TaxTMI 
TaxTMI 
2007 (10) TMI 437
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....he ld. Counsel, incriminating materials were seized by the authorities and one of the employees viz., Mr. Srinivasa Rao was examined during the course of survey operations. According to the ld. Counsel, the admission of students to the college was looked after by the Principal of the College. In respect of management quota seats, Shri Srinivasa Rao was not vested with any power. Referring to the statement made by Shri Srinivasa Rao, ld. Counsel submitted that Shri Srinivasa Rao has clearly stated before the authorities that he was not aware of the fees collection. The said Srinivasa Rao also stated that he was not aware of the account books of the society. Moreover, he also stated that he does not have any role in the society. In contradiction to what he stated earlier, the said Shri Srinivasa Rao stated before the authorities that he himself wrote some of the incriminating material seized at the time of survey. These incriminating material relates to collection of fees from the students admitted under management quota. Therefore, according to the ld. Counsel there is a clear contradiction in the statement made by Shri Srinivasa Rao. Therefore, an opportunity should be given to the....
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....e money collected under the management quota to various interested person/Chairman as mentioned in the seized papers. Therefore, it is a clear case of utilization of the society fund for the benefit of the trustees/Chairman. Accordingly, there is a clear violation of section 13(1)(c)( ii) of the Act. According to the ld. DR the assessee is not entitled to exemption under section 11 as claimed. 5. We have considered the rival submissions on either side and also perused the material available on record. Admittedly, the assessee-society is running educational institutions and hostels in the States of AP and Maharashtra. There was a survey operation in the premises of one of the colleges on 20-7-2005. Several incriminating materials were seized in the course of survey operation which discloses collection of money over and above the prescribed fee from the students. From the assessment order, it appears the assessee initially applied for approval of the prescribed authority for exemption, as provided in section 10(23)( c)(vi) of the Act. The prescribed authority appears to have rejected the claim of the assessee. When this was brought to the notice of the assessee by the Assessing Offi....
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.... appears the assessee filed an application before the concerned authority for registration under section 12A of the Act, and the same was granted with effect from 1-4-2001. On an appeal filed by the assessee before this Tribunal in ITA No. 569/Hyd./03, this Tribunal by an Order dated 18-2-2004 directed the DIT (Exemptions) to reconsider the grant of registration under section 12AA of the Act with effect from 1-4-1988. It is not known whether any order has been passed by DIT (Exemptions) in pursuance of the direction of this Tribunal. The fact remains that the assessee was granted registration with effect from 1-4-2001. 7. Let us examine whether the assessee-society is a charitable institution or not. Charitable purpose has been defined by the Legislature in section 2(15) of the Income-tax Act. Section 2(15) of the Income-tax Act reads as follows : "Charitable purpose includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility." From the above, it is obvious that 'education' is included in the charitable purpose. Admittedly, the assessee-society is running educational institutions. The next question that falls for our ....
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....d amount to collection of capitation fee. The relevant Para of the Apex Court judgment is extracted hereinafter at para 19. 9. Collection of capitation fee is contrary to the Constitutional scheme and prohibited by State enactment. Moreover, education was used as an apparatus/mode to collect capitation fee. In other words, exorbitant money was collected illegally in the guise of running the educational institution. When the assessee used the charitable activity/educational institution as an apparatus for selling the education, in our opinion, the element of charity no longer remains in the activity of the assessee. In other words, when the assessee sells the seat of a professional course and collects capitation fee, the activity of assessee cannot remain a charitable activity, within the meaning of section 2(15) of the Income-tax Act. Education would remain as a charity only in a case where the education was imparted systematically for a fee prescribed by the Government. In our opinion, it is not the intention of the Parliament to recognize any body/society or institution as a charitable institution where 'education' was a saleable commodity. In the case on hand, the material foun....
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....d in the total income of the previous year of the person in receipt of the income- (a )income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; (b )income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent of the income from such property; (c )income derived from property held under trust- (i )created on or after 1-4-1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii )for charit....
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....slature visualized two situations. One is income derived from the property held under Trust and another is application of that income derived from the property held under Trust for a charitable purpose. Therefore, there is a clear distinction between the property held under Trust and the charitable activity. In the case before us, the assessee-society is carrying on charitable activity by establishing educational institutions. Therefore, the charitable activity of the assessee is education. The income if any derived from the property held under the Trust and applied for the educational activity, shall be construed as application of income for the purpose of charitable purpose. Therefore, the expenditure incurred in establishing the educational institution namely acquisition of land, construction of building etc., are all application of income for charitable activity. If any income was generated in the course of educational activity, the said income shall be construed as if it was generated in the course of carrying on the charitable activity. Therefore, such receipt/income received in the course of carrying on charitable activity is also eligible for exemption provided the same was....
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....purposes shall not be included in the total income of the previous year of the trust or institution if 'the business is incidental to the attainment of the objective of the trust or, as the case may be, institution' and separate books of account are maintained in respect of such business. Clearly, the scope of sub-section (4A) is more beneficial to a trust or institution than was the scope of sub-section (4A) as originally enacted. In fact, it seems to us that the substituted sub-section (4A) gives a trust or institution a greater benefit than was given by section 13(1)(bb). If the object of Parliament was to give trusts and institutions no more benefit than that given by section 13(1)(bb), the language of section 13(1)(bb) would have been employed in the substituted sub-section (4A). As it stands, all that it requires for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of objectives of the trust or institution. A business whose income is utilized by the trust or the institution for the purposes of achieving the objectives of the trust or the institution is, surely, a business which is incidental to the attainme....
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....CIT v. Saraswati Poor Students Fund [1984] 150 ITR 142. Even otherwise, the material available of record, which was found during survey operation clearly shows the receipt of money over and above the fees prescribed by the committee constituted by the Government, for admitting the students under the Management Quota. The material found during the course of survey operation, further establishes that the money collected over and above the prescribed fee for admitting students was paid to the Chairman and other interested persons of the society. Therefore, there is a clear violation of the provisions of section 13(1)(c) of the Income-tax Act. Under section 13(1)(c) if any part of income of the institution, is used or applied directly/indirectly for the benefit of a person, i.e., the founder or any interested person, as referred to in section 13(3) of the Income-tax Act, then the assessee shall not be entitled to exemption under sections 11 and 12 of the Income-tax Act. Therefore, in our opinion, the assessee is not entitled for exemption under section 11 of the Income-tax Act. 15. Now, let us examine whether the assessee is entitled for exemption under section 10(23C)( iii ab), 10(23....
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....ti Trust v. CIT [1987] 168 ITR 751 (Raj.)]. It will be rather unreal and hypertechnical to hold that the assessee-society is only a financing body and will not come within the scope of 'other educational institution' as specified in section 10(22) of the Act. The object of the society is to establish, run, manage or assist colleges or schools or other educational institutions solely for educational purposes and in that regard to raise or collect funds, donations, gifts etc., colleges and schools are the media through which the assessee imparts education and effectuates its objects. In substance and reality, the sole purpose for which the assessee has come into existence is to impart education at the levels of colleges and schools and so, such an educational society should be regarded as an 'educational institution' coming within section 10(22) of the Act. We hold accordingly." Therefore, it is obvious that the assessee-society would fall within the term 'other educational institution'. 17. Let us now examine whether the provisions of section 10(23C)(vi) would be applicable to the assessee or not. For the purpose of claiming exemption under section 10(23C)(vi), the university or t....
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....eady brought to the notice of the assessee. Even otherwise if we ignore the statement received from Sri R. Srinivasa Rao, the material found during the course of survey operation clearly shows that the assessee-society collected money over and above the fees prescribed by the Government for admitting the students under the management quota. With this background, we have to examine whether the collection of the money over and above the fees prescribed by Government from the students or their parents for admitting under the management quota would have any profit motive or not. 19. Under article 41 of the Constitution of India, it is the responsibility of the State to provide education to all citizens of this country. The State may discharge its obligation through State owned or State recognized educational institutions. When State/Central Government grants recognition to the private educational institutions, it creates an agency to fulfil its obligation under the Constitution. Therefore, the private institutions, are functioning as agents of the State/Central Government. It is the primary responsibility and obligation of the State to provide education to the citizens. Therefore, the....
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....nment, it clearly exposes the intention of the assessee to earn profit. It is also to be remembered that collection of capitation fees for admission to any educational institution is made as an offence punishable in this country. In spite of that, the assessee was bold enough in collecting the money over and above the fees prescribed by the Government. 20. The Apex Court in the case of T.M.A. Pai Foundation v. State of Karnataka [2002] 8 SCC 481 had an occasion to consider the right of the aided and unaided private educational institutions. The Constitutional Bench of the Supreme Court elaborately considered the right of establishing private educational institutions and found that collection of capitation fees being the worst part of mal-administration, can properly be subject-matter of regulatory control of a State. The Apex Court further observed that receiving donations by educational institutions connected with admission of students has to be treated as collection of capitation fees. The Apex Court observed that the right to admit students being an essential facet of the right to administer educational institutions of their choice, the State Government/University may not be en....
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....le, the investments made, salaries paid to the teachers and staff, future can be no profiteering and capitation fees cannot be charged. It thus needs to be emphasized that as per the majority judgment imparting of education is essentially charitable in nature. Thus the surplus/profit that can be generated must be only for the benefit/use of that educdtional institution. Profits/surplus cannot be diverted for any other use or purpose and cannot be used for personal gain or for any other business or enterprise. As, at present, there are statutes/regulations which govern the fixation of fees and as this Court has not yet considered the validity of those statutes/regulations, we direct that in order to give effect to the judgment in TMA Pai case the respective State Governments/concerned authority shall set up, in each State, a committee headed by a retired High Court Judge who shall be nominated by the Chief Justice of that State. The other member, who shall be nominated by the Judge, should be a Chartered Accountant of repute. A representative of the Medical Council of India (in short 'MCI') or the All India Council for Technical Education (in short 'AICTE'), depending on the type of....
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....lance fees for the whole course would be received by the institute even if the student left in midstream. If any educational institution has collected fees in advance, only the fees of that semester/year can be used by the institution. The balance fees must be kept invested in fixed deposits in a nationalized bank. As and when fees fall due for a semester/year only the fees falling due for that semester/year can be withdrawn by the institution. The rest must continue to remain deposited till such time that they fall due. At the end of the course the interest earned on these deposits must be paid to the student from whom the fees were collected in advance." From the above observation of the Apex Court, it is obvious that each institute has to collect fees with regard to infrastructure and the benefit of the students of that educational institution. However, that fee has to be fixed by the committee headed by an Hon'ble retired High Court Judge. In the State of Andhra Pradesh, a committee has already been constituted to determine the fees that may be collected by the private professional educational institutions. The committee also after considering the information furnished by the ....
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....tal right or not has been debated for quite sometime. But it is settled that establishing and administering of an educational institution for imparting knowledge to students is an occupation, protected by article 19(1)(g) and additionally by article 26(a), if there is no element of profit generation. As of now, imparting education has come to be a means of livelihood for some professionals and a mission in life for some altruists." Therefore, establishing and administering an educational institution for imparting knowledge to students is an occupation, protected by article 19(1)(g) and article 26( a) provided there is no element of profit generation. In the case before us, the material found during the course of survey operation clearly establishes the existence of element of profit generation. 22. At page 605 of SCC, the Apex Court further observed as follows : "139. To set up a reasonable fee structure is also a component of 'the right to establish and administer an institution' within the meaning of article 30(1) of the Constitution, as per the law declared in Pai Foundation. Every institution is free to devise its own fee structure subject to the limitation that there as can....
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....ibed authorities require to be informed before passing any order without giving effect to the provisions of section 10 of the Income-tax Act. We have also gone through the provisions of section 143 of the Income-tax Act. The provisions of section 143(3) reads as follows : "[(3) On the day specified in the notice,- (i )issued under clause (i) of sub-section (2), or as soon afterwards as may be, after hearing such evidence and after taking into account such particulars as the assessee may produce, the Assessing Officer shall, by an order in writing, allow or reject the claim or claims specified in such notice and make an assessment determining the total income or loss accordingly, and determine the sum payable by the assessee on the basis of such assessment; (ii )issued under clause (ii) of sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the....
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.... he may, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned university, college or other institution, recommended to the Central Government to withdraw the approval and that Government may by order, withdraw the approval and forward a copy of the order to the concerned university, college or other institution and the Assessing Officer.]" 24. In view of first proviso to section 143(3), the Assessing Officer may pass an order without giving effect to the provisions of section 10, provided, he informs the prescribed authority/Central Government as the case may be and the approval granted earlier is withdrawn or rescinded. In this case before us, it is not the case of the assessee that any approval was obtained from prescribed authority. In fact, as seen from assessment order, the prescribed authority, rejected the application of the assessee for approval. The question of intimating the prescribed authority and waiting for withdrawal of approval may be necessary in a case where approval was granted earlier. Since no approval was granted by prescribed authority earlier, there is no need for the Assessing Officer to intimate to the pr....