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
