No denial of exemption if surplus earned on incidental activities was ploughed back for use towards trust’s object: ITAT

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  • Last Updated on 4 August, 2021

Charitable purpose

Case details: DCIT v. JMJ Education Society - [2021] 128 315 (Bangalore - Trib.)

Judiciary and Counsel Details

    • Smt. Beena Pillai, Judicial Member and Chandra Poojari, Accountant Member.
    • Ms. Neera Malhotra, CIT (DR-1) for the Appellant. 
    • H.N. Khincha, CA for the Respondent.

Facts of the Case

Assessee was registered under Section 12AA. It was engaged in providing educational facilities to the society at large. For this purpose, assessee had put various educational institutions. During the survey, various incriminating documents, loose papers, diaries, etc., were found and impounded, which primarily showed that assessee was collecting development fees from the students. It also indicated payment of agency commission to the middlemen who brought students for admission to different courses. According to Assessing Officer (AO), assessee was not existing for charitable purposes but engaged in profitable activities. Accordingly, he held that assessee was not eligible for exemption under Section 11. The CIT(A) upheld the order passed by AO.

ITAT held

On appeal, the Bangalore ITAT held that assessee was an educational institution, and there was no denial by the department that assessee had carried out education activities as predominant activity. In the course of carrying out the predominant object of imparting education, assessee incidentally earned surplus. Further, the surplus generated had been ploughed back for educational purposes only.

The dominant objective was to impart education and not to make profits. The surplus arising was incidental. The excess of income by itself does not lead to an inference of profit motive. The entire surplus of the society was redeployed for the objects of the trust. Assessee’s objects were not doubted, and when the objects were genuine, the surplus couldn’t be treated as a sin.

Profitable activity does not necessarily mean that there is a profit motive. Therefore, it was incorrect to state that assessee was not existing for educational purposes but was existing for profit. Being so, assessee being education institution was to be considered to be existing solely for educational purposes only.

Case Review

List of Cases Referred to

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