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Bar Council Of Delhi v. Commissioner Of Income Tax (Exemption), New Delhi .
Tribunal Opinion Summary — Bar Council of Delhi (ITA No.9333/Del./2019)
Factual and Procedural Background
The Bar Council of Delhi (appellant) filed an appeal against the order dated 27.09.2019 passed by the Commissioner of Income-tax (Exemption), New Delhi, seeking to set aside the rejection of its applications for registration and exemption. The appellant had filed applications in Form No.10A and Form No.10G dated 15.03.2019 seeking registration under section 12AA of the Income-tax Act and consequent approval under section 80G. The Commissioner rejected those applications on grounds including the appellant's failure to furnish the balance sheet and income & expenditure account for FY 2018-19 and the assertion that the Bar Council's name did not appear in the list of approved institutions, leading to a finding that it was not a charitable institution within the meaning of section 2(15). The appellant sought condonation of a two-day delay in filing the appeal, which the Tribunal allowed due to the sudden sickness and hospitalisation of the respondent counsel, Shri Ram Avtar.
Legal Issues Presented
- Whether the Commissioner of Income-tax (Exemption) erred in rejecting the appellant's application for registration under section 12AA and consequent approval under section 80G.
- Whether a statutory Bar Council established to control, supervise and regulate the legal profession qualifies as a "charitable" institution within the meaning of section 2(15) of the Income-tax Act.
- Whether the Commissioner was empowered to decline registration under section 12AA solely on the ground that the appellant had not furnished financial statements for FY 2018-19.
- Whether the provisions of section 10(23A) (exemption of income of certain statutory bodies) and the provisions governing charitable institutions (sections 11–13, and registration under section 12AA) are mutually exclusive or can operate together.
Arguments of the Parties
Appellant's Arguments
- At the registration stage under section 12AA, the Commissioner is required only to be satisfied about the institution's object clause and the genuineness of its activities; detailed scrutiny of financials is not required.
- The Bar Council of Delhi is a statutory institution established under section 3(1)(f) of the Finance Act, 1961, and is duly notified/approved by the Government of India (notification dated 09.08.1966 effective from 22.01.1962 and a further communication dated 24.12.2019 were placed on record).
- The institution's primary and dominant purpose is the advancement of an object of general public utility, and relevant case law supports treating State Bar Councils as charitable for income-tax purposes.
Respondent's (Revenue) Arguments
- The Commissioner required the basic financial statements for FY 2018-19 to determine the real purpose of the institution and to assess the genuineness of its activities; those financials were not furnished.
- The Revenue requested that the appellant be given another opportunity to furnish the necessary documents for examination by the Commissioner.
- The Revenue relied upon various decisions of the Supreme Court and several High Courts to support the need for scrutiny of finances/documents before granting registration.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT vs. Bar Council of Maharashtra, 130 ITR 28 | Held that the primary and dominant purpose of a State Bar Council is advancement of an object of general public utility under section 2(15); income from securities held by such a council is exempt under section 11. | The Tribunal relied on this Apex Court decision as directly analogous and dispositive: it treated the Bar Council of Delhi's object as charitable and held that detailed financial scrutiny at registration was unnecessary once the object is established. |
| Bar Council of Maharashtra vs. CIT, 126 ITR 27 (Bombay HC) | Affirmed by the Supreme Court in the Bar Council of Maharashtra case; supports characterization of State Bar Councils as having dominant charitable purpose. | Used as part of the chain of authority (quoted and relied upon) to conclude the appellant's objects are within section 2(15). |
| Sree Anjaneya Medical Trust vs. CIT, 382 ITR 399 (Kerala HC) | Held that examination of application of funds or ethical background of settlors is not required at the registration stage; such scrutiny arises at assessment. | The Tribunal applied this principle to hold that non-furnishing of FY 2018-19 financials did not justify rejection of registration under section 12AA. |
| CIT vs. Andhra Chamber of Commerce, (1965) 55 ITR 722 (SC) | Held that "object of general public utility" may include objects beneficial to a section of the public (not necessarily all persons) and thus can be charitable. | The Tribunal cited this Apex Court authority to support the proposition that an institution serving a defined professional community (lawyers) can have an object of general public utility. |
| DIT vs. Foundation of Ophthalmic & Optometry Research Education Centre, 355 ITR 361 (Del HC) | Held that registration under section 12AA cannot be denied solely because there has been no commencement of charitable activities in the case of a newly registered trust; statute allows registration based on objects. | The Tribunal relied on this decision to support the view that absence of activity or detailed financials at the registration stage is not a bar to registration. |
| American Hotel and Lodging Association Educational Institute vs. CBDT & Ors., 301 ITR 86 | The opinion records that appellant relied on this authority; the precise rule cited in the text is not described in detail. | The case was relied upon by the appellant; the Tribunal noted reliance but the opinion does not specify how this precedent was applied substantively. |
| CIT vs. Baba Kartar Singh Dukki Educational Trust (2014) 221 Taxman 493 (P&H) | Listed among authorities relied upon by the appellant; the text does not set out the specific principle from this case. | The Tribunal recorded that the appellant relied on this decision; the opinion does not describe a distinct application beyond noting reliance. |
| Cited authorities relied upon by Revenue (examples): CIT vs. Wilsonia College Society (2017-TIOL-1051-HC-ALL-IT); Jammu Development Authority vs. UOI (2014-TIOL-115-SC-IT); CIT vs. National Institute of Aeronautical Engineering Educational Society, 315 ITR 428 (Uttaranchal); CIT vs. A.R. Trust, 402 ITR 161 (Allahabad); Self Employers Service Society vs. CIT, 247 ITR 18 (Kerala); Kirti Chand Tarawati Ch. Trust vs. DIT, 232 ITR 11 (Delhi) | The text records that the Revenue relied upon these authorities to support the view that financial/documentary scrutiny can be required before registration; specific principles from each case are not set out in the opinion extract. | The Tribunal recorded the Revenue's reliance but, in its reasoning, concluded that once the object's charitable nature was established (on authority like Bar Council of Maharashtra and related cases), detailed financial scrutiny at the registration stage was not necessary; thus the Tribunal did not follow the Revenue's approach in this instance. |
Court's Reasoning and Analysis
The Tribunal proceeded through a series of focused legal determinations based strictly on the materials and authorities placed before it:
- Condonation and procedural posture: The Tribunal first allowed the two-day delay in filing the appeal on account of the sudden sickness and hospitalisation of the appellant's counsel.
- Characterisation of the appellant: It was noted (undisputedly) that the appellant is established to control, supervise, regulate or encourage the legal profession and that a separate provision, section 10(23A), exists in the Act for exempting income of such statutory bodies.
- Notification/approval evidence: The appellant produced a Notification dated 09.08.1966 (effective 22.01.1962) and a communication dated 24.12.2019 showing governmental approval/notification for the appellant under provisions of the Income-tax Act; the Tribunal recorded that the Commissioner had failed to take this material into account.
- Legal threshold for registration under section 12AA: Applying authority from the Apex Court in CIT vs. Bar Council of Maharashtra and related High Court decisions, the Tribunal held that the threshold inquiry for registration focuses on the object clause and the genuineness of activities as reflected by the objects. Where the object's charitable nature is established (as with a state Bar Council), further scrutiny of financials is not a prerequisite for registration; such scrutiny is generally open to the Assessing Officer at the assessment stage.
- Precedential support for not requiring financial scrutiny at registration: The Tribunal relied on Sree Anjaneya Medical Trust (Kerala HC) to the effect that examination of application of funds is not required at the registration stage and on DIT vs. Foundation of Ophthalmic & Optometry Research Education Centre (Delhi HC) for the proposition that lack of commencement of activities does not preclude registration where objects are charitable.
- Applicability of sections 10(23A) and sections 11–13: The Tribunal rejected the Commissioner’s view that sections 11–13 (including registration under section 12AA) are inapplicable to the appellant merely because section 10(23A) applies. Relying on the Bar Council of Maharashtra authority, it held that section 10(23A) and the provisions relating to charitable institutions are not mutually exclusive and may operate in different circumstances.
- Evaluation of material facts: The Tribunal recorded that the appellant had already furnished financials for FY 2016-17 and 2017-18 (without adverse findings by the Commissioner) and that the appellant offered to furnish the FY 2018-19 financials which were earlier missing. The Tribunal treated these facts as reinforcing that rejection solely for absence of FY 2018-19 statements was not justified.
- Conclusion of error by Commissioner: On these bases, the Tribunal concluded that the Commissioner erred in declining registration under section 12AA and consequent exemption under section 80G for the reasons given in the impugned order.
Holding and Implications
Holding: The Tribunal allowed the appeal and directed the Commissioner of Income-tax (Exemption) to grant registration under section 12AA and consequent approval under section 80G to the Bar Council of Delhi.
Direct implications:
- The appellant is to be registered under section 12AA and granted the consequent exemption under section 80G as directed by the Tribunal.
- The Commissioner’s rejection of the registration on the ground of non-furnishing of FY 2018-19 financials and on the view that sections 11–13 (including 12AA) were inapplicable to the appellant was set aside.
Broader implications:
The opinion applies established precedents (including the Apex Court's decision in CIT vs. Bar Council of Maharashtra) to affirm that where an institution's objects demonstrably fall within section 2(15), registration under section 12AA should not be denied solely for lack of financial documents for a particular year; scrutiny of accounts and application of funds remains open at assessment. The opinion does not state that it establishes a new precedent beyond applying existing authorities to the facts of this appeal.
Disposition and Court Formalities: Appeal allowed; order pronounced in open court on 2nd July, 2020. Members: R.K. Panda (Accountant Member) and Kuldip Singh (Judicial Member). Copies forwarded to the appellant, respondent, CIT, CIT(E) New Delhi, CIT(ITAT) New Delhi and the AR, ITAT New Delhi.
PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, Bar Council of Delhi (hereinafter referred to as the appellant) by filing the present appeal sought to set aside the impugned order dated 27.09.2019 passed by the Commissioner of Income - tax (Exemption), New Delhi on the grounds inter alia that :- ITA No.9333/Del./2019
1. That the Ld. CIT has erred in rejecting the application filed by Bar Council of Delhi seeking registration u/s 12A (a) of the Income Tax Act.
2. That the Ld. CIT has erred in holding that the provisions of section 12AA are not applicable to Bar Council of Delhi.
3. That the Ld. CIT has erred in holding that the genuineness of the activities of the Council could not be ascertained when the accounts of the Council were very much before the Ld. Commissioner.
4. That the Ld. CIT has erred in denying the approval u/s 80G of the Act holding that the charitable activities of the Council could not be substantiated, however activities of the Council were apparent form the memorandum and accounts of the Council.
2. Assessee by filing separate application sought to condone the delay of 2 days in filing the appeal before the Tribunal. Keeping in view the fact that due to sudden sickness of Shri Ram Avtar, Advocate, engaged as counsel in this case, who remained admitted in the hospital, which is a reasonable cause, the delay of 2 days in filing the present appeal is hereby condoned.
3. Briefly stated the facts necessary for adjudication of the issue at hand are : Application dated 15.03.2019 in Form No.10A and 10G moved by the appellant seeking registration under section 12AA of the Income-tax Act, 1961 (for short the Act) were rejected by the ld. CIT (E) on the grounds inter alia that since the appellant has failed to furnish balance sheet and income & expenditure account for the FY 2018-19 despite called for, the ITA No.9333/Del./2019 conditions laid down u/s 12AA are not satisfied and that the name of the Bar Council of Delhi does not appear in approved association/institution notified by the Government thus not a charitable institution within the meaning of section 2(15) of the Act.
4. Feeling aggrieved, the appellant has come up before the Tribunal by way of filing the present appeal.
5. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
6. Undisputedly, appellant has been established with object to control, supervise, regulate or encouragement of the profession of law for which there is a separate provision in the Act as contained u/s 10(23A) of the Act for exempting its income which shall not be included in its total income. Ld. CIT (E) proceeded to reject the application u/s 12AA and consequent exemption u/s 80G of the Act on two grounds inter alia that (i) in the absence of financials of FY 2018-19, the genuineness of the activities of the appellant could not be established; and (ii) that the appellant is not a notified institution by the Government of India. ITA No.9333/Del./2019
7. Ld. AR for the appellant challenging the impugned order contended inter alia that at the time of grant of registration, the ld. CIT (E) is only to satisfy himself about the object of the trust/ institution and genuineness of its activities that the appellant is a statutory institution having been established u/s 3(1)(f) of the Finance Act, 1961 and is duly notified by the Government and relied upon the decisions rendered by Honble Supreme Court in the cases of CIT vs. Bar Council of Maharashtra cited as 130 ITR 28 & American Hotel and Lodging Association Educational Institute vs. CBDT & Ors. 301 ITR 86, Honble Bombay High court in Bar Council of Maharashtra vs. CIT reported in 126 ITR 27, Honble Kerala High Court in Sree Anjaneya Medical Trust vs. CIT 382 ITR 399 and Honble Punjab & Haryana High Court in CIT vs. Baba Kartar Singh Dukki Educational trust (2014) 221 taxman 493 (P&H).
8. Ld. DR for the Revenue supported the order passed by the ld. CIT (E) by contending inter alia that in order to find out real purpose of the trust/institution, the basic financial statements of FY 2018-19 was required which the appellant has not furnished; that one more opportunity be given to the appellant to furnish all the necessary documents to be examined by ld. CIT (E) and relied upon the judgments rendered by Honble Apex Court as well as ITA No.9333/Del./2019 various High Courts viz. CIT vs. Wilsonia College Society (2017- TIOL-1051-HC-ALL-IT), Jammu Development Authority vs. UOI (2014-TIOL-115-SC-IT), CIT vs. National Institute of Aeronautical Engineering Educational Society 315 ITR 428 (Uttaranchal), CIT vs. A.R. Trust 402 ITR 161 (Allahabad), Shri Nathji Education Foundation vs. CIT ITA No.809/LKW/2014, Self Employers Service Society vs. CIT 247 ITR 18 (Kerala) and Kirti Chand Tarawati Ch. Trust vs. DIT 232 ITR 11 (Delhi).
9. First of all, ld. AR for the appellant drew our attention towards Notification dated 09.08.1966 available at page 109 of the paper book 2, issued by Ministry of Finance, Government of India, granting approval to the appellant w.e.f 22.01.1962 in terms of clause (ii) of Proviso to section 10(23A) of the Act. The appellant also brought on record copy of Notification (supra) granting approval to the appellant vide communication dated 24.12.2019 issued by Ministry of Finance, Government of India, available at pages 176 to 187 of the paper book. Bare perusal of the Notification (supra) goes to prove that ld. CIT (E) has failed to take note of the fact that vide Notification (supra), the appellant has been duly approved/notified institution for the purpose of section 10(23) of the Act. ITA No.9333/Del./2019
10. Now, the next question arises for determination in this case is :- as to whether activities of the appellant Bar Council/ professional body which is to control, supervise and regulate profession is not a charitable within the meaning of definition contained u/s 2(15) of the Act as has been held by the ld. CIT(E)?
11. Honble Apex Court in case of CIT vs. Bar Council of Maharashtra cited as 130 ITR 28, affirming the judgment of Honble Bombay High Court in case of Bar Council of Maharashtra vs. CIT reported in 126 ITR 27, held that primary and dominant purpose of an institution like the appellant is the advancement of the object of general public utility within the meaning of section 2(15) of the Act and as such, the income from securities held by the appellant would be exempt from any tax liability u/s 11 of the Act. Operative part of the judgment (supra) is extracted for ready perusal as under :- In other words, the dominant purpose of a State Bar Council as reflected by the various obligatory functions is to ensure quality service of competent lawyers to the litigating public, to spread legal literacy, promote law reforms and provide legal assistance to the poor while the benefit accruing to the lawyer members is incidental. It is true that sub s. (2) provides that a State Bar Council may constitute one or more funds for the purpose of giving financial assistance to organise welfare schemes for the indigent, disabled or other advocates ; but it is an optional or discretionary function to be undertaken by the council. Apart from that, admittedly, the assessee council has not so far constituted any such fund for the purpose specified in the instant case. As and when such a fund is constituted, a question may arise for consideration and the court may have to decide whether the function so undertaken by a State Bar Council has become the dominant purpose for which that council is operating. Having regard to the preamble of the Act and the ITA No.9333/Del./2019 nature of the various obligatory functions including the one under cl. (d) enjoined upon every State Bar Council under s. 6(1) of the Act, it is clear that the primary or dominant purpose of an institution like the assessee council is the advancement of the object of general public utility within the meaning of s. 2(15) of the Act, and as such the income from securities held by the assessee council would be exempt from any tax liability under s.
11 of the Act.
12. Now, the next question arises for determination in this case is :- as to whether the ld. CIT (E) is empowered to reject the registration and consequent exemption u/s 12AA and 80G of the Act due to non-furnishing of financials of FY 2018-19?
13. It is settled proposition of law that for the purpose of registration u/s 12AA of the Act, the threshold condition i.e. genuineness of the activities is to be decided with the object clause of institution. In other words, when the object of the institution, the appellant in this case, is proved to be charitable within the meaning of section 2(15) of the Act as has been held by Honble Apex Court in the identical facts and circumstances in a case of Bar Council of Maharashtra (supra), further scrutiny of the financials of the appellant are not required because it is otherwise within the purview of AO to examine at the time of assessment if the appellant is entitled to exemption u/s 11 of the Act.
14. Honble Kerala High Court in Sree Anjaneya Medical Trust vs. CIT 382 ITR 399 held that, no examination of modus of the ITA No.9333/Del./2019 application of the funds of the trustee committee or an examination of the ethical background of its settler is called for while considering an application for registration. The stage for consideration of the relevance of the object of the assessee and the application of its funds arises at the time of assessment.
15. Honble Apex Court in case of CIT vs. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC) held that an object beneficial to a section of the public was an object of general public utility, as in the case of appellant, which is working to control, supervise and regulate a profession for the benefit of lawyers community at large. Operative part of the judgment is as under :- That the expression "object of general public utility" was not restricted to objects beneficial to the whole of mankind. An object beneficial to a section of the public was an object of general public utility. To serve a charitable purpose, it was not necessary that the object should be to benefit the whole of mankind or even all persons living in a particular country or province. It was sufficient if the intention was to benefit a section of the public as distinguished from specified individuals. The section of the community sought to be benefited must undoubtedly be sufficiently defined and identifiable by some common quality of a public or impersonal nature: where there is no common quality uniting the potential beneficiaries into a class, it might not be regarded as valid.
16. Honble Delhi High Court in case of DIT vs. Foundation of Ophthalmic & Optometry Research Education Centre 355 ITR
361 (Del.) has held to the extent that even if there is no commencement of charitable activities, registration u/s 12AA of the Act cannot be denied because the statute does not prohibit or ITA No.9333/Del./2019 enjoin the Commissioner from registering a trust solely based upon its objects without any activity in case of a newly registered trust.
17. In view of the matter, we are of the considered view that the ld. CIT(E) has erred in declining the registration u/s 12AA of the Act on the ground that financials of FY 2018-19 have not been furnished by the appellant.
18. Furthermore, cursory findings returned by the ld. CIT (E) in the impugned order that, the provisions of section 11 to 13 specifically section 12AA are not applicable to such organisation or institution, is not correct interpretation of law as Honble Apex Court in the judgment cited as CIT vs. Bar Council of Maharashtra (supra) held that two provisions viz. section 11 & section 10(23A) are not mutually exclusive but operated under different circumstances. So, merely on the basis of the fact that income of the appellant exempted u/s 10(23A) is not a bar to claim deduction in assessment u/s 11 of the Act, as such income is to be excluded u/s 11 of the Act.
19. Furthermore, the appellant had furnished financials of FYs 2016-17 & 2017-18 but the ld. CIT (E), without making any adverse findings on the same, proceeded to reject the registration on the ground that financials of FY 2018-19 have not been furnished. Thought it is not a requirement of law to furnish the ITA No.9333/Del./2019 financials as required by the ld. CIT (E) the appellant has come up with argument that now the financials of FY 2018-19 are available and they are ready to furnish the same.
20. In view of what has been discussed in the preceding paras, we are of the considered view that the appellant being engaged in safeguarding the rights, privileges and interest of the advocates, its dominating purpose is the advancement of general public utility within the meaning of section 2(15) of the Act, as such, genuineness of its activities and object of charitable purpose is proved, thus entitled for registration u/s 12AA and consequent exemption u/s 80G. Consequently, appeal filed by the appellant is allowed directing the ld. CIT (E) to provide registration u/s 12AA and consequent exemption u/s 80G of the Act to the appellant. Order pronounced in open court on this 2nd day of July, 2020. Sd/- sd/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the day of July, 2019 Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(E), New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.
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