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Facts
The appellant, an educational institution registered under Section 12A/12AA of the Income Tax Act, appealed against the CIT(A)'s order confirming the addition of Rs. 1,71,97,154/- and denying exemption. The Assessing Officer had denied exemption citing violation of Section 2(15) by charging tuition fees, making the activity commercial.
Held
The Tribunal held that once the status of a 'Trust' is decided by the Commissioner of Income Tax under Section 12A/12AA, neither the Assessing Officer nor the CIT(A) can deny that status. The CIT is empowered to examine if activities are as per provisions, but denying the status is beyond their power.
Key Issues
Whether the denial of exemption under Section 12A/12AA by the AO and CIT(A) is justified when the society is registered and running an educational institution, and whether the charging of tuition fees makes it a commercial activity.
Sections Cited
11, 12A, 12AA, 143(3), 144A, 2(15), 234B, 10(23C)(iiiad), 10(23C)(vi)
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Income Tax Appellate Tribunal, RANCHI BENCH, RANCHI
Before: SHRI GEORGE MATHAN & SHRI RATNESH NANDAN SAHAY
Assessee represented by Shri R.R. Mittal, A.R. Department represented by Shri Khubchand T. Pandya, Sr.DR Date of hearing 24/04/2025 Date of pronouncement 24/04/2025 O R D E R PER: BENCH 1. This appeal by the appellant is directed against the order of learned Commissioner of Income Tax (Appeals), Jamshedpur [in short, the ld. CIT(A)] dated 10/10/2017 for the Assessment Year (AY) 2014-15. In this appeal, the appellant has raised following grounds of appeal:
1. For that the Ld. CIT (Appeals) is highly unjustified in dismissing the specific ground that the Ld. Authorities did not consider the application of the assessee u/s 144A of the Income Tax Act and the circular No. 11/2008 of the CBDT without any justifiable reason and as such the Assessment Order is bad in law and liable to be set aside/modified/cancelled.
2. For that the Ld. CIT (Appeals) in Para 4.3 of his order in Page No. 21 has directed the Assessing Officer to consider the status of the Assessee as trust and allow the said ground. However the Ld. CIT (Appeals) is highly unjustified in simultaneously treating the excess of income over expenditure as per Profit & Loss A/C without considering the exemptions u/s 11 without any reason and confirming the addition of Rs. 1,71,97,154/- and the same is liable to be deleted in to-to.
3. For that the Ld. CIT (Appeals) is highly unjustified in not considering the amount applied for charitable purpose in India during the Previous Year on Capital Account and also any allowable deduction u/s 11 of the Income Tax Act, as the assessee is running educational institution duly approved and controlled by CBSE under the Ministry of Human Resources, Government of India and Department of Education. The application of Rs.
JUSCO Education Mission Foundation Vs DCIT (E) 83,51,012/- on Capital Asset should be allowed and as the total application of income is more than 85% of the income received, the addition of Rs. 1,71,97,154/- is liable to be deleted in to-to.
For that the Ld. CIT(Appeals) is highly unjustified in not considering Rs. 4,000/- on account of Picnic expenses of employee though the same is part of Staff Welfare expenses. As such addition is liable to be deleted in to-to.
For that the Ld. CIT(Appeals) is highly unjustified in not considering Rs. 73,168/- on account of Adhoc payment to employees. As the same is dully vouched and verifiable and addition of Rs. 73,168/- is liable to be deleted in to-to.
For that the Ld. CIT(Appeals) is highly unjustified in ignoring the order of Jurisdictional High Court of Jharkhand in the case of Ajay Prakash in TA No. 38 of 2010 and confirming the charging of interest u/s 234B on the assessed income. Interest u/s 234B should have been charged on returned income.
7. For the assessee begs leave to add, alter and withdraw any grounds of appeal during the course of hearing thereof or prior thereto."
The facts of the case, in brief, are that the appellant is a society engaged in running of educational institution. The assessee is registered under Section 12A/12AA of the Income Tax Act, 1961 (in short, the Act) vide order dated 29/12/2008 issued by the Commissioner of Income Tax, Jamshedpur and communicated vide memo No. Tech/CIT/JSR/2008-09/6214-16 dated 29/12/2008. During the course of assessment proceedings under Section 143(3) of the Act, the Assessing Officer found that the assessee had claimed tax exemption to the extent of 15% of total gross receipt in the light of tax exemption certificate granted under Section 12A/12AA of the Act by the learned Commissioner of Income Tax, Jamshedpur. However, it was found that the society, though, claiming that it is a charitable/educational institution, it is charging tuition fee and thereby violating the bylaws and memorandum of society. The Assessing Officer, therefore, did not allow the claim of exemption under Section 12A/12AA of the Act. The Assessing Officer in the assessment order, further states that the assessee has also violated the provisions of Section 2(15) of the Act which clearly specifies that charging of fee by the society is a 2 JUSCO Education Mission Foundation Vs DCIT (E) commercial activity and not a charitable one and therefore, the assessee is not entitled to claim exemption under Section 2(15) read with section 12A/12AA of the Act. Accordingly, the Assessing Officer added a sum of ₹ 1,71,97,154/- in the total income of the assessee.
Aggrieved by the order of Assessing Officer, the appellant-society filed appeal before the ld. CIT(A). The ld. CIT(A) vide its impugned order, though, accepted the status of the appellant society as a "Trust, rejected the claim of the society that it is doing charitable activities on the ground that Section 12A of the Act provides pre-condition for evaluating exemption under the Act subject to the society is imparting education for charitable purpose and not for earning any profit. The ld. CIT(A) then confirmed the addition of ₹ 1,71,97,154/- made by the Assessing Officer by denying the exemption under Section 11 of the Act.
4. Aggrieved by the order of ld. CIT(A), the appellant has filed this appeal before us. During the course of hearing before us, the ld. AR of the assessee submitted that the assessee society is duly recognized and approved by the Central Board of Secondary Education under the Union Ministry of Human resources Development of India vide Notification No. CBSE/Aff./3430275/SL-001671- 1314/2013/520005 dated 31/01/2013, CBSE/AFF/3430143(EX-01582- 1011)/2010/272734 dated 11/10/2010 and CBSE/Aff./SL-01678- 1314/3430288/619909 dated 09/10/2013. The appellant was also granted status of a registered society by the Commissioner of Income Tax under Section 12A/12AA of the Act vide its order dated 29/12/2008. The ld. AR of the appellant submitted that the finding of the Assessing Officer that the appellant society is a commercial institution is unfounded and appellant society is a valid educational institution and exempt under Section 12A/12AA of the Act. The Hon'ble Supreme 3 JUSCO Education Mission Foundation Vs DCIT (E) Court has already laid down the principles of determining the charitable or commercial nature of educational institution and the appellant has not violated any of that principles laid down by the Hon'ble Supreme Court. It was further submitted by the ld. AR of the appellant that in the case of Queen's Educational Society Vs CIT (2015) 55 taxmann.com 255 (SC)/(2015) 8 SCC 47, the Hon'ble Supreme Court has held that the law common to educational institutions under Section 10(23C)(iiiad) and (vi) has to be decided as under: "(1) Where an educational institution carries on the activity of education primarily for educating Persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making a profit. (2) The predominant object test must be applied - the purpose of education should not be submerged by a profit-making motive. (3) 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 surplus, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the concerned assessment year, the object is to make a profit as opposed to educating persons. In the case of Visvesvaraya Technological University vs. Assistant Commissioner of Income Tax, (2016) 168 taxmann.com 287 (SC) the apex court confirmed reiterating the same principles."
5. The ld. AR of the appellant, therefore, submitted that the withdrawal of exemption status under Section 12A/12AA of the Act is not sustainable in the eyes of law as has been decided by the Hon'ble Supreme Court in the case of CIT Vs. Surat City Gymkhana (2008) 300 ITR 274/770 Taxman 612 (SC). The ld. AR of the appellant emphasized that once the registration under Section 12A/12AA of the Act is granted, the Assessing Officer does not have power to 4 JUSCO Education Mission Foundation Vs DCIT (E) withdraw the exemption already been given by the ld. Commissioner of Income Tax. The ld. AR of the appellant, therefore, submitted that the Assessing Officer's action in withdrawing the exemption status is both beyond the provisions of law as well as in violation of Hon'ble Supreme Court decision which has already held "registration of a trust once done is a fait accompli and the Assessing Officer cannot thereafter make further probe into the objects of the trust." The ld. AR of the appellant further submitted that the ld. CIT(A) on one hand, has allowed the exemption status of the society, on the other hand, he has confirmed the addition made by the Assessing Officer under Section 11 of the Act, is not correct. The observation of the ld. CIT(A) that mere registration of the society under Section 12A of the Act does not entitle the organization to claim exemption as the exemptions are available subject to various other conditions as specified in the Act, is also arbitrary.
6. The ld. Sr.DR for the revenue, on the other hand, placed reliance on the order of ld. CIT(A) by specifically referring to page No. 21 and 22 of the order of ld. CIT(A) wherein the ld. CIT(A) has given his reasoning denying the exemption.
We have considered the rival submissions and it is found that the ld. CIT(A) was right to the extent, in directing the Assessing Officer to treat the status of the appellant society as a trust, however, his finding that if the appellant society is not imparting the activities of the trust as per the objects, the income cannot be treated as exempt and the Assessing Officer has rightly disallowed the same under Section 11 of the Act, cannot be accepted. We are of the view that once the status of the "Trust" is decided by the ld. Commissioner of Income Tax under Section 12A/12AA of the Act, neither the Assessing Officer nor the ld. CIT(A) can deny that status as the Commissioner of Income Tax is only empowered to 5