For registration u/s 80G, there is no condition that education should be imparted free to become a charitable purpose,

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For registration u/s 80G, there is no condition that education should be imparted free to become a charitable purpose,

 

GAUR BRAHMIN VIDYA PRACHARINI SABHA vs. COMMISSIONER OF INCOME TAX

ITAT, DELHI ‘B’ BENCH

Vimal Gandhi, President & Deepak R. Shah, A.M.

ITA No.1905/Del/2009

11th September, 2009

(2009) 28 CCH 0542 DelTrib

(2010) 129 TTJ 0627 : (2009) 32 DTR 0473 : (2009) 34 SOT 0371

Legislation Referred to

Section 80G(5)

Case pertains to

Asst. Year -,

Decision in favour of:

Assessee

Deduction under s. 80G—Recognition of institution, etc. under s. 80G(5)—Charitable purpose of education—Assessee society has been formed for the purpose of establishing educational institutions and spreading education and is registered under s. 12AA—Though it derives income, such income was held not liable for inclusion in total income as per ss. 11 and 12—Admittedly, there is no clause or rule governing the institution which contains any provision for transfer or application of its income or assets for any purpose other than a charitable purpose—Further, assessee is registered under the Societies Registration Act, 1860—Thus, all the conditions laid down in cls. (i) to (v) of sub-s. (5) of s. 80G are fulfilled—Even though assessee receives fees for imparting education, such income is not liable for inclusion in the total income to the extent to which such income is applied for charitable purpose in India—Imparting of education is a charitable purpose as defined in s. 2(15), irrespective of the fact that the assessee charges fee for imparting education—There is no condition that to become a charitable purpose, education should be imparted free—So long as the imparting of education is not for the benefit of any particular religion, community or caste as envisaged in cl. (iii) of sub-s. (5) of s. 80G, assessee cannot be denied approval—Therefore, assessee society is eligible for registration under s. 80G(5)(vi)

Held:

Clause (i) of sub-s. (5) of s. 80G requires that where the institution or fund derives any income, such income would not be liable to inclusion in its total income under the provisions of ss. 11 and 12. The assessee is registered under s. 12AA. Even as per the assessment of the last 3 years it is seen that though the assessee derives income, such income was held not liable to inclusion in total income as per ss. 11 and 12. Thus, sub-cl. (i) is satisfied. As per sub-cl. (ii) of sub-s. (5) of s. 80G, the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not, contain any provision for the transfer or application at any time of the whole or any part of its income or assets for any purpose other than a charitable purpose. Admittedly there is no clause or rule governing the institution which contains any provision for the transfer or application of its income or assets for any purpose other than a charitable purpose. The only object of the assessee trust is imparting education and such object is charitable purpose within the definition of “charitable purpose” as specified in s. 2(15). The condition prescribed in sub-cl. (iv) of sub-s. (5) of s. 80G is that the institution or fund maintains regular accounts of its expenditure is also complied with. The condition in sub-cl. (v) of sub-s. (5) of s. 80G is that the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1860, is also complied with as the assessee is registered under the Societies Registration Act, 1860 vide certificate dt. 29th Sept., 1980. From the above it is clear that all the conditions laid down in r. 11AA i.e., conditions laid down in sub-cls. (i) to (v) of sub-s. (5) of s. 80G are fulfilled. When the assessee trust was granted registration under s. 12AA, it is a testimony to the fact that the trust is established for charitable purposes.—Sonepat Hindu Educational & Charitable Society vs. CIT (2005) 196 CTR (P&H) 623 : (2005) 278 ITR 262 (P&H) followed.

(Para 6)

In respect of registration under s. 80G, the scope of enquiry will be confined to finding out if the institution satisfies prescribed conditions stated in sub-cls. (i) to (v) of s. 80G. It does not extend to actual assessment of institution. The phrase used in sub-cl. (i) of sub-s. (5) of s. 80G is that “where the institution or fund derives any income, such income would not be liable to inclusion in its total income”. Thus what is to be seen is whether any income would not be liable to inclusion in its total income and not whether because of certain defaults prescribed in s. 11 or 13, the trust is not actually held eligible for exemption under ss. 11 and 12. Even though the assessee receives fees for imparting education and the education being charitable purposes defined in s. 2(15) without any condition, such income would not be liable to inclusion to the extent to which such income is applied for charitable purposes in India. Education is per se charitable purposes as defined in s. 2(15). The same will be charitable purposes irrespective of the fact that for imparting education, the assessee charges fees. There is no condition to hold that to become charitable purposes in respect of imparting education, the same should be imparted freely or without charging any fees. So long as imparting such education is not for the benefit of any particular religion, community or caste as envisaged in sub-cl. (iii) of sub-s. (5) of s. 80G, the assessee cannot be denied exemption. The trust or fund which imparts education without charging fees will qualify for exemption under ss. 11 and 12 but that does not mean that other trusts which are charging fees for imparting education will not be considered to be charitable purposes. The Act is contemplating exemption being granted to an eligible trust or institution in respect of its income. Thus, it is manifested that only when there will be income, the claim of exemption will arise. In such a situation what the statute envisages is that there are all chances of trust or institution earning income by way of surplus so as to grant them exemption under ss. 11 and 12 and subject to conditions prescribed under s. 11(5) and s. 13. If the trust or institution is not expected to earn surplus, there would not have been any question of allowing exemption from tax liability. When the scheme of the Act allows exemption from tax liability, the same can be only when it is envisaged that the trust or institution is likely to earn surplus. Thus, merely because from the activities in the nature of charitable purposes, the assessee makes surplus which is within the limitation prescribed under s. 11(1)(a), there cannot be any ground to hold that the assessee is not carrying on any charitable purposes so as to deny registration under s. 80G(5). The conditions laid down in r. 11AA as also in sub-cls. (i) to (v) of sub-s. (5) of s. 80G are complied with. The trust is, therefore, eligible for registration under s. 80G(5)(vi); the CIT is directed to grant registration accordingly.

(Para 6)

Conclusion:

Assessee society formed for the purpose of establishing educational institution, not for any particular religion, community or cast, having been granted registration under s. 12AA and all the conditions laid down in cls. (i) to (v) of sub-s. (5) of s. 80G having been fulfilled, assessee society is eligible for registration under s. 80G(5)(vi) notwithstanding the fact that it is charging fees for education.

In favour of:

Assessee

Counsel appeared:

Gautam Jain, for the Appellant : Nikhil Choudhary, for the Respondent

ORDER

DEEPAK R. SHAH, A.M. :

ORDER

The appellant is aggrieved by an order dt. 8th April, 2009, passed by learned CIT, Rohtak, whereby its application dt. 13th Oct., 2008 for grant of registration under s. 80G(5)(vi) of the IT Act, 1961 (‘the Act’) has been rejected.

  1. The facts are as under :

The appellant society was registered on 17th March, 1923 with the Registrar, Joint Stock Companies, Punjab at Lahore for the purpose of spreading education without any distinction of caste and creed by establishing educational institutions. Thereafter appellant society was registered on 29th Sept., 1980 under the Societies Registration Act, 1860.

The appellant society is presently running five educational institutions. The society is running five educational institutions in all i.e., (i) Gaur Brahaman Central School (ii) Gaur Brahaman Degree College (iii) All India Gaur Brahaman College of Education (iv) All India Gaur Brahaman Sanskrit College (v) Gaur Brahaman Ayurvedic College to spread education. It is not disputed that appellant has been established for purpose of establishing educational institution and spreading education.

The society had been granted registration under s. 12AA of the Act on 23rd Feb., 2006 w.e.f. 1st April, 2005 by the learned CIT, Rohtak. However, on appeal, the Tribunal vide order dt. 5th April, 2007 had also directed to condone the delay in filing of application and re-decide the application under s. 12AA/12A of the Act. Accordingly, vide order dt. 27th June, 2008, the learned CIT had held that registration under s. 12AA of the Act is allowed to the assessee w.e.f. 29th Sept., 1980.

The income of the appellant society has been held to be exempt, as is evident from the orders of assessment under s. 143(3) of the Act for asst. yrs. 2004-05 to 2006-07.

  1. The learned CIT rejected the application for approval under s. 80G(5)(vi) of the Act on the following basis :
  2. That appellant society does not deserve the charitable status which is the premost requirement for approval under s. 80G(5)(vi) of the Act (p. 6). In support of the above, he has stated the following reasons :

(a) That the criteria of “aid” in necessitous circumstances for the benefit of the needy people who cannot pay for the benefit received has not been fulfilled by the appellant society. It charges fees for imparting education and, thus provides ‘aid’ to those who can pay for the services obtained and, thus it cannot be called charitable [p. 2 para 4(i)].

(b) That further by charging a certain level of fee, it is trying to identify a class the rich class and is limiting its benefits to this class alone, which is prohibitive for 80 per cent of the public that gets deprived of the benefit. Therefore, benefit is to a selected fews and, therefore, not charitable [p. 3 para 4(H)].

(c) That as per Hindu scriptures, charity is supposed to bestow pat, peace and mental satisfaction by relinquishing assets; right over a thing and getting other right established, whereas the appellant society is making systematic profit by charging fees out of its ostensible charitable activities. As per income and expenditure account, the society earned surplus of Rs. 121.16 lacs, Rs. 139.92 lacs and Rs. 131.72 lacs for the financial years 2005-06, 2006-07 and 2007-08 respectively [p. 3 para 4(iii)].

(d) That provisions of s. 11 and s. 12 of the Act do not envisage that a charitable institution charging fees and, therefore, fees received is taxable under the head profits and gains of business or profession [p. 4 para 4 (iv)].

(e) That approval under s. 80G cannot be granted in a case where no (sic) incidental business is involved and no separate books of accounts of the business as well as for donation are maintained [p. 4 para 4 (vi)].

(f) That copy of memorandum and articles of association do not contain any clause which could eliminate profit making from becoming the real or dominant purpose and society is making systematic profits for Rs. 10.84 crores as on 1st April, 2005 to Rs. 15.39 crores as on 31st March, 2008 [p. 4 para 4(vi)].

(g) That diversion of general funds of the society towards corpus without there being any donation towards corpus under s. 11(1)(d) of the Act has increased the capital by Rs. 4.55 crores in three years which is against the spirit of s. 11 of the Act, as amassing wealth is not the motto here [p. 5 para 4 (vii)].

(h) That expenditure incurred is akin to expenditure incurred by a private concern carrying on profitable business and perusal of income and expenditure account shows net surplus year to year which proves that society is involved in lucratively profit charming business [p. 5 para 4 (viii)].

(i) That running charitable school and hospitals is the most lucrative investment generating [p. 6 para (ix)].

  1. That the only specified source of income of the appellant society for claiming exemption is voluntary contribution under s. 12(1) r/w s. 11(1)(a) since society has been claiming its income under the head “Income from other sources”. In his opinion, the balance income is a non-specified income under ss. 11 and 12 of the Act and, liable to be included in taxable income of the appellant society (p. 7 para 5).
  2. That there is regular practice to deposit surplus cash in the bank after more than reasonable time of 24 hours and keeping in personal custody (p. 8 para 5).
  3. That in light of the minutes of the proceedings, he is of the opinion that activities of the appellant society are not genuine and all activities are not for charitable activities (pp. 8-9 para 7).
  4. That application in Form 10G has not been properly filled in (p. 10 para 8).

The learned CIT relied on following judicial pronouncements (p. 10 para 10) :

(a) Kirti Chand Tarawati Charitable Trust vs. Director of IT (Exemption) & Ors. (1999) 152 CTR (Del) 322 : (1998) 232 ITR 11 (Del);

(b) Ganjam Nagappa & Son Trust vs. Director of IT (Exemption) (2004) 187 CTR (Kar) 311 : (2004) 269 ITR 59 (Kar); and

(e) CIT vs. Queens’ Educational Society (2009) 223 CTR (Uttarakhand) 395.

  1. The learned counsel for the appellant Shri Gautam Jain submitted :

That appellant is a charitable society as admittedly and undisputedly, it has set up five educational institutions for spreading education. It is submitted that education per se is a charitable purpose. Reliance is placed on the following judicial pronouncements :

(a) Aryan Educational Society vs. CIT (2005) 94 TTJ (Del) 462 : (2005) 93 ITD 546 (Del); and

(b) St. Don Bosco Educational Society vs. CIT (2004) 84 TTJ (Lucknow) 805 : (2004) 90 ITD 477 (Lucknow).

He further submitted that the same learned CIT has himself granted registration under s. 12AA of the Act vide order dt. 23rd Feb., 2006 and 27th June, 2008, therefore, he could not have otherwise validly adopted a contrary stand that appellant society is not a charitable society. In fact, Hon’ble Punjab & Haryana High Court in the case of Sonepat Hindu Educational & Charitable Society vs. CIT (2005) 196 CTR (P&H) 623 : (2005) 278 ITR 262 (P&H) has held that, “registration of an institution under s. 12AA of the Act itself is a sufficient proof of the fact that the trust or institution is established or created for charitable purposes”. It is thus, the submission of the appellant that all what has to be seen is, whether the appellant has been established for charitable purposes, as would be seen from s. 80G(5) of the Act. In the instant case, it is not disputed that not only the appellant has been established for setting up educational institution but also has set up educational institution. Mere fact that there is a surplus arising as a result of charitable activities cannot suggest that appellant is not a charitable institution. Reliance is placed on the following judicial pronouncements :

(a) Birla Vidhya Vihar Trust vs. CIT (1981) 24 CTR (Cal) 307 : (1982) 136 ITR 445 (Cal) at pp. 460 and 462;

(b) Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378 : (1980) 121 ITR 1 (SC) p. 4 and pp. 25-26; and

(c) Aditanar Educational Institution Etc. vs. Addl. CIT (1997) 139 CTR (SC) 7 : (1997) 224 ITR 310 (SC) at p. 318.

It is also submitted by the learned counsel for the appellant that the case of the appellant is squarely covered by the judgment of jurisdictional High Court in the case of Sonepat Hindu Educational & Charitable Society vs. CIT (supra), wherein it has been held at p. 270 that scope of inquiry under s. 80G extends to eligibility of income and not to actual computation of income under the Act. It has been further held that for that purpose too, what has to be examined is :

(a) Whether the applicant is registered under s. 12A ?

(b) Whether it is a trust wholly for charitable purposes ? and

(c) Whether the income received by the trust would be liable to be considered under s. 11 of the Act ?

It is further submitted that identical view has been expressed in the case of N.N. Desai Charitable Trust vs. CIT (2001) 165 CTR (Guj) 116 : (2000) 246 ITR 452 (Guj) at p. 458, it has been held as under :

“Examining from this angle, we find that for applicability of ss. 11 and 12, what is required is that such trust must have moved an application for registration under s. 12A and registered for that purpose. Once a trust is registered under s. 12A, its income from property, which includes donations whether covered under s. 11(1)(d) or under s. 12 such donations are deemed to be income from property, is not to be included in its total income under s. 11 or s. 12. The enquiry under s. 80G(5) cannot go beyond that.”

(Emphasis, italicized in print, supplied)

Applying the above, it is submitted that, appellant satisfies all the aforesaid conditions and therefore, appellant trust is entitled for registration under s. 80G of the Act. In fact, here is a case, where income has been assessed at nil for each of the assessment years, which have been assessed as would be evident from orders of assessment for asst. yrs. 2004-05 to 2006-07.

It may be added here that, the factum of charging fees cannot be a basis to hold that appellant is not a charitable society, as has been held by Mumbai Bench of Tribunal in the case of Indo-American Society vs. Asstt. Director of IT (Exemption) (2005) 96 TTJ (Mumbai) 578 : (2005) 278 ITR 49 (Mumbai)(AT). This is also evident from the amended definition of s. 2(15) of the Act by Finance Act, 2008, wherein charging fees has been prohibited only in respect of the fourth limb of s. 2(15), namely, “general public utility” and, not “education”.

It is accordingly pleaded that the learned CIT was not correct in holding that the appellant has not been established for charitable purpose.

The appellant further submits that the learned CIT has erred is holding that income received by the appellant society other than voluntary contributions is not eligible for exemption since the society has been claiming that income is under the head “Income from other sources”. It is submitted that there is neither any basis in law nor on facts to support such an arbitrary interpretation. It also submitted that all what has to be seen is whether the income so earned by the appellant society has been applied for charitable purposes and, if answer is in the affirmative, then entire income has to be held to be eligible for exemption under s. 11(1)(a) of the Act. In the instant case, it would be seen that income of appellant has been applied for education, which is a charitable purpose. The chart tabulating year-wise details is as under :

   

Assessment years

    2006-07 2007-08 2008-09
Gross receipts   4,51,78,747 4,91,07,607 6,44,31,885
  Total (A) 4,51,78,747 4,91,07,607 6,44,31,885
Revenue expenditure   3,30,62,621 3,51,15,091 5,12,59,063
Capital expenditure   1,03,36,784 66,66,508 84,19,401
  Total (B) 4,33,99,405 4,17,81,599 5,96,78,464
Surplus (C) = (A)-(B) 17,79,342 73,26,008 47,53,421
Surplus/% of total receipts   (3.93%) (14.19%) (7.37%)

Assessed at nil income under s. 143(3) of the Act. In all the years surplus as percentage of total receipts is less than 15 per cent of total receipts, therefore entire income is eligible for exemption. This submission is being made without prejudice to the basic contention that actual computation of income is beyond the scope of enquiry under s. 80G(5) of the Act.

It is further submitted that educational activities carried on by the appellant society are not incidental business to the attainment of objects and therefore, s. 11(4A) of the Act cannot be invoked, as has been held in the case of Indo-American Society vs. Asstt. Director of IT (Exemption) (supra).

Shri Jain submitted that there is no provision for computation of “head-wise income” in respect of charitable trust, as has been explained in Circular No. 5 of 1968, dt. 19th June, 1968. The income has to be computed in a commercial sense.

Further, it is submitted that the observations recorded on the basis of minutes of meeting to hold that activities of the society are partly non-charitable or not genuine is misconceived and not in accordance with law. They are wholly irrelevant considerations and beyond the scope of enquiry under s. 80G of the Act, as has been held in the case of Sonepat Hindu Educational & Charitable Society (supra). It is submitted that the observation that, proceedings book is silent over the case of incorporation of a clause in regard to dissolution is not a valid basis to hold that activities are not charitable or genuine. In fact, in the case of CIT vs. Red Rose School (2007) 212 CTR (All) 394, it has been held that, “but on mere presumptions and on surmises that income derived by the trust or the institution is being misused or that there is some apprehension that the same would not be used in the proper manner for the purposes relating to any charitable purpose, rejection cannot be made.”

As regard, allegations of expenditure on fraud, it is submitted that they fall in the realm of computation of actual income and not a case which is eligible for exemption.

Also, it is submitted that observation that Form 10G has not been properly filled in has been recorded without granting any opportunity. No notice whatsoever was issued to the appellant society. Column 7(b) was stated to be inapplicable since application was made for the first time for registration under s. 80G of the Act. Therefore, there was no justification to hold that change in memorandum and articles of association was not reported. Further, the learned CIT has incorrectly held that s. 10(23C)(iiiab) applies where a receipt is less than rupees one crore. The relevant provisions for such a receipt are in s. 10(23C)(iiiae). As regards applicability of s. 10(23C)(iiiab), the learned AO has himself allowed the claim in asst. yr. 2004-05. It is submitted that even the technical objection that Col. 10 in regard to mode of investments has not been properly filled is also misplaced since audited accounts give the amount and mode of investment, therefore, it cannot be said even on this basis that Form 10G has not been properly filled in.

As regards observations in para 9, same are factually misconceived, as it is not a case of renewal of registration but a case of fresh registration.

The judgments relied upon are on facts distinguishable. For instance, i.e., registration in case of Kirti Chand Tarawati Charitable Trust vs. Director of IT (Exemption) & Ors. (supra) was denied an amount collected from donor was utilized for setting up a religious temple. So far as case of Ganjam Nagappa & Son Trust vs. Director of IT (Exemption) (supra) the trust was found to be a tool for furtherance of trade interest of a commercial organization. Both the above judgments are therefore inapplicable as in the case of appellant society, amounts have been utilized for charitable purpose i.e., education. The judgment of Uttaranchal High Court in the case of Queen Educational Society (supra), the same too is inapplicable as it has been rendered in the context of s. 10(23C)(vi) of the Act.

  1. The learned Departmental Representative Shri Nikhil Chaudhary on the other hand, relied upon the observations of the learned CIT in the impugned order as summarized above.
  2. We have carefully considered the relevant facts, arguments advanced and the case law cited. The assessee is seeking registration under s. 80G(5) of the Act. Sec. 80G(5) is extracted hereunder :

“(5) This section applies to donations to any institution or fund referred to in sub-cl. (iv) of cl. (a) of sub-s. (2), only if it is established in India for a charitable purpose and if it fulfils the following conditions, namely :

(i) where the institution or fund derives any income, such income would not be liable to inclusion in its total income under the provisions of ss. 11 and 12, or cl. (23AA) or cl. (23C) of s. 10 :

Provided that where an institution or fund derives any income, being profits and gains of business, the condition that such income would not be liable to inclusion in its total income under the provisions of s. 11 shall not apply in relation to such income, if—

(a) the institution or fund maintains separate books of account in respect of such business;

(b) the donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of such business; and

(c) the institution or fund issues to a person making the donation a certificate to the effect that it maintains separate books of account in respect of such business and that the donations received by it will not be used, directly or indirectly, for the purposes of such business;

(ii) the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not, contain any provision for the transfer or application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose;

(iii) the institution or fund is not expressed to be for the benefit of any particular religious community or caste;

(iv) the institution or fund maintains regular accounts of its receipts and expenditure;

(v) the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India or under s. 25 of the Companies Act, 1956 (1 of 1956), or is a university established by law, or is any other educational institution recognised by the Government or by a university established by law, or affiliated to any university established by law, or is an institution financed wholly or in part by the Government or a local authority;

(vi) in relation to donations made after the 31st March, 1992, the institution or fund is for the time being approved by the CIT in accordance with the rules made in this behalf; and

(vii) where any institution or fund had been approved under cl. (vi) for the previous year beginning on the 1st April, 2007 and ending on the 31st March, 2008, such institution or fund shall, for the purposes of this section and notwithstanding anything contained in the proviso to cl. (15) of s. 2, be deemed to have been—

(a) established for charitable purposes for the previous year beginning on the 1st April, 2008 and ending on the 31st March, 2009; and

(b) approved under the said cl. (vi) for the previous year beginning on the 1st April, 2008 and ending on the 31st March, 2009.”

As per sub-cl. (vi) of sub-s. (5) of s. 80G, for recognition the trust is required to be approved by the CIT in accordance with the rules made in this behalf. The rules are r. 11AA prescribed in this regard. As per r. 11AA, the assessee is required to make an application in Form No. 10G. The application shall be accompanied by the following documents :

(1) Copy of registration granted under s. 12A or copy of notification issued under s. 10(23) or 10(23C) of the Act;

(2) Notes on activities of institution since its inception or during the last 3 years whichever is less;

(3) Copies of accounts of the institution since its inception or during the last 3 years whichever is less.

The CIT is empowered to call for such further documents or information or call such enquiries in order to satisfy himself about the genuineness of the activities of the institution. If the CIT is satisfied that the conditions laid down in cls. (i) to (v) of sub-s. (5) of s. 80G are fulfilled, he shall record such satisfaction and grant approval. If he is not so satisfied, he shall reject the application after recording the reasons. Thus, as per the provision of s. 80G(5) r/w r. 11AA for granting registration, the CIT needs to be satisfied that the conditions laid down in cls. (i) to (v) of sub-s. (5) of s. 80G are fulfilled. In the present case there is no dispute that the application for approval has been filed in Form No. 10G along with the documents required to be accompanied thereto. Sub-cl. (i) of sub-s. (5) of s. 80G requires that where the institution or fund derives any income, such income would not be liable to inclusion in its total income under the provisions of ss. 11 and 12 of the Act. The assessee is registered under s. 12AA of the Act. Even as per the assessment of the last 3 years it is seen that though the assessee derives income, such income was held not liable to inclusion in total income as per ss. 11 and 12 of the Act. Thus, sub-cl. (i) is satisfied.

As per sub-cl. (ii) of sub-s. (5) of s. 80G, the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not, contain any provision for the transfer or application at any time of the whole or any part of its income or assets for any purpose other than a charitable purpose. Admittedly there is no clause or rule governing the institution which contains any provision for the transfer or application of its income or assets for any purpose other than a charitable purpose. The only object of the assessee trust is imparting education and such object is charitable purpose within the definition of “charitable purpose” as specified in s. 2(15) of the Act.

The condition prescribed in sub-cl. (iv) of sub-s. (5) of s. 80G is that the institution or fund maintains regular accounts of its expenditure is also complied with.

The condition in sub-cl. (v) of sub-s. (5) of s. 80G is that the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1960, is also complied with as the assessee is registered under the Societies Registration Act, 1860 vide certificate dt. 29th Sept., 1980.

From the above it is clear that all the conditions laid down in r. 11AA i.e., conditions laid down in sub-cls. (i) to (v) of sub-s. (5) of s. 80G are fulfilled. When the assessee trust was granted registration under s. 12AA, it is a testimony to the fact that the trust is established for charitable purposes. Hon’ble Punjab & High Court which has the jurisdiction in this case in the case of Sonepat Hindu Educational & Charitable Society vs. CIT (supra) held as under :

“In construing the purpose of a trust, for the purposes of approval under s. 80G of the IT Act, 1961, it is important to find out the real purpose of establishing the trust rather than just relying on the objects, memorandum and articles or the trust deed of the trust. If the CIT is satisfied that the objects of the trust are charitable, approval should not be denied on mere technicalities.

Registration of an institution under s. 12A of the Act is sufficient proof of it being established for charitable purposes.

It is not possible to determine, on the date on which the donation is made under s. 80G, if the trust, which has sought approval under the said section, has fulfilled its conditions at the close of the relevant previous year.

Res judicata can be applied in income-tax proceedings when a fundamental aspect has prevailed through different assessment years without being challenged one way or the other. In such cases it is not appropriate to change the position in a subsequent year.”

(Emphasis, italicized in print, supplied)

There is no denial of fact that the assessee institution is registered under Societies Registration Act, 1860 as well as under s. 12AA of the IT Act. Even the assessments for asst. yrs. 2004-05, 2005-06 and 2006-07 framed under s. 143(3) revealed that the assessee trust is eligible for exemption under ss. 11 and 12 of the Act. Hon’ble Gujarat High Court in the case of N.N. Desai Charitable Trust vs. CIT (supra) held that in respect of registration under s. 80G, the scope of enquiry will be confined to finding out if the institution satisfies prescribed conditions stated in sub-cls. (i) to (v) of s. 80G. It does not extend to actual assessment of institution. The phrase used in sub-cl. (i) of sub-s. (5) of s. 80G is that “where the institution or fund derives any income, such income would not be liable to inclusion in its total income”. Thus what is to be seen is whether any income would not be liable to inclusion in its total income and not whether because of certain defaults prescribed in s. 11 or 13, the trust is not actually held eligible for exemption under ss. 11 and 12 of the Act. As per s. 11 of the Act, income derived from property held under trust to the extent to which such income is applied for charitable or religious purposes in India or to the extent of accumulation within certain limitation is not to be included in the total income of the trust or institution. Thus, even though the assessee receives fees for imparting education and the education being charitable purposes defined in s. 2(15) of the Act without any condition, such income would not be liable to inclusion to the extent to which such income is applied for charitable purposes in India. Education is per se charitable purpose as defined in s. 2(15) of the Act. The same will be charitable purpose irrespective of the fact that for imparting education, the assessee charges fees. There is no condition to hold that to become charitable purposes in respect of imparting education, the same should be imparted freely or without charging any fees. So long as imparting such education is not for the benefit of any particular religion, community or caste as envisaged in sub-cl. (iii) of sub-s. (5) of s. 80G, the assessee cannot be denied exemption. In the impugned order the learned CIT has given much weightage to the fact that the assessee charges fees for imparting education and since by charging fees, the benefit is not extended to 80 per cent of the public who are below poverty line or that the education is not imparted free of cost. The trust or fund which imparts education without charging fees will qualify for exemption under ss. 11 and 12 but that does not mean that other trusts which are charging fees for imparting education will not be considered to be charitable purposes. The Act is contemplating exemption being granted to an eligible trust or institution in respect of its income. Thus, it is manifest that only when there will be income, the claim of exemption will arise. In such a situation what the statute envisages is that there are all chances of trust or institution earning income by way of surplus so as to grant them exemption under ss. 11 and 12 of the Act and subject to conditions prescribed under s. 11(5) and s. 13 of the Act. If the trust or institution is not expected to earn surplus, there would not have been any question of allowing exemption from tax liability. When the scheme of the Act allows exemption from tax liability, the same can be only when it is envisaged that the trust or institution is likely to earn surplus. Thus, merely because from the activities in the nature of charitable purposes, the assessee makes surplus which is within the limitation prescribed under s. 11(1)(a), there cannot be any ground to hold that the assessee is not carrying on any charitable purposes so as to deny registration under s. 80G(5) of the Act. We find that the conditions laid down in r. 11AA as also in sub-cls. (i) to (v) of sub-s. (5) of s. 80G are complied with. The trust is, therefore, eligible for registration under s. 80G(5)(vi) of the Act. We, therefore, direct the CIT to grant registration accordingly.

  1. As rightly contended by the learned counsel for the assessee, the case law relied upon by the learned CIT in the impugned order are distinguishable on facts.
  2. In the result, the appeal is allowed.

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