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Income Tax Appellate Tribunal, JAIPUR BENCHES ’A’ JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA. No. 590, 591 & 592/JP/2018
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES ’A’ JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA. No. 590, 591 & 592/JP/2018 fu/kZkj.k o"kZ@Assessment Year : 2012-13, 2013-14 & 2014-15 cuke Bodh Shiksha Samiti ACIT (Exemptions) Vs. AA-1, Anita Colony, Jaipur Bajaj Nagar, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAATB0742J vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri P. C. Parwal (CA) jktLo dh vksj ls@ Revenue by : Shri K. C. Gupta (JCIT) Shri A.S Nehra (Add. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 24/05/2019 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 29/05/2019 vkns'k@ ORDER PER: VIKRAM SINGH YADAV, A.M. These are three appeals filed by the assessee against the respective orders of ld. CIT(A)-3, Jaipur dated 13.03.2017 & 13.03.2018 for the Assessment Year 2012-13, 2013-14 & 2014-15. Since the common issues are involved, all these appeals were heard together and are disposed off by this consolidated order.
For the purposes of present discussion, with the consent of both the parties, the assessee’s appeal in No. 590/JP/2018 is taken as a lead case wherein the assessee has taken the following grounds of appeal:
“1. The ld. CIT(A) has erred on facts and in law in confirming the action of AO in assessing the surplus as per Income & Expenditure A/c of Rs. 11,50,736/- under the head Income from business & profession by invoking proviso to section 2(15) and denying the claim of application of surplus u/s 11 of the Act.
2. The ld. CIT(A) has erred on facts and in law in not appreciating the fact that the surplus arising to the assessee out of institutional & consultancy charges are incidental and integral to the main object of the assessee without any profit motive and therefore, proviso to section 2(15) is not applicable to such surplus. He has further erred in upholding the order of AO by simply reproducing his order without considering the provision of section 11(4A), contentions of the assessee and various incorrect observations made by the AO.
3. The ld. CIT(A) has erred on facts and in law in confirming the action of AO in taxing the surplus at MMR instead of the tax rate applicable to AOP (General) as per section 164(2) of the Act by ignoring that the case of assessee do not fall in proviso to section 164(2).”
Briefly stated, the facts of the case are that the assessee society is registered u/s 12A(a) of the Act and has filed its return of income disclosing total income at Rs. Nil claiming exemption u/s 11 and 12 of the Act. During the course of assessment proceedings, the Assessing Officer observed that the auditors in their audit report have stated in Form 3CD, the nature of business/ profession as ‘consultancy, mess, accommodation’. Further, the details of activities carried out by the assessee society have also revealed that the assessee has got grants-in- aid from number of agencies for specified projects and has utilized these grants. The assessee has also shown income on account of institutional charges of Rs. 25,73,793/- in addition to other receipts on account of voluntary contribution and other receipts. As per Assessing Officer, the assessee is not engaged in education but the assessee’s case comes in the clause of “general public utility” and the assessee was issued a show-cause to explain as to why the exemption u/s 11 should not be withdrawn due to application of proviso to section 2(15) of the Act.
In response, the assessee society submitted that it is working solely in the field of education for the deprived and under-privileged children since its inception in 1987. It was further submitted that the institutional charges are lumpsum funds received from some of the funding agencies to meet the administrative expenses agreed at the time of finalization of annual budgets and grant letters. The submissions so filed were considered but not found acceptable to the Assessing officer.
As per the Assessing officer, the trust is registered as a charitable institution u/s 12A of the Act and its objects falls in the last limb of definition under section 2(15) i.e, advancement of any object of general public utility. Further, referring to the agreement entered into between the assessee society and UNICEF, the Assessing Officer held that the assessee is engaged in ancillary activities which are supporting out of the school children and it is a step towards formal education and similar is the position with regard to other projects. Further, referring to assessee’s submission regarding consultancy, mess and accommodation charges towards incidental and ancillary activities relating to education, the Assessing officer held that the above activities clearly depict the nature of assessee’s business. Accordingly, proviso to section 2(15) was invoked and the exemption claimed u/s 11 was rejected and surplus shown in the income and expenditure account of Rs. 11,50,736/- was brought to tax as income of the assessee society at Maximum Marginal Rate (MMR) as per proviso to sec. 164(2) of the Act.
Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the said action of the Assessing Officer. As per the ld. CIT(A), the case laws cited by the assessee is not applicable as the objects of the assessee are the ancillary activities and the auditor also mentioned in the Audit Report the nature of the business as consultancy, mess and accommodation, therefore, he was of the view that Assessing Officer has rightly invoked the proviso to section 2(15) of the Act and the exemption claimed u/s 11 was rejected. Against the said finding of the ld. CIT(A), the assessee society is now in appeal before us.
During the course of hearing, the ld. AR submitted that the assessee society was constituted on 06.10.1987 with the main object of working for the education of socially and economically under- privileged children of the society. It was registered with Registrar of Societies Rajasthan, Jaipur on 22.12.1987 and also u/s 12AA of the IT Act from 01.04.1992. It was submitted that in pursuance to the above object, over the last 25 years, it has established number of Bodhshalas (schools) and reached out to more than 9 million children through its network of Bodhshalas, partnership with Government to strengthen Government schools and partnership with other civil societies organization. Overall, it is solely involved in providing education through developing curriculum and appropriate material for the education of deprived, direct practice by means of schools, teacher training/ education, research & documentation, networking & policy advocacy. It has supported number of societies across the country engaged in education and carried out various education projects from the grant provided by various NGOs/ State Government and national/ international funding institutions.
It was further submitted that over the period of time, the assessee society has developed its own infrastructure facility comprising of training center, girls school named Manas Ganga upto XIIth standard affiliated with Rajasthan Board, girls hostel, accommodation facility for teachers, mess, etc. at Kukas Institutional Area, Amer, Jaipur and Bodhgaon at Garhbasai, Tehsil Thanagazi, Alwar. Free education facility is provided at all Bodhshalas. As on date, the society is having 32 Bodhshalas at Alwar, 7 Bodhshalas at Jaipur and 1 Bodhshala at Tonk. Out of these 40 Bodhshalas, 34 Bodhshalas are recognized with District Education Office, Government of Rajasthan. The remaining 6 Bodhshalas are learning centers upto Class II. The details of these Bodhshalas along with the number of students studying there and their affiliation were also placed on record.
It was further submitted that the assessee society receives funds from various funding agencies for imparting education to the children, training to the teachers, awareness programme, infrastructure development, curriculum and material development, research etc. These funding agencies provide earmarked budget for the activities to be conducted under the mutually agreed programme. Apart from this, they provide specific budget for training of the teachers and also institutional charges to meet the administrative cost. The specific expenditure for carrying out the activity is charged to the amount received in that project and the indirect expenditure by way of accommodation, mess, transportation, academic support cost and administrative cost is credited separately in the Income & Expenditure A/c by debiting to that project. Accordingly, the Income & Expenditure A/c is prepared in two parts. The first part is in respect of the fund received for a particular project and the direct expenditure incurred in relation thereto and the second part is in respect of indirect expenditure debited to that project by crediting to the Income & Expenditure A/c against which the various expenditure incurred on providing accommodation facility, mess facility, transportation facility and other administrative cost is debited. After considering the same, the society has declared a surplus of Rs.11,50,736/- in the year under consideration. This surplus is considered as exempt u/s 11 of the Act and accordingly the return was filed declaring Nil income.
It was further submitted that the nature of activity and manner of maintenance of accounts remains the same as in earlier years. In all these years, the income is assessed u/s 143(3) of the Act at Nil income holding that assessee exist solely for education. In support, copy of the assessment orders for AY 09-10 to 11-12 were placed on record.
It was further submitted that the AO, in the year under consideration, observed that in the audit report, the assessee has stated the nature of business or profession in Clause 8(a) of Form 3CD as ‘consultancy, mess, accommodation’. It has also shown income on account of institutional charges. The assessee was not considered to be engaged in educational but as engaged in general public activities and therefore, in view of the proviso to section 2(15), the surplus of Rs.11,50,736/- is considered as income of the society assessable under the head “income from business & profession”. Further, the Ld. CIT(A) at Pg 11-13 of his order without meeting with the various contentions and the case laws relied by the assessee, upheld the order of AO by reproducing Pg 5-6 of the assessment order.
It was further submitted that from the object of the society, it can be noted that it is existing solely for education. The assessee imparts education through three models. First is direct intervention where it has evolved network of 40 schools named Bodhshalas in three district of Rajasthan, namely, Jaipur, Alwar & Tonk catering 12,000 children and recognized by Government. These schools are run on grant funded by various organizations. The second model is partnership with Government where it support the Government schools in creating textbooks/ workbooks, curriculum, teaching learning material, teachers training framework and capacity building of Government teachers and supporting the education management in better management of the schools at the state level. Thirdly, it partners with other education NGOs who have either their own schools or have team of teachers or supporting team by building their capacity through creating textbooks/ guidebooks/ workbooks, etc. Thus, all the activities of the society are solely for education.
It was further submitted that the AO, by referring to the funding support agreement between the assessee and UNICEF as referred at Pg 5 of the assessment order, observed that assessee is engaged in ancillary activities which are supporting out of school children and in the audit report in Form No.3CD in column no. 8(a), the nature of activity stated to be consultancy, mess and accommodation. This apart, it has shown income on account of institutional charges and thus the assessee’s activities are in the nature of business. These observations of the AO are incorrect. From the clauses of the agreement with UNICEF as mentioned at Pg 5 of the assessment order, it can be noted that all the activities mentioned therein are to provide education to those children who have left the school. Similarly the receipt on account of consultancy, mess, accommodation and the institutional charges are mainly from the various funding agencies who provide fund to the assessee to carry out the educational activities of which a part of the amount as provided by them in the budget is transferred to these heads against which the actual expenditure incurred is debited and the balance remains as surplus of the society. This can be perceived from the sample agreements with various funding agencies placed on record where they provide certain funds towards head office support/ institutional charges, academic support and for residential training to the teachers. Such amount is reflected in the accounts towards institutional charges/ consultancy charges/ accommodation, mess and transportation charges. Thus, these receipts are in connection with the education only and not a business activity of the society. From the details of the receipts by way of institutional charges, mess charges, transport charges and consultancy charges vis-à-vis the sample agreement at the funded agencies and the Income & Expenditure A/c, it can be noted that all these receipts are incidental to education and not arising from any activity of business. Therefore, the lower authorities have incorrectly applied proviso to section 2(15) and thereby denying the exemption u/s 11. It may be pertinent to note here that in all earlier years, the same activities has been considered by the AO as educational activities and exemption u/s 11 has been allowed.
It was further submitted that in various cases, it has been held that an activity incidental to education is also education. In this connection reference can be made to the following cases:-
• Shree Ahmedabad Lohana Vidyathi Bhavan Vs. ITO (2018) 172 ITD 11 (Ahd.) Where providing hostel facility to students is held as an essential component of educational institutions and also an aid for attaining educational object, and thus said activity would fall under purview of education as provided u/s 2(15).
• Delhi Bureau of Text Books Vs. DIT(E) (2017) 394 ITR 387 (Del.) Exclusive activity of the assessee is the publication and printing of text books and their distribution to Government schools. Fact that the assessee is a non-profit organisation is not in dispute. Its essential activities are administered by the board of directors comprising of officers of the Government. Text books are provided by the assessee to the students at subsidized rates. Even the text books, reading materials and school bags are being distributed free to deserving students. Essential activity of the assessee is connected with 'education' and nothing else. Tribunal erred in holding that the activities carried out by the assessee fell under the 4th limb of s. 2(15), i.e., 'the advancement of any other object of general public utility' and that its activities were not solely for purpose of advancement of 'education'. Tribunal came to the erroneous conclusion that merely because the assessee had generated profits out of the activity of publishing and selling of school text books it ceased carrying on the activity of "education". Further, having adopted a consistent stand for over 34 years, and there being no change in the circumstances, there was no justification for the Revenue to take a different view in the matter only because it was possible to do so.
• ACIT Vs. Thanthi Trust (2001) 247 ITR 785 (SC) All that the substituted sub-sec. (4A) of s. 11 w.e.f. 1st April, 1992 requires for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of the objectives of the trust or institution. A business whose income is utilized by the trust or the institution for the purposes of achieving the objectives of the trust or the institution is surely a business which is incidental to the attainment of the objectives of the trust. Income of newspaper business of assessee-trust is employed to achieve its objectives of education and relief to the poor. Therefore, it is entitled to exemption under sec. 11 for asst. yr. 1992-93 and thereafter.
• Baun Foundation Trust Vs. CCIT & Anr. (2012) 73 DTR 45 (Bom.) (HC) The dominant nature of the purpose for which the trust exists has to be considered. The Chief CIT has not doubted the genuineness of the trust or the fact that it is conducting a hospital. Even if the figures which are taken into account by the Chief CIT are to be had regard to, it is evident that the activity of a chemist shop is an activity which is incidental or ancillary to the dominant object and purpose which is to run a hospital. The Chief CIT has accepted that the surplus which is earned from the operation of a chemist shop is utilized for the purposes of the hospital. A hospital must of necessity have a section or department where medicines can be dispensed and it is not uncommon for a medical hospital which exists even for philanthropic purposes to have a chemist shop where pharmaceutical products are sold. This is a facility which is intended to be used predominantly by patients and their relatives. Though the members of the general public are not prohibited from using the facility, the crucial question to ask or the test to answer is whether the establishment of a chemist shop is incidental or ancillary to the dominant object and purpose which is to set up and conduct a hospital for philanthropic purposes. As a matter of fact, s. 10(23C) permits the accumulation of income upto a certain stipulated amount over a stipulated period. In this view, the Chief CIT has clearly misapplied himself in law by having regard to a clearly ancillary or incidental activity and elevating it to the status of the dominant purpose for which the hospital has been established. Running the chemist shop in the present case is not the dominant object or purpose of the trust. Nor would the figures as disclosed indicate that the nature of the activity has assumed such a dominating or overwhelming importance so as to cast doubt on the true nature and character of the hospital which is conducted by the petitioner. The impugned order of the Chief CIT is set aside and the application filed by the petitioner under the provisions of s. 10(23C)(via) shall be considered in the light of the observations contained in this judgment.
It was submitted by the ld AR that from the above decisions, it can be noted that activities incidental to education is also education. Sec. 11(4A) also provides that profit & gains of business incidental to the attainment of the objectives of the trust/ institution where separate books of accounts are maintained in respect of such business is entitled to exemption u/s 11(1). Therefore, only by presuming that receipt by way of institutional charges, consultancy, accommodation, mess and transportation is in the nature of business activity, exemption u/s 11 cannot be denied.
It was further submitted that proviso to section 2(15) applies only when it involves carrying on of any activity or rendering any services in the nature of/ in relation to trade, commerce or business. Thus, the proviso is applicable only when such activities are carried out with profit objective and the activities of the trust or institution is for general public utility. If no profit objective is involved, the same cannot be considered as non charitable purpose. Though this proviso is applicable only to those trust/ institutions who are involved in advancement of any other object of general public utility and thus not applicable to assessee, but still if it is held otherwise, then also the proviso cannot be applied to the assessee in view of the CBDT Circular No.11/2008. dt. 19.12.2008 and in view of the following decisions:-
• Institute for Development and Research in Banking Technology (IDRBT) Vs. ADIT (Exemptions) (2015) 128 DTR 145 (Hyd.) Projects undertaken and the research activities carried out by the assessee society aimed at improvement of technology in banking and financial sectors. Development in these areas would benefit the society at large and promote the welfare of general public. Therefore, the object can be said to be directed towards advancement of any other objects of general public utility. Question of private gain or profit motive cannot be attributed to assessee society as it has been created by RBI. Intention of the Parliament in introducing the proviso to sec. 2(15) is to deny exemptions to those organizations or entities which are purely commercial or business in nature or commercial entities which wear the mask of charity. Genuine charitable organizations are not affected in any way. Once the primary objects of an institution are established to be in the nature of charity, then the proviso to sec. 2(15) cannot be made applicable. When an institution is carrying on activities in the nature of trade, commerce or business, obviously it would be charging fee, etc. It might be charging fee even when it is rendering services as part of charitable activity in order to supplement its income for carrying on charitable activities. In that case, the proviso will not have any implication as the activities would not be in the nature of trade, commerce or business. Objects of the assessee society are totally charitable in nature and do not involve carrying on any activity in the nature of trade, commerce or business. Therefore, proviso to sec. 2(15) is not applicable to the assessee society. Mere fact that the assessee society has generated surplus in the course of carrying on its ancillary objects shall not alter the character of the main objects so long as the predominant object continues to be charitable and not to earn profit. Therefore, assessee society is entitled to exemption u/s 11.
• India Trade Promotion Organization Vs. DGIT (Exemption) & Ors. (2015) 114 DTR 329/ 229 Taxman 347 (Del.) (HC) Proviso to section 2(15) carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering of any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, the dominant and prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purpose is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a ‘charitable purpose’. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do the charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes. In the present case the driving force is not the desire to earn profits but the object of promoting trade and commerce not for itself, but for the nation, both within India and outside India. Merely because the assessee derives rental income, income out of sale of tickets and sale of publications or income out of leasing out food and beverages outlets in the exhibition grounds does not in any way effect the nature of the assessee as a charitable institution if it otherwise qualifies for such a character. Thus, while upholding the Constitutional validity of the proviso to sec. 2(15), it has to be read down in the manner indicated above.
• ICAI vs. DGIT (Exemptions) (2013) 90 DTR 161/ 358 ITR 91(Del.) If the object or purpose of an institution is charitable, the fact that it collects certain charges does not alter the character of the institution. The expression “trade”, “commerce” and “business” as occurring in the first proviso to section 2(15) must be read in the context of the intent and purport of section 2(15) and can’t be interpreted to mean any activity which is carried on in an organised manner. The purpose and the dominant object for which an institution carries on its activities is material to determine whether the same is business or not. The purport of the first proviso to section 2(15) is not to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or fee. The object of introducing the first proviso is to exclude organisations which are carrying on regular business from the scope of charitable purpose. The expression “Business”, “Trade” or “commerce” as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organisation is charitable, any incidental activity for furtherance of the object would not fall within the expression “business”, “trade” or “commerce”(Para 67).
The dominant objective of assessee institute was to regulate the profession of Chartered Accountancy in India. The functions performed by the assessee institute are in the genre of public welfare and not for any private gain or profit and in this view it can’t be said that assessee is involved in carrying on any business, trade or commerce. The activity of imparting education in the field of accountancy and conducting courses both at pre-qualification as well as post qualification level are activities in furtherance of the object for which assessee has been constituted and therefore the same can’t be said to be trade, commerce or business. Accordingly, even though fees are charged by the institute for providing coaching classes and for holding interviews with respect to the campus placement, the said activities cannot be stated to be rendering service in relation to trade, commerce or business as such activities are undertaken by the institute in furtherance of its main object which are not trade, commerce or business. (Para 73 & 77)
• Director of Income-tax (Exemption) v. Sabarmati Ashram Gaushala Trust 362 ITR 539 (Guj.) The first proviso to section 2(15) of the Income-tax Act, 1961, inserted with retrospective effect from April 1, 2009, by the Finance Act, 2010, provides for exclusion from the main object of the definition of the term "charitable purposes" and applies only to cases of advancement of any other object of general public utility. If the conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue of the proviso, would be excluded from the definition of "charitable trust". The statutory provisions, as explained in the speech of the Finance Minister and Circular No. 11 of 2008, are that the activity of a trust would be excluded from the term "charitable purpose" if it is engaged in any activity in the nature of trade, commerce, or business or renders any service in relation to trade, commerce, or business for a cess, fee or any other consideration. It is not aimed at excluding genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce, or business which are masked as "charitable purpose". Many activities of genuine charitable purposes which are not in the nature of trade, commerce or business may still generate marketable products. After setting off of the cost, for production of such marketable products from the sale consideration, the activity may leave a surplus. The law does not expect the trust to dispose of its produce at any consideration less than the market value. If there is any surplus generated at the end of the year, that by itself would not be the sole consideration for judging whether any activity is trade, commerce or business particularly if generating "surplus" is wholly incidental to the principal activities of the trust ; which is otherwise for general public utility, and, therefore, of charitable nature.
In this case the assessee-trust was engaged in the activity of breeding milk cattle to improve the quality of cows and oxen and other related activities. The Assessing Officer applied the proviso to section 2(15) holding that the trust could not be considered as one created for charitable purposes. He analysed the accounts of the assessee and came to the conclusion that considerable income was generated from the activity of milk production and sale. Therefore, for the assessment year 2009-10, he denied the benefit of sections 11 and 12 to the assessee. The Tribunal noted that the objects were admittedly charitable in nature. The surplus generated was wholly secondary. Therefore, it held that the proviso to section 2(15) of the Act would not apply and the assessee was entitled to the exemption. On appeal to the High Court held that the main objectives of the trust were to breed cattle and endeavor to improve the quality of the cows and oxen in view of the need for good oxen as India is prominently an agricultural country. All these were objects of general public utility and would squarely fall under section 2(15) of the Act. Profit making was neither the aim nor object of the trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the object of the trust, certain incidental surpluses were generated, that would not render the activity in the nature of trade, commerce or business. The assessee was entitled to exemption under section 11.
18 591 & 592/JP/2018 Bodh Shiksha Samiti, Jaipur vs. ACIT (Exemptions), Jaipur • Bureau of Indian Standards Vs. DGIT (2013) 89 DTR 93/ 358 ITR 78 (Del.) (HC) Exemption granted to assessee u/s 10(23C)(iv) was withdrawn by DIT (Exemptions) for the reason that activities of assessee fulfil all the attributes of business in as much as assessee awards licenses under various products certification schemes for which a fee or consideration is charged and thus assessee is directly hit by proviso below sec. 2(15).
It was held that the designated function of assessee fall under the category of “advancement of object of general public utility”. BIS performs sovereign and regulatory function, in its capacity of an instrumentality of the State. Therefore, it is not involved in carrying any activity in the nature of trade, commerce or business. BIS renders services in relation to trade, commerce or business by granting certification/quality marks in return of license fees. However, ‘rendering any service in relation to trade, commerce or business’ cannot receive such a wide construction as to enfold regulatory and sovereign authorities, set up under statutory enactments, and tasked to act as agencies of the State in public duties which can’t be discharged by the private bodies. If any profit/revenue is earned it is purely incidental.
It was submitted that from these decisions, it can be noted that otherwise also proviso to sec. 2(15) is not applicable to the assessee as there is no profit motive involved in the activities of the assessee and the surplus is utilized for its objects.
It was further submitted that before the Ld. CIT(A) all these facts were explained but he has not considered any of the contentions raised by the assessee and by simply producing the assessment order at Pg 11-13 of his order upheld the findings of AO. Therefore, the order of Ld. CIT(A) is erroneous. In view of above, it was submitted that assessee is existing solely for education and the AO be directed to allow the claim of exemption u/s 11 of the Act.
The ld DR is heard who has relied heavily on the findings of the lower authorities. It was submitted by the ld DR that the assessee society has been registered u/s 12A as a charitable society and its objects and activities falls in the last limb of definition under section 2(15) i.e, advancement of any object of general public utility as the assessee society is engaged in ancillary activities which are supporting out of the school children and it is a step towards formal education and any activity connected with education cannot be classified as education activity. The ld DR further submitted that in assessee’s own financials, it has shown consultancy, mess and accommodation charges which the auditors have themselves classified as business activities of the assessee. In view of the same, it was submitted that the AO has rightly invoked the proviso to section 2(15) and the exemption claimed u/s 11 was denied and surplus brought to tax.
Heard both the parties and gone through the material available on record.
Firstly, we find that the assessee society which is registered u/s 12A(a) of the Act has been regularly assessed in the earlier years and in all those years, it has been assessed at NIL income allowing the exemption u/s 11 and 12 of the Act so claimed by the assessee society.
For instance, in AY 2009-10, the Assessing officer while passing the order u/s 143(3) has held that “the main object of the assessee is to impart education for the deprived and weaker section of the society and the objects of the institution is pious and charitable. The samiti is running 42 schools in various parts of Rajasthan mainly in Jaipur and Alwar Districts. The income of the samiti has been utilized for achieving the objects for which it has been constituted. After scrutiny, assessment is completed at NIL income.” and similar findings have been given in AY 2010-11. In subsequent AY 2011-12, the Assessing officer has held that “the object of the society is to run educational programs/projects for marginalized, deprived and underserved sections of the society such as urban slums in Jaipur city and rural areas of Alwar district. It also provides training to teachers for quality enhancement in schools run by the Government of Rajasthan through Sarva Shiksha Abhiyan. In my opinion, the assessee’s activities fall under the ambit of education under section 2(15) and the assessee is already registered under section 12AA and as a result, the assessee is entitled to exemption u/s 11 and 12 of the Act.” Therefore, in view of the well settled legal proposition, as has been laid down by the Courts from time to time and which has been reiterated in the decision of Hon’ble Supreme Court in case of Godrej & Boyce Manufacturing Company Ltd. (394 ITR 449) that:
“While it is true that the principle of res judicata would not apply to assessment proceedings under the Act, the need for consistency and certainty and existence of strong and compelling reasons for a departure from a settled position has to be spelt out which conspicuously is absent in the present case. In this regard we may remind ourselves of what has been observed by this Court in Radhasoami Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248 (SC).
"We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year." there has to be compelling reasons for a departure from the past settled position wherein the assessee society has been held to be engaged in the field of education all these years and such reasons have to be spelt out clearly by the Assessing officer. It has been contended by the ld AR that there is no change in the nature of activities and the activities are the same as carried out by the assessee society as in earlier years. Even on perusal of the assessment order, we note that there is no finding recorded by the Assessing officer that the nature of activities being carried on by the assessee society has changed since last years and even during the course of hearing, the ld DR has not submitted anything contrary to the contentions so advanced by the ld AR and as found from the perusal of past assessment orders. We therefore find that where the undisputed facts are that these are the same activities which the assessee society has been carrying on all these years and then on what basis, the same activities are treated as educational activities in all the past years and for the year under consideration, the Assessing officer hold that these are not educational activities but activities ancillary to education activities supporting out of school children and therefore, fall under the definition of “advancement of any other objects of general public utility”. On this ground alone, where there are no changes in the facts and circumstances of the case, following the rule of consistency as upheld by the Courts from time to time, we are of the considered view that there is no basis to interfere with the consistent position which has been accepted in the earlier years that is, to hold that the assessee society is involved in the field of education.
Now, coming to specific findings of the Assessing officer in the impugned assessment order. The Assessing officer referring to an agreement entered into by the assessee society with UNICEF has stated that the assessee society is engaged in ancillary activities which are supporting out of the school children and it is a step towards formal education and basis the said solitary agreement, has come to a conclusion that the main objects of the assessee society is not education but advancement of object of general public utility. We therefore find that the Assessing officer has not disputed that the assessee society is engaged in the field of education, rather the dispute is whether the assessee society is directly involved in imparting education to students or merely supporting such educational activities and where it is merely supporting the educational needs of the children, it will cater to the field of general public utility and not education.
To our mind, one needs to read and appreciate the meaning of the term “education” not in a static manner rather the same has to be read in the context of how the field of education has evolved over the period of time given the socio-economic dynamics of our society where a large section of our society fall in the broad category of floating population or migratory workers who move from one city to another in pursuit of work and employment and educational needs of children of such migratory section of our society. Secondly and equally important factor is the ability of a large section of our society to send their children to formal schools given the lack of financial resources at their disposal. Thirdly, even where the Government is providing free education under the RTE Act, the availability and access to Government schools and infrastructure and given the lack of adequate government schools, the necessity for the civil society and various non-government organizations/agencies to step-in in the field of education. In this background, if we look at the following objects of the assessee society, mns'; & lfefr ds fuEufyf[kr mns’; gksxs & d lkekftd ,oa vkfFkd n`f"V ls fiNys gq, rcdks ds cPps ds f’k{k.k ,oa lokZxh.k fodkl ds fy;s dk;Z djukA bl dk;Z dks lkeqnkf;d igy] deZ o fu;a=.k ds vk/kkj ij djus dk iz;kl fd;k tk,xkA [k f’k{kk ds {ks= esa ,sls ’kks/k o iz;kxks dk fodkl rFkk foLRkkj djuk] ftuds ek/;e ls orZeku f’k{kk fufr o iz.kkyh ds nks"kkas ,oa dfe;ksa dk O;kogkfjr lek/kku izLrqr fd;k tk ldsA x oSKkfud n`f"Vdks.k ,oa lkLad`frd psruk ds fodkl ls fy;s dk;Z djukA ?k leku mns’;ks ls mRiszfjr laLFkkvksa] leqgks o xfrfof/k;ksa ds lkFk lg;ksx] lgdk;Z o leUo;A M mijksDr mns’;ksa dh iwfrZ ds fy;s lk/ku o laLFkkvksa dk fodkl djukA we find that the assessee society objects are clearly in the field of education with focus on socially and economically under-privileged children of our society. In pursuit of its objects, the assessee society has established 40 Bodhshalas, out of which 34 Bodhshalas are also recognized by the District Education office, Government of Rajasthan, where free education is provided to the students. The other 6 Bodhshalas are established as learning centres for children upto class II level. The assessee society is thus directly involved in imparting education to the students. Besides the same, the assessee society in partnership with Government supports the Government schools in creating textbooks/ workbooks, curriculum, teaching learning material, teachers training framework and capacity building of Government teachers and supporting the education management in better management of the schools at the state level. Thirdly, it partners with other education NGOs who have either their own schools or have team of teachers or supporting team by building their capacity through creating textbooks/ guidebooks/ workbooks, etc.
The agreement with UNICEF which is an international UN organization with focus on education of children around the world, falls in the aforesaid third category. The activities contemplated under the said agreement are revising the special training material for out of school children, to finalise the material developed for upper primary schools, to carry out situational analysis of the work already happening in the schools and related challenges, to carry out analysis of existing special training material for out of school children, its impact on the learning and understanding the gaps and requirement to make the training material more appropriate, etc. In our considered view, these activities are clearly in the field of education with focus on out of school children and make efforts to bring them onboard in formal school set- up. Even though the assessee society is not directly imparting education in this case and such activities are held to be ancillary to education, to our mind, there is clearly a direct and close nexus and are clearly directed at education of the out of school children. By entering in such an agreement with UNICEF, the dominant objective and purpose for which the assessee society has been setup cannot be said to be diluted in any case, rather it is part of the said objects and also strengthen and recognizes the fact that the organizations such as UNICEF are appreciating the efforts done by the assessee society and wishes to collaborate and partner with it in supporting the education needs of socially and economically under-privileged children of our society and not with a view to earn profit which is a prime motive of any business activity.
As the Courts have held from time that where the dominant objective is to provide education, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for education purposes and becomes an institution for the purpose of making profit. The predominant object test must be applied - the purpose of education should not be submerged by a profit making motive. A distinction must be drawn between the making of a surplus and an institution being carried on "for profit". No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes. The ultimate test is whether on an overall view of the matter, the object is to make profit as opposed to educating persons.
In this regard, we refer to the findings of the Assessing officer wherein he has referred to the details of activities carried out by the the assessee society and has stated that the assessee society has got grants-in- aid from number of agencies for specified projects and has utilized these grants, however, at the same time, the assessee society has also shown income on account of institutional charges of Rs. 25,73,793/-. Further, the auditors in their audit report have stated in Form 3CD, the nature of business/ profession as ‘consultancy, mess, accommodation’. In view of the same, it was held that the proviso to section 2(15) is applicable. In its submissions, the assessee society submitted that it receives funds from various funding agencies for imparting education to the children, training to the teachers, awareness programme, infrastructure development, curriculum and material development, research etc. These funding agencies provide earmarked budget for the activities to be conducted under the mutually agreed programme. Apart from this, they provide specific budget for training of the teachers and also institutional charges to meet the administrative cost. The specific expenditure for carrying out the activity is charged to the amount received in that project and the indirect expenditure by way of accommodation, mess, transportation, academic support cost and administrative cost is credited separately in the Income & Expenditure A/c by debiting to that project. Accordingly, the Income & Expenditure A/c is prepared in two parts. The first part is in respect of the fund received for a particular project and the direct expenditure incurred in relation thereto and the second part is in respect of indirect expenditure debited to that project by crediting to the Income & Expenditure A/c against which the various expenditure incurred on providing accommodation facility, mess facility, transportation facility and other administrative cost is debited. It was accordingly submitted that there is no separate source of institutional, consultancy, mess and accommodation charges and the same were part of funding provided by the various agencies for activities in the field of education and are not separate business activity carried by the assessee society.
We have given a careful consideration to the above factual matrix and contentions advanced by both the parties. We find that during the year under consideration, the assessee society has received institutional charges of Rs 25,73,793 and other receipts towards accommodation, mess, transportation and consultancy totaling to Rs 1,12,18,904 which have been received in respect of various educational projects such as Dil Se Foundation Project, Jan Pahal Project, Mission, Suneharakal, NIIT, Shikshak Pahal project, The Nabha foundation, UNICEF and others. These projects have been funded through grants/financial support by various funding agencies and these particular receipts are towards administrative and other overhead expenditure of the assessee society and are not in form of any independent source/earning of the assessee society and are part of the overall educational activities carried out by the assessee society. The purpose of these grants and funding by various agencies is to carrying out specific educational projects as can be seen from the following details which were specifically called by the Bench and submitted during the course of hearing:
Name of Funded Agency Institutional Consultancy Object of project charges project charges DIL SE Centre for Equity Rs.15,841/- Rs.80,000/- This project is for Foundation Studies, New development of modules and Delhi a team of resource trainer for the education of street & homeless Children. Duration of project is from June, 2010 to May, 2011.
Jan Pahal Oxfam Novib, Rs.8,29,233/ Rs.7,20,000/ The funds were provided for - - developing teaching learning Netherland material and developing resource person for Governments' Panchayat schools and Manas Ganga Secondary School.
Duration of project is from April, 2009 to March, 2012.
Mission ITC Ltd., Rs.2,94,000/ Rs.2,40,000/ For identification, mobilizing Suneharakal Kolkata - - and integrating out of school children by supporting . community and schools for FY 2011-12.
NIIT NIIT Institute of Rs.37,257/- Setting up career Information development centre in Bodh Technology, Resource School, Amagarh, New Delhi jaipur and providing vocational training to unprivileged youth residing in slum Amagarh and its vicinity.
Shikshak Pahal Goodearth Rs.12,40,297/ - For running, evolving and Education - strengthening 35 community Foundation, schooling for marginalised New Delhi children.
Nabha Nabha Rs.1,36,165/ Rs.3,55,000/ For capacity building of Foundation Foundation, - - teachers and for curriculum New Delhi and material development.
UNICEF United Nations Rs.21,000/- - Orientation training to Children's teachers of Government Funds, Jaipur Schools, developing teachers training modules and providing academic support.
IRB Modem Road - Rs.2,20,000/ For providing free Primary Primary makers Pvt. - education to School Ltd., Mumbai children in the rural area near the project of IRB Infrastructure Developers Ltd. In this project, a primary school is opened at Tonk where the teachers and books are provided by the society. Dy Director Government of - Rs.1,38,000/ Identification of out of School Girls Education Rajasthan - children, setting up of Bodh school and undertake capacity building programmes in collaboration with Sarva Shiksha Abhiyan for Government of Rajasthan.
However, the way the aforesaid charges has been reflected in the Income and expenditure, though it prima facie gives an impression of separate source of income, however, in substance, these institutional, consultancy, mess and accommodation charges are nothing but specified amount received as part of overall funding provided by various agencies towards carrying out various educational projects/activities by the assessee society. At the end of the year, there is surplus of Rs 11,50,736 from such educational activities which is carried foreward to the subsequent year. As we have stated above, merely having a surplus is not an indicator of carrying out business activities, rather the real test is the dominant and purposive test which has been satisfied in the instant case where the intention is not to earn such surplus/profits but to carry out educational activities for the benefit of underprivileged children belonging to socially and economic weaker sections of the society and as part of such activities, where such surplus is generated and used for furthence of such educational activities, the assessee society doesn’t loses its character of being charitable society engaged in educational activities.
In light of above discussions and in the entirety of facts and circumstances of the case, the objects so envisioned and activities of the assessee society are directed towards education of the socially and economically under-privileged children either directly imparting education through its network of Bodhshalas or by way of collaborating/partnering with the government and other non- governmental organizations/institutions and not to earn any profits. It would therefore be incorrect to classify the objects and activities of the assessee society as objects and activities in nature of general public utility. The proviso to section 2(15) which can be invoked in case of objects of general public utility therefore doesn’t apply and thus cannot be invoked in the instant case. The consequent action of the Assessing officer in withdrawing the exemption claimed by the assessee society u/s 11 & 12 is hereby set-aside and the matter is decided in favour of the assessee society and against the Revenue. In the result, the appeal of the assessee is allowed. & ITA No. 592/JP/2018
In for A.Y 2013-14 and ITA No. 592/JP/2018 for A.Y 2014-15, both the parties fairly submitted that the facts and circumstances of the case are exactly identical and on the same lines as in ITA No. 590/JP/18, exemption u/s 11 has been denied to the assessee society. Following our details discussions in ITA No. 590/JP/18, the findings and directions contained therein shall equally
31 591 & 592/JP/2018 Bodh Shiksha Samiti, Jaipur vs. ACIT (Exemptions), Jaipur apply in these two cases as well. In result, the consequent action of the Assessing officer in withdrawing the exemption claimed by the assessee society u/s 11 & 12 is hereby set-aside and the matter is decided in favour of the assessee society and against the Revenue and both the appeals are allowed.
Order pronounced in the open Court on 29/05/2019. Sd/- Sd/- ¼fot; iky jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 29/05/2019. *Ganesh Kr आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Bodh Shiksha Samiti, Jaipur 2. izR;FkhZ@ The Respondent- ACIT(Exemptions), Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File { 591 & 592/JP/2018}