2017 (11) TMI 1877 - AT - Income Tax

Exemption u/s 11 - registration u/s 12A denied - Assessee submitted that the assessee had filed an application in form No. 10A seeking Registration where admittedly assessee was an ongoing entity and has been in operation since 13.03.2003 - HELD THAT - The assessee society is stated to be in a village area and has been running for the last few years. We note from the fee structure of the classes that from class-X the assessee society has also added another class XI to its school and as per the list made available to the tax authorities, the assessee society has adequate staff by way of qualified teachers and despite the fact that complete details which we proceed to enumerate from para 5, have been made available, nothing adverse or contrary except the relevant portions extracted in the earlier part of this order have been referred to by the CIT(Exemptions). The suspicions raised where the criticism is posed on the grounds that the assessee is adding to the fleet of vehicles when considered in the factual matrix that the fleet of vehicles are actually school buses to carry the children to and fro in the village where public transport for the said exercise is not easily available demonstrated that its claim has been rejected purely on biases and prejudices. The fact that it results in creating an asset is neither here nor there. The re-deployment of funds is found as per record purely for the purpose of education. The mere fact that the assessee is paying lesser salary to trained teachers does not necessarily demonstrate that the quality of the education necessarily suffers as it would depend upon the ratio of available teachers looking for jobs and the institutions looking for such people at the relevant point of time i.e. the availability of qualified teachers looking for jobs. Similarly the suspicions that the assessee was not imparting quality education, it is seen is also not borne out from the record. The decision of the Hon'ble Bombay High Court in the case of Yash Society 2015 (3) TMI 459 - BOMBAY HIGH COURT operates as argued by the ld. AR entirely on different set of facts and circumstances and in the facts of the present case, has no role whatsoever. On consideration of the facts, circumstances and position of law as considered in detail herein above, we find no good reason why the benefit of registration u/s 12A has been denied to the assessee. On a consideration of the facts, circumstances and position of law, we direct that the registration u/s 12A be granted to the assessee. - Decided in favour of assessee.

Issues Involved:

1. Rejection of registration under section 12AA of the Income Tax Act, 1961.
2. Allegations of the society operating on commercial principles and generating surplus.
3. Examination of the society's activities and compliance with educational purposes.
4. Evaluation of the society's financial management and asset creation.

Issue-Wise Detailed Analysis:

1. Rejection of registration under section 12AA of the Income Tax Act, 1961:

The assessee filed an appeal against the order dated 31.08.2016 by the CIT (Exemptions) Chandigarh, which rejected the registration under section 12AA. The primary contention was that the rejection was arbitrary and unjustified, based on suspicion, conjectures, and surmises. The assessee argued that it had filed an application in Form No. 10A for registration, demonstrating its ongoing operation since 13.03.2003 and engagement in charitable activities, specifically running a school in rural areas.

2. Allegations of the society operating on commercial principles and generating surplus:

The CIT (Exemptions) questioned the need for the society to seek exemption under section 12A instead of section 10(23C)(vi), suspecting a shift from one provision to another. The CIT (Exemptions) concluded that the society was generating income from running the school, which was being received by the school itself and not the society. The financial statements indicated an emphasis on asset creation, particularly vehicles, rather than redeploying funds towards education. This was deemed inconsistent with the definition of education as laid down by the Apex Court in the case of Sole Trustee Lok Sikshan Trust.

3. Examination of the society's activities and compliance with educational purposes:

The CIT (Exemptions) noted discrepancies in the salary and fee structure, which were not in sync with CBSE instructions, suggesting a compromise in the quality of education. Additionally, there was a lack of evidence regarding land ownership by the society, raising doubts about its possession. The CIT (Exemptions) concluded that the society's activities pointed towards generating surplus rather than improving and imparting quality education.

4. Evaluation of the society's financial management and asset creation:

The assessee argued that the fee structure was reasonable, and the purchase of buses was necessary for transporting students from rural areas. The financial records showed a systematic utilization of funds for educational purposes, including building, furniture, lab equipment, and school buses. The society employed qualified teachers and staff, indicating a commitment to providing education. The objections regarding land ownership were countered by the valuation of land on the balance sheet, which was not questioned during the proceedings.

Conclusion:

The Tribunal found that the CIT (Exemptions) had wrongly denied the registration under section 12A. The assessee demonstrated compliance with the aims and objects of the society, which were charitable in nature. The Tribunal noted that the CIT (Exemptions) had based the rejection on biases and prejudices without substantial evidence. The decision of the Bombay High Court in the case of Yash Society was deemed irrelevant as it pertained to a hospital and not an educational institution. The Tribunal directed that the registration under section 12A be granted to the assessee, allowing the appeal.

Order:

The appeal of the assessee was allowed, and the registration under section 12A was directed to be granted. The order was pronounced in the Open Court on 15th November 2017.

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