Sandhya Educational Trust, Chandigarh V. CIT-II, Chandigarh

ITA 1189/CHANDI/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4919 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-04-2010
• Assessment Year: misc
• Appeal Filed On: 21-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNITA PURI
• Keywords: Capital asset; Charitable institution
• Section: 12A; 12AA; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER I.T. A. NO. 1189 /CHANDI/2009 (U/S 12AA OF THE ACT) SANDHYA EDUCATIONAL TRUST, VS. CIT II, CHANDIGAR H. H.NO. 407, SECTOR 37-A, CHANDIGAH. PAN/GIR NO. : AAHTS8602D (ASSESSEE) (RESPONDENT) ASSESSEE BY : SHRI HARRY RIKHY RESPONDENT BY : SMT. SUNITA PURI O R D E R PER SUSHMA CHOWLA, JM : THIS APPEAL BY THE APPLICANT IS AGAINST THE ORDER O F THE CITU/S 12AA R.W.S. 254 OF THE INCOME TAX ACT DATED 19.11.2009. 2. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS A GAINST THE REJECTION OF APPLICATION FOR THE GRANT OF REGISTRATION U/S 12A OF THE INCOME TAX ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E TRUST WAS CREATED ON 28.03.2002 AND WAS REGISTERED WITH THE SUB REGISTRA R, CHANDIGARH. THE ASSESSEE FILED AN APPLICATION FOR REGISTRATION U/S 12A OF THE ACT ON 31.03.2008 I.E. AFTER A GAP OF SIX YEARS. THE SAID APPLICATION WAS FORWARDED TO THE ASSESSING OFFICER FOR VERIFICATION OF GENUIN ENESS OF THE TRUST AND ITS ACTIVITIES WITH REGARDS TO ITS AIMS AND OBJECTIVE. THE APPLICANT DID NOT FURNISH THE REQUISITE INFORMATION BEFORE THE ASSESS ING OFFICER AND DID NOT 2 PRODUCE ITS BOOKS OF ACCOUNTS. ON THE REPORT OF THE ASSESSING OFFICER THE ASSESSEE WAS ISSUED ANOTHER OPPORTUNITY BY THE CIT. THE APPLICANT FILED THE COPIES OF ITS RETURNS OF INCOME FOR THE ASSESSMENT YEARS 2005-06 AND 2006- 07 BUT FAIL TO PRODUCE BOOKS OF ACCOUNT AND ANY INF ORMATION ABOUT ITS ACTIVITIES. THE APPLICATION FOR GRANT OF REGISTRATI ON U/S 12A OF THE ACT WAS REJECTED BY THE CIT. THE TRIBUNAL IN AN APPEAL PREF ERRED BY THE ASSESSEE VIDE ORDER DATED 31.03.2009 HELD THAT THE COMMISSIO NER HAD NOT GIVEN ANY FINDING THAT THE OBJECTS OF THE TRUST WERE NOT OF C HARITABLE NATURE AND HAD MERELY DOUBTED THE GENUINENESS OF THE TRUST. THE M ATTER WAS RESTORED BACK TO THE FILE OF CIT. THE ASSESSEE IN THE PROCEEDING BEFORE THE CIT FURNISHED THE COPIES OF THE ACCOUNT FOR THE FINANCIAL YEARS 2 004-05 TO 2008-09. IT ALSO EXPLAINED THAT ASSESSEE TRUST HAD DISTRIBUTED READING/WRITING MATERIAL IN THE SHAPE OF COPIES AND BOOKS TO THE POOR CHILDR EN IN THE NEAR BY COLONIES. THE PHOTOCOPY OF PURCHASE VOUCHER OF COPI ES AND BOOKS WAS ALSO FILED. FURTHER THE ASSESSEE FILED THE COPY OF PARTN ERSHIP DEED DATED 27.03.2007 WITH M/S FOUNTAINHEAD OF NEW DELHI FOR P ROVIDING EXPERTISE AND SERVICE TO THE TRUST TO RUN EDUCATIONAL PROGRAM S AND ALLIED ACTIVITIES IN THE NAME OF EUROKIDS. THE CIT REJECTED THE APPLICAT ION MOVED BY THE APPLICANT ON ACCOUNT OF UNDER MENTIONED OBJECTIONS: - A. THE AIMS AND OBJECT OF THE ASSESSEE TRUST WERE F OUND TO BE OF CHARITABLE NATURE BUT THE CIT BUT THE DISSOLUTION C LAUSE WAS FOUND TO BE VAGUE. AS PER THE CIT IT DOES NOT MENTI ON AS TO HOW THE FUNDS AND ASSETS OF THE TRUST WILL BE TREATED I N CASE OF ITS DISSOLUTION. THE SAID CLAUSE WAS IN FORCE TILL 03.0 9.2008. THE TRUST DREW A SUPPLEMENTARY TRUST DEED ON 03.09.2008 RECTIFYING THE DISSOLUTION CLAUSE WITH MINOR CHANGES IN THE AIMS AND OBJECTS OF THE TRUST, WHICH AS PER THE CIT HAS NO R ETROSPECTIVE EFFECT. THUS, THE TRUST FORFEITS ITS RIGHT TO CLAIM REGISTRATION PRIOR TO THE ABOVE SAID DATE. ITS CLAIM FOR REGISTRATION U/S 12A OF THE INCOME TAX ACT, 1961 FOR THE A.Y. 2008-09 AUTOMATIC ALLY FAILS. B. THE ABOVE DETAIL CLEARLY POINTS OUT THAT NOT A S INGLE PAISA HAS BEEN SPENT ON CHARITABLE ACTIVITY BY THE ASSESSEE T RUST ON CHARITABLE PURPOSE THAT IS WHY THE ASSESSEE TRUST H AD FAILED TO 3 PRODUCE EVEN A SINGLE BILL I.E. PRIOR TO FINANCIAL YEAR 2009-10 ON THIS ACCOUNT. C. ON GOING THROUGH THE CLAUSE OF THE DEED MENTIO NED ABOVE IT BECOMES CLEAR THAT IT HAS BEEN PREPARED WITH THE SO LE PURPOSE OF EARNING MONEY FROM THE BUSINESS OF RUNNING EDUCATIO NAL INSTITUTION ON CONVENT PATTERN.ALL THE INVESTMENT H AVE BEEN MADE ON PURCHASE OF LAND AND CONSTRUCTION OF BUILDING TO RUN A SCHOOL WITH THE SOLE PURPOSE TO EARN PROFIT. D. THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN FIFTH GENERATION EDUCATION SOCIETY VS CIT 185 ITR 634 (AL L) IS NOT ACCEPTABLE FIRSTLY BECAUSE OF THE FACT THAT IT IS N OT THE DECISION OF THE JURISDICTION HIGH COURT AND SECONDLY IT IS NOT AS PER CLEAR PROVISIONS OF INCOME TAX ACT. IF IT IS ACCEPTED IT MAKES THE WHOLE PROVISION OF SEC. 12AA OF INCOME TAX ACT, 1961 REDU NDANT. E. THERE IS NO EVIDENCE WHETHER THE BOOKS AND TOYS WERE ACTUALLY DISTRIBUTED OR HAD BEEN UTILIZED IN THE SCHOOL OF T HE ASSESSEE. F THE RATIO OF HONBLE UTTARAKHAND HIGH COURT IN CI T, HALDWANI VS M/S QUEENS EDUCATIONAL SOCIETY, HALDWANI ( DATE OF DECISION 24.09.2007) IS CLEARLY APPLICABLE TO THE CASE OF TH E ASSESSEE. THE CIT OBSERVE THAT SIMPLY MAKING INVESTMENT IN LAND B UILDING AND FURNITURE DOES NOT MAKE THE TRUST ELIGIBLE FOR REGI STRATION AS A CHARITABLE TRUST. G. AIMS AND OBJECTS OF THE TRUST MAY BE CHARITABLE IN NATURE BUT THE ACTIVITIES OF THE TRUST AS DISCUSSED ABOVE PROVES T HAT IS SOLE OBJECT IS TO ESTABLISH AND RUN AN EDUCATIONAL INSTI TUTION WITH THE MOTIVE TO EARN PROFIT. 4. THE CIT CONSEQUENTLY REJECTED THE CLAIM OF THE A PPLICANT FOR REGISTRATION OF THE TRUST U/S 12A OF THE ACT. THE A PPLICANT IS IN APPEAL AGAINST THE ORDER OF CIT. 5. THE LEARNED. A.R. FOR THE APPLICANT POINTED OUT THAT THE SUPPLEMENTARY DEED WAS PART OF THE ORIGINAL TRUST D EED WHICH WAS MADE TO FURTHER CLARIFY THE DISSOLUTION CLAUSE. FURTHER CL ARIFICATION OF THE LEARNED. AR IN RESPECT OF VARIOUS OBJECTIONS RAISED BY THE C IT WERE AS UNDER :- I. THE SUPPLEMENTARY DEED IS ONLY A PART OF THE ORIGIN AL TRUST DEED WHICH WAS MADE TO FURTHER CLARIFY THE DISSOLUT ION CLAUSE. II. THE ASSESSEE HAD DULY SUBMITTED ALL THE DOCUMENTS D ESIRED BY THE LD. COMMISSIONER OF INCOME TAX 2, CHANDIGARH INCLUDING 4 AUDITED BALANCE SHEET, PROFIT AND LOSS ACCOUNT, FOR M 10B, BOOKS OF ACCOUNTS I.E. CASH BOOK AND LEDGER WITH SU PPORTING VOUCHERS AND BILLS. THE ASSESSEE HAD ALSO DULY SUBM ITTED THE NOTE ON CHARITABLE ACTIVITIES CARRIED ON IN THE EAR LIER YEARS SUPPORTED WITH THE CONFIRMATIONS FROM STEPPING STON ES SR. SEC. SCHOOL, CHANDIGARH AND EURO KIDS SCHOOL. III. THE ASSESSEE HAD LACK OF EXPERIENCE AND FUNDS IN RU NNING A SCHOOL SO IT DECIDED TO RUN THE SAME IN A COLLABORA TION WITH A THIRD PARTY NAMELY M/S FOUNTAINHEAD. THIS PARTY IS DULY PAYING TAXES ON THE SCHOOL FEES EARNED BY IT AND THE ASSES SEE, WHICH ENJOYS 22.5% OF THE REVENUE, USES THE INCOME FOR CH ARITABLE PURPOSE ONLY. SO IT A GENUINE CHARITABLE ACTIVITY A ND THE LD. COMMISSIONER OF INCOME TAX 2, CHANDIGARH HAS FAIL ED TO PROVE ANYTHING CONTRARY TO THE ABOVE. IV. THE LEARNED. COMMISSIONER OF INCOME TAX-2, CHANDIGA RH HAS NOT GIVEN ANY REASONS FOR NOT ACCEPTING THE DECISIO N OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF FIFTH G ENERATION EDUCATION SOCIETY VS CIT 185 ITR 634 (ALL) WHICH IS A HIGHER COURT. V. THE ASSESSEE HAD ACTUALLY PURCHASED THE BOOKS AND T OYS FOR THE PURPOSES OF DISTRIBUTION TO THE POOR STUDENTS AND T HE BILLS OF THE SAME ARE ATTACHED IN THE PAPER BOOK PAGES 78, 8 0 AND 82. THE PURCHASING OF THE BOOKS AND TOYS IS ITSELF A CH ARITABLE ACTIVITY. THE DISTRIBUTION OF THE SAME HAS ALSO BEE N CONFIRMED BY THE STEPPING STONES SR. SEC. SCHOOL, CHANDIGARH AND EURO KIDS SCHOOL, THROUGH WHOM THEY WERE DISTRIBUTED. VI. THE CASES RELIED UPON BY THE LD. CIT ARE IN RELATIO N TO SECTION 10(23C) OF THE IT ACT, 1961 AND ARE DIFFERENT FROM THE PRESENT CASE. MOREOVER THESE CASES HAVE BEEN DISCUSSED IN T HE LATEST DECISION OF THE JURISDICTIONAL PUNJAB & HARYANA HIG H COURT IN THE CASE OF PINEGROVE INTERNATIONAL CHARITABLE TRUS T AND ORS. VS UOI & ORS. (37 DTR 105) WHICH HAS BEEN HELD IN O UR FAVOUR. THE HONBLE HIGH COURT6 HAS RELIED ON THE O RDER OF THE HONBLE SUPREME COURT IN THE CASE OF AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE VS CENTRA L BOARD OF DIRECT TAXES AND OTHERS (2008) 216 CTR 377 (SC). VII. IT IS THEREFORE HUMBLY PRAYED THAT THE TRUST MAY KI NDLY BE GRANTED REGISTRATION U/S 12A OF THE I.T. ACT, 1961 WHICH HAS BEEN REJECTED BY THE LD. CIT MERELY ON SURMISES AND CONJECTURES. 6. THE LEARNED DR FOR THE REVENUE PLACED RELIANCE O N THE OBSERVATIONS OF CIT AND POINTED OUT THAT THE ACTIVITIES OF THE A SSESSEE WERE CARRIED OUT FOR PROFIT MAKING. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THE ASSESSEE TRUST WAS CREATED ON 28.03.2002. THE COPY OF THE TRUST DEED IS 5 PLACED AT PAGES 1 TO 7 OF THE PAPER BOOK. THE AIMS AND OBJECTS OF THE TRUST WAS TO RUN ANY SCHOOL AND TO PURCHASE LAND FOR RUNN ING THE EDUCATIONAL INSTITUTION. THE ASSESSEE IN ORDER TO ACHIEVE ITS O BJECTS TO PURCHASE LAND FOR THE CONSTRUCTION OF SCHOOL, WHICH WAS ALLOTTED BY T HE CHANDIGARH ADMINISTRATION VIDE ORDER DATED 16.10.2002. THE COP Y OF THE ALLOTMENT LETTER IS PLACED AT PAGES 15 TO 18 OF THE PAPER BOO K. THE CONSTRUCTION OF THE BUILDING HAD BEEN UNDERTAKEN BY THE ASSESSEE. T HE ASSESSEE CLAIMS THAT A DID NOT HAVE EXPERTISE IN THE EDUCATION LINE, IT ENTERED INTO A COLLABORATION WITH M/S FOUNTAINHEAD, FRANCHISE OF E URO KIDS. THE ASSESSEE CLAIMS THAT THE AMOUNT RECEIVED ON THE SHARING OF R EVENUE WITH M/S FOUNTAINHEAD, WAS USED FOR THE OBJECTS OF THE TRUST I.E. FOR EDUCATION OF POOR, SCHOLARSHIP, BOOKS AND UNIFORMS FOR THE POOR AND NEEDY. IN ASSESSMENT YEAR 2009-10, THE AMOUNT REALIZED WAS UT ILIZED OF PAYMENT OF LEASE MONEY AND INSTALLMENT TO CHANDIGARH ADMINISTR ATION. IN FINANCIAL YEAR 2009-10, SUM OF RS. 22,500/- WAS UTILIZED FOR PURCHASE OF BOOKS, WHICH WERE DISTRIBUTED TO THE POOR CHILDREN IN NEAR BY COLONIES. 8. THE ASSESSEE MOVED AN APPLICATION FOR REGISTRATI ON U/S 12A OF THE INCOME TAX ACT ON 31.03.2008. UNDER SECTION 12A O F THE ACT, WHILE GRANTING REGISTRATION TO THE TRUST, THE CIT TO VERI FY WHETHER THE AIMS AND THE OBJECTS FOR WHICH THE TRUST IS CREATED ARE CHAR ITABLE IN NATURE. THOUGH THE ASSESSEE WAS COMPILING THE INCOME AND EXPENDI TURE STATEMENT AND BALANCE SHEET FOR THE FINANCIAL YEAR 2004-05 TO 200 8-09, BUT THE APPLICATION FOR REGISTRATION WAS MOVED BY THE ASSESSEE ON 31.03 .2008 FOR REGISTRATION OF TRUST U/S 12A OF THE ACT. 9. THE HONBLE ALLAHABAD HIGH COURT HAS HELD IN TH E CASE OF 5 TH GENERATION EDUCATION SOCIETY VS CIT 185 ITR 634 (AL L) THAT WHERE THE 6 APPLICATION HAS BEEN MADE PROPERLY IN ACCORDANCE WI TH SECTION 12 A AND THE OBJECTS ARE CHARITABLE IT IS ENOUGH TO GRANT RE GISTRATION. SIMILARLY THE DELHI BENCH OF THE TRIBUNAL HELD IN THE CASE OF GUR U HARKRISHAN MEDICAL TRUST VS DIT (EXEMPTIONS) 18 DTR 218 (DEL) (TRIB). THE HONBLE DELHI HIGH COURT IN THE CASE OF DIR. OF I.T. VS GURU NANA K FOUNDATION (292 ITR 589) HAS HELD THAT PURCHASE OF LAND FOR SETTING UP SCHOOL IS APPLICATION FOR CHARITABLE PURPOSE. THE HONBLE SUPREME COURT IN TH E CASE OF S.RM.M.CT.M TIRUPPANI TRUST VS CIT (230 ITR 636) HA S HELD THAT- THE CHARITABLE PURPOSE MAY IN A GIVEN CASE, REQUIRE FOR PURCHASE OF CAPITAL ASSET AND WHERE INCOME IS APPLIED FOR THE PURCHASE OF SUCH CAPITAL ASSET, IT WOULD STILL BE APPLICATION OF INCOME FOR THE CHARIT ABLE PURPOSE. SIMILARLY HELD IN 86 ITR 683 (GUJ). 10. THE CIT WHILE GRANTING REGISTRATION U/S 12A OF THE ACT IS TO VERIFY WHETHER THE OBJECTS OF THE TRUST ARE CHARITABLE IN LINE WITH THE RATIO LAID DOWN BY THE HONBLE ALLAHABAD HIGH COURT IN FIFTH G ENERATION EDUCATION SOCIETY VS CIT 185 ITR 634 (ALL). WE FIND FROM THE PERUSAL OF THE OBJECTS OF THE ASSESSEE TRUST BEFORE US WAS TO RUN A SCHOOL AND IN ORDER TO ACHIEVE ITS OBJECTS THE TRUST HAD PURCHASED LAND AND CONSTR UCTED SCHOOL BUILDING ON THE SAME. SUCH AN ACTIVITIES OF PURCHASING THE LAND AND CONSTRUCTING THE BUILDING FOR SETTING UP THE SCHOOL IS APPLICATION F OR CHARITABLE PURPOSE. THE ASSESSEE HAD FURTHER ENTERED IN A COLLABORATION FOR RUNNING THE SCHOOL, WHICH IN TURN ESTABLISHED THE BONAFIDES OF THE ASSE SSEE TRUST TO CARRY ON ITS OBJECT OF IMPARTING EDUCATION. THE ASSESSEE HAD EXE CUTED A TRUST DEED AND LATER EXECUTED A SUPPLEMENTARY TRUST DEED ON 03.09. 2008, WHEREIN THE ASSESSEE HAD CLARIFIED ITS INTENTION WITH REGARD TO THE DISSOLUTION OF THE TRUST. THE SUPPLEMENTARY DEED WAS EXECUTED FOR FURT HER CLARIFICATION AND THE SAME IS IN CONTINUATION OF THE ORIGINAL TRUST D EED. WE FIND NO MERIT IN 7 THE OBJECTIONS RAISED BY THE CIT IN THIS REGARD. TH E ASSESSEE IS ENTITLED TO THE CLAIM OF REGISTRATION U/S 12A OF THE ACT FROM T HE DATE OF FILING THE APPLICATION U/S 12A OF THE ACT IN ACCORDANCE WITH L AW. 11. THE SECOND OBJECTION OF THE CIT IN REFUSING TO GROUND REGISTRATION WAS IN VIEW OF THE RATIO LAID DOWN BY HONBLE UTTARAKHAND HIGH COURT IN CIT, HALDWANI VS M/S QUEENS EDUCATIONAL SOCIETY, H ALDWANI (DATE OF DECISION 24.09.2007). THE HONBLE PUNJAB & HARYANA HIGH COURT IN PINEGROVE INTERNATIONAL CHARITABLE TRUST & ORS VS U NION OF INDIA AND ORS (2010) 37 DTR 105 (P&H) HAVE DISSENTED FROM THE RA TIO LAID DOWN BY THE HONBLE UTTARAKHAND HIGH COURT IN CIT, HALDWANI VS M/S QUEENS EDUCATIONAL SOCIETY, HALDWANI ( DATE OF DECISION 24 .09.2007). RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN PINEGROVE INTERNATIONAL CHARITABLE TRUST & ORS V S UNION OF INDIA AND ORS. (SUPRA), WE ARE OF THE VIEW THAT THE ISSUE OF GRANT OF REGISTRATION NEEDS TO BE RE-CONSIDERED IN LINE WITH THE SAME. IN THE I NTEREST OF JUSTICE WE REMIT THE ISSUE BACK TO THE FILE OF CIT TO DECIDE T HE ISSUE IN LINE WITH THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT. REASONABLE OPPORTUNITY OF HEARING SHALL BE ALLOWED TO THE ASSESSEE. 12. WE FIND NO MERITS IN THE ORDER OF CIT IN REJECT ING THE REGISTRATION U/S 12A OF THE ACT IN VIEW OF ALLEGATION OF NON-CARRYIN G ON OF CHARITABLE ACTIVITIES BY THE TRUST. AT THE TIME OF GRANTING RE GISTRATION U/S 12A OF THE ACT THE CIT IS TO VERIFY WHETHER THE OBJECTS OF THE TRUST ARE CHARITABLE AND THE QUANTUM OF ACTIVITIES OR LACK OF ACTIVITIES IS IN THE DOMAIN OF THE ASSESSING OFFICER WHILE COMPUTING THE INCOME AND IT S EXEMPTION U/S 11 & 12 OF THE ACT. ACCORDINGLY THIS OBJECTION OF THE CI T IS REJECTED. THE MATTER 8 IS REMITTED BACK TO THE FILE OF CIT WITH OUR DIRECT IONS. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS THUS ALLOWED FOR S TATISTICAL PURPOSES. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JULY, 2010. SD/- SD/- (G.S.PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 TH JULY,2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR