Friday, 26 October 2012

Whether when assessee is registered in India for providing ship-broking professional education to Indian students, mere affiliation with its head office in London for purpose of conducting examination makes it an agent of foreign institution - NO: ITAT

THE issues before the Bench are - Whether when the assessee is registered in India for providing ship-broking professional education to Indian students, mere affiliation with its head office in London for the purpose of conducting examination makes it an agent of the foreign institution and Whether when the assessee collects fees for conducting examinations in India, it can be said that the assessee has been running a commercial course for profit. And the verdict goes in favour of the assessee.
Facts of the case

The assessee is registered as a public charitable trust u/s 12AA of the I-T Act. Registration was granted to the assessee
in terms of section 2(15) holding that the assessee was carrying on the activities of education in a charitable manner. The assessee, having its headquarters at London, regulates and supports the profession of ship-broking throughout the world. The Institute was established in London on the strength of a Royal Charter issued by the Queen of Great Briton. ICS, London had permitted establishment of Institute in various parts of the world to work for the objects of the Institute. The assessee being such an Institute established in India by way of getting registered as per the Municipal Laws. ICS was by and large taking care of the professional education of shipbroking. Students aspiring of becoming the members of the Institute had to pass a number of examinations. Once they qualified in the examinations and underwent the necessary training, they were enrolled as the members of the Institute, which enabled them to apply for different positions in the shipping industry. The society in Madras was established in 1995. The Institute in Madras was registering students to write the examinations conducted by the ICS, London. It collected registration fees from the students and provided necessary academic support so that the students could qualify in the examinations. The assessee institute was maintaining a faculty to provide educational support and counseling to the registered students. The DIT (Exemptions) passed an order u/s 12AA(3) cancelling the registration granted to the assessee u/s 12AA on the ground that the assessee’s activities, as per Memorandum of Association, had not been found to be genuine. It was the finding that the institute was only an agent of ICS, London, working on commercial terms. According to him, the Indian institute was a tutor running a coaching centre on commercial terms. Accordingly, he held that the activities of the institute cannot be called as educational.

On Appeal before the Tribunal the AR explained that the Indian Institute being affiliated to the ICS, London only for academic purposes and international accredition and there was no commercial functions shared between ICS, London and the Indian Institute. The DR contended that the assessee was rendering professional and other commercial services and was engaged only in coaching the students preparing for ICS examination and it was not carrying on any charitable activities in the nature of educational activities. The DR argued that the assessee Institute was sharing the fees collected from the students with its mother Institute in London and at every stage the income received by the assessee Institute needed to be shared with its counterpart in London. The DR contended that the registration under section 12AA was granted only for institutions carrying on charitable activities within the territories of India.

Having heard the parties, the Tribunal held that,

++ on going through the Memorandum of Association and other Bye-laws and particulars of the assessee Institute, we find that it is an institution registered in India for all purposes of law. It cannot be construed as an agent of a foreign institution;

++ the relationship is not that of commercial or business or trade related. It is something like a collaboration of Oxford University with one of the Indian Universities. In the modern world, educational and professional field cannot remain isolated geographically. International affiliation and international recognition are necessary. Therefore, almost all the modern professions in the world are having similar arrangements of affiliation and recognition. On the ground of affiliation there is no reason to hold that the assessee is an agent or branch of a foreign Institute;

++ it is not possible to hold a view that the assessee is running a coaching centre for a particular examination. On the other hand, the assessee is an Institute imparting professional education in the field of shipping industry;

++ there is nothing on record to show that the assessee is engaged in any commercial or professional activities in India by way of consultancy or professional advices and they are not earning any income by way of carrying on any trade or commerce. The income of the assessee is the fees collected from the students and the expenses are incurred for running the Institute for imparting professional education to its registered students. The income of the assessee Institute is not utilized for any private initiation or for the benefit of any interested person. The expenditure is incurred only for the purpose for which the Institute is established;

++the above observations of the jurisdictional High Court in the case of The Chartered Accountants Study Circle, Tax Case(Appeal) No.593 of 2011, equally apply to the present case as well;

++ the order passed by the Director of Income-tax (Exemptions) u/s 12AA(3) is not sustainable in law. Accordingly, the said order is set aside. The assessee continues to enjoy the registration u/s 12AA, as if there was no interruption.

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