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TMI Blog2018 (2) TMI 1692X X X X Extracts X X X X X X X X Extracts X X X X ..... ld under the Trust. CIT (A) was incorrect in law in holding that contribution received by way of fees from the beneficiaries is not an income from the property held under the trust. The assessee school has been charging fees only from its students and there is no capitation fee at all. Such fees have been charged from the students for the running of the school and has been applied for its dominant purpose/object of carrying out educational activity. In this case one of the main objection raised on behalf of the department was that said Board was not entitled for the benefit of Section 11 as it was not a trust under the ‘Public Trust Act’ and therefore, it was not entitled to claim registration u/s. 12A. Since it was not held under the trust therefore, it is not entitled for exemption u/s. 11(1)(a). The assessee society which has been registered under ‘Registration of Societies Act, 1860’ with the sole object of providing education and has a legal obligation for applying its income for such charitable purpose, then for the purpose of Section 11 it has to be treated as trust and income derived from carrying out such obligation has to be reckoned as income derived from proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that income of the appellant cannot be assessed under the head Profits gains from business or profession even where exemption u/s 10 or 11 is not to be allowed. 7. Without prejudice to above, the Ld. CIT (Appeal) has erred, on facts in law, in holding that income of the appellant has to be assessed under the residual head Income from other sources but the expenditure incurred for running the school cannot be allowed as deduction u/s 57. 2. The brief facts of the case are that assessee is a society registered under Registration of Societies Act, 1860 , which is carrying out educational activities upto Senior Secondary Level and a running school in the name of Adarsh Public School in NOIDA. Looking to its activities for charitable purposes in terms of section 2(15), i.e., education it has been granted registration u/s.12A by the Commissioner of Income Tax, Ghaziabad, vide certificate dated 05.09.2013. Accordingly, the assessee was entitled for benefits u/ss.11 12 of the IT Act. It has filed its return of income for the Assessment Year 2011-12 on 08.08.2011, declaring NIL income after computing the income as per section 11. During the course of assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for exemption u/s 11, therefore, the entire receipts by way of fees and other charges from the students would be treated as its income for the reasons that, firstly, since the appellant is not claiming any income u/s 28, therefore, the question of allowing any deduction incurred does not arise; and secondly, once the income is found to be not eligible for exemption u/s 11, the provisions of chapter IV-D would not apply. 4. Thereafter, the ld. CIT (A) discussed in detail the concept and theory of charitable purposes as defined in Section 2(15) and conditions laid down in Sections 11 to 13 for granting of benefit. The detailed discussion on provision of law has been discussed from paragraphs 14 to 60 (pages 4 to 18 of the appellate order), which being of pure academic in nature, hence no discussion as such is required to be dealt with. He has also referred to following judgments and propositions laid down by the Hon'ble Apex Court: (i) ACIT vs. Surat Art Silk Cloth Manufacturers Association, Surat, (1980) AIR 387 SC. (ii) Ms Mohini Jain Vs. State of Karnataka and Others, (1992) AIR 185 SC. (iii) Unnikrishnan J.P. Ors. etc. vs. State of Andhra Pradesh O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12; * Secondly, its income cannot be taxed as business income, albeit it has to be taxed as income from other sources u/s.56(1); and * Lastly, the assessee is not entitled for any deduction against its income under the provision of Section 57 and accordingly the entire receipts of ₹ 1,04,85,689/- would be taxed. Thus, the entire receipts stood taxed by the ld. CIT (A). 6. Before us the ld. counsel for the assessee, Mr. K. C. Singhal, after drawing our attention to the various observations of the ld. CIT(A), submitted that mainly three reasons have been given by the ld. CIT(A) to tax the entire receipts:- (i) Since the assessee is eligible for exemption under specific provision of Section 10(23C) then it cannot avail exemption under the general provision of Section 11; (ii) Income derived by the assessee from its activity of running school cannot said to be income derived from property held under the Trust; (iii) Charging of fees amounts to under charitable activities because educational institutions are not permitted to extract or recover the cost of charity from its beneficiaries by way of fees. 7. In support of the aforesaid reasoning, Ld. CIT (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon by him are as under:- i. CIT-v- Gujarat Maritime Board 295 ITR 561 SC ii. All India Spinners Association-v-CIT 12 ITR 482 PC iii. CIT-v-Andhra Chamber of Commerce 55 ITR 722 SC iv. Delhi Stock Exchange Association Ltd-v-CIT 225 ITR 235 SC v. Institute of Chartered Accountants of India-v-DGIT 358 ITR 91 (Del) 8. Mr. Singhal submitted that if the interpretation of ld. CIT(A) is accepted, then no educational institution will ever be able to claim exemption which certainly cannot be the intention of the legislature. He further submitted that, assessee came into existence as society with the sole object of providing education and hence it was under obligation to set up an infrastructure for the same and to carry out such activities. In the Memorandum of Association, there was no clause under which any of the fund of the society could be diverted for a private gain and in fact section 14 of the Registration of Societies Act, 1860 specifically provides that in case of dissolution, the property of the society shall not be paid or distributed to any member but the same shall be given to some other society. As regards his finding that the entire rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been granted registration u/s.12A by the competent authority, i.e., Ld. CIT Ghaziabad. Once registration u/s.12A is granted, then it is fait accompli and accordingly, all its receipts / income are subject to computation and benefit u/s.11 to 12 and restrictions provided u/s 13. Such a registration u/s 12A has neither been withdrawn nor has any action been taken by the competent authority to withdraw such certificate of exemption granted u/s.12A. That is the reason why the assessments have completed u/s. 143(3) for the subsequent assessment year, wherein the assessee has been given the benefit of Section 11. Here in the impugned assessment year the case of the Assessing Officer was that the audit report in Form 10B was not filed along with return of income and the one which was filed during the course of the assessment proceeding was back dated. This allegation of the Assessing Officer has been negated by the ld. CIT(A) who has found that audit report in Form 10B was proper. Thus, the ground and the finding of the Assessing Officer to deny the claim of benefit of section 11 has been overruled by the first appellate authority, which finding has now attained finality as revenue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that there was no material or evidence on record to show whether or not the securities were held by the assessee- Council for any of the charitable purposes and, therefore, it remanded the case. The remand order was never challenged by the revenue by seeking a reference on the ground that a remand was unnecessary because section 11 was ruled out by reason of exemption having been obtained by the assessee- Council under section 10(23A) nor was any such contention raised when reference was sought by the assessee- Council nor when the matter was being argued in the High Court. In these circumstances, it is clear to us that the revenue acquiesced in the view taken by the Tribunal that the claim for exemption under section 11 could not be said to be ruled out by reason of the provisions of section 10(23A). We, therefore, proceed to deal with the second contention which was principally argued before us in these appeals. 13. Thus, the aforesaid observation of the Hon'ble Apex Court, makes it very clear that there is no bar or disharmony between Section 10(23C) and Section 11; and exemption of Section 11 cannot be denied even when there is a specific provision of Section 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s proposition at all, because if fees is not charged from the students then how the activity of imparting education can be carried out. Fees collected from the students itself feeds the charity, unless some other considerations are received for profiteering and personal gains of trustees or members of the society. Strong reliance has been placed by the ld. CIT (A) upon the judgment of Hon'ble Apex Court in the case of ACIT vs. Surat Art Silk Cloth Manufactures Association (supra). In our humble understanding of the said judgment and the principle laid down by the Constitutional Bench of Hon'ble Apex Court, nowhere the Hon'ble Apex court has held that the charging of fees or some profit for carrying out charitable activity would be reckoned as not charitable. The Hon'ble Apex Court held that if primary or dominant purpose of a trust or institution is charitable, then any other object which by itself is not charitable and is mere ancillary to the dominant purpose then also it is held to be valid charity. The primary test which is to be applied is, whether the main or primary object of the trust is charitable or not. It is an undeniable that under the Income Tax Act, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Conditions granting recognition or affiliation can broadly cover academic and educational matters including the welfare of students and teachers. [Emphasis added is ours] 16. Thus, the Hon'ble Apex Court held that in principle there should be no capitation fee or profiteering, but reasonable surplus to meet the cause of education and augmentation of facility does not amount to profiteering. Nowhere the Hon'ble Apex Court has held that educational institution is debarred from taking any kind of fees from the students albeit they have expressed caution in a limited way on a capitation fee for the purpose of profiteering. Similarly in the other judgment relied upon by the ld. CIT (A), that is, in the case of Islamic Academy of Education Ors vs. State of Karnataka (supra), the Hon'ble Apex Court again following the principle of the constitutional Bench in the case of TMA Pai Foundation Others (supra) and observed as under:- 212. So far as the first question is concerned, in our view the majority judgment is very clear. There can be no fixing of a rigid fee structure by the government. Each institute must have the freedom to fix its own fee structure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LKG 500 12 78 4,68,000 1,000 3,600 7 25,200 78,000 UKG 500 12 70 4,20,000 1,000 3,600 8 28,800 70,000 1 600 12 69 4,96,800 1,000 3,600 12 43,200 69,000 2 600 12 83 5,97,600 1,000 3,600 15 54,000 83,000 3 600 12 80 5,76,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,600 5 18,000 29,000 TOTAL 80,14,800 6,73,200 9,99,000 FINE 2,65,095 LATE FEES 27,750 30,500 B/S 82,79,895 B/S 7,00,950 10,29,500 4,70,900 1,04,81,245 18. From the above details, it is quite evident that the assessee school has been charging fees only from its students and there is no capitation fee at all. Such fees have been charged from the students for the running of the school and has been applied for its dominant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he finding of the Hon'ble Apex Court reads as under:- 12. One of the objections raised on behalf of the Department was that Gujarat Maritime Board is not entitled to the benefit of section 11 of the 1961 Act as the said Board was not a trust under Public Trust Act and, therefore, it was not entitled to claim registration under section 12A of the 1961 Act. The Department's case was that the Maritime Board was a statutory authority. It was not a trust. Its business was not held under a trust. Its property was not held under trust. Therefore, the Board was not entitled to be registered as a Charitable Institution. It was the case of the Department that the Board was performing statutory functions. Development of minor ports in the State of Gujarat cannot be termed as the work undertaking for charitable purposes and in the circumstances the Commissioner rejected the Board's application under section 12A of the 1961 Act in the light of the above case of the Department, we are required to consider the expression 'any other object of general public utility' in section 2(15) of the 1961 Act. 13. ....... 14. We have perused number of decisions of this C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is deployed for the development of minor ports in India. In the circumstances, in our view the judgment of this Court in Andhra Pradesh State Road Transport Corpn.'s case (supra) squarely applies to the facts of the present case. 17. Before concluding we may mention that under the scheme of section 11(1) of the 1961 Act, the source of income must be held under trust or under other legal obligation. Applying the said test it is clear, that Gujarat Maritime Board is under legal obligation to apply the income which arises directly and substantially from the business held under trust for the development of minor port in the State of Gujarat. Therefore, they are entitled to be registered as 'Charitable Trust' under section 12A of the 1961 Act. 20. This principle has been reiterated by the Hon'ble Delhi High Court in the case of Institute of Chartered Accountants of India-v-DGIT, 358 ITR 91 (Del). Thus, the assessee society which has been registered under Registration of Societies Act, 1860 with the sole object of providing education and has a legal obligation for applying its income for such charitable purpose, then for the purpose of Section 11 it has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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