THE DY.DIT, (EXEMP.),, AHMEDABAD vs. MUDRA FOUNDATION FOR COMMUNICATIONS, RESEARCH & EDUCATION,, AHMEDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Shri Rajpal Yadav, Judicial Member And Shri Amarjit Singh, Accountant Member ITA Nos. 2872 & 3090/Ahd/2014 AY 2010-11 & 2011-12

The DCIT(Exemption), Mudra Foundation of Ahmedabad Communications (Appellant) Vs Research & Education, Mudra Tower, Shanti Sadan Society, Nr. Parimal Garden, Ellisbridge, Ahmedabad-380006 PAN: AAATM2168D (Respondent)

CO Nos. 317 & 318/Ahd/2014 ITA Nos. 2872 & 3090/Ahd/2014 AY 2010-11 & 2011-12

Mudra Foundation of The Dy.DIT(Exemption), Communications Ahmedabad Research & Education, Vs (Respondent) Mudra Tower, Shanti Sadan Society, Nr. Parimal Garden, Ellisbridge, Ahmedabad-380006 PAN: AAATM2168D (Appellant)

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Revenue by: Shri Prasoon Kabra, Sr. D.R. Assessee by: Shri Sanjay R. Shah, A.R. Date of hearing : 08-08-2017 Date of pronouncement : 12-10-2017 आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-

The appeal of the Revenue for assessment year 2010-11 and assessment year 2011-12 and the cross objections filed by the assesse for assessment year 2010-11 and assessment year 2011-12 are directed against the order of the ld. CIT(A)-XX, Ahmedabad dated 14/08/2014 and dated 18/09/2014 respectively. Since in the appeals of both the assessment years identical issues are involved, therefore, these appeals are decided by this common order. We take the appeal for assessment year 2010-11 as the lead case and its findings will also be applied for the appeal of assessment year 2011-12

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by the A.O. on the ground that the activity of the assessee was not falling within the ambit of definition given in proviso to Sec.2(15) of the I.T. Act read with section 13(8). iv) The Ld. Commissioner of Income-Tax (Appeals) has erred in law and on facts in deleting the disallowance of Rs.97,25,801/- made by the A.O., being capital expenditure incurred by the assessee and claimed as application of income when the assessee has forfeited exemption u/s.l3(8) read with proviso to section 2(15). v) On the facts and circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals) ought to have upheld the order of the Assessing Officer. vi) It is, therefore, prayed that the order of the Ld. Commissioner of Income-Tax (Appeals) may be set aside and that of the Assessing Officer be restored.” 3. In this case, return of income declaring income of Rs. Nil was filed on 24th September, 2010. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 12th Sep, 2011. The assessee is a trust carrying on activity of providing education and training in communication including advertising and related subjects and award diplomas certificates and other distinctions. The assessing officer has noticed on perusal of the income and expenditure statement that the assessee has a surplus of Rs. 3,36,25,630/- during the year. He also noticed that the fees charged for these courses shall range of Rs. 3,45,000 to Rs. 1,13,000/- per student. These short term courses were not approved by any authority. He has also noticed that assessee has miscellaneous income to the tune of Rs. 3,22,04,300/-from various heads such as student activities charges, lab charges, placement charges, internship fees and study material fees, lodging and boarding, application fees etc. The assessing officer has observed that during the course of assessment for assessment year 2009-10, it was held that the activity of the assesse was not charitable in nature. He found that during the year under consideration, the asessee has claimed the following exemption u/s. 11 of the act.

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(i) Accumulation u/s. 11(2) of the act Rs. 2,20,00000 (ii) Accumulation u/s. 11(i)(a) of the act Rs. 2,91,65414/-

The assessing officer stated that as elaborately discussed in the assessment order of assessment year 2009-10, the object of the assessee trust is of commercial activity. He further observed that mere imparting of education for primary purpose of earning profits cannot be said to be charitable activity. The assessing officer stated that assessee was not carrying on activities of education as envisaged in the provision of section 2(15) of the act but it was engaged in the activity of business, trade, commerce and was therefore covered by proviso 1 to section 2(15) of the act. He further stated that section 2(15) of the act defines charitable purposes first proviso thereto with effect to assessment year 2009-10 laid down that, if any trust etc. (a) is engaged in pursuing objects of general public utility (other objects) and (b) carries on any activity in the nature of trade, business or commerce or provides any service in relation to the trade, commercial or business and (c) aggregates receipts there from exceeds Rs. 25 lacs, it shall be considered that other objects is not a charitable purpose. If so, such a trust is not eligible for the exemption in as much as the primary condition of being existing for charitable purpose is not satisfied. He held that the assessee was covered by the proviso to section 2(15) of the act. He further mentioned that with the introduction of section 13(8) of the act w.e.f 1st April, 2009, it is clearly evident that the assessee’s case is squarely covered by the proviso to section 2(15) shall forfeit all

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exemptions that are otherwise available u/s. 11 & 12 of the act. He further mentioned that new sub-section 8 provides that the exemption u/s. 11 & 12 will not be available to a trust in a previous year in which the first proviso to section 2(15) becomes applicable for that previous year. Therefore, the assessing officer held that the assessee was not eligible to any of the exemption claimed u/s. 11 and 12 of the act therefore, accumulation u/s. 11(2) of the act of Rs. 2,20,00000/- and accumulation u/s. 11(i)(a) of the act of Rs. 2,91,65,414/- added back to the total income of the assessee. The assessee has also claimed capital expenditure of Rs. 9,725,801/- and claimed deduction u/s. 11(1)(a) of the act. The assessing officer stated that the activity of the assessee has been held to be advancement of other object of general public utility within the section 2(15) r.w. proviso 1, and 2 therefore, in view of the provision of section 2(15) r.w.s section 13(8) of the act, the benefits of section 11 & 12 are not available to the assessee trust.

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Whether Training Percentage Name of The Course recognized by any FeesforFY authority like 2009-10 (Rs. in AICTE Lakhs) PGPDC Recognized 557.32 PGPCMX Recognized 24.09 Total - Approved Courses (A) 581.41 79.41 Grafting Creative Advtg. NA 54.43 PGPCME NA 42.51 Retail Communication Management NA 16.30 (Training Fee) Visual Merchandising and Creative NA 3.00 Communication

Executive Development Prog. in NA 26.16 Advtg. Management Communication Management Prog. NA 2.13 Case Writing NA 0.99 Swasthaya Sanchar (SEWA) NA 0.25 Gujarat State Aids Control Society NA 5.00 Total - Other Short Term Courses 150.76 20.59 (B) Grand Total (A+B) 732.17 100.00

5.3.1 The Assessing Officer has held that the activities of the assessee is not education but any other activity of general public interest on the ground that the assessee, apart from running AICTE approved courses also run small course ranging from 1 week to 12 months and fee charges is very hefty. The word 'education' has to be given its natural meaning which encompasses within itself systematic training, schooling and instruction. As apparent from the facts of the case, the appellant is providing systematic training in the field of communication. The training is in nature of class room training with defined course contents and objectives and at the end of each course, the recognition is conferred by the appellant upon the participation of the respective course. Further, the flagship course of the appellant being PGPDC programme is being regulated by the AICTE. Charging of hefty fee for self financed institutes does not mean that the purpose of the trust is not education. Accordingly, the activity carried out by the appellant is 'education' under section 2(15) of the I.T. Act and cannot be considered to be 'any other object of advancement of general public utility'. In this regard, the ratio of the decision of

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the Hon'ble Gujarat High court Co-operative (supra) and Hon'ble Supreme Court in Lok Sikshana (supra) is relevant. 5.3.2 Further, it is also observed that, the Ahmedabad bench of the Hon'ble ITAT in the case of Ahmedabad Management Association, which conducts short management courses which are not even recognized by AICTE, has held that mere earning of surplus cannot be considered as reason for considering educational activity under 'any other object of advancement of general public utility' and apply proviso to section 2(15) of the I.T. Act. The Hon'ble Gujarat High Court has affirmed the order of Hon'ble ITAT, Ahmedabad holding as under: "5.6 Now applying the ratio of the decision of the Division Bench of this Court in the case of Gujarat State Co-operative Union (Supra) reproduced hereinabove and the activities of the assessee such as Continuing Education Diploma and Certificate Programme; ManagementDevelopment Programme; Public Talks and Seminars and Workshops and Conferences etc., we are in complete agreement with the view taken by the tribunal that the activities of the assessee is educational activities and/or is in the field of education. 5.7 Now in view of the aforesaid finding that the activities of the assessee is in the field of education, whether the assessee is entitled to exemption under Section 11 of the Act or not and whether in the facts and circumstances of the case the assessee can be denied exemption under Section 11 of the Act relying upon and/or considering the proviso to Section 2(15) of the Act is concerned so far as the amendment in Section 2(15) of the Act amended vide Finance Act, 2008 and insertion of proviso to Section 2(15) of the act is concerned, as such the same has been explained vide Circular No.11/2008 dated 19/12/2008. It is clarified that where industries or trade association claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to Section 2(15) of the Act owing to the principles of mutuality. From the Circular No.11/2008 dated 19/12/2008 it appears that the the newly inserted proviso to Section 2(15) of the Act will apply to entities whose purpose is advancement of any other object of general public utility i.e. fourth limb of ' definition of 'charitable purpose' contained in Section 2(15) of the Act and hence such entities will not be eligible for exemption under Section 11 or under Section 10(23CJ of the Act if they carry on commercial activities. Thus, on fair reading of Section 2(15) of the Act the newly inserted provision Section 2(15) of the Act will not apply in respect of the first three limbs of Section 2(15) of the Act i.e. relief to the poor; education or medical relief. Thus, where the purpose of a trust or institution is relief of the poor; education or medical relief, it will constitute 'charitable purpose' even if it incidentally involves the carrying on of the commercial activities. Thus, on fair reading of Section 2(15) of the Act read with Circular No.11/2008 dated 19/12/2008 it appears that if the case of the assessee does not fall within the first three limbs of Section 2(15) of the Act i.e. relief to the poor; education or medical relief and if it falls in the fourth limb i.e. advancement of any other object of general public utility and it is found that such activity of advancement of any other object of general public utility involves carrying on of (a) any activity in the nature of trade, commerce or business; or (b) 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, the same shall not be considered for "charitable purpose" and shall not be entitled to exemption under Section 11 of the Act. 5.7 In the present case, as observed hereinabove and rightly held by the tribunal, the activities of the assessee would fall within the definition of "charitable purpose" as per Section 2(15) of the Act and, therefore, would be entitled to exemption under Section 11 of the Act. 6. In view of the above, we are in complete agreement with the view taken by the tribunal that the activities of the assessee is related to education and, therefore, is entitled to

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exemption under Section 11 of the Act. At this stage, it is required to be noted that right from the Assessment Year 1995-96 till 2008-09 the activities of the assessee has been considered by the revenue as educational activities. Considering various activities of the assessee as narrated by the Assessing Officer in paragraph nos. 4 and 5 of the Assessment Order and considering the decision of the Division Bench of this Court in the case of Gujarat State Co-operative Union (supra) we confirm the view taken by the tribunal that the activities of the assessee- Ahmedabad Management Association is related to education and, therefore, is entitled to exemption under Section 11 of the Act as claimed." 5.3.3 It is observed that the same issue came up in Asst. Year 2009-10 in which I have held that the activity of the appellant is in the nature of education. 5.3.4 Accordingly, it is held that, the activity of the appellant is in nature of education which is included in the definition of 'charitable purpose' as per Section 2(15) of the I.T. Act. 5.3.5 Therefore, following the decision taken in earlier year by me, in appellant's own case, the Assessing Officer is directed to allow the benefit u/s. 11(2) & 11(1)(a) of the I.T. Act.”

Regarding the disallowance of capital expenditure, the ld. CIT(A) has allowed the appeal of the assessee by observing as under:- “6.2 I have considered the assessment order and the submissions made by the appellant. The Assessing Officer has disallowed the capital expenditure which has been claimed as application on the ground that because of application to proviso to Section 2(15), the assessee is not eligible for benefit of section 11 & 12. As it has been held that the appellant is covered by main Section of 2(15) in ground No.2 and appellant is eligible for benefit of Section 11 & 12. The appellant gets benefit of capital expenditure as application of fund.”

During the course of appellate proceedings before us, ld. departmental representative has supported the order of the assessing officer. On the other hand, the ld. counsel has supported the order of the ld. CIT(A) and submitted that the Co-ordinate Bench of the ITAT vide ITA no. 1644/Ahd/2014 for assessment year 2009-10 has decided the identical issues in favour of the assesssee.

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favour of the assessee. The relevant part of the decision is reproduced as under:- “11. We further observe that Hon’ble Jurisdictional High Court in their orders dated 28-29/07/2015 vide special leave application no.6086/2015 has held that the institution run by the assessee’s Trust is established for the sole purpose of imparting education in the specialized field and the activities are covered under the provisions of section 2(15) of the Act and accordingly is eligible for exemption u/s.11(1)(a) of the Act. We further find that Revenue’s SLP filed before the Hon’ble Apex Court against the judgment of Hon’ble Jurisdictional High Court referred above also stands dismissed by the order dated 10/05/2016 in Supreme Court in Civil Appeal no.5040 of 2016. 12. We therefore respectfully following the judgment of Jurisdictional High Court and in the given facts and circumstances of the case are of the considered view that assessee activities of imparting education are charitable in nature as provided in section 2(15) of the Act. We therefore find no reason to interfere with the findings of Ld.CIT(A) and upheld the same. Accordingly ground no.1, 2 and 3 of the Revenue’s appeal are dismissed.”

Regarding the disallowance of capital expenditure, the Co-ordinate Bench of the ITAT vide aforesaid order has also decided the identical issue in favour of the assessee. The relevant part of the decision is reproduced as under:- “15. We have heard the rival contentions and perused the records placed before us. We have dismissed the Revenue’s ground no.1,2 and 3 by following the judgment of Jurisdictional High Court in assessee’s own case and accepted that its activities of providing education are of charitable in nature and are covered under the provision of section 2(15) of the Act and therefore the expenditure incurred by the assessee towards attainment of the objectives of providing education are to be considered to have been applied for charitable purpose. 16. We further observe that provision of section 11(1)(a) contemplates that, income derived from property (which in this case is from running educational institution) held under trust wholly for charitable or religious purpose to the extent, which such income is applied to such purposes in India and whether any such income is accumulated or set apart for application to such purposes in India to the extent to which the income so accumulated or set apart would not in excess of the 15% of the income from such property than such income is not to be included in the total income of the previous year of the person in respect of such income. 17. In light of above provision, let us examine the issue that, whether the capital expenditure of Rs.1,34,89,333/- incurred by the assessee is eligible for exemption u/s.11(1)(a) of the Act. We find that assesee incurred capital expenditure of Rs.1,34,89,333/- and claimed it as an expenditure against the income. We further find that assessee has added back the depreciation of Rs.61,07,021/- debited to the profit and loss account to the income in the computation of income. There is no dispute to the facts that assessee is not carrying any other activities other than providing education. It is also not disputed that the capital expenditure of Rs.1,34,89,333/- has been made for purchasing asset to be used for the purpose of providing education. We are therefore of the view that the capital expenditure incurred at Rs.1,34,89,333/- squarely falls in the provision of section 11(1)(a) of the Act which provides for deduction against the income. Our view further find support from the judgment of Jurisdictional High Court in the case of Satya Vijay Patel Hindu Dharamshala Trust Vs. CIT 86 ITR 683 wherein Hon’ble Court observed as follows:

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As regards the contention whether the whole of the net surplus income of the trust properties applied in constructing the new Dharamshala or only equivalent to 25 per cent of the net income would be exempt from tax, the dominant object of creating the trust being to establish Dharamshala for the benefit of Hindus, the utilisation of net surplus income of the trust properties in the construction of the new Dharamshala, even if it exceeded twenty-five per cent of the net income of the trust properties, could not be said to be application to purposes other than the charitable purposes of the trust. So long as the application of the net surplus income of the trust properties to the construction of the new Dharamshala could not be said to be outside the purposes of the trust, and indeed it could not be, for, otherwise it would amount to breach of trust which it was clearly not, and which even the revenue did not allege, it must be held that the application was to the charitable purposes of the trust. The whole of the new surplus income of the trust properties was, therefore, clearly applied to the charitable purposes for which the trust ^properties were held by the trustees and was accordingly exempt from tax under section 11, sub-section (1), clause (a)." 18. We therefore respectfully following the judgment of Jurisdictional High Court and in the given facts and circumstances of the case find no reason to interfere in the findings of Ld.CIT(A) who has deleted disallowance by observing as follows: 6.2 I have considered the assessment order and the submissions made by the appellant. Since the appellant was claiming exemption under Section 11 of the Act in respect of income applied for charitable purposes, in the return of income, the appellant had claimed the exemption in respect of capital expenditure of Rs.1,34,89,333/- as application of income for charitable purposes. The AO has held that as per normal accounting principles the expenses have to be spread over the useful life of the fixed assets or expenses of capital in nature to arrive at true and correct of any institution. The Hon'ble Supreme Court in the case of S.RM.M.CT.M. Tiruppani Trust 96 taxman 635 whereby expenditure incurred for construction of building was considered as having been applied for charitable purposes and such income applied was held to be exempt. Further, the Hon'ble Gujarat High Court in the case of Satya Vijay Patel Hindu Dharamshala Trust(supra) has also held that income applied for construction of new dharmashalas was application of income for charitable purposes and accordingly, income so applied was exempt under Section 11[1] (a) of the Act. Accordingly, considering the fact that the appellant is eligible to exemption under Section 11 to 13 of the Act and following the ratio laid down by Hon'ble Supreme Court and the Gujarat High Court, the addition of Rs.1,34,89,333/- being capital expenditure incurred by appellant during the year is hereby deleted. However, since net addition made by the AO after granting depreciation to the appellant is of the order of Rs.73,82,312/- the same is directed to be deleted.” Respectfully following the decision of the Co-ordinate Bench of the ITAT, we uphold the findings of the ld. CIT(A). Therefore, the appeal of the revenue is dismissed.

CO No. 317/Ahd/2014

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the Act as application of income. It is submitted that it be so held now and only net amount should be considered as disallowance. 2. The Hon'ble CIT(A) erred in law and on facts in confirming the addition of Rs.3,43,475/- i.e. the sale consideration received on account of assets sold during the year under consideration considering such amount as the income of the assessee. It is submitted that it be so held now.”

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surplus/income earned from charitable activities. Therefore, held that the sale of fixed asset needs to be added back to the income. Respectfully, following the decision of the Co-ordinate Bench on the similar issue, the cross objection of the assessee is dismissed for the year under consideration.

Order pronounced in the open court on 12-10-2017

Sd/- Sd/- (RAJPAL YADAV) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 12/10/2017 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद