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Arvind Bhartiya Vidhyalya Samiti Vs. Assistant Commissioner of Income - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Jaipur
Decided On
Judge
Reported in(2008)115TTJ(JP.)351
AppellantArvind Bhartiya Vidhyalya Samiti
RespondentAssistant Commissioner of Income
Excerpt:
1. this is an appeal filed by the assessee against the order of the learned cit(a) dt. 29th jan., 2007 for the asst. yr. 2003-04.2. in ground no. 1, the assessee is aggrieved that the impugned assessment under section 143(3) dt. 17th march, 2006 is bad in law and the same may be quashed.3. the ground no. 1 of the assessee is general in nature which needs no adjudication by us.4. in ground no. 2.1, the assessee is aggrieved that the learned cit(a) has erred in confirming the impugned assessment framed by the ao, assessing business income in the hands of the appellant though it was an educational institution. the assessment so framed and confirmed by the learned cit(a) is being without jurisdiction and contrary to the provisions of law and the same may be quashed.5. in ground no. 2.2, the.....
Judgment:
1. This is an appeal filed by the assessee against the order of the learned CIT(A) dt. 29th Jan., 2007 for the asst. yr. 2003-04.

2. In ground No. 1, the assessee is aggrieved that the impugned assessment under Section 143(3) dt. 17th March, 2006 is bad in law and the same may be quashed.

3. The ground No. 1 of the assessee is general in nature which needs no adjudication by us.

4. In ground No. 2.1, the assessee is aggrieved that the learned CIT(A) has erred in confirming the impugned assessment framed by the AO, assessing business income in the hands of the appellant though it was an educational institution. The assessment so framed and confirmed by the learned CIT(A) is being without jurisdiction and contrary to the provisions of law and the same may be quashed.

5. In ground No. 2.2, the assessee is aggrieved that the learned CIT(A) has erred in confirming the taxing the whole income of Rs. 1,90,01,630 which is otherwise exempt under Section 10(23C) as claimed by the appellant. The income so taxed being totally contrary to the provisions of law and facts and hence the same may be deleted in full.

Alternatively the AO may be directed not to assess the subject income until the decision by the prescribed authority.

6. Briefly the basic facts of the case, as are coming from the orders of the authority below are that the appellant is a Samiti, registered with the Registrar of Societies, Jaipur since 19th Oct., 1975 under the Societies Act, 1958 of Rajasthan. The Samiti was set up amongst other objects with the main object of imparting technical and management education and training without any profit motive in: (2) Maharishi Arvind Institute of Science & Management, Ambabari Circle, Jaipur.

(3) Maharishi Arvind Institute of Engineering & Technology, Mansarovar, Jaipur.

The return of income for asst. yr. 2003-04 declaring total income of Rs. 1,93,01,630 was filed on 3rd Nov., 2003. Though the total income was shown in the return of income at Rs. 1,93,01,630, however tax on the total income was shown at nil for the reason that the appellant, by way of note put on the computation claimed exemption since its application in Form No. 56D under Rule 2CA under Section 10(23C)(vi) or (via) filed on 31st Dec, 1999. The case was selected for scrutiny.

During the assessment proceedings, the AO noticed that the appellant was not having registration under Section 12AA of the Act nor any exemption under Section 10(23C)(vi) was available. When asked, the appellant responded vide letter dt. 27th Dec, 2005, mainly stating that the Samiti had already submitted necessary application, through the CIT, Jaipur vide application submitted on 31st Dec, 1999. Further the Samiti had also submitted another application under Section 10(23C) r/w Rule 2 of the IT Rules, as a matter of abundant precaution, for the impugned asst. yr. 2003-04 on 20th Dec, 2005 to the Chief CIT, Jaipur, through the CIT, Jaipur-II. In the assessment order, however the AO observed in para 8 of the assessment order that on going through the details of receipt and expenditure, it was clear that the Samiti had generated huge profits by charging abnormal amounts of fees from students and by not paying salary to the lecturers at par with Government colleges or institutions. Because of these reasons, the AO held that the Samiti was existing for the purpose of profit. Further as per discussion in para 9 of the assessment order, the AO also gave his finding that some of the interested persons, as specified in Sub-section (3) of Section 13 of the IT Act, had been conferred the benefit from the income of the Samiti. Therefore, as per para No. 10, the AO issued a show cause notice dt. 21st Feb., 2006 to the appellant stating that, in view of his finding (as mentioned in paras 8 and 9) and in view of the fact that the appellant assessee had not been granted exemption under Section 10(23C)(vi) by the prescribed authority, why the income of the Samiti be not taxed as per law without giving any benefit of exemption under Section 10(23C)(vi) of the IT Act and proposing to assess its income treating the net income as business income. The appellant replied to the show cause notice vide its letter dt. 10th March, 2006. The AO considered the said reply, but did not find it acceptable. Thereafter, the AO as per discussion in paras 12 and 13 of the assessment order, came to the conclusion in para 14 of the assessment order that in absence of the exemption, the income of the Samiti cannot be treated as exempt under Section 10(23C)(vi), the income of the assessee is assessed under the head "Income from business and profession" as per the income and expenditure account.

7. In the first appeal, the learned CIT(A) also confirmed the order of the AO upto this extent, after taking note of the above facts and allegations and held that merely because the application filed by the Samiti was pending with the prescribed authority, the appellant does not become entitled to exemption under Section 10(23C) of the IT Act.

Therefore, the AO has rightly denied exemption under Section 10(23C) of the IT Act to the appellant.

8. Before us, the learned Counsel for the appellant Sh. Mahendra Gargieya, advocate, at the outset submitted that by the time of making the assessment and upto the decision in the first appeal, exemption under Section 10(23C)(vi) was not available despite best efforts made by the appellant and despite filing the same on two occasions i.e. in the year 1999 and thereafter, in the year 2005, the same was pending before the CBDT and hence authorities below taxed the income for want of such an exemption. The learned CIT(A) also therefore confirmed the action of the AO although the appellant made detailed arguments even on the merits of the case to hold the appellant to be an educational institution. Hence this appeal. However he submitted that the above appeal is now fully covered in favour of the appellant inasmuch as the approval under Section 10(23C)(vi) of the IT Act has been granted by the CBDT, New Delhi vide its order in F. No. 197/115/2006-ITA-I dt. 7th Feb., 2007 for the asst. yrs. 1999-2000 to 2001-02. A copy of said order is enclosed in the paper book at paper book pp. 1-2 , 4, 5, 51 and 52. He further submitted that originally, such exemptions once granted, were meant and limited only for a period of 3 years under Rule 2CA(3). However, by the IT (Fourteenth Amendment) Rules, w.e.f 24th Nov., 2006, implies any such exemption granted on or after 1st Dec, 2006 shall be for a limitless period or in other words for ever. This has also been clarified vide Notification No. 2019(E) dt. 24th Nov., 2006 (paper book 51-52). The appellant for the sake of clarity therefore, filed an application dt. 22nd Dec, 2006 (paper book 3) before the CBDT to make suitable amendment accordingly. Hence a modified order dt. 16th March, 2007 (paper book 4-5) has also been passed wherein the exemption has been granted once for all. In other words, the benefit of exemption thus, is also available in the subjected year i.e. asst. yr. 2003-04. He further drew our attention towards the orders for asst. yrs. 2000-01 and 2004-05 passed by the learned CIT(A) vide orders dt. 26th March, 2007 and 28th March, 2007 respectively, copies placed at assessee's paper book pp. 19-34 and submitted that the learned CIT(A) also granted exemption under Section 10(23)(c)(vi) by reversing the order of AO who treated the surplus as business income inasmuch as those two years were also directly covered by the abovementioned CBDT approval. Hence the addition made in those two years stood deleted in full. He further submitted that the CBDT has granted such approval after making a detailed enquiry and investigation into the facts of the activity of appellant. The CBDT thus, satisfied itself that the appellant Samiti existed solely for education and not for the purpose of profit. The learned Authorised Representative Sh.

Mahendra Gargieya further submitted that the appellant had already been enjoying the exemption under Section 10(22) of the Act in the past.

However for asst. yrs. 1996-97 to 1999-2000, when the AO granted exemption but the learned CIT passed a revision order under Section 263, the Hon'ble Tribunal quashed the said order in ITA Nos.

294-297/Jp/2003 vide their order dt. 14th June, 2004 (paper book 35-50) whereby the original assessment orders for these four years have been maintained and restored. In these years the AO specifically recorded a finding that the appellant was an educational institution solely existing for education and not for the purpose of profit and therefore, was entitled to exemption under Section 10(22) of the Act.

Adverting to the various allegations made by the AO in the assessment order, the learned Authorised Representative further submitted that the other allegations of the AO were that appellant did not file Return Of Income (ROI) till the notices under Section 148 were issued for the asst. yrs. 1996-97 to 1999-2000. We may submit that such an allegation is also baseless in the light of above submissions. The appellant already having been enjoying the exemption under Section 10(22) in the past, was not required to file ROI. More particularly, for these four years the matter travelled upto Hon'ble Tribunal as mentioned by the AO at p. 2 para 5(ii). The Tribunal has already quashed the order under Section 263 in ITA Nos. 294-297/Jp/2003 vide their order dt. 14th June, 2004 (paper book 35-50) whereby the original assessment orders for these four years have been maintained and restored. In these years the AO specifically recorded a finding that the appellant was an educational institution solely existing for education and not for the purpose of profit and therefore, was entitled to exemption under Section 10(22) of the Act. Further allegation was that the Department has not accepted said decision of Tribunal and has gone in appeal before the Hon'ble High Court under Section 260A. Suffice to say that unless the operation of the order of an inferior Court is not stayed or is not reversed by a superior Court, merely by filing of appeal, against the order of the inferior Court to the superior Court, the order of the inferior Court cannot lose its binding force. Therefore, there is no substance in the allegation of learned AO. With regard to the allegation to the effect that the appellant stated that it was a self regulatory course and there is no restriction at all placed by any Government authorities as such. The AO further alleged that similar was the position in asst. yrs. 2000-01 and 2004-05. However, the learned AO has totally lost sight of this vital fact that the funds so generated, were utilized towards creating other assets, infrastructure and more particularly the educational Institutions, i.e. Engineering and Pharmacy Colleges were promoted out of these funds. It must be appreciated that in absence of the infrastructure, say for example building, laboratory, other equipments etc. for running these educational institutions, the appellant would have to make payment of a substantial amount on account of rent for building and the so called substantial profit, repeatedly alleged by the AO, would have been reduced to a great extent. It was submitted that the Samiti started with small capital fund of Rs. 4.21 lacs as at 31st March, 1991 and the fixed assets at Rs. 4.86 lacs. Upto the year ended 1991, it was running primary school, and diploma in pharmacy only. However thereafter the Samiti fastly developed and the statistics show a sharp increase in the surplus generated and investments in fixed assets from 1991 to 2006, as per graph (paper book 32). The capital fund of the Samiti, which stood in 1991 at Rs. 4.09 lacs rose to Rs. 884.54 lacs as on 31st March, 2003 and to Rs. 2,074.79 lacs as at 31st March, 2006. The investment in the fixed assets rose from Rs. 5.03 lacs in 1991 to Rs. 1,029.28 lacs as on 31st March, 2004 and Rs. 1,257.32 lacs as at 31st March, 2006. The figures themselves show the Samiti has invested entire surplus from year to year in creating the infrastructure for imparting education.

This growth and development would not have been possible if the funds generated by the Samiti by running various institutions and colleges were not invested for the object of the Samiti, i.e. imparting of education. If we consider the market value of the land and building alone, the value of the land and building would be 20 times the value appearing in the balance sheets. The entire assets stand in the name of the Samiti and not in the name of any of the members. As such, it cannot be said that the Samiti exists for the benefit of the members.

Making further reference to some more graphs and charts at paper book p. 33, it was submitted that the Samiti was the first Samiti in the entire State which took up the challenge and opened Engineering College at Mansarovar, Jaipur in the year 2000. The number of seats today in five faculties of the engineering is 400. The total strength of the engineering college alone is 1600, leaving the number of students for other colleges/courses separately. This way, the Samiti has not only contributed to the social cause of the Samiti, but also fulfilled the objects for which the Samiti was established. As such, the Samiti has been engaged solely for imparting education and not for passing on the benefit to the trustees, or for profit.

9. Further to meet with the allegation of the AO that there is vast difference between the fee charged by it from the students towards free seats and certain examples given by the AO to make comparison of the fees charged by the appellant from the students of two different types of seats, in different courses and also the allegation that similar was the position in different assessment years, it was vehemently submitted that another notable aspect is that the All India Council for Technical Education (AICTE), which is a Government of India organization, set up under the statute enacted by the Parliament, with a view to regulate the activities of all types of education, is responsible for the maintenance of predetermined standards of education in the country. It was submitted that AICTE had been carrying out regular periodical inspections of the institutions, the premises, and the other infrastructures like library books, laboratory equipments, computers and other facilities with the appellant for the courses run by the institutions under approval granted by such authority and notably no adverse remarks at all were made by them in their report on this aspect. Of course, the appellant is free to decide the fee structure for these courses yet it was governed under the direct control and supervision of the said AICTE. Hence, one could not have apprehended of any misutilisation of the alleged higher fees. Therefore there was nothing wrong if the appellant was charging higher fees by taking a decision in the best and overall interest of the institution, which solely exists with the object of imparting best education. It was submitted that the facts and figures mentioned by the AO are incorrect to be extent that the AO has failed to give the ratio of free seats and payments in the absence of which any conclusion drawn by the AO is misleading and biased. The learned AO has also not appreciated the background for allotment of such seats by the Government to the institutions in general. We may submit that fees from the students of free seats, what appellant has been charging, is much below the break even point. In other words, what appellant charges rather results into a loss on free seats, however with a view to compensate the institutes, the Government has purportedly and intentionally allowed them to charge more fees from the students of payment seats. An educational institution is thus able to recover to some extent, the losses caused due to low charges from the students of free seats. Notably the upper limit of the fees to be charged from the students of both types of seats is again a subject matter of the decision by a committee specially set up for this purpose by the Government of Rajasthan. A committee namely, the Tiwari Committee was set up for this purpose by the State Government, which gave its detailed report about the admissions and the fees structure for technical courses. Such type of committee is working effectively every year for deciding the upper limit of the fees for both types of seats, the maximum amount of fees, the number of payment seats to which an educational institution is permitted for the given year. Thus, it is not at all a free hand given to the institutions to charge, whatever fee they wanted. In other words firstly, there is a restriction on the outer limit of the fee and secondly, number of seats were being decided every year by such committee. The AO however, neither applied his mind on this aspect nor rebutted.

10. The appellant was charging abnormal fees in self regulatory courses and from payment seats, is thus, totally baseless and without keeping in view the background, purpose and the object, with which it was being charged. The AO has lost sight of the restrictions placed by the Government in this regard. It was submitted that from the copies of all those letters received from the Government after due consideration of the report of the said committee etc. permitting the appellant to charge fees, as stated above, were duly filed before the AO. However, regrettably the AO totally ignored even making mention of the same.

11. These apart, the allegation of the diversion of the fund by the appellant with regard to the payment of remuneration, rent to members of Parashar family and as regards providing facilities to them, the learned Authorised Representative placed strong reliance towards detailed submission dt. 18th Jan., 2007 placed before the learned CIT(A) (copy placed at the paper book pp. 19-34 of the assessee's paper book) and it was submitted that the Tribunal recorded findings of facts in response to the allegations made by the learned CIT(A) in the asst.

yrs. 1996-97 to 1999-2000. Similar objections/allegations are made by the AO in this year also and therefore the findings in those years are very important and relevant to resolve the controversies in hand. Hence strong reliance was placed at pp. 11 to 14 para 16 (paper book 45-48) of the Tribunal order (supra) wherein such various allegations were rejected after an elaborate discussion. To summarise, his submissions towards these allegations were that Smt. Bharti Parashar was the chairperson, devoting most of her time without charging anything and therefore she deserved a Chauffer driven car and telephone. The car was registered in the name of Samiti. As regards payment of rent, Smt.

Parashar and Sanjay Parashar provided their building for running the school and other activities and no rent was charged in the initial period. It was only later on when there arose a need for hostel for students of management courses, some rent was charged in accordance with a valid agreement. The rent so charged was less than the market rates prevailing in the area and to support the contention even report of the registered valuer was filed as per which, the rent charged was even lesser then the rates prescribed by the State Government. The AO though cited examples of six other properties, but did not confront the appellant and only a general query was raised. The advance given to Smt. Parashar and other family members was also in accordance with the prevailing market practice while putting a property and the amount was lesser than the market rate. As regard the payment made to Sanjay Parashar and Bharat Parashar, it was submitted that they were highly qualified professionals and the payments were made in lieu of the responsibilities entrusted to them, who devoted their full time as a director of the Samiti. It was further submitted that the payments so made were meagre inasmuch as the total receipts in the yrs. 2000 to 2004 are Rs. 2,196.47 lacs against which the payments to the members of the Parashar family stood at Rs. 41.95 lacs as salary and Rs. 10.62 lacs as rent for hostel building, which is hardly 1.91 per cent and 0.48 per cent of the total receipts respectively. This year such per cent stood at a meagre 1.60 per cent and 0.42 per cent respectively. It is established that such payments are meagre as compared to the efforts made by them and hence cannot be termed as passing over of the benefit to the trustees. The provision of conveyance to the directors was with a view to increase efficiency. Moreover on loans given to Sanjay and Bharati Parashar the appellant had already charged interest @ 12 per cent per annum and such loans have already been repaid by them long back. As to the allegation of the AO that the appellant has not paid the remuneration to the teaching staff in various colleges than what is paid by their counterparts in other Government colleges/universities.

For this purpose, he has alleged that no evidence was filed by the appellant showing that how many number of lecturers were as per the norms prescribed by the authorities. We may submit that it is not all for the AO to look into. The number of lecturers were as per the norms or not or what is being paid to them, is within the jurisdiction of the regulatory authorities, and not for the AO. The AO has not at all brought any evidence on record nor any adverse comment, made by any of the regulatory authorities, against the institution, in absence of which, no adverse inference can be drawn. Such an allegation, therefore, has to be ignored altogether. Moreover, the appellant was never confronted on the issue, hence such an allegation has to be ignored. Similar allegations were made by the AO at p. 6 para 8 (iv), whereupon also similar submissions were made.

12. As regards the conclusion raised by the AO at p. 6 para 8(viii) that the appellant on one hand was charging abnormal fees from the students and on the other hand, was not making requisite payment of the salary to the teaching staff and this way, it was making huge profits and it existed for the purposes of profits, it was argued by the learned Authorised Representative Shri Gargieya that firstly that the AO never confronted the appellant on these issues and made allegations without such discussion with the appellant. Secondly the entire matter is to be seen in the light of factual submission made hereinabove and it will be observed that all these allegations of the AO were totally beyond his jurisdiction and competence. He has not at all established that something wrong was found by any of the regulatory authorities against appellant in absence of which no adverse inference can be drawn. He again drew our attention towards the detailed written submission placed before the learned CIT(A) and the charts/details mentioned therein at paper book pp. 19-34. Even assuming that there was some misutilisation of funds/mismanagement by the trustees, even this cannot disentitle the assessee from the exemption under Section 10(22) of the Act as has been held by Hon'ble Rajasthan High Court very categorically in the case of Dy. CIT v. Cosmopolitan Education Society . He also drew our attention towards the decision of Tribunal Jodhpur Bench in the case of Montessary Vidhayala in ITA Nos.

556 to 559/Jd/1999 dt. 6th Feb., 2002, wherein Aditanar EducauonaUnstitution v. Addl. CIT has been followed.

The learned Authorised Representative Shri Gargieya further argued that the findings of fact recorded by this Bench in the earlier years i.e.

from asst. yrs. 1996-97 to 1999-2000 that the appellant was an educational institution solely existed for education and not for the purposes of profits was rightly held by the AO in those years and that it was entitled to exemption under Section 10(22) of the Act, cannot be brushed aside. The AO, in the entire impugned order has not been able to show any other fact or fresh material, which he noticed in this year, requiring of a fresh decision and therefore, there is no reason as to why the decision by the Tribunal in the earlier years, should not be adopted. Until the availability of fresh material of facts, normally, the parties should not depart from the settled history. Our attention was invited to the decisions in Sardar Kehar Singh v. CIT followed in ITO v. Mangalchand Bhanwar Lal and Co.

(1992) 43 TTJ (Jp) 119 : (1992) 44 ITD 359 (Jp), to the effect that the AO should not normally depart from the settled position in the past.

13. With regard to some more allegations of the AO at p. 13 para 13(1), he submitted that the AO has proceeded on misconception of law and facts. Admittedly by not receiving any donation or grant, it was all the more necessary for the appellant, to charge from the students the requisite fees for the course, within the permissible limit and there is no objection by any of the regulatory authorities on this aspect. We have already submitted that there was a definite purpose behind charging such fees and the same was admittedly towards the development of infrastructure facilities. Various other educational colleges like engineering and pharmacy could not have been established for want of funds. One must also look into the background. The Government with a definite idea and object, purportedly opened this area of education for the private sector. The Government, who is already lacking funds and sincere management of education, it was thought that private sector can do this job very well. Once the very intention of the Government, is to promote education in the private sector such an action on the part of the IT Department, if permitted, would seriously discourage and the avowed object of the Government can never be achieved. He further submitted that the quantum and hugeness of the profit is not at all a relevant material, hence the interpretation put by the AO that there has to be a reasonable profit only and then only an institution can be said to be not existing solely for the purposes of profit, is totally a misconception of law on his part. The amount of surplus is not at all material for the purposes of granting approval of exemption under Section 10(23C)(vi) of the Act, as held in many judicial pronouncements. He placed strong reliance upon the decisions in the cases of Aditanar Educational Institution (supra), Dy. CIT v.Cosmopolitan Education Samiti by Tribunal Jaipur which was affirmed by Hon'ble Rajasthan High Court in Dy. CIT v. Cosmopolitan Education Society (supra), Asstt. CIT v. Rajasthan State Text Book Board , CIT v. Lagan Kola Upvan , Governing 14. The learned Departmental Representative on the other hand, strongly relied upon the orders of the authorities below and contended that the assessee existed for profits only in view of the various allegations of the AO. He also alleged that the assessee was neither having any registration under Section 12AA nor its application under Section 10(23C)(vi) was approved till the completion of assessment or even upto the order of the learned CIT(A). However he fairly accepted that the prescribed authority has now granted approval which was effective even for the year under consideration.

15. We have carefully considered the arguments put by the parties, gone through the findings recorded by the authorities below and have also perused the material available on record. The present case relates to an educational institution and since the receipts are admittedly more than Rs. 1 crore, the provisions contained under Section 10(23C)(vi) are relevant. Firstly we refer the same. The provisions contained under Section 10(23C)(vi) of the Act are, similar and analogous to those contained under Section 10(22) of the Act, which has now been omitted w.e.f. asst. yr. 1999-2000 by the Finance Act, 1998. For a better appreciation, both the provisions are reproduced hereunder in verbatim: 10. Incomes not included in total income.--In computing the total income of a previous year of any person, any income falling within any of the following Clauses shall not be included- (22) any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit; Further Clauses (22) and (22A) are now re-enacted in Section 10(23C): (vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in Sub-clause. (iiiab) or Sub-clause. (iiiad) and which may be approved by the prescribed authority; or.

The question of eligibility of exemption under these provisions has to be determined with reference to the objects of the assessee institution. If there results some surplus, after meeting the expenditure incurred towards activities to attain the objects, the institution cannot be denied the exemption under these provisions.

Also the decisive or acid test is whether on an overall view of the matter, the object is to make profit or otherwise should be seen as decided in many judicial pronouncements.

The Hon'ble Supreme Court in Aditanar Educational Institution (supra) held: The language of Section 10(22) of the Act is plain and clear and the availability of the exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for purpose of profit. After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes, since the object is not one to make profit. The decisive or acid test is whether, on an overall view of the matter, the object is to make profit. In evaluating or appreciating the above, one should also bear in mind the distinction/difference between the corpus, the object and the powers of the concerned entity.

16. A bare perusal of the objects stated in the bye-laws, as mentioned at p. 3 of the assessment order, the appellant Samiti was established for the advancement of education. The sole purpose of the Samiti was imparting education through running of various institutions/colleges.

The main object of the appellant, thus was imparting education only.

The authorities below have not found anything wrong or contrary to this from the bye-laws of the Samiti. Hence it is admitted that the object of the appellant Samiti is to impart education and is not to make profits. In substance and reality, the sole purpose for which the appellant Samiti has come into existence is to impart education at the level of colleges and hence, such an institution must have been regarded as "educational institution" coming within Section 10(23C)(vi). It cannot be denied that a substantial part of the receipts was utilized towards the attainment of the main object of the appellant Samiti. For a ready reference, a chart submitted by the appellant is reproduced hereunder:_____________________________________________________________________________________________|s.| | | | | | | | ||No.|Asst. yr. |1999-2000 | 2000-01 | 2001-02 | 2002-03 | 2003-04 | 2004-05 | 2005-06 ||__|___________|__________|__________|__________|__________|__________|__________|__________||1 |Total | | | | | | | || |receipts |18,071,017|20,792,018|26,522,724|52,105,093|50,264,125|69,963,040|88,414,190||__|___________|__________|__________|__________|__________|__________|__________|__________||2 |Addition in| | | | | | | || | bank loan | | | 6,223,400| - |11,667,639| 1,766,087| - ||__|___________|__________|__________|__________|__________|__________|__________|__________||3 |Total | | | | | | | || |receipts |18,071,017|20,792,018|32,746,124|52,105,093|61,931,764|71,729,127|88,414,190||__|___________|__________|__________|__________|__________|__________|__________|__________||4 |Total | | | | | | | || |expenditure| 75,87.863| 76,14,853|13,873,494|20,292,994|22,356.390|29.961,763|38,849,382|| |without | | | | | | | || |deprec- | | | | | | | || |iation | | | | | | | ||__|___________|__________|__________|__________|__________|__________|__________|__________||5 |Investment | | | | | | | || | in fixed | | |17.615,142|27,678,296|20,436,537|45,807,371|23,955,232|| | assets | | | | | | | ||__|___________|__________|__________|__________|__________|__________|__________|__________||6 | Fixed | | | | | | | || |deposits as| | | 2,000,000| - | 3,000,000| 2,500,000| 2,000,000|| |per AICTE | | | | | | | || | norms | | | | | | | ||__|___________|__________|__________|__________|__________|__________|__________|__________||7 | Total | | | | | | | || |application| | |33,488,636|47,971,290|45,792,927|78,269,134|64.804,614|| | Under | | | | | | | || | Section | | | | | | | || | 10(23) | | | | | | | ||__|___________|__________|__________|__________|__________|__________|__________|__________| A bare perusal of the above chart (paper book 1) reveals that the surplus remaining after meeting revenue expenditures, has again been utilised in the additions to the fixed assets. The appellant applied Rs. 45.80 crores as against the total receipts of Rs. 50.26 crores and invested Rs. 20.44 crores in the fixed assets. Loans of Rs 1.17 crores were taken. The appellant thus, has already applied more than 85 per cent of the total receipts of this year. However, the authorities below have not disputed that the funds were otherwise used to a great extent in the development of the infrastructure i.e. addition to the fixed assets etc. in this year, as also in the other years as well. The capital fund increased from Rs. 4.09 lacs (as on 31st March, 2001) to Rs. 884.54 lacs (as on 31st March, 2003) i.e. 221 times. Similarly the investment rose from Rs. 5.03 lacs in 1991 to Rs. 1,028.29 lacs as on 31st March, 2004. Thus, the figures speak that the receipts were largely invested in the infrastructure development and it cannot be said that the same were siphoned off. Utilization of the funds this way can never be objectionable. Huge expenditure has been incurred by the appellant Samiti on the running and managing various degree courses of various subjects. Moreover the appellant has also discharged its obligation towards the society in the field of education. In Asstt. CIT v. Rajasthan State Text Book Board (supra) it was held that where the learned CIT(A) as well as Tribunal found that even if surplus remains with the assessee, is utilized only for the purpose of education, it rightly allowed exemption under Section 10(22).

17. It is also pertinent to mention here that the Hon'ble apex Court in TMA Pai Foundation case (relied upon by the AO also) has observed that the unaided private institutions are bound to generate funds for betterment and growth of the institutions and for which there should be continuous surpluses for furtherance of education, therefore, it is not only permissible but an important requirement to put oxygen to run the institutions of such a strength. Further, in Aditanar Educational Institution (supra) and other cases, the Hon'ble Courts have observed that when surplus is utilised for educational purpose, i.e. the infrastructure development, it cannot be said that the institution was having the object to make profit and to be more specific, the Hon'ble apex Court has observed time and again that surpluses used for management and betterment of institutions cannot be termed as profit.

Detailed arguments were made by the learned Authorised Representative to meet with the allegation of the AO of charging of high school fees to the effect that there was a direct control by the various Government agencies including Tiwari Committee nominated by the State Government.

Otherwise also the fees were charged strictly in accordance with the guidelines provided by them. We find that the learned AO failed to establish that the fees charged by appellant were beyond the limits and guidelines provided by the Government agencies and also failed to bring any material to show that the AICTE or any other concerned Government agency has made any adverse remark on this aspect. Similarly we agree with the contention of the learned Authorised Representative that the AO failed to establish that payment of non-commensurating salaries has been made to the teaching staff and that number of lectures were not in accordance with the norms though desired by the regulating authorities.

Another important aspect is that the Tribunal has already quashed the order passed by the CIT (Adm.) under Section 263 for asst. yrs. 1996-97 to 1999-2000 vide their order dt. 14th June, 2004, copy of which is placed at paper book pp. 35-50, wherein the appellant Samiti has been held to be an educational institution, solely existing for education and not for the purpose of profit and hence was entitled to the exemption under Section 10(22) of the Act. Hence there is no reason for the AO to take a departure from those findings. It can't be disputed nor it is a dispute between the parties that the facts and circumstances of the case are not similar to the earlier years and the manner and method of carrying out the educational activities, accounting etc. are the same. The Hon'ble Supreme Court of India has also held that the facts of the each year should be examined separately and therefore, after examining the facts of this year we find that the facts of the present case are similar to those in the earlier years.

The Tribunal order, is therefore fully applicable on the facts of the present case. In CIT v. Lagan Kala Upvan (supra) it was held, while holding the assessee is entitled to exemption under Section 10(22), the learned CIT(A) recorded a categorical finding that assessee has been running educational institution for the past 25 years without any profit motives, which was endorsed by the Tribunal also. The eligibility of exemption under Section 10(22) has to be determined with reference to the objects of the assessee. The exemption cannot be denied merely because the assessee derives some surplus or there is a violation of condition stipulated in Section 11 or 13.

18. With regard to the various allegations, details submissions were made by the learned Authorised Representative not only before us, as mentioned above but also before the authorities below. However all those allegations are nothing more than suspicion and we do not find any substance therein, once we find that the basic fact is that the appellant Samiti solely existed for education.

19. We have carefully considered the allegations of the AO of misutilisation of the fund by making payments towards rent, salary etc.

to the members of the Parashar family, however found sufficient force in the contention of the learned Authorised Representative that such allegations are mere suspicion for the reasons discussed hereunder. The salary paid to various members of Parashar family were less than pay scale of Government employees. The claim that the provision for car and telephone facility to Mrs. Parashar is not undesirable as she is the chairperson of the Samiti, devotes full time to the Samiti and does not charge any remuneration for the work done for the Samiti. Moreover, these payments have not to be looked in isolation but in conjunction with total receipts of the appellant. On gross receipt of Rs. 2,196.47 lacs in all the four years as against which the total such payments to the members of Parashar family were of Rs. 41.95 lacs as salary and Rs. 10.62 lacs towards rent which were only 1.91 per cent and 0.48 per cent and this year it amounted to a meagre 1.60 per cent and 0.42 per cent respectively. This is beyond the comprehension as to how such meagre payments can be classified as diversions of funds particularly when the premises have factually been used by the assessee for which reasonable rents were paid and also the services of the family members were taken for which salary was paid to them in consideration of the work done by them. On loans, interests as per market rate were already charged. The directors devoted their full time to the appellant Samiti. The learned Departmental Representative could not deny these facts. Under the facts and circumstances of the case, we do not find that the salary and rent paid to the persons referred to in Section 13(3) are excessive and it cannot be said to be a deemed application for the benefit of such persons.

20. We also concur with the alternative submission that even if there was some misutilisation of funds/mismanagement by the trustees, or minor discrepancies are there, this cannot disentitle the assessee from the exemption under Section 10(22) or Section 10(23C)(vi) or Sections 11 and 12 being pari materia of the Act as has been held by Hon'ble Rajasthan High Court in the case of Dy. CIT v. Cosmopolitan Education Society (supra) very categorically. For a ready reference, the headnote is being reproduced herein verbatim: Held, dismissing the appeal, that the CIT(A) had recorded a finding of fact, that it was not known that any part of the income of the assessee Samiti was misutilised. For so saying, the appellate authority referred to the balance sheet. The appellate authority further noticed that the assessee Samiti was a registered Samiti under the Rajasthan Societies Act and that it was also recognised by the CBSE. He observed that if there was any misutilisation or mismanagement, action could be taken against the members of the Samiti, but from the records and facts, it was not possible to say that any amount of funds of the Samiti was not utilised for educational purposes. The Tribunal concurred with this finding of fact. No substantial question of law arose from its order." The decision cited by the AO at p. 15 in the case of All India Personality Enhancement and Cultural Centre For Scholars, Aipecs Society v. Dy. CIT (2004) 85 TTJ (Del) 514: (2004) 91 ITD 240 (Del), is found distinguishable from the facts of the present case itself strongly supports the present case by holding that "there may also be a situation where expense may not be met by the fees or grants/donations received. In such situations, the management may decide to carry on an activity to earn profits to meet such expenses". Hence it can be said that appellant did not exist solely for education. We also find that the prescribed authority has already granted exemption originally on 7th Feb., 2007 for asst.

yrs. 1999-2000 to 2001-02, a copy of which is placed at assessee's paper book pp. 1 and 2 and vide another order dt. 16th March, 2007 (copy placed at paper book pp. 4 and 5 of the assessee), wherein the prescribed authority has granted the objection (sic-exemption) for all times to come i.e. such an exemption is equally applicable for asst. yr. 2003-04, which is under consideration. Thus, the appellant has fulfilled the conditions laid under Section 10(23C)(vi) to the effect that the appellant exists solely for education and not for the purpose of profit as concluded by us hereinabove and the prescribed authority has also granted exemption as stated above.

21. We therefore reverse and set aside the orders of the authorities below and old that the surplus shown by the appellant in its income and expenditure account is exempt from tax under Section 10(23C)(vi) of the Act for the subject year and the AO erred in taxing the same as income from business. Thus ground Nos. 2.1 and 2.2 of the appellant are allowed.

22. In ground No. 3, the assessee is aggrieved that the learned CIT(A) has erred in confirming the charging of interest under Sections 234B and 234D and withdrawing interest under Section 244A of the Act which may be deleted in full.

23. This ground of the assessee is mandatory and consequential in nature.

24. In the result, the appeal of the assessee in ITA No. 146/Jp/2007 is. allowed.


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