2018 (3) TMI 154 - HC - Income Tax

Grant registration u/s 12AA - denial of grant on ground that Assessee has consistently had surplus income thus cease to be an educational Institution - Tribunal held the assessee as an educational institution - Held that - The impugned order of the Tribunal records the fact that it is an undisputed position that the Respondent-Institution had education as its stated object and did carry out the same. The generation of surplus is not the test which by itself will disallow Registration under Section 12AA. The only quantifications to be considered for Registration under Section 12AA, is the objects of the trusts/ institution and its genuineness. Once the two conditions are satisfied, no occasion to refuse Registration under Section 12(AA) can arise. It further held that the question of available surplus, if any, and the manner of its user is an issue which would arise during assessment proceedings while considering the applicability of Section 11 of the Act. No substantial question of law.- Decided in favour of assessee.

Summary

Issues:
- Challenge to the order passed by the Income Tax Appellate Tribunal regarding the registration of the Respondent-Assessee under Section 12AA of the Income Tax Act, 1961.
- Interpretation of whether the Respondent-Assessee qualifies as an educational institution for registration under Section 12AA of the Act.

Analysis:
Issue 1: The main issue in this case is the challenge to the order passed by the Income Tax Appellate Tribunal (the Tribunal) regarding the registration of the Respondent-Assessee under Section 12AA of the Income Tax Act, 1961 for the Assessment Year 2013-14. The Tribunal allowed the Respondent-Assessee's appeal from the order of the Director of Income Tax (Exemption) [DIT(E)], which had refused registration under Section 12AA on the grounds of consistent surplus income. The Tribunal held that the generation of surplus income does not automatically disqualify an institution from registration under Section 12AA. The key consideration for registration is the stated objects of the institution and its genuineness. The Tribunal emphasized that the issue of surplus income and its utilization would be relevant during assessment proceedings under Section 11 of the Act.

Issue 2: The question at the heart of this case is whether the Respondent-Assessee qualifies as an educational institution for registration under Section 12AA of the Act. The Revenue contended that the Tribunal's decision was contrary to previous judgments and argued that when an institution generates surplus income from educational activities, it should not be granted registration under Section 12AA. However, the High Court disagreed with the Revenue's interpretation. The Court distinguished the cases cited by the Revenue, emphasizing that the definition of charitable purpose under the Income Tax Act is broader than other statutes. The Court also highlighted a Supreme Court decision that clarified that making a surplus from educational activities does not disqualify an institution from being considered educational. The Court found no substantial question of law in the Revenue's arguments and dismissed the appeal.

In conclusion, the High Court upheld the Tribunal's decision to grant registration to the Respondent-Assessee under Section 12AA of the Income Tax Act, emphasizing that the presence of surplus income does not automatically disqualify an institution from being considered an educational institution for registration purposes.