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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: SHRI RAJPAL YADAV & SHRI N.K. BILLAIYA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:
With this appeal, the Assessee has challenged the correctness of the order of the Ld. CIT(A)-III, Baroda dated 29.10.2014 framed u/s.12AA(1)(b)(ii) r.w.s. 12A of the Act.
ITA No. 3443/Ahd/2014 2 . A.Y. N.A. 2. The grievance of the assessee is that the ld. CIT(A) erred in rejecting the registration u/s. 12A to the appellant.
The appellant trust made an application for registration 12A of the Act on 12.08.2013. Notices were issued for processing the application and the application was rejected for non compliance vide order dated 24.02.2014. The appellant trust once again made application in Form 10A on 28.04.2014. The ld. Commissioner called for certain Information/details which were complied with by the appellant trust.
On going through the copy of the trust deed, the ld. Commissioner found that the objects of the trust are as under:-
1.To set up establish, maintain, develop and promote school/college both to develop the character and discipline amongst the students, colleges both professional and management in any part of India 2. To physical training, intellectual and other but pursuits. 3. To arrange, organize and participate in lectures, seminars, debates and conferences etc for the diffusion of knowledge and for promotion of education. 4. To establish run and maintain a boarding house for the students. 5. To provide support and/or promote any/all such facilities which are engaged in the furtherance of education, sports related activities.
The ld. Commissioner further observed that the appellant trust is a franchise of Global Discovery Academy and is running a school at Vododa with classes from Play Group to 8th Standard.
ITA No. 3443/Ahd/2014 3 . A.Y. N.A. 6. The ld. Commissioner analyzed and considered the fee structure at pages 2 to 6 of the order.
On perusal of the fee structure, it was found that the annual fees charged from Play group to Standard 8th is Rs. 2,960/- to Rs. 4,875/- per month. The ld. Commissioner was of the opinion that a common man cannot afford such high fees.
The appellant trust was asked to justify its charitable activity in the light of the fees charged by it. The appellant trust was further asked to explain how the benefit is going to be derived by the general public at large when such high fees are charged from the student. The appellant trust replied that none of the trustees is beneficiaries of the trust. The beneficiaries of the trust are those who are being admitted in the school run by the trust on payment of the school fees.
The ld. commissioner was not convinced with the reply of the appellant trust and further found that rent is paid to the son of the trustee.
The ld. Commissioner formed a belief that the trust is not a charitable trust and is definitely is not in any charitable activity. The ld. Commissioner was of the opinion that the appellant trust is engaged in the educational activity in a commercial manner and is therefore not entitled to the tax exemption.
The ld. Commissioner further observed that charging more than Rs. 1,000/- per month is beyond the reach of an ordinary middle class person. Poor do not stand a chance. By no stretch of imagination this is a reasonable fee for the deprived section. The ld. Commissioner went on to discuss certain judicial
ITA No. 3443/Ahd/2014 4 . A.Y. N.A. decisions and finally came to the conclusion that the activities of applicant trust cannot be said to be of charitable nature within the purview of section 11, 12 & 12A and Section 2(15) of the Act. Since it is engaged in the commercial activity registration u/s. 12A was denied.
Aggrieved by this, the appellant trust is before us. The ld. counsel for the assessee vehemently stated that while granting registration u/s. 12A of the Act, the condition precedent is that the ld. Commissioner could only examine the genuineness of the trust and its activities. It is the say of the ld. counsel that nowhere the Commissioner has mentioned that trust was neither genuine nor its activities were what was professed in the deed of trust and therefore grossly erred in denying registration.
The ld. counsel further pointed out that merely because the trust was charging fees from the students cannot be a ground for rejecting the application for registration. The ld. counsel pointed out that it is not a case where the school was making exorbitant profits from running the institution. Reliance was placed on the decision of the Hon’ble High Court of Gujarat in the case of Mudra Foundation for Communication Research & Education 287 CTR 135. Reliance was further placed on the decision of the Hon’ble High Court of Gujarat in the case of Shree Kamdar Education Trust 74 taxmann.com 253, Hon’ble High Court of Allahabad in the case of Sri Radha Raman Niwas Trust 42 taxmann.com 77, Hon’ble High Court of Gujarat in the case of Ganpat University 293 CTR 113. The ld. counsel concluded by saying that the activities of the appellant trust are very much of charitable in nature and therefore there is no reason why the registration should be denied to the appellant trust.
ITA No. 3443/Ahd/2014 5 . A.Y. N.A. 14. Per contra, the ld. D.R. strongly supported the findings of the ld. Commissioner and placed reliance on the decision of the Hon’ble High Court of Kerala in Dawn Educational Charitable Trust 370 ITR 724 and in the case of Shree Anjaneya Medical Trust 382 ITR 399.
We have given a thoughtful consideration to the orders of the authorities below. We have also perused the trust deed exhibited at pages 1 to 14 of the paper book. The objects of the appellant trust have been exhibited elsewhere. We find that the ld. Commissioner was influenced by the fact that the annual fees charged was at Rs. 2,960/- to Rs. 4,875/- per month and on the basis of the fees structure the ld. Commissioner observed that charging more than Rs. 1,000/- per month is beyond the reach of an ordinary middle class person. This means that any institution which is charging less than Rs. 1,000 per month should be eligible for the claim of registration u/s. 12A of the Act. We do not find any merit on such observation of the ld. Commissioner. Even, if the allegations made by the Commissioner are considered then also we find that the appellant trust has shown a deficit of Rs. 44,86,610/-. This is in itself shows that the appellant trust was not running on commercial basis. Further, the ld. Commissioner found that the trust being a franchise of Global Discovery Academy and the franchisee model suggest a business deal. This is contrary to the facts of the case as pointed out by the ld. counsel. There is no such “franchisee model” and vehemently stated that his statement may be taken as statement at bar.
It would be pertinent to refer to the observations of the Hon’ble High Court of Gujarat in the case of Mudra Foundation for Communication Research & Education (supra) wherein the Hon’ble High Court observed as under:-
ITA No. 3443/Ahd/2014 6 . A.Y. N.A. After considering several decision, certain criteria have been laid down in paragraph 11 of the judgment, which reads as under:
“11. Thus, the law common to Section 10(23C) (iiiad) and (vi) may be summed up as follows:
(1) 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.
(2) The predominant object test must be applied - the purpose of education should not be submerged by a profit making motive.
(3) A distinction must be drawn between the making of a surplus and an institution being carried on "for profit". No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit.
(4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes.
(5) The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons."
In the case of Ganpat University (supra), the Hon’ble High Court of Gujarat observed as under:- 12. The question of surplus generated by the educational institution which is otherwise existing for the purposes of education has been considered by the Supreme Court in numerous occasions. In one of the later judgments in case of Queen's Educational Society (supra) all previous judgments on the point were considered. Reference was made to the decision of Supreme Court in case of Addl. CITv. Surat Art Silk Cloth Manufacturers Association [1978] 121 ITR 1/[1979] 2 Taxman 501. in which, the question arose as to what is the meaning
ITA No. 3443/Ahd/2014 7 . A.Y. N.A. of expression activity for profit. Reference was made to the decision of Supreme Court in case of Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310/90 Taxman 528 in which, it is observed that after meeting the expenditure when any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for the purposes, since the object is not one to make profit. After referring to such and other decisions, the Court held and observed as under: "25. We approve the judgments of the Punjab and Haryana, Delhi and Bombay High Courts. Since we have set aside the judgment of the Uttarakhand High Court and since the Chief Commissioner of Income Tax's orders cancelling exemption which were set aside by the Punjab and Haryana High Court were passed almost solely upon the law declared by the Uttarakhand High Court, it is clear that these orders cannot stand. Consequently, Revenue's appeals from the Punjab and Haryana High Court's judgment dated 29.1.2010 and the judgments following it are dismissed. We reiterate that the correct tests which have been culled out in the three Supreme Court judgments stated above, namely, Surat Art Silk Cloth, Aditanar, and American Hotel and Lodging, would all apply to determine whether an educational institution exists solely for educational purposes and not for purposes of profit. In addition, we hasten to add that the 13th proviso to section 10(23C) is of great importance in that assessing authorities must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down. Further, it is of great importance that the activities of such institutions be looked at carefully. If they are not genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn. All these cases are disposed of making it clear that the Revenue is at
ITA No. 3443/Ahd/2014 8 . A.Y. N.A. liberty to pass fresh orders if such necessity is felt after taking into consideration the various provisions of law contained in section 10(23C) read with section 11 of the Income Tax Act." 13. It can thus be seen that generating certain surplus after carrying out educational activities by itself would not indicate that the institution did not exist for educational purposes but for the purposes of making profit. Whether the surplus so generated was utilized for the purposes of educational activities also would be a relevant consideration. Be that as it may, when the petitioner contends that the Commissioner had not taken into account correct figures and was thus misguided into coming to the conclusion that the petitioner had generated sizeable profit, it would be appropriate to request the Commissioner to reconsider the issue with the assistance of the petitioner
In the light of the aforementioned judicial decisions, we find that the object of the appellant trust is definitely imparting education without any profit motive. Therefore on the facts of the case in hand, the ld. Commissioner erred in denying the registration to the appellant trust.
The reliance was placed by the ld. D.R. on the decision of the Hon’ble High Court of Kerala in the case of Dawn Educational Charitable Trust (supra) appears to be misplaced inasmuch as in that case, the ld. Commissioner made an enquiry and was of the opinion that assessee intended to run a posh international school in name of charitable activity, and therefore, it was not entitled to registration. In that case, the ld. Commissioner further found that the assessee was at liberty to accept contributions as donation and contributors had no right or control over management or in administration of assessee. These facts have not been brought on record in the case in hand. The ld. D.R. has also relied upon another decision of the Hon’ble High Court of Kerala in
ITA No. 3443/Ahd/2014 9 . A.Y. N.A. the case of Shree Anjaneya Medical Trust (supra) wherein the Hon’ble High Court has decided the issue in favour of the assessee by holding that while granting registration to a trust authority could have examined only genuineness of trust and its activities. The ld. D.R. placed reliance only on the strength of Special Leave Petition admitted by the Hon’ble Supreme Court. In our considered opinion, this cannot be a reason for not following the dictum of the Hon’ble High Court of Kerala. Considering the facts in totality in the light of the judicial decisions referred to hereinabove, we do not find any reason why registration should not be granted to the appellant trust. We accordingly set aside the order of the ld. Commissioner and direct him to grant registration to the appellant trust.
In the result, the appeal filed by the Assessee is allowed.
Order pronounced in Open Court on 18 - 12- 2017
Sd/- Sd/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER Ahmedabad: Dated 18/12/2017 Rajesh Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER
Deputy/Asstt.Registrar ITAT,Ahmedaba