Charitable trust that runs pre-school can’t be denied registration for I-T benefits

Mumbai: In a recent decision, the Mumbai bench of the Income-Tax Appellate Tribunal (ITAT), which adjudicates tax disputes, has waxed eloquent about the importance of pre-school education. It has held that Green Acres Educational Trust cannot be denied registration with the tax department for availing of income-tax (I-T) benefits merely because it runs a pre-school. Further, the fact that the pre-school charged fees should not result in denial of such registration.
Under the I-T Act, if a trust engaged in charitable purpose utilizes its income to meet the objective for which it was set up, then its income is not subject to tax. The term charitable purpose includes education. The trust has to apply for registration with I-T authorities to enable it to get I-T exemption.
In case of Green Acres Educational Trust, the lower I-T authorities rejected its registration application on two grounds. The deputy commissioner I-T (DC I-T) held that the trust ran a pre-school, which precedes normal schooling. Consequently, its activities could not be treated as falling with the gamut of the term ‘education’. “Pre-schooling is a kind of informal education, which is not recognized or regulated by the state government, education board or BMC,” he had added. The second ground for rejecting the application was that fees for admission as well as for supply of school kits were charged. Thus, the DC I-T held that the trust was engaged in a commercial activity and was not eligible for a registration certificate.
This led to the trust to file an appeal with the ITAT. Stressing on the importance of pre-schooling, two ITAT bench members, in their order dated June 24, held: “Pre-schooling has become a mandatory prelude to school education today. It is like Step Number One on the ladder. If Step Number One is taken properly, then other higher steps would be achievable more efficiently and effectively.”
The bench added: “This is the purpose as has been understood by parents who send their kids to pre-schools, and it has become a mandatory requirement today for all the schools imparting quality education. It is because sending a child to a pre-school is like preparing a sapling of a tree to be planted in the fields.”
The ITAT struck down the stand taken by the DC I-T who had denied the registration. In doing so, the Mumbai ITAT bench also relied on a judgment passed earlier by the Chennai ITAT, which had dealt with a similar issue.
On the issue of denial on the grounds that the pre-school charged fees, the ITAT held that at the stage of application for registration, I-T authorities are required only to examine the genuineness of the trust’s activities. Only at a later stage, during the course of assessment, the I-T exemption can be denied if the income has not been applied for the trust’s educational activities.