Trust received fee for training hotel employees, treated as business income u/s 11(4A): ITAT

Case Details: UMAK Education Trust v. JCIT (Exemption) - [2023] 146 taxmann.com 324 (Delhi-Trib.)

Judiciary and Counsel Details

• • Anil Chatrurvedi, Accountant Member & Anubhav Sharma, Judicial Member
  • Ms Kanika Jain, CA for the Appellant.
  • Abhishek Kumar, Sr. DR for the Respondent.

Facts of the Case

Assessee was a trust registered under section 12A running an educational institute. The trust was established to maintain, support, or subsite schools, colleges, pathshalas, and other institutions for general education. The objects of the assessee include granting aid to the institutions for the growth and advancement of knowledge. During the relevant assessment year, it imparted training to the staff of the hotel. While furnishing the return of income, assessee claimed exemption under section 11 with respect to the income derived from imparting training to the hotel staff.

During the scrutiny proceedings, the Assessing Officer (AO) issued notice under section 143(2), taxing such income as income from Business or Profession and disallowing the claim of exemption.

Aggrieved by the order, assessee preferred an appeal to CIT(A). The CIT(A) confirmed the additions made by AO. The matter then reached the Delhi Tribunal.

ITAT Held

The Tribunal held that assessee was engaged in providing training services to the newly recruited employees (at the managerial level) of the hotel. The Memorandum of Understanding (MOU) with the service-seeking organization (hotel) does not establish any nexus with the objectives of the assessee. The terms and conditions of the MOU demonstrate that the training sessions were only beneficial to the hotel seeking professional assistance for amplifying revenues.

In the instant case, the assessee provided the customized services based on the needs of the hotel. Although providing training to the institutions was included in the objectives of the assessee, it appeared that MOU between the assessee and the organization was only benefiting the newly recruited employees of the organization. The training program was not imparting any knowledge to those who were seeking employment.

In addition, it is observed that the assessee has only organized qualified trainers for the training program. All the infrastructural facilities were arranged by the service-seeking organization. Merely giving the certificate at the end of the training program in the name of the assessee, cannot be considered an activity of charitable purpose. It will not alter the character of commercial activity.

Therefore, the Tribunal concluded the services are commercial and not eligible for claiming exemption under section 11. Thus, affirmed the AO’s order.

List of Cases Reviewed

• • Sole Trustee Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC)
  • Bihar Institute of Mining & Surveying v. CIT [1994] 76 Taxman 455/208 ITR 608 (Patna)
  • Delhi Music Society v. Director General of Income-tax [2012] 17 taxmann.com 49/204 Taxman 231/[2013] 357 ITR 265 (Delhi)
  • Institute of Chartered Accountants of India v. Director General of Income-Tax (Exemptions) [2013] 35 taxmann.com 140/217 Taxman 152/358 ITR 91 (Delhi) (para 20) distinguished.

List of Cases Referred to

• • GSI India v. Director General of Income-tax (Exemption) [2013] 38 taxmann.com 364/219 Taxman 205/[2014] 360 ITR 138 (Delhi) (para 7)
  • CIT v. Mehta Charitable Prajnalay Trust [2012] 28 taxmann.com 73/[2013] 214 Taxman 88/357 ITR 560 (Delhi) (para 7)
  • Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC) (para 12)
  • Bihar Institute of Mining & Surveying v. CIT [1994] 76 Taxman 455/208 ITR 608 (Patna) (para 12)
  • Delhi Music Society v. Director General of Income-tax [2012] 17 taxmann.com 49/204 Taxman 231/[2013] 357 ITR 265 (Delhi) (para 12)
  • Institute of Chartered Accountants of India v. Director General of Income-tax (Exemptions) [2013] 35 taxmann.com 140/217 Taxman 152/358 ITR 91 (Delhi) (para 12)
  • CIT v. Shri Ram Education Foundation [2001] 116 Taxman 832/250 ITR 504 (Delhi) (para 14)
  • CIT v. Lal Bahadur Shastri Education Society [2001] 118 Taxman 374/252 ITR 837 (Guj) (para 14)
  • DIT (Exemption) v. Samudra Institute of Maritime Studies Trust [2014] 49 taxmann.com 510/226 Taxman 297/369 ITR 645 (Bom) (para 14)
  • DIT (Exemption) v. Ahmedabad Management Association [2014] 47 taxmann.com 162/225 Taxman 223/366 ITR 85 (Guj.) (para 14)
  • St. Joseph Technical School v. Asstt. DIT (Exemption) [2015] 60 taxmann.com 267/74 TTJ 177 (Mum.) (para 14)
  • Praxis Institute of Participatory Practices v. DIT (Exemption) [2015] 57 taxmann.com 111/154 ITD 10 (Delhi) (para 14)
  • Water and Land Management Training and Research Institute v. DIT [2015] 61 taxmann.com 319/70 SOT 443 (Hyd. – Trib) (para 14)
  • Gujarat State Co-operative Union v. CIT [1992] 195 ITR 279 (para 14).