Monday, November 7, 2011

Registration under s 80G


CIT v Gaur Brahmin Vidya Pracharini Sabha
High Court of Punjab and Haryana
ITA No.759 of 2010(O&M)
Hemant Gupta and G S Sandhawalia, JJ

Decided on: 3 October 2011

Counsel appeared:
Mr Inderpreet Singh, Adv. for the Apellant
None for the Respondent
Judgment
Per: G S Sandhawalia, J:
Civil Misc. Nos.25090-91-CII of 2010

For the reasons mentioned in the applications, delay in refiling as well in filing the appeal is
condoned. The Civil Misc. Applications are allowed.
ITA No.759 of 2010

The present appeal is directed against the order dated 11.9.2009 passed by the Income Tax
Appellate Tribunal, Delhi Bench 'B', New Delhi (hereinafter referred to as “the Tribunal”)
wherein the ITA No.1905/Del/2009 filed by the respondent was allowed and the Tribunal set
aside the order of the Commissioner of Income-tax, Rohtak by which application filed by the
respondent under section 80G(5)(vi) of the Income Tax Act, 1961 (hereinafter referred to as
“the Act”) dated 13.10.2008 was rejected. The Commissioner of Income, Rohtak while
rejecting the said application based its order on the ground that respondent society which is
running five educational institutions, namely, (i) Gaur Brahaman Central School, (ii) Gaur
Brahaman Degree College, (iii) All India Gaur Brahaman College of Education, (iv) All India
Gaur Brahaman Sanskrit College and (v) Gaur Brahaman Aayurvedic College and was
charging fee in the range of Rs. 36,000/- to Rs. 1 lac and, therefore, it was not a charitable
purpose. The Commissioner of Income Tax has relied upon the table wherein percentage of
profit was reflected from 20.44% to 28.49% and came to the conclusion that the respondent
was enhancing the earning capacity of the institutions through acquisition of the buildings
and fixed assets and not fulfilling any noble objects.

On appeal filed by the respondent, the Tribunal has noticed that society was registered way
back on March 17,1923 with the Registrar, Joint Stock Companies, Punjab at Lahore for the
purpose of spreading education without any distinction of caste and creed by establishing
educational institutions. Thereafter, appellant was registered on 29.9.1980 under the Societies
Registration Act, 1860. The Tribunal also noticed that vide order dated 27.6.2008, the
Commissioner of Income Tax has held that the assessee is entitled for registration under
section 12AA of the Act with effect from 29.9.1980 and has been running educational
institutions since then and merely if the surplus arises as a result of charitable activities, it
cannot be held that appellant is not a charitable institution.

The Tribunal has further held that as per provisions under section 80G(5) read with Rule
11AA of the Income Tax Rules, 1962 for granting registration, the Commissioner needs to be
satisfied that the condition laid down in clause (i) to (v) of sub-sections (5) of section 80G are
fulfilled. There is no dispute that the application for approval in Form 10G along with
required documents has been filed and as per assessment of the last three years, it was seen
that though the assessee derived income yet such income was held not liable to inclusion in
total income as per sections 11 and 12 of the Act. Reference has also been made to section
2(15) of the Act to hold that the education is per se charitable purpose irrespective of the fact
that for imparting education, the assessee charges fee and there is no condition to hold that to
become eligible for charitable purposes in respect of imparting education, the same should be
imparted freely or without charging any fee.

The Revenue aggrieved against the said order of the Tribunal has in the present appeal
framed the following substantial questions of law which in its opinion require adjudication by
this Court:-
“(i). Whether the Hon'ble Tribunal was justified in law in directing the Commissioner of
Income Tax to grant approval u/s 80G(5)(vi) of the Income Tax when incomes derived by the
society are includible in its total income and its activities are not genuine as required under
Rule 11AA of the Income Tax Rules, 1962?
(ii). Whether income derived by a society registered u/s 12AA of the Income Tax Act is not
includible in its total income for the purpose of approval u/s 80G(5)(vi) of the Income Tax
Act when it regularly charges fee for imparting education in educational institutions and
does not show the income therefrom u/s 11(4A) of the Income Tax Act i.e. income from an
incidental business?
(iii) Whether the Hon'ble ITAT was justified in law in directing to the CIT to allow approval
u/s 80G(5)(vi) of the Income Tax ignoring the findings recorded by the CIT on the basis of
the documents called for u/s 11AA of the Income Tax Act that applicant was having incomes
of the nature not specified u/s 11 & thus includible in its total income, maintaining no
dissolution clause in Memorandum & Articles of Association attracting clause (ii) of 5 of
80G, keeping cash unauthorisedly in hand for more than normal period of 24 hours & spent
money on non-charitable activities?
(iv) Whether the Hon'ble ITAT was justified in law in holding without determining the
'property held under trust' in the case of the applicant society that 'income from property held
under trust' would be exempted u/s 11 & 12 of the Income Tax Act?”

A perusal of the Rule 11AA of the Income Tax Rules, 1962 goes to show that application for
approval of any institution under Clause (vi) of sub-section (5) of Section 80G should be in
Form 10G and the following documents are necessary as per clause (2) of the said Rule.
“(i) Copy of registration granted under section 12A or copy of notification issued under
section 10(23) or 10(23C);
(ii) Notices on activities of institution or fund since its inception or during the last three
years, whichever is less;
(iii) Copies of accounts of the institution or fund since its inception or during the last three
years, whichever is less;
(3) The commissioner may call for such further documents or information from the institution
or fund or cause such inquiries to be made as he may deem necessary in order to satisfy
himself about the genuineness of the activities of such institution or fund.
(4) Where the Commissioner is satisfied that all the conditions laid down in clauses (i) to (iv)
of sub-section (5) of section 80G are fulfilled by the institution or fund, he shall record such
satisfaction in writing and grant approval to the institution or fund specifying the assessment
year or years for which the approval is valid.
(5) Where the Commissioner is satisfied that one or more of the conditions laid down in
clauses (i) to (v) of sub-section (5) of section 80G are not fulfilled, he shall reject the
application for approval after recording the reasons for such rejection in writing.
Provided that no order of rejection of an application shall be passed without giving the
institution or fund an opportunity of being heard.
(6) The time limit within which the Commissioner shall pass an order either granting the
approval or rejecting the application shall not exceed six months from the date on which such
application was made.

Provided that in computing the period of six months, any time taken by the applicant in not
complying with the directions of the Commissioner under sub-rule (3) shall be excluded.”

A perusal of the above goes to show that the discretion of the Commissioner is to consider
whether the conditions prescribed above are satisfied from the application. This Court in
Sonepat Hindu Educational and Charitable Society v Commissioner of Income Tax and
another (2005) 278 ITR 262 (P&H) has held that where the petitioner society has been
regularly allowed exemption under section 80G and especially where it is registered under
section 12A for charitable purposes then the position has to be sustained and not changed in
subsequent years without any sufficient proof that the institution is not carrying its activities
in furtherance of its object. The relevant observations of the Division Bench in Sonepat
Hindu Educational and Charitable Society’s case (supra) are as under:-

“We have no hesitation in holding that the scope of enquiry by the Commissioner, while
dealing with the application under section 80G(5)(vi) of the Act, extends to eligibility to
exemption under various provisions of the Act, referred to in that subsection, but not to
actual computation of Income under the Act, particularly when a society or a trust is
claiming exemptions under sections 11 and 12 and not under section 10 of the Act. It needs
little emphasis that the enquiry for the said purpose relates to whether the applicant is
registered under section 12A; whether it is a trust wholly for charitable purposes and
whether the income received by it is liable to be considered under section 11 of the Act. The
enquiry whether at the end of the previous year, the donor will be able to sustain a claim
because of non-fulfillment of some conditions by him would depend at the close of the
relevant previous year, as it is not possible to predicate these conditions in praesenti when
the donation is made.”

Whether mere making of profit would be ground to deny registration once the objects of the
society are for charitable purpose and especially in the present case where five educational
institutions are being run by the respondent which is registered since 29.9.1980 under the
Societies Registration Act, 1860, and solely because the respondent was charging fees and
was getting surplus would not be a reason to deny registration in view of the binding
precedent in Pinegrove International Charitable Trust v. Union of India (UOI) and others
(2010) 327 ITR 73 (P&H)

That in the said case a Division Bench of this Court while examining the provisions of
section 10(23C)(vi) of the Act and after considering the judgments of Hon’ble Supreme
Court Court in CIT (Addl.) v. Surat Art Silk Cloth Manufacturers Association, [1980] 121
ITR 1 (SC) and Aditanar Educational Institution v. Additional Commissioner of Income-tax,
[1997] 224 ITR 310 has held that merely if an institution is making a profit it would not
render itself ineligible for registration under the provisions of section 10(23C)(vi) of the Act.
The said principle can also be fully applied to the facts and circumstances of the present case.
Merely, because there are some surplus with the respondent, this should not be a ground to
deny the registration under section 80G (5)(vi) of the Act.

Even otherwise Proviso 2 of (15) of the Act also mentions that assessee should not carry
activities in the name of trade, commerce and business. Since as a matter of fact, the Tribunal
has found that the conditions laid down Rule 11AA of the Income Tax Rules, 1962 have also
been complied with in the present case and held that the Trust is eligible for registration
under section 80G(5)(vi) of the Act, therefore, no substantial question of law as contended in
the present appeal arises for determination by this Court. Order dated 11.9.2009 whereby the
Tribunal held that assessee trust is eligible for registration is upheld.

Accordingly, the present appeal is dismissed.

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