1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L. KARWA, HONBLE VICE PRESIDENT AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO.310/CHD/2015 ASSESSMENT YEAR : UNDER SECTION: 12AA GRAMIN SHIKSHA VIKAS SAMITI VS. CIT (EXEMPTION). HARYANA GITA NIKETAN PARISAR, CHANDIGARH KURUKSHETRA PAN NO. AABTG0695E (APPELLANT) (RESPONDENT) APPELLANT BY : SH. K. R. CHHABRA RESPONDENT BY : SH. MANOJ MISHRA DATE OF HEARING : 17/12/2015 DATE OF PRONOUNCEMENT :04/03/2016 ORDER PER ANNAPURNA MEHROTRA A.M. PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER DATED 16.02.2015 PASSED BY LD. CIT (EXEMPTIONS ) CHANDIGA RH U/S 12AA IN WHICH THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. ORDER PASSED BY CIT(EXEMPTIONS) IS ILLEGAL, ARBITRA RY AND BAD IN LAW. 2. ON FACT AND IN CIRCUMSTANCES OF THE CASE LD. CIT (E XEMPTIONS) WAS NOT JUSTIFIED IN NOT GRANTING THE REGISTRATION U/S 12AA OF THE I.T. ACT. 2. FACTS AS EMERGING IN THE PRESENT CASE ARE THAT T HE ASSESSEE APPLIED FOR REGISTRATION U/S 12AA WHICH WAS REJECTED BY LD. CIT (EXEMPTION) ON THE GROUND THAT THE DOMINANT OBJECT OF THE ASSESSEE SOCIETY IS PROFIT MAKING AT THE EXPENSE OF EDUCATION AND THERE IS NO ELEMENT OF CHARITY. AC CORDING TO LD. CIT(EXEMPTIONS), ASSESSEE SOCIETY HAD NOT COMPLIED WITH THE PROVISIONS OF SECTION 2(15) OF THE INCOME TAX ACT, 1961, IN AS MU CH AS IT HAD NEITHER APPLIED 85% OF ITS INCOME TO CHARITABLE OR RELIGIOUS PURPOS ES NOR IT HAD FURNISHED REQUISITE 2 FORM DECLARING IN WRITING BEFORE THE DUE DATE OF FU RNISHING OF RETURN. LD. CIT(E) HELD THAT THE ASSESSEE SOCIETY HAD INCURRED EXPENDI TURE PRIMARILY TOWARDS PUBLICATION SALES AND HAD INCURRED NO EXPENDITURE O N CHARITABLE ACTIVITIES COVERED U/S 2(15) OF THE ACT. LD. CIT (E) RELIED UP ON THE DECISION OF UTTARAKHAND HIGH COURT IN THE CASE OF CIT VS. QUEENS EDUCATIONA L SOCIETY 177 TAXMAN 326 FOR THE PROPOSITION THAT WHERE A SOCIETY OR BODY IS MAK ING SYSTEMATIC PROFIT, EVEN THOUGH THAT PROFIT IS UTILIZED ONLY FOR CHARITABLE PURPOSE, YET IT CANNOT BE SAID THAT IT COULD CLAIM EXEMPTION. LD. CIT (EXEMPTIONS) ALSO REFERRED TO THE AOS REPORT DATED 05.02.2015 WHICH STATED THAT THE ASSES SEE SOCIETY DID NOT HAVE ANY FIXED ASSETS EXCEPT MOBILE PHONES. THEREFORE, FOR A LL THESE REASONS LD. CIT(E) REJECTED THE APPLICATION SEEKING THE REGISTRATION 3. BEFORE US TO LD. AR ARGUED THAT LD. CIT COULD NO T HAVE REFUSED REGISTRATION FOR THE REASONS STATED. LD. AR ARGUED THAT THE LD. CIT HAD TO ONLY CONSIDER WHETHER THE OBJECT AND THE ACTIVITIES OF THE ASSESS EE TRUST WERE GENUINE OR NOT. LD. AR STATED THAT AS PER SECTION 12AA AND THE INTE RPRETATION OF THE SAME BY VARIOUS COURTS, LD. CIT COULD NOT REFUSE REGISTRATI ON FOR ANY REASONS OTHER THAN THAT STATED IN SECTION 12AA. LD. AR PLACED RELIANCE ON THE DECISION OF THE CHANDIGARH BENCH OF THE ITAT IN BHARTIYA JAN SHIKSH A SEWA NAYAS V. CIT IN ITA NO. 904/CHD/2009 DT. 30.11.2009 TO STRENGTHEN HIS A RGUMENT. LD. AR FURTHER STATED THAT NO ADVERSE OBSERVATIONS HAVE BEEN MADE BY THE LD. CIT REGARDING THE OBJECTS OF THE TRUST. LD. AR FURTHER POINTED OU T THAT THE DECISION OF THE UTTRAKHAND HIGH COURT IN THE CASE OF QUEENS EDUCATI ONAL SOCIETY (SUPRA) HAD BEEN REVERSED BY THE SUPREME COURT VIDE ITS ORDER D ATED 16.03.2015. THEREFORE LD. AR PLEADED THAT REGISTRATION UNDER SECTION 12A COULD NOT BE REFUSED TO THE TRUST. FURTHER LD. AR STATED THAT EXAMINATION OF T HE FULFILLMENT OF THE CONDITION OF SECTION 11 WAS THE PREROGATIVE OF THE A.O. TO CHECK DURING ASSESSMENT PROCEEDINGS AND COULD NOT BE A CONSIDERATION BY THE CIT WHILE GRANTING 3 REGISTRATION U/S 12A. THUS THE LD. AR STATED THAT T HE LD. CIT HAD ERRED IN NOT GRANTING REGISTRATION TO THE ASSESSEE TRUST. 4. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER O F LD. CIT AND STATED THAT SINCE NO ACTIVITIES IN PURSUANCE TO THE STATED OBJE CTS OF THE ASSESSEE TRUST HAD BEEN CARRIED OUT AND FURTHER SINCE THE ASSESSEE HAD FAILED TO COMPLY WITH THE CONDITION REGARDING APPLICATION OF INCOME TO THE EX TENT OF 85% OR ACCUMULATION OF THE SAME AS PER SECTION 11(2), AND SINCE DOMINAN T OBJECT OF THE ASSESSEE TRUST WAS PROFIT MAKING , THE REGISTRATION U/S 12A HAD BEEN RIGHTLY REFUSED BY THE LD. CIT. 5. WE HAVE HEAD THE RIVAL SUBMISSIONS AND PERUSED T HE ORDER OF THE AUTHORITIES BELOW, AS ALSO THE DOCUMENTS PLACED BEF ORE US. 6. IN THE INSTANT CASE, THE ISSUE BEFORE US IS WHET HER LD. CIT(E) COULD HAVE REFUSED GRANT OF REGISTRATION U/S 12AA FOR THE FOLL OWING REASONS:- 1. NON COMPLIANCE WITH PROVISIONS OF SECTION 11(2) OF THE INCOME TAX ACT, 1961 2. NOT CARRYING OUT ANY CHARITABLE ACTIVITY. 3. MAKING SYSTEMATIC PROFIT 7. A BARE PERUSAL OF THE PROVISIONS OF SECTION 12AA REVEALS THAT THE SCOPE OF POWERS OF THE CIT WHILE GRANTING REGISTRATION IS LI MITED TO BEING SATISFIED ABOUT THE GENUINENESS OF THE OBJECTS OF THE TRUST / SOCIE TY AND GENUINENESS OF THE ACTIVITIES OF THE TRUST. THE PURPOSE OF GRANTING RE GISTRATION IS TO ENSURE THAT THE OBJECTS OF THE TRUST ARE CHARITABLE AND THE ACTIVIT IES BEING CARRIED OUT BY IT ARE GENUINE AND IN CONSONANCE WITH ITS STATED CHARITABL E OBJECT SO AS TO ENABLE AN ASSESSEE SOCIETY TO CLAIM EXEMPTION OF INCOME U/S 1 1 OF THE ACT . ONCE REGISTRATION U/S 12A HAS BEEN GRANTED, IT IS CERTIF IED THAT THE OBJECTS OF THE ASSESSEE TRUST ARE CHARITABLE IN NATURE, THE ACTIVI TIES BEING CARRIED OUT BY IT ARE GENUINE, IN CONSONANCE WITH ITS STATED CHARITABLE O BJECTS AND THUS THE ASSESSEE 4 IS ENTITLED TO CLAIM EXEMPTION U/S 11 OF THE ACT. T HE COMPLIANCE WITH THE PROVISION OF SECTION 11, 12 & 13 ARE MATTERS TO BE EXAMINED THEREAFTER DURING ASSESSMENT PROCEEDINGS. THE HONBLE ALLAHABAD HIGH COURT IN CASE OF COMMISSIONER OF INCOME TAX VS. RED ROSE SCHOOL (200 7) 212 CTR(ALL) 394 HAS EXHAUSTIVELY DEALT WITH THE SCOPE OF SECTION 12AA, REAFFIRMING THE ABOVE VIEW AND HAS HELD AS FOLLOWS:- SEC. 12A PRESCRIBED CONDITIONS FOR REGISTRATION OF TRUSTS AND OBLIGATES THE TRUST OR THE INSTITUTION TO SEEK REGISTRATION UNDER S. 12AA, IF SUCH TRUST OR INSTITUTION INTENDS TO HAVE THE BENEFIT OF THE PROVISIONS OF S. 11 AND S. 12. THESE PROVISIONS THUS MAKE IT CLEAR THAT IF THE TRUST OR THE INSTITUTION IS NOT R EGISTERED UNDER S. 12AA, IT WOULD NOT BE ABLE TO CLAIM ANY EXEMPTION OR EXCLUSION OF ITS INCOME FROM THE TOTAL INCOME OF THE PREVIOUS YEAR, EVEN IF SUCH INCOME IS OTHERW ISE LIABLE TO BE EXCLUDED UNDER ANY OF THE CLAUSES OF S. 11 OR S. 12. THUS, IN A CA SE WHERE REGISTRATION IS REFUSED, THE TRUST OR THE INSTITUTION WOULD NOT BE ALLOWED TO CL AIM ANY SUCH EXEMPTION OR EXCLUSION OF ITS INCOME FROM THE TOTAL INCOME OF TH E PREVIOUS YEAR. A READING OF PROVISIONS OF SUB-CLS. (A) AND (B) OF S. 12AA MAKES IT CLEAR THAT THE CIT HAS TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE ACTIVITIES OF THE TRUST OR INSTITUTION AND ALSO ABOUT THE OBJECTS OF THE TRUST OR THE INSTITUTION. ON BEING SATISFIED ABOUT THE GENUINENESS OF THE ACTIVITIES O F THE TRUST OR THE INSTITUTION AND ALSO ABOUT ITS OBJECTS, THE CIT WOULD EITHER GRANT THE CERTIFICATE OR WOULD REJECT THE PRAYER. IN ORDER TO SATISFY HIMSELF ABOUT THE G ENUINENESS OF THE ACTIVITIES OF THE TRUST OR THE INSTITUTION, HE CAN CALL FOR SUCH DOCU MENTS OR INFORMATION FROM THE TRUST OR THE INSTITUTION, AS HE THINKS NECESSARY AND HE I S ALSO EMPOWERED TO MAKE SUCH ENQUIRIES AS HE MAY DEEM NECESSARY IN THIS BEHALF. THE OBJECTS OF THE TRUST CAN BE HAD FROM THE BYE-LAWS OR THE DEED OF TRUST, AS THE CASE MAY BE AND UNLESS, OF COURSE, THE OBJECTS OF THE TRUST APPARENTLY MAKE OU T THAT THEY WERE NOT IN CONSONANCE WITH THE PUBLIC POLICY OR THAT THEY WERE NOT THE OBJECTS OF ANY CHARITABLE PURPOSE, REGISTRATION CANNOT BE REFUSED ACCORDINGLY ON THIS GROUND. IN REGARD TO THE GENUINENESS OF THE ACTIVITIES OF THE TRUST OR THE INSTITUTION, WHOSE OBJECTS DO NOT RUN CONTRARY TO PUBLIC POLICY AND AR E, IN FACT, RELATED TO CHARITABLE PURPOSES, THE CIT IS AGAIN EMPOWERED TO MAKE ENQUIR IES AS HE THINKS FIT. IN CASE THE ACTIVITIES ARE NOT GENUINE AND THEY ARE NOT BEI NG CARRIED OUT IN ACCORDANCE WITH THE OBJECTS OF THE TRUST/SOCIETY OR THE INSTIT UTION, OF COURSE, THE REGISTRATION CAN AGAIN BE REFUSED. BUT ON MERE PRESUMPTIONS AND ON SURMISES THAT INCOME DERIVED BY THE TRUST OR THE INSTITUTION IS BEING MI SUSED OR THAT THERE IS SOME APPREHENSION THAT THE SAME WOULD NOT BE USED IN THE PROPER MANNER AND FOR THE PURPOSES RELATING TO ANY CHARITABLE PURPOSE, REJECT ION CANNOT BE MADE. SEC. 12AA, WHICH LAYS DOWN THE PROCEDURE FOR REGISTRATIO N, 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 IS EITHER NOT BEING SPENT FOR CHARITABLE PURPOSE OR SUCH INSTITUTION IS EARNING P ROFIT. THE LANGUAGE USED IN THE SECTION ONLY REQUIRES THAT ACTIVITIES OF THE TRUST OR THE INSTITUTION MUST BE GENUINE, WHICH ACCORDINGLY WOULD MEAN, THEY ARE IN CONSONANC E WITH THE OBJECTS OF THE TRUST/INSTITUTION, AND ARE NOT MERE CAMOUFLAGE BUT ARE REAL, PURE AND SINCERE, NOR AGAINST THE PROPOSED OBJECTS. THE PROFIT EARNING OR MISUSE OF THE INCOME DERIVED BY CHARITABLE INSTITUTION FROM ITS CHARITABLE ACTIV ITIES, MAY BE A GROUND FOR REFUSING EXEMPTION ONLY WITH RESPECT TO THAT PART OF THE INC OME BUT CANNOT BE TAKEN TO BE A SYNONYM TO THE GENUINENESS OF THE ACTIVITIES O F THE TRUST OR THE INSTITUTION. IT IS SIGNIFICANT TO MENTION THAT REGISTRATION UNDER S. 1 2AA DOES NOT NECESSARILY ENTITLE THE ASSESSEE TO GET THE INCOME EXCLUDED FROM THE IN COME OF THE PREVIOUS YEAR FOR THE PURPOSE OF DETERMINATION OF TAX LIABILITY B UT IT ONLY ENTITLES THE ASSESSEE TO CLAIM SUCH EXEMPTION, WHICH OTHERWISE COULD NOT BE CLAIMED IN THE ABSENCE OF REGISTRATION. THE ENQUIRY BY THE CIT SHALL REMAIN R ESTRICTED TO THE EXAMINATION, AS TO WHETHER THE ASSESSEE, WHO HAS MOVED THE APPLICAT ION FOR REGISTRATION UNDER S. 12A, IS ACTUALLY IN THE ACTIVITIES WHICH ARE GENUIN E. GENUINENESS OF THE ACTIVITIES OF THE TRUST OR THE INSTITUTION HAS TO BE SEEN, KEE PING IN MIND THE OBJECTS THEREOF, 5 WHICH NECESSARILY MEANS THAT THE CIT SHALL SATISFY HIMSELF ABOUT THE FACT THAT THE ACTIVITIES ARE GENUINE AND IN CONSONANCE WITH THE O BJECTS OF THE TRUST OR THE INSTITUTION. IN OTHER WORDS, IF ESTABLISHING AND RU NNING A SCHOOL IS THE OBJECT OF THE SOCIETY, AS GIVEN IN ITS BYE-LAWS, IT HAS TO BE SAT ISFIED THAT THE SOCIETY HAS ESTABLISHED THE SCHOOL, WHERE EDUCATION IS BEING IM PARTED AS PER RULES AND THE FACTUM OF ESTABLISHMENT AND RUNNING SCHOOL IS A GEN UINE ACTIVITY. THE ENQUIRY REGARDING GENUINENESS OF THE ACTIVITIES CANNOT BE S TRETCHED BEYOND THIS. SUFFICIENT SAFEGUARDS HAVING BEEN GIVEN IN SS. 11, 12 AND 13 FOR ASSESSING THE INCOME WHICH HAS NOT BEEN APPLIED TO THE PURPOSE OF THE TRUST OR THE INSTITUTION, THE INTENTION OF THE LAW MAKER AND THE SCOPE AND PU RPORT OF THE PROVISION IS APPARENT WHILE CONSIDERING THE QUESTION OF REGISTRA TION. THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SURYA EDUCATIONAL & CHARITABLE TRUST (2013) 355 ITR 280 H AS ALSO HELD THAT THE SCOPE OF POWER OF THE CIT UNDER SECTION 12AA IS LIMITED TO E XAMINING THE GENUINENESS OF THE OBJECTS AND ACTIVITIES OF THE TRUST. THE HONBL E HIGH COURT HELD AS FOLLOWS: AS PER S. 12AA, AN APPLICATION FOR REGISTRATION OF THE TRUST AND INSTITUTION IS REQUIRED TO BE MADE WITHIN ONE YEAR FROM THE DATE O F CREATION OF THE TRUST OR THE ESTABLISHMENT OF SUCH INSTITUTION. THE PROCEDURE FO R REGISTRATION OF THE TRUST OR INSTITUTION IS PRESCRIBED UNDER S. 12AA. IN TERMS O F CL. (A) OF S. 12AA, THE CIT IS TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE ACTIVI TIES OF THE TRUST ON SUCH INQUIRIES AS HE MAY DEEM NECESSARY. SUB-SS. (1A) AND (2) OF S . 12AA, ARE PROCEDURAL IN NATURE, WHEREAS SUB-S. (3) OF S. 12AA, EMPOWERS THE CIT TO CANCEL THE REGISTRATION OF THE TRUST OR INSTITUTION, IF HE IS SATISFIED THA T THE ACTIVITIES OF SUCH TRUST OR INSTITUTION ARE NOT GENUINE OR ARE NOT CARRIED OUT IN ACCORDANC E WITH THE OBJECTS OF THE TRUST OR INSTITUTION. THEREFORE, THE OBJECT OF S. 12AA, I S TO EXAMINE THE GENUINENESS OF THE OBJECTS OF THE TRUST, BUT NOT THE INCOME OF THE TRUST FOR CHARITABLE OR RELIGIOUS PURPOSES. THE STAGE FOR APPLICATION OF INCOME IS YE T TO ARRIVE I.E. WHEN SUCH TRUST OR INSTITUTION FILES ITS RETURN. IN VIEW OF THE ABOVE LEGAL POSITION WE FIND THAT RE FUSING GRANT OF REGISTRATION FOR NOT COMPLYING WITH THE PROVISIONS OF SECTION 11(2) OF THE ACT OR NOT CARRYING OUT ANY CHARITABLE ACTIVITY IS BEYOND THE SCOPE OF POWE RS GRANTED TO THE CIT UNDER SECTION 12AA. FURTHER, WE FIND THAT THE RELIANCE PLACED BY THE LD . CIT ON THE DECISION OF THE UTTARAKHAND HIGH COURT IN QUEENS EDUCATIONAL SOCIET Y FOR THE PROPOSITION THAT WHEN A SOCIETY IS MAKING SYSTEMATIC PROFIT, ITS DOM INANT OBJECT IS NOT CHARITY, IS MISPLACED SINCE THE SAME HAS BEEN REVERSED BY THE A PEX COURT IN CASE OF QUEENS EDUCATIONAL SOCIETY VS. CIT (2015) VIDE ITS ORDER DATED 16.03.2015 REPORTED IN 372 ITR 0699 WHEREIN IT HAS HELD AS FOL LOWS:- 6 11. THUS, THE LAW COMMON TO SECTION 10(23C) (IIIAD) AND (VI) MAY BE SUMMED UP AS FOLLOWS: (1) WHERE AN EDUCATIONAL INSTITUTION CARRIES ON THE ACTIVITY OF EDUCATION PRIMARILY FOR EDUCATING PERSONS, THE FACT THAT IT MAKES A SUR PLUS DOES NOT LEAD TO THE CONCLUSION THAT IT CEASES TO EXIST SOLELY FOR EDUCA TIONAL PURPOSES AND BECOMES AN INSTITUTION FOR THE PURPOSE OF MAKING PROFIT. (2) THE PREDOMINANT OBJECT TEST MUST BE APPLIED T HE PURPOSE OF EDUCATION SHOULD NOT BE SUBMERGED BY A PROFIT MAKING MOTIVE. (3) A DISTINCTION MUST BE DRAWN BETWEEN THE MAKING OF A SURPLUS AND AN INSTITUTION BEING CARRIED ON FOR PROFIT. NO INFER ENCE ARISES THAT MERELY BECAUSE IMPARTING EDUCATION RESULTS IN MAKING A PROFIT, IT BECOMES AN ACTIVITY FOR PROFIT. (4) IF AFTER MEETING EXPENDITURE, A SURPLUS ARISES INCIDENTALLY FROM THE ACTIVITY CARRIED ON BY THE EDUCATIONAL INSTITUTION, IT WILL NOT BE CEASE TO BE ONE EXISTING SOLELY FOR EDUCATIONAL PURPOSES. (5) THE ULTIMATE TEST IS WHETHER ON AN OVERALL VIEW OF THE MATTER IN THE CONCERNED ASSESSMENT YEAR THE OBJECT IS TO MAKE PROFIT AS OPP OSED TO EDUCATING PERSONS. THEREFORE WE HOLD THAT REGISTRATION UNDER SECTION 1 2AA COULD NOT HAVE BEEN DENIED TO THE ASSESSEE FOR THE REASONS THAT IT WAS MAKING PROFITS. 8. IN VIEW OF THE ABOVE WE FIND NO MERIT IN THE ORD ER OF THE CIT REFUSING GRANT OF REGISTRATION UNDER SECTION 12AA TO THE ASSESSEE AND DIRECT THE LD. CIT TO GRANT REGISTRATION TO THE ASSESSEE SOCIETY. 9. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/03/2016. SD/- SD/- (H.L. KARWA) (ANNAPURNA MEHROTRA) VICE PRESIDENT ACCOUNTANT MEMBER DATED :04/03/2016 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR