The Delhi High Court has ruled that a taxpayer engaged in educational charitable activities under Section 2(15) of the Income Tax Act is eligible for exemption, as the Assessing Officer, upon due examination of the activities undertaken by the assessee, concluded that they fell within the scope of Section 2(15), thereby entitling the assessee to deductions and exemptions under Sections 11 and 12 of the Income Tax Act, 1961.
In Assessment Year 2014-15, the assessee filed its Return of Income declaring its taxable income to be “Nil‟. The aforesaid Return is stated to have been selected for scrutiny assessment, as a consequence of which a notice came to be issued on 31 August 2015 under Section 143(2). During the assessment proceedings, the assessee appears to have been called upon to furnish explanations with respect to the broad nature of activities undertaken by it as well as particulars pertaining to the fee structure, service tax payments, details of contributors and other functions concerning its avowed charitable activity of imparting education.
The Commissioner of Income Tax (Exemption), however, doubting the correctness of the view taken by the AO, issued a Show Cause Notice dated 15/16 November 2018 in purported exercise of powers conferred by Section 263 and embodying its intent to revise and set aside the assessment on the ground that the same was not only erroneous but also prejudicial to the interest of the Revenue.
As would be apparent from a reading of the said SCN, the CIT (E) appears to have doubted that the respondent was engaged in the activity of imparting education as explained by the Supreme Court in its judgment in Lok Shikshana Trust vs. CIT and consequently that its activities were liable to be placed in the residual category of General Public Utility as contemplated under Section 2(15). The CIT (E) appeared to have been swayed by the assessee not being affiliated with any regulatory body and thus not being engaged in the activity of imparting formal education.
The CIT(E) set aside the assessment as erroneous and held that the respondent was rendering services for profit and was not engaged in any educational or charitable activity as contemplated under Section 2(15). It was further held that the assessee appeared to be acting primarily as a contractor/service provider with the elements of formal schooling being absent, and its activities, even if construed to be of a GPU, being liable to be viewed as contravening the Proviso to Section 2(15). It additionally held that the various activities undertaken by the assessee were also concerned with the enhancement of brand value and thus were violative of Section 13(1)(c) of the Act.
Aggrieved by the aforesaid order, the assessee approached the tribunal. In terms of the order dated 27 May 2020, the Tribunal allowed the appeal of the assessee holding that not only was Section 263 unjustifiably invoked, but the findings rendered in the context of Section 2(15) were also unsustainable. It ultimately came to the conclusion that the assessee was engaged in the charitable activity of imparting education.
Mr. Maratha, representing the appellant/ revenue argued that in terms of the principles laid down by the Supreme Court in Lok Shikshana Trust, for the purposes of qualifying Section 2(15), the assessee was liable to establish that it was engaged in conducting systematic and formal instruction, schooling or training. It was his submission that the assessee was merely administering courses without any fixed curriculum, criteria or discipline and thus lacking the ingredients of formal education as explained by the Supreme Court. Further also referred to the order of the CIT(E) which had doubted the activities of the assessee as being concerned with imparting education and had held that the same could at best be classified as GPU.
Mr. Vohra, on the other hand, representing the respondent/assessee, submitted that the AO upon due examination of the activities undertaken by the assessee, had come to the definitive conclusion that the same fell within the scope of Section 2(15). It was submitted that during Financial Year 2013-14, the assessee had conducted various training programs for underprivileged youth spread across various streams such as Information Technology , English, Soft skills, BPO, Retail, Banking and Service sectors
Mr. Vohra also highlighted that the Memorandum of Association for the respondent/assessee identifies its primary aims and objectives as to promote, support and strengthen education, research and training of Information Technology and its application in all fields of activities 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 programmes.
The opinion of the assessing officer for 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.
The court found merit in the Tribunal’s conclusion that the mode and manner in which education is imparted would be a concept which would have to necessarily be evaluated bearing in mind the march of technology and the myriad modes of imparting instruction which now exist and have enabled institutions to overcome barriers of distance and time. Imparting education through a virtual mode or by the adoption of new technologies would not detract from the said activity, otherwise fulfilling the requirements of structured education.
Further hold that the 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 the business nor profession of the assessee. It definitely constitutes 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.
The division bench of Justice Yaswanth Varma and Justice Ravinder Dudeja found no merit in the challenge to the Tribunal’s order, and given the court’s conclusions on the principal issue of Section 2(15), the question of whether the CIT (E) was justified in invoking its powers under Section 263 of the Act becomes insignificant and need not be addressed. Accordingly, the appeal shall consequently stand dismissed.
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