Dr. Satish Chandra, J.:— Heard Sri A.M Tripathi learned counsel for the petitioner and Sri D.D Chopra learned Counsel for the respondents.
2. Present writ petition has been preferred against the impugned order dated 9-3-2004 passed by the Commissioner of Income Tax under section 12-A of the Income Tax Act, 1961 where he has cancelled the registration granted earlier on 1-4-1999 for being a charitable institution. Brief facts, giving rises to the present writ petition, are that the petitioner is a society registered under the Societies Registration Act, 1860 bearing registration number 290 of 1995. The petitioner, hereinafter known as the assessee, has applied for registration under section 12-A of the Income Tax Act being a Charitable Institution. The opposite parties have granted registration on 1-4-1999. Further, the exemption was also granted under Section 80-G of the Income Tax Act on 10-5-1999.
3. A survey was conducted at the business premises of the assessee under Section 133-A of the Act on 20-9-2002 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 dated 9-3-2004, the earlier registration granted under Section 12-A of the Act was cancelled. The assessment years in this writ petition are involved 2000–2001 and 2001–2002. Being aggrieved with the impugned order, the petitioner has filed the present writ petition.
4. 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 annexure Nos. 3 & 4 of the writ petition. The notice for cancellation was served on the assessee on 9-2-2004 and the assessee has submitted the reply, nonetheless, the registration was cancelled by the impugned order dated 9-3-2004. 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 dated 30-5-2002 accepted by the Registrar of the 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.
5. The learned counsel for the petitioner has submitted that the registration under Section 12-A 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 ration laid down in the case of Welham Boys' School Society v. Central Board of Direct Taxes, (2006) 285 ITR 74 : (2006 Tax LR 383) (Uttaranchal), where it was observed that once registration is granted then it could not be cancelled by the Commissioner. Further, he relied on the ratio laid down in the case of Commissioner of Income Tax 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.
6. 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 under Section 12-A of the Act after a due enquiry as provided under the Act for the assessment years under consideration (2000–2001 & 2001–2002). There was no jurisdiction with the opposite parties to cancel or withdraw such registration. He submitted that Section 12-AA (3) came into force w.e.f 1-10-2004 by the Finance (2) Act, 2004. The said provision reads as under:
“Procedure for Registration.
[12-AA(3). Where a trust or an institution has been granted registration under clause (b) of sub-section (1) and subsequently the Commissioner 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]”.
7. 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 v. Radha Kishan Goel, (2005) 278 JTR 454 (All) as well as in the case of Virtual Soft Systems Ltd. v. Commissioner of Income Tax, (2007) 289 ITR 83 (SC) where it was observed that the penalty is not leviable prior to the amendment.
8. Learned counsel for the petitioner further submits that if there is a profit in the activities of the society, it does not dis-entitle the registration. The surplus amount at the ends 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) v. Eternal Science Of Man'S Society's Society, (2007) 290 ITR 535 (Delhi) where it was held that:
“Accumulation of income is permissible for a plurality of purpose. 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 of 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”.
9. Lastly, he submitted that the main object of the petitioner's society is to serve and educate the students specially poor students to acquire knowledge for the future education and career. The facility is provided free of cost to 1500 students in a year. Forms are given at printed price. However, a nominal fee is received from the students if admission is obtained by him in the desired institution. He also submitted that this is only on voluntarily payment and is taken only if a. students can afford it. Finally, he made a request that the impugned order dated 9-3-2004 may kindly be quashed.
10. 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 assessment year 2000–2001, it was clearly mentioned that “no books of accounts, 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 20-9-2002, various discrepancies were found in the so-called books of accounts from which it appears that surplus was quite heavy. There was an unlawful huge marine in the commercial activities run by the petitioner. He read out the impugned order dated 9-3-2004 where it was mentioned that a lot of money was expanded 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 was not recorded in the books of accounts.
11. Learned counsel for the opposite parties stated that in 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 was used by the Manager for their personal purpose.
12. Regarding the power vested with the Commissioner to cancel the registration under Section 12-A 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 v. Commissioner of Income-tax, (2002) 256 ITR 277 (MP) : (2003 Tax LR 420). 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 v. Assistant Director of Income-tax (Exemption-11) (2008) 297 ITR 376 (Mad). Regarding the applicability of the amendment in Section 12-AA (3) of the Act, which came into existence on 01.10.2004, 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 Commissioner 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 Boy's School Society : (2006 Tax LR 383)(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”.
13. Lastly, he made a request to uphold the impugned order and dismiss the writ petition.
14. We have heard the arguments advanced on behalf of both the parties and gone through the material available on record.
15. 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 v. Jahan Khan, (2007) 10 SCC 88 : (AIR 2007 SC 3153).
16. In the instant case, the petitioner is a registered society, which was earlier granted registration under Section 12-A of the Income-tax Act on 1-4-1999. A survey was conducted at the business premises on 20-9-2002 from where documents were impounded. The registration was cancelled for the assessment years 2000–2001 & 2001–2002 for the reasons that the surplus was quite heavy. In the impugned order, it was mentioned by the Commissioner of Income-tax that there was an unusual huge marine 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 are 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.
17. Before us the issue crop up is whether the assessee society is engaged in charitable activities or not.
18. The expression “charity” or “charitable purposes” do not admit of rigid definition. In order to understand what these expressions legally convey, one can merely enumerated 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 sys tem of jurisprudence that may be followed by the assessee.
19. In the Hindu Smritis “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’. Ac cording 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 page 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 merits. In the facts and circumstances of the case specially by nomenclature of the asses see, it appears prima facie that it is engaged for “educational activities”.
20. Regarding cancellation of registration which was granted on 1-4-1999 under section 12-A of the Act, it is true that there was no express provision in Section 12-A 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 Boy's School Society :(2006 Tax LR 383) (supra), where it was observed that any order passed by the Commissioner of Income-tax under Section 12-A 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 v. State of Rajasthan, reported in AIR 1967 SC 107. The High Court observed that by virtue of Section 21 of the General Clauses Act, the Commissioner of Income-tax had no power to rescind the order passed earlier by the Commissioner granting registration to the petitioner's society. It may be mentioned that Section 12-AA (3) was incorporated w.e.f 1-10-2004 to empower the Commissioner 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 under Section 12-AA of the Act being a quasi-judicial order does not fall within the category of orders mentioned under Section 21 of the General Clauses Act, 1897, which provides that the power conferred on an authority empower to issue orders including the power to rescind such orders and the Commissioner would not have power to rescind the order passed by the Commissioner earlier granting the registration to a trust or institution. Even assuming, the Commissioner has power to rescind the order of registration on the ground that the registration had been obtained by practicing fraud or forgery, there was nothing in the show cause notice or in the impugned order dated 09.03.2004 alleging that the petitioner had obtained the registration by practicing fraud or forgery.
21. The expression ‘charitable purpose’ is defined in Section 2(15) of the Income-tax 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, with effect from April 1, 1984.
22. In Commissioners for Special Purposes of Income-tax v. John Frederick Pemsel [1891 AC 531, 583 : TC 53 (H.L)], 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: White v. White [(1893) 2 Ch. 42 (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 paragraph 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 Income-tax 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 Income-tax Act, 1961, specially after an amendment in Section 2(15) by the Finance Act, 1983 w.e.f 1st April, 1984.
23. 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 CIT v. Saraswath Poor Students Fund, 150 ITR 142, 147 : (1984 Tax LR 1444) (Kant). Thus, the assessee is engaged in “Educational Activities” which falls under charitable purpose.
24. Recently, the Hon'ble Supreme Court in the case of American Hotel and Lodging Association Educational Institute v. Central Board of Direct Taxes (2008) 301 ITR 86 : (2008 AIR SCW 4996) 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”.
25. By taking the liberal approach, the Jharkhand High Court in the case of Commissioner of Income-tax v. Karimia Trust, (2008) 302 ITR 57 : (2008 Tax LR 217) (Jharkhand) 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.
26. It may be mentioned that the Hon'ble Supreme Court in the case of Assistant Commissioner Of Income Tax v. Surat City Gymkhana, (2008) 300 ITR 214, observed that “after registration, further probe into object is not permissible.
27. 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 dated 9-3-2004 passed by the Commissioner of Income-tax (Annexure 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.
28. Accordingly, the impugned order dated 9-3-2004 passed by opposite party No. 2 withdrawing/rescinding the order granting registration on 1-4-1999 to the petitioner's society under section 12-A of the Act, is quashed.
29. Consequently, the registration granted to the petitioner's society on 01.04.1999 stands restored for the assessment years under consideration.
30. The writ petition is allowed.
31. No order as to costs.
32. Petition allowed.