2022 (11) TMI 194 - AT - Income Tax

Exemption u/s 11 - primary objects of the trust which permitted the assessee trust to give training in skill development to the said hotels - HELD THAT - The terms and conditions of MOU reproduced above indicate that training services of certain nature beneficial to the two hotels were being provided. The beneficiaries were not the employees directly but these two hotels which were seeking professional expertise and assistance of the assessee for enhancement of their own revenue by managerial level training programs of the recruits. In case of the both hotels the programs were intended to cater to the industrial and management trainees recruited by the hotel with off the job and on the job trainings. Assessee was providing training programs customized to the convenience of the service taker organizations. The beneficiaries were to be identified by the two hotels and the beneficiaries were to continue providing services to the two hotels consequent to their recruitment with the two hotels only. There is no force in the claim of assessee that these training programs were incidental to the main activities. Rather the aforesaid terms of MOU make it appear that the assessee s main activity was to give training of Managerial Nature to the two hotels and they were far beyond the objects relied by the assessee s AR to impress that ultimately the beneficiary were the workers. The object heavily relied by the of assessee to cover the activity is (vii) In general to open, establish, finance, assist and contribute institutions, commercial, technical education pertaining to fine arts or industries such as workshops, factories and other institutions for imparting education in workmanship and for providing employment and means of earning adequate wages for the unemployed and needy. However, same no where seems to be fulfilled by the terms and conditions of aforesaid referred MOU. The intention of these objects seems to be to give some sort of technical training of workmanship to those who are seeking employment and cannot be extended to give on the job training to those persons who have been recruited by some organization. Assessee was merely responsible for organizing qualified trainers for conducting the above mentioned training program and all the remaining infrastructural facilities were to be of the two hotels. That indicates that assessee was in some way providing trainers alone and not using its own infrastructure to give any sort of training of workmanship at its premises and resources. Merely because at the end of training of the recruit they were to be given a certificate by the assessee does not change the nature of its activity from commercial to charitable. As can be observed from the assessment order that the AO had primarily started the enquiry from the fact that TDS on professional services were deducted by the commercial hotels and the service tax was charged by the assessee. On behalf of the appellant at the time of assessment or before CIT(A) or here before the Tribunal, no explanation has been given as to under what circumstances the assessee allowed to deduct the TDS by the two hotels assuming that it was paying for professional services rendered by the assessee. At the same time, there is no explanation why the assessee has made a service tax charged on the receipts. If it was merely providing training of the nature educative in accordance with its object. The findings of Ld. Tax Authorities below require no interference. There is no substance in the ground raised. The appeal of assessee is dismissed.

Issues Involved:
1. Whether the training fees received by the assessee trust qualify for exemption under Section 11/12 of the Income Tax Act, 1961.
2. Whether the training activities conducted by the assessee trust are incidental to the attainment of the objectives of the trust.
3. Whether the training activities conducted by the assessee trust constitute a commercial activity.

Detailed Analysis of the Judgment:

Issue 1: Exemption under Section 11/12
The primary issue was whether the training fees received by the assessee trust qualify for exemption under Section 11/12 of the Income Tax Act, 1961. The assessee trust, registered under Section 12A and notified under Section 80G(5)(vi), claimed exemption on the training fees received for skill development training provided to the staff of two hotels. The Assessing Officer (AO) observed that TDS was deducted under Section 194J for professional services and service tax was paid on these receipts. The AO contended that these receipts should be subjected to tax as they were commercial in nature. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the training provided did not align with the trust's objects and was commercial.

Issue 2: Incidental to Objectives of the Trust
The second issue was whether the training activities were incidental to the attainment of the trust's objectives. The AO and CIT(A) concluded that the training provided to hotel employees was not incidental to the trust's objectives. The trust's objects included establishing educational institutions and providing technical training. However, the training programs conducted for the hotels were deemed to benefit the hotels commercially rather than fulfilling the trust's educational objectives. The CIT(A) noted that the training did not involve formal exams, attendance records, or degrees/diplomas, which are typical indicators of educational activities.

Issue 3: Commercial Activity
The third issue was whether the training activities constituted a commercial activity. The AO and CIT(A) determined that the training provided to hotel employees was a commercial activity. The training programs were tailored to the hotels' needs, and the hotels were the primary beneficiaries. The CIT(A) emphasized that the training programs were more aligned with the hotels' commercial interests rather than the trust's charitable objectives. The CIT(A) also highlighted that the training programs were not recognized by any government authority and did not lead to any formal qualifications.

Conclusion:
The Tribunal upheld the findings of the AO and CIT(A), concluding that the training fees received by the assessee trust were commercial in nature and not incidental to the trust's objectives. The Tribunal dismissed the assessee's appeal, affirming that the training activities did not qualify for exemption under Section 11/12 of the Income Tax Act, 1961. The Tribunal noted that the training programs were designed to benefit the hotels commercially and did not align with the trust's charitable objectives. The Tribunal also pointed out that the trust's reliance on certain judgments was distinguishable based on the specific facts and terms of the Memorandum of Understanding (MOU) between the trust and the hotels.

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