2023 (3) TMI 920 - AT - Income Tax

Exemption u/s 11 - Charitable activity u/s 2(15) - whether the assessee is carrying out activities qualifying as being charitable in terms of section 2(15) so as to entitle it to claim exemption of its income u/s 11/12 ? - as per AO assessee was carrying out activity of general public utility as defined under section 2(15) - as per CIT-A activity carried out by the assessee qualified as education , in terms of section 2(15) - HELD THAT - As in terms of Section 2(15) of the Act, education means only imparting formal scholastic learning - See NEW NOBLE EDUCATIONAL SOCIETY 2022 (10) TMI 855 - SUPREME COURT . As in view of the narrow and restricted meaning given to the term education as used in Section 2(15) of the Act, the activities carried out by the assessee being primarily run as a science museum does not qualify as education. The findings of the learned CIT(A), therefore, holding so are set aside. We hold that the assessee is not engaged in the charitable activity of imparting education as defined under Section 2(15) of the Act and the order of the learned CIT(A) holding so is, therefore, set aside. Alternate contention of the assessee that its activities, if not in the nature of imparting education, they qualify as general public utility activity as held by the Assessing Officer also; but to exclude it from the definition of charitable purpose as defined under Section 2(15) - The activities carried out by the assessee are not in the nature of imparting education, but are in the nature of general public utility activities in terms of Section 2(15) of the Act; and for the purpose of determining whether they are commercial in nature so as to disqualify them from being charitable activities in terms of first and second proviso to Section 2(15) of the Act, the matter needs reconsideration by the Assessing Officer in terms of the guidelines laid down by the Hon ble Apex Court in the case of AUDA ( 2022 (10) TMI 948 - SUPREME COURT ) for determining the commercial nature of such activities. For the said purpose all the appeals are restored back to the AO. The AO is directed to determine the same and thereafter determine the income liable to tax in accordance with law. Appeals filed by the Revenue are allowed for statistical purposes

Summary

Issues Involved:
1. Whether the activities carried out by the assessee qualify as "education" under section 2(15) of the Income Tax Act, 1961.
2. If not, whether the activities qualify as "general public utility" and whether the first/second proviso to section 2(15) applies, disqualifying them as charitable activities.

Summary:

Issue 1: Qualification as "Education"
The primary issue was whether the assessee's activities qualify as "education" under section 2(15) of the Income Tax Act, 1961. The Assessing Officer (AO) held that the activities were of "general public utility" and involved trade, commerce, and business, thus disqualifying them as charitable activities under the first proviso to section 2(15). The CIT(A) disagreed, holding that the activities qualified as "education" and thus entitled the assessee to claim exemption under section 11 of the Act.

The Tribunal noted that the Hon'ble Supreme Court in New Noble Educational Society had interpreted "education" narrowly as imparting formal scholastic learning. The Tribunal rejected the assessee's contention that this interpretation applied only to section 10(23C)(vi) and not to section 2(15). It held that the activities carried out by the assessee, primarily running a science museum, did not qualify as "education" under section 2(15). The Tribunal set aside the CIT(A)'s findings and held that the assessee was not engaged in the charitable activity of imparting education.

Issue 2: Qualification as "General Public Utility" and Commercial Nature
The alternate issue was whether the activities, if not educational, qualified as "general public utility" and whether the first/second proviso to section 2(15) applied. The Tribunal referred to the Supreme Court's guidelines in Ahmedabad Urban Development Authority (AUDA) for determining the commercial nature of general public utility activities. The Tribunal noted that the AO had not evaluated the activities in light of these guidelines but had merely noted that the assessee charged fees and generated surplus.

The Tribunal restored the issue to the AO to determine whether the activities were commercial in nature, following the AUDA guidelines. It directed the AO to verify the nature of the grants received by the assessee and treat them as capital or revenue receipts accordingly.

Conclusion:
The Tribunal held that the assessee's activities were not in the nature of imparting education but were general public utility activities. It directed the AO to reconsider whether these activities were commercial in nature, following the Supreme Court's guidelines in AUDA. All three appeals filed by the Revenue were allowed for statistical purposes.