M/S. CALICUT EDUCATIONAL TRUST , V. THE INCOME TAX OFFICER

ITA/74/2019

AI Insights

The case involves the Calicut Educational Trust, which appealed against the orders of the Income Tax Appellate Tribunal, Cochin Bench, for the assessment years 2003-04, 2007-08, and 2010-11. The primary issue was whether the trust qualified as a charitable trust under Section 2(15) of the Income Tax Act, which would entitle it to exemptions under Section 11. The Tribunal and lower authorities had found that the trust was not a charitable trust but was engaged in activities akin to a commercial training and coaching center, thus denying the exemptions. The High Court of Kerala, after considering the arguments and relevant legal precedents, upheld the decisions of the lower authorities, leading to the dismissal of the appeals.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 686226 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 06-07-2022
• Assessment Year: misc
• Other Referred Cases: Sole Trustee, Lok Shikshana Trust v. CIT, Mysore [(1975)101 ITR 234], Bihar Institute of Mining and Mine Surveying v. CIT [(1994) 208 ITR 608 (Pat)], Saurashtra Education Foundation v. C.I.T. [(2005) 273 ITR 139 (Guj.)]
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: CHRISTOPHER ABRAHAM
• Assessee Lawyers: RAMESH JOHN
• Keywords: Assessment Order; Charitable Trust; Educational trust; Income tax appellate tribunal; Income tax exemption
• Section: 143(2); 11; 12AA; 2(15); 164; 13(1)(c)(ii); 10(23c)(iii)(ad); 165

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI WEDNESDAY, THE 6TH DAY OF JULY 2022 / 15TH ASHADHA, 1944 ITA NO. 3 OF 2021 ITA 28/COCH/2020 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: M/S. CALICUT EDUCATIONAL TRUST CORPORATE COLLEGE OF ARTS AND SCIENCE CORPORATE COLLEGE OF ARTS AND SCIENCE, EMAS COMPLEX, YMCA ROAD, KOZHIKODE-673001 NOW AT T P BUILDING, MUTHALAKULAM, KOZHIKODE-673001. BY ADV RAMESH CHERIAN JOHN RESPONDENT/S: 1 THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(1), OFFICE OF THE DEPUTY COMMISSIONER OF INCOME TAX, AAYAKAR BHAVAN, NORTH BLOCK, KOZHIKODE-673001. 2 THE COMMISSIONER OF INCOME TAX OFFICE OF THE COMMISSIONER OF INCOME TAX, AAYAKAR BHAVAN, NORTH BLOCK. KOZHIKODE-673001. BY SC.SHRI CHRISTOPHER ABRAHAM THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 06.07.2022, ALONG WITH ITA.74/2019, 4/2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.3/2021,74/2019 & 4/2021 -2- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI WEDNESDAY, THE 6TH DAY OF JULY 2022 / 15TH ASHADHA, 1944 ITA NO. 74 OF 2019 ITA 266/COCH/2018 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: M/S. CALICUT EDUCATIONAL TRUST , CORPORATION COLLEGE OF ARTS AND SCIENCE, EMAS COMPLEX, YMCA ROAD, KOZHIKODE-673 001. NOW AT T.P. BUILDING, MUTHALAKULAM, KOZHIKODE-673 001. BY ADV SRI.RAMESH CHERIAN JOHN RESPONDENT/S: 1 THE INCOME TAX OFFICER WARD-1(1),CALICUT 2 THE COMMISSIONER OF INCOME TAX, AAYAKAR BHAVAN, MANANCHIRA, KOZHIKODE-673 001. BY SC.SHRI CHRISTOPHER ABRAHAM THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 06.07.2022, ALONG WITH ITA.3/2021 AND ITA 4/2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.3/2021,74/2019 & 4/2021 -3- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI WEDNESDAY, THE 6TH DAY OF JULY 2022 / 15TH ASHADHA, 1944 ITA NO. 4 OF 2021 ITA 29/COCH/2020 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: M/S. CALICUT EDUCATIONAL TRUST CORPORATE COLLEGE OF ARTS AND SCIENCE, EMAS COMPLEX, YMCA ROAD, KOZHIKODE-673 001, NOW AT T.P. BUILDING, MUTHALAKULAM, KOZHIKODE-673 001 BY ADV RAMESH CHERIAN JOHN RESPONDENT/S: 1 THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2 (1), AAYAKAR BHAVAN, NORTH BLOCK, KOZHIKODE-673 001 2 THE COMMISSIONER OF INCOME TAX OFFICE OF THE COMMISSIONER OF INCOME TAX, CIRCLE 2 (1), AAYAKAR BHAVAN, NORTH BLOCK, KOZHIKODE-673 001 BY SC.SHRI CHRISTOPHER ABRAHAM THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 06.07.2022, ALONG WITH ITA.3/2021 AND ITA 74/2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.3/2021,74/2019 & 4/2021 -4- S.V.BHATTI & BASANT BALAJI, JJ. - - - - - - - - - - - - - - -- - - -- - - - - - - - - - -- - - - - - - - - ITA Nos.3 of 2021, 74 of 2019 and 4 of 2021 - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - JUDGMENT (Dated this the 6th day of July 2022) Basant Balaji J., These appeals are filed by the appellant against the orders of the Income Tax Appellate Tribunal, Cochin Bench in I.T.A Nos.266/COCH/2018, 28/COCH/2020, and 29/COCH/2020 for the assessment years 2003-04,2007-08 and 2010-11 respectively. 2. The appellant is a registered charitable Trust with the primary object of promoting the advancement of education and training. The Trust was also granted an exemption under Section 12AA of the Income Tax Act (for short 'the I.T Act') ITA Nos.3/2021,74/2019 & 4/2021 -5- by the Commissioner of Income Tax, Kozhikode by certificate dated 28.5.2003. For the assessment years 2003-04, the Assessing Officer, after issuing notice under Section 143(2) of the I.T. Act and hearing the assessee along with his duly authorized agent, passed an assessment order dated 13.2.2006 holding that the Trust is not a Charitable Trust, but running a parallel college/Tuition center to make a profit and as such deduction under Section 11 of the I.T. Act is not allowable. As per the assessment, the total amount payable was Rs.51,483/-. Similarly, for the assessment years 2007-08, the total amount payable was Rs.1,11,180/- and for the assessment year 2010- 11, the total amount payable was Rs.1,65,570/- by the appellant. 3. Aggrieved by the assessment orders, the appellant filed the first appeals before the Commissioner of Income Tax ITA Nos.3/2021,74/2019 & 4/2021 -6- (Appeals). The first appellate authority, after hearing the authorised representative, dismissed the appeals holding that the action of the Assessing Authority in disallowing deduction under Section 11 of the I.T. Act to the appellant Trust, is in order. 4. The appellant, filed second appeals before the Income Tax Appellate Tribunal, Kochi bench as I.T.A.No.266/ COCH/2018, 28/COCH/2020 and 29/COCH/2020 for the years 2003-04, 2007-08 and 2010-11 respectively. The Tribunal, after hearing the appellant as well as the department and relying on the decision of the Hon'ble Apex Court in Sole Trustee, Lok Shikshana Trust v. CIT, Mysore [(1975)101 ITR 234], as well as the decisions of the Patna High court in Bihar Institute of Mining and Mine Surveying v. CIT [(1994) 208 ITR 608 (Pat)] and of Gujarat High Court in Saurashtra ITA Nos.3/2021,74/2019 & 4/2021 -7- Education Foundation v. C.I.T. [(2005) 273 ITR 139 (Guj.)], held that the assessee cannot be considered to be an Education Trust within the meaning of Section 2(15) of the I.T. Act and hence, not entitled for exemption and therefore the appeals were dismissed. It is aggrieved by the said orders of the Income Tax Appellate Tribunal, these appeals are filed. 5. The questions of law arise for consideration are as follows: (i). Whether on the facts and circumstances of the case the Tribunal was justified in confirming the denial of exemption u/S 11 of the Act by the authorities below for the relevant assessment year. (ii). Whether on the facts and circumstances of the case the Tribunal was justified in holding that the appellant cannot be considered to be an educational trust within the meaning of S 2 (15) of the Act and therefore not entitled for exemption u/S 11 of the Act. (iii). Whether on the facts and circumstances of the case the finding of the Tribunal that the appellant is not an educational trust/charitable trust within the meaning of S 2 (15) of the Act and ITA Nos.3/2021,74/2019 & 4/2021 -8- therefore not entitled for exemption u/S 11 of the Act is perverse, unsustainable and contrary to (1) the findings in the judgment of this Hon'ble Court in the appellants own case in W.A. No. 750 of 2006, (2) the objects contained in the Deed of Trust dt. 31.08.2002 and (3) the Certificate of Registration u/S 12 AA dt. 28.05.2003 of the Act granted by the Commissioner of Income Tax, Kozhikode. (iv). Whether on the facts and circumstances of the case the Tribunal was justified in approving the conclusion of the assessing officer that the activities carried on by the appellant is not charitable in nature and there by denying exemption and is not the said finding contrary to facts, incorrect and perverse. (V). Whether on the facts and circumstances of the case the Tribunal was justified in coming to a finding that the appellant is hit by the provisions of section 13 (1)(c)(ii) of the Act. (Vi). Whether on the facts and circumstances of the case the provisions of Section 13(1)(c)(ii) of the Act is applicable to the appellant when the expenditure incurred by the appellant by way of interest, salaries, license fees etc. were incidental to an inevitable for the purpose of carrying out the objects of the appellant trust and for meeting the normal expenses of the management. (vii). Whether on the facts and circumstances of the case the Tribunal was justified in confirming the applicability of section 13(1)(c)(ii) of the Act to the case of the appellant when there is no unreasonableness or excessiveness in the expenditure incurred by the appellant and which expenses were only necessary and ITA Nos.3/2021,74/2019 & 4/2021 -9- incidental to carrying out the objects of the appellant trust. (viii). Whether on the facts and circumstances of the case the Tribunal was justified in ignoring and not adjudicating upon the alternate claim for allowing exemption u/s 10 (23C) (iii ad) of the Act raised by the appellant. (ix).Whether on the facts and circumstances of the case the Tribunal ought to have found that the appellant was an educational institution existing solely for educational purposes and not for purposes of profits and quitted to exemption u/S 10 (23C) (iii ad) of the Act having satisfied all the conditions mentioned in the said section. (x).Whether on the facts and circumstances of the case the Tribunal was justified in confirming the levy of maximum marginal rate of tax on the appellant applicable to AOP u/S 164/165 of the Act. 6. Heard the learned counsel for the appellant Adv. Ramesh Cherian John and the learned standing counsel for the respondent, Adv. Christopher Abraham. 7. The main ground raised by the counsel for the appellant, is that the appellant is a Charitable Trust formed with the primary object of promotion and advancement of ITA Nos.3/2021,74/2019 & 4/2021 -10- education and training and that it has been awarded a certificate under Section 12AA of the I.T. Act. Having been awarded the certificate mentioned above, the Assessing Officer cannot make a further probe into the objects of the Trust and make an assessment holding that the Trust is not a Charitable Trust. The learned counsel went on to submit that the decision of the Hon’ble Apex Court relied on by the Tribunal in Sole Trustee (supra) is distinguishable from the facts of the case and hence, the finding of the Tribunal that the assessee cannot be considered as an education Trust within the meaning of Section 2(15) of the I.T. Act is wrong. The counsel also relied on the judgment passed by a Division Bench of this court in W.A. 750 of 2006, in which the challenge was made against the constitutional validity of service tax treating parallel college as commercial training and ITA Nos.3/2021,74/2019 & 4/2021 -11- coaching centres coming under section 65(27) of the Finance Act, whereby a Division Bench of this court has held that the Parallel colleges/Tuition centres will come under the definition of charitable purposes. He mainly relies on that since a Division Bench of this has already held that the appellant's nature of business is of a charitable center, there is no shadow of a doubt that the Trust will fall within the definition under Section 2(15) of I.T. Act. Hence the orders of the assessment authority as well as the first and second appellate authority are wrong in facts and in law and hence, liable to be interfered with. 8. The learned Standing counsel for the Income Tax, Shri Christopher Abraham, submits that the Assessing Officer had reason to believe and going through the objects of Trust, ITA Nos.3/2021,74/2019 & 4/2021 -12- has found that the Trust is not a charitable trust but running a parallel college to make profit out of the same. Moreover, the judgment of the Division Bench in W.A. No.750 of 2006 is in respect of service tax and any finding regarding the charitable trust nature of the Trust cannot be imported into the Income Tax Act to bring the Trust under the definition of Section 2(15) of the I.T. Act. The appellate authority as well as the Tribunal, was justified in dismissing the appeals, as on facts, both the authorities found that the nature of business carried out by the appellant is not of a Charitable Trust, but in doing coaching centres and making profit out of it. 9. Annex. B is a certificate issued by the Commissioner of Income Tax, Kozhikode under Section 12AA of the I T Act. Clause 3 of the said certificate specifically states that 'this registration is not a finding regarding charitable nature of the ITA Nos.3/2021,74/2019 & 4/2021 -13- fund”. In view of the said statement, the appellant cannot contend that once registration is granted under Section 12 AA of the I T Act, the assessee cannot probe into the nature of the charitable purpose for assessment. The object of the Trust is not only to conduct educational, cultural, and social advancement of the people of Malabar but also to publish and propagate books, periodicals, and journals as deemed useful by the Trust for the achievement of the objectives of the Trust. The appellant is collecting fees for imparting coaching to the students. It cannot be treated as charitable in nature and it is a paid service with the motive of earning profit out of it. 10. The judgment of the Division Bench in W.A. No.750 of 2006 was in respect of service tax wherein the consideration is entirely different and the respondent herein were not parties to the said judgment. So the finding of the ITA Nos.3/2021,74/2019 & 4/2021 -14- Division Bench cannot be brought into purview of the Income Tax Act, to hold that the appellant fall within the ambit of Section 2(15) of the I T Act. 11. Section 2(15) of the I T Act defines “Charitable purpose” as follows:- (15) “charitable purpose” includes relief of the poor, education, yoga, medical relief, [preservation of the 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: [Provided that the advancement of any other object of a general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless- (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or ITA Nos.3/2021,74/2019 & 4/2021 -15- activities during the previous year, do not exceed twenty percent. of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year]” 12. Though education is included in the said definition, on case by case the purpose and object of each Trust have to be looked into. It is not an universal declaration that all Education Institutions can be termed as a charitable purpose under Section 2(15) of the I T Act. 13. The Hon'ble Apex court in Sole Trustee (supra) held that the sense in which education has been used in Section 2(15) of the I T Act is the systemic instruction, schooling or training given to the young in preparation for the work of life. It also connotes the whole course of scholastic instruction that a person has received. The Hon'ble Apex Court, thereafter, went on to hold that “what education connotes in that clause is the process of ITA Nos.3/2021,74/2019 & 4/2021 -16- training and developing the knowledge, skill, mind and character of a student by normal schooling. Going by the dictum laid down it can be seen that mere coaching given to students being education cannot fall within the meaning of education as provided under Section 2(15) of the I T Act. As stated above, to bring a Trust within the ambit of Section 2(15) of the I T Act, it is necessary to probe into the activities and object of the Trust and once it is found that there is no charitable activities in the Trust or if there is charitable activities coupled with profit- making, the same cannot be brought under the definition of Section 2(15) of the I T Act. The Assessing Officer as well as the two appellate authorities having found in the fact that the activities done by the appellant Trust are giving coaching to students, the same cannot be treated as a charitable institution as provided under Section 2(15) of the I T Act, cannot be found ITA Nos.3/2021,74/2019 & 4/2021 -17- fault with by this Court sitting in appellate jurisdiction under Section 260A of the I T Act. In view of the matter, the question of law No.(ii) raised in this appeal is answered against the appellant. Resultantly, the other questions of law raised are also answered against the appellant as it flows from the answer to question No.(ii). Hence, the Income Tax appeals are dismissed. SD/ S.V.BHATTI, JUDGE SD BASANT BALAJI, JUDGE dl/ ITA Nos.3/2021,74/2019 & 4/2021 -18- APPENDIX OF ITA 74/2019 PETITIONER ANNEXURES ANNEXURE A TRUE COPY OF THE REGISTERED DEED OF TRUST DATED 31.8.2002 ANNEXURE B TRUE COPY OF THE CERTIFICATE DATED 28.5.2003 GRANTED BY THE COMMISSIONER OF INCOME TAX, KOZHIKODE ANNEXURE C TRUE COPY OF THE ORDER OF ASSESSMENT DATED 13.2.2006 PASSED BY THE ASSESSING AUTHORITY ANNEXURE D TRUE COPY OF THE JUDGMENT DATED 25.7.2013 IN WA NO 750/2006 IN THE APPELLANTS OWN CASE ANNEXURE E TRUE COPY OF THE ORDER DATED 22.1.2013 OF THE DIRECTOR OF SCHOOL OF DISTANCE EDUCATION, UNIVERSITY OF CALICUT. ANNEXURE F TRUE COPY OF THE ORDER OF THE JOINT REGISTRAR, UNIVERSITY OF CALICUT DATED 18.1.2014 ANNEXURE G TRUE COPY OF THE ORDER OF THE 1ST APPELLATE AUTHORITY DATED 28.3.2018 ANNEXURE H TRUE COPY OF THE APPEAL FILED BEFORE THE TRIBUNAL ANNEXURE I TRUE COPY OF THE LIST INDEX OF DOCUMENTS FILED BEFORE THE TRIBUNAL ALONG WITH THE WRITTEN SUBMISSION/WRITTEN STATEMENT ANNEXURE J TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 30.10.2018 ITA Nos.3/2021,74/2019 & 4/2021 -19- APPENDIX OF ITA 4/2021 PETITIONER ANNEXURES ANNEXURE A TRUE COPY OF THE REGISTERED DEED OF TRUST DATED 31.08.2002. ANNEXURE B TRUE COPY OF THE CERTIFICATE DATED 28.05.2003 GRANTED BY THE COMMISSIONER OF INCOME TAX, KOZHIKODE. ANNEXURE C TRUE COPY OF THE ORDER OF ASSESSMENT DT. 22.12.2011. ANNEXURE D TRUE COPY OF THE JUDGMENT DATED 25.7.2013 IN W.A. NO. 750/2006 IN THE APPELLANTS OWN CASE. ANNEXURE E TRUE COPY OF THE ORDER DT. 22.01.2013 OF THE DIRECTOR OF SCHOOL OF DISTANCE EDUCATION, UNIVERSITY OF CALICUT. ANNEXURE F TRUE COPY OF THE ORDER OF THE JOINT REGISTRAR, UNIVERSITY OF CALICUT DATED 18.01.2014. ANNEXURE G TRUE COPY OF THE ORDER DT. 23.10.2019 OF THE COMMISSIONER OF INCOME TAX (APPEALS) ANNEXURE H TRUE COPY OF THE APPEAL FILED BY THE APPELLANT BEFORE THE TRIBUNAL. ANNEXURE I TRUE COPY OF THE ORDER OF THE TRIBUNAL IN I.T.A. NO. 29/COCH/2020 DT. 27.02.2020 FOR THE AY 2010-11. ANNEXURE J TRUE COPY OF THE ORDER OF THE TRIBUNAL IN I.T.A NO. 266/COCH/2018 DT. 30.10.2018 FOR THE AY 2003 -04. ITA Nos.3/2021,74/2019 & 4/2021 -20- APPENDIX OF ITA 3/2021 PETITIONER ANNEXURES ANNEXURE-A TRUE COPY OF THE REGISTERED DEED OF TRUST DATED 31.08.2002. ANNEXURE-B TRUE COPY OF THE CERTIFICATE DATED 28/05/2003 GRANTED BY THE COMMISSIONER OF INCOME TAX, KOZHIKODE. ANNEXURE-C TRUE COPY OF THE ORDER OF ASSESSMENT DATED 22.12.2011. ANNEXURE-D TRUE COPY OF THE JUDGMENT DATED 25/07/2013 IN WA NO. 750/2006 IN THE APPELLANTS OWN CASE. ANNEXURE-E TRUE COPY OF THE ORDER DATED 22.01.2013 OF THE DIRECTOR OF SCHOOL OF DISTANCE EDUCATION, UNIVERSITY OF CALICUT. ANNEXURE-F TRUE COPY OF THE ORDER OF THE JOINT REGISTRAR, UNIVERSITY OF CALICUT DATED 18/01/2004. ANNEXURE-G TRUE COPY OF THE ORDER DATED 23.10.2019 OF THE COMMISSIONER OF INCOME TAX (APPEALS) ANNEXURE-H TRUE COPY OF THE APPEAL FILED BY THE APPELLANT BEFORE THE TRIBUNAL ANNEXURE-I TRUE COPY OF THE ORDER OF THE TRIBUNAL IN ITA NO. 28/COCH/2020 DATED 27/02/2020 FOR THE AY-2007-08. ANNEXURE-J TRUE COPY OF THE ORDER OF THE TRIBUNAL IN I T A. NO. 266/COCH/2018 DATED 30.10.2018 FOR THE AY 2003-04. "