Case Law Details
Deshpande Education Trust Vs ACIT (ITAT Bangalore)
ITAT Bangalore Denies Section 11 Exemption: Coaching Activities Held Commercial and Hit by Proviso to Section 2(15)
The Bangalore Bench of the ITAT dismissed the appeals of Deshpande Education Trust for AYs 2011-12 and 2012-13, upholding denial of exemption under section 11. The Tribunal held that the assessee’s activities did not amount to “education” within section 2(15) and were instead commercial coaching services, thereby attracting the first proviso to section 2(15) .
The Tribunal noted that the Assessing Officer had categorically found the trust’s main activity to be running coaching classes by collecting hefty fees for various services, and the assessee failed to bring any credible evidence to rebut this factual finding. The so-called activity report was treated as vague and unreliable, lacking details on authorship, date, or evidentiary value.
Judicial precedents relied upon by the assessee—including cases on vocational education, surplus generation, registration under section 12AA, and charitable institutions—were distinguished on facts. The Tribunal emphasized that mere possession of section 12AA registration does not automatically entitle an assessee to exemption under section 11, and that the nature of actual activities during the relevant year is decisive.
On facts, the Tribunal observed that the assessee neither demonstrated formal education nor showed that coaching was provided free or at subsidised rates to the poor or needy. In the absence of evidence of charitable pricing or dominant educational purpose, the activity was held to be similar to private coaching institutions run on commercial lines. The existence of surplus further supported the conclusion when viewed with the overall conduct.
Accordingly, the ITAT held that the assessee’s activities fell under “advancement of any other object of general public utility” involving trade or business, hit by the proviso to section
Author’s Comment
This ITAT view no longer holds the field. The Karnataka High Court (Dharwad Bench), in appeal under section 260A, has categorically overruled the Tribunal’s decision. The High Court held that systematic vocational and skill-development training constitutes “education” under section 2(15), and that mere charging of fees or generation of surplus does not convert an educational activity into business, so long as the dominant object is education and surplus is ploughed back for charitable purposes. Consequently, the High Court set aside the ITAT order and restored exemption under section 11 to the trust.
Post this Karnataka HC ruling, vocational / skill-development institutions imparting structured training cannot be denied exemption merely because they charge fees or generate surplus. The focus must remain on the predominant object test, not on the magnitude of receipts or surplus alone.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
Both these are appeals are filed by the assessee and these are directed against two separate orders of learned CIT (A), Hubli dated 08.02.2016 for A. Y. 2011 – 12 and dated 31.303.2016 for A.Y. 2012 – 13. Both were heard together and are being disposed of by this common order for the sake of convenience.
2. The assessee has raised several grounds in both years but the main grievance in both years is about non granting of exemption u/s 11. Second grievance in both years is about charging of interest and the third grievance which is A. Y. 2012 – 13 only is about non allowing of credit of TDS in part.
3. The appeal for A. Y. 2011 – 12 is filed late by the assessee and the delay is of 16 days. The assessee has made an application for condonation of delay and it is stated in this that the assessee is based at HUBLI and considerable time elapsed in identifying the chartered accountant in Bangalore for preparation and filing of the appeal. In view of these facts, we condone the delay and admit this appeal.
4. It was submitted by the learned AR of the assessee that the objection of the A.O. and of learned CIT (A) is this that the activities of the assessee are not education and relief to poor. In this regard, he submitted that the activity report of the assessee is available on pages 36 to 38 of the paper book, as per which, the assessee is conducting various education programs. He also submitted that the copy of submissions made before the A.O. is available on pages 229 to 232 of the paper book and the same should also be considered. Thereafter, He placed reliance on the following judicial pronouncements in support of this contention that the activities of the assessee are education:-
a) DIT (E) vs. Group Vocational Training Centre Trust in ITA No. 199/2015 Dated 23.02.2016 (kar.) PB Pages 262 to 271.
b) Ecumenical Christian Centre vs. CIT, 8 Taxman 175 (Kar.)
c) CCIT vs. St. Peter’s Education Society, 70 Taxman.com171 (SC) at pages 278 to 289 of PB.
d) CIT vs. Red Rose School, 163 taxman 19 (All.)
4.1 He placed reliance on the following judicial pronouncements also in support of this contention that even if it is held that the activities of the assessee is not education but object of general public utility then also proviso to section 2 (15) is not applicable:-
e) Society for Participatory Research in Asia vs. ITO, 71 Taxman.com321 (ITAT, Delhi) at pages 478 to 492 of PB.
f) DIT vs. Women’s India Trust, 60 Taxman.com55 (Bombay) at pages 495 to 498 of PB.
g) India Trade Promotion Organization vs. DGIT (E), 53 Taxman.com404 (Delhi) at pages 499 to 528 of PB.
5. He also submitted that relevant extract from Budget Speech, Memorandum Explaining Provisions of Finance Bill 2008 and FM’s reply to the debate on Finance Bill, 2008 are available on pages 493 to 494 of the paper book and these should also be considered. Learned DR of the revenue supported the orders of the authorities below.
6. We have considered the rival submissions. We find that a categorical finding is given by the A.O. on page 7 of the assessment order that the assessee’s main activity for the year under consideration is to run coaching classes by collecting hefty fees for every kind of services. Even before CIT (A), the assessee has filed nothing to controvert these findings of the A.O. The submissions of the assessee before CIT (A) are available on pages 233 to 261 of the paper book as per which, the assessee has filed copy of Registration certificate u/s 12AA, Copy of Trust Deed and Financial Statements for F Y 2010 – 11. Before us also, no evidence is filed to controvert this finding of the A.O. The Activity report on pages 36 to 38 of the paper book is a report about which, even this is not known as to who prepared this report and on what date or in which year. Such a vague report has no evidentiary value. Hence, we proceed on this basis that the assessee has nothing to say about this finding of the A.O. that “the assessee’s main activity for the year under consideration is to run coaching classes by collecting hefty fees for every kind of services”. We examine the applicability of the various judicial pronouncements in view of this factual position.
7. The first judgment cited is the judgment of Hon’ble Karnataka High Court rendered in the case of DIT (E) vs. Group Vocational Training Centre Trust (Supra). In this case, the issue in dispute was about granting of registration u/s 12AA. Mere granting of registration does not entitle for exemption u/s 11 and the A.O. is entitled to examine as to whether the activities are charitable or not. In the present case, registration u/s 12AA is already granted and the issue in dispute is about eligibility of exemption u/s 11 and the finding of the A.O. that the assessee is not imparting education or relief to poor could not be controverted by the assessee. Hence this judgment renders no help to the assessee in the present case.
8. The second judgment cited is also a judgment of Hon’ble Karnataka High Court rendered in the case of Ecumenical Christian Centre vs. CIT (Supra). In this case, the issue in dispute was granting approval u/s 80G, which was granted up to 31.12.1973 but was refused by the CIT for subsequent period and CIT refused to consider the earlier order and allied evidence produced by the assessee before him and under these facts, it was held that the CIT was not justified in refusing approval u/s 80G for subsequent period. This is also noted by Hon’ble Karnataka High Court in penultimate Para that no fees was being charges and scholarships were being given to cover up expenses regarding food, accommodation etc. whereas the assessing is earning income. Since the facts are different, this judgment also renders no help to the assessee in the present case.
9. The next judgment cited is a judgment of Hon’ble Apex Court rendered in the case of CCIT vs. St. Peter’s Education Society (Supra). In this case, the issue in dispute was not this that the assessee is not imparting education. The objection of the revenue was this that it exists for profit and this is the judgment that if an institution makes profit, it does not necessarily mean that it exists for profit. In the present case, the objection is this that it is not imparting education. Hence, this judgment also renders no help to the assessee in the present case.
10. The next judgment cited is a judgment of Hon’ble Allahabad High Court rendered in the case of CIT vs. Red Rose School (Supra). In this case, the issue in dispute was about granting of registration u/s 12AA and hence, for the same reasons as given in Para 7 above in respect of the judgment of Hon’ble Karnataka High Court rendered in the case of DIT (E) vs. Group Vocational Training Centre Trust (Supra) it is held that this judgment also renders no help to the assessee in the present case.
11. The next judgment cited is a tribunal order rendered in the case of Society for Participatory Research in Asia vs. ITO (Supra). In this case, the tribunal noted in Para 4.3 that in A. Y. 2004 – 05 to 2008 – 0-9, the assessments were completed u/s 143 (3) and exemption u/s 11 was allowed. This was also noted that as per the submission of the assessee, the activities of the assessee were in the nature of education which has been accepted in preceding and subsequent years. And in Para 5.6 of the order, the tribunal has given a finding that the assessee was engaged in education which has been accepted in preceding and subsequent years. The objection in that case this that out of total receipts of Rs. 21.46 Crores, only Rs. 20.65 Lacs was from educational activities. The tribunal noted in Para 6.1 that other receipts were mainly on account of Research & Training Grants Rs. 1591.42 lacs, Contribution Rs. 418.69 Lacs and other income Rs. 136.27 Lacs. Thereafter in Para 6.5, the tribunal noted that the activities of the assessee are in the nature of participatory research and in the assessment order for A. Y. 1983 – 84, the A.O. noted that the participatory research is a new development of the last decade and it can be utilized depending upon the needs of the poor and deprived. Under these facts, it was held that invocation of proviso to section 2 (15) to deny claim of exemption u/s 11 is not justified. Since, the facts in the present case are materially different, we hold that this judgment also renders no help to the assessee in the present case.
12. The next judgment cited is a judgment of Hon’ble Bombay High Court rendered in the case of DIT vs. Women’s India Trust (Supra). In this case, the issue in dispute was similar as to whether the proviso to section 2 (15) is required to be invoked but the facts were different. In that case, it is noted by Hon’ble Bombay High Court in Para 6 that the assessee received donation of Rs. 36.88 lacs and Rs. 4.46 lacs as fees of nursing school. This was also noted that nursing training provided at panvel centre is free of costs and charge is levied for the mess but the accommodation and other facilities are free of cost. This was also noted that community development programme by training the ladies to earn while learning in the field of catering, stitching, toy making etc. Some finished products such as pickles, jam etc. are produced in the process which are sold by the assessee through shops, exhibitions and personal contacts. This is also noted that the motive is not generation of profit but to provide training to the needy women in order to equip them in these fields and make them self reliant. This is also noted that there is deficit because fees collected is only for proving food items. In the present case, Fellowship Fees collected is Rs. 11.32 lacs and expenses are only Rs. 6.68 Lacs with a surplus of Rs. 6.19 lacs. Mere surplus is not a deciding factor but in view of overall facts that only coaching is provided without any formal education, the activity is in line with so many coaching institutions being run on commercial line and in absence of any evidence that such coaching is provided at free of cost or at subsidized price to needy or poor, as in that case, it has to be accepted that this activity of providing coaching is a commercial activity and this judgment also renders no help to the assessee because in the facts of that case, nursing training was being provided free of cost and for this reason, it was held that it is not an activity in nature of trade, commerce or business etc. and facts in the present case are different.
13. The next judgment cited is a judgment of Hon’ble Delhi High Court rendered in the case of India Trade Promotion Organization vs. DGIT (E) (Supra). The facts of this case are that Pragati Maidan Complex was allotted by the Govt. of India to the assessee at a nominal Ground Rent of Re 1 per anumn for initial 5 years and thereafter Rs. 6 lacs per anumn for an area of 123.50 Acres and because of this, in spite of this that the assessee provided space for exhibition space to trade and industry at much lower rate than the prevailing market rates and still generated surplus, which was for major infrastructural additions and improvements in Pragati Maidan. Under these facts, it was held that this institution is not driven primarily by a desire or motive to earn profit and therefore, proviso to section 2 (15) is not applicable. In the present case, this is not established by the assessee that the rates charged by it are much lower than market rate of similar services and therefore, this judgment also renders no help to the assessee in the present case.
14. As per above discussion, we find that none of the judgments cited by the learned AR of the assessee is rendering any help to the assessee in the present case and in the facts of the present case, the proviso to section 2 (15) gets attracted. We, therefore, find no reason to interfere in the order of CIT (A) in any year.
15. In the result, both the appeals of the assessee are dismissed.
Order pronounced in the open court on the date mentioned on the caption page.
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