2019 (8) TMI 228 - AT - Income Tax

Exemption u/s 10(23C)(iiiad) entitlement - charitable activity u/s 2(15) - surplus/excess of income - assessee is an educational institution working as authorized learning centre of PTU Punjab Technical University - HELD THAT - Assessee is an authorized learning centre of PTU under the distance education programme. As per the module of operation, the assessee as a learning centre affiliated with PTU is obligated to carry out educational programmes as prescribed by the university and make necessary provisions as connected with responsibility for education delivery. The assessee society being an authorized learning centre has to honour the obligations set out by PTU for providing education to enrolled students and has to employ teachers for taking classes of enrolled students. In fact, the assessee which is an educational institution is imparting education through distance learning route in the society by running a learning centre affiliated to PTU. We are unable to persuade ourselves to subscribe the observations of the lower authorities that the distance learning provided by the assessee to the students in its capacity as a learning centre of PTU would not fall within the realm of the definition of the term education as envisaged in Sec. 2(15). As per the literal meaning education is a process for facilitating learning or the acquisition of knowledge, skills, values and habits. Insofar the activities of the assessee society in its status as that of a learning centre are concerned, we find that the assessee in order to facilitate delivery of education provides the infrastructure along with the faculty as specified by the university; carries out timely completion of the courses; maintains records of the students; designs presentations, projects, assignments; conducts internal exams and provide internal assessment; conduct seminars and open house discussions from time to time and does all necessary acts as required by the university, therein rendering it responsible for delivery of education to the students. I mpact of deduction of TDS u/s 194H by PTU - agreement between centre and university that centre will get 45% of semester fee paid to University - HELD THAT - Now when as per the PTU distance education programme/arrangement between PTU and the assessee learning centre, it has been specifically stated that the assessee would be entitled to the share of 45% of the semester fee collected by the university (after separating exam fee), therefore, the mere fact that PTU had deducted TDS under Sec. 194H while making the said payment to the assessee would in no way lead to recharacterization of the said amount in the hands of the assessee. In sum and substance, the nature of receipt/amount in the hands of the assessee learning centre would continue to be governed and regulated as per its arrangement with the university, and not by the nomenclature given by the university i.e. PTU while making the said payment. Tribunal after deliberating at length on the aforesaid facts observed that the lower authorities had erred in concluding that the services rendered by the assessee were to be equated with that of a coaching institute. In fact, it was observed by the Tribunal that as the assessee was rendering formal education, therefore, it clearly fell within the realm of charitable activities as defined under Sec. 2(15). As the assessee in the case before us was providing formal education, therefore, the lower authorities had erred in taking a contrary view and had wrongly concluded that the surplus shown by the assessee was not eligible for exemption under Sec. 10(23C)(iiiad) - Decided in favour of assessee.

Summary

Issues Involved:
1. Restriction of donation claims to 50% of gross total income.
2. Non-grant of exemption under Section 80G.
3. Validity of assessment framed under Section 147 without additions based on the reasons for reopening.

Detailed Analysis:

1. Restriction of Donation Claims to 50% of Gross Total Income:
The assessee challenged the CIT(A)'s decision to uphold the AO's action of restricting the donation claims. The Tribunal did not specifically address this issue in the detailed judgment, focusing instead on the exemption under Section 10(23C)(iiiad).

2. Non-grant of Exemption under Section 80G:
The assessee contended that the CIT(A) was not justified in upholding the AO's conclusion that the appellant had not been granted exemption under Section 80G. This issue was also not directly addressed in the Tribunal's detailed analysis, as the primary focus remained on the exemption under Section 10(23C)(iiiad).

3. Validity of Assessment under Section 147:
The assessee raised an additional ground, questioning the jurisdiction of the AO to make other additions when the reasons for reopening under Section 148 were not substantiated. The Tribunal admitted this ground as it involved a purely legal issue based on the facts available on record.

Exemption under Section 10(23C)(iiiad):
The Tribunal's primary focus was on whether the assessee, an educational institution affiliated with PTU, was eligible for exemption under Section 10(23C)(iiiad). The AO had denied this exemption, arguing that the assessee's income from PTU, characterized as commission or brokerage, did not qualify as educational income and was instead business income. The AO also contended that the assessee's objectives extended beyond education, disqualifying it from the exemption.

The CIT(A) upheld the AO's decision, stating that the assessee operated more like an educational consultancy for profit rather than a charitable institution solely for educational purposes.

Tribunal's Findings:
- The Tribunal acknowledged the assessee's role as a learning center under PTU's distance education program, responsible for providing infrastructure, faculty, and educational delivery as specified by PTU.
- It emphasized that the assessee's activities, including designing presentations, conducting exams, and maintaining student records, constituted "education" as defined in Section 2(15) of the IT Act.
- The Tribunal rejected the AO's and CIT(A)'s view that the assessee's income from PTU, subject to TDS under Section 194H, was business income. It clarified that the nature of the receipt should be determined by the arrangement between PTU and the assessee, not by the TDS characterization.
- The Tribunal cited a similar case (Soorya Educational Trust vs. ITO) where the educational activities of a learning center were deemed charitable, despite TDS deductions by the university.

Conclusion:
The Tribunal concluded that the assessee's activities fell within the definition of education and were thus eligible for exemption under Section 10(23C)(iiiad). It set aside the CIT(A)'s order and deleted the addition of ?12,66,771 made by the AO. The appeal was allowed, and the order was pronounced in open court on 05/04/2019.