Income Tax Appellate Tribunal - Delhi
Career Launcher Education Foundation, ... vs Assessee on 7 May, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH "B" DELHI)
BEFORE SHRI A.D. JAIN AND SHRI A.N. PAHUJA
ITA NO. 2849(Del)2010
Assessment year:
Career Launcher Education Director of Income Tax(Exemptions)
Foundation, R-90, Greater v. Laxmi Nagar District Centre, Delhi.
Kailash -I, New Delhi.
(Appellant) (Respondent)
Appellant by: Shri Ajay Vohra & Ms. Shikha Sharma, Adv.
Respondent by: Shri Rohit Garg, Sr. DR
ORDER
PER A.D. JAIN, J.M.
This is assessee's appeal against the order dated 07.05.2010 passed by the DIT(Exemptions), New Delhi, u/s 80G (5)(vi) of the Income Tax Act read with Rule 11 AA of the I.T. Rules. The following grounds have been taken:-
"1. The order of rejection of application for renewal of exemption u/s 80G of the Income Tax Act, 1961 of the Trust has been passed beyond a period of six months from the date on which the application for renewal was made and therefore, the order violates the provisions of Sub-Rule (6) of Rule 11AA of the Income Tax Act, 1961 and therefore, the order passed is without jurisdiction and therefore liable to be quashed.
2 ITA 2849(Del)2010
2. The findings of the Director of Income Tax(Exemptions) in his order dated 07.05.2010 that the activities of the Trust are not charitable within the provisions of Section 2(15) of the Income Tax Act, 1961 and also that the Trust does not satisfy the conditions laid out u/s 80G(5) of the Income Tax Act, 1961 are contrary to facts and law and therefore, the rejection of application for renewal of exemption u/s 80 G of the Income Tax Act, 1961 of the Trust is arbitrary and unlawful and therefore, is liable to be quashed and the renewal of exemption be granted to the Trust u/s 80G of the Income Tax Act, 1961."
2. At the outset, the learned counsel for the assessee states at the bar that ground No.1 is not pressed. Rejected as not pressed.
3. Apropos ground No.2, the facts are that the assessee filed an application dated 5.11.09 in form No.10 G, seeking renewal of exemption u/s 80G of the Income Tax Act. The DIT(Exemptions) issued a show cause notice to the assessee. The said show cause notice, as reproduced at pages 2 and 3 of the impugned order, reads as follows:-
"To The Principal Officer, Career Launcher Education Foundation, R-90, Greater Kailash-1, New Delhi-110048.
Sir, Subject:- Renewal for exemption u/s 80G of the I.T. Act,1961- Regarding-
....................................
3 ITA 2849(Del)2010 Please refer to your application in form No. 10G filed on 5.11.2009 for renewal of exemption u/s 80G. In this regard, I am directed to request you to produce the following documents:-
1. Please file a copy of Form No. 10B for F.Y. 2006-07, 2007-08 and 2008-09. Please also intimate whether the same was duly filed along with the return of income or not.
2. It is seen from A/cs the Infrastructure fee of ` 1 crore has been paid to Career Launcher(India)Ltd. Please intimate whether this party is covered by provision of section 13. You are required to furnish the name of the Director of the Co. You are also required to justify the payment made to the above party along with necessary evidences.
3. Similarly Licence Fee of ` 1.62 crore has been paid to Career Launcher(India)Ltd. and Career Launcher Education Infrastructure & Services Ltd. You are required to justify the payments made to those parties. Please also give details as to the other parties to whom Licence Fees has been sold by these two parties.
4. It is seen that payment of service tax has been allowed to CL(I)Ltd. on Licence fee whereas no such amount has been paid to CLEIS Ltd. on similar payment. Please explain with supporting evidence.
5. It is seen the depreciation has been claimed in Infrastructure fee and licence fee also. Please explain under which section of Income Tax Act provides to depreciation on these points. You are also required to justify the rate on 25% taken on these items.
You are required to produce complete books of account, bills, voucher etc. for the F.Y. 2006-07, 2007-08 and 2008-09. Your case is fixed for hearing on 8.4.2010 before the DIT(E) in room No. 301 at 12.30 PM in case of non-compliance your case will be decided on merit."
4 ITA 2849(Del)2010
4. In response, the assessee filed its income and expenditure account for the period ending 31.3.2009. Further, letters dated 5.3.2010 and 13.4.2010 were filed, furnishing the information called for by the DIT(E).
5. By virtue of the impugned order, the ld. DIT(E) rejected the application filed by the assessee. The ld. DIT(E), while doing so, observed, inter alia, that the examination of the agreement, between CLEIS and the assessee (CLEF) revealed that certain clauses therein showed that the assessee's intention was solely to engage in commercial/business activities with the moot object to earn profit; that the assessee's activities were against the aims and objects for which public charitable trust are created; that the two Directors of CLEIS came under the category of the "specified persons"
within the meaning of section 13(3) of the Act; that the Trade Mark Licensing Agreement entered into by the assessee with Career Launcher (India)Ltd. was a revocable agreement; that the signatories of both the parties to this Agreement were "specified persons"; that the Agreement for fresh Infrastructure entered into by the assessee with CLEIS showed that the licensor had given licence to the licencee to run and manage a business school in the name of Indus World Business School at Noida; that as per the clauses of this Agreement, the Chairman and Vice Chairman of the Governing Body of the assessee Trust were the nominees of the licensor and 5 ITA 2849(Del)2010 the main activities were to be dealt with by the Governing Body and the Bank Collection Accounts were to be operated by the said Chairman or the Vice Chairman of the Governing Body, who were none other than the nominees of the licensor; that this proved that the entire affairs had been arranged between the licensor and the licencee to deviate the funds of the assessee and to get the income of the assessee exempted under the Income Tax provisions; that this also proved that the main trustees, i.e., Nikhil Mahajan and Gautam Puri were the main beneficiaries of the income of the Trust and they came under the category of "specified persons"; that the assessee was running MBA courses in its Business School, charging huge amounts of ` 8 to 10 lakhs annually as fees, etc., from students; that the Institution was not recognized by any Government Authorities, but was being run from F.Y. 2007-08; that without such recognition, the School was not authorized to take fees/charges from students; that these illegal activities were against the nature and objects of the Society and the School was being run on commercial lines; that it also stood proved that the assessee's case did not come under the expression "Education" within the meaning of section 2(15) of the I.T Act, as elucidated upon in "Sole Trustees, Loka Shikshana Trust v. CIT", 101 ITR 234(SC); that even if it was to be assumed that the activities of the assessee came under the expression "General Public Utility", 6 ITA 2849(Del)2010 the Trust was hit by the proviso to section 2(15) of the Act because it was charging fee and its receipts, exceeding ` 10 lakhs, were not eligible for exemption u/s 11 of the Act; that the assessee's accounts showed that it had been generating huge systematic profits year after year; that so, the ratio of the Hon'ble Uttarakhand High Court in "CIT, Haldwani v.M/s. Queen Educational Society, Nainital" and "St.Paul Senior Secondary School, Kathgodam, Nainital", was squarely applicable; that the assessee had violated the provisions of section 13 of the Act by applying its income for making payment to Career Launcher (India)Ltd. and CLEIS as licence fee and Infrastructure fee; that the two Directors of the said companies, namely, Nikhil Mahajan and Gautam Puri, who were holding the posts of Secretary-
cum-Treasurer and Managing Trustee respectively, came under the category of "Specified Persons" within the meaning of section 13A of the Act; and that the assessee had violated the provisions of section 13(1)(c) of the Act.
6. Challenging the said order of the ld. DIT(E), the learned counsel for the assessee has contended by virtue of his oral agreement as well as written submissions, that the assessee is a Trust incorporated vide trust deed dated 20.04.2006 for pursuing the main object of establishing, running and managing schools/colleges to provide education of all types. The assessee is also running a business school in the name of "Indus World School of 7 ITA 2849(Del)2010 Business" at Greater Noida; that the assessee is registered under section 12A vide order dated 23.05.2006. The assessee was also granted approval under section 80G of the Act for the period from 23.11.2005 to 31.12.2007 vide order dated 23.05.2006; that the assessee filed an application in Form No.10G on 05.11.2009, before the DIT (Exemptions) seeking renewal of approval under section 80G(vi) of the Act; that in the impugned order dated 07.05.2010 passed by the DIT(E) under section 80G(vi) of the Act, the DIT(E) rejected the application filed by the assessee.. The DIT(E) has primarily held that the activities of the assessee are not charitable in nature and therefore, the assessee is not entitled to grant of approval under section 80G(vi) of the Act; that the aforesaid action of the DIT(E) is, patently erroneous, since Section 11 of the Act exempts income of a `person' derived from property held under trust wholly for charitable or religious purpose; and that in order to claim exemption under the said section, the assessee has to get itself registered under section 12A by following the procedure prescribed in section 12AA of the Act.
7. The ld. DR, on the other hand, has staunchly supported the impugned order. Reiterating the contents thereof, it has been urged that the ld. DIT(E) has correctly rejected the application for renewal of exemption u/s 80G of the Act; that it is absolutely clear from the Agreement between CLEIS and 8 ITA 2849(Del)2010 the assessee that the assessee's intention was nothing other than of engaging in commercial/business activities so as to earn profit; that therefore, the motive of the assessee was but profit motive; that as such, there was no element of charity involved; that Nikhil Mahajan and Gautam Puri, the two Directors of CLEIS were undisputedly "specified persons" as defined by section 13(3) of the Act; that besides, the Trade Mark Licensing Agreement between the assessee and Career Launcher (India)Ltd. was a revocable Agreement, the signatories were of such "specified persons", i.e., Nikhil Mahajan and Gautam Puri; that even the Agreement for Infrastructure between the assessee and CLEIS was merely a façade, whereby licence stood given by the licensor to the licencee to run a Business School at Greater Noida; that it was just an arrangement between the licensor and the licencee for managing the affairs so that the funds of the assessee got deviated and exemption was obtained qua the income of the assessee under the provisions of the I.T. Act; that in fact, it was the said Nikhil Mahajan and Gautam Puri, who were the main Trustees, who stood proved to be the main beneficiaries of the income of the Trust; that in the Business School run by the assessee Trust, huge sums, amounting to ` 8 to ` 10 lakhs were being charged annually as fees etc., from students; that this, despite the fact that the said School had not been accorded any legal authorization by any 9 ITA 2849(Del)2010 Government Authority and so, it was debarred from charging such heavy fees, due to which, the fee charged was unauthorised and illegal; that in the face of these undenied facts, the School was being run solely on a commercial basis; that the activities of the assessee thus did not at all fall within the expression "education", as contained in section 2(15) of the Act; that the ld. DIT(E) has correctly held the case of the assessee to be falling squarely within the ratio of the decision of the Hon'ble Supreme Court in "Sole Trustees, Loka Shikshana Trust v. CIT"(supra); that further-more, undisputedly, at best, accepting for the sake of argument only; that the activities of the assessee fall within the expression "General Public Utility", the proviso to section 2(15) of the Act is directly attracted, since the receipts of the assessee by way of fee charged, are of more than ` 10 lakhs and the exemption u/s 11 of the Act is not available to such receipts; that the ld. DIT(E) has also rightly held the ratio in "M/s. Queen Educational Society, Nainital" (supra), to be directly applicable, since huge systematic profits were being generated by the assessee repeatedly year after year; that the assessee had also contravened the provisions of section 13 of the Act; that as such, the order passed by the ld. DIT(E), being a well versed, reasoned elaborate order, calls for no interference at our hands; that the grievance sought to be raised by the assessee, per contra, is not sustainable in face of 10 ITA 2849(Del)2010 the specific findings of fact recorded by the ld. DIT(E); and that therefore, the appeal of the assessee be dismissed while upholding the order under appeal.
8. We have heard the parties and have perused the material on record. The issue is as to whether the application filed by the assessee for renewal of grant of exemption u/s 80 G of the Act has rightly been rejected by the ld. DIT(E).
9. At the outset, it would be appropriate to reiterate here the Aims and Objects of the assessee Trust:-
"4..AIMS & OBJECTS:-
That the objects for which this trust is established are: 4a.1 To establish, open, develop, run, support, maintain schools, colleges, Hostels, Training & career counseling centers to provide education of all types (i.e. Basic, Professional, Technical or Non- Technical). 4a.2 To establish, run,support and grant aid or other financial assistance to schools, colleges, Hostels, libraries, reading rooms, universities, laboratories, research and other institutions of the like nature in India, for use of the students, staff and general public and also for the development and advancement of education, research and diffusion of knowledge amongst the public in general.
4a.3 To do or cause to do such acts & deeds to promote education by establishing, maintain and run studentships, scholarships and render other kind of aid to 11 ITA 2849(Del)2010 students including supply of books, stipends, transporation facilities and other incentives to study for needy children, without any distinction as to caste, colour, race, creed or sex.
4a.4 To promote, establish, support, maintain or grant aid etc. to institutions for the promotion of science, literature, music, drama and fine arts, for the preservation of historical monuments and for the research and to the institutions in India, having similar objects for the benefit of the public in general.
4a.5 To organize and run the coaching classes, library, reading room and other like activities either independently or jointly with others.
4a.6 To cause the diffusion of knowledge and information by bringing out the periodic Newsletter, journal or souvenir etc. either monthly, quarterly, yearly or otherwise under the suitable name and take the subscription etc. in such journal and souvenir.
4a.7 To run, maintain and establish Sports academics for the students of the school run by it and others.
(b) General 4b.1 To acquire and take over all or any part of movable or immovable properties of any similar Trust, society or institution or any one else whosoever may be for the purpose of the Trust and to maintain such assets.
4b.2 To raise funds, trough grants, aids, donations, subscriptions, sponsorship, presents, rent, gifts and loans or any assistance in other form etc. for the fulfillment of aims & objects of the Trust.
4b.3 To receive financial and non financial assistance from any Government and Non Government organizations, International agencies/organization, Banks and other legal entities or individuals, as permitted by rules of the Government of India.
12 ITA 2849(Del)2010 4b.4 To manage, sell, transfer, pledge, dispose of or deal with movable and immovable properties of the Trust keeping in view of the aims and objects of the Trust.
4b.5 To invest funds and help investment of any funds in the modes of investments from time to time which is in terms of Income tax Act 1961 or any other law for the time being in force and subsequent amendments thereof from time to time.
4b.6 To assist and cooperate the Trust/Associations/Organizations etc. whose aims are same like this Trust apart from.
4b.7 To establish and manage branches and centers of trust in other parts of the country.
4b.8 All the activities of the Trust shall be non- profitable. 4b.9 To do and cause to do all such acts, deeds and take such steps which are in accordance with the spirit and principles of the Trust as may be ancillary or incidental and conducive to the attainment and pursuit of its aims and objectives of the Trust." (emphasis supplied)"
10. A perusal of the above Aims and Objects of the assessee Trust shows that the main object of the Trust is to set up and manage Educational Institutions, i.e., Schools/Colleges and Training and not only centres to impart education to all kinds and to make available and proper financial assistance to schools and colleges for advancement of education and research and for dispersal of knowledge amongst the public. A copy of the Trust Deed dated 20.4.06 of the assessee Trust has been placed at pages 49
13 ITA 2849(Del)2010 to 63 of the Assessee's Paper Book ('APB' for short). As pointed out by the learned counsel for the assessee, Article 13.3 thereof stipulates that -
"13.3 The Trust Fund shall not be applied for any purpose other than those specified in Article 4 hereinabove. (emphasis supplied)
1. Further, in terms of clause 18 of the Trust Deed (refer page 62 of the paper book) no part of the income/funds of the appellant can be distributed amongst its members as profit and in the event of dissolution of the appellant, any surplus shall vest in any other trust having similar objects as that of the appellant as per the trust deed and approved under section 12A of the Act. The said clause is reproduced hereunder:
"18. Application of Funds It is expressly declared that no part of the Trust property or its income or any accretion thereto shall be applied for any purpose outside India or for any purpose which is not a charitable purpose in law, and all provisions hereof shall be construed accordingly.
On the dissolution of the Trust all the funds of the trust along with all the assets and liabilities shall be transferred to any other trust with similar object approved under section 12A of the Income Tax Act, 1961." (emphasis supplied)
11. The Trust Funds shall not be applied for any purpose other than those specified in Article 4 reproduced hereinabove. Article 4 is nothing other than the Aims and Objects of the assessee Trust, as reproduced hereinabove.
14 ITA 2849(Del)2010 So, the Trust Fund can be applied only for the advances specified in Article
4. Application of the Trust Fund for any other purpose stands specifically forbidden by Article 13 of the Trust Deed.
12. Then, Article 18 (at APB 62) of the Trust Deed prescribes the application of the funds of the Trust, declaring that no part of the Trust profit or its income or any accretion thereto shall be applied for any purpose outside India or for any purpose which is not a charitable purpose in law. As such, the income/funds or any part thereof have been forbidden from being distributed as profit amongst the members of the Trust. Article 18 further provides that in the event of dissolution of the Trust, all its funds along with its assets and liabilities shall be transferred to any other Trust with similar object approved u/s 12A of the I.T. Act.
13. It was on the basis of the above, that registration u/s 12A of the Act was granted to the assessee vide order dated 23.5.2006. Also, vide order dated 23.5.06, approval u/s 80 G of the Act was accorded to the assessee Trust for the period from 23.11.05 to 31.12.07.
14. Apropos the objections raised by the DIT(E) in the impugned order, the learned counsel for the assessee has maintained that once registration u/s 12A of the Act stands granted, the charitable character of the activities of the Trust cannot be challenged/doubted. In this regard, reliance has been 15 ITA 2849(Del)2010 placed on "ACIT v. Surat State Gymkhana", 170 Taxmann 612(SC), holding that the AO, in the assessment proceedings, is not entitled to hold the objects of the assessee to be not charitable in nature, once registration granted u/s 12A of the Act does not stand withdrawn.
15. It is seen that vide order dated 23.5.06 (copy at APB 102), the assessee was granted registration u/s 12A of the Act. Again, vide order dated 23.5.06 (copy at APB 101), the assessee was granted approval u/s 80G of the Act for the period from 23.11.05 to 31.12.07. The registration means that it stood accepted that the assessee had been constituted for educational purposes, falling within "charitable purpose" u/s 2(15) of the Act. It also stood accepted thereby that the funds of the assessee were, in their entirety, as the assessee was legally obliged to do, to be applied solely for the primary objects of the Trust and for no other purposes. Therefore, the properties held by the Trust were held only for charitable purposes. The ld. DIT(E) has remained oblivious of this position while passing the impugned order. He failed to consider that the only object of the assessee was that of imparting education by way of basic professional, technical and vocational training to the general public. So as to follow the said object, various activities were carried out by the assessee Trust. This included providing skill development and undertaking vocational training program for rural youth in Rajasthan 16 ITA 2849(Del)2010 and U.P. and thereby imparting education and training, identifying potential activities and beneficiaries and facilitators/trainees and monitoring the programs, towards which end, a Memorandum of Understanding dated 11.6.09 (copy at APB 1 to 12) was entered into with the Educational Institute of Rural Development (NIRD), for skill development of Rural Youth, and running and managing a Business School under the name of "Indus World Business School" at Greater Noida and thereby improving upon the educational/management skills of the students. The assessee Trust entered into an Agreement dated 1.2.08 (copy at APB 13 to 29) with Career Launcher Education Infrastructure And Services Ltd. ("CLEIS" for short). It was as per the said Agreement that the assessee was granted a non- exclusive licence for the use of the name "Indus World Business School"
and educational soft skills for running and managing the Business School, by CLEIS. Another agreement, a Collaboration Agreement dated 1.11.07 (copy at APB 39 to 48) was entered into by the assessee Trust with Career Launcher India Limited or "CLIL". The assessee paid Infrastructure Fee to CLIL in lieu of services rendered by CLIL. These services were the services enumerated in Annexure A (copy at APB 47 to 48 to the said Collaboration Agreement) to the said Agreement. These services are as follows:-
17 ITA 2849(Del)2010 Annexure A Service to be offered by CL for carrying on Activities("Services")
1) Business Development Services:
Database Services:
Database of more than 40 K prospective students for Post Graduate Program, who have prepared with CL for their undergraduate entrance tests.
Database of more than 5K prospective students for its BBA examination, who have prepared with CL for their undergraduate entrance tests.
Sharing database, which was collected at CL for its own marketing activities (in excess of 1.2 lakhs) who are actively looking for MBA and BBA as their career options.
This database gets built up round the year due to ongoing sales promotion activities by a sales force of more than 150 persons at more than 80 locations all across India.
2). Organising Seminar/Road shows:
Organising more than 50 seminars/road shows at itsown center/franchisee center location for procuring students.
3). Marketing Services:
Brand related services:
Engaging advertising agency for creating brand strategy and continuously improving on the same.
Creating Brand collateral in terms of advertisement creative on various media such as print, TV etc. Advertising and PR related services:
18 ITA 2849(Del)2010 Engaging media agency for selection of best media vehicle and execution of media plan.
Engaging PR agency for implementing effective PR. Creating effective regular sales related collateral in terms of posters, banners, print ad creative, and TV commercials.
4). Content Services:
Providing services in terms managing DTP, printing and publishing services for the academic material.
Providing warehousing and dispatch services for the academic and sales collateral.
5) Human Resource Services:
Services related to recruitment and induction Assistance in Training and retention
6) Amenities Services:
Usage by CLEF of building with office equipments for conducting classes and students stay, as may be agreed between the parties from time to time.
7). Tech Services:
Usage by CLEF of packages related to payroll, attendance, scheduling and faculty logins Usage by CLEF of SIS module, a web bassed learning management services module.
8) Legal services:
Services related to legal compliances
9) Any other service:
19 ITA 2849(Del)2010 CL shall provide any other service, not provided in this Agreement but desired by CLEF for the Business School on payment of fee and charges to be mutually decided between CL and CLEF."
16. As evident, these services were for the effective running and management of Indus World Business School. Another Agreement, i.e., Trade Mark Licence Agreement dated 1.11.07 (copy at APB 30 to 38) was entered into between the assessee and CLIL. Under this Agreement, a licence fee was paid by the assessee Trust to CLIL. This payment was for grant of a non-exclusive licence to the assessee to use the Trade Mark "Career Launcher". Under the Agreement, fixed licence fee and continuing licence fee, based on net revenue, were to be paid to CLIL. The ld. DIT(E) has failed to appreciate these facts and has gone wrong in observing that the assessee's intention was solely to engage in commercial and business activities so as to earn profit and that the assessee's activities were against the Aims and Objects for which public charitable trusts are created. The ld.
DIT(E) further erred in observing that it was evident from the Agreement for Infrastructure between the assessee and CLEIS that the entire affairs of the assessee Trust had been so arranged between the licensor and the licencee, as to deviate the funds of the assessee Trust and to get the income of the assessee exempted under the Income Tax provisions, whereas the main beneficiaries of the income were the two main trustees, i.e., Nikhil Mahajan 20 ITA 2849(Del)2010 and Gautam Puri, who were "specified persons" within the meaning of section 13(3) of the Act.
17. It remains undisputed that the assessee has been providing formal education in Indus World Business School. The ld. DIT(E) has questioned the charging of fees by the School from its students, alleging that such fee was heavy fee and as the Institute was not recognized by any Government Authority, the charging of such heavy fee was illegal. In this regard, it is seen that the assessee Trust continues to enjoy registration u/s 12A of the Act. Though in the impugned order, in para 15, the ld. DIT(E) has, inter alia, observed that "....................In fact, after revealing all facts as above, the assessee's Trust does not even qualify for continuous of registration under sections 12A/12AA and separate proceedings need to be initiated for cancellation of the same", no such cancellation of registration has been shown to have been brought about, thereby re-enforcing the assertion that the assessee Trust is a charitable Trust. In "ACIT v. Surat City Gymkhana"(supra), it has been held that once registration u/s 12A of the Act has been maintained, it is not open for the AO in the assessment proceedings, till the registration is withdrawn, to hold that the objects of the Trust are not charitable in nature.
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18. In "Sonepat Hindu Educational Charitable Society v. CIT", 278 ITR 262(P&H), it was held, inter alia, that the registration of an Institution u/s 12A of the Act is sufficient proof of the fact that the Trust or Institution concerned is created or established for charitable or religious purposes.
19. In "Gaur Brahmin Vidya Pracharini Sabha v. CIT", 34 SOT 371(Del), held that all conditions laid down in Section 80G(5) (ii) to (vi) stood fulfilled; and that grant of registration u/s 12AA of the Act was the testimony to the fact that the Trust was established for charitable purposes. This decision of the Tribunal has since been affirmed by the Hon'ble High Court in "CIT v. Gaur Brahmin Vidya Pracharini Sabha", 15 Taxmann 250(P&H), dismissing the Department's appeal and holding that the Trust was eligible for registration u/s 80G (vi) of the Act.
20. In "Sonepat Hindu Educational Charitable Society v. CIT" (supra), vide our order dated 27.5.2011 (copy at APB 103 to 107) passed in ITA No. 1928(Del)2010, it has been held that at the time of grant of registration u/s 12A or approval u/s 80G(5) of the Act, the AO's exercise to be carried out while making assessment, cannot be done, and that the matter can be reviewed only if the registration granted to the assessee is withdrawn.
21. In "ITO v. Mrs. Dwarika Prasad Trust", 30 ITD 84 (Del)(TM), it has been held, inter alia, that grant of registration u/s 12A cannot be by-passed 22 ITA 2849(Del)2010 as merely an idle formality; and that once a certificate u/s 12A of the Act stands issued, it is not open to the AO to enquire into the character of the Institution and to deny exemption u/s 11 of the Act.
22. In "Stock Exchange, Ahmedabad v. ACIT", 74 ITD 1(Ahd), it has been held, inter alia, that once an Institution has been registered u/s 12A, it is for the AO to find out whether the income of the Institution has been applied for the objects of the Institution and the statutory conditions laid down in sections 11 to 13 are fulfilled by the assessee; and that the AO had no jurisdiction to reject the claim of exemption u/s 11 of the Act by looking into the objects of the Association and holding them to be non-charitable in nature.
23. The following are the other decisions to the same effect:-
1. "DCIT v. Rajneesh Foundation", 280 ITR 553(Bom);
2. « N.N. Desai Charitable Trust v. CIT », : 246 ITR 452 (Guj.) ;
3. "Orpat Charitable Trusts v. CIT",: 256 ITR 690 (Guj.);
4. "Umaid Charitable Trust vs. Union of India & Ors", 307 ITR 226 (Raj);
5. "ITO v Trilok Tirath Vidyavati Chuttani Charitable Trust", 90 ITD 569 (Chd);
6. "Ananda Marga Pracharaka Sangha v. CIT",: 218 ITR 254 (Cal) .
24. In view of the above, the observations of the ld. DIT(E) are not sustainable.
23 ITA 2849(Del)2010
25. Apropos the objection of the ld. DIT(E) that the activities of the assessee do not come within the expression "education" as contained in Section 2(15) of the Act, it is seen that the ld. DIT(E) placed reliance on the decision of the Hon'ble Supreme Court in " Lok Shikshana Trust v. CIT"
(supra). However, we are unable to gather as to how that decision is detrimental to the facts of the present assessee. Therein, the facts were entirely different. The assessee in that case was publishing and supplying news paper and it was on the basis of this that the claim of the assessee was not approved, holding that education must involve systematic instruction, schooling or training and developing the knowledge, skill, mind and character of students. It has not been shown by the Department as to how the activities carried out by the assessee do not constitute "education" as such. It does involve systematic instruction, schooling and training and it develops the knowledge, skill, mind and character of the students. " Lok Shikshana Trust v. CIT" (supra), therefore, goes to support rather than prejudice the assessee's case.
26. The ld. DIT(E) has further sought to cover the activities of the Trust under the expression "General Public Utility" as contained in section 2(15) of the Act and has held that since the assessee Trust is charging fee from its students, the proviso to section 2(15) gets attracted and the assessee Trust 24 ITA 2849(Del)2010 ceases to be charitable. However, it is seen that the proviso to section 2(15) of the Act is applicable only to those Institutions/Trusts, whose main object is that of advancement of any other object of public utility. The assessee Trust, on the other hand, is engaged, as seen, in charitable activities and so, the proviso to section 2(15) is not at all applicable hereto, none of the activities of the assessee Trust being in the nature of trade, commerce or business. Even the Agreements entered into by the assessee that CLEIS and CLIL were incidental to the attainment of the assessee's main object of imparting education. Therefore, it cannot at all be said that any of the activities come within "General Public Utility".
27. The objection of the ld. DIT(E) regarding charging of fee by the school cannot be made the basis of holding that the activity was a commercial one. In this regard, reliance has rightly been placed by the assessee on the following case laws:-
1. "CIT vs. Krishi Utpadan Mandi Samiti, Purvao", 186 Taxman 460 (All.);
2. "ICAI Accounting Research Foundation v. DGIT(E) & Ors.", 321 ITR 73 (Del.);
3. "Gaur Brahmin Vidya Pracharini Sabha vs. CIT", ITA No. 1905/Del/2009: 34 SOT 371 (Del.) affirmed by the Punjab and Haryana High Court in 15 Taxmann 250.
4. "CIT v. Pulikkal Medical Foundation (P.) Ltd.", [1994] 210 25 ITA 2849(Del)2010 ITR 299 Ker.);
5. "Indo American Society vs. ADIT", 96 ITD 61 (Mum.);
6. "ITO vs Kaushalya Medical Foundation", (2009) 31 SOT 119 (Mum.);
7. "CIT vs. Surji Devi Kunji Lal Jaipuria Charitable Trust (No.1)", 186 ITR 728 (All.);
8. "Hiralal Bhagwati vs. CIT", 246 ITR 188 (Guj.);
28. The objection of the ld. DIT(E) regarding the assessee having earned huge surplus in assessment years 2007-08 to 2009-2010 is also not of any consequence. Firstly, the learned counsel for the assessee has invited our attention to the Audited Annual Accounts for the said period, showing that no profits were earned in the said period. Rather, the assessee had incurred deficits which are tabulated as under:-
Financial Year Deficit (in Rs.)
2006-07 18,66,158.00
2007-08 1,19,33,876.08
2008-09 3,59,63,000.77
26 ITA 2849(Del)2010
29. Moreover, this issue cannot prejudice the case of the assessee even as an aside, since it is the objects of the Trust and not the surplus amount, which is of consideration. Also, merely because the Trustees were incidentally benefitted, as held in "ACIT v. Surat Art Silk", 121 ITR 1(SC), the Trust does not cease to be a charitable Trust. The test to be applied is as to whether the object alleged to be a non-charitable object is or is not the main object and as to whether it is incidental to the dominant charitable object. Herein, as seen above, the main object, i.e., 'education' is a charitable object. In this regard, reliance has been correctly placed on the following case laws:-
2. "Sole Trustee, Loka Sikhshana Trust's case" [1975] 101 ITR 234(SC);
3. "American Hotel Lodging Association Education Institute v.
CBDT", 301 ITR 86 (SC);
4. "CIT v. Andhra Pradesh State Road Transport Corporation", 159 ITR 1 (SC);
5. "CIT V. Bar Council of Maharasthra", 130 ITR 28 (SC);
6. "Thiagarajar Charities V. Addl. CIT", 225 ITR 1010, 1026 (SC);
7. "Samaritan Society vs. CIT", 225 ITR 652 ( SC );
8. "Aditanar Educational Institution V. ACIT", 224 ITR 310;
9. "CIT v Lagan Kala Upvan", 259 ITR 489 (Del);
10."CIT v Delhi Kannada Education Society", 246 ITR 731(Del.).
27 ITA 2849(Del)2010
30. Sofar as regards reliance by the ld. DIT(E) on the decision in "Queen Educational Society" (supra), it has rightly been averred on behalf of the assessee that that decision is not applicable on facts. Therein, the assessee had shown net surplus in two assessment years, which was held not having been taken into account by the Tribunal, concluding that the current profit of the assessee had not been appreciated by the Tribunal and deduction u/s 10(23 C) of the Act had wrongly been allowed. Herein, however, there is no issue of exemption u/s 10 (23 C) of the Act. Rather, it is u/s 80G of the Act that the exemption was granted to the assessee and the assessee seeks continuation of such exemption.
31. "Queen Educational Society" (supra), then, has been dissented by the Hon'ble Punjab & Haryana High Court in "Pinegrove International Charitable Trust v. Union of India", 327 ITR 73(P&H) and by the Hon'ble Bombay High Court in "Vanita Vishram Trust v. CIT", 327 ITR 121(Bom), wherein "Pinegrove International Charitable Trust" (supra) was followed.
32. The objection of the ld. DIT(E) regarding the alleged violation of the provisions of section 13(3) of the Act by the assessee also holds no water. The ld. DIT(E) has failed to consider that what is material in this regard is that if the payment made was commensurate with the nature of the services rendered by "specified person", the charitable nature of the Trust cannot be 28 ITA 2849(Del)2010 doubted, which proposition also finds support from "ADIT v. Manav Bharti Child and Child Psychology", 20 SOT 517(Del), wherein it has been held, in the context of Sections 11/12 of the Act, inter alia, that in the Act, there is no prohibition to remunerate the interested person, that such remuneration should be commensurate with the services rendered by them and if it is so found, it cannot be said that the provisions of Section 13(1)(c) of the Act are attracted. The decision of the Hon'ble Delhi High Court in the case of "Parivar Seva Sansthan", 254 ITR 268(Del) is also to the same effect. The ld. DIT(E) does not question the payments made by the assessee to either CLEIS or CLIL as not being at arm's length and the only basis of attack is that the payments were made to the "specified persons" , which basis, as seen, is not available, much less sustainable.
33. Thus, considered from any angle, the action of the ld. DIT(E) in refusing grant of continuation of approval u/s 80 G of the Act to the assessee Trust is illegal, irregular, arbitrary and unsustainable in the eye of law. The grievance of the assessee in this regard is justified and is accepted as such. The order passed by the ld. DIT(E) is cancelled and he is directed to grant the approval u/s 80 G of the Act to the assessee, as requested by the assessee.
29 ITA 2849(Del)2010
4. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 10.02.2012.
Sd/- sd/-
(A.N. Pahuja) (A.D. Jain)
Accountant Member Judicial Member
Dated: 10.02.2012
*RM
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
True copy
By order
Assistant Registrar