2019 (9) TMI 141 - AT - Income Tax

Denial of registration u/s. 12AA - Charitable activity u/s 2(15) - quality education - running an existing institution - further, adoption of a running school and claiming business losses - denial of registration on the ground that, the assessee s returns for the last three years are as applicable to a business concern, i.e., the assessee-society considers itself as a business entity, which now wishes to declare itself as a charitable institution, i.e., in the garb of running a school - if the educational activity carried out in pursuance of its objects by the assessee-society, could be, on account of its pricing, discounted, i.e., not regarded as education , given its definition u/s. 2(15) ? HELD THAT - We are unable to appreciate as to how the take over has been regarded as fuzzy or not in advancement of the objects of the society. The continuing affiliation with CBSE, not doubted, and qua which we have reasonably satisfied ourselves, including the no takeover of any land (immovable property), put pays all doubts with regard to the acquisition of a running school or, rather, adoption of a running school. Prima facie , the affiliation to a recognized university, which is not in doubt, should allay any doubt in the matter. In fact, quality is an aspect which, though integral to education, as it indeed is to any other human endeavor, is something the assessment of which is outside the scope of the instant proceedings. Then, it would raise a question as to whether any education can be regarded as not so on account of poor quality, besides the issue of its definition, i.e., as to what constitutes quality education . - Without doubt, the cost of education, as of any other service, can not be properly compared without taking into account its quality; rather, the quality of both the input resources as well as the output. If the educational activity carried out in pursuance of its objects by the assessee-society, could be, on account of its pricing, discounted, i.e., not regarded as education , given its definition u/s. 2(15)? - Held that - Education, as defined u/s. 2(15), makes the same an irrelevant consideration. One could argue for a need for effecting some change/s in law, which has to be read, and given effect to, as expressed. The issue, i.e., education being pursued as an economically sound and prosperous activity, has been extensively considered by the Tribunal in Lord Shiva Educational Welfare Society v. CIT(E) 2018 (9) TMI 954 - ITAT AMRITSAR , holding, with reference to judicial precedents, that the activity of education cannot be impugned on account of it being carried out on commercial basis. Finally, the assessee may have returned its income as a business enterprise in the past. Where assessed as a business loss, the assessee cannot claim set-off against income for the years for which it is regarded as a charitable institution, claiming exemption u/s. 11 on the application of income for charitable purpose/s from property held under trust. Even as we may not be construed as having issued any factual finding in the matter the said aspect having not been argued, there does not appear to be any bar for set off against income that in not subject of exemption, as, for instance, assessable u/s. 11(4A). The import of the fore-going observation, however, is that the same by itself cannot be held against the assessee so as to deny it registration, where otherwise eligible. Thus no case for non-grant of registration is made out - direct registration u/s. 12AA - Decided in favour of assessee.

Issues Involved:
1. Denial of registration under Section 12AA of the Income Tax Act, 1961.
2. Legality of the take-over of Harbhajan International School (HIS).
3. Classification of educational activities as charitable purposes.
4. Assessment of the genuineness of the society's activities.
5. Consideration of the society's financial records and past tax filings.

Issue-wise Detailed Analysis:

1. Denial of registration under Section 12AA of the Income Tax Act, 1961:
The appeal contests the denial of registration under Section 12AA by the Commissioner of Income Tax (Exemptions). The assessee-society, registered under the Societies Registration Act, 1860, applied for registration under Section 12AA on 30.3.2016. The competent authority denied registration citing several reasons, including the society's financial conduct and the nature of its activities.

2. Legality of the take-over of Harbhajan International School (HIS):
The Commissioner questioned the legal steps taken for the take-over of HIS, noting that the balance-sheet of the original managing society (DEWS) did not reflect HIS's affairs and lacked an exemption certificate. The Tribunal found the take-over not fuzzy and in line with the society's objectives, emphasizing that no immovable property was acquired and the school's affiliation with CBSE continued.

3. Classification of educational activities as charitable purposes:
The Tribunal addressed whether educational activities, conducted profitably, could be considered charitable. It was argued that education priced to cover costs and yield surplus does not negate its charitable nature. The Tribunal referenced judicial precedents, affirming that profit-making does not exclude educational activities from being charitable as long as profit-making is not the predominant objective.

4. Assessment of the genuineness of the society's activities:
The Tribunal examined the genuineness of the society's activities, noting that the competent authority found them inconsistent with charitable purposes due to high fees and asset accumulation. However, the Tribunal found no adverse comments against the engineering college and acknowledged its accreditation and service to surrounding areas. The Tribunal concluded that the educational activities were genuine and aligned with the society's objectives.

5. Consideration of the society's financial records and past tax filings:
The society had filed returns under ITR-5, applicable to business enterprises, and reported losses. The Tribunal noted that this alone could not justify denying registration. It emphasized that past financial conduct should not bar registration if the society is otherwise eligible and its activities are genuine.

Conclusion:
The Tribunal directed the registration of the assessee-society under Section 12AA, finding no substantial grounds for denial. The appeal was allowed, and the order was pronounced in open court on June 04, 2019.

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