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TMI Blog2016 (12) TMI 1076X X X X Extracts X X X X X X X X Extracts X X X X ..... in ignoring the explanation and evidences brought on record by the assessee to prove that the applicant trust is eligible for registration. 4. On the facts and circumstances of the case, the learned CIT has erred both on facts and in law in holding the activities conducted by the assessee are profit oriented business activities and not a charity institute, despite the assessee bringing all the material and evidence on record to prove that its activities fall within the meaning of charitable purposes." Grounds in ITA No. 4181/Del./2014: 1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (CIT) rejecting the application for approval under Section 80 G of the Income Tax Act is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, the learned CIT has erred both on facts and in law in passing the order rejecting the application for approval under section 80G of the Act, without giving assessee an opportunity of being heard in violation of principle of natural justice. 3. On the facts and circumstances of the case, the learned CIT has rejected the application for approval under Section 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act, 1961. The provisions of sec 11 and 12 do not envisage that a charitable institution shall provide charity by charging fees from public at large. The fees received are outside the scope of sec 11 and 12 and shall, therefore, be taxable. Fees imply direct involvement of consideration for the services rendered. Fees can not be voluntary and are, therefore, taxable under the head profit and gains of the business or profession. The charging of fee is also in violation of the contents of para 13 of memorandum of Society. The Society is running its institutions on purely commercial lines and earning profits/surpluses systematically year after year by charging fees from thestudents and making profits. Thus, the assessee trust is profit oriented business entity and not a charitable institute. Keeping in view of the above, the application of the assessee trust does not deserve for registration. 4. The society is just like a private discretionary society controlled by the President, Secretary and Executive Body Member of the society who are brothers having close family relations with other members. Complete and updated list of members as well as office bearers were furnished. As p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c at large and therefore society is running its institution on purely commercial lines and earning profits/ surpluses. In this regard it is submitted that applicant was not operational at that time and did not receive any single rupee in respect of fees from the students as is evident from the last three years audited Balance Sheet and income & expenditure A/c and therefore the allegation made by the ld. CIT is completely wrong and against the facts of the case. 8. This action clearly shows that Ld. CIT rejected the application without even going through the documents filed by the assessee. 9. Firstly, it is a settled law that charging of fees by a school cannot be a ground for holding that the school is not for charitable purposes. This issue has come up before Hon'ble Supreme Court in the case of Queen's Educational Society vs. CIT (2015) 8 SCC 47, where the Court has held as under: "The final conclusion that if a surplus is made by an educational society and ploughed back to construct its own premises would fall out of Section 10(23-C) is to ignore the language of the section and to ignore the tests laid down in Surat Art Silk Cloth case [CIT v. Surat Art Silk C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , even if the assessee is charging the fees as being charged by the colleges running on commercial basis, still it would fall within the definition of 'charitable purpose1 as per the Circular of CBDT. 14. This issue is squarely covered by the order of Delhi ITAT in the case of Sri Gian Ganga Vocational and Education Society vs. CIT Rohtak (2013) 154 ITR (T) 74 wherein it has been held that - "7. We have heard the parties and have perused the material on record. We find that the ld. CIT has not raised any objection against the objects of the assessee Society. The main object of the Assessee Society is education, which, undeniably, is of charitable nature, in line with the provisions of Section 2 (15) of the Act. Further, the Id. CIT has taken recourse to the RTE Act to reject the assessee's application. Now, as correctly contended, it is not within the CIT's purview to do so. Under Section 12AA, what is required to be seen by the Id. CIT while considering an application for grant of registration, is as to whether the object of the applicant is charitable and as to whether its activities are genuine any further. The jurisdiction and competence to examine an issue un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t such an educational institution exists for profit and that merely because profits have resulted from the activity of imparting education, it would not result in change of character of the institution that exists solely for educational purposes. 12. In 'Reliable Educational Alliance Society' (supra) (authored by one of us - the JM), it has been held that at the time of granting registration, the CIT is required only to satisfy himself about the objects of the Trust and the genuineness of its activities, and no further. 13. In 'Dream Land Educational Trust' (supra) (authored by one of us - the JM), it has been held, again, in accordance with the Section 12AA of the Act, the CIT is required to satisfy himself only about the objects of the Trust and the genuineness of its activities and where the CIT has recorded no dissatisfaction on either of these aspects, he is not justified in refusing grant of registration on extraneous considerations. 14. No decision to the contrary has been brought to our notice on behalf of the department. 15. In view of the above, the order passed by the Id. CIT is hereby cancelled. We direct the Id. CIT to grant registration to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation of Section 13(3), the consequence will follow in the assessment of that year but the verification of the donation or verification of violation of Section 13(3) is not the relevant consideration for registration of trust under Section 12AA. In view of the above, we set aside the order of learned CIT and direct him to grant registration to the assessee trust." 16. Again this issue was discussed in Delhi ITAT in the case of J K education Samiti Vs CIT Rohtak 2015(5) TMI 814 in which it has been held that 5. We have heard rival parties and have gone through the material placed on record. We find that Section 12AA deals with the procedure for registration which inter alia provides that on an application filed by assessee, the Commissioner of Income Tax will make certain queries as he may deem necessary in this respect and after getting satisfied about the objects of the society/institution and the genuineness of activities, he shall pass an order in writing registering the institution or on non satisfaction, refusing the registration thereof as the case may be. However, before passing order for refusal of registration, the assessee will be provided reasonable opportunity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above findings of Hon'ble Supreme Court are with reference to Section 10(23C)(iiiad) and not in respect of Section 11 and 12 yet the ratio of decision is that mere earning of profit in the course of carrying out charitable activities cannot be a reason for not granting registration u/s 12AA of the Act." The above judgment is considered recently in the case of Shree Balaji Education Trust c/o Anil Ashok & Associates vs CIT Dehradun 2016 (3)TMl 969 where in it has been held that "10. It is relevant to mention that grant of registration under section 12A of the Act does not automatically make eligible the applicant for exemption under section 11 and other relevant provisions of the Act During the assessment proceedings while considering such claim of assessee the AO is fully empowered to examine and verify these facts that whether the assessee/applicant has applied its receipts towards its charitable objects and the AO is also empowered to verify as to whether the applicant assessee is conducting any activity in the name of charitable which is actually in the nature of trade commerce or business. These sovereign powers of the tax authorities are perpetual which cannot be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the institution cannot be considered to be undemocratic, if two relatives are occupying the position in the management. In fact, Section 13 itself provides for payment of salary, and allowance to the persons in the management, in case such payment does not exceed what may be reasonably paid for such services. Thus, we are in agreement with CIT(A) that there is no such restriction in Section 13 regarding relatives holding position in the charitable society or institution." 17. This issue also cropped up before ITAT Delhi in the case of NLB Charitable Trust Vs CIT, Meerut (ITA No. 1707/D/2009) wherein it has been held that "12. These clauses describe only reimbursements of out-of-pocket expenses incurred by the trustees in the course of discharging the objects of the trust and for payment of honorarium for the work a particular trustee do for carrying out the activities of the trust and honorarium will have to have the approval of Board of Trustees and other clause deals with indemnification and reimbursement for the lawful acts in the discharge of objects of the trust. The trustees are prohibited from deriving any direct or indirect pecuniary advantage out of trust propertie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, and the expenditure has been incurred to procure more admissions with the sole motive of earning profits and hence the expenditure should be incurred solely for the purpose of education is not satisfied. 20. In this regard it is submitted that perusal of the advertisement reveals that the expenditure was incurred for hiring of Directors. Professors, Associate professors/ Assistant professors for the various subjects of engineering i.e., Computer Science, electronics & communications, mechanical, electrical, civil, Physics, chemistry, Mathematics, English IT Branches. 21. Learned CIT is completely wrong in drawing the conclusion that the advertisement was done to procure any admission since the expenditure is done for hiring the professors which is directly related to the activities of the society. 22. Therefore, considering all the above three allegations, the above action of the Ld. CIT in rejecting the application filed by the assessee is invalid and against the provisions stipulated in the law. 23. It is a trite law that the CIT is empowered to satisfy himself about the objects of the trust and the genuineness of the activities of the trust or institution and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses 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. In view of the above, materials on record and case laws relied on by the assessee, we find no justification to refuse the registration to the assessee society. We accordingly, allow the appeal of assessee for registration u/s. 12AA of the IT Act. 7. The appellant had also applied for registration u/s. 80G. After perusing the order of the CIT, we find that the CIT has noted that the assessee was given opportunity for hearing on 02.04.2014, 16.04.2014, 23.04.2014 and 28.04.2014. On the date of final hearing, nobody attended the proceedings nor any written reply was received by CIT. In our opinion, 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. We accordingly restore the matter of approval u/s. 80G to the file of CIT fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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