ITO, WARD-1 Vs. SCIENCE OLYMPIAD FOUNDATION
LAWS(IT)-2014-5-121
INCOME TAX APPELLATE TRIBUNAL
Decided on May 16,2014

Ito, Ward -1 Appellant
VERSUS
Science Olympiad Foundation Respondents

JUDGEMENT

R.P.Tolani, Member (J) - (1.) THIS is a Revenue appeal, following grounds are raised: (i) On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in ignoring the fact that the assessee is not imparting education to the students and its activities are not within the ambit of charitable purpose as per section 2(15) of the Income Tax Act, 1961. (ii) On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in holding that the assessee is an educational institution within the meaning of the section 2(15) of the Income Tax Act, 1961 and directing the Assessing Officer to allow exemption as claimed by the assessee. (iii) The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing.
(2.) BRIEF facts are that the assessee foundation was incorporated with the objects of developing the expertise in scope and level of imparting of science education in the medium of Govt. approved schools. To achieve these laudable objects it developed 'course resource material (CRM)' for the students who keen in learning science education. By this education model, the willing students are registered with the institution. This registration is done through recognized schools and colleges spread across India. Such schools include mainly Kendriya Vidyalaya, Jawahar Navodaya Vidyalaya, Government Schools, DAV schools and other recognized schools across all over India. Such schools from where students are registered total upto more than 7500 schools who carry out the registration of the students for CRM on behalf of the assessee foundation. 2.1. The CRM prepared by the foundation is imparted to the students through the teaching staff of the respective schools. Thereafter an examination is conducted across India through these schools only and to the successful students, certificate of participation is awarded. The fees collected from the students is partly retained by the each schools and balance is remitted to the assessee foundation. Thus, the foundation's income is received not directly from students but CBSE affiliated and other schools through their principals all over India. The foundation has developed a centre at Gurgaon to help, organize, develop and promote these unique science educational programmes for desirous students of school level in the various disciplines of science such as mathematics, physics, chemistry, biology and computer sciences. In addition the assessee activities, assessee organizes 'Olympiads' to search the best students and best teachers in these science streams. The methodology is promoted with Kendriya Vidyalaya Sangathan, for participation in the programmes, the fee structure in consultations with schools is kept relatively much lower. The assessee foundation has educational collaboration with English and Foreign Language University, Hyderabad, on various occasions many Hon'ble former Chief Justices of Supreme Court of India have graced the functions and praised the educational activities. All the details relating to the educational activities and programmes are claimed to have been filed before the Assessing Officer. 2.2. A survey u/s. 133A of the IT Act 1961 was conducted on 12.01.2010, where the statements of the officers of the foundation namely Shri Anil Goel, M/s. Jareen Anil Khan, Shri Anil Ahlawat and Shri Mahavir Singh were recorded in the survey report AO has mentioned as under: i. During the course of survey the assessee has not produced salary register, vouchers, regarding salary of Rs. 24,97,225/ - paid in the F.Y. 2008 -09 and salary paid in F.Y. 2009 -10. ii. Minutes books for the F.Y. 2009 -10 and 2010 -11 could not be produced during the course of survey. iii. From the documents recovered during the course of survey, it revealed that the activities carried out by the company is not within the ambit of charitable purpose u/s. 2(15) of the Act. iv. The assessee is also closely connected with two publishing companies, the activities prima -facie, are, overlapping. This needs further verification. 2.3. During the course of assessment proceedings, Assessing Officer was of the view that the assesses activities though earlier held to be educational in nature, is neither educational nor charitable in nature and they were commercial in nature. AO denied the exemption u/s. 11 by following observations: 7. In view of the para 6 I have considered the details filed by the assessee carefully and found that the assessee has failed to submit any supporting evidence in support of charitable activities. The details/informations filed by the assessee show that assessee is a commercial undertaking which only conducts examination by charging fees from the students. No educational activity directly or indirectly is imparted by the assessee company as per books of accounts and annual accounts for the relevant years submitted by the assessee company. In fact, the family members of the director's of the company making huge income by selling the books/periodicals which is a must for taking up the examination being conducted by the assessee company. The main objects as per specified in memorandum and actual activities being carried on by the assessee are contradictory in it self. No charity seems to be carried on by the assessee as per records/documents furnished by the assessee during the survey/assessment proceedings. Further, as per information furnished no faculty/teaching facilities has been ever provided by the assessee company. Merely conducting of examination is not imparting of education activity until unless the whole system of education i.e. to provide educational facility at the first level and than conducting the examination is provided in toto. Again there is no direct/indirect nexus in between the students and teachers which is a must for carrying on educational activity. The assessee company is only being reimbursed the cost of printing and stationary/cost of conducting the examination from the students, which does not have any linkage with increasing the talent of the students by the assessee company. Therefore, the activities carried out by the company are not within the ambit of charitable purpose as per the u/s. 2(15) of the Act. 8. The assessee company is not recognized by the any directorate of education/any university or any other Govt. body. The results of examinations are also not being recognized by any Govt. Institute for giving admissions to their recognized courses. Hence, this cannot be equated with any other body which conduct examination since all other bodies are recognized by the Govt. or through any legislation. 9. In continuation of above para 7, it is clearly that the assessee is a company and its activity are a commercial in nature. The Income and Expenditure account filed by the assessee company shows following details: After carefully going through the survey report, statements recorded during survey operations, records of the assessee company and considering the details filed during assessment proceedings the undersigned is of the firm opinion that the company is not a charitable entity and should be assessed as commercial accompany. As a result total surplus of Rs. 3,87,27,293/ - is taxed as profit and income assessed at Rs. 3,87,27,293/ -. Penalty proceedings u/s. 271(1)(c) and 272A are being initiated separately. Issue necessary forms. 2.4. Aggrieved assessee preferred first appeal, where detail submissions reiterating facts and clarifications about adverse observations of AO were furnished, they are reproduced in the ld. CIT (A)'s order. After considering the assessee's submissions ld. CIT(A) and held that activities are directed towards the improvement of educational standard of science students by making available superior course material and methodology for examination in this behalf. Its science education activities are in coordination with Central Govt. Schools and Hyderabad University. The foundation helped in standardization and uniformities of basic knowledge level in the field of science by CRM. The activities, course, examination and coordination with large spectrum of govt. approved schools and their teachers helped in removing the disadvantages at the school level due to variations caused by geographical, language and school curriculum across India. It helped students in learning subjects like maths and other science streams along with providing scholarship to needy students which is verifiable in the expenditure account. CIT (A) thus allowed assessee's claim u/s. 11 by following observations: In addition to the above, I also find that it is also not necessary that to be eligible to claim exemption as educational institution that the institution should provide whole education. The Assessing Officer in the assessment order has admitted this fact that the appellant institution is engaged in conducting examinations. Firstly, as stated hereinabove, this is not so but still in view of the above of the judgment of the various High Courts conducting examination will also make it eligible for exemption as charitable institution. In the cases of Secondary Board of Education vs. ITO, 36 ITR 408 (Orissa) the High Court has held that the secondary Board of Education which is conducting examination only will be an educational institution within the meaning of section 2(15) of the Act. Similarly publication of text books has been held by the Court to be education eligible u/s. 2(15) of the Act. In the case of Assam State Text Book Production and Publication Corporation Ltd. vs. CIT : 319 ITR 317 (Sc) the allegation the assessee was that it was engaged in the publication of text books and as such it is not engaged in conducting teaching classes or directly imparting education through teaching. The Supreme Court did not agree with the contention of the department and held that the Corporation is an educational institution and eligible of exemption within the meaning of section 2(15) of the Act. Various case laws cited by the Ld. AR also supports the above interpretation. 4.9 The Supreme Court in the case of American Hotel & Lodging Association : 301 ITR 86 (SC) has also held that the services in the form curriculum and reproduction of text books, factually development programme can be said to be educational and therefore eligible for exemption. 4.10 Similarly in the case of CIT vs. M.P. Rajya Pathya Pustak Nigam : 226 CTR 497 (M.P.) the M.P. High Court had held that the term educational purpose was not restricted to merely holding of teaching classes or lecture but educational purposes was equally served when educational text books were published. 4.11 The Delhi High Court in the recent judgment order dated 20.03.2012 in the case of Indian Schools Certificate Examination vs. Director General of Income Tax (W.P. (C) 4716/2010 has held that to be an eligible institution for education purpose it is not necessary that it should conduct teaching classes. Conducting examination was also approved as an educational purpose for claiming exemption. In the relevant paragraph Hon'ble Delhi High Court has held as under: - 7. Recently, the M. Pvt. High Court in CIT vs. M.P. Rajya Pathya Pustak Nigam, : (2009) 226 CTR (MP) 497 examined a similar question and after referring to several decisions has held that the term educational purpose was not restricted merely to holding of teaching class or lectures but educational purpose was equally served when educational text books were published. It is, therefore, clear that courts have laid emphasis on the activity undertaken, while construing or deciding whether or not a particular institution can be regarded as an educational institution. The Courts have repeatedly held that the holding of classes is not mandatory for an institution to qualify and to be treated as an educational institution. If the activity undertaken and engaged is educational, it is sufficient. 8. When we apply the aforesaid principle to the admitted nature of activity under taken by the petitioner, we have no hesitation in quashing the impugned order dated 8.10.2008 and holding that the petitioner is an educational institution. 4.12 The main object of the institution as approved by the Govt. of India is to pursue educational activities. In terms of the approval granted by the Govt. of India it has been specifically provided in the Memorandum that the institution will be a nonprofit organization and if upon winding up or dissolution there remains any surplus the same shall not be distributed but will be given or transferred to such other institution having similar object. Further in terms of the approval granted by the Govt. of India no alteration can be made to the objects of the institution without a previous approval of the Govt. of India. The institution is duly registered u/s. 12A of the Act and accordingly it fulfills all the conditions to be eligible for claiming exemption u/s. 11 of the Act. 4.13 The Assessing Officer has referred to the survey report carried out at the premises of the appellant institution u/s. 13A of the Act. In this regard he has referred to the survey report dated 13th January, 2011. On the basis of this survey report has drawn adverse inference against the appellant institution. The observations made in the survey report are as under: i. During the course of survey the assessee has not produced salary register, vouchers, regarding salary of Rs. 24,97,225/ - paid in the F.Y. 2008 -09 and salary paid in F.Y. 2009 -10. ii. Minutes books for the F.Y. 2009 -10 and 2010 -11 could not be produced during the course of survey. iii. From the documents recovered during the course of survey, it revealed that the activities carried out by the company is not within the ambit of charitable purpose u/s. 2(15) of the Act. iv. The assessee is also closely connected with two publishing companies, the activities prima -facie, are, overlapping. This needs further verification. 4.14 It is found that the assessee has clarified each of the contention raised in the survey report. The assessee has filed a letter dated 18th January, 2011 with the Assessing Officer in which it has replied and clarified each of the issues stated in the survey report. 4.15 Furthermore, during the course of assessment proceedings all issues raised by the Assessing Officer in his order and in his remand report have been duly replied by the assessee including detailed explanation about its activities and as such I hold that the Assessing Officer was not justified in drawing an adverse inference against the assessee. 4.16 In view of the above facts and the decided case laws I hold that the appellant institution is an educational institution within the meaning of section 2(15) of the Act and accordingly the Assessing Officer is directed to allow exemption as claimed by the appellant. After relying on the judgment of the Hon'ble Delhi High Court in the case of Council for the India School Certificate Examination, as discussed above, grounds No. 3 and 4 of the appellant are allowed. 2.5. Aggrieved revenue is before us in appeal. Ld. DR relied on the order of Ld. AO and contends that i. assessee is not carrying out any charitable activity as it failed to produced any evidence in this behalf. ii. The activities of the assessee are only commercial in nature, substantial fee is charged for only conducting examination. iii. No direct or indirect educational activity is performed by the assessee institution. iv. Family members of assessee company are making substantial income by selling the books and periodicals which has been prescribed as a must in order to appear in the examinations conducted by it. v. The main objects as declared and as implemented are contradictory. vi. By carrying out commercial operations no charitable activity is carried out. vii. Assessee is not engaged in whole system of education and conducting only examination does not amount to education. viii. The assessee is not recognized by any Directorate of Education/any university or any other Government body and hence it cannot be equated with any other body which conduct examination since all other bodies are recognized by the Government or through any legislation.
(3.) LD . counsel for the assessee in reply reiterated the facts and contends that ld. AO ignored the history of past assessments framed u/s. 143(3) wherein after proper verification of record, its activities were held to be educational as well as charitable in nature and benefits of sec 11 were allowed. 4.1. It is pleaded that appellant is a company incorporated under Section 25 of the Companies Act, 1956 in terms of the exemption granted by the Ministry of Company Affairs vide letter dated 29th December, 1999. The assessee was granted registration under Section 12A of the Income Tax Act vide registration dated 22nd December, 2000. 4.2. Assessee is registered u/s. 12A with objects to pursue educational activities i.e. establish, run and operate on non -profit basis schools, regional centres of the Foundation for brilliant students and to hold, organize, promote and sponsor conventions, seminars & conferences. Its objects, inter alia, include helping students in their aptitude for higher professional studies. The main objects of the company specifically provides that the foundation will be a non -profit organization and if upon winding up or dissolution there remains any surplus the same shall not be distributed among share holders. The same will be given or transferred to such other institution having similar object. It was also provided that no alteration shall be made to the Memorandum of Association or to the Articles of Association without the previous approval of the Regional Director, Department of Company Affairs, Government of India. 4.3. Assessee maintains regular books of account which are audited, there is no adverse inference by A.O. on veracity of books and they are upheld as correct, complete and properly maintained. The is being assessed regularly including u/s. 143(3). The provision of Section 11(1)(a) reads as under: - 11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income - - [(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of [fifteen] per cent of the income from such property; 4.4. Charitable purpose has been defined in Section 2(15) which reads as under: - charitable purpose" includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility. 4.5. A simple reading of the above provision reveals that charitable purpose includes 'education'. The word 'education' has not been restricted or qualified by any conditionality. This clearly implies that word education is to be construed as regarded in common parlance with an unrestricted and broad connotations. Thus so long as the activity relates to education, the same will be considered to be a charitable purpose within the meaning of Section 2(15) eligible for exemption under Section 11. 4.6. The applicant foundation has developed the expertise in imparting education in the science by 'course resource material'. All those students who are interested in learning and getting this education are required to get registered with the institution. This registration is done through recognized schools and colleges spread across India. These schools includes by and large all Kendriya Vidyalaya, Jawahar Navodaya Vidyalaya, Government schools, DAV schools and other recognized schools across India. The total number of schools from which these students have been registered are more than 7,400. For the purpose of imparting this education and learning each school carries out the registration of the student on behalf of the appellant foundation. The course resource material (CRM) is imparted to the students through respective school teachers, spread across India through the course resource material provided by the appellant foundation. Thereafter an examination is conducted across India and the certificate of participating in that examination is awarded thereafter. A part of the fees collected from the students is retained by each of the schools and the balance amount is remitted to the appellant foundation. 4.7. The appellant foundation generated surplus which is received through CBSE affiliated and other schools through the school principals all over India and spent on these educational objects. The appellant foundation has also developed a centre at Gurgaon to help, organize, promote educational programmes for students studying at the schools level in various disciplines of science such as mathematics, physics, chemistry, biology and computer science. In addition thereto the appellant foundation organizes Olympiads to identify the best students, the best teacher. For this purpose the foundation has tied up with Kendriya Vidyalaya Sangathan. 4.8. In the pursuit of development of science education, it organizes English Olympiads in collaboration with English and Foreign Languages University, Hyderabad. These programmes are organized in close coordination with the Universities and have been presided over by the former Chief Justice of Supreme Court of India. Thus the foundation has paved the way for improved science and mathematics education process along with the usual teaching in practice and giving opportunity to the students to learn and solve challenging problems, to learn and expose to new topics provoking their ingenuity in dealing with them and to generate scientific temper. 4.9. The foundation has helped in improving the teaching standards and the methodologies as well. In order to help the needy and the meritorious students the foundation is giving scholarships and prizes to such students. The bonafide educational activities are further proved that it has also tied up with the National University of Singapore which provides a platform to the science and mathematics students to interact with the best of faculty in the world. Workshops and seminars are organized in the various parts of the country to help students in learning various disciplines of science. 4.10. The fees charged is reasonable and much lesser than what can be charged by a commercial organization in imparting similar facilities. 4.11. The above details of the activities will demonstrate beyond doubt the educational activities in which this foundation is engaged in. Despite the above details the Assessing Officer has made certain observations which in view of the above explanations are factually incorrect. It has been erroneously stated by the Assessing Officer that the assessee has failed to submit any supporting evidence in support of charitable activities. 4.12. It is pleaded that despite denial of benefits of sec 11. assessee's registration u/s. 12A still continues on the same objects and activities. There is no change in the assesses objects, activities, methodology, CRM, fee structure and affiliations with Govt. recognized boards and schools. Thus though the objects, activities and facts remained same as compared to earlier years, ld. AO changed his opinion without there being any variation in the facts and circumstances. 4.12. The assessee's activities are erroneously held by AO to be neither educational nor charitable in nature by general and untenable observations. It has been alleged that assessee is not engaged in wholesome imparting of education by holding classes on regular basis. Merely offering course material and conducting examinations does not amount to educational activity. While giving these findings ld. AO has conveniently ignored the material available on record. 4.13. It has been summarily held that activities of the assessee are commercial in nature because fee is charged for CRM and examination. Ld. AO has offered no comment about the reasonableness of fee charged for these educational services rendered to the students. There is no bar on collecting reasonable charges for services while rendering educational or charitable services. Various courts have upheld charging reasonable amounts for services rendered by educational or charitable institution registered u/s. 12A and deriving benefits of sec. 11. Charging of reasonable amount for services rendered by such institutions have been allowed while claiming benefits u/s. 11, by a catena of judgments including the judgments of the jurisdictional Delhi High Court as well as Supreme Court of India. 4.14. The direct judgment on the issue is in the case of Council for the Indian Schools Certificate Examination vs. Director General of Income Tax decided by the jurisdictional Delhi High Court on 20th March, 2012. In this case an issue has arisen whether the counsel for Indian School Certificate Examination is an educational institution. In the said case it was a case whether the petitioner was not conducting any classes and was not engaged in teaching the students. The petitioner only was conducting the examination and on the basis of the results the students could get admission on the graduate level. Hon'ble Delhi High Court held that the contention of the revenue that the petitioner is not an educational institution because it is only an examination body and its principle work is to conduct examinations and charge fees cannot be accepted. It has been further held that an institution established for educational purpose need not conduct teaching classes. Assessee has been held to be an educational institution. The facts of assessee's case are similar. 4.15. Hon'ble Supreme Court in the case of Assam State Text Book Production and Publication Corporation Ltd. vs. CIT : 319 ITR 317 (Sc). It was the allegation of the revenue in that case that the State Corporation was engaged in publication of its text books and as such it was not engaged in conducting teaching classes or directly imparting education through teaching and accordingly it does not fall within the meaning of educational institution. The Supreme Court further held that the said Corporation will fall within the meaning of Educational institution. Thus an institution only publishing educational books has been held to be educational institution. 4.16. Hon'ble Orissa High Court in the case of Secondary Board of Education vs. ITO, 36 ITR 408 (Orissa). In this case the Secondary Board of Education which was conducting examination only and question was arisen whether it was an educational institution or not. It was held that the activities of conducting examinations undertaken by the Board will qualify for the purpose of education. 4.17. Hon'ble Rajasthan High Court in the case of CIT vs. Rajasthan Text Books Board : 2444 ITR 667 (Raj.) whereby it was held that the State Text Book though not imparting education by teaching students or holding classes but publication of text book will qualify for exemption. 4.18. Hon'ble Supreme Court in the case of American Hotel & Lodging Associating : 301 ITR 86 (SC) where an issue has arisen where the appellant institute which is providing services in the form of curriculum to reproduction of text book and faculty development programme can be said to be engaged in educational purposes and therefore eligible for exemption. The Supreme Court has squarely held that said institution will qualify for exemption. 4.19. Hon'ble M.P. High Court in the case of CIT vs. M.P. Rajya Padhya Pushtak Nigam : 226 CTR 497 whereby it was held that the term educational purpose was not restricted merely to holding of teaching classes or lecture but educational purposes was equally served when educational text books were published. It was also held that holding of regular classes for imparting of education directly to the student is not mandatory for an institution to qualify for exemption. 4.20. Ld. counsel contends that the facts of assesses case are on a far better footing as it is engaged in multifold educational activities like researching on science course, making it update, student friendly, liasoning with recognized schools and imparting course material through their teachers. Holding regular examinations on CRM through widespread network of school and their teachers. Thus assessee carries on laudable activities of improving standards of science and mathematics education among pan Indian students. 4.21. Ld. counsel vehemently argues that all these facts, circumstances and host of case laws mentioned above vindicate the assesses stand that it's all activities are educational in nature and eligible for exemption. There is no force in the allegations of ld. AO that family members are making huge profits. These allegations are not substantiated by any cogent reasons and material available on record. Such type of generalized allegations bereft of cogent reasoning have no force in the eyes of law and cannot be relied to deny the exemption. It is further evident from the fact that surplus is utilized in achieving the objects of the foundation and in case of winding up no amount goes to relatives or share -holders. Besides, no allegation of violation of sec. 13(1)(d) or (c) is made out. Order of ld. CIT(DR) is relied on.;


Click here to view full judgement.
Copyright © Regent Computronics Pvt.Ltd.