TaxTMI 
TaxTMI 
2021 (5) TMI 381
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.... Even though imparting of education in itself is a charitable activity u/s 2(15) of I.T. Act, in the instant case the education is commercially exploited by selling education in the open market with the help of the agents/middlemen by payment of commission. 3. Whether the CIT(A) was right in law in stating that there was no surplus and denying exemption u/s 11 to the assessee society is not proper when the assessee is generating profits year after year and creating surplus. 4. Any other grounds to be raised at the time of hearing the appeal. 2. The assessee is a registered society under Societies Registration Act and duly approved u/s. 12AA of the Income-tax Act, 1961 [the Act]. It is engaged in providing educational facilities to the society at large and for this purpose has put up various educational institutions. There was a survey in the case of assessee u/s 133A of the Act on 26.06.2012. During the course of survey, various incriminating documents, loose papers, diaries etc. were found and impounded u/s. 133A which primarily shows that assessee is collecting donations/contributions, development fees from the students. It also indicated payment of agency co....
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....0/- + 51,57,000 = 2,02,76,000/- will be treated as unaccounted receipts for the current financial year (A.Y. 2013-14)." 3. Against this, the assessee went in appeal before the CIT(Appeals). 4. The CIT(Appeals) on the payments made to agents or brokers, impounded material 49/AIT/JMJ and statements recorded from the Secretary was of the view that material impounded relates to FY 2011-12 which has implication for AY 2012-13 and not to present AYs 2010-11 & 2011-12. Hence the CIT(A) held that the conclusion drawn by the AO with regard to denial of exemption on grounds of payment of commission to agents and collection of development fee was not proper. 5. The next ground on which exemption u/s. 11 was denied by the AO was on the reason of surplus income year after year. The AO held that due to huge generation of surplus, the assessee society was hit by provisions of section 2(15) and accordingly not entitled to exemption u/s. 11. The assessee submitted before the CIT(A) that though there was generation of surplus year after year, the entire amount has been redeployed for the objects of the trust only and drew attention to the financial statements in this regard. It was contende....
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....he has done her MA & MBA from reputed Universities with Ph.D. having 20 years of rich educational experience. With her leadership AIMS is now rated as most reputed educational institution in Karnataka State. Her contribution is wide spread in all facets. Apart from academic responsibilities, she is also an active member of Bangalore University in various Committees and facilitated with Women of the Decade by I-News & JMC Communications, Hyderabad in 2010. Therefore, CIT(A) held that remuneration paid to her was at par with educational institutions run by the society. 8. With regard to providing rental payment to the accommodation to Secretary and family members with telephone, it was contended by the assessee that residence is at the heart of the city being used as City office to carry on various meetings with regulatory authorities and discussions with those who give lectures to the institution. The college is located in far end of the city in a remote location where the stakeholders expressed their difficulties to reach the campus location. More over all the offices of the regulatory authorities are situated within the City to address the concerns and to facilitate smoothing f....
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.... examined in his hands and not the assessee society. The CIT(A) accepted this contention and held that when the case of an individual is analysed, addition if any, should be in his individual hands and not the associated institution. He held that the AO has not conclusively demonstrated that the deposits made have been source by the assessee society and therefore deleted the addition. 13. On the purchase of land by Shri Premnath Reddy, the AO made an addition of Rs. 9,75,000. The assessee submitted that there are no properties into which investment is made. The advance is actually given by the trust towards purchase of agricultural land directly to the vendors and for AY 2010-11 the amount paid Rs. 13 lakhs as advance for which copies of land advance in the books of account of assessee was furnished. The CIT(A) observed that there was no discussion in the order regarding the basis of addition as contended by the assessee and deleted the addition. 14. Similar is the position for the AY 2010-11. 15. Now the revenue is in appeals before us only with regard to granting exemption u/s. 11 & 12 of the Act, though there was payment of huge commission to agents or middle men to bri....
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....hat there was huge bank balance in the account of trustee, viz., Mr Prem Nath Reddy. The object of assessee cannot be considered as charitable activities and the assessee is not solely existing for education purposes. According to the ld. DR, there is ample material on record to establish that assessee trust had indulged in various business activities and could not be said to be existing solely for education purposes. It rendered various profitable activities which is for the benefit of trustees and their relatives and huge money has been transferred for their personal benefit, as such no benefit of exemption u/s. 11 can be granted to the assessee. She relied on the judgment of the Hon'ble High Court of Karnataka in the case of Navodaya Education Trust v. UOI, 405 ITR 30 (Karn) wherein it was held that where assessee trust registered u/s. 12AA was running various educational institutions, in view of the fact that assessee collected capitation fee from students for admission to medical college, withdrawal of exemption u/s. 10(23c)(vi) did not require any interference. With regard to the second ground that there was huge surplus earned by the assessee year after year which showed tha....
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....earned by assessee which shows that assessee is involved in business activities and hence exemption u/s. 11 should be denied to the assessee. 21. In the present case, the assessee is an education institution and there is no denial by the department that assessee has carried out education activities as predominant activity and in the course of carrying out predominant object of imparting education, the assessee incidentally earned surplus. The question is whether it can lead to conclusion that assessee ceased to solely exist for education purposes and becomes an institution for the purpose of making profit? 22. We have carefully gone through the activities carried on by the assessee for the assessment years under consideration. It is admitted by the AO that assessee is running following institutions:- 1. Acharya Institute of Technology 2. Acharya Polytechnic 3. Acharya & B M Reddy College of Pharmacy 4. Acharya's N R Institute of Nursing 5. Acharya College of Education 6. Acharya Institute of Fashion Technology 7. Acharya Institute of Graduate Studies 8. Acharya Pre-University College 9. Acharya H....
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....ppearing in page no.40,41,42,50, and 51 of annexure 49/AIT/JMJ and whether the same was reflected in the books of accounts. Shri Premnath Reddy very clearly and categorically stated that some of the payment of commission is made in cash, and it is not recorded in the books of accounts and no TDS have been made on them. For clarity-the relevant extract of his statement on oath is reproduced as hereunder. Q.30 I am showing you Page NO.51 of impounded annexure 49/AIT/JMJ which is a letter dated 16-11-2011 written by Joe Joe Sebastian, apparently from Bangalore requesting for release of service charge for admission of the students he has also written name of student as K P Avasthi please go through it and explain the transaction? Ans. I do not know this person. We might not have paid any amount. Q.31 Can you confirm to me whether admission of this boy K.P. ASwathi has been done in any programme at your colleges and whether any amount is paid to Joe Sebastian? Ans. The student might have taken admission. About the payment I will check up and confirm by 02-07-2012. Q.32 I am showing you another letter as per Page No.50 of the same annexure whi....
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....,OOO/-. Can you please go through these sheets and confirm the payments made to him. Ans. I gone through these papers. As per page No.42 we have paid a sum of Rs. 1,35,OOO/- to Digvijay which is written in red ink. As per page 41 we have paid a sum of Rs. 95,OOO/- to digvijay which is written with the pencil. Q.41 can you please confirm whether payments made to Digvijay of Rs. 1,35,OOO/- + Rs. 95,OOO/- has been made in cash or cheque. Ans. I need to verify this from my accounts team. Normally we give a slip to the accounts department and on the basis of that payments are made to the agent. Q.43 I am showing you page No.35, 36, 37 & 38 of the same annexure as per which representation agreement has been prepared with different persons who are suppose to act as your consultants/agents for admission purposes at different places namely Jharkand, Kerala, Assam and Tripura etc. can you please go through the contents of these pages and confirm your activities with these persons. Ans. These are standard agreement formats for the people who are working for us in different states. Q.44 on the basis of your above statement, do you accept th....
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....ed by the department during the course of survey marked as 49/AIT/JMJ is not relevant to the assessment years under consideration. The AO referred to page 51 of impounded Annexure 49/AIT/JMJ which is a letter dated 16.11.2011 written by Joe Sebastian requesting for release of service charge for admission of student K.P. Avasthy, who has taken admission not in these assessment years under consideration i.e., AY 2010-11 relevant to FY ending on 31.3.2010 and AY 2011-12 relevant to FY ending on 31.3.2011. 25. The next seized material, page 50 which is dated 19.1.2012 written by Dr. Harish, Kammanahalli, Bangalore requesting payment of commission of Rs. 10,000 for admission of student by name Jessena Fernandes on 9.6.2011 for M.Sc is also not under the assessment years under consideration. The next material of same Annexure 49/AIT/JMJ is letter dated 27.8.2011 written by P.N. Silesh stating that he has arranged for admission of 2 students in the academic year 2011-12 and requesting for payment of commission of Rs. 10,000, which is also not relevant to the assessment years under consideration. Page 48 of the impounded material dated 22.9.2011 written by Rafeeq M. mentioning admission....
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....ion results in making a profit, it becomes an activity for profit. If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not cease to be one existing solely for educational purposes. The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to imparting education. As noted earlier, the assessee is running 9 institutions and having large number of students and the income & expenditure of assessee in these assessment years are as follows:- Particulars AY 2010-11 AY 2011-12 Gross receipts 68.05 crores 57.40 crores Expenditure towards education 46.08 crores 56.03 crores Surplus 21.96 crores 19.17 crores 28. For clarity, we reproduce the Income & Expenditure account hereunder:- 29. Thus, it shows that the surplus earned by the assessee in these assessment years is incidental while carrying out the main objects of the assessee trust. Further, it is noted that surplus generated has been ploughed back for educational purposes only. The dominant objective is to impart education and not to make profit....
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....ts return claiming exemption of income under section 10(23C)(iiiad). The AO found that assessee had generated some surplus during relevant years. He thus taking a view that assessee-society was running educational institution with profit motive, rejected assessee's claim. The Tribunal noted that the surplus had enabled the assessee to acquire its own property, acquire computers, library books, sports equipments etc. for the benefit of the students. Moreover the members of the assessee society had not utilized any part of the surplus for their own benefit. The Tribunal thus taking a view that profit was only incidental to the main object of spreading education, allowed assessee's claim for exemption. The High Court, however, relying upon the order passed in the case of Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310 (SC), restored the order passed by AO. The Hon'ble Supreme Court held that where a surplus was made by educational institution which was ploughed back for educational purposes, said institution was to be held to be existed solely for educational purpose and not for purpose of profit. This judgment in Queens Educational Society (supra) was followe....
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.... approval of exemption under section 10(23C)(vi) for AY 2008-09 onwards. The Additional Director rejected the application on grounds that assessee had entered into franchise agreements for opening schools and franchisee fee received by it from satellite schools in lieu of its name, logo and motto amounted to a 'business activity' with a profit motive and no separate books of account were maintained by assessee for business activity as required under section 11(4A). The High Court held that since assessee had maintained accounts in compliance to seventh proviso to section 10(23C)(vi) and section 11(4A) which was audited in detail and, further, surpluses accrued in form of franchisee fee from satellite schools were fed back into maintenance and management of schools themselves, assessee had fulfilled requirements to qualify for exemption under section 10(23C)(vi). The Hon'ble Supreme Court dismissed SLP against High Court ruling that where assessee society was set up with object of imparting education and it had entered into franchise agreements with satellite schools and also used gains arising out of these agreements in form of franchisee fees for furtherance of educatio....