Registration of Charitable Trust cannot be cancelled merely because it has earned certain revenue: ITAT

Facts are, in brief, that the assessee filed an application in Form 10A for registration under section 12AA of the Act on 11.05.2019. The application filed by the assessee was considered by the ld. CIT(E) and directed the assessee to file certain details.

After considering the submissions of the assessee, the ld. CIT(E) has observed that the assessee, M/s. Schools of Equality Foundation mainly works in the area of creating awareness and conducting sensitization programmes about equality and social justice in schools. The ld. CIT(E) asked the assessee to explain as to how the assessee’s case is different from a business enterprise since the perusal of the statements of account for the Financial Years 2015-16, 2016-17, 2017-18 and 2018-19 show revenues from operations which are more than the cost and there is accumulation of excess income year after year. The AR of assessee has submitted before the ld. CIT(E) that the assessee Trust is a non-profit company with an aim to educate children on issues relating to equality and discrimination and conducted classes to sensitize the children to inequalities entrenched in the society and such activities are conducted once a week by a trained facilitator. It was submitted that the schools which have worked with the assessee company reported a decline in bullying and discrimination and have received positive feedback from children, parents and teachers. It was further submitted that the assessee company has worked with schools in Chennai, Pollachi, Bangalore and Kadappa and also have conducted programmes in private and corporation schools. It was further submitted that they did not charge for corporation schools, whereas, sums were charged for private schools.

After considering the submissions of the assessee, the ld. CIT(E) has noted that there is no material available to establish that the assessee indeed is conducting such classes free of cost to the corporation schools. Profit and Loss account shows collection of fee from conducting such programmes and after incurring expenses towards such Purposes, the assessee was left with surplus year after year. The ld. CIT(E) has further noted as per the provisions of Sec 2(15) of the Act, “charitable purpose” includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility.

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless –

(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;

After noting that the case of the assessee falls under advancement of any other object of general public utility limb of section 2(15) of the Act, the ld. CIT(E) has held that the activities of the assessee cannot be treated as charitable in nature and since the assessee has failed to comply with the requirements of registration as contained in section 12AA(1) of the Act, the ld. CIT(E) rejected the assessee’s application for registration under section 12AA of the Act.

ITAT Order:

6. Before us, the ld. Counsel for the assessee has submitted that the main objects of the assessee is to create awareness and conducting sensitization programmes about equality and social justice in schools, college, other institutions and within the local community. He further submitted that the assessee was only charging for the classes conducted in private schools and not from corporation schools. He also submitted that wherever the assessee has conducted classes, there is positive response from schools and also submitted that the assessee is carrying out its activities successfully.

7. The case of the Department is that the assessee has not filed any details in respect of activities carried out by the assessee. It was the submissions of the ld. DR that the assessee has not placed any material to show that the assessee has not collected any fee from corporation schools. In view of the above, the ld. CIT(E) came to a conclusion that the activities of the assessee is hit by provisions of section 2(15) of the Act and held that the assessee is not eligible for registration under section 12AA of the Act.

8. Per contra, besides relying upon various case law in the form of paper book, the ld. Counsel for the assessee has relied on the decision in the case of Investor Financial Education Academy v. ITO [2020] 121 taxmann.com 281 (Madras), wherein the Hon’ble Jurisdictional High Court has noted that it was clearly spelt out in the Memorandum of Association of assessee that the income and profit of company, whatsoever derived would be applied solely for promotion of its objects as set forth in the memorandum and merely because the assessee earned certain revenue, it could not be said that the activities of the assessee were not charitable so as to cancel its registration under section 12AA of the Act. Keeping in view of the facts and circumstances of the case, we are of the considered opinion that the issue has to be remitted back to the file of the ld. CIT(E) to consider the issue afresh in accordance with law. We also direct the assessee to file the details of activities carried out by the assessee in corporation schools on free of cost as well as other public schools before the ld. CIT(E) and the ld. CIT(E) shall consider the same and pass order afresh keeping in view of the judgement of Hon’ble Jurisdictional High Court in the case of Investor Financial Education Academy v. ITO (supra).

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