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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-II’, NEW DELHI
Before: Sh. N. K. Saini
ORDER This is an appeal by the department against the order dated 30.05.2016 of ld. CIT(A)-36, New Delhi.
The only effective ground raised
in this appeal reads as under:
1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in allowing the appeal of the assessee in allowing the benefit of exemption u/s 11 of the I.T. Act, 1961 in the light of decision of the Hon'ble Supreme Court in the case of sole Trustee Lok Shiksha Trust Vs CIT 101 ITR 234 (SC) that 'education' in Section 2(15) connotes the process of training and developing the knowledge, skill, mind and character of students by normal schooling and it does not cannot gathering of any knowledge in the great school of life.”
2 Katha 3. From the above ground, it is gathered that the grievance of the department relates to the deletion of disallowance made by the AO by denying the exemption claimed by the assessee u/s 11 of the Income Tax Act, 1961 (hereinafter referred to as the Act).
Facts of the case in brief are that the assessee filed its return of income on 15.10.2010 declaring net surplus of Rs.34,51,895/- which was claimed as exempt u/s 11 of the Act. The said return was processed u/s 143(1) of the Act. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had shown income from sale of publication to the tune of Rs.81,81,397/-. The AO was of the view that the said activity of the assessee was not for chartable purpose. He, therefore, asked the assessee to show cause as to why the exemption claimed u/s 11 of the Act may be denied. In response, the assessee furnished the written submission and stated that its publication mainly help children and adults discovered the joy of reading and books are mainly distributed to schools and libraries, it was also submitted that main object of the society are as under: “(i) To manage & run schools for children to discover the joy of reading and the world of books, (ii) To stimulate, support and applaud individuality, spontaneity and creativity, kindly the holy curiosity in adults and children; enhance and support the natural intellectual development of children, (iii) To educate children and adults in their basic rights and to support them in their endeavor to attain these rights, 3 Katha (iv) To encourage and promote the idea of equality of sexes with special emphasis on building the self-confidence and self- reliance of the girl-child, (v) Produce quality books, magazines etc. That would be colourful, exciting and visually attractive - especially those that are meant for the first generation reader, (vi) Start, maintain or otherwise manage libraries, reading rooms, documentation centres, non-formal education centres and other institutions of similar nature.”
However, the AO did not find merit in the submissions of the assessee and denied the exemption claimed u/s 11 of the Act by observing that the case of the society is covered in the proviso inserted in Clause 15 of Section 2 of the Act w.e.f. 01.04.2009 and hence prima facie it is not existing for charitable. The AO determined the total income of the assessee at Rs.36,61,756/-.
Being aggrieved the assessee carried the matter to the ld. CIT(A) who had incorporated the submissions of the assessee in paras 5 to 7 of the impugned order which is reproduced verbatim as under: “5. that Section 2(15) nowhere provides that the trust or institution, whose purpose is relief of the poor, education or medical relief, engaged in the carrying on of any activity in the nature of trade, commerce or business, for a cess, or fee or any other consideration, makes it ineligible for exemption u/s. 11 of the Act. Had the legislature thought of providing this, then it would not have made provisos to Section 2(15) just for the fourth limb of the definition of "Charitable purpose" i.e., the advancement of any other object of general public utility. In the present case, assessee is engaged in the charitable purpose of Education & relief of the poor. And for the 4 Katha attainment of the main object of the Society, it is carrying on the business of publication & sale of books which is incidental to the attainment of the main objects and has been mentioned in the Memorandum of Association of the Society also. Furthermore, whole of the receipts from such business activity have been utilized only for the main object of the Society, as is evident from the Income & Expenditure Account as placed on records. It is brought to notice that Katha is running schools in slums & streets of Delhi since 1989. Students are awarded certificates in the schools and programs which are recognized and approved by National Open School (Deptt. Of Education, MHRD, Govt. of India). The copy of letter authorizing MOU between Katha and National Open School was also submitted to the AO. There are various categories of schools and vocational courses which are being run by the assessee. A list of 96 such schools was submitted. All the schools being run by assessee are meant for the poor kids living in slums and low- income group housing colonies like Tuglakabad, Govindpuri, Seelampur, Trilokpuri etc. Schools run by the assessee are run like any school or educational institution in a systemic manner with regular classes, vocations, attendance requirements, enforcement of discipline, etc. Examinations are conducted at the end of course duration and results are declared. Running of vocational courses like music courses/safety course/financial planning have been held to be "Education" by Hon'ble High Court of Delhi in various decisions which is jurisdictional High Court and whose decision are binding on all. In the instant case, the assessee has been running schools, offering class 1-12 education to children of various age groups besides offering various vocational courses, at the end of which students are awarded certificates of "National Open School" a body of Govt. of India. Based on the above, it is beyond doubt that the assessee is fully engaged in imparting of "Education" as envisaged in the scheme of section 2(15) and doing a great service to society by educating poor and less privileged 5 Katha children on street. There is no profit which is earned by society. Further, it was explained that the main focus of Katha is providing education from pre-school to higher education in formal and non- formal stream through the following learning centres: i. Kathashala ii. Kathavilasam iii. Kalpavirksham 6. In order to achieve its educational objectives, Katha had to produce teaching material and teaching modules that are linked with the syllabus and only after that to give it to their teachers for using them in the classroom to teach Hindi/Maths/History/Geography syllabus The sole object of producing stories teaching material/module and introducing them into the Katha classroom and distributed to MCD schools and other classroom, is to make the whole education process fun for children, and hence sustainable in the long run. It was argued that the AO has nowhere disputed the educational activities of Katha which are its primary and dominant object. He has wrongly concluded that Katha was existing for purpose of "Any Other Objects of General Public Utility" and hence covered under the fourth limb of section 2(15) of IT Act, on the reasoning that the activity of producing and distribution of its publications was a business activity. Though the fact was that production of such publication of Katha were necessary to attain its educational objective because of unique pedagogy of story based learning in the class room. Making of profit was never Katha's objective. In the relevant year, Katha had employe 81 teachers who were trained by Katha to manage their 98 schools (5 Formal Schools and 93 Pre-Schools). More than 9300 poor & under privileged were schooled. The activity of sale and publication of such books should not be seen in isolation. It has to be seen harmoniously with Katha's objective of engaging an underserved child to hold and read such books (well illustrated, colourful, visually, attractive, well written stories in fine print material) early in life that will make them lifelong readers. Hence it was emphasized that Katha is imparting education as envisaged in section 2(15) to the poor and 6 Katha under priviledged children in the street. There is no profit motive as the entire surplus is used for further charity and the case of the appellant should not be mixed with private institutions working for their own profit.
The meaning of the term 'education' cannot be restricted to formal schooling or college and it must be understood in a broad sense where knowledge is passed on through any means to the ultimate recipient. Therefore, the activity carried on by the assessee cannot be said to be beyond its main aims and objects. The appellant placed reliance on various decisions like Science Olympiad Foundation 33 ITR 451 (Delhi ITAT) and Delhi Music Society (2012) 17 taxmann.com 49 Delhi(HC).”
7. The ld. CIT(A) after considering the submissions of the assessee allowed the claim of the assessee for exemption u/s 11 of the Act by observing in para 8 of the order as under: “8. I have considered the assessment order, grounds of appeal and the submissions made by the assessee. In a nutshell, the single issue is whether proviso to Section 2(15) would be applicable on the assessee's case as according to the assessee it is engaged in the activities of education and/or relief to poor whereas the AO has treated the assessee as a society carrying on "objects of General Public Utility". The proviso to Section 2(15) comes into play only if a society is pursuing objects of General Public Utility and as per Section 2(15), if the assessee is carrying out the activities of education or relief to poor or medical relief there is no such restriction of not being engaged in trade/commerce/business activities (in the nature of) to claim the deduction. As seen from the assessment order, the AO notes that the assessee has submitted a detailed reply. However, he has not considered the contention made in the submissions where the assessee has explained how it is engaged in educational activities and relief to poor. He has merely mentioned that the main object of the society are not covered in first three limbs of the definition given for the charitable purpose in Section 2(15) and held that the proviso to 7 Katha Section 2(15) is squarely applicable to the society and it is not existing for charitable purpose. I have gone through the submission made by the assessee where in it has been given in detail about the Curriculum and Pedagogy of the society. The society is catering to children coming from under privileged families and providing education in such a manner as to merge them into main stream education by awarding certificates, recognized and approved by the National Open School. A list of schools was also submitted which includes schools in slums of Delhi, traffic lights and remedial centres across Delhi reflecting the beneficiaries. The AO has in his order not disputed the educational activities of Katha. From the accounts statements it is seen that the publication and sale of books, though is a business activity, the proceeds are used in order to feed the charitable activities which is allowable for societies having the activities in the nature of education and relief to poor. The proviso to section 2(15) is not applicable to such trusts. The claim of exemption u/s. 11 may therefore be allowed to the assessee alongwith all consequential benefits as it has objects & activities of providing education.”
Now the department is in appeal. The ld. DR supported the order of the AO and reiterated the observation made in assessment order dated 20.03.2013.
In his rival submissions the ld. Counsel for the assessee strongly supported the impugned order passed by the ld. CIT(A) and reiterated the submissions made before him.
I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the assessee was engaged in the activities of education and to achieve the objects, the assessee was engaged in 8 Katha publication and sales of books. The profits from the said activities were used in order to feed the charitable activities of imparting the education and relief to poor. The ld. CIT(A) in the impugned order categorically stated that the assessee had given in detail the Curriculum and Pedagogy of the society which revealed that the assessee was catering to children coming from under privileged families and providing education in such a manner as to merge them into main stream by awarding certificates, recognized and approved by the National Open School and that the list of schools furnished by the assessee included schools in slums of Delhi, traffic lights and remedial across centres across Delhi reflecting the beneficiaries. The aforesaid observations of the ld. CIT(A) were not rebutted. I, therefore, considering the totality of the facts, do not see any valid ground to interfere with the findings given by the ld. CIT(A).
In the result, the appeal filed by the department is dismissed. (Order Pronounced in the Court on 28/11/2016)