2014 (7) TMI 379 - AT - Income Tax

Appeal granted for society's registration under Income Tax Act despite fund source challenges

M/s. Chaudhary Bishambher Singh Education Society Versus Commissioner of Income Tax

The ITAT allowed the appeal, directing registration of the society under Section 12AA of the Income Tax Act. Despite challenges regarding the source of ... Rejection of application u/s 12A of the Act - Genuineness and creditworthiness of donors not shown – No evidence for not deriving any benefit covered u/s 13(3) of the Act – Held that:- For the purpose of registration u/s 12A, the CIT has to satisfy himself about the object of the trust or the institution and the genuineness of its activities - the object of the assessee is the running of educational institution - the trust or institution which is carrying on educational activities will fall within the ambit of charitable purpose under Section 2(15) even if it incidentally involves the carrying on of commercial activities. The allegation of the Revenue that the assessee is charging heavy fees or the fees is similar to being charged by commercial colleges, has neither been factually proved to be correct nor can be a basis legally in view of the Board’s Circular for denying the registration of trust u/s 12A - the object of the trust is education and the assessee is running two educational institutions - one, for engineering courses and another, for B.Ed courses - the object of the trust is education which is charitable and the assessee is genuinely pursuing the same - it has duly fulfilled the conditions necessary for registration u/s 12AA - the verification of the donation or verification of violation of Section 13(3) is not the relevant consideration for registration of trust u/s 12AA – thus, the order of the CIT is set aside – Decided in favour of Assessee. Issues involved:1. Rejection of registration under Section 12AA of the Income Tax Act, 1961 based on genuineness and creditworthiness of donors.2. Dispute over the charitable nature of activities conducted by the society.3. Interpretation of Section 12AA and Section 2(15) of the Act regarding registration of trusts or institutions.Analysis:Issue 1: Rejection of registration under Section 12AAThe assessee appealed against the rejection of registration under Section 12AA due to lack of details on the source of corpus fund and genuineness/creditworthiness of donors. The CIT also questioned the benefit derived by individuals under Section 13(3). The appellant argued that genuineness and creditworthiness of donors are irrelevant for registration, focusing on the society's educational objectives. The CIT-DR supported the rejection, emphasizing the commercial nature of the society's activities. The ITAT highlighted that Section 12AA requires satisfaction on the trust's object and activities' genuineness. Despite challenges on corpus funds and fees, the society's educational nature fulfilled charitable criteria, warranting registration.Issue 2: Dispute over charitable activitiesThe CIT doubted the society's charitable activities, citing commercial elements. The appellant defended the educational nature of the trust, operating engineering and B.Ed institutions in backward areas. The ITAT referenced the CBDT Circular, clarifying that educational activities, even with commercial aspects, qualify as charitable. The Revenue's claims of excessive fees lacked evidence, contrasting the society's fee approvals by relevant authorities. The ITAT concluded that the trust's educational objectives aligned with charitable purposes, dismissing the Revenue's objections on commercial activities.Issue 3: Interpretation of Section 12AA and Section 2(15)Section 12AA mandates CIT verification of trust objectives and activities' genuineness for registration. The ITAT stressed that educational pursuits, as per Section 2(15), are inherently charitable, even if commercial activities are involved. The CBDT Circular supported this stance, allowing educational institutions to conduct commercial activities without compromising charitable status. The ITAT emphasized that the CIT's role is to assess trust objectives and activities' authenticity, not delve into yearly assessments or donation verifications. Consequently, the ITAT overturned the CIT's decision, directing registration of the trust under Section 12AA.In conclusion, the ITAT allowed the appeal, emphasizing the trust's fulfillment of conditions for registration under Section 12AA based on its educational objectives and genuine activities. The judgment highlighted the distinction between commercial elements in educational activities and the charitable nature of the trust's endeavors, ultimately granting registration to the society.