when registration under section 12A can be denied to school

Q : when registration under section 12A can be denied to school?

Assessee-trust filed an application for registration under section 12A and claimed exemption on ground that school ran by it was imparting education and, therefore, trust was meant for charitable purpose . Commissioner made an enquiry and was of opinion that assessee intended to run a posh international school in name of charitable activity, and therefore, it was not entitled to registration .

It was found that activity of assessee was only to bring under its ambit already existing school run by managing trustee; school was run in a building where air-conditioned class rooms with breakfast and lunch were provided ;

fee structure indicated huge amounts collected even in kindergarten classes and for play school, it charged Rs 6,000 per month;

Trust deed further indicated that assessee was at liberty to accept contributions as donation and contributors had no right or control over management or in administration of assessee.

Since when school was running on commercial lines under guise of charitable purpose, therefore authorities were justified in rejecting application  [Para 4] 

HIGH COURT OF KERALA

Dawn Educational Charitable Trust

v.

Commissioner of Income-tax

DR. MANJULA CHELLUR, CJ.
AND A.M. SHAFFIQUE, J.

IT APPEAL NO. 300 OF 2013

FEBRUARY  12, 2014

Section 2(15), read with section 12A, of the Income-tax Act, 1961

JUDGMENT

Dr. Manjula Chellur, CJ. – Heard learned counsel for the appellant as well as the learned standing counsel for the respondent.

2. It is not in dispute, the appellant is a registered trust under the name and style “Dawn Educational and Charitable Trust” running a school named “Dawn International School”. An application came to be filed seeking registration under section 12A of the Income-tax Act, 1961, so as to get income-tax exemption on the ground that they are imparting education and, therefore, it is a trust meant for charitable purpose. The respondent-authority made an enquiry to satisfy himself whether the activity done factually is in the direction of object of the trust, i.e., charitable purpose or not. The Commissioner of Income-tax, who is an authority to grant registration under section 12AA of the Act, was of the opinion, the assessee intends to run a posh international school in the name of charitable activity, therefore, the assessee was not entitled for such registration. Reasons for rejection of the application were, though the trust says the main object of it being to run educational institutions and establish institutions of training and rehabilitation for mentally retarded persons, physically handicapped persons etc., enquiries revealed that the activity of the trust is only to bring under its ambit the already existing Dawn International School run by the managing trustee, Dr. Johnson Luckose. The commencement of the school is in 2006 and the trust formed in 2007. The school is run in a building where air-conditioned class rooms with breakfast and lunch are provided. The school is maintained and meant for the benefit of children of non-resident Indians. Fee structure indicated huge amount collected even in kindergarten classes in the year 2006. For play school, which is pre-kindergarten, they were charging 6,000 per month.

3. Apart from above factual situation, clause 6 of the trust deed further indicates that the trust is at liberty having absolute discretion to accept contributions as donation and contributors have no right or control over the management or in the administration of the trust. All these facts borne on record revealed during the enquiry persuaded the Commissioner to reject the application. This came to be confirmed by the Appellate Tribunal endorsing views of the Commissioner.

4. Learned counsel arguing for appellant contends, charitable trust does not mean, it imparts education only to the poor. Even if poor children are excluded, it could still be charitable as long as running an educational institution. He tries to convince the Bench with his stand placing reliance on the decision in Nedumchalil C. Trust v. Municipal Commissioner[1991] 2 KLT 180. The question that arose was whether the fact of special wards for patients who pay full price are run or that salary is paid inclusive of the expenditure for the trustees will not change the nature of the trust, i.e., charity and charitable purpose. In that context, referring to section 101(1)(d) of the Municipalities Act, 1961 (Kerala) with reference to general meaning of charitable purpose the learned single judge of this court opined what amounts to charity so far as the Municipalities Act. We are not concerned with a similar situation and further the said judgment can only have a persuasive value and not binding on the Division Bench. We have to consider the controversy before us with reference to the Income-tax Act how an application for registration under section 12A of the Income-tax Act has to be considered. It is well settled that even if the nomenclature of the trust may indicate it is meant for charitable purpose but if activities reveal otherwise, that should weigh with the authorities who grant registration. Similarly, while considering claim of exemption, authorities under the Act would look into the actual activity of the institution, especially the main activity of the institution. In the absence of the facts indicating that the activities carried on attracts definition of charitable purpose, one cannot find fault with rejection of registration. When the school is running on commercial lines under the clad of charitable purpose, the parties were justified making enquiries and rejecting the application.

We find no good ground to interfere with the order of the Appellate Tribunal. Accordingly, the appeal is dismissed.