2016 (6) TMI 979 - AT - Income Tax

Eligibility of benefit of registration u/s 12A - Whether Pre-School would fall in the term education as envisaged u/s 2(15)? - Held that - In the case of Life Shines Educational & Charitable Trust (2015 (10) TMI 1478 - ITAT CHENNAI ) held that pre-schooling shall fall within meaning and scope of the education as used u/s 2(15). Thus in view of the aforesaid discussion and facts of this case we do not find any justification in the view adopted by the Ld. DIT that preschooling is not part of education activity. In our considered view pre-schooling is very much integral part of the term education as has been envisaged u/s 2(15) of the Act and we hold so. Whether charging of fee and retaining surplus amounts to commercial activity disentitling an assessee from the benefit of exemption u/s 11 and 12? - Held that - the assessee trust is carrying out the activity of education and is therefore entitled for benefit of registration u/s 12A and we direct the DIT to grant the benefit of registration u/s 12A. Accordingly the assessee is hereby granted the benefit of u/s 12A with effect from the date when the application was filed by the assessee. The AO is at liberty under the law to examine the aspect of application of income solely for the purpose of education and also to examine that the assessee is carrying out the activity of education only and AO is also permitted to examine compliance of other provisions of the law in this regard and accordingly he may decide about the granting of benefit of exemption at the time of assessment in different years - Decided in favour of assessee

Issues Involved:
1. Rejection of the application for registration under Section 12AA read with Section 12A.
2. Determination of whether running a pre-school constitutes a business or charitable activity.
3. Interpretation of the term "education" under Section 2(15).
4. Examination of whether charging fees for pre-school activities amounts to a commercial activity.

Issue-wise Detailed Analysis:

1. Rejection of the Application for Registration under Section 12AA Read with Section 12A:
The appellant challenged the Director of Income Tax (Exemptions) Mumbai's decision to reject its application for registration under Section 12AA read with Section 12A. The appellant argued that the DIT failed to appreciate the trust's objective of running educational institutes, including pre-schools, as a charitable activity.

2. Determination of Whether Running a Pre-School Constitutes a Business or Charitable Activity:
The DIT concluded that the appellant was running the pre-school as a business or commercial activity rather than a charitable one. The appellant countered this by highlighting the trust's objectives, which include imparting high-quality education to students of all backgrounds. The Tribunal found that the DIT's view was myopic and regressive, emphasizing that education has various stages, including pre-schooling, which is integral to the overall educational process.

3. Interpretation of the Term "Education" under Section 2(15):
The DIT held that pre-schooling does not fall within the term "education" as envisaged under Section 2(15) because it is not recognized or regulated by the State Government/Education Board/BMC. The Tribunal disagreed, stating that education has evolved and includes various stages such as pre-schooling, which is now a mandatory prelude to formal school education. The Tribunal cited the case of Life Shines Educational & Charitable Trust vs. ACIT, where it was held that running a pre-school and collecting fees for imparting education falls within the meaning of "education" under Section 2(15).

4. Examination of Whether Charging Fees for Pre-School Activities Amounts to a Commercial Activity:
The DIT argued that charging fees for prospectuses, school uniforms, kits, and admission fees indicated that the pre-school was being run as a commercial activity. The Tribunal found this reasoning flawed, noting that the statute does not require educational institutions to provide services free of cost to qualify for exemption under Sections 11 and 12. The Tribunal emphasized that the primary consideration should be whether the activities align with the trust's objectives and whether the income is applied solely for educational purposes. The Tribunal cited the Supreme Court's decision in Queen’s Educational Society of India v. CIT, which held that merely earning a surplus does not disqualify an educational institution from being considered charitable.

Conclusion:
The Tribunal concluded that the DIT erred in both law and facts by denying the benefit of registration to the appellant trust. It directed the DIT to grant registration under Section 12A, effective from the date of the application. The Tribunal also allowed the Assessing Officer to examine the application of income and compliance with other legal provisions during assessments in subsequent years. The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 24th June 2016.

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