TMI Blog2018 (9) TMI 954X X X X Extracts X X X X X X X X Extracts X X X X ..... g undertaken toward and in satisfaction of its stated object/s, which no doubt constitute a charitable purpose under the Act. Assessee’s appeal is allowed for statistical purposes. - I.T.A. No. 605/Asr/2017 - - - Dated:- 10-9-2018 - SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER Appellant by : Sh. Sudhir Sehgal Respondent by: Dr. Devender Singh, CIT-DR ORDER Per Sanjay Arora, AM: This is an Appeal by the Assessee agitating the denial of registration u/s. 12AA of the Income Tax Act, 1961 ('the Act' hereinafter) by the Commissioner of Income Tax (Exemptions)( CIT(E)' for short) vide his Order u/s. 12AA(b)(ii) dated 30.08.2017. 2. The assessee, a society formed under the Societies Registration Act, 1860 on 30.01.2013 with charitable objects (Memorandum of Association (MOA) at pgs. 3- 5 of the paper-book (PB)), is pursuing the object of imparting and promotion of education, particularly for the poor or weaker sections of the society (through establishing an institution or adopting any other means) (sub-clause (a) of object clause (4)), running a School by the name Mount Litera Zee School affiliated to Central Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in not granting registration u/s. 12AA(1)(b)(ii) of the Income Tax Act, 1961 to the assessee society. 3. That since the genuineness and activities of the Trust having not been doubted, the rejection of bonafide claim of the assessee for registration u/s. 12AA(1)(b)(ii) of the Income Tax Act, 1961 is against the facts and circumstances of the case. 3. The assessee s case, as made out before us, was along the following lines: (a) no adverse comment has been made by the ld. CIT(E) on either the objects of the assessee or the genuineness of its activities, i.e., the two parameters which the ld. CIT(E), as the regsistering authority, is to examine and be satisfied about. The registration therefore could not be denied on the basis it has been (CIT(E) v. Shree Shirdi Sai Darbar Charitable Trust, 81 taxmann.com 49 (P H)). Rather, the very fact that exemption u/s. 10(23C)(iiiad) stood allowed to the assessee for AY 2015- 16, is proof enough that the school exists solely for the purposes of education and not for the purposes of profit; (b) the franchise agreement entered into by the assessee-society, on which basis adverse inferences have been drawn by the ld. CIT(E), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue, being run as a franchisee unit of a commercial entity and, therefore, it could not by any means be said as not operating on commercial lines. Once it is so, how could it claim to be a charitable institution, run for the poor? Referring to the balance-sheet as on 31.03.2015 (PB pgs. 35-39), it was pointed out that even late fee is being charged. How could an institution, which charges admission fee (at the rate of 10% on annual basis), and also penalizes its students for not paying the fees in time, claim to be serving the poor? The ld. counsel, Sh. Sehgal, would, in rejoinder, state that operating on commercial lines cannot, by itself, be regarded as jeopardizing the assessee s case where the surplus is not, as in the present case, allowed to be withdrawn, but is to be deployed for the objects of the trust/institution. The school management is imparting fee concession/scholarship to a number of students, names of some of which are listed at PB pg. 46. Further, if allowed an opportunity, it could be shown as to how many students in each class fall in the category of poor or weaker sections of the society, demonstrating that the school exists predominantly for such studen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phasize, by managing its affairs adopting standard and well accepted/recognized business management practices and principles, on commercial or market driven basis, could be said to exclude an activity geared to achieve an object otherwise constituting a charitable purpose. The Hon ble Apex Court has, per a series of decisions, as in Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC); Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 (SC); Dharmadeepti v. CIT [1978] 114 ITR 454 (SC); CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC); Aditanar Educational Institution v. CIT (Addl.) [1997] 224 ITR 310 (SC); American Hotel Lodging Assn. Educational Institute v. CBDT [2008] 301 ITR 86 (SC); and Queens Educational Society v. CIT [2015] 372 ITR 699 (SC), the last also approving the decision by the Hon ble jurisdictional High Court in Pine Grove International Charitable Trust vs. Union of India [2010] 327 ITR 273 (P H), settled the law, explaining that on an overall view of the matter the object should not be to make profit, i.e., profit-making should not be the predominant object, as where the charitable purpose gets submerged by the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or for achieving a charitable purpose/object. Nothing, therefore, turns on the assessee stating before us of its expenditure exceeding income; the expenditure including a handsome component of depreciation (Rs. 37 lacs for AY 2015-16), so that there is substantial cash profit and, two, the depreciation stands provided on an accelerated (WDV) basis at the rates prescribed under the Act for determining business income, which inflates the charge for the initial years, as against being applied uniformly over the life of the asset. Before us, the ld. counsel sought to justify the fees which, on an annual basis, ranges from ₹ 40,000/- to ₹ 50,000/-, with reference to the quality of the education; the school also providing training in Robotics, a new discipline. Without doubt, the cost of education, as of any other service, can not be properly compared without taking into account its quality; rather, the quality of both the input resources as well as the output. We have, however, already clarified that no quantitative tests (viz. the rate of profit; the rate of return on investment, etc.) in this regard have been laid down, which the Hon ble Courts have eschewed for perhaps ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction thereof, do not necessarily have to be targeted to serve or educate the poor. However, we have to necessarily read the objects as they are, being the premise with which the society has been established, exhibiting the intention of its founder/promoter/s, the stated purpose of its existence. 5. We, accordingly, i.e., in view of the foregoing, only consider it proper to restore the matter back to the file of the competent authority to allow the assessee an opportunity to exhibit its activities as being undertaken toward and in satisfaction of its stated object/s, which no doubt constitute a charitable purpose under the Act. Before parting, we may also add, and even as clarified by us during hearing, that in view of the assessee s objects, the reliance on the decisions by the tribunal in the context of other schools run as franchisees of Zee Learn Ltd., is rendered of little moment; we ourselves holding that profit-making per se cannot be regarded as detrimental as long as it feeds a charitable purpose (of education). For the same reason/s, and to the same effect, would be the assessee s reliance on the decisions by the Hon ble jurisdictional High Court, placed in the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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