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Registration of School

Ameet (L) (1678 Points)

04 February 2010

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Please provide me the procedure of Registration of School to claim deduction under Income Tax.

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Ratan Deep Saxena (Asstt Manager (Accounts & Finance)) (2998 Points)
Replied 04 February 2010

Dear Ameet,

U hv to registered the shool under society registration act, 1860 and said society shud be registered with income tax department to claim deduction. below is d relevant case law for your reference

[2000] 246 ITR 731 (DELHI)

HIGH COURT OF DELHI

Commissioner of Income-tax

Delhi Kannada Education Society

ARIJIT PASAYAT, CJ. AND D.K. JAIN, J.

IT REFERENCE NO. 136 OF 1979

AUGUST 21, 2000

JUDGMENT

Arijit Pasayat, CJ.—At the instance of the Revenue, the following question has been referred under section 256(1) of the Income-tax Act, 1961 (in short "the Act"), for the opinion of this court, by the ITAT, Delhi Bench "D" (in short "the Tribunal"):

"Whether, on the facts and in the circumstances of the case, the assessee is entitled to exemption of the income from its primary school under section 10(22) of the Income-tax Act, 1961?"

The factual position in a nutshell is as follows. The assessee is a society registered under the Societies Registration Act, 1860 (in short "the Registration Act"). It runs a primary school, a middle school and a higher secondary school. It claimed its income to be exempt under section 10(22) of the Act. The Assessing Officer accepted the assessee's claim for exemption in relation to its middle and higher secondary schools. But as regards the primary school he noted that it was unaided and had substantial income and, therefore, it had to be taken that it was run for profit. That being the position, the assessee's claim for exemption under section 10(22) of the Act was rejected. The matter was carried in appeal before the Appellate Assistant Commissioner (in short "the AAC"). After having examined the objects of the society, the Appellate Assistant Commissioner came to hold that the society is an educational institution and the said institution was not run for profit. Accordingly, it was held that the provisions of section 10(22) of the Act were applicable to the income derived by the society. The matter was carried in further appeal before the Tribunal by the Revenue. It concurred with the findings of the Appellate Assistant Commissioner.

At the instance of the Revenue, reference has been made as aforesaid.

According to learned counsel for the Revenue, the objects of the society prima facie give an indication about the profit making intentions and, therefore, section 10(22) of the Act was rightly not held applicable by the Assessing Officer.

We have heard learned counsel for the Revenue. None appears for the assessee in spite of notice.

The objects of the society as noted by the Appellate Assistant Commissioner from the memorandum of association of the society are as follows:

"3. The objects for which the society is established are:

(i) to construct and to carry on the administration and management of the Delhi Kannada School hereinafter called the school;

(ii) to prescribe and conduct the courses of instruction and training in general education up to the Higher Secondary Examination held by the Delhi State;

(iii) to admit candidates for the education and training courses, to prescribe rules and regulations for and to hold examinations and declare the results and to award diplomas or certificates;

(iv) to supervise the residences, progress, health and discipline of the students;

(v) to co-operate with any other organisation with similar objectives in the matter of general education and training; and

(vi) to do all such other acts and things which the society may consider necessary, conducive or incidental to the attainment or enlargement of the aforesaid objects or any one of them".

In terms of clause 5 of the memorandum no portion of the income and property of the society could be transferred directly or indirectly in any manner to the members of the society, past or present or anyone claiming through them. The said clause read as follows:

"5. The income and property of the society, however derived, shall be applied towards the promotion of the objects thereof as set forth in the memorandum of association. No portion of the income and property of the society shall be paid or transferred directly or indirectly by way of dividends, bonus or otherwise however by way of profits, to the person who at any time are or have been members of the society or to any of them or to any person claiming through them or any of them provided that nothing herein contained shall prevent the payment in good faith or remuneration to any member thereof or other person in return for any service rendered to the society or for travelling allowance, halting and other similar charges".

It was also noted that though the primary school was unaided, the society's primary and middle departments had been given provisional recognition by the Delhi Administration up to April 30, 1974, and the income and expenditure in respect of the primary school was also being directly transferred to the income and expenditure statement of the society and the surplus from the primary school was being used for aiding the middle and secondary schools. The Appellate Assistant Commissioner gave categorical finding that the income of the primary school was utilised for educational purposes and not for the purpose of profit. Such conclusion was affirmed by the Tribunal.

The conditions precedent for availing of exemption to an educational institution under section 10(22) of the Act are as follows:

(a) The educational institution must actually exist for application of the said provision and mere taking of steps would not be sufficient to attract the exemption.

(b) The educational institution need not be affiliated to any university or Board; in fact a society need not itself be imparting education and it is enough if it runs some schools or colleges;

(c) The educational institution must exist solely for educational purposes and not for purposes of profit. But, merely because there is a surplus, that is to say a surplus of receipts over expenditure it cannot be said that the educational institution exists for profit;

(d) An entity may be having income from different sources, but if a particular income is from an educational institution which exists solely for educational purposes and not for purposes of profit, then that income would be entitled to exemption and further the income should be directly relatable to educational activity. This position operated from the assessment years 1962-63 to 1998-99.

Both the Appellate Assistant Commissioner and the Tribunal analyzed the factual position and recorded conclusions as referred to above. It is to be noted that if educational institution makes profit, incidentally, for example by publishing and selling text books, and such profits are to be applied only for the spread of education, it is entitled to exemption under section 10(22) of the Act. We, therefore, are of the view that in the background facts as noted by the Tribunal its conclusions are irreversible. Accordingly, we answer the question referred in the affirmative, in favour of the assessee and against the Revenue.The reference stands disposed of.

The reference stands disposed of.

regards,

ratan