2014 (3) TMI 149 - HC - Income Tax

Rejection of registration u/s 12AA of the Act Application u/s 12A of the Act - Assessee imparting education as a posh international school Held that - Even if nomenclature of the trust may indicate it is meant for charitable purpose, but if activities reveal otherwise, that should weigh with the authorities who grant registration also, while considering claim of exemption, authorities under the Act would look into the actual activity of the institution, especially main activity of the institution - In the absence of facts indicating that the activities carried on attracts definition of charitable purpose, one cannot find fault with rejection of registration - When the school is running on commercial lines under the clad of charitable purpose, the parties were justified making enquiries and rejecting the application thus, there is no reason to interfere in the order of the Tribunal - Decided against Assessee.

Summary

Issues:
1. Registration under Section 12A of the Income Tax Act for income tax exemption based on charitable purpose.
2. Rejection of registration by Commissioner of Income Tax and confirmation by Appellate Tribunal.
3. Interpretation of charitable purpose under the Income Tax Act.

Analysis:
1. The appellant, a registered Trust running a school, applied for registration under Section 12A of the Income Tax Act to obtain income tax exemption for charitable purposes. The Commissioner of Income Tax rejected the application after an enquiry, concluding that the trust aimed to operate a posh international school rather than focusing on charitable activities. The rejection was based on the discrepancy between the trust's stated objectives and its actual activities, such as running a school with high fees, air-conditioned classrooms, and catering to non-resident Indian children. The Appellate Tribunal upheld the Commissioner's decision.

2. The appellant's counsel argued that a charitable trust does not have to exclusively cater to poor students to qualify as charitable. Citing a previous case, the counsel contended that providing services to those who pay full price or paying salaries to trustees does not change the charitable nature of the trust. However, the court emphasized that the decision cited was not directly applicable to the current case under the Income Tax Act. It was clarified that the trust's activities, rather than its name, determine its eligibility for registration and tax exemption. In this case, since the school was operating on commercial lines while claiming charitable status, the rejection of registration was deemed justified.

3. The court held that authorities granting registration and exemption under the Income Tax Act must assess the actual activities of an institution to determine if they align with the definition of charitable purpose. Merely labeling an entity as charitable is insufficient if its operations suggest otherwise. In this context, the court found no reason to overturn the Appellate Tribunal's decision, as the trust's activities did not meet the criteria for charitable status. Consequently, the appeal was dismissed, affirming the rejection of registration for income tax exemption.