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Income Tax Appellate Tribunal, DIVISION BENCH’B’, CHANDIGARH
Before: SHRI SANJAY GARG & DR. B.R.R. KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH’B’, CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER
ITA No.969/Chd/2017 Assessment Year:
M/s Seth Gaja Nand Goyal Educational Vs. CIT(Exemption) And Social Welfare Society Chandigarh 99, Kang Market, Loha Bazar Mandi Gobindgarh
PAN No. AASTS6070L
(Appellant) (Respondent)
Assessee By : Sh. Ashwani Kumar, C.A Revenue By : Smt. Anita Sinha, DR
Date of hearing : 02/04/2018 Date of Pronouncement : 10/04/2018
ORDER PER DR. B.R.R. KUMAR A.M.
The present appeal has been filed by the Assessee against the order of the Ld. CIT(E), Chandigarh dt. 30/04/2017.
The assessee has raised following grounds :
That order passed under section 12AA(1)(b)(ii) of the Income Tax Act, 1961 by the Ld. CIT(E), Chandigarh is against law and facts on the file in as much as he was not justified to arbitrarily reject the application of the appellant for grant of registration under section 12AA of the Act. 2. That he was not justified to hold that the appellant Society cannot be termed to fall under the category of ‘Charitable Purpose’. 3. The application for registration under section 12A of the Income Tax Act was rejected by the Ld. CIT(E) Chandigarh vide order dt. 30/04/2017. The stated aims and objectives of the society are to promote education in the area through its educational Institutions among the general public and also among socially, economically and culturally backward persons; to spread and promote feelings of brotherhood of making the secularism; to establish, maintain or
acquire library or libraries for the benefit of the student community; to raise and borrow funds, accept contributions etc.
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
observation of the Ld. CIT(E) that the society has created huge assets of Rs. 5.73 Crores is made possible as loans of Rs. 7.05 Crores have been raised from the members. Thus the parameter taken into consideration by the CIT(E) in rejecting the registration is a misconstrued ground . It was also further argued that the society will follow the stipulation of utilization of 85% of funds and in case of non adherence the other provisions can be invoked but not granting registration on that plea under section 12A is premature. It was further argued that the transport fees are charged for carrying of the students and no profit motive can be attributed the fees. Similarly with regard to the sale of books with the logo of the school and sale of bags it was submitted that the marginal profit on the sale of books has been applied towards the aims and objects of the society and from the next session the sale of the books has been stopped by the society. He has argued that the fees charged are also very less in the tune of Rs. 1000 to 1650 and charging of the fee and the structuring of the fee is regulated by the State Government.
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
12AA. As per the preposition laid down in CIT(E) Vs. S.S.S.D. Charitable Trust 395 ITR 567 the only two requirements for granting registration under section 12A of the Act are with respect to the charitable nature of the objects of the assessee and genuineness of the activities. We find that Ld. CIT(E) has neither made any adverse remarks with regard to objects in the memorandum nor doubted the genuineness of the activities of the society as not genuine.
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.
Order pronounced in the open court.
Sd/- Sd/- (SANJAY GARG) (Dr. B.R.R.KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 10/04/2018 AG Copy to: The Appellant, The Respondent, The CIT, The CIT(A), The DR