NIIT Foundation Vs CIT (ITAT Delhi)
Online Coaching considered as Education u/s 2(15) hence eligible for Exemption under section 11/12
The issue under consideration is whether the CIT(A) is correct in holding that the activity carried out by the Appellant is not in the nature of ‘education’ within the meaning of Section 2(15) of the Act?
In the present case, the assessee is a society registered under the Societies Registration Act, 1860 as per certificate dated 01.12.2004. It is also registered u/s 12A and recognized u/s 80G (5) (vi) of the Act as per order dated 07.03.2008. It filed its return of income on 09.2014 declaring Nil income. During the relevant assessment year, the Assessing Officer observed that the assessee society is engaged in Educational activity u/s 2 (15) of the act and eligible for benefits u/s 11 & 12 of the Income-tax Act. However, the CIT(Exemptions) held that the activity of the assessee is a business activity and therefore taxable.
ITAT states that the work of the assessee has been accredited by various organizations by awarding recognition and awards. Assessee has also shown various newspaper reports, which clearly shows that assessee, is providing education. Merely because of in certain projects there is a deficit, which deficit is reimbursed by the several corporate entities by spending out of their corporate social responsibility funding to the assessee does not make assessee an non-educational Institute. If, for any reasons, those entities have deducted tax at source due to their own tax obligations, it does not make the income so received by the assessee as business income, Naturally, the character of outflow from the payer cannot always used in characterizing the inflow of the recipient. The obligation of the assessee of complying with the service tax law also does not make assessee an Institute, which is carrying on business. More so, the opinion of the assessing officer for this year that assessee is carrying on an educational activity is also supported by the assessment history of the assessee where in earlier year also on identical facts and circumstances, the assessee was held to be carrying on educational activities, entitled to deduction/exemption under section 11 and 12 of The Income Tax Act, 1961.
Hence, ITAT hold that assessee is carrying on educational activities which are covered by the provisions of section 2 (15) of the income tax act and it is neither business nor profession of the assessee. It definitely constitute a charitable activity as it does not charge the fees at the level of market rate and even otherwise the surplus generated is also used for charitable activities of education. Therefore, they set aside and quash the order passed by the learned CIT – exemption under section 263 of the Income Tax Act and allowed the appeal filed by assessee.
FULL TEXT OF THE ITAT JUDGEMENT
1. This is an appeal filed by the assessee against the order of the ld. CIT (Exemption), New Delhi dated 26.03.2018 for the Assessment Year 2014-15 u/s 263 of the Act holding that the assessment order passed u/s 143(3) of the Act for Assessment Year 2014-15 on 28.12.2016 by ITO Exemption Ward-2(3), New Delhi accepting returned income of the assessee at Rs. Nil is erroneous, so far as prejudicial to the interest of
2. The assessee has raised the following grounds of appeal:-
“GROUND I: WANT OF NATURAL JUSTICE
1.1 On the facts and in the circumstances of the case and in law, the Learned Commissioner Income tax (Exemptions), New Delhi [“the CIT”] erred in passing the order u/s. 263 of Income Tax Act, 1961 (“the Act”) without giving a fair and reasonable opportunity hearing to the Appellant and thereby violating the principles of natural justice.
1.2 The Appellant prays that the order of the CIT be struck down as bad in law.
WITHOUT PREJUDICE TO GROUND NO. I
GROUND II: CIT TRAVELLED BEYOND THE SHOW CAUSE NOTICE ISSUED
2.1 On the facts and in the circumstances of the case and in law, the CIT erred in exercising jurisdiction under section 263 on the basis of issues/reasons which were not referred in the show cause notice issued by the CIT to the Appellant and without giving the Appellant the opportunity to controvert the
2.2 The Appellant prays the order passed by the CIT u/s. 263 be held as bad in law.
WITHOUT PREJUDICE TO GROUND NO. I & II
GROUND III:CIT INVOKED PROVISIONS OF SECTION 263 BASED ON ALLEGED
FACTS/ALLEGATONS WITHOUT ANY OPPORTUNITY OF REBUTTAL:
3.1 On the facts and circumstances of the case and in law, the CIT erred in invoking provisions of Section 263 of the Act based on alleged facts and allegations without giving any opportunity to rebut the same and thereby, violating the principles of natural
3.2 The Appellant prays the order passed by the CIT ought to be struck down and should be considered as bad in
WITHOUT PREJUDICE TO GROUND NO. I, II & III
GROUND IV: REVISION UNDER SECTION 263 OF THE ACT IS BAD IN LAW
4.1 On the facts and in the circumstances of the case and in law, the CIT erred in invoking provisions of section 263 of the Act and directing revision of the assessment order passed u/s. 143(3) of the Act by ITO(E), Ward 2(4), New Delhi (“the AO”) on the alleged ground that the assessment order was erroneous and prejudicial to the interest of the revenue.
4.2 The Appellant prays that order passed u/s. 263 of the Act be struck down as null and void ab initio
WITHOUT PREJUDICE TO GROUND NO. I, II, III & IV GROUND V: ACTIVITY OF THE APPELLANT IS IN THE NATURE OF EDUCATION
5.1 On the facts and circumstances of the case and in law, the CIT erred in holding that the activity carried out by the Appellant is not in the nature of ‘education’ within the meaning of Section 2(15) of the Act and thereby invoking proviso to Section 2(15) of the Act;
5.2 The Appellant prays that it be held that the activity carried out by the Appellant is in the nature of ‘education’ within the meaning of Section 2(15) of the Act and thereby, the proviso to Section 2(15) of the Act is not applicable in case of the
5.3 The Appellant prays that it be held that the Appellant is engaged in charitable activity as defined u/s. 2(15) of the Act and is eligible for claiming exemption u/s. 11 of the
WITHOUT PREJUDICE TO GROUND NO. I, II, III, IV & V GROUND VI: ACTIVITY OF THE APPELLANT IS NOT IN THE NATURE OF BUSINESS
6.1 On the facts and circumstances of the case and in law, the CIT erred in holding that the activity carried out by the Appellant is in the nature of trade, commerce or business and accordingly, it is hit by the proviso to section 2(15) of the Act;
6.2 The Appellant prays that nature of the activity of the Appellant be held as not in the nature of trade, commerce or business and accordingly, be held the proviso to section 2(15) of the Act is not applicable in the case of the ”
3. Brief facts of the case shows that the assessee is a society registered under the Societies Registration Act, 1860 as per certificate dated 01.12.2004. It is also registered u/s 12A and recognized u/s 80G (5) (vi) of the Act as per order dated 07.03.2008. It filed its return of income on 09.2014 declaring Nil income.
4. The assessee was formed with the following objects:-
1. To promote, support and strengthen education, research and training of Information Technology and its application in all fields of activities and to collaborate, co-operate and enter into partnerships with Universities, Colleges and Schools for expanding IT Education and training to play an active role in the human development initiatives of the country by supporting and sponsoring, wherever feasible, the establishment of new Universities, Colleges and Schools for organizing innovative IT Education and training
2. To support, sponsor and collaborate with teachers and researchers in Universities and research institutions to develop IT enabled teaching and learning paradigm and new education technologies and to sponsor and support conferences, seminars and workshops of academics and professionals engaged in IT and related fields to share experiences and to strengthen institution industry
3. To co-operate with and seek cooperation from universities, research institutions and industry in Delhi for strengthening and modernizing the curricula, teaching methods and student assessment procedures in IT Education and training. To play a catalytic role in promoting popularizing and expanding IT education and training etc. The activities of the assessee Society are charitable in nature and within the meaning of Section 2(15) of the Income Tax Act, ”
5. During assessment proceedings ld. AO enquired about the object, activity, receipt of fees, TDS its reconciliation with form no 26AS, service tax payments and its nature, details of donors/ contributors There was huge communication by the assessee, which we will come to later on. Therefore, ld. AO held that assessee society is engaged in Educational activity u/s 2 (15) of the act and eligible for benefits u/s 11 & 12 of the Income tax Act. The ld AO computed the total income as per income and expenditure account of Rs. 45341153/- reduced it exempt the expenditure applied for the object of the trust to Rs. 41325810/- and balance amount was found to be less than 15% of the income of the society and therefore, income was computed at Rs. Nil. The ld. AO passed an order u/s 143(3) of the Act on 30.11.2016 determined the total income of the assessee at Rs. Nil
6. On examination of the records, the ld. CIT(E) issued show cause notice u/s 263 of The act as under:-
“Assessment order u/s 143(3) of the Act for A.Y 2014-15, was passed in the case of above assessee on 28.12.2016 by ITO (E) WARD-2(3), New Delhi accepting the returned income at nil.
2. On examination of the assessment records it was prima facie considered that the assessment order is erroneous in so far as it is prejudicial to the interest of revenue for the purpose of the provisions of section 263 of the Act on various grounds. Accordingly, a show cause u/s 263 was issued on 15/16.11.2018 requiring the assessee to explain why the aforesaid assessment order should not be treated as erroneous and prejudicial to the interest of revenue and hence amenable to revision under section 263 of the Act. The notice setting out the fact of the case and issues involved is reproduced below for reference:-
Show Cause Notice:-
It is noted that the Assessment in this case was completed u/s 143(3) on 30.11.2016 at NIL Income. While reviewing the assessment the following observations are made with regard to the quality of assessment framed:-
2. As per the income and expenditure account, the assessee has received an amount of Rs. 1,06,66,236/- as tuition fees. The assessee has itself stating that it is providing training to youth across India. The A.O. has failed to examine whether the activities carried out by the assessee in the absence of affiliation with any regulatory body and adherence to the criteria for formal education laid down by Hon’ble Supreme Court in Lok Shikshan Sansthan case, by Hon’ble Delhi High Court in Delhi Music Society case etc., still qualify as education. In case if the activities of the assessee do not qualify as education, these will qualify as General Public Utility and the proviso to section 2(15) will be applicable in such case. The assesse has received fees for training student which is in the nature of trade, commerce or business and accordingly the surplus from these activities should be brought to tax. This is further required due to the fact that the receipts from different corporate houses have been subjected to TDS u/s 194(J) and therefore, the nature of these receipts in commercial in commercial in nature.
2.1 In case if the activities of the assessee do not qualify as education, these will qualify’ as General Public Utility and the proviso to section 2(15) will be applicable in such case. The assessee has received fees for training student which is in the nature of trade, commerce or business and accordingly the surplus from these activities should be brought to tax. This is further required due to the fact that the receipts from different corporate houses have been subjected to TDS u/s 194(J) and therefore, the nature of these receipts in commercial and nature.
2.2 The reasons for the selection of the case under CASS is the turnover from services reported to the Service Tax Authorities amounting to RS.3,86,65,028/-. The assessee has also paid service tax on the fees etc received from the students making it a further strong case for invoking the proviso to section 2(15).
3. In view of the facts referred to in Para 2 above, you are hereby given an opportunity of being heard to explain as to why the order passed by the AO should not be considered to be erroneous in so far as it is prejudicial to the interest of the revenue & why an order enhancing or modifying the assessment or cancelling the assessment or directing fresh assessment should not be passed in terms of provision of section 263 of IX Act,
4. Date of hearing in your case has been fixed for 12.2018 at 11:45AM at my office. You may produce all necessary evidence in support of your explanation.,”
7. Assessee responded to that by filing detailed representation explaining the reason for show cause stating that order is neither erroneous and nor prejudicial to the interest of assessee . However , the ld. CIT € proceeded to pass the order u/s 263 of the act as under :-
“Facts of the case:-
4. The assessee society is registered under Societies Registration Act, 1860 vide Order No,S-50787 dated 01.12.2004. The assessee Society is also registered u/s 12A of the Income Tax Act, 1961 vide order No. DIT(E)/l2A/2005-06/N-845/1616 dated 30.03.2006. The assessee society is notified u/s 80G (5)(vi) of the Income Tax Act, 1961 vide order no. DlT(E)/2007-08/N- 845/136 dated 03.2008.
As per the assessee, it is a society registered on 01st December 2004 under the Societies Registration Act, 1860 with the main object promote, support and strengthen education, research, and training of Information Technology and its application in all fields of activity and to collaborate, cooperate and enter into partnerships with Universities, Colleges and Schools for expanding IT education and training and to play and active role in the human development initiatives of the country by supporting and sponsoring, wherever feasible, the establishment of new Universities, Colleges and Schools for organizing innovative IT education and training progammes. It is seen from the records that the assessee has receipt various payments from many corporate entities. On these payments TDS has been deducted at source u/sl94C/194J characterizing the payment as in the nature of contractual/professional services rendered by the assessee.
4.1 The details of payments received from various corporate as per TDS statement during the year are under:-
