Vocational training for rural youth qualifies as ‘education’ under section 2(15); Surplus generation no bar to exemption under section 11.

The appellant is a registered trust under Section 12AA of the Act engaged in the activity of running coaching classes and training programmes for skill development and vocational training to students by charging fees. Assessing Officer passed the assessment Order denying the exemption claimed by the assesseet under Section 11 of the Act.

Aggrieved by the orders of the Assessing Officer, the appellant filed appeals before the Learned CIT(A) for both the Assessment years 2011- 12 and 2012-13 which came to be dismissed on 08.02.2016 and 31.03.2016, respectively. Challenging the Orders of the Learned CIT(A), the appellant filed appeals before the Tribunal. The Tribunal vide common impugned Order dated 13.10.2016 has dismissed the appeals filed by the Appellant and has held that activity of the appellant is in the nature of ‘advancement of any other object of general public utility’ and the proviso to Section 2(15) of the Act gets attracted and hence, the appellant shall not be entitled to exemption under Section 11 of the Act. Hence, the present appeal.

Karnataka High Court holds the Assessee-trust to be entitled for exemption under Section 11 by observing that the activity of the Assessee, i.e. providing vocational training to rural youth in the field of science, technology, arts, etc. is ‘education’ as employed in the definition of ‘charitable purposes’ under Section 2(15); High Court places reliance on Supreme Court judgment in Lok Shikshana Trust v. CIT, reported in (1976) 1 SCC 254, wherein it was explained that the term ‘education’ connotes the process of training and developing the knowledge, skill, mind and character of students by formal schooling; High Court emphasises that vocational education is a form of education and that it has been recognized to be, as important as any other field of education, by relying on Punjab and Haryana High Court in CIT(Exemptions) v. Unique Educational Society reported in (2024) 168 taxmann.com 448 (P&H) wherein it was held that vocational education is a form of education and that it has been recognized to be, as important as any other field of education; Noting that Assessee-trust’s activity includes systematic instructions or training which involves the process of teaching and learning various subjects, and moreover, in the subsequent Assessment years, the Assessee has affiliated with Karnataka University Dharwad and is offering Master of Social Entrepreneurship Course in exchange of fees, High Court opines, “it cannot be stated that the activities offered by the appellant are not ‘education’ under Section 2(15)”; High Court notes that the Assessee through its activities has generated a surplus, however remarks that mere generation of surplus is not a ground to deny exemption to the Assessee, as long as the profits/surplus is used solely for educational purposes, by relying on Supreme Court judgment in CIT v. Surat Art Silk Cloth Manufacturers’ Association, reported in (1980) 2 SCC 31 and Queen’s Educational Society v. CIT, reported in (2015) 8 SCC 47; High Court, after having perused Audit Reports of the Assessee, underscores that Assessee’s surplus/profits were deposited back into the trust’s account and has not been utilised for non-educational purposes, thus holds that the surplus generated by the Assessee trust has not been utilised for non-educational purposes; Thus, High Court dismisses CIT(A) and ITAT’s observation that the Assessee is not eligible for exemption as it charges hefty fees for providing their services and has generated a major surplus and allows Assessee’s appeal.

[In favour of assessee]
(Related Assessment years : 2011-12 and 2012-13) – [Deshpande Education Trust v. ACIT, Hubli [TS-1698-HC-2025(KAR)] - Date of Judgement : 17.12.2025 (Karn.)]