TMI Blog2022 (2) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... different places. These facts are already available in the management agreement entered into by the entities on 12th day of August 2014. Thus, There is evidence that both these members of the association of persons are regulated entities by the Charity Commissioner. Appellant AOP has also filed its return of income. In view of this the reasons given by the learned CIT that assessee is an Association of person, an unregulated entity and does not have any control over it, therefore cannot be registered for exemption, is fallacious. Even if the arguments of the revenue is accepted, then the proviso to Section 10 (23C) clearly says that that the moment there is a violation of the provisions, the exemption granted to the assessee trust can be withdrawn immediately. Though the counsel of the assessee has submitted that till date there is no distribution of profit amongst any of the members of the association and after the amendment to the deed of association of persons therein, there is no question of distribution of profit and all the surplus has been utilized for the educational activities and not for any other activity. Revenue authorities are at always liberty to invoke such prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied out by the Association of person, and fixed assets created for education purposes are in the name of AOP, which fact is evident by the annual accounts placed before the CIT. The fact also mentioned in form number 10 BB filed before him. Form number 56D in column number 3 clearly shows that the Association of person is formed to run and manag an English medium public school. In the same form, the total income is also shown which clearly shows that that assessee is running a school. Thus all these facts cumulatively s shows that assessee Association of person is running the school and in all these certificates issued by the educational department Maharashtra clearly mentions the name of both the members of the assessee AOP. In view of these facts, we find that finding of the CIT exemption that the school is run by one of the members of the AOP and not by the AOP is not correct. If any of the conditions are violated based on which the exemption is granted to the assessee, the provisions of the law itself gives authority to prescribed authority to withdraw the exemption already granted. This is also mandated and explained in detail in the circular issued by the central board of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned CIT (E), Mumbai refused the registration on flimsy grounds without appreciating the facts of the case and without applying his mind v. on the facts and circumstances of the case and in law, the CIT (E) erred in not appreciating that names of members of AOP or part of application filed on 31/10/2018 for grant of minority status vi. On the facts and circumstances of the case and in law, the CIT (A) erred in not appreciating that the AOP is only existed for imparting education to all poor and middle-class families at nominal amount irrespective of caste and creed and not for the purpose of profit as observed by the CIT (E). Thus the approval for grant of exemption u/s 10 (23C) (vi) of the income tax act, 1961, as claimed should have been allowed as all the conditions therein were completely fulfilled vii. on the facts and circumstances of the case and in law, the learned CIT (E) was only required to see if the objects of AOP are charitable and whether the AOP is genuine or not viii. on the facts and circumstances of the case and in law, the learned CIT (E) erred in stating that the definition of person u/s 2 (31) of the income tax act, 1961 is not relevant as in Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicant should be a University or an educational institution and, (2) it should exist solely for educational purposes and not for the purposes of the profit. 8. Assessee made following submissions in support of its application and answering queries raised by the learned CIT:- i. assessee submitted a copy of the application filed to the education Department on 31/10/2018 and also the copy of the letter issued from the desk officer, government of Maharashtra on 28/2/2019 to Divisional Deputy Director Of Education Mumbai forwarding herewith the application of the sharda mandir High school for granting minority status. Assessee also submitted a copy of letter dated 7/3/2019 issued by the Divisional Deputy Director Of Education, Mumbai to education Inspector of South division, Mumbai granting Sharda Mandir High School minority school managed and run by minority trust named as Sitaben Shah Memorial Trust ii. Assessee also explained that the above approval has been received in the name of school run by Sitaben Shah Memorial Trust. It was further explained that Sitaben Shah Memorial Trust by order passed by the Asst Charity Commissioner, greater Mumbai dated 23/1/2018, three diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit and therefore it is entitled for exemption Under that Section. Assessee also supported its case by citing various judicial precedents. 10. The learned CIT denied the exemption to the assessee vide order dated 30/9/2019 giving mainly the following reasons:- i. as the Association of person has made an application for the exemption, according to him the provision of the Section is applicable in case of a University or an educational institution. It is not for an AOP. Further, according to him the applicant itself shall be running an educational institution imparting formal education. He further held that as assessee is not registered with the board as well as educational department and having a permission to run a school, it cannot be said that assessee is running an educational institution. He further held that as permission to run the minorities school is in the name of Sitaben Shah Memorial trust and not the AOP, educational Institute is run by Sitaben Shah Memorial trust. He further held that in all the permissions obtained by the assessee the name of the Association of person is not mentioned but the name of Sitaben Shah memorable trust is mentioned. So assessee is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed dated 17/8/2015 for clarification on issue related to claim of exemption Under that Section. v. copy of the annual accounts of the association of persons stating that net profit of ₹ 1,254,386 has been kept as a reserve and surplus and has not at all been distributed in terms of the supplementary deed. He further stated that till to date there is no distribution of profits or any benefit to any of the members of the AOP and all the surplus has been used for the purposes of education. He referred to annual accounts of Assessee. vi. Various replies submitted during the course of examination of the application of the assessee as per letter dated 26/9/2019 wherein according to him all the clarifications were given to CIT (E). vii. Management agreement dated 12th day of August 2014. 13. On the basis of above documents , i. He stated that the reason for denial of registration given by the learned CIT- E that agreement is neither registered with any authority nor notarized and the Association of person has not been registered with any of the government authorities like Charity Commissioner or the registrar of the companies cannot come into a way of granting exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g solely for the purpose of education and not for the purposes of the profit. He referred to the income and expenditure account and stated that in of the surplus has been distributed and in fact, it has been applied for the educational activities. Accordingly, he submitted that as the funds are used for the purposes of education solely, assessee does not exist for profit at all. vi. He also referred to the communication of Education department where the names of the members of AOP is mentioned and as one of the member also got merged with another trust , name of that trust is also mentioned. He submitted that all fees are received by AOP, All expenses incurred by Assessee, surplus earned by assessee, he referred to balance sheet to show the capital expenditure of the assessee on school. Therefore, it was unreasonable for CIT E to hold that assessee does not run educational institution. vii. With respect to the objection of the learned CIT E that the educational activities are carried out in the name of Sitaben Shah Memorial Trust and not the assessee, he referred to the paper book page number 71 of the paper book and submitted that the certificate dated 7 March 2019 clearly s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation. He further stated that assessee has always carried on educational activities with respect to the English medium school and its allied activities, which is evident from the object itself. He therefore submitted that the learned CIT E has misunderstood the object clause of the assessee. xi. In view of this he submitted that the assessee should be granted exemption u/s 10 (23C) of the income tax act. He referred to written submissions made. 14. The learned departmental representative supported the order of the learned CIT E. He took us to date chart and submitted that i. on 12 August 2014, a management this agreement was entered into between Sharda Mandir Sikhshna Seva Samiti and Lodha charitable trust. ii. On 23/11/2016, Association of person was formed. iii. On 30/1/2018, the Charity Commissioner granted a certificate stating that Lodha charitable trust has merged with another entity. iv. On 31/10/2018, an application was filed by the assessee with educational department of Maharashtra for permission to open the English medium school. v. On 28 February 2019, the letter was issued by the education Department permitting the assessee to set up a minorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties, prescribed authority has to ensure that the applicant institutions must exist solely for educational purposes‖ and not for purposes of profit‖. Further there is a proviso that where the institution, if so granted registration, and subsequently the prescribed authority is satisfied that such funds or institution has applied income for non-specified purposes or invested a sum which are not in accordance with the provisions of the Act, activities of the trust are not genuine or they are not being carried out in accordance with all or any of the conditions subject to which it was notified for which approved, the approval granted to such trust may be withdrawn at any time after giving a reasonable opportunity of hearing. There are also several provisos pertaining to that Section subject to which the approval may be granted. The scope of the enquiry at the time of granting approval to the nature trust, the authority is required to consider the nature, existence of for non-profit purposes and genuineness of the applicant institution. Such is mandate of honourable Supreme Court in 301 ITR 86 wherein it has been held that at the time of granting approval the prescribed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear. It is fundamental, such educational institutions have an overarching motive that is educational and not profit- making to fall within this exception. Further, the seventh proviso to Section 10(23C)(vi) incorporates a mandatory requirement that the accounts of such educational institutions ought to be audited in respect of that year and it should furnish the same along with the return of income for the relevant year. 22. There is a multitude of authorities that have surveyed and analyzed the exemption permitted under Section 10(23C)(vi),which broadly conclude that if the educational institution merely acquires a profit surplus from running its institution, that alone would not belie its larger education purpose. For instance, in Queen's Educational Society (supra) the Supreme Court, by citing, inter alia, Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310/90 Taxman 528 (SC), and American Hotel and Lodging Assn. Educational Institute (supra), focused on the requirements that were germane to qualify for exemption under the erstwhile section 10(22) and the subsequent section 10(23C)(vi) of the Act, namely that: the activities of the educational institution sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmercial activities is subject to certain conditions stipulated under the seventh proviso to Section 10 (23C). They are- (a) The business should be incidental to the attainment of the objectives of the entity and (b) Separate books of account should be maintained in respect of such business. 24. In Queen's Educational Society (supra), the Supreme Court went on to summarize the law that arises under Section 10(23C) as follows: 11. Thus, the law common to Section 10(23C) (iiiad) and (vi) may be summed up as follows: (1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied-the purpose of education should not be submerged by a profit making motive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on for profit . No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. (4) If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This point was highlighted in American Hotel and Lodging Assn. Educational Institute (supra) as follows: Therefore, in our view, it is always open to the PA to impose such terms and conditions as it deems fit. The interpretation we have given is based on harmonious construction of the provisos inserted in Section 10(23C)(vi) by the Finance Act, 1998. Lastly, we may reiterate that there is a difference between stipulation by the Prescribed Authority (PA) of such terms and conditions, as it deems fit under the provisos, and the compliance of those conditions by the appellant. The compliance of the terms and conditions stipulated by the PA would be a matter of decision at the time of assessment as availability of exemption has to be evaluated every year in order to find out whether the institution existed during the relevant year solely for educational purposes and not for profit. 23. Now question that arises whether the assessee as an Association of person is entitled to claim exemption u/s 10(23C) (vi) of the act or not. This issue arose before the honourable Madras High Court in case of Commissioner Of Income Tax Versus Sengunthar Matt Relation Higher Secondary School In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 10(23C) (vi) of the Act is clear enough and it specifically covers Association of Persons (AOP), which need not be a registered Body. The Income Tax Act recognizes certain types of Assessees which do not have any independent juristic existence like Corporate or individuals viz., Hindu Undivided Family (HUF) and Association of Persons (AOP), who are entitled to maintain their Books of Accounts and file their Returns of Income in their own capacity and can be assessed as such in that capacity. 11. The submission made on behalf of the Revenue that unless the Applicant under Section 10(23C) of the Act is independently registered, the Revenue may not have control over it is fallacious, since the Appellant/Assessee is admittedly filing its Returns of Income as AOP. So long as the Assessee adheres to the parameters required to be satisfied under Section 10(23C) of the Act to avail the exemption granted under the provision, it is so entitled. Therefore, unless the finding of facts are given on the basis of evidence that the Assessee does not meet the parameters of Section 10(23C) of the Act, the exemption claimed by the Assessee cannot be denied on the ground that it does not have ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Charity Commissioner. Further Appellant AOP has also filed its return of income. In view of this the reasons given by the learned CIT that assessee is an Association of person, an unregulated entity and does not have any control over it, therefore cannot be registered for exemption, is fallacious. 25. With respect to the allegation that there is a clause in the agreement of association of persons, dated 23rd day of November 2016 that the profit or loss of the Association of person shall be distributed amongst the members as per the conditions stipulated in the management agreement dated 12 August 2014. Subsequently on 23rd day of August 2018, prior to making an application for exemption, which was made on 30 September 2018, a supplementary deed was entered into wherein it was stated that there should not be any distribution of profit amongst the members of the association of persons. The annual accounts of the assessee are also placed at page number 18 20 of the paper book, which clearly shows that there is no distribution of the profit between the members of the Association of person, and it has been invested in the fixed deposits as prescribed Under the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e utilized for educational purposes. 27. Even if the arguments of the revenue is accepted, then the proviso to Section 10 (23C) clearly says that that the moment there is a violation of the provisions, the exemption granted to the assessee trust can be withdrawn immediately. Though the counsel of the assessee has submitted that till date there is no distribution of profit amongst any of the members of the association and after the amendment to the deed of association of persons therein, there is no question of distribution of profit and all the surplus has been utilized for the educational activities and not for any other activity. Revenue authorities are at always liberty to invoke such provisions the moment the violation is found. It is a fact on the basis of the information produced before us that there is no distribution of profit between the members of the Association of person. The learned departmental representative has merely doubted the supplementary deed only because of the reason that one of the signatories of the supplementary deed has already merged with another trust, but has not shown us any evidence that there is any allocation of profit between the members of ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... central board of direct taxes. Thus on this basis, rejection of the exemption claim of the assessee is not justified. 29. The next issue that arose that whether the Association of person is running an educational Institute or not. For this purpose, the certificate placed at page number 72 of the paper book clearly says that Sharda Sikhshna Seva Samiti , one of the members of the AOP and Sitaben Shah Memorial trust, an entity in which one of the member of the AOP was merged, were granted permission to run a minority school. Therefore, in the permission granted by the education Department both the members of the AOP are mentioned. Undisputedly as on 28 February 2019, one of the members of the AOP was merged with another trust and therefore instead of the member of the AOP, trust in which the member of AOP amalgamated is mentioned. Further, in certificate dated 7 March 2019 , name of both the members of the Association of person are mentioned. The fees have been received by the Association of person, the educational activities are also carried out by the Association of person, and fixed assets created for education purposes are in the name of AOP, which fact is evident by the annua ..... X X X X Extracts X X X X X X X X Extracts X X X X
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