High Court Of Allahabad
CIT Vs. Sisters Of Our Lady Of Providence Education Society
Section 12A
Assessment Years 2004-05 To 2009-10
Rajes Kumar And Shashi Kant, JJ.
IT Appeal No. 417 Of 2010
July 3, 2014
ORDER
Rajes Kumar, J. – This is an appeal under Section 260-A of the Income-tax Act, 1961 (hereinafter referred to as the (“Act”) arising from the order of the Tribunal dated 4.6.2010 raising following questions:
“(1)Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in cancelling the order passed under section 12-AA (3) of the Act by relying upon a decision which is not at all applicable to the facts of the present case and without recording any independent finding against the findings as recorded by the CIT in his order passed u/s 12-AA (3) of the Act?
(2)Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the assessee had been granted registration earlier and all these facts existed at that time despite the fact that while passing order u/s 12-AA (3) the CIT had categorically held that the activities of the society are not entirely charitable and not in accordance with the aims and objects of the society?”
2. Heard Sri Dhananjay Awasthi, learned counsel for the appellant and Sri Kunal Ravi Singh, learned Counsel appearing on behalf of the respondent.
3. With the consent of the parties, the present appeal is being disposed of at this stage.
4. The respondent is a Society registered under the Societies Registration Act since 1991. It appears that registration under Section 12A read with Section 12AA of the Act has been granted to the Society. The Society has claimed exemption under Section 10 (23C) (vi) of the Act on the income for the assessment years 2004-05 to 2006-07 & 2007-08 to 2009-10 on the ground that the Society was imparting education. The said claim has been rejected by the Chief Commissioner of Income Tax, Allahabad vide order dated 25.3.2008. Against the said order, Writ Petition No. 1210 of 2009 has been rejected vide order dated 3.2.2010 and the order of the Chief Commissioner of Income Tax, Allahabad has become final. The Chief Commissioner of Income Tax, Allahabad in his order dated 25.3.2008 has recorded the following findings:
“8.1 As is evident from the reply and the order sheet entry dated 11.3.2008, the applicant has changed its stand that the ‘Sisters of Our lady of Providence’ is not engaged in running/managing any educational institution by saying that ST. Patrik’s Junior High School, Huthat, Muradabad, is being run by it. In fact the correct position is that the society is not running/managing any school/educational institution as no receipts and expenditure have been reflected in the consolidated accounts regarding the running of school in the name of ST. Patrik’s Junior High School, Huthat, Muradabad nor independent accounts of the school have been submitted. Further, as is apparent from the reply of the applicant, the society to which the contributions have been made by the applicant society does not exist solely for educational purposes as it has other objects in the memorandum of association (as submitted by the counsel himself) and amounts have been spent on those objects. Three of the objects out of eleven are quoted below as examples;
4(a) To take over, manage, administer, carry on, conduct educational, medical and charitable institutions, works and activities at present conducted and carried on in India by the Congregation of Roman Catholic Nuns (hereinafter referred to as “the said Congregation”) with or without all or any of the properties, rights, assets and liabilities belonging or attaching thereto as the Executive Body of the Society may deem fit.
4(d) To take over, establish, endow, conduct, maintain, administer, carry on, develop, equip, improve, alter and close down or dispose hostels, chapels, work guilds, sewing and needlework classes, poor houses, orphanages, penitentiaries, homes for aged, rescue homes, night shelters, refuge for poor, distressed and destitute women and children folding homes, soup kitchens, nunneries, missions, libraries, reading rooms, retreat houses, confraternities, sodalities, recreational centres and other religion cultural, educational, scientific, social and charitable institutions, works amenities and activities of all kinds in any part of India for Catholics and so far as is consonant with catholic principles for non-catholics irrespective of religion, race, community, language or social status.
4(f) To provide residential accommodation, equipment and maintenance either free of cost or for consideration to nuns, priests, teachers, doctors, nurses, pupils, staff servants, the superannuate, orphans and other connected with the work of the Society and to educate, train, equip and assist financially and otherwise in the education, training and equipment of orphans, doctors, nurses teachers, nuns, priests and other staff and personnel for the purposes of the society.
8.3 It is pertinent to mention here that the applicant society was registered in the office of Societies of Registrar in the year 1991 and since then, the clause that “the complete control over all educational institutions of the society shall vest in the Governing Body of the Sisters of Our Lady of Providence” is in existence. It was only when the undersigned pointed out that such clause is in contravention of the Societies Registration Act that the counsel made up his mind to move an application before the Registrar of Societies for amendment of the said clause. Thus from the above it appears that the very existence of the society on the date of application is in doubt.
9.1 As pointed out in earlier paragraphs the above assertions of the applicant were incorrect. Further, perusal of the accounts of the ‘Sisters of Our lady of Providence’ for F.Ys. 2004-05, 2005-06 & 2006-07 shows that the amounts, contributed by the applicant society and by the school managed by the applicant society, have been spent by ‘Sisters of Our lady of Providence’ society under the heads ‘House maintenance allowance’, sisters maintenance, contribution to others etc, which also fortifies the fact that the funds of the applicant society are not being used/utilized solely for educational purposes.
9.2 Further, it has been mentioned by the counsel, in his reply, that the ‘Sisters of Our lady of Providence’ society is looking after the lands and building of the applicant society. The counsel failed to explain as to what he meant by the term ‘looking after’. This again goes to show that the assets of the applicant society are being managed by another society.
10. Thus from the above discussions it is crystal clear that society has, in more ways than one, contravened the provisions of the Society Registration Act; that the funds of the society and the school managed by the society have been contributed to another society which has, in turn, spent it on purposes other than educational.”
5. In view of the order passed by the Chief Commissioner of Income Tax, Allahabad, the exemption under Section 10(23C)(vi), the material available on record, the Commissioner of Income Tax issued notice to the assessee under Section 12AA(3) of the Act as to why the registration under Section 12A of the Act be not cancelled, since the activities of the society have ceased to remain charitable in nature, as defined under Section 2(15) read with Sections 11 to 13 of the Act. By the order dated 15.1.2010, the registration under Section 12A read with Section 12AA of the Act has been cancelled. The Commissioner of Income Tax has recorded the following findings :
“I have considered the submission made by the assessee society. In the order of CCIT, Allahabad passed u/s 10(23C)(vi) of the I.T. Act, 1961 dated 25.3.2008, it was clearly mentioned that the assessee society in more than one way, contravened the provisions of Societies Registration Act and that the School managed by the society had contributed to another society, which had in turn, spent it on purposes other than educational. The case law cited by the assessee society is clearly not applicable to its case as the matter in essence that was deliberated upon and decided by the Hon’ble High Court related to withdrawal/cancellation of exemption u/s 12AA(3) of the I.T. Act 1961 to a charitable society with retrospective effect.
Therefore, I am of the opinion that the funds of the assessee society are being diverted and spent/utilized on purposes other than educational, through another society to which contributions are being made.
Therefore, I am of the opinion that the activities of the society are not entirely charitable in nature and also, the same are not being carried out in accordance with the aims and objects of the society. Therefore, I hereby cancel the registration of the society u/s 12AA(3) of the I.T. Act 1961 as issued by the CIT, Varanasi dated 30.6.2000. All necessary consequences of such cancellation to follow accordingly.”
6. Being aggrieved by the order, the assessee (hereinafter referred to as ‘respondent’) filed an appeal before the Tribunal. The Tribunal by the impugned order allowed the appeal with the following findings :
“The first objection is that learned CIT did not acquire necessary satisfaction as contemplated u/s 12AA(3) because he has relied on the findings for not granting exemption u/s 10(23C)(vi). I do not find any merit in this contention for the simple reason that though the learned CIT has referred to the findings recorded in the order u/s 10(23C)(vi) dated 25/03/2008 but he has not simply lifted the said finding from that order. It is true, as submitted by learned counsel for the assessee, that some of the portions of the order u/s 10(23C)(vi) in verbatim have been incorporated but learned CIT has independently applied his mind to those findings and then reached the necessary conclusion. It is true that the proceedings u/s 10(23C) and section 12AA are independent but the considerations under both the provisions are almost similar. Therefore, the facts and findings u/s 10(23C) have bearing in regard to the proceedings u/s 12AA. Therefore, in my opinion, this objection of learned counsel for the assessee is not sustainable.
On merits, I find considerable force in the arguments of learned counsel for the assessee that merely because amounts were spent on repairs and maintenance of places of worship, religious functions, maintenance of priests/preachers/other religious functionaries etc. and on construction and maintenance of Churches, it cannot be held that the society does not exist solely for charitable purposes, in view of the decision of Hon’ble Allahabad High Court in the case of Ewing Christian College Society v. CCIT [2009] 318 ITR 160 (Alld.) wherein it has been held as under:
“Having analyzed the provisions to section 10(23C)(vi) one finds that there is a difference between stipulation of conditions and compliance therewith. The threshold conditions are actual existence of an educational institution and approval of the prescribed authority for which every applicant has to move an application in the standardized form in terms of the first proviso. It is only if the prerequisite condition of actual existence of the educational institution is fulfilled that the question of compliance with the requirements in the provisos would arise. We find merit in the contention advance on behalf of the appellant that the third proviso contains monitoring conditions/ requirements like application, accumulation, deployment of income in specified assets whose compliance depends on events that have not taken place on the date of the application for initial approval.”
7. Learned counsel for the appellant submitted that the writ petition against the order of the Chief Commissioner of Income Tax, Allahabad rejecting the exemption under Section 10(23C)(vi) has been rejected, therefore, the order of the Chief Commissioner of Income Tax, Allahabad has become final. The Chief Commissioner of Income Tax, Allahabad has doubted the activities of the society being charitable. The Chief Commissioner of Income Tax, Allahabad also found that the activities of the society ceased to be charitable. On the facts and circumstances, the Chief Commissioner of Income Tax, Allahabad has arrived to the conclusion that the activities of the institution are not genuine and are not being carried out in accordance with the objects of the society.
8. Learned counsel for the respondent submitted that for the purposes of grant of registration under Section 12A to the trust or the institution, the Commissioner has to satisfy about the genuineness of the activities of the trust or the institution. He submitted that under sub-section (3) of Section 12AA of the Act, the registration can only be cancelled if the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may. No such finding has been recorded in this regard and, therefore, the Tribunal has rightly set aside the order of the Commissioner of Income Tax.
9. We have considered the rival submissions and perused the record.
Section 12AA of the Act reads as follows:
Section 12AA. (1) The Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) of sub-section (1) of Section 12A, shall—
(a)call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and
(b)after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he—
(i) shall pass an order in writing registering the trust or institution;
(ii)shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution,
and a copy of such order shall be sent to the applicant:
Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.
(1) All applications, pending before the Chief Commissioner on which no order has been passed under clause (b) of sub-section run on (1) before the 1st day of June, 1999, shall stand transferred on that day to the Commissioner and the Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day.
(2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) or clause (aa) of sub-section (1) of Section 12A.
(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution.
Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.
10. The registration under Section 12A of the Act can be sought either by the trust or by the institution. It appears that for the purposes of claim of exemption under Sections 11 and 12 of the Act, the registration under Section 12A of the Act is necessary as provided by Section 12A of the Act. Section 12AA(1) provides that the Commissioner, after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he shall pass an order in writing registering the trust or institution. Sub-section (3) of Section 12AA of the Act provides that if the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, he shall pass an order in writing cancelling the registration of such trust or institution. Therefore, for the cancellation of registration, the satisfaction of the Commissioner to the extent that the activities of the trust or the institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, whether the income of such trust or institution is liable to be exempted on the fulfilment of the requirement provided under Section 11 of the Act, the matter is to be examined by the assessing authority.
11. From the perusal of the order of the Commissioner, we find that no finding has been recorded with regard to the satisfaction that the activities of the present respondent are not genuine or are not being carried out in accordance with the objects of the trust or the institution. The criteria to grant exemption under Section 10 (23C)(vi) and grant of registration under Section 12A is different and merely because the exemption under Section 10 (23C)(vi) is declined, it does not amount the refusal of registration under Section 12AA or in case if the registration has been granted, it may be cancelled on that ground. For the cancellation of registration, the requirements, as provided under sub-section (3) of Section 12AA, are to be fulfilled. It is true that the refusal of the exemption under Section 10 (23C)(vi) may be relevant for the purposes of cancellation of registration, but to arrive at the conclusion that the activities of the trust or the institution are not genuine or are not being carried out in accordance with the objects of the trust or the institution, finding in this regard is necessary, based on the relevant material.
12. In view of the above, we are of the considered opinion that the matter requires consideration afresh by the Commissioner of Income Tax, Varanasi.
13. In the result, the appeal is allowed. The order of the Tribunal is set aside and the matter is relegated to the Commissioner of Income Tax, Varanasi for taking a fresh decision.
[Citation : 368 ITR 662]
