Mariam Education Society, Ghaziabad V. CIT(Exemption), Lucknow

ITA 5796/DEL/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2111 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2017-2018
• Appeal Filed On: 11-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Set aside
• Section: 12A; 12AA; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E, NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.5796/DEL./2017 ASSESSMENT YEAR: 2017-18 MARIAM EDUCATION SOCIETY, DC-17, EAST END OF ANSAL TRONICA CITY, LONI, GHAZIABAD VS. CIT(EXEMPTION), GOMTI NAGAR, LUCKNOW PAN :AAAETM8554F (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORD ER DATED 22/08/2017 PASSED BY THE LEARNED COMMISSIONER OF IN COME-TAX (EXEMPTION), LUCKNOW [IN SHORT THE CIT] REJECTING THE REGISTRATION OF THE ASSESSEE UNDER SECTION 12AA OF THE INCOME-TA X ACT, 1961 (IN SHORT THE ACT). THE ASSESSEE HAS RAISED FOLLO WING GROUNDS IN THE APPEAL: 1. THE LD. CIT ( EXEMPTION) IS UNJUSTIFIED, ILLEGA L AND WRONG FOR PASSING THE ORDER U/S 12AA(1)(B)(II) OF THE INCOME TAX ACT FOR REJECTION OF APPLICATION TO GRANT REGISTRATION OF S OCIETY U/S 12AA OF INCOME TAX ACT, 1961. 2. THE FINDINGS OF LD. CIT (EXEMPTION) THAT THE SO CIETY IS NOT CARRYING OUT ANY CHARITABLE ACTIVITIES IS NOT CORRECT SINCE EXEMPTION U/S 12AA CAN BE GRANTED ON FUTURE ACTIVITIES. APPELLANT BY SHRI J.P. JAIN, CA RESPONDENT BY MS. RAKHI VIMAL SR.DR SHRI MANOJ KUMAR, CIT(DR) DATE OF HEARING 20.01.2020 DATE OF PRONOUNCEMENT 01.05.2020 2 ITA NOS. 5796/DEL/2017 3. THE FINDINGS OF LD. CIT (EXEMPTION) THAT MEMBER S ARE POOLING THEIR PROFESSIONAL RECEIPTS SO AS TO GET EXEMPTION AND MA NIPULATE THEIR INCOME IS NOT CORRECT. 4. THE CLAIM OF LD. CIT (EXEMPTION) THAT ASSESSEE HAS FAILED TO ANSWER HOW IT ACTUALLY PROVIDE CHARITY TO PEOPLE IS NOT CORRECT SINCE THE WRITTEN ACTION PLAN WAS SUBMITTED DURING HEARING. 5. THE FINDING OF LD. CIT (EXEMPTION) REGARDING EA RNING OF PROFIT FROM THE MEDICAL SERVICES IS NOT CORRECT. 6. THE ASSESSEE CRAVES LEAVE TO ADD, ALTER, MODIFY OR CHANGE ANY GROUND OF APPEAL, AT THE TIME OF HEARING IN THE INT EREST OF NATURAL JUSTICE. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE SOCIETY IS REGISTERED UNDER SOCIETY OF THE REGISTRAR, UTTAR PRADESH AND SAID REGISTRATION WAS RENEWED FOR A PERIOD OF FIVE YEARS FROM 25- 04-2009 TO 25/04/2014 BY WAY OF RENEWAL CERTIFICATE ISSUED DATED 27/01/2016. AS PER THE INFORMATION FILED BEFO RE THE REGISTRAR OF FIRMS AND SOCIETIES, MEERUT, UTTAR PRA DESH, THE SOCIETY CONSTITUTED OF FOLLOWING OFFICE BEARERS: 3. THE SOCIETY CLAIMED ITS OBJECTS WHICH INCLUDE OPEN ING OF PARAMEDICAL MANAGEMENT, COMPUTER ENGINEERING, MEDIC INE AND AYURVEDIC SCIENCE EDUCATIONAL INSTITUTION ETC FOR EXPANSION OF EDUCATION. 3 ITA NOS. 5796/DEL/2017 4. THE SOCIETY, FILED AN APPLICATION ON 29/03/2017 BE FORE THE CIT FOR REGISTRATION UNDER SECTION 12AA OF THE ACT AND WAS ASKED TO FILE NECESSARY DOCUMENTS BEFORE HIM. THE LEARNED CIT AFTER EXAMINING THE DOCUMENTS FILED BY THE SOCIETY AND AF TER CARRYING OUT NECESSARY INQUIRIES, REJECTED THE APPLICATION O F THE ASSESSEE FOR REGISTRATION UNDER SECTION 12A(1) OF THE ACT VI DE IMPUGNED ORDER DATED 22/08/2017. THE LEARNED CIT HAS REJECTE D THE REGISTRATION MAINLY ON FOLLOWING GROUNDS: 1. THE APPLICANT HAS SHOWN OPENING CAPITAL BALANCE OF 42,50,375 AS ON 01/04/2016 AND THEREAFTER INTRODUCE D HUGE CAPITAL INVESTMENT OF 52,00,000/- IN CASH. THE CAPITAL HAS BEEN MAINLY CONTRIBUTED BY DR LUQUMN AL I (PRESIDENT OF THE SOCIETY) AND DR. NISHA CHOUDHARY (SECRETARY OF THE SOCIETY), WHO ARE HAVING SHARE OF PROFIT IN THE SOCIETY AT 50% AND 20% RESPECTIVELY. THE LEARNE D CIT IS OF THE VIEW THAT THESE BOTH INDIVIDUALS HAVE POO LED THEIR INDIVIDUAL PROFESSIONAL RECEIPT FOR THEIR OWN BENEFIT BY WAY OF THE PROFIT SHARING RATIO IN THE SOCIETY. 2. THE SOCIETY IS A COMMERCIAL ENTITY ENGAGED IN PROVI DING MEDICAL SERVICES ON COMMERCIAL LINES AND LEVYING HU GE FEE FOR THE SAME, WITHOUT ANY ACT OF CHARITY. 3. THE PROFIT MOTIVE OF THE SOCIETY IS EVIDENT FROM TH E VERY BASIS OF THE FORMATION OF THE SOCIETY WHERE DIVISIO N OF THE PROFIT AMOUNTS VARIOUS MEMBERS HAS BEEN PRESCRIBED I.E. LUQUMAN ALI (50%), NISHA CHAUDHARY (20%), SS TONDON (5%), ANIL SAXENA (5%), SUNIL SAXENA (5%), SANTOSH SAXSENA (5%), AMIR KHAN (5%) AND SAMIM (5%). 4 ITA NOS. 5796/DEL/2017 4. THE ASSESSEE FAILED TO PROVIDE LIST OF VARIOUS SERV ICES OFFERED ALONG WITH THE RESPECTIVE CHARGES. 5. ACCORDING TO THE LEARNED CIT, THE DOCUMENTS ON RE CORD DO NOT SUFFICE TO ESTABLISH THE GENUINENESS OF THE ACT IVITIES OF THE SOCIETY AND PROVIDE SUFFICIENT MATERIAL TO CORROBOR ATE THE CHARITABLE NATURE OF THE OBJECTS. 6. BEFORE US, THE LEARNED CONSUL OF THE ASSESSEE HAS FILED PAPER-BOOK CONTAINING PAGES 1 TO 120. HE REFERRED T O RENEWAL CERTIFICATE ISSUED BY THE SOCIETY OF THE REGISTRAR, DATED 27/01/2016 AVAILABLE ON PAGE 25 OF THE PAPER-BOOK. HE SUBMITTED THAT THE ASSESSEE SOCIETY WAS IN THE PROC ESS OF BUYING LAND AND CONSTRUCTING MEDICAL COLLEGE TO ACHIEVE SU BJECT OF PROVIDING EDUCATION AND MEDICAL FACILITY FOR PEOPLE OF THE SOCIETY. IN THE PROCESS MONEY CONTRIBUTED BY THE MEMBERS OF THE SOCIETY WAS APPLIED FOR PURCHASE OF THE LAND AND FURTHER TE RM LOAN OF 317.5 LAKHS WAS TAKEN FROM BANK OF INDIA. THE LEARN ED CONSUL OF THE ASSESSEE REFERRED TO VARIOUS PAGES OF THE INCOM E AND EXPENDITURE ACCOUNT AND THE STATEMENT OF AFFAIRS AS ON 31/03/2016 AND 31/03/2017. THE CONTENTION OF THE LE ARNED CONSUL OF THE SOCIETY THAT FOR GRANTING REGISTRATIO N ONLY OBJECTS OF THE SOCIETY HAS TO BE SEEN AND ACTIVITIES BEING FUT URE EVENT, THE LEARNED CIT IS NOT REQUIRED TO EXAMINE THAT. IN SUP PORT OF THE CONTENTION HE RELIED ON THE DECISION OF THE HONBLE ALLOWABLE HIGH COURT IN THE CASE OF HARDYAL CHARITABLE AND EDUCATI ONAL TRUST VS COMMISSIONER OF INCOME-II, (2013) 353 ITR 534 (ALL) . 7. ON THE CONTRARY, THE LEARNED DR SUBMITTED THAT THE ASSESSEE SOCIETY WAS CONSTITUTED PRIOR TO 2009 AND NO ACTIVI TY THEREAFTER 5 ITA NOS. 5796/DEL/2017 HAS BEEN SHOWN BY THE ASSESSEE SOCIETY IN FURTHERAN CE OF ITS OBJECTS. HE SUBMITTED THAT ONLY ACTIVITY HAVE BEEN SHOWN IN FINANCIAL YEAR 2015-16 AND 2016-17, DURING WHICH TH E ASSESSEE SOCIETY HAD PURCHASED LAND BY WAY OF THE MONEY CONT RIBUTED BY THE MEMBERS OF THE SOCIETY AND THEREAFTER CONSTRUCT ION BY WAY OF THE LOAN FUNDS FROM BANKS. ACCORDING TO HIM, THE SO CIETY WAS FORMED PURELY WITH THE MOTIVE OF DISTRIBUTING SHARE OF PROFIT AMOUNT OF MEMBERS, WHICH WAS ALSO PRE-DECIDED AMOUN T THE MEMBERS. HE SUBMITTED THAT FUNDS CONTRIBUTED BY THE MEMBERS WERE ALSO NOT APPEAR TO BE FROM EXPLAINED SOURCES. ACCORDING TO THE LEARNED DR, THE ASSESSEE IS IN EXISTENCE FOR A VERY LONG PERIOD AND NO CHARITABLE ACTIVITY HAS BEEN SHOWN AND THUS ASSESSEE FAILED TO ESTABLISH GENUINENESS OF THE ACTIVITIES A ND THEREFORE THE LEARNED CIT IS JUSTIFIED IN REJECTING THE REGISTRAT ION GRANTED UNDER SECTION 12A OF THE ACT. 8. WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON REC ORD. WE FIND THAT ON THE ISSUE OF GRANTING REGISTRATION UNDER SE CTION 12AA, THE HONBLE ALLOWABLE HIGH COURT IN THE CASE OF HARDYAL CHARITABLE AND EDUCATIONAL TRUST (SUPRA) AFTER ANALYZING VARIO US JUDICIAL PRECEDENTS ON THE ISSUE IN DISPUTE HELD THAT REGIST RATION UNDER SECTION 12AA CANNOT BE REFUSED ON THE GROUND THAT T RUST HAS NOT COMMENCED THE CHARITABLE OR RELIGIOUS ACTIVITY. THE RELEVANT OBSERVATION OF THE HONBLE HIGH COURT IS REPRODUCED AS UNDER: 21. THE PREPONDERANCE OF THE JUDICIAL OPINION OF A LL THE HIGH COURT INCLUDING THIS COURT IS THAT AT THE TIME OF REGISTR ATION UNDER SECTION 12AA OF THE INCOME TAX ACT, WHICH IS NECESSARY FOR CLAIMING EXEMPTION UNDER SECTION 11 AND 12 OF THE ACT, THE C OMMISSIONER OF INCOME TAX IS NOT REQUIRED TO LOOK INTO THE ACTIVIT IES, WHERE SUCH ACTIVITIES HAVE NOT OR ARE IN THE PROCESS OF ITS IN ITIATION. WHERE A 6 ITA NOS. 5796/DEL/2017 TRUST, SET UP TO ACHIEVE ITS OBJECTS OF ESTABLISHIN G EDUCATIONAL INSTITUTION, IS IN THE PROCESS OF ESTABLISHING SUCH INSTITUTIONS, AND RECEIVES DONATIONS, THE REGISTRATION UNDER SECTION 12AA CANNOT BE REFUSED, ON THE GROUND THAT THE TRUST HAS NOT YET C OMMENCED THE CHARITABLE OR RELIGIOUS ACTIVITY. ANY ENQUIRY OF TH E NATURE WOULD AMOUNT TO PUTTING THE CART BEFORE THE HORSE. AT THI S STAGE ONLY THE GENUINENESS OF THE OBJECTS HAS TO BE TASTED AND NOT THE ACTIVITIES, WHICH HAVE NOT COMMENCED. THE ENQUIRY OF THE COMMIS SIONER OF INCOME TAX AT SUCH PRELIMINARY STAGE SHOULD BE REST RICTED TO GENUINENESS OF THE OBJECTS AND NOT THE ACTIVITIES U NLESS SUCH ACTIVITIES HAVE COMMENCED. THE TRUST OR SOCIETY CAN NOT CLAIM EXEMPTION, UNLESS IT IS REGISTERED UNDER SECTION 12 AA OF THE ACT AND THUS AT THAT SUCH INITIAL STAGE THE TEST OF THE GEN UINENESS OF THE ACTIVITY CANNOT BE A GROUND ON WHICH THE REGISTRATI ON MAY BE REFUSED. 9. THE HONBLE HIGH COURT FURTHER HELD THAT QUESTION O F EXEMPTION OF THE APPLICATION OF THE INCOME RECEIVED BY WAY OF THE DONATION BEING A SEPARATE ISSUE MIGHT BE EXAMINED I N ASSESSMENT PROCEEDING OF RELEVANT YEARS. THE RELEVA NT FINDING OF THE HONBLE HIGH COURT IS REPRODUCED AS UNDER: 23. THE QUESTION OF THE EXEMPTION OF THE APPLICATI ON OF INCOME RECEIVED BY WAY OF DONATION, IS A ARATE ISSUE AND W HICH MAY BE REQUIRED TO BE CONSIDERED, WHEN THE RETURN IS FILED BY THE TRUST AND IS EXAMINED BY THE INCOME TAX OFFICER. THE QUESTION AS TO WHETHER THE DONATIONS BY THE SOCIETIES WAS THE EXPENDITURE OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES WILL BE EXAMINED AT THE TIME OF EXAMINING THE RETURN. 10. WE FIND THAT IN THE INSTANT CASE THE ASSESSEE IS C LAIMING THAT IT WAS IN THE PROCESS OF ESTABLISHING EDUCATIONAL I NSTITUTION FOR COMMENCING ITS CHARITABLE ACTIVITY AND THUS ACTIVIT Y NOT BEING COMMENCED, AND THEREFORE, THE LEARNED CIT WAS NOT R EQUIRED TO EXAMINE THE SAID ACTIVITIES AND REJECT THE REGISTRA TION. BUT THE REGISTRATION OF THE ASSESSEE SOCIETY BEFORE THE REG ISTER OF SOCIETY SHOWS THAT THE SOCIETY WAS RESISTED PRIOR TO FINANC IAL YEAR 2009. 7 ITA NOS. 5796/DEL/2017 THE ASSESSEE HAS NOT PROVIDED ANY DETAIL OF THE ACT IVITIES FOR THE PERIOD FROM ITS ESTABLISHMENT TILL THE DATE FOR APP LYING REGISTRATION. IN OUR OPINION, THE ASSESSEE IS REQUI RED TO PROVIDE ALL DETAILS REGARDING CONSTITUTION OF ITS MEMBERS, FUND S RECEIVED AND UTILIZED TOWARDS CHARITABLE ACTIVITIES ET CETERA DE TAIL SINCE INCEPTION OF THE SOCIETY. SINCE ALL THE DETAILS HAV E NOT BEEN EXAMINED BY THE LEARNED CIT, WE SET ASIDE THE ORDER OF THE LEARNED CIT WITH THE DIRECTION TO DECIDE A FRESH ON VERIFICATION OF THE OBJECTS AND GENUINENESS OF THE ACTIVITIES IN AC CORDANCE WITH THE LAW IN THE LIGHT OF THE DOCUMENTS WHICH THE ASS ESSEE IS REQUIRED TO SUBMIT BEFORE HIM AS MENTIONED ABOVE. T HE ASSESSEE SHALL BE AFFORDED ADEQUATE OPPORTUNITY OF BEING HEA RD . THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLO WED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 01.05. 2020. SD/- SD/- (BHAVNESH SAINI) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 01/05/2020 RK/- (D.T.D.S.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI