2020 (1) TMI 689 - AT - Income Tax

Disallowance of claim of exemption u/s 11 in respect of consultancy fee received - claiming exemption u/s 10(23C) - HELD THAT - On a perusal of the additional evidences filed before us, prima facie, we are of the view that the assessee has been recognized as a deemed university, hence, falls within the category of university/other educational institution covered under section 10(23C)(iiib) or 10(23C)(vi) of the Act. Further, it has been recognized as an educational institution by competent authorities of the Government. Now it is fairly well settled that the proviso to section 2(15) applies only to the activity of the advancement of any other object of general public utility as per the definition of charitable purpose under section 2(15) of the Act. It is the contention of the assessee that since it is engaged in the activity of providing education, the proviso to section 2(15) of the Act is not applicable. The aforesaid aspect has not been examined or dealt with by the Tribunal in assessment year 2010 11 probably because no pleading to that effect was taken by the assessee. The contention of the assessee regarding applicability of the proviso to section 2(15) of the Act requires examination keeping in view the decision of DIT (E.) v/s Lala Lajpatrai, 2016 (4) TMI 641 - BOMBAY HIGH COURT wherein has held that the test to determine as to what would be a charitable purpose within the meaning of section 2(15) of the Act is to ascertain what is the dominant object/activity. The Court has observed that if the dominant object is the activity of providing education, it will be charitable purpose under section 2(15) of the Act, even though, some profit arises from such activity. Therefore, assessee s contention regarding applicability of proviso to section 2(15) of the Act requires examination. Further, assessee s claim of exemption u/ 10(23C)(iiiab) or 10(23C)(vi) of the Act also requires examination keeping in view the orders passed by the learned Chief Commissioner of Income Tax, Mumbai, under section 10(23C)(vi) of the Act and also considering the fact that the assessee has been recognized as a deemed university and receiving substantial grant from the Government. Since the aforesaid claim of the assessee has not at all been examined by the Departmental Authorities, we are inclined to restore the issue to the file of the AO for re examination and direct him to adjudicate the issue keeping in view the additional evidences filed by the assessee and the decisions to be cited before him. We make it clear that the AO must consider all the contentions of the assessee with regard to the applicability of the proviso to section 2(15) of the Act as well as the claim of exemption under section 10(23C)(iiiab) or under section 10(23C)(vi) of the Act. Needless to mention, the Assessing Officer must provide reasonable opportunity of being heard to the assessee before deciding the issue through a speaking order - Assessee s appeals are allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of claim of exemption under section 11 of the Income Tax Act, 1961.
2. Alternative claim of exemption under section 10(23C) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of claim of exemption under section 11 of the Income Tax Act, 1961:

The assessee, a deemed university, filed its return of income declaring nil income after claiming exemption under section 11 of the Income Tax Act, 1961. The Assessing Officer (AO) noticed that the assessee received consultancy fees and questioned why it should not be treated as business income. The assessee argued that the consultancy projects were part of its educational and research activities, involving faculty and students, and thus, should be exempt under section 11. However, the AO found that the consultancy activity was not part of the institution's primary objective and treated it as business income, disallowing the exemption claim under section 11.

The Commissioner of Income Tax (Appeals) upheld the AO’s decision, relying on a previous Tribunal decision for the assessment year 2010-11, which had disallowed the exemption claim on similar grounds.

The Tribunal, upon reviewing the case, noted that the additional evidences provided by the assessee, such as approvals from AICTE and recognition as a deemed university, were crucial. The Tribunal observed that the proviso to section 2(15) of the Act, which excludes activities in the nature of trade, commerce, or business from being considered charitable, was not applicable to educational institutions. The Tribunal referred to the Hon'ble Jurisdictional High Court's decision in DIT (E.) v/s Lala Lajpatrai, which emphasized that the dominant object of the activity should determine its charitable nature. Since the assessee's dominant activity was providing education, the Tribunal found that the proviso to section 2(15) might not apply. The Tribunal directed the AO to re-examine the issue, considering the additional evidences and the legal precedents, and to provide a reasoned order after giving the assessee a fair opportunity to present its case.

2. Alternative claim of exemption under section 10(23C) of the Income Tax Act, 1961:

The assessee also claimed exemption under section 10(23C)(iiiab) and 10(23C)(vi) of the Act, arguing that it was a university/educational institution existing solely for educational purposes and not for profit, and received substantial government grants. The AO and the Commissioner (Appeals) did not address this alternative claim. The Tribunal admitted additional evidences, including orders from the Chief Commissioner of Income Tax granting approval under section 10(23C)(vi) for subsequent years, recognizing the assessee as an educational institution.

The Tribunal found that the assessee's alternative claim required examination, considering the substantial government grants and its recognition as a deemed university. The Tribunal directed the AO to re-examine the assessee's eligibility for exemption under section 10(23C)(iiiab) or 10(23C)(vi), considering the additional evidences and the relevant legal provisions. The AO was instructed to provide a reasoned order after giving the assessee a fair opportunity to present its case.

Conclusion:

The Tribunal allowed the assessee's appeals for statistical purposes, directing the AO to re-examine both the primary and alternative claims for exemption, considering the additional evidences and legal precedents, and to provide a reasoned order after giving the assessee a fair opportunity to present its case.