Charging Nominal Sum For Functioning Educational Institution Not Commercial Activity: Indore ITAT Directs For Registration U/s 12AB

While allowing the Assessee's appeal for registration u/s 12AB, the Indore ITAT held that mere charging a nominal amount for smooth functioning of educational institution and trust cannot called to be a part of commercial activity, and therefore, directed the CIT(E) to grant registration u/s 12AB of Income Tax Act, 1961.

The Bench comprising Vijay Pal Rao (Judicial Member) and B.M. Biyani (Accountant Member) observed that “the entire thrust of the CIT(E) is regarding services provided by the assessee against charges without even considering the fact whether the charges are nominal or reasonable mark up over cost that too is also applied for charitable purpose or achieving charitable objects of the assessee. Further the conclusion of CIT(E) that the commercial receipts for assessee are more than 20% of the total receipt is contrary to the fact that the assessee is not doing any trade or business but is providing the services for achievement of charitable objects and in that process nominal fee is charged which is also not more than 20% of the total receipts of the assessee as manifest from the details given in the forgoing part of this order”. (Para 7.5)

As per the brief facts of the case, the Assessee filed an application for registration u/s 12AB which was rejected by the CIT(E) on the ground that the activities of the assesse society are commercial in nature as the assessee is charging against the services provided by it. The Assessee filed an appeal against CIT(E) order but there was a delay of 93 days. The assessee filed an application for condonation of delay explaining it as inadvertence and bonafide mistake which was not opposed by the department.

The Coram noted that the explanation of the assessee for delay is bona fide and not to cover any ulterior purpose or an attempt to save the limitation in under head way, and the assessee society is clearly falling in the specific charitable purpose provided in section 2(15).

The Bench stated that at the time of considering application for registration u/s 12AB, the Commissioner has to satisfy himself from the record/ documents as well as information provided by the applicant about the genuineness of the activities of trust or institution as well as about the objects of the trust or institutions being charitable in nature.

The Bench mentioned that it is no ground to treat the activities of the assesse in the nature of trade, commerce or business when the objects of the assesse are charitable in nature and these activities are carried out for achieving objects of the assesse society.

Relying on the decision of Co-ordinate Bench in Crisp Society vs. DCIT-Exemption, the Coram reiterated that, “those trusts or education institutes charging nominal amount of fee in order to carrying out its activities in a smoother way, this cannot be called a part of commercial activities. Therefore, respectfully following the aforesaid judgments and as assessee is imparting education and training to students and public, its activities have not been doubted by the lower authorities. Therefore, in such circumstances, benefit of Section 11 cannot be denied.”

Therefore, on finding that the assessee's society is falling under section 2(15) by fulfilling all required conditions, the ITAT set aside the order passed by CIT(E) and directed the CIT(E) to grant registration u/s 12AB.

Counsel for Appellant/ Taxpayer: Kunal Agrawal

Counsel for Respondent/ Department: Ashish Porwal

Case Title: Aarambh Foundation verses CIT

Case Number: ITA No. 90/Ind/2023

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