TaxTMI 
TaxTMI 
2018 (2) TMI 1692
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the students cannot be said to be income from property held under trust and therefore not eligible for exemption u/s 11 of the Act. 4. The Ld. CIT (Appeal) has erred, on facts & in law, in holding that cost of education cannot be recovered by educational institutions from the students by way of fees and therefore cannot be adjusted against the expenditure incurred. 5. The Ld. CIT (Appeal) has erred in holding that donations received by the appellant are not eligible to exemption being in violation of the provisions of section 11(1)(d) in as much as such observations have been made contrary to facts & without application of mind. 6. Without prejudice to above, the Ld. CIT (Appeal) has erred, on facts & in law, in holding that income of the appellant cannot be assessed under the head "Profits & gains from business or profession" even where exemption u/s 10 or 11 is not to be allowed. 7. Without prejudice to above, the Ld. CIT (Appeal) has erred, on facts & in law, in holding that income of the appellant has to be assessed under the residual head "Income from other sources" but the expenditure incurred for running the school cannot be allowed as de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or claiming exemption u/s 11 unless conditions specified in sections 11 to 13 are satisfied. According to him, the person claiming exemption must satisfy the condition specified u/s 11(1) to the effect that income, sought to be exempt, must be derived from property held under trust. In other words, income derived by it from an activity of running school cannot be said to be income from property held under trust in as much as such activity does not amount to be a property held under the trust. According to him, balance sheet of the assessee does not disclose any property from which any income is derived. (ii) Since the appellant is not eligible for exemption u/s 11, therefore, the entire receipts by way of fees and other charges from the students would be treated as its income for the reasons that, firstly, since the appellant is not claiming any income u/s 28, therefore, the question of allowing any deduction incurred does not arise; and secondly, once the income is found to be not eligible for exemption u/s 11, the provisions of chapter IV-D would not apply. 4. Thereafter, the ld. CIT (A) discussed in detail the concept and theory of 'charitable purposes' as defined in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1(1)(a) is that, income should be derived from the property held under the trust wholly for charitable or religious purpose. Assessee being a society and is not a Trust, hence it is not entitled for benefit u/s.11. According to him, since sources of income are students, therefore, students cannot be reckoned as 'property held under the trust' and activity of imparting education also cannot be reckoned as property. In his view, self imposed obligation to do charity cannot be held to be property and donation receipt by the assessee cannot be held to be voluntarily. After making such observations he held that; * Firstly, assessee is not entitled for benefit u/ss.11 and 12; * Secondly, its income cannot be taxed as business income, albeit it has to be taxed as "income from other sources" u/s.56(1); and * Lastly, the assessee is not entitled for any deduction against its income under the provision of Section 57 and accordingly the entire receipts of Rs. 1,04,85,689/- would be taxed. Thus, the entire receipts stood taxed by the ld. CIT (A). 6. Before us the ld. counsel for the assessee, Mr. K. C. Singhal, after drawing our attention to the various observa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... refers to voluntary contribution other than the ones falling u/s. 11(1)(d) thereby treating it as property held under the trust. Further, Section 11 envisages that revenue consideration shall be deemed to be income derived from property held under the Trust. Thus, ld. CIT (A) was incorrect in law in holding that contribution received by way of fees from the beneficiaries is not an income from the property held under the trust. He further referred to various judgments wherein it has been held that exemption cannot be disallowed if the source of income held under the trust is under legal obligation and here the assessee was under obligation to apply the income for charitable purposes. The judgment relied upon by him are as under:- i. CIT-v- Gujarat Maritime Board 295 ITR 561 SC ii. All India Spinners Association-v-CIT 12 ITR 482 PC iii. CIT-v-Andhra Chamber of Commerce 55 ITR 722 SC iv. Delhi Stock Exchange Association Ltd-v-CIT 225 ITR 235 SC v. Institute of Chartered Accountants of India-v-DGIT 358 ITR 91 (Del) 8. Mr. Singhal submitted that if the interpretation of ld. CIT(A) is accepted, then no educational institution will ever be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....us. We have already discussed in brief various facets of the observations made by the ld. CIT(A) while exercising his power of enhancement u/s.251(2) and taxing the entire receipts of Rs. 1,04,85,689/- as income from other sources. It is an admitted fact that assessee society has been formed and registered under the 'Registration of Societies Act, 1860', with the sole object of providing education and in pursuance of such an object it has set up an infrastructure in the form of school which is named as 'Adarsh Public School', from where it is providing education upto Senior Secondary level. Looking to its object which is for 'charitable purpose' in terms of section 2(15) and is solely for imparting education, it has been granted registration u/s.12A by the competent authority, i.e., Ld. CIT Ghaziabad. Once registration u/s.12A is granted, then it is fait accompli and accordingly, all its receipts / income are subject to computation and benefit u/s.11 to 12 and restrictions provided u/s 13. Such a registration u/s 12A has neither been withdrawn nor has any action been taken by the competent authority to withdraw such certificate of exemption granted u/s.12A. That is the reason why t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ailable for all sources, and that there was nothing inherently improbable or inconceivable about the two provisions operating simultaneously and as such the claim for exemption under section 11 was available to the assessee-Council provided it satisfied 11 the requirements of that provision. We may point out that there are other allied provisions like for instance clause (23C) in section 10 which clearly indicate that the Legislature did not intend to rule out section 11 when exemption was claimable under such specific provisions of section 10. It was after negativing the contention in this manner that the Tribunal went on to consider the claim for exemption made by the assessee-Council under section 11 but on merits found that there was no material or evidence on record to show whether or not the securities were held by the assessee- Council for any of the charitable purposes and, therefore, it remanded the case. The remand order was never challenged by the revenue by seeking a reference on the ground that a remand was unnecessary because section 11 was ruled out by reason of exemption having been obtained by the assessee- Council under section 10(23A) nor was any such contention ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n complied with, then there should be no bar to seek exemption u/s.11. In view of the aforesaid binding judicial precedents, we reject the observation and finding of the ld. CIT (A) that assessee cannot claim exemption/benefit of Section 11 or is not entitled for benefit u/s 11 as assessee was eligible for such an exemption u/s. 10(23C). 15. Ld. CIT(A) while denying the exemption of Section 11 to assessee society has held that, since imparting of education is a matter of pure charity, therefore, the educational institution is not permitted to receive or recover the cost of charity from its beneficiary by way of fees, i.e., charging of fees itself would amount uncharitable activity. We are unable to subscribe to this proposition at all, because if fees is not charged from the students then how the activity of imparting education can be carried out. Fees collected from the students itself feeds the charity, unless some other considerations are received for profiteering and personal gains of trustees or members of the society. Strong reliance has been placed by the ld. CIT (A) upon the judgment of Hon'ble Apex Court in the case of ACIT vs. Surat Art Silk Cloth Manufactures Asso....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the Hon'ble Apex Court in the context of 'capitation fee' and profiteering, itself culled out the exception in the following manner:- 66. In such professional unaided institutions, the Management will have the right to select teachers as per the qualifications and eligibility conditions laid down by the State/University subject to adoption of a rational procedure of selection. A rational fee structure should be adopted by the Management, which would not be entitled to charge a capitation fee. Appropriate machinery can be devised by the state or university to ensure that no capitation fee is charged and that there is no profiteering, though a reasonable surplus for the furtherance of education is permissible. Conditions granting recognition or affiliation can broadly cover academic and educational matters including the welfare of students and teachers." [Emphasis added is ours] 16. Thus, the Hon'ble Apex Court held that in principle there should be no 'capitation fee' or profiteering, but reasonable surplus to meet the cause of education and augmentation of facility does not amount to profiteering. Nowhere the Hon'ble Apex Court has held that educationa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....el had submitted the total fees charged from various students during the year the details and bifurcation of which is as under:- Class Tution Fees Months No. of students Bus (300*1 2) Students Travelling by Bus Rest Annual Admission Fees Total NUR 500 12 60 3,60,000 1,000 3,600 5 18,000 60,000 LKG 500 12 78 4,68,000 1,000 3,600 7 25,200 78,000 UKG 500 12 70 4,20,000 1,000 3,600 8 28,800 70,000 1 600 12 69 4,96,800 1,000 3,600 12 43,200 69,000 2 600 12 83 5,97,600 1,000 3,600 15 54,000 83,000 3 600 12 80 5,76,000 1,000 3,600 10 36,000 80,000 4 600 12 78 5,61,600 1,000 3,600 17 61,200 78,000 5 600 12 70 5,04,000 1,000 3,600 15 54,000 70,000 6 700 12 76 6,38,400 1,000 3,600 17 61,200 76,000 &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ution is held as income derived from the trust which is subject to computation and conditions laid down in Section 11 to 13. If the assessee is carrying out any obligation for educational activity, then it has to be treated as the 'trust' under the provision of Section 11; and this proposition has been clearly held by the Hon'ble Supreme Court in the case of CIT vs. Gujarat Maritime Board (Supra), that if the assessee is under legal obligation to apply the income then it is entitled to be registered as charitable trust. In the case before the Hon'ble Supreme Court, the authority Gujarat Maritime Board was carrying out the development of minor port which was in the realm of 'carrying out objects of general public utility'. The Hon'ble Apex Court held that such an authority is to be reckoned as charitable trust for the purpose of Section 11. In this case one of the main objection raised on behalf of the department was that said Board was not entitled for the benefit of Section 11 as it was not a trust under the 'Public Trust Act' and therefore, it was not entitled to claim registration u/s. 12A. Since it was not held under the trust therefore, it is not entitled for exemption....
X X X X Extracts X X X X
X X X X Extracts X X X X
....said trade or industry-CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC). If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity-Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1 (SC). 15. The present case in our view is squarely covered by the judgment of this Court in the case of CIT v. Andhra Pradesh State Road Transport Corpn. [1986] 159 ITR 1 in which it has been held that since the Corporation was established for the purpose of providing efficient transport system, having no profit motive, though it earns income in the process, it is not liable to income-tax. 16. Applying the ratio of the said judgment in the case of Andhra Pradesh State Road Transport Corpn. (supra), we find that, in the present case, Gujarat Maritime Board is established for the predominant purpose of development of minor ports within the State of Gujarat, the management and control of the Board is essentially with the State Government and there is no profit motive, as indicated by ....