2008-VIL-418-ITAT-JAI
Equivalent Citation: TTJ 115, 351,
Income Tax Appellate Tribunal JAIPUR
Date: 25.01.2008
ARVIND BHARTIYA VIDHYALYA SAMITI.
Vs
ASSISTANT COMMISSIONER OF INCOME-TAX.
BENCH
Member(s) : I. C. SUDHIR., B. P. JAIN.
JUDGMENT
This is an appeal filed by the assessee against the order of the ld. CIT(A) dated 29-1-2007 for the assessment year 2003-04.
2. In Ground No. 1, the assessee is aggrieved that the impugned assessment under section 143(3) dated 17-3-2006 is bad in law and the same may be quashed.
3. The Ground No. 1 of the assessee is general in nature which need no adjudication by us.
4. In Ground No. 2.1, the assessee is aggrieved that the ld. CIT(A) has erred in confirming the impugned assessment framed by the Assessing Officer, assessing business income in the hands of the appellant though it was a educational institution. The assessment so framed and confirmed by the ld. 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 ld. CIT(A) has erred in confirming the taxing the whole income of Rs. 1,90,01,630 which is otherwise exempt under section 10(23)(c) 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 Assessing Officer may be directed not to assess the subjected 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 19-10-1975 under the Societies Act, 1958 of Rajasthan. The samiti was set up amongst other objects with the main object of imparting Technical & management education and training without any profit motive in.
(1) Maharishi Arvind College of Pharmacy, Ambabari Circle Jaipur.
(2) Maharishi Arvind Institute of Science & Management, Ambabari Circle Jaipur.
(3) Maharishi Arvind Institute of Engineering & Technology, Mansarovar, Jaipur.
The return of income for assessment year 2003-04 declaring total income of Rs 1,93,01,630 was filed on 3-11-2003. 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 31-12-1999". The case was selected for scrutiny. During the assessment proceedings, the Assessing Officer 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 dated 27-12-2005, mainly stating that the Samitit had already submitted necessary application, through the Commissioner of Income-tax, Jaipur vide application submitted on 31-12-1999. Further the Samiti had also submitted another application under section 10(23C) read with Rule 2 of the Income-tax Rules, as a matter of abundant precaution, for the impugned assessment year 2003-04 on 20-12-2005 to the Chief commissioner of Income-tax, Jaipur, through the Commissioner of Income-tax, Jaipur- II. In the assessment order, however the Assessing Officer 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 Assessing Officer held that the Samiti was existing for the purpose of profit. Further as per discussion in para 9 of the assessment order, the Assessing Officer also gave his finding that some of the interested persons, as specified in sub section (3) of section 13 of the Income-tax Act, had been conferred the benefit from the income of the samiti. Therefore, as per para No. 10, the Assessing Officer issued a show cause notice dated 21-2-2006 to the appellant stating that, in view of the his finding (as mentioned in Para 8 & 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 Income-tax 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 dated 10-3-2006. The Assessing Officer considered the said reply, but did not find it acceptable. Thereafter, the Assessing Officer as per discussion in para 12 & 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 ld. CIT(A) also confirmed the order of the Assessing Officer 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 Income-tax Act. Therefore, the Assessing Officer has rightly denied exemption under section 10(23C) of the Income-tax Act to the appellant.
8. Before us, the ld. 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 ld. CIT(A) also therefore confirmed the action of the Assessing Officer although the appellant made detailed arguments even on the merits of the case to hold the appellant to be an education institution. Hence this appeal. However he submitted that the above appeal is now fully covered in favour of the appellant in as much as the approval under section 10(23C)(vi) of the Income-tax Act has been granted by the CBDT, New Delhi vide its order in F. No. 197/115/2006-ITA-I dated 7-2-2007 for the assessment year 1999-00 to 2001-02. A copy of said order is enclosed in the paper book at paper book pages 1-2 , 4, 5, 51 & 52. He further submitted that originally, such exemption once granted, were meant and limited only for a period of 3 years under rule 2CA(3). However, by the Income-tax (fourteenth amendment) Rules, with effect from 24-11-2006, implies any such exemption granted on or after 1-12-2006 shall be for a limitless period or in other words for ever. This has also been clarified vide notification No. 2019(E) dated 24-11-2006 (PB 51-52). The appellant for the sake of clarity therefore, filed an application dated 22-12-2006 (PB 3) before the CBDT to make suitable amendment accordingly. Hence a modified order dated 16-3-2007 (PB 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., assessment year 2003-04. He further drew our attention towards the orders for assessment year 2000-01 & 2004-05 passed by the ld. CIT(A) vide orders dated 26-3-2007 & 28-3-2007 respectively, copies placed at assessee’s Paper Book pages 19-34 and submitted that the ld. CIT(A) also granted exemption under section 10(23)(c)(vi) by reversing the order of Assessing Officer who treated the surplus as Business Income in as much as those two years were also directly covered by the above mentioned 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 ld. AR 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 assessment year 1996-97 to 1999-00, when the Assessing Officer granted exemption but the ld. CIT passed a revision order under section 263, the Hon’ble ITAT quashed the said order in ITA No. 294-297/JPR/2003 vide their order dated 14-6-2004 (PB 35-50) whereby the original assessment orders for these four years have been maintained and restored. In these years the Assessing Officer 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 Assessing Officer in the assessment order, the ld. AR further submitted that the other allegations of the Assessing Officer was that appellant did not file return of income (ROI) till the notices under section 148 were issued for the assessment years 1996-1997 to 1999-200. 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 traveled upto Hon’ble ITAT as mentioned by the Assessing Officer at page 2 para 5(ii). The ITAT has already quashed the order under section 263 in ITA No. 294-297/JPR/2003 vide their order dated 14-6-2004(PB 35-50) whereby the original assessment orders for these four years have been maintained and restored. In these years the Assessing Officer 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 ITAT 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 loose its binding force. Therefore, there is no substance in the allegation of ld. Assessing Officer. 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 Assessing Officer further alleged that similar was the position in assessment year 2000-01 and 2004-05. However, the ld. Assessing Officer 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 Assessing Officer, 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 31-3-1991 and the fixed assets at Rs. 4.86 lacs. Up to the year ended 1991, it was running primary school, and diploma in pharmacy only. However thereafter the samiti fastly developed and the static’s show a sharp increase in the surplus generated and investments in fixed assets from 1991 to 2006, as per graph (PB 32). The Capital fund of the Samiti, which stood in 1991 at 4.09 lacs rose to Rs. 884.54 lacs as on 31-3-2003 and to Rs. 2074.79 lacs as at 31-3-2006. The investment in the fixed assets rose from 5.03 lacs in 1991 to Rs. 1029.28 lacs as on 31-3-2004 and Rs. 1257.32 lacs as at 31-3-2006. 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 page 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 Assessing Officer that there is vast difference between the fee charged by it from the students towards free seats and certain examples given by the Assessing Officer to make comparison of the fees charged by the appellant from the students of two different types of seats, in different course 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 pre determined 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 infrastructure 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 misutilization 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 Assessing Officer are incorrect to be extent that the Assessing Officer has failed to give the ratio of free seats and payments its in the absence of which any conclusion drawn by the Assessing Officer is misleading and biased. The ld Assessing Officer 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 type 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 be 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 Assessing Officer 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 Assessing Officer 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 alter due consideration of the report of the said Committee etc. permitting the appellant to charge fees, as stated above, were duly filed before the Assessing Officer. However, regrettably the Assessing Officer totally ignored even making mention of the same.
11. There 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 ld. AR placed strongly reliance towards details submission dated 18-1-2007 placed before the ld. CIT(A) and it was submitted that the ITAT recorded findings of facts in response to the allegations made by the ld. CIT(A) in the assessment years 1996-1997 to 1999-2000. Similar objections/allegation are made by the Assessing Officer 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 Pg. 11 to. 14 Pr.16, (PB 45-48) of the ITAT order wherein such various allegations, were rejected after an elaborate discussion. To summarise, his submissions towards these allegations were that Smt Bharti Parashar was the chair person, devoting most of her time without charging any thing 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 govt. The Assessing Officer 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 professional 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 in as much as the total receipts in the year 2000 to 2004 is Rs. 2196.47 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 merger 1,60 per cent and 0.42 per cent respectively. It is established that the such payment are meager as compared to the efforts made by them and hence cannot be termed as passing over of the benefit to the trustees. The provisions of conveyance to the directors was with a view to increase efficiency. Moreover on loans given to Sanjay and Bharat Parashar, the appellant had already charged interest @ 12 per cent p.a. and such loans have already been repaid by them long back. As to the allegation of the Assessing Officer 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 Assessing Officer 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 Assessing Officer. The Assessing Officer 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 Assessing Officer at pg 6 para 8(iv), whereupon also similar submissions were made.
12. As regards the conclusion raised by the Assessing Officer at pg 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 ld. AR Sh. Gargieya that firstly that the Assessing Officer 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 here in above and it will be observed that all these allegations of the Assessing Officer 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 ld. CIT(A) and the charts/details mentioned therein at paper book pages 19-34. Even assuming that there was some misutilisation of funds/mismanagement by the trustees, even this can not 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 [2000] 244 ITR 494. He also drew our attention towards the decision of ITAT Jodhpur Bench in the case of Montessary Vidhayala in IT Appeal No. 556 to 559/JP/99 dated 6-2-2002, wherein Additional Educational Institution v. Addl. CIT [1997] 224 ITR 310 (SC) has been followed. The ld. AR Sh. Gargieya further argued that the findings of fact recorded by this bench in the earlier years i.e., from assessment year 1996-97 to 1999-00 that the Appellant was an educational institution solely existed for education and not for the purposes of profits was rightly held by the Assessing Officer in those years and that it was entitled to exemption under section 10(22) of the Act, can not be brushed aside. The Assessing Officer, 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 ITAT 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 [1992] 195 ITR 769 (Raj.) followed ITO v. Mangalchand Bhanwar Lal & Co. [1993] 44 ITD 359 (JP), to the effect that the Assessing Officer should not normally depart from the settled position in the past.
13. With regard to some more allegations of the Assessing Officer at pg 13 para 13(i), he submitted that the Assessing Officer 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 & 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 Income-tax 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 Assessing Officer 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 pronouncement. He placed strong reliance upon the decisions in the cases of Aditnar Educational Institution, Cosmopolitan Education Society by ITAT Jaipur which was affirmed by Hon’ble Raj. High Court in Cosmopolitan Education Society case, Asstt. CIT v. Rajasthan State Text Book Board [2000] 244 ITR 667 (Raj.), CIT v. Lagan Kala Upavan [2003] 259 ITR 489 (Delhi), Governing Body of Rangaray Medical College v. ITO [1979] 117 ITR 284 (AP).
14. The ld. DR 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 allegation of the Assessing Officer. 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 fe assessment or even upto the order of the ld. 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 relate 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 analogs to those contained under section 10(22) of the Act, which has how been omitted with effect from assessment year 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. ...”
Prior to its omission, clause (22) read as under :
“(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).
“(23C) any income received by any person on behalf of—
(v) 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 can not be denied the exemption under these provisions. Also the decisive or acid test is whether on an over all view of the matter, the object is to make profit or otherwise should be seen as decked in many judicial pronouncements.
The Hon’ble SC in Aditnar Educational Institution case.
“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 byelaws, as mentioned at pg 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 byelaws 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 in to existence is to impart education at the level of colleges and hence, such an institution must have been regarded as “educational institution” coining within section 10(23C)(vi). It cannot be denied that a substantial part of the receipts were 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 :
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S.No. Assessment Year 1999-2000 2000-01 2001-02
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1. Total Receipts 18,071,017 20,792,018 26,522,724
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2. Addition in bank - - 6,223,400
loan
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3. Total Receipts 18,071,017 20,792,018 32,746,124
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4. Total expenditure 75,87,863 76,14,853 13,873,494
without Depreciation
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5. Investment in fixed 17,615,142
Assets
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6. Fixed Deposits as 2,000,000
per AICTE norms
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7. Total Application 33,488,636
u/s 10(23)
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Table Continues...
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2002-03 2003-04 2004-05 2005-06
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52,105,093 50,264,125 69,963,040 88,414,190
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- 11,667,639 1,766,087 -
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52,105,093 61,931,764 71,729,127 88,414,190
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20,292,994 22,356,390 29,961,763 38,849,382
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27,678,296 20,436,537 45,807,371 23,955,232
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- 3,000,000 2,500,000 2,000,000
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47,971,290 45,792,927 78,269,134 64,804,014
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A bare perusal of the above chart (PB1) reveal 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 crore 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 31-3-2001) to Rs. 884.54 lacs (as on 31-3-2003) i.e 221 times. Similarly the investment rose from Rs. 5.03 lacs in 1991 to Rs. 1028.29 lacs as on 31-3-2004. 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 have 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 Raj Rajasthan State Text Book Board’s case it was held that where the ld. 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 Assessing Officer 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 Aditinar Education Institutions 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 ld. AR to meet with the allegation of the Assessing Officer 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 ld. Assessing Officer 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 ld. AR that the Assessing Officer failed to establish that payment of no 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 ITAT has already quashed the order passed by the CIT(Adm.) under section 263 for assessment year 1996-97 to 1999-00 vide their order 14-6-2004 copy of which is placed at paper book pages 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 Assessing Officer to take a departure from those findings. It can not 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 ITAT order, is therefore fully applicable on the facts of the present case. In Lagan Kala Upvan case it was held, while holding the assessee is entitled to exemption under section 10(22), the ld. 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 allegation, details submissions were made by the ld. AR not only before us, as mentioned above but also before the authorities below. However all those allegations are nothing more then 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 Assessing Officer of misutlisation 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 ld. AR 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 chair person 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 Rs. 2196.47 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 inconsideration of the work done by them. On loans, interest as per market rate were already charged. The directors devoted there full time to the appellant samiti. The ld. DR 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) is 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, even this can not disentitle the assessee from the exemption under section 10(22) (or) section 10(23C)(vi) or section 11 & 12 being pari materia of the Act as has been held by Ho’nble Rajasthan High Court in the case of Cosmopolitan Education Society very categorily. For a ready reference, the Head note is being reproduced here verbatim:
“Held, dismissing the appeal, that the Commissioner of Income-tax (Appeals) 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 of law arose from its order.”
The decision cited by the Assessing Officer at pg 15 in the case of All India Personality Enhancement & Cultural Cont. for Scholar v. Dy. CIT [2004] 91 ITD 240 (Delhi) is found distinguishable from the facts of the present case itself strongly support the present case on 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 dated 7-2-2007 for assessment year 1999-00 to 2001-02, a copy of which is placed at assessee’s paper book pages 1 & 2 and vide another order dated 16-3-2007, wherein the prescribed authority has granted the objection for all time to come i.e. such an exemption is equally applicable for assessment year 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. We therefore reverse and set aside the orders of the authorities below and hold that the surplus shown by the appellant in its income & expenditure a/c is exempt from tax under section 10(23C)(vi) of the Act for the subjected year and the Assessing Officer erred in taxing the same as income from business. Thus Ground No. 2.1 and 2.2 of the appellant are allowed.
21. In Ground No. 3, the assessee is aggrieved that the ld, CIT(A) has erred in confirming the charging of interest under section 234B & 234D and withdrawing interest under section 244A of the Act which may be deleted in full.
22. This ground of the assessee is mandatory and consequential in nature.
3. In the result, the appeal of the assessee in ITA No. 146/JP/07 is allowed. The order is pronounced in the open court on 25-1-2008.
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