Society Imparting Knowledge Or Skills Qualifies For 'Education' Label, Entitled To Exemption Under Section 12A Of Income Tax Act: Punjab & Haryana High Court

The Punjab and Haryana High Court held that a society that imparts knowledge or skills qualifies for the 'education' label under the Income Tax Act, making it eligible for tax exemptions under Section 12A of the Income Tax Act, 1961.

The Division Bench of Justices Sanjeev Prakash Sharma and Sanjay Vashisth observed that “……Vocational training has been now recognized to be an important as any other filed of education, and it is for this reason that National Council for Vocational Training has been established to streamline and lay down a systematic pattern of providing education.”

Under Section 12A of the Income Tax Act, 1961, non-profit organisations like charitable trusts, welfare societies, NGOs, religious institutions, etc. are entitled to tax exemptions. Section 12AA of the Income Tax Act, 1961 is related to the approval of such organizations by the Commissioner of Income Tax (CIT).

The respondent/assessee (society) was operating a private Industrial Training Institute that provided vocational training to students. The institute was duly affiliated with and regulated by the National Council for Vocational Training (NCVT). The assessee had applied for registration under Sections 12A and 12AA of the Income Tax Act.

The application was rejected by the Commissioner of Income Tax (Exemptions), Chandigarh (CIT)/appellant on two grounds. First, the CIT argued that gaining knowledge or skills did not qualify as "education" and did not fall within the scope of education as defined under the Act. Second, the CIT stated that the assessee/society did not derive income from voluntary donations, and the income received from the property could not be said to be vested in the trust for charitable purposes.

The assessee subsequently filed an appeal before the Income Tax Appellate Tribunal (ITAT), challenging the CIT's rejection. The Tribunal allowed the assessee's appeal and directed the CIT to register the society under Sections 12A and 12AA of the Income Tax Act. The Revenue has challenged the order passed by the Tribunal before the Punjab and Haryana High Court.

The CIT/appellate submitted that training is not a systematic training and the ITAT has erred in directing the registration of the society under Section 12A and 12AA of the Act.

The bench observed that vocational education is a form of education which is necessary for the development of an individual for the purpose of earning his living. Vocational training has been now recognized to be an important as any other filed of education, and it is for this reason that National Council for Vocational Training has been established to streamline and lay down a systematic pattern of providing education.

The bench agreed with the opinion of the Tribunal that the appellate/assessee Trust is reimbursed the amount spent by the Government for carrying out its education/training programme as per the skill development programme of the Government. Thus, it can be safely said to be income generated from the activity of the assessee trust and the said activity falls within the purview and scope of charitable purpose.

The bench further concluded that the institute is duly approved by the National Council for Vocational Training NCVT, it cannot be said that the institute is not imparting education.

In view of the above, the bench dismissed the appeal.

Counsel for Appellant/ Revenue: Varun Issar

Case Title: Commissioner of Income Tax (Exemptions), Chandigarh v. M/s Unique Educational Society

Case Number: ITA-54-2020 (O&M)

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