2016 (12) TMI 1076 - AT - Income Tax

Grant of registration u/s. 12A and 80G refused - non Charitable purpose - Held that - It appears that the conclusion reached by the CIT that the assessee trust is profit oriented entity and not the charitable institute, is based only on the ground that the assessee would charge hefty fees from the students. The ld. CIT has failed to throw any light on the aims and objects of the society and to examine whether the activities of the society are to achieve the aims and objects as per its memorandum. Simply because the appellant will charge fee from the students, in our opinion, it does not go to suggest refusal of registration to the assessee society. CIT has also observed that governing body of the society belongs to close family members, which also does not bar for the formation of society. The society is a separate entity from its members and is governed by the Societies Registration Act, 1960 and each society makes separate Rules and Regulations. The ld. CIT has further noted that a sum of ₹ 68,531/- has been incurred towards advertisement expenditure for the purpose other than education. In this regard, the ld.AR clarified that it was incurred for hiring of faculty members for running the institute. Therefore, the expenses incurred on advertisement for hiring talented faculty members cannot be said to have incurred for other than educational purpose. Therefore, the allegation made by the ld. CIT that the assessee incurred advertisement expenditure for procuring more admission of the students with sole motive of earning profit, is wrong. Thus we allow the appeal of assessee for registration u/s. 12AA of the IT Act. - Decided in favour of assessee For approval u/s. 80G the assessee should be given one more opportunity of hearing before the ld. CIT to put its case and comply with the notices issued to him before finally deciding the issue of approval u/s. 80G.

Summary

Issues Involved:
1. Rejection of application for registration under section 12A of the Income Tax Act.
2. Rejection of application for approval under section 80G of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Rejection of Application for Registration under Section 12A:

The appellant challenged the Commissioner of Income Tax (CIT)'s decision rejecting their application for registration under section 12A, arguing that the order was erroneous both in law and on facts. The CIT had concluded that the appellant's activities were profit-oriented business activities rather than charitable in nature. The CIT's decision was based on the definition of 'Charitable Purpose' under the Income Tax Act, which includes relief of the poor, education, medical relief, and other objects of general public utility, provided these activities do not involve trade, commerce, or business for a fee or consideration.

The CIT observed that the appellant society charged fees from students, implying that it operated on commercial lines and earned profits systematically. Additionally, the CIT noted that the society was controlled by close family members, raising concerns about autocratic functioning and potential misuse of the society's assets.

The appellant countered these points, arguing that charging fees did not negate the charitable nature of their activities. They cited several judicial precedents, including the Supreme Court's rulings in Queen's Educational Society vs. CIT and Visvesvaraya Technological University vs. ACIT, which held that surplus funds ploughed back for educational purposes do not disqualify an institution from being considered charitable. The appellant also referenced CBDT Circular No. 11 of 2008, which states that the proviso to section 2(15) does not apply to educational purposes, even if they involve incidental commercial activities.

The Tribunal found that the CIT had not raised any objections to the appellant's objects, which were educational and charitable in nature. The Tribunal also noted that the CIT's concerns about family control and advertisement expenditure were not sufficient grounds to deny registration. The Tribunal concluded that the CIT's decision was based on incorrect and irrelevant facts and directed the CIT to grant registration under section 12AA.

2. Rejection of Application for Approval under Section 80G:

The appellant also challenged the CIT's rejection of their application for approval under section 80G, which was based on the denial of registration under section 12AA. The appellant argued that since they were eligible for registration under section 12AA, they should also be eligible for approval under section 80G.

The Tribunal noted that the CIT had provided multiple opportunities for the appellant to present their case, but the appellant failed to attend the final hearing or submit a written reply. The Tribunal decided to give the appellant another opportunity to present their case and directed the CIT to reconsider the application for approval under section 80G after giving the appellant a chance to be heard.

Conclusion:

The Tribunal allowed the appeal for registration under section 12AA, finding no justification for the CIT's refusal. The Tribunal also allowed the appeal for approval under section 80G for statistical purposes, remanding the matter back to the CIT for reconsideration after giving the appellant an opportunity to be heard.

Order Pronounced:
The order was pronounced in the open court on 13.12.2016.