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Income Tax Appellate Tribunal, “C’’ BENCH : BANGALORE
Before: SHRI N.V VASUDEVAN, VICE PRESIDNET & SHRI B.R BASKARAN
O R D E R Per B.R Baskaran, Accountant Member
Both the appeals filed by the assessee are directed against the orders passed by Ld CIT(A), Mysore and they relate to the assessment years 2005-06 and 2006-07.
This is in second round before the Tribunal. In the first round, the appeals were numbered as & 551/Bang/2009 and certain matters were restored to the file of the AO by the Tribunal, vide its order dated 30-11-2009. The assessment orders passed in the second round were also challenged by the assessee before Ld CIT(A) and the Tribunal. However, before the Tribunal, the assessee raised certain legal issues and the co- ordinate bench initially allowed the appeals, vide its order dated 09- 05-2014 on the legal issue, without adjudicating the grounds urged on merits. However, the orders of the Tribunal were reversed by Hon’ble High Court of Karnataka and hence the appeals were restored back to the Tribunal for adjudicating the grounds urged on merits. Consequently, a common order on merits was passed by the SMC bench on 26-10-2016 for both the years. Since the SMC bench did not adjudicate certain grounds, the assessee moved miscellaneous applications seeking recall of orders and consequent thereto, vide order dated 13-04-2017 passed in M.A. No.715 & 716/Bang/2017, the SMC bench recalled the common order passed for both the years for the limited purpose of adjudicating ground nos.3 & 4 relating to claim of exemption u/s 10(23C) and ground Nos. 6 to 8 relating to disallowance made u/s 40(a)(ia) for non- deduction of tax at source u/s 194C of the Act. Accordingly, these appeals were heard now for adjudicating above said issues.
The first issue relates to the claim of exemption u/s 10(23C) of the Act. The Ld A.R submitted that the assessee is running educational institution and it is substantially financed by the Government. Accordingly he submitted that the assessee is eligible for exemption u/s 10(23C)(iiiab) of the Act. The Ld A.R, in the alternative, submitted that the assessee is also eligible for exemption u/s 10(23C)(iiiad) also, since its gross receipts do not exceed the prescribed limits in both the years under consideration.
On the contrary, the Ld D.R submitted that the assessee had obtained “works contract” from the Office of Commissioner of Social Welfare, Government of Karnataka to implement its scheme of conducting Vocational training courses in the fields of (1) Radio and TV repairs for 6 months; (2) training in electrical wiring for 6 months; (3) Fitter training for 6 months and (4) Training in Vehicle repairs for 6 months to people belonging to Scheduled Caste in various districts of the State of Karnataka. Accordingly, the assessee has appointed franchisees to conduct above cited training programmes on sub-contract basis. Accordingly, the Ld D.R submitted that the assessee cannot be considered to be running an “educational institution”. It is only a contractor appointed by Government of Karnataka to implement its scheme. By placing his reliance on the decision rendered by Hon’ble Supreme Court in the case of Sole trustee Lok Shiksana Trust vs. CIT (101 ITR 234), the Ld D.R submitted that the word “education” used in sec.2(15) would refer to the systematic instruction, schooling or training given to young in preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received. The Ld D.R submitted that the “educational institution” referred in sec. 10(23C) should be one imparting ‘education’ as mentioned above and it should lead to awarding of degree or diploma as held in the case of Saurashtra Education Foundation vs. CIT (2005)(273 ITR 139)(Guj). The Ld D.R submitted that the activities of the assessee herein cannot be equated with the activities of an educational institution, which would offer systematic instruction or schooling or training. The assessee has obtained contract for giving short term training in vocational activities and it has only executed the contract by appoint franchisees on sub-contract basis. He further submitted that the fee paid by the assessee to the sub-contractors (franchisees) has been held to be payment made for “work” by the co-ordinate bench in Paragraph 8 of its order passed in the first round in & 551/Bang./2009. The assessee has accepted the said decision of the Tribunal by not challenging it before the Hon’ble High Court. Accordingly, the Ld D.R submitted that the assessee’s contention cannot be accepted by the Tribunal, lest it should be contrary to the decision already rendered. Accordingly he submitted that the activities of the assessee cannot be considered to be activities of an “Educational institution” in terms of sec.10(23C) of the Act. Accordingly he submitted that the assessee is not entitled for exemption u/s 10(23C) of the Act.
In the rejoinder, the Ld A.R submitted that the case laws relied upon by Ld D.R has explained the meaning of the word “education”. However, sec.10(23C) uses the expression “other educational institution”. Hence the assessee should be falling under the category of “other educational institution”. The Ld D.R placed his reliance on the decision rendered in the case of Mudra Foundation for Communications Research & Education vs. CCIT (2016)(237 Taxman 139) by Hon’ble Gujarat High Court in support of his contentions.
We have heard rival contentions on this issue and perused the record. We notice that the provisions of sec. 10(23C) uses the expression “University or other educational institution”. Since a University should be managing the education system of the educational institutions registered under it, it was categorised as separate category and the educational institutions have been categorised as “other educational institution”. If the contention of the assessee that the expression “other educational institution” should be considered as a third category is accepted as correct for a moment, then the formal educational institutions shall be out of the purview of provisions of se. 10(23C) of the Act. In our view, the such kind of interpretation would defeat the purpose of sec.10(23C) of the Act. Accordingly, we are of the view that the meaning given to the word “education” used in sec. 2(15) of the Act should be adopted as it is in order to understand the meaning of “educational institution”.
7. The meaning of expression “education” came to be interpreted by Hon’ble Supreme Court in the case of Sole Trustee Lok Shikshana Trust (supra) and by Hon’ble Gujarat High Court in the case of Saurashtra Education Foundation (supra) and also by Hon’ble Patna High Court in the case of Bihar Institute of Mining And Mine Surveying v. CIT [1994] 208 ITR.
We notice that the Cochin bench of Tribunal considered an issue as to whether an institution conducting Coaching classes can be considered to be an educational institution offering charitable activity of education within the meaning of sec.2(15) of the Act in the case of M Star Charitable Society vs. CIT (IT Appeal No.7605 (Coch) of 2011). The claim of the assessee was rejected by the Cochin bench of Tribunal with the following observations by placing reliance on the case laws cited above:-
“4. We have considered the rival submissions on either side and also perused the material available on record. Admittedly, the taxpayer is running coaching classes. The taxpayer is not doing any other activity. The question arises for consideration is whether conducting coaching classes for the students would fall within the meaning of “education” as provided in section 2(15) of the Act. The Apex Court had an occasion to consider the provisions of section 2(15) of the Act in Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC). After considering the provisions of sections 2(15) of the Act, the Apex Court found that all kinds of acquiring knowledge will not come within the meaning of “education”. What “education”. connotes in section 2(15) is the processing of training and developing the knowledge, skill, mind and character of students by normal schooling. In fact, the Apex Court has observed as follows at page 241 of the ITR: “The sense in which the word “education” has been used in section 2(15) is the systematic instruction, schooling or training given to the young is preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received. The word “education” has not been used in that wide and extended sense, according to which every acquisition of further knowledge constitutes education. According to this wide and extended sense, traveling is education, because as a traveling you acquire fresh knowledge. Likewise, if you read newspapers and magazines, see pictures, visit art galleries, museums and zoos, you thereby add to your knowledge. Again, when you grow up and have dealings with other people, some of whom are not straight, you learn by experience and thus add to your knowledge of the ways of the world. If you are not careful, your wallet is liable to be stolen or you are liable to be cheated by some unscrupulous person. The thief who removes your wallet and the swindler who cheats you teach you a lesson and in the process make you wiser though poorer. If you visit a night club, you get acquainted with and add to your knowledge about some of the not much revealed realities and mysteries of life. All this in a way is education in the great school of life. But that is not the sense in which the word “education” is used in clause (15) of section 2. What education connotes in that clause is the process of training and developing the knowledge, skill, mind and character of students by normal schooling.”
5. From the above judgment of the Apex Court it would be abundantly clear that there should be a systematic instruction to the students by way of normal schooling. Mere coaching classes
may provide some kind of knowledge to the students. But that kind of acquisition of knowledge through coaching classes cannot fall within the meaning of “education” as provided in section 2(15) of the Act. As the Apex Court observed, one may acquire knowledge in the course of traveling; during the course of reading newspaper; etc. But that kind of knowledge cannot fall within the term “education” as provided in section 2(15) of the Act. There should be a normal schooling by way of regular and systematic instruction.
6. The Patna High Court in the case of Bihar Institute of Mining And Mine Surveying v. CIT [1994] 208 ITR held that mere conducting of classes for open university/distance education cannot be construed as charitable activity within the meaning of section 2(15) of the Act. The Patna High Court, after considering the judgment of the Apex Court in CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC) and in the case of CIT v. Sole Trustee, Loka Shikshana Trust [1970] 77 ITR 61 (Mys) has observed as follows at page 615 of the ITR: “It is true that by reason of the Finance Act, 1983, the question as to whether any charitable institution is being run with a profit motive or not has lost its relevant. However, the word “charitable” prefixing the word “institution” has to be given its full effect. It appears that one of the principal projects of the petitioner’s institution has the object of coaching and preparing the students for appearing in various examinations conducted by the Board of Mining Examination and/or MI(1) section (a)(b) and the said coaching of students in an institute is not, in our opinion, an imparting of education which can be said to be a process of training and developing knowledge and character of students by normal schooling. A coaching institute cannot be said to be an institution where normal schooling is done. The definition of “charitable purpose” is inclusive and not exhaustive.”
It is further seen that the Gujarat High Court also had an occasion to consider identical issue in the case of Saurashtra Education Foundation v. CIT [2005] 273 ITR 139 (Guj). The Gujarat High Court found that all kinds of education would not fall within the meaning of section 2(15) of the Act. The training, instruction, etc. would result in grant of a diploma or degree by a university or a governmental agency. In the case before us, admittedly, the taxpayer is conducting coaching classes. Therefore, it cannot be treated as a charitable institution as provided in section 2(15) of the Act. This Tribunal is of the opinion that the taxpayer is not eligible for registration u/s 12AA of the Act. Accordingly, the order of the lower authority is confirmed.”
In the instant case, we have noticed that the assessee has been awarded a contract to conduct short term Vocational training Courses in various districts of State of Karnataka. The assessee has undertaken the Contract and has appointed franchisees on sub-contract basis. Though it is not clear as to whether the assessee itself has conducted training or not, yet the vocational training given by the assessee, if any, and the franchisees can, in our view, fall under the category of “Coaching institutes” only, since the same would not fall under the category of normal schooling and systematic instruction and education explained by Hon’ble Supreme Court and other High Courts. In any case, we have noticed that the assessee is only executing the works contract given by Government of Karnataka. In our view, the reliance placed by the assessee in the case of Mudra Foundation for Communication Research & Education is not appropriate, since paragraph 16 of the order of High Court would make it clear that the assessee therein was awarding diplomas, certificates etc after providing training in communication, advertising and related subjects to equip them thoroughly to practice the art and profession of Communication in which they have been trained. The facts of the present case is quite different. Hence the claim of the assessee that it is running an “educational institution” within the meaning of sec.10(23C) of the Act is liable to be rejected. Accordingly we are of the view that the tax authorities are justified in rejecting the claim of exemption u/s 10(23C)(iiiab) and (iiiad) of the Act.
The next issue relates to the disallowance made u/s 40(a)(ia) of the Act for non-deduction of tax at source u/s 194C of the Act on the payments made to franchisees. We have earlier noticed that the co-ordinate bench has already held in the first round that the sub- contract given to the franchisees would fall under the category of “work” defined in sec.194C of the Act. Consequently, the assessee shall be liable to deduct tax at source from the payments so made.
Before us, the ld A.R took an alternative contention that the scope of provisions of sec.194C has been extended to include “Association of persons” only from 1st June, 2008. He submitted that the assessee has been assessed as “Association of Persons” by the AO and hence the provisions of sec.194C should not be made applicable to the years under consideration.
The Ld D.R, on the contrary, submitted that the assessee is a “trust” and the trusts have been included long back in sec.194C of the Act. He submitted that the amendment inserted with effect from 1st June, 2008 was intended to cover Special purpose vehicles formed as Association of persons.
13 We heard the parties on this issue. The explanatory memorandum makes it clear that the scope of sec.194C was extended to cover Association of Persons from 1st June 2008, since a large number of works contracts are executed by a number of Special Purpose Vehicles (SPVs) structured as Joint Ventures/Consortiums in the nature of Association of Persons. However, the provisions of sec.194C is clear that the “trusts” are liable to deduct tax at source. There is no dispute that the assessee is a trust and hence, in view of specific provisions of sec.194C, it shall be liable to deduct tax at source. It may be pertinent to note that the Trusts file their return of income under the category of “Association of Persons” only, meaning thereby, the category “Association of Persons” would encompass different forms of association, of which SPVs and Trusts are one of the forms of association. Since the provisions of sec.194C specifically include “Trusts” in the list of assessees liable to deduct tax at source, in our view, the assessee’s claim to consider it under the category of SPVs is liable to be rejected. Accordingly we do not find any merit in this contention of the assessee.
In the result, all the grounds relating to both the appeals are dismissed. Order pronounced in the Open Court on 3rd July, 2019.