DEEPAK SOCIETY,,KOLHAPUR vs. COMMISSIONER OF INCOME-TAX, (EXEMPTION),, PUNE

The only issue to be decided is as to whether the CIT(Exemption) justified in rejecting the application seeking registration u/s. 12AA of the

The brief facts relating to the claim are that the assessee E-filed Form 10A seeking registration u/s. 12AA of the Act on 18-12-2018. The assessee was called upon to furnish information/ clarification for the purpose of verifying existence and genuineness of its activities and utilization of trust fund towards its objects, in response to which the assessee uploaded its submissions on ITBA portal. On an examination of financial statements, the CIT(Exemption) was of the opinion that there is huge surplus in last three assessment years i.e. (A.Ys. 2016-17, 2017-18 and 2018-19) and no details have been furnished regarding the status of return of income filed for the said respective years, no individual receipts and payment details or individual income and expenditure statement regarding surplus from pre-primary and primary school income filed. The CIT(Exemption) sought remand report from ITO (E), Ward, Kolhapur regarding the status of returns filed for A.Ys. 2014-15 to 2018-19. The CIT(Exemption) considered the factual remand report of ITO and opined that the assessee cannot be said to have engaged in the educational activities for charitable purposes and the trust failed to establish charitable nature of education in view of the excess generation huge surplus from the school fees and the assessee made false claim of exemption u/s. 11(1) of the Act in the absence of registration u/s. 12AA of the Act.

Aggrieved by the order of CIT(Exemption), now, the assessee is before us.

The ld. AR, Mrs. Arati Vissanji submits that the assessee was registered on 21-01-1974 under the Societies Registration Act, 1860 as well as under the Bombay Public Trust Act, 1950 on 02-02-1974. The assessee runs Holy Cross Convent School comprising of the Pre-Primary, Primary and Secondary divisions exclusively for girls from 26-10-1963 onwards. The assessee enjoyed exemption u/s. 10(22) of the Act from A.Y. 1974-75 till 1999-2000. The assessee applied for continuation of registration vide letter dated 16-04-1999 and there was no response to the said application from the respondent-revenue. The assessee from A.Y. 2000-01 onwards continued to file its return of income each year claiming exemption u/s. 11 under the presumption the assessee‟s registration is granted from 16-04-1999 and respondent-revenue accepted such returns of income. Further, she submits that the assessee was also granted certificate u/s. 80G from 06-02-2004 and the last being on 04-09-2009 and which is in force till date by virtue of CBDT Circle No. 7/2010 dated 27-10-2009.

Regarding surplus, she submits that the only activity of the assessee is running the Holy Cross Convent School for girls and it does not carry on any other activity nor is it permitted to do so by its objects. For A.Y. 2014- 15 there is a deficit in the secondary section and surplus in the pre- primary and primary section has been utilized for the purpose of education and no fees are charged in the secondary section which receives grants from the Maharashtra State Education Board. Surplus generated by an educational institution is not detrimental to its charitable nature, which is evident from the audited accounts that the only activity carried on by the assessee is education and surplus/deficit is the result of such activity.

On the other hand the ld. DR, Shri Deepak Garg submits that the assessee generated huge surplus for F.Ys. 2015-16, 2016-17 and 2017-18 which was examined by the CIT(Exemption) and not satisfied with the accounts, held the activities of the assessee trust is not charitable in nature and rejected registration sought u/s. 12AA of the Act. The assessee also not filed details of receipts and payment details or individual income and expenditure statement of pre-primary and primary school from which surplus are generated and the CIT(Exemption) rightly held the assessee‟s trust cannot be said to have engaged in the educational activities for

Further, the ld. DR submits that the assessee having no registration u/s. 12AA of the Act and made false claim of exemption u/s. 11(1) of the Act. Regarding the utilization of surplus raised from pre-primary and primary school no details filed to show that such surplus has been utilized in secondary division of assessee‟s school. He vehemently argued that that the CIT(Exemption) sough the actual report from the AO and on examination of such report in detail rightly held that the assessee is not entitled to grant registration u/s. 12AA of the Act as its activities are not charitable in nature in view of excess generation of funds.

Heard both the parties and perused the material available on record. The assessee filed paper book containing pages 1 to 490. We note that the assessee runs Holy Cross Convent School exclusively for girls which was established on 26-10-1963. The assessee Society registered in the name and style of Deepak Society, Kolhapur on 21-01-1974 under the Societies Registration Act, 1860 and also under the Bombay Public Trist Act, 1950 on 02-02-1974. The assessee‟s institution has three divisions i.e. Pre- Primary, Primary and Secondary. The secondary section of the school provides free education and also receives grant from the Maharashtra State Education Board which are placed at page Nos. 276, 297, 336, 373 and 412 of the paper book. The assessee has been claiming exemption u/s. 10(22) of the Act from A.Y. 1974-75 till 1999-2000 which is evident from page No. 21 of the paper book. In view of omission of section 10(22) of the Act, the assessee applied for continuation of registration vide letter dated

Coming to the decision of Hon‟ble Supreme Court in the case of Queen‟s Educational Society (supra), the brief facts therein are that the Queen‟s Educational Society established with the sole object of imparting education. The said society filed its return of income for A.Ys. 2000-01 and 2001-02 showing a net surplus of Rs.6,58,862/- and Rs.7,82,632/-, respectively and claimed exemption u/s. 10(23C) (iiiad) of the Act. The AO rejected the exemption claimed by the assessee therein as it shown surplus. The CIT (Appeals) allowed exemption u/s. 11 of the Act. The ITAT, Delhi Benches dismissed the appeal preferred by the revenue against the order of CIT(A). In a reference the Hon‟ble High Court of Uttarakhand, Nainital set aside the judgment of the ITAT and affirmed the order of the AO. That all the disputes reached Hon‟ble Supreme Court in the case of Queen‟s Educational Society (supra) and also in batch of other cases on similar issue from Hon‟ble High Court of Allahabad. The Hon‟ble Supreme Court was pleased to hold where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit (vide para 11). Further, by referring the decision of Constitution Bench judgment in the case of Surat Art Silk Cloth Manufacturers Association reported in 121 ITR 1 held it has to be borne in mind that merely because profits have resulted from the activity of imparting education would not result in change of character of the institution that it exists solely for educational purpose. The Hon‟ble Supreme Court further suggested to have test of predominant object of the activity has to be applied by posing the question whether it exists solely for education and not to earn profit to decide the entitlement of an institution

In view of the law laid down by the Hon‟ble Supreme Court in the case of St. Peter‟s Educational Society (supra) by following the decision in the case of Queen‟s Educational Society (supra) we hold that the assessee is entitled for grant of registration u/s. 12AA of the Act from the date of application and CIT(Exemption) is directed to grant the same. Accordingly, the grounds raised by the assessee are allowed.

In the result, the appeal of assessee is allowed.