` NIHARIKA EDUCATION SOCIETY,GHAZIABAD vs. ADDL. CIT, GHAZIABAD

PER S.V. MEHROTRA, A.M :

This is an appeal filed by the assessee against the order dated

02.09.2015 passed by the Commissioner of Income Tax (Appeals),

Ghaziabad, u/s 143(3) of the Income Tax Act, 1961 (in short “the Act”)

relating to assessment year 2010-11. The assessee has taken following

grounds of appeal :-

“1. Because, the order of learned commissioner of income tax (A) is bad in law and against the facts and circumstances of the case and hence is unsustainable. 2. Because, learned commissioner of income tax (appeals) grossly erred in upholding the activities of providing higher education in recognized courses as ‘business’ ignoring undisputed facts on the records like providing regular classes with all infrastructure etc., past history and the law pronounced by hon’ble court etc.. Hence order is perverse.

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income declaring Nil income. The Assessing Officer noticed that assessee

society had not applied for registration u/s 12AA and also not registered u/s

80G of the Act. He noted that as per the memorandum of society filed, the

assessee society had been established to promote the education. He noted

that the assessee society was running an educational centre under the name

and style of “Niharika Academy”, Ghaziabad in which education was

provided to the students of study centre of IMTCDL. Besides this the other

objectives were to promote, organize and facilitate study of and research in

all the branches of learning, to organize and provide facilities for

conference, seminar, study centers, lectures, exhibitions and like. In the

course of assessment proceedings, he show-caused the assessee that since

income from contract was shown, therefore, why it should not be treated as

income from business activities. In this regard, he noted that the institute

was performing as per contract where there was no autonomy and the fees

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was also not charged from students directly. He required the assessee

society to answer the following questions :-

(i) Whether society has got any affiliation for degree; (ii) Whether society is competent to provide degree to the students, and; (iii) Whether the fee is directly charged by the students.

“We have establish as a Educational Society with the motive of education to students. We are giving the education to students as study centre. There is a understanding with IMT to educate the students which are enrolled with IMT for Distance Education Programme. The fees charged by IMT and shares with us. We have MOU with IMT and UPICO for fees sharing. The TDS has already been deducted by IMT & UPICO on shared fees. This is not the contract this is only a arrangement to share the fees against education to students and value of contract is also not fixed, it is the proportion of the fees. The copy of MOU with IMT & UPICO is attached herewith. As per section 10(23)(c) we are fulfilling all requirements, the object is education, there are no motive of profit. We are spending 85% of our income towards expenditure & we are investing accumulated surplus according to the section 11(5) so, we are fulfilling all the requirements. It is further stated by the assessee that the institution has no affiliation for degree and society is not competent to provide degrees.”

the following reasons :-

(a) The assessee does not exist for education purpose as the education was provided on behalf of the IMT Centre for distant learning under contractual performance. (b) The evidence of contractual performance was that even doing this job of providing space and arranging teachers on payment on which TDS has been deducted by the payer, hence, it was institution which did not exist for education rather it exists for contractual performance as a business. (c) As per the termination clause of the Memorandum of Understanding (MOU) between Institute of Management Technology and assessee the fate of the student was directly linked with the IMT and the assessee had no responsibility

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for the future of the students, if the agreement was terminated as per clause given in MOU. The assessee could only provide its services as per the contractual agreement made with the IMT.

Trustee, Loka Shikshana Trust vs. CIT, 101 ITR 234 (SC), he pointed out

that it has been held in this case as under :-

“The sense in which the word “education” has been used in section 2(15) in 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, travelling is education, because as a result of travelling 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 what 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”.”

systematic education which results into degree or qualification. The

decision in the case of Sole Trustee, Loka Shikshana Trust (supra) was

followed by Hon’ble Gujarat High Court and by Hon’ble Patna High Court

in the case of Saurashtra Education Foundation vs. CIT, 273 ITR 139 (Guj)

and Bihar Institute of Mining and Mines Surveying vs. CIT, 208 ITR 608

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(Pat) respectively. The Assessing Officer pointed out that the activities of

the society could not be said to be covered u/s 2(15) of the Act. As regards

the assessee’s claim of exemption u/s 10(23C)(iiiad), the Assessing Officer

pointed out that the expression ‘educational institution’ would take colour

from the word ‘university’, hence the expression ‘other educational

institution’ would mean an institution imparting formal education in an

organized and systematic training where the institution would be

accountable to some authority and where there would be teachers and

taught, the former having some degree of control over the latter. He,

accordingly, stated that the activities of society could not be accepted to be

covered u/s 2(15) or section 10(23C)(iiiab) of the Act and since neither the

society was registered u/s 12AA nor approved u/s 80G of the Act, therefore,

the claim of the assessee for exemption was not acceptable and he made an

addition of Rs.7,17,913/-.

alia, observing that since the society had enjoyed its surplus profits

generated in previous years which had been used in creation of fixed assets,

therefore, depreciation of Rs.2,47,756/- as claimed in the income and

expenditure account of the current year could not be allowed. Since, the

assessee made an addition in the fixed assets of Rs.1,99,768/- out of the

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current year profit and, therefore, allowed depreciation of Rs.29,965/- being

15% of the cost of fixed asset and disallowed the balance of Rs.2,17,800/-.

the assessee is in appeal before the Tribunal.

IMT-CDL has been recognized by Distance Education Council,

Government of India, vide their letter No.DEC/Recog/IMT/07/5966 dated

04.10.2007 for offering Distance Education Programme. He pointed out

that this is almost similar to IGNOU. Ld. counsel referred to page 45 of the

Paper Book wherein the assessment order in the case of K. S. Memorial For

Education and Research is contained which is a society engaged in running

of study centre at Hargovind Enclave, Vikas Marg, New Delhi which is a

unit of IGNOU which is a Central University for providing higher education

through distance learning programmes. The assessee’s case is almost

similar to that case of K. S. Memorial For Education and Research and in

that society exemption has been granted u/s 12AA and the income has been

determined at Nil. Ld. counsel, further, submitted that fee is structured by

foreign organization viz. IMT-CDL as per the schedule contained at page 42

of the Paper Book. The portion of fees collected is given to foreign

organization. Ld. counsel, further, referred to page 44 of the Paper Book

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wherein the schedule of network of study centre of the assessee academy

has been detailed as under :-

Ghaziabad02 Niharika Academy, R-8/60, 0120-2822592, nagzb2@gmail. M/s Chitra Rajnagar, Ghaziabad, 201 001 2822861, com Biswas 9810894140, 9871877603

that in para 3, the Assessing Officer has himself noticed the assessee as an

institute. Further, he referred to page 2 of assessment order wherein in para

6 again the Assessing Officer has noted that the assessee as an institution.

Ld. counsel referred to the MOU between the assessee and the Institute of

IMT-CDL reproduced by Assessing Officer at page 3 and 4 of assessment

order and specifically pointed out to the following clauses of agreement :-

• Registration of candidates for considering them for enrolment to the programmes, subject to the norms and policies of IMT. • Employment of academic staff to conduct the programme subject to the approval of IMT. • Provision of appropriate facilities for the conduct of the courses, including computer laboratories, classrooms, library and general student support facilities as deemed appropriate by IMT. • Distribution of course materials to students. • Marking and assessment of assignments according to the procedure laid down by the IMT. • Collection of tuition and other fees as per Schedule A and B from students and remitting the same to IMT with original application forms; retaining a photocopy of the same.

8 ITA No.6183/Del/2015

primarily providing additional support services to Study Centre. He pointed

out that Assessing Officer’s main objection was in regard to sharing of fees.

Ld. counsel pointed out this objection is not germane to the issue because all

institutes are sharing fees. Ld. counsel pointed out that since the assessee’s

gross receipts were less than one crore, therefore, it was not required to get

registration from the prescribed authority. In this regard, he referred to

CBDT Circular No.14/2005 dated 17.08.2015. The ld. counsel submitted

that assessee is registering solely for educational purposes and not for

purposes of profit. He pointed out that no finding has been recorded by the

Assessing Officer that the assessee was not existing for educational

purposes but for purposes of profit. Ld. counsel referred to page 12 wherein

the societies registration is contained w.e.f. 31.12.2003 and renewed on

31.12.2008. He pointed out that in all earlier years, the assessee has been

allowed exemption u/s 10(23C)(iiiad) and, therefore, following the

principles of consistency also the assessee should have been allowed

exemption u/s 10(23C)(iiiad) of the Act. Ld. counsel, further, referred to ld.

CIT(A)’s order and pointed out that he did not accept the assessee’s

contention that it was not akin to that of IGNOU. He rejected the assessee’s

claim observing the assessee was basically providing services to IMT by

teaching students of IMT. He, further, pointed out that as far as affiliation

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and control of AICTE are concerned, it was not the assessee’s society which

was affiliated to AICTE or controlled by it. It was the IMT which was

controlled by AICTE. He pointed out that the ld. CIT(A) primarily rejected

the assessee’s claim on the ground that assessee was a mere service provider

and facilitating the IMT in its job of providing education. Ld. counsel relied

on following case laws :-

income tax proceedings and, therefore, the assessment order in the case of

K. S. Memorial For Education and Research (supra) is not applicable to the

facts of the present case. He further submitted that as far as the assessee’s

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plea for following the principles of consistency is concerned, the same is not

applicable. He referred to section 10(23C)(iiiad) and pointed out that the

educational institution should be like university and the study centre will not

be covered under this section. He, further, pointed out that AICTE has no

control over the assessee and relied upon the order of CIT(A). He relied on

the orders of authorities below.

ADIT vs. Hyderabad Study Circle (2015) 55 taxmann.com 379 (Hyd-Trib)

(Page 17 of Paper Book) and submitted that the institute has been held to be

eligible for exemption u/s 10(23C)(iiiad). He pointed out that all the

decisions relied upon by ld. DR are not with reference to the study centers.

record of the case. Admittedly, the society was neither registered u/s 12AA

nor u/s 80G. The assessee only sought exemption u/s 10(23C)(iiiad). From

the narration of facts by ld. counsel for the assessee, as noted earlier, it

cannot be disputed that the assessee was running an educational institute

where it was primarily imparting distance learning course under contract as

study centre on behalf of an estimated organization viz. IMT. Study Centre

run by assessee is primarily an extension/limb of IMT. As a matter of fact,

the assessee is imparting education to various students of the study centre

governed by IMT. There is no dispute that IMT was approved by AICTE

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and, therefore, the study centres of IMT stand governed by Regulations of

AIECT. There is also no dispute that assessee was maintaining computer

laboratories, classrooms, library and general student support services, etc.

which were approved by the IMT. The institute was employing academic

staff to teach students under the guidelines of IMT. Course material was

designed and distributed to students and collection of tuition & other fees

from the students was remitted to IMT. There is, further, no finding

recorded by the lower authorities that the institute was existing for profit

purposes. As a matter of fact, both the lower authorities have not disputed

the various activities, as noted earlier, being carried out by assessee. In the

course of his argument, ld. counsel drawn analogy from the various

universities imparting education through affiliated colleges. He pointed out

that certificates/degrees are not issued by schools/colleges but by

universities does not mean that such colleges were not imparting education.

I am in agreement with these submissions of ld. counsel for the assessee.

denying registration u/s 10(23C)(iiiab) was that the society was not

awarding in degree or certificate and was merely imparting coaching/

training in India as per norms of foreign colleges; that it was not an

institution recognized by the UGC or by any Board constituted by

Government of India for imparting formal education in the field of western

12 ITA No.6183/Del/2015

music. The prescribed authority also observed that the assessee society

could not be distinguished from any coaching or training institute preparing

the students for appearing in any examination for obtaining a formal degree

by a formally recognized institution. Negating all these objections, Hon’ble

Delhi High Court, inter-alia, held as under :-

“16. Another aspect to be noticed is that normally coaching centres are run for shorter periods and they have no strict rules and regulations as an educational institution. There is no such thing as an academic year. Strict discipline and requirements of attendance are not enforced. Further they are run on commercial lines and with a profit motive. 17. ……….. In this paragraph the respondent has furnished the figures of fee receipts, surplus and what is described by him as percentage of profit in respect of three financial years, namely, 2006-07, 2007-08 and 2008-09. After setting out these figures in the form of a table, it has been stated that the petitioner exists solely for the purpose of profit making and that the activity of training or coaching the students to undergo the examinations conducted by the foreign institutions is a commercial activity. This objection/ reason has not been stated in the impugned order. ……….”

like any school or educational institution imparting education in a

systematic manner with regular classes and, therefore, clearly satisfied the

conditions laid down in the judgement of the Hon’ble Supreme Court in the

case of Sole Trustee, Loka Shikshana Trust (supra). It is not necessary for

an institution to be recognized as imparting education that it should also

award degrees. If, the degree is awarded by ultimate controlling body under

Rules and Regulations then also it fulfills the conditions of educational

institution.

13 ITA No.6183/Del/2015

was, inter-alia, held that the conclusion of Assessing Officer that activities

of assessee were not in nature of education only on pretext that income from

education was confined to Distance Learning Course fee of Rs.20.65 lakhs

out of total receipts of Rs.21.45 crores was held to be incorrect.

following two grounds read as under :-

“(i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that the assessee is not imparting education to the students and its activities are not within the ambit of charitable purpose as per section 2(15) of the Income Tax Act, 1961. (ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the assessee is an educational institution within the meaning of the section 2(15) of the Income Tax Act, 1961 and directing the Assessing Officer to allow exemption as claimed by the assessee.”

• The Assessing officer has taken a divergent view on the assessee educational activities by holding that they are no more educational activities as regular classes are not held. Delhi High court in the case of Council for the Indian Schools Certificate Examinations v. DGIT [2012] 206 Taxman 466/20 taxmann.com 505, has squarely held that assessee though being only in conducting examinations is still to be regarded as educational institution. • Supreme court in Assam State Text Book Production & Publication Corpn. Ltd. v. CIT [2009] 319 ITR 317/185 Taxman 58 held that board though being only in the publication of books falls within the meaning of educational institution. ………. • In view of these clear judgments there is no merit in the order of Assessing Officer to give a restricted meaning to the scope of meaning of term educational activities. ………. • It is a settled law that a charitable or educational institution can charge fees for rendering services, it is so as the surplus is accumulated which is

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further to be applied for charitable objects of the institution. In case of winding up, surplus has not dwell upon shareholders or relatives, therefore, the Assessing Officer’s allegations in this behalf could not be sustained. Consequently adverse inference drawn by Assessing Officer is without any basis.

assessee was running a coaching institute giving coaching to students for

various competitive examinations. The Assessing Officer held that assessee

was not imparting a systematic education and, therefore, relying on the

decision of the Hon’ble Supreme Court in the case of Sole Trustee, Loka

Shikshana Trust (supra) held that the assessee was not imparting education.

The Tribunal held that assessee society was eligible for exemption u/s

10(23C)(iiiab).

as under :-

“the assessee was preparing students by providing coaching/guidelines to get admissions in professional institutions to pursue their studies. 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 in preparation for the work of life. Similarly, extending financial assistance/scholarships, etc., to the students for their educational purpose would squarely and fairly fall within the connotation of ‘education’. Thus, the assessee was engaged in ‘educational activities’ which fell under charitable purpose.”

noticed that the assessee trust had entered into the franchise agreements with

‘Z’ Ltd., whereby it had given commercial. The Tribunal, inter-alia, held

15 ITA No.6183/Del/2015

that the conditions of franchiser under franchisee agreement could not be a

ground to assume that income of trust would not be applied for educational

activity and, therefore, set-aside the Commissioner’s order. In the present

case, the assessee was running study centre of IMT under a fee sharing

agreement and, therefore, the facts of this case are similar to the present

case.

facts were that the Assessing Officer denied exemption u/s 11 mainly on the

ground that ICAI was involved in commercial activities as it received

coaching fees from students of CA while giving coaching to CA students. It

was held that ICAI was an educational institution and its coaching activities

fell within meaning of charitable purpose u/s 2(15), hence it was entitled to

exemption u/s 11.

opinion that the assessee comes within the ambit of section 10(23C)(iiiad)

as educational institution existing solely for educational purposes and not

for purposes of profit and, therefore, entitled for exemption u/s

10(23C)(iiiad) of the Act. In the result, the ground nos.2 and 3 are allowed.

Rs.2,17,800/- is concerned, I find that the said issue is covered by the

decision of Hon’ble Delhi High Court in the case of Indraprastha Cancer

16 ITA No.6183/Del/2015

Society (supra) wherein it has been held that a charitable institution which has purchased a capital asset and treated amount spent on purchase of

capital asset as application of income is entitled to claim depreciation on said capital asset utilized for its objects. Respectfully following the aforementioned decision of Hon’ble Jurisdictional High Court, this ground

is allowed. 26. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on this 19th day of January, 2017.

Sd/- (S.V. MEHROTRA) ACCOUNTANT MEMBER Dated : 19-01-2017. Sujeet Copy of order to: - 1) The Appellant 2) The Respondent 3) The CIT 4) The CIT(A) 5) The DR, I.T.A.T., New Delhi; By Order //True Copy// Assistant Registrar ITAT, New Delhi