DIT (E) vs. Ahmedabad Management Association (Gujarat High Court)

Proviso to s. 2(15) which denies exemption to a charitable institution carrying on commercial activities does not apply to institutions carrying out relief to the poor, education or medical relief but applies only to those carrying out “advancement of any other object of general public utility”

Though the assessee, carrying on activities in the field of education, was held eligible for exemption in earlier years, in AY 2009-10, the AO denied exemption on the ground that the case was hit by the Proviso to s. 2(15) inserted by the Finance Act, 2008 which provides that the ‘advancement of any other object of general public utility’ shall not be a charitable purpose if it involves the carrying on of (a) any activity in the nature of trade, commerce or business; or (b) any activity of rendering any service in relation to any trade, commerce or business for cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity. The AO’s stand was upheld by the CIT(A) though reversed by the Tribunal. On appeal by the department to the High Court HELD dismissing the appeal:

(i) On the issue as to whether the activities of the assessee are for “education” & “charitable” in nature, the sense in which the word ‘education’ has been used in s. 2(15) of the Act is the systematic instruction, schooling or training given to the young is preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received. Though the word “education” is not used in a loose sense so as to include acquisition of all sorts of knowledge, it should also not be interpreted in a narrow or pedantic sense. It encompass systematic dissemination of knowledge and training in specialized subjects. The changing times and the ever widening horizons of knowledge may bring in changes in the methodology of teaching and a shift of the better in the institutional setup. Advancement of knowledge brings within its fold suitable methods of its dissemination and though the primary method of sitting in a classroom may remain ideal for most of the initial education, it may become necessary to have a different outlook for further education. It is not necessary to nail down the concept of education to a particular formula or to flow it only through a defined channel. Its progress lies in the acceptance of new ideas and development of appropriate means to reach them to recipients. On facts, activities such as Continuing Education Diploma and Certificate Programme; Management Development Programme; Public Talks and Seminars and Workshops and Conferences etc constitute “education” so as to qualify as a “charitable purpose” u/s 2(15) (Lok Shikshan Trust 101 ITR 234 (SC) & Gujarat State Coop Union 195 ITR 279 (Guj) followed);

(ii) The mere existence of profit will not disqualify an institution for exemption u/s 10(22) if the sole purpose of its existence is not profit making but is educational activities;

(iii) On the issue of the Proviso to s. 2(15), the same has been explained in Circular No.11/2008 dated 19/12/2008. From the said Circular it appears that the newly inserted proviso to s. 2(15) of the Act will apply to entities whose purpose is advancement of any other object of general public utility i.e. fourth limb of definition of ‘charitable purpose’ contained in s. 2(15) and hence such entities will not be eligible for exemption u/s 11 or u/s 10(23C) of the Act if they carry on commercial activities. The Proviso will not apply in respect of the first three limbs of s. 2(15) i.e. relief to the poor; education or medical relief. Thus, where the purpose of a trust or institution is relief of the poor; education or medical relief, it will constitute ‘charitable purpose’ even if it incidentally involves the carrying on of the commercial activities.