Bhartiya Kisan Sangh Sewa Niketan vs Commissioner of incometax

Introduction

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT), in the case of Bhartiya Kisan Sangh Sewa Niketan vs. Commissioner of Income Tax, delivered a pivotal judgment on 25th August 2017, concerning the registration of charitable trusts under Section 12A of the Income Tax Act, 1961. The Tribunal allowed the assessee’s appeal, directing the Commissioner of Income Tax (Exemptions) [CIT(E)] to grant registration. This case commentary delves into the legal principles established by the ITAT, particularly regarding the scope of ‘charitable purpose’ under Section 2(15) and the limited inquiry permissible at the registration stage under Section 12AA(1)(b). The decision reinforces that protecting the interests of farmers, a substantial section of the public, qualifies as ‘general public utility’ and that the CIT(E) cannot deny registration by prematurely examining the application of income.

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(E), 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. The CIT(E) held that under Section 12AA(1)(b), both the object of charitable purpose and the genuineness of activities must be proved, and the assessee failed to do so. The CIT(E) relied on various case laws in his order dated 16th June 2015.

Aggrieved, the assessee appealed to the ITAT, Delhi. 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, details of charitable works, and correspondence with the President of India and Prime Minister’s Office regarding farmers’ interests. The second paper book contained judicial precedents, including Supreme Court decisions in Ahmedabad Rana Caste Association vs. CIT and CIT vs. Andhra Chamber of Commerce, 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 the assessee was non-cooperative and requested the matter be set aside for fresh adjudication.

Reasoning of the ITAT

The ITAT, comprising Judicial Member H.S. Sidhu and Accountant Member Prashant Maharishi, delivered a detailed reasoning that forms the crux of this commentary. The Tribunal first condoned the 106-day delay in filing the appeal, finding the reasons genuine. It then proceeded to the merits.

1. The Nature of ‘Charitable Purpose’ under Section 2(15):
The Tribunal examined the society’s Memorandum of Association, which listed objectives such as providing help in national development projects, securing farmers’ access to seeds, manure, water, electricity, and roads, forming non-political organizations for farmers’ financial and social development, introducing advanced agricultural science, and protecting cattle and livestock. The ITAT held that these objectives are essentially directed at protecting the interests of farmers on a nationwide basis. It concluded that such activities fall within the ambit of ‘charitable purpose’ as ‘general public utility’ under Section 2(15) of the Act. The Tribunal relied on the Supreme Court’s decisions in Ahmedabad Rana Caste Association vs. CIT (82 ITR 704 SC) and CIT vs. Andhra Chamber of Commerce (55 ITR 722 SC), which established that an object beneficial to a section of the public—here, farmers comprising 60-70% of the population—constitutes a valid charitable purpose. The ITAT emphasized that the society’s work for the upliftment of farmers qualifies as ‘general public utility’ because it serves a substantial and identifiable class of the public.

2. Scope of Inquiry at the Registration Stage under Section 12AA(1)(b):
The ITAT critically analyzed the CIT(E)’s approach. The CIT(E) had denied registration on the ground that the assessee failed to prove the genuineness of its activities. The Tribunal, however, clarified the legal position: at the stage of granting registration under Section 12A, the CIT(E) is required to examine only the objects of the trust and whether they are charitable. The application of income or the actual conduct of activities is a matter for annual assessment by the Assessing Officer (AO) under Section 11 and 13. The ITAT cited a series of High Court decisions to support this principle:
– CIT vs. Gopi Ram Goyal Charitable Trust (2017) 392 ITR 285 (Raj.)
– Shree Anjaneya Medical Trust vs. CIT (2012) 382 ITR 399 (Ker.)
– Fifth Generation Education Society vs. CIT 185 ITR 634 (All.)
– CIT vs. BKK Memorial Trust (2013) 213 Taxmann 1 (P&H)
– CIT vs. AS Kupparaju Brothers Charitable Foundation Trust (2012) 205 Taxman 9 (Kar.)
– CIT vs. DTR Charitable Trust 61 DTR 410 (MP)

The Tribunal held that the CIT(E) erred by relying on case laws that were inapplicable to the registration stage. The CIT(E) had examined the application of income and the genuineness of activities, which is beyond the scope of Section 12AA(1)(b). The ITAT noted that the assessee had submitted audited accounts for three years, details of charitable works, and correspondence with government authorities, which demonstrated that the society was operational. The CIT(E)’s observation that the assessee was not carrying out any charitable activities was thus premature and legally unsustainable.

3. Rejection of the Department’s Request for Remand:
The DR argued that the assessee was non-cooperative and requested the matter be set aside for fresh adjudication. The ITAT rejected this plea, noting that the assessee had filed all necessary documents before the CIT(E) and the Tribunal. The paper books contained the application, audited accounts, memorandum, and evidence of charitable works. The Tribunal found no justification for remanding the case, as the CIT(E) had already considered the records and passed a final order. The ITAT emphasized that the CIT(E) must confine his inquiry to the objects clause and cannot deny registration based on a perceived lack of activities.

4. Condonation of Delay:
The Tribunal also addressed the procedural aspect of the appeal being time-barred by 106 days. It perused the application for condonation of delay and found the reasons genuine, thereby condoning the delay. This step ensured that the substantive issue was adjudicated on merits.

Conclusion

The ITAT allowed the appeal, setting aside the CIT(E)’s order dated 16th June 2015. It directed the CIT(E) to grant registration under Section 12A(a) of the Income Tax Act to Bhartiya Kisan Sangh Sewa Niketan. The Tribunal’s decision reinforces two key legal principles: first, that protecting the interests of farmers constitutes a ‘charitable purpose’ under the head ‘general public utility’ in Section 2(15); and second, that at the registration stage under Section 12AA(1)(b), the CIT(E) must examine only the objects of the trust, not the application of income or the genuineness of activities, which are assessed separately by the AO. This ruling provides clarity for charitable organizations working for the welfare of specific sections of the public, ensuring that registration is not denied on extraneous grounds. The ITAT’s reliance on Supreme Court and High Court precedents underscores the settled legal position that the registration process is a preliminary filter, not a full-fledged assessment.

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