Annapurna Gupta, A. M.-The appeal filed is directed against the order of learned Commissioner of Income Tax (Exemptions), Chandigarh dated 29.01.2016,rejecting the appellant societies application for grant of registration under section 12AA of the Income Tax Act, 1961 (in short 'the Act').
2. The appellant has raised the following grounds :
"1. That the Worthy Commissioner of Income Tax (Exemptions), Chandigarh has erred in not granting registration u/s 12AA of the I.T. Act to the Society.
2. That the refusal to grant registration is not proper since the applicant society had been carrying on educational activity since long and, therefore, the finding of the CIT (Exemptions) that the genuineness of activities do not corroborate viz. educational activity, is against the facts and circumstances of the case.
3. That the Society had been in existence since 1981 and had been imparting quality education to the General Public at large and the finding of the CIT that it is being run on commercial lines and do not stand to justify the claim for registration u/s 12AA under I.T. Act, is against the facts and circumstances of the case.
4. That the Worthy CIT has failed to appreciate the fact that under similar facts and circumstances, there is binding judgment of the Hon'ble Supreme Court in the case of "Pine Grove Educational Society" and of the "Queen Educational Society", Uttrakh and, wherein on similar issue, the registration u/s 12AA had been granted and, as such, the denial of registration u/s 12AA was not proper.
5. That the Appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off."
3. Brief facts relating to the case are that the appellant society was registered since 1981 with the stated objects of running of Sant Mohan Singh Khalsa Labana Girls College, Barara and any other education institution with the view of providing all around balanced and wholesome education to the youth. The appellant society filed an application for registration under section 12A of the Act in Form No.10A on 14.7.2015. Accordingly, notice of hearing was issued to the appellant during the course of which details were filed. The learned Commissioner of Income Tax after perusing the details filed, found that the by-laws of the appellant society, which was formed in 1981, had remained unchanged but an additional school under the name of S.M.S. Public School had started running under the aegis of the society. The learned Commissioner of Income Tax further noted that while the appellant society had been showing income from donation and rent only, the two schools had been showing income from fees, rent etc. He further noted that the college was substantially financed by the Government, as 95% of salary was reimbursed by the Haryana Government and balance 5% paid by the management. Taking into consideration this fact, the learned Commissioner of Income Tax held that the appellant society was liable to file return under section 10(23C)(iiiab) of the Act, but had not done so. He further noted the receipts of the appellant society and the school and college run by it for three financial years i.e. financial years 2012-13, 2013-14, 2014-15 and found that the aggregate receipts of three institutions in all the years exceeded Rs. 1 crore. He, therefore, held that the appellant society had wrongly claimed exemption under section 10(23C)(iiiad) of the Act. Considering the aforestated aspects of the case, that wrong claims were made by the appellant society, the learned Commissioner of Income Tax held that genuineness of the activities did not stand corroborated. He further stated that different forms of institutions of the appellant society were being run on commercial basis which do not satisfy its claim for registration under section 12AA of the Act and thereby rejected the appellant society's application for registration under section 12AA of the Act.
4. Aggrieved by the same, the appellant society filed the present appeal before us. During the course of hearing before us, the Ld. counsel for the appellant argued that the learned Commissioner of Income Tax had erred in denying registration since nothing adverse had been found by the learned Commissioner of Income Tax regarding genuineness of the objects and the activities of the appellant society. The Ld. counsel for the appellant stated that for the purpose of grant of registration the Commissioner has only to consider the genuineness of the objects and activities of the trust as per provisions of section 12AA of the Act and the same having not been doubted by the learned Commissioner of Income Tax , the registration had been wrongly denied to the appellant. The Ld. counsel for the appellant also stated that all books of accounts, pertaining to the society, school and college for three financial years i.e. financial years 2012- 13 to 2014-15 had been filed before the learned Commissioner of Income Tax (Exemptions), alongwith copy of registration of the society, the constitution/by- laws, letter of registration and Form No.10A and no defect has been found in the same. The Ld. counsel for the appellant society further stated that the society had been availing exemption under section 10(23C) during past many years and the same had never been questioned in any of the previous years. The Ld. counsel for the appellant stated that defect pointed out by the learned Commissioner of Income Tax, that it should have claimed exemption under section 10(23C)(iiiab) instead of section 10(23C)(iiiad), was not a matter requiring consideration by the Commissioner for the purpose of grant of registration. Further the Ld. counsel for the appellant stated that even on merits of the issue regarding claim of exemption under section 10(23C)(iiiad) of the Act to be taken on aggregate basis, there were a number of decisions of the High Courts and Tribunals which stated that limit of Rs. 1 crore had to be taken institution-wise and not on aggregate basis. The Ld. counsel for the appellant, therefore, stated that in any case the denial of registration to the applicant society was wrong and the same needed to be restored.
5. The Ld. DR, on the other hand, relied upon the order of the learned Commissioner of Income Tax.
6. We have heard the contentions of both the parties, perused the orders of the authorities below and gone through the documents placed before us. We hold that the learned Commissioner of Income Tax in the present facts and circumstances of the case has erred in denying registration under section 12AA of the Act to the appellant society. The registration to be granted being governed by the provisions of section 12AA of the Act, it is settled law that the scope of powers of the Commissioner is limited to being satisfied about the genuineness of the objects and the genuineness of the activities of the applicant society/trust. The purpose being that since by virtue of the registration obtained under section 12AA of the Act, the assessees are eligible to claim exemption under the provisions of sections 11 and 12 of the Act on account of carrying out charitable activities, the registration by the Commissioner acts as a certification that the assessee trusts/institutions have been formed for charitable purposes as defined under section 2(15) of the Act and are genuinely carrying on the activities for which they have been formed. Based on this certification/registration the assessees are entitled to claim exemption under sections 11 and 12 of the Act. Thus it is only the genuineness of the objects and activities which have to be examined by the Commissioner while granting registration u/s 12A of the Act. The Hon'ble Allahabad High Court in the case of Commissioner of Income Tax vs Red Rose School (2007)163 Taxman 19 had elaborately dealt with the scope of powers of the Commissioner under section 12AA of the Act and spelt out the same as follows :
"17. On a reading of provisions of sub-cls. (a) and (b) of s. 12AA, it makes clear that the CIT has to satisfy himself about the genuineness of the activities of the trust or institution and also about the objects of the trust or the institution.
18. On being satisfied about the genuineness of the activities of the trust or the institution and also about its objects, the CIT would either grant the certificate or would reject the prayer. In order to satisfy himself about the genuineness of the activities of the trust or the institution, he can call for such documents or information from the trust or the institution, as he thinks necessary and he is also empowered to make such enquiries as he may deem necessary in this behalf.
19. The objects of the trust can be had from the bye-laws or the deed of trust, as the case may be and unless, of course, the objects of the trust apparently make out that they were not in consonance with the public policy or that they were not the objects of any charitable purpose, registration cannot be refused accordingly on this ground.
20. In regard to the genuineness of the activities of the trust or the institution, whose objects do not run contrary to public policy and are, in fact, related to charitable purposes, the CIT is again empowered to make enquiries as he thinks fit. In case the activities are not genuine and they are not being carried out in accordance with the objects of the trust/society or the institution, of course, the registration can again be refused. But on mere presumptions and on surmises that income derived by the trust or the institution is being misused or that there is some apprehension that the same would not be used in the proper manner and for the purposes relating to any charitable purpose, rejection cannot be made.
21. Sec. 12AA, which lays down the procedure for registration, does not speak anywhere that the CIT, while considering the application for registration, shall also see that the income derived by the trust or the institution is either not being spent for charitable purpose or such institution is earning profit. The language used in the section only requires that activities of the trust or the institution must be genuine, which accordingly would mean, they are in consonance with the objects of the trust/ institution, and are not mere camouflage but are real, pure and sincere, nor against the proposed objects. The profit earning or misuse of the income derived by charitable institution from its charitable activities, may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trust or the institution.
28. It is significant to mention that registration under s. 12AA, does not necessarily entitle the assessee to get the income excluded from the income of the previous year for the purpose of determination of tax liability but it only entitles the assessee to claim such exemption, which otherwise could not be claimed in the absence of registration. The enquiry by the CIT shall remain restricted to the examination, as to whether the assessee, who has moved the application for registration under s. 12A, is actually in the activities which are genuine. Genuineness of the activities of the trust or the institution has to be seen, keeping in mind the objects thereof, which necessarily means that the CIT shall satisfy himself about the fact that the activities are genuine and in consonance with the objects of the trust or the institution. In other words, if establishing and running a school is the object of the society, as given in its bye-laws, it has to be satisfied that the society has established the school, where education is being imparted as per rules and the factum of establishment and running school is a genuine activity. The enquiry regarding genuineness of the activities cannot be stretched beyond this."
7. In this legal backdrop, we find that the facts in the present case demonstrate that nothing adverse has been found by the Commissioner of Income Tax regarding the genuineness of the objects of the applicant society. In fact, the observations of the learned Commissioner of Income Tax in this regard are that the main aim of applicant society is running of Sant Mohan Singh Khalsa Labana Girls College and other objects and any other educational institute with a view to providing all round balanced and wholesome education to the youth so as to make them worthy citizens of this great country. Clearly, the objects of the appellant society relate to imparting education and are charitable as defined under section 2(15) of the Act. Further we find that there is no adverse observation regarding the activities carried on by the appellant society by way of imparting education. Admittedly, all books of account of the society, school and college for the financial years 2012-13 to 2014-15 were filed before the learned Commissioner of Income Tax, copy of registration of the society, the constitution/by-laws, the letter of registration all were filed before the learned Commissioner of Income Tax , who after perusing the same has not found anything adverse regarding the activities being carried on by the assessee society. Thus, clearly, the genuineness of the activities of the applicant society has not been doubted by the learned Commissioner of Income Tax .Even before us the Certificate of Registration of Societies was filed showing that the applicant society was registered on 12th November 1981.Copy of Constitution of the society was filed to prove that it was formed primarily for the purpose of imparting education and thus had a charitable object. Further copy of the Balance Sheet and Profit and Loss Account for the year ended on 31-03-2015 was filed showing receipts of the College and School run by the applicant society primarily from fees, thus proving the genuineness of the activities carried out by it.
8. What the learned Commissioner of Income Tax has found objectionable is that the applicant society, being liable to claim exemption under section 10(23C)(iiiab), since it is wholly financed by the State Government has not done so. Clearly, this is not a reflection on the genuineness of the activities being carried on by the applicant society. In fact, it is affirmation of the same since even as per the aforestated observation of the learned Commissioner of Income Tax, the applicant society is eligible to claim exemption under section 10(23C)(iiiab) of the Act which grants exemption to institutions existing solely for the purpose of imparting education. The other adverse finding of the learned Commissioner of Income Tax is vis-à-vis the fact that the applicant society has wrongly claimed exemption under section 10(23C)(iiiad) of the Act since aggregating the income of the society, college and school run by it, the same exceeds Rs. 1 crore which is the limit set under the Statute for claiming exemption under section 10(23C)(iiiab) of the Act. Again we find that this has no reflection on the genuineness of the activities carried out by the applicant society, but is an affirmation of the genuineness of the activities since it calls into question the claim of exemption under section 10(23C)(iiiad) of the Act, which grants exemption from tax of incomes of institutions existing solely for the purpose of education and whose receipts during a financial year do not exceed a specified limit, on account of the income exceeding a particular limit but does not doubt the genuineness of the activities carried out by the assessee. Further the observation of the Ld.CIT that the institutions of the applicant society are being run on commercial lines ,we find has no basis. Ld.CIT has merely made a general comment on the above lines which is not supported by any facts or figures and hence in our view requires no consideration.
9. In view of the above, it is clear that the learned Commissioner of Income Tax had found nothing adverse relating to the activities of the assessee applicant and, therefore, we have no hesitation in holding that even the activities of the applicant society were genuine.
10. In view of the above, since the genuineness of both the object and activities of the assessee society having not been doubted, we are of the considered opinion that the order of the Ld.CIT cannot be sustained. Consequently we set aside the order passed by the CIT and direct that registration applied for by the applicant society u/s 12A of the Act be granted.
11. In the result appeal of the assessee stands allowed.