COMMISSIONER OF INCOME TAX Vs. RED ROSE SCHOOL

JUDGEMENT

(1.) THIS appeal under Section 260A of the IT Act, has been filed by the Revenue, challenging the order passed by the Tribunal, by means of which the Tribunal has allowed the appeal of the assessee, holding that the assessee has made out a case for registration and thereby setting aside the orders passed by the CIT, rejecting his application filed under Section 12AA of the Act.

(2.) THE assessee society moved an application under Section 12AA of the Act, claiming registration saying that the assessee was running an institution solely for educational purposes and not for the purpose of profit and, therefore, was entitled for being registered. The CIT called for a report from the concerned ITO, who stated that the assessee society was registered on 29th March, 1982, of which Smt. Shashi Mishra was the president and Sri R.C. Mishra, her husband, was Mantri/Manager of the society. The said society was running school at Rajajipuram, Lucknow and at Gomti Nagar, Lucknow. The third branch of the institution was under construction at Vishnulok Colony, Kanpur Road, Lucknow. The ITO, however, found that the assessee society had been making investment in purchase of library books and noted that books worth Rs. 50,000 were purchased by the assessee from Orient Longman (P) Ltd. on 1st Dec, 2000 and again books were purchased for Rs. 50,100 vide bill dt. 31st July, 2000. The ITO was of the view that these books were for higher studies and not fit for the standard of school run by the assessee society. She further noted that on enquiry from Orient Longman (P) Ltd., the name of the assessee society was not having any account, but the books were purchased by Nav Jagriti Kendra and that assessee society had shown expenses on account of educational contribution to Nav Chetna Kendra which was running to several lakhs of rupees, whereas Nav Chetna Kendra was another society registered on 21st May, 1993, in which Sri R.C. Mishra was the secretary. The next point which the ITO noted was that the assessee society was showing income from school fees and interest on FDRs but the assessee society could not give out the basis of charging fee under different heads and that the assessee could not give out bifurcation of the fees. Further the report of the ITO said that the assessee could not reconcile the difference in the balance sheet. On the objects of the assessee society, the ITO reported that in the rules of the society, the president, its Mantri/Manager would remain on their post throughout life. However, on sudden demise of Smt. Shashi Mishra, Sri Prashant Mishra son of Sri R.C. Mishra was inducted and was made as Dy. manager of the society. The objects of the society also permitted managing of other emergent work, which give power to the president and manager of the society to go beyond the work of charitable nature. On the aforesaid facts, the ITO concluded that totality of the facts go to reveal that assessee society was breaking the laws of the land and it cannot be said that assessee society was being run for charitable purposes. The CIT also noted that counsel of the assessee was asked to give the details of salary payments and reconcile the same with employees provident fund payments but the enclosure of the order of the CIT reveals that huge amount of salaries were paid from financial year 1995 -96 onwards to different employees, from which no provident fund amount was deducted, for which the CIT deputed the Inspector, who gathered necessary information from the provident fund authority. He thus came to the conclusion that non -deduction of provident fund is against public policy. The CIT, on consideration of the report of the ITO and also on his own assessment of the aforesaid facts, found that since the grant of registration under Section 12AA of the Act is a privilege and not a right and that the assessee society having not been able to prove on record that the activities of the assessee society were solely for educational purpose, rejected its claim for registration. The CIT also relied upon the case of Sat Pal & Co. v. Lt. Governor of Delhi : [1979]3SCR651 for the aforesaid proposition of law.

(3.) SECTION 12A of the Act under the heading 'Conditions as to registration of trusts etc' says that provisions of Section 11 and Section 12 shall not apply in relation 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 CIT 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 12AA: Provided that where 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;...