ACE EDUCATIONAL & CHARITABLE TRUST,SANGRUR vs. CIT (EXEMPTIONS), CHANDIGARH

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the assessee against

the order dated 29.04.2016 of the Commissioner of Income Tax

(Exemptions), Chandigarh [hereinafter referred to as ‘CIT(E)’],

whereby, he has rejected the application of the assessee seeking

registration u/s 12AA of the Income-tax Act, 1961 (in short 'the Act').

application on 8.10.2015 seeking registration u/s 12AA of the Act .

It was submitted that the object of the assessee trust was to provide

education, medical and other facilities at large to the public without

ITA No.827/Chd/2016- Ace Educational and Charitable Trust, Sangrur 2

any distinction of caste or creed on a non-profit basis. That the

assessee has started a school namely Cambridge International School

and the assessee, therefore, is providing and carrying out educational

activities which falls within the definition of Charitable purposes as

provided u/s 2(15) of the Income Tax Act. The Ld. CIT(E), however,

observed that so far as no activity had been carried out by the

applicant-trust in respect of its other stated objects. That running of

the school was only object that was intended to be pursued by the

applicant-trust. The Ld. CIT(E) examined the trust deed and found

that the composition of the trust was restricted to the husband and

wife who were permanent trustees. They had an unhindered power in

respect of appointing and removal of other trustees. The Ld. CIT (E)

further observed that even though the citations quoted to exemplify

that these restrictive arrangement do not take away the charitable

character, lack of any other representative in the trust either from the

society / area the school was purported to serve or from amongst the

elected representative from the area or the target clientele of the

school etc., are pointers towards strict control over the running of

school. The Ld. CIT(E) further observed that the applicant had not

cited even a solitary example in respect of subsidized education

being imparted to the needy or freeship provided to the deserving

poor or even adhering to norms under the Right to Education Act.

He further observed that applicant-trust had sought registration u/s

12AA of the Ac, however, more relevant provision in case of

educational institution was that of section 10(23C) (iiiad) and

10(23C)(vi). He observed that the requirement under the provisions

ITA No.827/Chd/2016- Ace Educational and Charitable Trust, Sangrur 3

of section 10(23C)(iiiad) and 10(23C)(vi) was that the trust should

exist solely for educational purpose and not for profits. However, the

option exercised by the assessee for registration u/s 12AA showed

that the applicant trust was not meant solely for charitable purposes

rather profit element was involved. He further observed that trustees

also run several other institutions under the aegis of other trusts.

That it would have been logical if the institutions were run under the

aegis of a singular society. He finally concluded that the arrangement

of the composition of the society had been kept in such a manner that

two trustees were empowered to control the entire working of the

society and it was difficult to preclude the possibility of large scale

activities that did not ensure to the benefit of general public. The

possibility of large scale profit making in the current set up was also

not precluded. He further observed that in the absence of concrete

examples being cited by the applicant that demonstrate its altruistic

intent, the genuineness of the activities of the society did not get

corroborated. He, therefore, rejected the application of the assessee

moved u/s 12AA of the Act.

the CIT(E), the applicant trust has come in appeal before us.

the records. The Ld. Counsel for the assessee has submitted that

assessee is a public charitable trust and is carrying educational

activities which falls within the definition of charitable activity as

provided u/s 2(15) of the Act. He has further submitted that the trust

ITA No.827/Chd/2016- Ace Educational and Charitable Trust, Sangrur 4

deed explicit that strict conditions have been imposed for restricting

any of the trustees from taking any personal benefit from trust

property. That mere fact that both the trustees are from the same

family will not change the character of the trust as long as the

objects and other terms are clearly defining the trust as a public

charitable trust. That after incorporation, the trust has moved towards

achievement of its charitable objectives and has started to establish a

school in pursuance to its object of education. That the trustees have

leased out their personal land in the school for long period of 99

years at a token yearly rent of Rs. 15,000/- per annum only. That a

separate managing committee has been constituted with five members

including two founder trustees. That well qualified teaching staff

have been appointed and that the applicant has already been obtained

various statutory approvals, got bank term loan sanctioned and has

started the construction. That the primary education has been started

in school by April 2016 and a reasonable fee structure has been

adopted. The Ld. counsel has further relied upon Circular No. 11 of

2008 dated 19.12.2008 of the CBDT and various other case laws to

contend that element of charity / altruism / eleemosynary as

perceived in the general meaning of the term is not required in first

three limbs of the definition of charitable purposes within the

meaning of section 2(15) of the Act. He in this respect has relied on

the following case laws:- i) PIMS Medical & Educational Charitable Society Vs. CIT- III, Chandigarh [2013] 31 Taxman 371 –ITAT Chandigarh

ii) Baba Amarnath Educational Society Vs. CIT –III [2012] 18 Taxman 222 – ITAT Chandigarh

ITA No.827/Chd/2016- Ace Educational and Charitable Trust, Sangrur 5

iii) CIT, Faridabad Vs. IILM Foundation Academy [2016] 75 Taxman 215- (P&H High Court)

iv) Addl .CIT Vs. Surat Art Silk Cloth Manufacturers Association [1979] 2 Taxman 501 (SC)

v) Meritta Welfare Trust v CIT, Dehradun [2015] 56 Taxman 363 363 ITAT Delhi

vi) Shri Gian Ganga Vocational & Educational Society Vs. CIT, Rohtak [2013] 35 Taxman 17 – ITAT Delhi

given an option to the applicant trust either to get it registered u/s

12A of the Act or to claim exemption u/s 10(23C) of the Act and that

when two recourses are available to a person under the law, it is for

him to choose one or the other or both courses. The Ld. counsel has

further submitted that while Section 12A is applicable to all limbs of

the charitable activities, whereas section 10(23C) is restricted to

education activity only. That though the assessee has started only

one activity out of various objects, however, it may start the other

activities in near future for which the assessee has rightly applied

under the appropriate provisions of section 12AA of the Act.

CIT(E).

object of the assessee trust inter alia includes educational activity

and the assessee has proceeded to set up a school in pursuance of its

main object of educational activity which is duly included in the

definition of charitable purposes as defined u/s 2(15) of the Act.

ITA No.827/Chd/2016- Ace Educational and Charitable Trust, Sangrur 6

The Ld. CIT (E) has not pointed out any clause in the trust deed or

otherwise which may point out about the distribution of profits or net

assets to the members in the case of dissolution of the trust. The Ld.

Counsel has invited our attention to clause (9) of the trust deed,

which reads as under:-

“9. Conditions:- a) The income and property of the trust shall be applied solely towards the promotion of the objectives of the trust as set forth in this Trust Deed and no proportion thereof shall be transferred directly or indirectly to any member / trustee of the Trust.

b) No member of the board of Trustee of the Trust shall be entitled to any salaries. No office bearers of the Trust shall draw any salary for their services rendered to the Trust.

c) The Trust is required to apply its surplus, if any, for promoting its objectives.

d) In case of dissolution or otherwise winding up of this trust all the Assets, interests etc. remaining on the date of dissolution / winding up can only be distributed / donated or handed over to trust / other institution whose objects are similar to those of the present Trust and which enjoys similar recognition u/s 12A or 80G of the Income Ax Act, 1961 as amended from time to time.

of the trust shall be applied solely towards the promotion of the

objectives of the trust and no proportion thereof shall be transferred

directly or indirectly to any member / trustee of the trust. The

ITA No.827/Chd/2016- Ace Educational and Charitable Trust, Sangrur 7

trustees shall not be entitled to any salaries for their services

rendered. The surpluses, if any, will be applied for promoting the

objectives of the trust and that in case of dissolution or otherwise

winding up of this trust, all the assets of the trust can only be

distributed / donated to a trust which enjoys similar recognition u/s

12A or 80G of the Income Tax Act, 1961. The Ld. CIT (E) has not

pointed out any violation of the above conditions by the trust so far.

Further, we agree with the contention of the Ld. AR of the

assessee that when two recourses are available to a person under the

law, it is open for him to choose one. Further, the Ld. AR of the

assessee has explained that the claim of exemption u/s 10(23C) is

limited only to the educational activity, however, to achieve its

various objects, apart from educational activity, it was appropriate

that trust be registered u/s 12AA of the Act. So far the objection of

the Ld. CIT(E) that the trust is dominated by only two founder

members, who were husband and wife which creates doubt about

charitable nature of the trust, the Ld. Counsel for the assessee

submitted that there is no bar under the Act if the trust is run by only

one family for getting registration u/s 12A of the Act. That at the

time of granting registration what is to be seen is that if the objects

of the trust are charitable in nature and the activities of the same are

genuine. The Ld. counsel in this respect that also relied upon

decision of the coordinate Chandigarh Bench of the Tribunal in ‘M.R.

Educational Trust, Vs. CIT’ order dated 23.5.2016 in ITA No.

861/Chd/2014 and further decision of the ITAT Delhi Bench of the

Tribunal in the case of ‘Shanti Devi Educational Trust, Rewari v

ITA No.827/Chd/2016- Ace Educational and Charitable Trust, Sangrur 8

CIT’ order dated 29.2.2012 passaged in ITA No. 4439/Delhi/2010

and another decision of the Delhi Bench in the case of ‘NLB

Charitable Trust Vs. CIT’ [2010[ 38 SOT 291. So far as the

objection that the applicant had not furnished any reliable evidence

of carrying out its charitable activity of education, the Ld. counsel

has submitted that the trustee is its inception stage and has started

providing primary education and further that the building of the

school has been constructed after taking loan from the bank and for

which purpose, the founders of trust have mortgaged their private

property. He in this respect has relied upon the Certificate of the

Canara Bank placed at page No. 16 of the paper book. Further,

reliance has been placed on various cutting of news items placed in

paper book showing that the applicant trust has started its activities

by way of running a school namely ‘Cambridge International School’

at Sangrur and these news items have covered the various educational

and extra-curricular activities, events organized at the school.

the Ld. Counsel for the assessee and have found that the Coordinate

Beach of the Tribunal has ruled that there was not bar under the Act

for registration u/s 12AA of the Act even if the trust is run by only

one family unless is not established that the trust is created to run a

business in the form of education and claim tax benefits.

Admittedly, there exists no material no record to suggest that the

activities of the assessee trust are not genuine. The CBDT vide

Circular No. 14/2016 has issued certain guidelines relating to grant

of approval and claim of exemption u/s 10(23C)(vi), wherein, it has

ITA No.827/Chd/2016- Ace Educational and Charitable Trust, Sangrur 9

been provided that there is no provision under the Act which calls

for denial of exemption merely on account of extraordinary powers of

Managing Trustees to appoint or remove other trustees. The

relevant part of which is reproduced as under:-

‘5. Impact of extraordinary powers of the Managing Trustees to appoint remove or nominate other trustee.

5.1 Doubt has been expressed whether extraordinary powers to the Managing Trustees to appoint or remove other trustees and also to nominate their successor affect the nature of charitable activity of the trust and whether in such eventuality , exception can be denied.

5.2 There is no provision under the Act which calls for denial of exemption merely on account of appointment or removal of trustees. Although answer to such a situation would normally depend on the factual implication of such arrangement, the same should generally not be a ground for denying exemption unless the nature of activities of the trust or institution get changed or modified or no longer remain to exist ‘solely for educational purpose and got the purposes of profit’. Hence denial of exemption would not be justifiable only on the ground of induction of new trustees or removal of existing ones.”

that there is no bar under the Act for denial of exemption merely on

account of extraordinary powers of the managing trustee to appoint

or remove other trustees and also to nominate their successor and

that itself can be a ground for denying exemption unless the nature of

ITA No.827/Chd/2016- Ace Educational and Charitable Trust, Sangrur 10

activities of the trust or institution get change or modified or no longer remain to exist. It has been explained that assessee trust has just started its activity and it is at inception stage and at this stage, it is the objects of the society that are to be seen. The quantum of the genuineness of the activity can be examined only after the trust come fully into operation. From the activities as on date, the Ld. CIT(E) has not pointed out that the same are not genuine or in any way against the objects of the society rather it is admitted fact on the file that the assessee society is running a school which falls within the purview of scope of education, which has been declared as charitable purpose as per provisions of section 2(15) of the Act. In view of this, the impugned order of the CIT (E) is hereby set aside and he is directed to grant registration to the Society.

In the result, the appeal of the assessee is treated s allowed. Order pronounced in the Open Court on

Sd/- Sd/- (B.R.R.KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 08.06.2018 Rkk Copy to: • The Appellant • The Respondent • The CIT • The CIT(A) • The DR