THE INSTITUTE OF MARINE ENGINEERS (INDIA),MUMBAI vs. ADIT (E) II(1), MUMBAI

The basic grievance of the assessee in the aforesaid appeal pertains to disallowance of claim of exemption under section 11 of the Income Tax Act, 1961 (for short "the Act").

Brief facts are, the assessee trust claiming to be engaged in educational activity, is registered under section 12AA of the Act. For 2 The Institute of Marine Engineers (India) the assessment year under dispute, the assessee filed its return of income on 29th September 2009, declaring total income of ` nil after claiming exemption under section 11 of the Act. In the course of assessment proceedings, the Assessing Officer noticing that as per the income and expenditure account of the impugned assessment year, assessee has shown income amounting to ` 4,11,41,950, on account of fees received on professional development program, arranging technical meeting and seminar was of the view that it is engaged in activities of commercial nature and proviso to section 2(15) applies. He, therefore, issued a show cause notice to the assessee to explain why exemption claimed under section 11 should not be rejected and income should be assessed as business income. As alleged by the Assessing Officer, neither the assessee responded to the statutory notices issued nor to the show cause letter. It is the allegation of the Assessing Officer that assessee neither appeared nor produced the books of account or other details. Therefore, the Assessing Officer proceeded to complete the assessment on the basis of material on record. On verifying the objects of the assessee and the income claimed to have been earned though education activity and related expenditure, the Assessing Officer was of the view that the assessee is arranging seminar, professional development program and earning income from consultancy, sale of study material. According to the Assessing Officer, the activities carried on by the assessee are in the nature of business and also the income generated therefrom is the business income of the assessee. The Assessing Officer placing reliance upon the decision of the Hon'ble Supreme Court in Loka Shikshana Trust v/s CIT, [1975] 101 ITR 234 (SC), held that assessee’s activities are not really in the realm of education but can be classified as advancement of any other object of general public utility. The Assessing Officer observed, in view of the amendment to section 3 The Institute of Marine Engineers (India) 2(15) w.e.f. 1st April 2009, since the assessee is earning income from activities of commercial nature, it is not entitled for exemption under section 11. The Assessing Officer observed, the word “education” as used in section 2(15) would mean systematic instruction in school or training given to young children in preparation of the work of life. He observed, considered in the context of ratio laid down by the Hon'ble Supreme Court, it cannot be said that the assessee is engaged in the activity of education. On the aforesaid basis, the Assessing Officer ultimately concluded that the assessee is not eligible for exemption under section 11 of the Act and accordingly completed the assessment. Being aggrieved of the assessment order so passed, the assessee preferred appeal before the learned Commissioner (Appeals).

In the course of hearing before the first appellate authority, though, the assessee challenged the findings of the Assessing Officer by making elaborate submissions being supported by documentary evidences, but the learned Commissioner (Appeals) rejecting the submissions of the assessee confirmed the order of the Assessing Officer rejecting the assessee’s claim of exemption under section 11 of the Act.

Learned Authorised Representative, reiterating the stand taken before the Departmental Authorities submitted, the assessee a charitable institution is primarily engaged in the activity of imparting education. Referring to the objects of the trust, the learned Authorised Representative submitted, the trust was created with the same object in the year 1977 and the learned Commissioner having been satisfied with the object of the trust had granted registration under section 12A of the Act. The Learned Authorised Representative submitted, right from grant of registration under section 12A, the assessee had been 4 The Institute of Marine Engineers (India) filing return of income claiming exemption under section 11 of the Act and the Department has also accepted assessee’s claim of exemption in all the assessment years till assessment year 2008–09. Learned Authorised Representative submitted, there being no change either in the object or in the activities carried on by the assessee on the basis of which registration under section 12A, was granted, assessee’s claim of exemption under section 11 cannot be rejected merely for the reason that amendment was effected to section 2(15) of the Act by insertion of proviso which puts a restriction that the advancement of any other object of general public utility shall not be considered to be existing for charitable purpose if the trust or institution carries on any activity in the nature of trade, commerce or business. Learned Authorised Representative submitted, reading of the provisions contained under section 2(15), would clearly indicate that the proviso only applies to the last category of activity i.e., advancement of any other object of general public utility and not to education. He submitted, as the assessee is basically engaged in imparting education, the proviso will not apply. For demonstrating the fact that the assessee is engaged in educational activity, the learned Authorised Representative drew our attention to the registration certificate issued by the Director General of Shipping and approving the assessee as a maritime training institution. Further, learned Authorised Representative referring to the circular dated 29th June 2001 submitted, the assessee was authorised to develop various grades of training and assessment record books (TAR) for freshly joining maritime engineers. The learned Authorised Representative submitted, the assessee not only conducts examination and imparts training to candidates but also conducts various courses for which approval has been granted by the competent authority. In support of such contention, the learned Authorised Representative invited attention of 5 The Institute of Marine Engineers (India) the Bench to the approval granted by the Director General of Shipping for conducting courses. Learned Authorised Representative submitted, assessee has also conducted professional courses with fixed syllabus and to support such contention sought permission to produce the copies of syllabus by way of additional evidences. Thus, in sum and substance, it was submitted by the learned Authorised Representative that assessee is basically engaged in imparting education, hence, the proviso to section 2(15) will not apply. In support of such contention, learned Authorised Representative relied upon a number of decisions as submitted in a compilation.

Learned Departmental Representative on the other hand relying upon the order of the learned Commissioner (Appeals) submitted, assessee having been engaged in commercial activity is not eligible for exemption under section 11 of the Act.

We have considered the submissions of the parties as well as the decisions relied upon by the learned Authorised Representative and also perused the material available on record. Undisputedly, the assessee trust came into existence in the year 1997 with certain objects. The learned Commissioner after verifying the objects of the assessee being satisfied that it has been created for charitable purpose granted registration under section 12A of the Act. It is also not disputed that since obtaining registration under section 12A, the assessee had been claiming exemption under section 11 of the Act and which has also been granted to the assessee by the Department till assessment year 2008–09. Perusal of the assessment order passed in the impugned assessment year, reveals that the Assessing Officer denied assessee’s claim of exemption under section 11 of the Act for the impugned assessment year primarily and only for the reason that 6 The Institute of Marine Engineers (India) the assessee’s activity being in the nature of advancement of any other object of general public utility, the proviso to section 2(15) brought into statute w.e.f. 1st April 2009, makes the assessee ineligible from claiming exemption under section 11, as the assessee derived income by engaging itself in business / commercial activities. However, it needs to be mentioned, neither the Assessing Officer nor the learned Commissioner (Appeals) has given any categorical finding that there is any change either in the object or in the activities of the assessee in the impugned assessment year. Therefore, merely because the proviso to section 2(15) of the Act, prescribing that a trust or institution existing for the purpose of advancement of any other object of general public utility if derives income exceeding a prescribed limit from any business or commercial activity, it will lose its charitable character. The insertion of proviso to section 2(15) would ipso facto not disentitle a trust or institution from availing exemption under section 11 of the Act, unless it is established that dominant object of the trust or institution is not charitable but earning income through business. As already stated, apparently there is no change in object of the assessee on the basis of which it was created and granted registration under section 12A of the Act. It has been held in a number of judicial pronouncements that if a trust or institution is created with the object of advancement of any other general public utility and in the process of carrying on such activity, it generates some income from activities of commercial nature but which is incidental and ancillary to its main charitable object, it will not loose its character as a charitable institution. Thus, what logically follows is merely because an amendment was brought to section 2(15) by insertion of the proviso it will automatically not disentitle a trust or institution from availing exemption under section 11 if it is otherwise eligible for such claim. The onus is on the Department to prove that 7 The Institute of Marine Engineers (India) dominant object of the trust or institution is not charitable but earning profit.

Moreover, the primary and fundamental issue which arises for consideration is whether the proviso to section 2(15) would at all be applicable to the assessee. It is the contention of the assessee that it is engaged in educational activity. To demonstrate such fact, the learned Authorised Representative has relied upon a number of documentary evidences, a part of which was sought to be produced by way of additional evidence. On a perusal of the approval granted by the Director General of Shipping, it appears that assessee has been permitted to conduct some courses of maritime engineering as well as training program for which it also conducts examination and issues certificates. It is also the contention of the assessee that it has created infrastructure facilities for imparting education by employing faculty members, hostel facilities, etc. The assessee has also submitted by way of additional evidence syllabus for the courses claimed to have been conducted by it. On a perusal of the assessment order as well as order of the first appellate authority, one gets an impression while coming to their respective conclusion that assessee is not engaged in any educational activity they have totally overlooked these documentary evidences produced by the assessee. At least, the order passed by the authorities did not reveal so. Moreover, certain additional evidences produced by the assessee before this forum viz. syllabus for courses were admittedly not before the Departmental Authorities. Therefore, in our view, the assessee’s claim that it is imparting education or engaged in educational activity requires examination by verifying the entire documentary evidences brought on record. As the Departmental Authorities have not verified or applied their mind to the documentary evidences which according to the 8 The Institute of Marine Engineers (India) assessee demonstrate that it is involved in educational activities, we are inclined to restore the matter back to the file of the Assessing Officer for deciding afresh. The Assessing Officer must consider the submissions of the assessee and the ratio laid down in the decision relied upon by the assessee while deciding the issue whether or not the assessee is engaged in imparting education. In case the Assessing Officer comes to the conclusion, albeit with proper reasoning, that the assessee is not involved in educational activity but is engaged in advancement of any other object of general public utility, then he must establish on record that the dominant object of the assessee is to earn profit by engaging itself in business or commercial activity and it is not a charitable institution. The Assessing Officer must afford adequate opportunity to the assessee to explain its stand on the issue which according to the Assessing Officer disentitles the assessee from being treated as a charitable institution and thereby, from claiming exemption under section 11 of the Act. The Assessing Officer should pass a reasoned order meeting the objections of the assessee and keeping in view the ratio laid down in the decision relied upon. With the above observations, the order of the learned Commissioner (Appeals) is set aside and the matter is restored to the file of the Assessing Officer.

In the result, appeal stands allowed for statistical purposes. Order pronounced in the open Court on 29.04.2016