Proviso to section 2(15) r/w/s 11 and 12 – As part of running an educational institution and imparting training to the students, the assessee had undertaken research projects for the industry and earned consultancy fees from them – Since the dominant object was to impart education, the proviso to section 2(15) does not apply

10. Institute of Chemical Technology vs. ITO
(Mum.) Members: Saktijit Dey (J.M.) and Rifaur Rahman
(A.M.) I.T.A. Nos. 6111 and 6922/Mum/2016 A.Ys: 2011-12 and 2012-13 Date of order: 15^th January, 2020 Counsel for Revenue / Assessee: Nishant Thakkar
and Jasmine Amalsadwala / Kumar Padmapani Bora

Proviso to
section 2(15) r/w/s 11 and 12 – As part of running an educational institution
and imparting training to the students, the assessee had undertaken research
projects for the industry and earned consultancy fees from them – Since the
dominant object was to impart education, the proviso to section 2(15)
does not apply

FACTS

The assessee was
established as the Department of Chemical Technology by the University of
Bombay on 1^st October, 1933. With the passage of time, the assessee
was granted autonomy and subsequently got converted into an independent
institution in January, 2002. In September, 2008 the assessee was granted
deemed university status. When the assessee was a part of Mumbai (earlier
Bombay) University, the income earned by it formed part of the income of Mumbai
University and was exempt u/s 10(23C). For the impugned assessment years, the
assessee in its return of income declared nil income after claiming exemption
u/s 11.

During the year
under consideration the assessee had received consultancy fees. Applying the
provisions of section 2(15) read with 
sections 11 and 12, the AO disallowed its claim of exemption with regard
to the consultancy fee received. The assessee’s claim of exemption u/s 11 in
respect of other income was allowed by the AO.

The assessee explained that as a part of the curriculum and with a view that the students / fellows of the Institution gain
actual working experience, the assessee had undertaken research projects for
the industry and earned consultancy fees from the industry clients. Out of the
fees received, only 1/3^rd amount was retained by the assessee and
the balance amount was paid to the faculty who undertook the research projects.
The amount retained by the assessee was mainly to cover the cost of
infrastructure / laboratory facilities provided for undertaking the research
and administrative expenditure. Thus, it was submitted, the activities undertaken
by the assessee were not in the nature of business but only for research and
training purposes and therefore were part of its main activity of imparting
education on the latest technical developments in the field of chemical
technology. However, the AO didn’t agree with the explanation offered by the
assessee.

Relying on the
decision of the Tribunal in the assessee’s own case for the assessment year
2010-11, the Commissioner (Appeals) upheld the disallowance / addition made by
the AO.

Before the Tribunal,
the assessee submitted that in respect of the aforesaid decision of the
Tribunal relied on by the CIT(A), the Tribunal had no occasion to consider the
assessee’s argument that the proviso to section 2(15) was not
applicable. According to the assessee, the proviso to section 2(15)
would be applicable only when the activity was for ‘advancement of any other
object of general public utility’. The assessee contended that the
consultancy service provided was part of its educational activity, therefore ancillary
and incidental to its main object of providing education. Therefore, even
though the assessee had received consultancy fee, the same was received in
furtherance of its object of educational activity, hence it cannot be treated
as an activity in the nature of trade, commerce or business and thereby treat
the same as for a non-charitable purpose.

HELD

The Tribunal agreed
with the assessee that applicability or otherwise of the proviso to
section 2(15) in the case of the assessee was not examined or dealt with by the
Tribunal in A.Y. 2010–11. According to it, the contention of the assessee
regarding applicability of the proviso to section 2(15) does require
examination keeping in view the decision of the Bombay High Court in DIT(E.)
vs. Lala Lajpatrai [2016] 383 ITR 345, wherein the Court held that the
test to determine as to what would be a charitable purpose within the meaning
of section 2(15) was to ascertain what was the dominant object / activity.
According to the Court, if the dominant object was the activity of providing
education, it will be charitable purpose under section 2(15) even though some
profit arose from such activity. Since the aforesaid claim of the assessee was
not examined by the Departmental authorities, the Tribunal restored the matter
to the file of the AO for re-examination and directed him to adjudicate the
issue keeping in view the additional evidence filed by the assessee and the
decisions cited before him.

Note: Before the Tribunal, the assessee had also alternatively claimed
exemption under sections 10(23C)(iiiab) and / or 10(23C)(vi) and furnished
additional evidence. The Tribunal directed the AO to also consider the same.