ICAI coaching income exempt us 11. The institute is an educational institute and its activities falls within the meaning of charitable purpose u/s 2(15)-ITAT

ICAI income exempt us 11. The institute is an educational institute and its coaching activities falls within the meaning of charitable purpose u/s 2(15). In a yet another case for AY 2010-11, ITAT following previous judgments of ITAT, High Court and Supreme Court has upheld the charitable status of ICAI.

Case Law Details:
I.T.A. No. 6526/Del/2013 A.Y. : 2010-11  ITAT D-Bench New Delhi
Dy. Director of Income Tax(E) vs. The Institute of Chartered Accountants of India (ICAI)
Date of Judgment/Order: 02/06/2016

Brief Facts of the Case:
In the present case, the Assessing Officer denied exemption u/s 11 as claimed by the ICAI which was registered u/s 12A of the Income Tax Act, 1961. The denial by AO was made mainly on the ground that ICAI was involved in commercial activities as its received coaching fees from the students of CA while giving coaching to the CA students. He further held that assesee’s case fell under the category of General Public Utility and proviso to section 2(15) of the Act was clearly applicable in this case. Accordingly, he computed income of the ICAI as any normal Association of Person (AOP).

Against the aforesaid order of the AO, the ICAI appealed before the CIT(A), who allowed the appeal of the Assessee. Aggrieved with the order of the CIT(A) the Revenue went in appeal before the Tribunal.

Grounds of Appeal:
The following grounds were raised by the Revenue:

  1. That the assessee’s predominant objectives are to conduct examinations for the candidates for Chartered Accountants and to regulate it’s members and it does not provide any Scholastic education, therefore, its activities do not fall within the category of education covered by the definition of the expression ‘charitable purpose’ which is second limb of the section 2(15) of the Income Tax Act, 1961.
  2. Hon’ble Supreme Court in the case of Sole Trusty, Lok Shikshana Trust vs. Commissioner of Income tax (1975) 10 ITR 234 (SC) has defined word ‘education’ and observed that the sense in which the word “education” has been used in section 2(15), is the systematic instruction, schooling or training given to young in preparation for the work of life. The word “education” has not been used in that wide and extended sense according to which every acquisition of further knowledge constitutes education. 
  3. that the assessee’s activity falls under the category of ‘Advancement of any other object of general public utility” and first proviso to section 2(15) is early applicable on it as ‘income-from coaching class’ was explicitly business receipt in nature.

Contents of the Revenue:
Apart from grounds of appeal, the reveune requested that Appeal filed by it be allowed by setting aside the order of the CIT(A), because the activities of the assessee-society did not fall within the category of education covered by the definition of the expression ‘charitable purpose’ but fall under the category of “Advancement of any other object of general public utility”. That Department has filed an appeal against the order of the Hon’ble High Court which has been followed by the CIT(A) which is still pending, therefore, the decision of the Tribunal may be kept in abeyance till the outcome of the Hon’ble Supreme Court’s judgment.

Contentions of ICAI:
On the other hand, the ICAI contended that its main activities were to enroll CA students, to provide study material, to conduct classes, to conduct examination, to award degree of CA and other courses, to regularise the profession of CA and to issue accounting standards etc. The coaching classes are conducted for the benefit of the CA students to make them professionally efficient and the coaching classes are integral part of imparting education and its activities come under the definition of education u/s. 2(15) of the Act. It was further submitted that the exemption to ICAI was denied earlier also on the ground that the assessee was involved in commercial activities but the exemption was restored for the assessment years 2005-06, 2006-07, 2007-08 by CIT(A), the Tribunal and the High Court. Hence, the present issues in dispute was squarely covered by the various decisions of the Tribunal, Hon’ble High Court and the Hon’ble Supreme Court of India. In support of its contentions the following case laws were cited:

  1. Dismissal of Department SLP by Hon’ble Supreme Court of India in the matter of DDIT and Ors. Vs. ICAI and Ors dated 27.1.2014
  2. Judgment of the Hon’ble Delhi High Court in the matter of ICAI and Anr. Vs. DGIT and Ors. Dated 4.7.2013.
  3. Judgment of the Hon’ble High Court in the matter of DIT (E) vs. ICAI dated 11.5.2012.
  4. ITAT order dated 18.10.2010 for the AY 2005-06 in ITA No. 1853/Del/2010 titled as ICAI vs. DIT(E)
  5. ITAT order dated 09.1.2012 for the AY 2006-07 in ITA No. 1384/Del/2010 titled as ADIT(E) vs. ICAI.
  6. ITAT order dated 16.6.2011 for AY 2007-08 in ITA No. 1930/Del/2011 titled as ADIT(E) vs. ICAI.
  7. ITAT order dated 17.4.2014 for AY 2009-10 in ITA No. 2088/Del/2013 titled as DDIT(E) vs. ICAI.

Observations by ITAT:
ITAT held that the request of the Revenue for keeping in abeyance the Tribunal order was not tenable, as it was not able to produce the copy of any Stay Order granted by the Hon’ble Supreme Court of India, in the SLP Appeal filed by the Revenue, as stated by the Revenue . Further, the ITAT opined that the issue in dispute was squarely covered by the various decisions of the ITAT, Hon’ble High Court and the Hon’ble Supreme Court of India in ICAI’s own in preceding assessment years. On the other hand, the Revenue could not controvert this proposition and fairly agreed that the issue stood covered by the Tribunal order in favour of the ICAI and against the revenue. Accordingly, the ITAT upheld the order of CIT(Appeals).

Important Excerpts from ITAT Judgment:

….. The AR also submitted a copy of the orders of Hon’ble Supreme Court of India in Special Leave to Appeal (Civil) No. CC792/2014 dated 27.01.2014 by which Special Leave Petition of the department against the order of the judgment of Hon’ble High Court of Delhi dated 04.07.2013 (supra) have been dismissed……

the AR pointed out para 4 to 8 of the order of ITAT ‘H’ Bench in ITA No. 1930/D/2011 (supra) wherein dismissing the appeal of the revenue, it has been held that the assessee institute is an educational institute, hence its income will be exempt u/s 11 as education falls within the meaning of charitable purposes u/s 2(15) of the Act. The relevant operative observations and findings part of this order read as under:-

“4. Upon assessee’s appeal Ld. Commissioner of Income Tax (Appeals), referred to his own appellate order for A.Y. 2006-07 as under:-

“I have considered the submissions made by the Ld. Authorised Representative of the appellant institution visa-vis finding of the Assessing Officer made out in the assessment order in respect of holding the income of coaching classes as an activity of business. The main emphasis of the Assessing Officer in arriving to conclusion that income of the appellant Institute from coaching classes is an activity of business, is the figure of earning from coaching classes as reflected by him in the table prepared in the assessment order giving detailed of gross income of coaching, expenditure incurred in coaching and net earning from coaching classes from assessment year 2002-03 to assessment year 2008- 09 and his remark that the appellant Institute is earning huge income over the years like any businessman earn from the activities of business. However, on the other side the Ld. Authorised Representative of the appellant emphasized that the conducting of coaching classes through Regional Councils, the appellant Institute, following its main purpose and objective of giving training to the future Chartered Accountants, for which it has been enacted by the Parliament and further emphasizing that CBDT while granting Notification u/s 10(23C)(iv) of the Act to the appellant Institute was well aware about the component of its income reflected in Annual accounts filed with the application for applying for exemption of income u/s. 10(23C)(iv) of the Act consistently to the assessment year 2005-06, and therefore the objection of the Assessing Officer in this respect is misconceived, even on the Principle of Doctrine of Consistency enunciated by Hon’ble Supreme Court in the case of Radhaswamy Satsang (cited supra). Pursing the Chartered Accountants regulations, annual accounts of the appellant Institute and written arguments of the Ld. Authorised Representative and judicial precedents brought to my notice on the issue involved, I am inclined to accept the argument of the ld. counsel that income of coaching classes of the appellant Institute is not an activity of business as alleged by the Assessing Officer in the assessment order, but the said income has arisen from the ancillary activity arisen from the main objects for which it has been enacted by the Parliament and further accepted as such by Central Board of Direct Taxes year to year, while notifying it for the purpose of Section 10(23C)(iv) of the Act. The observation of the Assessing Officer that the appellant Institute is earning huge income over the years and this surplus income is earned in a systematic and organized way, the way in which business activities are carried out is also misconceived as merely because profit has resulted from the activity of imparting education would not change the character of the Institution. The Hon’ble Supreme Court in the case of Surat Art Silk Cloth Manufactures Association and Hon’ble Delhi High Court in the very recent judgement in the case of sister concern of the appellant Institute ICAI Accounting Research Foundation reported at 321 ITR 73 held that the mere fact of generating income, while carrying out the ancillary objects for achieving the main objects, would not per se change the character of the assessee till the surplus received qua these activities are utilized for advancement of the objectives for which the assessee has been established. Hence, ground no. 6 is allowed in favour of the appellant.” 

The Ld. Commissioner of Income Tax (Appeals) further took note that Hon’ble ITAT, Delhi Bench in ITA No. 1853/Del/2010 also held that:

“The institute as such merely it is receiving coaching fee from students for imparting education, cannot be said to have been carrying on the business and accordingly it is not required to maintain separate books of accounts as alleged by DIT(E). The income of the coaching classes earned by the assessee institute is within its objects and its regulations and further these activities are educational activity within the definition of section 2(15) of the Income Tax Act, 1961, and consequently therefore cannot be activity of business for which separate books of accounts are required to be maintained. The order of the DIT(E) is therefore not sustainable as the income of the institute is exempt not only u/s 10(23C)(iv) but also under section 11. The Institute is an educational institute and hence its income will also be exempt u/s. 11 as education falls within the meaning of charitable purpose under section 2(15) of the Act.”

5. Against the above order, the revenue is in appeal before us.

6. Ld. counsel of the assessee submitted that the issue is covered in favour of the assessee by the decision of this tribunal in assessee’s own case in ITA No. 1853/Del/2010 for A.Y. 2005-06. In this regard, ld. counsel of the assessee referred para 15 of the above said order which reads as under:-

“15. The Institute as such merely it is receiving coaching fee from students for imparting education, cannot be said to have been carrying on business and accordingly it is not required to maintain separate books of accounts as alleged by DIT(E). The income of the coaching classes earned by the assessee institute is within its objects and its Regulations and further these activities are educational activity within the definition of section 2(15) of the Income Tax Act, 1961, and consequently therefore cannot be activity of business for which separate books of accounts are required to be maintained. The order of the ld.DIT(E) is therefore, not sustainable as the income of the Institute is exempt not only u/s 10(23C)(iv) but also under section 11. The institute is an educational institute and hence its income will also be exempt under section 11 as education falls within the meaning of charitable purpose under section 2(15) of the Act.” 

7. In light of the above, ld. counsel of the assessee contended that this issue stands covered in favour of the assessee by the decision of this tribunal as above.

7.1 Ld. Departmental Representative could not controvert this proposition. He fairly agreed that this issue stands covered by the said tribunal order.

8. Accordingly, in the background of the aforesaid discussion and precedent, we do not find any infirmity or illegality in the order of the Ld. Commissioner of Income Tax (Appeals), hence, we uphold the same.”

ICAI income exempt us 11 as educational institute

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