2018 (2) TMI 2109 - AT - Income Tax

Exemption u/s 11 - application for registration u/s 12AA and sanction u/s 80G(5)(vi) rejected on the grounds inter alia that gross receipts in all the five years are far in excess of Rs.1 crore and the assessee society has wrongly claimed exemption u/s 10(23C)(iiiad) of the Act. Assessee society have been charging fee from students under various different heads featuring in the income and expenditure statement and that the land in question on which the senior wing of the school is being run has been taken on lease from the founder members of the society while the junior wing of the school is being run on the land which was donated and since the land in question on which the main school is running does not belong to the society, the property in question for charitable purpose also remains in question HELD THAT - When assessee society is admittedly into imparting education for the general public utility, the registration cannot be declined on the ground that the assessee society has been collecting money from the students in the name of various funds. More particularly when it is not the case of the CIT (E) that the activities being carried out by the assessee society are for profit making. More so, in case quality education is to be provided funds for extra-curricular activities to enhance the overall profile of the students are required. In case collecting of such funds are found to be not in consonance with aims and objects of the society, the AO can disallow the same while making assessment on year to year basis. On the basis of the fact that the assessee society has wrongly claimed exemption u/s 10(23C)(iiiad), the registration cannot be declined. CIT (E) has also expressed apprehension that building on which senior wing of the school is functioning has been taken on lease from the founder member of the society and there is a possibility of accretion being made to the school building may directly be beneficial to the founder member in the event of treatment of lease deed expiring but this apprehension is merely based upon surmises and conjectures. Again these facts can be examined on year to year basis by the AO at the time of assessment. We are of the considered view that the order passed by the ld. CIT (E) firstly declining registration u/s 12AA of the Act and consequently, declining the permission u/s 80G(5)(vi) of the Act is not sustainable in the eyes of law. Hence, CIT (E) is directed to grant registration to the assessee society forthwith also with consequent approval u/s 80G of the Act. Consequently, both the appeals filed by the assessee are allowed.

Summary

Issues involved:
1. Rejection of registration under section 12AA of the Income Tax Act, 1961.
2. Rejection of approval under section 80G of the Income Tax Act, 1961.

Issue 1: Rejection of registration under section 12AA:
The appellant, a society running a school, challenged the rejection of its application for registration under section 12AA of the Income Tax Act. The rejection was based on grounds such as gross receipts exceeding Rs.1 crore, incorrect exemption claims under section 10(23C)(iiiad), and concerns regarding the ownership of the school property. The CIT (Exemptions) rejected the registration under section 12AA, leading to the subsequent rejection of the application for approval under section 80G. The appellant contended that it fulfilled all conditions for registration and approval. The Tribunal noted that the society had been providing education for public utility since its inception and emphasized that collecting funds from students for various purposes did not disqualify it from registration. The Tribunal found the rejection of registration unsustainable in law, directing the CIT to grant registration and approval under section 80G to the appellant society.

Issue 2: Rejection of approval under section 80G:
The rejection of approval under section 80G was linked to the initial denial of registration under section 12AA. The CIT (Exemptions) raised concerns about the society's fundraising activities and the ownership of the school property. However, the Tribunal held that the society's activities were not profit-oriented and that collecting funds for extracurricular activities was essential for providing quality education. The Tribunal emphasized that any discrepancies in fund collection could be addressed during annual assessments. The CIT's apprehensions regarding the school property were deemed speculative and subject to examination during assessments. Consequently, the Tribunal allowed the appeals filed by the appellant society, directing the CIT to grant registration and approval under section 80G.

In summary, the Appellate Tribunal ITAT DELHI ruled in favor of the appellant society, overturning the rejection of registration under section 12AA and approval under section 80G by the CIT (Exemptions). The Tribunal emphasized the society's charitable activities in providing education and dismissed concerns regarding fund collection and property ownership as unsubstantiated. The judgment highlighted the importance of providing quality education and allowed the appellant's appeals, directing the immediate granting of registration and approval under the Income Tax Act.