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2022 (2) TMI 705 - AT - Income TaxApproval for exemption u/s 10 (23C) (vi) denied - assessee contested that assessee being an Association of person can be granted exemption u/s 10 (23C) (vi) of The Act as thereis no requirement of getting itself registered u/s 12 A - whether the assessee as an Association of person is entitled to claim exemption u/s 10(23C) (vi) of the act or not? - HELD THAT - In the case of the assessee before us it is evident that undisputedly it is an association of two charitable trusts. Both these charitable trusts are also registered with the income tax authorities. Objects of Assessee / Appellant AOP is education. The Sharda Sikhshna Seva Samiti is a charitable trust registered Under the provisions of The Bombay Public Trust Act 1950 and registered since 24/5/1954. The Lodha trust is also a public trust registered Under The Bombay Public Trust Act 1950. This trust is also engaged in various charitable activities including educational activities and is operating schools at different places. These facts are already available in the management agreement entered into by the entities on 12th day of August 2014. Thus There is evidence that both these members of the association of persons are regulated entities by the Charity Commissioner. Appellant AOP has also filed its return of income. In view of this the reasons given by the learned CIT that assessee is an Association of person an unregulated entity and does not have any control over it therefore cannot be registered for exemption is fallacious. Even if the arguments of the revenue is accepted then the proviso to Section 10 (23C) clearly says that that the moment there is a violation of the provisions the exemption granted to the assessee trust can be withdrawn immediately. Though the counsel of the assessee has submitted that till date there is no distribution of profit amongst any of the members of the association and after the amendment to the deed of association of persons therein there is no question of distribution of profit and all the surplus has been utilized for the educational activities and not for any other activity. Revenue authorities are at always liberty to invoke such provisions the moment the violation is found. It is a fact on the basis of the information produced before us that there is no distribution of profit between the members of the Association of person. The learned departmental representative has merely doubted the supplementary deed only because of the reason that one of the signatories of the supplementary deed has already merged with another trust but has not shown us any evidence that there is any allocation of profit between the members of even a single rupee. Whether the assessee is existing solely for the educational activities or not? - There is no other revenue earned by Assessee. The expenses incurred by the assessee are also met and are with respect to the educational activities only and running of the school. At the end of the year gross receipt of 4, 54, 73, 382/ was earned and surplus of 1, 254, 386/ remained which went into recoupment of the earlier loss of 1, 634, 128/ . The fixed assets schedule of the assessee also shows that it has created assets for education of 4, 62, 67, 463/ out of the funds generated by the Association of person through its members. Therefore it is apparent that mere generation of surplus in the income and expenditure account is not the basis for determination that whether the assessee exist not for the purposes of profit. If the surplus is utilized for educational activities then it cannot be said that it is an institution existing for the profit. In the present case the surplus was utilized only for educational purposes. No evidences lead before us to show that any of the income earned by the assessee institution has been spent for non-educational purposes. This is in consonance with paragraph number 3 of the circular issued by the central board of direct taxes. Thus on this basis rejection of the exemption claim of the assessee is not justified. Whether the Association of person is running an educational Institute or not? - Undisputedly as on 28 February 2019 one of the members of the AOP was merged with another trust and therefore instead of the member of the AOP trust in which the member of AOP amalgamated is mentioned. Further in certificate dated 7 March 2019 name of both the members of the Association of person are mentioned. The fees have been received by the Association of person the educational activities are also carried out by the Association of person and fixed assets created for education purposes are in the name of AOP which fact is evident by the annual accounts placed before the CIT. The fact also mentioned in form number 10 BB filed before him. Form number 56D in column number 3 clearly shows that the Association of person is formed to run and manag an English medium public school. In the same form the total income is also shown which clearly shows that that assessee is running a school. Thus all these facts cumulatively s shows that assessee Association of person is running the school and in all these certificates issued by the educational department Maharashtra clearly mentions the name of both the members of the assessee AOP. In view of these facts we find that finding of the CIT exemption that the school is run by one of the members of the AOP and not by the AOP is not correct. If any of the conditions are violated based on which the exemption is granted to the assessee the provisions of the law itself gives authority to prescribed authority to withdraw the exemption already granted. This is also mandated and explained in detail in the circular issued by the central board of direct taxes. So far this year is concerned there is no violation of any of the conditions prescribed u/s 10(23C) by the assessee. None is shown to us by the revenue authorities. It is also not shown that even for any of the subsequent years; there is any violation of the conditions. In view of this we are of the opinion that the assessee is an educational Institute running solely for the purpose of education and not existing for the purposes of the profit. It satisfies all the conditions mentioned u/s 10(23C) (vi) of the act. We allow appeal of the assessee directing the learned CIT E to grant exemption to the assessee u/s 10 (23C) (vi) of the act.
Issues Involved:
1. Justification of the CIT's refusal to grant approval for exemption under Section 10(23C)(vi) of the Income Tax Act, 1961. 2. Provision of proper and reasonable opportunity of being heard before refusal. 3. Acceptance of the order by the Asst Charity Commissioner regarding the merger of trust. 4. Refusal of registration on alleged flimsy grounds and lack of appreciation of facts. 5. Consideration of the names of members of the AOP in the application for minority status. 6. Existence of the AOP for educational purposes and not for profit. 7. CIT's requirement to verify the charitable nature and genuineness of the AOP. 8. Relevance of the definition of "person" under Section 2(31) of the Income Tax Act. 9. Entitlement of the AOP to deduction under Section 10(23C)(vi). Detailed Analysis: 1. Justification of the CIT's Refusal to Grant Approval: The CIT denied the exemption on the grounds that the AOP was not a university or educational institution as required under Section 10(23C)(vi). The CIT also noted that the permission to run the minority school was in the name of Sitaben Shah Memorial Trust and not the AOP. Additionally, the CIT highlighted that the AOP was not registered with any educational department or board, and the objects of the AOP allowed for activities beyond educational purposes. 2. Provision of Proper and Reasonable Opportunity of Being Heard: The assessee argued that the CIT did not provide a proper and reasonable opportunity of being heard before refusing the exemption. The CIT's refusal was based on the interpretation that the AOP was not running an educational institution and did not solely exist for educational purposes. 3. Acceptance of the Order by the Asst Charity Commissioner: The assessee provided evidence that the Sitaben Shah Memorial Trust, which managed the school, had merged with other trusts as per the order of the Asst Charity Commissioner. The CIT, however, did not accept this merger and held that the AOP was not running the educational institution. 4. Refusal of Registration on Alleged Flimsy Grounds: The CIT refused registration on the basis that the AOP's agreement was not registered or notarized and there was no control mechanism to maintain the distinct identity of the AOP. The CIT also rejected the supplementary deed amending the profit distribution clause, as it was executed after the Lodha Charitable Trust had merged with another trust. 5. Consideration of Names of Members of the AOP in the Application for Minority Status: The assessee argued that the names of the members of the AOP were part of the application for minority status, and the educational activities were carried out by the AOP. The CIT, however, held that the permissions and approvals were in the name of Sitaben Shah Memorial Trust and not the AOP. 6. Existence of the AOP for Educational Purposes and Not for Profit: The assessee contended that the AOP existed solely for educational purposes and did not distribute any profits among its members. The CIT, however, pointed to the original deed which allowed for profit distribution and rejected the supplementary deed that rectified this clause. 7. CIT's Requirement to Verify the Charitable Nature and Genuineness of the AOP: The CIT was required to verify whether the AOP was a genuine educational institution existing solely for educational purposes. The assessee provided evidence of educational activities and argued that the surplus generated was used for educational purposes. 8. Relevance of the Definition of "Person" under Section 2(31): The assessee argued that an AOP is included in the definition of "person" under Section 2(31) and is eligible for exemption under Section 10(23C)(vi). The CIT, however, held that the AOP did not qualify as an educational institution under the provisions of the Income Tax Act. 9. Entitlement of the AOP to Deduction under Section 10(23C)(vi): The Tribunal referred to various judicial precedents and the CBDT circular, concluding that the AOP, being an educational institution existing solely for educational purposes and not for profit, was entitled to exemption under Section 10(23C)(vi). The Tribunal noted that the surplus generated was used for educational purposes and there was no distribution of profit among the members. Conclusion: The Tribunal allowed the appeal filed by the assessee, directing the CIT to grant exemption under Section 10(23C)(vi) of the Income Tax Act, 1961. The Tribunal emphasized that the AOP met the necessary conditions for exemption, including existing solely for educational purposes and not for profit, and that the CIT's refusal was not justified based on the evidence provided.
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