2024 (7) TMI 1380 - HC - Income Tax

Assessment of trust - Charitable Activity - assessee's activities were commercial due to the receipt of fees and corporate donations - As argued activities undertaken by the respondent/assessee clearly fall within the broad principles which came to be propounded by the Supreme Court in Lok Shikshana Trust 1975 (8) TMI 1 - SUPREME COURT - whether Tribunal has correctly come to the conclusion that the activities undertaken by the assessee would fall within the sweep of the expression education as appearing in Section 2 (15)? - HELD THAT - As is manifest from the record of facts appearing in that paragraph, the assessee in the concerned AY was found to have essentially undertaken educational activities spread across various subjects and streams, providing opportunities to underprivileged youth and others and essentially skilling them for the purpose of future employment. It is also stated to have undertaken various digital literacy initiatives spread across as many as ten States of the country. The instruction was imparted at either NIIT-run centers or NGO-partnered establishments. Its revenue stream was disclosed to flow from tuition fees and other educational services provided by it. The fee structure was asserted to be heavily subsidized and discounted. It is the aforesaid facts which appear to have weighed upon the AO to characterize the activities undertaken by the assessee as being charitable and falling within the meaning of the word education and which falls within the six principal activities spoken of in Section 2 (15). Tribunal came to the firm conclusion that the activities undertaken by the respondent/assessee were systematic and proceeded along well-defined lines based on curated courses all of which were designed to skill and educate the students who had been enrolled. On facts, the assessee was also able to establish beyond a measure of doubt that the courses run by it were informed by a fixed curriculum and attendance criteria and thus fulfilling all essential ingredients of formal education. The Tribunal also found that the corporate receipts were mainly flowing from the CSR obligations of the concerned business houses and could not possibly be viewed or characterized as aimed at profiteering. Those corporate donations were asserted to have been utilized solely for the purposes of the educational activities which were undertaken by the assessee. It becomes pertinent to note that the veracity of the facts noticed above was not contested by the respondents before us. Tribunal, in our considered opinion, correctly found in favour of the assessee when it held that affiliation with and recognition by a regulatory authority are not essential attributes of education under Section 2 (15). This clearly flows from the principles enunciated by the Supreme Court in both Lok Shikshana Trust and New Noble Educational Society. This, of course, was in addition to it having been duly established that the centers of the respondent/assessee had been duly approved by the NSDC, which undoubtedly is a nodal agency concerned with vocational and technical training. We ultimately bear in mind the precept formulated by the Supreme Court in Lok Shikshana Trust 1975 (8) TMI 1 - SUPREME COURT and where it explained Section 2 (15) as being concerned with training and developing knowledge, skill, mind and character by formal schooling. These tests, in our considered opinion, were clearly met by the assessee. We also find merit in the Tribunal s conclusion that the mode and manner in which education is imparted would be a concept which would have to necessarily be evaluated bearing in mind the march of technology and the myriad modes of imparting instruction which now exist and have enabled institutions to overcome barriers of distance and time. Imparting of education through a virtual mode or by the adoption of new technologies would not detract from the said activity, otherwise fulfilling the requirements of structured education. The test, as propounded by Lok Shikshana Trust, essentially requires us to evaluate whether a formal and systematic process of imparting education had been adhered to. We thus find no merit in the challenge which stands raised to the order of the Tribunal. Considering the conclusions that we have arrived at on the principal issue of Section 2 (15), the question with respect to whether the CIT (E) was justified in invoking its powers conferred by Section 263 of the Act pales into insignificance and need not be answered. Decided in favour of the assessee.

Summary

Issues Involved:
1. Whether the ITAT was correct in setting aside the order under Section 263 of the Income Tax Act, 1961, despite the AO's order being erroneous and prejudicial to the interest of the Revenue.
2. Whether the ITAT was correct in concluding that the assessee was undertaking educational activities in terms of Section 2(15) of the Act.

Detailed Analysis:

Issue 1: Setting Aside the Order under Section 263

The CIT (Exemptions) issued a Show Cause Notice (SCN) under Section 263, doubting the correctness of the AO's assessment, which accepted the assessee's charitable activities. The CIT (E) argued that the AO failed to properly scrutinize the nature of the assessee's activities and that the activities were commercial rather than educational. The CIT (E) set aside the AO's assessment, asserting that the assessee was acting as a contractor/service provider and not engaged in educational activities as defined under Section 2(15). The CIT (E) also noted that the assessee received fees from corporate houses, which were treated as business expenses by the payers, indicating a commercial nature.

The Tribunal, however, found that the AO had indeed scrutinized the activities of the assessee in detail, including examining the nature of receipts, expenditure, and the applicability of service tax and TDS. The Tribunal emphasized that the AO had considered the assessee's activities to be charitable and educational based on substantial evidence. It concluded that the CIT (E)'s invocation of Section 263 was unjustified as the AO had conducted a thorough examination, and merely a different perception by the CIT (E) did not render the AO's order erroneous.

Issue 2: Educational Activities under Section 2(15)

The Tribunal evaluated whether the assessee's activities fell within the ambit of "education" as defined under Section 2(15) of the Income Tax Act. The assessee, a society registered under the Societies Registration Act, 1860, and holding registration under Section 12A and recognition under Section 80G(5), was engaged in various educational activities, including training programs for underprivileged youth in IT, English, soft skills, BPO, retail, banking, and service sectors. The training was provided at NIIT-run centers and NGO-partner centers, with courses certified by the National Skill Development Council (NSDC) and other globally recognized institutions.

The Tribunal noted that the assessee's activities included systematic instruction, a fixed curriculum, attendance criteria, and examinations, fulfilling the essential ingredients of formal education. It also highlighted that the assessee's courses were heavily subsidized, and the revenue from corporate donations was used solely for educational purposes. The Tribunal found that the activities were in line with the principles laid down by the Supreme Court in Lok Shikshana Trust and New Noble Educational Society, which defined education as the systematic instruction, schooling, or training given to the young in preparation for the work of life.

The Tribunal rejected the CIT (E)'s contention that the assessee's activities were commercial, noting that the corporate donations were part of CSR obligations and were used for educational purposes. The Tribunal affirmed that the assessee's activities met the criteria for education under Section 2(15) and were not commercial in nature.

Conclusion

The Tribunal concluded that the AO had correctly assessed the assessee's activities as charitable and educational. It held that the CIT (E)'s invocation of Section 263 was unjustified as the AO's order was neither erroneous nor prejudicial to the interest of the Revenue. The Tribunal affirmed that the assessee's activities fell within the definition of "education" under Section 2(15), and the appeal by the Revenue was dismissed.

Final Judgment

The High Court upheld the Tribunal's decision, affirming that the assessee's activities were educational and charitable under Section 2(15) of the Income Tax Act. The appeal by the Commissioner of Income Tax (Exemptions) was dismissed.