Income Tax Appellate Tribunal - Delhi
Gems Education Society, Gurgaon vs Assessee on 28 September, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'C' NEW DELHI
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
I.T.A Nos. 5308,5309/Del/10
GEMS Education Vs. CIT, Faridabad
Society,
DLF Gateway Tower,
5th Floor, DLF City,
Phase-III,
Gurgaon.
AAAAG7454M
(Appellant) (Respondent)
Appellant by: Shri Ved Jain, CA, Miss Rano Jain,
Shri Venketesh Chowrasia, CA
Respondent by: Shri R.K. Gupta, CIT/DR
ORDER
PER RAJPAL YADAV, JM:
The present two appeals are directed at the instance of assessee against the separate order of Ld. Commissioner dated 28.9.2010 passed 2 ITA Nos. 5308,5309/Del/10 u/s 12AA(i)(b)(ii) and 80G (5) of the Income Tax Act. The solitary grievance of the assessee in both the appeals relates to denial of registration u/s 12AA and exemption u/s 80G of the Income Tax Act.
2. The facts and circumstances on all material points are common for appreciating the dispute whether assessee is entitle for registration u/s 12AA and exemption u/s 80G. For the facility of reference we are taking up the facts mainly from the order passed u/s 12AA by the Ld. Commissioner, because in the order passed u/s 80G Ld. Commissioner has not discussed the issue in detail rather he followed his order passed on the application made u/s 12AA.
3. The brief facts are that assessee is a society registered under the societies registration Act 1860 vide registration no. DR/GGN/125/2009- 10 by the District Registrar of firm and society Haryaya. The society came into existence on 22.10.2009. It has filed an application in form No. 10A for grant of registration u/s 12A of the Income Tax Act on 29th March, 2010. The assessee has enclosed all necessary documents for perusal of the Ld. CIT(Exemption). It annexed copy of memorandum of association copy of rules and regulations, list of executive members certificate u/s 13(i) of the Income Tax Act. On an analysis of the assessee's application as well as the memorandum of association etc. Ld. Commissioner issued a show cause notice to the assessee whereby 3 ITA Nos. 5308,5309/Del/10 he sought explanation of the assessee for the reasons assigned in the show cause notice, why its application may not be rejected ?. The reasons given by the Ld. Commissioner in the show cause notice read as under :-
"1 Please explain as to how the aims and objects (vii), (ix),(xi),(xv) to (xviii), (xx) to (xxx) and (xxxii) listed in 'Clause 5 - Aims and Objects' of the MOA, fall within the meaning of charitable purposes as per section 2 (15) of I.T. Act, 1961.
2. Clause 5(xxxiii) stipulates undertaking of activities outside India, which is in violation of S. 11(1)(a) of I.T. Act, 1961. Please explain.
3. The Assessing Officer - ITO, Ward-2, Gurgaon and the Addl. CIT, Gurgaon have recommended against grant of registration u/s 12A in your case on the following grounds :-
(i) Aims and objects of the Society at S.No. 5 (xxi) and 5(xxv) are in the nature of business and are not 'charitable purposes'.
(ii) Aim at S.No. 5 (xxxiii) permits activities outside India, which is against S. 11(1)(a) of the I.T. Act, 1961.
(iii) The Society has not prepared and submitted annual accounts for the FY 2009-10 nor furnished or produced account books, bills/vouchers before the Assessing Officer. So the AO could not ascertain whether the income had been applied as per the objects
(iv) The Society intimated name of school, but did not furnish any document showing ownership of land, No details of investment made in purchase of school land or construction of building was furnished to AO. Hence, the same remained unexplained and unverified.
In view of the above, the AR is requested to show cause as to why the applicant Society's claim for grant of registration u/s 12A may not be rejected."
The assessee has submitted a detailed reply and explained each aim and object incorporated in the memorandum of association upon whom 4 ITA Nos. 5308,5309/Del/10 Ld. Commissioner has objection or doubt. The reply of the assessee has been noticed by the Ld. Commissioner extensively on pages No. 3 to 15 of the impugned order. Ld. Commissioner thereafter has observed that though assessee's society has amended some of the clauses out of various clauses pointed out by him to the assessee in the show cause notice, which according to the view point of revenue were repugnant to the provisions of the Income Tax Act, but still there are various clauses which are not in conformity with the provisions of the Income Tax Act. On an interpretation of those clauses, Ld. Commissioner arrived at a conclusion that neither the objects nor the activities of the society justify its claim for registration u/s 12AA. The relevant part of the discussion made by the Ld. Commissioner from paragraph 8 read as under :-
8. From the reply dated 24.9.2010, it is seen that the applicant Society has amended some out of various clauses pointed out to the A.R. as being repugnant to the provisions of the Income Tax Act, 1961. When these clauses were pointed out to the A.R., he vehemently defended the said clauses, giving various explanations as reproduced above. However, on 24.9.2010, he made volte face and furnished a copy of amendments made in the MOA, having removed some out of the various clauses from the original MOA, which he had been hitherto defending as being in accordance with the Income Tax Act, 1961.
9. Even after the amendment to MOA, the objects of the applicant Society are still not in conformity with the provisions of the Income Tax Act, 1961.
Clause 5(ix) stipulates giving awards, assistance, financial or otherwise, to employees, etc., which obviously restricts the benefits to the applicant Society's own employees. This is not a charitable purpose. Clause 5(xi) provide for printing and publishing activities and clause 5 (xviii) provides for printing and publishing activities and clause 5(xviii) provides for undertaking marketing, advertising, promotional activities for schools. The activities stipulated in these two clauses do not come within the ambit of the word 'education' within the meaning of section 2(15) of the Income Tax 5 ITA Nos. 5308,5309/Del/10 Act, 1961. In this regard, it is observed that in the case of Sole Trustee, Loka Shikshana Trust vs Commissioner of Income-Tax, Mysore 101 ITR 234, the Hon'ble Supreme Court has elaborated the meaning of the word 'education' as it is understood by section 2(15) of the Income Tax Act, 1961.
10. From the above, it is clear that education, for the purposes of section 2(15), is to be understood as the imparting of education by normal schooling, and the objects at no. 5 (xi) and no. 5 (xviii) in the MOA can well be pursued without running any educational institution. This is so, because when the objects are distributive, nothing can hinder the institution to invest all its funds in any one of the objects. Moreover, these objects involve activities in the nature of trade, commerce and business and are therefore repugnant to Proviso to section 2(15). The applicant Society's claim for registration u/s 12A is therefore not justified.
11. Clause 5(xxv) mentions charging of fees and accepting of deposit, advances and security, etc. for services rendered to students, as an object of the Society. All this amply shows that the dominant motive of the applicant Society is not rendering charity but to charge fees, earn profit and accumulate funds.
12. Clause 5(xxx) empowers the members to pursue any objectives decided by the Society from time to time and to otherwise help and assist such other charitable purposes or purpose of public utility as the members may think fit. This stipulation is wide and vague. No specific object is discernable from this clause, because it is left to the absolute discretion of the members, as they may think fit. The need for specific objects has been underscored by the Hon'ble Supreme Court's decision in the case of Gangabai Charities vs CIT (1992) 197 ITR 416 (SC) followed by Hon'ble Madras High Court's decision in the case of Assembly Rooms vs CIT (2000) 241 ITR 76 (Mad.) wherein it was held as under :-
"A charitable trust should have specific objects as one of the criteria for a valid trust. For the trust to be accepted as charitable trust for purposes of exemption, it is all the more necessary that the objects should be specific so as to conform to the requirement of income tax law in this regard. Where they are too wide, the trust may not qualify for exemption."
The above lack of specific objects negates the claim of the applicant Society for registration u/s 12A.
6 ITA Nos. 5308,5309/Del/10
4. Ld. Counsel for the assessee while impugning the order of Ld. Commissioner took us through clause No. 5 of the memorandum of association, wherein aims and objects have been incorporated by the assessee. He pointed out that assessee has assigned 35 main as well as ancillary aims and objects. The main object of the assessee's society is to impart education and for that purpose it wants to run a school. Ld. Commissioner has raised his objection with regard to objects mentioned at S. Nos. vii ix xi xv to xviii xx to xxx and xxxii. After the explanation of assessee he has confined his finding towards clause No. ix, xi xviii xxv and xxx. Ld. Counsel for the assessee took us through the explanation given by the assessee before the Ld. Commissioner which has been noticed with regard to the objection raised by the Ld. Commissioner on all the clauses. For the facility of reference we deem it appropriate to take note of the clauses mainly objected by the Ld. Commissioner and the explanation of assessee . Clause Nos. ix, xi, xviii, xxv and xxx from the aims and objects read as under :-
ix To grant awards, scholarship and other assistance, financial or otherwise to deserving and talented students, teachers professors, lecturers, employees, etc. xi To propagate education by publishing books, periodicals, daily papers, magazines, dictionaries, work books, exercise books, stationary or their printed or hand written and cyclostyled papers intended to advance education.7 ITA Nos. 5308,5309/Del/10
xviii Undertaking marketing, advertising, promotional activities for the schools xxv To charge fees and accept deposit, advances, security etc. for services rendered to various entities, students and others. To accept donations, grants, presents and other offerings in the form of cash, immovable assets and movable assets as applicable, to deal with the same for carrying out the objects and/or purposes of the Society and to raise moneys and funds in such manner as may be deemed fit for and on behalf of the Society.
xxx. Carrying out all ancillary and incidental acts and deed required to achieve any of the objectives set forth above or objectives decided by the Society from time to time, and otherwise helping and assisting such other charitable purposes or purpose of public utility as the members may think fit .
5. The reply of the assessee in response to the show cause notice is also worth to note here:-
Clause ix In this clause awards scholarships and other assistance, financial or otherwise to deserving and talented students, teachers, professors, employees etc. are to be granted and objection has been raised for providing these to the employees. In this matter it may kindly be noted that employees should be viewed in greater perspective. The teachers, professors and lecturers may also be employees of the institution run by the society. In this clause the intention is to grant award, scholarships and other assistance to students, teachers, professors, lecturers whether of own institutions engaged in the field of education or others. The phrase 'employees' has been added for avoiding the confusion that teachers, professors and lecturers since own employees are not eligible for these promotional facilities. It may further be noted that reward to deserving employees is always allowed as staff/labour welfare which is a direct expenditure to run the institution on equal footing as the salaries to these persons .
Clause xi It has been informed that publishing activity is not charitable in nature. Here again the publishing activity should be viewed in the background of the last phrase in this object clause which is to advance education. As per clause (i) the society is to run schools and colleges for imparting education to the students. In order to provide quality education, own tutorial books and textbooks may have to be published. Periodicals may also be needed to be published for supplementing education with att developments. Daily papers may have to be published to support daily lectures. Institutions also publish magazines so that the cultural activities of the students and 8 ITA Nos. 5308,5309/Del/10 their communication power are enhanced. Dictionaries are required to be printed to help students to learn words and phrases in a friendly manner. Workbooks will be required to be published to supplement classroom studies and homework. Same is the case with exercise books, stationery printed / handwritten / cyclostyled papers. When education institution are run these are inherent activities which are supplementary to the oral classes, and a visit to any institution would verify the requirement of these materials. It is clarified that trust will not indulge in any business activity of publication. It will only engage in publication for the use in own institutions. The publication activity is akin to education activity .
Clause xviii It has been proposed that undertaking marketing, advertising and promotion activities for the school is a business. In this matter it is submitted that every field needs marketing, advertising and promotions and this activity in itself wil notbe taken as a business. This clause (i) and (ii).
Clause xxv The object 'to charge fees and accept deposit, advances, security etc. for services rendered to various entities, students and others is for the purpose of getting payment on these accounts from the students and others, is for the purpose of getting payment on these accounts from the students which is natural. These kind of payments may be received from own students and the students of other institutes referred to society's institutions and such payments may be received form various entities and others for educating their students and training their teachers. This activity is retained only for advancement of education and nothing else. The acceptance of donations, grants, presents and other offerings in connection with the objects of the society and further raising money and funds for the society does not make its activities non charitable in nature since charitable nature is governed by the utilization of the funds.
Clause xxx This clause is incorporated to add other charitable activities which at present are not in the aims and objects but with the passage of time the society may feel need of those activities.
6. On the strength of above explanation Ld. Counsel for the assessee submitted that aims and objects of the assessee are in consonance with the requirement of law. Its main object is to impart education. Ld. Commissioner while processing the application of assessee for grant of 9 ITA Nos. 5308,5309/Del/10 registration was not required to look into the aspects of application of income etc. For that purpose sufficient safeguards have been provided in the Income Tax Act in the shape of section 11 (i)(a) and section 13 of the Act. These aspects could be examined by the AO in the asstt. proceeding. For the purpose of grant of registration u/s 12A the focus of the Ld. Commissioner should be whether the society exist for a charitable purpose or not. Ld. CIT (A) is supposed to have a glance prime facie whether activities of the society are genuinely charitable or religious or of public use. At this stage, it is not to be looked into how the income would be applied by the society. These aspects can be looked into at the asstt. stage. For buttressing his contention he relied upon the two decisions of the Hon'ble Karnataka High Court rendered in the case of Director of Income Tax vs. Garden City Educational Trust reported in 191 Taxman 238 and Sanjeevamma Hanumanthe Gowda Charitable Trust vs. Director of Income Tax reported in 285 ITR 327. He also relied upon the decision of Hon'ble Allahabad High Court in the case of CIT vs. Red Rose School reported in 212 CTR 394. He prayed that registration u/s 12AA be granted to the assessee.
7. Ld. DR on the other hand again took us two clause No. ix of the aims and object and point out that under this clause assessee has provided for grant of awards, scholarships and other assistance to the 10 ITA Nos. 5308,5309/Del/10 deserving students, teachers, professors, lecturers and employees. This clause is such a wide clause wherein in the garb of awards or scholarship the society can grant any type of benefit to its employees. Similarly he further submitted that assessee is supposed to undertake publishing of books which is akin to commercial activity. Referring to clause xx he pointed out that assessee can acquire and hold property of any kind, it means tomorrow it can undertake the real estate development activities. He pointed out that assessee might be undertaking imparting of education but where is the object of charity in such activity. The assessee would charge exorbitant fees. For the purpose of section 12A, it has to satisfy that its activity is of charitable nature and not based on commercial consideration. He further pointed out that assessee has incurred huge amount on advertisement which indicate that activity was not for the purpose of any charity rather to run educational institution for earning.
8. For buttressing his contention Ld. DR relied upon the decision of Hon'ble Uttrakhand High Court in the case of CIT Dehradun vs. National Institute of Aeronautical Engineering Educational Society reported in 2009 TIOL 314. He placed on record copy of the decision. On the other hand Ld. Counsel for the assessee in rebuttal contended that this aspect has been considered by the Hon'ble Punjab & Haryana High Court in the 11 ITA Nos. 5308,5309/Del/10 case of Pine Grove International Charitable Trust vs. Union of India and others reported in 327 ITR 73. He pointed out that Hon'ble Court has observed that merely because profits have resulted from the activity of imparting education that would not change the character of the institution existing solely for the purpose of education. He pointed out that society has already provided sufficient safeguard in the rules that no benefit would be extended in the shape of moveable and immovable property to any individual. For this purpose, he drew our attention to clause No. 6 of the Memorandum of Association. He also pointed out that at the winding up of the society the unutilized funds after meeting the liability of society will be transferred to any other society with similar objects and aims. The funds will not be given to any individual or entity for personal use or any other object.
9. We have duly considered the rival contention and gone through the record carefully. On perusal of memorandum of association alongwith aims and objects, one thing is clear that the assessee society came into existence for the purpose of imparting education. The clauses incorporated in the aims and objects do indicate that its activity is for the purpose of education for public at large. Thus this activity do come in the ambit of section 2 (15) of the Income Tax Act. According to the authoritative pronouncement of Hon'ble Karnataka High Court in the 12 ITA Nos. 5308,5309/Del/10 case of Garden City Educational Trust as well as in the case of Sanjeevamma Hanumanthe Gowda Charitable Trust. The registration u/s 12A is one of the procedural aspect for claiming benefit u/s 11 and 12 of the Income Tax Act. The issues whether assessee would earn income, it will apply its income for the purpose of its activity or not are relevant while assessing the income of the assessee. For granting registration u/s 12A. Ld. Commissioner is required to look into prima facie about the genuineness of the activities of the assessee. The activities incorporated in the aims and objects should be in accordance with the law. They should not for the purpose of carrying out any illegal activities etc. Meaning thereby that registration u/s 12A may not be given to an assessee for certain activities which are not in consonance with the expression 'charitable purpose' provided in section 2 (15) but in the name of education assessee is trying to demonstrate that such activities are also for charitable purpose.
10. Adverting to the facts of the present case, let us see main objections of the Ld. Commissioner for denying a registration to the assessee u/s 12A of the Act. The first objection he has expressed about sub clause IX of clause 5. We have extracted sub clause IX as well as assessee's reply. The apprehension of the Ld. Commissioner is that this power will be misused by the assessee by restricting these awards to 13 ITA Nos. 5308,5309/Del/10 the benefit of assesee's employee. This apprehension of the Ld. Commissioner is totally misplaced. Section 13(3) can take care of this aspect when assessment will be framed. If the assessee has granted undue benefit to any person covered by that section then that amount can be disallowed. During the assessment proceeding, if it came to the notice of AO that undue benefit has been extended by the society to any entity or individual, who has an influence in the decision making process of the society, then he can examine that aspect and disallow the claim of assessee. The next objection pointed out by the Ld. Commissioner is in respect of printing and publishing activity of the assessee. He is of the opinion that it is akin to trade and commerce. In our opinion that an educational institution will always be required to print material for its internal consumption i.e. newsletters for the students, other study material etc. For this purpose assessee has to make a provision in its memorandum of association. What is the evidence with the Ld. Commissioner that it will be misused and this rule will be used for carrying out trade and commerce at a large scale. The next objection pointed out by the Commissioner relates the activity of advertisement etc. These clauses have not been taken by the assessee to carry out advertisement business. According to it, in order to establish the school as a brand and invite the public's attention for the facilities provided in 14 ITA Nos. 5308,5309/Del/10 the school, it has to incur expenses on advertisement. We fail to understand how this issue is violative of any public policy and repugnant to the rules. The assessee in its written submissions, has invited the attention of Ld. CIT about the advertisement given by some of universities, who are enjoying 12A registration but Ld. Commissioner did not comment on that aspect in the order. Taking into consideration all these aspects, we are of the opinion that Ld. Commissioner has rejected the claim of assessee on the basis of unsound reasoning. He has pointed out superficial objections which are merely suspicions. All those suspicions can be considered by the AO at the time of assessment proceeding.
11. In view of the above discussion, we direct the Ld. Commissioner to grant registration u/s 12A. We allow the appeal No. 5309/Del/10 also and direct the Ld. Commissioner to grant the exemption u/s 80G also. The certificate be issued for the period permissible in the provisions.
12. In the result both the appeals are allowed.
Order pronounced in the open court on 11.2.2010 Sd/-
[SHAMIM YAHYA] [RAJPAL YADAV]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 11.2.2010
Veena
15 ITA Nos. 5308,5309/Del/10
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT TRUE COPY By Order,
Deputy Registrar,
ITAT