Commissioner of Income Tax vs Varanasi Catholic Education Society

We have heard Mr. Shambhu Chopra, the learned counsel for the appellants and Mr. Siddharth Pathak, the learned counsel for the assessee. The present appeal has been filed u/s 260A of the income tax Act. It transpires that the assessee''s application for grant of exemption u/s 10(23C)(vi) of the income tax Act was rejected by the Chief Commissioner of income tax, Allahabad for the assessment years 2004-05 to 2006-07 and 2007-08 to 2010-11 by an order dated 25th March, 2008. Based on this order, a notice dated 9th February, 2009 was issued u/s 12AA(3) of the Act to the assessee to show cause as to why the registration granted u/s 12AA of the Act be not cancelled, since the activities of the Society had ceased to remain charitable in nature as defined u/s 2(15) read with Sections 11 and 13 of the income tax Act. The Commissioner of income tax, Varanasi after considering the matter, cancelled the registration on the ground that the activities of the Society are not entirely charitable in nature and that the same was not in accordance with the aim and objects of the Society. The Society, being aggrieved, filed an appeal before the Income Tax Tribunal, who by its order, set aside the order of the Commissioner and held that the assessee was entitled for grant of registration u/s 12AA of the Act. The department, being aggrieved, has filed the present appeal u/s 260-A of the income tax Act.

Section 12AA(3) of the Act provided a procedure for cancelling of the registration under certain contingencies. For facility, the said provision is extracted hereunder:

"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:

Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.

(1A) All applications, pending before the Chief Commissioner on which no order has been passed under clause (b) of sub-section (1) before the 1st day of June, 1999, shall stand transferred on that day to the Commissioner and the Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day.

(2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) or clause (aa) of sub-section (1) of section 12A.

(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:

Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard."

A perusal of the aforesaid indicates that where the Commissioner is satisfied that the activities of such trust was not genuine and was not being carried out with the objects of the trust, in which case the Commissioner would be justified in cancelling the registration of such trust.

From the record, the objects of the trust is as under:

"(3a) To provide education to Christian youth in its institutions. The education shall and always include imparting of sound learning, building good moral character, spiritual truth and knowledge as God revealed in Jesus Christ and further to provide religious teachings witness and worship in consonance to and in accordance with beliefs and doctrine of Catholic Church, so that they be worthy citizens of the country according to the teachings of Jesus. Besides, to arrange and provide meaningful and fruitful education for the poor urban children living in the surrounding villages of our mission stations; irrespective of caste, creed and religion. (emphasis added)

(b) To establish, construct, organize, consolidate, support, develop, acquire, takeover, conduct, equip, endow, improve, alter extend, maintain and administer.

(c) Administration of scholarship and educational aids in India or any part thereof for the benefit to all persons irrespective or colour, caste, creed, race or religion.

(d) To do all such lawful acts as are incidental to and conductive to the attainment of these aims and objects."

Apart from the aforesaid objects, the assessee is also not only imparting education, but is also imparting religious teaching and worships according to the beliefs and doctrine of the Catholic Church.

From a perusal of Section 12AA of the Act, it is clear that the Commissioner was required to satisfy himself about the genuineness of the trust by making necessary inquiries and if he was satisfied, he would grant registration. In the event, upon an inquiry, the Commissioner was not satisfied, he could refuse registration. Similarly, under sub-clause (3) of the Section 12AA, the registration can be cancelled on the ground that the Commissioner was satisfied that the activities of such trust was not genuine or was not being carried out in accordance with the objects of the trust. The fact that some activities, which were not solely carried out for charitable purpose could not be a ground for cancelling the registration u/s 12AA, though, such ground could be made available to the department to refuse exemption u/s 10(23C) of the Act.

The learned counsel for the appellants has placed reliance upon the decision of the Uttarakhand High Court, Commissioner of Income Tax Vs. Queens'' Educational Society, as well as a decision of the Supreme Court in Municipal Corporation of Delhi Vs. Children Book Trust,

In the opinion of the Court, the said decisions are not applicable to the present facts and circumstances of the case. In these decisions, the Court after considering the matter held that the assessee in those matter, was not entitled for exemption u/s 10(23C) of the income tax Act. In the instant case, the issue is not with regard to the grant or refusal to grant exemption, but it is a case of registration and the cancellation of its registration u/s 12AA of the Act.

On the other hand, the learned counsel for the assessee has placed reliance upon a decision of this Court in Commissioner of Income Tax Vs. Jeevan Deep Charitable Trust, wherein the question of law framed was identical to the question of law framed in the instant appeal. The Division Bench while dismissing the appeal observed as under:

"In our considered opinion, exemption u/s 10(23C)(vi) of the Act can be claimed by an assessee without applying for registration u/s 12A of the Act as it is not required to fulfill the conditions mentioned u/s 11 of the Act while claiming exemption u/s 10(23C)(vi) of the Act. Further in the order passed by the Commissioner of income tax, there is no whisper that the assessee has not fulfilled any of the conditions of the Section 11 of the Act for claiming it to be a charitable institution. He had solely relied on the order of the Chief Commissioner of income tax passed u/s 10(23C)(vi) of the Act while denying the exemption under the aforesaid sub-section. We are, therefore, of the considered opinion that the Tribunal had rightly restored the registration on the ground that in the Assessment Years 2004-05 and 2006-07 benefit of exemption/deduction u/s 11 of the Act was allowed to the respondent-assessee.

We are in entire agreement with the decision in Jeevan Deep Public School Society (supra). From a reading of the order of the Commissioner, we find that the registration was cancelled only on the ground that the Society did not solely exist for charitable purpose. There is no whisper that the assessee did not fulfill any of the conditions mentioned in Section 12AA(3) of the Act, namely, that the activities of such trust was not genuine or was not being carried out in accordance with the objects of the trust.

In the light of the aforesaid, we do not find any error in the order of the Tribunal nor do we find that any substantial question of law arises in the appeal. The appeal fails and is accordingly, dismissed at the admission stage itself.