Educational Institute Cannot Be Denied Benefits Under Sec 12AA Of Income Tax Act If All Proceeds Generated Are Used For Advancement Of Education: Punjab & Haryana HC

The Punjab & Haryana High Court has held that an educational institute duly registered under Section-10 (23) (vi) of the Income Tax Act cannot be denied benefits under Section-12 AA if all its proceeds are utilized for the purpose of advancement of education.

The Court was dealing with an appeal preferred by the Income Tax Department against an order passed by ITAT denying their appeal in dispute with the respondent school.

The division-bench of Justice Sanjeev Prakash Sharma and Justice Sanjay Vashisth observed, "In the present case, we find 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 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 as mentioned in Ananda Social Educational Trust's case (supra)."

The appellant-Income Tax Department was represented by Senior Standing Counsel A.P. Singh and the respondent was represented by Advocate Abhinav Narang.

The respondent/ assessee had challenged the refusal of the registration of the association under Section-12AA of the Act, passed by CIT. 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 Act. The society had already been granted approval under Section 10 (23)(vi) of the Act but mere approval does not automatically entitle the assessee to registration under Section 12AA of the Act. Furthermore, it was for the assessee to show before the authorities that the society was carrying out charitable activities. The CIT relied upon the Supreme Court's decision in Municipal Corporation of Delhi v. Children Book Trust (1992), wherein 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 an appeal set aside the order of the CIT(A) relying on judgment passed in Baba Gandha Singh Education Trust v. CIT Patiala. 

The Court referenced to Supreme Court judgment in Ananda Social and Educational Trust v. Commissioner of Income Tax and Anr, 2020 whereby it laid down the scope of Section- 12AA and observed that for the purpose of allowing registration under Section-12AA of the Income Tax Act,1961, the authority shall examine whether the object of the society is of charitable nature or not and whether the activities being performed by the society are genuine.

In this light, the court observed that the Commission was only required to examine the institute on the above parameters, and the latter has been successful in proving its functioning being akin to a trust.

Accordingly, the appeal was dismissed.

Clause Title: The Commissioner of Income Tax, Patiala vs Yadvindra Public School Association, Patiala (2024:PHHC:118360)

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