Suchinta Educational Society V. Commissioner of Income Tax-I

ITA/263/2013

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Suchinta Educational Society appealed against the decision of the Income Tax Appellate Tribunal, which upheld the Commissioner of Income Tax's refusal to grant registration under Section 12AA of the Income Tax Act, 1961. The Commissioner had declined the registration on the grounds that the society had not commenced its charitable activities and was merely an attempt to split up assets of an existing society to evade tax liability. The Tribunal agreed, noting the society's vague objectives and lack of identified primary charitable activities. However, the High Court, referencing relevant precedents, concluded that the mere absence of commenced activities at the time of application does not justify the denial of registration, especially when the intended activities are recognized as charitable under the Act.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 795540 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 28-04-2014
• Assessment Year: misc
• Other Referred Cases: Director of Income Tax (Exemption) Vs. Panna Lalbhai Foundation, Commissioner of Income Tax-II, Chandigarh Vs. M/s Surya Educational & Charitable Trust, Self Employers Service Society Vs. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: URVASHI DUGGA
• Assessee Lawyers: AKSHAY BHAN; AALOK MITTAL
• Keywords: Charitable registration; Denial of registration; Income tax appellate tribunal; Section 12AA
• Section: 12AA; 260-A

Judgement Text

"IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision: 28.04.2014 I.T.A.No.263 of 2013 Suchinta Educational Society ...Appellant Versus Commissioner of Income Tax-I ...Respondent CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA HON’BLE MR. JUSTICE FATEH DEEP SINGH Present: Mr. Akshay Bhan, Senior Advocate, with Mr. Aalok Mittal, Advocate, for the appellant. Ms. Urvashi Dugga, Advocate, for the respondent. HEMANT GUPTA, J. The present appeal under Section 260 A of the Income Tax Act, 1961 (for short ‘the Act’) is directed against an order passed by the Income Tax Appellate Tribunal, Chandigarh Bench ‘A’, Chandigarh (for short ‘the Tribunal’) on 24.05.2013, whereby an appeal against an order passed by the Commissioner of Income Tax-I, Chandigarh declining registration under Section 12AA of the Act was dismissed. The appellant was registered as a Society on 13.04.2012. The appellant filed an application for registration of a Society under Section 12AA of the Act. A perusal of the order passed by the Commissioner of Income Tax shows that one ‘Shishu Niketan Model School’ is an existing Society registered under Section 12AA of the Act. The said Society is running four schools i.e. two in Chandigarh, one each in Mohali and in Panchkula. The appellant was established to take over on lease the management of one of the schools. The Commissioner found that the appellant has only proposal to take on lease the management of the existing Kumar Vimal 2014.05.01 10:44 I attest to the accuracy and integrity of this document Chandigarh I.T.A.No.263 of 2013 2 school, but it has not yet taken over the school, meaning thereby that no activities have yet been carried out. The Commissioner declined the registration, inter alia, for the reason that it is an attempt of the assessee to split up assets of an already existing society and conveniently pass it over to a new one with sole intention of evading tax liability. In all probabilities, it will defeat the very purpose for which the exemption provisions have been contained in the Act. In appeal, the Tribunal, inter alia, observed that the assessee has wide range of objects, which are in different directions and different fields and are general in nature. Keeping in view the ‘Note of Activity’ furnished by the assessee before the Commissioner, the Tribunal found that the appellant was proposing to take over on lease the management of one of the existing school and running it on day-to-day basis, but the assessee has not identified the primary objects, which the Society wants to undertake in order to carry on its charitable activities. Once the purpose of the Trust has not been established, therefore, the genuineness of the activities cannot be verified. The Tribunal concluded as under: “24. In view thereof, the Commissioner is to look into the objects of the society to determine whether the same are charitable in nature on not. In the facts of the present case and as held by us in the paras hereinabove, on consideration of the factual aspects we find that some of the objects of the assessee society are not charitable in nature and we are in conformity with the finding of the Commissioner of Income Tax that though the assessee society was registered with Registrar of Societies on 13.04.2012, but no activity had been started up to the date of present proceedings and in the absence of the same there was no material to verify the objects and activities of the society and their genuineness. In view thereof, we uphold the order of Commissioner in refusing to grant registration to the assessee under Section 12AA of the Act and the grounds of appeal raised by the assessee are thus dismissed.” Kumar Vimal 2014.05.01 10:44 I attest to the accuracy and integrity of this document Chandigarh I.T.A.No.263 of 2013 3 Before this Court, the assessee has framed as many as six substantial questions in the memorandum of appeal, but we find that following substantial question of law arises for consideration: “Whether in the facts and circumstances of the case, the respondent erred in denying the registration under Section 12AA of the Act to the appellant on the grounds that the appellant Society had not commenced its charitable functions?” Learned counsel for the appellant relies upon a Division Bench judgment of Gujarat High Court reported as Director of Income Tax (Exemption) Vs. Panna Lalbhai Foundation (2013) 35 taxmann.com 104, to contend that the registration cannot be declined only because the Trust has not commenced its activities. Relying upon a Division Bench judgment of this Court in Commissioner of Income Tax-II, Chandigarh Vs. M/s Surya Educational & Charitable Trust (2013) 355 ITR 280, it is argued that sub- sections (1A) & (2) of Section 12AA of the Act are procedural in nature, whereas sub-section (3) of Section 12AA of the Act empowers the Commissioner to cancel the registration, if he is satisfied that the activities are not genuine or are not carried out in accordance with the objects of the Trust or Institution. It is, thus, argued that the genuineness of the activities of the Trust, as a pre-condition for registration under Section 12AA of the Act deals with the existing activities or the activities, which are to be taken in hand in future. If an assessee does not satisfy the test of genuineness of activities at any subsequent stage, the registration itself can be cancelled in terms of sub-section (3) of Section 12AA of the Act. Therefore, the genuineness of the activities of the appellant cannot be pre-judged only for the reason that the activities have not been undertaken. Kumar Vimal 2014.05.01 10:44 I attest to the accuracy and integrity of this document Chandigarh I.T.A.No.263 of 2013 4 On the other hand, learned counsel for the respondent referred to a Division Bench judgment of Kerala High Court reported as Self Employers Service Society Vs. Commissioner of Income Tax (2001) 247 ITR 18, wherein registration was declined. Having heard learned counsel for the parties, we find that in the judgment referred to by learned counsel for the respondent, the Society in question had not done any charitable work. The activities carried on were found to be only for the purpose of generating income for its members. Therefore, it is not a case where the activities, which were yet to be started, were found to be in-genuine. It could not be disputed that running of a school falls within the scope of activities for which registration can be granted under Section 12AA of the Act. In fact, the similar activities carried out by Shishu Niketan Model School have been granted registration, which is running four institutions. The Society has been established to manage one of such schools. There cannot be any attempt of the assessee to evade tax liability, as Shishu Niketan Model School has been granted registration and availing the benefit of tax. In view of the above, we find that the orders of the Commissioner of Income Tax and that of the Tribunal in declining the registration to the appellant are not sustainable in law. Consequently, while answering the substantial question of law in favour of the appellant, the present appeal is allowed. (HEMANT GUPTA) JUDGE 28.04.2014 (FATEH DEEP SINGH) Vimal JUDGE Kumar Vimal 2014.05.01 10:44 I attest to the accuracy and integrity of this document Chandigarh "