TaxTMI 
TaxTMI 
2016 (12) TMI 1076
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the case, the learned CIT has erred both on facts and in law in ignoring the explanation and evidences brought on record by the assessee to prove that the applicant trust is eligible for registration. 4. On the facts and circumstances of the case, the learned CIT has erred both on facts and in law in holding the activities conducted by the assessee are profit oriented business activities and not a charity institute, despite the assessee bringing all the material and evidence on record to prove that its activities fall within the meaning of charitable purposes." Grounds in ITA No. 4181/Del./2014: 1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (CIT) rejecting the application for approval under Section 80 G of the Income Tax Act is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, the learned CIT has erred both on facts and in law in passing the order rejecting the application for approval under section 80G of the Act, without giving assessee an opportunity of being heard in violation of principle of natural justice. 3. On the facts and circumstance....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the status of being-charitable as is required in view of section 2(15) read with section 12AA of the Income Tax Act, 1961. The provisions of sec 11 and 12 do not envisage that a charitable institution shall provide charity by charging fees from public at large. The fees received are outside the scope of sec 11 and 12 and shall, therefore, be taxable. Fees imply direct involvement of consideration for the services rendered. Fees can not be voluntary and are, therefore, taxable under the head profit and gains of the business or profession. The charging of fee is also in violation of the contents of para 13 of memorandum of Society. The Society is running its institutions on purely commercial lines and earning profits/surpluses systematically year after year by charging fees from thestudents and making profits. Thus, the assessee trust is profit oriented business entity and not a charitable institute. Keeping in view of the above, the application of the assessee trust does not deserve for registration. 4. The society is just like a private discretionary society controlled by the President, Secretary and Executive Body Member of the society who are brothers having close fam....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "7. Learned CIT in the order in Pg. 2 last para has made the allegation that the assessee has charged hefty fees from the public at large and therefore society is running its institution on purely commercial lines and earning profits/ surpluses. In this regard it is submitted that applicant was not operational at that time and did not receive any single rupee in respect of fees from the students as is evident from the last three years audited Balance Sheet and income & expenditure A/c and therefore the allegation made by the ld. CIT is completely wrong and against the facts of the case. 8. This action clearly shows that Ld. CIT rejected the application without even going through the documents filed by the assessee. 9. Firstly, it is a settled law that charging of fees by a school cannot be a ground for holding that the school is not for charitable purposes. This issue has come up before Hon'ble Supreme Court in the case of Queen's Educational Society vs. CIT (2015) 8 SCC 47, where the Court has held as under: "The final conclusion that if a surplus is made by an educational society and ploughed back to construct its own premises would fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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. Thus, even if the assessee is charging the fees as being charged by the colleges running on commercial basis, still it would fall within the definition of 'charitable purpose1 as per the Circular of CBDT. 14. This issue is squarely covered by the order of Delhi ITAT in the case of Sri Gian Ganga Vocational and Education Society vs. CIT Rohtak (2013) 154 ITR (T) 74 wherein it has been held that - "7. We have heard the parties and have perused the material on record. We find that the ld. CIT has not raised any objection against the objects of the assessee Society. The main object of the Assessee Society is education, which, undeniably, is of charitable nature, in line with the provisions of Section 2 (15) of the Act. Further, the Id. CIT has taken recourse to the RTE Act to reject the assessee's application. Now, as correctly contended, it is not within the CIT's purview to do so. Under Section 12AA, what is required to be seen by the Id. CIT while considering an application f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....02 (Pun. &Har.) (rendered by the Hon'ble jurisdictional High Court so far as regards the present assessee also), that merely because an institution has earned profits, it would not be a deciding factor to conclude that such an educational institution exists for profit and that merely because profits have resulted from the activity of imparting education, it would not result in change of character of the institution that exists solely for educational purposes. 12. In 'Reliable Educational Alliance Society' (supra) (authored by one of us - the JM), it has been held that at the time of granting registration, the CIT is required only to satisfy himself about the objects of the Trust and the genuineness of its activities, and no further. 13. In 'Dream Land Educational Trust' (supra) (authored by one of us - the JM), it has been held, again, in accordance with the Section 12AA of the Act, the CIT is required to satisfy himself only about the objects of the Trust and the genuineness of its activities and where the CIT has recorded no dissatisfaction on either of these aspects, he is not justified in refusing grant of registration on extraneous conside....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Assessing Officer while making the assessment of every year. Similarly, whether there is a violation of Section 13(3) or not, this aspect is to be examined by the Assessing Officer every year. In any year if there is an unverifiable donation or if there is violation of Section 13(3), the consequence will follow in the assessment of that year but the verification of the donation or verification of violation of Section 13(3) is not the relevant consideration for registration of trust under Section 12AA. In view of the above, we set aside the order of learned CIT and direct him to grant registration to the assessee trust." 16. Again this issue was discussed in Delhi ITAT in the case of J K education Samiti Vs CIT Rohtak 2015(5) TMI 814 in which it has been held that 5. We have heard rival parties and have gone through the material placed on record. We find that Section 12AA deals with the procedure for registration which inter alia provides that on an application filed by assessee, the Commissioner of Income Tax will make certain queries as he may deem necessary in this respect and after getting satisfied about the objects of the society/institution and the genuin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the educational institution exists solely for educational purposes and not for purposes of profit. In fact, in S.RM.M.CT.M.Tiruppani Trust v. Commissioner of Income Tax, (1998) 2 SCC 584, this Court in the context of benefit claimed under Section 11 of the Act held" 6. Though, the above findings of Hon'ble Supreme Court are with reference to Section 10(23C)(iiiad) and not in respect of Section 11 and 12 yet the ratio of decision is that mere earning of profit in the course of carrying out charitable activities cannot be a reason for not granting registration u/s 12AA of the Act." The above judgment is considered recently in the case of Shree Balaji Education Trust c/o Anil Ashok & Associates vs CIT Dehradun 2016 (3)TMl 969 where in it has been held that "10. It is relevant to mention that grant of registration under section 12A of the Act does not automatically make eligible the applicant for exemption under section 11 and other relevant provisions of the Act During the assessment proceedings while considering such claim of assessee the AO is fully empowered to examine and verify these facts that whether the assessee/applicant has applied its receipts towards....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are certain conditions which, if violated, would lead to denial of the benefit under Section 11, if some advantage or benefit has been taken by the persons who are in the governance of the institution. However, there is no condition specified, that the persons in governance should not be relatives. The functioning of the institution cannot be considered to be undemocratic, if two relatives are occupying the position in the management. In fact, Section 13 itself provides for payment of salary, and allowance to the persons in the management, in case such payment does not exceed what may be reasonably paid for such services. Thus, we are in agreement with CIT(A) that there is no such restriction in Section 13 regarding relatives holding position in the charitable society or institution." 17. This issue also cropped up before ITAT Delhi in the case of NLB Charitable Trust Vs CIT, Meerut (ITA No. 1707/D/2009) wherein it has been held that "12. These clauses describe only reimbursements of out-of-pocket expenses incurred by the trustees in the course of discharging the objects of the trust and for payment of honorarium for the work a particular trustee do for carrying o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....objects of the society. 18. Thus again the order has been passed by the CIT in haste without going through the memorandum and rules and regulations of the society. 19. The third allegation of the learned CIT in Pg. 3 Para 5 is that the assesses has incurred expenditure amounting to Rs. 68,531/- not for the purpose of education, and the expenditure has been incurred to procure more admissions with the sole motive of earning profits and hence the expenditure should be incurred solely for the purpose of education is not satisfied. 20. In this regard it is submitted that perusal of the advertisement reveals that the expenditure was incurred for hiring of Directors. Professors, Associate professors/ Assistant professors for the various subjects of engineering i.e., Computer Science, electronics & communications, mechanical, electrical, civil, Physics, chemistry, Mathematics, English IT Branches. 21. Learned CIT is completely wrong in drawing the conclusion that the advertisement was done to procure any admission since the expenditure is done for hiring the professors which is directly related to the activities of the society. 22. Therefore, c....