TaxTMI 
TaxTMI 
2013 (7) TMI 519
X X X X Extracts X X X X
X X X X Extracts X X X X
....was running as many as 23 educational institutions upto assessment years 1999-2000 and 2000-2001. Thereafter, as many as 25 and 28 educational institutions are being run during the previous years relevant to assessment years 2001-2002 and 2002-2003 respectively. The details of the institutions run by the assessee are as under:- Sl. No. Name of the Institution Year in which started Authority form whom the educational institution is approved 1. The Oxford Nursery school 1974-75 DDPI, Govt. of Karnataka 2. The Oxford Kannada Higher Primary School 1975-76 DDPI, Govt. of Karnataka 3. The Oxford English Nursery/Primary School 1975-76 DPI Govt. of Karnataka 4. The Oxford English High School 1982-83 DPI Govt. of Karnataka 5. The Oxford Kannada High School 1982-83 DDPI Govt. of Karnataka 6. The Oxford Teachers Training Institute 1985-86 Govt. of Karnataka, Commissioner of Public Instructions 7. The Oxford Nursery Teacher Training- Institute 1985-86 Govt. of Karnataka, Commissioner of Public Instructions 8. The Oxford Polytechnic 1986-87 Govt. of Karnataka, Department of Technical Ed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....02 to 2006-2007. He also disallowed interest for the period from 2002-2003 to 2005- 2006. Even expenditure on account of lease was disallowed for the assessment year 2003-2004. The donation was disallowed for the year 2003-2004 to 2005-2006. Aggrieved by the said disallowance, the assessee preferred appeals to the Commissioner of Income-Tax(Appeals). Infact, the Commissioner of Income-tax(Appeals) had granted relief to the assessee for the assessment year 1999-2000 First year in which Section 10(23C) (iii)(ad) came into force. Aggrieved by the said order, the revenue preferred appeal to the Tribunal which is ITA No.1105/2002. That appeal alongwith appeal filed by the assessee against the aforesaid impugned order were clubbed together. The Tribunal dismissed the appeal filed by the revenue and allowed all the appeals filed by the assessee in-toto granting the relief to the assessee. Aggrieved by the said order of the Tribunal, the revenue is in appeal. 4. After going through the substantial questions of law raised and framed at the time of Admission, we are of the view, it requires to be recasted. The learned counsel appearing for the parties are also of the same view. Accordingl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....holding that Building Fund of Rs.28,04,505/-, Infrastructure Development Fund Rs.16,39,73,678/- should be treated as the corpus fund of the assessee even though the donors had not been identified and was contrary to section 11(1)(d) of the I.T.Act? FIRST SUBSTANTIAL QUESTION OF LAW: 5. The word 'person' is defined under Section 2(31) of the Act. It reads as under: "2(31) " person" includes- (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub- clauses. Explanation.- For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains." 6. A reading of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to come under a discipline. However, safeguards are being provided to ensure that the institutions genuinely serving the social cause, in either field do not lose existing benefit and thus amended provisions have to be construed strictly. So construed. Though even after the said amendment, an assessee is entitled to the benefit of Section 10, its application is now restricted to income received by the assessee on behalf of other educational institution existing solely for educational purposes and not for the purposes of profit. If aggregate annual receipts of such educational institutions do not exceed the amount of annual receipts as may be prescribed. The word 'aggregate annual receipts' means annual receipts of such educational institutions run by the assessee. In the event of an assessee running more than one educational institution and if the annual receipts exceed more than a crore, then he has to seek approval under Clause (vi) which is made applicable to educational institutions those not falling under Sub-clause (iii)(ab) or Sub-clause (iii)(ad) and therefore, he submits, the order passed by the Tribunal holding aggregate annual receipts means aggregate of each educationa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government: or (iii(ac) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, and which is wholly or substantially financed by the Government; or (iii)(ad) any University or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed; or (vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iii)(ab) or sub-clause (iii)(ad) and which may be approved by the prescribed authority" 14. Section 10 groups in one place various incomes which are exempted from tax,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction 10(22) of the Act would apply only to educational institutions as such. According to him, in this case, the assessee might be financing for running an educational institution, but it is not itself an educational institution. As noted earlier, the Tribunal held that the assessee was an institution existing for educational purposes and not for the purposes of earning any profit and the assessee itself could be termed as an "educational institution" coming within section 10(22) of the Act. The High Court has concurred with this view. The High Court has further held that the medium through which the assessee could effectuate its objects is the college and by employing this medium, the assessee imparts education and it cannot be stated that the assessee is only a financing body and does not, on the facts, come within the scope of "other educational institution" occurring in section 10(22) of the Act. Reliance was placed on the decision of the Allahabad High Court in Katra Education Society v. ITO [1978] 111 ITR 420, to hold that an educational society could be regarded as an educational institution if the society was running an educational institution. We are of the view that an e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stitutions to come under a discipline, the stress now is on the aggregate of the annual receipts received by such institutions. By the amended provisions what is intended to be done is, any University or other educational institution existing solely for educational purpose and not for purposes of profit, if it is wholly or substantially financed by the Government, then the income of such educational institutions in the hands of the assessee, is not included in the total income of the assessee. The reason appears to be that if the Government is financing, they would take all precautions before parting with funds and make sure that such educational institution is existing for the educational purpose and not for the purpose of profit. Therefore, the income derived from such institutions is excluded from the total income of the assessee. The next exemption is contained in Sub-clause (iii)(ad). If any University or other educational institution existing solely for educational purpose and not for the purposes of profit, if the aggregate annual receipts of such University or educational institution do not exceed the amount of annual receipts as may be prescribed. 17. Rule 2BC of the In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tional institution is to be understood as clubbing of annual receipts of all educational institutions run by an assessee society, then it will also include the annual receipts of an educational institution which is wholly or substantially financed by the Government. If that was intention of the Legislature, they would not have introduced separate subclauses as (iii)(ab) and (iii)(ad). If such interpretation is placed, sub-clause (iii)(ab) becomes otiose. Therefore, it is not possible to place such an interpretation. If an assessee society is running several educational institutions, if some of them are wholly or substantially financed by the Government in terms of sub-clause (iii)(ab), the income on behalf of such educational institution received by the assessee is exempted from being computed the total income of the assessee. If the assessee is running other educational institutions which are not wholly or substantially financed by the Government, then the benefit of that exemption is also extended to the income derived from such educational institutions and received by the assessee under sub-clause (iii)(ad) reading with sub-clause (iii)(ad) along with Rule2BC. It was contended, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....institution in the hands of the assessee cannot be taken into consideration to compute the income of the assessee. 23. No doubt, education has become a business, a very profitable business also. But it requires huge investment. It is the duty of the Government to provide education to all its citizens, as the Government is not able to shoulder the responsibility completely. Therefore, the field of education is now thrown open to private organizations. But for throwing open the field to the private operators, probably, the country would not have achieved in the field of education what it has achieved. Therefore, lot of funds are invested in running these educational institutions, either by creating a Society or a Trust. In course of time, they have expanded their activity providing course in various subjects at various levels and for that purpose they have established more than one educational institution. Each educational institution is a separate entity controlled under various statutes for various purposes. May be the Management of these educational institutions would be in the hands of the Societies or the Trust, but for all other purposes they are different, independent entit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....also entitled to the exemption, provided such institutions are approved by the prescribed authority. Therefore all these three provisions apply under three differed spheres. Otherwise, there was no necessity for the Legislature to introduce these three provisions. In that view of the matter, the finding recorded by the Tribunal that aggregate annual receipt of other educational institution means, total annual receipt of each educational institution, is correct and it does not call for any interference. Therefore the substantial questions of law No.2 and 3 is answered in favour of the assessee and against the revenue. Substantial Questions Of Law No.4 And 5 Payment Of Subsidy Of Rs.2,12,26,465-00 And Notional Interest Thereon: 25. The assessee was running a hostel for the benefit of students studying in various institutions managed by it up to 31.12.1999. It was not a separate entity. From 01.01.2000, the society discontinued the activity of providing hostel facility to the students. They entered into an agreement on 01.01.2000 between the partners of M/s Oxford Girls Hostel and the society. The said partnership firm has to make available the hostel facility to the students st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e finding of the assessing authority and extended the benefit. 26. From the aforesaid undisputed facts, it is clear that the society has entered into an agreement with the partnership firm for providing roughly about 70,000-00 sq.ft. built up area in hostel facility to students of the society studying in various institutions. They had to pay a rent of Rs.21 lakhs per month. It is in that context, when they found it to be unworkable, they entered into another agreement under which the partnership firm agreeing to provide accommodation to the students of the society by collecting charges directly from the students. Thereby the responsibility of providing hostel facility to the students of the society and payment of Rs.21 lakhs per month ceased to exist. The terms of the agreement makes it clear that the partnership firm has to provide accommodation only to the students studying in educational institution run by the society. Without the hostel facility the society cannot run this educational institution as the students are coming from all over the world and there is need to provide hostel accommodation near to the educational institution and more particularly, girl students. It is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt were treated as income and brought to tax. The order of the appellate authority refers to the ledgers and accounts maintained showing the said advances. However, the particulars of the contents of the said books are not set out in the order of the appellate authority. Under these circumstances, if the said advances are received by the parents of the students whose children were studying in the schools and the same is properly accounted for under the heading of Building Fund/infrastructure fund and the said amount if it is utilized for construction of the building which in turn is used for imparting education, it would constitute charity. Therefore the society would be entitled to the benefit of exemption. But it is purely a question of fact. Therefore, the proper thing would be to set aside the finding and remand the matter back to the Assessing Authority, giving an opportunity to the assessee to produce the ledger books and other accounts showing the receipt of such payment and utilization of the said amount for the purpose of construction, so that on the aforesaid material, the Assessing Authority can pass suitable orders on merits. Therefore the substantial questions of law N....