Educational Activities Neither Business Nor Profession, Covered Under Section 2 (15) Of Income Tax Act: Delhi High Court

The Delhi High Court has held that the assessee is carrying on educational activities that are covered by the provisions of Section 2 (15) of the Income Tax Act, and it is neither business nor profession of the assessee.

The bench of Justice Yashwant Varma and Justice Ravinder Dudeja observed that the mode and manner in which education is imparted would be a concept that would have to necessarily be evaluated bearing in mind the march of technology and the myriad modes of imparting instruction that 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.

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 Assessing Officer accepted the return under Section 143(3) in terms of an order6, which acknowledged and accepted the charitable nature of the educational activities undertaken by the assessee.

The CIT(E), however, doubting the correctness of the view taken by the AO, issued a Show Cause Notice in purported exercise of powers conferred by Section 263 and embodying its intent to revise and set aside the assessment on the ground that it was not only erroneous but also prejudicial to the interest of the Revenue. The CIT(E) 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) appears 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-assessee was rendering services for profit and was not engaged in any educational or charitable activity as contemplated under Section 2(15). 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). 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).

The assessee approached the Tribunal. 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. The Tribunal concluded that the assessee was engaged in the charitable activity of imparting education.

The department contended 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.

The assessee contended that the donations and sponsorships that were received from private entities were utilized only for the purpose of furthering education as a charitable activity. While those donations may have been triggered by the corporate social responsibility obligations of the private entities, the CIT(E) clearly lost sight of the fact that its inquiry would be concerned with the ultimate utilization and use to which those donations were put.

The court held that the Tribunal correctly found in favor of the assessee when it held that affiliation with and recognition by a regulatory authority are not essential attributes of education under Section 2(15). It was in addition to it having been duly established that the centers of the respondent/assessee had been duly approved by the NSDC, which undoubtedly is a nodal agency concerned with vocational and technical training.

The court dismissed the department's appeal and ruled in favor of the assessee.

Counsel For Appellant: Abhishek Maratha

Counsel For Respondent: Ajay Vohra

Case Title: CIT(E) Versus NIIT Foundation

Citation: 2024 LiveLaw (Del) 850

Case No.: ITA 141/2021

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