9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (10) TMI 1077 - AT - Income TaxDefinition charitable purposes . u/s. 2(15) of the Act - Exclusion of Element of profit Held that - Legislative intent disclosed in section 10(22) wherein it has been clearly provided that income of any educational institute cannot be exempted unconditionally if such institution also exists for deriving of profit. According to this provision, if any educational institution is running on commercial basis then income of such educational institution cannot be exempted from taxation. However, such institution can claim exemption u/ss. 11 and 12 as element of profit is not excluded by the Legislature. The reason is obvious because of financial affairs of such institution are well controlled by the provisions of sections 11 and 13 of the Act. Section 11 clearly provides that in order to claim exemption such institution must apply 75% of its income for charitable purposes. The surplus if any has to be invested in specified bonds. Further, exemption can be denied if the provisions of section 13 are violated. Therefore, if there is any violation of either section 11 or section 13, then, the profits of such institution would be taxable. Further the fact that, only 75% of the income is to be applied for charitable purposes itself shows that element of profit is not excluded from the definition of charitable purpose for the purpose of sections 11 and 12. Because some profit has been earned by an educational institution registration u/s. 12AA cannot be denied so long as provisions of sections 11, 12 and 12AA are complied with. So long as it is established that income of the assessee society has been applied for the purpose of education in terms of section 11(2) and there is no violation of section 13, the assessee would be entitled to enjoy the benefit of registration u/s. 12AA of the Act Reliance has been placed upon the case of M/s. Saivani Educational Society, Hyderabad 2013 (10) TMI 824 - ITAT HYDERABAD .- Appeal allowed Decided in favor of Assessee.
Issues Involved:
1. Validity of the application for registration under section 12A of the Income Tax Act, 1961. 2. Compliance with government regulations regarding fee structure. 3. Provision of free education and fee concessions. 4. Investment in chit funds and its compliance with section 11(5) of the Act. 5. The relevance of the provisions of sections 11, 12, and 13 in denying registration under section 12AA. Issue-wise Detailed Analysis: 1. Validity of the application for registration under section 12A of the Income Tax Act, 1961: The assessee society initially filed an application in Form No.12A on 24.08.2011, seeking registration under section 12A of the Income Tax Act, 1961. The Director of Income Tax (Exemptions) ('DIT(E)') rejected the application, citing that it was signed by their 'Correspondent', which was deemed invalid. The matter was appealed to the ITAT, which directed the DIT(E) to reconsider the application afresh, giving the assessee a reasonable opportunity to furnish requisite information and evidence to demonstrate the charitable nature of its activities. 2. Compliance with government regulations regarding fee structure: The DIT(E) observed that the assessee society did not clarify if the fees charged by its educational institutions were approved by the concerned Government Authority. The DIT(E) noted that the society's submission that there were no approvals from the Government Authority for charging fees was unacceptable, as the recognition granted by the Regional Joint Director of School Education required the fee structure to be approved by the DEO annually. The assessee was required to explain compliance with this stipulation, which it failed to do satisfactorily. 3. Provision of free education and fee concessions: The DIT(E) noted that the assessee claimed to provide free education to about 120 students and fee concessions to economically weaker students. However, the assessee did not produce any supporting proof or documentary evidence for these claims. The DIT(E) emphasized that the assessee was required to furnish supporting evidence to demonstrate its case, which it failed to provide during the proceedings. 4. Investment in chit funds and its compliance with section 11(5) of the Act: The DIT(E) held that the assessee's investment in chit funds during different years was in contravention of the provisions of section 11(5) of the Act and did not constitute a charitable activity. The assessee explained that the investment in chit was made to meet immediate fund requirements due to delays in obtaining term loans from banks. However, the DIT(E) found this explanation unsatisfactory, as the activity of investing in chit was not aligned with the objects of the society. 5. The relevance of the provisions of sections 11, 12, and 13 in denying registration under section 12AA: The ITAT observed that the CIT is required to satisfy himself about the genuineness of the activities of the trust or institution and its objects for granting registration under section 12AA. The CIT had invoked the provisions of sections 11, 12, and 13, which are relevant during assessment proceedings, not for the purpose of granting registration under section 12AA. The ITAT noted that the registration proceedings under section 12A and 12AA are independent of the assessment proceedings, and the CIT should focus on the genuineness and charitable nature of the activities for registration purposes. Conclusion: The ITAT concluded that the assessee society's objects are charitable within the meaning of section 2(15) of the Income Tax Act, as it is running an educational institution. The activities of the society are carried out in pursuance of its stated objects and are genuine. The ITAT emphasized that the registration under section 12AA cannot be denied solely based on the provisions of sections 11, 12, and 13, which are relevant during assessment proceedings. The ITAT allowed the assessee's appeal, granting the registration under section 12AA. Order Pronounced: The appeal of the assessee was allowed, and the order was pronounced in the open Court on 27.09.2013.
|
