2014 (5) TMI 774 - AT - Income Tax

Scope of term charitable purpose u/s 2(15) of the Act Educational institution - scope of imparting education - to pursue educational activities - improvement of educational standard of science students by making available superior course material and methodology for examination in this behalf Held that - Assesses books of accounts are audited and upheld by AO - No discrepancy or question about genuineness of the books and affairs of the assessee have been called into question - In earlier assessments u/s 143(3) assesses activities have been held to be educational and charitable activities and benefits of sec 11 have been allowed to the assessee - Registration u/s 12A has not been withdrawn assessee demonstrated that nature of its educational activities, modalities of working, methodology of affiliation with CBSE and other Boards, fee structure, examination pattern remain same as in earlier year - AO has taken a divergent view on the assessee educational activities by holding that they are no more educational activities as regular classes are not held Relying upon COUNCIL FOR THE INDIAN SCHOOL CERTIFICATE EXAMINATIONS Versus DIRECTOR GENERAL OF INCOME TAX 2012 (3) TMI 289 - DELHI HIGH COURT - assessee though being only in conducting examinations is still to be regarded as educational institution. Also in Assam State Text Book Production and Publication Corporation Limited Versus Commissioner of Income Tax, Gauhati-I 2009 (10) TMI 60 - SUPREME COURT it has been held that board though being only in the publication of books falls within the meaning of educational institution - It is not necessary to hold regular classes to be regarded as an educational institution in AMERICAN HOTEL & LODGING ASSOCIATION EDUCATIONAL INSTITUTE Versus CBDT & OTHERS 2008 (5) TMI 17 - SUPREME COURT OF INDIA publication of curriculum, reproduction of text books, faculty development programmes are to be held as educational activities. There was no merit in the order of AO to give a restricted meaning to the scope of meaning of term educational activities - AO s necessity of holding of regular classes or wholesome educational activities to be only eligible to be called educational activities eligible for benefits u/s 11 cannot be sustained - a charitable or educational institution can charge fees for rendering services, it is so as the surplus is accumulated which is further to be applied for charitable objects of the institution - in case of winding up, surplus has not dwell upon shareholders or relatives - the AO s allegations in this behalf cannot be sustained - adverse inference drawn by AO is without any basis thus, the order of the CIT(A) is upheld Decided against Revenue.

Summary

Issues Involved:

1. Whether the activities of the assessee qualify as "charitable purpose" under section 2(15) of the Income Tax Act, 1961.
2. Whether the assessee is an educational institution within the meaning of section 2(15) of the Income Tax Act, 1961, and thus eligible for exemption under section 11.
3. Whether the activities of the assessee are commercial in nature, thereby disqualifying it from claiming the exemption under section 11.

Issue-wise Detailed Analysis:

1. Charitable Purpose under Section 2(15):

The Revenue contended that the assessee was not imparting education and its activities did not fall within the ambit of charitable purpose as defined under section 2(15) of the Income Tax Act, 1961. The Assessing Officer (AO) argued that the activities were commercial, involving only the conduct of examinations and charging fees, without any direct or indirect educational activity.

The Tribunal, however, noted that the assessee foundation was incorporated with the objective of developing expertise in science education through 'course resource material' (CRM) for students. The CRM was imparted through recognized schools, and the foundation conducted examinations and awarded certificates. The Tribunal highlighted that the foundation's activities were aimed at improving the educational standards of science students and were conducted in coordination with Central Government Schools and universities. The Tribunal concluded that the activities were indeed educational and fell within the meaning of "charitable purpose" under section 2(15).

2. Educational Institution under Section 2(15):

The AO denied the exemption under section 11, asserting that the assessee's activities were neither educational nor charitable and were commercial in nature. The AO pointed out that the assessee was not recognized by any Directorate of Education or university and that the results of its examinations were not recognized by any government institute.

The Tribunal, however, found that the assessee was registered under section 12A and its activities were consistently held to be educational in nature in previous assessments. The Tribunal referred to various judicial precedents, including the Delhi High Court's judgment in the case of Council for the Indian School Certificate Examination, which held that conducting examinations qualifies as an educational activity. The Tribunal also cited the Supreme Court's judgment in Assam State Text Book Production and Publication Corporation Ltd. vs. CIT, which held that publishing educational textbooks qualifies as an educational activity. Based on these precedents, the Tribunal concluded that the assessee was an educational institution within the meaning of section 2(15) and eligible for exemption under section 11.

3. Commercial Nature of Activities:

The AO argued that the assessee's activities were commercial, as it charged substantial fees for conducting examinations and that family members of the assessee were making substantial income by selling books and periodicals prescribed for the examinations. The AO also noted a significant surplus of income over expenditure, indicating a commercial motive.

The Tribunal, however, observed that the fees charged by the assessee were reasonable and much lower than what a commercial organization would charge for similar services. The Tribunal emphasized that charging reasonable fees for services does not disqualify an institution from being considered charitable or educational, as long as the surplus is applied towards the institution's charitable objectives. The Tribunal found no evidence to support the AO's allegations of commercial motives or profit-making by family members. The Tribunal upheld the CIT(A)'s finding that the assessee's activities were educational and charitable, and the surplus was utilized for achieving the foundation's objectives.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that the assessee's activities were educational and charitable in nature, and eligible for exemption under section 11. The Tribunal found no merit in the AO's arguments and relied on various judicial precedents to support its decision. The order was pronounced in the open court on 16.05.2014.