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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI L.P. SAHU
ORDER
Per L.P. Sahu, Accountant Member:
These are two appeals filed by the assessee against the orders of the Commissioner of Income-tax, Rohtak, dated 10.01.2014 on the ground that the ld. CIT erred on facts and law in rejecting the applications of the assessee for grant of registration u/s. 12A and approval u/s. 80G of the IT Act by wrongly holding that the aims and objects of the Society are not charitable and activities conducted by the appellant are not genuine.
Since both the appeals are interconnected and were heard together, therefore, the same are being decided by this consolidated order for the sake of convenience and brevity.
The brief facts of the case are that the appellant filed applications on 23.07.2013 in Form No. 10A and 10G for seeking registration u/s. 12A and 80G of the Act respectively along with copy of Society Registration certificate dated 01.07.1998 issued by Registrar of Firms & Societies, copy of memorandum of society, income & expenditure account, balance sheet along with audit reports in form No. 10B for F.Y. 2009-10 to 2011-12. Notices were issued for hearing. A report was called for from the Assessing Officer concerned as to whether the appellant fulfilled the conditions required for the grant of registration / approval applied for. In response, the JCIT, Sonepat did not clearly recommend the case for registration u/s. 12AA and approval u/s. 80G and left the matter to be decided on merits. The ld. CIT referring to the definition of ‘Charitable purpose’ rejected the applications of appellant by observing as under : “3. The definition of 'Charitable Purpose' as given in the Income Tax Act, 1961 is reproduced below :- "Charitable purpose includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places of objects of artistic or historic interest,] and the advancement of any other object of general public utility: 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:]" The applicant's reply does not satisfy the very essence of charity which is necessary for earning the status of being-charitable as is required in view of section 2(15) read with section 12AA of the Income Tax Act, 1961. The provisions of sec 11 and 12 do not envisage that a charitable institution shall provide charity by charging fees from public at large. The fees received are outside the scope of sec 11 and 12 and shall, therefore, be taxable. Fees imply direct involvement of consideration for the services rendered. Fees can not be voluntary and are, therefore, taxable under the head profit and gains of the business or profession. The charging of fee is also in violation of the contents of para 13 of the trust deed wherein medical camps are said to be organized free. Thus, the assessee trust is profit oriented business entity and not a charitable institute. Keeping in view of the above, the application of the assessee trust does not deserve for registration.
The applicant trust has earned huge income under the various heads by charging higher fees from the students and these charges are over and above the cost of basic services provided to the students which is never expected from such a educational society which is interested in approval for registration u/s 12AA of the Income Tax Act, 1961. The provisions of sec 11 and 12 do not envisage that a charitable institution shall provide charity by charging fees from public. The fee received is outside the scope of sec 11 and 12 and shall, therefore, be taxable. Fees imply direct involvement of consideration for the service rendered. Fees cannot be voluntary and are, therefore, taxable under the head profit and gains of the business or profession. The educational institutions run by the society charged hefty fees and earn
systematic profit year to year to enhance its earning capacity through the acquisition of buildings & other fixed assets. Thus, the society is running its institutions on purely commercial lines and earning profits/ surpluses systematically year after year by charging fees from the students and making profits. Keeping in view the aforesaid facts and circumstances, neither aims/objects and terms of memorandum are of the charitable nature, nor are there any activities which may be put to a test of genuineness. Consequently, the request of the applicant society for registration u/s 12AA of the Income Tax Act cannot be acceded to and the application in form 10A is, therefore, rejected accordingly u/s 12AA(l)(b)(ii)/250 of the Income Tax Act, 1961.”
4. During the course of hearing, the ld. AR of the assessee contended that the only objection of the ld. CIT to reject the applications of appellant is that the assessee charged hefty fee from the students which amounts to be the consideration for rendering services. He, therefore, concluded that the assessee trust is profit oriented business entity and not a charitable institute. It is submitted that the ld. CIT has failed to consider the aims and objects of the appellant-society in right perspective, which completely qualify for registration u/s. 12A and approval u/s. 80G. The ld. Counsel for the appellant inter alia relied on the decision of ITAT, Lucknow Bench in the case of St. Don Bosco Educational Society vs. CIT, (2004) 84 TTJ 805 for the proposition that mere charging of high fees is no ground for rejecting the registration application. It was submitted that aims and objects of the assessee society and its activities are charitable qualifying for the registration. Several other decisions have also been relied upon on the issue.
The ld. DR, on the other hand, relied on the order of the ld. CIT and submitted that the activities of the assessee were found to be commercial in nature and therefore, the CIT rightly rejected the applications of the assessee.
We have heard the rival contentions and have gone through the entire material available on record and we find no justification to support the orders of the ld. CIT refusing to grant registration u/s. 12A and approval u/s. 80G of the Act. It appears that the conclusion reached by the ld. CIT that the assessee trust is profit oriented business entity and not a charitable institute, is based only on the ground that the assessee-society charged fees from the students. The ld. CIT has failed to throw any light on the aims and objects of the society and to examine whether the activities carried out by the assessee-society are to achieve such aims and objects as per its memorandum. Simply because the assessee charged fee from students, in our opinion, does not go to suggest refusal of registration to the assessee-society as held by ITAT in the case of St. Don Bosco Educational Society (supra). The ITAT in the said decision has further observed that the scope of the powers of the CIT is confined to examine the genuineness of the activities of the Trust or institution and to examine the objects of the trust or institution and it is the exclusive jurisdiction of the AO to examine other aspect of the matter when the assessee claims any tax benefit. In the present case, we have also examined the income and expenditure accounts for three years filed by assessee at pages 21 to 50 of the paper book, according to which the income and expenditure earned and incurred by assessee-society are as under : F.Y. 2009-10 F.Y. 2010-11 F.Y. 2011-12 Gross receipts 25,21,892 37,42,920 57,42,409 Fee received from Students 24,84,445 36,85,557 57,36,634 Cash expenditure incurred Under various heads 22,98,997 33,72,697 50,78,081 Depreciation on fixed assets 1,80,821 3,18,611 4,80,013 Surplus amount with Society 24,074 51,612 1,84,315 From the analysis of above financial statements, we find that the nominal surplus amounts shown above remained with the society and not distributed amongst its. The appellant society has charged fees from students, but the same has been utilized for running of school for education purpose. Therefore, the view of the ld. CIT that society has charged hefty fees from students and hence, operating commercial activities is wrong and not supported by any material on record. The finger raised by ld. CIT on the activities of appellant society and its aims and objects being not charitable is, therefore, based on no good reasons relevant for refusal to grant registration. Therefore, in view of several decisions relied on by the ld. Counsel for the assessee and in the attending facts of the case, we direct the ld. CIT to grant registration u/s. 12A and approval u/s. 80G of the Act as prayed for.