ADIT (E) II(2), MUMBAI vs. NATIONAL INSTITUTE OF BANK MANAGEMENT, MUMBAI

The captioned are five appeals; one by the Revenue and four by the assessee, pertaining to Assessment Years 2009-10, 2010-11, 2011-12 and 2012-13. In all the appeals, issues involved are common, which primarily arise from the exemption claimed by the assessee on the ground that it is a ‘charitable institution’ as it is engaged in the activity of imparting education. For Assessment Year 2009-10, Revenue has filed an appeal and assessee is also in appeal before us by way of a Cross-objection; in Assessment Year 2009-10 the CIT(A) disagreed with the Assessing Officer and upheld assessee’s stand of being a charitable institution in terms of Sec. 2(15) of the Income Tax Act, 1961 (in short ‘the Act’) and, thus held the assessee to be eligible for exemption under Sections 11 & 12 of the Act. The assessee, in its Cross-objection, seeks the claim of exemption u/s 10(23C) of the Act, whose denial has been affirmed by the CIT(A).

In the other three assessment years, assessee is in appeal urging the exemption under Sections 11 & 12 of the Act as also u/s 10(23C) of the Act, and in such years, the CIT(A) departed from his earlier stand of Assessment

In sum and substance, the first substantive issue in the captioned appeals arises from the stand of the assessing authority, which is common for all the captioned assessment years, to the effect that the assessee is not an ‘educational institution’ so as to claim exemption in terms of Sections 11 & 12 of the Act and further that, at best, the activities of assessee fall within the expression ‘advancement of any other object of general public utility’ contained in Sec. 2(15) of the Act and thus, with effect from 01.04.2009 the proviso thereof would be attracted, and since assessee was carrying on its activities on a commercial basis, it was not eligible to be considered as a ‘charitable institution’. Before we go into the specific points brought out by the Assessing Officer, and the stand of the assessee thereon, we may briefly touch upon the status of the assessee, its objects and the past history of assessments which, in our view, are not only germane but also important to adjudicate the controversy.

The assessee before us is a society registered under the Societies Registration Act (XXI) of 1860 on 24.09.1969. Assessee is an institution established by the Government of India through the Reserve Bank of India and, broadly speaking, it is responsible for imparting education in the field of banking and finance management and has an all-India character. The assessee-society has its members, the Reserve Bank of India, State Bank of 4 National Institute of Bank Management to 2915/M/16, 2506/M/14 & CO 182/M/15 India, other subsidiaries of State Bank of India and 19 nationalised banks. The members also include other similar institutions, including co-operative banks, etc. From the material placed in the Paper Book, it is seen that the assessee is managed and controlled by the Government of India through the Reserve Bank of India inasmuch as it has one nominee from the Ministry of Education, Government of India and two nominees of the Reserve Bank of India, apart from others, on its Governing Board. In fact, the first Object clause reads as under :-

So far as the position at the level of CIT(A) is concerned, we find that in Assessment Year 2009-10, the CIT(A) recorded that Assessing Officer had failed to establish “as to how the activities of the appellant are covered under proviso to Sec. 2(15) of the I.T Act”. Secondly, he disagreed with the Assessing Officer that there was any profit motive present in the operations of the assessee so as to attract the proviso to Sec. 2(15) of the Act. Thirdly, the CIT(A) noted that there was no “commercial intent” in the activities of 7 National Institute of Bank Management to 2915/M/16, 2506/M/14 & CO 182/M/15 the assessee and, therefore, he held that the activities of the assessee are compliant with Sec. 2(15) of the Act even after the insertion of proviso w.e.f. 01.04.2009, and, thus upheld assessee’s case for exemption under Sections 11 & 12 of the Act. Insofar as the assessment years 2010-11, 2011-12 and 2012-13 are concerned, the CIT(A) has disagreed with the assessee and upheld the ultimate conclusion of the Assessing Officer to the effect that the activities of the assessee were not in the nature of ‘education’; and, that its activities were hit by the proviso to Sec. 2(15) of the Act and thus, assessee was not eligible for the claim of exemption under Sections 11 & 12 of the Act. In this background, the rival parties have made their submissions.

At the time of hearing, the learned representative vehemently pointed out that the assessee is a non-profit organisation, which is formed by RBI and its entire activities are towards education in the field of banking and finance. The assessee-society conducts training programmes, seminars and also award-based graduate Diploma in Banking and Finance. By referring to its activities, it is also pointed out that assessee is also engaged in carrying out research work in the field of banking, besides carrying out publication of books, articles in the field of banking. It is also pointed out that assessee has regular faculty and class-rooms for conducting classes. It has also been emphasised that all its activities are carried out without any profit motive and, therefore, in any case, proviso to Sec. 2(15) of the Act is not attracted. At the time of hearing, the learned representative has also referred to and relied upon the ratio of various judicial pronouncements, which we shall deal with in the subsequent part of this order. In sum and substance, the case sought to be made out by the assessee is that it is a body which exists solely for the purpose of education, research and training in the field of banking

On the other hand, the ld. DR appearing for the Revenue has reiterated the stand of the Assessing Officer, which we have already noted in the earlier paras and is not being repeated for the sake of brevity.

We have carefully considered the rival submissions. Sec. 2(15) of the Act defines the expression ‘charitable purpose’. So far as it is relevant for our purpose, the expression ‘charitable purpose’ seeks to include ‘education’. The case of the assessee is that its activities fall within the scope of the expression ‘education’ and, therefore, it is covered within the meaning of ‘charitable purpose’ contained in Sec. 2(15) of the Act. The stand of the Revenue is to the contrary as, according to it, the activities of the assessee are merely to carry out training, seminars, post-graduate training and, that too, against collection of fees and, therefore, cannot be considered as ‘education’. Further, the expression ‘charitable purpose’ also includes the activity of ‘advancement of any other object of general public utility’. According to the Revenue, even if the activities are to be considered as falling within the scope of Sec. 2(15) of the Act, it fits into the said expression ‘advancement of any other object of general public utility’. The proviso to Sec. 2(15) of the Act was added w.e.f. 01.04.2009, which 9 National Institute of Bank Management to 2915/M/16, 2506/M/14 & CO 182/M/15 prescribes that the activity of ‘advancement of any other object of general public utility’ shall not be construed to be for ‘charitable purpose’ if it involves carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration irrespective of the nature of use or application or retention of the income from such activity. By relying on such proviso, the Revenue contends that since assessee is carrying out its programme of training, etc. against charging of fee, therefore, its activities lose the character of being for ‘charitable purpose’.

The first and the foremost point that is required to be addressed is whether the assessee is an institution involved in education or not? In order to address this controversy, we may briefly touch upon the objects of the assessee as appearing in the Memorandum of Association and also the activities that are being carried out by the assessee over the years. The main objects of the assessee have been reproduced by us in the earlier part of this order and a perusal thereof clearly shows that the main object of the assessee is to promote and provide training in operation and management of banking and financial institutions, besides organising and facilitating seminars, study courses, lectures and similar other activities for the said purpose. Considering the stated objects, we are not inclined to accept the plea of the Revenue that the main objects of the assessee is not ‘education’. Besides the stated objects, the written submissions which have been filed by the assessee before the lower authorities also give an insight to the activities being actually pursued by the assessee. It emerges that the assessee is recognised by the University of Pune as an approved centre for post-

Before us, it was argued by the ld. DR that fee is being charged and subscriptions are received from the member-banks which generates surplus in the course of activities, and thus, the activities are not for education. It is well understood that educational institutions are also required to generate funds for carrying out its activities, and the fact that assessee is collecting fees, by itself, will not make it a non-educational activity so as to go out of the definition of ‘education’ contained in Sec. 2(15) of the Act. In this context, we may refer to the judgment of the Hon'ble Supreme Court in the case of T.M.A. Pai Foundation vs State of Karnataka, (2002) 8 SCC 481, wherein the Hon'ble Supreme Court has also recognised the necessity for 11 National Institute of Bank Management to 2915/M/16, 2506/M/14 & CO 182/M/15 the educational institution to generate funds for its betterment and growth. In the case of American Hotel & Lodging Association, 301 ITR 86 (SC), the Hon'ble Supreme Court was dealing with an entity engaged in providing world-recognised curriculum for all hospitality education programs in India by making them available through text, course material and other software programmes in India. Apart from accepting this activity to be in the realm of education, the Hon’ble Court also observed that merely because some profit was arising from such activity, it would not distract from holding that such an entity was existing solely for education purposes. The Hon’ble Court also explained that in order to ascertain whether an entity is being run with the object of making profit or not, the existence of profit is not paramount, but what is of importance is whether or not the resultant income is being applied wholly and exclusively for the objects for which the entity has been set-up. In the context of the assessee before us, there is no repudiation to the fact-situation that the surplus, if any, is being applied only in furtherance of its stated objects.

The learned representative before us referred to the judgment of the Hon'ble Supreme Court in the case of Assam Text Book Production and Publication Corporation vs CIT, 319 ITR 317 (SC), wherein the activity in the field of publication of text books was also held to be an activity falling within the scope of ‘education’. Similarly, the judgment of the Hon'ble Gujarat High Court in the case of Gujarat State Co-operative Union vs CIT, 195 ITR 279 (Guj.) has also been relied upon. In the case of Gujarat State Co-operative Union (supra), assessee was engaged in conducting courses for Higher Diploma in Co-operation, Diploma in Land Development Banking, Certificate Course in Co-operative Credit and Banking and Specialised Short-term

Similarly, the decision of the Mumbai Bench of the Tribunal in the case of Indian Institute of Bankers vs DCIT (Exemption), (2002) 74 TTJ 523 (Mum) was also relied upon. The assessee before the Mumbai Bench of the Tribunal, i.e. Indian Institute of Bankers, was engaged in the activity of promoting the study of theory of banking and, for that purpose, it was conducting exams, lectures, etc. Notably, the activities of the assessee before us are also on the same lines and the Tribunal in the case of Indian Institute of Bankers (supra) accepted those activities to be in the nature of ‘education’.

In view of our aforesaid discussion, we do not find any merit in the stand of the Assessing Officer that the activities of the assessee are not in the field of ‘education’. What has been emphasised by the Assessing Officer is that the assessee is conducting coaching classes in the field of banking and finance and, therefore, following the decision of the Hon'ble Patna High Court in the case of Bihar Institute of Mining & Mine Surveying vs CIT, 208 ITR 608 (Pat), it could not be said that the assessee was carrying out any ‘education’ activity. In this context, we may refer to the judgment of the Hon'ble Gujarat High Court in the case of DIT(E) vs Ahmedabad Management Association, [2014] 47 taxmann.com 162 (Gujarat), wherein the association undertook multifaceted activity, viz. conducting continuing education, Diploma & Certificate programme, Management Development programmes, public talks, seminars, workshops, etc. Such like activities were also held to be in the nature of ‘education’ eligible for the benefit of Sections 11 & 12 of the Act. In fact, the Hon'ble Delhi High Court in the case of Council for the Indian School Certificate Examinations vs DGIT(E), 362 ITR 436 (Delhi) was considering the activities of an assessee who was neither conducting any classes and nor was directly engaged in teaching students, but was only affiliating schools, prescribing syllabus and conducting examinations. The institution carrying out such activities was also understood by the Hon’ble Court to be an educational institution.

When we apply the aforesaid principles to the admitted nature of activities in the present case, we have no hesitation in holding that assessee is an educational institution and, therefore, it falls within the scope of the expression ‘charitable purpose’ contained in Sec. 2(15) of the Act.

Now, we may deal with the reference to proviso to Sec. 2(15) of the Act made by the Assessing Officer. Pertinently, the proviso to Sec. 2(15) of the Act is relevant qua the activity of ‘advancement of any other object of general public utility’ contained in Sec. 2(15) of the Act and not in relation to other limbs of activities contained therein. While in the earlier paras we have already held that the assessee is engaged in ‘education’, therefore, on this basis, it will be in the fitness of things to deduce that assessee is not ousted from Sec. 2(15) of the Act because the proviso is not applicable to it. In any case, if one is to examine the applicability of the proviso on merit, even then we find that the same does not come into operation in the present case. Firstly, the CBDT in its Circular no. 11/2008 dated 19.12.2008 clarified that the proviso would apply only in situations where there is a profit motive in the activities undertaken. Secondly, the phraseology of the proviso itself lends credence to a premise that it comes into operation only in situations where profit is the motive in the activities undertaken. Pertinently, the proviso applies in a situation “if it involves carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any services in relation to any trade, commerce or business..........”. Ostensibly, the three expressions used therein, i.e., ‘trade’, ‘commerce’ or ‘business’ are to be understood as activities which are undertaken with a motive of earning profits. Therefore, the moot question to be examined is as to whether or not the activities of the assessee can be construed to be intended for a profit motive or for a commercial intent, as sought to be made out by the Assessing Officer. In order to address the said point, we may touch upon the manner and purport for which assessee has been set- up. As noted by us briefly in the earlier part of this order, assessee has been 15 National Institute of Bank Management to 2915/M/16, 2506/M/14 & CO 182/M/15 established by the Government of India through the Reserve Bank of India. In the Paper Book filed before us, apart from other things, a report of a Committee appointed by the RBI on “The Training and Development of Higher Banking Personnel” of 1969 has been placed. In 1969, nationalisation of banks undertaken by the Government of India brought in the policy of social control over banking which intended to provide a new direction to the banking industry in India. Since banking was made a more effective instrument of national development, it was recognised that appropriate personnel policies had to be evolved in order to encourage the right attitudes to development of management skills, capabilities and also to impart new technological skills. The Committee appointed by the RBI in this direction made a major recommendation for establishment of the National Institute of Bank Management. This was a precursor to the establishment of the assessee by the RBI in consultation with the Government of India in 1969 as an autonomous non-profit institution in the area of banking and finance. The Committee on Training and Development of Higher Banking Personnel carved out the role of assessee as being an entity to “translate national policies relating to the banking sector into meaningful training programmes at the level of individual bank and help the implementation of those policies by creating a climate of intellectual appreciation and emotional dedication”. Therefore, looking at the background of the formation of the assessee and its stated objects, which we have reproduced in the earlier part of this order, the assessee-institute was to act as a catalyst for the new banking policy of the Government of India towards evolving appropriate guidelines for banks in the areas of management capabilities and improving the technical expertise of banking and awareness of national priorities in the banking profession. The stated objects clearly bring out that the activities of the 16 National Institute of Bank Management to 2915/M/16, 2506/M/14 & CO 182/M/15 assessee are exclusively in the field of education and research in the field of banking and finance. Not elaborating further on this aspect, as we have already inferred earlier that assessee is in the field of education, at this stage it would suffice for us to note that there is no commercial intent behind setting-up of the assessee. In fact, the Assessing Officer has sought to draw a parallel with the case before the Hon'ble Patna High Court in Bihar Institute of Mining & Mine Surveying (supra) which, in our view, is wholly inappropriate. The Hon'ble Patna High Court was dealing with the claim of an entity for registration u/s 12A of the Act on the ground that its activity of coaching of students for particular examinations was to be viewed as imparting education. The Hon’ble Court noted that “the running of a private coaching institute for the purpose of training the students to appear at some specified examinations upon taking specified sum from the trainees would not bring the petitioner within the provisions of section 2(15) of the Act.” The aforesaid observation of the Hon’ble Court clearly bring out the distinction between the entity before us and that was before the Hon'ble Patna High Court, which was a case of a private coaching institute whereas, as we have seen earlier, the complexion of the entity before us is on a completely different footing; the entity before us has been established by the Government of India through RBI as a means to further the national policy relating to banking sector consequent to nationalisation of banks in 1969. In our considered opinion, the objectives for which the assessee is set-up and the manner in which it is managed, i.e., through a Governing Board consisting, inter-alia, of nominees of the Government and member- nationalised banks, it can hardly be said that there is any profit motive in carrying out its activities. No doubt, there may remain some surplus in the course of carrying on activities since assessee is undertaking programmes by 17 National Institute of Bank Management to 2915/M/16, 2506/M/14 & CO 182/M/15 charging fee and/or subscription from its member nationalised banks, etc., but that by itself will not mean that the motive is to earn profit. In fact, the Hon'ble Supreme Court in the case of American Hotel & Lodging Association (supra) noted that it may not be possible to carry on activities in such a way that the expenditure exactly matches the income and there is no resultant profit. As per the Hon'ble Supreme Court, such an objective is not only difficult to achieve for practical considerations, but also reflects unsound principles of management. To reiterate what we have noted earlier, in such a situation, the test to examine the existence or otherwise of profit motive is to find out the purpose for which the resultant surplus is being applied for. Factually speaking, in the present case, there is no allegation, much less any evidence, brought out by the Revenue to say that any amount has been applied by the assessee for purposes other than its stated objects, which ostensibly is in the field of education. Pertinently, upto Assessment Year 2008-09, assessee was accepted to be an entity engaged in education and in even in the captioned years there is no charge against the assessee that any of its activities have undergone any change. Therefore, merely because of insertion of the proviso, the nature of activities do not undergo a change unless it can be made out that profit motive is dominant all-pervading in the activities, an aspect which is absolutely absent in the present case. Therefore, even if we were to go along with the stand of the Assessing Officer that the activities of assessee fall within the expression ‘advancement of any other object of general public utility’ contained in Sec. 2(15) of the Act, even then, from Assessment Year 2009-10 onwards, the insertion of proviso does not take away the benefits of Sections 11 & 12 of the Act from the assessee inasmuch as the proviso does not disentitle the assessee’s activities from being considered as for charitable purpose

The only other aspect is with regard to assessee’s claim for exemption u/s 10(23C) of the Act, which is rendered academic since its claim for exemption under Sections 11 & 12 of the Act has been upheld by us in the earlier paras and is, therefore, not adjudicated for the present.

Resultantly, insofar as appeal of the Revenue for Assessment Year 2009-10 is concerned, the same stands dismissed and the cross objection filed by the assessee for said assessment year is also dismissed as it has become infructuous.

Insofar as the appeals for Assessment Years 2010-11 to 2012-13 are concerned, the issues are similar to those considered by us in the earlier paras in relation to Assessment Year 2009-10 and, therefore, our decision in Assessment Year 2009-10 will apply mutatis mutandis in these appeals also and accordingly, the appeals for Assessment Years 2010-11 to 2012-13 are allowed to that extent.