Refusal of registration us 12A to society of close family members or on the ground that it will charge fee from students do not justify refusal – ITAT

Refusal of registration us 12A to society of close family members or on the ground that it will charge fee from the students do not justify refusal – ITAT

Refusal of registration us 12A

ABCAUS Case Law Citation:
ABCAUS 1085 (2016) (12) ITAT

Important Case Laws cited:
Queen’s Educational Society vs. CIT (2015) 8 SCC 47

Visvesvaraya Technological University vs. ACIT (Supreme Court)
Sri Gian Ganga Vocational and Education Society vs. CIT Rohtak (2013)
Chaudhary Bishambher Singh Education Society v. Commissioner of Income-tax
DDIT(E) vs. Institute of Marketing and Management
NLB Charitable Trust Vs CIT

The Grievance:
The assessee was aggrieved by the orders of the Commissioner of Income-tax (CIT) with respect to denial of registration u/s 12A and approval u/s 80G of the Income-tax Act, 1961.

Brief Facts of the Case:
The appellant was a society registered under the Society Registration Act, 1860 and running a school. It filed two applications in Form No. 10A and 10G for seeking registration u/s 12A and 80G respectively along with copy of Society Registration certificate issued by Registrar of Firms & Societies, copy of memorandum & Articles of Association and list of office bearers of the society and its PAN of society, income & expenditure account, balance sheet along with audit reports in form No. 10B for three financial years. CIT called for a report from the Assessing Officer concerned on the eligibility of the assessee and the fulfilment of the conditions required for the grant of registration/approval applied for. In response, the lower authorities did not clearly recommend the case for registration u/s 12AA or u/s 80G and left the matter to be decided on merits.

The CIT referring to the definition of ‘Charitable purpose’ rejected the applications of appellant by observing among other things as under:

  • That the assessee had charged hefty fees from the public at large and therefore society was running its institution on purely commercial lines and earning profits/ surpluses.
  • That the institution had made expenditure on advertisement amounting to Rs. 68,531 which was not for the purpose of education & it had been incurred to procure more admission with the sole motive of earning more profits and hence the condition that the expenditure should be incurred solely for the purpose of education was not satisfied.
  • That most of the members belong to the same family and therefore close to each other.

Contentions of the Assessee:

  1. That the assessee 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 CIT was completely wrong and against the facts of the case.
  2. That CIT rejected the application without even going through the documents filed by the assessee.
  3. That charging of fees by a school could not be a ground for holding that the school is not for charitable purposes.
  4. That CIT failed to consider that the aims and objectives and activities of the assessee Society were entirely in line with the requirements of Section 2 (15) and order passed by him did not contain any objection on the assessee’s objects.
  5. That as per CBDT Circular No. 11 of 2008 the proviso to section 2(15) do not apply in the case of education and where the purpose of a trust or institution is education, it will constitute ‘charitable purpose’ even if it incidentally involves in carrying on of commercial activities.
  6. That advertisement 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. Thus CIT was completely wrong in drawing the conclusion that the advertisement was done to procure any admission since the expenditure was incurred for hiring the professors which was directly related to the activities of the society.

The assessee relied on number of case laws and contended that the order passed by the Commissioner of Income Tax was bad both in the eye of law and on facts.

Contentions of the Revenue:
The Revenue contended that the society had not undertaken any charitable activity. Drawing our attention to the balance sheet of the society and the income and expenditure account.  It was submitted that the society was incurring only capital expenditure and not for any activity as per Rules and Regulations of the Society.

Observations made by the ITAT:
The Tribunal observed that the conclusion reached by the CIT that the assessee trust was profit oriented entity and not the charitable institute, was based only on the ground that the assessee would charge hefty fees from the students.

The ITAT noted that the CIT had failed to throw any light on the aims and objects of the society and to examine whether the activities of the society were to achieve the aims and objects as per its memorandum and simply because the assessee will charge fee from the students, did not go to suggest refusal of registration to the assessee society.

Regarding the observation made by the CIT that the governing body belonged to close family members, the Tribunal opined that this also did not bar for the formation of society. The society is a separate entity from its members and is governed by the Societies Registration Act, 1960 and each society makes separate Rules and Regulations.

Further, observing that the expenses incurred on advertisement were for hiring talented faculty members, the Tribunal opined that these could not be said to have incurred for other than educational purpose and therefore, the allegation made by the CIT that the assessee incurred advertisement expenditure for procuring more admission of the students with sole motive of earning profit was wrong.

The ITAT held that there was no justification to refuse the registration to the assessee society and accordingly, the appeal of assessee was allowed for registration u/s 12AA and the approval u/s 80G was restored to the file of CIT for deciding the same afresh after giving opportunity of being heard to the assessee.

Refusal of registration us 12A

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