DCIT(EXEMPTIONS)-1(1), MUMBAI, MUMBAI vs. INDIAN INSTITUTE OF BANKING AND FINANCE, MUMBAI

The assessee is an incorporated Indian company established under Section 26 of the Indian Companies Act, 1913. Initially, the organisation was constituted as an association under the name “Indian Institute of Bankers” and subsequently its name was changed to “Indian Institute of Banking and Finance”. The principal objects, as set out in its Memorandum of Association, include encouraging the study of the theory of banking and, for that purpose, instituting a scheme of examinations and awarding certificates, scholarships and prizes; promoting information on banking and allied subjects through lectures, discussions, books, correspondence with public bodies and individuals or otherwise; collecting and circulating statistics and other information relating to the business of banking in India; and acquiring, maintaining, extending and improving a library comprising works on banking, commerce, finance, political economy and allied subjects.

In the assessment proceedings, the Assessing Officer, on verification of the Income and Expenditure Account, noticed that the assessee had disclosed income of approximately Rs. 33.25 crores, principally comprising examination fees, interest income, tutorial-class fees, seminar fees, royalty from publications and other receipts. During the course of scrutiny assessment proceedings, the Assessing Officer called upon the assessee to furnish details of its activities and receipts. On examination of the details, the Assessing Officer observed that the assessee was conducting private commercial courses relating to the banking and commerce sectors, conducting examinations and collecting fees from students, organising educational programmes, lectures and seminars on banking and commerce for consideration, and supplying study material. It was also observed that the assessee conducted exhibitions and banking and commerce classes. According to the Assessing Officer, the activities of the assessee, viewed cumulatively, were in the nature of business.

For the aforesaid conclusion, the Assessing Officer placed reliance upon the decisions of the Hon’ble Supreme Court in the case of Sole Trustee, Loka Shikshana Trust, 101 ITR 234, and Bihar Institute of Mining and Mine Surveying, 208 ITR 604. The Assessing Officer further observed that the assessee would fall within the last limb of the definition of “charitable purpose”, namely, “advancement of any other object of general public utility”, and that, in view of the amendment to Section 2(15) with effect from 01.04.2009, applicable from Assessment Year 2009-10 onwards, the assessee was not entitled to exemption under Section 11 since it was carrying on activities in the nature of business and charging fees there for.

The Assessing Officer further held that the assessee could not be regarded as an educational institution, contending that its principal object was to regulate the profession and that it was neither a statutory authority nor a professional body. It was also observed that the assessee did not award degrees or enrol members in the manner in which a statutory university would do so. According to the Assessing Officer, the mere institution of a scheme of examinations for the purpose of encouraging the study of banking theory could not, by itself, be regarded as an educational activity. Accordingly, the Assessing Officer denied the assessee’s claim of exemption under Section 11 for the relevant assessment years.

For the earlier assessment years, 1996-97,1997-98 and 1998-99 the Tribunal had decided the issue of exemption u/s 10(22) in favour of the assessee. The Revenue preferred appeals under Section 260A before the Hon’ble Bombay High Court, which were pending. For the subsequent assessment years 1999-2000 to 2001-02, the assessee had applied to the Central Board of Direct Taxes for approval under Section 10(23C)(vi). No communication was received from the Board. However, a letter dated 28.05.2002 issued by the DGIT (Exemption), Calcutta, stated that the activities of the organisation were not solely for educational purposes and that the organisation did not serve the interests of the public at large. Consequently, the application was not considered fit for approval under Section 10(23C)(vi) of the Income-tax Act, 1961.

Subsequently, the assessee’s application for exemption under Section 10(23C)(vi) for the period beyond Assessment Year 2009-10 was rejected by the Chief Commissioner of Income-tax, Mumbai, by order dated 28.09.2011. Against the said order, the assessee preferred an appeal before the Hon’ble Bombay High Court and is pending. On the basis of the aforesaid facts, the Assessing Officer concluded that the assessee was a business enterprise and was not entitled to exemption under Section 11. Accordingly, an amount of Rs. 14,00,28,180 was brought to tax.

Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi. The learned CIT(A) referred to the order of the Tribunal dated 11.02.2015 for Assessment Year 2008-09, wherein it had been held that the activities of the assessee were educational in nature and that the assessee was entitled to exemption under Section 11. The said order of the Tribunal was affirmed by the Hon’ble Bombay High Court by order dated 28.03.2018.

Similarly, for Assessment Year 2009-10, the Tribunal, vide order dated 23.06.2016, allowed the assessee’s claim for exemption under Section 11. The appeal filed by the Revenue was dismissed by the Hon’ble Bombay High Court by order dated 29.01.2020, and the Special Leave Petition thereafter filed by the Revenue before the Hon’ble Supreme Court was dismissed by order dated 24.09.2024.

The learned CIT(A) further observed that the claim of exemption under Section 11 had been accepted by the Department for Assessment Years 2001-02,2003-04, 2005-06,2006-07 and 2008-09 through appellate orders rendered on identical facts. Since the factual matrix for the year under consideration had not been shown to be different from that obtaining in the earlier years, and no material change in the nature of the objects, activities or manner of application of income had been brought on record by the Assessing Officer, the learned CIT(A) followed the earlier decisions and allowed the assessee’s claim of exemption under Section 11. Aggrieved by the order of the learned CIT(A), the Revenue is in appeal before the Tribunal.

During the course of hearing, the learned Departmental Representative (“ld.DR”) submitted that the assessee is a mutual association and that the benefits arising from its activities are available to its members. It was contended that the principles of charity and mutuality are distinct and mutually exclusive. On the contrary, the learned Authorised Representative (“ld.AR”) responded by saying that the question of mutuality could not be adjudicated in the present appeal since none of the grounds raised by the Revenue pertained to the principle of mutuality. The ld.AR also submitted that, if the assessee were to be treated as a mutual concern, the computation of income in the assessment order ought to have been made on that basis. The manner in which the assessment had been framed, according to the ld.AR, did not indicate that the Assessing Officer had intended to treat the assessee as a mutual organisation.

The ld.AR also submitted that the observation of the learned CIT(A) regarding the decision of the Hon’ble Bombay High Court was factually and legally sustainable, notwithstanding the fact that the Department had challenged the said decision by filing a Special Leave Petition before the Hon’ble Supreme Court. The ld.DR on the other hand, pointed out that the Special Leave Petition filed by the Department had been dismissed on account of low tax effect and not on merits. The ld.DR also referred to the paper book and submitted that the receipts attributable to business activities exceeded 20 per cent of the total receipts. According to the ld.DR, the assessee fell within the ambit of the proviso to Section 2(15), since its objects were in the nature of advancement of any other object of general public utility, and therefore its commercial receipts could not exceed the prescribed threshold.

The ld.DR also referred to the Tribunal’s order dated 23.06.2016 for Assessment Year 2009-10, wherein the assessee had not pressed the ground relating to approval under Section 10(23C)(vi). It was contended that the assessee had thereby accepted, for that year, that its activities were not entitled to exemption under the said provision. The ld.AR submitted, in reply, that the interpretation applicable to Section 10(23C)(vi) is distinct from that applicable to Section 11 and that the rejection of approval under Section 10(23C)(vi) would not, by itself, affect the assessee’s entitlement to exemption under Section 11.

The ld.AR further relied upon the Tribunal’s order for Assessment Year 1996-97, in ITA No. 6103/Mum/1999, dated 12.02.2001, wherein the assessee had been held to be an educational institution. It was submitted that the Revenue’s appeal against that order before the Hon’ble High Court had been dismissed for non prosecution. Reliance was also placed upon the Tribunal’s order dated 07.05.2014, in ITA No. 674/Mum/2012, granting registration u/s. 12A, wherein it had been observed that the activities carried on by the assessee in the earlier years continued during the year under appeal and that the Department had not brought on record any material to demonstrate discontinuance or material alteration of those activities; the assessee continued to conduct examinations and supply study material to students, and these activities had repeatedly been held to be educational in nature. The Tribunal further held that the assessee is carrying out educational activities and its activities did not fall within the proviso to Section 2(15), since the said proviso was applicable only where the charitable purpose was advancement of any other object of general public utility. The appeal preferred by the Revenue against the above tribunal order was dismissed by the Hon’ble Bombay High Court on the ground that no substantial question of law arose, vide its order in ITA No. 1626 of 2014 dated 06.03.2017.

Reliance was also placed upon the decision of the Hon’ble Supreme Court in Ahmedabad Rana Caste Association, 82 ITR 704, wherein it was held that an object beneficial to a section of the public is an object of general public utility and that, for a charitable purpose, it is not necessary that the object should benefit the whole of mankind or all persons in a country or State; it is sufficient if the intention is to benefit a section of the public as distinguished from specified individuals. The ld.DR, in response, submitted that the assessee serves only a particular section of the population and therefore cannot be regarded as serving the public at large.

The ld.AR also relied upon the order of the Hon’ble Bombay High Court in Income-tax Appeal No. 1368 of 2015 dated 28.03.2018 for the assessment year 2008-09, wherein the question considered was whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the assessee was a charitable organisation and eligible for exemption under Section 11. The Hon’ble Bombay High Court, while answering the aforesaid question, observed that the fee structure of the Institute for the courses conducted by it was not on the higher side and the Tribunal had also followed the decision of this Court in Samudra Institute of Maritime Studies Trust, reported in 49 taxmann.com 510, to hold that the activity carried on by the assessee was educational in nature and this was held so for the reason that the institute imparts education to members of the banking industry and prepares them to discharge their duties as bankers more efficiently. With regard to the objection that the benefit of the assessee’s activities was restricted to persons working in the banking industry and was not available to the public at large, the Hon’ble High Court negated the objection by placing reliance upon the decision of the Hon’ble Supreme Court in Ahmedabad Rana Caste Association, cited supra. The Hon’ble High Court thus upheld the Tribunal’s order holding the assessee eligible for exemption under Section 11. The Hon’ble High Court followed this decision for the assessment year 2009-10 also, vide its order in ITA No. 1935 of 2017 dated 29.01.2020.

We have carefully considered the rival submissions and perused the material available on record. The principal contention of the ld.DR is that the assessee falls within the proviso to Section 2(15) and that its activities are covered by the last limb of the definition of “charitable purpose”, namely, advancement of any other object of general public utility. It is also contended that the assessee cannot be regarded as an educational institution.

The aforesaid contention of the ld.DR is squarely answered by the decision of the Hon’ble jurisdictional High Court in the assessee’s own case for the relevant earlier assessment years, 2008-09 and 2009-10. The Hon’ble Bombay High Court has clearly held that the activities carried on by the assessee in imparting education to members of the banking industry and preparing them to discharge their duties as bankers more efficiently constitute educational activity. The Hon’ble jurisdictional High Court also considered the other objections raised by the Revenue, including the contention that the benefit of the assessee’s activities was confined to a particular section of the public. The said contention was rejected by following the ratio of the Hon’ble Supreme Court in Ahmedabad Rana Caste Association, cited supra, that a charitable purpose may benefit a particular section of the public and need not necessarily benefit the entire population.

The ld.DR also contended that the assessee is in the nature of a coaching centre. This contention also does not advance the case of the Revenue because the honourable High Court clearly held that the activities of the assessee Institute is not in the nature of running a coaching centre. Further, the Hon’ble Bombay High Court, while considering the distinction between Section 10(23C)(vi) and Section 11, has observed that grant or refusal to grant exemption u/s 10(22) or 10 (23) cannot govern the application of section 11 of the Act. In continuation of the observations made by the honourable high court, we may also point out that Section 10(23C)(vi) requires an educational institution to exist solely for educational purposes and not for purposes of profit, whereas the expression “solely” does not occur in Section 11. The interpretation of the term “education” as one of the limbs of “charitable purpose” under Section 2(15) is therefore not necessarily identical to the requirements applicable under Section 10(23C)(vi). In that view of the matter, the grant or rejection of approval under Section 10(23C)(vi) does not, by itself, determine the assessee’s eligibility for exemption under Section 11. The fact that the Chief Commissioner of Income-tax had rejected the assessee’s application under Section 10(23C)(vi), and that the matter was pending before the Hon’ble High Court, therefore does not affect the assessee’s eligibility for exemption under Section 11.

The ld.DR has also pointed out that the Special Leave Petition filed by the Department against the order of the Hon’ble Bombay High Court was dismissed on account of low tax effect and not on merits. We find the submission to be factually correct. Nevertheless, the fact remains that the decision of the jurisdictional High Court is binding upon this Tribunal in the absence of any contrary decision of the Hon’ble Supreme Court on merits or any subsequent decision of a larger Bench or otherwise altering the legal position. Having regard to the clear and categorical findings of the Hon’ble Bombay High Court in the assessee’s own case for Assessment Years 2008-09 and 2009-10, we hold that the assessee is an educational institution within the meaning of Section 2(15) of the Act and is consequently entitled to exemption under Section 11 for the year under consideration. The grounds raised by the Revenue on this issue are accordingly dismissed.

ITA Nos. 3387, 3388, 3389, 3390 and 3391 relate to Assessment Years 2011-12 to 2015-16 respectively. The learned representatives fairly agreed that the facts and the grounds raised in these appeals are materially similar to those considered by us in the lead appeal for Assessment Year 2010-11. Since the facts remain unchanged and the issue stands covered by the decision rendered in the lead appeal, our findings recorded above shall apply mutatis mutandis to these assessment years. Accordingly, the grounds raised by the Revenue in these appeals are dismissed.

In ITA No. 3392, for the assessment year 2016-17, an additional issue was raised vide ground number 8, while the remaining grounds are similar to those raised in appeal for the assessment year 2010-11.Vide ground number 8, the revenue contended that NFAC has erred in deleting the addition of Rs.5,09,01,345 made by the Assessing Officer on account of interest earned on tax-free bonds by accepting the alternative claim of the assessee that such interest is exempt under Section 10(15) of the Act, without appreciating that the assessee, being a trust registered under Section 12A, is required to have its income computed in accordance with the special provisions contained in Section 11 to 13 of the Act.

The above ground raised by the revenue was examined with reference to the facts. The Commissioner (Appeals), NFAC Delhi, has mentioned in his order that one of the grounds raised before him is that the Assessing Officer has denied the exemption under Section 11, and therefore, the interest on tax-free bonds should be considered as exempt under Section 10(15). This ground was raised before the Commissioner (Appeals) as an alternative plea. With reference to this ground, the Commissioner (Appeals) held that once exemption under Section 11 of the Act is allowed, the income of the appellant, including such interest on tax- free bonds, is required to be dealt with in accordance with the provisions governing charitable institutions. In view of the finding that the assessee is entitled to exemption under Section 11 of the Act, addition made on account of interest on tax-free bonds is also directed to be deleted as a consequential relief.

The above decision of the Commissioner of Income Tax (Appeals) is contrary to the ground raised by the revenue. Nowhere in the order the Commissioner (Appeals) has given a relief accepting the alternative plea of the assessee that the assessee is entitled to exemption under Section 10(15) of the Act. On the contrary, the Commissioner holds that even though the assessee requested for alternative exemption under Section 10(15) of the Act because of denial of exemption under Section 11, the same has not been accepted on the ground that since exemption under Section 11 is provided to the assessee, the assessee is entitled to be dealt in accordance with the computation mechanism provided under that section and not under Section 10(15).The ground raised by the revenue is factually found to be incorrect and accordingly dismissed.

With regard to the remaining grounds of appeal for the assessment year 2016-17, they are materially similar to those considered by us in the lead appeal for the assessment year 2010-11. Since the facts remain unchanged and the issue stands covered by the decision rendered in the lead appeal, our findings accorded for the assessment year 2010-11 shall apply mutatis mutandis to the assessment year 2016-17. Accordingly, the grounds raised by the revenue are dismissed.

In ITA No. 3393 for Assessment Year 2017-18, Grounds Nos. 8, 9 and 10 raise certain additional issues, while the remaining grounds are similar to those raised in the appeals for the earlier assessment years. One of the additional issues concerns the claim of depreciation. The Assessing Officer had observed that the assessee had sold leasehold premises for a consideration of Rs. 36 crores in an earlier year and that the said consideration was reduced from the block of office premises, resulting in proportionate disallowance of depreciation. During the course of hearing, the ld.DR submitted that, in view of the amendment to the Act by insertion of sub-section (6) in Section 11, depreciation was not allowable with effect from Assessment Year 2015-16 where the cost of acquisition of the asset had been treated as application of income. The ld.AR, on the other hand, referred to the Income and Expenditure Account for Assessment Year 2017-18 and demonstrated that no depreciation had been claimed by the assessee. It was therefore submitted that there could be no question of disallowing depreciation which had not been claimed in the first place.

We have considered the rival submissions. It is correct that Section 11(6) was inserted with effect from Assessment Year 2015-16 and restricts the allowance of depreciation in respect of assets where the cost of acquisition has been treated as application of income. However, in the present case, the assessee itself has not claimed any depreciation in the Income and Expenditure Account for Assessment Year 2017-18. Consequently, the question of disallowance of depreciation does not arise. The ground raised by the Revenue on this issue is accordingly dismissed.

Ground No. 7 relates to the assessee’s claim of accumulation under Section 11(2). The Assessing Officer, as well as the learned DR, contended that Form No. 10 furnished by the assessee did not specify any definite or identifiable purpose for accumulation and was merely a repetition of the objects contained in the Memorandum of Association. Accordingly, the claim of accumulation was rejected. Reliance was placed by the Assessing Officer upon the judgment of the Hon’ble Calcutta High Court in the case of Trustees of Singhania Charitable Trust, 199 ITR 819, wherein it was held that where the purpose of accumulation is stated merely in general terms by referring to the charitable objects of the trust, the purpose cannot be regarded as sufficiently specific. The ld.AR, however, distinguished the said decision from the facts of the present case.

We have perused Form No. 10 placed in the paper book. The purposes specified therein include acquisition of premises for training and other purposes; renovation of offices and flats; development of e-learning modules and web lectures; and establishment and revamping of testing centres, learning centres and data centres. These purposes are specific and restricted in nature and do not merely reproduce the entire range of objects of the assessee. In our considered view, the purposes specified by the assessee are sufficiently definite and cannot be characterised as vague or general. The facts of the present case are therefore distinguishable from those considered in Trustees of Singhania Charitable Trust. Accordingly, the accumulation claimed under Section 11(2) is allowable. The ground raised by the Revenue on this issue is dismissed.

Another ground raised by the Revenue challenges the finding of the learned CIT(A) that the Assessing Officer was not justified in taxing the income of the assessee at the maximum marginal rate. The ld.DR submitted that once exemption under Section 11 is denied, the income of the assessee is liable to be taxed at the maximum marginal rate. The ld.AR, on the other hand, submitted that the maximum marginal rate would be attracted only where the conditions prescribed in the proviso to Section 164(2) are satisfied, including violation of the relevant provisions referred to therein.

We have considered the rival submissions. In view of our finding that the assessee is entitled to exemption under Section 11, the question of taxing its income, whether at the maximum marginal rate or at the normal rate, does not arise. The income having been held to be exempt, the consequential issue of the applicable rate of tax becomes academic. Accordingly, the ground raised by the Revenue is dismissed.

With regard to the remaining grounds of appeal for the Assessment Year 2017-18, they are materially similar to those considered by us in the lead appeal for Assessment Year 2010-11. Since the facts remain unchanged and the issue stands covered by the decision rendered in the lead appeal, our findings recorded for the assessment year 2010-11 shall apply mutatis mutandis to the assessment year 2017-18. Accordingly, the grounds raised by the Revenue are dismissed.

ITA No. 3394 relates to Assessment Year 2018-19. The grounds raised therein are materially similar to those raised in the appeal for Assessment Year 2017-18. Accordingly, the findings recorded by us in respect of Assessment Year 2017-18 shall apply mutatis mutandis to the appeal for Assessment Year 2018-19. The grounds raised by the Revenue are accordingly dismissed.

In the result, the appeals filed by the Revenue for Assessment Years 2010-11 to 2018-19 are dismissed. Order pronounced in the open court on 19th August, 2026.