Shanti Education and Welfate Society, Haridwar V. CIT, Dehradun

ITA 5970/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86537 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 03-12-2014
• Assessment Year: misc
• Appeal Filed On: 30-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution; Capital expenditure
• Section: 80G; 12A; 12AA; 12

Judgement Text

DELHI BENCH G : NEW DELHI BEFORE SHRI N.K.SAINI, ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 5970 /DEL/ 2012 SHANTI EDUCATION AND WELFARE SOCIETY, HOUSE NO.201, OM VIHAR COLONY, KRISHNA NAGAR, KANKHAL, HARIDEAR PANAACAS3181M VS. CIT INCOME TAX DEPARTMENT , DEHRADUN (APPELLANT) (RESPONDENT) O R D E R PER A. T. VARKEY, JUDICIAL MEMBER THIS APPEAL ARISES FROM AN ORDER DATED 06 TH SEPTEMBER 2012, MADE BY LD CIT(A) , DEHRADUN, DECLINING REGISTRATION U/S 12 A A(1)(B)(II) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER THE ACT). 2. BRIEFLY STATED THE FACTS ARE THAT THE APPELLANT IS A REGISTERED SOCIETY, WHICH A PPLIED FOR REGISTRATION U/ S 12A (A) OF THE ACT. THE COMMISSIONER OF INCOME TAX, DECLINED THE REGISTRATION ON THE GROUND THAT THE ACTIVITIES OF THE SOCIETY ARE COMMERCIAL IN NATURE AND NOT CHARITABLE. IN ARRIVING AT THE ABOVE CONCLUSION, HE HAS OBSERVED THAT THE SOCIETY IS BEING RUN IN THE MANNER OF A BUSINESS ENTITY, WHERE IT IS INCURRING SIZEABLE EXPENDITURE ON ADVERTISEMENT AND PUBLICITY. FURTHERMORE, THERE IS INCREASE IN CAPITAL EXPENDITURE, WHICH SHOWS THAT SOCIETY IS ENGAGED IN EXPANSION SO AS TO EARN MORE RECEIPTS, RATHER THAN CONCENTRATING ON PARTING EDUCATION. 3. BEFORE US, THE LD COUNSEL SHRI PIYUSH KAUSHIK, SUBMITTED THAT IT IS UNDISPUTED THAT THE ASSESSEE BEING A SOCIETY REGISTERED UNDER THE PROV I SIONS OF SOCIETY REGISTRATIONS ACT 1860 HAS BEEN INCORPORATED ESSENTIALLY WITH THE MAIN OBJECTIVE OF IMPARTING EDUCATION. HE SUBMITTED THAT EDUCATION PER SE IS APPELLANT BY : PIYUSH KAUSHIK, ADV RESPONDENT BY : RAMESH CHANDRA, CIT DR PAGE NO. 2 A CHAR ITABLE PURPOSE. U/S 2(15) OF THE ACT, C H ARITABLE P UR P OSE INTER ALIA, INCLUDES EDUCATION. HE CONTENDED THAT THE CIT DOES NOT DISPUTES THE AFORESAID PO SITION TO THE EFFECT, THAT THE ASSESSEE SOCIETY HAS B EEN INCORPORATED ESSENTIALLY WITH THE MAIN OBJECTIVE OF IMPARTING E D UCAT I ON. T HE REASON STATED BY THE LD CIT TO DENY REGISTRATION U/S 12A IS THAT THE ASSESSEE SOCIETY IS INCURRIN G SIZABLE E XPENDITURE ON ADVERTISEMENT & PUBLICITY , AND ON CAPITAL EXPENDITURE AND SO THE ACTIVITIES OF THE ASSESSEE SOCIETY IS COMMERCIAL IN NATURE AND NOT CHARITABLE. HE ALSO STATED FROM THE ANALYSIS OF FIGURES REPRODUCED IN THE ORDER OF CIT ITSELF, IT IS ABUNDANTLY CLEAR THAT T HE QUANTUM OF CAPITAL EXPENDITURE AND EXPENDITURE ON ADVERTISEMENT AND PUBLICITY INCURRED BY ASSESSEE SOCIETY VARIES BETWEEN 5% TO 7% OF TOTAL RECEIPTS WHICH CAN ONLY BE SAID TO BE MINISCULE AMOUNT. THE YEAR WISE PERCENTAGE OF CAPITAL EXPENDITURE AND EXPEN DITURE ON ADVERTISEMENT AND PUBLICITY TO TOTAL RECEIPTS IS AS FOLLOWS: - ASSESSMENT YEAR PERCENTAGE OF CAPITAL EXPENDITURE TO TOTAL RECEIPTS PERCENTAGE OF ADVERTISEMENT AND PUBLICITY EXPENDITURE TO TOTAL RECEIPTS. A.Y.2009 - 10 6% 7% A.Y.2010 - 11 6.70 5.70% A.Y.2011 - 12 5% 7.70% 4. ON THE OTHER HAND THE LD DR RELIED ON THE ORDER OF THE LD CIT. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORDS AND CASE LAWS CITED BEFORE US. WE FIND THAT THE LD CIT(A) HAS NOT DISPUTED THAT APPELLANT IS A SOCIETY ENGAGED IN IMPARTING EDUCATION. THE ISSUE THEREFORE ARISE S IS WHETHER IN SUCH CIRCUMSTANCES, SUCH A SOCIETY COULD BE DECLINED REGISTRATION U/S 12AA OF THE ACT. IN THIS REGARD WE CONSIDERED IT APPROPRIATE TO REFER AND RELY ON THE JUDG EM ENT OF THE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. RED SCHOOL 212 CTR 394, WHEREIN IT HAS BEEN HELD: - THE PREPONDERANCE OF THE JUDICIAL OPINION OF ALL THE HIGH COURT INCLUDING THIS COURT INCLUDING THIS COURT IS THAT AT THE TIME OF CLAIMING EXEMPTIO N UNDER SECTION 11 12 OF THE ACT, THE COMMISSIONER OF INCOME TAX IS NOT REQUIRED TO LOOK INTO THE ACTIVITIES, WHERE SUCH ACTIVITIES HAVE NOT OR ARE IN THE PROCESS OF ITS INITIATION. WHERE A TRUST, SET TO ACHIEVE ITS OBJECTS OF ESTABLISHING EDUCATIONAL INST ITUTION, IS IN THE PROCESS OF PAGE NO. 3 ESTABLISHING SUCH INSTITUTIONS, AND RECEIVES DONATIONS, THE REGISTRATION UNDER SECTION 12AA CANNOT BE REFUSED, ON THE GROUND THAT THE TRUST HAS NOT YET COMMENCED THE CHARITABLE OR RELIGIOUS ACTIVITY. ANY ENQUIRY OF THE NATURE WOULD AMOUNT TO PUTTING THE CART BEFORE THE HOURS. AT THIS STAGE ONLY THE GENUINENESS OF THE OBJECTS HAS TO BE TASTED AND NOT THE ACTIVITIES, WHICH HAVE NOT COMMENCED. THE ENQUIRY OF THE COMMISSIONER OF INCOME TAX AT SUCH PRELIMINARY STAGE SHOULD BE RESTRI CTED TO GENUINENESS OF THE OBJECTS AND NOT THE ACTIVITIES UNLESS SUCH ACTIVITIES HAVE COMMENCED. THE TRUST OR SOCIETY CANNOT CLAIM EXEMPTION, UNLESS IT IS REGISTERED UNDER SECTION 12AA OF THE ACT AND THUS AT THAT SUCH INITIAL STAGE THE TEST OF THE GENUINEN ESS OF THE ACTIVITY CANNOT BE A GROUND ON WHICH THE REGISTRATION MAY BE REFUSED. 5. FOLLOWING THE ABOVE PRECEDENT, IT IS CLEAR THAT ENQUIRY AT THE STAGE OF REGISTRATION HAS TO BE CONFINED TO THE OBJECTS OF THE TRUST. IN THE SAID JUDGEMENT IT WAS SPECIFI CALLY CLARIFIED AS UNDER: - IN THE RESULT THE INCOME TAX APPEAL IS ALLOWED. ALL THE THREE SUBSTANTIAL QUESTIONS OF LAW FORMULATED AS ABOVE ARE DECIDED IN FAVOUR OF THE ASSESSEE, AND AGAINST THE REVENUE WITH A CLARIFICATION UNDER SECTION 12AA AND APPROVAL UNDER SECTION 80G WOULD NOT BY ITSELF ENTITLE THE TRUST FOR EXEMPTION OF THE INCOME OF THE DONORS OR OF THE TRUST FOR THE ASSESSMENT YEAR 2011 - 12. FOR CLAIMING SUCH EXEMPTION THE RETURNS OF THE DONOR AND THE TRUST WILL BE EXAMINED, FOR ORDERS TO BE MADE IN ACCORDANCE WITH LAW. 6. THIS VIEW HAS BEEN ELUCIDATED IN THE CASE OF CIT VS. RED ROSE SCHOOL 212 CTR 394 (ALL), WHEREIN IT HAS BEEN THAT TO ASCERTAIN THE GENUINENESS OF THE ACTIVITIES OF THE TRUST THE INSTITUTION WHOSE OBJECT DO NOT RUN CONTRARY TO PUBLIC POLICY AND ARE INFACT C HARITABLE PURPOSE, THE CIT IS EMPOWERED TO MAKE ENQUIRIES AS HE THINK FIT. IN CASE THE ACTIVITIES ARE NOT GENUINE AND THEY ARE NOT BEING CARRIED OUT IN ACCORDANCE WITH OBJECT OF THE TRUST SOCIETY OR THE INSTITUTION, REGISTRATION CAN AGAIN BE REFUSED BUT ON MERE PRESUMPTION AND ON SURMISE THAT THE INCOME IS BEING MISUSED OR THAT THERE IS SOME APPREHENSION THAT SAME WOULD NOT BE USED IN THE PROPER MANNER, AND FOR THE PURPOSES RELATING TO ANY CHARITABLE PURPOSES, REJECTION IS NOT JUSTIFIED. IT WAS FURTHER HELD THAT THE REGISTRATION UNDER SECTION 12AA DOES NOT NECESSARILY ENTITLE THE ASSESSEE TO GET THE INCOME EXCLUDED FROM THE INCOME OF THE PREVIOUS YEAR FOR THE PURPOSES OF DETERMINING THE TAX LIABILITY; IT ONLY ENTITLES THE ASSESSEE TO CLAIM SUCH EXEMPTION, WH ICH OTHERWISE CANNOT BE CLAIMED IN THE ABSENCE OF PAGE NO. 4 REGISTRATION. THE ENQUIRY BY CIT IS RESTRICTED AT THE TIME OF ''REGISTRATION TO THE ACTIVITIES, WHICH ARE GENUINE. GENUINENESS OF THE ACTIVITIES OF THE TRUST OR THE INSTITUTION HAS TO BE SEEN KEEP IN MIND T HE OBJECT THEREOF WHICH MEANS THE COMMISSIONER SHALL SATISFY HIMSELF TO THE FACT THAT THE ACTIVITIES ARE GENUINE AND IN CONSONANCE WITH THE OBJECT OF THE TRUST OR THE INSTITUTION. IN OTHER WORDS IT WAS HELD THAT AFTER ESTABLISHING AND RUNNING A SCHOOL SET OUT AS OBJECT OF THE SOCIETY, GIVEN IN THE BYLAWS, HE HAS TO BE SATISFIED THAT THE SOCIETY HAS ESTABLISHED THE SCHOOL, WHERE EDUCATION IS BEING IMPARTED AS PER RULES AND THE FACTUM OF ESTABLISHMENT AND RUNNING SCHOOL IS GENUINE ACTIVITY. THE ENQUIRY REGARD ING GENUINENESS OF THE ACTIVITY CANNOT BE STRETCHED BEYOND THIS. 7. ALSO THE HONBLE SUPREME COURT IN THE CASE OF AMERICAL HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE REPORTED IN 301 ITR 86 (SC) HELD THAT: - 30. IN DECIDING THE CHARACTER OF THE RECI PIENT, IT IS NOT NECESSARY TO LOOK AT THE PROFITS OF EACH YEAR, BUT TO CONSIDER THE NATURE OF THE ACTIVITIES UNDERTAKEN IN INDIA. IF THE INDIAN ACTIVITY HAS NO CO - RELATION TO EDUCATION, EXEMPTION HAS TO BE DENIED (SEE JUDGEMENT OF THIS COURT IN OXFORD UNIV ERSITY PRESS (SUPRA) THEREFORE THE CHARACTER OF THE RECIPIENT OF INCOME MUST HAVE CHARACTER OF EDUCATIONAL INSTITUTION IN INDIA TO BE ASCERTAINED FROM THE NATURE OF THE ACTIVITIES. IF AFTER MEETING EXPENDITURE, SURPLUS REMAINS INCIDENTALLY FROM THE ACTIVIT Y CARRIED ON BY THE EDUCATIONAL INSTITUTIONS, IT WILL NOT CEASE TO BE ONE EXISTING SOLELY FOR EDUCATIONAL PURPOSE. IN OTHER WORDS, EXISTENCE OF SURPLUS FROM THE ACTIVITY WILL NOT MEAN ABSENCE OF EDUCATIONAL PURPOSE. (SEE JUDGEMENT OF THIS COURT IN ADITANAR EDUCATION INSTITUTION VS;. ADDL. CIT (1997) 139 CTR (SC) 7; (1997) 224 ITR 310 (SC). THE TEST IS THE NATURE OF ACTIVITY. IF THE ACTIVITY LIKE RUNNING A PRINTING PRESS TAKES PLACE IT IS NOT EDUCATIONAL. BUT WHETHER THE INCOME/ PROFIT HAS BEEN APPLIED FOR N ON - EDUCATIONAL PURPOSE TO BE DECIDED ONLY AT THE END OF THE FINANCIAL YEAR. 8. APPLYING THE FOREGOING RATIO, IT IS EVIDENT THAT THE RELEVANT DETERMINATIVE FACTOR FOR CONFERRING REGISTRATION IS THE OBJECT OF THE SOCIETY AND THE QUANTUM OF PROFITS/ SURPLU S IS AN IRRELEVANT FACTOR. IN THE PRESENT CASE, ADMITTEDLY AND UNDISPUTEDLY APPELLANT SOCIETY IS IMPARTING EDUCATION. AND EDUCATION PER - SE IS A CHARITABLE OBJECT U/S 2(15) OF THE ACT. THE BASIS OF IMPUGNED ACTION TO REGARD THE SOCIETY AS COMMERCIAL AT THE STAGE OF PAGE NO. 5 REGISTRATION ON THE BASIS OF EXPENDITURE INCURRED ON ADVERTISEMENT AND PUBLICITY IS UNWARRANTED AND AGAINST THE SETTLED INTERPRETATION OF THE STATUTE. BEFORE CONCLUDING WE ALSO TAKE NOTICE THAT THE LD CIT HAS RELIED ON THE JUDGMENT OF HONBLE HIGH COURT OF UTTARAKHAND IN THE CASE OF CIT VS. QUEEN EDUCATIONAL SOCIETY, WHICH IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE, FOR THE REASON THAT THE EXAMINATION AT THE STAGE OF REGISTRATION IS TO BE CONFINED TO THE OBJECTS AND MOREOVER AS HELD BY THE APEX COURT IN AMERICAN HOTEL & LODGING ASSOCIATION EDUCATIO NAL INSTITUTE (SUPRA) THE CHARACTER OF THE RECIPIENT OF THE INCOME MUST HAVE THE CHARACTER OF EDUCATIONAL INSTITUTION IS TO BE DETERMINED IRRESPECTIVE OF THE PROFITS. IN VIEW OF THE ABOVE WE REV ERSE THE ORDER OF THE CIT AND DIRECT IT TO GRANT REGISTRATION U/S 12A OF THE ACT. 9. IN THE RESULT THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 . 1.2015 . - SD/ - - SD/ - ( N.K.SAINI ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :16 / 01 / 2015 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELH I