Providing transportation services on commercial lines to school

Providing transportation services on commercial lines to school students does not constitute charitable purpose under section 2(15).

Issue

Whether an institution providing student transport services on commercial lines against a fee, generating recurring surpluses, is entitled to regular registration under Section 12AB as a charitable entity under Section 2(15) of the Income-tax Act, 1961 / Section 2(23) of the Income-tax Act, 2025.

Facts

Registration Application: The assessee-trust applied for regular registration under Section 12AB of the Income-tax Act using Form No. 10AB for Assessment Year 2025–26.
Core Activity: The CIT(Exemptions) observed that the trust’s predominant activity was providing transportation facilities to students of St. Xavier’s School, Chandigarh.
Commercial Nature: Transportation charges were collected from students, resulting in surplus funds generated year after year.
Rejection of Application: CIT(Exemptions) held that rendering transport services on commercial lines does not fall within the ambit of “charitable purpose” under Section 2(15) and subsequently rejected the Section 12AB registration.

Decision

Obligation to Verify Genuineness: The Commissioner is under a statutory duty to satisfy himself regarding the genuineness of activities and the charitable character of an institution. He is not expected to merely read the recitals of a trust deed, but must pierce the veil to ascertain the true nature, substance, and predominant purpose of the activities.
Alignment of Objects and Activities: Declared objects must align with actual activities. Where the predominant activity is found to be rendering commercial services for consideration, registration under Section 12AB cannot be granted merely because the activity incidentally facilitates an educational institution.
Final Verdict: The assessee-trust is not entitled to registration under Section 12AB. The issue is decided in favor of the Revenue.

Key Takeaways

Substance Over Form: Registration proceedings under Section 12AB empower tax authorities to look beyond trust deeds and scrutinize the actual economic nature of operations.
Commercial Surpluses Negate Charitable Intent: Generating continuous, systematic surpluses through service fees indicates commercial conduct rather than relief or charitable objective.
Incidental Support Is Insufficient: Providing a service that merely aids or facilitates an educational institution does not automatically classify that service as an educational or charitable activity under Section 2(15).

IN THE ITAT CHANDIGARH BENCH ‘A’

International Will Trust

Commissioner of Income-tax (Exemptions)^*

Laliet Kumar, Judicial Member
and Manoj Kumar Aggarwal, Accountant Member

IT Appeal No. 1425 (CHD) of 2025
[Assessment year 2025-26]

JULY 23, 2026

Rahul Khurana, C.A. for the Appellant. Smt. Jaishree Sharma, CIT DR for the Respondent.

ORDER

Laliet Kumar, Judicial Member.- This is an appeal filed by the assessee feeling aggrieved by the order passed by the ld. Commissioner of Income Tax (Exemptions) [in short ‘the CIT (E)’] dated 13.10.2025 passed for assessment year 2025-26.

2. The brief facts of the case are that the assessee-trust filed an application in Form No. 10AB seeking regular registration under section 12AB of the Income-tax Act. During the course of proceedings, the learned CIT(Exemption) called upon the assessee to furnish various documents to establish the genuineness of its activities, the manner in which its objects were being carried out and its compliance with the provisions of the Act. Upon consideration of the reply and the financial statements furnished by the assessee, the learned CIT(Exemption) observed that the predominant activity of the trust was providing transport facilities to the students of St. Xavier’s School, Chandigarh, against collection of transportation charges. The financial statements further revealed that the trust was earning surplus year after year from such activity. The learned CIT(Exemption), therefore, held that the assessee was merely rendering transport services on commercial lines and that such activity did not fall within the ambit of “charitable purpose” as defined under section 2(15) of the Act. Accordingly, the application for registration under section 12AB was rejected.

3. The learned Authorised Representative submitted that the transportation facility is an integral and indispensable part of the educational process, particularly where students are required to travel from distant places. It was contended that the trust has been constituted only to facilitate education by ensuring safe transportation of students and, therefore, its activities are incidental to and in furtherance of the charitable object of education. It was further submitted that at the stage of grant of registration under section 12AB, the Commissioner is only required to examine the objects and the genuineness of the activities and not to examine the quantum of surplus or the commercial viability of the institution. Reliance was placed upon the judgment of the Hon’ble Supreme Court in Ananda Social and Educational Trust to contend that registration cannot be denied merely because the institution earns surplus or because its activities are yet to be fully evaluated on financial parameters.

4. The learned Departmental Representative strongly supported the order of the learned CIT(Exemption). It was submitted that the assessee is neither running an educational institution nor imparting education. Its only activity is providing transportation facilities to students on payment of charges. Such activity is purely in the nature of rendering transport services and is being carried on for consideration with recurring surplus. It was further submitted that merely because the beneficiaries happen to be students of a school, the activity itself does not become “education” within the meaning of section 2(15). If such an argument is accepted, every commercial service provider connected with schools would become entitled to registration under section 12AB, which was never the intention of the Legislature. It was accordingly prayed that the order passed by the learned CIT(Exemption) deserves to be upheld.

5. We have heard the rival submissions and carefully perused the material available on record. The undisputed factual position emerging from the record is that the assessee-trust is engaged in providing transportation facilities to the students of St. Xavier’s School against collection of transportation charges. The financial statements placed before the learned CIT(Exemption) also reveal that the activity consistently generates surplus. The learned CIT(Exemption), after examining the nature of the activities, concluded that the assessee is essentially rendering transportation services on commercial principles and that such activity does not constitute a “charitable purpose” within the meaning of section 2(15) of the Act. Consequently, the application for registration under section 12AB came to be rejected.

6. The principal submission of the learned Authorised Representative is that transportation is an indispensable facility for imparting education and, therefore, the activity of the assessee is incidental to and in furtherance of the charitable object of education. Reliance has also been placed upon the decision of the Hon’ble Supreme Court in Ananda Social and Educational Trust to contend that, at the stage of grant of registration under section 12AB, the Commissioner is only required to examine the objects and the genuineness of the activities and not to scrutinize the financial affairs or the earning of surplus. We are unable to persuade ourselves to accept the aforesaid submission. Education undoubtedly requires several ancillary facilities for its effective functioning. Transportation, hostel accommodation, food, electricity, internet connectivity, school buildings, furniture, blackboards, uniforms, books, stationery and numerous other infrastructural services facilitate the process of education. However, the mere fact that a particular service facilitates education does not ipso facto convert the service provider into an institution existing for the charitable purpose of education. If such an expansive interpretation is accepted, every transport operator, caterer supplying meals, electricity distribution company, internet service provider, contractor constructing school buildings, manufacturer of school uniforms, supplier of furniture, blackboards or stationery, publisher and printer of textbooks, bookseller and every other commercial enterprise dealing with educational institutions would become entitled to registration under section 12AB merely because their services have some nexus with education. Such an interpretation would completely obliterate the distinction between a charitable institution and a commercial enterprise and would render the statutory expression “charitable purpose” under section 2(15) otiose.

7. The true and determinative test is not whether an activity has some remote or incidental connection with education. The real test is whether the activity itself has a direct, proximate and dominant nexus with the advancement of education as a charitable object. The institution itself must exist for the purpose of imparting education or advancing education in law and not merely for providing services which facilitate another institution in carrying out its educational activities. At this stage, we may also advert to the philosophy underlying the concept of charity, which has been recognised since antiquity in the Indian philosophical tradition. Indian philosophy has consistently regarded Kshama (forgiveness), Daya (compassion), Karuna (mercy), Satya (truthfulness), Santosha (contentment) and Sahajata (natural simplicity) as cardinal virtues governing human conduct. These virtues are not merely moral ideals but explain the true character of selfless action and public welfare.

8. The Indian philosophical tradition draws a subtle yet significant distinction between the discharge of one’s obligation and the exercise of Daya and Karuna. Compassion or mercy shown towards one’s own family members, dependants or persons to whom one owes a legal, contractual or moral obligation is ordinarily regarded as the discharge of one’s duty. It is only when kindness transcends personal relationships and reciprocal obligations and is extended to those from whom nothing is expected in return and whose welfare alone is the motivating consideration that it assumes the true character of Daya or Karuna. It is this element of selflessness, universality and absence of personal gain that distinguishes charity from an ordinary commercial or contractual relationship.

9. The same philosophy finds reflection in the age-old Indian maxim that “if charity is made by the right hand, the left hand should not know about it.” Likewise, the well-known proverb “Neki kar, kuen mein daal” conveys that an act of charity should be performed and thereafter forgotten, without seeking recognition, publicity, reciprocal benefit or commercial consideration. Charity is, therefore, not measured merely by the usefulness of the service rendered but by the dominant intention with which it is undertaken. The essence of charity lies in altruism, public welfare and selfless giving and not in commercial reciprocity.

10. Tested on these well-recognised principles, the activity carried on by the assessee cannot be regarded as charity merely because it facilitates education. The assessee provides transportation services only to a defined class of students against transportation charges. The relationship between the assessee and the beneficiaries is essentially contractual, where services are rendered for consideration. Such activity undoubtedly facilitates the educational process; however, facilitation of education is fundamentally different from imparting education itself or pursuing an independent charitable object recognised by section 2(15) of the Act. Every service rendered to an educational institution cannot, merely for that reason, be elevated to the status of charity.

11. We are conscious of the settled legal position that the mere generation of surplus does not by itself destroy the charitable character of an institution. However, that principle presupposes that the underlying activity is itself charitable. The issue before us is not whether surplus has been generated but whether the very nature of the activity carried on by the assessee constitutes a charitable purpose. If the dominant activity is essentially commercial, the subsequent application of income cannot convert such activity into charity.

12. We also do not find merit in the reliance placed upon the decision of the Hon’ble Supreme Court in Ananda Social and Educational Trust. The said judgment undoubtedly holds that, while considering an application for registration, the Commissioner is not expected to undertake a detailed assessment of income or examine the eventual application thereof. However, the judgment cannot be read to mean that the Commissioner should mechanically grant registration merely because the trust deed contains charitable expressions. Such an interpretation would defeat the very purpose of the statutory enquiry contemplated under section 12AB. The Commissioner is under a statutory obligation to satisfy himself about the genuineness of the activities and the charitable character of the institution. In discharging this statutory obligation, the learned CIT(Exemption) is not expected to merely read the recitals contained in the trust deed with closed eyes. Rather, it is his bounden duty to pierce the veil and ascertain the true nature, substance and predominant purpose of the activities undertaken. The declared objects must commensurate with the actual activities, and the activities must unmistakably reflect the genuine intention of pursuing a charitable purpose. Where the predominant activity is found to be the rendering of commercial services for consideration, though incidentally connected with education, registration under section 12AB cannot be granted merely because such services facilitate an educational institution.

13. In the present case, the predominant activity of the assessee is the provision of transportation services to students on payment of transportation charges. Such activity, in our considered opinion, constitutes the rendering of a commercial service and not the advancement of education as a charitable purpose. We, therefore, find that the learned CIT(Exemption) has correctly appreciated the true character of the assessee’s activities and has rightly rejected the application for registration under section 12AB. Accordingly, finding no infirmity in the impugned order, we uphold the order passed by the learned CIT(Exemption). The appeal filed by the assessee is, therefore, dismissed.

14. In the result, the appeal of the assessee is dismissed.