Section 11 – (i) Income from management development program earned by educational institute considered as eligible for exemption; (ii) Income from hiring premises and advertisement rights since applied for educational activities eligible for exemption; (iii) Claim for depreciation on fixed assets, the cost of which was allowed as application of income, allowed.
Facts:
The assessee is a trust engaged in running more than 30 schools and colleges and is registered u/s 12A and also under the Bombay Public Trust Act. The assessee has got approval u/s 10(23C)(vi) as approved educational institution valid from A.Y. 2008-09 and onwards.
The return was filed declaring total income at Rs. ‘nil’. However, the assessment was completed at an income of Rs. 4.19 crores vide assessment order dtd. 31-12-2010 passed u/s. 143(3) of the Act. This was based on the finding that:
i) the assessee had shown receipt of Rs. 3.25 crore under the head ‘Management Development Program & Consultancy Charges’ in the case of one of its institutions viz., NMIMS University. According to the AO, the same was not education in itself, as defined by the Supreme Court in the case of Lok Shikshana Trust vs. CIT (1975) 101 ITR 234 even though it may be incidental to its main activity of providing education. He further observed that since it was an organised systematic activity, it can be called business incidental to the main objects of the trust. He further observed that since the assessee had maintained only the ledger account for this activity separately, as against the requirement to maintain separate books of accounts, the assessee would not be entitled to exemption u/s. 11(4A) of the Act. Accordingly, the difference of Rs. 2.29 crore between the receipt and expenditure was treated as the business income.
ii) The income from hiring premises and advertisement rights of Rs. 1.91 crore was treated as business income.
On appeal, the CIT(A) observed that the element of business was missing in conducting management courses i.e. profit motive, repetitive nature, frequency of transactions etc.. Further, according to him, the assessee was maintaining separate ledger account for Management Development Programme, which should be regarded as sufficient compliance of provisions of section 11(4A) of the Act as held by the Delhi Tribunal in the case of ITO v Jesuit Conference of India (2010) 40 DTR (Del) (Tribunal) 493. As regards the income from hiring of premises and advertisement rights, he noted that income from these rentals were applied towards the educational purpose of the Institute and, hence, eligible to claim exemption u/s 11(1). Further, relying on the decision of the Supreme Court in CIT vs. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC), wherein it has been held that the rental income from letting out of property cannot be held to be income from business and the income will be exempt as income from property held for charitable purpose, he directed the A.O. to delete the addition made by him.
The other issue before the tribunal was regarding allowability of depreciation claimed by the assessee. According to the AO, since the cost of fixed assets was fully allowed as application of funds, the depreciation on the same cannot be allowed. In support, reliance was placed on the decision of the Supreme Court in the case of Escorts Ltd. vs. Union of India (1993) 199 ITR 43. On appeal the CIT(A) distinguished the said decision and relied on the decision of the Bombay High Court in CIT vs. Institute of Banking, (2003) 264 ITR 110 and directed the AO to allow depreciation.
Before the tribunal, the assessee pointed out that it was maintaining separate books of accounts. In support, the separate accounts i.e. balance sheets etc. of all the Institutes were placed on record. The revenue, as regards allowability or otherwise of depreciation claimed by the assessee, also relied on the decision of the Kerala High Court in Lissi Medical Institutions, Kochi v CIT, (2012)-TIOL-303-HC-Kerala, ITA No. 42 of 2011 dtd. 17-2-2012.
Held:
In the absence of any contrary material placed on record by the Revenue against the aforesaid finding of the CIT(A) and keeping in view that the assessee was maintaining separate books of accounts for each Institute and also keeping in view that the rental income was applied towards the educational purpose of the Institute, the tribunal upheld the order of the CIT(A).
As regards the allowability of depreciation – the tribunal observed that the assessee was not claiming double deduction on account of depreciation as has been held by the AO. According to it, the income of the assessee being exempt, the assessee was only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purpose of Trust. Thus, there was no double deduction claimed by the assessee. The tribunal also referred to the decision of the Punjab & Haryana High Court in CIT v Market Committee, Pipli (2011) 330 ITR 16 where the decision of the Supreme Court in Escorts Ltd.’s case was distinguished, while relying on various decisions including the decision of the jurisdictional High Court in Institute of Banking’s case. Accordingly, the order of the CIT(A) was upheld and deleted the disallowance made by the AO.
