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Judgment
Satish Chandra, J.—Heard Sri A.M. Tripathi, learned Counsel for the petitioner and Sri D.D. Chopra, learned Counsel for the respondents.
The present writ petition has been preferred against the impugned order dt. 9th March, 2004, passed by the CIT u/s 12A of the IT Act, 1961, where he has cancelled the registration granted earlier on 1st April, 1999, for being a charitable institution.
Brief facts giving rise to the present writ petition, are that the petitioner is a society registered under the Societies Registration Act. 1860, bearing registration No. 290 of 1995. The petitioner, hereinafter known as the assessee, has applied for registration u/s 12A of the IT Act being a charitable institution. The opposite parties have granted registration on 1st April, 1999. Further, the exemption was also granted u/s 80G of the IT Act on 10th May, 1999.
A survey was conducted at the business premises of the assessee u/s 133A of the Act on 20th Sept., 2002, wherein documents were impounded. During the course of survey, the statement of Sri Ajit Pal Chaudhary, the president of the society, was also recorded. On the basis of the information, it was felt by the opposite parties that the society was being run for the purposes of profit and that the president and its family members were also obtaining benefits from it. Therefore, after serving a notice by the impugned order dt. 9th March, 2004, the earlier registration granted u/s 12A of the Act was cancelled. The assessment years in this writ petition are involved 2000-01 and 2001-02. Being aggrieved with the impugned order, the petitioner has filed the present writ petition.
The learned Counsel for the petitioner has stated that the accounts were properly audited for the assessment years under consideration and the same are available as Annex. Nos. 3 and 4 of the writ petition. The notice for cancellation was served on the assessee on 9th Feb., 2004, and the assessee has submitted the reply; nonetheless, the registration was cancelled by the impugned order dt. 9th March, 2004. He also stated that the assessee is engaged in the charitable activities as per the memorandum of association. It has provided free of cost the educational training to the poor students. For this purpose, he has drawn our attention to the amended memorandum dt. 30th May, 2002, accepted by the Registrar of Societies. He further submits that the surplus amount cannot lead to an interference that the petitioner was engaged in any profit-making activities. He again repeated that the accounts were properly audited which proves that the alleged expenses were made towards the essential expenditure and the same could not be treated as personal expenditure. The statement of the president of the society was obtained through coercion. Learned Counsel for the petitioner stated that the registration was cancelled just after three years and 9 months. The registration was granted after thoroughly examining the objects and balance sheets, etc., by the opposite parties.
The learned Counsel for the petitioner has submitted that the registration u/s 12A of the Act is an elaborate procedure and is not just a mere formality and the recognition once granted cannot ordinarily be withdrawn and in the present case, all the aims and objects of the petitioner''s society are charitable and the same have not been changed till date. For this purpose, he relied on the ratio laid down in the case of Welham Boys'' School Society Vs. Central Board of Direct Taxes and Another, where it was observed that once registration is granted then it could not be cancelled by the CIT. Further, he relied on the ratio laid down in the case of CIT v. Red Rose School (2007) 212 CTR (All) 394, where it was observed that profit earning or misuse of the income derived by charitable institution from its charitable activities may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trust or the institution.
Learned Counsel for the petitioner continued to argue that due to cancellation of the registration, the petitioner''s society is suffering great loss and the plot purchased by the petitioner''s society on allotment basis for establishing a school at South City, Lucknow, is held up in spite of the fact that the consideration was fully paid. According to him, the registration was granted u/s 12A of the Act after a due enquiry as provided under the Act for the assessment years under consideration (2000-01 and 2001-02). There was no jurisdiction with the opposite parties to cancel or withdraw such registration. He submitted that Section 12AA(3) came into force w.e.f. 1st Oct., 2004, by the Finance (No. 2) Act, 2004. The said provision reads as under:
12AA. Procedure for registration.-...
(3) Where a trust or an institution has been granted registration under Clause (b) of Sub-section (1) and subsequently the CIT 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.
It is submitted by the petitioner''s counsel that it is not applicable for the years under consideration. For this purpose, he relied on the ratio laid down in the case of Commissioner of Income Tax Vs. Shri Radha Kishan Goel, as well as in the case of Virtual Soft Systems Ltd. Vs. Commissioner of Income Tax, Delhi-I, where it was observed that the penalty is not leviable prior to the amendment.
Learned Counsel for the petitioner further submits that if there is a profit in the activities of the society, it does not disentitle the registration. The surplus amount at the end of the year accumulated but the same was likely to be used for another charitable purpose by obtaining another school for poor children. For this purpose, he relied on the ratio laid down in the case of Director of Income Tax (Exemption) Vs. Eternal Science of Man''s Society, where it was held that:
Accumulation of income is permissible for a plurality of purposes. The respondent trust had accumulated its income for six different purposes. There was no controversy about five of the said objects being charitable in character. The criticism about the sixth object was that it permitted acquisition of property, whether movable or otherwise, for the achievement of other objects for which the trust/society had been established. The trust in question had been established in terms of a memorandum. It was not the case of the Revenue that any one of the objects out 6f the 22 objects enumerated therein was not a charitable object. If that be so, Clause (f) permitting acquisition of movable or Immovable property for achievement of one of those purposes would necessarily imply that the property was acquired for one of the charitable purposes stipulated in the memorandum.
Lastly, he submitted that the main object of the petitioner''s society is to serve and educate the students specially poor student to acquire knowledge for the future education and career. The facility is provided free of cost to 1,500 students in a year. Forms are given at printed price. However, a nominal fee is received from the student if admission is obtained by him in the desired institution. He also submitted that this is only on voluntary payment and is taken only if a student can afford it. Finally, he made a request that the impugned order dt. 9th March, 2004, may kindly be quashed.
On the other hand, Sri D.D. Chopra, the learned Counsel for the opposite parties has relied on the impugned order. He stated that in the assessment order for the asst. yr. 2000-01, it was clearly mentioned that "no books of account, no bill and vouchers could be produced." He submitted that the assessee was not engaged in the charitable activities but all the activities were meant for the benefit of its president Mr. Chaudhary and his family members. During the survey on 20th Sept., 2002, various discrepancies were found in the so-called books of account from which it appears that surplus was quite heavy. There was an unlawful huge margin in the commercial activities run by the petitioner. He read out the impugned order dt. 9th March, 2004, where it was mentioned that a lot of money was expended for the advertisement in the newspapers to invite the students. The amount was also received from various institutions located in Nepal. Evidence to this extent was found in survey. Not only this evidence has been found in survey but also it was found that Smt. Shandhya Chaudhary had received the amounts from students which were not recorded in the books of account.
Learned Counsel for the opposite parties stated that in a charitable organization there is a ban on any distribution of profit to individuals; in the instant case, during survey, it was found that the funds of the society were used by the managers for their personal purpose.
Regarding the power vested with the CIT to cancel the registration u/s 12A of the Act, he submitted that the right to conduct the proceeding for cancellation in accordance with law cannot be denied to the Department as per the ratio laid down in the case of Madhya Pradesh Madhyam Vs. Commissioner of Income Tax and Another, Further submission of the learned Counsel for the opposite parties is that the writ petition may kindly be dismissed as there is an alternative remedy available to the petitioner as per the law laid down in the case of Aditanar Educational Institution Vs. The Assistant Director of Income Tax (Exemption-II), Regarding the applicability of the amendment in Section 12AA(3) of the Act, which came into existence on 1st Oct., 2004, the learned Counsel for the opposite parties stated that it is just clarificatory in nature. Even in the absence of the said amended provision, the CIT was empowered to cancel the registration as per Section 21 of the General Clauses Act, 1897. He also relied on the ratio laid down in the case of Welham Boys'' School Society v. CBDT and Anr. (supra) where Section 21 of the General Clauses Act, 1897, was discussed, which reads as under:
Power to issue, to include power to add to, amend, vary or rescind, notifications, orders, rules or bye-laws. Where, by any Central Act or Regulation, a power to issue notifications, orders, rules or bye-laws is conferred, then that power includes a power, exercisable in the like manner and subject to the like sanction, and conditions (if any), to add, to amend, vary or rescind any notifications, orders rules or bye-laws so issued.
Lastly, he made a request to uphold the impugned order and dismiss the writ petition.
We have heard the arguments advanced on behalf of both the parties and gone through the material available on record.
Regarding the alternative remedy available, it may be mentioned that the alternative remedy is not an absolute bar and writ lies as per observation made by the Hon''ble apex Court in the case of M.P. State Agro Industries Development Corporation Ltd. and Another Vs. Jahan Khan,
In the instant case, the petitioner is a registered society, which was earlier granted registration u/s 12A of the IT Act on 1st April, 1999. A survey was conducted at the business premises on 20th Sept, 2002, from where documents were impounded. The registration was cancelled for the asst. yrs. 2000-01 and 2001-02 for the reasons that the surplus was quite heavy. In the impugned order, it was mentioned by the CIT that there was an unusual huge margin and the petitioner was engaged in the commercial activities rather than charitable. As per the balance sheet, huge amount from the student was charged. The profit margin embodied in the charges taken from the students is so huge and it proves the profit motive of the petitioner. The funds were misused by the president and his family members of the petitioner.
Before us, the issue cropping up is whether the assessee-society is engaged in charitable activities or not.
The expressions "charity" or "charitable purposes" do not admit of rigid definition. In order to understand what these expressions legally convey, one can merely enumerate its various aspects and characteristics as they have been recognized by the laws of a particular country. In Umar Baksh v. CIT AIR 1931 Lah 578 (SB), it was observed that for construing the words "religious or charitable purpose" it is necessary to investigate the meaning of these words in the particular system of jurisprudence that may be followed by the assessee.
In the Hindu fsmritis "charity", whether secular or religious, is but a part of the content of the word "Dharma". When the word is used in the context of gifts of property, it means all acts of piety and benevolence considerably wider than what is understood by the use of the word "charity". According to the Hindu text writers, gifts for religious and charitable purposes fall into two divisions "Ishta" and "Purta", the former being sacrifice and sacrificial gifts and the like, and the latter charity properly so-called. In Mayne''s Hindu Law and Usage, 11th edition, at p. 911, "Purta" or charitable acts are referred to as acts of construction of tanks, wells with flights of steps, temples, planting of groves, the gift of food, Dharmasalas (rest houses) and places for supplying drinking water, the relief of the sick, the establishment of processions for the honour of deities and so on. Gifts for the promotion of education and knowledge were also considered charitable activities specially what is based on meritorious. In the facts and circumstances of the case specially by nomenclature of the assessee, it appears prima facie that it is engaged for "educational activities".
Regarding cancellation of registration which was granted on 1st April, 1999, u/s 12A of the Act, it Is true that there was no express provision in Section 12A of the Act for cancellation of the registration. The applicability of Section 21 of the General Clauses Act, 1897, was discussed by the Uttaranchal High Court in the case of Welham Boys'' School Society v. CBDT and Anr. (supra) where it was observed that any order passed by the CIT u/s 12A is a quasi-judicial order, which does not fall in the category of "orders" mentioned in Section 21 of the General Clauses Act, 1897, by relying the ratio laid down in the case of Ghaurul Hasan and Others Vs. The State of Rajasthan, The High Court observed that by virtue of Section 21 of the General Clauses Act, the CIT had no power to rescind the order passed earlier by the CIT granting registration to the petitioner''s society. It may be mentioned that Section 12AA(3) was incorporated w.e.f. 1st Oct., 2004, to empower the CIT to cancel the registration granted to a trust or institution. The same is not applicable retrospectively and in the assessee''s case for the assessment years under consideration. The object of this provision is not clarificatory or explanatory, so prior to that date, the authorities granting registration had no inherent power to withdraw or revoke the registration already granted. The order cancelling the registration granted to a trust or institution u/s 12AA of the Act being a quasi-judicial order does not fall within the category of orders mentioned u/s 21 of the General Clauses Act, 1897, which provides that the power conferred on an authority empowers to issue orders including the power to rescind such orders and the CIT would not have power to rescind the order passed by the CIT earlier granting the registration to a trust or institution. Even assuming, the CIT has power to rescind the order of registration on the ground that the registration had been obtained by practising fraud or forgery, there was nothing in the show-cause notice or in the impugned order dt. 9th March, 2004, alleging that the petitioner had obtained the registration by practising fraud or forgery.
The expression "charitable purpose" is defined in Section 2(15) of the IT Act, 1961. It is of inclusive nature as revealed in the language. Earlier the words "the advancement of any other object of general public utility" in this definition were succeeded by the words "not involving the carrying on of any activity for profit". These words were omitted by the Finance Act, 1983, w.e.f. 1st April, 1984.
In Commrs. for Special Purposes of the IT v. John Frederick Pemsel (1891) AC 531 (HL), Lord Macnaghten laid down that charitable purposes could be put under the four heads, viz : (1) for the relief of poverty, (2) for the advancement of education, (3) for the advancement of religion and (4) for other purposes beneficial to the community not falling under any of the preceding heads. In re., White v. White (1893) 2 Ch 41 (CA), broadened the base and laid down in general terms "any mode of promoting the welfare of mankind" would be charitable object. "Charitable purpose", according to the last para of Section 4(3) of the 1922 Act, was defined so as to include "relief of the poor, education, medical relief, and the advancement of any other object of general public utility". The definition was simple and easy to understand. As the Indian IT Act, 1922, was repealed and replaced by the 1961 Act, Section 2(15) thereof adopted the 1922 Act definition with a modification, namely, by enacting that, "charitable purpose'' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility not involving the carrying on of any activity for profit." Thus, the scope of the definition was changed for the IT Act, 1961, specially after an amendment in Section 2(15) by the Finance Act, 1983, w.e.f. 1st April, 1984.
In the instant case, the assessee is preparing students by providing coaching/guidelines to get admissions in professional institutions to pursue their studies. The sense in which the word "education" has been used in Section 2(15) of the Act is the systematic instruction, schooling or training given to the young in preparation for the work of life. Similarly, extending financial assistance/scholarship, etc., to students for their educational purpose would squarely and fairly fall within the connotation of "education" as per the ratio laid down in the case of Commissioner of Income Tax, Karnataka-II, Bangalore Vs. Saraswath Poor Students Fund, Thus, the assessee is engaged in "educational activities" which falls under charitable purpose.
Recently, the Hon''ble Supreme Court in the case of American Hotel and Lodging Association Educational Institute Vs. Central Board of Direct Taxes and Others, has observed as under:
On the grant of approval, Sections 11 and 13 did not apply. Once an applicant institution came within the phrase ''exists solely for educational purpose and not for profit no other condition like application of income was required to be complied with. The prescribed authority was only required to examine the nature, activities and genuineness of the institution. The mere existence of profit/surplus did not disqualify the institution.
By taking the liberal approach, the Jharkhand High Court in the case of Commissioner of Income Tax Vs. Karimia Trust, has observed that breach of the conditions of the trust deed even if committed by the assessee would not disentitle the assessee from getting the benefit which the assessee had been granted earlier being a charitable-cum-religious trust.
It may be mentioned that the Hon''ble Supreme Court in the case of Asstt. Commissioner of Income Tax Vs. Surat City Gymkhana, observed that "after registration, further probe into object is not permissible".
In the light of the above discussion and by considering the totality of the facts and circumstances of the case, we hold that the order dt. 9th March, 2004, passed by the CIT (Annex. No. 15 to the writ petition) as per the then law is without power and jurisdiction and therefore, it is liable to be set quashed.
Accordingly, the impugned order dt. 9th March, 2004, passed by opposite party No. 2 withdrawing/rescinding the order granting registration on 1st April, 1999, to the petitioner''s society u/s 12A of the Act, is quashed. Consequently, the registration granted to the petitioner''s society on 1st April, 1999, stands restored for the assessment years under consideration.
The writ petition is allowed. No order as to costs.