Rajah Sir Annamalai Chettiar Foundation v DIT (ITAT Chennai)- The principle that the institutions run by the charitable societies may collect fees and service charges does not mean that the institutions can charge fees, etc, at commercial rates from all the people without giving any element of charity to needy people. Fees collected by the trust running educational institution with the object of establishing a number of educational institutions within a brand name and running the same on commercial lines include a profit motive. Thus, the assessee was rightly denied registration under s 12AA.
M/s. Rajah Sir Annamalai Chettiar Foundation
Vs. The Director of Income Tax (Exemptions)
Decided by – ITAT Chennai
Decided on- 20th day of June, 2011
O R D E R
PER Dr. O.K. NARAYANAN, VICE-PRESIDENT
This appeal is filed by the assessee. The appeal is directed against the order of the Director of Income-tax (Exemptions) at Chennai dated 30.08.2010 in which the application put in by the assessee seeking registration under sec.12AA has been rejected.
2. The assessee is a trust registered before the District Registrar, Chennai pursuant to the deed of declaration of trust executed on 11.2.2009. The object of the assessee trust is to run educational institutions with modern methods to improve the education.
3. But the application was rejected by the Director of Income-tax (Exemptions) on the ground that the probable fees to be collected from the students is having a component for the future expansion of the institutions and this component is in the nature of profit and therefore, the objects of the trust will also include profit motive, as found in clause 11 of the trust deed. The assessing authority has also observed that the assessee-trust wants to establish 100 schools before 2014 and fees for primary level education is not governed by any regulations and therefore, the fees could be fixed at the interest of the assessee-trust which also postulates a motive for profit.
4. It is against the above that the assessee has come in appeal before us.
5. We heard Shri J. Prabhakar, the learned Chartered Accountant, appearing for the assessee and Shri K.E.B. Rengarajan, the learned Junior Standing Counsel appearing for the Revenue.
6. In clause 11 of the trust deed, the trustees are authorized to fix the fees or charges from the students. In deciding such amounts to be collected, the assessee is supposed to consider the cost of running of the institutions and also funds necessary for future development. Even though it is stated in the trust deed that fixing of the fees will not include any amount of profit, this freedom on costing and price fixation granted to the trustees of the assessee-trust can be used in such a manner to subserve the expansion of the schools established by the assessee-trust rather than concentrating on the objects of the educational activities mentioned in the deed of trust. As rightly pointed out by the Director of Income-tax (Exemptions), the assessee has already set a target of 100 schools to be started before 2014 for which a major contribution would be fees collected from the students, mainly for the reason that fees for primary education is not regulated by any orders of the Government.
7. We are in agreement with the view of the Director of Income-tax (Exemptions) that the fee structure of the assessee‑trust itself contemplates element of profit in the activities to be carried on by the assessee.
8. At the time of hearing of this appeal, a clarification was sought from the learned counsel appearing for the assessee,whether the assessee is imparting free education to the poor section of the public and whether the assessee has provided any fee concession to deserving students. It was submitted before us that the only concession given by the schools run by the assessee-trust is in respect of fees collected from the wards of the teachers of the institutions. It shows that the assessee is collecting fees from all children and no free education is imparted/concession granted, even to the downtrodden of the society or any other deserving section of the society. The only concession given by the assessee is a reduction in the fees payable by the teachers of the institutions for their wards studying in the institutions run by the assessee-trust. Sec.2(15) defines ‘charitable purpose’ for availing the benefits of sections 11 & 12 of the Income-tax Act, 1961, that an assessee must be carrying on charitable activities. The inclusive definition of charitable purpose states among other things, relief of the poor, education, medical relief etc. as in the nature of charitable purpose. The definition clearly shows that carrying on education activities by itself is not a charitable purpose. The concept of charitable purpose may be manifested in different forms like relief of the poor, education, medical relief etc; but a charitable purpose should always take care of the welfare and interest of the public and especially the poor section of the public. Running schools by collecting huge amounts of fees with five star facilities cannot be treated as a charitable activity only on the ground that the business carried on by such institutions is the business of education. If running of educational institution by itself is a charitable institution and that should apply to hospitals also. A private hospital giving medical relief by charging the patients can also claim that it is a charitable institution as it is providing medical relief. It is to be seen that running of educational institutions or delivering medical services by themselves are not the models of charitable activities. Those activities should also be in the nature of relief to the poor. The principle that the institutions run by the charitable societies may collect fees and service charges does not mean that the institutions can charge fees etc. at commercial rates from all the people without giving any element of charity to needy people. The charitable purpose defined and manifested as including relief of the poor, education, medical relief etc. is to protect the basic concept of charity. Presence of real charity cannot be diluted. Charity always means helping the needy, supporting the poor,working with compassion and dedication for the society. Running of an institution without any of the above virtues cannot be considered as a charitable institution. The object of the assessee-trust is to establish a number of educational institutions in a brand name and run it on commercial lines. This cannot be a charitable activity.
9. Therefore, we find that the Director of Income-tax (Exemptions) has rightly rejected the application filed by the assessee for registration under sec.1 2AA.
10. In result, this appeal filed by the assessee is dismissed.
Order pronounced in the open court at the time of hearing, on Monday, the 20th day of June, 2011 at Chennai.