Private Coaching Institute Not Considered Charitable Institution under Income-tax Act

Case Name:

Bihar Institute of Mining & Mine Surveying v. Commissioner of Income-tax (High Court of Patna)

**Key Takeaways:** - The court interpreted the term "education" in the definition of "charitable purpose" under Section 2(15) of the Income Tax Act to mean systematic instruction, schooling, or training, and not merely coaching for examinations. - Profit motive is no longer a relevant factor in determining whether an institution is charitable after the 1983 amendment to the Act. - However, the institution must still prove that it is entitled to the exemption under Section 12A by fulfilling the requirements of a charitable institution. **Issue:** Whether a private coaching institute that trains students to appear for specific examinations upon payment of fees can be considered a charitable institution eligible for registration under Section 12A of the Income Tax Act, 1961. **Facts:** The Bihar Institute of Mining & Mine Surveying was a society registered under the Societies Registration Act. Its objects included promoting science, particularly in the field of mining and mine surveying, through instruction, research, and development. One of its principal activities was coaching and preparing students for various examinations conducted by the Board of Mining Examination and the Institution of Engineers (India) [AMIE (1) section (A & B)]. The institute claimed to be an important institution for running classes and providing vocational training to students. The institute applied for registration as a charitable institution under Section 12A of the Income Tax Act, 1961. The Commissioner of Income Tax rejected the application, and the institute challenged this decision in the High Court of Patna. **Arguments:** - The institute argued that it was imparting education in an organized and systematic manner for the advancement of the object of general public utility. It contended that even if there was a profit motive, the institute would still come within the purview of Section 12A after the 1983 amendment to the Act. - The Commissioner argued that the institute's object of promoting science was too vague and general. Although the word "charitable" includes education, it must mean systematic instruction, schooling, or training, and not such vague purposes. **Key Legal Precedents:** - **_Sole Trustee, Loka Shikshana Trust v. CIT_** [1975] 101 ITR 234 (SC): The Supreme Court held that the word "education" in Section 2(15) means the systematic instruction, schooling, or training given to the young as preparation for the work of life. It connotes the process of training and developing the knowledge, skill, mind, and character of students by normal schooling. - **_CIT v. Sorabji Nusserwanji Parekh_** [1993] 201 ITR 939 (Guj): The Supreme Court held that to earn exemption under Section 10(22) of the Act, an assessee should be an educational institution or an establishment that primarily engages itself in educational activities. The element of imparting education to students or normal schooling with teachers and students must be present. **Judgment:** The High Court dismissed the institute's application, upholding the Commissioner's decision. The court held that running a private coaching institute to train students for specific examinations upon payment of fees would not bring the institute within the provisions of Section 2(15) of the Income Tax Act, which defines "charitable purpose." The court reasoned that the institute was not recognized by any authority and did not impart education through normal schooling. Coaching students for examinations alone, without the element of systematic instruction or normal schooling, would not qualify the institute as a charitable institution under the Act. While profit motive is no longer a relevant factor after the 1983 amendment, the court stated that the word "charitable" prefixing the word "institution" must be given its full effect. The institute must prove that it is entitled to the exemption under Section 12A by fulfilling the requirements of a charitable institution. **FAQs:** **Q1: What is the significance of the court's interpretation of the term "education" in the context of the Income Tax Act?** A1: The court's interpretation of "education" as systematic instruction, schooling, or training, and not merely coaching for examinations, sets a precedent for determining what qualifies as a charitable institution under the Act. This interpretation narrows the scope of the term and excludes institutions that solely provide coaching services for specific examinations. **Q2: How did the 1983 amendment to the Income Tax Act affect the court's decision?** A2: The 1983 amendment removed the requirement that a charitable institution should not be involved in any activity for profit. However, the court held that the institution must still prove that it is entitled to the exemption under Section 12A by fulfilling the requirements of a charitable institution, including imparting education through normal schooling. **Q3: What are the implications of this case for coaching institutes or similar institutions?** A3: This case sets a precedent that coaching institutes or similar institutions that solely provide training for specific examinations upon payment of fees may not qualify as charitable institutions under the Income Tax Act. Such institutions may not be eligible for registration under Section 12A and the associated tax exemptions. **Q4: Can the institute appeal the court's decision?** A4: Yes, the institute can appeal the High Court's decision to a higher court, such as the Supreme Court of India, if it wishes to challenge the interpretation of the law or the application of legal principles to the facts of the case.

This application is directed against an order dated 19-3-1993 passed by the respondent whereby and wherein the petitioner's application filed under section 12A of the Income-tax Act, 1961 ('the Act') was rejected.

2. According to the petitioner, it is a society registered under the Societies Registration Act. The certificate of registration is contained in Annexure-1 to the writ application. According to the petitioner, its principal objects, inter alia, are as follows:

"3. Objects for which the society is established : The society has been established for the promotion of science.

3.1 Particularly for instruction, research and development, study and diffusion of knowledge in the field of Mining and Mines surveying.

3.2 Study of allied subjects and their applications and to provide facilities for an exchange of information and ideas among the students of the institute.

3.3 Coaching, teaching and preparing students for appearing in various examinations, conducted by the Board of Mining Examination and/or AMIE (1) section (A & B).

Petitioner's objects incidental or ancillary to the attainment of the main objects are as follows:

4.1 Establish a library in the institute consisting of books, pamphlets work or manuscripts.

4.2 Hold meetings, class rooms and seminars.

4.3 Print, publish, sell land or distribute proceedings and reports for promotion of said subjects.

4.4 Encourage the operation of facilities for promotion of research and inventions in mining surveying and instruments and designs connected with such works.

4.5 Establish and maintain a full-fledged laboratory and research centre.

4.6 Acquire own use and dispose of any property/assets movable or immovable for and on behalf of the society and to revise, hold and disburse funds for the implementation and promotion of the aims and objects of the society.

4.7 Foster such other activities as would be conducive to the fulfilment of the above objectives.

4.8 To purchase and acquire property/buildings or construct buildings for the institute.

4.9 Establish coaching centre for the students of the institute, schools and other institutions.

4.10 To procure recognition/affiliation of the said school with appropriate Board."

According to the petitioner, it is regularly running classes for imparting training in the following courses:

"4 years Mine Foreman/Overman course.

3 years Mine Surveyor's course.

4 years Engineering Degree (A.M.I.E.) India.

4 years Engineering Degree (I.E.T.E. Electronics and Telecommunication Engineering).

3 years Diploma in Electronics & Telecommunication on Engineering."

3. According to the petitioner, it is one of the most important institutions for running classes and providing vocational training to the students. It is, therefore, contended that the petitioner's institute has regularly been imparting education in an organised and systematic manner and also for the advancement of the object of general public utility and in such a situation the petitioner is entitled to registration as a 'Charitable Institution' in terms of section 12A of the said Act.

4. The petitioner has, therefore, contended that the respondent has committed an illegality in rejecting its application for grant of registration.

5. In this case a counter-affidavit has been filed wherein it has been stated that from a perusal of paragraph 3 of the memorandum of association, it would appear that the petitioner-institute is not precluded from carrying out the objects incidental and ancillary to clause (3) which includes carrying on of business. It was further submitted that the purported object for promotion of science is too vague and too general. It has, further been submitted that although the word 'Charitable' includes education yet the same must be held to mean systematic instructions, schooling or training and not such vague purposes.

6. Mr. S.B. Gadodia, the learned counsel appearing on behalf of the petitioner, has raised a short question in support of this application.

The learned counsel has submitted that the respondent has committed an illegality in passing the impugned order insofar as it failed to take into consideration the amendment carried out in section 12A. The learned counsel further submitted that the respondent has also committed illegality in relying upon a decision in the case of Sole Trustee, Loka Shikshna v. CIT [1975] 101 ITR 234 (SC). The learned counsel has further submitted that even if there is a profit motive in running the said institution, the same would come within the purview of section 12A.

7. Mr. Debi Prasad, the learned S.C.D.G., on the other hand, submitted that the word 'education' must be confined to the meaning assigned thereto as contained in section 2( 15) of the Act.

8. Section 2(15 ) defines 'charitable purposes'. It says that charitable purpose includes relief of the poor, education, medical relief and the advancement of any other object of general public utility. Section 12A lays down registration of trusts. Section 2 (15) before its amendment made by the Finance Act, 1983 which came into effect on 1-4-1984, reads thus:

"(15) 'charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit;"

9. A comparison of the definition of 'charitable purposes' as existed prior to 1-4-1984 and thereafter is significant insofar as by reason of the said amendment, the words 'not involving the carrying on of any activity for profit' have been deleted. In the decision upon which the respondents have relied, namely, Sole Trustee Loka Shikshana Trust (supra) , it was held as follows:

"... The sense in which the word 'education' has been used in section 2(15) in 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. What education connotes in that clause is the process of training and developing the knowledge, skill, mind and character of students by normal schooling...." (p. 241)

It was further held that the trust in question was carrying on the business having a profit motive. The Supreme Court observed as follows:

"... Whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive...." (p. 244)

10. It is further evident that profit motive is not now one of the relevant considerations for coming to the conclusion as to whether the institution in question is a charitable institution or not.

In Laurence Arthur Adamson v. Melbourne & Metropolitan Board of Works AIR 1929 PC 181, it was held:

"The words 'charitable purpose' must be taken in its technical legal sense unless the contrary intention appears."

In CIT v. John Pepsek 1890 to 1894 ILR 28, the House of Lords laid down a similar rule.

11. However, the Supreme Court in Sole Trustee, Loka Shikshana Trust's case (supra) , followed the case of Sole Trustee, Loka Shikshana Trust [ 1970] 77 ITR 61 (Mys.) and held as follows:

"It appears to us that, with this profit-making background of the trust, its loosely stated objects, the wide powers of the sole trustee and the apparently profitable mode of conducting business, just like any commercial concern, disclosed not only by the terms of the trust but by the statement of total expenditure and income by the trustee, it is very difficult to see what educational or other charitable purpose the trust was serving unless the dissemination of information and expression of opinions through the publications of the trust was in itself treated as the really educational and charitable purpose." (p. 248)

12. After the amendment has been carried out, test 'C laid down by the Supreme Court in the aforementioned case will have no application.

13. In the case of CIT v. Andhra Chamber of Commerce AIR 1965 SC 1281, the Supreme Court departed from the rules laid down in Pepsek's case holding that the said decision proceeded upon the interpretation of language different from the Indian statute. But having considered some other English decision, it proceeded to observe:

"29a. This Court in a recent judgment, Laxman Balwant Bhopatkar v. Charity Commissioner [1953] 2 SCR 625 (AIR 1962 SC 1589) considered whether for the purposes of the Bombay Public Trusts Act, (29 of 1950) a trust to educate public opinion and to make people conscious of political rights was a trust for a charitable purpose. The court held (Subha Rao, J. dissenting) that the object for which the trust was founded was political, and political purpose being not a charitable purpose did not come within the meaning of the expression 'for the advancement of any other object of general public utility', in section 9(4) of the Bombay Public Trusts Act, 1950." (p. 1288)

In the case of CIT v. Sorabji Nusserwanji Parekh [1993] 201 ITR 939 (Guj.), the Supreme Court was considering the matter for grant of exemption under section 10(2) of the Act and held that for that purpose, educational institution or an institution must primarily engage itself in educational activity. The Supreme Court relied upon the case of Sole Trustee, Loka Shikshana Trust (supra) and held:

"In the above context, it shall have to be seen as to what meaning should be given to the word 'education' which occurs in section 2(15) of the Act. In the case of Sole Trustee, Loka Shikshana Trusty. CIT [1975] 101 ITR 234 (SC) in the context of institution carrying on activities to educate the people of India in general, and of Karnataka in particular, the Supreme Court had an occasion to deal with the definition of 'charitable purposes' to ascertain the meaning and scope of the word 'education' as it occurs in section 2(15) of the Act. It was in this context, the Supreme Court observed as under (at page 241):

It becomes clear from the aforesaid provision that in order to be eligible to gain total exemption under section 10(22) of the Act, it is necessary that there must exist an educational institution. Secondly, such institution must solely exist for educational purposes, and thirdly, the institution should not exist for the purpose of profit. It is not disputed before us that the assessee is an institution which was existing at the relevant time. It is not necessary therefore, for us to undertake the exercise of ascertaining the meaning of the word 'institution' and to find out as to whether the assessee is an institution or not. The revenue has, however, seriously urged before us that the assessee was not an educational institution and was therefore not entitled to the total exemption under section 10(22) of the Act." (pp. 945-946)

The Supreme Court upon consideration of a large number of decisions held:

"From the aforesaid observations, it becomes clear that, in order to earn total exemption under section 10(22) of the Act, an assessee should be an educational institution or an establishment which primarily engages itself in educational activities. Though the words 'educational activities' are words of very wide amplitude, we would like to add that the element of imparting education to students or the element of normal schooling where there are teachers and taught must be present so as to fall within the sweep of section 10(22) of the Act. We would, at the same time, like to add that such an institution may, incidentally, take other activities for the benefit of students or in furtherance of their education. It may invest its funds in any manner it likes or it may provide scholarships or other financial assistance which may be helpful to the students in pursuing their studies. However, such incidental activities alone, in the absence of actual activity of imparting education by normal schooling or normal conducting of classes, would not be sufficient for the purpose of qualifying the institution to earn the benefit of section 10(22) of the said Act." (p. 950)

14. In that case, therefore, it was held that such income of the institution was not to be utilized for the activities of imparting education and, therefore, it is not entitled to grant of any exemption.

15. In this case, the school in question does not appear to be recognised by any authority. It is true that by reason of the Finance Act, 1983, the question as to whether any charitable institution is being run with profit motive or not has lost its relevance. However, the word 'charitable' prefixing the word 'institution' has to be given its full effect. It appears that one of the principal projects of the petitioner's institution has the object of coaching and preparing the students for appearing in various examinations conducted by the Board of Mining Examination and/or MI(1) section (a)( b) and the said coaching of students in one institute is not, in our opinion, imparting of education which can be said to be a process of training and developing knowledge and character of students by normal schooling. A coaching institute cannot be said to be an institution where normal schooling is done. The definition of 'charitable purpose' is inclusive and not exhaustive.

16. As indicated hereinbefore, the institution is being run for a specific purpose, namely, to prepare the students for appearing in various examinations, but it itself appears to be not authorised therefor, nor can it be said to have any element of normal schooling. If such a wide meaning is given to the word 'education' so as to bring within its purview the coaching institution, the same will defeat the purpose of the Act.

17. Even assuming that in view of the amendment to section 2(15), profit motive is no longer a factor which should be taken into consideration, in our opinion, as section 12A provides for an exemption clause it is, necessary that a person claiming an exemption has to prove that he is entitled thereto in terms of the provisions of this section.

18. Keeping in view the facts and circumstances of the case, therefore, in our considered opinion, running of a private coaching institute for the purpose of training the students to appear at some specified examinations upon taking specified sum from the trainees would not bring the petitioner within the provisions of section 2(15).

19. This application is, therefore, dismissed, but without any order as to costs.