2011 (3) TMI 86 - AT - Income Tax

Deduction under section 80G - Running of school - For the purpose of deciding whether or not the approval is to be granted for the purpose of section 80G is whether or not the conditions of section 80G(5)(i) to (v) are satisfied and as per the mandate of rule 11AA(4) of the Rules, once these conditions are satisfied, grant the approval. The contention of the learned CIT that the assessee trust mainly incurred expenses for building construction which is about Rs. 34 lacs itself is not a good ground for denying exemption because a good building is also the basic requirement for the healthy environment for the students - Even otherwise if, at a later stage, it is found that the assessee is involved in commercial considerations contrary to the objects of the assessee society, the department is free to take appropriate action in accordance with law - The contention of the revenue regarding conversion of agricultural land for commercial use (here for constructing school building) is concerned, it supports the case of the assessee as the permission for such conversion, for constructing the school building, was duly obtained from the office of the Director of Town & Country Planning, SDO, Public Works Department and local Gram Panchayat, etc - Even if the land was obtained through registered gift deed itself is not a good ground for denying exemption to the assessee. Hence, all the necessary requirements under rule 11AA(4) and conditions of section 80G(5)(i) to (v) are satisfied, therefore, the learned CIT ought to have granted approval under section 80G(2)(iv) of the Act to the assessee - Accordingly, set aside the order of the learned CIT and direct him to grant approval under section 80G of the Act to the assessee.

Summary

Issues Involved:
1. Whether running a school qualifies as a charitable activity under section 80G(5) of the Income-tax Act.
2. Whether the conditions required under section 80G(5)(i) of the Act were fulfilled by the assessee.
3. Whether the activities of the assessee are of commercial nature or genuinely charitable.

Issue-wise Detailed Analysis:

1. Whether running a school qualifies as a charitable activity under section 80G(5) of the Income-tax Act:
The Commissioner of Income-tax (CIT) held that running a school is not a charitable activity, thereby denying approval under section 80G(5) of the Act. The assessee argued that the trust is registered under the Madhya Pradesh Societies Registration Act, 1973, and its main objective is to impart education, which is of charitable nature. The assessee provided evidence of subsidized education to minority, SC, ST, and OBC students, charging them significantly lower fees compared to other students.

2. Whether the conditions required under section 80G(5)(i) of the Act were fulfilled by the assessee:
The Tribunal noted that the assessee trust was registered under the M.P. Societies Registration Act, 1973, and had been granted registration under section 12A of the Act. The necessary documents, including audited balance sheets, registration certificates, and a list of students with fees charged, were submitted. The Tribunal analyzed the objectives of the trust, which included establishing schools, promoting social awareness, physical and mental development of children, and providing quality education. None of these objectives were found to be of commercial nature.

3. Whether the activities of the assessee are of commercial nature or genuinely charitable:
The Tribunal found no evidence suggesting that the activities of the assessee were of commercial nature. The CIT's contention that the trust incurred significant expenses for building construction was not deemed a valid ground for denying exemption, as a good building is essential for a healthy learning environment. The Tribunal also noted that the assessee provided substantial subsidies to economically weaker students, which reinforced the charitable nature of its activities. The Tribunal emphasized that the CIT should focus on whether the conditions of section 80G(5)(i) to (v) were satisfied, which they were in this case.

Conclusion:
The Tribunal concluded that the assessee fulfilled all necessary conditions under section 80G(5)(i) to (v) and rule 11AA of the IT Rules. The CIT's denial of approval was based on incorrect assumptions and subjective perceptions about the genuineness of the charitable activities. The Tribunal directed the CIT to grant approval under section 80G of the Act to the assessee, thereby allowing the appeal.

Result:
The appeal of the assessee was allowed, and the order pronounced in the open Court on 9th March, 2011.