TaxTMI 
TaxTMI 
2015 (7) TMI 649
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....the assessee has shown income from other sources amounting to Rs. 54,97,44,582/- and has claimed exemption under section 10(23C)(iiiab). Donation of Rs. 2,92,18,001/- has been claimed to be corpus donation and the details of such donations were also enclosed with the return of income which also includes anonymous donations. 3. During the course of assessment proceedings, the Assessing Officer noted that the details of income, expenditure and surplus declared by the assessee as per the income and expenditure account filed with the return of income are as under : Table-1 (Income in Rs.) Rent 125,97,417 Interest received from bank 209,70,765 Grants 29,07,70,462 Income from other sources 22,52,05,938 Transfer from reserve 200,000 Total 54,97,44,562 Table-2 (Expenditure & Surplus in Rs.) (I) Amount applied to charitable purposes 1. Expenditure on objects of the trust 41,40,54,914 2. Administrative Expenses ....
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....to why its claim of exemption u/s.10(23C) (iiiab) should not be denied in view of the following issues : "1) Where some of the institutions of the assessee trust (DES) are substantially financed or aided by the State Government, by way of salary grants to the teachers and non-teaching staff of such institutions, with no surplus income, and to the exclusion of the income or expenditure of unaided institutions, whether income/surplus of the unaided institutions would also be covered under the provisions of Section 10(23C)(iiiab), and eligible for exemption under that section? 2) Whether the income of the assessee shall be exempt from tax u/s 10(23C)(iiiab) or under any other exemption provisions under the IT Act, when there are irrefutable evidence that the assessee collected capitation fee in the form of corpus donations, in relation to granting admission to students in its institutions, using its discretion under management quota or other-wise, in an arbitrary and commercial manner?" He also asked the assessee to furnish the details of donors along with the amount of donation, identity of the donors and the draft/pay order details etc. 7. It was explained by the assesse....
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....ided Institutions" and the Government encourages the assessee to generate its own funds for the purpose of creating the infrastructure by running unaided institutions. However, the fees charged by these institutions are controlled through University, Zilla Parishad and Shikshan Shulka Samiti etc. It was argued that the unaided institutions are not assessees by themselves and form a composite and indivisible part of the assessee's operations and the assessee seeks to utilise the surplus of unaided institutions to satisfy the needs of aided institutions. The fees for various courses of unaided institutions are determined by resolution passed by the assessee's Governing body. It was submitted that during the relevant assessment year the assessee has received donations only towards the corpus of the trust and none towards income contribution and hence no donation amounts appear in the assessee's income and expenditure account. 10. On the basis of the details submitted by the assessee, the Assessing Officer conducted enquiries regarding the claim of the assessee that the donation of Rs. 2,92,18,001/- received from about 900 persons were voluntary and towards the corpus and not in rel....
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....ith the society such as present and past Teachers, Bureaucrats of Central and State Government Departments, Politicians, Ex-Office bearers etc. Before any admission in the management quota is given the members of the council and Government Body informally discuss the benefits that may thereby accrue to the society in the form of better public relations. The name of student admitted in management quota is also communicated to the UOP in the usual manner. The assessee also explained the procedure for admission to MCA in FCP, MCS in FCP, BCP, BCS, Bio-Technology, Organic Chemistry etc. The assessee also requested the Assessing Officer to grant opportunity to cross examine all the donors whose statements were recorded and who have stated that the donations were not towards the corpus of the rust. The assessee also requested to provide the details of the number of donors to whom summons u/s.131 are issued and the total number of donors who responded to the aforesaid summons. 12. The Assessing Officer informed the assessee that it would not be possible to allow him cross examination of all the witnesses who responded or were examined in view of the time constraint and also the fact th....
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....ssion dated 16.12.2010 further argued without prejudice to any other submission, that : (a) The issuance of show cause notice is based on the material arbitrarily gathered behind the assessee's back avowedly under Section 131 of the IT Act; (b) The collection of statements of the witnesses behind the assessee's back contravenes the propriety in law of section 131 of the said Act, causing immense prejudice to our substantial rights in law. (c) The reliance on unsubstantiated depositions of witnesses collected by administering the oath for charging the assessee for violation of provisions of the said Act, The Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987 and the dictum of the Hon'ble Supreme Court in the case of Islamic Academy of education & others, is wrong and misconceived in law. (d) No such deposition can be relied upon in law or admissible in evidence for any purpose whatsoever, as no opportunity of crossexamining the said witnesses was ever granted to the assessee, thus disregarding the cardinal principle of law of evidence. (e) No reasons have been disclosed for ignoring the letters and statements written to the asse....
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....101 of the Indian Evidence Act,1982, according to which the burden of proof is positive and on the donor to prove that the donation was given in consideration for an admission and it is not for the assessee to prove other-wise. (b) The deponents were not asked to produce any documents or circumstantial evidence to prove that the donations were given in consideration of an admission. The assessee should be confronted with such evidence so that the assessee has an opportunity to disprove it. (c) The deponents were not asked as to whether they claimed a deduction u/s. 80G of the IT Act in computing their total income for AY 2008-09. If the donors have claimed such a deduction on the basis of the 80G certificate given to them by the assessee, the donors have obviously admitted the fact that the amounts paid to the assessee was actually a donation and not capitation fee. (d) The fact of admission alleged by deponents was not verified by reference to the records of the assessee- (i) Deponent No.6 Smt. Padmaja Joshi has alleged that the daughter-in-law Ms. Aditi Deshpande was admitted to MCA Course, however as per list of students admitted to MCA Course in FY 2007-08 does not ....
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....eponent were not informed of the penal consequences of making a false statement on oath as per section 181 of the IPC. The assessee claimed that if the aforesaid patent infirmities had been brought to the notice of the deponents, -they would have deposed differently. 17. The assessee in his submission dated 16.12.2010, has also argued that it is true that the donors gave the donation and that a son or daughter of the donor may have been admitted at any institution run by the assessee. The assessee runs about 35 schools and colleges in several places, where about 50,000 students are admitted. It is quite possible that some student may be a relative or acquaintance of some donor. The assessee never gives admission in consideration of donation. However the assessee as a public charitable trust always appeals to every one for donation to promote the noble cause of education. The amount of donation and the time of donation is left entirely to the discretion of the donors. 18. Regarding the investment of funds in shares amounting to Rs. 712,650/-, it was stated that it was only 0.0018% of the total investment of Rs. 38,50,80,789/- as on 31.3.2008, it was claimed that they were d....
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.... of the Act, the Assessing Officer held that income of such institutions would not be eligible for exemption either u/s.10(23C) or Sec.11 of the I.T. Act even if the incomes of such unaided institutions might have also been utilized/applied for running the aided institutions. Thus, the income of such unaided institutions whose aggregate annual receipts exceeded Rs. One crore, quantified at Rs. 7,86,39,996/- was held to be taxable income of the assessee trust. However, no separate addition to this effect was made on this ground while computing the total income of the assessee in the assessment order as the assessee was held to be not eligible for any exemption. The AO accordingly treated the status of the assessee as AOP and computed the total income of the assessee at Rs. 11,06,10,504/- the details of which are as under : 1. Income as per income & expenditure account Rs.815,92,503 Less : Transfer from reserve Rs.200,000 2. Donation claimed to be corpus donation Rs.292,18,001 Gross Total income Rs.11,06,10,504 20. Before CIT(A) it was submitted that the Assessing Officer erred in holding that unaided institutio....
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....he action of the Assessing Officer in holding that the income of unaided institutions run by the assessee having receipts over Rs. 1 crores was not eligible for exemption u/s.10(23C)(iiiab) be reversed. 22. It was reiterated that the assessee's activity of imparting education is composite and indivisible and it does not have separate undertakings for which assets and liabilities, income and expenses can be separately identified with respect to grantable and non grantable institutions. The assessee needs to be assessed as one person and therefore it was not legally correct on the part of the Assessing Officer to artificially divide the institutions as aided and unaided to deny the benefit of exemption. In case of unaided institutions whose actual receipts exceeded Rs. 1 crore, it was argued that the word "other educational institution" in clause (iiiab) refers to the assessee society and not to the individual educational institution. Relying on various decisions it was argued that the Assessing Officer was not justified on facts and in law in holding that the income of the unaided institutions whose annual receipts exceeded Rs. 1 crore is not eligible for exemption in the absence....
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....e stood for, even giving the constitutional obligations a miss in the process. The Assessing Officer further stated that the assessee had huge surplus and investments and therefore soliciting capitation fees in the guise of donation was not driven by any necessity of funds for carrying out its activities but by mere profiteering. The Assessing Officer further reported that despite repeated requests the assessee was unable to furnish the list of successful candidates who secured admissions in the institutions on merit. The Assessing Officer further reported that the donors in questions were not in the habit of giving donation. The deponents have not positively stated that they were in the habit of giving donations to any other trusts running orphanages, hospitals etc. Therefore, it clearly indicated a systematic exploitation of the situation by the assessee to force the parents and relatives of the students to part with their hard earned income and savings, at times even by taking loans and sale of jewellery to pay donation. The Assessing Officer further reported that the assessee during the entire process of cross examination never denied the modus operandi described by the deponen....
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.... assessee further submitted that the fees charged by the assessee institutions are in accordance with the norms stipulated by the relevant authorities which ensure that the poor students are not denied the opportunity of receiving good education. The infrastructure created by the assessee is also in accordance with the policies of the Government which required the assessee to make available a certain area of built up space and open space, certain equipment, a certain number of staff per student and payment to staff as per VIth Pay Commission norms. The creation of such infrastructure is a condition precedent for starting of any new course by the assessee for which substantial funds are required. Since the Government has stopped disbursing non salary grants for the last 10 years most of the educational institutions have to look upon their operating surplus and donations from philanthropic persons to finance such donations. It was argued that in absence of such sources, it would be difficult to start new institutions as also for existing institutions to survive. It was argued that the assessee abhors capitation fee as much as the Assessing Officer but it was a necessity for the asses....
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....udes income of unaided institutions of Rs. 7,86,39,996/-) as taxable business income. 30. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds : "The following grounds are taken without prejudice to each other - On facts and in law, 1] The learned CIT(A) erred in denying the exemption u/s 10(23C)(iiiab) to the appellant educational society and as a consequence, he erred in assessing the total income at Rs.l 1,06,10,500/- as against the income of Rs. NIL returned by the appellant. 2] The learned CIT(A) was not justified in denying the exemption u/s 10(23C)(iiiab) when it was granted to the appellant trust in the past years. 3] The learned CIT(A) erred in holding that - a. The applicant society has .collected capitation fee for giving admissions to various students and it has violated Maharashtra Educational Institution (Prohibition of Capitation Fee) Act, 1987 and therefore, it is not entitled to the exemption. b. The appellant does not exist for educational purposes as it generates surplus profits and therefore, it is not entitled to the exemption. c. The exemption u/s 10(23C)(iiiab) is available to an instit....
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.... After hearing both the sides, the additional ground raised by the assessee is admitted for adjudication. 32. The Ld. Counsel for the assessee strongly challenged the order of the CIT(A). Referring to the provisions of section 10(23C) (iiiab) he submitted that any income received by any person on behalf of any university or other educational institution existing solely for education purpose and not for purpose of profit and which is wholly or substantially financed by the Government is exempt from tax. Referring to the Explanation which has been inserted by the Finance (No.2) Act 2014, w.e.f. 01-04-2015 he submitted that the words "substantially financed" by the Government means if the grant from the Government is more than 50%. Referring to provisions of section 10(23C)(iiiad) he submitted that the income of any university or other educational institution existing solely for educational purposes and not purposes of profit is exempt if the aggregate annual receipts of such university or educational institutions does not exceed the amount of annual receipts as may be prescribed which is Rs. 1 crore. Referring to provisions of section 10(23C)(vi) he submitted that the income of an....
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....tted that the Hon'ble Supreme Court in the said decision has held that an educational society or a trust or other similar body running an educational institution solely for educational purposes and not for the purposes of profit could be regarded as "other educational institution" coming within the section 10(22) of the I.T. Act. He submitted that the wordings of section 10(22) are similar to the wordings of section 10(23C). 36. Referring to the decision of Hon'ble Delhi High Court in the case of DDIT Vs. Shanti Devi Progressive Educational Society reported in 340 ITR 320 he submitted that in that case the assessee was an educational society running schools during the relevant assessment year which received various amounts towards admission fees, corpus funds and loan from parents. The Assessing Officer sought to assess them in the hands of the assessee but the Tribunal held that the assessee was entitled to exemption. On further appeal by the Revenue, the Hon'ble High Court dismissed the appeal filed by the Revenue holding that the source of funds was relatable to the activity of education. The loans have been availed by the assessee from nationalised banks for the purpose of c....
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....ssing Officer and held that there was a direct nexus between the admissions granted under the Management quota and voluntary contributions collected by the assessee. The Tribunal held that if educational institution has collected money in form of voluntary contributions from public and may be from parents of the students who are studying in institution and issued receipts acknowledging said amount towards building fund and made requisite entries in the books and deposited same in the bank, requirement of section 11(1)(d) is fulfilled. Assessee trust was running several schools starting from nursery to PUC and said fact has been endorsed by Assessing Officer. No question of assessee collecting capitation fees in guise of building fund or development fee. Further voluntary contributions received were for the specific purpose of "building" and assessee had applied such contributions towards object of trust. Assessee had obtained the signatures of the parents of successful students in pre-printed letters before obtaining donation and shown in statement. Assessee was entitled to exemption u/s.11 in respect of building fund as well as college development fund. 40. Referring to the dec....
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....ssessee referred to Form 56D a copy of which is placed at pages 126 to 129 of the legal compilations and drew the attention of the Bench to Column No.2 which reads "legal status whether trust, registered society/others" Referring to the said form he drew the attention of the Bench to Column No.17 which reads as under : "Whether any part of the income or any property of the university or other educational institution or hospital or other medical institution referred to in serial number 1 was used or applied, in a manner which results directly or indirectly in conferring any benefit, amenity or perquisite (whether converted into money or not), on any interested person as specified in sub-section (3) of section 13? If so, details thereof." 44. Referring to the above he submitted that when the form itself asks the assessee to state the legal status, i.e. whether it is a trust or a registered society/others, then there is no requirement of treating each institution as separate entity for claiming exemption u/s.10(23C). The society as a whole should be granted exemption u/s.10(23C). 45. As regards the allegation of the Assessing Officer that the assessee has received grants more....
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....mitted that at the time of admission the donor has written one version and before the Assessing Officer the donor has stated otherwise. Thus, there is contradictory statement by the donors before the college authorities and the Assessing Officer. He submitted that there is no such evidence before the Assessing Officer that unless you give donation there will be no admission in the institutions run by the assessee trust. Further, to meet the capital expenditure the assessee has to accept some donation towards the corpus since the Govt. grant is very negligible. There is no diversion of fund for the benefit of the trustees and most importantly there is no complaint by any of the donors before the State authorities for violation of the Capitation Fee Act, if any. 49. As regards the observation of the Ld.CIT(A) that donations were timed for admission the Ld. Counsel for the assessee submitted that that is the time when the people come to the society and it happens with all charitable institutions and not with the assessee only. He submitted that the donations were taken by the assessee voluntarily. So far as the merit list is concerned he submitted that it is a public document. The ....
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....A. 54. Referring to the decision of Hon'ble Karnataka High Court in the case of CIT Vs. Childrens Education society reported in 358 ITR 373 which was relied on by the Ld.CIT(A) he submitted that the Hon'ble High Court in the said decision has held that the provision of section 10(23C) refers to each one of the several institutions. He accordingly submitted that the order of the Ld.CIT(A) being in order has to be upheld. 55. The Ld. Counsel for the assessee in his rejoinder submitted that the trust is not charging any fees more than the prescribed limit which is fixed by the Government. The donations received every year appear in the accounts and the Government has not taken any action. Such type of collection is continuing since long. Merely because some donors have stated that they have given donation for admission that does not mean that the institution is existing for profit motive. The donors have given the donation voluntarily and some of them claimed deduction u/s.80G. Therefore, their statements before the Assessing Officer are contradictory to what they have signed before the institution. Therefore, the second version of the statement before the Assessing Officer has ....
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....er, the Assessing Officer noted that donations received by the assessee towards corpus fund were in the nature of capitation fees collected in lieu of admissions, keeping in mind the commercial interest. Therefore, the institution indulges in such a practice with a profit motive could not be entitled for exemption under the provisions of I.T. Act. In view of the above, the Assessing Officer denied the exemption u/s.10(23C) of the I.T. Act. 57. We find in appeal the Ld.CIT(A) upheld the action of the Assessing Officer. While doing so, he observed that the income of the unaided institutions whose annual receipts exceeded Rs. 1 crore is not eligible for exemption in absence of necessary approval from the prescribed authority u/s.10(23C)(vi). He also rejected the argument of the assessee that the word "other educational institutions" in clause (iiiab) refers to the assessee society and not the individual educational institution. According to him the exemption u/s.10(23C) is institution specific and not person specific and the eligibility for exemption of income or otherwise in respect of each institute of the society has to be decided with reference to specific sub clause provided i....
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....no dispute to the fact that the assessee is a Public Charitable Trust existing solely for educational purposes. It runs around 45 institutions at different places, viz, Pune, Mumbai, Sangli, Satara, Vahi and Tirupati and the number of students are more than 47000. Some of the colleges are receiving grants from the Government where such grants are substantial. Similarly, there are 27 institutions run by the trust where the gross receipt is less than Rs. 1 crore and no grant has been received from the Government. Similarly, there are 3 institutions where the trust has not received any grant and the gross receipt is more than Rs. 1 crores, the list of such details of the institutions are given as under : DECCAN EDUCATION SOCIETY, PUNE PAN: AAATD3141P AY2008-09 NAME OF THE INSTITUIONS (Aided institutions) GROSS RECEIPTS EXPENDI TURE SURPLUS/ DEFICIT GRANTS included in GROSS RECEIPTS % of the Grants with Total Gross Receipts BELOW ONE CRORES UNITS 1 Shah Kanital Prashala(Primary) 561,192 ....
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.... Pre-Primary School, Satara (Deposit) 105,291 1,690 103,601 5 IARDA 119,770 363,544 (243,775) 6 Abhivyakti 339,318 364,488 (25,170) 7 Pre-Primary School, Satara 346,742 214,119 132,623 8 Sangli Board Office, Sangli 420,845 864,872 (444,027) 9 Primary School, Satara 431.385 664,907 (233,522) 10 DES Secondary, Pune (Computer) 493,114 394,147 101,967 11 DES Physiotherapy, Pune 898,076 2,009,865 (1,111,789) 12 IARDA YCMOU 1,082,899 848,721 234,178 13 Shah Kantilal Prashala Pre-Primary, Sangii 472,387 218,747 253,640 14 Shah Kantilal Prashala Primary OCRF 514,846 634,290 (119,444) 15 Shah Kantilal Prashala Primary, Sangli (E) 1,317,049 568,307 748,742 16 Shah Kantilal Prashala Secondary, Sangli 373,658 595,301 (221,643) 17 Shah Kantilal P....
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....see was a society registered under the Societies Registration Act. Its objects were to establish, run, manage or assist colleges, schools and other educational organisations existing solely for educational purposes. The assessee received donations from a trust during the previous years relevant to the assessment years 1965-66, 1966-67 and 1967-68, in sums of Rs. 15,71,370, Rs. 5,62,432.25 and Rs. 4,78,899.67, respectively. The assessee filed "nil" returns for all three years, on the ground that it was an educational institution existing solely for educational purposes. The Income-tax Officer closed the assessments stating that there was no taxable income. The Commissioner of Income-tax, in revision, suo motu, held that the assessee was not entitled to exemption, as the exemption under section 10(22) of the Income-tax Act, 1961, would apply to educational institutions as such and not to anyone who might be financing the running of such an institution. The Appellate Tribunal, by a common order for all three years, held that the assessee was an educational institution within the ambit of section 10(22) of the Act. On a reference at the instance of the Revenue, the High Court held in f....
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....56B of 1980. Counsel for the Revenue mainly stressed the plea that the exemption under section 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 ins....
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....ear that it is the trust or the society that has to apply for registration and claim exemption. Had it been the intention of the legislature to grant exemption only to the institutions individually or independently and not to the society as a whole, the language would have been different. The society or trust may run more than one institutions. Therefore, the argument of the Revenue that it should be institution specific and not the Society as a whole in our opinion is not correct. 66. The second question that arises for our consideration as to whether the trust is for profit motive. It is the allegation of the Revenue that the assessee trust was collecting the capitation fee in the garb of donation and was therefore running with a profit motive. We find the Assessing Officer has not reported the violation, if any, by the assessee trust to the Government of Maharashtra for taking any action for violation of The Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987. None of the persons who have deposed against the assessee by stating that they had given donation for the purpose of getting admission has complained to the Government for any such violation b....
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....ed for the purpose of seeking approval is that the university or mother educational institution should exist ''solely for educational purposes and not for purposes of profit". It was nowhere the case or the finding of the Chief Commissioner that on account of the defect in the admission procedure, assessee ceased to exist solely for educational purposes or it existed for the purposes of profit. Further, it was not the case of the Revenue that the students who were admitted were not imparted education in the college in which they were admitted or the admissions granted were fake or non-existent or that the income generated by admitting the students was not used for the purpose of the assessee. The emphasis on the part of the Chief Commissioner that the purpose of education would not be served if the education is for students who have been illegally admitted and the purpose of education as contemplated in the section would be served only if the students have been legally admitted and not otherwise, went beyond the requirements of the section. Of course, the requirement of an educational institution to provide admissions strictly in accordance with the prescribed rules, regula....
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....in before the Government of Maharashtra or AICTE or any other Government Department either by the Income Tax Department or by any of the student/parents stating that the assessee society has charged Capitation fee for giving admission which is in violation of the Maharashtra Educational Institutions (Prohibition of Capitation Fee Act) 1987. Even the CIT who is alleging that the assessee trust has collected huge donation for admission of students to various institutes run by it has not informed the Government of Maharashtra if he was serious about any such violation done by the society. The submission of the Ld. Counsel for the assessee that as against 70 Management Quota Seats it has collected donation from 9 students and such donation is within the permissible limit prescribed by the Government of Maharashtra and that all such receipts are reflected in the accounts could not be controverted by the Ld. Departmental Representative. 8.4. . . . . . . . . . . . . 8.5 . . . . . . . . . . . . 8.6 . . . . . . . . . . . . 8.7 We find the Hon'ble Delhi High Court in the case of Shanti Devi Progressive Education Society (Supra) has observed as under : "26. We have considered a....
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....eing deposited in private banks. The opinion is completely based on surmises and conjectures as it seems to suggest that merely because funds were in a private bank, there may have been divergence of funds to the members of the Society. Similarly, the factum of construction being carried out by Ahluwalia Construction Co. (P) Ltd., stated to be a family concern of the President, was not material as there was no allegation of any inflated cost of construction or unreasonable profits being derived from the same by third parties as a mode of divergence of funds." 8.8 We find the Pune Bench of the Tribunal in the case of Dr. D.Y. Patil Education society (Supra) has observed as under : "13. Though the assessee has denied receipt of capitation fee/donations and running on commercial lines, however, without going into the merits of such plea, the pertinent question is the consequences of acceptance of capitation fee/donations by the assessee at the stage of examining assessee's application for registration under section 12AA of the Act. Somewhat similar situation arose 10 before the Mumbai Bench of the Tribunal in the case of Ramarao Adik Education Society (supra) wherein the Com....
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....ards charitable and religious purposes. Therefore, for the purposes of registration u/s. 12AA of the Act, what the authorities have to satisfy is the genuineness of the activities of the trust or institution and how the income derived from the trust property is applied to charitable or religious purposes and not the nature of the activity by which the income was derived to the trust. 50. The above judgment proposes that what is to be looked into is the character of application of funds and the character of the activities carried out by an assessee and not the colour and nature of the sources out of which necessary funds were collected by the assessee. In other words, the source of funds is not an important ingredient in assessing the character of the activities carried on by a Charitable Institution. The Allahabad High Court in the case of CIT Vs. Red Rose School [163 Taxmann 19] has held that educational activities carried on by a Society are for charitable purposes and not against the public policy. Therefore, the activities carried on by the Assessee-Society in the present case cannot in any way held as opposed to public policy. The objection expressed by the Commissioner cou....
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.... into the controversy whether the applicability of s. 12AA(3) was retrospective or prospective in nature. Rather we can make an observation that this issue stood answered by Co-ordinate Benches. We want to express that earlier to this section there was no guidelines in the statute for refusal of registration, therefore it was considered eminent to introduce in the statute the said procedure. What bothered the Tribunals and High Courts in the recent past is the scope and the purpose of introduction of s. 12AA in the statute. All those judgments as listed above, in agreement have said that the activities ought to be in fulfilment of the objects for which a trust is created. Sentiments should be in line with the purpose for which the trust is created. The purpose should be philanthropic, charitable, or for public general utility. Service without profit has to be the motive. As in the present case the objects are to undertake, to run and to improve the educational institution for imparting education in divergent fields; deliberated upon ante. 11.2 In any case we have to examine the purpose of enactment of ss. 12A, 12AA and 12AA(3), viz-a-viz ss. 11 and 12. While reading several c....
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....eking registration. The objects and activities should be philanthropic and not against the public interest must be for the benefit at large instead for the benefit of particular individual or group of individuals. 11.4 In the recent past sub-s. (3) was inserted in s. 12AA w.e.f. 1st Oct., 2004 which gives power of cancellation of registration to the CIT, if he finds that the activities are not genuine or not being carried out in accordance with the object of the trust. The need for the enactment had arisen due to belief of some quarter that in the absence of explicit law the CIT cannot exercise the power of cancellation of registration. To overcome this hurdle this sub-section is incorporated and now in operation. Naturally these powers are conferred with a view to ensure that if once a registration has been granted under s. 12AA, a trust or institution may not take any such liberty of misuse of the registration or the provisions by going haywire rather furthering the objects of the trust or genuinely not pursuing the activities for which it was established. 11.5 Considering the arguments and the facts of this case we have noted that the most important feature of s. 12AA is, ....
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....preliminary stage where the CIT shall restrict the enquiries as to whether the trust is actually and whole heartedly performing all the duties and activities for which it was created. On careful reading of this section it was gathered that at this initial stage there is no scope of any apprehension of misutilization of funds or to judge the taxability income. The scheme of the Act otherwise does not subscribe and allow a trust to take the benefit of the provisions of ss. 11 and 12 unless it establishes the prescribed utilization of the income, even if, at all the trust holds the registration in its hands. Therefore at the stage of granting registration the CIT is not expected to bother himself about the other provisions of the Act and supposed to confine himself to the procedure of registration as laid down therein. For this view, we draw support from the order of the respected Co-ordinate Bench Tribunal, New Delhi pronounced in the case of Aggarwal Mitra Mandal Trust vs. Director of IT (Exemption) (supra), a portion reproduced below (p. 186 of paper book) : "............In this situation, if the registration applied for under s. 12A is not granted to it for violation of the pro....
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....of cancellation of registration ? Answer is obvious no. 11.8 While reading the precedents cited from the side of the appellant we come across a decision of a respected Co-ordinate Bench Tribunal, Kolkata pronounced in the case of Kalinga Institute of Industrial Technology (supra) and have found that almost on identical situation, as in the present appeal, it was held that consequence upon a search while the assessment proceedings are pending a cancellation of registration by invoking s. 12AA(3) is a premature action on the part of CIT, because it is expected from him to take precaution to let the assessment get completed, if possible expeditiously, instead of rushing to cancel the registration which shall effect and interrupt the other proceedings under the Act and so prematurely punish a person without judicious hearing as prescribed by the statute. Held portion is worth reproduction as did in para (xii) p. 35 ante. 11.9 We have also gone through a decision referred from the side of the Revenue namely the Jammu & Kashmir Bank Priority Sector Asset Risk Fund vs. CIT (ITA No. 61/Asr/2006 order dt. 1st Sept., 2006) (supra); cited in support of the argument that firstly the CIT ....
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....vices to trade, commerce or business. What is termed as consent fees is in fact fees accompanying the application for obtaining consent (i.e., permission) of the assessee Board to set up a new unit. It cannot be anybody's case that the processing of applications by itself has s commercial motive, or that fees for processing of applications is a fees collected for rendering of service of pollution control which is undisputed sole object of the assessee trust. Similarly, fees for testing charges and licence fees are not also towards rendering of any services of pollution control either. These are not the services with a profit motive but essentially only to recoup the cost of getting the samples tested or processing of licences. In any event, these activities, if these can be at all be construed as rendering of services, these are wholly subservient to the public utility objective of pollution control, and, it cannot be anyone's case that even though the State Pollution Boards like the assessee before us are set up under an Act of the Parliament, but, to use the words employed in the CBDT circular (supra) 'the object of' general public utility' will only be a mask....
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....f the Revenue that the assessee was not imparting education. As we know the term education means to teach subjects to students for the development of his mind and also to equip students to deal with reality. The training process is either theoretical or practical but student has to be taught the essentials of the selected subjects so as to develop his skill and knowledge for the subjects studied by him. The appellant institute, admittedly, fulfils the requirements of imparting formal education by a systematic teaching and instructions. Since the question about the imparting of education has not been doubted or challenged by the Revenue therefore. In our considered opinion the impugned order passed by the respondent is unsustainable in law. Strange enough there is nothing on record to prove sightlessly that the purpose of imparting of education was not fulfilled by this institute thus the Revenue Department has hopelessly failed to establish that there was any illegal activity or infringement of any law so that to doubt the genuineness of the activities. If it was so then it can be held that the allegations of the Revenue as discussed above, remained unsupported thus deserves our di....
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....arned CIT is appreciable. Every vigilant and law abiding citizen has to be fair in his conduct and should refrain from immoral activities. But existing blue laws are derived from the numerous extremely rigorous laws designed to regulate morals and conduct. These laws are enacted in such a fashion that if implemented correctly and efficiently then there is no scapegoat for an offender. We are tempted to write an idiomatic language due to the sensitivity of the issue, that a CIT cannot be allowed to hold a baton of morality in his hand to hit an immoral; but the statute has given him a flexible stick for inflicting tax on defaulter; that includes a trust or educational institution. The gist is that if the CIT had an information of some wrongful means of earning fees in the form of a donation or the information tells about excessive charging of fees; then the CIT in his rights can pass on the information to the concerned office bearers working under the Maharashtra Capitation Fees (Prohibition) Act. These authorities have enough power to deal with such nature of default, side by side the CIT is to limit his jurisdiction within the ambits of provisions of the Act and expected to give a....
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....within the clutches of that Act but definitely not under s. 12AA(3) provisions. The third aspect is, that the donation plus fees do not exceed the prescribed limit of Anti Capitation Fee Act i.e., five times the normal fees; further that no evidence of misutilization other than the prescribed activity then no action can be suggested under s. 12AA(3). The assessee's case falls under the third category. With the result, totality of the circumstances thus warrants, in the light of the foregoing discussion, not to endorse the view of the learned CIT; consequence there upon reverse those findings. The order of cancellation of registration is hereby revoked. Grounds allowed." 8.10 In view of the above cited decisions, we hold that the finding given by the Ld.CIT that the assessee was collecting huge donation for admission of students to various institutes run by it in violation of provisions of Maharashtra Educational institutions (Prohibition of Capitation Fee) Act, 1987 for which the activities of the assessee trust are illegal and therefore the activities are not genuine is not correct. Further, the conclusion of the Ld. CIT that the institutes are being run on commercial lines....
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....declaring a loss for AY 2007-08 after claiming exemption u/s 11(1)(a) and 11(1)(d)-In meanwhile, survey was conducted u/s 133A in assessee's premises and certain books and documents containing details of student wise donations collected by way of DDs and donation receipt books for admissions given during FYs 2005-06 and 2006-07 relating to fees and alleged donations collected from students who got admissions into the schools/college run by the assessee were impounded and statement of secretary of assessee was also recorded-AO observed that assessee was collecting voluntary contributions/building fund/development funds against admissions given under management quota in institutions run by assessee and was not entitled to claim deduction u/s.11(1)(a) and 11(1)(d) -CIT(A) upheld findings of AO holding that there was a direct nexus between admissions granted under the management quota and voluntary contributions collected by assessee- Held, if educational institution has collected money in form of voluntary contributions from public and may be from parents of the students who are studying in institution and issued receipts acknowledging said amount towards building fund and made re....
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....ar have been used only for the purposes of furthering the objects of the assesseetrust- There is no distribution of profit or such other benefits to the trustees or relatives of the assessee-trust-Therefore action of the CIT in withdrawing the registration granted to the assessee under s. 12AA is not sustainable in law Held : It is found that the first ground pointed out by the CIT to cancel the registration granted to the assessee under s. 12A on the ground of accepting capitation fees is not sustainable in law. The CIT is not to conduct investigation into the sources of 72. We find the Hon'ble Supreme Court in the case of M/s. Queen's Educational Society vs. CIT vide Civil Appeal No.5167/2008 order dated 16-03-2015 has approved the decision of the Hon'ble Punjab and Haryana High Court in the case of Pine Grove International Charitable Trust Vs. Union of India reported in 327 ITR 73 has observed as under : "23. The Punjab and Haryana High Court, by the impugned judgment dated 29th January, 2010 expressed its dissatisfaction with the view taken by the Uttarakhand High Court in the case of Queen's Educational Society as follows: "8.8 We have not been able to pe....
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....s of Section 10(23C)(vi) of the Act are analogous to the erstwhile Section 10(22) of the Act, as has been laid down by Hon'ble the Supreme Court in the case of American Hotel and Lodging Association (supra). To decide the entitlement of an institution for exemption under Section 10(23C)(vi) of the Act, the test of predominant object of the activity has to be applied by posing the question whether it exists solely for education and not to earn profit [See 5-Judges Constitution Bench judgment in the case of Surat Art Silk Cloth Manufacturers Association (supra)]. It has to be borne in mind that merely because profits have resulted from the activity of imparting education would not result in change of character of the institution that it exists solely for educational purpose. A workable solution has been provided by Hon'ble the Supreme Court in para 33 of its judgment in American Hotel and Lodging Association's case (supra). Thus, on an application made by an institution, the prescribed authority can grant approval subject to such terms and conditions as it may deems fit provided that they are not in conflict with the provisions of the Act. The parameters of earning profit....
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....tand disposed of in the above terms." 24. The view of the Punjab and Haryana High Court has been followed by the Delhi High Court in St. Lawrence Educational Society (Regd.) v. Commissioner of Income Tax & Anr., (2011) 53 DTR (Del) 130. Also in Tolani Education Society v. Deputy Director of Income Tax (Exemption) & Ors., (2013) 351 ITR 184, the Bombay High Court has expressed a view in line with the Punjab and Haryana High Court view, following the judgments of this Court in the Surat Art Silk Manufacturers Association Case and Aditanar Educational Institution case as follows: ".....The fact that the Petitioner has a surplus of income over expenditure for the three years in question, cannot by any stretch of logical reasoning lead to the conclusion that the Petitioner does not exist solely for educational purposes or, as that Chief Commissioner held that the Petitioner exists for profit. The test to be applied is as to whether the predominant nature of the activity is educational. In the present case, the sole and dominant nature of the activity is education and the Petitioner exists solely for the purposes of imparting education. An incidental surplus which is generat....
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....ch institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down. Further, it is of great importance that the activities of such institutions be looked at carefully. If they are not genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn. All these cases are disposed of making it clear that revenue is at liberty to pass fresh orders if such necessity is felt after taking into consideration the various provisions of law contained in Section 10(23C) read with Section 11 of the Income Tax Act." 73. From the submission of the Ld. Counsel for the assessee we further find that out of more than 47000 students the assessee trust has collected donations from only 1217 students out of which only 23 persons had admitted to have given donations for admission. We find out of the above 23 persons only 6 were available for cross examination. We find the relatives or parents of the students have filled up the declaration stating that they have given voluntary donations to the institutions, even some of them claimed d....