2019 (6) TMI 929 - AT - Income Tax

Registration u/s. 12AA - denial of registration as applicant society is running a franchise purely on the basis of a well defined business model with no intent of imparting education to public at large - no way the genuineness of activities of the society can be corroborated with the stated aims and objects given that the society s activities are in the nature of business and can t be covered under the term charitable purpose - assessee registered under the Societies Registration Act 1860 is running a school under the name and style of Mother s Pride School at Bathinda school being run on a franchise basis entering into a franchise agreement (not on record) with M/s. Mother s Pride Education Personna Pvt. Ltd - HELD THAT - A playschool cannot by any stretch of imagination be regarded as scholastic instruction. Education as the word appears in s. 2(15) though not to be understood pedantically has to have the elements of structured courses designed to impart knowledge/training; accreditation; examination etc. and cannot be understood in a loose sense. One gets educated as explained in Sole Trustee Lok Sikshan Sansthan 1975 (8) TMI 1 - SUPREME COURT even by seeing pictures visiting galleries museums etc.; life itself being a great school. The same however it opined cannot be regarded as education u/s. 2(15) of the Act. The competent authority has in our clear view rightly alluded to the said decision stating that what stands imparted cannot be regarded as education u/s. 2(15). The assessee has not controverted the finding by the ld. CIT(E) that the Mother s Pride chain is of a playschool or that the agreement does not provide for a primary school and besides not furnished any evidence toward the said upgradation of the school to an elementary school i.e. class 1 onwards (up to class 5) i.e. as claimed. The first and the principal objection of the competent authority is thus valid. Dominant object of the assessee-society is to make profit which therefore cannot be regarded as charitable per se - As already opined that the only activity being pursued in furtherance of its objects is of a playschool which would not qualify as education under the Act. The question of examining the predominant object which is purely a matter of fact in running the said school thus does not arise for consideration. This is as only where the said activity qualifies to be education that the pre-dominant object in pursuing the same falls for being examined in-as-much as where and to the extent it is profit making the same may defeat the claim to being a charitable institution. Membership of the society from which its governing board is selected - While the competent authority states it to be limited to one family the assessee claims it to be comprised of three families. In our view this is a largely irrelevant consideration. What is relevant irrespective of who manages the society is that its activities inure to the benefit of general public. While certain sections of the public would get excluded for economic reasons that may by itself not oust its claim as a public institution. It is to provide inclusiveness breaking social and economic barriers that the RTE Act inapplicable to the asessee s school being a playschool has been enacted and made applicable to all types of schools. That is that the assessee does not qualify to be a school there-under is a different matter so that all that assumes relevance under the circumstances is if the activity pursued in fulfillment of/in achieving its object qualifies to be education which we have found it as not. - Decided against assessee.

Summary

Issues Involved:
1. Whether the activities of the assessee-society qualify as 'education' under section 2(15) of the Income Tax Act, 1961.
2. Whether the dominant object of the assessee-society is profit-making, thereby disqualifying it as a charitable institution.
3. Whether the structure and membership of the assessee-society undermine its status as a public institution.

Detailed Analysis:

1. Qualification of Activities as 'Education':
The primary issue was whether the activities of the assessee-society, which runs a playschool, qualify as 'education' under section 2(15) of the Income Tax Act, 1961. The competent authority denied registration under section 12AA, stating that running a playschool does not fit into the concept of education as defined by the Supreme Court in Sole Trustee, Lok Sikshan Sansthan Trust v. CIT [1975] 101 ITR 234 (SC). The court explained that 'education' connotes the process of training and developing knowledge, skill, mind, and character of students by normal schooling, which involves structured courses, accreditation, and examinations. The activities of the playschool were deemed to lack these elements, and thus could not be considered as 'education' under the Act.

2. Dominant Object of Profit-Making:
The second issue was whether the dominant object of the assessee-society was profit-making. The competent authority observed that the franchise agreement with a corporate entity to run the playschool was a profit-sharing arrangement aimed at maximizing returns. This arrangement indicated that the primary objective was profit generation rather than charitable purposes. Since the playschool did not qualify as 'education' under the Act, the profit motive further disqualified the assessee-society from being considered a charitable institution.

3. Structure and Membership of the Society:
The third issue was whether the structure and membership of the assessee-society undermined its status as a public institution. The competent authority noted that the society was controlled by one family, which raised concerns about its public character. The court, however, deemed this consideration largely irrelevant. What mattered was whether the activities of the society inured to the benefit of the general public. Despite the membership issue, the primary disqualification stemmed from the nature of the activities, which did not qualify as 'education' under the Act.

Conclusion:
The court upheld the competent authority's decision to deny registration under section 12AA, concluding that the activities of the assessee-society did not qualify as 'education' under section 2(15) of the Act. The dominant profit motive and the structure of the society further supported this decision. Consequently, the assessee's appeal was dismissed.