the first proviso has to be given by every applicant. If the prerequisite condition of actual existence of the educational institution is fulfilled then the question of compliance with the requirements contemplated by various provisos would arise. Hon'ble the Supreme Court has approved the contention that the unnumbered third proviso contains monitoring conditions/requirements like application, accumulation, deployment of income in specified assets whose compliance depends on events that have not taken place on the date of the application for initial approval. It follows that firstly the application is filed in the standardized form in accordance with the unnumbered first proviso and then approval is granted. If the educational institution actually exists for education purposes alone then the educational institution is permitted to operate subject to monitoring conditions. A workable solution has been provided by Hon'ble Supreme Court in para 33 by observing as under :

'33. To make the section with the proviso workable we are of the view that the monitoring conditions in the third proviso like application/ utilization of income, pattern of investment to be made, etc. could be stipulated as conditions by the prescribed authority subject to which approval could be granted. For example, in marginal cases like the present case, where appellant-institute is given exemption upto financial year ending 31st March, 1998 (asst. yr. 1998-99) and where an application is made on 7th April, 1999 within seven days of the new dispensation coming into force, the prescribed authority can grant approval subject to such terms and conditions as it deems fit provided they are not in conflict with the provisions of the 1961 Act (including the abovementioned monitoring conditions). While imposing stipulations subject to which approval is granted, the prescribed authority may insist on certain percentage of accounting income to be utilized/applied for imparting education in India.......... Therefore, cases where earlier the applicant has obtained exemption(s), as in this case, need not be reopened on the ground that the third proviso has not been complied with. However, after grant of approval if it is brought to the notice of the prescribed authority that conditions on which approval was given are breached or that circumstances mentioned in the thirteenth proviso exist then the prescribed authority can withdraw the approval earlier given by following the procedure mentioned in that proviso. The view we have taken, namely, that the prescribed authority can stipulate conditions subject to which approval may be granted finds support from sub-cl. (ii)(B) in the thirteenth proviso.'

7.4. The question then is whether accumulation of income year after year extending over 4/5 years would deprive an educational institution existing solely for education purpose, its character as an educational institution solely for education purpose and not for profit. In the five Judge Constitution Bench judgment rendered in the case of Surat Art Silk Cloth Manufacturers Association (supra), the question of interpretation of cl. (15) of s. 2 of the Act was involved. The words 'not involving the carrying on any activity for profit' occurring at the end of the definition of 'charitable purpose' in the aforesaid provision were interpreted. After analyzing various judgments and the Speech of the Finance Minister, it has been held as under :

'.........The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit making is the predominant object of the activity, the purpose, though an object of general public utility would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in-charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would only be difficult for practical realisation but would also reflect unsound principle of management. We. therefore, agree with Beg, J. when he said in Sole Trustee, Loka Shikshana Trust vs. CIT 1975 CTR (SC) 281 : (1975) 101 ITR 234 (SC) that :

'If the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity.'

The learned Judge also added that the restrictive condition 'that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit making is not the real object. We wholly endorse these observations.'

(emphasis added, italics in original)

7.5 The Constitution Bench then proceeded to illustrate the application of the aforesaid test by citing the examples of monthly journal of Gandhi Peace Foundation and the counter example of sale of blood by a blood bank on payment of higher price. The aforesaid view has been cited with approval by Hon'ble the Supreme Court in the case of American Hotel & Lodging Association (supra), which reads thus :

'28. In Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378: (1980) 121 ITR 1(SC), it has been held by this Court that test of predominant object of the activity is not to earn profit. However, the purpose would not lose its character merely because some profit arises from the activity that it is not possible to carry on educational activity in such a way that the expenditure exactly balances the income and there is no resultant profit, for, to achieve this, would not only be difficult of practical realization but would reflect unsound principles of management. In order to ascertain whether the institute is carried on with the object of making profit or not it is duty of the prescribed authority to ascertain whether the balance of income is applied wholly and exclusively to the objects for which the applicant is established.'

(emphasis, italicized in print, added)

7.6 It is further appropriate to point out that r. 2BC of the Rules has prescribed the limit of Rs. 1 crore where the requirement of seeking approval for exemption would not be applicable. If the turnover is more than Rs. 1 crore then exemption in terms of s. 10(23C)(vi) is required. The unnumbered third proviso postulates the investment and deposits of surplus funds. An educational institution could make deposits and can also earn interest, which is permissible. There are certain limits imposed on the accumulations which of course have to be met. A Division Bench of Delhi High Court in the case of Director of IT (Exemptions) vs. Eternal Science of Man's Society (2006) 205 CTR (Del) 381 : (2007) 290 ITR 535 (Del), has held as under :

'It may also be mentioned that for seeking the exemption under s. 10(23C), the assessee will have to follow the guidelines mentioned in Form No. 56D (r. 2CA). One of the conditions in Form 56D is that assessee will have to submit the audited accounts and balance sheets for the last three years along with a note on the examination of accounts and on the activities as reflected in the accounts and in the annual report with special reference to the appropriation of income towards objects of the university or other educational institution. From the audited accounts, one can easily see whether the funds were utilised for the expansion of educational institution/activity or for personal profits. In the present case, the opposite parties have not brought any material on record to prove that the surplus earned by the assessee petitioner was utilised for personal profit/gain on any including the founder manager/director. Whatever fund was acquired, the same was utilised for the expansion of educational activities of institution. Initially there were five students and now the institution is imparting education to more than 34,000 students as pointed out during the course of arguments. Thus, the assessee is fully satisfying all the statutory requirements for getting exemption under s. 10(23C)(vi) of the IT Act. Apart from it, it may be mentioned that the Hon'ble Supreme Court has observed in the case of Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (supra) that the institution must be for general public utility and certainly not for profit, then it can be treated as charitable institution. In the instant case, no adverse material was brought on record by the opposite parties to reject the application dt. 4th Feb., 1999 for seeking said exemption.'

7.7 The aforesaid view has been adopted, applied and followed by a Division Bench of Allahabad High Court in the case of City Montessori School (supra), as has been rightly contended by the learned counsel for the petitioner(s). Even Special Leave Petition against the aforesaid judgment has been dismissed. Accordingly, the question of law has to be answered in favour of the assessee and against the Revenue."

9.17 Thus, the Hon'ble jurisdictional High Court has summarised the principle laid down in the said decision and the relevant part of the same is reproduced hereunder :

"8.13 From the aforesaid discussion, the following principles of law can be summed up :

(1) It is obligatory on the part of the Chief CIT or the Director, which are the prescribed authorities, to comply with the proviso thirteen (unnumbered). Accordingly, it has to be ascertained whether the educational institution has been applying its profit wholly and exclusively to the object for which the institution is established. Merely because an institution has earned profit would not be deciding factor to conclude that the educational institution exists for profit."

9.18 The finding of the learned CIT that profit earned by the assessee denudes its charitable character runs contrary to the clear ruling of the decision of the jurisdictional High Court, as reproduced above. The learned CIT placed reliance on the decision in the case of CIT vs. Saraswath Poor Students Fund (1985) 46 CTR (Kar) 107: (1984) 150 ITR 142(Kar). On perusal of the same, we are of the considered opinion that the ratio of the said decision is not applicable to the fact situation of the present case, being factually different and distinguished. The learned CIT, in last para, p. 5, which is reproduced hereunder narrates about the eligibility of society or trust under s. 10(23)(iiiad) and (vi) of the Act and on the next page i.e., p. 6 supports his view by citing the decision of the Cochin Bench in the case of Al-Farook Educational Centre vs. ITO (2009) 26 DTR (Coch)(Trib) 151 :

"If a society or trust wants to run any kind of educational institution exclusively, then the activity is covered under s. 10(23C)(iiiad) and (vi) of the IT Act, 1961, separately whereby it has been clearly mentioned that income received by any person on behalf of any university or other educational institution existing solely for education purposes and not for purposes of profit if the aggregate annual receipts as may be prescribed will not be included in the income of such person. It has been further provided that all the income so earned has to be applied within a year exclusively on the objects for which such trust or institution has been established. Thus, such society/trust has to follow the provisions mentioned in s. 10(23) to get itself exempted from tax."

9.19 We have carefully perused the decision of the Tribunal, Cochin Bench, in the case of Al-Farook Educational Centre vs. ITO (2009) 124 TTJ (Coch) 286: (2009) 26 DTR (Coch)(Trib) 151. The ratio of the decision quoted and relied upon by the CIT supports the case of the assessee. The headnote of the said decision clearly specifies that these two ss. 10(23C)(iiiad) and 11 are independent sections and exemption can be claimed after satisfaction of the statutory preconditions as laid down under s. 12AA or under s. 10(23C)(iiiad), whichever is relevant. So, in that decision, the settled legal position about the nature, scope and independent nature of provisions has not been demolished. Thus, the decision of the Hon'ble Supreme Court in the case of CIT vs. Bar Council of Maharashtra (supra) and CBDT Circular No. 1112, dt. 29th Oct., 1977 support the contention of the assessee on the issue of claiming alternative exemption under ss. 11 and 12 or s. 10(23C) of the Act. Needless to say that the learned CIT has failed to adversely comment on the genuineness of the activities of the assessee/applicant carried on in accordance with the objects as incorporated in the memorandum R of association. A bare perusal of the ratio laid down by the various judicial decisions, as discussed above, would clearly reveal the nature and scope of enquiries to be conducted by the CIT for grant of registration under s. 12A r/w s. 12AA of the Act. The provisions of s. 12AA of the Act, which contains procedure for registration, clearly specify the scope of enquiries to be conducted by the CIT, for his satisfaction, under the said section, for the purpose of granting registration. The scope of the jurisdiction of the CIT, under the said section of the Act, is restricted to objects of the assessee-applicant and genuineness of its activities. The text of the said section is reproduced hereunder, which clearly prescribes the scope and nature of enquiries, to be conducted by the CIT.

"12AA. Procedure for registration.'(1) The CIT, on receipt of an application for registration of a trust or institution made under cl. (a) or cl. (aa) of sub-s. (1) of s. 12A, shall :

(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and

(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he'

(i) shall pass an order in writing registering the trust or institution;

(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant."

9.20 Thus, s. 12AA of the Act contemplates enquiries about the objects of the trust or institution and genuineness of its activities. This section does not prescribe that enquiry under s. 12AA of the Act will be the forum or stage for adjudication on the eligibility of exemption under ss. 11 and 12 of the Act. The proceedings before the CIT, under s. 12AA of the Act pertain to the initial stage, intended to conduct prescribed statutory enquiries about the genuineness of the activities of the assessee, for the purpose of granting registration. The learned CIT is not statutorily competent to convert such proceedings for grant of registration under s. 12A r/w s. 12AA of the Act into the proceedings for adjudication, on the issue of applicability of the provisions of ss. 11 and 12 of the Act. Further, it is trite law that the said jurisdiction lies with the AO.

9.21 We also place reliance on the decision of Hon'ble Allahabad High Court in the case of CIT vs. Krishi Utpadan Mandi Samiti, Purva & Ors. (2010) 231 CTR (All) 505 : (2010) 38 DTR (All) 254 : (2010) 186 Taxman 460 (All), wherein it has been held as under :

"Sec. 12A of the IT Act, 1961'Charitable or religious trust'Registration of asst. yrs. 2003-04 to 2005-06'Whether where a trust/institution fulfils all conditions mentioned in s. 12A/12AA, registration cannot be denied on ground that some conditions of ss. 11 and 12 are not fulfilled'Held yes.

9.21.1 It was further held by the Hon'ble High Court that the Department had not brought any material on record to show that the assessees were non-charitable institutions established for personal or private gains. Therefore, there was no objectionable material to treat those institutions as non-charitable ones. The registration under s. 12A is mandatory to claim exemption under ss. 11 and 13 but registration alone cannot be treated as conclusive. It is always open to the Revenue authorities while processing returns of income of those assessees to examine their claim under ss. 11 and 13, and give such treatment to those institutions as warranted by the facts of the case. The Revenue authorities are always at a liberty to cancel the registration under s. 12AA(3).

9.21.2 It was further held by the Hon'ble High Court that where a trust/institution fulfils all the conditions mentioned in s. 12A/12AA, registration cannot be denied on the ground that some conditions of ss. 11 and 12 are not fulfilled. Even after registration, unless the conditions set out in ss. 11 and 13 are complied with, no benefit would be available to the registered trusts or institutions. Therefore, in the facts of the instant case, the decision of the Tribunal that the assessees, who had fulfilled all the conditions, were entitled to registration, could not be faulted.

9.22 Further, the ratio of the various case law as discussed earlier conclusively and finally prescribes the scope and nature of enquiry to be conducted by the CIT, under this section, for the purpose of granting registration under s. 12A r/w s. 12AA of the Act. The CIT failed to adhere to such prescribed statutory limit.

9.23 The learned CIT has not pointed out any defect in the application made by the assessee, in Form No. 10 read with r. 17A of the IT Rules, 1962. Similarly, as discussed earlier, the learned CIT has not doubted the genuineness of the activities of the trust carried out in accordance with the objects of the trust. It is further pertinent to point out here that the provisions of s. 12AA(3) were introduced by Finance (No. 2) Act, 2004 w.e.f. 1st Oct., 2004, providing for cancellation of registration of trust or institution by the CIT granted under s. 12AA(1)(b) of the Act, subsequently, if the activities of such trust or institution are not being carried out in accordance with the objects of the trust. Therefore, it is evident that grant of registration under s. 12AA of the Act is not absolute and is distinct and independent from grant of exemption under ss. 11 and 12 of the Act.

10. In the light of above legal and factual discussions including the case law, circulars and relevant statutory provisions of the Act, we are of the considered opinion that the impugned orders of the CIT cannot be sustained. Consequently, we set aside these impugned orders passed by the CIT and direct that registration applied for by the applicants under s. 12A of the Act be granted. Thus, these appeals are decided in favour of the assessees.

11. In the result, both the appeals filed by the assessees are allowed.

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