IT APPEAL NO. 665 (ASR.) OF 2017
Sanjay Arora, Accountant Member. – This is an Appeal by the assessee-society agitating the denial of the approval under section 80G(5)(vi) of the Income Tax Act, 1961 (‘the Act’ hereinafter) by the Commissioner of Income Tax (Exemptions), Chandigarh ‘(CIT(E)’ for short) vide his order dated 31.8..2017.
2. The respective cases
2.1 The assessee’s case is that it, a society registered under the Societies Registration Act, 1860 on 16.4.1995 (PB pg. 1), as well as a charitable institution u/s. 12AA of the Act (on 27.6.2003/ PB pg. 2), could not be denied approval u/s. 80G(5)(vi) by the competent authority in view of its’ continued registration u/s. 12AA. Its’ income, right up to the latest year, has been claimed fully exempt u/s. 11 of the Act and, in fact, allowed so for the years for which its’ returns of income have been subject to the verification procedure under the Act, as for AYs. 2009-10, 2010-11 and 2012-13 (PB pg. 253-260). The competent authority has, in not allowing approval u/s. 80G(5)(vi), traveled outside his purview in-as-much he has questioned the need of the assessee to seek donations, i.e., in view of its’ huge surplus and cash reserves. As long as the assessee’s objects are charitable and its’ activities not found not genuine, the onus for which is on the Revenue, approval u/s. 80G(5)(vi) could not be denied. A mere apprehension that the donations shall be misused is no ground for denying the said approval. As clarified by the Hon’ble jurisdictional High Court in CIT v. Sant Girdhar Paramhans Sant Ashram [IT Appeal No. 50 of 2018, dated 16.5.2018 / PB pgs. 320-324), the Revenue is at liberty to withdraw registration u/s. 12AA as well as approval u/s. 80G(5)(vi) in case it discovers such a misuse, i.e., donations solicited to secure admission to various professional, i.e., medical, paramedical and engineering, etc., colleges being run by the assessee-society. There is nothing on record, or in its’ conduct, to doubt the assessee’s intent or apprehend ‘misuse’ of donations, which is therefore unfounded. The Tribunal, in fact, in the case of another society, i.e., Adesh Welfare Society (Regd.), directed for allowance of approval u/s. 80G(5)(vi) which had been similarly denied to it by the competent authority (in ITA No. 102/Asr/2017, dated 26.9.2017/PB pgs. 264-271).
2.2 The Revenue’s case, on the other hand, toward which passionate submissions were made by the ld. CIT-DR, Sh. Alok Kumar, is that the tribunal cannot be oblivious to the ground realities. The acceptance of capitation fee for acquiring admissions, camouflaged as donations, deemed illegal by the Hon’ble Apex Court in Modern Dental College and Research Centerv. State of Madhya Pradesh [Civil Appeal No. 4060 of 2009, dated 2-5-2016] per a five judge bench constitution, is a bane to the society. The donations having been since held impermissible, are routed through un-related (to the students seeking admission) persons, desirous of claiming tax rebate on ‘donations’ by providing an accommodation entry. Where, one may ask, in view of continuing surpluses, being at nearly Rs.90 crore for AY 2015-16 (PB pg. 135), is the need for donations, which has not been demonstrated in spite of being called upon to do so by the competent authority? Even the list of the prospective donors, called for, could not be supplied. Donation to any charitable institution would in the normal course of affairs ensue only to enable it to meet its’ requirements, i.e., where it is not able to generate sufficient funds (through its’ regular operations) to meet its’ regular activities. In the present case, on the contrary, the assessee-society is on an asset creation spree, even assuming loans for the purpose; the fixed asset portfolio having swelled to about Rs. 140 cr. as on 31/3/2016, besides investment at Rs. nearly Rs.. 10 cr. (PB pg. 193). All this gives a strong basis and credence to suspect the bona fides for seeking section 80G benefit, implying, in effect, an incentive in the form of a tax break for the donors. Allowing the approval u/s. 80G(5)(vi), which under the present scheme is to be in perpetuity, i.e., unless specially withdrawn, would under the circumstances amount to giving fillip to such activities. The same, the capitation fee, is masqueraded as ‘donations’ or ‘voluntary contributions’ to the corpus funds (or otherwise) and, therefore, it is not in the ordinary course possible to sift the chaff from the straw, i.e., distinguish between the actual voluntary contributions from such solicited and contrived ones. It therefore becomes incumbent on a higher appellate body, as the tribunal, to, instead of allowing the menance to prosper, strength the measures to check it, as by denying approval u/s. 80G. It is not beyond the pale of the tax jurisprudence to do so; rather, it is the bounden duty of the tribunal to do so.
3. We have heard the parties, and perused the material on record.
3.1 To begin with, it may be clarified that registration u/s. 12AA per se cannot be regarded as determinative of the approval u/s. 80G(5)(vi). That is, the registration u/s. 12AA shall not ipso facto result in grant of approval u/s. 80G(5)(vi), which would rather make the latter provision otiose. This stands clarified by the Hon’ble jurisdictional High Court in Sonepat Hindu Educational & Charitable Society v. CIT  278 ITR 262/147 Taxman 1 (Punj. & Har..), relied upon by the assessee (PB pgs. 15-20), para 14 of which, also read out during hearing, reads as under:
’14. From the afore-extracted provisions, it is evident that the first and foremost requirement which the institution or fund has to satisfy is that it is established in India for a charitable purpose. The conditions contemplated by cls. (i) to (vi) of s. 80G(5) are the conditions which the institution or the fund must additionally fulfill so as to be entitled to the approval of the CIT. It is well-settled that for the purpose of construing the purpose of a trust, it is not necessary that one remains confined to the objects of the society or the trust, as set out in the memorandum of association or the trust deed, as the case may be. What is required to be found is the real purpose of establishment of the trust. There can be no quarrel with the proposition that the Commissioner, conferred with the power to grant exemption, is fully competent to find out the real purpose, as distinguished from the ostensible purpose of establishment of the society or the trust. If the Commissioner is convinced that the purpose of the society or the trust is not charitable, nothing debars him from denying the approval but, at the same time, if he is satisfied that the objects of the trust, as set out in the deed of declaration, were charitable, then having regard to the object of the provision, the approval should not be denied on mere technicalities. As a matter of fact, the power to grant or negative the claim for approval is coupled with a duty.’ [emphasis, supplied]
Why, registration in a particular case may have been granted even without commencement of any activities. An examination of these activities, commenced subsequently, and a finding as to they being genuine, is, on the other hand, a pre-requisite for an approval u/s. 80G(5)(vi) read with rule 11AA(3). To this extent we are in agreement with the Revenue. We may though hasten to add that the onus to show as to why, in spite of registration u/s. 12AA, or without initiating steps for its’ withdrawal, if not actually withdrawing it, it yet considers it as not a fit case for grant approval u/s. 80G, is on the Revenue.
3.2 The competent authority, while considering an application for approval u/s. 80G(5)(vi), is to examine it from the standpoint of rule 11AA r/w s. 80G(5) in-as-much as only a positive satisfaction of the conditions stipulated therein would qualify for the said approval. We observe no adverse comment on any of prescribed conditions, even as fairly conceded to by Sh. Kumar before us, except the genuineness of the activities under rule 11AA(3). The same, vehemently argued before us, would therefore form the subject matter of the ensuing discussion.
3.3 The only basis cited is the absence of any demonstrated need for donations, which the assessee-society shall have a better access to in view of a tax advantage for the donors on being granted approval u/s. 80G(5)(vi), and the concomitant possibility of its’ ‘misuse’. The genuineness of the activities is essentially a matter of fact. The same no doubt has to be regarded in a broader perspective, having regard to the socio-economic context and conditions in which the assessee-society operates. We are also conscious that both the registration u/s. 12AA as well as approval u/s. 80G(5)(vi) are a part of the regulatory framework instituted to screen applications, and accord sanction. A larger play in the joints, which is also a characteristic of the interpretation of fiscal statutes, particularly where laying down conditionalities, is accordingly to be allowed (refer: Jain Bro. v. Union of India  77 ITR 107 (SC)). However, ‘genuineness’ of activities should ordinarily imply activities as undertaken and not that may possibly be in future. Yes, the same may be included under the umbrella where falling within the objects and projected to be undertaken. However, whether the same could include those vehemently denied to the pursued, but could possibly be, is the question. We are not suggesting that the competent authority is not empowered to enquire about the need for donations by the assessee-society, considering the deluge of funds it finds itself in, and which aspect it has miserably failed to explain, including the list of the prospective donors, who it considers as espousing its’ cause or otherwise willing to donate, i.e., but for the section 80G benefit, or would be more likely to in case the same enures. However, firstly, ‘donations’ would mean just that, i.e., without any quid pro quo, or any ‘value’ parted with in exchange, while what the competent authority apprehends is not ‘donation’ per se, but payments in the guise of donations, being consideration for grant of admission to various professional courses being provided by the schools/colleges being run and managed by the assessee-society. Two, the enquiry has its limitations. What, if the stated donations do not follow? What, if the stated project, i.e., where so, does not materialize? In either situation, the section 80G approval cannot be withdrawn. Again, it is not impermissible for the competent authority to place the assessee’s activities in the field of higher education in the socio-economic context in which it operates, and factor in the same in his findings. Granting admission, particularly to medical courses to candidates in lieu of money (or moneys worth), is a fact of public life in India, a scourge. However, alluding thereto, without in any manner corroborating it with the assessee’s conduct, or with that of the persons managing it, in the past, would render it as no more than a surmise, a conjecture, liable to be struck down as arbitrary. It is in this context that the denial of any such intent, made equally vehemently by the ld. counsel for the assessee, Sh. Arora, before us, becomes relevant. In other words, though there is possibility of a misuse of the section 80G benefit, unless there is a firm basis to regard it as a distinct possibility, in which case it would fall within the scope of the term ‘genuineness of activities’, enquiry into which and a positive satisfaction qua which, is a precondition for an approval u/s. 80G. It may here be pertinent to draw attention to the observations of the Hon’ble jurisdictional High Court in Sonepat Hindu Educational & Charitable Society (supra), requiring the competent authority to enquire into the ‘real purpose’ of the applicant, i.e., distinct and apart from that stated in the memorandum of objects, as well as that in Sant Girdhar Paramhans Sant Ashram (supra), also read out during hearing, that a mere possibility of misuse cannot result in denial of approval. The need to ascertain the ‘real purpose’, as against the ‘ostensible purpose’, while granting approval u/s. 80-G(5)(vi) by the competent authority, is therefore to be weighed against, and ought not to denigrate to ousting applications on a mere possibility of misuse. That is, while the Revenue is empowered to, nay, duty bound to, ascertain the ‘real purpose’, as opposed to an ‘ostensible purpose’, a mere possibility of misuse (of donations) cannot have the sanction of law. Stated differently, the said possibility, for the same to result in a valid denial of approval in law, must be something more, what we have referred to as a ‘distinct possibility’. The same would be a finding of fact, open to challenge, and where found as based not on a surmise, but the surrounding facts and circumstances, of which the assessee’s conduct is an integral part, in our view, liable to be upheld.
The Revenue’s real objection, as we discern, is essentially the commercialization, which has over time engulfed the educational system in our country, eating into its’ very vitals. The right to education is a integral part of the right to life, a fundamental right guaranteed by our Constitution. Yet, access to quality education is a distant reality for want of purchasing power, with the reach and quality of public schools also being wanting by far. The position is more acute for higher education. It is this supply demand gap that is sought to be capitalized by the mushrooming educational institutes, particularly in the field of professional education, i.e., qua which there is an actual or perceived demand in the job market. Charged for in full, cost or the ability to pay, becomes a criterion on which, then, admission to such institutes becomes available, making a travesty of the educational ideals, symbolized by Gurukuls of our ancient land where students were taught in their natural setting – under shady trees and the glories of the sky. Or even the technical institutions of excellence (viz. the IITs and IIMs) as well as the missionary schools, run on ‘no profit no loss’ basis, with missionary zeal by educationists, that came into being post Independence. Education, nevertheless, in keeping with the high value placed on it in nation building, nay, society building, has been characterized as a ‘charitable purpose’ u/s. 2(15), income from pursuing which object is therefore exempt u/s. 11 of the Act, i.e., is not liable to tax. This is irrespective of the quality and content of education, to whom, how, and for what consideration, it is provided.. These factors are in fact matters of educational policy which the Act is hardly geared to control/influence, with in fact the same having much to do with the moral standards and fibre of the society, which itself has witnessed an all round decadence – and in every sphere of public life. The requirement of registration as a ‘charitable institution’, as indeed that of approval u/s. 80G, are a part of the regulatory mechanism with a view to filter out cases which do not meet the prescribed criterion. A regulatory provision is to be necessarily forward looking, i.e., future oriented. This is as what it seeks to regulate concerns what is planned for or likely to be undertaken? Enquiry into the need for donations, the very purpose for which they are to be given, and the persons from whom they are expected to arise in-as-much as a better access to donations is an additional benefit that accrues to a charitable institution upon approval u/s. 80G (5), is not precluded, particularly considering the applicant to be flush with funds, and the fact that donations normally arise to a charitable institution to support its’ activities, i.e., to meet the deficiency in its’ funding. A non-satisfactory or an evasive answer, as in the present case by the assessee-society, again, does not help it’s cause. However, that would not translate into an inference as to the donations being sought for an ulterior purpose as imminent, particularly considering that the assessee-society has in the past not been shown to undertake any illegal activity, i.e., even when it had s. 80G approval (up to 31.3.2009), as well as the fact that giving an admission in lieu of consideration is illegal. True, it is not easy to identify the same, as, it is in practice obtained from ‘others’, while in effect are for and on behalf of the person seeking admission. Why, unaccounted money received in lieu of admissions could be routed in books in the guise of donations. All this is not imagination, but a part of reality of our public life in this sphere, which one cannot be oblivious of. This would, however, not however detract from the assessee’s case. This is as it is only in the realm of possibility, which cannot oust an otherwise meritorious case. It is these opposing considerations that have led us to opine of it being a ‘distinct possibility’ to be taken notice of or given cognizance to. This shall also balance the ‘play in the joints’ referred to earlier, and the need for an effective regulatory measure, with the judicial requirement of it falling within the parameters laid down by law, and the need to maintain objectivity, lest it be regarded as arbitrary.
In the facts of the case, the ld. CIT(E) has based his decision of the donations being liable to be misused wholly on the basis of the assessee-society being prosperous and, consequently, in no apparent, or shown, need for donations to support its’ activities. While that may invite a charge of the promoters being over-zealous or over ambitious, it surely does not lead to the inference of seeking donation for admission, i.e., of the approval u/s. 80G(5)(vi) being liable to be misused a distinct possibility. This is particularly so as the same is in fact illegal, in view of the decision by the Apex Court as in TMA Pai Foundation v. State of Karnataka (AIR 2003 SC 355), referred to during hearing, emphasizing that the admission is in any case is to be merit based, and Modern Dental College and Research Center (supra). Why should a management, in no dearth of funds, risk its’ reputation and, rather, even the future of its’ institution, by asking for such ill gotten money? Clearly, we are unable to regard the present case as one of ‘distinct possibility’ i.e., the test or the threshold which, in our view, must characterize the impugned transactions of donations which the applicant-appellant targets while seeking benefit u/s. 80G(5), so as to oust its’ case for being a eligible for approval thereunder.
In our view, therefore, the assessee cannot be denied approval u/s. 80G. We, accordingly, setting aside the impugned order, direct the competent authority to grant the said approval. The assessee shall, however, give a legal undertaking to the Revenue that it shall not seek contributions, directly or indirectly, from persons who (or whose wards seek admission) to various educational or training institutions run, or may be run, by the assessee-society. The order by the tribunal in Adesh Welfare Society (Regd.) (supra), relied upon, we are conscious, does not speak of any such stipulation. The said order, as it’s reading would show, does not consider the aspect of the possible misuse of donations, i.e., as liable to misuse, given the dominant position the institutions offering professional courses enjoy vis-à-vis those seeking admission thereto, which we perceive as the principal, nay, the only issue arising in the present case.. And which we have found in principle to be a relevant consideration, though has to be based on a firm footing. The assessee society has in fact through its’ counsel strongly denied any such intention, claiming of it being an unfounded apprehension being entertained by the competent authority. It could not accordingly have any possible objection in binding itself to what it claims before us.
We decide accordingly.
5. In the result, the assessee’s appeal is allowed on the aforesaid terms.