2022 (7) TMI 436 - AT - Income Tax

Exemption u/s 11 - CIT(A) confirming the action of AO denying the benefit of exemption u/s.11 of the Act by invoking the proviso to section 2(15) of the Act, as applicable w.r.e.f. 01.04.2009 as amended by the Finance Act, 2010 - HELD THAT - We noted that this case is fully covered in favour of assessee by the decision of Hon ble High Court of Madras in assessee s own case 2020 (11) TMI 267 - MADRAS HIGH COURT , wherein the issue of registration u/s.12A of the Act was challenged and Hon ble High Court has categorically held that this issue cannot be reopened by the Revenue and Revenue is not entitled to state that the assessee s trust is not carrying on charitable activity and thus, it is not in the field of education, etc. Once, Hon ble High Court had held that the assessee is in the field of education, assessee is fully entitled for claim of deduction u/s.11 of the Act. We order accordingly. Therefore, in all the four years, appeals of the assessee are allowed.

Issues Involved:

1. Denial of exemption under Section 11 of the Income Tax Act.
2. Interpretation of Section 2(15) of the Income Tax Act.
3. Application of income for charitable purposes.
4. Validity of cancellation of registration under Section 12A.
5. Consistency in judicial decisions and estoppel.
6. Definition and scope of 'education' under Section 2(15).

Detailed Analysis:

1. Denial of Exemption under Section 11 of the Income Tax Act:

The primary issue in these appeals was the denial of exemption under Section 11 of the Income Tax Act. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] had denied the exemption on the grounds that the assessee trust was not pursuing its object of education by running its own educational institutions. Instead, it was engaged in the business of publishing a newspaper and job work of printing, and the surplus income was donated to another trust running educational institutions. The authorities held that the activities of the assessee trust did not qualify as charitable under Section 2(15) of the Act.

2. Interpretation of Section 2(15) of the Income Tax Act:

The authorities interpreted Section 2(15) to mean that the assessee trust was not engaged in any charitable activity directly, such as relief of the poor, education, or medical relief. They argued that the trust was merely involved in a business activity and that donations to another trust did not qualify as 'application of income' for charitable purposes under Section 11. The CIT(A) further held that 'donation' and 'application' are distinct terms, and the trust's income should be directly applied to charitable activities to qualify for exemption.

3. Application of Income for Charitable Purposes:

The CIT(A) contended that the trust's donations to Aditanar Educational Institution did not constitute 'application of income' for charitable purposes as required under Section 11. The CIT(A) argued that the trust should have direct control and supervision over the charitable activities funded by its income, which was not the case with donations to another trust. Therefore, the exemption under Section 11 was denied.

4. Validity of Cancellation of Registration under Section 12A:

The registration of the assessee trust under Section 12A was canceled by the Director of Income Tax (Exemptions) [DIT(E)] on the grounds that the trust was not engaged in genuine charitable activities. The DIT(E) argued that the trust was primarily involved in business activities and not directly engaged in charitable activities. This cancellation was upheld by the Tribunal, leading to the denial of exemption under Section 11.

However, the Hon'ble Madras High Court, in the assessee's own case, had previously held that the trust was engaged in charitable activities and was entitled to exemption under Section 11. The High Court emphasized the principle of consistency and estoppel, stating that the Revenue could not reopen settled issues and that the trust's activities were genuine and charitable.

5. Consistency in Judicial Decisions and Estoppel:

The High Court highlighted the importance of consistency in judicial decisions and the principle of estoppel. It noted that the Revenue had accepted the trust's charitable status in previous years, and there was no change in circumstances to justify a different conclusion. The High Court criticized the Revenue for attempting to reopen settled issues and held that the trust was entitled to exemption under Section 11 based on the principle of consistency and estoppel.

6. Definition and Scope of 'Education' under Section 2(15):

The High Court extensively discussed the definition and scope of 'education' under Section 2(15). It referred to various judicial decisions, including the Supreme Court's decision in Loka Shikshana Trust, to conclude that the term 'education' should be given a wide and comprehensive meaning. The High Court held that the trust's activities, including the publication of a newspaper and donations to another trust running educational institutions, fell within the ambit of 'education' and qualified as charitable activities.

Conclusion:

The Tribunal, relying on the High Court's decision, held that the assessee trust was engaged in charitable activities and was entitled to exemption under Section 11. The Tribunal emphasized that the Revenue could not reopen settled issues and that the trust's activities were genuine and charitable. Therefore, the appeals filed by the assessee were allowed, and the denial of exemption under Section 11 was set aside.

Order:

The appeals filed by the assessee are allowed. The order was pronounced in the open court on 8th July 2022 at Chennai.

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