2013 (6) TMI 330 - AT - Income Tax

Application for registration u/s 12A / 12AA rejected - whether there is binding legal obligation under the terms of the Trust deed on the trustees to apply the income / Trust funds solely for charitable purposes? - Held that - It is undisputed fact that the assessee-trust filed an application for registration u/s 12AA on 21.3.2012. The Trust was constituted by indenture of Trust Deed dated 29.12.2011 and it was registered with the Charity Commissioner, Mumbai on 20.3.2012. It is also an undisputed fact that the Trust has not applied or appropriated its funds of its objects till date. Thus, it is premature to decide or conclude on the question of application or appropriation of funds for the trust as the trust has not yet established any such academic or educational institutions or necessary infrastructure. Therefore, the question of exceeding of the aggregate receipts of 25 lakhs in violation of the provisions of the second proviso to section 2(15) does not arise. As such, it is settled law that the denial of registration u/s 12AA is not proper when the trust is yet to start its educational activities. The DIT(E) should cross these legal hurdles before he resorts to the denial. When the assessee-trust has have reported any receipts from the educational activities, i.e. objects of the trust, it is premature to conclude on the commercial nature of the educational activities of the trust. Also perusing the assessee s letter dated 27.9.2012, wherein there is a prayer from the assessee for an opportunity of personal hearing for sorting out the issues raised by the DIT (E). Assessee has not got invitation of the DIT(E) in this regard. To conclude in the context of the provisions of section 2(15), the expression education should be understood as formal education by way of formal school or colleges or universities etc. The commercial centres are not be treated on par with such formally established educational methods/systems. Also as to how the amended provisions of the second proviso to section 2(15) were not considered in NATIONAL INSTITUTE OF AERONAUTICAL ENGINEERING EDUCATIONAL SOCIETY case 2009 (7) TMI 94 - UTTARAKHAND HIGH COURT and how the amended provisions differ substantially. DIT(E) denied registration sole on the ground of extended and inclusive object of tutorial or coaching classes . Therefore, in principle, the said denial of registration at this phase of the trust activities is not proper. Education has different shades and all kinds of education are not covered by the provisions of section 2(15). As on date, there is neither institution nor any coaching classes conducted by the assessee as stated by the Managing Trustee at Bar. These facts were not properly communicated by the assessee to the DIT (E), probably for this purpose, the assessee wanted an opportunity of being heard by the DIT (E) before decision taken against the assessee by the rejection of registration u/s 12AA. Accordingly, the grounds raised in the appeal are set aside to the DIT (E) for examining the issues afresh - appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Rejection of the application for registration under sections 12A/12AA of the Income Tax Act, 1961.
2. Interpretation of the term "charitable purpose" under section 2(15) of the Act.
3. Determination of whether the activities of the trust, specifically conducting tutorials and coaching classes, constitute commercial activities.

Issue-Wise Detailed Analysis:

1. Rejection of the Application for Registration under Sections 12A/12AA:
The assessee, a trust, filed an application for registration under section 12AA on 21.3.2012. The DIT (Exemption) rejected the application on the grounds that the trust's object clause included "tutorial and coaching classes," which were considered commercial activities. The DIT (E) cited that the trust deed did not bind the trustees to apply the income solely for charitable purposes. The Tribunal noted that the trust had not yet commenced any activities or earned receipts, making it premature to conclude on the commercial nature of its activities. The Tribunal emphasized that the DIT (E) should not reject the application solely based on the inclusion of tutorials or coaching classes as an object without examining the aggregate receipts and other relevant facts.

2. Interpretation of the Term "Charitable Purpose" under Section 2(15) of the Act:
The Tribunal examined the definition of "charitable purpose" under section 2(15), which includes relief of the poor, education, medical relief, preservation of the environment, and the advancement of any other object of general public utility. The first proviso to section 2(15) excludes activities involving trade, commerce, or business from being considered charitable if they exceed a specified aggregate value of receipts. The second proviso, effective from 1.4.2012, allows educational activities to be considered charitable if the aggregate receipts are Rs 25 lakhs or less in the previous year. The Tribunal highlighted that the DIT (E) should have considered these provisions and the trust's financial status before rejecting the application.

3. Determination of Whether the Activities of the Trust Constitute Commercial Activities:
The Tribunal analyzed whether conducting tutorials and coaching classes constitutes commercial activities. It referred to various judicial pronouncements, including the Supreme Court's decision in Lok Shikshana Trust vs. CIT, which held that mere imparting of knowledge through coaching classes does not fall within the meaning of "education" under section 2(15). The Tribunal noted that the primary object of the trust was to establish and manage schools and colleges, with tutorials and coaching classes being ancillary. It emphasized that the trust had not yet commenced any activities or earned receipts, making it premature to conclude on the commercial nature of its activities. The Tribunal also considered the amended provisions of section 2(15), which allow educational activities to be considered charitable if the aggregate receipts are within the specified limits.

Conclusion:
The Tribunal concluded that the DIT (E) prematurely rejected the trust's application for registration under sections 12A/12AA without adequately considering the aggregate receipts and the trust's financial status. It emphasized that the trust had not yet commenced any activities or earned receipts, making it premature to conclude on the commercial nature of its activities. The Tribunal set aside the DIT (E)'s order and remanded the matter for fresh examination in light of the above discussion and applicable law. The appeal of the assessee was allowed for statistical purposes.