2017 (9) TMI 1032 - AT - Income Tax

Exemption u/s 11 eligibility - proof of charitable activities - Held that - First Appellate Authority has rightly concluded that Eklavya Foundation is engaged in social cause without any profit motive and A.O. alleged that it is not an educational institution and is carrying out business activities and it is not maintaining separate books of accounts, all these allegations are misconceived notions of the A.O. After going through the impugned order we find that the Ld. First Appellate Authority has rightly allowed the appeal of the assessee, after taking into consideration the impugned order, case laws cited, paper book filed. We find no infirmity in the impugned order which accepted the contentions of the assessee that Eklavya Society is engaged in charitable purpose as defined u/s 2(15) of the Act. After going through the rules and regulations of Eklavya Foundation it appears that the society is purely engaged for charitable purpose and the society is also granted registration u/s 12A of the Act vide order no.1696 of DIT(E) dt. 15.12.1984 and notified u/s 80G(5) of the Act dt. 27th August,2007. The society is solely engaged in charitable activities and is not running with any profit motive. - Decided against revenue

Issues Involved:
1. Whether the assessee qualifies as an educational institution under section 2(15) of the Income Tax Act.
2. Whether the activities of the assessee are of a commercial nature and thus disqualify it from being considered a charitable institution.
3. Whether the assessee maintained separate books of accounts as required under section 11(4) read with section 11(4A) of the Income Tax Act.
4. Validity of the additions made by the Assessing Officer (A.O.) to the assessee's income.

Issue-wise Detailed Analysis:

1. Qualification as an Educational Institution:
The Revenue contended that the assessee did not qualify as an educational institution under section 2(15) of the Income Tax Act, arguing that the activities were more aligned with general public utility and commercial in nature. The A.O. observed that the assessee was involved in activities such as publishing and selling books, which were not directly related to mainstream education. However, the Ld. CIT(A) and the Tribunal found that the assessee was engaged in educational activities indirectly by developing educational materials, improving the education system, and collaborating with state governments and NCERT. The Tribunal relied on the Delhi High Court's ruling in the case of Delhi Music Society vs. DGIT(E), which clarified that activities contributing to educational purposes, even indirectly, qualify as educational institutions.

2. Nature of Activities:
The Revenue argued that the assessee's activities were commercial, citing the sale of books and educational consultancy receipts. The A.O. noted substantial revenue from book sales and consultancy services, suggesting a profit motive. However, the Tribunal upheld the Ld. CIT(A)'s finding that the assessee's activities were charitable and educational in nature. The Tribunal emphasized that the assessee's publications were subsidized and aimed at making educational materials accessible to underprivileged children, thus lacking a profit motive. The Tribunal also noted that the assessee's activities were aligned with its charitable objectives as per its Memorandum of Association.

3. Maintenance of Separate Books of Accounts:
The A.O. contended that the assessee violated section 11(4) read with section 11(4A) by not maintaining separate books of accounts for its business activities. The Tribunal, however, found this allegation to be misplaced, concluding that since the assessee was not engaged in any business activities, there was no requirement to maintain separate books of accounts. The Tribunal noted that the assessee's activities were purely charitable and educational, thus exempting it from the requirement to maintain separate accounts for business activities.

4. Validity of Additions by the A.O.:
The A.O. made additions to the assessee's income under the head 'income from other sources,' arguing that the assessee's activities were commercial. The Tribunal, after reviewing the findings of the Ld. CIT(A) and the evidence presented, found no merit in the A.O.'s additions. The Tribunal upheld the Ld. CIT(A)'s decision to allow the assessee's appeal, concluding that the assessee was engaged in charitable purposes as defined under section 2(15) of the Act and thus entitled to exemption under section 11.

Conclusion:
The Tribunal dismissed the Revenue's appeals for both assessment years 2009-10 and 2010-11, affirming the Ld. CIT(A)'s orders. The Tribunal concluded that the assessee was engaged in charitable activities without any profit motive, qualifying as an educational institution under section 2(15) of the Income Tax Act. The Tribunal also found that the assessee was not required to maintain separate books of accounts as it was not engaged in business activities. The additions made by the A.O. were deemed unjustified, and the assessee's appeals were allowed.

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