Mrs. K.K. Usha, J.
The appellant is a charitable society registered under the Travancore Cochin Literary Scientific and Charitable Societies Registration Act, 1955. The society made an application for registration under section 12A of the Income Tax Act, 1961, before the respondent under Ext. P3 letter dated 14-7-1998, accompanied by Ext. P4 prescribed form. The application was rejected by the respondent under Ext. P5 order. The society filed Original Petition seeking to quash Ext. P5. Writ of mandamus was also sought for a direction to the respondent to register the society under section 12AA of the Income Tax Act, 1961. The learned Single Judge who heard the original petition disposed of the same with the following direction :
“2. In the circumstances of the case and in view of the contentions raised by the petitioner that after the first year when they generated income they are doing charitable work and on the submission of the standing counsel that they will consider the matter if fresh application is filed. I direct the Commissioner to consider the matter afresh, if petitioner files a fresh application, according to law untrammelled by any of the observations made in Ext. P5. ”
Aggrieved by the above, the petitioner- society has come up in appeal.
2. The main contention raised by the learned counsel for the appellant was that in order to grant registration under section 12AA the respondent should not have insisted that the society has done charitable work during the first year of its operation itself. It was further contended that there is violation of principles of natural justice in rejecting petitioner’s application on the basis of the enquiry report submitted by the assessing authority about the activities carried on by the society vide his letter dated 22-12-1998.
3. On a reading of Ext. P5 it can be seen that an opportunity of being heard was granted to the petitioner-society through its general secretary. We do not find any contention taken in the original petition that contents of the report submitted by the assessing authority was not disclosed to the representative of the society at the time of hearing and, therefore, there is violation of principles of natural justice. The learned counsel for the department would submit that, as a matter of fact, the secretary of the society was made known the contents of the report. Even otherwise we find the factual position reported by the assessing authority that on 22-12-1998, regarding the activities of the society is not under challenge before this court. The contention raised is only that in future the society proposes to carry on activities in charitable nature in conformity of its object. The decision to start a technical educational institution at Kottayam itself was taken only on 14-6-1999. Therefore, we find no merit in the contention that the order is vitiated for having been issued in violation of principles of natural justice.
4. Section 12AA which was inserted by the Finance (No. 2) Act, 1996, with effect from 1-4-1997, reads as follows :
“12AA (1) The Chief Commissioner or Commissioner, on receipt of an application for registration or a trust or institution made under clause (a) of section 12A, shall :
(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf ; and
(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he :
(i) shall pass an order in writing registering the trust or institution ;
(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant. ”
The inclusion of the above provision was proposed to provide for a procedure to be followed for grant of registration to a trust or institution. Earlier, there was no provision in the Act for processing an application for exemption in respect of income of a charitable or religious trust or institution on satisfying certain conditions. As per the new provision the Chief Commissioner or Commissioner shall call for documents and information and hold enquiries regarding the genuineness of the trust or institution. If he is satisfied about the charitable or religious nature of the objects and genuineness of the activities of the trust or institution, he will pass an order granting registration. If he is not satisfied he will refuse registration, but it is mandatory that opportunity of being heard shall be given to the applicant before the order of refusal to grant registration was passed by the Commissioner. The reasons for refusal of registration was also to be mentioned in the order. Grant of such registration was made one of the conditions for obtaining exemption regarding income-tax. The amendment which had come into effect from 1-4-1997, would apply in relation to assessment year 1997-98 and subsequent years.
5. On the enquiry made by the Commissioner it was found that members of the society are mainly merchants. Its activity is accepting recurring deposits from its members and fixed deposits from the public. Loan is being given to its members at 21 per cent interest. The officer found that in spite of the reference to large number of charitable objects in its bye laws, the activity carried on by the society is confined to its members numbering about 150. The activities, as mentioned above, cannot be treated as charitable in nature. It was on this basis the Commissioner came to the conclusion that it is not entitled to registration under section 12A.
6. A reference to the bye laws of the society, copy of which is produced as Ext. P l, would show that several charitable activities are included in the objects of the society, but even according to the petitioner- society it has not been able to do any of such charitable activities during the first year of its functioning. The proposal to start a technical educational institution itself was taken only on 14-6-1999, that is much after Ext. P5 order. When the Commissioner exercises his jurisdiction under section 12AA while considering an application for registration under section 12A he has to be satisfied of the charitable and religious nature of the objects and genuineness of the activities of the trust or institution. In the present case admittedly the society has not done any charitable work during the relevant period, on the other hand, the activities which they have carried on during the period was only for the purpose of generating income for its members. There were no materials before the Commissioner to be satisfied of the genuineness of the activities of the trust or institution. Under these circumstances, rejection of the application under Ext. P 5 cannot be termed as illegal or arbitrary. But the learned Single Judge has given an opportunity to the society to file a fresh application when they actually start doing charitable work and the Commissioner has been directed to consider such application on merits untrammelled by the view taken in Ext. P 5. According to us, no better relief could be granted to the society in this case.
7. The learned counsel for the appellant referred to number of decisions regarding the nature of activities which would entitle a registration under section 12A. We are not referring to those decisions in this judgment as they are not relevant for the issue with which we are concerned in this appeal. This is not a case that exemption was denied for not complying with the conditions contained under section 12A. The society has reached only the preliminary stage of making an application as provided under section 12AA.
8. We find no merit in this appeal. In the result, the appeal fails and it stands dismissed.