Facts of the Case

The respondent-assessee, NIIT Foundation, is a society registered under the Societies Registration Act, 1860, holding registration under Section 12A and approval under Section 80G of the Income Tax Act.

For Assessment Year 2014-15, the assessee filed its return declaring NIL income and claiming exemption as a charitable institution engaged in educational activities. The return was selected for scrutiny, and the Assessing Officer sought details regarding activities, fee structure, service tax payments, sponsorships, and contributions. After considering the submissions, the AO completed assessment under Section 143(3), accepting the charitable nature of the activities.

Subsequently, the Commissioner of Income Tax (Exemptions) invoked revisional jurisdiction under Section 263, alleging that the assessment order was erroneous and prejudicial to the interests of Revenue, primarily on the ground that the assessee was not imparting formal education but rendering commercial services or consultancy.

Pursuant to the revision, a fresh assessment denied exemption under Sections 11 and 12 and treated the income as taxable.

The Income Tax Appellate Tribunal allowed the assessee’s appeal, holding that the revision under Section 263 was unjustified and that the assessee was engaged in educational activities.

Issues Involved

  1. Whether the ITAT was correct in setting aside the revision under Section 263.
  2. Whether the activities of the assessee constituted “education” under Section 2(15).
  3. Whether vocational and skill-development training programs qualify as charitable educational activities.
  4. Whether receipt of fees, corporate sponsorships, or TDS deductions indicates commercial activity.
  5. Whether absence of formal affiliation negates educational character.

Petitioner’s Arguments (Revenue)

  • The Assessing Officer failed to conduct proper inquiry, rendering the order erroneous and prejudicial to Revenue.
  • The assessee was not engaged in formal schooling or structured education as required by law.
  • Activities were in the nature of consultancy or contractual services for corporate clients.
  • Corporate payments subjected to TDS indicated commercial transactions.
  • The assessee lacked affiliation with recognized educational authorities.
  • Reliance was placed on Supreme Court decisions such as Lok Shikshana Trust and New Noble Educational Society, which interpret “education” as formal scholastic instruction.

Respondent’s Arguments (Assessee)

  • It conducts structured vocational and skill-development training for underprivileged youth across sectors such as IT, communication, banking, retail, and services.
  • Courses follow defined curricula, fixed duration, attendance requirements, examinations, and certification.
  • Training is conducted through dedicated centers, government schools, and NGO partnerships.
  • Many programs are approved by the National Skill Development Corporation (NSDC) and other recognized institutions.
  • Courses are provided free of cost or at heavily subsidized rates.
  • Corporate contributions represent sponsorships or reimbursements, not commercial income.
  • Educational activities also include digital literacy initiatives such as computer learning stations for children.
  • The AO had examined these materials; therefore, revision under Section 263 merely on a different opinion was impermissible.

Court Order / Findings (Delhi High Court)

The High Court upheld the ITAT’s decision and made the following key findings:

Validity of Section 263 Invocation

Revision under Section 263 requires the assessment order to be both erroneous and prejudicial to Revenue. Where the AO has conducted inquiries and adopted a plausible view, the Commissioner cannot substitute his own opinion.

Meaning of “Education” under Section 2(15)

The Court reaffirmed that education includes systematic instruction, schooling, or training aimed at developing knowledge and skills. Structured vocational training programs with curriculum, examinations, and certification qualify as education.

Effect of Fees, Sponsorships, and TDS

Charging nominal fees or receiving corporate funding does not convert charitable activity into business where the dominant objective is social upliftment through education. Deduction of TDS or charging service tax is not determinative of the nature of activity.

Affiliation Not Mandatory

Formal affiliation with universities or statutory educational boards is not a prerequisite for an activity to qualify as education under the Act.

Nature of Assessee’s Activities

The Court noted that the assessee conducted systematic training programs for disadvantaged sections of society through approved curricula and structured teaching mechanisms, thereby satisfying the legal test of education.

Accordingly, the Court found no error in the ITAT’s conclusion that the assessee was engaged in charitable educational activities and that the revision under Section 263 was unjustified.

Important Clarification

  • Vocational and skill-development training can qualify as “education” under the Income Tax Act.
  • Formal recognition or affiliation is not essential where structured instruction is imparted.
  • Corporate funding, CSR support, or nominal fees do not automatically indicate commercial activity.
  • Section 263 cannot be invoked merely because the Commissioner disagrees with the Assessing Officer’s view.
  • The dominant purpose test remains central to determining charitable status.

Link to download the order -  https://www.mytaxexpert.co.in/uploads/1772175984_COMMISSIONEROFINCOMETAXEXEMPTIONSDELHIVsNIITFOUNDATION.pdf 

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