Income Received by Charitable Institution from Training and Consultancy Fee from Corporates not a Commercial Activity: ITAT [Read Order]

Consultancy Fee - Taxscan

The Cuttack bench of the Income Tax Appellate Tribunal (ITAT) has held that the income received by a charitable institution imparting education shall not be charged for receiving training and consultancy fee from corporates as the same cannot be treated as a ‘commercial activity’ for denying tax exemption.

The assessee society is a charitable institution duly registered under Section 12AA of the Income Tax Act. The assessee is running Management Institute and imparts education on management of business to the students. Because of the above activity, the Faculty of the Institute acquires expertise knowledge of the subject. The Corporates with the intent to educate their officers and staff send them to the Institute and the assessee Institute to attain their objects of education imparts training to those persons also. The assessee Institute charges fee from such Corporates which is termed as training and consultancy.

The Assessing Officer observed that the income derived from training and consultancy by the assessee was not incidental to the objects of the institution for which registration under the Income Tax Act was given and the assessee has not maintained separate books of account as envisaged in section 11(4A) of the Act.

The Tribunal held that the activity of rendering training and consultancy services cannot be held as business activity in the case of the assessee.

After perusing the relevant provisions, the Tribunal observed that “for an activity to get hit by the above provisions must satisfy two conditions, namely; it must constitute business and secondly that business must not be incidental to the attainment of objects of the institution. In our considered view, both these conditions are not satisfied in the instant case.”

“The income realized from the training and consultancy fee by the assessee society was not significant keeping in view the total revenue of the assessee society. Thus, we do not find any material to show that the training and consultancy activity was undertaken by the assessee society as an independent business activity. We are inclined to agree with the contention of the assessee that the same was incidental to the attainment of the objects of the assessee society, which are charitable in nature. Thus, in our considered view, provisions of section 11(4A) are not attracted in the instant case,” the bench said.

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