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TMI Blog2012 (6) TMI 876X X X X Extracts X X X X X X X X Extracts X X X X ..... tudents. The assessee-society has applied for registration under section 12AA(1) of the Act and a report was called for by the ld. Commissioner of Income-tax. The ld. Commissioner of Income-tax noticed the financial position of the assessee-society for the last three years which are as under:- Sl. No. F.Y. Gross Receipt Profit/Surplus 1 2006-07 76,78,873.00 29,84,250.45 2 2007-08 99,16,083.54 45,53,345.38 3 2008-09 1,65,34,914.83 54,57,083.52 3. From the aforesaid financial position, the ld. Commissioner of Income-tax observed that the assessee-society is carrying on its activities in such a manner that it is in the nature of a commercial enterprise and not for charitable purpose. The assessee-society stated that it is engaged in the charitable activities like conducting combined marriage of poor girls and charge subsidized fees from students. From the perusal of the balance sheets, the ld. Commissioner of Income-tax observed that the assessee-society is not spending money on charitable purposes. Relying upon the judgment of the Hon'ble Apex Court in the case of Municipal Corpn. of Delhi v. Children Book Trust [1992] 63 Taxman 385, the ld. Commissioner of Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Gaur Brahmin Vidya Pracharini Sabha [2011] 203 Taxman 226/15 taxmann.com 250 (Punj. & Har.) 8 ITO(E) v. Dharamshila Cancer Foundation and Research Centre [2010] 8 taxmann.com 285/[2011] 128 ITD 1 (Delhi) 9 St. Lawrence Educational Society v. CIT [2011] 197 taxman 504/9 taxmann.com 233 (Delhi) 10 American Hotel and Lodging Association Educational Institute v. CBDT [2008] 301 ITR 86/170 Taxman 306 (SC) 6. The ld. D.R., on the other hand, has submitted that the assessee- society has been charging substantial fee from the students resulting into surplus profit and this fact is evident from the financial statements of the assessee-society. Therefore, the assessee-society is not engaged in charitable activities. Nothing is placed on record to show that at any point of time the assessee had imparted education at free of cost to the poor and needy. Since the assessee has been running the society for earning profit and also in the nature of commercial enterprise, the ld. Commissioner of Income-tax has rightly denied registration under section 12AA of the Act and approval for exemption under section 80G of the Act. 7. Having given a thoughtful consideration to the rival s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the provisions of section 12A. [Para 18] section 12A thus, prescribed conditions for registration of trusts and obligates the trust or the institution to seek registration under section 12AA, if such trust or institution intends to have the benefit of the provisions of section 11 and section 12. [Para 19] These provisions thus, make it clear that if the trust or the institution is not registered under section 12AA, it would not be able to claim any exemption or exclusion of its income from the total income of the previous year, even if such income is otherwise liable to be excluded under any of the clauses of section 11 or section 12. [Para 20] Thus, in a case where registration is refused, the trust or the institution would not be allowed to claim any such exemption or exclusion of its income from the total income of the previous year. [Para 21] The provision of section 12AA confers power on the CIT while considering the application for registration of a trust or institution made under clause (a) of section 12A to call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects of the trust/society or the institution, of course, the registration can again be refused. But on mere presumptions and on surmises that income derived by the trust or the institution is being misused or that there is some apprehension that the same would not be used in the proper manner and for the purposes relating to any charitable purpose, rejection cannot be made. [Para 33] Section 12 AA, which lays down the procedure tor registration, does not speak anywhere that the Commissioner, while considering the application for registration, shall also see that the income derived by the trust or the institution is either not being spent for charitable purpose or such institution is earning profit. The language used in the section only requires that activities of the trust or the institution must be genuine, which accordingly would mean, they are in consonance with the objects of the trust/institution, and are not mere camouflage but are real, pure and sincere, nor against the proposed objects. The profit earning or misuse of the income derived by charitable institution from its charitable activities, may be a ground for refusing exemption only with respect to that part of the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing the income which has not been applied to the purpose of the trust or the Institution, the intention of the law maker and the scope and purport of the provision is apparent while considering the question of registration. [Para 45] The Tribunal has rightly found that the objects show that none of the objects were against public policy and the main activity of the said Society was to provide education to children from Primary section to Degree level and to improve the mental, social and other development of the students. [Para 47] A provision has also been made with respect to under-privileged children providing for their protection and rehabilitation and also physical development through exercise and sports, besides providing library and reading room for the development of the students. The objects, therefore, cannot be said to be the objects, which run against public policy or do not fall within the category of activities, which are for charitable purposes. Education in itself is a charitable purpose and activities related thereto, which include, both physical and mental development and also instilling of a feeling of self-confidence through exercise, sports and extensive r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... running a library, which is again an educational purpose, it cannot be a ground for refusing registration of the assessee society. [Para 54] There is no finding that the aforesaid activities of the society were not genuine. The Tribunal has also considered that the balance sheet could not be reconciled as earlier the balance sheet was not audited and the audited balance sheets, which were filed before the CIT, did not show any discrepancy. [Paras 55 & 56] So far the non-deduction of provident fund from the salary paid to certain employees is concerned, that in itself again would not constitute a ground for rejection, as no such requirement stands spelt out from provisions of section 12AA nor it makes the activities of the institution as non-genuine. In case the institution has defaulted or defaults in the matter of deposing, contributions of the employees provident fund, the Act concerned shall take care of such default but in no case it can be a ground for refusal of registration. [Para 57] So far the charge of fee is concerned, it was on record that the fee was being charged, which was prevailing in other schools and tuition fee etc. ranged from ₹ 225 to ₹ 700, exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the connotation of "education". 11. In the case of Vanita Vishram Trust (supra), their Lordships of Hon'ble Bombay High Court have observed while dealing with the issue of rejection of approval under section 10(23C) of the Act that though the Memorandum of Association contains varied objects, so long as the record demonstrates that the assessee only conducts educational institutions, it must be regarded as existing solely for the purpose of education. No other activity is carried on. Secondly the fact that a surplus may incidentally arise from the activities of the trust after meeting the expenditure incurred for conducting educational activities would not disentitle the trust of the benefit of the provisions of section 10 (23C) of the Act. 12. An identical issue came up for consideration before the Lucknow Bench of the Appellate Tribunal in the case of Raebareily Polytechnic Association (supra) in which substantial surplus amount/profit was generated in two financial years i.e. 2004-05 and 2005-06 at ₹ 10,88,741 and ₹ 12,09,095 respectively. The registration under section 12A of the Act was denied by the ld. Commissioner of Income-tax after having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, for charitable purposes. Thus, presence of income in the case of an institution existing for charitable purposes (education included therein) is envisaged by the legislation and to grant exemption of such income from taxation, the legislature itself has provided an elaborate code as has been laid down in section 11 and rules made thereunder. In case presence of income in a particular year is treated as disqualification for the purposes of registration under section 12A, the provision of section 11 granting exemption of income shall be rendered as otiose, which is not the intention of law. Accordingly, presence of profit in the financial statements referred to by the CIT is not a disqualification for the purposes of granting registration under section 12A. The view to the contrary is liable to be rejected and, therefore, rejection of assessee's claim of registration on this ground was illegal and bad in law. Reason which is based on fact of there being huge profit is absolutely irrelevant for the purposes of deciding the appellant's claim for registration under section 12A. A plain reading (sic-of) to section 12A goes to show that, at the time of granting registration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, the ten words reading as not involving the carrying on of any activity for profit occurring at the end of section 2 (15) had been omitted by the Finance Act, 1983 with effect from 1-4-1984 and such an omission, continues to remain so omitted (as proviso below section 2(15) by the Finance Act, 2008 also does not cover education or activities connected with the education. This analysis itself goes to nullify the view taken by the CIT in the order under challenge. Accordingly, presence of profit in the financial statements referred to by the CIT is not a disqualification for the purposes of granting registration under section 12A. The view to the contrary is liable to be rejected and, therefore, rejection of assessee's claim of registration on this ground was illegal and bad in law. [Para 8.9] It is clear that there is a judicial consensus to the effect that an educational institution cannot be said to be existing for the purposes of profit if surplus earned by it from educational and other related activities has been utilised for the purposes of educational activities only. [Para 8.11] Although there was huge surplus (so to say) for the years ending on 31-3-2005 and 31-3-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was more than 85 per cent of the gross receipts as per the provisions of the Act. As such the assessment was completed on nil income, therefore, this cannot be a ground to deny the exemption under section 80G that assessee was having surplus. Furthermore, the approval for exemption under section 80G(5) was granted to assessee upto 31-3-2009, however without bringing any material on record that there was a change in the facts for the year under consideration vis-a-vis the earlier years, the approval for the year under consideration under section 80G(5) had been denied. In the instant case nothing was brought on record that the education in the institutes run by assessee was on commercial lines. Therefore, merely on this basis that there was a surplus, which was utilized as per the provisions contained in section 11 approval under section 80G(5) cannot be denied. Considering the totality of the facts assessee was entitled to renewal of approval under section 80G. The CIT denied the approval under section 80G(5) to the assessee for the reason that there was huge surplus available with the assessee. On the other hand, the AO in the assessment orders for the assessment years 2005-06 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objects of the society are of charitable nature and especially in the present case where five educational institutions are being run by the respondent which is registered on 29.9.1980 under the Societies Registration Act and solely because the respondent was charging fees and was getting surplus would not be the reason to deny registration in view of the judgment of this Court in the case of Pinegrove International Charitable Trust (supra). While dealing with the issue, their Lordships have also followed the judgments of Hon'ble Apex Court in the case of Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC) and Aditanar Educational Institution v. Addl. CIT[1997] 224 ITR 310/90 Taxman 528 (SC) and held that merely if an institution is making a profit it would not render itself ineligible for registration under the provisions of section 10(23C)(vi) of the Act. The said principle can also be fully applied to the facts and circumstances of the present case. Merely because there are some surplus with the respondent, this should not be a ground to deny the registration under section 80G(5)(vi) of the Act. 15. Similar views were expressed by the Delhi Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X
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