Perfect Education Charitable Trust, Jetpur V. The Commissioner of Income Tax, Rajkot-I, RAJKOT-GUJARAT

ITA 5/RJT/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76433 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 09-12-2013
• Assessment Year: misc
• Appeal Filed On: 04-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M L MEENA
• Assessee Lawyers: KALPESH DOSHI
• Keywords: Charitable institution; Cancellation of registration
• Section: 12A; 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBULAL, SMC BENCH, RAJKOT BEFORE SHRI T. K. SHARMA, JM ITA NO. 05/RJT/2013 PERFECT EDUCATION CHARITABLE TRUST NR. NAVJIVAN SCHOOL, SARDHARPUR ROAD, PATEL CHOWK, JETPUR RAJKOT PAN : AABTP 9791 Q ( / APPELLANT) THE COMMISSIONER OF INCOME-TAX-I RAJKOT / RESPONDENT / ASSESSEE BY SHRI KALPESH DOSHI, CA / REVENUE BY SHRI M L MEENA, CIT-DR / DATE OF HEARING 09.12.2013 !'# / DATE OF PRONOUNCEMENT 31.01.2014 / ORDER THIS APPEAL BY THE ASSESSEE-TRUST IS AGAINST THE OR DER DATED 29.11.2012 OF COMMISSIONER OF INCOME-TAX, RAJKOT-I, RAJKOT REJECT ING THE APPLICATION FOR REGISTRATION U/S 12A OF THE INCOME-TAX ACT, 1961. 2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE-TRUST NAMELY PERFECT EDUCATION CHARITABLE TRUST MADE AN APPLICATION FOR REGISTRATI ON U/S 12A OF THE INCOME-TAX ACT, 1961 ON 19.07.2012 IN FORM NO.10A. THIS APPLICATIO N WAS ACCOMPANIED WITH THE XEROX COPY OF THE TRUST DEED AND REGISTRATION CERTI FICATE UNDER THE BPT ACT DATED 01.11.2010. IN RESPECT OF CHARITABLE ACTIVITIES, T HE CHAIRMAN OF THE ASSESSEE-TRUST STATED THAT THEY ARE RUNNING A SCHOOL WHICH IS DULY RECOGNIZED BY THE AUTHORITY TO CONDUCT CLASSES FROM K.G. TO 8 TH STANDARD. ON BEING ASKED TO EXPLAIN WHETHER THEY ARE PROVIDING EDUCATION WITHOUT FEE OR AT CONCESSIO N RATES TO ANY NEEDY STUDENTS, THE CHAIRMAN OF THE ASSESSEE-TRUST ADMITTED THAT NO SUC H FACILITY IS BEING PROVIDED BY THE TRUST. IN THE IMPUGNED ORDER LD. CIT OBSERVED THAT TWO TRUSTEES AMONGST THE THREE TRUSTEES NAMELY THE CHAIRMAN SHRI JABIR LULANIA AND SHRI ALPESH DAMJIBHAI RUPAPARA WERE ENGAGED IN RUNNING PRIVATE TUITION CL ASSES AND NOW THEY STARTED THE SCHOOL, THROUGH THIS TRUST. IN PARAGRAPH NO.4 OF TH E IMPUGNED ORDER, LD. CIT OBSERVED THAT COPY OF THE AUDIT REPORTS NOT SIGNED BY ANY AU DITOR, NO CASH BOOK AND LEDGER FOR THE CURRENT YEAR AND BANK STATEMENT FOR PROCEEDING YEAR WERE PRODUCED. FROM THE COPY OF THE VOUCHERS PRODUCED, IT WAS FOUND THAT NO CASH BOOK FOLIO NUMBER WAS 2 05-RJT-2013 - PERFECT EDUCATION CHARITABLE TRUST (SMC) MENTIONED OVER THE SAME. THUS, IT IS CLEAR THAT THE TRUST IS NOT MAINTAINING REGULAR BOOKS OF ACCOUNTS. 3. AFTER NARRATED THE ABOVE SAID FACTS, THE LD. CIT REJECTED THE APPLICATION OF THE ASSESSEE-TRUST FOR REGISTRATION U/S 12A OF THE INCO ME-TAX ACT FOR THE DETAILED REASON GIVEN IN PARAGRAPH NOS. 5 TO 8 WHICH READ AS UNDER: - 5. IN VIEW OF THE ABOVE FACTS, IT IS FOUND THAT TH E TRUST IS PROVIDING EDUCATION AT NORMAL PREVAILING FEE. NO INSTANCE OF FREE EDUCATION OR EDUCATION AT LOWER FEE FOR NEEDY STUDENTS OR GRANTING OF SCHO LARSHIP IS BROUGHT ON RECORD BY THE TRUST. FURTHER EXCESS OF INCOME OVER EXPENDI TURE IN FY 2011-12 ON EDUCATION MAKES IT CLEAR THAT ACTIVITY IS BEING RUN ON COMMERCIAL BASIS. MOREOVER NON PRODUCTION OF CASH BOOK, LEDGER, BANK STATEMENT, THOUGH CALLED FOR, LEADS TO ONLY CONCLUSION THAT THE TRUST IS NOT MAINTAINING BOOKS OF ACCOUNT REGULARLY. 6. THE HONBLE SUPREME COURT HAD, IN THE CASE OF MC D V/S. CHILDREN BOOK TRUST IN CIVIL APPEAL NO.2805 OF 1980 HAS LAID DOWN CERTAIN TEST FOR FINDING OF CHARITABLE ACTIVITY IN EDUCATION. THE AP EX COURT HOLDS THAT IF EDUCATION IS RUN ON COMMERCIAL LINES, MERELY BECAUS E IT IS A SCHOOL, IT DOES NOT MEAN IT WOULD BE TERMED AS CHARITABLE ACTIVITY. 7. HERE IN THIS CASE, IT IS FOUND THAT THE TRUST IS PROVIDING EDUCATION AT NORMAL PREVAILING FEE. NO INSTANCE OF FREE EDUCATIO N OR EDUCATION AT LOWER FEE FOR NEEDY STUDENTS OR GRANTING OF SCHOLARSHIP IS BR OUGHT ON RECORD BY THE TRUST. KEEPING IN VIEW THE RATIO DECIDED BY THE SUPREME CO URT, IT IS AN UNAMBIGUOUS FACT THAT THE TRUST IS NOT CARRYING OUT ANY CHARITA BLE ACTIVITY. FURTHER MORE, IT IS ALSO NOTICED THAT THE TRUST IS NOT MAINTAINING ITS BOOKS OF ACCOUNTS REGULARLY. 8. AS PER THE PROVISIONS OF THE I.T. ACT, 1961, THE COMMISSIONER SHALL SATISFY HIMSELF WITH REGARD TO: I) OBJECTS OF THE TRUST/INSTITUTION AND II) GENUINENESS OF ITS ACTIVITIES IN VIEW OF THE ABOVE DISCUSSION, IT TRANSPIRES THAT THE TRUST IS NOT CARRIED OUT ANY CHARITABLE ACTIVITY AS WELL AS GENUINENESS OF T HE TRUST AND ITS ACTIVITIES ARE NOT VERIFIABLE IN ABSENCE OF THE PROPER ACCOUNTS AN D FILING OF RETURN. THUS, THE TRUST IS NOT FULFILLING THE CONDITIONS LAID DOWN FO R REGISTRATION AS LAID DOWN U/S 12AA OF THE I.T. ACT, 1961 AND RULE 17A OF THE I.T. RULES, 1962. I THEREFORE, REJECT THE ASSESSEES APPLICATION FOR REGISTRATION U/S 12A OF THE IT ACT. AGGRIEVED WITH THE ORDER OF LD COMMISSIONER OF INC OME-TAX, RAJKOT-I, THE ASSESSEE-TRUST IS NOW IN APPEAL BEFORE THIS TRIBUNA L. 4. AT THE TIME OF HEARING, ON BEHALF OF THE ASSESSE E-TRUST SHRI KALPESH DOSHI, CA APPEARED AND FILED ENGLISH TRANSLATION OF IMPORTANT CLAUSES OF TRUST DEED, WHICH INTER- ALIA INCLUDED OBJECT CLAUSE, DISSOLUTION CLAUSE ETC . HE POINTED OUT THAT THE MAIN OBJECTS OF THE ASSESSEE-TRUST ARE TO ESTABLISH, RUN AND MANAGE EDUCATIONAL INSTITUTION SUCH AS PLAYHOUSE, PRE-PRIMARY (NURSERY, LOWER KG, HIGHER KG), SCHOOL, PRIMARY, 3 05-RJT-2013 - PERFECT EDUCATION CHARITABLE TRUST (SMC) SECONDARY, HIGHER SECONDARY SCHOOLS, COLLEGES AND W OMEN COLLEGES. HE FURTHER POINTED OUT THAT IN CASE OF DISSOLUTION OF THE TRUS T, IT IS CLEARLY PROVIDED THAT ITS ASSETS WILL BE HANDED OVER TO OTHER TRUST HAVING SIMILAR O BJECTS. THE LD. COUNSEL OF THE ASSESSEE FURTHER POINTED OUT THAT THE LD. CIT REJEC TED THE APPLICATION OF THE ASSESSEE- TRUST FOR REGISTRATION U/S 12A OF THE INCOME-TAX AC T ON THE FOLLOWING GROUNDS:- I. TRUST IS PROVIDING EDUCATION AT NORMAL PREVAILIN G FEE AND NO INSTANCE OF FREE EDUCATION OR EDUCATION AT LOWER FEE FOR NEEDY STUDENTS OR GRANTING OF SCHOLARSHIP IS BROUGHT ON RECORD BY THE TRUST. II. EXCESS OF INCOME OVER EXPENDITURE IN AY 2012-13 ON EDUCATION MAKES IT CLEAR THAT ACTIVITY IS BEING RUN ON COMMERCIAL B ASIS. III. THE APPELLANT HAS SUBMITTED A COPY OF AUDIT RE POT, NOT SIGNED BY THE AUDITOR AND BALANCE SHEET AS ON 30.09.2012. HE POINTED OUT THAT AS PER SECTION 12A, IN ORDER TO ENJOY BENEFIT OF SECTION 12A OF THE INCOME-TAX ACT, THE TRUST HAS TO MAKE THE AP PLICATION FOR REGISTRATION BEFORE THE LD. CIT UNDER SECTION 12AA OF THE INCOME-TAX ACT. H E ALSO TOOK US THROUGH THE PROVISIONS OF SECTION 12AA OF THE INCOME-TAX ACT AN D POINTED OUT THAT FOR REGISTRATION OF THE TRUST UNDER SECTION 12A, THE LD. CIT CAN CAL L FOR DOCUMENTS OR INFORMATION AS HE THINKS NECESSARY IN ORDER TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE ACTIVITIES OF THE TRUST. SUB-SECTION 3 OF SECTION 12AA HAS BEEN INSERTED W.E.F. 01.10.2004, WHICH GIVES POWER OF CANCELLATION OF REGISTRATION, ONCE T HE REGISTRATION IS GRANTED U/S 12A AND SUBSEQUENTLY CIT FINDS THAT THE ACTIVITIES OF T HE TRUST IS NOT GENUINE. THE POWER OF CANCELLATION OF REGISTRATION HAS BEEN GRANTED TO ENSURE THAT IF ONCE A REGISTRATION HAS BEEN GRANTED UNDER SECTION 12AA, THE TRUST OR T HE INSTITUTION MAY NOT TAKE LIBERTY OF MISUSING THE PROVISION AND CONSEQUENTLY GO HAYWI RE IN FURTHERING THE OBJECT OF THE TRUST OR ITS ACTIVITIES DO NOT REMAIN GENUINE ANY F URTHER. HE SUBMITTED THAT SECTION 12AA LIMITS THE POWER OF CIT TO ENQUIRE ABOUT THE O BJECT OF THE TRUST AND TO SEE THAT THE OBJECTS ARE NOT AGAINST THE PUBLIC POLICY AND T HEY ARE IN LINE WITH OBJECT OF THE CHARITABLE PURPOSES. THE TRUST HAS STARTED ITS ACTI VITIES FOR PROVIDING EDUCATION TO POOR AND NEEDY CHILDREN FROM THE FINANCIAL YEAR 2011-12. THE TRUST IS ALSO PROVIDING EDUCATION AT VERY NOMINAL AMOUNT AT RS.90/- PER MON TH. THE TRUST IS NOT CHARGING HIGHER AMOUNT OF FEES, THE NOMINAL AMOUNT OF RS.90/ - PER MONTH IS NEITHER EXCESSIVE NOR UNREASONABLE. THE INCOME AND EXPENDITURE OF TH E SCHOOL FOR THE LAST TWO YEARS AS BELOW:- 4 05-RJT-2013 - PERFECT EDUCATION CHARITABLE TRUST (SMC) PARTICULARS FY 2011-12 UPTO 30.09.2012 SCHOOL FEES 278100 305900 EXPENSES REVENUE 271862 324765 CAPITAL 181295 NIL TOTAL 453157 32 4765 THE LD. COUNSEL OF THE ASSESSEE-TRUST FURTHER SUBM ITTED THAT IT CAN BE SEEN FROM THE ABOVE DETAILS THAT THE TRUST HAS NOT CARRI ED OUT EDUCATION ACTIVITIES FOR PROFIT MOTIVE. HE FURTHER POINTED OUT THAT LD. CIT NEITHER DOUBTED ABOUT THE GENUINENESS OF THE ACTIVITIES OF THE TRUST NOR RAISED ANY RAISED A NY OBJECTION ABOUT THE ACTIVITIES RUNNING AGAINST THE PUBLIC POLICY. A MERE PROFIT EARNING MAY BE TAKEN ON A GROUND FOR REFUSING EXEMPTION BUT IT CANNOT BE OBJECTED FO R ITS GENUINENESS. 5. AS AGAINST THE SUBMISSION OF LD. COUNSEL OF THE ASSESSEE, SHRI M.L. MEENA, DR APPEARED ON BEHALF OF THE REVENUE VEHEMENTLY SUP PORTED THE ORDER OF LD. CIT. HE ALSO RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF MCD V/S CHILDREN BOOK TRUST, AS RELIED UPON BY THE LD. CIT IN THE IMPUGNED ORDER, WHEREIN THE HONBLE SUPREME COURT HELD THAT IF EDUCATION IS RU N ON COMMERCIAL LINES, MERELY BECAUSE IT IS A SCHOOL, IT DOES NOT MEAN IT WOULD B E TERMED AS CHARITABLE ACTIVITY. 6. IN REJOINDER, THE LD. COUNSEL OF THE ASSESSEE PO INTED OUT THAT THE DECISION RELIED UPON BY THE LD. CIT AND DEPARTMENTAL REPRESE NTATIVE IN THE CASE OF MCD V/S. CHILDREN BOOK TRUST IS DISTINGUISHABLE AS UNDER:- A. THE ISSUE IN THAT CASE RELATES TO EXEMPTION OF PROPERTY/GENERAL TAX UNDER THE DELHI MUNICIPAL CORPORATION ACT OF 1957 IN RESP ECT OF LAND AND BUILDING USED BY THE SOCIETY FOR CHARITABLE PURPOSE. B. THE CHILDREN BOOK TRUST DID NOT COMPLY WITH THE PROVISIONS OF THE SECTION 115 OF THE MUNICIPAL CORPORATION ACT, THEREFORE, OB SERVATIONS MADE BY THE APEX COURT ARE NOT APPLICABLE TO THE PRESENT CASE O N HAND. C. IT WAS ALSO HELD IN THE SAID DECISION THAT THE P ROVISIONS OF DELHI MUNICIPAL CORPORATION ACT, 1957 AND PROVISION OF IT ACT ARE N OT IN PARI MATERIA. D. IN THE ABOVE JUDGMENT, THE EXEMPTIONS TO THE LAN D AND BUILDINGS, EXCLUSIVELY OCCUPIED AND USED BY A SOCIETY OR A BOD Y FOR CHARITABLE PURPOSE, FROM MUNICIPAL TAXATION. E. CONSIDERING THIS ASPECT, THE HONBLE SUPREME COU RT HELD THAT IMPARTING OF EDUCATION WITH THE PURPOSE OF PROFIT WAS NOT CHARIT ABLE FOR THE PURPOSE OF SECTION 115(4) OF DMC ACT. F. THE HONBLE SUPREME COURT IN PARA 76 CLEARLY HEL D THAT RULINGS IN THE IT ACT WOULD NOT BE HELPFUL IN DECIDING THE ISSUE UNDER SE CTION 115(4) OF DMC ACT. 5 05-RJT-2013 - PERFECT EDUCATION CHARITABLE TRUST (SMC) HE FURTHER POINTED OUT THAT THE ENTIRE REASONING OF LD. CIT BASED ON THE SUPREME COURT JUDGMENT IN THE CASE OF MCD V/S. CHIL DREN BOOK TRUST IS QUITE DISTINGUISHABLE IN AS MUCH AS THE DEFINITION OF THE WORD CHARITABLE TRUST CONSIDERED BY HONBLE SUPREME COURT IN THAT CASE WAS QUITE DIF FERENT FROM THE DEFINITION PROVIDED IN SECTION 2(15) OF THE IT ACT, 1961. THE LD. COUNSEL OF THE ASSESSEE ALSO PRODUCED COPY OF A CIRCULAR NO. 11 OF 2008 DATED 19 .12.2008 ISSUED VIDE F.NO.134/34/2008-TPL REPORTED IN (2009) 221 CTR (ST ) 1, WHEREIN IN PARAGRAPH 2.1 IT IS CLARIFIED THAT NEWLY INSERTED PROVISO TO SECTIO N 2(15) WILL NOT APPLY IN RESPECT OF THE FIRST THREE LIMBS OF SECTION 2(15), I.E., RELIEF OF THE POOR, EDUCATION OR MEDICAL RELIEF. CONSEQUENTLY, WHERE THE PURPOSE OF A TRUST OR INSTI TUTION IS RELIEF OF THE POOR, EDUCATION OR MEDICAL RELIEF, IT WILL CONSTITUTE CH ARITABLE PURPOSE EVEN IF IT INCIDENTALLY INVOLVES THE CARRYING ON OF COMMERCIAL ACTIVITIES. ON THE BASIS OF AFORESAID CIRCULAR, HE PLEADED THAT EVEN IF A NOMINAL FEE IS CHARGED FR OM THE STUDENT, THIS CANNOT BE A GROUND TO REFUSE THE REGISTRATION U/S 12A OF THE IN COME-TAX ACT, 1961. THEREFORE, THE VIEW TAKEN BY THE LD. CIT IS NOT JUSTIFIED AND THE REGISTRATION U/S 12A OF THE INCOME-TAX ACT BE GRANTED TO ASSESSEE-TRUST. 7. RIVAL SUBMISSIONS WERE CONSIDERED. I HAVE HEARD BOTH SIDES AND CAREFULLY GONE THROUGH THE IMPUGNED ORDER OF LD COMMISSIONER OF INCOME-TAX, RAJKOT-I, THE DECISIONS CITED AND THE DOCUMENTS AVAILABLE ON RECO RDS INCLUDING PAPER-BOOK FILED BY THE ASSESSEE-TRUST. ADMITTEDLY, THE ASSESSEE-TRUST IS PROVIDING EDUCATION AT A VERY NOMINAL FEE OF RS.90/- PER MONTH. LOOKING TO THE PR EVAILING COST OF PROVIDING EDUCATION, THIS NOMINAL FEE OF RS.90/- PER MONTH, I N MY OPINION, IS NEITHER EXCESSIVE NOR UNREASONABLE WHICH IS EVIDENT FROM THE INCOME A ND EXPENDITURE OF THE SCHOOL FOR THE LAST TWO YEARS AS REPRODUCED BY ME HEREIN ABOVE IN PARAGRAPH 4. THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF MCD V/S. CH ILDREN BOOK TRUST IS QUITE DIFFERENT FROM THE DEFINITION PROVIDED IN SECTION 2 (15) OF THE INCOME-TAX ACT 1961. IN THE AFORESAID CIRCULAR NO. 11 OF 2008 DATED 19.12.2 008 (SUPRA) OF CBDT, IN PARAGRAPH 2.1, IT IS CLARIFIED THAT NEWLY INSERTED PROVISO TO SECTION 2(15) WILL NOT APPLY IN RESPECT OF THE FIRST THREE LIMBS OF SECTION 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 CONSTITU TE CHARITABLE PURPOSE EVEN IF IT 6 05-RJT-2013 - PERFECT EDUCATION CHARITABLE TRUST (SMC) INCIDENTALLY INVOLVES THE CARRYING ON OF COMMERCIAL ACTIVITIES. THEREFORE, I AM OF THE VIEW THAT EVEN IF THE ASSESSEE-TRUST IS CHARGING NO MINAL FEE OF RS.90/- PER MONTH FROM THE STUDENTS FOR PROVIDING EDUCATION, THE SAME CANNOT BE A GROUND TO REFUSE THE REGISTRATION U/S 12A OF THE INCOME-TAX ACT, 1961. I, THEREFORE, DIRECT THE LD. COMMISSIONER OF INCOME-TAX, RAJKOT-I TO GRANT THE R EGISTRATION U/S 12A OF THE INCOME- TAX ACT, 1961 TO THE ASSESSEE-TRUST. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. THIS ORDER PRONOUNCED IN OPEN COURT ON THE DATE MEN TIONED HEREINABOVE. SD/- ( $.. &' / T. K. SHARMA) ( ) /JUDICIAL MEMBER *)& +) ,/ ORDER DATE: 31.01.2014 !$ /RAJKOT *BT / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT- PERFECT EDUCATION CHARITABLE TRUST, N R. NAVJIVAN SCHOOL, SARDHARPUR ROAD,PATEL CHOWK, JETPUR RAJKOT 2. / RESPONDENT- THE COMMISSIONER OF INCOME-TAX-I, RA JKOT 3. ,0,1 * * 2 / CONCERNED JCIT, RR-1, RAJKOT 4 . 345 1, * 1#, !$ / DR, ITAT, RAJKOT 5 . 57 89 / GUARD FILE *)& / BY ORDER TRUE COPY PRIVATE SECRETARY, ITAT, RAJKOT