COMMISSIONER OF INCOME TAX ALW V. M/S MODEL PUBLIC SCHOOL

ITA/613/2008

AI Insights

The case revolves around the appeal by the Commissioner of Income Tax, Alwar, against M/s. Model Public School, Society, Bhiwadi, concerning the cancellation of the society's registration under Section 12A(a) of the Income Tax Act, 1961. The CIT had initially cancelled the registration due to the society's alleged failure to adhere to its charitable objectives, as it was charging fees in excess of actual expenditure and not providing assistance to poor children as claimed. However, the Tribunal reversed this decision, noting that the society was indeed fulfilling its objectives by providing education and reinvesting any surplus into the institution. The High Court, after reviewing the Tribunal's detailed findings and the absence of any material evidence to support the CIT's claims, dismissed the appeal, affirming the Tribunal's decision.

• Counselvise Citation: [2016] 140 COUNSELVISE.COM (IT) 728275 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 22-11-2016
• Assessment Year: misc
• Other Referred Cases: Dharamadeepti Vs. CIT, Sole Trustee Loka Shri Kishan Kumar Trust Vs. CIT, Aditanar Educational Institution Vs. Addl. CIT, DCIT Vs. Cosmopolitan Education Society, CIT Vs. Rajasthan State Text Book Board, CIT Vs. Lagan Kala Upvan
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: ANANT KASLIWAL
• Assessee Lawyers: PARINITOO JAIN
• Keywords: Charitable society; Income tax appeal; Registration cancellation; Surplus Funds; Commercialized Education
• Section: 2(15); 12A(a); 12AA(3)

Judgement Text

"1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR. DB INCOME TAX APPEAL NO.613/2008 The Commissioner of Income Tax, Alwar. Versus M/s. Model Public School, Society, Bhiwadi. DATE OF ORDER ::: 22.11.2016. HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE MAHENDRA MAHESHWARI Ms. Parinitoo Jain, for the appellant. Mr. Anant Kasliwal, for the respondent. 1. By way of this appeal, the department has challenged the judgment and order of the Tribunal whereby the Tribunal while considering the appeal of the assessee has allowed the appeal and reversed the finding of the CIT (Appeal) and has granted all benefits available under Section12 AA(3). 2. The brief facts of the case are that the Society was registered u/s 12A (a) of the I.T. Act, 1961 by the Commissioner of Income Tax, Jaipur vide order dated 19.7.1998. Later on it has come to the notice that: “2.1. The institution is collecting fees under various head from the students in excess of actual expenditure. 2.2. The fees are being charged by the institution in commercialized manner with a motto of earning profits. 2.3. According to object, the society was to undertake help to poor children by way of free education and also providing hostel facilities to them. But no such help/assistance is being provided to poor children. 2 2.4. The institution is generating surplus amount year after year as reflected in the books of account.” 3. In view of the above, the institution is not carrying out its activities according to the aims and objects of the society. Accordingly a show cause notice vide this office No.CIT/Alw/2005-06/1881 dated 25.01.2005 was issued fixing the date for 07.11.2005. The assessee submitted the explanation on 26.12.2005 which is reproduced at pages 1 to 5 of ld. CIT's order. The ld. CIT(A did not find the explanation of the assessee convincing mainly for two reason i.e in each assessment year, starting from 1999-2000 to 2004-2005, the assessee under the five heads i.e. boarding and lodging, computer fees, laboratory fees, news letter fees and vehicle fees, had the surplus being receipts more than the expenditure. The second reason for which the ld. CIT was not satisfied that as per the objects of the society, the society was required to provide the books and educational material free and financial aid to the poor students and the hostel and medical aid to the poor students and the society has not been able to prove whether such facilities has been provided to the poor students and the society has failed to act accordingly to its objects. The ld. CIT on the findings given as mentioned hereinbefore observed that the society is not carrying out its activities according to its objects and therefore, registration granted to the 3 society u/s 12A(a) of the Act was cancelled u/s 12AA(3) of the Act. 4. This Court while admitting the appeal on 11.12.2008 framed the following questions of law: “(i) Whether under the facts and in the circumstances of the case and in law, the order of the Tribunal is perverse in reversing the order of CIT passed u/s.12AA(3) of the Income Tax Act?” “(ii) Whether under the facts and in the circumstances of the case, the ld. Tribunal is justified in holding that the object and purpose of assessee Samiti are charitable falling u/s.2 (15) of the IT Act and further directing the CIT to allow registration u/s.12A of the Income Tax Act?” 5. Counsel for the appellant contended that the assessee has not fulfilled the criteria which are required under Section 12AA and therefore, contended that the order passed by the Tribunal is contrary to law and required to be quashed and set aside. 6. We have heard counsel for the parties. 7. In view of the observation which are made by the Tribunal in detail which reads as under: “We have perused the facts of the case. The society was registered by the Registrar of Societies, Alwar vide registration certificate on 15-04-1986 (PB 10). The society was granted registration u/s 12A(a) of the I.T. Act, 1961 by the ld. CIT, Jaipur, vide order dated 19-07-1988 (PB 11). The ld. CIT in his order at page 1 has pointed out that the institution is collecting the fees in excess of actual expenditure and the fees is being charged in a commercial manner with a motto of earning profits and the institution therefore, is generating surplus year after year. The ld. AR Shri Kranti Mehta, Chartered Accountant has 4 pointed out at PB 1 to 9 that the society had the objects to provide education in the backward industrial area of Bhiwadi and to achieve this object to open schools, libraries, to provide books, educational material, financial aid, hostel facilities and medical aid to the poor. On perusal of the objects of the society, it is found that the society has been registered mainly for providing education by opening the schools and libraries. The object of the society was also to provide books, educational material financial, hostel facilities and medical aid to the poor. The ld. AR further pointed out that the assessee submitted an application with Central Board of Direct Taxes in Form 56-d on 3.12.99 for taking exemption under the newly inserted Provision u/s 10(23)(c)(vi) of the Act which was granted the exemption vide the order of the CBDT dated 23.03.2007 for the assessment year 1999-2000 and onwards (PB 39). Now the question arises whether the assessee has achieved the objects for which the society has been registered under the Registrar of Societies Act. One of the object of the society is to open school and libraries which has been done is, not under dispute. As regards the objection of the ld. CIT that the assessee is having the surplus. Now the question arises, if the assessee society has a surplus, can an exemption already given since 19-7-88 as withdrawn. The ld. CIT has not whispered even a word in his order whether the assessee society has its objects for earning a profit, during the course of running the activities since its registration with Department, whether there is any motive for earning profit, whether any business has been carried on by the assessee society, whether the society has misutilised or mismanaged the funds for the purpose of business or for the benefit of any of the trustee or any of the member of the society. There is no findings of the ld. CIT in this regard and no material has been brought on record in this regard. As regards the charging of the fees under different heads, the ld. AR pointed out that the assessee society is registered with Board of Secondary Education and holding a certificate in this regard and the fees charged under different 5 heads is an per the regulations and bye-laws as prescribed by the said Board and no objection has been raised by the said Board in this regard and the assessee society is holding the certificate from the said Education Board. We are convinced with the arguments of Shri Kranti Mehta, Chartered Accountant that while holding the valid certificate from Board of Secondary Education and there is no objection from the said Board regarding the charging of fees under any heads of the fees and in the absence of any material on record, the ld. CIT is not justified in coming to the conclusion that the assessee society is having the surplus and therefore, it is not carrying out its activities accordingly to its objects. As regards the expenditure, the ld. AR has pointed out that the diagrammatic presentation of fixed assets and number of students, income and expenditure, audited balance sheet and audit report for the financial year 1998-99 to financial year 2005- 06. The strength of the students at 876 during the F.Y. 1998-99 has risen to 1504 in the F.Y. 2005-06, fixed assets have risen from Rs.31.53 lacs from F.Y. 1998-99 to Rs.165.29 lacs in the F.Y.2005-06. The surplus arising each year have been used from the development of the school in incurring the capital expenditure as per fixed assets schedule for different years on record. The surplus as reflected in the F.Y.1998-99 at Rs.20.95 lacs remained at minus Rs.15.63 lacs in the F.Y.2005-06. The position of the surplus as per PB 16 is as under:- Financial Year Surplus (Rs. In Lacs) 1998-99 20,95,403 1999-00 42,74,458 2001-02 2,98,919 2002-03 56,44,653 2003-04 38,73,448 2004-05 56,67,687 2005-06 -37,72,221 2006-07 -15,63,572 The capital expenditure as per fixed assets schedule of the society and that of school for different years (PB 16-37) is as under:- 6 Financial Year Capital expenditure (Fixed Assets) of society (Rs.) Capital expenditure (Fixed Assets) of School (Rs.) 1998-99 21,78,566 9,75,308 1999-00 8,19,223 8,65,435 2001-02 52,57,703 15,08,439 2002-03 2,61,791 10,24,452 2003-04 36,09,051 14,32,597 2004-05 30,48,140 12,64,490 2005-06 1,11,64,008 30,71,687 2006-07 1,10,82,457 54,47,656 On perusal of the material on record, we find that the assessee has utilized the surplus funds in acquiring the capital/fixed assets for the school and for making the fixed deposits in the bank and income arising from the said fixed deposits has been included in the receipts in each year for utilizing the same for incurring the expenditure for the society/school and /or for acquiring the capital/ fixed assets as is evident from the material on record as per PB 12 to 37. As regards providing of fee educational material and books, financial aid, hostel and medical aid to the poor students, the assessee has submitted the explanation at page 4 of ld. CIT order that 50% fees exemption has been g ranted to few students. Therefore, in the circumstances and facts of the case, the assessee society is running its activity for the purposes for which it was registered. The objections raised by the ld. CIT are without any basis and material on record and therefore, the registration cancelled by him is not justified.” 8. We are of the opinion that the finding of the Tribunal which is fact finding authority is just and proper and decisions relied on page No.51 are as under: “1. Dharamadeepti Vs. CIT, 114 ITR 454 (SC). 2. Sole Trustee Loka Shri Kishan Kumar Trust Vs. CIT, 101 ITR 234 (SC). 3. Aditanar Educational Institution Vs. Addl. CIT,224 ITR 310 (SC). 7 4. DCIT Vs. Cosmopolitan Education Society, 224 ITR 494 (Raj). 5. CIT Vs. Rajasthan State Text Book Board,244 ITR 667 (Raj). 6. CIT Vs. Lagan Kala Upvan, 259 ITR 489 (Del.).” 9. The decision taken by the Tribunal is just and proper, we confirm the same, therefore, the objection and issues are answered in favour of the assessee and against the department . 10. This appeal stands dismissed. (MAHENDRA MAHESHWARI), J. (K.S. JHAVERI), J. Asheesh Kr. Yadav 106 "