2012 (1) TMI 239 - AT - Income Tax

Refusing to grant the registration u/s 12AA - assessee running a school is charging high fees and running the elite educational institution/school and poor students of the society are unable to take/derive the benefit of the assessee-school - Held that - As per the Trust Deed of the said assessee it was permissible to award Scholarship outside the Arur Family and also provided that the applicants deserving in the Saraswat Community . As per the Scheme of the Trust Deed as a whole it was seen that the dominant object was benefits of scholarship for any members of the Arur family in the case of female members limited to three degrees of relationships from the donee. The power to use surplus income for scholarship for deserving Members of the Saraswat Community and the power to make advances to enable a start in life to be made by a scholar are subsidiary objects. It was held that the trust though educational in character was for benefit of only family members and was having limited scope. In our humble opinion the issue before their Lordships in the case of D.V. Arur (supra) was different and has not relevance to the issue before us. We therefore hold that the assessee is entitled for registration u/s.12AA of the Act as the assessee is imparting the education which is a charitable purpose . - Decided in favour of assessee.

Summary

Issues:
Interpretation of 'charitable purpose' under sec. 2(15) of the Income-tax Act for registration u/s.12AA - High fees charged by trust running educational institution - Benefit of elite vs. poor students - Application rejection by Ld. DIT (Exmt) - Appeal against refusal of registration.

Analysis:
The judgment by Appellate Tribunal ITAT Mumbai involved a challenge to the order of the Ld. Director of Income-tax (Exemption) regarding the refusal of registration to a trust running an educational institution. The trust, operating as 'Amby International School Academy' in Mumbai, applied for registration under sec.12AA of the Income-tax Act to claim income exemption under sec.11. The Ld. DIT (Exmt) found the fees charged by the trust exceptionally high, making education beyond the reach of the general public. The DIT emphasized that a public trust must have charitable purposes, providing relief to the poor, education, medical relief, or general public utility. Citing the definition of 'charitable purpose' under sec.2(15) of the Act, the DIT concluded that running an elite school with high fees did not align with charitable objectives, akin to a business activity. The DIT relied on a Bombay High Court decision and rejected the registration application, prompting the appeal.

The assessee raised two grounds challenging the DIT's decision, focusing on the misinterpretation of sec.2(15) and the denial of registration under sec.12AA. The Tribunal analyzed the interpretation of 'charitable purpose' under sec.2(15) concerning education and fee structures. It noted the DIT's concern over high fees and elite school status limiting access for poor students. Referring to precedents, including the Indo-American Society case, the Tribunal highlighted that providing education need not be restricted to the poor to qualify as charitable. The Tribunal emphasized that benefiting a section of the public suffices, as seen in the Shavak Shiksha Samiti case, contrary to the DIT's stringent view.

The Tribunal distinguished the DIT's reliance on the Arur case, emphasizing the limited scope of that trust compared to the broader educational purpose in the present case. It concluded that the trust's educational activities aligned with charitable objectives, warranting registration under sec.12AA. The Tribunal overturned the DIT's order, directing the grant of registration within 30 days. Ultimately, the Tribunal allowed the assessee's appeal, emphasizing education as a charitable purpose and setting aside the DIT's decision.