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SUMMARY OF CASE LAW

When the assesseesociety was granted registration under section 12AA, it is a testimony to the fact that the society is established for charitable purposes asdefined in section 2(15); the same will be charitable purposes irrespective of the fact that for imparting education, the assessee charges fees; there is no condition to hold that to become charitable purposes in respect of imparting education, the same should be imparted freely or without charging any fees; so long asimparting such education is not for the benefit of any particular religion, community or caste as envisaged in subclause (iii) of subsection (5) of section 80G, the assessee cannot be denied exemption.

CASE LAW DETAILS

Decided by: ITAT, DELHI BENCH `B : NEW DELHI, In The case of: Gaur Brahmin VidyaPracharini Sabha v. CIT, Appeal No.: ITA No. 1905/Del/2009, Decided on: September 11, 2009

RELEVANT PARAGRAPH

6. We have carefully considered the relevant facts, arguments advanced andthe case laws cited. The assessee is seeking registration under section 80G (5)of the Act. Section 80G(5) is extracted hereunder:

(5) This section applies to donations to any institution or fund referred to in subclause (iv) of clause (a) of subsection (2), only if it is established in India for a charitable purpose and if it fulfils the following conditions, namely:

[(/) where the institution or fund derives any income, such income would not beliable to inclusion in its total income under the provisions of sections 11 and12 or clause (23AA)] [or clause (23Q] of section 10 :

[Provided that where an institution or fund derives any income, being profits and gains of business, the condition that such income would not be liable to inclusion in its total income under the provisions of section 11 shall not apply in relation to such income, if

(a) the institution or fund maintains separate books of account in respect of such business;

(b) the donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of such business; and

(c) the institution or fund issues to a person making the donation acertificate to the effect that it maintains separate books of account in respect of such business and that the donations received by it will not be used, directly or indirectly, for the purposes of such business;]

(ii) the instrument under which the institution or fund is constituted does not,

or the rules governing the institution or fund do not, contain any provision for the transfer or application at any time of the whole or any part of the incomeor assets of the institution or fund for any purpose other than a charitable purpose;

(iii) the institution or fund is not expressed to be for the benefit of any particular religious community or caste;

(iv) the institution or fund maintains regular accounts of its receipts and expenditure;

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(v) the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India or under section 25 of the Companies Act, 1956 (1 of 1956), or is a University established bylaw, or is any other educational institution recognised by the Government or bya University established by law, or affiliated to any University established bylaw, or is an institution financed wholly or in part by the Government or a local authority;

(vi) in relation to donations made after the 31st day of March, 1992, the institution or fund is for the time being approved by the Commissioner in accordance with the rules^ made in this behalf and

(vii) where any institution or fund had been approved under clause (vi) for theprevious year beginning on the 1st day of April, 2007 and ending on the 31st dayof March, 2008, such institution or fund shall, for the purposes of this section and notwithstanding anything contained in the proviso to clause (15) of section 2, be deemed to have been,

(a) established for charitable purposes for the previous year beginning on the 1st day of April, 2008 and ending on the 31 st day of March, 2009; and

(b) approved under the said clause (vi) for the previous year beginning on the 1st day of April, 2008 and ending on the 31st day of March, 2009.

As per subclause (vi) of subsection (5) of section 80G, for recognition the trust is required to be approved by the Commissioner in accordance with the Rulesmade in this behalf. The Rules are Rule 11AA prescribed in this regard. As per Rule 11AA, the assessee is required to make an application in Form No.lOG. The application shall be accompanied by the following documents:

(1) Copy of Registration granted under section 12A or copy of Notification issued under section 10(23) or 10(23C) of the Act;

(2) Notes on activities of institution since its inception or during

the last 3 years whichever is less.

(3) Copies of accounts of the institution since its inception or during the last 3 years whichever is less.

The Commissioner is empowered to call for such further documents or informationor calls such enquiries in order to satisfy himself about the genuineness of theactivities of the institution. If the Commissioner is satisfied that the condition laid down in clauses (i) to (v) of subsection (5) of section 80G are fulfilled, he shall record such satisfaction and grant approval. If he is not so satisfied, he shall reject the application after recording the reasons. Thus as per the provision of section 80G(5) read with Rule 11AA for granting registration, the Commissioner needs to be satisfied that the condition laid down in clauses (i)

to (v) of subsection (5) of section 80G are fulfilled. In the present case there is no dispute that the application for approval has been filed in Form No. lOG along with the documents required to be accompanied thereto. Subclause (i) ofsub-section (5) of section 80G requires that where the institution or fund derives any income, such income would not be liable to inclusion in its total income under the provisions of sections 11 and 12 of the Act. The assessee is registeredunder section 12AA of the Act. Even as per the assessment of the last 3 years it is seen that though the assessee derives income, such income was held not liable to inclusion in total income as per sections 11 and 12 of the Act. Thus subclause (i) is satisfied.

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As per subclause (ii) of subsection (5) of section 80G, the instrument under which the institution or fund is constituted does not, or the rules governing theinstitution or fund do not, contain any provision for the transfer or application at any time of the whole or any part of its income or assets for any purposeother than a charitable purpose. Admittedly there is no clause or rule governingthe institution which contains any provision for the transfer or application ofits income or assets for any purpose other than a charitable purpose. The onlyobject of the assessee trust is imparting education and such object is charitable purpose within the definition of Charitable purpose as specified in section 2(15) of theAct.

The condition prescribed in subclause (iv) of section (5) of section 80G is that the institution or fund maintains regular accounts of its expenditure is alsocomplied with.

The condition in subclause (v) of subsection (5) of section 80G is that the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1960, is also complied with as the assessee is registered under the Societies Registration Act, 1860 vide certificate dated 29th September, 1980.

From the above it is clear that all the conditions laid down in Rule 11AA i.e. condition laid down in subclauses (i) to (v) of subsection (5) of section 80G a

re fulfilled. When the assessee trust was granted registration under section 12AA, it is a testimony to the fact that the trust is established for charitable purposes. Honble Punjab & High Court which is the jurisdiction in this case in thecase of Sonepat Hindu Educational and Charitable Society vs. CIT, 278ITR 262 held as underlain construing the purpose of a trust, for the purposes of approval under section 80G of the Incometax Act, 1961, it is important to find out the real purpose of establishing the trust rather than just relying on the objects, memorandum and articles or the trust deed of the trust. If the Commissioner is satisfied that the objects of the trust are charitable, approval should not be denied on mere technicalities.

Registration of an institution under section 12A of the act is sufficient proofof it being established for charitable purposes.

It is not possible to determine, on the date on which the donation is made undersection 80G, if the trust, which has sought approval under the said section, has fulfilled its conditions at the close of the relevant previous year.

Res judicata can be applied in incometax proceedings when a fundamental aspecthas prevailed through different assessment years without being challenged one way or the other. In such cases it is not appropriate to change the position in asubsequent year. (Emphasis supplied)

There is no denial of fact that the assessee institution is registered under Societies Registration Act, 1860 as well as under section 12AA of the Incometax Act. Even the assessments for Assessment Years 200405, 200506 and 200607 framed

under section 143(3) revealed that the assessee trust is eligible for exemptionunder sections 11 & 12 of the Act. Honble Gujarat High Court in the case of N. N. Desai Charitable Trust vs. CIT, 246 1TR 452 held that in respect of registration under section 80G, the scope of enquiry will be confined to finding out if the institution satisfies prescribed condition stated in subclauses (i) to (v) ofsection 80G. It does not extend to actual assessment of institution. The phraseused in subclause (i) of subsection (5) of section 80G is that where the institution or fund derives any income, such income would not be liable to inclusion in its total income.

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Thus what is to be seen is whether any income would not be liable to inclusion in its total income and not whether because of certain defaults prescribed in section 11 or 13, the trust is not actually held eligible for exemption under sections 11 & 12 of the Act. As per section 11 of the Act, income derived from property held under trust to the extent to which such income is applied for charitableor religious purposes in India or to the extent of accumulation within certainlimitation is not to be included in the total income of the trust or institution. Thus even though the assessee receives fees for imparting education and the education being charitable purposes defined in section 2(15) of the Act without any condition. Such income would not be liable to inclusion to the extent to which such income is applied for charitable purposes in India. Education is per se charitable purposes as defined in section 2(15) of the Act. The same will be charitable purposes irrespective of the fact that for imparting education, the assessee charges fees. There is no condition to hold that to become charitablepurposes in respect of imparting education, the same should be imparted freely or without charging any fees. So long as imparting such education is not for thebenefit of any particular religion, community or caste as envisaged in subclause (iii) of subsection (5) of section 80G^The assessee cannot be denied exemption. In the impugned order the learned Commissioner has given much weightage to the fact that the assessee charges fees for imparting education and since by charging fees, the benefit is not extended to 80% of the public who arebelow poverty line or that the education is not imparted free of cost. The trust or fiind which imparts education without charging fees will qualify for exemption under sections 11 & 12 but that does not mean that other trusts which are c

harging fees for imparting education will not be considered to be charitable purposes. The act is contemplating exemption being granted to an eligible trust orinstitution in respect of its income. Thus it is manifested that only when there will be income, the claim of exemption will arise. In such a situation whatthe statute envisages is that there are all chances of trust or institution earning income by way of surplus so as to grant them exemption under sections 11 and12 of the Act and subject to condition prescribed under section 11(5) and section 13 of the Act. If the trust or institution is not expected to earn surplus,there would not have been any question of allowing exemption from tax liability. When the Scheme of the act allows exemption from tax liability, the same canbe only when it is envisaged that the trust or institution is likely to earn surplus. Thus merely because from the activities in the nature of charitable purposes, the assessee makes surplus which is within the limitation prescribed under

section 1 l(l)(a), there cannot be any ground to hold that the assessee is not carrying on any charitable purposes so as to deny registration under section 80G(5) of the Act. We find that the condition laid down in Rule 11AA as also in subclauses (i) to (v) of subsection (5) of section 80G are complied with. The trust is, therefore, eligible for registration under section 80G(5Xvi) of the Act. We, therefore, direct the Commissioner to grant registration accordingly.