Income-Tax Appellate Tribunal, Agra in case of Fateh Chand Trust & College Committee vide it’s ITA No.406 dated 27th September 2018 has held that sec. 12AA registration couldn’t be rejected on basis that assessee was engaged in education with the profit motive
Brief Facts of the Case:-
The assessee-society was formed with the object of running various educational institutions for imparting education. It filed an application for registration under section 12AA. the appellant-assessee failed to show cause any act of charity and no expenditure account and further on the same stroke alleged that huge fee was collected from students; that details of salary were not provided; that it is generating income from F.D Interest, Rent, and Bank Interest; and therefore huge profit is being made. The Commissioner opined that the assessee was primarily engaged in the business of education on a commercial basis with a profit motive without providing any element of charity to the public at large. He thus rejected the assessee’s application.
The careful perusal of the objects reveals that the objects of the Society primarily are of imparting education to all the classes of the Society. The order impugned is absolutely silent in respect of this material aspect of the matter. The law is fairly well settled that while granting Registration the Ld CIT is entitled to conduct enquiry and get himself satisfied with the objects stated in the memorandum of objects, at this stage any enquiry with regard to the source of income or application thereof is beyond the scope of enquiry contemplated under the Act as per by the law evolved.
The Society is running and maintaining a school up to Intermediate classes and is affiliated by the Government of U.P. Hon’ble Karnataka High Court in the case of CIT vs. A.S.11 ITA No.406/Agra/2018 Kupparaju Brothers Charitable Foundation Trust reported in (2012) 69 DTR 315, has held that once it is admitted that in pursuance of the trust deed and in terms of the objects set out therein, schools and colleges are being run and educational institution are being run, nothing more requires to be established to show that the trust in question is a genuine trust.
CIT, while passing impugned order seems to be under the gross misconception that it is his satisfaction and definition of ‘charitable activities’ dehors requirement of law would only enable an institution to be granted registration under section 12AA of the Act as once registration is granted, the entire income of the institution would become exempt. The said view, in the light of precedents referred above, is wholly opposed to the law. Under section 12AA of the Act, the Commissioner is entitled to see that whether the objects are charitable in nature, which term has been well defined in the Act and also to see whether the activities are genuine or not. The genuineness of activities would mean to see that activities are not camouflaged, bogus, artificial and whether these are in accordance with the objects of the institution.
The scope of inquiry does not extend beyond that point. On the other hand, the registration granted by Commissioner does not extend an exemption to an institution under section 11 except to the fact that such registration is mandatory for claiming exemption under section 11. Meaning thereby, in other words, the exemption under section 11 can be availed by the institution which is genuinely engaged in ‘charitable activities. However, the benefit of section 11 is subject to the application of income for charitable activities and the Assessing Officer is well entitled to see whether such application has been made and other conditions of section 11 have complied. The Assessing Officer has to see whether the exemption under section 11 is barred by the application of section 13 of the Act. An institute though registered under section 12AA, would still be taxed on the income which has not been applied in accordance with section 11.
Thus, the registration under section 12AA is only fait accompli to the objects of the institution. The activities of an institution through genuine at the time of grant of registration may not remain so during its life span and the registration granted to it cannot be lifetime guarantee that it would remain so, that is why the law prescribes the procedure for withdrawal of registration once granted. Various findings as demonstrated by the Ld Counsel too were recorded in total ignorance of facts available on records.
In the facts and circumstances of the case, the order under appeal is unsustainable and thus reversed. The Ld. CIT(E) is directed to grant registration to the appellant forthwith, preferably within a month time of furnishing copy of this order.
