2017 (1) TMI 443 - AT - Income Tax

Registration to the assessee society u/s. 12A(a) denied - educational activity - charitable object - commercial institute or not - making profits - Held that - We are of the considered view that the present case is squarely covered by Coordinate Bench decision in the case of Shree Balaji Educational Trust vs. CIT 2016 (3) TMI 969 - ITAT DELHI clearly concurred with the submission of the assessee to the effect that education is per se a charitable object. - Decided in favour of assessee

Issues Involved:
1. Denial of registration under Section 12A(a) of the Income Tax Act, 1961.
2. Determination of whether the activities of the society qualify as charitable under Section 2(15) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Denial of registration under Section 12A(a) of the Income Tax Act, 1961:

The appeal was filed by the assessee against the order dated 17/10/2013 by the CIT, Dehradun, which denied registration under Section 12A(a). The CIT had requested various documents and details to substantiate the charitable nature of the society's activities. Upon review, the CIT observed that the society was running two institutes affiliated with Punjab Technical University and Uttarakhand Open University. However, the CIT concluded that the society was a commercial entity engaged in the business of education rather than a charitable organization, primarily because no free or subsidized education was provided to needy students. The CIT relied on the decisions of the Uttarakhand High Court in the cases of CIT vs. Queens Education Society and National Institute of Aeronautical Engineering Educational Society vs. CIT, which held that mere trade or commerce in the name of education does not qualify as a charitable purpose.

2. Determination of whether the activities of the society qualify as charitable under Section 2(15) of the Income Tax Act, 1961:

During the hearing, the assessee's counsel argued that education per se is a charitable purpose under Section 2(15) of the Act. The counsel cited various judgments, including the Supreme Court's decisions in the cases of American Hotel & Lodging Educational Institute vs. CBDT and Queen’s Educational Society vs. CIT, which clarified that surplus funds ploughed back for educational purposes do not negate the charitable nature of an educational institution. The Tribunal noted that the CIT had not provided evidence that the society's income was used for non-educational purposes or that the society was engaged in profit-making activities inconsistent with its charitable objectives.

The Tribunal also referred to the ITAT Delhi's decision in the case of Shree Balaji Educational Trust vs. CIT, which under similar circumstances, held that the mere existence of surplus funds and expansion of educational activities do not disqualify an institution from being recognized as charitable. The Tribunal emphasized that at the stage of registration under Section 12AA, the CIT is only required to examine the objects of the society and the genuineness of its activities, not the application of income.

Conclusion:

The Tribunal concluded that the CIT's reasons for denying registration were based on incorrect and irrelevant facts. It held that the society's activities were genuinely educational and charitable in nature, as defined under Section 2(15) of the Act. The Tribunal directed the CIT to grant registration under Section 12A, following the precedent set by the ITAT Delhi in the case of Shree Balaji Educational Trust and the Supreme Court's decision in Queen’s Educational Society vs. CIT. The appeal of the assessee was allowed, and the order was pronounced in the open court on 04/01/2017.

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