2016 (10) TMI 985 - AT - Income Tax

Tribunal grants tax exemption to trust for genuine educational activities

The Tribunal allowed the appeal, directing the Director of Income Tax (Exemptions) to grant registration under section 12AA/12A of the Income-tax Act to ... Registration under section 12A/12AA of the Income-tax Act - Definition of 'education' under section 2(15) - Genuineness of charitable activities - Irrelevance of affiliation/recognition for registration under 12A/12AA - Liberal interpretation of beneficial provisions - Lifting the veil of legal entities - Preference for view favourable to the assessee where two reasonable views existDefinition of 'education' under section 2(15) - Irrelevance of affiliation/recognition for registration under 12A/12AA - Liberal interpretation of beneficial provisions - Whether the activities of the appellant trust qualify as 'education' and thus a charitable purpose for the purpose of registration under section 12A/12AA. - HELD THAT: - The Tribunal examined the nature of courses run by the appellant trust (professional training in mass communication, journalism, acting, radio jockeying, news reading and anchoring, advertising and public relations) and the objects in the trust deed which include establishment of schools, colleges, industrial training centres and other institutions for imparting technical or commercial knowledge. Applying the ratio of Sole Trustee, Lok Shikshana Trust and subsequent decisions of the Delhi Benches of the ITAT and the High Court, the word 'education' is to be understood as systematic instruction, schooling or training for preparation for the work of life and includes structured vocational/professional training. The Tribunal found that the DIT(E) had selectively relied on part of the Supreme Court paragraph and failed to consider the full ratio and later judicial pronouncements which support a wide and liberal construction of 'education.' The fact that some courses are not part of a university curriculum or are skill-development programmes does not preclude them from being 'education' for the purposes of section 12A/12AA. The DIT(E) did not controvert the appellant's specific claim of association with University of Delhi and Shyam Lal College nor produce adverse material to show the activities were not educational. Consequently, the Tribunal held the activities qualify as 'education.' [Paras 6, 7, 8, 10]Activities of the appellant trust are to be regarded as 'education' and therefore charitable for the purpose of registration under section 12A/12AA.Genuineness of charitable activities - Lifting the veil of legal entities - Registration under section 12A/12AA of the Income-tax Act - Preference for view favourable to the assessee where two reasonable views exist - Whether the transfer of units/assets from R.K. Convent School Educational Society to the appellant trust and familial relationship between founders justified denial of registration on the ground that activities were not genuine or amounted to division of family assets. - HELD THAT: - The Tribunal noted that the DIT(E) concluded the arrangement was non-genuine and akin to division of family assets without stating adequate facts to support lifting the veil or to demonstrate that the transfer was not voluntary. There was no finding that the transferor society's assets constituted a family pool or how assets were distributed among family members. The DIT(E) did not identify specific approvals or provisions under which the transfer would invalidate registration nor indicate any action taken against the transferor society. The Tribunal emphasised that lifting the corporate/trust veil is an extraordinary step requiring relevant and adequate material; absent such material the DIT(E)'s conclusion was fanciful. Further, even if the transfer were a division of family assets, sections 12A/12AA do not provide for rejection of registration on that ground alone. The Tribunal also criticised the DIT(E) for relying on considerations framed as being 'in the interest of Revenue' rather than relevant legal tests for genuineness and objects. Applying settled principles favoring the assessee where two reasonable views are possible, and having found the objects and activities charitable and genuine, the Tribunal held that the DIT(E) failed to make out a case for rejection and directed grant of registration. [Paras 5, 11, 12]DIT(E)'s conclusion that the activities were not genuine or amounted to division of family assets is rejected; there being no adequate material to lift the veil or deny registration, the appellant must be granted registration under section 12A/12AA.Final Conclusion: The appeal is allowed. The Tribunal holds that the appellant's activities qualify as 'education' and that the DIT(E) lacked adequate and relevant material to conclude non-genuineness or family-asset division; the DIT(E) is directed to grant registration under section 12A/12AA of the Income-tax Act to the appellant trust. Issues Involved:1. Denial of registration under section 12A of the Income-tax Act, 1961.2. Determination of whether the activities of the Trust fall under the definition of education.3. Allegation of division of family assets.4. Legal entitlement of R.K. Convent School Educational Society to part with its assets.5. Contradictions and lack of evidence in the observations of the Director of Income Tax (Exemptions).Issue-wise Detailed Analysis:1. Denial of Registration under Section 12A:The appellant trust applied for registration under section 12AA/12A of the Income-tax Act, which was denied by the Director of Income Tax (Exemptions) [DIT(E)] on various grounds. The Tribunal noted that the relevant factors for registration are the objects of the trust and the genuineness of its activities. The Tribunal found that the DIT(E) based her decision on irrelevant considerations and exceeded her authority by seeking information on 17 different points, which was beyond the scope of deciding the issue of registration.2. Definition of Education:The DIT(E) held that the activities of the Trust do not fall under the definition of education, referencing the Supreme Court's decision in Sole Trustee Lok Shikshana Trust vs. Commissioner of Income Tax. However, the Tribunal observed that the educational units taken over by the appellant trust were previously considered educational activities by R.K. Convent School Educational Society, which was registered under section 12AA. The Tribunal concluded that the activities of the appellant trust, which include providing professional education and training through various courses, fall under the definition of 'education' as interpreted widely and liberally by judicial precedents.3. Allegation of Division of Family Assets:The DIT(E) alleged that the transfer of activities and assets from R.K. Convent School Educational Society to the appellant trust was in the nature of a division of family assets. The Tribunal found this observation to be ill-founded and lacking comprehensive discussion. The Tribunal emphasized that the transfer of assets was voluntary and there was no evidence to suggest otherwise. The Tribunal rejected the DIT(E)'s view as fanciful and unsupported by adequate facts.4. Legal Entitlement to Part with Assets:The DIT(E) held that R.K. Convent School Educational Society was not legally entitled to part with its assets without necessary approvals. The Tribunal noted that the DIT(E) failed to specify what specific approvals were required and under which provisions of section 12AA/12A the registration must be denied based on this consideration. The Tribunal also pointed out that any alleged failure by the society to obtain necessary approvals does not affect the appellant trust's eligibility for registration.5. Contradictions and Lack of Evidence:The Tribunal found several contradictions in the DIT(E)'s observations. For instance, the DIT(E) noted that the courses run by the appellant trust were previously run by R.K. Convent School Educational Society, yet she questioned the legality of these courses. The Tribunal emphasized that there is no statutory requirement for educational courses to be affiliated with a university for the purpose of granting registration under section 12AA/12A. The Tribunal also criticized the DIT(E) for her one-sided approach and reliance on irrelevant considerations, concluding that the DIT(E) failed to bring out relevant and adequate materials to reasonably hold that the activities of the appellant trust were not genuine.Conclusion:The Tribunal held that the activities of the appellant trust are to be regarded as 'education' and that the trust's activities are genuine. The Tribunal directed the DIT(E) to grant registration under section 12AA/12A of the Income-tax Act to the appellant trust. The appeal was allowed, and the order was pronounced in the open court on 26th August 2016.