Tuesday, May 17, 2016

Proviso to sec. 2(15) won't apply if management institute is running business to impart practical training to students

a) The assessee-society was an educational institution running courses of B. Tech, M. Tech and MBA, etc.

b) It was also running a textile division which was engaged in manufacturing of cloth and yarn and was attached to very institution for imparting practical training to students. 

c) Textile division of assessee incurred a huge loss which was adjusted against profits generated from educational institution.

d) The DIT(E) held that the assessee was doing business as well as was engaged in educational activity and, therefore, it was hit by proviso to section 2(15), inserted by the Finance Act, 2008. In view of activities of the assessee, the registration granted to it under section 12AA was withdrawn.

e) Aggrieved by the order of the DIT(E), the assessee filed the instant appeal before the tribunal. It contended that the only activity of the institution had been to run an educational institution and to impart education and that textile mill was maintained only to give practical training to students. Therefore, it was not hit by the proviso to section 2(15).

The tribunal held in favour of assessee as under-

1) The CBDT in its Circular No. 11/2008, dated 19-12-2008 clearly discussed the implication arising from the insertion of proviso to section 2(15) by the Finance Act, 2008 with e the poor, education or medical relief, it will constitute charitable purpose even if it incidentally involves the carrying on of commercial activities.

2) The working of the mill for practical training always results in the production/manufacturing of goods. It was observed that in the training institute for deaf, dumb and blind where training is imparted for such persons in the manufacture of furniture and similar items, goods come into existence during the course of such training activities. These goods are sold in the market resulting in surplus. Such activities are carried on in the course of the actual carrying out of the primary purpose for which the institute is set-up, i.e., imparting the education which cannot be said to be an activity for profits in any sense of the term. As a matter of fact, said activities and the surplus resulting therefrom are only incidental to the dominant object of the Institution.

3) Similarly, the surplus accruing to the society on the sale of goods produced during the course of such training imparted to the students in the factory was only incidental to the carrying on of/or in fulfilment of the primary object of the society, i.e., imparting of education, and in no way it could be said to be an activity for profit.

4) Therefore, proviso to section 2(15) would not apply if an educational institution was running business to impart practical training to students - [2016] 69 taxmann.com 141 (Kolkata - Trib.)

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