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TMI Blog2021 (8) TMI 883X X X X Extracts X X X X X X X X Extracts X X X X ..... ee of cost cannot be treated to be an activity for making profit. The assessee's institution was rightly regarded as an institution carrying on educational activity and in the absence of any material available with the appellant, the Tribunal was right in itself observing that there was nothing on record to show that the Teachers Training College has been established solely for making profit. Furthermore, the Tribunal was right in its observation that excess of income over expenditure by itself is not a reason to hold that the assessee-Trust is not engaged in charitable activities. There was no finding that the Trustees had applied the monies of the Trust for their personal benefit or for any other purpose other than education. The infrastructure facilities, which were provided by the assessee-Trust were also rightly taken note of by the Tribunal. The observation of the appellant that only two of the Trustees were authorized to administer the Trust, the same was held to be not a reason to reject the case of the assessee-Trust and it is common that the day-to-day activities of a Trust cannot be entrusted to all 14 Trustees and therefore, the President and Secretary of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust'. The principle object of the Trust was to run an educational or other institutions to provide, establish, maintain, run, develop and improve or assist in the establishment, maintenance, running, developing and improving education; to institute and award scholarships to poor and deserving students and to assist them in any manner of their study, research or apprenticeship. There were other objects of the Trust, which were incidental and ancillary to the main object, viz., education. The first and second Trustees or their successors in office of the Board of Trustees, were given full power and authority to administer the Trust, its properties and affairs and to do all acts, deeds and things which were calculated to fulfil the objects of the Trust for which it was established. 4.The 'powers of the Trustees' were enumerated in Clause 6 of the Deed of Trust. 4.1.In terms of Clause 11 of the Deed of Trust, which deals with 'application of income and trust fund', the Trustees shall after providing for the payments mentioned in the Deed and its disbursements, apply and utilize the net income or the corpus of the Trust funds for the benefit of the citizens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial years 2007-08 and 2008-09, on account of competition by other educational institutions, which were established in the neighbourhood and this prompted the assessee-Trust to provide free bus service to students, who opt for education in Tamil medium. Since the income over expenditure from the school considerably got reduced, the Trust established a Teacher Training College, which provided good returns and the profits of the Trust increased during the financial years 2007-08 and 2008-09. According to the appellant, this was done with a clear motive for earning profits, which subsumes the charitable activity of the assessee- Trust. The appellant stated that since the Trust is making profit year after year, the functioning of the Trust cannot be termed as 'charitable' and in this regard, placed reliance on the decision of the High Court of Uttaranchal in CIT vs. Queen's Educational Society reported in (2009) 223 CTR 395. After extensively referring to the said decision, the appellant held that the net surplus made by the assessee-Trust, ever since its inception, clearly suggests that the educational institutions are being run on commercial lines with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction in Tamil. 10.Further, it is submitted that the decision in Queen's Educational Society (supra) rendered by the High Court of Uttaranchal was tested for its correctness before the Hon'ble Supreme Court by the Trust in Queen's Educational Society vs. CIT reported in (2015) 55 taxmann.com 255 (SC) and the said decision was reversed. Further, the said decision could not have been applied to the case of the assessee-Trust, as the case was whether the said Queen's Educational Society had fulfilled the three requirements as stipulated under Section 10(23C) of the Act whereas, in the instant case, the issue is whether the application filed by the assessee-Trust for registration under Section 12AA could have been rejected. Therefore, the appellant erroneously rejected the application without noticing the fact that the claim made by the Queen's Educational Society was a claim for exemption under Section 10(23C) of the Act and such claim made by them was rejected by the Assessing Officer, the said order was reversed by the CIT(A), which order was confirmed by the Tribunal in an appeal filed by the Revenue and challenging the order, appeal wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancement of the charitable purpose of the Trust or institution. It was further pointed out that the predominant object of such activity must be to subserve the charitable purpose and not to earn profit. 14.By referring to the decision in the case of Dharmadeepti vs. CIT reported in (1978) 3 SCC 499, it was pointed out that the activity must be essentially charitable in nature and it must not be a cover for carrying on an activity, which has profit making as its predominant object. Further, it was pointed out that this interpretation of the exclusionary clause in Section 2(15) derives considerable support from the speech made by the Finance Minister while introducing that provision. It was further pointed out that the test to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or not to earn profit. Where profit making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out charitable purpose and not to earn profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o educating persons. 16.The Court took into consideration the decision of the High Court of Punjab and Haryana, which has been followed by the Delhi High Court in St. Lawrence Educational Society (Regd.) vs. CIT reported in (2013) 353 ITR 320 and also in Tolani Education Society vs. Dy. DIT (Exemptions) reported in (2013) 35 ITR 184, where the High Court of Bombay held that the petitioner (therein) has a surplus of income over expenditure for the three years cannot by any stretch of logical reasoning, lead to the conclusion that the petitioner therein does not exist solely for educational purposes or that it exists only for profit. Further, it was held that the test to be applied is as to whether the predominant nature of the activity is educational. The fact that an incidental surplus, which is generated and which has resulted in additions to the fixed assets, is utilized towards upgrading the facilities of the educational institution, was held to be permissible. Further, it was observed that without the advancement of technology, no college or institution can offer to remain stagnant. Further, it was held that an educational institution cannot be prohibited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down and at that juncture, the Trust took a decision to establish a Teacher Training College, which proved to be successful. The specific case of the assessee-Trust was that they have provided free bus services to the students, who opted to study in Tamil medium. This was with a view to encourage students to attend the school and obviously would fulfil the object for which the Trust was established. Therefore, the Tribunal was right in holding that the appellant has not brought down any material on record to show that the assessee-Trust was motivated by earning profit. The Tribunal appreciated the assessee-Trust for establishing the school with medium of instruction in Tamil and that itself was held to be a charitable activity carried on by the assessee-Trust and by providing free bus service, it would motivate the students to attend the school and get themselves educated in Tamil medium and merely because, bus services were provided free of cost cannot be treated to be an activity for making profit. The assessee's institution was rightly regarded as an institution carrying on educational activity and in the absence of any material available with the appellant, the Tribunal wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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