2010 (10) TMI 502 - AT - Income Tax

Exemption u/s 10(23C)(iv) - During the course of scrutiny assessment, the AO issued detailed questionnaire dated 12.7.2007 which was placed by the assessee in the paper book at page 114, wherein the AO has asked the assessee with regard to instrument by which institute was created, government notification with regard to institution, balance sheet, income and expenditure account of last two years - it was observed that when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views were possible and the Assessing Officer has taken one view with which Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of revenue unless the view taken by the Assessing Officer is unsustainable to law - The Institute as such merely it is receiving coaching fee from students for imparting education, cannot be said to have been carrying on business and accordingly it is not required to maintain separate books of accounts as alleged by DIT(E) - since the assessee was claiming exemption u/s 10(23C)(iv), where there is no such condition, thus DIT(Exemption) otherwise was also not justified in invoking Section 11(1)(c) of the Act - whether it is exemption u/s 10(23C)(iv) or exemption u/s 11, overseas expenses will not come in the way of allowing exemption - Appeals are allowed

Issues Involved:

1. Classification of income from coaching classes as business income.
2. Deductibility of overseas expenditure without CBDT permission.
3. Applicability of Section 10(23C)(iv) and Section 11 of the IT Act.

Issue-wise Detailed Analysis:

1. Classification of Income from Coaching Classes as Business Income:

The CIT initiated proceedings under Section 263, questioning the classification of income from coaching classes as business income. The CIT observed that the Chartered Accountants Act 1949 did not explicitly provide for such coaching classes and considered running them as a business activity requiring separate books of account. The assessee argued that the coaching classes were an integral part of the education provided to Chartered Accountancy students, aligning with the institute's main objectives.

The Tribunal noted that various regulations under the Chartered Accountants Act empowered the institute to provide coaching and educational services to its students. These activities were deemed part of the statutory functions of the institute, not a commercial activity. The Tribunal referenced the Gujarat High Court's decision in Saurashtra Education Foundation vs. CIT, asserting that the institute's coaching activities fell within the definition of "education" under Section 2(15) of the IT Act. Consequently, the income from coaching classes was not considered business income, and the institute was not required to maintain separate books of account for this activity.

2. Deductibility of Overseas Expenditure without CBDT Permission:

The CIT also questioned the deductibility of overseas expenditure without obtaining permission from the CBDT, as required under Section 11(1)(c) of the IT Act. The CIT argued that such expenditures could not be allowed as they were not incurred for charitable purposes in India.

The assessee contended that the overseas expenses were related to the institute's objectives, such as maintaining the status and standards of professional qualifications, which indirectly benefited India. The Tribunal agreed with the assessee, citing judgments in Gem & Jewellery Export Promotion Council vs. ITO and National Association of Software and Services Companies (NASSCOM) vs. DDIT. These judgments established that the application of income for charitable purposes in India did not restrict the expenditure to be incurred within India. The Tribunal concluded that the overseas expenses were for the institute's objectives and thus deductible, even without CBDT permission.

3. Applicability of Section 10(23C)(iv) and Section 11 of the IT Act:

The Tribunal examined whether the institute's income was exempt under Section 10(23C)(iv) and Section 11 of the IT Act. The CIT argued that the institute's activities did not qualify for exemption under these sections due to the issues raised.

The Tribunal reiterated that the institute was recognized as an educational institution established for charitable purposes under Section 10(23C)(iv). The exemption was granted based on the institute's objectives and activities, which had remained consistent over the years. The Tribunal emphasized that the institute's activities, including coaching and overseas expenditures, fell within the definition of "charitable purposes" under Section 2(15) of the IT Act. Therefore, the income was exempt under both Section 10(23C)(iv) and Section 11.

Conclusion:

The Tribunal concluded that the CIT was not justified in setting aside the AO's order. The income from coaching classes was not business income, and the overseas expenses were deductible even without CBDT permission. The institute's income was exempt under Section 10(23C)(iv) and Section 11 of the IT Act. The appeal of the assessee was allowed.

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