2014 (3) TMI 769 - AT - Income Tax

Entitlement for deduction u/s 11 of the Act - Deletion of addition of surplus taxed income Held that - Whether the CIT(A) was justified in deleting the addition on account of surplus taxed as income in the Assessment Year Held that - The assessee has obtained the certificate of registration u/s.12A as a Charitable Trust - The assessee trust has got the certificate of exemption u/s 80G - The registration granted u/s 12A is in force for the assessment year and the same has not been cancelled - merely because the application filed before the Chief Commissioner u/s 10(23C) was rejected the AO in our opinion cannot deny the benefit of deduction u/s 11 r.w.s. 12AA as long as the registration granted earlier to the trust u/s 12A is in force - there is no dispute to the fact that the assessee trust is imparting education, and the registration granted earlier u/s12A is continuing, and in force for the assessment year, and the assessee has also been granted exemption u/s.80G thus, the AO is not justified in rejecting the claim of deduction u/s 11 of the Act the order of the CIT(A) upheld and there is no reason to interfere in the findings of the CIT(A) Decided against Revenue.

Summary

Issues:
1. Eligibility for exemption u/s.11 of the Income Tax Act.
2. Interpretation of Sections 10(23C), 11, and 12AA in relation to educational trusts.
3. Rejection of application for exemption u/s.10(23C) by Chief Commissioner of Income Tax, Nashik.

Eligibility for exemption u/s.11 of the Income Tax Act:
The case involved an appeal filed by the Revenue against the order of CIT(A)-I, Pune concerning the Assessment Year 2009-10. The issue revolved around the eligibility of an AOP, engaged in running schools and registered as a Public Charitable Trust, for exemption u/s.11 of the Act. The Assessing Officer had disallowed the surplus income of the trust, amounting to Rs.57,34,777, on the grounds that the trust was not solely existing for educational purposes due to receiving donations from students resembling capitation fees. However, the trust argued that it was registered under the Bombay Public Trust Act, 1950, and had been granted certificates of registration u/s.12AA and exemption u/s.80G. The CIT(A) accepted the trust's arguments, emphasizing that the rejection of the application for exemption u/s.10(23C) did not affect the trust's eligibility for deduction u/s.11 as long as it was registered u/s.12A and operated for charitable purposes. The CIT(A) held that the trust was entitled to claim exemption under both s.10(23A) and s.11, as per relevant case law.

Interpretation of Sections 10(23C), 11, and 12AA in relation to educational trusts:
The CIT(A) observed that the trust, registered under the Societies Registration Act, 1860, and constituted as a Public Charitable Trust, had the sole object of imparting education up to the 10th standard. The trust had obtained certificates of registration u/s.12A and exemption u/s.80G, and had a history of claiming exemption u/s.11 successfully. The CIT(A) highlighted that the rejection of the application for exemption u/s.10(23C) did not impact the applicability of provisions under s.11, especially when the trust was registered u/s.12A and operated for charitable purposes. The CIT(A) referenced a decision by the Allahabad High Court to support the view that sections 10(23A), 11, and 12AA could operate simultaneously, allowing the trust to claim exemption under s.11 despite the rejection under s.10(23C).

Rejection of application for exemption u/s.10(23C) by Chief Commissioner of Income Tax, Nashik:
The Revenue challenged the CIT(A)'s decision to delete the addition of Rs.57,34,777 as surplus income taxed in the Assessment Year. The Revenue contended that the trust, by accepting donations resembling capitation fees from students, deviated from its sole educational/charitable purpose, rendering it ineligible for deduction/exemption u/s.11. However, the Tribunal upheld the CIT(A)'s order, emphasizing that the rejection of the application for exemption u/s.10(23C) did not justify denying the trust the benefit of deduction u/s.11 as long as the registration u/s.12A remained valid. The Tribunal found no fault in the CIT(A)'s reasoning and dismissed the Revenue's appeal, affirming the trust's eligibility for exemption u/s.11.

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