Commissioner of Income Tax vs National Institute of Aeronautical Engineering Educational Society

Prafulla C. Pant, J.—An application (MCC) No. 502 of 2009 has been moved for review/recall of ex parte order dated 12.06.2009 passed in this appeal on the ground that the respondent had no knowledge of the restoration of appeal, after it was dismissed on 03.12.2008 for non-prosecution.

2 Considering the affidavit filed with the Review /Recall Application No. 502 of 2009, the application is allowed and order dated 12.06.2009 passed ex parte in this appeal is hereby recalled.

Heard learned Counsel for the parties at length, on the merits of the appeal, after the ex parte order dated 12.06.2009 is recalled.

This appeal (ITA No. 40/2006), preferred u/s 260A of Income Tax Act, 1961 (hereinafter referred as the Act), is directed against the order dated 12.08.2005, passed by the Income Tax Appellate Tribunal (for short ITAT), Delhi Bench "D" New Delhi, whereby Income Tax Appeal No. 4278/Del/2004, preferred by the assessee / respondent - National Institute of Aeronautical Engineering Educational Society, was allowed by the Tribunal against the order dated 14.09.2004, passed by Commissioner of Income Tax (for short CIT), Dehradun, u/s 12AA(1)(b)(ii) of the Act.

The question of law involved in this appeal is as under:

Whether the ITAT has erred in law in holding that assessee carried on activity for charitable purpose in terms in terms of Section 2(15) and directing CIT to grant registration u/s 12AA of the Act to the assessee society ?

Brief facts, giving rise to this appeal are that, assessee is a registered society with Assistant Registrar, Firms, Societies and Chits, Dehradun. Said society moved an application u/s 12AA of the Act before CIT, Dehradun for grant of registration u/s 12AA(1)(b)(i) of Income Tax Act, 1961, in the prescribed form 10A on 07.06.2004. The CIT examined the papers including income and expenditure of the assessee for the Financial Years 2000-2001, 2001-2002 and 2002-2003 and concluded that the assessee is not carrying any charitable activity within the meaning of Section 2(15) of the Act, as it was in a profit making business. Consequently, an application for registration u/s 12AA of the Act was rejected. Aggrieved by said order, the assessee preferred ITA No. 4278/Del/2004, before ITAT, which was allowed, vide impugned order dated 12.08.2005. Hence this appeal by the revenue.

Before further discussions, we think it proper to mention the relevant provisions of law applicable to this case. Section 2(15) of the Act reads as under:

Charitable purpose" includes relief of the poor, education, medical relief and advancement of any other object of general public utility.

It is pertinent to mention here that earlier expression "not involving the carrying on of any activity for profit" was deleted from the tail of aforequoted provision with effect from 01.04.1984, vide Finance Act, 1983. (Again the expression is restored vide Finance Act 2008 w.e.f. 01.04.2009 with a proviso to it.) It is argued on behalf of the respondent that expression "education" is not qualified in the definition of expression "charitable purpose." It is contended that therefore, any society having its object to impart education can be said to have a charitable purpose. In support of its argument, learned Counsel for the respondent referred to Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, . In the said case, the Apex Court observed as under:

It is now well settled as a result of the decision of this Court in Dharmadeepti, Alwaye, Kerala Vs. Commissioner of Income Tax, Kerala, , that the words "not involving the carrying on of any activity for profit" qualify or govern only the last head of charitable purpose and not the earlier three heads.

In our opinion, though expression "not involving the carrying on of any activity for profit" can not be read with the expression "education", but that does not make every kind of pure commercial activity in the name of education a charitable one and is necessarily be required to be registered u/s 12AA of the Act.

On behalf of learned Counsel for the appellant it is argued that it is not necessary for the Commissioner of Income Tax to register a society u/s 12AA, which is doing exclusively commercial activity. In reply to this, on behalf of learned Counsel for the respondent, attention of this Court is drawn to Victoria Technical Institute Vs. Addl. Commissioner of Income Tax, Madras and another, , in which the Apex Court has held as under:

Where, therefore, the purpose of a trust or institution is relief of the poor, education or medical relief, the requirement of the definition of "charitable purpose" would be fully satisfied, even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the trust or institution. When the purpose of a trust or institution is the advancement of an object of general public utility, it is that object of general public utility and not its accomplishment or carrying out which must not involve the carrying of any activity for profit. So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be met and it is immaterial how the monies for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not.

Having gone through the aforesaid case law, we do not find that it gives a right to every institution engaged in commercial activity, to get registered u/s 12AA of the Act, or bars the Commissioner of Income Tax to examine the genuineness as required u/s 12AA of the Act before registration as a charitable society.

Next case relied on behalf of the respondent is Commissioner of Income Tax v. Red Rose School 2007 Taxman 163, Page 19, in which the Division Bench of the Allahabad High Court has observed as under:

On being satisfied about the genuineness of the activities of the trust or the instruction and also about its objects, the Commissioner would either grant the certificate or would reject the prayer. In order to satisfy himself about the genuineness of the activities of the trust or the institution, he can call for such documents or information from the trust or the institution, as he thinks necessary and he is also empowered to make such enquiries as he may deem necessary in this behalf. The objects of the trust can be had from the bye-laws or the deed of trust, as the case may be and unless, of course, the objects of the trust apparently make out that they were not in consonance with the public policy or that they were not the objects of any charitable purpose, registration cannot be refused accordingly on this ground.

The above case also does not help the respondent in the present case, as it does say that the Commissioner of Income Tax has to satisfy itself as to the genuineness of the activities of the trust or the society who has sought its registration u/s 12AA of the Act.

Section 12AA of the Act provides the procedure for registration. Clause (a) of sub Section (1) of Section 12AA empowers the CIT to call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of the activities of the trust or institution and may also make such inquiries, as he may deem necessary in this behalf. Said provision in Section 12AA makes it clear that CIT is not supposed to allow registration with blind eyes. In the present case, CIT has considered the relevant papers before him, which included the income and expenditure accounts of the previous years after the society got registered with the Assistant Registrar Firms, Societies and Chits. The CIT, after considering the record before him, has observed that the society (present respondent) is charging substantial fees from the students and making huge profits.

After considering the submissions of the learned Counsel for the parties, we are of the view that mere imparting education for primary purpose of earning profits cannot be said to be a charitable activity. We are of the firm view that, in the expression "charitable purpose", ''charity'' is the soul of the expression. Mere trade or commerce in the name of education cannot be said to be a charitable purpose. And Commissioner Income Tax has to satisfy itself as provided u/s 12AA of the Act before allowing the registration. Question of law stands answered.

For the reasons as discussed above, the appeal is allowed. Impugned order dated 12.08.2005 passed by ITAT, Delhi Bench "D" New Delhi in ITA No. 4278 / Del / 2004, is hereby set aside. The order dated 14.09.2004 passed by CIT, Dehradun is restored.