THE issues before the Bench are - Whether when the
assessee-trust that runs a school for children of non-residents, excludes poor
children from its ambit, can still claim to be charitable; Whether there is any
live link between the nomenclature of the body and its main activities and
Whethe the Revenue is right in making inquiries before rejecting the application
filed under Sec 12A. And the answers go against the assessee.
Facts of the
case
The assessee is a registered Trust
under the name and style "Dawn Educational and Charitable Trust". It operates a
school named 'Dawn International School'. An application was filed seeking
registration u/s 12A so as to get income tax exemption on the ground that they
were imparting education and therefore it was a trust meant for charitable
purpose. Revenue made an enquiry to satisfy itself whether the activity done was
factually in the direction of object of the trust. The CIT, who had the
authority to grant registration u/s 12AA, was of the opinion the assessee
intended to run a posh international school in the name of charitable activity,
therefore, assessee was not entitled for such registration. Reasons for
rejection of application were, though the trust says 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 activity of the trust was only to bring under its
ambit the already existing Dawn International School run by the Managing
Trustee. Commencement of the school was in 2006 and the trust was formed in
2007. The school was run in a building where air conditioned class rooms with
breakfast and lunch were provided. The school was maintained and meant for
benefit of children of non-resident Indians. Fee structure indicated collection
of huge amount. Clause 6 of the trust deed further indicated that the trust was
at liberty having absolute discretion to accept contributions as donation and
contributors had 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 was confirmed
by the Appellate Tribunal endorsing the views of the Commissioner.
On appeal, the HC held
that,
++
the counsel arguing for the 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
reported 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 Judge of HC opined what amounts to charity so far as
Municipalities Act;
++ we
are not concerned with similar situation and further 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 Income Tax Act how an application
for registration u/s 12A has to be considered. It is well settled that even if
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 main
activity of the institution. In the absence of 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.
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