MESERS SANATAM DHARAM EDUCATIONAL CHARITABLE SOCIETY , PHAGWARA V. COMMISSIONER OF INCOME TAX (EXEMPTIONS), CHANDIGARH

ITA 600/ASR/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7678 (ITAT-AMRITSAR)
• Duration Of Justice: 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Appeal Filed On: 04-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT MOHAN JINDAL
• Assessee Lawyers: Y K SUD
• Keywords: Depreciation; Charitable institution; Set aside
• Section: 12AA; 12

Judgement Text

P A G E | 1 ITA NO. 600/ASR./2018 SANATAM DHARAM EDUCATIONAL CHARITABLE SOCIETY. VS. CIT(E) IN THE INCOME TAX APPELLATE TRIBUNAL CAMP BENCH AT JALANDHAR BEFORE SHRI N.K. SAINI, VICE PRESIDENT AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO. 600/ASR./2018 SANATAM DHARAM EDUCATOINAL CHARITABLE SOCIETY, PHAGWARA. VS. CIT(EXEMPTIONS) , CHANDIGARH. PAN AANAS4672G (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI Y.K SUD, A.R. RESPONDENT BY: SHRI LALIT MOHAN JINDAL, D.R DATE OF HEARING: 16.01.2019 DATE OF PRONOUNCEMENT: 05.04.2019 O R D E R PER RAVISH SOOD, JM THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER PASSED BY THE CIT(EXEMPTIONS), CHANDIGARH UND ER SEC. 12AA(1)(B)(II) OF THE INCOME TAX ACT, 1961 (FOR SHO RT IT ACT), DATED 28.09.2018. THE ASSESSEE ASSAILING THE ORDER OF THE CIT(E) HAS RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE CIT(E) WAS NOT JUSTIFIED IN REFUSING THE REGISTRATION U/S 12AA OF THE INCOME TAX ACT. 2. THAT THE CIT(E) WHILE PASSING THE ORDER HAS FAILED T O APPLY HIS MIND TO THE OBJECTS OF THE SOCIETY WHICH WERE CHARITABLE IN NATURE AND FURTHER T HE PROCEEDINGS WERE CONDUCTED BY DCIT(HQ)(E) WHICH ARE AGAINST THE PROVISIONS OF THE LAW. 3. THAT THE REGISTRATION HAS BEEN REJECTED BY LOOKING I NTO THE APPLICATION OF INCOME WHICH ARE TO BE EXAMINED ONLY AT THE TIME OF ASSESSMENT. P A G E | 2 ITA NO. 600/ASR./2018 SANATAM DHARAM EDUCATIONAL CHARITABLE SOCIETY. VS. CIT(E) 4. THAT THE ORDER OF THE CIT(E) IS AGAINST THE LAW A ND FACTS OF THE CASE. 2. BRIEFLY STATED, THE ASSESSEE IS A SOCIETY REGISTERE D WITH THE REGISTRAR OF SOCIETIES, DISTRICT KAPURTHALA, VIDE R EGISTRATION CERTIFICATE DATED 11.02.2015. AS IS DISCERNIBLE FROM THE AIMS A ND OBJECTS, THE ASSESSEE SOCIETY WHICH WAS FORMED WITH THE OBJECT O F PROVIDING QUALITY EDUCATION TO THE PUBLIC IS RUNNING A SCHOOL VIZ. SD MODEL SENIOR SECONDARY SCHOOL AT PHAGWARA. THE ASSESSEE SOCIETY WHICH IS AN ONGOING ENTITY IN OPERATION SINCE 11.02.2015, HAD F ILED AN APPLICATION IN FORM NO. 10A FOR REGISTRATION UNDER SEC. 12AA OF THE IT ACT. 3. THE CIT(E) IN ORDER TO VERIFY AS TO WHETHER THE ACTIVITIES OF THE ASSESSEE SOCIETY WERE IN CONFORMITY WITH THE STATED AIMS AND OBJECTS, CALLED UPON THE ASSESSEE TO FURNISH CERTAIN DETAILS /CLARIFICATIONS. APART THERE FROM, THE CIT(E) ALSO DIRECTED THE ASSE SSEE TO SUBMIT COPIES OF THE FINANCIAL STATEMENTS OF THE SCHOOL FO R F.Y(S). 2014-15, 2015-16 AND 2016-17. ON THE BASIS OF THE DETAILS AN D THE FINANCIAL STATEMENTS PLACED ON RECORD BY THE ASSESSEE THE CIT (E) WAS NOT SATISFIED WITH THE GENUINENESS OF THE ACTIVITIES OF THE ASSESSEE SOCIETY FOR MULTIPLE REASONS VIZ. (I) THAT THE ASSESSEE SOC IETY HAD SHOWN THE ADVANCE FEES ON THE CURRENT LIABILITY SIDE OF ITS B ALANCE SHEET FOR THE F.Y(S) 2014-15, 2015-16 AND 2016-17 WITH THE INTENT ION OF REDUCING ITS GROSS RECEIPTS BELOW RS. 1 CRORE; (II) THAT THE SECURITY DEPOSIT OF RS. 14 LACS TAKEN BY THE ASSESSEE SOCIETY ON ACCOUNT OF SHOPS SITUATED AT GURU NANAK MARKET, PHAGWARA WHICH WERE GIVEN ON REN T TO S/SH. RAJIV JAIN AND RAJ KUMAR NAYYAR HAD NOT BEEN ROUTED THOROUGH ITS INCOME AND EXPENDITURE ACCOUNT; (III) THAT THE AMOU NT OF RS. 14 LACS RECEIVED BY THE ASSESSEE SOCIETY FROM S/SH. RAJIV J AIN AND RAJ KUMAR NAYYAR WAS TOWARDS ADVANCE RENT FOR THE SHOPS GIVEN ON RENT TO THEM; (IV) THAT THE INCONSISTENCY BETWEEN THE ADVANCE REN T OF RS. 14 LACS AND P A G E | 3 ITA NO. 600/ASR./2018 SANATAM DHARAM EDUCATIONAL CHARITABLE SOCIETY. VS. CIT(E) THE ANNUAL RENTAL INCOME OF RS. 10,000/- AND RS. 14 ,000/- SHOWN BY THE ASSESSEE IN ITS ACCOUNTS FOR F.Y. 2015-16 AND F .Y. 2016-17, RESPECTIVELY, IMPINGES ON THE GENUINENESS OF ACTIV ITIES OF THE ASSESSEE SOCIETY; (V) THAT THOUGH THE ASSESSEE HAD PURCHASED ADDITIONAL LAND WHICH WAS THOUGH CLAIMED FOR CONSTRUCTING A NEW BUI LDING, HOWEVER, WHAT NECESSITATED PURCHASE OF THE ADDITIONAL LAND A ND WHETHER THE SAME WAS FOR EDUCATIONAL PURPOSE HAD NOT BEEN EVIDE NCED; AND (VI) THAT AS THE SURPLUS OF INCOME OVER EXPENDITURE IN T HE CASE OF THE ASSESSEE SOCIETY (WITHOUT CONSIDERING DEPRECIATION) DURING THE LAST THREE YEARS WAS HIGHLY PITCHED AT 20% TO 30% OF ITS GROSS RECEIPTS, THEREFORE, IT REVEALED THE EMPHASIS OF THE ASSESSEE SOCIETY ON GENERATING EXCESSIVE SURPLUSES. ON THE BASIS OF THE AFORESAID DELIBERATIONS THE CIT(E) NOT BEING SATISFIED WITH T HE GENUINENESS OF THE ACTIVITIES OF THE ASSESSEE SOCIETY DECLINED TO GRAN T REGISTRATION UNDER SEC. 12AA OF THE IT ACT. 4. AGGRIEVED, THE ASSESSEE HAS CARRIED THE MATTER I N APPEAL BEFORE US. THE LD. AUTHORIZED REPRESENTATIVE (FOR SHORT A .R) FOR THE ASSESSEE TOOK US THROUGH THE FACTS OF THE CASE. IT WAS SUBMI TTED BY THE LD. A.R THAT THE ISSUE WHICH HAD PRIMARILY WEIGHED IN THE M IND OF THE CIT(E) WHILE DECLINING TO GRANT REGISTRATION UNDER SEC. 12 AA TO THE ASSESSEE SOCIETY WAS THAT IT HAD GENERATED SURPLUS IN THE PR ECEDING YEARS. IT WAS AVERRED BY THE LD. A.R THAT THE CIT(E) WHILE DI SPOSING OFF THE APPLICATION OF THE ASSESSEE FOR GRANT OF REGISTRATI ON UNDER SEC. 12AA OF THE IT ACT, HAS AS A MATTER OF FACT TRAVERSED BEYON D THE SCOPE OF HIS JURISDICTION. IT WAS THE CONTENTION OF THE LD. A.R THAT THE CIT(E) AT THE TIME OF CONSIDERING THE APPLICATION OF THE ASSESSEE FOR GRANT OF REGISTRATION UNDER SEC. 12AA OF THE IT ACT WAS SUPP OSED TO CONFINE HIMSELF TO THE OBJECTS OF THE TRUST/SOCIETY AND THE GENUINENESS OF ITS ACTIVITIES AND WAS NOT VESTED WITH ANY JURISDICTION AT THE SAID STAGE TO P A G E | 4 ITA NO. 600/ASR./2018 SANATAM DHARAM EDUCATIONAL CHARITABLE SOCIETY. VS. CIT(E) EXAMINE AS TO WHETHER THE INCOME OF THE TRUST OR TH E INSTITUTION WAS APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES, OR NO T. IN SUPPORT OF HIS AFORESAID CONTENTION THE LD. A.R. RELIED ON THE JUD GMENT OF THE HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT V S. SURYA EDUCATIONAL AND CHARITABLE TRUST (2013) 355 ITR 280 (P&H) AND THE ORDER OF THE ITAT, AMRITSAR IN THE CASE OF M/S ARYA SHIKHSHA MANDAL VS. CIT(EXEMPTIONS) (ITA NO. 522/ASR/ 2016; DATED 2 7.03.2017). IN SUM AND SUBSTANCE, IT WAS THE CONTENTION OF THE LD. A.R THAT THE CIT(E) BY EXCEEDING THE ARENA OF HIS JURISDICTION H AD REJECTED THE APPLICATION FILED BY THE ASSESSEE FOR GRANT OF REGI STRATION UNDER SEC. 12AA. 5. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) RELIED ON THE ORDER OF THE CIT(E). IT WAS SUBMITTED BY THE LD. D.R THAT AS THE CIT(E) REMAINING WELL WITHIN THE REALM OF HI S JURISDICTION WAS NOT SATISFIED ABOUT THE GENUINENESS OF ACTIVITIES O F THE ASSESSEE SOCIETY, THEREFORE, HE HAD RIGHTLY DECLINED TO GRAN T REGISTRATION UNDER SEC. 12AA OF THE IT ACT. 6. WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIE S AND THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, AS PER THE SETTLED POSITION OF LAW THE REGISTERING AUTHORITY AT THE TIME OF CONSIDERING TH E APPLICATION OF A TRUST OR INSTITUTION SEEKING REGISTRATION UNDER SEC . 12AA OF THE IT ACT HAS TO CONFINE HIMSELF AS REGARDS SATISFACTION ABOU T THE OBJECTS OF THE TRUST OR INSTITUTION AND GENUINENESS OF ITS ACTIVITIES. AT THE STAGE OF CONSIDERING AN APPLICATION FILED BY A TRUST OR AN I NSTITUTION THE REGISTERING AUTHORITY CANNOT TRAVERSE TO EXAMINATIO N OF THE ASPECT AS TO WHETHER THE INCOME OF THE ASSESSEE HAD BEEN APPL IED FOR CHARITABLE OR RELIGIOUS PURPOSES OR NOT. IN OUR CONSIDERED VIE W, THE STAGE FOR CONSIDERING AS TO WHETHER THE INCOME OF THE TRUST O R THE INSTITUTION P A G E | 5 ITA NO. 600/ASR./2018 SANATAM DHARAM EDUCATIONAL CHARITABLE SOCIETY. VS. CIT(E) HAD BEEN APPLIED IN CONFORMITY WITH ITS AIMS AND OB JECTIVES FOR CHARITABLE OR RELIGIOUS PURPOSES WOULD BE AS AND WH EN A RETURN OF INCOME IS FILED BY SUCH TRUST OR INSTITUTION. IN FA CT, IF SUBSEQUENT TO THE REGISTRATION THE COMMISSIONER IS SATISFIED THAT THE ACTIVITIES OF THE TRUST ARE NOT CARRIED OUT IN ACCORDANCE WITH ITS OB JECTS, THEN HE IS DULY EMPOWERED TO CANCEL THE REGISTRATION BY TAKING RECO URSE TO SUB-SECTION (3) OF SEC. 12AA OF THE IT ACT. OUR AFORESAID VIEW IS FORTIFIED BY THE JUDGMENT OF THE HONBLE HIGH COURT OF PUNJAB & HARY ANA IN THE CASE OF CIT VS. SURYA EDUCATIONAL AND CHARITABLE TRUST ( 2013) 355 ITR 280 (P&H). 7. WE SHALL NOW IN THE BACKDROP OF THE AFORESAID SE TTLED POSITION OF LAW ADVERT TO THE OBSERVATIONS DRAWN BY THE CIT(E) FOR DECLINING THE GRANT OF REGISTRATION TO THE ASSESSEE SOCIETY UNDER SEC. 12AA OF THE IT ACT. INSOFAR THE ADVERSE INFERENCE DRAWN BY THE CIT (E) THAT THE ASSESSEE HAD IN THE LAST THREE PRECEDING YEARS BY A CCOUNTING FOR THE ADVANCE FEES ON THE CURRENT LIABILITY SIDE OF ITS BALANCE SHEET HAD MANOEUVRED AND MANAGED TO KEEP ITS GROSS RECEIPTS B ELOW RS. 1 CRORE IS CONCERNED, WE ARE UNABLE TO PERSUADE OURSELVES T O SUBSCRIBE TO THE SAID VIEW SO ARRIVED AT BY HIM. IN OUR CONSIDERED V IEW THE AFORESAID ASPECT OF ACCOUNTING OF THE GROSS RECEIPTS BY THE A SSESSEE SOCIETY WILL HAVE NO BEARING FOR ADJUDICATING THE GENUINENESS OF ITS ACTIVITIES. APART THERE FROM, IN OUR CONSIDERED VIEW AS THE AD VANCE FEE RECEIVED BY THE ASSESSEE SOCIETY DURING THE YEAR WOULD NOT F ORM PART OF ITS TOTAL INCOME FOR THE YEAR UNDER CONSIDERATION, THEREFORE , NO INFIRMITY CAN BE ATTRIBUTED TO THE ASSESSEE SOCIETY WHICH IS MAIN TAINING ITS ACCOUNTS AS PER THE MERCANTILE SYSTEM OF ACCOUNTANCY FOR THE REASON THAT IT HAD SHOWN THE SAME UNDER THE HEAD CURRENT LIABILITY I N ITS RESPECTIVE BALANCE SHEETS FOR THE SAID PRECEDING YEARS. AS REG ARDS THE ADVERSE INFERENCE DRAWN BY THE CIT(E) IN RESPECT OF THE S ECURITY DEPOSIT OF RS. P A G E | 6 ITA NO. 600/ASR./2018 SANATAM DHARAM EDUCATIONAL CHARITABLE SOCIETY. VS. CIT(E) 14 LACS RECEIVED BY THE ASSESSEE FROM ITS TENANTS I .E. S/SH. RAJIV JAIN AND RAJ KUMAR NAYYAR FOR THE SHOPS SITUATED AT GURU NANAK MARKET, PHAGWARA WHICH HAD BEEN LET OUT TO THEM, WE ARE UNA BLE TO ENDORSE THE SAME. BEFORE PROCEEDING FURTHER, WE MAY HEREIN RECORD OUR OBSERVATIONS IN CONTEXT OF THE ISSUE UNDER CONSIDER ATION ON THE BASIS OF THE FACTS AS ARE DISCERNIBLE FROM THE BALANCE SH EET OF THE ASSESSEE SOCIETY AS ON 31.03.2016 VIZ. (I) THAT THE ASSESSEE SOCIETY DURING THE F.Y. 2015-16 WAS IN RECEIPT OF AN AMOUNT AGGREGATIN G TO RS. 13,87,000/- FROM ITS TENANTS (I.E. SH. RAJIV JAIN : RS. 3,87,000/- AND SH. RAJ KUMAR NAYYAR : RS. 10,00,000/-) AND NOT AN AMOUNT OF RS. 14 LAC AS STATED BY THE CIT(E) IN HIS ORDER PASSED UND ER SEC. 12AA(1)(B)(II); (II) THAT THE AFORESAID AMOUNT OF R S. 13,87,000/- WAS RECEIVED BY THE ASSESSEE SOCIETY AS A SECURITY DEP OSIT FROM ITS TENANTS S/SH. RAJIV JAIN AND RAJ KUMAR NAYYAR, AND NOT TOWA RDS ADVANCE RENT AS FIND MENTIONED IN THE ORDER PASSED BY THE C IT(E) UNDER SEC. 12AA(1)(B)(II). AS OBSERVED BY US HEREINABOVE, THE CIT(E) HAD TRAVERSED BEYOND THE SCOPE OF HIS JURISDICTION AND INSTEAD OF CONFINING HIMSELF TO THE ASPECT OF THE GENUINENESS OF THE ACTIVITIES OF THE ASSESSEE SOCIETY, HAD RATHER EMBARKED UPON THE ISSUES WHICH THOUGH WO ULD BE RELEVANT AT THE STAGE OF FRAMING OF ASSESSMENT BUT WOULD HAV E NO BEARING TO THE EXTENT JUDGING OF THE GENUINENESS OF THE ACTIVI TIES OF THE ASSESSEE SOCIETY ARE CONCERNED. BE THAT AS IT MAY, EVEN OTHE RWISE AS THE SECURITY DEPOSIT RECEIVED BY THE ASSESSEE SOCIETY FROM S/SH. RAJIV JAIN AND RAJ KUMAR NAYYAR IN THE F.Y. 2015-16 COULD NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE FOR THE F.Y. 2015-16, THUS NO INFIRMITY AS REGARDS THE MANNER IN WHICH THE AFORES AID AMOUNT HAS BEEN REFLECTED BY THE ASSESSEE IN ITS FINAL ACCOUNT S FOR SAID YEAR IS LIABLE TO BE DRAWN. INSOFAR THE OBSERVATIONS OF THE CIT(E) THAT THE INCONSISTENCY BETWEEN THE ANNUAL RENTAL INCOME OF R S. 10,000/- AND RS. 14,000/- SHOWN BY THE ASSESSEE IN F.Y. 2015-16 AND F.Y. 2016-17 P A G E | 7 ITA NO. 600/ASR./2018 SANATAM DHARAM EDUCATIONAL CHARITABLE SOCIETY. VS. CIT(E) ON THE ONE HAND AND THE ADVANCE RENT OF RS. 14 LACS IS CONCERNED, WE ARE UNABLE TO SUBSCRIBE TO THE SAID OBSERVATIONS OF THE CIT(E), WHICH AS OBSERVED BY US HEREINABOVE IS BASED ON MISCONCEI VED FACTS. AS OBSERVED BY US HEREINABOVE, AS THE AMOUNT OF RS. 13 ,87,000/- ( SIC RS. 14 LAC ) IS THE AMOUNT RECEIVED BY THE ASSESSEE SOCIETY AS A SECURITY DEPOSIT FROM ITS TENANTS, THEREFORE, NO FEASIBLE C OMPARISON BETWEEN THE RENT RECEIVED BY THE ASSESSEE SOCIETY AND THE S AID SECURITY DEPOSIT CAN BE DRAWN. BE THAT AS IT MAY, IN OUR CONSIDERED VIEW THE QUANTUM OF RENT RECEIVED BY THE ASSESSEE SOCIETY FROM ITS T ENANTS WOULD NOT HAVE ANY BEARING FOR VERIFYING THE GENUINENESS OF T HE ACTIVITIES OF THE ASSESSEE SOCIETY. AS REGARDS THE OBSERVATIONS OF TH E CIT(E) THAT AS TO WHAT NECESSITATED THE PURCHASE OF ADDITIONAL LAND B Y THE ASSESSEE SOCIETY IN F.Y. 2015-16, AND THAT THERE WAS NO EVID ENCE AS TO WHETHER THE SAME WAS FOR EDUCATIONAL PURPOSES, WE FIND IT B EYOND OUR COMPREHENSION AS TO HOW THE SAME WOULD HAVE ANY BEA RING FOR VERIFYING THE GENUINENESS OF THE ACTIVITIES OF THE ASSESSEE SOCIETY. IN OUR CONSIDERED VIEW, IF SUBSEQUENTLY THE SAID LAND WHICH HAD BEEN PURCHASED BY THE ASSESSEE SOCIETY IN FURTHERANCE OF ITS OBJECTS OF PROVIDING EDUCATION IS USED FOR ANY PURPOSE WHICH I S NOT AS PER THE OBJECTS OF THE ASSESSEE SOCIETY, THEN THE CIT(E) IS VESTED WITH THE POWERS UNDER SUB-SECTION (3) OF SECTION 12AA TO CAN CEL THE REGISTRATION SO GRANTED TO THE ASSESSEE SOCIETY. HOWEVER, IN OUR CONSIDERED VIEW NO ADVERSE INFERENCE AS REGARDS THE GENUINENESS OF THE ACTIVITIES OF THE ASSESSEE SOCIETY COULD HAVE VALIDLY BEEN DRAWN FOR THE REASON THAT IT HAD PURCHASED ADDITIONAL LAND FOR THE FURTHERANCE O F ITS OBJECTS. WE SHALL NOW ADVERT TO THE OBSERVATIONS OF THE CIT(E) THAT AS THE SURPLUS OF INCOME OVER EXPENDITURE (WITHOUT CONSIDERING DEP RECIATION) OF THE ASSESSEE SOCIETY WAS BETWEEN 20% TO 30% OF ITS GROS S RECEIPTS DURING THE LAST THREE YEARS, THEREFORE, IT SUBSTANTIALLY P ROVED THAT THE EMPHASIS OF THE ASSESSEE SOCIETY WAS ON GENERATING EXCESSIVE P A G E | 8 ITA NO. 600/ASR./2018 SANATAM DHARAM EDUCATIONAL CHARITABLE SOCIETY. VS. CIT(E) SURPLUSES. IN OUR CONSIDERED VIEW, IN ORDER TO CHAR ACTERIZE A TRUST OR AN INSTITUTION AS ONE WHICH HAS AS ITS OBJECT PROFI T MAKING, IT MUST BE SHOWN THAT THE PREDOMINATE OBJECT OF THE ACTIVITY I N THE CASE OF SUCH TRUST OR INSTITUTION WAS THAT OF MAKING OF A PROFIT . IN FACT, WHERE AN ACTIVITY IS NOT PERVADED BY PROFIT MOTIVE BUT IS CA RRIED ON PRIMARILY FOR SERVING THE CHARITABLE PURPOSE, IT WOULD BE INCORRE CT TO DESCRIBE IT AS AN ACTIVITY FOR PROFIT. HOWEVER, ON THE OTHER HAND WHERE THE ACTIVITY IS CARRIED ON WITH THE PREDOMINATE OBJECT OF EARNING P ROFIT, IT WOULD BE AN ACTIVITY FOR PROFIT, THOUGH IT MAY BE CARRIED ON IN ADVANCEMENT OF THE CHARITABLE PURPOSE OF THE TRUST OR INSTITUTION. IN SUM AND SUBSTANCE, THE PREDOMINATE OBJECT OF A CHARITABLE T RUST OR INSTITUTION IS TO CARRY ON ACTIVITIES TO SUB SERVE THE CHARITAB LE PURPOSE AND NOT TO EARN PROFIT. RATHER, THE CHARITABLE PURPOSE SHOULD NOT BE SUBMERGED BY THE PROFIT MAKING MOTIVE. FAIRLY STATING, THE PU RPOSE OF A CHARITABLE TRUST MUST BE ESSENTIALLY CHARITABLE IN NATURE AND IT SHOULD NOT BE A COVER FOR CARRYING ON AN ACTIVITY WHICH HAS PROFIT MAKING AS ITS PREDOMINATE OBJECT. IN OUR CONSIDERED VIEW, IT WOUL D INDEED BE DIFFICULT FOR A TRUST OR INSTITUTION TO SO CARRY ON ITS ACTIV ITY THAT THE EXPENDITURE BALANCES THE INCOME AND THERE IS NO RESULTING PROFI T. AS OBSERVED BY THE HONBLE SUPREME COURT IN THE CASE OF SOLE TRUST EE, LOKA SHIKSHANA TRUST (1975) 101 ITR 234 (SC), IF THE PRO FITS MUST NECESSARILY FEED A CHARITABLE PURPOSE UNDER THE TER MS OF THE TRUST, THE MERE FACT THAT THE ACTIVITIES OF THE TRUST YIELD PR OFIT WILL NOT ALTER THE CHARITABLE CHARACTER OF THE TRUST. IT WAS OBSERVED THAT THE TEST NOW IS THE GENUINENESS OF THE PURPOSE TESTED BY THE OBLIGA TION CREATED TO SPEND THE MONEY EXCLUSIVELY OR ESSENTIALLY ON CHARI TY. IN TERMS OF OUR AFORESAID OBSERVATIONS, WE ARE OF THE CONSIDERED VI EW THAT AN ACTIVITY INVOLVED IN CARRYING OUT THE CHARITABLE PURPOSE MUS T NOT BE MOTIVATED BY A PROFIT OBJECTIVE, BUT MUST BE UNDERTAKEN FOR T HE PURPOSE OF ADVANCEMENT OR CARRYING OUT OF THE CHARITABLE PURPO SE. RATHER, AS P A G E | 9 ITA NO. 600/ASR./2018 SANATAM DHARAM EDUCATIONAL CHARITABLE SOCIETY. VS. CIT(E) OBSERVED BY THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. SURAT ART SILK CLOTH MANUFACTURES ASSOCIATION (1980) 121 ITR 1 (SC), IN ORDER TO ASCERTAIN AS TO WHETHER A TRUST OR AN INST ITUTION IS CARRIED ON WITH THE OBJECT OF MAKING PROFIT OR NOT, IT IS THE DUTY OF THE PRESCRIBED AUTHORITY TO ASCERTAIN WHETHER THE BALANCE OF INCOM E IS APPLIED WHOLLY AND EXCLUSIVELY TO OBJECTS FOR WHICH SUCH TRUST OR INSTITUTION HAD BEEN ESTABLISHED . IN OUR CONSIDERED VIEW, WHERE AN EDUCATIONAL INST ITUTION CARRIES ON THE ACTIVITY OF EDUCATION PRIMARILY FOR EDUCATING PERSONS, THE FACT THAT IT MAKES A SURPLUS WOULD NOT LEAD TO THE CONCLUSION THAT IT CEASES TO EXIST SOLELY FOR EDUCATIONAL PURPOSES AND BECOMES AN INSTITUTION FOR THE PURPOSE OF MAKING PROFIT. WE AR E FURTHER OF THE VIEW THAT IN THE CASE OF AN EDUCATIONAL INSTITUTION WHER E THE SURPLUS GENERATED DURING THE YEAR IS PLOUGHED BACK FOR EDUC ATION PURPOSES, IT CAN SAFELY BE CONCLUDED THAT THE EDUCATIONAL INSTIT UTION EXISTS SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR THE PURPOSES O F PROFIT. IN THE CASE BEFORE US, WE FIND THAT EXCEPT FOR THE FACT THAT TH E ASSESSEE SOCIETY IN FURTHERANCE OF OBJECTS OF PROVIDING EDUCATION HAD C ONSISTENTLY GENERATED SURPLUS DURING THE LAST THREE PRECEDING Y EAR, NOTHING IS DISCERNIBLE FROM THE RECORDS OF THE LOWER AUTHORITI ES WHICH WOULD IRREFUTABLY PROVE THAT GENERATION OF SUCH SURPLUS A ND NOT RENDERING OF THE EDUCATION WAS THE PREDOMINATE OBJECT OF THE ASS ESSEE SOCIETY. IN FACT, WE FIND THAT THE SURPLUS IN THE HANDS OF THE ASSESSEE SOCIETY (AFTER CLAIM OF DEPRECIATION) RANGES FROM 15% TO 23 %. THE AFORESAID SURPLUS WE FIND HAD BEEN PLOUGHED BACK BY THE ASSES SEE SOCIETY FOR THE FURTHERANCE OF ITS OBJECT. WE THUS IN TERMS OF OUR AFORESAID OBSERVATIONS ARE OF THE CONSIDERED VIEW THAT THE GE NERATION OF SURPLUS BY THE ASSESSEE SOCIETY IN FURTHERANCE OF ITS PREDO MINATE OBJECT OF RENDERING EDUCATION CAN IN NO WAY HELP TO ARRIVE AT A CONCLUSION THAT THE EMPHASIS OF THE ASSESSEE SOCIETY WAS ON GENERAT ION OF EXCESSIVE SURPLUS AND NOT RENDERING OF EDUCATION. WE THUS IN TERMS OF OUR P A G E | 10 ITA NO. 600/ASR./2018 SANATAM DHARAM EDUCATIONAL CHARITABLE SOCIETY. VS. CIT(E) AFORESAID OBSERVATIONS ARE UNABLE TO SUBSCRIBE TO T HE VIEW TAKEN BY THE CIT(E) THAT THE GENUINENESS OF THE ACTIVITIES O F THE ASSESSEE SOCIETY WAS NOT PROVED. IN TERMS OF OUR AFORESAID OBSERVATI ONS, WE ARE OF THE CONSIDERED VIEW THAT THE CIT(E) HAD ERRED IN DECLIN ING TO GRANT REGISTRATION UNDER SEC. 12AA TO THE ASSESSEE SOCIET Y. WE THUS SET ASIDE THE ORDER OF THE CIT(E) AND DIRECT HIM TO GRA NT REGISTRATION UNDER SEC. 12AA TO THE ASSESSEE SOCIETY. 8. THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/04/2019 SD/- SD/- ( N.K. SAINI) (RAVISH SOOD) VICE PRESIDENT JUDICIAL ME MBER PLACE : CHANDIGARH; DATED 05.04.2019 PS. ROHIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. DR, ITAT, CAMP BENCH, JALANDHAR 6. / GUARD FILE. //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) & ' /ITAT, CAMP. BENCH, JALANDHAR