IT APPEAL NOS.72, 99 AND 119 (PAT.) OF 2011/2012 
C.O. NO. 1 (PAT.) OF 2012
[ASSESSMENT YEAR 2005-06]

A.D. JAIN, JUDICIAL MEMBER 
AND SANJAY ARORA, ACCOUNTANT MEMBER

N.K. Lal, Adv. for the Appellant. 
Smt. Archana Sinha, Sr. SC for the Respondent.

ORDER

Per Bench - This is a set of three Appeals, i.e., two by the Assessee, directed against the denial of registration u/s. 12AA of the Income Tax Act, 1961 ('the Act' hereinafter) by the Commissioner of Income Tax-I, Patna ('CIT' for short) vide orders dated 27.03.2012 and 30.03.2011, i.e., pursuant to the assessee's separate applications therefor dated 30.09.2011 and 30.09.2010 respectively. The third appeal is by the Revenue, challenging the quashing of the assessment for assessment year (A.Y.) 2005-06 by the Commissioner of Income Tax (Appeals), Dhanbad ('CIT(A)' for short) vide his order dated 07.09.2011,qua which the assessee has filed a cross objection (CO).

Assessee's Appeals (in ITA Nos. 72/Pat/2011 & 99/Pat/2012)
The Issue
2. The only issue arising per the several grounds in these appeals by the assessee is the maintainability or otherwise in law of the denial of registration u/s.12AA by the ld. CIT vide order/s u/s.12AA(1)(b)(ii) of the Act pursuant to the assessee's application/s for registration thereunder.

The background facts
3. The background facts leading to the issue under reference in both the appeals is the same, even as the reference to the dates, paragraph/page numbers, etc., which may come about in the narrative, are as arisingqua the impugned order dated 27.03.2012. The assessee is a society registered under the Societies Registration Act, 1860 since February, 1992, and stands also declared as a Minority Educational Institution (MEI) within the meaning of section 2(g) of the National Commission for Minority Educational Institutions Act, 2004 ('NCMEI Act' hereinafter), being issued a certificate on 19.03.2007 to this effect by the National Commission for Minority Educational Institutions (NCMEI). The assessee applied for registration as a charitable institution u/s. 12A(1)(aa) on 06.10.2008, which was rejected by the competent authority vide its order dated 18.03.2010. The assessee moved a fresh application on 30.09.2009, upon rejection of which the matter was carried to the Tribunal, which vide its order dated 31.08.2010 (in ITA No. 98/Pat/2010) dismissed its appeal. The impugned order/s is consequent to the assessee's another application/s, moved on 30.09.2011 (and 30.09.2010). The same have met the same fate; the ld. CIT relying on the order dated 31.08.2010 (supra) by the tribunal, reproducing its relevant parts at para 1.1 (pgs. 2, 3) and para 3.2 (pg. 19) of his order. The principal grounds for the denial of registration are as under:

Reliance stands also placed on the decision by the tribunal (single member constitution) in the assessee's own case (in ITA No. 98/Pat/2010 dated 31.08.2010).

4. We have heard the parties, and perused the material on record.
4.1 We are unable to persuade ourselves to be in agreement with the Revenue's case as made out. No doubt the educational institutions, being two schools, one affiliated to the ICSE Board and the other to the CBSE Board, run and managed by the assessee-society, are MEIs. Again, we agree that the provisions of the NCMEI Act, 2004 and the Central Educational Institutions (Reservation in Admission Act, 2006), read in conjunction with Articles 29 and 30 of the Constitution of India (also 'Constitution') and the decisions by the Supreme Court having a bearing in the matter clarify that the following elements are necessary for the status of a Minority Institution, as discerned by the ld. CIT after analyzing the same, at page 10 of his order:

However, for the purposes of the Act, it is only the satisfaction of the condition (b) (supra), being violative of section 13(1)(b), which, may operate to deny registration as a Charitable Institution under the Act. We may, at this stage, clarify that though the word 'minority', for which the Constitution specifies two criterion, i.e., religion and language, is of little relevance, and an institution for the benefit of the majority community, in-as-much as it is for the benefit of a particular religious community, would equally violate its public character, attracting section 13(1)(b) of the Act, which may operate to exclude registration as a charitable institution there-under. The assessee, however, on the basis of the decisions by the Apex Court in the case of T.M.A. Pai Foundation v. State of Karnataka [2002] 8 SCC 481 and P.A. Inamdar v. State of Maharashtra [2005] 6 SCC 537), i.e., the very same decisions being relied upon by the ld. CIT, explains that the minority unaided institutions enjoy total freedom in the matter of admission of students, i.e., up to the undergraduate level. The relevant part of the decision stands reproduced at pg. 15 of the impugned order itself. The ld. CIT, rather, admits to the State Governments prescribing the percentage governing admissions of the students in an MEI in accordance with the principles of law enunciated by the Apex Court per its decisions in the case of T.M.A. Pai Foundation (supra) and P.A. Inamdar (supra) (refer page 8 of his order). In other words, an exception is drawn for unaided MEIs (up to the undergraduate level), as the assessee's two schools. The Revenue states that the same is not acceptable, i.e., for an institution to admit students of other minority, non-minority (a particular religious) community while at the same time retaining its minority status, which thus become a façade for money making (refer para 9 of the impugned order). How, it does not specify? We have already found the admission of non-minority students to be not violative of the guidelines framed by the Apex Court, which reflect the law of the land and, as far as we are able to gather, are being scrupulously followed by all the authorities charged with the administration of the relevant enactments, including the State Governments. When the institution is unaided, for which an exception is drawn by the Apex Court (up to the undergraduate level), how we wonder could that by itself be held against it and made the basis to state that the institution is involved in money making. The charge of commerciality does not stick on merits. It would obtain only where it is shown that Muslim students are charged lower fee than the non-muslims or, for example, the non-muslim teachers (of the same rank) are paid lower than their Muslim counterparts, establishing, thus, discrimination on religious lines, and which is not the case. It is also not the Revenue's case that scholarships by the assessee's educational institutions are granted only to the Muslims students. An absence of any charge on this score could only imply that, on an average, 90% of the scholarships go to non-muslim students, i.e., in the same ratio as of non-muslim students on its rolls, so that the same are granted on merits to the deserving students (refer para 2/pg. 13 of the impugned order). This would again meet the charge of commerciality. In fact, the assessee states of the ICSE Board, with which one of the two schools being run by it is affiliated, specifically provides for the affiliate institution to be run on no profit basis.

Continuing further, in the facts of the case, 90% of the students and, in fact, even the teachers are non-Muslims, which is itself destructive of the minority character of the institution, both on facts as well as in law, i.e., considering the provisions of NCMEI Act, to some of which (ss. 2(g), 12B, 12C) reference stands made by the Revenue (refer para 3 of this order). We could understand the Revenue's case if the assessee had, instead, admitted 90% of the students from a particular (Muslim) community. The Revenue discards the assessee's explanation on the ground that the same is, however, only for commercial purposes, which we have found as not valid. We are unable to appreciate the Revenue's case in-as-much as, therefore, as per the Revenue, either way the assessee would not be entitled to registration, and which cannot be.

4.2 The assessee is next stated to have received 'Building Fund' and 'caution money deposit' from the students, and which cannot be regarded as voluntary. In this regard, no facts and figures have been specified by the Revenue, i.e., what is the amount of the two deposits taken from each student; the terms and the conditions at which it is, etc. Caution money, as the names suggests, is only to safeguard against any loss or financial injury that the school may be put to on account of any action or non-action by a student, and is refundable. With regard to the Building Fund, the same is, without doubt, not understandable. This is as the school is run in a tenanted premises, which arrangement is intended to be continued, so that the said money could not possibly be utilized toward the Institution's building/s. However, that by itself, without anything more, is not sufficient to impute commerciality to the operations. The only import of the same would be that the said sum cannot be regarded as toward corpus, which gets excluded u/s.11(1)(d). As explained by the Apex Court in American Hotel & Lodging Association, Educational Institute v. CBDT[2008] 301 ITR 86/170 Taxman 306 (SC), the genuineness of the activities of a trust/institution cannot be doubted where it applies its entire income wholly and exclusively to the objects for which it is established. In fact, as it appears, the building fund is refundable, so that it represents a liability and not a receipt (income) of the institution. No specific case is made out by the Revenue to infer either commerciality or to impugn the genuineness of the activities of the society with reference to this receipt.

4.3 Next, it is claimed that the assessee had advanced huge sums to the landlord/s, enriching them, alluding to section 13(1)(c) r/w s. 13(3). In this regard, the assessee claims to have repaid the entire deposit by 31.12.2010/31.3.2011, i.e., prior to the (second) application, furnishing the balance-sheet as on that date to exhibit the same. In our view, the matter has to be examined and considered in its totality, i.e., whether the arrangement, in its intent and scope, was toward unjust enrichment of, or to benefit, the interested parties, directly or indirectly. The same falls within the ambit of section 13(1)(c) r/w s. 13(3) and, thus, has a bearing on the denial of benefit of sections 11 and 12, as clarified in the case of Chandrika Educational Trust v. CIT [1997] 224 ITR 453/90 Taxman 1 (Ker.), relied upon by the Revenue. The same could though, i.e., in the facts of a case, also have a bearing on the genuineness of the activities, as where it leads to the conclusion of the activities of the trust being carried out with an ulterior motive, resulting in refusal of registration. The onus in such a case would be heavy on the Revenue. We do not, however, consider the advance to be a part of any such arrangement, i.e., to benefit, directly or indirectly, the landlord or any other person specified u/s.13(3). The advance is to facilitate the construction of a building/s which is intended to be rented by the assessee as a part of its school premises, space being in constant demand for a growing school. The same, which is though refundable, is thus indirectly applied for the objects of the society in-as-much as it would have presumably facilitated the extension of the loan to the landlord, which is claimed to have been obtained for Rs. 65 lacs, facilitating timely construction and, in any case, incurring lesser interest cost and, correspondingly and inferably, charge of a lower rental. The rent of Rs. 12 lacs p.a., considering both the built-up area (57847 sq. ft.) and open area (41398 sq. ft.), works to a rate of Re.1 per sq. ft. (approx.), and which cannot be regarded as not reasonable, particularly considering the high value of land, stated to be over Rs. 2 crs. No case for inferring non-genuineness is made out and, on the contrary, appears to be a perfectly valid arrangement executed for the ultimate benefit of, and in the regular course of its business, by the Society. Its implication would, in any case, only be limited to as provided u/s.13(1)(c).

In Conclusion
5. Without doubt, as explained by the Apex Court in A.P. Christian Medical Association v. Government of Andhra Pradesh AIR 1986 SC 1490, it is important and imperative that there must exist some real positive index to enable the institution to be identified as an educational institution of the minorities. That is, there should be a nexus between the institution and the particular minority to which it claims to be belonging. How could, otherwise, one may ask, it claim to be established for the benefit of the minority community, entitled to the protection guaranteed under Article 30(1) of the Constitution, seeking to enshrine the right to serve and promote minority interest? A prescription of a standard or uniform percentage governing admissions may not, however, necessarily serve the purpose, which is to seek non-minority representation to a reasonable extent, while at the same time ensuring that the minority character of the institution is not annihilated, and the right engrafted under Article 29(2) not subverted. What is, therefore, required is a balance between the two objectives - the preservation of the rights of the minority to admit the students of their community and that of admissions of 'outsiders' without disturbing the minority character. This balance, however, may not be specified in terms of a fixed percentage, which has to take into account the population as well as the educational needs of the area in which the educational institution is located, variables which are also subject to change with time (refer pgs. 8, 9 of the impugned order). The situation, as it appears, thus, is in a state of flux, though the position in law is clear, with the state governments empowered to prescribe the percentage, and which could be revised or changed from time to time.

Clearly, thus, a right to regulate admission thereto is an important right of a minority institution. However, we do not find the same expressed in the charter of the assessee-society; there being no reference to any percentage or any restriction or mandate in respect thereof in its 'Aims and Objects'. Whatever implication this may have for its status as a minority institution, we can hardly countenance or subscribe to a proposition which, despite there being nothing either in its memorandum of association (object clause) or its conduct, sanctions a presumption that it is established for the benefit of the minority (Muslim) community, solely on the basis of it being granted the status of minority educational-institution the only restriction in its charter being toward its membership extending only to the members of the said community. If the institution has, by admitting 90% non-minority (non-muslim) students, violated any specific provision or guideline in the matter and, accordingly, stands to lose its minority status, of which we have no clue, so be it. And which again does not help the Revenue's case in any manner; rather, only goes against it. Though, therefore, appearing anomalous in-as-much as the minority status implies an inherent right to serve the minority interest, a finding to it being set up or established for the benefit of a particular (Muslim) community cannot be a matter of presumption and rendered de hors any material on record. The answer, as we understand, lies in the complete freedom allowed in the matter of admissions to unaided MEIs up to the undergraduate level as per the decisions by the Hon'ble Apex Court. Why, NCMEI, on similar facts, i.e., a low percentage of minority/s students in an educational institution established by the minorities, granted minority status to a school, holding that the criterion of fixation of a percentage governing admission of a minority community in a MEI cannot be included in the indicia for determining the minority status of such an Institution (Buckley Primary School v. Principal Secretary, Government of Orissa in Case No. 1320 of 2009 dated 06.07.2010/APB-I pgs. 103-129). Further, even where reserving such a right, the same may not necessarily translate into a high ratio of minority (muslim) students, for which other practical considerations may be responsible. That no such right stands reserved in the present case only fortifies the assessee's case. Why, yet, it stands granted a minority status, we wonder, which may or may not be the Revenue's concern. There is no claim by it of such status having been granted on account of any mis-representation, or as to the assessee having derived any benefit through misrepresentation. The same may be relevant in-as-much as the genuineness of the activities is a parameter which is to be examined by the competent authority while deciding on registration, even as the allegation cannot be lightly made, and would require being substantiated for it to be taken cognizance of. Notwithstanding, therefore, a minority status being accorded to its educational institutions, we are, both on the facts and in law, unable to regard it as being established for the benefit of a particular religious community. Even though the relevant provision (sec. 13(1)(b)) provides for exclusion of ss. 11 and 12 of the Act, the same could well be taken into consideration for the purpose of grant or otherwise of registration u/s.12AA in-as-much as it impinges on its public character. What, we are unable to comprehend, effect or purpose the registration would have where, notwithstanding the same, no benefit u/ss. 11 and 12 can be allowed in view of an abiding feature of the applicant's constitution or its inherent nature.

The Revenue has also been unable to move us on the grounds of commerciality or as to the institution/s operating for the benefit - direct or indirect, of the excluded/specified persons.

Finally, a bare reading of this order would disclose several differences between the case as made out before us and that before the tribunal (SMC Bench) in the assessee's case (supra) relied upon by the Revenue - which order we have perused, even as the same is not binding on us.

6. We, therefore, decide the issue of registration as a charitable institution under the Act to the assessee-society in its favour. It is, in our view, for the reasons aforediscussed, in law and in the facts and circumstances of the case, entitled thereto, and which we accordingly direct to be allowed. We decide accordingly.

7. In the result, both the assessee's appeals are allowed.

Revenue's Appeal (ITA No. 119/Pat/2011) and Assessee's CO (No. 01/Pat/2012)

8. The only issue raised by the Revenue is the validity or otherwise in law of the initiation of proceedings u/s. 147 of the Act vide notice u/s. 148 dated 16.04.2009 and, consequently, that of the ensuing assessment dated 29.12.2010. The relevant facts in brief are that the assessee filed its return of income for the relevant year on 31.10.2005, declaring nil income. Notice u/s. 148 was issued on 08.01.2007 and assessment u/s. 143(3) r/w s. 147 framed, denying the assessee the benefit of exemption u/s. 10(23C), i.e., availing exemption under which provision on its entire income it had returned nil income, as no approval from the prescribed authority u/s. 10(23C)(vi) had been obtained by it. The matter travelled to the tribunal, which quashed the assessment on the ground that notice u/s. 143(2), leading to assumption of jurisdiction to frame an assessment u/s. 143(3), had not been served on the assessee, i.e., on the jurisdictional issue, upholding the appellate order dated 16.01.2009 by the first appellate authority. A fresh notice u/s. 148 was issued to the assessee on 16.04.2009, and the assessment framed after issuing notice u/s. 143(2) on 27.05.2009, at an income of Rs. 49,03,850/-, vide order u/s. 144 r/w sec. 147 dated 29.12.2010.

On appeal before the ld. CIT(A), he upheld the assessee's legal plea qua initiation of proceedings u/s. 147 being bad in law (Gd.# 1). The reasons recorded qua escapement of income were substantially the same as that recorded in the first instance, i.e., vide notice u/s. 148 dated 08.01.2007. The Revenue cannot be allowed a second innings qua the same set of reasons as to escapement of income required to be recorded u/s. 148(2). The initiation of the assessment proceedings and, consequently, the assessment framed pursuant thereto was quashed by the ld. CIT(A), holding thus, abstaining from deciding the other grounds in-as-much as the assessment itself did not survive:

'6. By this second innings of section 147 and subsequent Assessment Order, the order of CIT(A)-II, Patna dated 16.01.2009 has been reduced to a nullity and at the same time, appeal has been filed against this order. Therefore, it was bad in law for the AO to initiate proceedings u/s. 147 for a second time primarily for the same reasons when appeal in respect of first proceedings was pending before the ITAT. Therefore, the proceedings u/s. 147 initiated on 16.04.2009 are not sustainable and need to be quashed.'

9. We have heard the parties, and perused the material on record.

The primary facts are not in dispute. We are in agreement with the ld. CIT(A) that the reasons recorded by the A.O. u/s. 148(2) for the issue of notice u/s. 148(1) are substantially the same as recorded by him in the first instance, i.e., while issuing notice u/s. 148(1) dated 08.01.2007. He, however, completely misleads himself in holding the second initiation, i.e., which is under reference, as bad in law. The A.O. has an inherent right to assess the assessee's income, which includes reassessment of income (s. 2(8)). The only restriction is that he has to, in doing so, observe the procedure prescribed in law in its respect, with attendant consequences where not, as in the first instance, whereat the assessment was held null and void in the absence of the jurisdictional notice u/s. 148(1). The appellate order dated 16.01.2009 quashing the assessment as framed, which stood upheld by the tribunal, was thus on the jurisdictional issue, i.e., the absence of jurisdiction to frame the assessment u/s. 143(3)/144 r/w s. 147. There was no adjudication quathe reasons recorded or the merits of the assessment and, accordingly, no merger qua the assessment on its merits or qua the reasons recorded as to the escapement of income. The same, thus, survive, and the A.O., as the assessing authority, was fully competent to initiate fresh proceedings u/s. 147, observing of course the due process of law, and which he does. We do not find any infirmity in either the procedure adopted for framing the assessment or qua its legality. True, an appeal against the assessment was pending before the tribunal at the relevant time, i.e., at the time of notice u/s. 148(1) on 16.04.2009. However, the scope of the said appeal, and which therefore upon adjudication would stand merged therewith, was only the aspect of validity of assessment in view of the non-service of notice u/s. 143(2). Why, even the order by the tribunal could not be said to have conferred finality to the matter, as either party had - the issue being legal, a right to appeal there-against. As such, the outstanding of the assessee's appeal before the tribunal would be of little consequence in the facts and circumstances of the case.

The ld. CIT(A) has not decided the assessee's other grounds, on the merits of the assessment (i.e., the additions or the disallowances made), as he had quashed the assessment, which decision by him stands hereby reversed by us. The matter, accordingly, shall travel back to his file to decide the assessee's grounds of appeal nos. 2 to 19 before him. The assessee having filed a supportive cross objection, the restoration of the assessment to the first appellate stage would thus be in part agreement of the assessee's case. The Revenue's appeal is disposed of accordingly.

10. In the result, the Revenue's appeal is disposed on the afore-said terms, while the assessee's CO is partly allowed.