2009 (9) TMI 81 - AT - Income Tax

Eligibility for Registration u/s. 80G(5)(vi) - Charges fees for Imparting Education - society had been granted registration u/s. 12AA - Appellant society is presently running five educational institutions - CIT has given much weightage to the fact that the assessee charges fees for imparting education and since by charging fees, the benefit is not extended to 80 per cent of the public who are below poverty line or that the education is not imparted free of cost, thus rejected the application for approval u/s. 80G(5)(vi) - HELD THAT - There is no denial of fact that the assessee institution is registered under Societies Registration Act, 1860 as well as under s. 12AA of the IT Act. Even the assessments for asst. yrs. 2004-05, 2005-06 and 2006-07 framed under s. 143(3) revealed that the assessee trust is eligible for exemption under ss. 11 and 12 The Hon'ble Gujarat High Court in the ease of N.N. Desai Charitable Trust vs. CIT 1999 (5) TMI 11 - GUJARAT HIGH COURT held that in respect of registration u/s. 80G, the scope of enquiry will be confined to finding out if the institution satisfies prescribed conditions stated in sub-cls. (i) to (v) of s. 80G. It does not extend to actual assessment of institution. The phrase used in sub-cl. (i) of sub-s. (5) of s. 80G is that where the institution or fund derives any income, such income would not be liable to inclusion in its total income . the trust is not actually held eligible for exemption u/ss. 11 and 12. As per s. 11, income derived from property held under trust to the extent to which such income is applied for charitable or religious purposes in India or to the extent of accumulation within certain limitation is not to be included in the total income of the trust or institution. Thus, even though the assessee receives fees for imparting education and the education being charitable purposes defined in s. 2(15) without any condition, such income would not be liable to inclusion to the extent to which such income is applied for charitable purposes in India. Education is per se charitable purpose as defined in s. 2(15). The same will be charitable purpose irrespective of the fact that for imparting education, the assessee charges fees. There is no condition to hold that to become charitable purposes in respect of imparting education, the same should be imparted freely or without charging any fees. So long as imparting such education is not for the benefit of any particular religion. community or caste as envisaged in sub-cl. (iii) of sub-s. (5) of s. 80G, the assessee cannot be denied exemption. When the scheme of the Act allows exemption from tax liability, the same can be only when it is envisaged that the trust or institution is likely to earn surplus. Thus, merely because from the activities in the nature of charitable purposes, the assessee makes surplus which is within the limitation prescribed u/s. 11(1)(a), there cannot be any ground to hold that the assessee is not carrying on any charitable purposes so as to deny registration u/s. 80G(5). We find that the conditions laid down in r. 11AA as also in sub-cls. (i) to (v) of sub-s. (5) of s. 80G are complied with. The trust is, therefore, eligible for registration u/s. 80G(5)(vi). We, therefore, direct the CIT to grant registration accordingly.

Summary

Issues Involved:
1. Charitable status of the appellant society.
2. Criteria for approval under Section 80G(5)(vi) of the IT Act, 1961.
3. Compliance with the conditions laid down in Section 80G(5) and Rule 11AA.
4. The genuineness of the activities of the appellant society.
5. Proper filing of Form 10G.

Detailed Analysis:

1. Charitable Status of the Appellant Society:
The appellant society was established with the objective of spreading education without any distinction of caste and creed. It was initially registered on 17th March 1923 and again on 29th September 1980 under the Societies Registration Act, 1860. The society operates five educational institutions. It was granted registration under Section 12AA of the IT Act on 23rd February 2006, effective from 1st April 2005. The Tribunal later directed the CIT to condone the delay in filing the application and re-decide the application under Section 12AA/12A, leading to the registration being effective from 29th September 1980. The income of the society was held to be exempt under Section 143(3) for assessment years 2004-05 to 2006-07.

2. Criteria for Approval under Section 80G(5)(vi):
The CIT rejected the application for approval under Section 80G(5)(vi) on several grounds, including:
- The society does not fulfill the criteria of providing aid to needy people who cannot pay for the services.
- Charging fees limits benefits to a select class, not the public at large.
- The society is making systematic profits, which contradicts the charitable purpose.
- The provisions of Sections 11 and 12 do not envisage a charitable institution charging fees.
- No separate books of accounts for business and donations are maintained.
- The memorandum and articles of association do not eliminate profit-making as a dominant purpose.
- Diversion of general funds to the corpus without donation under Section 11(1)(d).
- Expenditure akin to a private concern carrying on a profitable business.
- The society's activities are not genuine and not for charitable purposes.

3. Compliance with Conditions in Section 80G(5) and Rule 11AA:
The appellant argued that the CIT had already granted registration under Section 12AA, which is sufficient proof of the charitable purpose. The Punjab & Haryana High Court in Sonepat Hindu Educational & Charitable Society vs. CIT held that registration under Section 12AA is proof of charitable purposes. The appellant satisfied the conditions laid down in Section 80G(5) and Rule 11AA, including maintaining regular accounts and being registered under the Societies Registration Act, 1860.

4. Genuineness of Activities:
The appellant contended that the CIT's observations on the genuineness of activities were misconceived. The CIT's reliance on the minutes of the proceedings to question the genuineness was beyond the scope of inquiry under Section 80G. The appellant's activities were genuinely for educational purposes, and the surplus generated was applied for charitable purposes. The charging of fees does not negate the charitable status, as supported by judicial pronouncements.

5. Proper Filing of Form 10G:
The CIT's observation that Form 10G was not properly filled was challenged by the appellant. The appellant argued that no notice was issued regarding the improper filling, and the form was filled correctly to the best of their knowledge. The CIT's technical objections were considered misplaced.

Judgment:
The Tribunal concluded that the appellant society fulfilled all the conditions laid down in Rule 11AA and Section 80G(5). The society's registration under Section 12AA and the exemption granted under Sections 11 and 12 for previous assessment years supported its charitable status. The Tribunal directed the CIT to grant registration under Section 80G(5)(vi) of the IT Act, 1961. The appeal was allowed, and the case law relied upon by the CIT was found to be distinguishable on facts.