Commissioner of Income Tax vs Sarvodaya Ilakkiya Pannai

D. Murugesan, J.—This tax case appeal is at the instance of the Commissioner of income tax, Madurai, questioning the order dated June

30, 2011, passed by the income tax Appellate Tribunal in I. T. A. No. 594/Mds/ 2011, by raising the following substantial questions of law.

(i) Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in law in holding that the registration

granted to the assessee u/s 12A(1)(a) would hold good, even though the assessee''s main object in publication, purchase and sale of books which

are not definitely charitable activity and the activities are purely a commercial venture with profit motive is valid ?

(ii) Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in law in not considering the aggregate

value of the receipts for the assessment years 2008-09, 2009-10 and 2010-11 exceeds the limit specified in the second proviso and, hence, the

first proviso does not apply to the facts of the case is valid ?

The respondent, Sarvodaya Ilakkiya Pannai, is a society and was granted registration by the Commissioner of income tax, Madurai, vide his order

dated November 6, 1989, u/s 12A(1)(a) of the income tax Act. The object for which the trust was registered was to effect publication and sale of

Sarvodaya Literature as also the Gandhian and Sarvodaya Ideologies.

When the returns filed for the assessment years 2008-09 to 2010-11 were scrutinised, it was found that the society was engaged in purchase

and sale of books. On the ground that the above activities of the trust cannot be considered to be charitable activities, a show-cause notice was

issued by the Commissioner of income tax u/s 12AA(3) of the Act before an order of rejection was made. Thereafter, the Commissioner of

income tax revoked the registration on the ground that the society did not deserve exemption u/s 11(1)(a) of the Act and, accordingly, the

registration granted u/s 12A(1)(a) was cancelled. On a challenge to the said order, the Appellate Tribunal has found that the order of the

Commissioner was not justified as the power to cancel could be only traced out to section 12AA(3) and in the absence of any activity carried on

by the trust contrary to the objects, the registration cannot be revoked. With that finding, the Tribunal has allowed the appeal filed by the society.

Challenging the said order, the present appeal has been filed.

The relevant provisions of section 12AA of the income tax Act read as under:

12AA. Procedure for registration.--(1) The Commissioner, on receipt of an application for registration of a trust or institution made under clause

(a) or clause (aa) of sub-section (1) of section 12A, shall--

(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of

activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and

(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he--

(i) shall pass an order in writing registering the trust or institution;

(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution,

and a copy of such order shall be sent to the applicant

(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time u/s 12A

(as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)), and subsequently the Commissioner is satisfied that the

activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case

may be, he shall pass an order in writing cancelling the registration of such trust or institution.

In order to avail of the benefit of exemption u/s 11 of the Act, a trust can make an application to the Commissioner for registration u/s 12A of

the Act. On receipt of the said application for registration of a trust or institution, the Commissioner should satisfy himself about the genuineness of

the activities of the trust or institution. In order to satisfy himself, the Commissioner may also make such enquiry as he may deem necessary in that

behalf. In the event the Commissioner satisfies himself that the trust is entitled to registration keeping in mind the objects, shall grant registration in

writing in terms of section 12AA(1)(b)(i) of the Act. In the event the Commissioner is not satisfied, he shall refuse such registration in terms of

section 12AA(1)(b)(ii) of the Act. Once such a satisfaction is arrived at by the Commissioner to grant such registration cannot be cancelled by

following the very same provision of section 12AA(1)(b)(i) of the Act to go into the genuineness of the activities of the trust. However, the

Commissioner is empowered to revoke the certificate in terms of section 12AA(3) of the Act. As per the said provision, in the event the

Commissioner is satisfied subsequently, i.e., after registration that the activities of such trust or institution are not genuine or not being carried out in

accordance with the objects of the trust or the institution, as the case may be, he shall pass an order in writing cancelling the registration of such

trust or institution.

In order to apply the above provision, there must be a specific finding by the Commissioner that the activities of the trust or institution are not

genuine or not being carried out in accordance with the objects of the trust or institution, as the case may be. The question is, whether the order of

the Commissioner of income tax could fall under the powers conferred on him u/s 12AA(3) of the Act. The only reason given by the

Commissioner of income tax to cancel the registration is that the activities of the trust were not charitable and, therefore, the trust is not entitled to

exemption u/s 11 and, consequently, cancelled the registration granted u/s 12AA.

It is not as if that the registration was granted without considering the objects of the trust in question, namely: --

(a) The publication, sale and spread of Sarvodaya Literature.

(b) To support all activities connected with the constructive programmes of the father of the nation, Mahatma Gandhi.

(c) To organize meetings, seminars, symposium and conferences to propagate Gandhian and Sarvodaya Ideologies.

(d) To do all other acts and things incidental to and necessary in the furtherance of the said objects.

(e) To apply the profit derived by the society to the activities connected with spreading and propagating of Gandhian and Sarvodaya Ideologies

and to help the Sarvodaya movement.

The Commissioner of income tax, before granting the registration, had gone into the above objects and satisfied himself for grant of registration.

Subsequently, by the order of the Commissioner of income tax dated June 31, 2011, the very same objects were considered and were found not

to be the activities which are charitable in nature. While carrying on the activities of publication and sale of Sarvodaya Literature and Gandhian

Ideologies as charitable activities, referring the same objects as not charity, it cannot be brought under the provisions of section 12AA(3) of the

Act The cancellation was made not on the ground that the activities of the trust were not genuine but the activities of the trust were not in

accordance with the objects of the trust. When the trust was registered with the definite objects, carrying on such activities would be in terms of the

objects for which the registration was made. In fact, if those activities are not carried on, the trust may violate the objects for which the registration

was granted.

u/s 12AA, the Commissioner is empowered to grant or refuse the registration and after granting registration, would be empowered to cancel

and that too, only on two conditions laid down u/s 12AA(3) of the Act. Whether the income derived from such transaction would be assessed for

tax and also whether the trust would be entitled to exemption u/s 11 are entirely the matters left to the Assessing Officer to decide as to whether it

should be assessed or exempted.

The Tribunal had allowed the case of the assessee with the finding that none of the conditions u/s 12AA(3) were violated and, therefore, the

satisfaction which was arrived at by the Commissioner of income tax was not justified. In that view of the matter, we find no reason to interfere

with the order of the Tribunal and, accordingly, both the questions require no further consideration. The tax case appeal is dismissed as devoid of

merits.