Surplus arising from educational activities after meeting the expenses incurred do not disentitle the trust from exemption u/s 10(23C)(iiiad) of the Income Tax Act, 1961.
ABCAUS Case Law Citation:
ABCAUS 1150 (2017) (03) ITAT
The appellant assessee was aggrieved by the order of the CIT(A) denying the exemption u/s 10(23C) (iiiad) of the Income Tax Act, 1961 (‘the Act’) on the ground that the activity undertaken by the trust was in the nature of commercial activity and not in furtherance of education.
Important Case Laws Cited/relied upon:
Deputy Director of Income Tax V/s Shanti Devi Progressive Education Society (Del)
Vanita Vishram Trust V/s CIT reported in (2010) 327 ITR 121 (Bom)
Brief Facts of the Case:
During the course of assessment proceedings, the assessee trust submitted that its income was exempt under section 10(23C) (iiiad) of the Act.
The Assessing Officer (‘AO’) observed that the assessee has conducted 7 courses out of which only two courses were recognized and fees were determined by the Government. Further the AO noticed that the full/correct name of the trust was not mentioned in the registration certificate under section 12A which was issued to the assessee and the same was position with regard to registration with the Charity Commissioner. The AO further observed that in respect of five courses which were not recognized by the Government, the assessee was charging fees on the commercial basis and earned surplus from the said courses and accordingly issued show cause notice to the assessee calling upon the assessee to show cause as to why the exemption u/s 10(23C) (iiiad) should not be denied.
The AO was not satisfied with the explanation submitted by the trust and concluded that the assessee trust charged fees on commercial basis in respect of five course and also that the assessee was running the courses in the name of CMC whose fees were prescribed by CMC Ltd., which itself was a commercial organization and the assessee was acting as a franchisee of that company. The AO finally denied exemption as claimed by the assessee by holding that the activities of the assessee were in the nature of commercial within the meaning of section 2(13) of the Act.
Aggrieved by the order of the AO, the assessee preferred an appeal before the FAA, who dismissed the appeal observing and holding as under :
Contentions of the Appellant Trust:
It was submitted that the trust was carrying the activities of education right from 1970 and was claiming exemption under section 10(23C) (iiiad). It was submitted that the assessee in the preceding and in the succeeding years claimed the said exemption and the revenue had allowed it.
It was also argued that under the provisions of section 10(23C) (iiiad) of the Act if any university or other educational institution existing solely for educational purposes and not for purposes of profit then the income of the said institution would be exempt if the aggregate annual proceeds of such university or educational institution do not exceed Rs. 1 crores. It was pointed out that the course receipts of the assessee from seven courses were less than Rs. 1 crores as above and therefore the observations as made by the AO were wrong on facts and on law.
Observations made by the ITAT:
The Tribunal observed that as per the annual accounts of the assessee, the gross annual receipt of the assessee was not more than Rs. 1 crores from all the activities comprising of 7 courses out of which two was approved by the government. The assessee received 85.37% of the total fees from the recognized courses whereas only 14.63% was received from unrecognized courses which are also wholly for the purpose of educational activities. Thus the assessee received total annual fee from the educational activities carried on by it imparting various courses.
The Tribunal concurred with the submission of the appellant assessee that it cannot advance or expand and improve its activities if does not earn any surplus from the education activities.
It was also noted that in preceding years the assessee had been claiming exemption u/s 10(23C (iiiad) which was accepted by the revenue.
The Tribunal observed that in the case of Shanti Devi Progressive Education Society, the Hon’ble Delhi High Court held that the assessee was entitled for exemption under section 10(23C) (iiiad) where there was no diversion of the funds to the members of the assessee. Similarly, in the case of Vanita Vishram Trust , the Hon’ble Court held that where the assessee was carrying out activities for a period of 8 years of educational nature , the Chief Commissioner has to grant approval to the assessee for the assessment as the activity of the assessee trust was charitable in nature.
The Tribunal opined that the surplus which was arising from the activities of the trust after meeting the expenses incurred for conducting the educational activities would not disentitle the trust from the benefit of provision of section 10(23C)(iiiad) of the Act.
The ITAT found that the activities of the trust were very much falling within the ambit of education activities. If surplus made by the assessee trust was utilized and consumed for the purposes of furtherance of its object of education , it would also be considered that the trust is existing for the purpose of educational purposes only and not otherwise.
The order of the CIT(A) was set aside with direction the AO to allow the benefit u/s 10(23C)(iiiad) of the Act.