Rajasthan Vikas Sansthan v. CIT

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The Tax Publishers2012 TaxPub(DT) 3230 (Jod-Trib) : (2012) 078 DTR 0411 Rajasthan Vikas Sansthan v. CIT INCOME TAX ACT, 1961 --Charitable trust--Registration under section 12ACancellation--Assessee, educational society, was registered under Societies Registration Act as also under section 12A(3) of IT Act. The registration was denied by the CIT on the ground that assessee under society was generating huge surplus year after year right from very beginning. Thus, the motive of education is profit and not charitable. It was also one of grounds rejecting registration that assessee-society is constituted by family members and there are various educational institutions. The Chief CIT, however, allowed exemption under section 10(23). Before the chief CIT, it was pointed out by assessee trust that registration was cancelled under section 12AA(3). *Held:* It is nowhere provided that trust cannot be constituted by a family and it is also not provided under the Act that trust will not have number of institutions. In case assessee fails to comply with requirements as mentioned in sections 11 and 13, then exemption can be denied and that is a subsequent ovent. Moreover, despite all this, the Chief CIT allowed exemption having in notice that registration was cancelled. It is nowhere provided that the trust cannot be constituted by a family and it is also not provided under the Act that trust will not have number of institutions. The surplus being generated is utilized for the purpose of objects of the trust. In the case of the trust, one has to ascertain the receipt and payment account. In case, the assessee-trust raises loan then repayment of loan is also an application of income. It is nowhere provided in the trust deed that at the time of dissolution of the trust, the funds will vests in Vyas family. The registration can be cancelled on the ground that the activities of the trust are not genuine or are not being carried out in accordance with the object of the trust in case there are violations as mentioned in sections 11 and 13 of the Act. Thus, the AO while making assessment can deny the exemption to the trust. For getting the exemption under section 11, registration is pre-requisite. However, registration is not a guarantee for exemption. In case the trust fails to comply with the requirements as mentioned in sections 11 and 13 of the Act then exemption can be denied. In respect of failure mentioned in ss. 11 and 13 in a particular year, it cannot be said that registration is to be cancelled. Surplus in educational activities is not relevant for cancelling the registration. The education itself is charitable object and if the surplus is utilized for the purpose of charitable activities then it cannot be said that registration is to be disallowed. The ground on which the registration cannot be refused cannot be considered as a ground for cancelling the registration. [Para 2.7] If establishing and running of school is the object of the society as given in its bye-laws, then it has satisfied that the society has established the school where education is imparted, as per rule of factum of establishing and running of school is genuine activity. The enquiry regarding genuineness of the activities cannot be stretched beyond this. The provisions of section 13(1)(c) can be invoked only at the time of computation of total income in the case of a person who is claiming exemption under section 11 or 12 by the AO and not by the CIT. In cancelling registration when genuineness of the activities and nature of the object being charitable are not in doubt, the valuation of section 13 is in the domain of the AO while making the assessment. If there is any misutilisation or mismanagement then action can be taken against the member of the society. If the fund of the society has been utilized for educational purposes, then registration should not be refused and overall view is to be taken without being hypertechnical in granting exemption including the objects of the society. [Para 2.7] Chief CIT has allowed exemption under section 10(23C). Before the Chief CIT, it was pointed out that registration was cancelled under section 12AA(3) by the CIT. The learned Chief CIT has allowed the registration which means that the activities of the trust are genuine and as per its object. The advertisement expenses if genuine and have been paid to son of the settlor of the society, then this cannot be made a ground for disallowing exemption. [Para 2.9] In respect of the payments made to the persons covered under section 13(3), the assessee has already explained the reasonableness. The reasonableness is actually to be seen by the AO and not by the CIT while allowing registration or cancelling the registration. Thus looking to the above discussions, it is held the CIT was not justified in cancelling the registration. The order passed by the CIT under section 12AA(3) is cancelled and appeal is allowed. [Para 2.9] Income Tax Act, 1961, Section 12A Income Tax Act, 1961, Section 12AA(3) Income Tax Act, 1961, Section 13 Rajasthan Vikas Sansthan v. CIT In the ITAT, Jodhpur Bench R.K. Gupta, J.M. & N.L. Kalra, A.M. ITA No. 11/Jd/2011 16 December, 2011 Income-tax Act, 1961, ss. 12A, 12AA, 12AA(3) & 13; In favour of: Assessee SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 3230 (Jod-Trib) : (2012) 078 DTR 0411

Rajasthan Vikas Sansthan v. CIT

INCOME TAX ACT, 1961

--Charitable trust--Registration under section 12ACancellation--Assessee, educational society, was registered under Societies Registration Act as also under section 12A(3) of IT Act. The registration was denied by the CIT on the ground that assessee under society was generating huge surplus year after year right from very beginning. Thus, the motive of education is profit and not charitable. It was also one of grounds rejecting registration that assessee-society is constituted by family members and there are various educational institutions. The Chief CIT, however, allowed exemption under section 10(23). Before the chief CIT, it was pointed out by assessee trust that registration was cancelled under section 12AA(3). Held: It is nowhere provided that trust cannot be constituted by a family and it is also not provided under the Act that trust will not have number of institutions. In case assessee fails to comply with requirements as mentioned in sections 11 and 13, then exemption can be denied and that is a subsequent ovent. Moreover, despite all this, the Chief CIT allowed exemption having in notice that registration was cancelled.

It is nowhere provided that the trust cannot be constituted by a family and it is also not provided under the Act that trust will not have number of institutions. The surplus being generated is utilized for the purpose of objects of the trust. In the case of the trust, one has to ascertain the receipt and payment account. In case, the assessee-trust raises loan then repayment of loan is also an application of income. It is nowhere provided in the trust deed that at the time of dissolution of the trust, the funds will vests in Vyas family. The registration can be cancelled on the ground that the activities of the trust are not genuine or are not being carried out in accordance with the object of the trust in case there are violations as mentioned in sections 11 and 13 of the Act. Thus, the AO while making assessment can deny the exemption to the trust. For getting the exemption under section 11, registration is pre-requisite. However, registration is not a guarantee for exemption. In case the trust fails to comply with the requirements as mentioned in sections 11 and 13 of the Act then exemption can be denied. In respect of failure mentioned in ss. 11 and 13 in a particular year, it cannot be said that registration is to be cancelled. Surplus in educational activities is not relevant for cancelling the registration. The education itself is charitable object and if the surplus is utilized for the purpose of charitable activities then it cannot be said that registration is to be disallowed. The ground on which the registration cannot be refused cannot be considered as a ground for cancelling the registration. [Para 2.7] If establishing and running of school is the object of the society as given in its bye-laws, then it has satisfied that the society has established the school where education is imparted, as per rule of factum of establishing and running of school is genuine activity. The enquiry regarding genuineness of the activities cannot be stretched beyond this. The provisions of section 13(1)(c) can be invoked only at the time of computation of total income in the case of a person who is claiming exemption under section 11 or 12 by the AO and not by the CIT. In cancelling registration when genuineness of the activities and nature of the object being charitable are not in doubt, the valuation of section 13 is in the domain of the AO while making the assessment. If there is any misutilisation or mismanagement then action can be taken against the member of the society. If the fund of the society has been utilized for educational purposes, then registration should not be refused and overall view is to be taken without being hypertechnical in granting exemption including the objects of the society. [Para 2.7] Chief CIT has allowed exemption under section 10(23C). Before the Chief CIT, it was pointed out that registration was cancelled under section 12AA(3) by the CIT. The learned Chief CIT has allowed the registration which means that the activities of the trust are genuine and as per its object. The advertisement expenses if genuine and have been paid to son of the settlor of the society, then this cannot be made a ground for disallowing exemption. [Para 2.9] In respect of the payments made to the persons covered under section 13(3), the assessee has already explained the reasonableness. The reasonableness is actually to be seen by the AO and not by the CIT while allowing registration or cancelling the registration. Thus looking to the above discussions, it is held the CIT was not justified in cancelling the registration. The order passed by the CIT under section 12AA(3) is cancelled and appeal is allowed. [Para 2.9]

Income Tax Act, 1961, Section 12A

Income Tax Act, 1961, Section 12AA(3)

Income Tax Act, 1961, Section 13

Rajasthan Vikas Sansthan v. CIT

In the ITAT, Jodhpur Bench R.K. Gupta, J.M. & N.L. Kalra, A.M.

ITA No. 11/Jd/2011

16 December, 2011

Income-tax Act, 1961, ss. 12A, 12AA, 12AA(3) & 13; In favour of: Assessee