Sruthilaya Charitable Trust, Cochin V. CIT, Cochin

ITA 219/COCH/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68960 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 28-08-2013
• Assessment Year: misc
• Appeal Filed On: 30-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: MOHAN PULICKAL
• Keywords: Charitable institution; Source of fund
• Section: 12AA; 2

Judgement Text

1 ITA NO. 219/COCH/2012 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO. 219/COCH/2012 SRUTHILAYA CHARITABLE TRUST VS THE C.I.T., KOCHI MUPPATHADAM, KOCHI 683 110 PAN : AALTS0939H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MOHAN PULICKAL RESPONDENT BY : SMT. S VIJAYAPRABHA DATE OF HEARING : 28-08-2013 DATE OF PRONOUNCEMENT : 30-08-2013 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE ADMINISTRATIVE COMMISSIONER DATED 29-06-2012 REJECT ING THE APPLICATION OF THE ASSESSEE FOR REGISTRATION U/ 12AA OF THE ACT. 2. SHRI MOHAN PULICKAL, THE LD.COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE ASSESSEE TRUST WAS ESTABLISHED ON 02-07-2011 AN D APPLIED FOR REGISTRATION U/S 12AA OF THE ACT AS EDUCATIONAL INS TITUTION. ACCORDING TO THE LD.COUNSEL, THE OBJECT OF THE TRUST WAS TO ESTABLIS H, RUN AND MAINTAIN EDUCATIONAL INSTITUTION IN FINE ARTS, MUSIC AND OTH ER ALLIED SECTORS. 2 ITA NO. 219/COCH/2012 ACCORDING TO THE LD.COUNSEL, THE ASSESSEE TRUST WAS THE AUTHORIZED TRAINING CENTRE UNDER BHARAT SEVAK SAMAJ, NATIONAL DEVELOPME NT AGENCY PROMOTED BY GOVERNMENT OF INDIA. REFERRING TO THE IMPUGNED ORDER OF THE COMMISSIONER, MORE PARTICULARLY PARAGRAPH 3, THE LD .COUNSEL SUBMITTED THAT THE COMMISSIONER REJECTED THE CLAIM OF THE ASS ESSEE ON THE GROUND THAT HONORARIUM WAS PAID TO ONE OF THE FINE ARTS I NSTRUCTORS, WHO HAPPENED TO BE ONE OF THE TRUSTEES OF THE TRUST. ACCORDING TO THE LD.COUNSEL, ONLY ONE OF THE TRUSTEES, WHO WAS WORKING AS INSTRUCTOR RECE IVED HONORARIUM. ALL OTHER INSTRUCTORS WERE NOT THE TRUSTEES OF THE TRUS T. THEREFORE, THE OBSERVATION MADE BY THE COMMISSIONER IS FACTUALLY I NCORRECT. EVEN IN RESPECT OF ONE OF THE TRUSTEES, WHO RECEIVED HONORA RIUM FOR TRAINING THE STUDENTS, THE LD.COUNSEL SUBMITTED THAT THE HONORAR IUM WAS PAID AT THE MARKET RATE FOR THE WORK DONE BY THE INSTRUCTOR, TH EREFORE, MERELY BECAUSE HE HAPPENED TO BE A TRUSTEE OF THE TRUST, PROVISION S OF SECTION 13 WOULD NOT BE ATTRACTED. REFERRING TO THE JUDGMENT OF THE PUN JAB & HARYANA HIGH COURT IN CIT VS SURYA EDUCATIONAL & CHARITABLE TRUS T (2013) 355 ITR 280 (P&H), THE LD.COUNSEL SUBMITTED THAT THE INTENTION OF SECTION 12AA IS TO EXAMINE THE GENUINENESS OF THE OBJECTS OF THE TRUST AND NOT THE APPLICATION OF INCOME. THEREFORE, AT THE STAGE OF REGISTRATION , THERE IS NO NECESSITY FOR THE COMMISSIONER TO EXAMINE THE APPLICATION OF INCO ME IN ORDER TO CARRY OUT THE CHARITABLE ACTIVITIES. 3 ITA NO. 219/COCH/2012 3. ON THE CONTRARY, SMT. S VIJAYAPRABHA, THE LD.DR SUBMITTED THAT THE ASSESSEE TRUST WAS PAYING HONORARIUM TO THE TRUSTEE S IN VIOLATION OF SECTION 13(1) OF THE ACT. ACCORDING TO THE LD.DR, TO ASCERTAIN THE GENUINENESS OF THE TRUST, IT IS NECESSARY TO EXAMIN E THE SOURCE OF INCOME AND THE EXPENDITURE. WITHOUT EXAMINING THIS, ACCOR DING TO THE LD.DR, GENUINENESS OF THE TRUST AND ITS OBJECT CANNOT BE V ERIFIED. REFERRING TO THE PROVISIONS OF SECTION 12AA OF THE ACT, ACCORDING TO THE LD.DR, UNLESS AND UNTIL THE COMMISSIONER IS SATISFIED THAT THE OBJECT OF THE TRUST AND ITS ACTIVITIES ARE GENUINE, THE COMMISSIONER CANNOT GRA NT REGISTRATION U/S 12AA OF THE ACT. THEREFORE, ACCORDING TO THE LD.DR , IT MAY NOT BE CORRECT TO SAY THAT IT IS NOT NECESSARY TO EXAMINE THE APPL ICATION OF INCOME AT THE STAGE OF REGISTRATION. THE LD.DR FURTHER SUBMITTED THAT THE ASSESSEE TRUST IS A TRAINING CENTRE FOR TRAINING THE STUDENTS. A MERE TRAINING CENTRE CANNOT BE CONSIDERED AS AN EDUCATIONAL INSTITUTION WITHIN THE MEANING OF SECTION 2(15) OF THE ACT. THEREFORE, ACCORDING TO THE LD.D R, THE ASSESSEE IS NOT ENGAGED ITSELF IN FORMAL SCHOOLING. SO, IT CANNOT BE CONSIDERED AS AN EDUCATIONAL INSTITUTION FOR THE PURPOSE OF GRANTING REGISTRATION U/S 12AA OF THE ACT. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE COMM ISSIONER OF INCOME- TAX FOUND THAT HONORARIUM WAS PAID TO THE TRUSTEES, WHO HAPPENED TO BE 4 ITA NO. 219/COCH/2012 ONE OF THE INSTRUCTORS. ACCORDING TO THE LD.COUNSE L FOR THE ASSESSEE, ONLY ONE OF THE TRUSTEES WAS WORKING AS INSTRUCTOR AND A LL OTHER INSTRUCTORS WERE NOT TRUSTEES. EVEN THE TRUSTEE, WHO WAS FUNCTIONIN G AS INSTRUCTOR WAS PAID HONORARIUM AT THE MARKET RATE, THEREFORE, THERE IS NO VIOLATION OF SECTION 13(1) OF THE ACT. THIS FACT IS NOT COMING OUT OF T HE ORDER OF THE ADMINISTRATIVE COMMISSIONER. THEREFORE, THIS TRIBU NAL IS OF THE CONSIDERED OPINION THAT THIS NEEDS TO BE VERIFIED AS TO WHETHE R ALL THE TRUSTEES ARE WORKING AS INSTRUCTORS OR ONLY ONE INSTRUCTOR IS WO RKING AS INSTRUCTOR. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT AT THE T IME OF REGISTRATION, IT IS NOT NECESSARY TO FIND OUT THE VIOLATION OF SECTION 13 OF THE ACT. WE FIND THAT THE KERALA HIGH COURT IN THE CASE OF NORKA ROOTS (2 010) 320 ITR 733 (KER) HAD AN OCCASION TO EXAMINE AN IDENTICAL ISSUE. THE KERALA HIGH COURT FOUND THAT THE SOURCE OF RECEIPT OF DONATION / INCO ME AND THE EXPENDITURE NEEDS TO BE EXAMINED AT THE TIME OF REGISTRATION. IN FACT, THE KERALA HIGH COURT OBSERVED AS FOLLOWS, AT PAGES 735 & 736: . HOWEVER, WE FIND THAT BEFORE DECIDING THE ENTITLEMENT FOR REGISTRATION AS CHARITABLE INSTITUT ION, THE COMMISSIONER SHOULD VERIFY THE SOURCE OF FUNDS AND UTILISATION OF THE SAME. EVEN THOUGH THIS IS AN EX ERCISE TO BE DONE EVERY YEAR IN THE COURSE OF ASSESSMENT, AFT ER GRANTING REGISTRATION, WE FEEL THE OBJECT OF THE IN STITUTION SHOULD BE ASCERTAINED WITH REFERENCE TO THE SOURCE OF 5 ITA NO. 219/COCH/2012 FUNDS AND THE APPLICATION OF THE SAME. IF UNDER CO VER OF PROMOTING INTERESTS OF NON-RESIDENT KERALITES, THE APPELLANT IS ENGAGED IN COLLECTION OF CHARGES FROM THEM AND MAKING A PROFIT, THEN CERTAINLY IT IS A PROFITA BLE ORGANIZATION, NO MATTER THAT NO DIVIDEND IS DECLARE D BY VIRTUE OF REGISTRATION GRANTED UNDER SECTION 25 OF THE COMPANIES ACT. IF FUNDS ARE EXPENDED FOR UNNECESSA RY TRAVEL AND EXTRAVAGANZA, THEN THE SAME WILL REFLECT UPON THE TRUE PURPOSE OF THE ORGANIZATION. THE QUESTION OF LIMITATION RAISED BY THE APPELLANT IS NEITHER TENAB LE NOR WOULD ADVANCE THE CASE OF THE APPELLANT BECAUSE IN THE FIRST ROUND, THE TRIBUNAL DID NOT ACCEPT THE LIMITA TION, BUT SET ASIDE THE ORDER AND REMANDED THE MATTER FOR FRE SH CONSIDERATION. SECONDLY BY GETTING A DECLARATION T HAT THE MATTER IS TIME BARRED, THE APPELLANT WILL NOT GET R EGISTRATION MORE SO BECAUSE THE APPELLANTS APPLICATION IS NOT AN APPLICATION FOR RENEWAL AND AN APPLICATION FOR FRES H REGISTRATION. WE THEREFORE REJECT THIS CONTENTION A LSO. SINCE THESE ARE MATTERS NOT CONSIDERED BY THE COMMISSIONER OR THE TRIBUNAL, AND SINCE AFTER REGIS TRATION THE APPELLANT WAS ENGAGED IN SIX YEARS OF OPERATION , WE DISPOSE OF THE APPEAL BY SETTING ASIDE THE ORDERS O F THE TRIBUNAL AND THAT OF THE COMMISSIONER AND BY RESTOR ING THE MATTER TO THE COMMISSIONER FOR FRESH DECISION, BUT THE COMMISSIONER IS DIRECTED TO CONSIDER THE ORIGINAL 6 ITA NO. 219/COCH/2012 APPLICATION AFTER CALLING FOR PARTICULARS, PARTICUL ARLY STATEMENT OF ACCOUNTS, AS STATED ABOVE. 5. IN VIEW OF THIS JUDGMENT OF THE JURISDICTIONAL H IGH COURT, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE JUDGMENT OF T HE PUNJAB & HARYANA HIGH COURT IN THE CASE OF SURYA EDUCATIONAL CHARITA BLE TRUST (SUPRA) MAY NOT BE APPLICABLE TO THE FACTS OF THE CASE. 6. NOW COMING TO THE ACTIVITIES OF THE ASSESSEE, TH E ASSESSEE CLAIMS THAT THEY ARE RUNNING EDUCATIONAL INSTITUTION IN FI NE ARTS WHICH IS AUTHORIZED TRAINING CENTRE OF BHARAT SEVAK SAMAJ NATIONAL DEVE LOPMENT AGENCY PROMOTED BY GOVERNMENT OF INDIA. THE LD.COUNSEL FO R THE ASSESSEE SUBMITTED THAT AFTER THE TRAINING THE STUDENTS WILL HAVE TO SIT FOR EXAMINATION AND THE GOVERNMENT OF INDIA WILL AWARD A DIPLOMA. THE APEX COURT IN THE CASE OF SOLE TRUSTEE, LOKA SHIKSHANA TRUST VS COMMISSIONER OF INCOME-TAX (1975) 101 ITR 234 (SC) HAD AN OCCASION TO EXAMINE THIS ISSUE AND FOUND THAT EDUCATION SHALL BE FORMAL SCHO OLING AND IT IS NOT ACQUIRING OF KNOWLEDGE BY ANY MEANS. IN FACT, THE APEX COURT HAS OBSERVED AS FOLLOWS: THE SENSE IN WHICH THE WORD EDUCATION HAS BEEN USED IN SECTION 2(15) IS THE SYSTEMATIC INSTRUCTION , 7 ITA NO. 219/COCH/2012 SCHOOLING OR TRAINING GIVEN TO THE YOUNG IS PREPARA TION FOR THE WORK OF LIFE. IT ALSO CONNOTES THE WHOLE COURS E OF SCHOLASTIC INSTRUCTION WHICH A PERSON HAS RECEIVED. THE WORD EDUCATION HAS NOT BEEN USED IN THAT WIDE AND EXTENDED SENSE, ACCORDING TO WHICH EVERY ACQUISITIO N OF FURTHER KNOWLEDGE CONSTITUTES EDUCATION. ACCORDING TO THIS WIDE AND EXTENDED SENSE, TRAVELLING IS EDUCATI ON, BECAUSE AS A TRAVELLING YOU ACQUIRE FRESH KNOWLEDGE . LIKEWISE, IF YOU READ NEWSPAPERS AND MAGAZINES, SEE PICTURES, VISIT ART GALLERIES, MUSEUMS AND ZOOS, YO U THEREBY ADD TO YOUR KNOWLEDGE. AGAIN, WHEN YOU GRO W UP AND HAVE DEALINGS WITH OTHER PEOPLE, SOME OF WHO M ARE NOT STRAIGHT, YOU LEARN BY EXPERIENCE AND THUS ADD TO YOUR KNOWLEDGE OF THE WAYS OF THE WORLD. IF YOU AR E NOT CAREFUL, YOUR WALLET IS LIABLE TO BE STOLEN OR YOU ARE LIABLE TO BE CHEATED BY SOME UNSCRUPULOUS PERSON. THE THI EF WHO REMOVES YOUR WALLET AND THE SWINDLER WHO CHEATS YOU TEACH YOU A LESSON AND IN THE PROCESS MAKE YOU WISER THOUGH POORER. IF YOU VISIT A NIGHT CLUB, YO U GET ACQUAINTED WITH AND ADD TO YOUR KNOWLEDGE ABOUT SOM E OF THE NOT MUCH REVEALED REALITIES AND MYSTERIES OF LIFE. ALL THIS IN A WAY IS EDUCATION IN THE GREAT SCHOOL OF LIFE. BUT THAT IS NOT THE SENSE IN WHICH THE WORD EDUCAT ION IS USED IN CLAUSE (15) OF SECTION 2. WHAT EDUCATION CONNOTES IN THAT CLAUSE IS THE PROCESS OF TRAINING AND 8 ITA NO. 219/COCH/2012 DEVELOPING THE KNOWLEDGE, SKILL, MIND AND CHARACTER OF STUDENTS BY NORMAL SCHOOLING. 7. IN THIS CASE THE ASSESSEE CLAIMS THAT THE ASSESS EE WAS AUTHORIZED TRAINING CENTRE AND AFTER COMPLETION OF TRAINING TH E GOVERNMENT OF INDIA WOULD AWARD DIPLOMA TO THE STUDENTS. HOWEVER, THIS IS A NEW FACT PLACED BEFORE THE TRIBUNAL AND THE COMMISSIONER OF INCOME- TAX HAD NO OCCASION TO EXAMINE THE SAME. THEREFORE, THIS TRIBUNAL IS O F THE CONSIDERED OPINION THAT THE COMMISSIONER SHALL RECONSIDER THE ISSUE AF RESH. IN THE LIGHT OF THE JUDGMENT OF THE APEX COURT IN THE CASE OF SOLE TRUSTEE, LOKA SHIKSHANA TRUST (SUPRA). ACCORDINGLY THE ORDER OF LOWER AUTH ORITY IS SET ASIDE AND THE ISSUE OF REGISTRATION IS REMITTED TO THE FI LE OF THE COMMISSIONER. THE COMMISSIONER SHALL RECONSIDER TH E ISSUE AFRESH IN THE LIGHT OF THE SUPREME COURT JUDGMENT IN THE C ASE OF SOLE TRUSTEE, LOKA SHIKSHANA TRUST (SUPRA) AND THEREAFTE R DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 9 ITA NO. 219/COCH/2012 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH AUGUST, 2013. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 30 TH AUGUST, 2013 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME-TAX 4. THE COMMISSIONER OF INCOME-TAX(A) 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH