Income Tax Appellate Tribunal - Delhi
Doon Educational Trust Society, ... vs Assessee on 28 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : B : NEW DELHI
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT
AND
SHRI A.D. JAIN, JUDICIAL MEMBER
ITA No.2540/Del/2012
Assessment Year : -
Doon Educational Trust Vs. CIT,
Society, 13-A,
(Through its Secretary Sh. Subhash Road,
Rajesh Kumar Tiwari), Dehradun.
Hadwali, P.O. Jhajra,
Chakrata Road,
Dehradun.
PAN : AAATD7286M
(Appellant) (Respondent)
Assessee by : Dr. Rakesh Gupta/Shri Ashwani
Taneja
Revenue by : Shri Ishtiyaque Ahmed, Sr. DR
ORDER
PER A.D. JAIN, JUDICIAL MEMBER
This is an appeal filed by the assessee against the order dated 28.03.2012 passed by the ld. CIT, Dehradun, refusing registration to the assessee society u/s 12AA of the IT Act.
2. As per the impugned order, it was noticed from the documents/papers submitted by the assessee society that in the F.Y. ending 31.03.1990, the assessee society had earned/received an amount of ` 7,74,090/- from sale of uniform/transportation fee, etc. and ` 43,300/- from the sale of prospectus; that in the year ending 3/2010 the assessee society had received an amount of ` 4,04,100/-
2 ITA No.2540/Del/2012from the sale of uniform, transportation fee, etc. and ` 54,750/- from the sale of prospectus; that in A.Y. 2009-10, the assessee society had obtained a surplus of 27%, in A.Y. 2010-11, a surplus of 38% and in A.Y. 2011-12, a surplus of 22% and had used all its surplus for further expansion in the same or subsequent years; that it was also noticed that the assessee society was spending substantially on advertisements; that in A.Y.2011-12, advertisement expenses were of ` 3,68,375/-, in A.Y. 2010-11, these expenses were of ` 1,99,049/- and in A.Y. 2009-10, these expenses were of ` 3,20,723/-; that the Profits & Loss Account of the society for A.Y. 2010-11 showed payments of interest exceeding ` 10 lac and payment of interest of approximately ` 8 lac in A.Y. 2011-12; that in A.Y. 2009-10 the assessee society had claimed depreciation exceeding ` 20 lac, whereas in A.Y. 2010-11, the depreciation exceeding ` 70 lac had been claimed and in A.Y. 2011-12, the claim of depreciation exceeded ` 17 lac. From these facts, the ld. CIT observed that it conclusively stood shown that the assessee society was being run for commercial purposes rather than for charitable purposes. The ld. CIT further observed that the receipt of the assessee society in A.Y. 2011-12 also showed that the aspirants were paying for their cost of learning; and that the assessee society was seen to be working in a commercial manner and not fulfilling the definition of "charitable purposes" as defined in Section 2 (15) of the IT Act. It was on these observations that the registration sought by the assessee society was not granted.
3. Aggrieved, the assessee is in appeal.
4. Challenging the impugned order, the ld. counsel for the assessee has contended that the ld. CIT has erred in rejecting the application for registration filed by the assessee society, holding that the assessee society was being run for commercial purposes and not for charitable 3 ITA No.2540/Del/2012 purposes; that the ld. CIT also erred in observing that the assessee society was earning surplus and was using it for expansion and was expending substantially on advertisement; that the CIT's decision regarding grant of registration is circumscribed by the provisions of Section 12AA (b) of the Act, which specifically states that at the time of considering grant of registration, only the objects and the genuineness of the activities of an assessee are to be taken into consideration; that undeniably, the assessee is running an educational institution imparting education; that further, there is no surplus earned by the assessee society and no commercial activities are being carried out by it; that even if, for the sake of argument, these observations were to be taken to be correct, as per CBDT Circular No.11/2008 dated 19.12.2008 (copy at pages 100-101 of the assessee's paper book), the proviso to Section 2 (15) of the Act would not apply, inter alia, in the case of education, as the same would constitute "charitable purpose", even if the entity carrying on such activity incidentally carries on commercial activities; that further, Section 11 (4A) of the Act provides that sub-sections (1) or (2) or (3) or (3A) of Section 11 shall not apply in relation to an income of a trust or institution, being profits and gains of business unless the business is incidental to the attainment of the objections of the trust, and separate books of account are maintained of such trust in respect of such business; that apropos the objection regarding the assessee society earning surplus, the details of surplus/deficit for the last four years are contained at pages 50-51 of the assessee's paper book by way of a comparative computation chart; that a reading of this chart shows clearly that what the assessee has earned is a deficit rather than any surplus, due to which fact, the ld CIT has wrongly observed that the assessee has earned any surplus; that moreover, the income and expenditure account for the year ending 31.03.2009 (copy at page 65 of the assessee's paper book) shows that the earnings of the assessee society are exclusively from education, 4 ITA No.2540/Del/2012 which brings the activities of the assessee society squarely within the purview of 'charity' as defined in Section 2 (15) of the Act; that as regards the expenses on advertisement, the assessee is having 200 students, as is amply clear from the chart contained at page 29 of the assessee's paper book; that the objectives of the assessee society have been delineated in its memorandum, a copy whereof has been appended at pages 18-20 of the assessee's paper book; and that a perusal of these Aims and Objectives of the assessee society shows that none of these are commercial aims or objectives. The ld. counsel for the assessee has placed reliance on the following case laws:-
1. Reliable Educational Alliance Society vs. CIT (2009) 31 DTR 239
2. DIT vs. Garden City Educational Trust (2009) 28 DTR (Kar) 139
3. CIT vs. Red Rose School (2007) 212 CTR 394 (All)
4. Dream Land Educational Trust vs. CIT (2007) 109 TTJ 850 (Asr)
5. CIT vs. Gujarat Maritime Board (2007) 289 ITR 139 (Guj)
5. On the above contentions, the ld. counsel for the assessee has submitted that the order of ld. Commissioner of Income-tax be set aside and the application filed by the assessee society for registration be allowed.
6. The Ld. DR, on the other hand, has placed strong reliance on the impugned order. Our attention has been drawn to the chart contained at pages 50-51 of the assessee's paper book and it has been contended that no details of building have been filed. It has been contended that the school run by the assessee society is beyond the reach of the common man and the same is run on commercial lines;
that the fee structure of the school is very high; and that the expenses 5 ITA No.2540/Del/2012 on education have nowhere been segregated by the assessee society before the authority below and, hence, the ld. CIT is justified in rejecting the application filed by the assessee for registration; and therefore, there being no merit therein, the appeal be dismissed while upholding the well reasoned order passed by the ld. CIT.
7. We have heard the parties and have perused the material on record. The ld. CIT, it is seen, has rejected the assessee's application for the reason that the assessee society has made earning from sale of uniform/transportation fee and sale of prospectus; that the assessee has obtained surplus in the preceding years and has used the same for further expansion in the same or subsequent years; that the assessee has been spending substantially on advertisements; that there has been exorbitant payment of interest and claim of depreciation; and that the students are paying for their cost of learning. The ld. CIT has concluded that thus, the assessee society is being run for commercial purpose rather than for charitable ones.
8. Now, the objects of the society, as contained at pages 18-20 of the assessee's paper book, are as follows:-
(1) "To establish School/Schools and College/Colleges at Dehradun or elsewhere in the state of UK and Uttar Pradesh, aiming to impart professional technical & primary education to children of all communities and Nationalities irrespective of sex, caste or creed and to lay solid foundation of modern education in students and to impart moral training coupled with physical, technical and scientific education. (2) To impart the best education to the students of the school with the aid of modern equipment and with the help and guidance of the best suited staff-members amidst the modern 6 ITA No.2540/Del/2012 and best surrounding to enable the students to develop their potentialities to the fullest.
(3) To generate the ideals of good citizenship disciplined life and good moral character.
(4) To foster and develop an active and positive feeling of love and brotherhood for everyone and cultivate a strong sense of patriotism.
(5) To ensure an all round development of their personalities through Educational, Social and cultural activities. (6) To foster such education to the poor irrespective of caste, creed and culture.
(7) To organize educational programs such as adult education of all type including vocational and training programs either in villages or in slum areas of the country.
(8) To train the students to be persons of strong character, initiative, moral drive and leadership and of tolerant and sympathetic outlook.
(9) To establish and maintain library reading rooms, educational clubs to enable the students to be with the world wide development in the fields of science, literature, sports and to further the object of the similar object.
(10) To construct, demolish, acquire, maintain any building in connection with the school and boarding house for the residence of the students, employees and worker to the society and affiliated or managed institution of the similar object.
(11) To provide scholarship to deserving students. (12) To seek help from the public or government for finance, as and when deemed necessary in the interest of the society. (13) To accept voluntary donations from the parents of the students or from any other person's firm, society and/or 7 ITA No.2540/Del/2012 foreign country, who may desire to contribute towards the aims of the society.
(14) To organize cultural shows, dramas, fetes, fairs and sports to collect funds for the benefit of the society on a noncommercial basis.
(15) To seek help from the government for allotment of lands or buildings for the cause of the society.
(16) To buy, purchase, take on lease or in exchange, hirer otherwise acquire any immovable or movable property of any tenure or description and any estate or interest thereon and any rights or privileges, which the society may think necessary or convenient for the promotion of its objects and to contract, maintain and alter any building or erections necessary or convenient for the work of the society. (17) To sell, let lease, mortgage, exchange, gift, dispose of, manage, develop, build or alter improve or turn to account all or any of the property or assets of the society as may be thought expedient with a view to the promotion of its objects. (18) To engage, employ and remunerate person for carrying on the work of the society or such terms as may be determined from time to time.
(19) To receive, undertaken and execute any society, which may lawfully be undertaken by the society and may be conducive to its objects.
(20) To borrow or raise money for the purpose of carrying out the aims and objects of the society on such terms and by giving such security as may be determined from time to time. (21) To invest moneys of the trust, which cannot be applied immediately or at any early date for carrying out its aims and objects.8 ITA No.2540/Del/2012
(22) To draw, make, accept, discount, endorse, negotiate buy, sell, execute and issue bills of exchange, government of India and other promissory notes, cheques, warrants, debentures and other negotiable or transferable instruments or securities. (23) To co-operate, federate, associate or otherwise to establish contact with other organizations in India or abroad having similar aims and objects and nature. "
9. From the above aims and objects of the assessee society, it does not come out that any aim or object is of a commercial nature. Undisputedly, the assessee is running a school, an educational institution. Education, then, is an object covered under the provisions of Section 2 (15) of the IT Act, which defines "charitable purpose" as follows:-
"2(15) Charitable purpose includes.....education........"
10. The first proviso to Section 2 (15) of the Act states that:
"Provided that advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity."
11. The department has not been able to show as to how the case of the assessee falls within the ambit of the aforesaid first proviso to Section 2 (15) of the Act. A perusal of the chart contained at pages 50- 51 of the assessee's paper book shows that no surplus accrued to the assessee society in the years 2007-08 to 2010-11. Rather, there was a 9 ITA No.2540/Del/2012 deficit to the assessee in all these years. No commercial activity has been shown to be carried out by the assessee society and even if it were so, as rightly pointed out, as per CBDT Circular No.11/2008 dated 19.12.2008 (supra), if any commercial activity is carried on incidentally, the first proviso to Section 2 (15) would not apply in the case of imparting of education. Further, the income and expenditure account of the assessee for the year ending 31.03.2009 shows the earning of the assessee society to be exclusively from education and from no other activity.
12. In "Reliable Educational Alliance Society" (supra) (authored by one of us-JM), it has been held that where the objects of a society are, inter alia, to establish and run educational institutions, it is a charitable purpose, as education is clearly a charitable purpose within the meaning of Section 2 (15) of the Act; and that at the time of granting registration, the CIT is only required satisfy himself about the objects of the trust and the genuineness of the activities, and no further.
13. In the present case too, the ld. CIT has clearly gone beyond his purview of satisfying himself about the objects of the trust and the genuineness of its activities. The registration requested by the assessee is, thus, entitled to be granted, as done in "Reliable Educational Alliance Society" (supra).
14. In "Garden City Educational Trust" (supra), likewise, it has been held that where the Trust had education as one of its objects and it was not that some other activity not in the nature of education was sought to be passed off in the name of education, it had to be accepted that the Trust existed for a charitable purpose. In the present case too, clearly, the assessee has not tried to pass off some non-educational activity in the name of education. The ld. CIT has not 10 ITA No.2540/Del/2012 found the assessee not complying with any of the procedural requirements of registration. As such, the assessee herein, as the one in "Garden City Educational Trust" (supra) is entitled to registration.
15. In "Red Rose School" (supra), considering the scope of inquiry by the CIT while granting registration u/s 12A of the Act, it has been held that Section 12AA of the Act confers power on the CIT while considering the application for registration of a Trust, to call for such documents or information from the Trust as he thinks necessary so as to satisfy himself about the genuineness of the activities of the Trust and also to make such inquiries as he may deem necessary in this behalf and after satisfying himself about the objects of the Trust and the genuineness of its activities, he shall pass an order in writing registering the Trust and if he is not so satisfied, he would refuse the registration; that Section 12AA of the Act does not speak anywhere that the CIT, while considering the application for registration, the CIT shall also see that the income derived by the trust is either not being spent for charitable purposes or the trust is earning profit; that profit earning or misuse of the income derived by the charitable institution from its charitable activities may be a ground for refusing exemption only with respect to that part of the income, but it cannot be taken to be a synonym to the genuineness of the activities of the trust; and that while considering the registration u/s 12AA, the scope of inquiry of the CIT would be limited to the aforesaid extent. In that case, the Tribunal was held to have rightly found that the objects of the assessee society showed that none of the objects was against public policy and the main activity of the society was, inter alia, to provide education to children. It was held that in case the institution had defaulted in depositing contributions of the Employees' Provident Fund, the Act concerned shall take care of such default, but in no case could it be a ground for refusal of registration.
11 ITA No.2540/Del/201216. In the present case too, it has not been shown that the objects of the assessee society are not for charitable purposes or are against public policy. The ld. CIT, as considered hereinabove, has, clearly, gone beyond his jurisdiction conferred for grant of registration inasmuch as without making any adverse comment about either the objectives or the activities of the assessee society, he has gone on to refuse registration to the assessee society.
17. "Dream Land Educational Trust" (supra) (authored by one of us - the JM) is also dealing with the scope of the inquiry by the CIT while considering grant of registration u/s 12A of the Act. Registration was ordered to be granted to the assessee in that case, where the objections of the CIT were held to be irrelevant for the purposes of grant of registration, the CIT refusing grant of registration on the ground that the dissolution deed of the firm vide which, property was settled on the trust, had not been registered, that no transfer deed was executed regarding the property transferred to the trust, that the take- over action was unilateral, that No Objection Certificate had not been obtained from the bankers and that on dissolution of the firm, it was left to the trustees to decide the fate of the net assets.
18. Herein also, as discussed in the preceding paragraphs, the ld. CIT has not restricted himself to the requirements of Section 12AA (1), fulfillment whereof is the sole criterion for grant of registration.
19. In "Gujarat Maritime Board" (supra), it was held that where the assessee, Gujarat Maritime Board, a statutory body engaged in the activity of development and maintenance of ports in the State of Gujarat, fulfilled the conditions of Section 12AA of the Act, it was entitled to registration u/s 12A of the Act.
12 ITA No.2540/Del/201220. In the case before us, it has not been shown as to how the assessee society does not fulfill the conditions prescribed u/s 12AA of the Act.
21. As regards the objections raised by the Ld. DR before us with regard to no details of building fund being filed, and the school run by the assessee being beyond the reach of the common man and being run on commercial lines, the fee structure being very high and the expenses of education being not segregated, again, these issues are not relevant for the grant of registration to the assessee inasmuch as the only thing to be considered at the time of grant of registration is the objects of the society and the activities carried on by it. Moreover, these issues were never raised by the ld. CIT.
22. In view of the above, the grievance sought to be raised by the assessee is found to be justified and is accepted as such. The order passed by the ld. CIT, accordingly, is set aside and the application for registration filed by the assessee u/s 12A of the Act is directed to be allowed.
23. In the result, the appeal filed by the assessee is allowed.
The order pronounced in the open court on 31.08.2012.
Sd/- Sd/-
[G.D. AGRAWAL] [A.D. JAIN]
VICE PRESIDENT JUDICIAL MEMBER
Dated, 31.08.2012.
dk
13 ITA No.2540/Del/2012
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
TRUE COPY
By Order,
Deputy Registrar,
ITAT, Delhi Benches