TMI Blog2022 (4) TMI 964X X X X Extracts X X X X X X X X Extracts X X X X ..... rect the ld. CIT(E) to grant approval under section 80G(5)(vi) of the Act after filing of copy of the certificate of registration under section 12AA of the Act as may be granted. Appeal of assessee allowed. - I.T.A. Nos.3006 And 3007/Chny/2018 - - - Dated:- 12-4-2022 - Shri V. Durga Rao, Judicial Member And Shri G. Manjunatha, Accountant Member For the Appellant : Shri R. Sivaraman, Advocate For the Respondent : Shri M. Rajan, CIT ORDER PER V. DURGA RAO, JUDICIAL MEMBER: Both the appeals filed by the assessee are directed against different orders of the ld. Commissioner of Income Tax (Exemptions), Chennai both dated 28.09.2018 passed under section 80G(5)(vi) as well as 12AA of the Income Tax Act, 1961 relevant to the assessment year 2018-19. 2. Brief facts of the case are that the assessee originally filed the application in Form No. 10A for registration under section 12AA of the Act on 02.03.2017. The ld. CIT(E), vide his order dated 29.09.2017 rejected the application filed by the assessee on the ground that the predominant activity of the assessee is imparting financial education and awareness amongst the investor community which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether on facts and circumstances of the case, the Tribunal was justified in holding that the appellant is not entitled to exemption u/s 2(15) of the Act, holding that the activities carried on by it are not charitable in nature? 3. We have elaborately heard Mr.R.V.Eswar, learned Senior Counsel, assisted by Ms.Rubal Bansal and Mr.R.Sivaraman, learned counsel for the appellant/assessee; and Mr.J.Narayanasamy, learned Senior Standing Counsel for the respondent/Revenue. 4. The assessee filed an application dated 28.02.2017, before the Director of Income Tax (Exemptions) for grant of registration under Section 12AA of the Act. The assessee represented that they are a Company incorporated under Section 25 of the Companies Act, 1956 on 22.02.2011 and that they are applying for obtaining registration under Section 12AA of the Act. Along with the application, the assessee filed a copy of the Certificate of Incorporation, Memorandum of Association, Articles of Association and Financial Report for three years. The Commissioner of Income Tax (Exemptions) (for brevity the CIT) issued notice to the assessee calling for certain clarifications, which were furnished by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was collecting substantial amount as sponsorship fees from various sponsors and all these sponsors were from private sectors and not from any Department of the Government. Further, it held that the Profit and Loss account for the years ending 31.03.2015 and 31.03.2016 show that a surplus has been generated, which goes contrary to the assessee's claim that it was pursuing any charitable activity. 8. While dealing with the arguments of the assessee that the CIT ought to have considered the applicability of the first proviso to Section 2(15) of the Act, the Tribunal held that just because the assessee is a company registered under Section 25 of the Companies Act, it would not make them eligible for registration under Section 12AA of the Act. Thus, what weighed in the minds of the Tribunal was the sponsorship fees collected by the assessee from the various companies, which ultimately led the Tribunal to conclude that the dominant activity of the assessee did not reflect selflessness, nor it involves any charity and accordingly, confirmed the order passed by the CIT. 9. Firstly, we deal with the observations of the Tribunal that every company registered under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25 of the Companies Act upon examination of its Memorandum and Articles of Association and a licence being granted mentioning the objects and activities permitted to be carried on by the company, cannot be ignored when the company applies under the Income Tax Act for registration under Section 12AA of the Act. 11. We are not laying down a broad proposition that every company registered under Section 25 of the Companies Act would be automatically entitled for registration under Section 12AA of the Act, but the registration under Section 25 of the Companies Act is undoubtedly a very relevant factor to be noted by the CIT while considering the application for registration under Section 12AA of the Act, as the registration under Section 25 of the Companies Act recognises the main objective of the company, which is a non-profit organisation. Thus, we answer this issue though not framed as a substantial question of law. 12. The CIT and the Tribunal were guided by the decision of the Hon'ble Supreme Court in Loka Shikshana Trust (supra). This judgment has held the field since 1975. The judgment is heavily relied on by Mr.J. Narayanasamy, learned Senior Standing Counsel t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing is education, because as a result of travelling you acquire fresh knowledge....but this not the sense in which the word education is used in Clause (15) of Section 2. What education connotes in that Clause is the process of training and developing the knowledge, skill, mind and character of students by normal schooling? The Supreme Court, in the above observations by referring to the systematic instruction, schooling or training given to the young has only cited an instance in order to indicate as to what the word education appearing in Section 2(15) of the Act which defines charitable purposes is intended to mean. We are certain that these observations were not intended to keep out of the meaning of the word education, persons other than young. The expression schooling also means that schools, instructs or educates (The Oxford English Dictionary Vol. IX, page 217). The Supreme Court has observed that the word education also connotes the whole course of scholastic instruction which a person has received. This clearly indicates that the observations of the Supreme Court were not intended to give a narrow or pedantic sense to the word education. By giving further illustrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it will not be proper to infer that the word education is limited to schools, colleges and similar institutions and does not explain to any other media for such acquisition of knowledge. It has been further pointed out that it cannot be said that the word education has been given an unduly restricted meaning by the Supreme Court in the said decision. The above position will apply with full force to the case on hand. 14. In the case of DIT(E), Chartered Accountants Study Circle [(2012) 23 taxmann.com 444 (Madras)], while considering the activities of the assessee therein, which was a society called the Chartered Accountants Study Circle, after analysing the objective, it was held that the activities of the assessee-trust cannot be construed to be one of trade or commerce or business and it would only be charitable in nature and merely because they were selling books and books of professional interest and other reference materials to the general public, it would not term their activity as commercial. 15. In Gujarat State Co-operative Union vs. CIT [(1992) 195 ITR 279], the Court considered as to whether the co-operative union was entitled for exemption under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional purposes for which the assessee-Co- operative Union is established. The object of running a printing press as enumerated in clause (viii) has to be read in the context of the object of publishing periodicals, books, pamphlets and literature. Therefore, so read, it becomes part of the educational activities of the assessee-Co-operative Union. The subsidiary objects such as printing and publishing books and literature on the relevant subjects are, in our judgment, ancillary and do not detract from its exclusively educational character. The question whether an educational institution whether an educational institution is existing solely for educational purposes or not can also be resolved with reference to the activities actually carried on by it and as noted above, the list of activities of the assessee clearly indicates that it is existing solely for educational purposes. It cannot be doubted that the assessee was a society for diffusion of a certain branch of knowledge, namely, knowledge of the co-operative movement in various fields governing human life and the activities for the purpose were carried out in an organised and systematic manner by conducting regular courses for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich a person has received. The word 'education' has not been used in that wide and extended sense, according to which every acquisition of further knowledge constitutes education. According to this wide and extended sense, travelling is education, because as a result of travelling you acquire fresh knowledge...... But that is not the sense in which the word 'education' is used in clause (15) of section 2. What 'education' connotes in that clause is the process of training and developing the knowledge, skill, mind and character of students by normal schooling. 6. The Supreme Court, in the above observations, by referring to the systematic instruction, schooling or training given to the young has only cited an instance in order to indicate as to what the word 'education' appearing in section 2(15) of the Act which defines charitable purposes is intended to mean. We are certain that these observations were not intended to keep out of the meaning of the word education , persons other than young . The expression schooling also means that schools, instructs or educates (The Oxford English Dictionary, Vol. IX, page 217). The Supreme Court ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate means to reach them to the recipients. 16. The above decision would come to the aid and assistance of the appellant-assessee. Therefore, we hold that the Tribunal erred in holding that the word education should be given a restrictive meaning and we respectfully agree with the decision in the case of Gujarat State Cooperative Union (supra) and Ahmedabad Management Association (supra). 17. The second aspect on which the assessee was non-suited is on the ground that the assessee has generated surplus. The learned Senior Counsel for the assessee has taken us through the financial statement of the assessee for the relevant period. No doubt, under the head reserves and surplus, the surplus generated has been mentioned. What is important to note is that the said surplus has been retained by the company and not distributed. Essentially this is the basic feature of a registration under Section 25 of the Companies Act. Even assuming that there was a surplus, can it dis-entitle the assessee for registration under Section 12AA of the Act. This issue was considered by the Hon'ble Supreme Court in Queen's Educational Society vs. CIT [(2015) 8 SCC 47]. The Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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: 9. In the present case, the assessee is not claiming any benefit under Section 11(2) as it cannot; because in respect of this assessment year, the assessee has not complied with the conditions laid down in Section 11(2). The assessee, however, is entitled to claim the benefit of Section 11(1)(a). In the present case, the assessee has applied ₹ 8 lakhs for charitable purposes in India by purchasing a building which is to be utilised as a hospital. This income, therefore, is entitled to an exemption under Section 11(1). In addition, under Section 11(1)(a), the assessee can accumulate 25% of its total income pertaining to the relevant assessment year and claim exemption in respect thereof. Section 11(1)(a) does not require investment of this limited accumulation in government securities. The balance income of ₹ 1,64,210.03 constitutes less than 25% of the income for Assessment Year 1970-71. Therefore, the assessee is entitled to accumulate this income and claim exemption from income tax under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Government, no remuneration or other benefit in money or money's worth shall be given by the company to any of its members whether, officers or servants of the company; in case of winding up or dissolution of the company, after satisfaction of all the debts and liabilities, any property whatsoever, the same shall not be submitted amongst the members of the company, but shall be given or transferred to such other company having objects similar to the objects of the assessee company. The relevant portions of the Memorandum of Association, which we have referred to, also find place in the licence issued under Section 25 of the Companies Act by the Regional Director of Company Affair. 20. Thus, for all the above reasons, we hold that the rejection of the application filed by the assessee for registration under Section 12AA is erroneous on account of misreading of the scope of the decision of the Hon'ble Supreme Court in Loka Shikshana Trust (supra). 21. In the result, the appeal filed by the assessee is allowed and the substantial questions of law framed for consideration, are answered in favour of the assessee. No costs. 7. Respectfully following the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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