Registration of charitable trust cannot be denied for the reason that

Original name and address of the trust has been changed

OR

Trustees do not have taxable income & investment made by them is questionable

OR

Trust is generating substantial surpluses year to year which is utilised for the construction

VIDHYA SIKSHAA EDUCATIONAL & CHARITABLE TRUST vs. COMMISSIONER OF INCOME TAX

ITAT, ITAT, CHENNAI ‘C’ BENCH

Hari Om Maratha, J.M. & Abraham P. George, A.M.

ITA No. 1331/Mad/2010; Asst. yr. 2009-10

16th March, 2011

(2011) 30 CCH 0135 Chen Tribe

(2012) 51 SOT 0063 (URO) : (2011) 11 ITR 0236

Legislation Referred to

Section 2(15), 11, 12AA, 288(1), 288(2), IT Rules 49, IT Rules 50, IT Rules 54, IT Rules 55

Case pertains to

Asst. Year 2009-10

Decision in favour of:

Assessee

Charitable institution—Registration under s. 12AA—Registration under s. 12AA was refused on following 3 grounds, viz. (1) original name and address of the trust has been changed by the trust on its own without seeking clearance from the IT Department (2) Many of the trustees do not have taxable income and investment made by them is questionable in their respective hands (3) the trust generating substantial surpluses year to year which are being utilised for the construction of the building of the school—Neither IT Act nor Rules mention anywhere that an assessee has to get any previous sanction from the IT Department before effecting any such amendments- Even if trustees did not have the wherewithal to contribute the sums mentioned and even if we treat such donations as coming from anonymous sources, it would not be reason to deny registration under s. 12AA—Surplus if any generated, as long as it was used for educational objects would not make the institution non charitable

 

Held:

According to the CIT, the amendment to the original trust deed could not be accepted where original name and address of the trust was changed without seeking prior clearance from the IT Department. One cannot see in any of the ss. 11, 12 and 13 any provision which says that an assessee cannot make any changes of the like mentioned, without getting prior clearance from the IT Department. Related rs. 17A, 17B and 17C of the IT Rules also do not mention anywhere that an assessee has to get any previous sanction from the IT Department before effecting any such amendments. The Department cannot fasten on the assessee a duty more than what has been prescribed under the statute and by doing so, the Department was taking up the role of a law making authority and indulging in acts which are ultra vires the powers vested on it. It is to be noted that this was the first application ever moved by the assessee for such a registration. The second reason cited by the CIT is that 25 persons had initially invested in land by contributing entire money in cash and further brought in a sum of Rs. 25 lakhs. According to him, many of the trustees did not have taxable income and investments made by them were questionable in their respective hands. It is found that the Act specifies a methodology where anonymous receipts are received by a trust. Sec. 115BBC specify a method for taxing anonymous donations. Thus even if one considers that the trustees did not have the wherewithal to contribute the sums mentioned and even if one treats such donations as coming from anonymous sources, it would not be reason to deny registration under s. 12AA. The third reason cited by the CIT is that the trust was charging exorbitant amounts as school fees and was spending only a small part towards the salary of the teachers and other related expenses. This reasoning, could be relevant only if running of the school was incidental to the running of the main objects of the trust. When education itself was the main object, running a school could never be considered as incidental. There is no finding by the CIT that any excess or surplus was used or diverted, for any purpose other than for educational needs. On the other hand, there is a clear finding that the funds were used for construction of the building of the school. Where education is itself is charitable under s. 2(15), construction of the building to carry on such education, or in other words spending money for raising necessary infrastructure would also be very much charitable. The final finding of the CIT is that the trust was running hostel and transportation services, and such activities were not part of its education activity and that the trust was making profit on these activities. This view is also incorrect. A school has to have a hostel and a mode of transporting the students. Surplus if any generated, as long as it was used for educational objects would not make the institution non-charitable. Thus none of the reasons cited by the CIT were relevant for the purpose of considering the application for registration under s. 12AA. Such registration was unjustly denied to the assessee. The order of the CIT is quashed and he is directed to grant registration sought by the assessee-trust.

(Paras 10 & 11)

Conclusion:

Where none of the reasons cited by the CIT were relevant for the purpose of considering the application for registration under s. 12AA, such registration was unjustly denied to the assessee; hence, the order of the CIT is quashed and he is directed to grant registration sought by the assessee-trust.

In favour of:

Assessee

Authorised Representative—Eligibility—Authorised Representative was a person who had passed the accountancy examination recognised by the CBDT but yet to get registration as per r. 55 of IT Rules—Sub-s. (2) of s. 288 does not say that the Authorised Representative shall also be an authorised IT practitioner registered under rr. 54 and 55 of the rules—The right given in this respect by the Act cannot be diluted by rules nor can it be restricted by rules, by specifying a procedure for registration

Held:

As per cl. (a) of r. 49, an “authorised IT practitioner” is any Authorised Representative as defined in cl. (v) or cl. (vi) or cl. (vii) of sub-s. (2) of s. 288 for appearing before this Tribunal. It cannot be read to mean that an Authorised Representative as defined in sub-s. (2) has to get himself registered as an authorised income-tax practitioner. Sub-s. (2) of s. 288 does not say that the Authorised Representative shall also be an authorised IT practitioner registered under rr. 54 and 55 of the rules. The right given in this respect by the Act cannot be diluted by rules nor can it be restricted by rules, by specifying a procedure for registration. The right given to an assessee to appoint an Authorised Representative who has the qualification to become Authorised Representative as defined under the Act cannot be denied. In other words, a person having the qualification mentioned under the Act cannot be stopped from appearing before this Tribunal on behalf of the assessee. Tribunal is therefore, of the opinion that S is authorised under the Act to appear before this Tribunal as Authorised Representative and objection of the Department in this regard is rejected.

(Para 8)

Conclusion:

A person having the qualification mentioned under the IT Act cannot be stopped from appearing before Tribunal as Authorised Representative, merely for want of registration under IT Rules.

In favour of:

Assessee

Counsel appeared:

Subbarayan, for the Assessee : Tapas Kumar Dutta, for the Department

ORDER

ABRAHAM P. GEORGE, A.M.: :

ORDER

In this appeal filed by the assessee, it assails the order of the learned CIT-II, Madurai, whereby he refused to grant registration under s. 12AA of the IT Act, 1961 (in short, the Act). As per the assessee, the reasons cited by the learned CIT for refusing registration was not relevant for the purpose of grant of registration under s. 12AA of the Act.

2. The assessee was represented by Shri Subbarayan. The Bench queried Shri Subbarayan as to under what capacity he was appearing on behalf of the assessee. Thereupon, he replied that he was appearing as an Authorised Representative. He further submitted that he was a retired Dy. CIT and an Authorised Representative as defined under s. 288(1) of the Act. Quoting cl. (v) of sub-s. (i) of s. 288, Shri Subbarayan submitted that he was a person who had passed the accountancy examination recognised by the CBDT. Attention was invited to r. 50 of the IT Rules, 1962 (in short, “the rules”) which sets out the accountancy examinations which were recognised. According to him, sub-r. (4) of r. 50, clearly mentioned that the Departmental examinations conducted by or on behalf of the CBDT was one of those examinations which were recognised and he, having passed such an examination, was eligible to appear before this Tribunal as an Authorised Representative.
3. Per contra, the learned Departmental Representative submitted that as per r. 54 of the rules, any person who wished to have his name entered as an authorised income-tax practitioner in the register, was obliged to apply to the Chief CIT within whose area of jurisdiction he was practicing. According to him, Shri Subbarayan was yet to obtain such registration as specified in r. 55 of the rules.
4. We have heard the parties and have also seen the relevant sections and rules. To resolve the issue, we reproduce sub-ss. (1) and (2) of s. 288 of the Act hereunder :

(1) Any assessee who is entitled or required to attend before any IT authorities or the Tribunal in connection with any proceeding under this Act otherwise than when required under s. 131 to attend personally for examination on oath or affirmation, may, subject to the other provisions of this section, attend by an Authorised Representative.

(2) For the purposes of this section, ‘Authorised Representative’ means a person authorised by the assessee in writing to appear on his behalf, being—

(i) a person related to the assessee in any manner, or a person regularly employed by the assessee; or

(ii) any officer of a scheduled bank with which the assessee maintains a current account or has other regular dealings; or

(iii) any legal practitioner who is entitled to practise in any Civil Court in India; or

(iv) an accountant; or

(v) any person who has passed any accountancy examination recognised in this behalf by the Board; or

(vi) any person who has acquired such educational qualifications as the Board may prescribe for this purpose; or

(via) any person who, before the coming into force of this Act in the Union territory of Dadra and Nagar Haveli, Goa, Daman and Diu, or Pondicherry, attended before an IT authorities in the said territory on behalf of any assessee otherwise than in the capacity of an employee or relative of that assessee ; or

(vii) any other person who, immediately before the commencement of this Act, was an income-tax practitioner within the meaning of cl. (iv) of sub-s. (2) of s. 61 of the Indian IT Act, 1922 (11 of 1922), and was actually practising as such.

Explanation.—In this section, ‘accountant’ means a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949), and includes, in relation to any State, any person who by virtue of the provisions of sub-s. (2) of s. 226 of the Companies Act, 1956 (1 of 1956), is entitled to be appointed to act as an auditor of companies registered in that State.”

5. What we can understand from sub-s. (1) of s. 288 is that an assessee, who is entitled to appear before this Tribunal, can attend through his Authorised Representative. The Authorised Representative is defined in sub-s. (2) of s. 288 and by virtue of cl. (v) thereof any person who has passed any accountancy examination recognised by the Board is an “Authorised Representative”. Rule 50 of the IT Rules specifies the examinations recognised for the purpose of cl. (v) of sub-s. (2) to s. 288. Such accountancy examinations recognised are as under :

“(1) The National Diploma in Commerce awarded by the All India Council for Technical Education under the Ministry of Education, New Delhi, provided the diploma-holder has taken advanced accountancy and auditing as an elective subject for the diploma examination.

(2) Government Diploma in Company Secretary ship awarded by the Department of company affairs under the Ministry of Industrial Development and Company Affairs, New Delhi.

(2A) Final examination of the Institute of Company Secretaries of India, New Delhi.

(3) The final examination of the Institute of Cost and Works Accountants of India constituted under the Cost and Works Accountants Act, 1959 (23 of 1959).

(4) The Departmental examinations conducted by or on behalf of the CBDT for AOs, Class I or Group ‘A’, Probationers, or for AOs, Class II or Group ‘B’, Probationers, or for promotion to the post of AOs, Class II or Group ‘B’, as the case may be.

(5) The Revenue audit examination for section Officers conducted by the office of the Comptroller and Auditor General of India.”

6. By virtue of sub-r. (4) of r. 50, Departmental examinations conducted by or on behalf of the CBDT are recognised for the purpose of cl. (v) of sub-s. (2) to s. 288 of the Act. There is no dispute raised by the learned Departmental Representative on the claim of Shri Subbarayan that he had passed such Departmental examination while in service. Now coming to the contention of the learned Departmental Representative that every Authorised Representative, for appearing before this Tribunal had to apply to the Chief CIT within whose area of jurisdiction he was practicing, in accordance with r. 54 of the Rules and obtain a certificate of registration as per r. 55, we are unable to accept. Rule 54 of the rules is reproduced as under :

“54. (1) Any person who wishes to have his name entered as an authorised IT practitioner in the register shall apply to the Chief CIT or CIT within whose area of jurisdiction he has been practicing. The application shall be made in Form No. 39 and shall be accompanied by documentary evidence regarding his eligibility for IT practice under cl. (v) or cl. (vi) or cl. (via) or cl. (vii) of sub-s. (2) of s. 288. (2) The applicant shall also furnish such further information as the Chief CIT or CIT may require in connection with the disposal of the application.”

7. As per this rule, a person who wishes to have his name entered as an authorised IT practitioner in the register, has necessarily to apply to the Chief CIT within whose area of jurisdiction he was practicing. Obviously a person who did not wish to have his name so entered, need not make any such application at all. The authorised IT practitioner is a nomenclature which does not appear anywhere in s. 288 of the Act. It finds a mention in Part XI and r. 49 of the rules only. The said rule reads as under :

“In this part —

(a) ‘Authorised IT practitioner’ means any Authorised Representative as defined in cl. (v) or cl. (vi) or cl. (vii) of sub-s. (2) of s. 288.”

8. Thus as per cl. (a) of r. 49, an “authorised IT practitioner” 8 is any Authorised Representative as defined in cl. (v) or cl. (vi) or cl. (vii) of sub-s. (2) of s. 288 for appearing before this Tribunal. It cannot be read to mean that an Authorised Representative as defined in sub-s. (2) has to get himself registered as an authorised income-tax practitioner. Sub-s. (2) of s. 288 does not say that the Authorised Representative shall also be an authorised IT practitioner registered under rr. 54 and 55 of the rules. The right given in this respect by the Act cannot be diluted by rules nor can it be restricted by rules, by specifying a procedure for registration. The right given to an assessee to appoint an Authorised Representative who has the qualification to become Authorised Representative as defined under the Act cannot be denied. In other words, a person having the qualification mentioned under the Act cannot be stopped from appearing before this Tribunal on behalf of the assessee. We are, therefore, of the opinion that Shri Subbarayan is authorised under the Act to appear before this Tribunal as Authorised Representative and objection of the Department in this regard is rejected.
9. Having dealt with the initial objection raised, we now proceed with the merits of the appeal. Reasons why the learned CIT denied registration under s. 12AA appears at para 7 of his order which is reproduced hereunder :

“7. I have carefully considered the submission of the Authorised Representative and the absence of the original trust deed, the amended deed cannot be accepted as the original deed more so, when the original name and address of the trust has been changed by the trust on its own without seeking clearance from the IT Department. Secondly, 25 persons have initially invested in land by contributing entire money in cash and similarly they have brought in a sum of Rs. 12 lakhs in the trust by bringing in Rs. 50,000 in cash for construction of the school. Many of the trustees do not have taxable income and investment made by them is questionable in their respective hands. Thirdly, the trust is charging exorbitant fees as school fees and is spending only a small part towards the salary of the teachers and other related expenses. The school is generating substantial surpluses year to year which are being utilised for the construction of the building of the school. It is apparent that no charitable activity has been carried out by the trust and it is run with profit motive only. Lastly, the trust is also running hostel and transport services which are not part of the educational activity and the trust is making profit on these activities also. In view of the various defects as pointed out above, I am of the view that the applicant-trust is not eligible for grant of registration under s. 12AA of the Act. Therefore, its application for registration is hereby rejected.”

10. According to the learned CIT, the amendment to the original trust deed could not be accepted where original name and address of the trust was changed without seeking prior clearance from the IT Department. We cannot see in any of the ss. 11, 12 and 13 any provision which says that an assessee cannot make any changes of the like mentioned, without getting prior clearance from the IT Department. Related rs. 17A, 17B and 17C of the IT Rules also do not mention anywhere that an assessee has to get any previous sanction from the IT Department before effecting any such amendments. In our opinion, the Department cannot fasten on the assessee a duty more than what has been prescribed under the statute and by doing so, the Department was taking up the role of a law making authority and indulging in acts which are ultra vires the powers vested on it. It is to be noted that this was the first application ever moved by the assessee for such a registration. The second reason cited by the learned CIT is that 25 persons had initially invested in land by contributing entire money in cash and further brought in a sum of Rs. 25 lakhs. According to him, many of the trustees did not have taxable income and investments made by them were questionable in their respective hands. We find that the Act specifies a methodology where anonymous receipts are received by a trust. Sec. 115BBC of the Act specify a method for taxing anonymous donations. Thus even if we consider that the trustees did not have the wherewithal to contribute the sums mentioned and even if we treat such donations as coming from anonymous sources, it would not be reason to deny registration under s. 12AA of the Act. The third reason cited by the learned CIT is that the trust was charging exorbitant amounts as school fees and was spending only a small part towards the salary of the teachers and other related expenses. This reasoning, in our opinion, could be relevant only if running of the school was incidental to the running of the main objects of the trust. When education itself was the main object, running a school could never be considered as incidental. There is no finding by the learned CIT that any excess or surplus was used or diverted, for any purpose other than for educational needs. On the other hand, there is a clear finding that the funds were used for construction of the building of the school. Where education is itself is charitable under s. 2(15) of the Act, construction of the building to carry on such education, or in other words spending money for raising necessary infrastructure would also be very much charitable. The final finding of the learned CIT is that the trust was running hostel and transportation services, and such activities were not part of its education activity and that the trust was making profit on these activities. This view is also incorrect in our opinion. A school has to have a hostel and a mode of transporting the students. Surplus if any generated, as long as it was used for educational objects would not make the institution non charitable. Thus none of the reasons cited by the learned CIT were relevant for the purpose of considering the application for registration under s. 12AA of the Act. We are of the opinion that such registration was unjustly denied to the assessee. The order of the learned CIT is quashed and he is directed to grant registration sought by the assessee-trust.
11. In the result, appeal of the assessee stands allowed.