2015 (11) TMI 1068 - AT - Income Tax

Income from the professional fees - charitable activity - whether the assessee is paying fees to professors and collecting charges from outside parties and net balance is offered as income, which is a commercial activity? - Held that - In the present case, the assessee was established as a Department of Chemical Technology on 1st October, 1993 by the University of Mumbai and since in the year 2008 it was declared as an Autonomous Institute and deemed University by the Central Government. The main aims and object of the Institute are to provide instructions, study, teaching, training and research in various branches of Science and Technology. Though it is the case of the assessee that by virtue of the University Circular bearing No.508 of 1985 dated 7th September, 1985, the revised terms and conditions under which teachers / professors are permitted to undertake the consultation work. We find that invariably, the consultancy services provided for the specific project or a specific purpose which has direct co-relation with the education imparted by the assessee-University should come within the realm of services imparted for the attainment of the object of the trust. But in the present case, a sample letter from Bharat Petroleum Corporation Ltd. placed on record clearly shows that the expert advice services were sought from Dr. V.V.Mahajani for the corporate R & D Centre, Greater Noida. The letter dated 29th October, 2010 has been reproduced hereinabove was addressed to the Director, Institute of Chemical Technology (the assessee). Therefore, it is not right on the part of the assessee to allege that it is not rendering any services, rather, its Professors are rendering the services. The juristic person like the assessee can only execute its work either through its trustees or employees. Since the employees of the assessee trust (juristic person) are rendering consultancy / advice services for a fee and the part of the fee is also coming to the chest of the assessee, therefore, in our opinion, the activity of the assessee is not covered by the provisions of section 2(15) of the Act and the assessee is not entitled to any exemption for the consultancy fees. Assessing Officer is justified in not granting exemption to the assessee - Decided against assessee.

Summary

Issues Involved:

1. Whether the income from professional fees of Rs. 53,18,171 is incidental income.
2. Whether the assessee's activity of paying fees to professors and collecting charges from outside parties constitutes a commercial activity.
3. Whether the order of the Commissioner of Income Tax (Appeals) should be set aside and the order of the Assessing Officer restored.

Issue-wise Detailed Analysis:

1. Incidental Income from Professional Fees:

The Revenue argued that the income from consultancy services provided by professors should be treated as business income and not incidental income. The assessee, an autonomous Institute and deemed University, contended that the consultancy services were rendered by professors in their personal capacity, and the institute merely facilitated the process without incurring any expenditure. The CIT(A) accepted the assessee's claim, stating that the consultancy services were ancillary to the institute's main objectives and aligned with UGC guidelines encouraging universities to provide consultancy on a payment basis. The Tribunal, however, found that the consultancy services were organized and conducted in a manner that indicated a profit motive, thus not qualifying as incidental to the institute's charitable objectives.

2. Commercial Activity:

The Revenue emphasized that the consultancy services were a commercial activity, as the institute paid fees to professors and collected charges from external parties. The Assessing Officer noted that the consultancy services were conducted regularly and systematically, indicating a business activity rather than a charitable one. The Tribunal agreed with the Revenue, highlighting that the consultancy services were substantial and organized, with significant income generated, which could not be deemed incidental to the institute's educational objectives. The Tribunal also pointed out that the consultancy work did not involve students, thereby not contributing to the educational purpose of the institute.

3. Order of CIT(A) vs. Assessing Officer:

The Tribunal reviewed the provisions of Sections 2(15), 11(4), and 11(4A) of the Income Tax Act, which define charitable purposes and the conditions under which income from business activities can be exempt. The Tribunal concluded that the consultancy services did not meet the criteria for exemption, as they were not incidental to the institute's charitable objectives and separate books of account were not maintained. The Tribunal found the Assessing Officer's decision to tax the consultancy income as business income justified, setting aside the CIT(A)'s order.

Conclusion:

The Tribunal held that the consultancy services provided by the professors were a business activity conducted with a profit motive, not incidental to the institute's charitable objectives. The income from these services was thus taxable as business income, and the CIT(A)'s order exempting this income was set aside in favor of the Assessing Officer's decision. The appeal by the Revenue was allowed, and the consultancy income was not granted exemption under the Income Tax Act.