Bhartiya Kisan Sangh Sewa Niketan vs Commissioner Of Income Tax

Introduction

The case of Bhartiya Kisan Sangh Sewa Niketan vs. Commissioner of Income Tax (ITA No. 6721/Del/2015), decided by the Delhi ITAT on 25th August 2017, is a significant ruling on the interpretation of ‘charitable purpose’ under Section 2(15) of the Income Tax Act, 1961, and the scope of inquiry at the registration stage under Section 12AA. The Tribunal, comprising H.S. Sidhu (Judicial Member) and Prashant Maharishi (Accountant Member), allowed the assessee’s appeal, setting aside the CIT(Exemptions) order that had denied registration under Section 12A(a). The decision reinforces that organizations working for the welfare of farmers—a substantial section of the public—qualify as ‘general public utility’ and that the registration process must focus on the objects of the trust, not the application of income. This commentary provides a deep legal analysis of the Tribunal’s reasoning, its reliance on Supreme Court and High Court precedents, and its implications for agricultural welfare organizations seeking tax-exempt status.

Facts of the Case

The assessee, Bhartiya Kisan Sangh Sewa Niketan, a society registered under the Societies Registration Act, 1860, filed an application for registration under Section 12A(a) of the Income Tax Act on 7th April 2015 before the CIT(Exemptions), Lucknow. The CIT(E) issued a notice on 1st June 2015, and the assessee’s authorized representative attended the hearing on 16th June 2015, filing written submissions. However, the CIT(E) denied registration, observing that the society was not carrying out any charitable activities and that the assessee failed to prove both the object of charitable purpose and the genuineness of activities under Section 12AA(1)(b). The CIT(E) relied on various case laws in his order dated 16th June 2015.

Aggrieved, the assessee appealed to the Delhi ITAT. During the hearing, the assessee’s counsel filed two paper books. The first contained the application for registration, audited accounts for Financial Years 2011-12, 2012-13, and 2013-14, the Memorandum of Association (including English translation of objects), details of charitable works for farmers, and correspondence with the President’s and Prime Minister’s offices. The second paper book contained judicial precedents, including Supreme Court decisions in Ahmedabad Rana Caste Association vs. CIT (82 ITR 704 SC) and CIT vs. Andhra Chamber of Commerce (55 ITR 722 SC), and High Court rulings holding that at the registration stage, only objects are to be examined, not the application of income. The Departmental Representative (DR) opposed the appeal, arguing that the assessee was non-cooperative and had not substantiated its claim before the CIT(E), and requested that the matter be set aside for fresh adjudication.

Reasoning of the Tribunal

The Delhi ITAT’s reasoning is the cornerstone of this decision, addressing three critical legal issues: (1) the definition of ‘charitable purpose’ under Section 2(15), (2) the scope of inquiry under Section 12AA(1)(b), and (3) the validity of the CIT(E)’s order.

1. Charitable Purpose and General Public Utility:
The Tribunal analyzed Section 2(15), which defines ‘charitable purpose’ to include ‘general public utility’. It held that an object beneficial to a section of the public—specifically, the protection of farmers’ interests—qualifies as general public utility. The Tribunal noted that farmers constitute 60-70% of India’s population, making them a substantial section of the public. Citing the Supreme Court’s decision in Ahmedabad Rana Caste Association vs. CIT (82 ITR 704 SC), the Tribunal emphasized that an object benefiting a section of the public is an object of general public utility. It also relied on CIT vs. Andhra Chamber of Commerce (55 ITR 722 SC), which held that promoting the interests of a trade or commerce is a charitable purpose if it benefits the public. The Tribunal found that the society’s objectives—such as providing seeds, manure, water, electricity, road construction, organizing conferences, and protecting cattle—were all directed at the upliftment of farmers and thus fell within the ambit of ‘general public utility’.

2. Scope of Inquiry under Section 12AA(1)(b):
The Tribunal critically examined the CIT(E)’s approach. Under Section 12AA(1)(b), the CIT must be satisfied about the genuineness of the activities of the trust or institution. However, the Tribunal clarified that at the registration stage, the inquiry is limited to the objects of the trust, not the application of income. It cited multiple High Court decisions to support this view:
– Rajasthan High Court in CIT vs. Gopi Ram Goyal Charitable Trust (2017) 392 ITR 285 (Raj): Held that at the stage of granting registration under Section 12A, the CIT should examine the objects and not the application of income.
– Kerala High Court in Shree Anjaneya Medical Trust vs. CIT (2012) 382 ITR 399 (Ker.): Stated that the CIT cannot deny registration based on the manner of application of income.
– Allahabad High Court in Fifth Generation Education Society vs. CIT (185 ITR 634 (All.)): Emphasized that the genuineness of activities is to be assessed by the Assessing Officer during assessment, not at the registration stage.
– Punjab & Haryana High Court in CIT vs. BKK Memorial Trust (2013) 213 Taxmann 1: Reiterated that the registration stage is not for examining the application of income.
– Karnataka High Court in CIT vs. AS Kupparaju Brothers Charitable Foundation Trust (2012) 205 Taxman 9: Held that the CIT cannot go into the merits of the application of income.
– Madhya Pradesh High Court in CIT vs. DTR Charitable Trust (61 DTR 410): Supported the same principle.

The Tribunal found that the CIT(E) had erroneously examined the application of income and the genuineness of activities, which are matters for the Assessing Officer during annual assessment. The CIT(E) had relied on case laws that were inapplicable to the registration stage. The Tribunal noted that the assessee had filed audited accounts for three years and details of charitable works, which were sufficient to demonstrate that the objects were charitable.

3. Validity of the CIT(E)’s Order:
The Tribunal observed that the CIT(E) had denied registration without properly considering the assessee’s submissions. The assessee had filed a detailed submission on 15th June 2015 (pages 38-39 of the paper book) outlining its charitable activities, including protecting farmers’ interests at the national level, corresponding with the President’s and Prime Minister’s offices, and appearing before a Parliamentary Committee. The CIT(E) had ignored these documents and instead relied on case laws that were not relevant. The Tribunal also noted that the CIT(E) had not given the assessee an opportunity to address the specific concerns, violating principles of natural justice. The DR’s request to set aside the matter for fresh adjudication was rejected because the Tribunal had sufficient material on record to decide the issue.

4. Condonation of Delay:
The Tribunal also addressed a procedural issue: the appeal was time-barred by 106 days. The assessee filed an application for condonation of delay dated 16th December 2015. The Tribunal found the reasons genuine and condoned the delay, allowing the appeal to be heard on merits.

Conclusion

The Delhi ITAT allowed the appeal, setting aside the CIT(E)’s order dated 16th June 2015. The Tribunal directed the CIT(E) to grant registration under Section 12A(a) of the Income Tax Act to Bhartiya Kisan Sangh Sewa Niketan. The decision reinforces that:
– An organization working for the welfare of farmers qualifies as ‘general public utility’ under Section 2(15), as farmers constitute a substantial section of the public.
– At the registration stage under Section 12AA, the CIT must focus solely on the objects of the trust, not the application of income. The genuineness of activities is to be examined by the Assessing Officer during annual assessment.
– The CIT(E) cannot deny registration based on inapplicable case laws or by examining the application of income.

This ruling is a landmark for agricultural welfare organizations seeking tax-exempt status. It clarifies that the registration process is not a mini-assessment and that the CIT must not overstep its jurisdiction. The decision also underscores the importance of adhering to principles of natural justice, as the CIT(E) had failed to consider the assessee’s documentary evidence.

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