2021 (10) TMI 744 - AT - Income Tax

ITAT grants Section 12AA registration emphasizing charitable activities. No adverse inference. Appeal allowed.

Lord Shiva Educational Welfare Society Versus CIT (Exemption) Chandigarh.

The ITAT directed the PCIT(E) to grant registration under Section 12AA to the appellant society, emphasizing that the profit motive should not be ... Registration u/s 12AA denied - Payment of franchisee fee - Denial of exemption u/s 12AA on the issue that the assessee is a “franchisees of Zee Learn Ltd.' - charitable activities of the school in view of the substantial evidences of concession fee, given to the poor & deserving students - HELD THAT:- We understand that as such nothing having been doubted as regard to the aims and activities of the Assessee society being charitable is concerned - if there is complete waver of fee, how the society would run the school and further whatever more evidence was required to be given has not been substantiated by the CIT (E). In our view, if on this issue, no adverse inference have been drawn by the PCIT(E) by accepting main object of the society is to carry-out the object of the education only, then refusal to grant 12 AA to the assessee society was not justified. Nothing has been doubted and for the purpose of 12A only two conditions are to be required to be satisfied that one with regard to the activities of the trust and the second with regard to the aims & objects of the society as per the decided case laws on this issue which have been addressed in favor of the assessee by the earlier order of the Coordinate Bench as placed in the paper book. As regards to the issue of profit motive, it had clearly been held that profit motive should not be predominant and for that various decisions have been cited has held that the denial of registration is being made on the issue of the franchise fee paid to ‘M/s. Zee Learn Ltd.’ and ignoring the finding is already in favor of the assessee in the earlier order of ITAT [2018 (9) TMI 954 - ITAT AMRITSAR] and, therefore, the CIT (E) not following the order of the Hon’ble ITAT is against judicial discipline and rejecting the application for registration u/s 12AA, which issue had already attained finality is bad in law and, thus, the PCIT (E) was required to grant registration to the assessee u/s 12AA. The jurisdiction of the PCIT(E) was being limited to verification of two issues, one with regard to the ‘lease hold land’ and the second about the fee concession and on both accounts, and since, the CIT (E) has not drawn any adverse inference and, therefore, in our view, the order of CIT(E) denying the registration u/s 12AA is bad in law - we direct the PCIT(E), Chandigarh to grant registration to the assessee society from the date of its application. - Decided in favour of assessee. Issues Involved:1. Denial of registration under Section 12AA of the Income Tax Act, 1961.2. The validity of the denial based on the assessee being a franchisee of Zee Learn Ltd.3. Examination of charitable activities and the predominant profit motive.4. Consideration of fee concessions and leasehold land.Detailed Analysis:1. Denial of Registration under Section 12AA:The appellant society filed an application for registration under Section 12AA of the Income Tax Act, 1961, which was denied by the CIT(E), Chandigarh. The denial was contested by the assessee, leading to an appeal before the ITAT, Amritsar.2. Validity of Denial Based on Franchisee Status:The primary ground for denial was the society being a franchisee of Zee Learn Ltd. The ITAT, in its earlier order dated 10.09.2018, had already considered this issue and decided in favor of the assessee, stating that 'profit-making per se cannot be regarded as detrimental as long as it feeds a charitable purpose (of education).' The Tribunal held that reliance on decisions regarding other schools run as franchisees of Zee Learn Ltd. was of little moment and that the assessee’s reliance on jurisdictional High Court decisions was valid.3. Examination of Charitable Activities and Profit Motive:The ITAT emphasized that the object should not be profit-making, and the charitable purpose should not be submerged by the profit motive. The Tribunal cited various Supreme Court decisions, explaining that as long as the activity carried on does not have profit-making as its predominant object, it is not excluded from being considered charitable. The Tribunal noted that the school provided education, including training in Robotics, and justified the fees charged based on the quality of education provided.4. Consideration of Fee Concessions and Leasehold Land:The assessee provided substantial evidence of fee concessions given to poor and deserving students, which was not doubted by the CIT(E). The CIT(E) also accepted the affidavit and submissions regarding the leasehold land, drawing no adverse inference in this regard.Judgment:The ITAT found that the CIT(E) had not drawn any adverse inference regarding the charitable activities of the school or the leasehold land. The only objection was the payment of franchisee fees to Zee Learn Ltd., which the ITAT had already addressed in favor of the assessee in its earlier order. The Tribunal held that the CIT(E) could not override the findings of the Coordinate Bench and was limited to verifying the two specific issues set aside for reconsideration. Since no adverse inference was drawn on these issues, the ITAT directed the PCIT(E), Chandigarh, to grant registration to the assessee society under Section 12AA from the date of its application.Conclusion:The ITAT allowed the appeal, directing the PCIT(E) to grant registration under Section 12AA, emphasizing that the profit motive should not be predominant and that the charitable activities and objectives of the society were satisfactorily demonstrated. The order was pronounced in the open court on 14.10.2021.