April 2022

Charitable purpose — Exemption u/s 11:- (i) Charitable institution engaged in imparting education — Effect of proviso to s. 2(15) and CBDT circular No. 11 of 2008 [1] — Surplus income generated by educational activities — Would not affect entitlement to exemption u/s 11; (ii) Effect of s. 13 — Disqualification for exemption — Charitable institution running educational institution — Alleged excess of remuneration to employees — Revenue has no power to interfere — Exemption could not be denied

K. B. Bhujle, Advocate

3 CIT(Exemption) vs. Krupanidhi Education Trust
[2022] 441 ITR 154 (Kar)
A.Ys.: 2009-10 and 2010-11;
Date of order: 20th September, 2021
Ss. 2(15), 11 & 13 of ITA, 1961

Charitable purpose — Exemption u/s 11:- (i) Charitable institution engaged in imparting education — Effect of proviso to s. 2(15) and CBDT circular No. 11 of 2008 [1] — Surplus income generated by educational activities — Would not affect entitlement to exemption u/s 11; (ii) Effect of s. 13 — Disqualification for exemption — Charitable institution running educational institution — Alleged excess of remuneration to employees — Revenue has no power to interfere — Exemption could not be denied


The assessee-trust ran various institutions in Bangalore offering degrees and training in various academic courses and was granted registration u/s 12A of the Income-tax Act, 1961. The Assessing Officer held that the assessee had violated the provisions of section 13(1)(c) of the Act and therefore, the assessee was not entitled to claim exemption u/s 11, 12 and 13 of the Act. The two trustees were being paid remuneration or salary not proportionate to the pay scales of a professor and administrative officer, respectively. The Assessing Officer completed the assessment for the A.Ys. 2009-10 and 2010-11 u/s 143(3) of the Act by order dated 30th December, 2011 denying the exemption u/s 11 of the Act and making certain additions.

The Commissioner (Appeals) and the Tribunal held that the assessee was entitled to exemption.

On appeal by the Revenue, the Karnataka High Court upheld the decision of the Tribunal and held as under:

“i) Under Circular No. 11 of 2008 dated 19th December, 2008 ([2009] 308 ITR (St.) 5) issued by the CBDT having regard to the proviso inserted to section 2(15) amended by the Finance Act, 2008 wherein, it has been clarified that the newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i. e., relief of the poor, education and medical relief. Consequently, where the object of trust or institution is relief to the poor, education or medical relief, it will constitute “charitable purpose” even if it incidentally involves in carrying of commercial activities.

ii) The Revenue cannot sit in the armchair of an assessee and decide the pattern of working, methodology to be adopted for administration of an educational trust including the payment structure of salary or remuneration to be paid to the professors or administrative staff. In other words, the Department cannot manage or control the managerial affairs of the educational trust. These aspects would not come within the purview of the authorities to decide the Income-tax liability merely on suspicion that the assessee is claiming huge expenditure to get the corresponding benefits of allowable deductions.

iii) The Assessing Officer merely on surmises and conjectures had come to the c

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