2004 (5) TMI 532 - AT - Income Tax

Denial of exemption u/s 11 - classification of educational programs as business activities - HELD THAT - We have perused the objects of the assessee-society as given in the memorandum of association along with the activities undertaken by the society to achieve the objects. Just because the assessee-society is charging fee for conducting the courses, the assessee cannot be put within the ken of section 11(4A) of the Act. The Finance Act, 1983 has inserted sub-section (4A) in section 11 to provide that benefit of charity will not be available in relation to profits and gains of business. Business is a word of wide import. It denotes continuous and systematic exercise of an occupation or profession with the object of making income or profit. There is absolutely nothing in the impugned order to suggest that the assesseesociety conducted the educational programmes with a view to earn profit. The society was formed for the public good. The society charged the fees to meet the cost of educational programmes. Wherever surplus resulted, it was utilized for the promotion of the objects of the society. The educational programmes were conducted in conformity with the objectives. There is absolutely nothing to indicate that such programmes were conducted not with the desire to do good but to earn profit. We are satisfied that the profit element is missing. Fees were charged to meet the cost. As such, it cannot be construed to be the business of the assessee-society. Once this finding is arrived, the conclusion is irresistible that the case of the assessee is not coming within the ambit of sub-section (4A) of section 11 of the Act. Accordingly, the benefit of section 11(1) of the Act cannot be denied to the assessee. We direct the Assessing Officer to allow exemption u/s 11 of the Act to the assessee-society. In the result, the appeal of the assessee stands allowed.

Summary

Issues Involved:
The issues involved in this case are the denial of exemption u/s 11, applicability of section 11(4A) of the Income-tax Act, 1961, and the classification of educational programs as business activities.

Denial of Exemption u/s 11:
The appellant, an association of persons, contended that the denial of exemption u/s 11 by the Income-tax Officer and the Commissioner of Income-tax (Appeals) was erroneous. The society's objectives included the dissemination of knowledge, education, and promotion of understanding between India and the United States. The society conducted various activities such as lectures, classes, publications, and cultural programs to achieve its aims. The Assessing Officer observed that the educational programs conducted by the society did not align with its objects and were conducted in a professional manner with high charges, catering mainly to the elite class. However, the Tribunal found that the dominant object of the society was education, and the programs were conducted for educational purposes, thus qualifying for exemption u/s 11.

Applicability of Section 11(4A):
The Assessing Officer invoked section 11(4A) to deny the benefit claimed under section 11 to the assessee-society, alleging that the educational programs were conducted as a business activity. The Tribunal noted that the society charged fees to cover program costs, not with the intention to earn profits. Surplus funds were utilized for the society's objectives, indicating a lack of profit motive. As a result, the Tribunal concluded that the society's activities did not fall under the definition of business u/s 11(4A), and directed the Assessing Officer to allow exemption u/s 11 to the society.

Classification of Educational Programs:
The society conducted various academic programs during the assessment year, including management seminars, classroom programs, and cultural activities. The Tribunal analyzed the concept of "charitable purpose" and "general public utility," emphasizing that education for the public good need not be restricted to the poor class. It was established that the society's educational programs were conducted with the aim of imparting knowledge and were not profit-oriented business activities. Therefore, the Tribunal held that the educational programs qualified as charitable and educational purposes, warranting the allowance of exemption u/s 11.

Separate Judgement:
In a separate judgment related to I. T. A. No. 697/Mum/2001, the Tribunal allowed the appeal of the assessee based on the decision made in I. T. A. No. 833/Mum/2000, thereby granting relief to the appellant in both cases.