TMI Blog2019 (5) TMI 1797X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee society doesn t loses its character of being charitable society engaged in educational activities. Objects so envisioned and activities of the assessee society are directed towards education of the socially and economically under-privileged children either directly imparting education through its network of Bodhshalas or by way of collaborating/partnering with the government and other non-governmental organizations/institutions and not to earn any profits. Incorrect to classify the objects and activities of the assessee society as objects and activities in nature of general public utility. The proviso to section 2(15) which can be invoked in case of objects of general public utility therefore doesn t apply and thus cannot be invoked in the instant case. The consequent action of the Assessing officer in withdrawing the exemption claimed by the assessee society u/s 11 12 is hereby set-aside and the matter is decided in favour of the assessee society. - ITA. No. 590, 591 & 592/JP/2018 - - - Dated:- 29-5-2019 - Shri Vijay Pal Rao, JM Shri Vikram Singh Yadav, AM Assessee by: Shri P. C. Parwal (CA) Revenue by: Shri K. C. Gupta (JCIT), Shri A.S Nehra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of institutional charges of ₹ 25,73,793/- in addition to other receipts on account of voluntary contribution and other receipts. As per Assessing Officer, the assessee is not engaged in education but the assessee s case comes in the clause of general public utility and the assessee was issued a show-cause to explain as to why the exemption u/s 11 should not be withdrawn due to application of proviso to section 2(15) of the Act. 4. In response, the assessee society submitted that it is working solely in the field of education for the deprived and under-privileged children since its inception in 1987. It was further submitted that the institutional charges are lumpsum funds received from some of the funding agencies to meet the administrative expenses agreed at the time of finalization of annual budgets and grant letters. The submissions so filed were considered but not found acceptable to the Assessing officer. 5. As per the Assessing officer, the trust is registered as a charitable institution u/s 12A of the Act and its objects falls in the last limb of definition under section 2(15) i.e, advancement of any object of general public utility. Further, referring to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raining/ education, research documentation, networking policy advocacy. It has supported number of societies across the country engaged in education and carried out various education projects from the grant provided by various NGOs/ State Government and national/ international funding institutions. 8. It was further submitted that over the period of time, the assessee society has developed its own infrastructure facility comprising of training center, girls school named Manas Ganga upto XIIth standard affiliated with Rajasthan Board, girls hostel, accommodation facility for teachers, mess, etc. at Kukas Institutional Area, Amer, Jaipur and Bodhgaon at Garhbasai, Tehsil Thanagazi, Alwar. Free education facility is provided at all Bodhshalas. As on date, the society is having 32 Bodhshalas at Alwar, 7 Bodhshalas at Jaipur and 1 Bodhshala at Tonk. Out of these 40 Bodhshalas, 34 Bodhshalas are recognized with District Education Office, Government of Rajasthan. The remaining 6 Bodhshalas are learning centers upto Class II. The details of these Bodhshalas along with the number of students studying there and their affiliation were also placed on record. 9. It was further submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income of the society assessable under the head income from business profession . Further, the Ld. CIT(A) at Pg 11-13 of his order without meeting with the various contentions and the case laws relied by the assessee, upheld the order of AO by reproducing Pg 5-6 of the assessment order. 12. It was further submitted that from the object of the society, it can be noted that it is existing solely for education. The assessee imparts education through three models. First is direct intervention where it has evolved network of 40 schools named Bodhshalas in three district of Rajasthan, namely, Jaipur, Alwar Tonk catering 12,000 children and recognized by Government. These schools are run on grant funded by various organizations. The second model is partnership with Government where it support the Government schools in creating textbooks/ workbooks, curriculum, teaching learning material, teachers training framework and capacity building of Government teachers and supporting the education management in better management of the schools at the state level. Thirdly, it partners with other education NGOs who have either their own schools or have team of teachers or supporting team by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered by the AO as educational activities and exemption u/s 11 has been allowed. 14. It was further submitted that in various cases, it has been held that an activity incidental to education is also education. In this connection reference can be made to the following cases:- Shree Ahmedabad Lohana Vidyathi Bhavan Vs. ITO (2018) 172 ITD 11 (Ahd.) Where providing hostel facility to students is held as an essential component of educational institutions and also an aid for attaining educational object, and thus said activity would fall under purview of education as provided u/s 2(15). Delhi Bureau of Text Books Vs. DIT(E) (2017) 394 ITR 387 (Del.) Exclusive activity of the assessee is the publication and printing of text books and their distribution to Government schools. Fact that the assessee is a non-profit organisation is not in dispute. Its essential activities are administered by the board of directors comprising of officers of the Government. Text books are provided by the assessee to the students at subsidized rates. Even the text books, reading materials and school bags are being distributed free to deserving students. Essential activity of the assessee is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pharmaceutical products are sold. This is a facility which is intended to be used predominantly by patients and their relatives. Though the members of the general public are not prohibited from using the facility, the crucial question to ask or the test to answer is whether the establishment of a chemist shop is incidental or ancillary to the dominant object and purpose which is to set up and conduct a hospital for philanthropic purposes. As a matter of fact, s. 10(23C) permits the accumulation of income upto a certain stipulated amount over a stipulated period. In this view, the Chief CIT has clearly misapplied himself in law by having regard to a clearly ancillary or incidental activity and elevating it to the status of the dominant purpose for which the hospital has been established. Running the chemist shop in the present case is not the dominant object or purpose of the trust. Nor would the figures as disclosed indicate that the nature of the activity has assumed such a dominating or overwhelming importance so as to cast doubt on the true nature and character of the hospital which is conducted by the petitioner. The impugned order of the Chief CIT is set aside and the applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wear the mask of charity. Genuine charitable organizations are not affected in any way. Once the primary objects of an institution are established to be in the nature of charity, then the proviso to sec. 2(15) cannot be made applicable. When an institution is carrying on activities in the nature of trade, commerce or business, obviously it would be charging fee, etc. It might be charging fee even when it is rendering services as part of charitable activity in order to supplement its income for carrying on charitable activities. In that case, the proviso will not have any implication as the activities would not be in the nature of trade, commerce or business. Objects of the assessee society are totally charitable in nature and do not involve carrying on any activity in the nature of trade, commerce or business. Therefore, proviso to sec. 2(15) is not applicable to the assessee society. Mere fact that the assessee society has generated surplus in the course of carrying on its ancillary objects shall not alter the character of the main objects so long as the predominant object continues to be charitable and not to earn profit. Therefore, assessee society is entitled to exemption u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion carries on its activities is material to determine whether the same is business or not. The purport of the first proviso to section 2(15) is not to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or fee. The object of introducing the first proviso is to exclude organisations which are carrying on regular business from the scope of charitable purpose. The expression Business , Trade or commerce as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organisation is charitable, any incidental activity for furtherance of the object would not fall within the expression business , trade or commerce (Para 67). The dominant objective of assessee institute was to regulate the profession of Chartered Accountancy in India. The functions performed by the assessee institute are in the genre of public welfare and not for any private gain or profit and in this view it can t be said that assessee is involved in carrying on any business, trade or commerce. The activity of imparting education in the field of accountancy and conducting courses both at pre-qualificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or business particularly if generating surplus is wholly incidental to the principal activities of the trust ; which is otherwise for general public utility, and, therefore, of charitable nature. In this case the assessee-trust was engaged in the activity of breeding milk cattle to improve the quality of cows and oxen and other related activities. The Assessing Officer applied the proviso to section 2(15) holding that the trust could not be considered as one created for charitable purposes. He analysed the accounts of the assessee and came to the conclusion that considerable income was generated from the activity of milk production and sale. Therefore, for the assessment year 2009-10, he denied the benefit of sections 11 and 12 to the assessee. The Tribunal noted that the objects were admittedly charitable in nature. The surplus generated was wholly secondary. Therefore, it held that the proviso to section 2(15) of the Act would not apply and the assessee was entitled to the exemption. On appeal to the High Court held that the main objectives of the trust were to breed cattle and endeavor to improve the quality of the cows and oxen in view of the need for good oxen as India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is existing solely for education and the AO be directed to allow the claim of exemption u/s 11 of the Act. 18. The ld DR is heard who has relied heavily on the findings of the lower authorities. It was submitted by the ld DR that the assessee society has been registered u/s 12A as a charitable society and its objects and activities falls in the last limb of definition under section 2(15) i.e, advancement of any object of general public utility as the assessee society is engaged in ancillary activities which are supporting out of the school children and it is a step towards formal education and any activity connected with education cannot be classified as education activity. The ld DR further submitted that in assessee s own financials, it has shown consultancy, mess and accommodation charges which the auditors have themselves classified as business activities of the assessee. In view of the same, it was submitted that the AO has rightly invoked the proviso to section 2(15) and the exemption claimed u/s 11 was denied and surplus brought to tax. 19. Heard both the parties and gone through the material available on record. 20. Firstly, we find that the assessee socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. there has to be compelling reasons for a departure from the past settled position wherein the assessee society has been held to be engaged in the field of education all these years and such reasons have to be spelt out clearly by the Assessing officer. It has been contended by the ld AR that there is no change in the nature of activities and the activities are the same as carried out by the assessee society as in earlier years. Even on perusal of the assessment order, we note that there is no finding recorded by the Assessing officer that the nature of activities being carried on by the assessee society has changed since last years and even during the course of hearing, the ld DR has not submitted anything contrary to the contentions so advanced by the ld AR and as found from the perusal of past assessment orders. We therefore find that where the undisputed facts are that these are the same a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability of a large section of our society to send their children to formal schools given the lack of financial resources at their disposal. Thirdly, even where the Government is providing free education under the RTE Act, the availability and access to Government schools and infrastructure and given the lack of adequate government schools, the necessity for the civil society and various non-government organizations/agencies to step-in in the field of education. In this background, if we look at the following objects of the assessee society, we find that the assessee society objects are clearly in the field of education with focus on socially and economically under-privileged children of our society. In pursuit of its objects, the assessee society has established 40 Bodhshalas, out of which 34 Bodhshalas are also recognized by the District Education office, Government of Rajasthan, where free education is provided to the students. The other 6 Bodhshalas are established as learning centres for children upto class II level. The assessee society is thus directly involved in imparting education to the students. Besides the same, the assessee society in partnership with Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd becomes an institution for the purpose of making profit. The predominant object test must be applied - the purpose of education should not be submerged by a profit making motive. A distinction must be drawn between the making of a surplus and an institution being carried on for profit . No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes. The ultimate test is whether on an overall view of the matter, the object is to make profit as opposed to educating persons. 25. In this regard, we refer to the findings of the Assessing officer wherein he has referred to the details of activities carried out by the the assessee society and has stated that the assessee society has got grants-in- aid from number of agencies for specified projects and has utilized these grants, however, at the same time, the assessee society has also shown income on account of institutional charges of ₹ 25,73,793/-. Further, the auditors in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. These projects have been funded through grants/financial support by various funding agencies and these particular receipts are towards administrative and other overhead expenditure of the assessee society and are not in form of any independent source/earning of the assessee society and are part of the overall educational activities carried out by the assessee society. The purpose of these grants and funding by various agencies is to carrying out specific educational projects as can be seen from the following details which were specifically called by the Bench and submitted during the course of hearing: Name of project Funded Agency Institutional charges Consultancy charges Object of project DIL SE Foundation Centre for Equity Studies, New Delhi ₹ 15,841/- ₹ 80,000/- This project is for development of modules and a team of resource trainer for the education of street homeless Children. Duration of project is from June, 2010 to May, 2011. Jan Pahal Oxfam Novib, Nether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Abhiyan for Government ofRajasthan. However, the way the aforesaid charges has been reflected in the Income and expenditure, though it prima facie gives an impression of separate source of income, however, in substance, these institutional, consultancy, mess and accommodation charges are nothing but specified amount received as part of overall funding provided by various agencies towards carrying out various educational projects/activities by the assessee society. At the end of the year, there is surplus of ₹ 11,50,736 from such educational activities which is carried foreward to the subsequent year. As we have stated above, merely having a surplus is not an indicator of carrying out business activities, rather the real test is the dominant and purposive test which has been satisfied in the instant case where the intention is not to earn such surplus/profits but to carry out educational activities for the benefit of underprivileged children belonging to socially and economic weaker sections of the society and as part of such activities, where such surplus is generated and used for furthence of such educational activities, the assessee society doesn t loses it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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