The Income Tax Appellate Tribunal of New Delhi held that Charitable Trusts running educational institutions will be not be considered as commercial establishments if it collects fees from students and in comparison, makes a meager amount as profit.
The Tribunal Bench consisting of judicial member H.S. Sidhu and accountant member Prashant Maharishi held so while hearing the appeal filed by Jaycees Public School. The registration of the appellant institution as a charitable society was withdrawn by the commissioner of income tax (haldwani) by observing that the activities of the society was not in the nature of charity. He further relied upon the findings of the assessing officer who found that fees were charged from students under different heads such as admission fee, tuition fee, computer fee, late fee, games fee, library fee, examination fee, etc. amounting to approximately Rs. 2.01 crore.
The petitioners argued that the fees so collected were used mostly for the purpose of running of the institution including salary of the employees and other inventory purposes. They were able to convince the court that all they earned as profit in the end was a meager Rs. 5,79,743. The commissioner was also not able to state whether this amount was used for any non-educational purpose or not.
While disposing the appeal in favour of the assessee, the bench was quoted, “. . . The assesse is running an educational institute but that does not mean that assesse must run it for free. Further, it is not alleged that the fees charged by the assesse is exorbitant and the primary motive of the assesse is to earn the profit. If the assesse does not charge the fees from student then it would not be possible for trust to carry on its activities for which it is established as the excess would not be available for ploughing back for development of the educational facility for the students. Hence, we do not find that the order of the learned Commissioner in cancelling the registration to the trust is sustainable.”
Read the full text of the Order below.
