DAWN EDUCATIONAL CHARITABLE TRUST, REP.BY MANAGING TRUSTEE vs. COMMISSIONER OF INCOME TAX, KOCHI

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ITA/300/2013HC KeralaKLHC01026185201312 February 2014Bench: HONOURABLE MR.JUSTICE A.M.SHAFFIQUE,HONOURABLE THE CHIEF JUSTICE DR. MANJULA CHELLUR5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that while the nomenclature of a trust may suggest a charitable purpose, its actual activities are paramount in determining its eligibility for registration under Section 12A of the Income Tax Act. The Court found that the Commissioner and the Appellate Tribunal were justified in rejecting the application. The reasoning was based on the factual findings that the 'Dawn International School' was being run on commercial lines, evidenced by its air-conditioned classrooms, provision of meals, focus on children of non-resident Indians, and a high fee structure. The Court noted that even if a trust's main object is charitable, the authorities under the Act are entitled to examine the actual activities. The reliance on the Nedumchalil C.Trust case was considered persuasive but not binding, as the present case concerned the Income Tax Act. The Court concluded that there were no good grounds to interfere with the Tribunal's order.

What were the facts?

The appellant, Dawn Educational Charitable Trust, sought registration under Section 12A of the Income Tax Act to obtain exemption for its activities. The trust's stated objects included running educational institutions and establishing facilities for mentally and physically handicapped persons. However, the Commissioner of Income Tax rejected the application, finding that the trust's actual activity was to run an existing 'Dawn International School' established by the Managing Trustee. The school, commenced in 2006, with the trust formed in 2007, operated in an air-conditioned building, provided breakfast and lunch, and was intended for children of non-resident Indians. The fee structure, particularly for kindergarten and play school, was substantial. Clause 6 of the trust deed also granted the trust absolute discretion to accept donations without any control for the contributors. The Appellate Tribunal upheld the Commissioner's decision.

What were the issues?

1. Whether the Tribunal erred in upholding the rejection of the appellant's application for registration under Section 12A of the Income Tax Act, despite the trust's stated charitable objects of running educational institutions? Assessee's contention: The appellant argued that running an educational institution qualifies as a charitable purpose, even if it does not exclusively benefit the poor. They relied on the decision in Nedumchalil C.Trust v. Municipal Commissioner (1991(2) KLT 180) to support the argument that the nature of the trust does not change due to provisions for paying patients or salaries for trustees. The appellant contended that the Tribunal's order should be set aside. Revenue's contention: The revenue's stance, as reflected in the Commissioner's decision and upheld by the Tribunal, was that the actual activities of the trust did not align with its stated charitable purpose. The Commissioner found the school to be run on commercial lines, catering to children of non-resident Indians with a high fee structure, and thus not genuinely charitable.

Which sections of the Income-tax Act were involved?

Section 12A,Section 12AA

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE WEDNESDAY, THE 12TH DAY OF FEBRUARY 2014/23RD MAGHA, 1935 ITA.No. 300 of 2013 () ----------------------- AGAINST THE ORDER/JUDGMENT IN ITA 845/2008 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 29-12-2009 APPELLANT(S)/APPELLANT IN ITA: ------------------------------ DAWN EDUCATIONAL CHARITABLE TRUST, DOOR NO 33/2000, ARAKKADAVU ROAD, VENNALA P.O KOCHI 682028, REPRESENTED BY MANAGING TRUSTEE DR. JOHNSON LUCKOSE BY ADVS.SRI.KOSHY GEORGE SRI.SAJU J.VALLYARA RESPONDENT(S)/RESPONDENT IN ITA: -------------------------------- COMMISSIONER OF INCOME TAX, KOCHI, 5TH FLOOR, KANDAMKULATHY TOWERS, M.G ROAD KOCHI 682011 BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 12-02-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

MANJULA CHELLUR, C.J & A.M.SHAFFIQUE, J. ---------------------------------------------- I.T.A.No. 300 of 2013 ---------------------------------------------- Dated this the 12th February, 2014 JUDGMENT Manjula Chellur, C.J. Heard learned counsel for the appellant as well as learned Standing Counsel for the respondent. 2. It is not in dispute, appellant is a registered Trust under the name and style “Dawn Educational and Charitable Trust” running a school named 'Dawn International School'. An application came to be filed seeking registration under Section 12A of the Income Tax Act so as to get income tax exemption on the ground that they are imparting education and therefore it is a trust meant for charitable purpose. Respondent authority made an enquiry to satisfy himself whether the activity done factually is in the direction of object of the trust, i.e., charitable purpose or not. Commissioner of Income Tax, who is an authority to grant registration under Section 12AA of the Act, was of the opinion, assessee intends to run a posh international school in the name of charitable activity, therefore, assessee was not entitled for such

ITA.300/13 2 registration. Reasons for rejection of application were, though the trust says main object of it being to run educational institutions and establish institutions of training and rehabilitation for mentally retarded persons, physically handicapped persons etc., enquiries revealed that activity of the trust is only to bring under its ambit the already existing Dawn International School run by the Managing Trustee Dr.Johnson Luckose. Commencement of the school is in 2006 and the trust formed in 2007. The school is run in a building where air conditioned class rooms with breakfast and lunch are provided. The school is maintained and meant for benefit of children of non resident Indians. Fee structure indicated huge amount collected even in kindergarten classes in the year 2006. For play school, which is pre-kindergarten, they were charging 6,000/- per month. ₹

3.

Apart from above factual situation, clause 6 of the trust deed further indicates that the trust is at liberty having absolute discretion to accept contributions as donation and contributors have no right or control over the management or in the administration of the trust. All these facts borne on record revealed during the enquiry persuaded the Commissioner to reject the application. This came to be confirmed by Appellate Tribunal endorsing views of the Commissioner.

ITA.300/13 3 4. Learned counsel arguing for appellant contends, charitable trust does not mean, it imparts education only to the poor. Even if poor children are excluded, it could still be charitable as long as running an educational institution. He tries to convince the Bench with his stand placing reliance on the decision reported in Nedumchalil C.Trust v. Municipal Commissioner (1991(2) KLT 180). The question that arose was whether the fact of special wards for patients who pay full price are run or that salary is paid inclusive of the expenditure for the trustees will not change the nature of the trust, i.e., charity and charitable purpose. In that context, referring to Section 101(1)(d) of the Municipalities Act, 1961 (Kerala) with reference to general meaning of charitable purpose learned Single Judge of this Court opined what amounts to charity so far as Municipalities Act. We are not concerned with similar situation and further said judgment can only have a persuasive value and not binding on the Division Bench. We have to consider the controversy before us with reference to Income Tax Act how an application for registration under Section 12A of the Income Tax Act has to be considered. It is well settled that even if nomenclature of the trust may indicate it is meant for charitable purpose, but if activities reveal otherwise, that should

ITA.300/13 4 weigh with the authorities who grant registration. Similarly, while considering claim of exemption, authorities under the Act would look into the actual activity of the institution, especially main activity of the institution. In the absence of facts indicating that the activities carried on attracts definition of charitable purpose, one cannot find fault with rejection of registration. When the school is running on commercial lines under the clad of charitable purpose, the parties were justified making enquiries and rejecting the application. We find no good ground to interfere with the order of the Appellate Tribunal. Accordingly, the appeal is dismissed. MANJULA CHELLUR, CHIEF JUSTICE A.M.SHAFFIQUE, JUDGE vgs13.2.14

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