2017 (12) TMI 793 - AT - Income Tax

Grant of registration u/s 12A denied - appellant is not running the educational institution - Held that - The income and expenditure account of the school shows excess of expenditure over income, of ₹ 4,92,417/-. As per the balance sheet (APB 19-22), the investment in fixed assets has been shown at ₹ 9.20 crore. The investment in purchase of land was of ₹ 22,15,200/- in A.Y. 2011-12. The investment over construction of school building was shown at ₹ 9.98 crore. The returns filed by the assessee have attracted no adverse remark from the Department. In fact, the ld. CIT has himself observed the assessee to have made expenditure after obtaining unsecured loans of more than ₹ 10 crore. This itself goes to show that the expenditure in establishing and running the school was laid out by the assessee Society. The ld. CIT has not made any observation that any expenditure was made by G.D. Goenka. Nothing has been brought on record to show that the assessee Society is working/is to work under G.D. Goenka, or that there is any interference of G.D. Goenka in the affairs of the school run by the assessee Society. There is nothing on record to show that any part of the fund has been utilized by the assessee Society for any profit/gain. Nothing has also been brought on record to show that funds were diverted to either the trustees, or their relatives. There is no violation of section 13 of the I.T. Act, as such. In S.R.M. M. CT. M. Tiruppani Trust vs. CIT (1998 (2) TMI 3 - SUPREME Court ), it has been held that money having been spent on acquisition of assets for educational institution amounts to application of funds for charitable purposes. - Decided in favour of assessee.

Summary

Issues:
Appeal against rejection of registration u/s 12AA of the IT Act.

Analysis:
The assessee appealed against the rejection of their application for registration u/s 12AA of the IT Act. The CIT rejected the application citing concerns about the trust's activities, specifically related to running a school and acquiring a franchise. The CIT raised questions about the nature of the school's operations, the substantial royalty payments made, and the source of funding for capital expenditure. The CIT's decision was based on the perceived commercial nature of the activities rather than charitable purposes, as required under section 2(15) of the IT Act.

The assessee contended that the CIT erred in rejecting the application based on presumptions without concrete evidence. The assessee argued that all necessary documents were provided, demonstrating the genuine educational activities of the trust. The assessee emphasized their independence as a trust and refuted any external interference in running the school. Additionally, the assessee highlighted that the purpose of imparting education qualifies as a charitable purpose under the law.

Upon review, the ITAT found that the assessee was established for educational purposes, evident from the society's objects. The school operated by the assessee was affiliated with the CBSE, and investments in infrastructure were acknowledged by the department. The ITAT noted that all financial transactions were in the name of the assessee society, with no involvement from the franchise entity. The ITAT also observed that there was no evidence of funds being misused for personal gain, ensuring compliance with section 13 of the IT Act.

Referring to the 'S.R.M. M. CT. M. Tiruppani Trust vs. CIT' case, the ITAT emphasized that spending on acquiring assets for educational purposes qualifies as charitable expenditure. Consequently, the ITAT ruled in favor of the assessee, deeming the rejection of registration by the CIT as legally unsustainable. The CIT was directed to grant registration to the assessee society, subject to verifying specific operational details of the school. Ultimately, the appeal was allowed in favor of the assessee.