2024 (5) TMI 1106 - AT - Income Tax

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 ... Exemption u/s 11 - Application for registration u/s 12AB rejected - charitable activity u/s 2(15) - conclusion of CIT(E) that the commercial receipts for assessee are more than 20% of the total receipt - HELD THAT:- The entire thrust of the CIT(E) is regarding services provided by the assessee against charges without even considering the fact whether the charges are nominal or reasonable mark up over cost that too is also applied for charitable purpose or achieving charitable objects of the assessee. The conclusion of CIT(E) that the commercial receipts for assessee are more than 20% of the total receipt is contrary to the fact that the assessee is not doing any trade or business but is providing the services for achievement of charitable objects and in that process nominal fee is charged which is also not more than 20% of the total receipts of the assessee as manifest from the details given in the forgoing part of this order. The Co-ordinate Bench of this Tribunal in case of Crisp Society [2021 (12) TMI 1499 - ITAT INDORE] has considered this aspect of nature of the activities of the assessee rust or education institute is running with a nominal fee to cover cost on account of its activities that cannot be held to be a commercial activity. Sometime trust or the other institution does not get complete donations either from public or from the government. In that case, if those trusts or education institutes charging nominal amount of fee in order to carrying out its activities in a smoother way, this cannot be called a part of commercial activities. Therefore, respectfully following the aforesaid judgments and as assessee is imparting education and training to students and public, its activities have not been doubted by the lower authorities. Therefore, in such circumstances, benefit of Section 11 of the Act cannot be denied. We set aside the impugned order of the CIT(E) and direct the CIT(E) to grant registration u/s 12AB of the Act to the assessee. Assessee appeal allowed. Issues Involved:1. Condonation of Delay in Filing Appeal2. Rejection of Application for Registration u/s 12ABSummary: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.