2012 (12) TMI 241 - AT - Income Tax

Reject of application for registration of Charitable Trust u/s 12AA - Assessee is engaged in the educational field - Held that - Nothing has been found out that assessee has been using the funds for the purpose other than that mentioned under the trust deed. CIT argued that Trust is run for commercial purposes and not for charitable purposes all the surpluses were used in further expansion in the same or subsequent years Use of the surplus in further expansion of the same objects cannot be said to be proving that there is an object to make the profit by the trust. If any surplus results, incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes. Direct the CIT to grant registration to assessee. In favour of assessee

Summary

Issues:
Denial of registration under section 12A(a) of the Income Tax Act by the Commissioner of Income Tax.

Analysis:
The appellant, an assessee trust, filed an application for registration under section 12A(a) of the Income Tax Act. The Commissioner of Income Tax noted the trust's earnings from various sources over different financial years and the surplus percentages in those years. The Commissioner concluded that the trust was operating for commercial purposes rather than charitable purposes, as aspirants were paying for their cost of learning, and surplus funds were used for further expansion. Consequently, the application for registration was rejected.

Upon appeal, the ITAT Delhi found that the trust had not diverted funds for purposes other than those mentioned in the trust deed. The ITAT held that using surpluses for furthering the expansion of the trust did not negate its charitable nature. Citing the decision in Aditanar Educational Society vs. ACIT, the ITAT emphasized that incidental surplus from lawful activities did not disqualify an institution from being considered educational and charitable. Additionally, referencing the case of ACIT vs. Vatsalya Senior Secondary School, the ITAT highlighted that utilizing income exclusively for educational activities and not for personal gain made an entity eligible for exemption.

The ITAT concluded that the principles from the above cases were directly applicable to the present situation. It determined that the trust's activities in the educational field, including using surplus funds for expansion in line with its objectives, did not indicate a profit-making motive. Therefore, the ITAT set aside the Commissioner's order and directed the grant of registration to the trust under section 12A(a) of the Income Tax Act.

In summary, the ITAT allowed the appeal filed by the assessee trust, overturning the Commissioner's decision to deny registration and emphasizing that the trust's operations aligned with charitable and educational purposes, warranting the grant of registration under section 12A(a) of the Income Tax Act.