Adarsha Vidyanidhi Trust vs Commissioner of Income Tax

K. Balakrishnan Nair, J.—The petitioner is a public charitable trust registered on 4th Dec, 1995. Ext. P1 is the trust deed. It applied to the respondent for getting itself registered u/s 12A of the IT Act, 1961 so that it can avail the benefits under Sections 11 and 12 of the IT Act. Ext. P2 is the application submitted by it. The respondent issued Ext. P3 defect memo pointing out the defects to be cured in the petitioner''s application. On receipt of the said memo, the petitioner submits, it cured all the defects and Ext. P4 rectification deed was also executed so as to make the trust deed in conformity with the directions in Ext. P3. The petitioner was heard pursuant to Ext. P5 notice and the respondent passed Ext. P6 order rejecting its application for registration. It is an order passed u/s 12AA(b) of the IT Act, 1961. Petitioner attacks Ext. P6. According to the petitioner, the defects pointed out in the application of the petitioner were those mentioned in Ext. P3. Its application was rejected for not curing those defects. The ground mentioned in Ext. P6 for rejecting the application is that the trust is not carrying out the activities mentioned as its object in the trust deed. The only activity carried on is running of a school. So, the application was rejected by the respondent. The relevant portion of the said order reads as follows:

Even though the trust deed contains a very large number of objectives, it is not carrying out any activities in accordance with most of them. The only activity carried on is the running of the school. In these circumstances I am not satisfied about most of the objectives of the trust. Hence registration u/s 12A is not granted.

The petitioner points out that this was not a ground pointed out as a defect in Ext. P3. Further, the learned Counsel for the petitioner relied on the decision of the Allahabad High Court in Fifth Generation Education Society Vs. Commissioner Income Tax, and of the Madras High Court in New Life in Christ Evangelistic Association Vs. Commissioner of Income Tax and Another, . These decisions would indicate that actually carrying on of charitable activities is not a relevant factor at the time of grant of registration and the same will be relevant only at the time of considering the eligibility of the trust to enjoy the benefits of Sections 11 and 12.

The respondent has filed a counter-affidavit resisting the prayers in the original petition. In the counter-affidavit it is stated that the respondent has made an enquiry into the affairs of the functioning of the trust. It was found that for running school the petitioner was collecting interest-free loan of Rs. 5,000 from its students at the time of admission and monthly tuition fee of Rs. 300. At present there are 255 students. So, the school being run by the trust on commercial lines, the same cannot be described as a charitable trust. The respondent also relied on the decision of the apex Court in Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, . The observation in the said judgment is to the effect that if the activity is carried out for profiteering, the same should be treated as non-charitable, even if it may serve general public as public utility.

Heard the learned Counsel on both sides. While judicially reviewing Ext. P6, this Court is not concerned with the decision, but the decision-making process. Going by that principle, I feel that the impugned decision is vitiated. The ground which has not been put to the petitioner and which does not find a place in the impugned order has been relied on, as evident from the counter-affidavit, to reject the petitioner''s application. The counter-affidavit would show that some enquiry was held behind the back of the petitioner and reliance was made on it to reject its application. So, the order has been passed in violation of the principles of natural justice. Accordingly, Ext. P6 is quashed. The respondent is directed to reconsider Ext. P2 application. The statement contained in the counter-affidavit shall be treated as the objection of the respondent to grant registration. The petitioner may file its response to that objection within one month from today. The respondent shall thereafter afford an opportunity of being heard to the petitioner and pass fresh orders taking into account the contentions of the petitioner. Since the matter is remitted, I am not expressing any opinion regarding the contentions raised by both sides relying on the decisions of Allahabad and Madras High Courts and also the decision of the apex Court.

The original petition is disposed of as above.