TaxTMI 
TaxTMI 
2018 (2) TMI 108
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....f the Society arisen in the course of running educational schools & institutions, in spite of the appellant is existing for charitable (education) purposes and complying with all the applicable provisions of section 11 of the Act. 3. The learned Commissioner Of Income Tax (Appeals) is erred in fact and in law in confirming the action of the Assessing Officer in coming to conclusion that the Appellant has earned unreasonable profit and thereby it is existing for purposes of profit; and hence ineligible to claim exemption under section 11, in spite the Appellant got only reasonable surplus. 4. The learned Commissioner Of Income Tax (Appeals) is erred in fact and in law in confirming the action of the Assessing Officer in coming to conclusion that only 15% of net educational income (gross educational income less expenditure towards educational purpose) is to be taken into consideration for accumulation under section 11(1)(a); as against Appellant's contention for accumulation is that of 15% of gross educational income." 5. The learned Commissioner Of Income Tax (Appeals) is erred in fact and in law in confirming the action of the Assessing Officer in den....
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....ing out such activity which are charity in nature as per the deed/MOA of the trust. c) In the instant case, the pre-dominant object of the activity is making profit, whereas its objects are primarily for serving the charitable purpose. Here, the purpose of the assessee is submerged by profit making motive in the guise of charitable trust. If the profit/surplus arises as a result of incidental, it can be accepted that the assessee is not engaged in profit making. d) Having regard to the facts and circumstances, of the case, one can come to the conclusion that the dominant object of the assessee is profit making, as can be seen that the assessee is making systematic profit year after year. 20. As observed by the Hon'ble courts, in the cases referred, the crucial condition is that surplus should result only incidentally and should not be aimed for. If substantial profits are earned in year if (it) would be the duty of the institution to lower its fees for the subsequent year so that such profits are not intentionally generated. If profits continue year after year, then it cannot be said that the surplus are due to incidental. 21. The Hon'ble....
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....n purpose, as no part of the surplus income generated is utilized wholly for education purpose. He further submitted that the Assessing Officer had come to wrong conclusion that the appellant was making huge profits without appreciating the fact that after deduction of the depreciation from the surplus generated, the profits would only 18% of the gross receipts. He further submitted that the decision of the Hon'ble Karnataka High Court in the case of Visvesvaraya Technological University Vs. ACIT (2014) 362 ITR 279 (Kar) relied upon by the Assessing Officer came to be over-ruled by the Hon'ble Apex Court in the case of Visvesvaraya Technological University Vs. ACIT (384 ITR 37). He further submitted that carry forward of excess income over expenditure should be calculated on the gross receipts not on the net receipts and reliance was placed on the decision of the co-ordinate bench of the Tribunal in the following cases:- i. DCIT, Bangalore Vs. M/s Peoples Education Society (9-6-2017) ii. The Capuchin Friar Services Society Vs. DCIT (9-10-2015) iii. Jyothy Charitable Trust Vs. DCIT (14-8-2015) 5.2 On the other hand, ld DR placed reliance on the orders o....
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....s its income, or accumulates it for application, wholly and exclusively to the objects for which it is established and in a case where more than fifteen per cent of its income is accumulated on or after the 1st day of April, 2002, the period of the accumulation of the amount exceeding fifteen per cent of its income shall in no case exceed five years; and] 17[(b) does not invest or deposit its funds, other than- (i) any assets held by the fund, trust or institution 18[or any university or other educational institution19 or any hospital or other medical institution] where such assets form part of the corpus of the fund, trust or institution 20[or any university or other educational institution or any hospital or other medical institution] as on the 1st day of June, 1973; 21[(ia) any asset, being equity shares of a public company, held by any university or other educational institution or any hospital or other medical institution where such assets form part of the corpus of any university or other educational institution or any hospital or other medical institution as on the 1st day of June, 1998;] (ii) any assets (being debentures issued by, or on ....
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....later:] Provided also that nothing contained in sub-clause (iv) or sub-clause (v) 29[or sub-clause (vi) or sub-clause (via)] shall apply in relation to any income of the fund or trust or institution 29[or any university or other educational institution or any hospital or other medical institution], being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business: Provided also that any 30[notification issued by the Central Government under sub-clause (iv) or sub-clause (v), before the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President*, shall, at any one time31, have effect for such assessment year or years, not exceeding three assessment years] (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification:] 32[Provided also that where an application under the first proviso is made on or after the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President,* every notification under s....
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.... or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall not be treated as application of income to the objects for which such fund or trust or institution or university or educational institution or hospital or other medical institution, as the case may be, is established : Provided also that where the fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) is notified by the Central Government 40[or is approved by the prescribed authority, as the case may be,] or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), is approved by the prescribed authority and subsequently that Government or the prescribed authority is satisfied that- (i) such fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not- (A) applied its income in accordance with the provisions contained in clause....
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....tution in the said previous year, whether or not any approval granted or notification issued in respect of such trust or institution has been withdrawn or rescinded;" 6. Thus, from the perusal of the above provisions, it is crystal clear that for the entitlement of exemption under clause (vi) of section 10(23C), the only requirement is that the education institution or university must exist wholly for the educational purpose and without any profit motive. In the present case, the Assessing Officer had come to conclusion that the appellant existed for only for profit motive as accorded to him, it derived profit of more than 26%. The appellant had disputed the calculation of the percentage of profit by submitting that depreciation should also be considered as part of expenditure. Be that as it may, the Assessing Officer had to come this conclusion drawing support from the decision of Hon'ble Karnataka High Court in the case Visvesvaraya Technological University Vs. ACIT (362 ITR 279). In this decision, the Hon'ble Karnataka High Court held that so long as the institution is making a reasonable surplus, the institution would not cease to be one existing solely for educational purpo....
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.... whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons.' 7. To the above principles, one further test as laid down in CIT v. Surat Art Silk Cloth Mfrs. Assn. [1978] 121 ITR 1/[1979] 2 Taxman 501 (SC) and culled out in American Hotel & Lodging Association Educational Institute v. CBDT [2008] 301 ITR 86/170 Taxman 306 (SC) may be added which is as follows:- "In order to ascertain whether the institute is carried on with the object of making profit or not it is the duty of the prescribed authority to ascertain whether the balance of income is applied wholly and exclusively to the objects for which the applicant is established." (Paragraph 37) The above principle has been specifically reiterated in paragraph 19 of the decision in Queen's Educational Society (supra) in the following terms:- "The final conclusion that if a surplus is made by an educational society and ploughed back to construct its own premises would fall out of Section 10(23C) is to ignore the language of the section and to ignore the tests laid down in Surat Art Silk Cloth case [CIT v. Surat Art ....
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....grounds of appeal No.2 and 3 filed by the assessee are allowed. 11. As regards ground Nos.4 and 5 raised with regard to calculation of carry forward of income to subsequent years, this issue is covered in favour of the assessee by the decision of the co-ordinate bench in the case of Jyothy Charitable Trust in ITA No.662/Bang/2015 dated 14.8.2015, wherein at paras. 15, 16 and 17 it is held as under: "15. The third issue that arises for consideration in this appeal is as to whether 15% accumulation for application in future has to be calculated on gross receipts or net receipts after deduction of revenue expenditure. The Assessee claimed accumulation of income for application for charitable purpose at 15% of the gross receipts. The AO was of the view that accumulation will be allowed only to the extent of 15% of the income after revenue expenditure. In other words income to be set apart u/s.11(1)(a) of the Act has to be computed at 15% of the net income i.e., gross receipts minus revenue expenditure and not on the gross receipts as claimed by the Assessee. Since in the case of the Assessee, the gross receipts after revenue expenditure was nil, the AO denied the benefit of....
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....entitled to accumulate only twenty five per cent of Rs. 87,010. For the aforesaid reasons, the civil appeal is dismissed." It is clear from the above that deduction of twenty-five per cent was held to be allowable not on total income as computed under the IT Act. Any amount or expenditure, which was application of income, is not to be considered for determining twenty five per cent to be accumulated. Their Lordships, as noted earlier, affirmed the decision of Kerala High Court in (1997) 141 CTR (Ker) 502 : (1997) 228 ITR 620 (Ker) (supra) wherein it is held as under : "At the outset, the statutory language of s. 11(1)(a) of the IT Act, 1961, relates to the income derived by the trust from property. The trust is required to be wholly for charitable or religious purposes, and the income is expected to have relation to the extent to which such income is applied to such purposes in India. It is thereafter the statutory provision proceeds further that such income is not to be understood to be in excess of 25 per cent of the income from such properties. In other words, the very language of the statutory provision under consideration sets apart 25 per cent of the inco....