2020 (2) TMI 423 - AT - Income Tax

Exemption u/s 80G - assessee is running educational institutions by charging fees from the students - HELD THAT - Observing that both the assessee(s) are running with the main object of carrying out charitable activities as provided u/s 2(15) of the Act and also since Ld. CIT(Exemption) failed to prove that assessee has not fulfilled the conditions u/s 80G(5) (i) to (iv) of the Act, we find no justification in the order of CIT(Exemption) denying approval u/s 80G5(vi) of the Act to both the assessee(s). We accordingly set aside the order of Ld. CIT(Exemption) and direct him to reconsider the application of the assessee(s) u/s 80G of the Act and grant the approval u/s 80G5(vi) of the Act to both the assessee(s) namely M/s Krishna Avanti Educational Society and M/s. Avantika Krishi Gauraksha Trust.

Summary

Issues Involved:
1. Rejection of application under section 80G(5)(vi) despite compliance with section 80G(5) and Rule 11AA.
2. Rejection based on the fact that the assessee societies are running educational institutions and charging fees.

Issue-wise Detailed Analysis:

1. Rejection of application under section 80G(5)(vi) despite compliance with section 80G(5) and Rule 11AA:

The appellants, Krishna Avanti Educational Society and Avantika Krishi Gauraksha Trust, argued that they complied with all conditions laid down in section 80G(5) and Rule 11AA of the Income Tax Rules, 1962. They were registered under section 12AA of the Income Tax Act, 1961, which was a prerequisite for approval under section 80G(5)(vi). The Tribunal noted that both societies were engaged in charitable activities defined under section 2(15) of the Act, including education and maintaining Gaushalas. The Tribunal found that the Commissioner of Income Tax (Exemption) did not provide specific observations or evidence to show that the societies failed to meet the conditions required for approval under section 80G(5)(vi).

2. Rejection based on the fact that the assessee societies are running educational institutions and charging fees:

The Tribunal observed that the sole reason for rejection by the Commissioner was that the societies were charging fees for their educational services. The Tribunal cited the Supreme Court's decision in Queen's Educational Society vs. CIT, which clarified that making a surplus from educational activities does not imply that the institution ceases to exist solely for educational purposes or becomes an institution for profit. The Tribunal emphasized that the predominant object test should be applied, and the purpose of education should not be overshadowed by a profit-making motive. The Tribunal concluded that charging fees does not disqualify an institution from being considered charitable if it primarily aims to educate.

Conclusion:

The Tribunal held that both Krishna Avanti Educational Society and Avantika Krishi Gauraksha Trust fulfilled the conditions under section 80G(5) and were engaged in charitable activities. The rejection of their applications based on charging fees was not justified. The Tribunal set aside the orders of the Commissioner of Income Tax (Exemption) and directed reconsideration of the applications, granting approval under section 80G(5)(vi) to both societies. The appeals were allowed, and the order was pronounced in open court on 07.02.2020.