TMI Blog2020 (9) TMI 424X X X X Extracts X X X X X X X X Extracts X X X X ..... any, whatsoever derived shall be applied solely for the promotion of its objects as set forth in the memorandum; no portion of the income or property aforesaid shall be paid or transferred, directly or indirectly, by way of dividend, bonus, otherwise by way of profit to persons who, at any time are, or have been member of the company or to any one or more of them or to any person claiming through any one or more of them. It is stated that except with the previous approval of the Central Government, no remuneration or other benefit in money or money's worth shall be given by the company to any of its members whether, officers or servants of the company; in case of winding up or dissolution of the company, after satisfaction of all the debts and liabilities, any property whatsoever, the same shall not be submitted amongst the members of the company, but shall be given or transferred to such other company having objects similar to the objects of the assessee company. The relevant portions of the Memorandum of Association, which we have referred to, also find place in the licence issued under Section 25 of the Companies Act by the Regional Director of Company Affair. Rejectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e furnished by the assessee. The CIT by order dated 29.09.2017 rejected the application on the ground that the assessee's activity of imparting 'financial education/awareness' is a service for price, to the investor in the field of investments; the assessee's activity is designed in such a way that what it receives in the form of fee from the client for imparting financial education/awareness is always higher than what is spent for imparting such education/awareness to the said clients. It was further stated that the entire structure is designed to generate surplus/profit and there is no element of charity in the process, rather it is purely on commercial basis amounting to a commercial activity. 5.It was further stated that the activity of the assessee in the nature of rendering services to the investor community amounts to rendering services to a particular trade/commerce/business. Further, there is a clear price/fee/consideration fixed for the said services and the quantum of consideration is always on commercial basis. Therefore, the CIT held that the activity of the assessee amounts to an activity of rendering services in relation to trade/commerce/business, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 25 of the Companies Act would not be automatically entitled to a registration under Section 12AA of the Act. Though the observation, as a general proposition, may be right, yet the Income Tax Department has been consistently granting registration under Section 12AA of the Act to several companies registered under Section 25 of the Companies Act, which have the main objects more or less as that of the assessee company. Before us, the details pertaining to six such companies have been given, viz., (i) Tejas International Education Institutions; (ii) Invest Karnataka Forum; (iii) MCCIA Electronic Cluster Foundation; (iv) Jain International Trade Organisation; (v) Arya Bhatta Welfare Organisation; and (vi) Financial Literacy Advisory Board of India. Among the six companies, the Financial Literacy and Advisory Board of India does the activities akin to that of the assessee company. We say so upon comparison of the main objects of the said company with that of the main objects of the assessee company. In this regard, it would be relevant to refer to the decision of the High Court of Delhi in ICAI Accounting Research Foundation vs. DGIT (Exemptions) [(2009) 183 Taxman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel to state that the nature of activity done by the assessee cannot be an educational activity. We need not labour much to decide this issue, as we are benefited by the decision of the High Court of Gujarat in the case of DIT (Exemption) vs. Ahmedabad Management Association [(2014) 47 taxmann.com 162 (Guj.)]. The Court considered the decision in Loka Shikshana Trust (supra), as it was argued by the Revenue as is done before us that the activity is not education as explained in Loka Shikshana Trust (supra) and it was held as follows:- 5.4.Now while considering whether the activities of the assessee can be said to be educational activities or not the decision of this Court as well as Hon ble the Supreme Court is required to be referred to and considered. In the case of Gujarat State Cooperative Union (Supra) it is held by the Division Bench of this Court that mere existence of profit will not disqualify institution for exemption under Section 10(22) of the Act, if sole purpose of its existence is not profit making but is educational activities. In the said decision the Division Bench also considered the decision of Hon ble the Supreme Court in the case of Lok Shiksha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the word education . By giving further illustrations of a traveler gaining knowledge, victims of swindlers and thieves becoming wiser, the visitors to night clubs adding to their knowledge the hidden mysteries of life, the Supreme Court has indicated that the word education is not used in a loose sense so as to include acquisition of even such knowledge. The observations of the Supreme Court only indicate the proper confines of the word education in the context of the provisions of Section 2(15) of the Act. It will not be proper to construe these observations in a manner in which they are construed by the tribunal when it infers from these observations, in paragraph 17 of its judgment, that the word education is limited to schools, colleges and similar institutions and does not extend to any other media for such acquisition of knowledge. The observations of the Supreme Court do not confine the word education only to scholastic instructions but other forms of education also are included in the word education . As noticed above, the word schooling also means instructing or educating. It, therefore, cannot be said that the word education has been given an unduly restrict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the co-operative union was entitled for exemption under Section 10(22) of the Act and one such activity being publication of journal on the subject of 'co-operative movement'. The Tribunal rejected the case of the assessee therein based on the observation made by the Hon'ble Supreme Court in Loka Shikshana Trust (supra). Considering the correctness of the order of the Tribunal, it was held as follows:- 5. From the nature of the activities of the assessee, it is abundantly clear to us that the assessee is existing solely for educational purposes. It was sought to be contended by learned counsel for the Revenue that having regard to the objects enumerated in clauses (iii), (iv), (vi) and (viii) of bye-law 2 of the bye-laws of the assessee, it cannot be said that the assessee was existing solely for educational purposes. In clause (iii) of bye-law 2, the object enumerated is that the assessee will function as a focusing centre on non-official opinion on various subjects affecting the movement and for representing it in proper quarters. Under clause (iv), its object is to further the spread of the co-operative movement. Clause (vi) refers to the objects of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in an organised and systematic manner by conducting regular courses for imparting instruction and training on various subjects included in the curricula as is reflected from the list of its activities. There is no dispute about the fact that the assessee-Co-operative Union is given financial assistance by the Government. The resolutions of the Government dated February 15, 1968, and December 10, 1982 (mentioned in para 8 of the order of the Commissioner of Income-tax (Appeals)) clearly indicate that the grants sanctioned by the Government are for educational purposes. The Government had sanctioned ₹ 15 lakhs for the year 1982-83 which appears to have been raised to ₹ 20 lakhs from the year 1988-89. We are fully satisfied from the nature of the activities of the assessee-Co-operative Union and its objects that the assessee is existing exclusively for educational purposes and not for the purposes of profit. The assessee was publishing two journals : (1) Sahakar , a weekly journal having a circulation of 6,700 copies, and (2) Gram Swaraj , a monthly magazine having a circulation of 7,150 copies. Both these journals were published in connection with the activities of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Oxford English Dictionary, Vol. IX, page 217). The Supreme Court has observed that the word education also connotes the whole course of scholastic instruction which a person has received. This clearly indicates that the observations of the Supreme Court were not intended to give a narrow or pedantic sense to the word education . By giving further illustrations of a traveller gaining knowledge, victims of swindlers and thieves becoming wiser, the visitors to night clubs adding to their knowledge the hidden mysteries of life, the supreme Court has indicated that the word education is not used in a loose sense so as to include acquisition of even such knowledge. The observations of the Supreme Court only indicate the proper confines of the word education in the context of the provisions of section 2(15) of the Act. It will not be proper to construe these observations in a manner in which they are construed by the Tribunal when it infers from these observations, in para 17 of its judgment, that the word education is limited to schools, colleges and similar institutions and does not extend to any other media for such acquisition of knowledge. The observations of the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een's Educational Society vs. CIT [(2015) 8 SCC 47]. The Hon'ble Supreme Court after taking note of the various decisions, summed up the law which is common to Sections 10(23C)(iiiad) and (vi), in paragraphs 11 and 19, it was held as follows:- 11.Thus, the law common to Section 10(23C) (iiiad) and (vi) may be summed up as follows: Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and 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 pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is income and claim exemption from income tax under Section 11(1)(a). We set aside the judgment of the Uttarakhand High Court dated 24th September, 2007. The reasoning of the ITAT (set aside by the High Court) is more in consonance with the law laid down by this Court, and we approve its decision. 18.The above decision has been followed by the Hon'ble Supreme Court in Chief Commissioner of Income Tax vs. St. Peter's Educational Society [(2016) 14 SCC 306]. In the case of P.A.Inamdar Ors. vs. State of Maharashtra Ors. [AIR 2005 SC 3226], the Constitution Bench while considering various issues pertaining to educational institution, which included issue of fee structure, reservation, admission policies, etc., followed the decision in the case of T.M.A. Pai Foundation vs. State of Karnataka [(2002) 8 SCC 481] and held that every institution is free to advice its own fee structure subject to the limitation that there should be no profiteering and no capitation fee charged, directly or indirectly, or in any form. The Court further held that no profiteering does not imply that the institution cannot have reasonable surplus for future sustenance and expan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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