CIT vs Rajmala Educational Society

G.S. Sandhawaua, J.—The present appeal is directed against the order dt. 29-1-2010 passed by the income tax Appellate Tribunal, Delhi

Bench F New Delhi (hereinafter referred to as ''the Tribunal'') wherein the ITA No. 4485/Del/2009 filed by the respondent was allowed and the

Tribunal while allowing the appeal directed the Commissioner of income tax, Faridabad (for short ''the CIT'') to grant approval u/s 80G to the

assessee. The CIT while rejecting the application of the assessee vide order dt. 9-10-2009 had based its order on the ground that respondent-

society which is established on 24-2-2001 and filed an application for renewal/exemption u/s 80G on 15-4-2009 was generating huge surpluses

year after year and making capital expenditure for the assets of the school out of this income. It was further noticed by the CIT that the application

of funds was to be till 85 per cent and the assessee was permitted to accumulate only 15 per cent of the receipts in normal course and the

application of funds during financial years 2006-07, 2007-08 and 2008-09 fell short of the prescribed percentage in these years and since the

assessee was applying its income towards building and assets in the form of construction of school building or purchase of bus, therefore, it was

not charitable purpose. The CIT further noticed that the intimation in Form 10 of rule 17 of the Income Tax Rules, 1962 (hereinafter referred to as

''the Rules) had not been made to the assessing officer and by placing reliance on the case of Municipal Corporation of Delhi Vs. Children Book

Trust, and the case of Commissioner of Income Tax Vs. Queens'' Educational Society, held that there was violation of section 11(2) of the Income

Tax Act, 1961 (hereinafter referred to as ''the Act'') and rejected the claim of the society. On appeal filed by the respondent-society, the Tribunal

has noticed the income in the hands of the assessee and that the assessee is entitled for depreciation and reproduced the aims and objects of the

society to hold that the assessee has incurred expenditure for construction of school building during said financial years and for acquiring the bus for

transportation of the children and held that the said activity was within the aims and objects of the assessees educational society and if the

depreciation and capital expenditure is deducted out of the gross receipt shown in the chart reproduced by the CIT, the surplus in the hands of the

society comes to a negative figure.

Accordingly, it was held that question of intimation in Form 10 was not required to be submitted before the CIT and since the assessee was also

enjoying exemption u/s 12AA of the Act, the CIT was not justified in denying the approval u/s 80G of the Act.

The Revenue aggrieved against the said order of the Tribunal has in the present appeal framed the following substantial question of law which in

its opinion requires adjudication by this Court:

Whether, on the facts and in the circumstances of the case, the learned Tribunal was right in law in granting approval u/s 80G of the Income Tax

Act, 1961 even though the applicant-society seeking exemption is applying its income towards investment in the fixed assets like purchase of buses

and construction of school building (which) are the properties of the society and may be connected with the imparting of education but the same

has been constructed and purchased out of income from imparting the education with a view to expand the institution and to earn more income and

is contrary to the decision of the Hon''ble Supreme Court in the case of Municipal Corporation of Delhi Vs. Children Book Trust, and decision of

the Hon''ble Uttarakhand High Court in the case of Commissioner of Income Tax Vs. Queens'' Educational Society, (Uttarakhand)?

A reading 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 u/s 12A or copy of notification issued u/s 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 CIT 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 CIT 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 CIT 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 CIT 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 CIT under sub-rule

(3) shall be excluded.

A perusal of the above goes to show that the discretion of the CIT is to consider whether the conditions prescribed above are satisfied from the

application. This Court in Sonepat Hindu Educational and Charitable Society Vs. Commissioner of Income Tax and Another, has held that where

the petitioner-society has been regularly allowed exemption u/s 80G and especially where it is registered u/s 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 & Charitable Society''s case (supra) are as

under:

We have no hesitation in holding that the scope of enquiry by the CIT, while dealing with the application u/s 80G(5)(vi) of the Act, extends to

eligibility to exemption under various provisions of the Act, referred to in that sub-section, 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 u/s 10 of the Act. It needs little emphasis that the

enquiry for the said purpose relates to whether the applicant is registered u/s 12A; whether it is a trust wholly for charitable purposes; and whether

the income received by it is liable to be considered u/s 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-fulfilment 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 the society which was registered since 24th Feb., 2001 under the Societies Registration Act, 1860, and running Rajmala

Senior Secondary School at Gurgaon and the aims and objects of the society were as under:

(A) To open nursery, primary, higher and higher secondary schools, degree college for poor and needful people.

(B) Teaching of modern arts and modern study.

(C) Teaching and practising for orchard, horticulture and other agro related activities.

(D) Teaching of ideology of great Indian saints leaders and education.

(E) To improve pupils mental, physical and moral growth though cultural activities.

(F) To help the pupils develop their inner qualities and spirit of a creative leadership.

(G) To obtain money for the aims and objects of the society in the lawful manner such as donations etc.

(H) To do all such acts to promote study and research.

(I) To do all such things as are identical and conducive for attainment of the above objects or any of them.

(J) To employ and/or remove any staff or employee of the school/institution under the control of the society.

(K) To act for welfare of the students and to promote extra-cultural activities among the students.

(L) To receive and/or disburse and/or invest and arrange for safe custody of the funds coming in the hands of the society.

This Court in Pinegrove International Charitable Trust Vs. Union of India (UOI) and Others, ) has held that where any amount spent on

acquiring/constructing capital assets wholly and exclusively for the benefit of society like constructing a new building would be utilisation of the

income of the society and if it is done for furtherance of the object of the society.

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 in Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association,

and Aditanar Educational Institution Vs. Additional Commissioner of Income Tax, 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 u/s 80G(5)(vi) of the Act.

In the present case, once the Tribunal has found that after depreciation and deducting the capital expenditure out of gross receipts, there was no

surplus in the hands of the society, therefore, there was no violation of section 11 of the Act and there was no requirement to furnish intimation in

Form 10 and once exemption had been granted u/s 12AA of the Act on 29-8-2002 and the same was continuing the CIT was, therefore, not

justified in denying the approval u/s 80G of Act and, therefore, all the conditions of section 80G(5) of the Act are fulfilled in the present case and,

therefore, the trust was eligible for registration u/s 80G(5)(vi) of the Act. It is pertinent to notice that in Pinegrove International Charitable Trusts

case (supra), the judgment of the Hon''ble Supreme Court in Municipal Corporation of Delhi case (supra) has been discussed and the Division

Bench judgment of Uttarakhand High Court in Queens Educational Society''s case (supra) has not been specifically followed and the Division

Bench held that it is unable to persuade itself to accept the view expressed by the Division Bench of Uttarakhand High Court in case of Queens

Educational Society (supra). Accordingly, no substantial question of law as contended in the present appeal arises for determination by this Court

and the order dt. 29-1-2010 whereby the Tribunal held that the assessees society is eligible for registration is upheld. Consequently, the appeal is

dismissed.