2017 (4) TMI 1065 - HC - Income Tax

Registration u/s 12AA - proof of charitable activities - treatment as registered trust - receipt of land as Donation - Held that - The assessee was running three educational institutions. It had received donation of agriculture land by a registered gift deed dated 4.12.2006 from Smt. Vasu Devi and three others. The lands were valued at ₹ 1.01 crore. The assessee further received corpus donation of ₹ 15 lacs from three concerns. The registration under section 12AA of the Act had been granted to the assessee by the CIT w.e.f 1.4.2009 which was before the date of the assessment order passed on 30.12.2011 though obtaining registration under Section 12AA of the Act was not mandatory for claiming exemption under section 10(23C)(iiiad) of the Act. According to this provision, any income received by any person on behalf of any university or other educational institution existing solely for educational purposes and not for the purpose of profit is exempt if the aggregate annual receipt of such university or educational institute does not exceed the amount of annual receipt as may be prescribed. After examining the matter, the Tribunal concluded that the objects of the assessee trust being charitable had not been objected nor it was the case of the revenue that the donation in the shape of land or amount had been utilised for any other purposes except on the objects of the assessee trust. Of course, no educational activity had been started by the assessee during the year but at the same time, this fact had not been doubted that the assets and funds received by it in donation were meant for achieving its objects. Thus, the Tribunal rightly while setting aside the orders of the authorities below directed the Assessing officer to delete the addition treating the assessee as registered trust with charitable objects. - Decide against revenue

Summary

Issues Involved:
1. Justification of treating the assessee as a registered trust under section 12AA of the Income Tax Act.
2. Justification of deleting the addition of ?1,15,03,000/- despite the assessee not being registered under section 12AA.

Issue-wise Detailed Analysis:

1. Justification of treating the assessee as a registered trust under section 12AA of the Income Tax Act:

The core issue was whether the assessee could be treated as a registered trust under section 12AA of the Income Tax Act for the assessment year 2007-08, despite obtaining registration effective from 1.4.2009. The Tribunal found that the assessee was running three educational institutions and had received donations, including agricultural land valued at ?1.01 crore and corpus donations of ?15 lacs. The Tribunal noted that registration under section 12AA was granted before the assessment order date of 30.12.2011. It was determined that obtaining registration under section 12AA was not mandatory for claiming exemption under section 10(23C)(iiiad) of the Act, which exempts income received by educational institutions if their annual receipts do not exceed the prescribed limit. The Tribunal concluded that the assessee's objectives were charitable and the donations were used for achieving these objectives. Thus, the Tribunal directed the Assessing Officer to delete the addition, treating the assessee as a registered trust with charitable objects.

2. Justification of deleting the addition of ?1,15,03,000/- despite the assessee not being registered under section 12AA:

The Assessing Officer had added ?1,15,03,000/- to the taxable income, arguing that the assessee was not registered under section 12AA during the relevant assessment year and thus was not eligible for exemption on account of corpus donations. The CIT(A) upheld this addition. However, the Tribunal found that the assessee trust, although not registered under section 12AA during the year under consideration, was entitled to exemption under section 10(23C)(iiiad) as its annual receipts were below ?1 crore. The Tribunal referenced several judicial precedents, including Nitya Education Society vs. JCIT, CIT vs. Doon Foundation, and Param Hans Swami Uma Bharti Mission vs. ACIT, which supported the view that the trust's charitable objectives and the receipt of donations for these objectives justified the exemption. The Tribunal concluded that the CIT(A) was not justified in upholding the addition and directed the deletion of the ?1,15,03,000/- addition.

Conclusion:

The Tribunal's findings were upheld as they were not shown to be illegal or perverse. The High Court dismissed the appeal, noting that similar issues had been decided against the revenue in previous cases, such as The Commissioner of Income Tax vs. Madrasa E-Bakhiyath-Us-Salihath Arabic College and The Commissioner of Income Tax, Rohtak vs. Shanti Devi Educational Trust, Rewari. Thus, no substantial question of law arose, and the appeal was dismissed.