TMI Blog2013 (6) TMI 674X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment, if it is either established or created by a special statute of Parliament. Refereed case - [2010 (8) TMI 890 - KARNATAKA HIGH COURT] The fact that the trust exists solely for educational purposes is evidenced from the assessment orders for the assessment years 2000- 01 and 2006-07, copies of which form a part of the record before the court. Both these orders which have been made under section 143(3) of the Act, contain a statement to the effect that the assessee is running schools with Gujarati and English as medium of instruction at the primary and secondary stages and that the assessee also conducts a college for girls with the sole intent of imparting education. The record of these proceedings also contains a judgment of a Division Bench of this court dated June 29, 2005 [Trustees of Vanita Vishram [2005 (6) TMI 17 - BOMBAY High Court]] in a reference under section 256(1) to which the petitioner was the applicant. The issue before the court in the reference was whether the assessee was entitled to exemption under section 10(22) on interest earned on surplus funds of the school run by the trust for the assessment years 1979-80 and 1980-81. The Division Bench observed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrying on the sole object of education, is misconceived. However, we observe that the assessee during the period has made certain contributions towards Lions Club International (service organisation) and Meenakshi Sundararajan Fine Arts Academy. The Lions Club International (service organisation) may be undertaking some charitable activities, but by and large, it is a social club, and cannot be strictly construed to be a social organisation for undertaking social work as envisaged in the study curriculum.As regards the contribution to the Meenakshi Sundararajan Fine Arts Academy, there is no explanation furnished by the assessee that as to why contributions were made. The only plausible reason for making contribution to the abovesaid two organisations is that secretary-cum-correspondent of the assessee was an office bearer of the abovesaid organisation. The expenditure claimed by the assessee towards the contribution to the aforesaid two organisations cannot be allowed as expenditure. Since we have held that the assessee is eligible for claiming exemption under the provisions of section 10(23C)(iiiab), it is not mandatory for the assessee to seek registration under the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to the Lions Club to the tune of ₹ 16,77,076 and other miscellaneous payment amounting to ₹ 10,69,770 including amount paid to M/s. Meenakshi Sundararajan Fine Arts Academy ₹ 3,11,000. The Assessing Officer pointed out that Dr. K. S. Lakshmi, secretary-cum-correspondent of the assessee-trust was the District Governor, Lions Club International (service organisation) during the period 2007-08, that is, the period under reference and was also the President of M/s. Meenakshi Sundararajan Fine Arts Academy. The contributions made by the trust towards these organisations are not allowable as expenditure for claiming exemption under section 10(23C)(iiiab) of the Act. The Assessing Officer concluded in the assessment order dated December 28, 2011 that the assessee is not eligible for claiming exemption under the provisions of section 10(23C) of the Act as it is not registered under the provisions of section 10(23C)(vi). 3. Aggrieved against the assessment order, the assessee carried an appeal to the Commissioner of Income-tax (Appeals). The Commissioner of Income- tax (Appeals), vide order dated November 18, 2012 dismissed the appeal of the assessee. While d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e objects of the trust are subservient to the attainment of the main object, i.e., education. As regards contribution to the Lions Club International (service organisation) is concerned, learned counsel submitted that contributions have been made to the Lions Club International (service organisation) for social cause. As per UCG norms, it is mandatory for the students to carry out some social activities. In order to propagate social activities, the students were associated with the Lions Club International (service organisation), which is undertaking social activities, viz., blood donation camp, medical camps, promotion of social betterment objects, etc. Learned counsel contended that the assessee is eligible for deduction under the provisions of section 10(23C)(iiiab). However, the assessee had also applied for registration under the provisions of section 10(23C)(vi) of the Act to be eligible for claiming deduction under the other provisions of section 10(23C) of the Act. The assessee had made an application under section 10(23C)(vi) on March 28, 2002. However, till date, no communication has been received, either accepting or rejecting the said application. In the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the pro visions of section 10(23C)(iiiab) ? Before adverting to the facts of the present case, it would be necessary to see the relevant provisions of section 10(23C) of the Act. The relevant extracts of the section are reproduced herein below : 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- (23C) any income received by any person on behalf of- . . . (iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government ; or . . . (iiiad) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institu tion do not exceed the amount of annual receipts as may be pre scribed ; or . . . (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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial interest. Similarly, ' substantial interest' has also been defined in the Explanation to section 40A(2)(a) of the Income-tax Act, where a person who is having voting power of not less than 20 per cent in the case of the company, is deemed to have substantial interest in the business of the company. Para 5. In the case of assessee itself, when the grant was more than 50 per cent., exemption has been extended to the assessee. It is in this context, in the absence of any definition for the word ' substantial' in the Act, what is to be seen is, what is the total receipts and from what source. In that context, we have to find out whether the grant of 36.42 per cent of total receipts constitutes substantial finance by the Government.' 5. Applying the aforesaid law, in the instant case, the total income of the assessee from all sources is ₹ 20.61 lakhs. Out of which, a sum of ₹ 7.80 lakhs which represents only 37.85 per cent. of the total income is financed by the Central Government, the other source of income being tuition fee, donations, etc. In that context, it is clear that this amount of ₹ 7,80,000 given as grant b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution solely for educational purposes is to be done on the basis of its objects and utilisation of its income in accordance with the conditions laid down in the third proviso to section 10(23C). Merely for the reason that the educational institution has surplus funds, it would not ipso facto lead to an inevitable conclusion that an educational institution exists for making profits and not solely for educational purposes. The learned Departmental representative has pointed out that it has been mentioned in the objects of the assessee : to do all such acts, deeds and things in addition to and in furtherance of the above purposes and in the advancement of any other charitable object of public utility not involving any activity for profit. Thus, the assessee is not set up solely for educational purpose. In our opinion, any other charitable objects as referred to above cannot be independent but are subservient to the object of imparting education alone. Be that as it may, the Assessing Officer has not pointed out what other charitable activities are being carried out by the assessee. The hon'ble Bombay High Court in the case of Vanita Vishram Trust v. Chief CIT [2010] 327 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r which has been set up in the proximate past. The trust has a history of over eighty years during the course of which the only activity is of con ducting educational institutions. 11. The fact that the trust exists solely for educational purposes is evidenced from the assessment orders for the assessment years 2000- 01 and 2006-07, copies of which form a part of the record before the court. Both these orders which have been made under section 143(3) of the Act, contain a statement to the effect that the assessee is running schools with Gujarati and English as medium of instruction at the primary and secondary stages and that the assessee also conducts a college for girls with the sole intent of imparting education. The record of these proceedings also contains a judgment of a Division Bench of this court dated June 29, 2005 [Trustees of Vanita Vishram v. CIT [2006] 280 ITR 345 (Bom)] in a reference under section 256(1) to which the petitioner was the applicant. The issue before the court in the reference was whether the assessee was entitled to exemption under section 10(22) on interest earned on surplus funds of the school run by the trust for the assessment years 1979-80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional institutions which have applied its income or accumulated it for application wholly and exclusively to the objects for which it is established and in a case where fifteen per cent. of income is accumulated on or after 1st April, 2002, the period of the accumulation of the amount exceeding fifteen per cent., shall in no case exceed five years. This provision would establish that Parliament did not regard the accumulation of income by a university or educational institution governed by sub-clause (vi) as a disabling factor, so long as the purpose of accumulation is the application of the income wholly and exclusively to the objects for which the institution has been established. Parliament has, however, prescribed that where more than fifteen per cent of the income is accumulated after 1st April, 2002, the amount exceeding fifteen per cent shall not be accumulated for a period in excess of five years. 13. For all these reasons, we are of the view that the rejection of the approval by the first respondent was manifestly misconceived. Only two reasons have weighed with the first respondent in rejecting the approval, both of which have been found to suffer from manifest err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iculum. As regards the contribution to the Meenakshi Sundararajan Fine Arts Academy, there is no explanation furnished by the assessee that as to why contributions were made. The only plausible reason for making contribution to the abovesaid two organisations is that secretary-cum-correspondent of the assessee was an office bearer of the abovesaid organisation. The expenditure claimed by the assessee towards the contribution to the aforesaid two organisations cannot be allowed as expenditure. Since we have held that the assessee is eligible for claiming exemption under the provisions of section 10(23C)(iiiab), it is not mandatory for the assessee to seek registration under the provisions of section 10(23C)(vi). Be that as it may, the assessee had applied for registration in the year 2002, nothing was communicated to the assessee regarding the rejection or allowing application of the assessee for registration. The assessee cannot be held responsible for the inaction of the Department. If the Department is in slumber, the assessee cannot be faulted. 9. Thus, in view of the aforesaid findings, the appeal of the assessee is partly allowed in the aforesaid terms. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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