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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
This is an appeal filed by the assessee against the order of the ld CIT(Exemptions), New Delhi dated 26.03.2013 wherein the application for registration u/s 12AA was rejected holding that assessee is not carrying on education activity. The assessee has raised following grounds of appeal:- “ Order of the Learned Officer is against facts of the case. • Objects of the company as per Memorandum of Association are imparting the education related to wilderness skills and leadership, which is specialized form of wilderness and leadership education. Despite in being Education field, the required registrations were Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 refused to assessee . All the facts proving the specialized knowledge were presented before the Learned Officer. • In its impugned order, the learned Director (Exemptions) had mentioned that the activities of the applicant would fall under the residual category of 'General Public Utility' and not under the category of 'education', which is not in accordance with prevalent law as the nature of activities carried on, by the assessee fall under education. • Learned Officer has mistaken the services provided to NOLS USA as being provided outside India. Assessee has provided the services to foreign students in India and has taken the fee of teaching foreign students . Learned DIT instead has taken a stand that the assessee is providing services outside India. • Learned Officer has erred in rejecting the registration by mentioning that the company is providing services outside India . • The assessee company provides service to its parent company for teaching the foreign students in India, for which there exists a prior agreement. • The Learned Officer has overlooked all the case laws mentioned and has issued impugned order. • Thus this Appeal.
Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 • The appellant begs to leave to amend , add or substitute any further ground(s) of appeal.” 2. Though the assessee has raised several grounds of appeal but the only grievance is that the ld CIT(E) has rejected the application of the assessee u/s 12AA of the Act.
3. Brief facts are that applicant assessee trust is a company registered u/s 25 of the Companies Act, 1956 and engaged in the activities pertaining to teaching of wilderness of skills and leadership for the service of the people and environment.
4. It filed its application for the registration u/s 12A of the Act and for recognition u/s 80G on 27.09.2012. The assessee was asked to submit certain details , assessee submitted part details and further on 13.03.2013, the assessee was issued show cause notice stated that its application is to be rejected as it was hit provisions of section 2(15) of the Act. The assessee replied to the notice on 15.03.2013 and 18.03.2013. Further the ld DIT(E) rejected the application of the assessee holding that it does not engaged in the activities of education as there is no class room education carried out by the assessee. He further, relied on the decision of Hon‟ble Supreme Court in case of Shikshana Trust 101 ITR 234. He further held that the assessee‟s object fall under the residual category of general public utility and not in the Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 category of education. He further noted that the assessee has received consultation charges of Rs. 97.89 lakhs from its USA during the FY 2011-12. He therefore, held that the assessee is involved in rendering services outside India which is not permissible. Hence, he rejected the application of the assessee u/s 12AA and consequently, the application u/s 80G of the Act. Aggrieved the assessee preferred an appeal before the us.
5. The ld AR vehemently submitted that the assessee is carrying on education activities and not the object of general public utility. He made a written submission as under:-
1) The assessee is section 25 Company and engaged in the teaching of wilderness skills and leadership that serve people and environment. The main objects of the assessee as mentioned in MOA are spreading education in the field of wilderness skills
2) A perusal of the objects prove beyond doubt that assessee is covered by the first three limbs of the proviso to section 2(15). Wilderness skill means training students as scouts. In India in most of the school scouting is part of syllabus and students being trained
Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 Submissions of the assessee are as under-
Nanda Devi Outdoor Leadership School India is a section 25 3) company registered in India as per the Companies Act 1956 and is limited by the shares. As per section 25 of the company Act, the company which intend to be in non profit sector or to be engaged in charitable activities, they may get themselves registered under this section. Once a company is registered under section 25, it has to apply for a license with Central Government and If Central Government is so satisfied as to its objects to be that of non profit or charitable activities, it may grant the license and after obtaining such license, it may retain a name that does not contain the words "Private Limited”. In the license all the conditions are mentioned which are to be abroad with.
The fact that the assessee is constituted u/s 25 of the Companies 4) Act, alone, is sufficient to prove that the activities of the assessee are genuine and charitable in nature and no profit motive embodied therein. Section 25 of the Companies Act reads as under: - “Section 25 in The Companies Act, 1956
Power to dispense with" Limited" in name of charitable or other company. Page | 5
Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 (1) Where it is proved to the satisfaction of the Central Government that an association- (a) is about to be formed as a limited company for promoting commerce, art, science, Religion, charity or any other useful object, and (b) intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members, the Central Government may, by licence, direct that the association may be registered as a company with limited liability, without the addition to its name of the word" Limited" or the words" Private Limited".
(2) The association may thereupon be registered accordingly; and on registration shall enjoy all the privileges, and (subject to the provisions of this section) be subject to all the obligations, of limited companies.
Where it is proved to the satisfaction of the Central Government- (a) that the objects of a company registered under this Act as a limited company are restricted to those specified in clause (a) of sub- section (1); and Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 (b) that by its constitution the company is required to apply its profits, if any, or other income in promoting its objects and is prohibited from paying any dividend to its members, the Central Government may, by licence, authorise the company by a special resolution to change its name, including or consisting of the omission of the word" Limited" or the words" Private Limited"; and section 23 shall apply to a change of name under this sub- section as it applies to a change of name under section 21.
A firm may be a member of any association or company licensed under this section, but on the dissolution of the firm, its membership of the association or company shall cease.
A license may be granted by the Central Government under this section on such conditions and subject to such regulations as it thinks fit, and those conditions and regulations shall be binding on the body to which the licence is granted, and where the grant is under sub- section (1), shall, if the Central Government so directs, be inserted in the memorandum, or in the articles, or partly in the one and partly in the other.
6. It shall not be necessary for a body to which a licence is so granted to use the word" Limited" or the words" Private Limited" as any part of its name and, unless its articles otherwise provide, Page | 7
Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 such body shall, if the Central Government by general or special, order so directs and to the extent specified in the direction, be exempt from such of the provisions of this Act as may be specified therein.]
7. The licence may at any time be revoked by the Central Government, and upon revocation, the Registrar shall enter the word" Limited" or the words" Private Limited" at the end of the name upon the register of the body to which it was granted; and the body shall cease to enjoy the exemption granted by this section:
Provided that, before a licence is so revoked, the Central Government shall give notice in writing of its intention to the body, and shall afford it an opportunity of being heard in opposition to the revocation.
(8) (a) A body in respect of which a licence under this section is in force shall not alter the provisions of its memorandum with respect to its objects except with the previous approval of the Central Government signified in writing.
(b) The Central Government may revoke the licence of such a body if it contravenes the provisions of clause (a).
Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 (c) In according the approval referred to in clause (a), the Central Government may vary the licence by making it subject to such conditions and regulations as that Government thinks fit, in lieu of, or in addition to, the conditions and regulations, if any, to which the licence was formerly subject.
(d) Where the alteration proposed in the provisions of the memorandum of a body under this subsection is with respect to the objects of the body so far as may be required to enable it to do any of the things specified in clauses (a) to (g) of sub- section (1) of section 17, the provisions of this subsection shall be in addition to, and not in derogation of, the provisions of that section.] (9) Upon the revocation of a licence granted under this section to a body the name of which contains the words" Chamber of Commerce", that body shall, within a period of three months from the date of revocation or such longer period as the Central Government may think fit to allow, change its name to a name which does not contain those words; and- (a) the notice to be given under the proviso to sub- section (7) to that body shall include a statement of the effect of the foregoing provisions of this sub- section; and Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 (b) section 23 shall apply to a change of name under this sub- section as it applies to a change of name under section 21.
(10) If the body makes default in complying with the requirements of sub- section (9), it shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues. Articles of Association.
5. Further, a bare perusal of the definition of section 25 Companies Act makes it clear that Central Govt, after satisfying about the characteristics of objects and application of income, may grant iicense to these companies and these companies are completely debar from distribution of profits among it‟s members by way of dividend. Hence the Commissioner has erred in overlooking section 25 of the Companies Act.
6. It is also provided in this section that if at any time it is found that the entity has violated those terms and condition on the basis of which the license has been granted, then the Central Govt, may revoke the license at any time.
7. Commissioner has overlooked that in the case of the assessee also the promoter, director or members of the assessee Company are not entitled for any dividend.
Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 8. Therefore it is proved beyond doubt that assessee is an entity having no profit motive and therefore it is a charitable organization
9. Assessee seeks to rely on the judgment of Hon‟ble Delhi Bench of the ITAT in the case of Disha Mico credit in of 2010 wherein it has been held approval of Govt vis-a- vis incorporation of the a section 25 Company would prima-facie prove that the objects are charitable in nature. Copy of the judgement is annexed in Decisions Paper Book and also available on the web site of ITAT.
It is next submitted that it is the matter of assessment which has to be seen by the AO at the time of assessment in case the funds are not applied for charitable purpose.
It is next submitted that so far as the nature of the objects that is whether they are charitable in nature or not the CIT has not made any observation in the impugned order and rightly so. Because CIT was very much aware of the fact that assessee is a section 25 Company.
It is submitted that the Ld CIT has doubted the activities of the assessee by observing that activity of wilderness skilled is not falls under the ambit of education and hence assessee case falls under Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 the ambit of proviso to section 2(15) of the Income Tax Act. In this regard the assessee wish to submit as under
Wilderness skill is an arm of “outdoor education” which involves many activities like rock climbing, hiking etc. As per the definition of outdoor education as available on internet it means organised learning that takes place in outdoors. The definition given is reproduced hereunder
“Outdoor education usually refers to organized learning that takes place in the outdoors. Outdoor education programs sometimes involve residential or journey wilderness-based experiences in which students participate in a variety of adventurous challenges and outdoor activities such as hiking, climbing, canoeing, ropes courses and group games. John Muir Award is one organization which encourages and provides opportunities for outdoor learning. Outdoor education draws upon the philosophy, theory, and practices of experiential education and environmental education. Forest School is an approach to outdoor learning which supports the development of self-esteem and confidence using a natural environment.
Definitions Page | 12
Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 Outdoor education can be simply defined as experiential learning in, for, or about the outdoors. The term 'outdoor education', however, is used broadly to refer to a range of organized activities that Outdoor education can be simply defined as experiential learning in, for, or about the outdoors. The term 'outdoor education', however, is used broadly to refer to a range of organized activities that take place is a variety of ways in predominately outdoor environments. Common definitions of outdoor education are difficult to achieve because interpretations vary according to culture, philosophy, and local conditions.
Outdoor education is often referred to as synonymous with adventure education, adventure programming, and outdoor learning. outdoor school, adventure therapy, adventure recreation, adventure tourism, expeditionary learning, challenge education, experiential education, environmental education, forest schools and wilderness education. Consensus about the meaning of these terms is also difficult to achieve. However, outdoor education often uses or draws upon these related elements and/or informs these areas. The hallmark of outdoor education is its focus on the "outdoor" side of this education; whereas adventure education
Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 would focus on the adventure side and environmental education would focus on environmental. Wilderness education involves expeditions into wilderness "where man is but a visitor." For more information, see Outdoor education definitions (Wikibooks).”
The above definition available in public domain will prove beyond doubt that assessee is covered in the ambit of education and hence provision of proviso would not be applicable to assessee. And therefore the CIT was not correct in holding that objects of assessee falls under the phrase objects of general public utility.
It is next submitted that CIT has relied on the decision of Lok Skishan 101 ITR 234(Del) and holds that education means systematic learning through schooling. It is submitted that law has been developed a lot after this decision. And in number of cases it has been held that the decision of Supreme Court has not restricted the meaning of world education. It is submitted that Hon‟ble Gujrat High Court has interpreted the judgment of Hon‟ble Supreme Court in the case of Gujrat State Cooperative Union Vs CIT 195 ITR 279(Guj) and has observed as under “It appears to us that the decision of the Tribunal which seeks to rest it on the observations made by the Supreme Court in "lok shikashana trust's case (supra), for holding that Page | 14
Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 the assessee is not entitled to exemption under s. 10(22) of the Act is based on a complete misreading of the observations of the Supreme Court. In Lok Shikashana Trust's case (supra) the Supreme Court while dealing with the provisions of s. 11 r/w s. 2(15) of the Act which defines „charitable purposes' observed as under:
"The sense in which the word 'education' has been used in s. 2(15) in the systematic instruction, schooling or training given to the young in 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, travelling is education, because as a result of travelling you acquire fresh knowledge But that is not the sense in which the word 'education' is used in cl. 15 of s.
What 'education' connotes in that clause is the process of training and developing the knowledge, skill, mind and character of students by normal schooling."
The Supreme Court in the above observations by referring to Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 the systematic instruction, schooling or training given to the young has only cited an instance in order to indicate as to what the word 'education' appearing in s. 2(15) of the Act which defines „charitable purposes' is intended to mean. We are certain that these observations were not intended to keep out of the meaning of the word 'education', persons other then 'young'. The expression 'schooling' also means "that schools, instmcts or educates" (The Oxford English Dictionary, Vol. IX 217). The Supreme Court has observed that the word 'education' also connotes the whole course of scholastic instruction which a person has received. This clearly indicates that the observations of the Supreme Court were not intended to give a narrow or pedantic sense to the word 'education'. By giving further illustrations of a traveler gaining knowledge, victims of swindlers and thieves becoming wiser, the visitors to night clubs adding to their knowledge and hidden mysteries of life, the Supreme Court has indicated that the word 'education' is not used in a loose sense so as to include acquisition of even such knowledge. The observations of the Supreme Court only indicate proper confines of the word „education' in the context of the Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 provisions of s. 2(15) of the Act. It will not be proper to construe these observations in a manner in which they are construed by the Tribunal when it infers from these observations, in para 17 of its judgment, that the word „education' is limited to schools, colleges and similar institutions and does not extend to any other media for such acquisition of knowledge. The observations of the Supreme Court do not confine the word 'education' only to scholastic instructions but other form of education also are included in the word „education'. As noticed above, the word schooling),also means instructing or educating. It, therefore, cannot be said that the word „education' has been given an unduly restricted meaning by the Supreme Court in the said decision”
Further assessee seeks to rely on the judgement of Delhi High Court in following cases. Wherein the Hon‟ble Jurisdictional High Court after referring to the decision of Hon‟ble Gujarat High Court as quoted above and the decision of Lok Shikshan (Supra) has held that decisions of the Hon‟ble Apex Court cannot be read in way to restrict the meaning of “education” only to scholastic instructions but the other form of education also are included in the Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 word education.
a. Institute of Chartered Accountant Vs DIT Exemption 347 ITR 99(Del) Hon‟ble High Court observed as under: -
The aforesaid ratio expounded in the Sole Trustee, Loka Shikshana Trust (supra) has been nghtly interpreted by the Gujarat High Court in Gujarat State Co-operative Union vs. CIT (1992) 103 CTR (Guj) 206 : (1992) 195 ITR 279 (Guj) wherein it has been held as under :
"The Supreme Court, in the above observations, by referring to the systematic instruction, schooling or training given to the young has only cited an instance in order to indicate as to what the word „education‟ appearing in s. 2(15) of the Act which defines „charitable purposes' is intended to mean. We are certain that these observations were not intended to keep out of the meaning of the word „education‟, persons other than „young‟. The expression „schooling‟ also means „that schools, instructs or educates‟ (The Oxford English Dictionary, Vol. IX, p. 217). The Supreme Court has observed that the word „education‟ also connotes the whole course of scholastic instruction which a person has received.
This clearly indicates that the observations of the Supreme Page | 18
Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 Court were not intended to give a narrow or pedantic sense to the word „education‟.
By giving further illustrations of a traveller gaining knowledge, victims of swindlers and thieves becoming wiser, the visitors to night clubs adding to their knowledge the hidden mysteries of life, the Supreme Court has indicated that the word „education‟ is not used in a loose sense so as to include acquisition of even such knowledge. The observations of the Supreme Court only indicate the proper confines of the word „education‟ in the context of the provisions of s. 2(15) of the Act. It will not be proper to construe these observations in a manner in which they are construed by the Tribunal when it infers from these observations, in para 17 of its judgment, that the word „education‟ is limited to schools, colleges and similar institutions and does not extend to any other media for such acquisition of knowledge. The observations of the Supreme Court do not confine the word „education‟ only to scholastic instructions but other forms of education also are included in the word „education‟. As noticed above, the word „schooling‟ also means instructing or educating. It, therefore, cannot be said that the word „education‟ has been given an Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 unduly restricted meaning by the Supreme Court in the said decision. b. ICAI Accounting Research Foundation vs. DGIT (E) 321 ITR 73 (Delhi) c. Delhi Music Society reported in 357 ITR 265 (Del)
In view of the above it is prayed that the appeal of the assessee may be allowed.”
He further submitted a paper book wherein, the balance sheet of the assessee on 31.03.2011 was submitted. In the end he demonstrated by submitting a paper book containing several decisions.
The ld CIT DR vehemently submitted that the assessee is engaged in the activities which are not educational activities but are different as it involved etc. He further referred to print out of the Business Line wherein, the activities of the assessee were mentioned. In the end he submitted that it is mentioning the activities and in the nature of sports he further submitted Wikipedia about the National Outdoor Leadership School to substantiate his view. 8. We have carefully considered the rival contention and also considered the order of the ld CIT(E) denying the registration to the assessee company. The assessee is engaged in the activities of rock climbing and mountaineering, bagpacking, kayaking, sailing and rafting. It says that it Page | 20
Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 is one of the world‟s biggest outdoor skill trainer and its parent is headquartered in the USA. It offered courses in the Himalayan by instructing. It is submitted that it not only teaches the outdoor skills but also keeps the course dynamic with evolving situations used as case studies for exploring leadership. Its course feature both leadership and technical outdoor skills. It has trained more than 280,000 students giving academic credit for all courses either through the university which has it specified or schools. The above company is Indian arm of National Outdoor Leadership School, a nonprofit outdoor educational school based in the United States dedicated to teach environmental ethics, technical outdoor skills, wilderness medicine, risk management and judgment and leadership on extended wilderness expeditions and in traditional classrooms. The limited issue here is whether the activity of the assessee falls under the category of “education” and not “general public utility”. The ld CIT(E) has heavy relied on the decision of the Hon'ble Supreme Court in Lok Shikshana Trust 101 ITR 234. He was of the view that there is no class room teaching as formal schooling and not the activity as „education” as envisages by the assessee. The Hon'ble Delhi High Court had an occasion to consider in 357 ITR 265 that whether a society teaching and promoting form of music and dance, western, Indian or any other which runs like school or Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 educational institute in a systematic manner in regular classes, vacations, attendance and enforcement of discipline is in “education” or not. Though it did not conduct its own examination or awarded degrees the Hon'ble High Court held that it meets the requirement of educational institute. Similarly, in DIT(E) Vs. Samudra Institute Of Maritime Studies Trust 369 ITR 645 the Hon'ble Bombay High Court had an occasion to consider whether the above assessee set up to administer and maintain technical trading institute for pre sea and post sea training for the ships and maritime industry is an „education „ activity or not. Hon'ble High Court held that though courses are not approved it is an educational institute. Further the Hon'ble Kolkata High Court in Swar Sangam and other Vs. CIT [ 368 ITR 395] held that teaching in fine arts, Indian music and dance is also educational activities. The activities of the assessee before us are no different than the activities decided by the various High Courts as above. In all the above decisions the decision of the Hon'ble Supreme Court relied up on by the ld CIT (E) was considered and held that such a restricted meaning of „education‟ cannot be given. In the present case the assessee‟s activities are prima facie „educational activities‟ . further it is for the authority granting registration to give prima facie opinion with reasoning that the activities carried on by the assessee is eligible for registration u/s 12A of the Nandadevi Outdoor Leadership School India Vs. DCIT Appeal U/s 12AA(1)(b) of IT Act, 1961 Income Tax Act or not. Furthermore, while granting registration u/s 12A of the Act the registration authority is further required to look into the fact that whether the activities of the trust are genuine or not. Merely because assessee received some donation and grants from other entities its activities does not become ingenuine. As these aspects are required to be dealt with about the objects whether it is education or not and activities whether they are genuine or not,. the ld CIT(E) has merely relied upon the decision of the Hon'ble Supreme Court without considering the several decisions wherein, the above decision of the Hon'ble Supreme Court has been considered. Therefore, we direct the ld CIT(E) to consider the application of the assessee by considering the above decisions and in the light of them needs to examine the object of the trust whether they are falling within the meaning of “education” or not as per section 2(15) of the Act. Further the ld CIT(E) may also examine the grant and other income received by the trust to verify the genuineness of the activities of the trust. Needless to say that proper opportunity of hearing may be granted to the assessee and thereafter the issue may be decided afresh and on merits.
In the result appeal filed by the assessee is allowed for statistical purposes.