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2021 (3) TMI 223 - AT - Income TaxExemption u/s 11 - registration u/s. 12AA denied - DR submits that the assessee having no registration u/s. 12AA of the Act and made false claim of exemption u/s. 11(1) - Regarding the utilization of surplus raised from pre-primary and primary school no details filed to show that such surplus has been utilized in secondary division of assessee s school - HELD THAT - As assessee was enjoying claim of exemption u/s. 11 of the Act from A.Y. 2000-01 onwards and granting of certificate u/s. 80G from 01-04-2012 onwards till date. CIT(Exemption) did not dispute the same. We note that the returns of income filed by the assessee have also been accepted by the respondent-revenue. The contention of Revenue is that no assessment from A.Ys. 2014-15 to 2018-19 selected for scrutiny and since the CIT(Exemption) found during the process of application for registration u/s. 12AA of the Act reopened the assessments from A.Ys. 2014-15 to 2018-19. We note that the AO filed its factual report in response to direction of CIT(Exemption) which is reproduced of the impugned order which clearly shows that the respondent-revenue allowing the claim u/s. 11 of the Act prior to A.Y. 2016-17. Therefore, no dispute in respect of granting exemption u/s. 11 of the Act treating the assessee having got registration u/s. 12AA of the Act and u/s. 80G of the Act. Merely because profits have resulted from the activity of imparting education would not result in change of character of the institution that it exists solely for educational purpose - See SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION (AND OTHER REFERENCES) 1979 (11) TMI 1 - SUPREME COURT In view of the law laid down in the case of St. Peter s Educational Society 2016 (6) TMI 536 - SUPREME COURT by following the decision in the case of Queen s Educational Society 2015 (3) TMI 619 - SUPREME COURT we hold that the assessee is entitled for grant of registration u/s. 12AA of the Act from the date of application and CIT(Exemption) is directed to grant the same. Accordingly, the grounds raised by the assessee are allowed.
Issues Involved:
1. Whether the CIT(Exemption) was justified in rejecting the application for registration under section 12AA of the Income Tax Act, 1961, on the grounds that the assessee’s activities are not charitable. Issue-wise Detailed Analysis: 1. Justification for Rejection of Registration under Section 12AA: The primary issue in this case was whether the CIT(Exemption) was justified in rejecting the application for registration under section 12AA of the Income Tax Act, 1961. The assessee had filed Form 10A seeking registration under section 12AA on 18-12-2018. The CIT(Exemption) examined the financial statements and noted a significant surplus over the last three assessment years (2016-17, 2017-18, and 2018-19). The CIT(Exemption) also observed that the assessee had not provided detailed receipts and payment details or individual income and expenditure statements for the pre-primary and primary school income. Consequently, the CIT(Exemption) concluded that the assessee was not engaged in charitable educational activities, leading to the rejection of the registration application. 2. Assessee's Argument for Registration: The assessee argued that it had been registered since 1974 under the Societies Registration Act, 1860, and the Bombay Public Trust Act, 1950. The assessee runs Holy Cross Convent School, which comprises pre-primary, primary, and secondary divisions exclusively for girls. The assessee enjoyed exemption under section 10(22) of the Act from AY 1974-75 to 1999-2000 and continued to claim exemption under section 11 from AY 2000-01 onwards, presuming the registration was granted. The assessee contended that the surplus generated was utilized for educational purposes and referred to the Supreme Court decision in Queen’s Educational Society, which held that surplus generation does not detract from the charitable nature of an educational institution. 3. Revenue's Argument Against Registration: The Revenue argued that the assessee generated a significant surplus for FYs 2015-16, 2016-17, and 2017-18, which indicated that the activities were not charitable. The CIT(Exemption) was not satisfied with the accounts and held that the assessee's trust was not engaged in charitable educational activities. Additionally, the Revenue pointed out that the assessee had not filed detailed receipts and payment details or individual income and expenditure statements for the pre-primary and primary school from which the surplus was generated. 4. Tribunal's Decision: The Tribunal noted that the assessee had been running Holy Cross Convent School since 1963 and had been registered under relevant acts since 1974. The assessee had been claiming exemption under section 10(22) and later under section 11 of the Act, with the returns being accepted by the Revenue. The Tribunal referred to the Supreme Court decision in Queen’s Educational Society, which held that the generation of surplus does not change the charitable nature of an educational institution. The Tribunal also cited the Supreme Court decision in St. Peter’s Educational Society, which followed the same principle. Conclusion: In light of the Supreme Court decisions in Queen’s Educational Society and St. Peter’s Educational Society, the Tribunal held that the assessee was entitled to registration under section 12AA of the Act. The CIT(Exemption) was directed to grant the registration from the date of application. The appeal of the assessee was allowed. Order Pronouncement: The order was pronounced in the open court on 03rd March 2021.
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