IT: For grant of registration, Commissioner should look into objects of trust; issue of receipt of donation or commencement of charitable activities is not relevant
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[2013] 38 taxmann.com 295 (Agra - Trib.)
IN THE ITAT AGRA BENCH
Babu Ram Education Society
v.
Commissioner of Income-tax*
Bhavnesh Saini, JUDICIAL MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
IT Appeal Nos. 78 & 79 (Agra) of 2013
JULY 26, 2013
Section 12AA of the Income-tax Act, 1961 - Charitable or religious trust - Registration procedure [Scope of inquiries] - Whether before grant of registration under section 12AA, Commissioner has to satisfy himself about objects and genuineness of activities of assessee-trust or institution; other conditions are not relevant at stage of grant of registration - Held, yes - Commissioner declined to grant registration to assessee-trust under section 12AA on grounds that assessee had not yet commenced charitable activities, that assessee had not established identity of donors and, that assessee had spent less than 85 per cent of donation received - Whether most of objections raised by Commissioner in impugned order was not relevant for purpose of grant of registration under section 12AA - Held, yes - Whether since objects of assessee were charitable and educational in nature and assessee was at stage of setting up educational institution, registration under section 12AA was to be granted to assessee - Held, yes [Paras 6 & 7] [In favour of assessee]
CASE REVIEW
Hardayal Charitable & Educational Trust v. CIT [2013] 355 ITR 534/214 Taxman 655/32 taxmann.com 341 (All.) (Para 7) followed.
CASES REFERRED TO
Hardayal Charitable & Educational Trust v. CIT [2013] 355 ITR 534/214 Taxman 655/32 taxmann.com 341 (All.) (para 4).
R.C. Tomar for the Appellant. S.L. Maurya for the Respondent.
ORDER
Bhavnesh Saini, Judicial Member - Both the appeals by the assessee are directed against the common order of ld. CIT, Aligarh dated 15.01.2013 rejecting the application for registration u/s. 12AA and recognition u/s. 80G(5)(vi) of the IT Act.
2. Briefly, the facts of the case are that the assessee filed application for grant of registration u/s. 12AA and approval for exemption u/s. 80G(5)(vi) of the IT Act in the prescribed form. The ld. CIT issued summons to various donors of the society for verification of the donations above Rs. 20,000/-, in which 10 summons were returned un-served. The ld. CIT after affording opportunity of being heard to the assessee and considering the material on record noticed following shortcomings, irregularities and effects :
| (i) | The assessee has not filed audit report in proper format in form No. 10B for F.Y. 2011-12. | |
| (ii) | In response to summons to the donors, replies have been received in 17 cases, which are not accompanied by any documentary evidence in respect of identity of the donors which was found essential for establishing genuineness of the persons who have donated the money. | |
| (iii) | The assessee submitted two separate lists of the donors and both were not in proper form. | |
| (iv) | On perusal of the balance sheet, it was seen that previous balance of Rs. 40,252/- is mentioned. This fact proves that the balance sheet is not genuine because the society came into existence only on 26.11.2011. | |
| (v) | The accounts of the society shows that the land was acquired for Rs. 10,90,300/-, but in the account, the value of land was shown for Rs. 15,03,200/-. | |
| (vi) | The assessee has not produced documentary evidence regarding getting the donations for the purpose of construction of the college of education. | |
| (vii) | The ITO, Mainpuri has given proper opportunity to the assessee and the donors. | |
| (viii) | The Society is incorporated on 26.11.2011 but neither any charitable work has been done nor any affiliation letter has been issued to the society so far. It was, therefore, proved that the society is yet to be engaged in charitable activities. | |
| (ix) | Perusal of the balance sheet show that the assessee has received donations of Rs. 57,56,415/- for F.Y. 2011-12, but it has spent only an amount of Rs. 44,86,450/- for the same year, which is less than 85%, which is in violation of section 11(1)(a) of the IT Act. |
3. The ld. CIT, in view of the above discrepancies, rejected both the applications.
4. Ld. counsel for the assessee reiterated the submissions made before the ld. CIT(A) and referred to various documents in the paper book and submitted that the assessee's objects are educational only. He purchased the land for the purpose of construction of educational institution. The donations are received for the purpose of corpus. The donors have confirmed giving of donations to the assessee in their statement recorded u/s. 131 of the IT Act, which is supported by their PAN or identity proof. He has submitted that the assessee is at the stage of construction of educational building and has also applied to Dr. Bhim Rao Ambedkar University, Agra for affiliation and with the office of Higher Education, Agra, Aligarh. Letters of the same are filed in the paper book. The photographs showing construction activities are going on are also filed in the paper book along with list of donors. He has also submitted that DCIT(Judicial) has recommended for grant of registration and approval under the above provision and his report is filed at page 90 of the paper book. He has relied upon the decision of Hon'ble Allahabad High Court in the case of Hardayal Charitable & Educational Trust v. CIT [2013] 355 ITR 534/214 Taxman 655/32 taxmann.com 341. On the other hand, the ld. DR relied upon the impugned order.
5. We have considered the rival submissions and the material available on record. Section 12AA of the IT Act provides as under :
"12AA. Procedure for registration. — (1) The Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) of sub-section (1) of section 12A, shall—
| (a) | call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and | |
| (b) | after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he— |
| (i) | shall pass an order in writing registering the trust or institution; | |
| (ii) | shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, |
and a copy of such order shall be sent to the applicant :
Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.
(1A) All applications, pending before the Chief Commissioner on which no order has been passed under clause (b) of sub-section (1) before the 1st day of June, 1999, shall stand transferred on that day to the Commissioner and the Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day.
(2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) or clause (aa) of sub-section (1) of section 12A.
(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996) and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution:
Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard."
6. The ingredients of above section clearly makes out that before grant of registration u/s. 12AA, the ld. CIT has to satisfy himself about the objects and genuineness of the activities of the assessee trust or institution. Other conditions are not relevant at the stage of grant of registration. The recognition u/s. 80G(5) is consequential to the grant of registration. Hon'ble jurisdictional Allahabad High Court in the case of Hardayal Charitable & Educational Trust (supra) held as under (page 543):
"The preponderance of the judicial opinion of all the High Court including this Court is that at the time of registration under section 12AA of the Income Tax Act, which is necessary for claiming exemption 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 up to achieve its objects of establishing 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 commenced the charitable or religious activity. Any enquiry of the nature would amount to putting the cart before the horse. 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 restricted 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 genuineness of the activity cannot be a ground on which the registration may be refused.
It is not denied that for subsequent year the appellant has been granted exemption under section 12AA and has also been approved under Section 80G of the Act, subject to certain conditions. If the Commissioner of Income Tax was satisfied with the genuineness of the objects of the trust for the subsequent assessment year, the refusal of the registration for the previous assessment year 2011-12 was not justified.
The question of exemption of the application of income received by way of donation, is a separate issue and which 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.
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 that the registration under Section 12AA and approval under Section 80G would not by itself entitle the Trust for exemption of the income of its 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."
7. Considering the above provisions in the light of decision of Hon'ble Allahabad High Court, it is clear that most of the objections raised by the ld. CIT in the impugned order are not relevant for the purpose of grant of registration u/s. 12AA of the IT Act and approval of exemption u/s. 80G(5) of the IT Act. Hon'ble Allahabad High Court in this case held that for grant of registration u/s. 12AA, The Commissioner of Income Tax is not required to look into the activities where such activities have not or in the process of its initiation. The objects of the Institution shall have to be seen. The issue of receipt of donations is not relevant. The registration could not have been refused on the ground that the trust has not yet commenced the charitable or religious activities. The assessee has filed copy of the aims and objects of the society, which shows that the assessee exists for educational and charitable purpose only, which is also supported by the report of DCIT (Judicial) dated 11.01.2013 (PB-90), in which it was reported that nature of the objects in by-laws/MOS was found to be educational. Income of the assessee was found to have applied wholly for charitable activities. The assessee society was found to exist and registered under the Societies Act. List of the donors have been provided. DCIT(Judl.), therefore, recommended grant of registration u/s. 12AA and approval of exemption u/s. 80G of the IT Act. The assessee purchased land for the purpose of construction of the building, details are mentioned in the audited balance sheet. Photograph shows that the society is at the stage of construction of the educational building. List of the donors are filed in the paper book and large number of donors have confirmed giving of donations to the assessee for the purpose of society which is supported by their identity proofs. The assessee also applied for grant of recognition for educational purpose with Dr. Bhim Rao Ambedkar University, Agra and with the office of higher education officer, Agra, Aligarh region, Agra. These evidences on record clearly prove that the objects of the assessee were charitable & educational in nature and are genuine. The assessee is at the stage of setting up the educational institution, Therefore, the assessee society was set up to achieve its objects of establishing educational institution is in the process of establishing such institution and received donations. At this stage as per judgment of Hon'ble Allahabad High Court, the genuineness of the objects have to be tested and not the activities which have not commenced. The reasons given by the ld. CIT in the impugned order for rejection of applications are thus not relevant at this stage which may be a separate issue and arise whenever the return of income would be filed by the assessee and would be examined at assessment stage. Considering the facts and circumstances and over all evidences, produced on record in the light of provisions of section 12AA of the IT Act, we are of the view that the assessee society is entitled for registration u/s. 12AA of the IT Act and approval u/s. 80G(5) of the IT Act. We accordingly, set aside the orders of the ld. CIT and direct him to grant registration to the assessee u/s. 12AA of the IT Act and approval u/s. 80G(5)(vi) of the IT Act in accordance with law.
8. In the result, both the appeals of the assessee are allowed.
USP Regards
Prarthana Jalan
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