AI Drafter 
TaxTMI 
TaxTMI 
2018 (2) TMI 1733
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.... earlier the Applicant-University had been claiming itself to be covered under the provisions of section10(23C)(iiiab) of the Income-tax Act, 1961 (in short 'the Act') claiming that it was substantially financed by the government and was running the educational institution solely for education purposes and not for the purpose of profit. However, it did not file the returns of income during the period. The Ld. CIT(E), therefore, observed that the applicant was claiming exemption at its own without examination of its claim by the Income Tax authorities. The Ld. CIT(E) further observed that the applicant had been receiving grant from Punjab Government, not on a regular basis but intermittently. The applicant wrongly construed the initial allotment of land by Punjab Government for setting of its campus and its constituent campuses in the State of Punjab as substantially financed by the Government. He, therefore, held that the claim of the applicant right from its inception that it was substantially financed by the government was inherently wrong. He further observed that even subsequent to the amendment in the provisions of section10(23C)(iiiab) w.e.f. 1.4.2005, only if the gra....
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....sity had been receiving hefty Charges on account of fees, granting affiliation and counseling on commercial principles which was at par with the private players from the same city doing out similar courses/ activity and who generate large profits and pay taxes on the surpluses. The Ld. CIT(E) in this respect mentioned the example of another private university namely Lovely Professional University, Jalandhar. He, therefore, observed that the applicant, thus, was earning huge profits and that it had not been running solely for the educational purposes. He further observed that the accounts on 31.03.2015 reflected current assets of Rs. 1247.38 crores and of Rs. 1228.18 crores on 31.3.2016. Most of these assets were in the form of FDRs. The gross receipts included interest of Rs. 99.70 crore for financial year 2015-16 on the FDRs invested. Similarly the distance education programmes were run by delegating franchise to private players M/s N1MA and M/s Elfin Eduventures. These private entities, had been appointed as coordinators and facilitators. He observed that for the year ending 31.03.2015 an amount of Rs. 17.12 lakhs had been paid to M/s NIMA and Rs. 39.70 lakhs to....
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.... parked in form of FDRs. He further observed that FDRs had been showing a consistent increase even though there had been no accretion in resources in form of new affiliations and new expenditure towards capital assets. The Ld. CIT(E), therefore, considering the observations of the auditors and the fact that huge surplus was being generated which was got parked in the form of FDRs instead of being redeployed into education, observed that the claim of the applicant being running solely for the education was not established. He concluded that it was clearly made out that the university was imparting education on purely commercial basis intended for profits. He, therefore, rejected the application of the assessee seeking approval u/s 10(23C)(vi) of I.T. Act. 4. Being aggrieved by the above rejection of application by the CIT (E), the Applicant University has come up in appeal before us. 5. We have heard the rival submissions and have also gone through the records. Shri M.R. Sharma, Ld. Counsel for the assessee has submitted that mere generation of surpluses out of receipts, cannot form the basis for rejection of application u/s 10(23C)(vi) of the Act when the surpluses is t....
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....nt as required under the provisions of section 10(23C)(vi) of the Act. He in this respect has further relied upon the decision of the Hon'ble Punjab & Haryana High Court in the case of 'Pinegrove International Charitable Trust Vs. Union of India' [2010] 327 ITR 73(P&H) and further on the decision of the Hon'ble Supreme Court in the case of 'Queen Educational Society Vs. CIT' [2015] 372 ITR 699 (SC). 6. On the other hand, Ld. DR has submitted that a look at the income and surplus generated by the Applicant-University would itself show that the applicant is not engaged in any charitable activity. The funds have been accumulated from year to year and are placed in the FDRs instead of utilizing the same for achieving the educational objects of the applicant. The applicant has been following the mercantile system of accounting and that the interest earned on the FDRs during the year was also the income of the assessee for that year. The Ld. DR has also invited our attention to the assessment order passed in the case of the assessee for assessment year 2009-10 u/s 147 read with section 144 of the Income-tax Act and has submitted that the applicant's claim of being e....
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....er medical institution, under sub-clause (iv) or sub-clause (v) or subclause (vi) or sub-clause (via), may call for such documents (including audited annual accounts) or information from the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, as it thinks necessary in order to satisfy itself about the genuineness of the activities of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, and the prescribed authority may also make such inquiries as it deems necessary in this behalf: Provided also that the fund 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 subclause (v) or sub-clause (vi) or sub-clause (via)- (a) applies 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 am....
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.... documents or information from the institution or university in order to satisfy itself about the genuineness of the activities of such institution or university and is authorized to make any such enquiry, as it deems necessary in this behalf. 9. A perusal of the impugned order of the CIT(E) as well as profit and loss account of the applicant University reveals that it has been generating huge surplus running into hundreds of crores from year to year, parking the same in FDRs and merely accumulating thousands of crores and earning huge income therefrom as per details extracted from its financial statements submitted before us, as under: Financial Year Income receipts earned (In Crores) Surplus of income/profits over expenditure (in crores) FDRs-as at the end of the year (in crores) Interest earned on FDRs (in crores) 2010-11 445.94 172.38 561.33 73.00 2011-12 439.70 181.07 724.89 61.00 2012-13 467.59 200.75 927.46 84.00 2013-14 387.83 188.76 1086.86 93.63 2014-15 307.17 158 1178.59 105 2015-16 235.96 144 1042.94 99.35 10. As revealed from the above details....
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....506.32 4,60,37,969.00 1,84,59,70,858.65 ADD:CAPITAL INVESTMEN T DURING YEAR TOTAL OUTLAY INCLD. CAPITAL INVESTMENT DURING YEAR ..B 1,93,98,62,187.00 70,98,98,166.07 2,64,97,60,353.07 2,62,,31,97,861.12 7,23,095.00 2,68,99,20,956.12 2,54,06,08,881.89 2,84,30,786.75 2,56,90,39,668.64 2,68,95,83,537.32 7,71,88,116.00 2,76,67,71,653.32 1,84,59,70,858.65 3,02,96,080.00 1,87,62,66,938.65 NET SURPLUS (DEFICIT) (A+B) 1,22,85,75,919.74 1,98,59,91,112.95 1,82,80,26,257.58 1,69,26,66,556.10 1,44,97,40,537.20 %AGE UTILIZATION OF TOTAL OUTLAY AGAINST INCOME 68.32 57.53 58.43 62.04 56.41 As per the provisions of section 10(23C)(vi) of the Act, the institution is supposed to apply the entire receipts / income for its stated object which is education in the case of applicant before us, The only leverage given is that the concerned institute,....
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....e activities of the applicant. It may be pointed out that the genuineness of the activity is a general term and not defined under the Act. The genuineness of a particular activity carried out by an institution is to be seen vis-à-vis its act, conduct and the intention towards achieving the objects for which it has been formed and also to find out from the facts and circumstances available as on the date, as to whether the activity of such an applicant can be said to be genuine. If, it was the education purpose, the object for which the applicant claims to be solely existing, the funds which have been collected and accumulated by the applicant university over the years would have been expended for educational purposes. Hence it cannot be said that the university is doing the sole activity of imparting education and not existing for the purposes of profit. Parking funds in FDRs continuously for the last so many years only shows that the applicant has neither any intention nor any vision or plan to spend the huge funds so generated and accumulated, for achieving the stated objects of imparting education. The fact of collection and accumulation of huge funds running into thousan....
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.... The genuineness of the activities of the applicant otherwise is also in doubt as the functioning of the applicant is marred by controversies. We cannot close our eyes to the frequent news items in this respect including the registration of an FIR against the Ex. Vice Chancellor of the University on corruption charges. Though mere registration of an FIR against the Vice Chancellor or the news items we come across, may not be enough to drive to the conclusion about the genuineness or otherwise of the activities of the assessee, however, at this stage, these factors coupled with other facts as discussed above cannot be totally ignored. 14. We are further perturbed to note that the youth of the state who wish to professionally qualify themselves are charged hefty fee for applying for admission to the professional courses instead of giving them a helping hand from the huge surpluses generated and accumulated Rather, it appears that the applicant university has used the noble cause of selecting the meritorious and suitable students for admission to technical courses as a source of earning profits out of the fee for entrance examination, generating huge surplus and further what is mo....
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....that profit element is not involved in the activity of the assessee, in our view, is not an acceptable plea. 15. Now coming to the case laws relied upon by the Ld. Counsel for the applicant. The Ld. Counsel has relied upon the decision of the Hon'ble Punjab & Haryana High Court in the case of 'Pinegrove International Charitable Trust Vs. Union of India' (supra) and also of Hon'ble Supreme Court in 'Queen Educational Society Vs. CIT' (supra). In the aforesaid case laws, it has been held that to decide the entitlement of any institution for exemption u/s 10(23C)(vi) of the Act, the test of pre-dominant object of its activities has to be applied by posing question whether the institution exists solely for educational and not to earn profit, and further that merely because some profits have resulted from activity of imparting education, would in itself, not result in change of character of that institution. The Hon'ble Punjab & Haryana High Court while relying upon the decision of the Hon'ble Supreme Court in the case of 'American Hotel and Lodging Association Education Institution Vs. CBDT' (2008) 301 ITR 86 (SC) and the decision of the constitutional Be....
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....grants issued by Govt. and other organization for the purposes for which those have been granted, but the same were also parked in the banks to earn interest income. 17. So far as the arguments that the application of the income is to be seen at a later stage and not at the time of granting of approval is concerned, in our view, that argument will have force in case of newly established institution which has not commenced its activity or are in the course of commencement of activity. However, the applicant university has been established since 1997, hence, the activities carried out by it since its incorporation can well be examined by CIT(E) to determine whether it is genuinely involved in carrying out its objects. The overall facts and circumstances, the accumulation of income running into thousands of crores, even non spending of the grants received by the University for the purpose of which the same was received and further deposit of the same in banks for earning of profits in the shape of interest income and no explanation coming forward from the Applicant-University for accumulation of such huge deposits without any visible plan or vision to expend the same for achieving ....