Running a virtual classroom falls under education or business?

Shishir Sinha New Delhi | Updated on June 03, 2020 Published on June 03, 2020


It is education and, therefore, enjoys tax exemption, rules Income-Tax tribunal

As academic institutions increasingly go for virtual classes amid the lockdown, there is some relief coming their way, thanks to a ruling by the Income Tax Appellate Tribunal (ITAT).

In a matter between NIIT Foundation and the Income-Tax Department, the Delhi Bench of the ITAT ruled that activities in virtual classes fall under the definition of education. Hence, institutions providing such facilities get the benefit of I-T exemption, similar to traditional education.

ITAT is a quasi-judicial institution that deals with appeals under the Direct Taxes Acts. While its orders are final, appeals can be filed in the high court if a substantial question of law arises for determination.

The case

The crux of this case was the treatment of income for taxable purposes. An Assessing Officer (AO) issued an order for Assessment Year 2014-15 (Fiscal Year 2013-14) for NIIT Foundation as ‘nil’. However, after examination, the Commissioner of Income Tax – Exemption (CIT-E) found the assessment order erroneous.

A show-cause notice was issued, stating that the AO had failed to examine whether the activities carried out by the assessee — in the absence of affiliation with any regulatory body, and in adherence to the criteria for formal education laid down by the Supreme Court in the Lok Shikshan Sansthan case and by the Delhi High Court in the Delhi Music Society case, among others — still qualify as education.

Rejecting the response, CIT-E cancelled the assessment order and ordered a re-assessment.

Aggrieved by the decision, NIIT Foundation approached ITAT. The petitioner argued that as the courses conducted by it are affiliated with the competent authorities, its activities would come under ‘education’.

The tax authorities said the assessee had received fees for training students, which is in the nature of trade, commerce or business; so, the surplus from these activities should be brought under the tax net.

After hearing the arguments, the Bench put it on record that, at the time of dictation, the whole world was experiencing a ‘new normal’ in all spheres of activities; education was no exception.

Cloud classes

Now, classrooms are not made of bricks and mortar, and do not have benches and blackboards. ‘Blackboard collaborate’ and digital whiteboards have replaced blackboards. Teachers and students do not assemble at one place but reach out to each other on cloud through platforms such as Meets, Teams, WebEx and Zoom. Such cloud classes have a wide representation of students across the globe, blurring the geographies of traditional classrooms.

Students have live polls, Q&A sessions and pre-recorded videos. Books and notebooks have been replaced by smartphones and tabs. Most importantly, attendances are also virtual instead of physical. Chat boxes are the mediums of group discussion. Strikingly, timings are 24x7.

Yet a classroom

Still, it has all the essentials of a ‘classroom’. It definitely covers ‘process of training, developing the knowledge, skill, mind and character of students’ like normal schooling. “Thus, in a true sense, the activities performed by the assessee are no different from ‘classrooms’,” said the ITAT Bench.

It added that the educational activities carried out by the assessee were neither business nor profession. “It definitely constitutes a charitable activity as it does not charge the fees at the level of market rate and even otherwise the surplus generated is also used for the charitable activities of education,” it said, setting aside the order passed by the CIT-E.

Published on June 03, 2020
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