Scope of enquiry u/s 12AA for registration u/s 12A is limited to make enquiries about genuineness of activities and object of the trust

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Scope of enquiry u/s 12AA for registration u/s 12A is limited to make enquiries about genuineness of activities and object of the trust

There is a common trend to stretch the enquiry to cover the aspects which is at its best the part of enquiry during assessment. Here, is one more judgment which discusses about the power of CIT (Exemption) for granting registration u/s 12A.

 

The key observation of the judgment is as under:

 

  1. An object beneficial to the section of the public is an object of general public utility and to serve a charitable purpose, it is not necessary that the object should be to benefit the whole of mankind or all persons in a particular country or State. The objects of the assessee trust as indicated in object cls. 3(1) and 3(2) of its trust deed were of charitable nature and since the powers of the CIT/Director of IT (Exemption) conferred under s. 12AA were confined to satisfy himself about the genuineness of the activities of the trust as well as nature of its object being charitable, he was not justified in refusing to grant registration to the assessee trust under s. 12A merely on the ground that the said objects were violative of the provisions of s. 13(1)(b). The procedure for registration laid down in s. 12AA requires the CIT to satisfy himself about the genuineness of activities and object of the trust or institution and as such, the scope of his powers is limited in this regard to make such enquiries, as he may deem fit, to satisfy himself in respect of these two aspects. The provisions of s. 13(1) are thus not directly relevant in this regard. On the other hand, the said section begins with the words “Nothing contained in s. 11 or s. 12 shall operate so as to exclude, from the total income of the previous year, of the person…….” which clearly envisages operation of s. 11 or s. 12 before the provisions of s. 13 can be applied or invoked in a given case.

  2. It also shows that the said provisions can be applied or invoked only at the time of computation of total income of the previous year of the person who is claiming exemption under section .11 or section. 12.

  3. Both these situations contemplated in s. 13 can arise only and only if registration under s. 12A is granted to the said person. If the same is not granted and the person is refused the registration under s. 12A, he would not be entitled to claim any benefit available under s. 11 or 12 and there will be no occasion to the AO to invoke or apply s. 13 in his case. This position would not only be contrary to the scheme of the Act as laid down in ss. 11, 12, 12A, 12AA and 13 but the same may also cause prejudice/hardship to the persons in certain cases.

    For instance, the objects, for which the assessee trust in the present case is established, as indicated in object cls. 3(1) and 3(2), no doubt are for the benefits of a particular community, viz., Vaish. Nevertheless, as per object cl. 3(4), it was also established to run schools, colleges, hospitals, etc. for the benefit of public at large. In this situation, if the registration applied for under s. 12A is not granted to it for violation of provisions of s. 13(1)(b) and it is ultimately found that the assessee trust actually accomplished the objects as indicated in cl. 3(4) only for the benefit of public at large without there being any activity undertaken as per object cls. 3(1) and 3(2), it would be deprived of any benefits which otherwise were available to it under s. 11 or s. 12. This certainly is not the legislative intention as reflected in the scheme laid down in ss. 11, 12, 12A, 12AA and 13. On the contrary, the phraseology of s. 13 makes it explicitly clear that the said provisions become operative or relevant only at the stage of assessment when the AO is required to examine the claim of the assessee for benefits under s. 11 or s. 12 while computing the total income of the assessee of the relevant previous year.

  4. The application of s. 13 thus falls within the exclusive domain of the AO and the provisions contained therein can be invoked by him while framing the assessment and not by the CIT while considering the application for registration under s. 12AA.

 

The same view were also expressed in

  1. Ahmedabad Rana Caste Association vs. CIT (1971) 82 ITR 704 (SC),
  2. CIT vs. Surji Devi Kunji Lal Jaipuria Charitable Trust (1990) 87 CTR (All) 213 : (1990) 186 ITR 728 (All)
  3. CIT vs. Pt. Ram Shanker Misra Trust (1996) 222 ITR 252 (All),
  4. Don Bosco Educational Society vs. CIT (2004) 84 TTJ (Luck) 805 : (2004) 90 ITD 477 (Luck)
  5. Aryan Educational Society vs. CIT (2005) 94 TTJ (Del) 462 : (2005) 93 ITD 546 (Del) relied on.

 

AGGARWAL MITRA MANDAL TRUST vs. DIRECTOR OF INCOME TAX (EXEMPTION)

ITAT, DELHI ‘A’ BENCH R.V. Easwar, Vice President & P.M. Jagtap, A.M.

ITA No. 3785/Del/2002 29th September, 2006

(2006) 25 CCH 0684 DelTrib (2007) 109 TTJ 0128 : (2007) 106 ITD 0531 : (2007) 12 SOT 0032

Legislation Referred to Section 12A, 12AA, 13 Case pertains to Asst. Year – Decision in favour of: Assessee In favour of: Assessee Case referred to

Self Employers Service Society vs. CIT (2000) 164 CTR (Ker) 449 : (2001) 247 ITR 18 (Ker)  Counsel appeared:

Pratap Gupta, for the Appellant : Ram Mohan Singh, for the Respondent

ORDER

P.M. JAGTAP, A.M.: :

ORDER

This appeal is preferred by the assessee against the order of learned Director of IT (Exemption), New Delhi, dt. 19th July, 2002 passed under s. 12AA refusing to grant registration applied for by the assessee under s. 12A.

  1. The assessee in the present case is a society registered under the Societies Registration Act, 1860. It applied for its registration under s. 12A(a) belatedly on 15th Jan., 2002. Along with the said application, copies of certificates of registration, memorandum of understanding, rules and regulations and receipts and payments account for the year ending 31st March, 1999, 31st March, 2000 and 31st March, 2001 were also filed by the assessee. After examination of the said application as well as the accompanying documents, the learned Director of IT (Exemption) found that object cls. 3(1) and 3(2) were for the benefit of a specific caste, viz, Vaish and since these clauses were in conflict with the provisions of s. 13(1)(b), he required the assessee to offer its explanation in the matter. In reply, it was submitted on behalf of the assessee that Vaish community is fairly broad so as to constitute and represent “public” as envisaged in the relevant provisions. Reliance was placed on behalf of the assessee on the decision of Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association vs. CIT (1971) 82 ITR 704 (SC) wherein it was held that for serving a charitable purpose, it is not necessary that the object should be for the benefit of the whole mankind or all persons in a country or a State and it is sufficient if the intention is to benefit a section of the public as distinguished from a specific individual or person. It was also held that the section of the community sought to be benefited must be sufficiently defined and identifiable by some common quality of a public or impersonal nature. Further reliance was also placed on behalf of the assessee on the decision of Hon’ble Allahabad High Court in the case of CIT vs. Surji Devi Kunji Lal Jaipuria Charitable Trust (1990) 87 CTR (All) 213 : (1990) 186 ITR 728 (All) wherein it was held, following the decision of Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association (supra), that Vaish community constituted public and objects of granting assistance on the occasion of marriage to the persons from Vaish community constituted charitable purposes. It was thus contended on behalf of the assessee before the learned Director of IT (Exemption) that Vaish community is fairly well defined and it also is fairly large to constitute public rather than an individual. As regards the provisions of s. 13(1)(b) pointed out by the Director of IT (Exemption) whereby any income of the trust or institution created or established for the purpose of any religious community or caste was excluded from the benefits available under ss. 11 and 12, it was submitted on behalf of the assessee before the Director of IT (Exemption) that the registration under s. 12A(a) and denial of exemption under s. 13(1)(b) are two different matters inasmuch as the former depends upon the nature of institution and genuineness of its activities whereas the latter is the matter regarding application of income of a charitable trust or institution. This submission made on behalf of the assessee company, however, was not found acceptable by the Director of IT (Exemption) and he refused to grant registration applied for by the assessee under s. 12A(a) for the following reasons given in para No. 4 of his impugned order :

“4. I have considered the facts of the case and the arguments of the learned counsel. It is admitted that Vaish community is fairly broad and identifiable to constitute public and, therefore, the society is a charitable institution. This was the ratio of the decision of Allahabad High Court. However, object cls. 3(1), 3(2) of the MoA infringe provisions of s. 13(1)(b). This section does not deal with the application of income, as argued by the learned counsel, but deals with the fact whether the institution is created for the benefit of any caste or religious community. Therefore, this section deals with scope and ambit of the activities of the society, which have to be considered under s. 12A(a) also. A number of object clauses namely 4(1), 4(2), 4(3) and 4(4), etc. are for the benefit of members of Vaish caste only. Therefore, it is manifestly clear from MoA that the society was created for the benefit of this caste. There is no dispute that Vaish is a well-recognised and one of the four castes among Hindus. The case of SR Trust & Others, cited by the assessee, did not deal with the issue of caste. Rather it dealt with religious community. Therefore, the effect of s. 13(1)(b) would be that assessee’s income will not be exempt under ss. 11 and 12. Consequently, the assessee will not be able to get benefit of s. 11, at any point of time even if it is registered under s. 12A(a). Thus, its registration, even if granted, becomes infructuous for the purpose of assessments under the IT Act. This issue was not considered or debated in the case of Ahmedabad Rana Caste Association vs. CIT (1971) 82 ITR 704 (SC) or the CIT vs. Surji Devi Kunji Lal Jaipuria Charitable Trust (1990) 87 CTR (All) 213 : (1990) 186 ITR 728 (All) case, and thus, the facts of the case are distinguishable in law from the facts of that case. As registration will not serve any purpose insofar as the assessee’s assessment is concerned, no useful purpose will be served by in registering it. Accordingly, I decline to register the case.”

  1. Aggrieved by the aforesaid order of the learned Director of IT (Exemption), the assessee has preferred this appeal before the Tribunal, on the following ground :

“Learned Director of IT is not justified in law and facts and circumstances of the case in rejecting the registration to the society under s. 12A of the IT Act on the ground that object clause of the trust conflicts with the provision of s. 13(1)(b) under the circumstances when Hon’ble Allahabad High Court in case of CIT vs. Surji Devi Kunji Lal Jaipuria Charitable Trust (1990) 87 CTR (All) 213 : (1990) 186 ITR 728 (All) has held that, Vaishya community is a section of public, following the decision of Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association vs. CIT (1971) 82 ITR 704 (SC).”

  1. The learned counsel for the assessee, at the outset, pointed out that even though the assessee trust was established in the year 1992, it applied for the registration under s. 12A only in the year 2002. He submitted that the application made by the assessee for such registration, however, was rejected by the Director of IT (Exemption) relying on object cl. Nos. 3(1) and 3(2) of the trust deed, according to which, the activities of the assessee trust were meant only for persons belonging to Vaish community which, according to the Director of IT (Exemption), was violative of s. 13(1)(b). He contended that at the time of granting the registration as per s. 12AA, CIT was not authorised to go into the aspect of violation, if any, of s. 13(1) and he was required to satisfy himself only about the genuineness of the trust and its charitable objects. He contended that even if some of the objects are found to be charitable, Director of IT (Exemption) has to grant registration under s. 12A and since, at least the object of the assessee trust as mentioned in cl. 3(4) of the trust deed relating to establishment of schools, colleges, hospitals, etc. for the benefit of public at large was of charitable nature, there was no justification in the action of the Director of IT (Exemption) to decline to grant registration applied for by the assessee under s. 12A. Relying on the decision of Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association (supra) as well as that of Hon’ble Allahabad High Court in the case of Surji Devi Kunji Lal Jaipuria Charitable Trust (supra), he contended that even the benefit extended to one community representing section of the public, in any case, is a charitable purpose and the learned Director of IT (Exemption) was not justified in rejecting the application of the assessee for registration under s. 12A on this basis.
  2. The learned Departmental Representative, on the other hand, submitted that as per the newly inserted s. 12AA in the statute w.e.f. 1st April, 1997, more powers have been conferred on the Director of IT (Exemption) giving him an authority to make such enquiries as he may deem necessary before granting registration to a trust or institution under s. 12A. Relying on the decision of Hon’ble Kerala High Court in the case of Self Employers Service Society vs. CIT (2000) 164 CTR (Ker) 449 : (2001) 247 ITR 18 (Ker), he submitted that genuineness of the trust or institution can also be gone into by him before granting registration to a trust or institution as per the procedure laid down in s. 12AA. He pointed out that s. 13 deals with the cases wherein ss. 11 and 12 are not applicable and since registration under s. 12A is applied for availing the benefit available under ss. 11 and 12, it is all the more necessary for the Director of IT (Exemption) to look into the violation of s. 13(1), if any, before granting the registration to a trust or institution under s. 12A. He contended that if certain objects of a trust or institution are violative of s. 13(1)(b) like in the present case, the Director of IT (Exemption) can refuse to grant registration under s. 12A and no fault, therefore, can be found in his action refusing to grant registration. He submitted that the main object of the assessee trust as per the object clause contained in the trust deed is to work for the benefit of the people belonging to one caste, i.e. Vaish which is clearly violative of the provisions of s. 13(1)(b). He contended that even the learned counsel for the assessee has not been able to show that there was no such violation of the provisions of s. 13(1)(b) and this being so, the impugned order of the Director of IT (Exemption) refusing to grant registration to the assessee trust deserves to be upheld.
  3. We have considered the rival submissions and also perused the relevant material on record. It is observed that any trust or institution seeking to avail the benefit of the provisions of ss. 11 and 12 is required to apply for registration under s. 12A. The procedure for registration is prescribed in s. 12AA and as per the provisions of sub-s. (1) of that section, the CIT [Director of IT (Exemption) in the present case] is empowered to satisfy himself about the object of the trust and about the genuineness of the activities of the trust or institution before granting the registration under s. 12A. Once the CIT has not doubted the genuineness of the activities of the assessee nor doubted its charitable object, he cannot refuse to grant registration under s. 12A. In the present case, the registration, however, was refused by the Director of IT (Exemption) on the ground that as per the object clause Nos. 3(1) and 3(2), the assessee trust was established for the benefit of people belonging to Vaish community only which was clearly in violation of s. 13(1)(b). However, as held by Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association (supra), an object beneficial to the section of the public is an object of general public utility and to serve a charitable purpose, it is not necessary that the object should be to benefit the whole of mankind or all persons in a particular country or State. Explaining further, it was observed by the Hon’ble apex Court that it is sufficient if the intention is to benefit a section of the public as distinguished from a specified individual. Relying on this decision of Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association (supra), Hon’ble Allahabad High Court in the case of Surji Devi. Kunji Lal Jaipuria Charitable Trust (supra) has held that trust created for giving medical aid, social welfare and upliftment of poor members of Vaish community is, therefore, for religious and charitable purposes. To the similar effect is another decision of Hon’ble Allahabad High Court in the case of CIT vs. Pt. Ram Shanker Misra Trust (1996) 222 ITR 252 (All) wherein it was held that expenditure incurred by a trust for the benefit of one community is an expenditure incurred on a public charitable object. The proposition propounded by Hon’ble Supreme Court as well as by Hon’ble Allahabad High Court in the aforesaid judgments clearly shows that the objects of the assessee trust as indicated in object cls. 3(1) and 3(2) of its trust deed were of charitable nature and since the powers of the CIT/Director of IT (Exemption) conferred under s. 12AA were confined to satisfy himself about the genuineness of the activities of the trust as well as nature of its object being charitable, we are of the view that he was not justified in refusing to grant registration to the assessee trust under s. 12A merely on the ground that the said objects were violative of the provisions of s. 13(1)(b). As held by Lucknow Bench of Tribunal in the case of St. Don Bosco Educational Society vs. CIT (2004) 84 TTJ (Lucknow) 805 : (2004) 90 ITD 477 (Lucknow), the CIT under s. 12AA is empowered to satisfy himself only about the object of the trust and about the genuineness of the activities of the trust and such power does not extend to eligibility of the trust/institution for exemption under s. 11 r/w s. 13 which falls within the domain of the AO. To the similar effect is the decision of Delhi Bench of Tribunal in the case of Aryan Educational Society vs. CIT (2005) 94 TTJ (Del) 462 : (2005) 93 ITD 546 (Del) wherein it was held that so long as the provisions of ss. 11, 12 and 12A are complied with, the exemption cannot be denied merely because there is any violation of the provisions of s. 13.
  4. As already noted, the procedure for registration laid down in s. 12AA requires the CIT to satisfy himself about the genuineness of activities and object of the trust or institution and as such, the scope of his powers is limited in this regard to make such enquiries, as he may deem fit, to satisfy himself in respect of these two aspects. As held by Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association (supra), an object beneficial to the section of the public is an object of general public utility and to serve a charitable purpose, it is sufficient if the intention is to benefit a section of the public as distinguished from a specified individual. This decision of Hon’ble apex Court followed subsequently by Hon’ble Allahabad High Court in the case of Surji Devi Kunji Lal Jaipuria Charitable Trust (supra) and in the case of Pt. Ram Shanker Misra Trust (supra) to hold that the expenditure incurred by a trust for the benefit of one community is an expenditure incurred on a public charitable object still holds the field notwithstanding the provisions contained in s. 13(1)(b) since the definition of the term “charitable purpose” given in s. 2(15) continues to remain the same. The provisions of s. 13(1) are thus not directly relevant in this regard. On the other hand, the said section begins with the words “Nothing contained in s. 11 or s. 12 shall operate so as to exclude, from the total income of the previous year, of the person………” which clearly envisages operation of s. 11 or s. 12 before the provisions of s. 13 can be applied or invoked in a given case. It also shows that the said provisions can be applied or invoked only at the time of computation of total income of the previous year of the person who is claiming exemption under s. 11 or s. 12. Both these situations contemplated in s. 13 can arise only and only if registration under s. 12A is granted to the said person. If the same is not granted and the person is refused the registration under s. 12A, he would not be entitled to claim any benefit available under s. 11 or 12 and there will be no occasion to the AO to invoke or apply s. 13 in his case. This position would not only be contrary to the scheme of the Act as laid down in ss. 11, 12, 12A, 12AA and 13 but the same may also cause prejudice/hardship to the persons in certain cases. For instance, the objects, for which the assessee trust in the present case is established, as indicated in object cls. 3(1) and 3(2), no doubt are for the benefits of a particular community, viz., Vaish. Nevertheless, as per object cl. 3(4), it was also established to run schools, colleges, hospitals, etc. for the benefit of public at large. In this situation, if the registration applied for under s. 12A is not granted to it for violation of provisions of s. 13(1)(b) and it is ultimately found that the assessee trust actually accomplished the objects as indicated in cl. 3(4) only for the benefit of public at large without there being any activity undertaken as per object cls. 3(1) and 3(2), it would be deprived of any benefits which otherwise were available to it under s. 11 or s. 12. This certainly is not the legislative intention as reflected in the scheme laid down in ss. 11, 12, 12A, 12AA and 13. On the contrary, the phraseology of s. 13, as already discussed, makes it explicitly clear that the said provisions become operative or relevant only at the stage of assessment when the AO is required to examine the claim of the assessee for benefits under s. 11 or s. 12 while computing the total income of the assessee of the relevant previous year. The application of s. 13 thus falls within the exclusive domain of the AO and the provisions contained therein can be invoked by him while framing the assessment and not by the CIT while considering the application for registration under s. 12AA.
  5. Keeping in view the reasons given above, we are of the view that the action of the learned Director of IT (Exemption) in refusing to grant registration to the assessee trust on the ground of violation of the provisions of s. 13(1)(b) was not justified especially when he had not doubted either the genuineness of the activities of the assessee-trust or the nature of its object being charitable. In that view of the matter, we set aside his impugned order and direct that registration applied for by the assessee trust under s. 12A be granted to it.
  6. In the result, the appeal of the assessee is allowed.

 

 

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