Swargiya Jagannath Jattewar Shikshan Sanstha, Nagpur V. Commissioner of Income-Tax-III, Nagpur

ITA 128/NAG/2011

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3095 (ITAT-NAGPUR)
• Duration Of Justice: 7 year(s) 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 29-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M BHUSARI
• Assessee Lawyers: ALOK ARUN KUMAR BHAGAT
• Keywords: Business income; Charitable institution; Opportunity of being heard; Principle of natural justice; Cancellation of registration
• Section: 12A; 12AA; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR E-BENCH, NAGPUR (THROUGH VIDEO CONFERENCE AT MUMBAI) . . , . / BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER / AND , . . SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO. 128/NAG/2011 SWARGIYA JAGANNATH JATTEWAR SHIKSHAN SANSTHA, 469, TIRANGA SQUARE, SAKKARDARA, NAGPUR 440 009. PAN: AAITS 7706 F VS. COMMISSIONER OF INCOME TAX-III, AAYAKAR BHAVAN, CIVIL LINES, NAGPUR-01. ( / APPELLANT ) ( / RESPONDENT ) APPELLANT BY : SHRI ALOK ARUN KUMAR BHAGAT RESPONDENT BY : SHRI M. BHUSARI !'# / DATE OF HEARING : 20-12-2012 $%& !'# / DATE OF PRONOUNCEMENT : 31-12-2012 '( / O R D E R PER RAJENDRA, AM PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE-TRUST CHALLENGING THE ORDER OF THE CIT-III, NAGPUR DT. 24-06-2011. FOLLOWING GROUN DS OF APPEAL HAVE BEEN RAISED BY THE ASSESSEE: 1)HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LEARNED CIT HAS ERRED IN LAW AND ON FACTS IN REJECTING THE APPL ICATION FOR REGISTRATION UNDER SECTION 12A OF THE INCOME TAX ACT 1961 FILED BY THE APPELLANT WHICH IS AN EDUCATIONAL TRUST AND THAT TOO WITHOUT GIVING AD EQUATE OPPORTUNITY OF BEING HEARD AND ON THE BASIS OF SUCH CONSIDERATIONS WHICH ARE NOT GERMANE TO THE ISSUE BEFORE HIM. 2) IN ANY VIEW OF THE MATTER AND IN ANY CASE, ACTIO N OF THE LEARNED CIT IN REFUSING THE REGISTRATION UNDER SECTION 12A IS BAD IN LAW AND AGAINST THE FACTS ITA NO. 128/NAG/2011 SWARGIYA JAGANNATH JATTEWAR SHIKSHAN SANSTHA 2 AND CIRCUMSTANCES OF THE CASE AND IS CONTRARY TO TH E PRINCIPLES OF NATURAL JUSTICE, AND THE APPELLANT OUGHT TO HAVE GRANTED RE GISTRATION UNDER THAT SECTION. 3)THE APPELLANT CARVES LEAVE TO AMEND, ALTER OR DEL ETE ANY OF THE ABOVE GROUNDS OF APPEAL. 2. ASSESSEE-TRUST MADE AN APPLICATION FOR REGISTRATION U/S. 12A OF THE INCOME TAX ACT, 1961 (ACT) IN FORM NO. 10A ON 02-12-2010. ON 09-06-2011, A NOTICE FOR HEARING FOR VERIFICATION OF DOCUMENTS WAS ISSUED TO THE ASSESSEE FROM THE OFFICE OF COMMISSIONER OF INCOME TAX-III, NAGPUR. ON 24-06-2 011, AN ORDER U/S. 12AA OF THE ACT WAS PASSED BY THE CIT REJECTING THE REGISTRATIO N OF APPLICATION OF THE ASSESSEE. 3. IN HIS ORDER, HE HELD THAT THE APPELLANT-TRUST WAS PRIMARILY ENGAGED IN MANAGING AN INSTITUTION WHICH OFFERED BACHELOR OF A RCHITECTURE COURSE, THAT THERE WAS NO OTHER ACTIVITY OF THE TRUST, THAT THE FINAL ACCOUNTS OF THE TRUST AND THE COLLEGE WERE DRAWN UP SEPARATELY WHILE THE PORTION OF RECEI PTS AND EXPENSES WERE ACCOUNTED FOR IN THE FINAL ACCOUNTS OF THE COLLEGE, THAT A SU BSTANTIAL PORTION THEREOF, WHICH WAS INEXPLICABLY RELATABLE TO THE OPERATION OF THE COLL EGE, WAS ACCOUNTED FOR IN THE FINAL ACCOUNTS OF THE INSTITUTION. HE OBSERVED THAT THE AGGREGATE RECEIPT OF FEE IN RESPECT OF THE BACHELOR OF ARCHITECTURE COURSE IN THE F.Y. 200 9-10 & 2010-11 WERE NOT PROPERLY SHOWN IN THE BOOKS OF ACCOUNTS OF THE TRUST. AFTER ANALYSING THE LEDGER ACCOUNT OF FEE RECEIPTS I.E. PROFESSIONAL FEE COLLECTION ACCOUNT F OR F.Y. 2009-10 HE HELD THAT IN THE CASE OF THE APPELLANT-TRUST, THE PROFESSIONAL FEE COLLECTIO N ACCOUNT IN THE FINAL ACCOUNTS OF THE COLLEGE SHOWS CONTINUOUS RECEIPT OF AMOUNTS IN CASH OF RS.20,000/- TO RS.30,000/- THROUGHOUT THE YEAR AND ON SEVERAL DATE S IN EVERY MONTH. HE WAS OF THE OPINION THAT SUCH ACCOUNTING DID NOT REPRESENT THE ACTUAL STATE OF AFFAIRS. HE FOUND THAT LOANS IN EXCESS OF RS.20,000/- HAD BEEN RECEIV ED FROM SEVERAL PARTIES IN F.Y. 2009-10 IN VIOLATION OF SECTION 269SS OF THE ACT. H E DISCUSSED OTHER ACCOUNTING IRREGULARITIES OF THE ASSESSEE FOR THE FY.2008-09.H E FURTHER OBSERVED THAT TUITION FEE OF RS.53,000/- WAS BEING CHARGED FROM EVERY CANDIDA TE IN THE BACHELOR OF ARCHITECTURE COURSE, THAT TOTAL FEE CHARGED PER STU DENT WAS RS.1,09,000- PER ANNUM. HE WAS OF THE OPINION THAT FEES CHARGED BY THE ASSE SSEE WAS SUBSTANTIAL, THAT TRUST DID NOT HAVE ANY ACADEMIC CREDENTIALS. FINALLY HE HELD THAT THE INSTITUTION WAS NOT BEING OPERATED WHOLLY FOR EDUCATIONAL PURPOSE BUT FOR COM MERCIAL PURPOSE. 4. BEFORE US, DURING THE COURSE OF HEARING, AUTHORISED REPRESENTATIVE (AR) OF THE ASSESSEE SUBMITTED THAT ASSESSEE DID NOT WANT T O PRESS GROUND NO.1. CONSIDERING THE FACT, GROUND NO.1 IS TREATED AS DISMISSED. 5. WITH REGARD TO GROUND NO.2, AR SUBMITTED THAT TRUST HAD INITIATED A COURSE OF BACHELOR OF ARCHITECTURE, INSTITUTION THAT WAS DULY AFFILIATED TO THE NAGPUR UNIVERSITY, THAT IT WAS DULY APPROVED BY THE ALL INDIA COUNCIL FOR TECHNICAL EDUCATION AND COUNCIL OF ARCHITECTURE, THAT FEE CHARGED BY THE IN STITUTION WERE ACCORDING TO THE APPROVAL OF THE SHIKSHAN SHULKA SAMMITI, NEW DELHI - A CENTRAL GOVERNMENT DEPARTMENT SET UP TO MONITOR FEE CHARGED BY THE EDU CATIONAL INSTITUTIONS, THAT FEES WERE STRICTLY CHARGED AS APPROVED BY THE SAMMITI, T HAT ADMISSION OF THE STUDENTS TO THE INSTITUTION WERE THROUGH COMMON ENTRANCE EXAMS, THAT GOVERNMENT AUTHORITIES HAD NECESSARY CONTROL OVER THE ADMISSION PROCESS AN D FEES STRUCTURE, THAT QUESTION OF QUALITY OF EDUCATION WAS UN-CALLED FOR IN REGISTRAT ION PROCESS, THAT COLLEGE WAS OPERATING UNDER THE EDUCATIONAL TRUST AND THE LAND AND THE OTHER INFRASTRUCTURES WERE ITA NO. 128/NAG/2011 SWARGIYA JAGANNATH JATTEWAR SHIKSHAN SANSTHA 3 COMMON, THAT TOTAL FEES COLLECTED FROM THE STUDENTS OF DAY TO DAY BASIS WAS CREDITED TO THE PROVISIONAL FEES ACCOUNTS, THAT THEN SAME WERE TRANSFERRED TO RESPECTIVE HEADS LIKE TUITION FEE AND LIBRARY FEE ETC., THAT INSTALMENT F ACILITY WAS GIVEN TO THE STUDENTS TO FACILITATE EASINESS IN PAYMENT OF FEES, THAT OBJECT IONS OF THE CIT REGARDING AMOUNT OF FEES METHOD OF COLLECTION OF FEES, RENT PAID BY THE COLLEGE TO THE TRUST AND ACCEPTANCE OF PETTY LOANS IN CASH WEE COMPLETELY MIS-PLACED W HILE DECIDING THE ISSUE OF REGISTRATION, THAT OBJECTIVES OF EDUCATIONAL DEVELO PMENT WERE DULY INCORPORATED IN THE APPROVED DEED, THAT APPLICATION OF THE TRUST WAS RE JECTED ON THE BASIS OF EXTRANEOUS CONSIDERATION. HE RELIED UPON THE CASES OF GARDEN CITY EDUCATIONAL TRUST (2009) 28 DTR (KAR) 139: (2001) [330 ITR 480]; SANJEEVAMMA HA NUMANTHE GOWDA CHARITABLE TRUST [285 ITR 327 (KAR)]; RED ROSE SCHOOL [212 CTR (ALL) 394]; DREAM LAND EDUCATIONAL TRUST [109 TTL (ASR) 850]; ST. GEORGE E DUCATIONAL TRUST [9 SOT 636 (BANG)]; AND ARYAN EDUCTIONAL SOCIETY [93 ITD 546]. DEPARTMENTAL REPRESENTATIVE (DR) RELIED UPON THE ORDER OF THE CIT-III, NAGPUR. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL PUT BEFORE US. THE UN-DISPUTED FACTS OF THE CASE ARE THAT THE ASSE SSEE-TRUST HAD INITIATED A BACHELOR DEGREE IN THE FIELD OF ARCHITECTURE AND THE COLLEGE WAS AFFILIATED TO THE UNIVERSITY OF NAGPUR, THAT ALL INDIA COUNCIL OF TECHNICAL EDUCATI ON (AICTE) AND COUNCIL OF ARCHITECTURE HAD APPROVED THE COURSE INITIATED BY T HE ASSESSEE TRUST. THE FEE STRUCTURE OF THE APPELLANT-TRUST WAS DECIDED AND MO NITORED BY A CENTRAL GOVERNMENT DEPARTMENT AND ADMISSION TO THE COURSE WAS THROUGH A COMMON ENTRANCE EXAM. THUS, GOVERNMENT AGENCIES HAD CONTROL OVER THE ADMI SSION PROCESS AND THE FEE STRUCTURE OF THE ASSESSEE-TRUST. 6.1 CONSIDERING THE ABOVE FACTS, QUESTIONS TO BE DECIDE D IS WHETHER THE ASSESSEE WAS ENTITLED TO GET REGISTRATION U/S. 12AA OF THE A CT? AFTER CONSIDERING THE CASES RELIED UPON BY THE AR AND THE FACTS OF THE CASE, WE ARE OF THE OPINION THAT THOUGH THE SECTIONS 11TO13 OF THE ACT ARE SEPARATE AND DIFFERE NT, BUT THEY ARE INTERLINKED AND INTERDEPENDENT-THEY DEAL WITH THE PROCEDURE/EXEMPTI ONS AND RESTRICTIONS WITH REGARD TO SUCH EXEMPTIONS. WE HAVE NO DOUBT IN HOLDING THA T THE PROCEEDINGS FOR REGISTRATION AND CANCELLATION OF REGISTRATION OF CHARITABLE INST ITUTIONS ARE TOTALLY DIFFERENT FROM ASSESSMENT PROCEEDINGS OF THE TRUSTS. FOR THE PURPO SE OF REGISTRATION UNDER SECTION 12AA OF THE ACT WHAT THE AUTHORITIES HAVE TO SATISF Y THEMSELVES IS THE GENUINENESS OF THE ACTIVITIES OF THE TRUST OR INSTITUTION AND HOW THE INCOME DERIVED FROM THE TRUST PROPERTY IS APPLIED TO CHARITABLE OR PURPOSE AND NO T THE NATURE OF THE ACTIVITY BY WHICH THE INCOME WAS DERIVED BY THE TRUST. IN OTHER WORD S WHILE DECIDING THE ISSUE OF REGISTRATION/ CANCELLATION OF A CHARITABLE TRUST/IN STITUTION WHAT THE CIT HAS TO LOOK INTO IS NOT THE SOURCE OF INCOME TO THE TRUST, BUT WHETH ER SUCH INCOME IS APPLIED FOR CHARITABLE PURPOSES. THE SATISFACTION OF THE CIT SH OULD BE REGARDING THE APPLICATION OF THE INCOME OF THE TRUST FOR THE AFORE-SAID PURPOSES WHICH ONLY ENTITLES THE ASSESSEE TO CLAIM EXEMPTION. FOR ARRIVING AT SUCH SATISFACTION PRIMARILY HE HAS TO LOOK AT THE OBJECT OF THE TRUST, WHEN THE SAME IS REDUCED INTO WRITING IN THE FORM OF TRUST DEED. IN OUR OPINION, WHETHER PART OF THE INCOME IS EXEMPT O R NOT IS IRRELEVANT FOR THE REGISTRATION OF THE INSTITUTION. THIS ISSUE IS RELE VANT ONLY WHEN THE ASSESSMENT OF A PARTICULAR ASSESSMENT YEAR IS MADE BY THE AO. FOR THE REGISTRATION OF THE INSTITUTION, THE CIT HAS TO SATISFY HIMSELF ABOUT THE OBJECT OF THE INSTITUTION AND GENUINENESS OF THE ACTIVITIES OF THE INSTITUTION AND NOT ABOUT THE NATURE OF THE INCOME. IF THE OBJECT OF THE INSTITUTION FALLS WITHIN THE DEFINITION OF CHAR ITABLE PURPOSES UNDER SECTION 2(15) OF THE ACT AND THE INSTITUTION IS GENUINELY CARRYING O UT SUCH OBJECT, THE CIT MUST GRANT ITA NO. 128/NAG/2011 SWARGIYA JAGANNATH JATTEWAR SHIKSHAN SANSTHA 4 REGISTRATION TO THE INSTITUTION. THEREFORE, THE MOO T QUESTION IN SUCH CASES IS WHETHER THE OBJECTS OF THE ASSESSEE TRUST IS CHARITABLE OR NOT ? SECTION 2(15) OF THE ACT DEFINES THE WORDS CHARITABLE PURPOSE AND THE WORD INCLUDE S RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF, AND THE ADVANCEMENT OF ANY OTHER OB JECT OF GENERAL PUBLIC UTILITY. AS THE ACTIVITIES CARRIED OUT BY THE TRUST FALL WITHIN THE PARAMETERS OF SEC 2(15), OF THE ACT, CIT WAS NOT JUSTIFIED IN REFUSING REGISTRATION TO THE ASSESSEE. 6.2 WE ARE AWARE THAT SECTION 11(4A) PROVIDES THAT THE EXEMPTION UNDER SECTION 11 IS NOT AVAILABLE IN RELATION TO ANY INCOME OF A TRUST OR AN INSTITUTION BEING PROFIT AND GAINS OF BUSINESS UNLESS THE BUSINESS IS INCIDENTAL TO THE ATTAINMENT OF THE OBJECT OF THE TRUST. HOWEVER, THIS EXERCISE WHETHER THE ASSESSEE HAS INCOME FROM BUSINESS OR NOT AND IF THERE IS BUSINESS INCOME WHETHER IT IS INCID ENTAL TO THE ATTAINMENT OF THE OBJECT OF THE TRUST OR NOT, IS TO BE CARRIED BY THE AO WHI LE MAKING THE ASSESSMENT OF EACH YEAR. BUT, SO FAR AS THE REGISTRATION OF A TRUST IS CONCERNED, THE CIT HAS TO EXAMINE WHETHER THE OBJECT OF THE ASSESSEE FALLS WITHIN THE DEFINITION OF CHARITABLE PURPOSE UNDER SECTION 2(15). 6.3 WE ARE OF THE OPINION THAT AT THE STAGE OF CONSIDE RING GRANT OF REGISTRATION U/S. 12A TO A CHARITABLE TRUST IN ACCORDANCE WITH PROCED URE LAID DOWN IN S. 12AA, THE CIT IS ONLY TO EXAMINE THE GENUINENESS OF THE OBJECTS O F THE TRUST AND NOT THE APPLICATION OF INCOME FOR CHARITABLE PURPOSES WHICH CAN BE EXAMINED AT THE STAGE WHEN THE TRUST FILES ITS RETURN. AR HAS RIGHTLY EM PHASISED THAT NONE OF THE OBJECTS WAS AGAINST PUBLIC POLICY AND THE MAIN ACTIVITY OF THE TRUST WAS TO PROVIDE EDUCATION TO STUDENTS OF ARCHITECTURE AS PER THE COURSE APPRO VED BY THE APPROPRIATE AUTHORITIES AND THE ADMISSION POLICY, THE FEE STRUCTURE ENDORSE D BY THE GOVERNMENT OF INDIA. THE OBJECTS, THEREFORE, CANNOT BE SAID TO BE THE OBJECT S, WHICH RUN AGAINST PUBLIC POLICY OR DO NOT FALL WITHIN THE CATEGORY OF ACTIVITIES, WHIC H ARE FOR CHARITABLE PURPOSES. EDUCATION IN ITSELF IS A CHARITABLE PURPOSE AND ACT IVITIES RELATED THERETO, CANNOT, IN ANY MANNER, BE DESCRIBED AS A NON-CHARITABLE PURPOSE OR MUCH LESS A NON-EDUCATIONAL ACTIVITY. IT HAS ALSO NOT BEEN BROUGHT ON RECORD T HAT THE FEES COLLECTED BY THE ASSESSEE WAS FOR ANY OTHER OBJECT-EXCEPT THAT MENTIONED IN T HE OBJECTS OF THAT SOCIETY. 6.4 SEC. 12AA DOES NOT SPEAK ANYWHERE THAT THE CIT, WH ILE CONSIDERING THE APPLICATION FOR REGISTRATION, SHALL ALSO SEE THAT T HE INCOME DERIVED BY THE TRUST OR THE INSTITUTION IS EITHER NOT BEING SPENT FOR CHARITABL E PURPOSE OR SUCH INSTITUTION IS EARNING PROFITS. IN THESE CIRCUMSTANCES, CIT WAS NOT JUSTI FIED IN REFUSING REGISTRATION UNDER SEC.12AA TO ASSESSEE. HIS OBSERVATION WITH REGARD T O ALLEGED ACCOUNTING IRREGULARITIES ARE NOT RELEVANT FOR DECIDING THE ISSUE OF REGISTRA TION. RECENTLY, THE HON'BLE SUPREME COURT IN THE CASE OF AMERICAN HOTEL & LODGING ASSOC IATION EDUCATIONAL INSTITUTE (301 ITR 86) HAS OBSERVED AS UNDER : 'ON THE GRANT OF APPROVAL, SS. 11 AND 13 DID NOT AP PLY. ONCE AN APPLICANT INSTITUTION CAME WITHIN THE PHRASE 'EXISTS SOLELY FOR EDUCATION AL PURPOSE AND NOT FOR PROFIT' NO OTHER CONDITION LIKE APPLICATION OF INCOME WAS REQU IRED TO BE COMPLIED WITH. THE PRESCRIBED AUTHORITY WAS ONLY REQUIRED TO EXAMINE T HE NATURE, ACTIVITIES AND GENUINENESS OF THE INSTITUTION. THE MERE EXISTENCE OF PROFIT/SURPLUS DID NOT DISQUALIFY THE INSTITUTION.' ITA NO. 128/NAG/2011 SWARGIYA JAGANNATH JATTEWAR SHIKSHAN SANSTHA 5 7. WE HAVE PERUSED THE TRUST DEED OF THE ASSESSEE-TRUS T. IN OUR OPINION, NATURE AND ACTIVITIES OF THE TRUST PROVE THAT IT IS AN INS TITUTION COVERED BY THE PROVISIONS OF SEC. 2(15) OF THE ACT. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS AL LOWED AND CIT-III, NAGPUR IS DIRECTED TO GRANT REGISTRATION U/S. 12A OF THE ACT TO THE ASSESSEE-TRUST. ORDER PRONOUNCED BY E-BENCH AT MUMBAI ON THIS 31 ST DAY OF DECEMBER, 2012. )* *,- . '( $%& 31 1' *,2012 % . SD/- SD/- ( . . / R.K. GUPTA ) ( / RAJENDRA ) '6 / JUDICIAL MEMBER # '6 / ACCOUNTANT MEMBER )* MUMBAI, 1' DATE: 31 ST DECEMBER, 2012 TNMM COPY TO: 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR, ITAT, NAGPUR 6. GUARD FILE 7! ! //TRUE COPY// BY ORDER, ASST. REGISTRAR, ITAT