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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI ANIL CHATRURVEDI & SHRI ANUBHAV SHARMA
O R D E R PER ANUBHAV SHARMA, J. M.: 1. The present appeal has been preferred by the Assessee against the appellate order dated 05.11.2018 of Ld Commissioner of Income Tax (Appeals)-40, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in appeal No. 40/10378/2016-17 before it against the order dated 26.12.2016 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the Assessing Officer, ld. JCIT(Exemption), New Delhi (hereinafter referred as the Ld. First Appellate Authority or in short Ld. AO).
Brief facts of the case are that the assessee trust is registered u/s 12A of the Income Tax Act, 1961 vide Order NO DIT(E)/12A/2006- 07/U-259/1459 dated 22.01.2007 and also notified u/s 80G(5)(vi) vide order no.DIT(E)/2009-10/U-259/2095 dated 23.10.2009. The assessee trust is running Institute namely "Institute for International
UMAK Education Trust Vs. JCIT(E), 2014-15)
Management and Technology ("IIMT") at Gurgaon. The assessee is a trust. As per the statement of facts the main objects of the trust, inter alia, are: i. To establish, maintain, support or subsite, schools, collage, Pathshalas and other institutions for general educational of boys and girls. ii. To give stipend, scholarship and monetary aids to students and schools. iii. To grant aids to promote, establish support and maintain institutions for the growth, advancement and diffusion of knowledge.
Return of Income for A Y. 2014-15 was filed on 30.09.2014 declaring total Income Rs. NIL/- after claiming application of income as per provisions of Section 11 & 12 of the Income Tax Act. 1961. Subsequently, the case was selected for scrutiny assessment under Computer Assisted Scrutiny Selection (CASS). Notice u/s 143(2) of the Income Tax Act, 1961 was issued on 28.08.2015 and duly served. Notice u/s 142(1) of the Income Tax Act, 1961 along with questionnaire was issued on 06.06.2016.
Ld. AO observed that as per Schedule 12 to the Income & Expenditure account, an amount of Rs 2,25,00,000 has been received by the assessee as “Training fees for skill development. Vide submission dated 7th November, 2016, the assessee had stated that this is on account of training imparted by the assessee to the staff of A B Hotels Ltd and Bhadohi Hotels Ltd. The trainees include F & B Service staff, F&B production staff, house-keeping staff, front office staff and other supervisory personnel. Assessee has charged a training fees of Rs 1 crore plus service tax for the whole year to Bhadohi Hotels Ltd on which TDS of Rs 11,23,600 was deducted by Bhadohi Hotels Ltd u/s 194J of the Income-tax Act, 1961 Assessee has charged training fees of Rs 1,25,00,000 plus service tax for the whole year to A B Hotels Ltd
UMAK Education Trust Vs. JCIT(E), 2014-15) on which TDS of Rs 14,04.500 was deducted by A B Hotels Ltd u/s 194J of the Income-tax Act, 1961.
5. Ld. AO observed in assessment order that as per the information available in Form 26AS (copy provided to the assessee), TDS has been deducted u/s 194 J by A B Hotels Ltd and Bhadohi Hotels Ltd TDS u/s 194J is deducted on the professional services rendered by the service provider. Also further as per the submission of the assessee service tax has also been paid on these receipts.
The assessee vide note sheet dated 06.12.2016 was requested to explain in view of all above facts as to how these receipts will qualify for being exempt u/s 11/12 of the Act and why these receipts shall not be subjected to tax being commercial in nature.
Thus Ld. AO observed that as per the provisions of section 11 (4A), the profit and gain from the business carried out by the charitable institution will not be exempt unless the business is incidental to the attainment of the objectives of the trust or institution.
Ld. AO taking into consideration the judgment of the Hon’ble Hon'ble Delhi High Court in case of GSI India (2013) 38 taxmann.com 364 (Delhi) and in case of Mehta Charitable Prajnalay Trust (2012) 28 taxmann.com 73 (Delhi) sought following information from the assessee:-
“5.4 As per Schedule 12 to the Income & Expenditure account, an amount of Rs 2,25,00,000 has been received by the assessee as “Training fees for skill development. Vide submission dated 7th November, 2016, the assessee has stated that this is on account of training imparted by the assessee to the staff of A B Hotels Ltd and Bhadohi Hotels Ltd. The trainees include F & B Service staff, F&B production staff, house keeping staff, front office staff and other supervisory personnel. Assessee has charged a training fees of Rs 1 crore plus service tax for the whole year to Bhadohi Hotels Ltd on which TDS of Rs 11,23,600 was deducted by Bhadohi Hotels Ltd. Assessee has charged training fees of Rs 1,25.00,000 plus service tax for the whole year to A B Hotels Ltd on which TDS of Rs 14,04,500 was deducted by A B Hotels Ltd. Page | 3
UMAK Education Trust Vs. JCIT(E), 2014-15)
As per the information available in Form 26AS (copy provided to the assessee), TDS has been deducted u/s 194 J by A B Hotels Ltd and Bhadohi Hotels Ltd. TDS u/s 194J is deducted on the professional services rendered by the service provider. Further as per the submission of the assessee, service tax has also been paid on these receipts. Please explain in view of all these facts as to how these receipts will qualify for being exempt u/s 11/12 and why these receipts shall not be subjected to tax being commercial in nature.
As per the service tax return, service tax has been paid on the gross value of services amounting to Rs 6,07,50,971. Please submit a copy of the service tax return and explain when service tax is being paid on the entire receipts then why these receipts shall not be considered as commercial receipts and be subjected to taxes.”
After taking into consideration the submission and relevant law cited by the assessee the ld AO taxed the amount of Rs. 1,61,55,080/- as income from business and profession as per the provision of section 11(4A) of the Act. The ld CIT(A) sustained the same. The relevant observation in para 4.1.1 to 4.1.9 in the order of Ld CITA(A) are as under:-
“4.1 Ground of appeal No. 1 challenges the treating of training fees as income from business and profession in accordance with the provisions of section 11(4A). 4.1.1 I have considered the assessment order and the submissions of the appellant. It is seen from the assessment order that the Assessing Officer has invoked the provisions of section 11(4A) with respect to receipts from providing training to the employees, of two hotels by holding that these receipts are from activities of the assessee which are in the nature of hade, commerce or business. Further, the Assessing Officer has examined the activities of the assessee pertaining to giving training to employees of various hotels on the basis of the tests laid down by the Hon'ble Delhi High Court in the case of GS1 India (supra) wherein the Hon'ble Court observed that quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the fee, purpose and object behind the fee etc. are the factors which decide whether the activity is business or not. The Assessing Officer has examined the economic status of the hotels to whom the Page | 4
UMAK Education Trust Vs. JCIT(E), 2014-15) corporate training has been provided, the commercial value of the benefit of the training drawn by the corporate hotels, etc. The Assessing Officer has very categorically brought out the aspects regarding the training given in paras 5.5.2 and 5.5.3 of the assessment order in tine form of queries raised and the replies of the assessee to the said queries. 4.1.2 Exemption to business income is available under section 11(4A) where it has been provided that such income would be exempt under section 11 if the business is incidental to the attainment of the objectives of the organisation and separate books of account for such business are maintained. In the case of the appellant, the activity of giving training to employees of hotels has been held to be in the nature of trade, commerce or business. It is seen from tire material gathered by the Assessing Officer that providing training to employees of corporate hotels is not as per objects of the trust for which the Assessing Officer has relied upon the trust deed and listed the objects of the trust in para 5.5.12 of the assessment order. It has also been noted that no formal exams were conducted and only a certificate as regards completion of the training was given. It has also been noted that as per the Memorandum of Understanding entered into with the two hotels, it was the responsibility of the two hotels to ensure that all required employees were available at the time of the training of their respective batches and no attendance record was maintained. It has also been brought on record that the training programmes/courses were not in the purview of any government authority including AICTE since the said courses were not degree or diploma courses. It is the contention of the appellant that the training given helps the trainers and the trainees to enhance their skills with on-the-job and off the job training sessions and it also helps in developing connections with the companies to find internship and placement opportunities for the students. In this regard the Assessing Officer has noted that the training need analysis of the employees was not done by the appellant but was done by the two hotels and the venue of the training was at one of the hotels. The training needs have not been designed by keeping into mind the needs of the students and there is no reference to any interaction of the hotel employees with the students. No evidence has been brought on record to show how the teachers also benefited from such trainings and how the benefit was ultimately passed on to the students who were enrolled in the Institute. 4.1.3 It is a fact that the activity of training did not involve maintaining any attendance, ensuring discipline and conducting exams which lead to providing of degree/diploma. Hence, the appellant fails in the basic tests laid down by the Hon'ble Delhi High Court in the case of Delhi Music Society (supra) in holding Page | 5
UMAK Education Trust Vs. JCIT(E), 2014-15) any activity as education. It is also noteworthy that the employees have been given certificates and not degrees/diplomas which would be useful to the employees in obtaining better jobs since the said certificates do not have the backing of any approved authority including the AICTE. Hence, the finding of the Assessing Officer that the training was conducted only for the benefit of the two hotels has merits. 4.1.4 In the case under consideration the Assessing Officer has brought enough material on record to show that the activity relating to giving training to employees of corporate hotels was much more than a simple activity of giving training for the purpose of carrying out its charitable activities. It has been submitted that the four tests relied upon by the Assessing Officer have no relevance in the case of the assessee is not correct. These tests have been laid down by the Hon'ble Delhi High Court in the case of GS1 India and the Assessing Officer has t effectively demonstrated that it is not a case of providing training but a case of giving training which has benefited the corporate hotels more and do not benefit the students/faculty. The* economic status of the beneficiaries who have taken the services of the appellant have also been analysed in the assessment order. The Assessing Officer has also distinguished the cases relied upon by the appellant. 4.1.5 In view of the discussion above and on the basis of the facts brought on record by the Assessing Officer, I find no infirmity in the finding of the Assessing Officer that the corporate training given was a commercial activity. 4.1.6 The other issue is whether this activity which has been held to be in the nature of trade, commerce or business is incidental to the activities of the trust. For this, the Assessing Officer has relied upon the decision of tire Hon'ble Delhi High Court in the case of Mehta Charitable Prajnalaya Trust (supra) wherein tire Hon'ble Court have held that the mere fact that proceeds of a business activity have been utilised for charitable purpose do not make the business activity incidental. The Assessing Officer has also examined whether this activity is incidental to the activity of the trust and for this the Memorandum of Association of the assessee was examined and it was found that none of the objectives of the assessee related to providing corporate training. 4.1.7 The expression 'incidental to the attainment of the objectives' is significant in deciding the operation of section 11(4A). The word 'incidental' is not defined in the Income Tax Act, 1961. In common parlance, this expression is used to denote ancillary or supportive which in turn indicates that there is one or more above it which is dominant or predominant. The general Page | 6
UMAK Education Trust Vs. JCIT(E), 2014-15) meaning conveyed by the word incidental is something that is subordinate, incidental. For the purpose of charitable institutions, the subordinate objects signify that there is a predominant object where the former would support the latter. For instance, in the case of a charitable institution setup with the object of education, during the course of implementation of this object, it becomes unavoidable for the trust to prepare background material) curriculum notes, commentaries etc. which is printed and provided to students at a nominal price. Therefore, in fulfilling these objectives, it is necessary to print and distribute the material to the students and merely selling of books cannot be construed as a separate business and it is only incidental in nature. 4.1.8 For applicability of section 11(4A) it is not necessary that the business has to be held under trust. The primary requirement is that profits and gains of business should be incidental to the attainment of the main objectives of the trust and separate books of accounts are maintained. As has been held by the Hon'ble Delhi High Court in the case of Mehta Charitable Prajnalaya Trust, there is a difference between a property or business held in trust and business carried on by or on behalf of the trust, the latter being the case of the appellant in which case the provisions of section 11(4A) will apply. Hence, based on the discussion above and on the facts as brought out by the Assessing Officer in the assessment order, it is held that the activity of giving corporate is not incidental to the main object of the appellant. 4.1.9 In view of the discussion above and since the activity of corporate training has been held to be a commercial activity which is not incidental to the attainment of the objectives of the appellant society, it is held that there is no infirmity in the order of the Assessing Officer in treating the income from imparting corporate training amounting to Rs. 1,61,55,080/- as income from business by invoking the provisions of section 11(4A). Ground of appeal No. 1 is dismissed.”
The assessee has raised the following ground of appeal:-
1. The learned Assessing Officer has erred in treating the training fees as income from business and profession by invoking provision of section 11(4A) of the Act.
Heard and perused the record.
It was submitted on behalf of the assessee by the ld AR that the Ld.AO and ld CIT(A) have fallen an error in not taking into Page | 7
UMAK Education Trust Vs. JCIT(E), 2014-15) consideration the primary objects of the trust which permitted the assessee trust to give training in skill development to the said hotels. She specifically refered to following two objects of the trust:-
“The objects of the trust as per the trust deed are defined as under:
(iii) To assist or make donations or to maintain schools, colleges or boarding houses or any other educational institution for imparting technical, industrial or commercial knowledge or training or having objects similar to those of this trust. ………………… (vii) In general to open, establish, finance, assist and contribute institutions, commercial, technical education pertaining to fine arts or industries such as workshops, factories and other institutions for imparting education in workmanship and for providing employment and means of earning adequate wages for the unemployed and needy.”
It was submitted that the ld AO has cherry picked certain judgments in favour of the assessee and ld AR distinguished the judgment relied by the Ld. AO submitting that the judgment in case of Sole Trustee Lok Shikshana Trust Vs. CIT, (1975) 101 ITR 234, Bihar Institute of Mining & Surveying Vs. CIT (1994) 208 ITR 608, Delhi Music Society Vs. Director General of Income Tax (2012) 17 taxman.com 49 (Delhi), were the decisions which were distinguishable on facts had the ld AO considered the judgments cited on behalf of the assessee. Referring to the judgment of the Institute of Chartered Accountants of India (2013) 35 taxman.com 140 (Delhi) it was submitted that this was the case of coaching classes. It was contended that Ld Tax Authorities below have fallen in error while examining the activities of training being incidental activities. It was submitted that from the very inception the assessment proceedings was initiated on the hypothesis that :- a. first the activity of training to hotel employees is not incidental to the attainment of the objects of the trust. Page | 8
UMAK Education Trust Vs. JCIT(E), 2014-15) b. The activity of training to hotel employees is business activity, and c. That profit from the aforesaid alleged business is taxable as income from business/ profession under Chapter IVD of that Act.
The Ld AR of assessee submits that it is manifest that the activity of training is part and parcel of education, which is the predominant activity of the assessee trust and, in case even assuming it is not treated as “education”, then too it is incidental to the objects of the assessee trust 14. The ld AR relied on certain judgments and referring to the respective relevant paragraph of those judgements submitted that the activities of the assessee were of the nature which may directly not fall into the definition of education but were permitted for the purposes of activities recognized u/s 11 of the Act. It was submitted that the ld AO has distinguished the judgments cited on behalf of the assessee by mere lip services and only for the purposes of the making a distinction without any substantial reasoning. In this context she refered to following judgments:- • 250 ITR 504 (Del) CIT v. Shri Ram Education Foundation • 252 ITR 837 (Guj) CIT v. Shri Lai Bahadur Shastri Education Society • 369 ITR 645 (Bom) DIT v. Samudra Institute of Maritime Studies Trust • 366 ITR 85 (Guj) DIT v. Ahmedabad Management Association • 74 TTJ 177 (Mum) St. Joseph Technical School v. Asstt. DIT • 154 ITD 10 (Del) Praxis Institute of Participatory Practices v. DIT • 70 SOT 443 (Hyd) Water and Land Management Training and Research 25 Institute v. DIT • Gujarat State Co-operative Union v. CIT reported in 195 ITR 279” Page | 9
UMAK Education Trust Vs. JCIT(E), 2014-15)
On the other hand the ld DR submitted that the ld Tax Authorities below have thoroughly examined the activities of the assessee in context to the objects and there is no error in concluding that the assessee had received the amounts on account of certain services extended which were not in the nature of any education or training 16. Appreciating the matter on record it can be observed from the assessment order that the memorandum of understanding ( hereinafter referred as MOU) entered by the assessee with Bhadohi Hotels Ltd. and A B Hotels Ltd. were examined by Ld. AO and the relevant terms of same are reproduced here:
“The relevant portion of MOU between the assessee trust and Bhadohi Hotels Ltd. is as under .
Term 1.1 The term of this MOU shall commence from 01st April, 2013 (“Commencement Date”) and remain in full force till the training programme is delivered in full by Umak, but not later than 31st March, 2014 (“Term”). In addition, the training, once commenced, will not be terminated prematurely.
2. Roles and responsibilities of Umak 2.1 Umak is responsible for conducting the Training Programme on the following lines; • Associate training programme for each of the four operating verticals i.e. F & B Production, F & B Service, Housekeeping & Front Office. • Manager level training programmes offering more specific and focused interventions in the below mentioned areas. The thematic areas are as below :- - Managing teams - Leadership development - Revenue Management - Financial Management - Employee Engagement • Management Trainee Development programme- The Programme will cater to the industrial and management trainees recruited by the hotel with off the job and on the job trainings. • Communication skills and body language training for line level employees.
UMAK Education Trust Vs. JCIT(E), 2014-15) 2.2 Umak will be responsible for organising qualified trainers for conducting the above mentioned training programme. 2.3 Umak will award certificates to candidates successfully completing the training.
Other provisions The schedule of training sessions, number of batches 5.1 and the batch size will be discussed mutually by Umak and BHL after the receipt of the information of total number of employees required to be trained.” 6.1 Likewise, relevant portion of MOU between the assessee and AB Hotels Ltd. reads as under : "2 Roles and responsibilities of Umak 2.1 Umak is responsible for conducting the Training Programme on the following lines: Associate training programme for each of the four • operating verticals i.e. F & B Production, F&B Service, Housekeeping & Front Office. • Manager level training programmes offering more specific and focused interventions in the below mentioned areas. The thematic areas are as below:- - Managing teams -Leadership development -Revenue Management -Financial Management -Employee Engagement Management Trainee Development programme - The • Programme will cater to the industrial and management trainees recruited by the hotel with off the job and on the job trainings. • Communication skills and body language training for line level employees. 2.2 Umak will be responsible for organising qualified trainers for conducting the above mentioned training programme. 2.3 Umak will award certificates to candidates successfully completing the training. 3 Roles and responsibilities of ABH
UMAK Education Trust Vs. JCIT(E), 2014-15)
3.1 ABH will be responsible for facilitating the conduct of Training programmes by providing adequate space and IT infrastructure. 3.2 It is ABH’s prerogative to identify and enable employees required to attend/ participates in the specific training activities being conducted by Umak. 3.3 ABH will communicate the names and department of the employees who will attend the training at least 10 days before the training Programme is scheduled to start. 3.4 It will be the responsibility of ABH to ensure that all the required employees are available at the time of training of their respective batches. No training session will be repeated or rescheduled for any reason."
The aforesaid clauses establish that the assessee was conducting training program for the newly recruited employees which were of managerial level and were not nature enhancing workmanship. As the object of trust relied by the assessee are considered the aforesaid clauses of MOU do not justify any nexus with the objects of trust. The terms and conditions of MOU reproduced above indicate that training services of certain nature beneficial to the two hotels were being provided. The beneficiaries were not the employees directly but these two hotels which were seeking professional expertise and assistance of the assessee for enhancement of their own revenue by managerial level training programs of the recruits. In case of the both hotels the programs were intended to cater to the industrial and management trainees recruited by the hotel with off the job and on the job trainings. Thus, the assessee was providing training programs customized to the convenience of the service taker organizations. The beneficiaries were to be identified by the two hotels and the beneficiaries were to continue providing services to the two hotels consequent to their recruitment with the two hotels only.
There is no force in the claim of assessee that these training programs were incidental to the main activities. Rather the aforesaid terms of MOU make it appear that the assessee’s main activity was to give training of Managerial Nature to the two hotels and they were far
UMAK Education Trust Vs. JCIT(E), 2014-15) beyond the objects relied by the assessee’s AR to impress that ultimately the beneficiary were the workers. The object heavily relied by the of assessee to cover the activity is “(vii) In general to open, establish, finance, assist and contribute institutions, commercial, technical education pertaining to fine arts or industries such as workshops, factories and other institutions for imparting education in workmanship and for providing employment and means of earning adequate wages for the unemployed and needy.” However, same no where seems to be fulfilled by the terms and conditions of aforesaid referred MOU. The intention of these objects seems to be to give some sort of technical training of workmanship to those who are seeking employment and cannot be extended to give on the job training to those persons who have been recruited by some organization.
It appears that the assessee was merely responsible for organizing qualified trainers for conducting the above mentioned training program and all the remaining infrastructural facilities were to be of the two hotels. That indicates that assessee was in some way providing trainers alone and not using its own infrastructure to give any sort of training of workmanship at its premises and resources. Merely because at the end of training of the recruit they were to be given a certificate by the assessee does not change the nature of its activity from commercial to charitable.
Next, it can be observed from the assessment order that the Ld. AO had primarily started the enquiry from the fact that TDS on professional services were deducted by the commercial hotels and the service tax was charged by the assessee. On behalf of the appellant at the time of assessment or before Ld. CIT(A) or here before the Tribunal, no explanation has been given as to under what circumstances the assessee allowed to deduct the TDS by the two hotels assuming that it was paying for professional services rendered by the assessee. At the same time, there is no explanation why the assessee has made a service tax charged on the receipts. If it was Page | 13
UMAK Education Trust Vs. JCIT(E), 2014-15)