Full Judgment
1. The order of the learned Commissoner Kottayam refusing the registration of the appellant trust on the facts and in the circumstances of the case is opposed to law and facts.
2. The learned Commissoner ought to have condoned the delay of the appellant trust in making an application for registration under Section 12A of the Income Tax Act on the premises of its case reported to him.
3. In the alternative, if the Commissoner was not convinced with the appellant's explanations for the delay in making the application for registration and therefore the registration was refused to grant from the date of the creation of the trust, he ought to have granted the registration from the first day of the financial year 2005-06 in which the application was made as provided in Sub-clause (ii) of Clause (a) of Section 12A. 4. Notwithstanding that the Commissoner is not required to examine application of the income of the trust at the stage of granting registration to the trust the finding of the learned Commissoner that the funds of the trust were utilized for construction of a building of the property of the one of the founder members of the trust is erroneous in the instant case, since the construction of the building on the land was started only after getting it transferred to the trust by an agreement 11-10-2001 followed by the delivery of the possession of the said land.
3. The facts of this case are in a narrow compass. The assessee is a society registered under the Travancore-Cochin Literal, Scientific and Charitable Registration Act, 1955 on 19-5-1999. The assessee society filed the application for registration under Section 12A on 8-2-2006.
The application filed by the assessee was rejected by the Commissoner by not condoning the delay in filing the application and also giving the reason that the assessee society has not fulfilled the provisions of Section 13(1)(c) and Section 13(2) of the Income Tax Act. Now, the assessee has challenged the order of the Commissoner refusing to grant registration under Section 12A of the Act.
4. We have heard the learned chartered accountant Shri Biju Narayanan for the assessee and the learned departmental Representative Shri V.M.Thyagarajan for the revenue. The learned chartered accountant submitted that the issue of delay condonation will be only upto 31-3-2005 and the Commissoner is bound to grant registration with effect from 1-4-2005 from the financial year 2005-06 as per the provisions of s.12A(a)(ii).
It is further argued that the Commissoner has not at all considered the reasons given by the assessee for the delay in filing the application for registration. It is further argued that on merits also, the Commissoner was not justified in rejecting the assessee's application by examining the application of the funds. The learned chartered accountant strongly assailed the order of the Commissoner and relied on the following precedents in support of his contentions:Dream Land Educational Trust v. CIT (iv) Aggarwal Mitra Mandal Trust v. Director of IT (Exemption) (2007) 109 TTJ (Del) 128.
5. Per contra, the learned departmental Representative supported the order of the CIT and relied on the decision in the case of Self Employers Service Society v. CIT .
6. We have heard the rival submissions of the parties. We have also carefully considered the facts as per record available before us. We have also considered the precedents relied on by the learned chartered accountant. The assessee is a registered society under the Travancore-Cochin Literal, Scientific and Charitable Registration Act, 1955 and got registered on 19-5-1999. The application for registration under Section 12A of the Act was filed on 8-2-2006. As per the provisions of Section 12A, the assessee should have filed the application within one year from the date of registration. The Commissoner rejected the application filed by the assessee on two reasons (i) he was not satisfied by the reason given by the assessee for the delay in filing the application for registration and (ii) he was of the opinion that the assessee's case comes under Sections 13(1)(c) and 13(2) of the Income Tax Act. By giving both the reasons, the Commissoner rejected the assessee's application.
12A. (1) The provisions of Section 11 and Section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely: (a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissoner before the 1-7-1973, or before the expiry of a period of one year from the date of the creation of the trustor the establishment of the institution, whichever is later and such trustor institution is registered under Section 12AA: Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of Sections 11 and 12 shall apply in relation to the income of such trust or institution,- (i) from the date of the creation of the trust or the establishment of the institution if the Commissoner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons; (ii) from the 1st day of the financial year in which the application is made, if the Commissoner is not so satisfied: Provided further that the provisions of this clause shall not apply in relation to any application made on or after the 1-6-2007; (aa) the person in receipt of the income has made an application for registration of the trust or institution on or after the 1-6-2007 in the prescribed form and manner to the Commissoner and such trust or institution is registered 'under Section 12AA; (b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of Section 11 and Section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below Sub-section (2) of Section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.
(2) Where an application has been made on or after the 1-6-2007, the provisions of Sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made.
8. We find force in the argument of the learned chartered accountant that as per proviso (ii) to Section 12A(a) of the Act registration is to be granted from the date of the financial year in which the application is made by the assessee. In the present case, the application is made by the assessee on 8-2-2006, hence as per the said proviso, the Commissoner should have granted registration at least from 1-4-2005 and he should not have rejected the same by stating that the reasons given by the assessee are not convincing even presuming that the reasons for the delay in filing the application upto 31-3-2005 were not convincing.
9. As far as the delay is concerned, the only contention of the assessee is that the society was incurring losses and hence its income was non taxable and for that reason, no application was made under Section 12A asassessee was not intending to avail the exemption under Section 11. Even if this reason may not be reasonable cause for condoning the delay, but at the same time, the assessee society is entitled for registration from 1stApril, 2005. We, therefore, hold that the Commissoner was not justified in rejecting the assessee's application on the issue of delay in filing the application for registration as otherwise also, the assessee is entitled for registration from 1-4-2005.
4. Moreover, it is seen that the funds of the society were utilized to construct a building on the property owned by one of the founder members. It is also seen that the building plan, licence and the payment of Panchayat tax were made in the name of Smt. Hiranmayee Bharat, one of the founder members of the society. Subsequently, an agreement was entered into between Smt. Hiranmayee Bharat and the society by which the land was leased to the society. The lease agreement was entered into only on 27-7-2006. Since the funds of the society were utilized to construct a building on the land owned by one of the founder members, the provisions of Sections 13(1)(c) and 13(2) are attracted. Hence, the income of the society is not eligible for exemption under Section 11.
11. It is clear from the reasons given by the Commissoner that he has examined the application of funds of the society and came to the conclusion that the society's case is coming within the provisions of Sections 13(1)(c) and 13(2)of the Act. Now, it is necessary to refer to Section 13(1)(c) as well as Section 13(2)which read as under: 13. (1) Nothing contained in Section 11 or Section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof? (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof: (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in Sub-section (3); Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of Sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in Sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution: Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of Sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in Sub-section (3) insofar as such use or application relates to any period before the 1-6-1970.
(2) Without prejudice to the generality of the provisions of Clause (c) and Clause (d) of Sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in Sub-section (3).
12. Section 13 is the bar on the assessee for claiming exemption under Section 11 in respect of the income from property.
13. In the case of Red Rose School (supra), the Hon'ble Allahabad High Court has held as under: Section 12AA which lays down the procedure for registration, does not speak anywhere that the CIT, while considering the application for registration, shall also see that the income derived by the trust or the institution is either not being spent for charitable purpose or such institution is earning profit. The language used in the section only requires that activities of the trust or the institution must be genuine, which accordingly would mean, they are in consonance with the objects of the trust/institution, and are not mere camouflage but are real, pure and sincere, nor against the proposed objects. The profit earning or misuse of the income derived by charitable institution from its charitable activities, may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trust or the institution.
This is more evident if we see the provisions of Section 11, which, while exempting the income given in its various sub-clauses from being included in the, total income of the previous year of the person in receipt of the income, for example, in Sub-clause (1) says income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property.
14. In the case of Aggarwal Mitra Mandal Trust (supra), the Tribunal,Delhi Bench has held as under: Both these situations contemplated in Section 13 can arise only and only if registration under Section 12A is granted to the said person. If the same is not granted and the person is refused the registration under Section 12A, he would not be entitled to claim any benefit available under Section 11 or 12 and there will be no occasion to the assessing officer to invoke or apply Section 13 in his case. This position would not only be: contrary to the scheme of the Act as laid down in Sections 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 Clause Nos. 3(1) and 3(2), no doubt are for the benefits of a particular community, viz., vaish. Nevertheless, as per object Clause 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 Section 12A is not granted to it for violation of the provisions of Section 13(1)(b) and it is ultimately found that the assessee trust actually accomplished the objects as indicated in Clause No. 3(4) only for the benefit of public at large without there being any activity undertaken as per object Clause Nos. 3(1) and 3(2), it would be deprived of any benefits which otherwise were available to it under Section 11 or Section 12. This certainly is not the legislative intention as reflected in the scheme laid down in Sections 11, 12, 12A, 12AA and 13. On the contrary, the phraseology of Section 13, as already discussed, makes it explicitly clear that the said provisions become operative or relevant only at the stage of assessment when the assessing officer is required to examine the claim of the assessee for benefits under Section 11 or Section 12 while computing the total income of the assessee of the relevant previous year. The application of Section 13 thus falls within the exclusive domain of the assessing officer 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 Section 12AA.15. An identical view has been taken by the Hon'ble Allahabad High Court in the case of Fifth Generation Society (supra).
16. The learned departmental Representative has placed his strong reliance on the decision of the Hon'ble High Court of Kerala in the case of Self Employers Service Society (supra). In that case, as per the facts, the assessee was registered as a charitable society and applied for granting registration under Section 12A of the Income Tax Act. The CIT refused registration as it was found that the members of the society were mainly merchants and its activity was accepting recurring deposit from its members and fixed deposits from the public.
The assessee used to give loan to its members at 21 per cent interest.
It was found that in spite of the charitable objects mentioned in the bye-laws the activity carried on by the society was confined to its members numbering about 150 and hence the CIT was of the opinion that the said petitioner assessee could not be treated as charitable in nature and hence registration was refused. The argument of the learned departmental Representative is that in the present case also, the CIT was not satisfied with the objects of the assessee that the objects are charitable and genuine. We are unable to accept the said argument of the learned departmental Representative. On perusal of the reasons given by the CIT, it is seen that the CIT has gone into the issue of application of funds by the assessee society which is not contemplated at the time of granting registration under Section 12A. The CIT has not expressed anything on the objects of the society. It means that there was nothing adverse to say that the objects of the assessee are not charitable.
17. We, therefore, direct the CIT to grant registration ,to the assessee society with effect from 1-4-2005 under Section 12A of the Act.