Income Tax Appellate Tribunal - Chennai
Chandra Educational Trust, ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, CHENNAI
BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND
SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
ITA No.1806/Mds/2012
CHANDRA EDUCATIONAL TRUST THE INCOME TAX OFFICER,
No.30, Old Bus Stand Road, Ward - I(1),
Aruppukottai, Virudhunagar Dist, V. VIRUDHUNAGAR.
Pin Code - 626 101.
PAN : AABTC2736N (Respondent)
(Appellant)
Appellant by : Mr.G. Baskar, Advocate
Respondent by : Mrs. Jayanthi Krishnan
Date of hearing : 04 Dec 2012
Date of Pronouncement : 11 Jan 2013
O R D E R
PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER :
This is an appeal filed by the assessee against the order of Commissioner of Income Tax - II, Madurai, passed under sec.12AA of the I.T. Act, refusing to grant registration to the assessee trust.
2 ITA 1806/Mds/12
2. Facts of the case are that the assessee trust namely, Chandra Educational Trust was formed on 07.3.2011 with an object of running schools, colleges and other institutions for imparting education etc. The assessee applied for registration under sec.12AA of the Act on 02.12.2011. The Commissioner of Income Tax by his order dated 04.6.2012 refused registration on the ground that the two parameters, ie., genuineness of the trust and its activities carried out in terms of Trust Deed have not been established. He observed that a perusal of the statement of accounts filed for the period 07.3.2011 to 31.3.2011 reveals that the trust had not carried out any activity. The Commissioner of Income Tax observed from the minutes of the meeting dated 7.3.2011 filed along with the letter dated 14.5.2012, the trust decided to run school with a play and pre- KG classes in the name and style of 'Chandra Chutty School' which commenced from June 2011. He also observed from the minutes dated 4.1.2012 that the Trust proposed to start a school in the name of Chandra National School for which building construction in the land taken on lease is under process.
3 ITA 1806/Mds/12
3. The Commissioner of Income Tax further observed that the statement of accounts filed reveals that the trust was in receipt of school fees, Van fees etc., and the expenses mainly relate to running of School and there is surplus of .12,85,813/-. He further observed that from the balance sheet it can be seen that the trust obtained loan from the trustee to the tune of .55.46 lakhs. There are loan creditors of .32.62 lakhs and sundry creditors of .17.50 lakhs. From these facts the Commissioner of Income Tax was of the opinion that the trust carries out educational activities on commercial basis only. Therefore, the Commissioner of Income Tax concludes that the trust is not a genuine trust and its activities are not charitable in nature.
4. The Counsel for the Assessee submits that the assessee trust was formed on 07.3.2011 and applied for registration on 02.12.2011 and is still in the process of setting up of schools. The Counsel for the Assessee submits that as per objectives of the Trust Deed, it is mainly established for the purpose of imparting education which is a charitable activity. Referring to page 24 of the Paper Book 4 ITA 1806/Mds/12 the Counsel for the Assessee submits that the Trust is in the process of construction of a building and it is in the process of completing the formalities in connection with starting of a school with Central Govt. Authorities as the school is going to follow CBSE syllabus. The Counsel for the Assessee submits that at the stage of granting registration what is to be looked into is whether the objectives of the Trust are charitable or not and not whether the trust has commenced its activities or not.
5. The Counsel for the Assessee submits that obtaining loan from third parties for the purpose of construction of building for the purpose of achieving the objectives of the Trust cannot be a reason to call that the Trust is not formed for charitable objective and its activities are commercial in nature. The Counsel for the Assessee placed reliance on the decision of Hon'ble Karnataka High Court in the case of Director of Income Tax (Exemptions) v. Meenakshiamma Endowment Trust (50 DTR 243) and submits that the Commissioner of Income Tax is not correct in rejecting the application for grant of registration under sec.12AA of the Act to the assessee Trust.
5 ITA 1806/Mds/12
6. The Departmental Representative supports the order of the Commissioner of Income Tax.
7. We have heard both sides and perused the order of Commissioner of Income Tax. The Commissioner of Income Tax is of the view that the assessee's Trust is in receipt of school fees, van fees etc., and expenses mainly relate to running of school and there is a surplus fund of .12.85 lakhs. Further, the assessee obtained loan from Trustee to the tune of .55.46 lakhs and there are loan creditors of .32.65 lakhs and sundry creditors of .17.50 lakhs. Therefore, the assessee Trust is not a genuine and charitable Trust. The Commissioner of Income Tax has not said anything about the objectives for which the Trust was established. The Commissioner of Income Tax has not disputed that the Trust is not formed for other then educational purpose.
8. We agree with the contention of the assessee that simply because the assessee collects some school fee, van fee etc., and incurs expenses in running the school, obtained loan from the trustees and third parties for the purpose of construction of the school building etc., alone is not the criteria to say that the Trust is 6 ITA 1806/Mds/12 carrying out educational activities on commercial basis. At the stage of granting registration, what is to be looked into is whether the trust formed is for promoting charitable activity or not. That too, when there is no much time gap between the formation of the Trust and the date of application for registration. In this case, in a period of 6 or 7 months, the Trust approached the Commissioner of Income Tax for registration under sec.12AA. The assessee hardly can commence its activities and in fact it had represented that it is in the process of setting up of schools, following other formalities etc., so as to bring the school under the purview of CBSE Syllabus. Buildings are still under construction. The Hon'ble Karnataka High Court in the case of Director of Income Tax(Exemptions) v. Meenakshi Amma Endowment Trust (supra) considered the situation where more or less identical to the situation faced by the assessee. The Hon'ble High Court held that the assessee trust having applied for registration under sec.12AA within a span of 8 months of its formation, registration could not be refused on the ground that it had not yet commenced any activity and in such a situation the objections of the Trust have to be examined to ascertain its genuineness. It is always open to the 7 ITA 1806/Mds/12 Department to examine at the stage of assessment proceedings whether the assessee has complied with the provisions of sec.11 of the Act so as to claim exemption and, therefore, there need not be any apprehension that the assessee Trust is carrying out its activities on commercial basis. The Assessing Officer is always free to examine all these aspects at the time of assessment proceedings. Therefore, in view of the above, we direct the Commissioner of Income Tax to grant registration under sec.12AA of the I.T. Act to the assessee Trust.
9. In the result, the appeal of the assessee is allowed.
10. Order pronounced on Frida, the 11th of January2013, at Chennai.
Sd/- sd/-
( ABRAHAM P. GEORGE ) (CHALLA NAGENDRA PRASAD)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Chennai,
Dated : 11th January 2012
Jls.
8 ITA 1806/Mds/12
Copy to:-
(1) Appellant
(2) Respondent
(3) CIT(A), (4) C.I.T.,
(5) D.R., (6) Guard file