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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’, NEW DELHI
This appeal by the assessee is directed against order dated 28/06/2019 passed by the Commissioner of income-tax (exemption), New Delhi [in short the Ld. CIT(E)] rejecting the application for registration of the assessee in terms of section 12AA of the Income-tax Act, 1961 (in short ‘the Act’) 2. The grounds raised by the assessee are reproduced as under:
On the facts and circumstances of the case and in law, the order passed by Commissioner of Income Tax (Exemption) is erroneous and bad in law.
On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Exemption) erred in rejecting the application for registration u/s 12 AA of the Income Tax Act, 1961 3. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Exemption) erred in not allowing the registration of the appellant u/s 12 AA of the Act. 4. On the facts and circumstances of the case and in law, the reasons given by Commissioner of Income Tax (Exemption) for rejecting the application of the appellant for registration u/s 12 AA of the Act are erroneous and not sustainable. 5. The appellant craves leave to add one or more ground of appeal
or to alter / modify the existing ground before or at the time of hearing of appeal.
2. Briefly stated facts of the case are that the assessee has been incorporated on 19/12/2017 under section 8 of the Company Act, 2013 as a non-profit organization. The assessee has claimed that it is recognized as Registered ValuersOrganization in terms of Rule 13 of the Companies (Registered Valuers and Valuation) Rules, 2017 for valuation of class of assets consisting of land and building, plant and machinery and securities or financial assets. 2.1 The assessee filed application before the Ld. CIT(E) seeking registration in terms of section 12AA of the Act. The learned CIT(E) examined the objectives and activities of the assessee for the purpose of granting registration under section 12AA of the Act. The Ld. CIT observed that: - Assessee is operating its activity from the premises owned by “Institution of valuers”. - Major part of the expenses included payment made to Instructor of the Institution of valuer for teaching fee and rent to the “Institution of valuers’.
- The assessee-company generated income mainly from receiving fees from the Insolvency and Bankruptcy Board of India (IBBI) aspirant students. - No formal education is provided and only coaching is provided to IBBI aspirant students and that too asa conduit of “Institution of Valuers” for conducting the classes by their faculties.
2.2 In view of the observations, the Ld. CIT concluded that the company is engaged in commercial activity. The learned CIT held that the charitable nature of the objectives and genuineness of the activities of the institution could not be established and accordingly, he rejected the registration of the assessee company under section 12AA of the Act.
Before us, the Ld. counsel of the assessee fileda paper-book containing pages 1to 123. The learned counsel referred to copy of the certificate of recognition by the Insolvency and Bankruptcy Board of India (IBBI) available on page 81 of the paper-book and also referred education courses recognized by the IBBI. The Ld. counsel submitted that the assessee is engaged in imparting education which is charitable in nature as per main limb of section 2(15) of the Act. The Ld. counsel also referred that the assessee company has been incorporated under section 8 of the CompaniesAct which prescribe formation of the companies with charitable objects. He also referred to the Memorandum of Association of the company and submitted that object of the company is for the benefit of the general public and not for the profit motive. He referred to clauses 5(i), 5(ii), 6, 10, and 11 of the Memorandum of Association to stress that the company exists only for charitable purposes and not for profit motive. In support of his contention, the Ld. Counsel relied on following decisions:
1. 1. ICAI Accounting Research Foundation Vs. Director- General of Income-tax (Exemption) (2009) 183 Taxman 462(Delhi).
2. Delhi Escorts Skill Development versus CIT (exemption) 2019 (5) TMI 770-ITAT 3. Additional Commissioner of Income-Tax , Gujrat Vs Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC).
4. Decisions referred in Perak 5.2, 5.3, 5.4 and 5.6.
On the other hand, the Ld. DR relied on the order of the learned CIT(E) and submitted that the assessee is only conducting coaching classes for preparing the students for appearing in the examination conducted by the IBBI for Valuers and it is not engaged in providing any formal school education. He submitted that no degree or any certificate approved from any university is being issued to the students by the assessee. According to him, the students who aspire to be valuers are given coaching by the faculty of ‘Institution of valuers’ at the premises of ‘Institution of the valuers’taken on rent by the assessee. He submitted that no worthwhile activity has been carried out by the assessee except getting fee from the aspiring students and transferring the same to the institution of the valuers and their faculties. Accordingly, he submitted that the assessee does not deserve for registration under section 12AA of the Act.
We have heard rival submissions and perused the relevant material on record. As far as registration under section 12AA of the Act is concerned, the following conditions must be satisfied: (a) the objective of the entity should be of charitable nature (b) the activities of the entity should be genuine.
In the instant case, the learned CIT(E) has held that charitable nature of the objectives and genuineness of the activities have not been established. Therefore, the issue before us is whether the assessee fulfilled both the conditions for registration under section 12AA of the Act.
As far as the first condition is concerned, the objective of the assessee should be of charitable nature. The charitable purpose has been defined under section 2(15) of the Act to include “relief to poor” , “education”, “medical relief” and “advancement of any other object of general public utility”. Under the fourth limb of advancement of any other object of general public utility, activities which are in the nature of trade, commerce and business or any activity of rendering any such services in relation to trade, commerce and business have been excluded for the purpose of the charitable purpose by way of amendment 2008 as under: “ Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless— (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;”
Before us, the assessee has claimed that it existed for the objective of imparting education, which is falling under main limb of section 2(15) of the Act and proviso is not applicable over the said limb of definition of charitable purposes, whereas according to the learned CIT, the assessee is engaged in the commercial activity, which are of the nature of trade, commerce or business. We not that the Hon’ble Supreme Court in the case of Sole Trustees, LokaShikhana Trust Vs CIT (1975) 101 234 (SC) has explained the word “education” with reference section 2(15) of the Act as the process of training and developing the knowledge, skill mind, and character ofstudents by formal schooling. The relevant paragraph of the decision of the Hon’ble Supreme Court to reproduced as under: “ The sense in which the word "education" has beenused in section 2(15) is the systematic instruction,schooling, or training given to the young in preparation forthe work of life. It also connotes the whole course ofscholastic instruction which a person has received. The word"education" has, not been used in that wide and extendedsense according to which every acquisition of furtherknowledge constitutes education. According to this wide andextended sense, travelling is education, because as a result of travelling you acquire fresh knowledge. Likewise, if you read newspapers and magazines, see pictures, visit artgalleries, museums and zoos, you thereby add to yourknowledge. Again, when your grow up and have dealings withother people, some of whom are not straight, you learn byexperience and thus add to your knowledge of the ways of theworld. If you are not careful, your wallet is liable to bestolen or you are liable to be cheated by some unscrupulousis liable to be stolen or you are liable to be cheated bysome unscrupulous person. The thief who removes your wallet and the swindler who cheats you teach you a lesson and inthe process make you wiser though poorer. If you visit anight club, you get acquainted wit and add to your knowledgeabout some to the not much revealed realities and mysteriesof life. All this in a way is education in the great schoolof life. But, that is not the sense in which the word"education" isused in clause (15) of section 2. Whateducation connotes in that clause is the process of trainingand developing the knowledge, skill mind, and character ofstudents by formal schooling. [469C-F]
Before us, the Ld. counsel of the assessee has submitted that it is an organizationrecognized under the Companies (Registered Value and Valuation) Rules, 2017 and conducting the education courses in valuation in accordance with the syllabus determined under the rules for the students registered as member under prescribed rules and same also include practical training. The assessee has also filed a copy of recognition certificate, which is available on page 81 of the paper book .The learned CIT(E), however, has treated the activity of the assessee akin to coaching classes. In our opinion, the learned CIT has not examined the objective of the assessee as well as the activities in the light of the decision of the Hon’ble Supreme Court in the case of sole trustee, LokaShikshana Trust Vs CIT (supra) and verified whether the education imparted by the assessee is in the character of formal schooling. The learnedCIT(E) was required to verify the examination conducted or the degree of the certificate awarded by the assessee.
As the sole issue of granting registration under section 12AA of the Act precipitate on whether the assessee was engaged in imparting education, which has not been examined properly by the CIT, we feel it appropriate to set aside the order of the learnedCIT(E) and remit the matter back to him for deciding the issue of granting registration afresh in accordance with law.
Alternatively, The Ld. CIT(E) may also examine eligibility of the assessee for registration under the fourth limb of charitable purpose, i.e., advancement of general public utility in accordance with law, if raised so by the assessee. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. The grounds raised by the assessee are accordingly allowed for the statistical purposes.
11. In the result, the appeal of the assessee is allowed for statistical purposes. Order is pronounced in the open court on 18th October, 2019.