Nominal fees for educational services don't constitute commercial activity under Section 12AB registration

ITAT Indore allowed the appeal challenging rejection of registration under Section 12AB. The assessee sought exemption under Section 11 for charitable activities under Section 2(15). CIT(E) rejected registration concluding commercial receipts exceeded 20% of total receipts. ITAT held that charging nominal fees for educational services to achieve charitable objects cannot constitute commercial activity. Following precedent in Crisp Society case, the tribunal noted that trusts may charge reasonable fees to cover costs when donations are insufficient. Since the assessee's educational activities were not disputed and fees were nominal, Section 11 benefits could not be denied. ITAT set aside CIT(E)'s order and directed grant of registration under Section 12AB.

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Issues Involved:
1. Condonation of Delay in Filing Appeal
2. Rejection of Application for Registration u/s 12AB

Summary:

1. Condonation of Delay in Filing Appeal:
The appeal by the Assessee was filed with a delay of 93 days. The Assessee explained the delay as a result of inadvertence, having kept the order in an almirah and forgotten to discuss it with counsel. The Tribunal found the explanation bona fide and held that the delay did not serve any ulterior purpose. It emphasized that substantial justice should be preferred over technical considerations. Consequently, the delay was condoned.

2. Rejection of Application for Registration u/s 12AB:
The Assessee's application for registration u/s 12AB was rejected by the Commissioner of Income Tax (Exemption) [CIT(E)], who considered the Assessee's activities as commercial rather than charitable. The Assessee argued that their activities, including animal welfare, education, and medical relief, were charitable in nature and that nominal charges were only to cover costs. The Tribunal noted that the Assessee's objects fell within the specific charitable purposes defined in section 2(15) of the Act, such as relief to the poor, education, and medical relief.

The Tribunal referenced the Supreme Court judgment in ACIT(E) vs. Ahmedabad Urban Development Authority, which clarified that activities involving nominal charges to cover costs do not constitute trade or commerce if the profits do not exceed 20% of overall receipts. The Tribunal found that the Assessee's charges were nominal and used for charitable purposes, and thus, the activities were not commercial. The CIT(E)'s conclusion that the Assessee's receipts exceeded 20% of total receipts was found to be factually incorrect.

Based on these findings, the Tribunal set aside the CIT(E)'s order and directed the CIT(E) to grant registration u/s 12AB to the Assessee.

Conclusion:
The Tribunal allowed the appeal, condoned the delay, and directed the CIT(E) to grant registration u/s 12AB of the Act to the Assessee.

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