2017 (10) TMI 1307 - AT - Income Tax

Denying the assessee s claim of exemption u/s 10(23C)(iiiab) - assessee s activities were non-educational and for the purpose of earning profit and the payment made to PSIEC was in violation of section 11(5) - Held that - The activities carried out by the assessee society of conducting courses and training programmes amounts to education. We agree with the assessee that the revenue earned from letting out premises to various organizations is incidental to the main object of imparting education through training programmes and study courses conducted. It is not the case of the Revenue, nor has it been pointed out to us that letting out of the premises of the assessee society has been done for any other purpose other than letting it out during the course of conducting training programs and study courses. Therefore, the revenue earned therefrom are incidental to carrying out of the main objectives of assessee society of imparting training to the public administration officers of the Government of Punjab. No merit in the contention of the Revenue that profit making is its main objective of the assessee society. The Balance Sheet and Income Expenditure account of the assessee for the year ended on 31.03.2013 show that the during the year the assessee had earned no surplus at all, on the contrary it had excess of expenditure over income of approx. ₹ 1.95 crores and its accumulated losses over the years was ₹ 7.18 crores. The entire funds of the assessee stand invested in fixed assets, fund investments and advances none of which ,except advances to PSIEC, have been found to be not for the purpose of the assessees objects. As advances was for developing the infrastructure of the assessee society for furthering its objectives, which is an application of income in furtherance of its stated objectives and clearly not an investment in violation of the modes of investments prescribed u/s 11(5) of the Act which prescribes the modes in which accumulated money is to be invested or deposited by societies or institutes claiming exemption u/s 11 of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Denial of exemption under section 10(23C)(iiiab) of the Income Tax Act, 1961.
2. Classification of activities as non-educational.
3. Alleged profit motive of the assessee.
4. Advances made to Punjab Small Industries & Export Corporation Ltd. (PSIEC) in violation of section 11(5) of the Act.

Issue-Wise Detailed Analysis:

1. Denial of Exemption under Section 10(23C)(iiiab):
The assessee, a society registered and established by the Government of Punjab, claimed exemption under section 10(23C)(iiiab) of the Income Tax Act, 1961 for the assessment year 2013-14. The Assessing Officer denied this exemption, asserting that the assessee did not exist solely for educational purposes and had a profit motive. The CIT (Appeals) upheld this denial, noting that the assessee engaged in activities beyond its stated educational objects, such as earning income from renting out premises and running coaching classes. The Tribunal, however, found merit in the assessee's claim, noting that the society had consistently been granted this exemption in previous years and there was no change in factual circumstances. The Tribunal concluded that the assessee's activities were educational and not profit-driven, thus fulfilling the conditions for exemption under section 10(23C)(iiiab).

2. Classification of Activities as Non-Educational:
The Assessing Officer and CIT (Appeals) classified the assessee's activities of letting out premises and running coaching classes as non-educational. The Tribunal disagreed, emphasizing that the society's primary activities involved conducting training and study courses for public service administrative officers, which constituted imparting education. The Tribunal cited the Hon’ble Gujarat High Court's judgment in Gujarat State Co-operative Union vs CIT, where similar activities were deemed educational. The Tribunal also clarified that the assessee did not conduct coaching classes for competitive exams, contrary to the CIT (Appeals)'s findings.

3. Alleged Profit Motive:
The Revenue argued that the assessee's activities indicated a profit motive due to the generation of surplus from renting out premises and training fees. The Tribunal found no merit in this argument, noting that the assessee had incurred an excess of expenditure over income for the year and had accumulated losses. The Tribunal held that the revenue from letting out premises was incidental to the main objective of imparting education and not indicative of a profit motive.

4. Advances to PSIEC in Violation of Section 11(5):
The Assessing Officer and CIT (Appeals) held that advances made to PSIEC violated section 11(5) of the Act, which prescribes the modes of investment for charitable institutions. The Tribunal found that the advances were made for developing the institution's infrastructure, which was in furtherance of its educational objectives and not a violation of section 11(5). The Tribunal accepted additional evidence provided by the assessee, including bills and details of construction undertaken by PSIEC, which substantiated the claim that the advances were for educational purposes.

Conclusion:
The Tribunal concluded that the assessee's activities were educational and not profit-driven, fulfilling the conditions for exemption under section 10(23C)(iiiab). The appeal was allowed, and the assessee was granted the claimed exemption. Grounds related to the denial of exemption and classification of activities were upheld in favor of the assessee, while grounds related to the treatment of receipts and expenses became infructuous following the allowance of the exemption.