Philia Charitable Society, Alappuzha vs Assessee

Philia Charitable Society, Vs. The Commissioner of Income-tax, Puthenpurayil, Kottayam. Karthikapally, Alppuzha-690 516. [PAN: AACAP 8936H] (Assessee-Appellant) (Revenue-Respondent)

Assessee by Shri Manoj Peter, CA Revenue by Shri K.K. John, Sr. DR

Date of hearing 13/01/2015 Date of pronouncement 06/03/2015

ORDER

Per CHANDRA POOJARI, Accountant Member:

This appeal filed by the assessee is directed against the order dated 31-07-

2014 passed by the CIT, Kottayam rejecting the application for registration u/s.

12AA of the I.T. Act.

2. The brief facts of the case are that the assessee is a Society registered under

the Travancore-Cochin Literary, Science, Charitable Societies Registration Act, 1955

on 26-06-2013. The Society has filed an application in the prescribed Form 10A on

26-03-2014 for registration u/s. 12AA of the I.T. Act, 1961. 2 I.T.A. No.430/Coch/2014

3. Though the objectives for which the Society was constituted are mainly

charitable in nature, the CIT noticed that the assessee Society's activities so far was

not upto the mark and not in consistent with the objectives for which it has been

formed. On going through the financial statements produced before him, the CIT

found that the Society is in short of funds for undertaking the objectives enshrined

in the Memorandum of Association. Therefore, the CIT was not satisfied that this is

a fit case for granting registration u/s. 12AA of the I.T. Act. Against this, the

assessee is in appeal before us.

4. The Ld. DR relied on the order of the CIT.

5. We have heard both the parties and perused the record. The question

which has arisen in the present case is as to whether registration has rightly

been refused to the assessee by the learned CIT u/s. 12AA of the I.T. Act.

Section 12AA of the I.T. Act, prescribes the procedure for registration of a

Society. As per this section, the CIT, on receipt of an application for registration,

shall call for such documents or information from the Society as he thinks

necessary in order to satisfy himself about the genuineness of the Society and

may also make such enquiry as he may deem necessary in this behalf; and that

after satisfying himself about the objects of the Society and the genuineness of

its activities, he shall pass an order in writing, registering the Society. Therefore,

in accordance with Section 12AA of the Act, the learned CIT was required to 3 I.T.A. No.430/Coch/2014

satisfy himself about the objects of the Society and the genuineness of the

activities carried out by the assessee.

6. In the present case, a perusal of the order of the CIT suggest that he is

not satisfied about the charitable activities carried out by the assessee. In his

opinion, it is not upto the mark and not in consistent with the objects for which it

has been formed. According to the CIT, the assessee is in short of funds for

carrying out the objects for which it was constituted. This observation of the

CIT has been rebutted by the assessee's Counsel that the assessee has carried

out the activities in accordance with the object clause in the Memorandum of

Association and bye-laws of the Society. It was submitted before us that the

Society was formed under the Travancore-Cochin Literary, Scientific, Charitable

Societies Registration Act, 1955 on 26-06-2013 The assessee has filed before

us Receipts and Payments Account, Income and Expenditure statement, Cash

Flow statement and Balance Sheet as on 31st March, 2014. The assessee has

received Rs. 6,25,000/- as contribution towards corpus fund. As per clause 12(a)

of the Memorandum of Association, amount received as share should be

deposited with a national bank or a scheduled bank and the annual interest

received from it should be used. As per this clause, the assessee has spent an

amount of Rs.76,300/- toward the main objects of the Society for which it was

formed. According to the assessee's Counsel, the findings recorded by the CIT

that the activity carried out by the assessee is not up to the mark, is not correct. 4 I.T.A. No.430/Coch/2014

We find force in the contention of the assessee' Counsel that the assessee is in

the initial stage and the total income of the assessee from 26th June 2013 to 31st

March, 2014 is Rs.1,37,585/-. The assessee earned interest at Rs.32,481/-. The

total expenditure was Rs.99,328/-. The assessee has spent Rs.76,300/- towards

the object of the Society for which it was formed. The assessee has spent the

interest earned on fixed deposits and sought financial help from various

individuals and organizations towards its object of carrying out charitable

activities. Being so, it cannot be said that the activity of the assessee is not upto

the mark. We have to bear in mind that the assessee is at the early stage of

formation and the assessee has incurred administrative expenses to run the

Society. In the above circumstances, in our opinion, the amount spent by the

assessee towards the object of the Society is very considerable and there is no

allegation by the CIT that the activity of the assessee is not charitable. Once the

activity is charitable and it has been carried out by the assessee during this

period, in our opinion, rejection of grant of registration u/s. 12AA by the CIT is

not justified. The CIT is only required to satisfy himself with regard to the objects

and genuineness of the activities of the Society. The observation made by the

CIT does not impinge upon these aspects and the observation made by the CIT

is the result of mere surmises and conjectures. Nothing turns on it against the

assessee for granting registration u/s. 12AA of the I.T. Act. In view of the

above, it is proper to grant registration u/s. 12AA of the I.T. Act to the assessee 5 I.T.A. No.430/Coch/2014

and accordingly, registration u/s. 12AA of the I.T. Act shall be granted to the

assessee by CIT.

7. In the result, the appeal filed by the assessee is allowed.

Pronounced in the open court on 06-03-2015.

by separate order sd/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Kochi Dated: 06/03/2015 GJ Copy to:

1. Philia Charitable Society, Puthenpurayil, Karthikapally, Alppuzha-690 516.

2. The Commissioner of Income-tax, Kottayam.

3. D.R., I.T.A.T., Cochin Bench, Cochin.

4. Guard File.

By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin 6 I.T.A. No.430/Coch/2014

By N.R.S Ganesan

8. I have carefully gone through the translated copy of the trust

deed available at page 15 of the paper book. The membership of

the society shall be given to those who are paying Rs.25,000. The

members, in addition to Rs.25,000 shall also pay monthly

subscription of Rs.100. The society has following objects as per its

bye laws.

a. To provide financial or other aid to the sick and the helpless;

b. To construct and provide houses, or to provide financial assistance for constructing houses for the homeless. To provide help for repair existing houses.

c. To ensure education for those children who ar2e unable to study due to financial problems by providing financial help for their education;

d. To establish and run hospitals, service centres, old age homes, orphanages, training centres for the physically and mentally challenged, general educational institution or to provide financial assistance to such institutions;

7 I.T.A. No.430/Coch/2014

e. To provide financial help for self-employment ventures;

f. To organize public awareness campaign and medical camps;

g. To conduct programs for protecting the widows, helpless women and children;

h. To acquire or lease or rent or transfer or construct or repair or even sell all or any part of the movable and immovable property of above society necessary or convenient for purpose of the attainment of the society's objects;

i. To provide necessary help for matters that require immediate attention under special circumstances; j. To provide financial assistance for marriage; k. To undertake activities for the physical and mental development of the members of the society and their family members;

l. In addition the Society may implement any matters decided by its General Body for the social benefit.

9. The beneficiaries of the society is not specified in the bye

laws. Therefore, the presumption would that the entire society at

large would be the beneficiaries. On a query from the bench

whether any prohibition for the members of the society from sharing

the profit at the end of the year, the ld.representative, Shri Manoj

Peter fairly admitted that there is no prohibition in the bye laws of the 8 I.T.A. No.430/Coch/2014

society to share the profit at the year end. However, after referring

to the bye laws 10(2)(f) on page 18 the ld.representative clarified

that at the time of dissolution the assets of the society will not be

distributed to the members of the society. The asset, however,

would be transferred to another registered society with similar object

or to the government in accordance with provisions of Travancore-

cochin Literary, Scientific and Charitable Societies Registration Act,

1995 (Act XII of 1955). It has to be kept in mind that the members of

the society shall not take any profit from the society in view of the

prohibition contained in section 13(1)(c) of the Act. The legislature

by way of amendment has introduced section 12AA(3) and 12AA(4)

empowering the respective Commissioner of Income-tax to cancel

the registration in case there was a violation of section 13(1) of the

Act. Therefore, I am of the considered opinion that the concerned

Administrative Commissioner / Principal Commissioner and the

assessing officer shall ensure that no part of the society's fund is

distributed to the benefit of the persons referred to in section 13(3) of

the Act either directly or indirectly. If any part of the profit / income of

the society was found to be applied for or taken / shared by the

members of the society the benefit of interested person as referred

in section 13(3) either directly or indirectly, the Commissioner or 9 I.T.A. No.430/Coch/2014

Principal Commissioner shall take immediate action for cancellation

of the registration u/s 12AA / 12AA(3) of the Act.

10. The so-called corpus of the fund is nothing but the contribution

received by the society from its members at the time of admission.

The assessee claims that the share amount collected to the extent of

Rs.6,25,000 from its members at the time of admission was

deposited in the bank account and the interest therefrom was used

for carrying out the object of the trust as provided in bye law 12 of

the Society. Apart from contributions from the members, the society

has also received money from non members on the occasions like

birthdays, weddings, etc. The income and expenditure account,

copy of which is available at page 24 shows that the assessee has

also received Rs.2,510 from auction. It is not known what was the

nature of auction. The commissioner shall ensure that if the

assessee is involved in carrying out any activity in the nature of trade

or commerce, then the income of the society shall not be excluded

as per sections 11 & 12 of the Act in view of section 13(8) of the Act

which was introduced by Finance Act, 2012 with retrospective effect

from 01-04-2009. From the material available on record it appears

that the assessee has spent to the extent of Rs.76,300 by way of

donation to various persons, the details of which are available at 10 I.T.A. No.430/Coch/2014

pages 82 and 83 of the paper book. The Commissioner and the

assessing officer shall ensure that the beneficiaries, the details of

which are available at pages 82 & 83 are not the relatives of the

persons s provided in Explanation 1 to section 13(3) of the Act.

11. The Commissioner has not examined these aspects while

passing the impugned order. Since the legislature has made

specific provisions for cancellation of the registration u/s 12(3) and

12(4) of the Act, wherever the trust / society failed to carry out its

activity in accordance with its objects or carrying on is object in

violation of section 13(1) of the Act, the Commissioner can examine

the same at a later stage and cancel the registration, if any, granted.

The assessing officer in addition to these, shall also examine if there

is any violation of sections 11 and 12 of the Act.

12. In view of the safeguard provided under the Act by giving

liberty to the Commissioner to examine the matter at a later stage

and cancel; the registration, I agree with the view of the

Ld.Accountant Member. However, it is made clear that this order of

this Tribunal shall not stand in the way of the Commissioner while

initiating proceedings for cancellation of the registration u/s 12AA(3)

or 12AA(4). In other words, irrespective of the order of this Tribunal, 11 I.T.A. No.430/Coch/2014

if the Commissioner found that there is a case for cancellation of the

registration u/s 12AA(3) or 12AA(4), he may suo motu initiate the

proceedings for cancellation of registration. Moreover, the

Commissioner and the assessing officer shall ensure that the

registration granted to the society u/s 12AA shall not be used as a

vehicle for collecting money compulsorily in the guise of voluntary

donation.

13. With the above observations, the appeal of the assessee

stands allowed.

Order pronounced in the open court on this _6th____March, 2015.

sd/-

(N.R.S. Ganesan) JUDICIAL MEMBER Cochin, Dt : 6th March, 2015 pk/-