GEMS Education Society, Gurgaon v. CIT, Faridabad

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI RAJPAL YADAV JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER I.T.A NOS. 5308 5309/DEL/10 GEMS EDUCATION SOCIETY DLF GATEWAY TOWER 5 TH FLOOR DLF CITY PHASE-III GURGAON. AAAAG7454M VS. CIT FARIDABAD (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VED JAIN CA MISS RANO JAIN SHRI VENKETESH CHOWRASIA CA RESPONDENT BY: SHRI R.K. GUPTA CIT/DR ORDER PER RAJPAL YADAV JM: THE PRESENT TWO APPEALS ARE DIRECTED AT THE INSTAN CE OF ASSESSEE AGAINST THE SEPARATE ORDER OF LD. COMMISSIONER DATE D 28.9.2010 PASSED ITA NOS. 5308 5309/DEL/10 2 U/S 12AA(I)(B)(II) AND 80G (5) OF THE INCOME TAX AC T. THE SOLITARY GRIEVANCE OF THE ASSESSEE IN BOTH THE APPEALS RELAT ES TO DENIAL OF REGISTRATION U/S 12AA AND EXEMPTION U/S 80G OF THE INCOME TAX ACT. 2. THE FACTS AND CIRCUMSTANCES ON ALL MATERIAL POIN TS ARE COMMON FOR APPRECIATING THE DISPUTE WHETHER ASSESSEE IS ENTITL E FOR REGISTRATION U/S 12AA AND EXEMPTION U/S 80G. FOR THE FACILITY OF REF ERENCE WE ARE TAKING UP THE FACTS MAINLY FROM THE ORDER PASSED U/S 12AA BY THE LD. COMMISSIONER BECAUSE IN THE ORDER PASSED U/S 80G L D. COMMISSIONER HAS NOT DISCUSSED THE ISSUE IN DETAIL RATHER HE FOL LOWED HIS ORDER PASSED ON THE APPLICATION MADE U/S 12AA. 3. THE BRIEF FACTS ARE THAT ASSESSEE IS A SOCIETY R EGISTERED UNDER THE SOCIETIES REGISTRATION ACT 1860 VIDE REGISTRATION N O. DR/GGN/125/2009- 10 BY THE DISTRICT REGISTRAR OF FIRM AND SOCIETY HA RYAYA. THE SOCIETY CAME INTO EXISTENCE ON 22.10.2009. IT HAS FILED AN APPLICATION IN FORM NO. 10A FOR GRANT OF REGISTRATION U/S 12A OF THE IN COME TAX ACT ON 29 TH MARCH 2010. THE ASSESSEE HAS ENCLOSED ALL NECESSAR Y DOCUMENTS FOR PERUSAL OF THE LD. CIT(EXEMPTION). IT ANNEXED COPY OF MEMORANDUM OF ASSOCIATION COPY OF RULES AND REGULATIONS LIST OF EXECUTIVE MEMBERS CERTIFICATE U/S 13(I) OF THE INCOME TAX ACT. ON AN ANALYSIS OF THE ASSESSEES APPLICATION AS WELL AS THE MEMORANDUM OF ASSOCIATION ETC. LD. COMMISSIONER ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE WHEREBY ITA NOS. 5308 5309/DEL/10 3 HE SOUGHT EXPLANATION OF THE ASSESSEE FOR THE REASO NS ASSIGNED IN THE SHOW CAUSE NOTICE WHY ITS APPLICATION MAY NOT BE R EJECTED ?. THE REASONS GIVEN BY THE LD. COMMISSIONER IN THE SHOW C AUSE NOTICE READ AS UNDER :- 1 PLEASE EXPLAIN AS TO HOW THE AIMS AND OBJECTS ( VII) (IX) (XI) (XV) TO (XVIII) (XX) TO (XXX) AND (XXXII) LISTED IN CLAUS E 5 AIMS AND OBJECTS OF THE MOA FALL WITHIN THE MEANING OF CHARITABLE PURP OSES AS PER SECTION 2 (15) OF I.T. ACT 1961. 2. CLAUSE 5(XXXIII) STIPULATES UNDERTAKING OF ACTIV ITIES OUTSIDE INDIA WHICH IS IN VIOLATION OF S. 11(1)(A) OF I.T. ACT 1961. P LEASE EXPLAIN. 3. THE ASSESSING OFFICER ITO WARD-2 GURGAON AND THE ADDL. CIT GURGAON HAVE RECOMMENDED AGAINST GRANT OF REGISTRAT ION U/S 12A IN YOUR CASE ON THE FOLLOWING GROUNDS :- (I) AIMS AND OBJECTS OF THE SOCIETY AT S.NO. 5 (XXI ) AND 5(XXV) ARE IN THE NATURE OF BUSINESS AND ARE NOT CHARITABLE PURP OSES. (II) AIM AT S.NO. 5 (XXXIII) PERMITS ACTIVITIES OUT SIDE INDIA WHICH IS AGAINST S. 11(1)(A) OF THE I.T. ACT 1961. (III) THE SOCIETY HAS NOT PREPARED AND SUBMITTED AN NUAL ACCOUNTS FOR THE FY 2009-10 NOR FURNISHED OR PRODUCED ACCOUN T BOOKS BILLS/VOUCHERS BEFORE THE ASSESSING OFFICER. SO THE AO COULD NOT ASCERTAIN WHETHER THE INCOME HAD BEEN APPLIED AS PE R THE OBJECTS (IV) THE SOCIETY INTIMATED NAME OF SCHOOL BUT DID NOT FURNISH ANY DOCUMENT SHOWING OWNERSHIP OF LAND NO DETAILS OF I NVESTMENT MADE IN PURCHASE OF SCHOOL LAND OR CONSTRUCTION OF BUILDING WAS FURNISHED TO AO. HENCE THE SAME REMAINED UNEXPLAIN ED AND UNVERIFIED. IN VIEW OF THE ABOVE THE AR IS REQUESTED TO SHOW C AUSE AS TO WHY THE APPLICANT SOCIETYS CLAIM FOR GRANT O F REGISTRATION U/S 12A MAY NOT BE REJECTED. THE ASSESSEE HAS SUBMITTED A DETAILED REPLY AND EXP LAINED EACH AIM AND OBJECT INCORPORATED IN THE MEMORANDUM OF ASSOCI ATION UPON WHOM ITA NOS. 5308 5309/DEL/10 4 LD. COMMISSIONER HAS OBJECTION OR DOUBT. THE REPLY OF THE ASSESSEE HAS BEEN NOTICED BY THE LD. COMMISSIONER EXTENSIVELY ON PAGES NO. 3 TO 15 OF THE IMPUGNED ORDER. LD. COMMISSIONER THEREAFTER HAS OBSERVED THAT THOUGH ASSESSEES SOCIETY HAS AMENDED SOME OF THE C LAUSES OUT OF VARIOUS CLAUSES POINTED OUT BY HIM TO THE ASSESSEE IN THE SHOW CAUSE NOTICE WHICH ACCORDING TO THE VIEW POINT OF REVENU E WERE REPUGNANT TO THE PROVISIONS OF THE INCOME TAX ACT BUT STILL THE RE ARE VARIOUS CLAUSES WHICH ARE NOT IN CONFORMITY WITH THE PROVISIONS OF THE INCOME TAX ACT. ON AN INTERPRETATION OF THOSE CLAUSES LD. COMMISSI ONER ARRIVED AT A CONCLUSION THAT NEITHER THE OBJECTS NOR THE ACTIVIT IES OF THE SOCIETY JUSTIFY ITS CLAIM FOR REGISTRATION U/S 12AA. THE RELEVANT P ART OF THE DISCUSSION MADE BY THE LD. COMMISSIONER FROM PARAGRAPH 8 READ AS UNDER :- 8. FROM THE REPLY DATED 24.9.2010 IT IS SEEN THAT THE APPLICANT SOCIETY HAS AMENDED SOME OUT OF VARIOUS CLAUSES POINTED OUT TO THE A.R. AS BEING REPUGNANT TO THE PROVISIONS OF THE INCOME TAX ACT 1961. WHEN THESE CLAUSES WERE POINTED OUT TO THE A.R. HE VEHEMENTLY DEFENDED THE SAID CLAUSES GIVING VARIOUS EXPLANATIONS AS REPRODUCED ABOVE. HOWEVER ON 24.9.2010 HE MADE VOLTE FACE AND FURNISHED A COPY OF AMENDMENTS MADE IN THE MOA HAVING REMOVED SOME OUT OF THE VARIOUS CLAUSES FROM THE ORIGINAL MOA WHICH HE HAD BEEN HITHERTO DEFENDING AS BEING IN ACCORDANCE WITH THE INCOME TAX ACT 1961. 9. EVEN AFTER THE AMENDMENT TO MOA THE OBJECTS OF THE APPLICANT SOCIETY ARE STILL NOT IN CONFORMITY WITH THE PROVISIONS OF THE INCOME TAX ACT 1961. CLAUSE 5(IX) STIPULATES GIVING AWARDS ASSISTANCE FINANCIAL OR OTHERWISE TO EMPLOYEES ETC. WHICH OBVIOUSLY RESTRICTS THE BENE FITS TO THE APPLICANT SOCIETYS OWN EMPLOYEES. THIS IS NOT A CHARITABLE P URPOSE. CLAUSE 5(XI) PROVIDE FOR PRINTING AND PUBLISHING ACTIVITIES AND CLAUSE 5 (XVIII) PROVIDES FOR PRINTING AND PUBLISHING ACTIVITIES AND CLAUSE 5 (XVIII) PROVIDES FOR UNDERTAKING MARKETING ADVERTISING PROMOTIONAL ACT IVITIES FOR SCHOOLS. THE ACTIVITIES STIPULATED IN THESE TWO CLAUSES DO NOT C OME WITHIN THE AMBIT OF THE WORD EDUCATION WITHIN THE MEANING OF SECTION 2(15) OF THE INCOME TAX ITA NOS. 5308 5309/DEL/10 5 ACT 1961. IN THIS REGARD IT IS OBSERVED THAT IN T HE CASE OF SOLE TRUSTEE LOKA SHIKSHANA TRUST VS COMMISSIONER OF INCOME-TAX MYSORE 101 ITR 234 THE HONBLE SUPREME COURT HAS ELABORATED THE M EANING OF THE WORD EDUCATION AS IT IS UNDERSTOOD BY SECTION 2(15) OF THE INCOME TAX ACT 1961. 10. FROM THE ABOVE IT IS CLEAR THAT EDUCATION FOR THE PURPOSES OF SECTION 2(15) IS TO BE UNDERSTOOD AS THE IMPARTING OF EDUC ATION BY NORMAL SCHOOLING AND THE OBJECTS AT NO. 5 (XI) AND NO. 5 (XVIII) IN THE MOA CAN WELL BE PURSUED WITHOUT RUNNING ANY EDUCATIONAL INSTITUT ION. THIS IS SO BECAUSE WHEN THE OBJECTS ARE DISTRIBUTIVE NOTHING CAN HIND ER THE INSTITUTION TO INVEST ALL ITS FUNDS IN ANY ONE OF THE OBJECTS. MOR EOVER THESE OBJECTS INVOLVE ACTIVITIES IN THE NATURE OF TRADE COMMERCE AND BUSINESS AND ARE THEREFORE REPUGNANT TO PROVISO TO SECTION 2(15). TH E APPLICANT SOCIETYS CLAIM FOR REGISTRATION U/S 12A IS THEREFORE NOT JUS TIFIED. 11. CLAUSE 5(XXV) MENTIONS CHARGING OF FEES AND ACC EPTING OF DEPOSIT ADVANCES AND SECURITY ETC. FOR SERVICES RENDERED T O STUDENTS AS AN OBJECT OF THE SOCIETY. ALL THIS AMPLY SHOWS THAT THE DOMIN ANT MOTIVE OF THE APPLICANT SOCIETY IS NOT RENDERING CHARITY BUT TO C HARGE FEES EARN PROFIT AND ACCUMULATE FUNDS. 12. CLAUSE 5(XXX) EMPOWERS THE MEMBERS TO PURSUE AN Y OBJECTIVES DECIDED BY THE SOCIETY FROM TIME TO TIME AND TO OTHERWISE H ELP AND ASSIST SUCH OTHER CHARITABLE PURPOSES OR PURPOSE OF PUBLIC UTIL ITY AS THE MEMBERS MAY THINK FIT. THIS STIPULATION IS WIDE AND VAGUE. NO S PECIFIC OBJECT IS DISCERNABLE FROM THIS CLAUSE BECAUSE IT IS LEFT TO THE ABSOLUTE DISCRETION OF THE MEMBERS AS THEY MAY THINK FIT. THE NEED FOR SP ECIFIC OBJECTS HAS BEEN UNDERSCORED BY THE HONBLE SUPREME COURTS DECISIO N IN THE CASE OF GANGABAI CHARITIES VS CIT (1992) 197 ITR 416 (SC) F OLLOWED BY HONBLE MADRAS HIGH COURTS DECISION IN THE CASE OF ASSEMBL Y ROOMS VS CIT (2000) 241 ITR 76 (MAD.) WHEREIN IT WAS HELD AS UND ER :- A CHARITABLE TRUST SHOULD HAVE SPECIFIC OBJECTS AS ONE OF THE CRITERIA FOR A VALID TRUST. FOR THE TRUST TO BE ACCEPTED AS CHAR ITABLE TRUST FOR PURPOSES OF EXEMPTION IT IS ALL THE MORE NECESSARY THAT THE OBJECTS SHOULD BE SPECIFIC SO AS TO CONFORM TO THE REQUIREM ENT OF INCOME TAX LAW IN THIS REGARD. WHERE THEY ARE TOO WIDE THE TR UST MAY NOT QUALIFY FOR EXEMPTION. THE ABOVE LACK OF SPECIFIC OBJECTS NEGATES THE CL AIM OF THE APPLICANT SOCIETY FOR REGISTRATION U/S 12A . ITA NOS. 5308 5309/DEL/10 6 4. LD. COUNSEL FOR THE ASSESSEE WHILE IMPUGNING THE ORDER OF LD. COMMISSIONER TOOK US THROUGH CLAUSE NO. 5 OF THE ME MORANDUM OF ASSOCIATION WHEREIN AIMS AND OBJECTS HAVE BEEN INC ORPORATED BY THE ASSESSEE. HE POINTED OUT THAT ASSESSEE HAS ASSIGNED 35 MAIN AS WELL AS ANCILLARY AIMS AND OBJECTS. THE MAIN OBJECT OF T HE ASSESSEES SOCIETY IS TO IMPART EDUCATION AND FOR THAT PURPOSE IT WANT S TO RUN A SCHOOL. LD. COMMISSIONER HAS RAISED HIS OBJECTION WITH REGARD T O OBJECTS MENTIONED AT S. NOS. VII IX XI XV TO XVIII XX TO XXX AND XXXI I. AFTER THE EXPLANATION OF ASSESSEE HE HAS CONFINED HIS FINDING TOWARDS CLAUSE NO. IX XI XVIII XXV AND XXX. LD. COUNSEL FOR THE ASSESSEE TOOK US THROU GH THE EXPLANATION GIVEN BY THE ASSESSEE BEFORE THE LD. COMMISSIONER W HICH HAS BEEN NOTICED WITH REGARD TO THE OBJECTION RAISED BY THE LD. COMMISSIONER ON ALL THE CLAUSES. FOR THE FACILITY OF REFERENCE WE D EEM IT APPROPRIATE TO TAKE NOTE OF THE CLAUSES MAINLY OBJECTED BY THE LD. COMMISSIONER AND THE EXPLANATION OF ASSESSEE . CLAUSE NOS. IX XI X VIII XXV AND XXX FROM THE AIMS AND OBJECTS READ AS UNDER :- IX TO GRANT AWARDS SCHOLARSHIP AND OTHER ASSISTANC E FINANCIAL OR OTHERWISE TO DESERVING AND TALENTED STUDENTS TEACH ERS PROFESSORS LECTURERS EMPLOYEES ETC. XI TO PROPAGATE EDUCATION BY PUBLISHING BOOKS PERI ODICALS DAILY PAPERS MAGAZINES DICTIONARIES WORK BOOKS EXERCISE BOOKS STATIONARY OR THEIR PRINTED OR HAND WRITTEN AND CYCLOSTYLED PAPERS INTE NDED TO ADVANCE EDUCATION. ITA NOS. 5308 5309/DEL/10 7 XVIII UNDERTAKING MARKETING ADVERTISING PROMOTION AL ACTIVITIES FOR THE SCHOOLS XXV TO CHARGE FEES AND ACCEPT DEPOSIT ADVANCES SE CURITY ETC. FOR SERVICES RENDERED TO VARIOUS ENTITIES STUDENTS AND OTHERS. TO ACCEPT DONATIONS GRANTS PRESENTS AND OTHER OFFERINGS IN THE FORM OF CASH IMMOVABLE ASSETS AND MOVABLE ASSETS AS APPLICABLE TO DEAL WI TH THE SAME FOR CARRYING OUT THE OBJECTS AND/OR PURPOSES OF THE SOC IETY AND TO RAISE MONEYS AND FUNDS IN SUCH MANNER AS MAY BE DEEMED FI T FOR AND ON BEHALF OF THE SOCIETY. XXX. CARRYING OUT ALL ANCILLARY AND INCIDENTAL ACTS AND DEED REQUIRED TO ACHIEVE ANY OF THE OBJECTIVES SET FORTH ABOVE OR OB JECTIVES DECIDED BY THE SOCIETY FROM TIME TO TIME AND OTHERWISE HELPIN G AND ASSISTING SUCH OTHER CHARITABLE PURPOSES OR PURPOSE OF PUBLIC UTIL ITY AS THE MEMBERS MAY THINK FIT . 5. THE REPLY OF THE ASSESSEE IN RESPONSE TO THE SHO W CAUSE NOTICE IS ALSO WORTH TO NOTE HERE:- CLAUSE IX IN THIS CLAUSE AWARDS SCHOLARSHIPS AND OTHER ASSIST ANCE FINANCIAL OR OTHERWISE TO DESERVING AND TALENTED STUDENTS TEACHERS PROFESSO RS EMPLOYEES ETC. ARE TO BE GRANTED AND OBJECTION HAS BEEN RAISED FOR PROVIDING THESE TO THE EMPLOYEES. IN THIS MATTER IT MAY KINDLY BE NOTED THAT EMPLOYEES SHOULD BE VIEWED IN GREATER PERSPECTIVE. THE TEACHERS PROFESSORS AND LECTURERS MAY ALSO BE EMPLOYEES OF THE INSTITUTION RUN BY THE SOCIETY. IN THIS CLAUSE THE INTENTION IS TO GRANT AWARD SCHOLARSHIPS AND OTHER ASSISTANCE TO STUDENTS TEAC HERS PROFESSORS LECTURERS WHETHER OF OWN INSTITUTIONS ENGAGED IN THE FIELD OF EDUCATION OR OTHERS. THE PHRASE EMPLOYEES HAS BEEN ADDED FOR AVOIDING THE CONFUSI ON THAT TEACHERS PROFESSORS AND LECTURERS SINCE OWN EMPLOYEES ARE NOT ELIGIBLE FOR THESE PROMOTIONAL FACILITIES. IT MAY FURTHER BE NOTED THAT REWARD TO DESERVING EMPLO YEES IS ALWAYS ALLOWED AS STAFF/LABOUR WELFARE WHICH IS A DIRECT EXPENDITURE TO RUN THE INSTITUTION ON EQUAL FOOTING AS THE SALARIES TO THESE PERSONS . CLAUSE XI IT HAS BEEN INFORMED THAT PUBLISHING ACTIVITY IS NO T CHARITABLE IN NATURE. HERE AGAIN THE PUBLISHING ACTIVITY SHOULD BE VIEWED IN THE BAC KGROUND OF THE LAST PHRASE IN THIS OBJECT CLAUSE WHICH IS TO ADVANCE EDUCATION. AS PER CLAUSE (I) THE SOCIETY IS TO RUN SCHOOLS AND COLLEGES FOR IMPARTING EDUCATION TO THE STUDENTS. IN ORDER TO PROVIDE QUALITY EDUCATION OWN TUTORIAL BOOKS AND TEXTBOOKS MAY HAVE TO BE PUBLISHED. PERIODICALS MAY ALSO BE NEEDED TO BE PUBLISHED FOR SUPPLEMENTING EDUCATION WITH ATT DEVELOPMENTS. DAILY PAPERS MAY HAVE TO BE PUBLISHED TO SUPPORT DAILY LECTURES. INSTITUTIONS ALSO PUBLISH MAGAZINES SO THAT THE CUL TURAL ACTIVITIES OF THE STUDENTS AND ITA NOS. 5308 5309/DEL/10 8 THEIR COMMUNICATION POWER ARE ENHANCED. DICTIONARIE S ARE REQUIRED TO BE PRINTED TO HELP STUDENTS TO LEARN WORDS AND PHRASES IN A FRIEN DLY MANNER. WORKBOOKS WILL BE REQUIRED TO BE PUBLISHED TO SUPPLEMENT CLASSROOM ST UDIES AND HOMEWORK. SAME IS THE CASE WITH EXERCISE BOOKS STATIONERY PRINTED / HANDWRITTEN / CYCLOSTYLED PAPERS. WHEN EDUCATION INSTITUTION ARE RUN THESE ARE INHERE NT ACTIVITIES WHICH ARE SUPPLEMENTARY TO THE ORAL CLASSES AND A VISIT TO A NY INSTITUTION WOULD VERIFY THE REQUIREMENT OF THESE MATERIALS. IT IS CLARIFIED THA T TRUST WILL NOT INDULGE IN ANY BUSINESS ACTIVITY OF PUBLICATION. IT WILL ONLY ENGAGE IN PUB LICATION FOR THE USE IN OWN INSTITUTIONS. THE PUBLICATION ACTIVITY IS AKIN TO EDUCATION ACTIV ITY . CLAUSE XVIII IT HAS BEEN PROPOSED THAT UNDERTAKING MARKETING AD VERTISING AND PROMOTION ACTIVITIES FOR THE SCHOOL IS A BUSINESS. IN THIS MA TTER IT IS SUBMITTED THAT EVERY FIELD NEEDS MARKETING ADVERTISING AND PROMOTIONS AND THI S ACTIVITY IN ITSELF WIL NOTBE TAKEN AS A BUSINESS. THIS CLAUSE (I) AND (II). CLAUSE XXV THE OBJECT TO CHARGE FEES AND ACCEPT DEPOSIT ADVA NCES SECURITY ETC. FOR SERVICES RENDERED TO VARIOUS ENTITIES STUDENTS AND OTHERS I S FOR THE PURPOSE OF GETTING PAYMENT ON THESE ACCOUNTS FROM THE STUDENTS AND OTH ERS IS FOR THE PURPOSE OF GETTING PAYMENT ON THESE ACCOUNTS FROM THE STUDENTS WHICH IS NATURAL. THESE KIND OF PAYMENTS MAY BE RECEIVED FROM OWN STUDENTS AND THE STUDENTS OF OTHER INSTITUTES REFERRED TO SOCIETYS INSTITUTIONS AND SUCH PAYMENT S MAY BE RECEIVED FORM VARIOUS ENTITIES AND OTHERS FOR EDUCATING THEIR STUDENTS AN D TRAINING THEIR TEACHERS. THIS ACTIVITY IS RETAINED ONLY FOR ADVANCEMENT OF EDUCAT ION AND NOTHING ELSE. THE ACCEPTANCE OF DONATIONS GRANTS PRESENTS AND OTHER OFFERINGS IN CONNECTION WITH THE OBJECTS OF THE SOCIETY AND FURTHER RAISING MONEY AN D FUNDS FOR THE SOCIETY DOES NOT MAKE ITS ACTIVITIES NON CHARITABLE IN NATURE SINCE CHARITABLE NATURE IS GOVERNED BY THE UTILIZATION OF THE FUNDS. CLAUSE XXX THIS CLAUSE IS INCORPORATED TO ADD OTHER CHARITABLE ACTIVITIES WHICH AT PRESENT ARE NOT IN THE AIMS AND OBJECTS BUT WITH THE PASSAGE OF TIM E THE SOCIETY MAY FEEL NEED OF THOSE ACTIVITIES. 6. ON THE STRENGTH OF ABOVE EXPLANATION LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AIMS AND OBJECTS OF THE ASSESSEE ARE IN CONSONANCE WITH THE REQUIREMENT OF LAW. ITS MAIN OBJECT IS TO IMPAR T EDUCATION. LD. COMMISSIONER WHILE PROCESSING THE APPLICATION OF AS SESSEE FOR GRANT OF ITA NOS. 5308 5309/DEL/10 9 REGISTRATION WAS NOT REQUIRED TO LOOK INTO THE ASPE CTS OF APPLICATION OF INCOME ETC. FOR THAT PURPOSE SUFFICIENT SAFEGUARDS HAVE BEEN PROVIDED IN THE INCOME TAX ACT IN THE SHAPE OF SECTION 11 (I )(A) AND SECTION 13 OF THE ACT. THESE ASPECTS COULD BE EXAMINED BY THE AO IN THE ASSTT. PROCEEDING. FOR THE PURPOSE OF GRANT OF REGISTRATIO N U/S 12A THE FOCUS OF THE LD. COMMISSIONER SHOULD BE WHETHER THE SOCIETY EXIST FOR A CHARITABLE PURPOSE OR NOT. LD. CIT (A) IS SUPPOSED TO HAVE A GLANCE PRIME FACIE WHETHER ACTIVITIES OF THE SOCIETY ARE G ENUINELY CHARITABLE OR RELIGIOUS OR OF PUBLIC USE. AT THIS STAGE IT IS N OT TO BE LOOKED INTO HOW THE INCOME WOULD BE APPLIED BY THE SOCIETY. THESE A SPECTS CAN BE LOOKED INTO AT THE ASSTT. STAGE. FOR BUTTRESSING H IS CONTENTION HE RELIED UPON THE TWO DECISIONS OF THE HONBLE KARNATAKA HIG H COURT RENDERED IN THE CASE OF DIRECTOR OF INCOME TAX VS. GARDEN CITY EDUCATIONAL TRUST REPORTED IN 191 TAXMAN 238 AND SANJEEVAMMA HANUMANT HE GOWDA CHARITABLE TRUST VS. DIRECTOR OF INCOME TAX REPORTE D IN 285 ITR 327. HE ALSO RELIED UPON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. RED ROSE SCHOOL REPORTED IN 212 CTR 394. HE PRAYED THAT REGISTRATION U/S 12AA BE GRANTED TO THE ASSESS EE. 7. LD. DR ON THE OTHER HAND AGAIN TOOK US TWO CLAU SE NO. IX OF THE AIMS AND OBJECT AND POINT OUT THAT UNDER THIS CLAUS E ASSESSEE HAS PROVIDED FOR GRANT OF AWARDS SCHOLARSHIPS AND OTHE R ASSISTANCE TO THE ITA NOS. 5308 5309/DEL/10 10 DESERVING STUDENTS TEACHERS PROFESSORS LECTURERS AND EMPLOYEES. THIS CLAUSE IS SUCH A WIDE CLAUSE WHEREIN IN THE GARB OF AWARDS OR SCHOLARSHIP THE SOCIETY CAN GRANT ANY TYPE OF BENEF IT TO ITS EMPLOYEES. SIMILARLY HE FURTHER SUBMITTED THAT ASSESSEE IS SUP POSED TO UNDERTAKE PUBLISHING OF BOOKS WHICH IS AKIN TO COMMERCIAL ACT IVITY. REFERRING TO CLAUSE XX HE POINTED OUT THAT ASSESSEE CAN ACQUIRE AND HOLD PROPERTY OF ANY KIND IT MEANS TOMORROW IT CAN UNDERTAKE THE RE AL ESTATE DEVELOPMENT ACTIVITIES. HE POINTED OUT THAT ASSESSE E MIGHT BE UNDERTAKING IMPARTING OF EDUCATION BUT WHERE IS THE OBJECT OF CHARITY IN SUCH ACTIVITY. THE ASSESSEE WOULD CHARGE EXORBITANT FEES. FOR THE PURPOSE OF SECTION 12A IT HAS TO SATISFY THAT ITS ACTIVITY IS OF CHARITABLE NATURE AND NOT BASED ON COMMERCIAL CONSIDERATION. H E FURTHER POINTED OUT THAT ASSESSEE HAS INCURRED HUGE AMOUNT ON ADVER TISEMENT WHICH INDICATE THAT ACTIVITY WAS NOT FOR THE PURPOSE OF A NY CHARITY RATHER TO RUN EDUCATIONAL INSTITUTION FOR EARNING. 8. FOR BUTTRESSING HIS CONTENTION LD. DR RELIED UPO N THE DECISION OF HONBLE UTTRAKHAND HIGH COURT IN THE CASE OF CIT DE HRADUN VS. NATIONAL INSTITUTE OF AERONAUTICAL ENGINEERING EDUCATIONAL S OCIETY REPORTED IN 2009 TIOL 314. HE PLACED ON RECORD COPY OF THE DECI SION. ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE IN REBUTTAL CONTE NDED THAT THIS ASPECT HAS BEEN CONSIDERED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE ITA NOS. 5308 5309/DEL/10 11 CASE OF PINE GROVE INTERNATIONAL CHARITABLE TRUST V S. UNION OF INDIA AND OTHERS REPORTED IN 327 ITR 73. HE POINTED OUT THAT HONBLE COURT HAS OBSERVED THAT MERELY BECAUSE PROFITS HAVE RESULTED FROM THE ACTIVITY OF IMPARTING EDUCATION THAT WOULD NOT CHANGE THE CHARA CTER OF THE INSTITUTION EXISTING SOLELY FOR THE PURPOSE OF EDUCATION. HE PO INTED OUT THAT SOCIETY HAS ALREADY PROVIDED SUFFICIENT SAFEGUARD IN THE RU LES THAT NO BENEFIT WOULD BE EXTENDED IN THE SHAPE OF MOVEABLE AND IMMO VABLE PROPERTY TO ANY INDIVIDUAL. FOR THIS PURPOSE HE DREW OUR ATTEN TION TO CLAUSE NO. 6 OF THE MEMORANDUM OF ASSOCIATION. HE ALSO POINTED OUT THAT AT THE WINDING UP OF THE SOCIETY THE UNUTILIZED FUNDS AFTER MEETIN G THE LIABILITY OF SOCIETY WILL BE TRANSFERRED TO ANY OTHER SOCIETY WITH SIMIL AR OBJECTS AND AIMS. THE FUNDS WILL NOT BE GIVEN TO ANY INDIVIDUAL OR ENTITY FOR PERSONAL USE OR ANY OTHER OBJECT. 9. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AND GONE THROUGH THE RECORD CAREFULLY. ON PERUSAL OF MEMORANDUM OF A SSOCIATION ALONGWITH AIMS AND OBJECTS ONE THING IS CLEAR THAT THE ASSESSEE SOCIETY CAME INTO EXISTENCE FOR THE PURPOSE OF IMPARTING ED UCATION. THE CLAUSES INCORPORATED IN THE AIMS AND OBJECTS DO INDICATE TH AT ITS ACTIVITY IS FOR THE PURPOSE OF EDUCATION FOR PUBLIC AT LARGE. THUS THIS ACTIVITY DO COME IN THE AMBIT OF SECTION 2 (15) OF THE INCOME TAX ACT. ACCO RDING TO THE AUTHORITATIVE PRONOUNCEMENT OF HONBLE KARNATAKA HI GH COURT IN THE ITA NOS. 5308 5309/DEL/10 12 CASE OF GARDEN CITY EDUCATIONAL TRUST AS WELL AS I N THE CASE OF SANJEEVAMMA HANUMANTHE GOWDA CHARITABLE TRUST. THE REGISTRATION U/S 12A IS ONE OF THE PROCEDURAL ASPECT FOR CLAIMIN G BENEFIT U/S 11 AND 12 OF THE INCOME TAX ACT. THE ISSUES WHETHER ASSESS EE WOULD EARN INCOME IT WILL APPLY ITS INCOME FOR THE PURPOSE OF ITS ACTIVITY OR NOT ARE RELEVANT WHILE ASSESSING THE INCOME OF THE ASSESSEE . FOR GRANTING REGISTRATION U/S 12A. LD. COMMISSIONER IS REQUIRED TO LOOK INTO PRIMA FACIE ABOUT THE GENUINENESS OF THE ACTIVITIES OF TH E ASSESSEE. THE ACTIVITIES INCORPORATED IN THE AIMS AND OBJECTS SHO ULD BE IN ACCORDANCE WITH THE LAW. THEY SHOULD NOT FOR THE PURPOSE OF CA RRYING OUT ANY ILLEGAL ACTIVITIES ETC. MEANING THEREBY THAT REGISTRATION U /S 12A MAY NOT BE GIVEN TO AN ASSESSEE FOR CERTAIN ACTIVITIES WHICH ARE NOT IN CONSONANCE WITH THE EXPRESSION CHARITABLE PURPOSE PROVIDED IN SEC TION 2 (15) BUT IN THE NAME OF EDUCATION ASSESSEE IS TRYING TO DEMONSTRATE THAT SUCH ACTIVITIES ARE ALSO FOR CHARITABLE PURPOSE. 10. ADVERTING TO THE FACTS OF THE PRESENT CASE LET US SEE MAIN OBJECTIONS OF THE LD. COMMISSIONER FOR DENYING A RE GISTRATION TO THE ASSESSEE U/S 12A OF THE ACT. THE FIRST OBJECTION HE HAS EXPRESSED ABOUT SUB CLAUSE IX OF CLAUSE 5. WE HAVE EXTRACTED SUB CL AUSE IX AS WELL AS ASSESSEES REPLY. THE APPREHENSION OF THE LD. COMMI SSIONER IS THAT THIS POWER WILL BE MISUSED BY THE ASSESSEE BY RESTRICTIN G THESE AWARDS TO ITA NOS. 5308 5309/DEL/10 13 THE BENEFIT OF ASSESEES EMPLOYEE. THIS APPREHENSIO N OF THE LD. COMMISSIONER IS TOTALLY MISPLACED. SECTION 13(3) CA N TAKE CARE OF THIS ASPECT WHEN ASSESSMENT WILL BE FRAMED. IF THE ASSES SEE HAS GRANTED UNDUE BENEFIT TO ANY PERSON COVERED BY THAT SECTION THEN THAT AMOUNT CAN BE DISALLOWED. DURING THE ASSESSMENT PROCEEDING IF IT CAME TO THE NOTICE OF AO THAT UNDUE BENEFIT HAS BEEN EXTENDED B Y THE SOCIETY TO ANY ENTITY OR INDIVIDUAL WHO HAS AN INFLUENCE IN THE D ECISION MAKING PROCESS OF THE SOCIETY THEN HE CAN EXAMINE THAT ASPECT AND DISALLOW THE CLAIM OF ASSESSEE. THE NEXT OBJECTION POINTED OUT BY THE LD. COMMISSIONER IS IN RESPECT OF PRINTING AND PUBLISHING ACTIVITY OF THE ASSESSEE. HE IS OF THE OPINION THAT IT IS AKIN TO TRADE AND COMMERCE. IN O UR OPINION THAT AN EDUCATIONAL INSTITUTION WILL ALWAYS BE REQUIRED TO PRINT MATERIAL FOR ITS INTERNAL CONSUMPTION I.E. NEWSLETTERS FOR THE STUDE NTS OTHER STUDY MATERIAL ETC. FOR THIS PURPOSE ASSESSEE HAS TO MAKE A PROVISION IN ITS MEMORANDUM OF ASSOCIATION. WHAT IS THE EVIDENCE WIT H THE LD. COMMISSIONER THAT IT WILL BE MISUSED AND THIS RULE WILL BE USED FOR CARRYING OUT TRADE AND COMMERCE AT A LARGE SCALE. T HE NEXT OBJECTION POINTED OUT BY THE COMMISSIONER RELATES THE ACTIVIT Y OF ADVERTISEMENT ETC. THESE CLAUSES HAVE NOT BEEN TAKEN BY THE ASSES SEE TO CARRY OUT ADVERTISEMENT BUSINESS. ACCORDING TO IT IN ORDER T O ESTABLISH THE SCHOOL AS A BRAND AND INVITE THE PUBLICS ATTENTION FOR TH E FACILITIES PROVIDED IN ITA NOS. 5308 5309/DEL/10 14 THE SCHOOL IT HAS TO INCUR EXPENSES ON ADVERTISEME NT. WE FAIL TO UNDERSTAND HOW THIS ISSUE IS VIOLATIVE OF ANY PUBLI C POLICY AND REPUGNANT TO THE RULES. THE ASSESSEE IN ITS WRITTEN SUBMISSIO NS HAS INVITED THE ATTENTION OF LD. CIT ABOUT THE ADVERTISEMENT GIVEN BY SOME OF UNIVERSITIES WHO ARE ENJOYING 12A REGISTRATION BUT LD. COMMISSIONER DID NOT COMMENT ON THAT ASPECT IN THE ORDER. TAKING INT O CONSIDERATION ALL THESE ASPECTS WE ARE OF THE OPINION THAT LD. COMMI SSIONER HAS REJECTED THE CLAIM OF ASSESSEE ON THE BASIS OF UNSOUND REASO NING. HE HAS POINTED OUT SUPERFICIAL OBJECTIONS WHICH ARE MERELY SUSPICIONS. ALL THOSE SUSPICIONS CAN BE CONSIDERED BY THE AO AT THE TIME OF ASSESSMENT PROCEEDING. 11. IN VIEW OF THE ABOVE DISCUSSION WE DIRECT THE LD. COMMISSIONER TO GRANT REGISTRATION U/S 12A. WE ALLOW THE APPEAL NO. 5309/DEL/10 ALSO AND DIRECT THE LD. COMMISSIONER TO GRANT THE EXEMPT ION U/S 80G ALSO. THE CERTIFICATE BE ISSUED FOR THE PERIOD PERMISSIBL E IN THE PROVISIONS. 12. IN THE RESULT BOTH THE APPEALS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.2.2010 SD/- [SHAMIM YAHYA] [RAJPAL YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 11.2.2010 VEENA ITA NOS. 5308 5309/DEL/10 15 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT