Income Tax Appellate Tribunal (ITAT) New Delhi in a recent judgment has held that Revenue was wrong believing that only when assessee runs schools directly, it can be held to impart education u/s 2(15). The Education can be imparted, even through affiliated schools also.

Case Details:
ITA No. 816/Del/2015 AY : 2010-11
Bhartiya Shiksha Samiti (Appellant) vs Addl. Commissioner of Income Tax (Respondent)
Date of Order: 16-10-2015

Brief Facts of the Case:
The assessee Society was Registered u/s 12A and 80G of the Income Tax Act, 1961. The objects of the Assessee-society were as under:-
(a) To develop the form and system of education by coordinating the achievements in the field of education with the Indian culture, in such a way that it is in accordance with the economic, social and cultural needs of the nation.
(b) To establish schools at different places with the object of education with Indian ideals towards life and to bring other schools under its guidance and to guide, take care and control in order to bring homogeneity in their activities and improvements with coordination.
(c) To inculcate patriotism, discipline, self-reliance and dignity towards labour among the students and to do all necessary activities for their moral development.
(d) To do all necessary activities to achieve the objectives of the society and compile, distribute and publish necessary literature and material and to form sub-committees.
(e) To take donations and collect funds and provide assistance for the fulfillment of the objectives of the society.
(f) Activities of the society will be public and for general welfare and all Indians, irrespective of religion, cast, section, language or state, will be the beneficiaries of the society.

The assessee-society had affiliated 65 schools, through which it pursued its objects. The activities of the society were Principals Conference; Sanskriti Gyan Pariksha; Appointment and transfer of Principals; Fixation of Pay scales of teachers and Principals; Publication of magazine; Setting and Preparation of examination papers; Sports Activity; Personality Development Camp; Science Fair and Quiz Programme; Scholarship to Meritorious students; Financial assistance to educational institutions; Group Insurance; Jan Shiksha Nidhi and various other activities

The Assessee filed its return of income for the assessment year 2010-11 claiming exemption u/s 11. However, the Assessing Officer (AO) passed order u/s 143(3) and held that the activities of the society was not covered under the provisions of the Act after the amendment to Section 2(15) and hence, exemption u/s. 11 cannot be granted. He further held that mere grant of registration u/s. 12A does not entitle the Assessee for exemption u/s. 11 and that the real activity of the society is decisive for exemption. The AO also rejected the claim of the society u/s 10(23C).

On appeal, CIT(Appeals) held that the Assessee is not engaged in the activity of providing education as defined u/s. 2(15) of the I.T. Act and therefore, the aims and objectives of the Trust fall under the category of “advancement of any other object of general public utility” and that the proviso to 2(15) is attracted. On the claim of the Assessee for exemption on the principle of mutuality or u/s. 10(23C)(via), Ld. CIT(A) held that these claims cannot be entertained, as they were not made in the Return of Income. He further held that the receipts from affiliated schools are in the nature of fees and that the schools are not shown to be the members of the Society and thus the principle of mutuality do not apply. He upheld the order of the AO.

Thus the issue before ITAT was whether these activities of the Society would fall within the term of “Education” for the purpose of Section 2(15) of the Act?

Important Excerpts from ITAT Judgment

The term “Education” as interpreted by the various Courts including the Hon’ble Supreme Court of India is discussed below.
“The expression ‘education’ has not been defined under the provisions of Income Tax Act. The Hon’ble Supreme Court in the case of Lok Shikshana Trust (supra), has been pleased to explain the meaning of the word ‘education’ in the context of section 2(15) of the Act. As per this decision education is the process of training and developing the knowledge, skill, mind and character of students by schooling by way of systematic instruction, schooling or training. The Hon’ble Delhi High Court in the case of Delhi Music Society vs. DGIT (supra) has been pleased to hold that since the assessee society was teaching and promoting all forms of music and dance , western, Indian or any other and was run like any school or educational institution in a systemic manner with regular classes, the same therefore meet the requirement of an educational institution within the meaning of section 10(23C)(vi) of the Act. In the case of ITO vs. SRM Foundation of India (supra) the Delhi Bench of the Tribunal, where the assessee was engaged in spreading the system of transcendental meditation (TM) has held that irrespective of the fact that the assessee has its own prescribed syllabus, trained teachers, branches all over India to spread system of transcendental deep meditation among people in all walks of life, the same constituted imparting of education and the assessee was entitled to exemption u/s 10(22) of the Act. We thus come to the conclusion that any form of educational activity involving imparting of systematic training in order to develop the knowledge, skill, mind and character of students, is to be regarded as ‘education’ covered u/s 2(15) of the Act.

The exemption was denied only on the ground that the proviso to section 2(15) of the Act was attracted. The law on this aspect has been laid down by the decision of the Hon’ble Delhi High Court in the case of M/s GSI India vs. DIT, Delhi reported in 360 ITR 138 wherein it has been held that :
“Section 2(15) of the Income-tax Act, 1961, was amended by the Finance Act, 2008, with effect from April 1, 2009, and a proviso was added to it. A second proviso was inserted to section 2(15) by the Finance Act, 2010, with retrospective effect from April 1, 2009. There are four main factors that need to be taken into consideration before classifying the activity of the assesseee as "charitable" under the residuary category, i.e.," advancement of any other object of general public utility" under section 2(15) of the Act. The four factors are (i) the activity should be for advancement of general public utility; (ii) the activity should not involve any activity in the nature of trade, commerce and business; (iii) the activity should not involve rendering any service in relation to any trade, commerce, or business; and (iv) the activities in clauses (ii) and (iii) should not be for fee, cess or other consideration and if for fee, cess or consideration the aggregate value of the receipts from the activities under (ii) and (iii) should not exceed the amount specified in the second proviso. The earlier test of business feeding or application of income earned towards charity because of the statutory amendment is no longer relevant and apposite. It is evident from Circular No. 11 of 2008 that a new proviso to section 2(15) of the Act is applicable to assessees who are engaged in commercial activities, i.e., carrying on business, trade or commerce, in the garb of "public utility" to avoid tax liability. The legal terms "trade, commerce, or business" in section 2(15) mean activity undertaken with a view to make or earn profit. Profit motive is determinative and a critical factor to discern whether an activity is business, trade or commerce. Business activity has an important pervading element of self-interest, though fair dealing should and can be present, whilst charity or charitable activity is the anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognised business principles. The quantum of fee charged, the economic status of the beneficiaries who pay commercial value of benefits, in comparison to the fee, the purpose and object behind the fee, etc., are several factors which will decide the seminal question, is it business? Charitable activities require operational/running expenses as well as capital expenses to be able to sustain and continue in the long run. There is no statutory mandate that a charitable institution falling under the last clause should be wholly, substantially or in part must be funded by voluntary contributions. A practical and pragmatic view is required to examine the data, which should be analysed objectively and a narrow and coloured view will be counter-productive and contrary to the language of section 2(15). The second proviso applies when business was/is conducted and the quantum of receipts exceeds the specified sum. The proviso does not seek to disqualify a charitable organization covered by the last limb, when a token fee is collected from the beneficiaries in the course of activity which is not a business but clearly charity for which it is established and it undertakes.

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