M/S SETH GAJA NAND GOYAL EDUCATIONAL AND SOCIAL WELFARE SOCIETY,MANDI GOBINDGARH vs. CIT(E), CHANDIGARH

The assessee has raised following grounds :

The Ld. CIT(E) while rejecting the registration under section 12AA held that the assessee has been charging host of fees like Tuition fee, Admission fee, Transportation fee, Registration fee, and the assessee has created a huge assets in terms of fixed assets worth Rs. 7.04 Crores. The Ld. CIT(E) further held that the society has received unsecured loans to the tune of Rs. 4.01 Crores from the members of the society or their families and the loan parties have been paid interest @ 9% per annum which is in violation Section 13(1)(c) of the Income Tax Act, 1961.

While rejecting registration, Ld. CIT(E) further quoted the judgment in the case of Lok Shikshan Sansthan 101 ITR 234 for the preposition of education in the contest of Section 2(15) which means every acquisition of further knowledge. He also held that generation of reasonable surplus necessarily has to be redeployed into education quoting the Apex Court’s judgment in the case of Queens Educational Society. It was also held by the CIT(E) quoting, Dental Counsel of India Vs. S.K. K. B Charitable Trust that education cannot be treated as commercial venture and private institute cannot be permitted to have educational shops in India. Extensively relying on the above judgments Ld. CIT(E) also held that the present case is a clearly commercial enterprise and the activities of charging transportation fees and sale of books and bags proved the commercial nature of the society.

Before us the Ld. AR argued that the contentions of the Ld. CIT(E) cannot be accepted as they are not in consonance with the legislative intention and provisions of the Act. He argued that though school has started working from financial year 2016-17, it has got all the necessary approval from the State Government. He has also filed a copy of the certificate granted by the District Educational Officer, Ludhiana recognizing the school under sub-rule(4) of rule 11 of Right of Children to Free and Compulsory Education Rules, 2009 for the purpose of Section 18 of Right of Children to Free and Compulsory Education Act, 2009. Regarding the violation under section 13 (1)(c) it was argued that the provisions of the Section have not been infracted upon as the interest paid @ 9% is much lower than what the society would have to pay had the loans been raised commercially from the market sources. It was also argued that the

Ld. DR Smt. Anita Sinha supported the order of the Ld. CIT (E) and argued that since the school has started recently and not established itself as the one involved in charitable work, the CIT(E) had rightly rejected the registration under section 12AA.

We have heard Ld. Representatives of both the parties and perused the material available on record.

We find that the observations of the Ld. CIT(E) cannot be accepted to as it can be deciphered that the loans have been raised which resulted in the increase of the asset. Further the interest payment @ 9% is not excessive and cannot be said to be a benefit to the persons as stipulated under section 13(1)(c).

The Ld. CIT(E) observed that the school is not yet recognized by the State Government cannot be accepted as the school has been provisionally recognized by the DEO upto March 2020. We also find that the case laws quoted by the Ld. CIT(E) regarding the education and running of the education shops is totally on a different set of facts and circumstances. The issue of transportation fee and profits on sale of books and provisions of Section 13 can be well examined by the assessing authorities while considering granting of exemption under section 11 but not while granting registration under section

Hence, we hereby direct the CIT (E) to grant registration under section 12AA of the Income Tax Act, to the assessee.

In the result, appeal of the assessee is allowed.