Citation Codes

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Case Number

W.P No. 11700 of 1989

Attorney(S)

Mr. T.V Ramanathan, Advocate
Mr. S.V Subramaniam, Senior Standing Counsel for I.T cases,

Judges

V.S Sirpurkar, J.

Acts

provisions of Section 13 (1) (d) read with Section 11 (5) of the Income-tax Act.
SECTION 12 INCOME TAX ACT
provisions of Section 11 and Section 12
SECTION 12 INCOME TAX ACT
INCOME TAX ACT
Nadu Societies Registration Act,
sub-section (2) of Section 288

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

The petitioner is a society registered under the Tamil Nadu Societies Registration Act, 1975. It describes its objects as religious and charitable — running orphanages and institutions to train orphans, widows and the unemployed, along with religious objects such as establishment of churches. The society was formed on 31.08.1985 and registered under the Tamil Nadu Societies Registration Act on 15.11.1985. An application for registration under Section 12A of the Income-tax Act was made on 01.10.1986.

The first respondent (the Commissioner) responded that the application was belated and suggested amendments to the society's memorandum/bye-laws. A communication dated 01.12.1986 set out objections and suggestions: the delay in application; provisions in the memorandum/bye-laws making the society religious (affecting eligibility under Section 80G); lack of a clear provision on investment of funds as required by Section 13(1)(d) read with Section 11(5); absence of a dissolution/disbursement clause; lack of an express declaration that benefits would be open to all irrespective of caste/creed/religion; and a suggestion that amendments to the memorandum should be made only with the approval of the Commissioner. The petitioner attempted to amend its bye-laws without success. A later letter dated 12.12.1988 informed the petitioner that the application could be considered only after implementing the earlier suggestions. The application for registration under Section 12A was not granted, and the petitioner filed this writ petition seeking a mandamus directing the first respondent to register the petitioner under Section 12A of the Income-tax Act.

Legal Issues Presented

Whether the Commissioner was legally justified in insisting, as a pre-condition to considering an application for registration under Section 12A of the Income-tax Act, that the society amend its bye-laws to exclude the religious aspect.
Whether Section 12A permits the Commissioner at the registration stage to pre-judge entitlement to exemptions under Sections 11 and 12 (and Section 80G) by examining how the society proposes to apply its income, beyond the procedural conditions specified in Section 12A.

Arguments of the Parties

Petitioner's Arguments (as advanced by learned counsel)

Section 12A is procedural in nature. The scope of enquiry under Section 12A is limited to procedural conditions — timely application and proper maintenance and audit of accounts.
The Commissioner’s insistence on amending bye-laws to remove religious aspects effectively pre-judges whether the society's income would be exempt under Sections 11 and 12 or under Section 80G; such substantive enquiry is impermissible at the registration stage under Section 12A.
There are only two conditions for registration under Section 12A: (i) application within the prescribed time; and (ii) accounts maintained in required form and audited annually where applicable.

Respondent's Arguments (as advanced by learned counsel for the Department)

The nature of the society (e.g., religious character) is relevant at the registration stage because the purpose of registration is to enable the society to claim exemptions under Sections 11 and 12. Thus, before registration, it must be shown that the petitioner could claim such exemptions (including consideration under Section 80G).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Fifth Generation Education Society v. Commissioner of Income-Tax, 185 I.T.R. 634 (Allahabad High Court) (opinion by Justice B.P. Jeevan Reddy)	At the registration stage under Section 12A the Commissioner is not to examine the application of income; he may examine whether the application and formalities (including Form No.10A and objects) comply with Section 12A and relevant rules, but it is not proper to examine the application of income.	The court found this precedent directly applicable ("applies on all fours") and relied upon it to hold that the Commissioner over-stepped by pre-judging the application of income and insisting on the removal of religious aspects from the bye-laws as a pre-condition to registration.

Court's Reasoning and Analysis

The court began by examining the language and structure of Section 12A of the Income-tax Act. It identified the two conditions expressly set out in Section 12A: (a) an application for registration in the prescribed manner within the specified time period (or satisfying the proviso for belated applications as provided), and (b) maintenance and audit of accounts where required. The court noted that Section 12A's caption is "Conditions as to the registration of the Trust" and that the statutory text does not impose a prerequisite that entitlement to exemptions under Sections 11 and 12 be established before registration.

The court reasoned that entitlement to exemptions under Sections 11 and 12 (and for Section 80G) is a matter to be determined at the assessment stage when those exemptions are actually claimed, not at the registration stage. To insist at the registration stage that a society demonstrate how its income will be applied (i.e., to determine whether it would be exempt) would amount to pre-judging the substantive exemption issue. The court held that Section 12A permits only limited, primarily procedural scrutiny — whether the application is timely (or whether sufficient reasons justify belated application under the proviso), whether Form No.10A (or prescribed form) is properly filled, and whether accounts/audits comply with statutory requirements.

Relying explicitly on the Allahabad High Court decision in Fifth Generation Education Society v. Commissioner of Income-Tax (185 I.T.R. 634), the court accepted the principle that the Commissioner should not examine the application of income at the registration stage. Applying that principle to the present facts, the court concluded that the Commissioner's insistence that the petitioner remove or exclude the religious aspect from its bye-laws before the application could be considered amounted to exceeding the statutory scope of enquiry under Section 12A.

On the specific objections listed in the respondent's communications, the court distinguished those of a procedural/technical character (which could be complied with) from those premised on the religious nature of the institution. It held that objections specifically aimed at removing the religious character from the bye-laws as a pre-condition to consideration were not permissible requirements under Section 12A and therefore need not be complied with.

Finally, the court noted that counsel for the respondent conceded that delay would not be a bar in the present case. The court therefore directed the Commissioner to pass an order on the application for registration in the light of these findings and to dispose of the application within one month.

Holding and Implications

Holding: The writ petition is allowed. The court held that the Commissioner had no authority, at the registration stage under Section 12A of the Income-tax Act, to insist as a pre-condition that the petitioner amend its bye-laws to exclude the religious aspects. The court directed the first respondent to consider and dispose of the petitioner's application for registration under Section 12A within one month.

Implications:

Direct effect on the parties: The petitioner need not comply with objections or suggestions that seek to remove the religious character from its bye-laws as a pre-condition for consideration of registration under Section 12A. The Commissioner must consider the application (subject to the procedural/technical requirements of Section 12A) and pass an order within one month from the date of the opinion.
Other objections of a technical or procedural nature (e.g., those concerning format of accounts, audit requirements, or specified clauses regarding investment and dissolution) may still be complied with by the petitioner, but they cannot be used to preclude consideration on the ground that the society is religious.
No broader new precedent was expressly declared in this opinion beyond applying and following the cited Allahabad High Court decision; the court applied the precedent to the present factual matrix and directed the authorities accordingly.

Disposition: The writ petition was allowed and rule made absolute as stated in the opinion; no costs were ordered.

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New Life In Christ Evangelistic Association (Nlc) Rep. By Its Founder And President Y.D Yoehanson. v. The Commissioner Of Income Tax Tamil Nadu Iii, Income Tax Officer, Madras-34. 2. The Registrar Of Societies, Madras (Central) Seethama Road, Madras.

1. The petitioner herein, which is a society registered under the Tamil Nadu Societies Registration Act, 1975 has filed this petition for a writ of mandamus to the first respondent herein directing it to register the petitioner under Section 12-A of the Income-tax Act.

2. The factual panorama is as under: The petitioner's claim is that the petitioner is the Society for religious and charitable purposes. It's objects are running of orphanages and institutions to train orphans, widows and unemployed. Besides these charitable objects, there are some religious objects also such as establishment of Churches and it is claimed that the objects are non-political and non-racial. The Society issaid to have been formed on 31.8.1985 and was registered under the Tamil Nadu Societies Registration Act on 15.11.1985 and it was on 1.10.1986 that the present application was made under section 12A of the Income-tax Act for the registration thereunder. It was informed to the Society by the respondent that the application was belated, but, besides this, it was suggested by the first respondent that the objects of the Society should be amended.

3. The objection raised by the first respondent seems to be reflected in the communication by the first respondent dated 1.12.1986 The letter suggests that the memorandum of association/bye-laws should be suitably amended and it is only thereafter, that the application for registration under Section 12A of the Act would be considered. The objections pointed out were that the application for registration was belated; there were clauses in the Trust Deed/Memorandum of Association/Bye-laws which make the Trust/Society/Association a religious one and hence, not eligible for exemption under Section 80G of the Act; that there was no clear provision that the funds of the Society would be invested in the modes specified under the provisions of Section 13 (1) (d) read with Section 11 (5) of the Income-tax Act. It was also suggested that the Memorandum of Association did not specify the mode of disbursement of assets of the Society in the event of dissolution. It was also pointed out that the memorandum should clearly state that its benefits would be open to all irrespective of caste, creed or religion; and the last suggestion made was that there should be a specific clause that any amendment to the Memorandum would be carried on only with the approval of the Commissioner of Income-tax. In pursuance of this, it seems that the petitioner made an unsuccessful effort to get his bye-laws amended and ultimately it was intimated to the petitioner by a letter dated 12.12.1988 that the application can be taken up for consideration only after carrying out the suggestions made in the earlier letter. In short, the application for registration was not granted at this stage. It is by this action that the petitioner is aggrieved and comes before this Court for a direction as mentioned above.

4. Learned counsel for the petitioner painstakingly invited my attention to the provisions of Section 12-A of the Income-tax Act and contended that the suggestions made by the petitioner were all in the nature of considering whether the income of the said Trust would be liable to be exempted under Sections 11 and 12, and more particularly, Section 80G of the Act. Theviewtakenbythe Commissioner, according to the learned counsel, was that because the Society was of religious nature, such income would not be exempted under those Sections and could not claim registration u/s 12A. According to the learned counsel, such a view was clearly impermissible considering the language of Section 12A of the Act.

5. Learned counsel avers that Section 12A of the Act is only procedural in nature and while considering the application under Section 12A of the Act, the consideration as to whether the Society is for religious purposes or not etc., would be irrelevant. According to the learned counsel, there were only two conditions for registration under Section 12A of the Act, they being making an application within time and secondly, the accounts being maintained in a particular manner and they being audited annually. On the other hand, learned counsel for the Department suggests that the enquiry as to the nature of the Society would be very much relevant because the very purpose of the grant of registration is to enable the Society to claim exemptions under Sections 11 and 12 of the Act. If that be so, before the registration is granted, it has to be shown that the petitioner could claim the exemptions under Section 11 and 12 as also Section 80G of the Act.

6. It will have to be considered therefore, as to whether the Commissioner was right in law in insisting upon the Society to change its bye-laws and to exclude the religious aspect from the said bye-laws as a pre-condition for grant of registration under Section 12A of the Act. Section 12A of the Act is as under:

“ 12A. The provisions of Section 11 and Section 12 shall not apply inrelation to the income of any trust or institution unless the following conditions are fulfilled namely:-

(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the (Chief Commissioner or Commissioner) before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, (whichever is later and such trust or institution is registered under Section 12A):

Provided that were an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of Sections 11 and 12 shall apply in relation to the income of such trust or institution:-

(i) from the date of the creation of the trust or the establishment of the institution if the Chief Commissioner or Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons;

(ii) from the 1st day of the financial year in which the application is made, if the Chief Commissioner or Commissioner is not satisfied; (b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of Section 11 and Section 12 exceeds (fifty) thousand rupees in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of Section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.”

7. A cursory glance to the provisions of Section 12A of the Act would show that unless a Society or Trust as the case may be, is registered under Section 12A of the Act, it would not be entitled to claim the benefits under Sections 11 and 12 of the Act. The caption of the Section says ‘Conditions as to the registration of the Trust’. The two conditions which are provided are, firstly, that the person concerned should have made an application for registration in the prescribed form and in the prescribed manner to the authorities named in that Section before first day of July, 1973 or before the expiry of the period of one year from the date of creation of the Trust or establishment of the institution. The second condition provides for the keeping of the accounts in a particular manner and further that such accounts should be audited. The language of the Section does not show that in order to be able to get registration under Section 12A of the Act, there is necessity of first establishing as to how the concerned institution or as the case may be the Society would be able to claim the exemptions under Sections 11 or 12 of the Act. There is nothing in the language to suggest that an institution of a religious nature is precluded from getting registration under Section 12A of the Act. The question of exemptions under Sections 11 and 12 of the Act or as the case may be under Section 80G of the Act would come only when the said exemptions are claimed by the society at the time when it is assessed to tax. To consider whether the said Society would be entitled to the benefits under Sections 11 and 12 of the Act or as the case may be under Section 80G of the Act would be pre-judging the issue before the grant of certificate. At the stage of grant of certificate under Section 12A of the Act, the only enquiry which could possibly be made would be whether the society has actually made an application in time and whether the accounts of the society are maintained in the manner as suggested by the said Section. Beyond that, the scope of enquiry would not go in insisting upon the society in changing or amending its bye-laws and in refusing to consider the application on the ground that those bye-laws have not been changed so as to exclude the religious aspect from those bye-laws, the Commissioner has clearly over-stepped his limits. The said question came up before the consideration of the Allahabad High Court in a reported decision in Fifth Generation Education Society v. Commissioner Income-Tax., 185 I.T.R 634, by Justice B.P Jeevan Reddy, (as he then was) who has taken a view in the following words:

“It is evident that, at this stage, the Commissioner is not to examine the application of income. All that he may examine is whether the application is made in accordance with the requirements of Section 12A read with rule 17A and whether Form No. 10A has been properly filled up. He may also see whether the objects of the trust are charitable or not. At this stage, it is not proper to examine the application of income.”

The precedent applies on all fours to the present case.

8. In the present case also, there is no question of considering as to how the income of the present society would be applied. The view of the Commissioner that unless the religious aspect of the society is removed from the bye-laws, the application could not be taken for consideration is clearly erroneous. Merely because the Society is of a religious nature, it is not disentitled from claiming a certificate under Section 12A of the Act. The question whether it is entitled to exemptions under Sections 11 and 12 of the Act or as the case may be under Section 80G of the Act would be decided at a much later stage. The only purpose for which the registration is required is for establishing its identity as an institution for being able to claim the benefits under Sections 11 and 12 of the Act. Therefore, at this stage of enquiry, the Commissioner could not insist upon the Society to show that its income was not going to be spent for religious purpose.

9. In that view of the matter, the petition succeeds. It is seen that the Commissioner has refused to pass an order unless the Society has complied with the objections. As has already seen the objections raised besides the question of delay relate to the aspect of the religious nature of the institution or the Society as the case may be. The objections, vide point Nos. 3,4,6 and 8 pertain to the religious aspect only. It will not be necessary for the petitioner to comply with those objections. As for delay, learned standing counsel very fairly stated that the question of delay would not come in the way of the petitioner. As regards the other objections, which are of technical nature, they may be complied with. In that view of the matter, it will not be necessary for the petitioner to comply with the objections and or suggestions made by the first respondent as a pre-condition for consideration of the application. The first respondent is, therefore, directed to pass an order in the light of the objections made above. The application shall be disposed of within one month from today.

10. The writ petition shall stand allowed. Rule is made absolute in the terms stated above without any order as to costs.

New Life In Christ E... v. The Commissioner Of ...