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The Punjab & Haryana High Court has held that educational trust utilising earnings for educational advancement cannot be denied Section 12AA registration.
The bench of Justice Sanjeev Prakash Sharma and Justice Sanjay Vashisth has observed that the institute has been able to satisfy that it has already been registered under Section 10 (23) (vi) to be an educational institute and Section 12AA pertains to registration of the trust. Since the respondent institute is a duly registered educational trust and whatever earnings it receives are also utilized for the purpose of advancement of education, the institution could not have been denied the benefit of Section 12AA.
Background
The respondent/assessee had challenged the refusal of registration of the association under section 12AA of the Act, passed by CIT, Patiala vide order dated 25.09.2009. The Commissioner of Income Tax observed that the society had not been carrying on with any charitable activity as the society was not imparting education as a charitable purpose within the meaning of Section 2 (15) of the Income Tax Act.
The society had already been granted approval under Section 10 (23)(vi) of the Income Tax Act but mere approval does not automatically entitle the assessee to registration under section 12AA. It was for the assessee to show before the authorities that the society was carrying out charitable activities.
The CIT relied upon the judgment passed by the Supreme Court in Municipal Corporation Delhi v. Children Book Trust in which it was held that there is no charity unless there is an element of subsidy or alimonies for the poor and needy. Whereas, in the present case it is apparent from the accounts and net surplus generated by the society, that there is no element of subsidy or alimony involved.
The Tribunal in appeal set aside the order of the CIT(A) relying on the judgement passed in Baba Gandha Singh Education Trust v. CIT Patiala noted that the observations of Supreme Court quoted judgment to the effect that where a society or body is making systematic profits, even though that profit is utilized only for charitable purposes, yet it cannot be said that it could claim exemption.
The phrase deserves to be read in conjunction with the express provisions of the third proviso to Section10(23)(vi) which stipulate the retention of 15 per cent of the profits of the total income after quantification thereof, of the educational institution earned in each year provided 85 per cent of the total income is spent for the objects of the society. Infact, the judgment rendered by the Supreme Court in Children Book Trust case on the facts and in the circumstances of the case of the petitioner-society herein, is not at all applicable by virtue of the applicability of the mechanism contained in the third proviso to Section10(23(vi) of the Income Tax Act.
The ITAT clarified that the Supreme Court had decided the case of Children Book Trust (supra) under the Delhi Municipal corporation Act, 1957 and had not dealt with the provisions of Section10(23 (vi) which are a complete code in itself, providing a mechanism for the utilization of surpluses and prior to the utilization determination of the existence of the educational institution solely for educational purposes and not for making profit.
Conclusion
The court upheld the ITAT decision holding the assessee/educational institute was entitled for registration under Section 12AA.
FAQs
What is Section 12AA registration?
Section 12AA pertains to registration of the trust. Since the respondent institute is a duly registered educational trust and whatever earnings it receives are also utilized for the purpose of advancement of education, the institution could not have been denied the benefit of Section 12AA.
Can educational institution be denied Section 12AA registration?
The Punjab & Haryana High Court in the case of the Commissioner Of Income Tax, Patiala Versus Yadvindra Public School Association, Patiala held that educational trust utilising earnings for educational advancement cannot be denied Section 12AA registration.
Case Details
Case Title: The Commissioner Of Income Tax, Patiala Versus Yadvindra Public School Association, Patiala
Case No.: ITA-253-2011 (O&M)
Date: 09.09.2024
Counsel For Petitioner: Amanpreet (A.P.) Singh
Counsel For Respondent: Abhinav Narang
