No denial of exemption if surplus earned on incidental activities was ploughed back for use towards trust’s object: ITAT

Case details: DCIT v. JMJ Education Society - [2021] 128 taxmann.com 315 (Bangalore - Trib.)

Judiciary and Counsel Details

• • Smt. Beena Pillai, Judicial Member and Chandra Poojari, Accountant Member.
  • Ms. Neera Malhotra, CIT (DR-1) for the Appellant. 
  • H.N. Khincha, CA for the Respondent.

Facts of the Case

Assessee was registered under Section 12AA. It was engaged in providing educational facilities to the society at large. For this purpose, assessee had put various educational institutions. During the survey, various incriminating documents, loose papers, diaries, etc., were found and impounded, which primarily showed that assessee was collecting development fees from the students. It also indicated payment of agency commission to the middlemen who brought students for admission to different courses. According to Assessing Officer (AO), assessee was not existing for charitable purposes but engaged in profitable activities. Accordingly, he held that assessee was not eligible for exemption under Section 11. The CIT(A) upheld the order passed by AO.

ITAT held

On appeal, the Bangalore ITAT held that assessee was an educational institution, and there was no denial by the department that assessee had carried out education activities as predominant activity. In the course of carrying out the predominant object of imparting education, assessee incidentally earned surplus. Further, the surplus generated had been ploughed back for educational purposes only.

The dominant objective was to impart education and not to make profits. The surplus arising was incidental. The excess of income by itself does not lead to an inference of profit motive. The entire surplus of the society was redeployed for the objects of the trust. Assessee’s objects were not doubted, and when the objects were genuine, the surplus couldn’t be treated as a sin.

Profitable activity does not necessarily mean that there is a profit motive. Therefore, it was incorrect to state that assessee was not existing for educational purposes but was existing for profit. Being so, assessee being education institution was to be considered to be existing solely for educational purposes only.

Case Review

• • Queens Educational Society v. CIT [2015] 55 taxmann.com 255/231 Taxman 286/372 ITR 649 (SC) (para 30)
  • Asstt. CIT(E) v. Mahima Shiksha Samiti[2017] 79 taxmann.com 38 (Jp. – Trib.) (para 31)
  • Ganapat University v. Arvind Shankar [2016] 73 taxmann.com 373/242 Taxman 496 (Guj) (para 32)
  • DIT (Exemptions) v. Delhi Public Schools Society [2018] 100 taxmann.com 370/260 Taxman 88 (SC) (para 33) followed.
  • Navodaya Education Trust v. UOI [2018] 90 taxmann.com 148/253 Taxman 412/405 ITR 30 (Kar.) (para 34) distinguished.

List of Cases Referred to

• • Queens Educational Society v. CIT [2015] 55 taxmann.com 255/231 Taxman 286/372 ITR 649 (SC) (para 5)
  • Chief CIT v. St. Peter’s Educational Society [2016] 70 taxmann.com 171/240 Taxman 392/385 ITR 66 (SC) (para 5)
  • Chirec Education Society v. Asstt. DIT [2013] 40 taxmann.com 26/219 Taxman 133 (Mag.)/354 ITR 605 (AP) (para 10)
  • Dy. CIT v. R.N. Shetty Trust [2015] 59 taxmann.com 68 (Beng. – Trib.) (para 10)
  •  ITO v. Human Resources Development & Management Trust [2011] 12 taxmann.com 478/47 SOT 85 (URO) (Ctk.) (para 10)
  • ITO v. Lata Mangeshkar Medical Foundation [2017] 83 taxmann.com 69 (Pune – Trib.) (para 10)
  • Shree Kamdar Education Trust v. ITO [2016] 74 taxmann.com 253/243 Taxman 76 (Guj.) (para 10)
  • Navodaya Education Trust v. Union of India [2018] 90 taxmann.com 148/253 Taxman 412/405 ITR 30 (Kar.) (para 17)
  • CIT v. Karnataka Golf Association (AOP) [IT Appeal No. 418 of 2008, dated 1-12-2020] (para 17)
  • Asstt. CIT (Exemption) v. Mahima Shiksha Samiti [2017] 79 taxmann.com 38 (Jp. – Trib.) (para 19)
  • Ganapat University v. Arvind Shankar [2016] 73 taxmann.com 373/242 Taxman 496 (Guj.) (para 19)
  • DIT (Exemptions) v. Delhi Public Schools Society [2018] 100 taxmann.com 370/260 Taxman 88 (SC) (para 19)
  • DIT (Exemptions) v. Delhi Public School Society [2018] 100 taxmann.com 80/259 Taxman 404 (SC) (para 19)
  • Dr. Maharaja Krishna Kapoor Educational Charitable Trust and Management Society v. Union of India [2009] 180 Taxman 420/[2010] 326 ITR 385 (Punj. & Har.) (para 29)
  • Pinegrove International Charitable Trust v. Union of India [2010] 188 Taxman 402/327 ITR 73 (Punj. & Har.) (para 29)
  • T.M.A. Rai Foundation v. State of Karnataka [2002] 8 SCC 481 (para 29),
  • CIT v. Manav Mangal Society [2001] 184 Taxman 502/[2010] 328 ITR 421 (Punj. & Har.) (para 29)
  • Shri Krishna Education & Welfare Trust v. CIT [2009] 27 SOT 331 (Delhi) (para 29)
  • Vanita Vishram Trust v. Chief CIT [2010] 192 Taxman 389/327 ITR 121 (Bom.) (parar 29)
  • Aditanar Educational Institution v. Addl. CIT [1997] 90 Taxman 528/224 ITR 310 (SC) (para 30).