9911796707
TMI Blog2004 (6) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee on15th January, 1999. In response to notice under section 158BC, the assessee filed the block return declaring nil undisclosed income. 3. After examining the materials placed on record, the Assessing Officer found as under: 1. That assessee Society was managed by Lt. Col. Prem Saran Satsangi, who was patron/Chairman of the Society as well as by other persons, who are relatives of Mr. P.S. Satsangi, namely, Dr. Rohit Jaiman (son-in-law) as President, Mrs. U.B. Satsangi (wife) as Vice President and Mrs. S.S. Jaiman (daughter) as Secretary. The other persons in the management were Col. S.P. Srivastava as Vice President and Mr. Lakshman Kumar as Joint Secretary. 2. The assessee Society was running four schools, namely, (i) at Satbari, Mehrauli, New Delhi; (ii) at Navrangpur, Gurgaon; (iii) at Ricco Industrial Area, Bhiwadi (Rajasthan); (iv) Utopia CSIS Malbaro Heights. 3. That perusal of the income and expenditure account for the block period revealed that if only revenue expenditure is taken into account to the exclusion of capital expenditure then the surplus would work out to higher figure every year. Percentage-wise, it will vary from 46% to 18%. Even after debi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 2-9-1996 90,000 31-12-1996 70,207 2. Smt. Shakuntala Jaiman 2-7-1994 1,00,000 Secretary / Principal 29-12-1997 2,50,000 (Chairman's daughter) 3. Mrs. Unou Satsangi 23-12-1992 70,000 Vice President &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2-1997 2,03,235 5. Dr. Rohit Jaiman 23-4-1990 1,34,000 President (Chairman's 29-12-1997 1,75,000 son-in-law) ----------------------------------------------------------------- 6. Immovable properties owned by the Society were continuously being used for giving on hire to outsiders with the sole motive of earning profit. The hire charges received from year to year were quite substantial as per details given below:- Financial year Amount 1995-96 17,03,525 1996-97 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no documentary evidence to show that the investment has been made for educational purposes. Purpose of this deal cannot be said to be educational. (e) Other transactions: Scrutiny of the balance sheets for various years falling within the block period revealed that in almost all the years substantial amount has been given as advance for purchase of land/immovable properties showing that the assessee was regularly indulging in property deals. The figures in the balance sheets for the last five years are as follows:- As on 15-1-1999 Rs. 76,73,913 As on31-3-1998 Rs. 92,82,413 As on31-3-1997 Rs. 72,82,413 As on31-3-1996 Rs. 25,32,206 As on31-3-1995 Rs. 39,28,180 8. Amount of surp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgaon (Haryana) for which he had paid earlier from his own sources and the said property was registered in the name of the society. The said amount had been adjusted from him during the financial year 1998-99. Therefore, acquisition of the said immovable property was not for personal use of Shri Satsangi. Mrs. U.B. Satsangi was given the advance against Farm Nos. 217 and 225, Silver Glades Farms, Malbaro, Gurgaon (Haryana) admeasuring 2 acres which is being used by the society to conduct study camps and other school activities such as functions, site seeing and picnics for the students of the school. The said advance had been repaid by her also during the financial year 1998-99. (d) With regard to giving on hire immovable properties of the society to outsiders and transactions in sale/purchase of immovable property, it was explained that the society had accumulated its receipts in the last ten years and had applied the same in the corpus of the society in the shape of acquisition of school land and buildings to be used for the educational purposes and not for any purposes other than education. It was contended that the society was not carrying any activities which were unrelated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as under: (i) Regarding Payment of Rs. 1,80,000 to Anubhav Plantation on2nd September, 1996: That the income of the society was used for personal purposes of the chairman and not for educational purposes. The so called recovery from him is found to have been effected only after the search in January, 1999. (ii) Regarding investment of Rs. 4,33,620 with BVR Plantation and Rs. 2 lakhs with Consortium Finance : That the funds were utilized by way of investment with a motive to earn profit and not for educational purposes. The investment with BVR Plantation still remains with that concern and the amount outstanding from M/s. Consortium Finance as on15-1-1999was at Rs. 38,12,456. The investment were mostly speculative in nature and were certainly not for educational purposes. (iii) Regarding advances made to Col Satsangi, Mrs. Shakuntala Jaiman, Mrs. U.B. Satsangi, Mr. Y. Sinha and Dr. Rohit Jaiman : That these advances were not for the purpose of education and the claim of the assessee that interest on such loans were being charged was only a half truth because interest was found to have been charged on the debit balances of some of the accounts only after the date of search in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material to indicate that society was engaged in purchase and sale of immovable properties. Such purchase and sale was not for the purpose of education. (viii) The assessee's claim that the deposits received from the students by way of caution money, emergency deposits etc. were invested in fixed deposits as the society was obliged to refund such deposits to the students at the time of leaving school, is not correct. There is substantial increase in the investment in fixed deposits year after year. Thus, it is apparent that the investment in fixed deposits with the banks was made only with the purpose of earning income and not to satisfy the objects of the society. Had it been so the huge amount would not have been blocked in FDRs but would have been used for promoting the objects of the society. On many occasions the investment in FDRs was made for a period of more than three years at a stretch. For instance, investment of Rs. 33,05,543 was made in FDRs with Punjab National Bank Chandahola on26-7-1997for 39 months. In the light of the facts in the above paragraphs, the Assessing Officer held that the assessee institution could not be said to be existing solely for educational pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is in appeal before the Tribunal. 7. The learned counsel for the assessee has assailed the order of the CIT(A) by making various submissions. According to him, the assessee society was created for the cause of education by Lt. Col. P.S. Satsangi, an educationist. He drew our attention also to the objects of the society to point out that the only object of the society was the advancement of education through running of schools. He also pointed out that the assessee society was also registered under section 12A subsequent to the date of search which also shows that the object of the society was education only. It was vehemently argued by him that exemption under section 10(22) could not be denied to the assessee merely because there was surplus of receipts over the expenditure incurred by the assessee. Reliance was placed on the Supreme Court judgment in the case of Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310 for the proposition that exemption under section 10(22) of the Act cannot be denied merely because there was surplus at the end of the year. It was also held in that case that the fact whether the assessee existed solely for educational purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court as S.L. Kapoor v. Jagmohan AIR 1981 SC 136 and submitted that this judgment was not brought to the notice of Special Bench in the case of Kailash Moudgil v. Dy. CIT [2000] 72 ITD 97 (Delhi) where the issue was decided against the assessee. Except as stated above, no other argument was raised on behalf of the assessee. 8. The contentions of the learned counsel for assessee to be very attractive but after giving our due consideration to the issue before us, we are not inclined to accept the same. The main question for our consideration is whether the income of assessee is exempt from taxation under section 10(22) of the Act. The relevant provisions read as under: "Section 10: 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 purpose of profit." A bare look to the above provisions shows that in order to claim exemption, two conditions must be satisfied (i) the university or other institution must exist solely for the purpose of education and (ii) such instituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such cases, schools/colleges can be said to be running on purely commercial basis to earn profits. Such institute would fall in the second category. In our humble opinion, the Legislature has denied exemption under section 10(22) in such case only by providing an exception "not for the purpose of profits". If such institutes are also allowed exemption on the ground that they are created to advance the cause of education, then the expression "not for the purpose of profits" would became redundant. An interpretation which makes the provisions redundant is not permissible in law. 11. It may be mentioned that under both the categories mentioned above, the Societies/Trusts are created with the sole object to advance the cause of education but if such object is coupled with the motive to earn profits, then such institution will not be entitled to exemption under section 10(22) of the Act since in such case it cannot be said to exist solely for the purpose of education. Therefore, registration under section 12A/12AA of the Act would not be relevant by itself for claiming exemption under section 10(22) though the same would be relevant for claiming exemption under sections 11 and 12 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the same, it was held that private aided institution cannot charge the fee higher than Government Institution. It was also held that imparting of education has never been treated as commerce in this country since times immemorial and has always been treated as charitable activity. It was further held that there should not be element of profiteering in carrying out the education activity. However, it was clarified that reasonable surplus to meet the expansion cost is not profiteering. 14. The above judgment was again considered by larger Bench of eleven judges in the case of T.M.A. Pai Foundation v. State ofKarnataka[2202] IX AD (SC) 497. Their Lordships in para 69 at page 537 observed as under: "In such professional unaided institutions, the Management will have the right to select teachers as per the qualifications and eligibility conditions laid down by the State/University subject to adoption of a rational procedure of selection. A rational fee structure should be adopted by the Management, which would not be entitled to charge a capitation fee. Appropriate machinery can be devised by the State or university to ensure that no capitation fee is charged and that there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; Income over Exp) ----------------------------------------------------------------------------------------------------- 1989-90 95,66,340 54,92,338 26,06,257 80,98,595 14,81,095 1990-91 1,56,58,708 1,28,08,194 65,33,065 1,93,41,159 (-) 36,82,550 1991-92 1,83,10,350 1,16,46,594 31,02,137 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores is taken into consideration, still the net profit remained with the assessee was of Rs. 1.63 crores approximately. Analysis of each year would reveal that assessee was making huge profits every year except in assessment years 1990-91 and 1992-93 where after meeting the capital expenditure, there was loss of Rs. 36 lakhs and Rs. 33 lakhs respectively. If capital expenditure is excluded in these two years then there was profit of Rs. 28 lakhs in assessment year 1990-91 and Rs. 75 lakhs in assessment year 1992-93. It is also to be noted that assessee is neither receiving any grant from the Government nor donations from the public. The entire statement of affairs for all the 10 years before us reveal that the education is being imparted purely on commercial basis and, therefore, we are of the view that the case of the assessee falls in the second category since the educational institution was running purely on commercial basis. The fact that disproportionate fee is being charged from the persons to whom the education is being imparted itself shows that education was being imparted with the purpose of profit. This fact is further corroborated by the fact that investment in fixed d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty No. 29, Kalu Sarai/Sarvpriya flat. Similar is the position with reference to the cheque of Rs. 8 lakhs received on23rd July, 1993from Mideast Integrated Steel Co. Ltd. on account of property No. 29, Kalu Sarai/Sarvpriya Vihar flat. Subsequently, these amounts aggregating Rs. 10 lakhs were deposited in the name of school in the FDRs and the account of Col. P.S. Satsangi was credited. It is further seen that on13-9-1993there was sale of car on behalf of the school and the sale proceeds of Rs. 1,42,129 were retained by him directly and his account was debited. These entries show that Col. P.S. Satsangi was in a dominating position and was utilizing the funds of the society as and when he needed. These funds were utilized to the detriment of the institution as no interest was being charged from him. It is to be noted that interest was being charged on the advances from Dr. Rohit Jaiman on year to year basis which shows that when the amounts was given as advance on interest, it was duly charged. However, in the case of Col. P.S. Satsangi, no interest was charged on the amounts withdrawn by him throughout i.e. the entire block period of 10 years. (4) It has also been found that Mrs. ..... 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