TMI Blog2006 (3) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... of survey it was found that in fact the society is formed to earn profit and the surplus is utilized in acquiring assets. This fact is also strengthened from the returns tiled for the subsequent assessment years. Receipts of donation are admitted to be from the students, which is sort of forced amount of receipt in the shape of donation. The AO further observed that copy of the minutes dt. 23rd April, 1993 tiled by the society reveals that there is a mention of classwise fees to be charged from the students. However, there is no mention about the donations, which are being charged. Also there is no such clause in the objects of the society to collect donation from students. The profit earned is diverted to family members of the president, as the wife of the president is principal in the institute and father of the president is getting rent on account of building, rented to the institute. Also the president himself is getting remuneration from society. From the income and expenditure account, it is noticed that the assessee is claiming depreciation on assets. As per s. 32(1) of the IT Act, depreciation is allowable to the assessee on the assets used for the purposes of business or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of annual receipts as may be prescribed. The prescribed limit is Rs. 1 crore. The receipt of the assessee society is only Rs. 40,24,906 (Rs. 34,91,251, paper book 14-15, Rs. 5,33,655 paper book 20) for asst. yr. 2001-02 and Rs. 64,82,411 (51,98,411, paper book 24-25 + 12,84,000, paper book 30) for asst. yr. 2002-03. Thus one of the conditions of 10(23C)(iiiad) is fulfilled. The second condition is that the educational institution should exist solely for educational purposes and not for the purpose of profit. In the present case as per its constitution, the society exists solely for educational purpose and not for profit. Eminent persons of Jhunjhunu and District Education Officer are members of the society who are duly elected from time to time. The lower authorities have treated the society as existing for profit solely for the reason that the appellant assessee paid salary to the president of society and his wife and rent to the father of the president, received donation from the students and utilized the surplus for purchase of asset. These observation are neither fully correct nor can be a basis for treating the assessee society as existing for the purpose of profit in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixtures 1,708 5,41,705 Computer 10,650 2,51,177 Thus it can be noted that the surplus has been used for the object of the society. The Rajasthan High Court in case of Asstt. CIT vs. Rajasthan State Text Book Board (1999) 157 CTR (Raj) 207 : (2000) 244 ITR 667 (Raj) has held that where the assessee society was an educational institution existing solely for the purpose of education and even if it had surplus, the assessee would not be disentitled for exemption if the same has been utilized for the purpose of education. On the assets of the society depreciation has been claimed. The AO assumed that claiming depreciation means that the assessee is engaged in business. This observation is against the law. Rather the depreciation is considered as application of the income and held allowable as per accountancy [CIT vs. Sheth Manilal Ranchhoddas Vishram Bhavan Trust (1992) 105 CTR (Guj) 303 : (1992) 198 ITR 598 (Guj)]. 6. The Authorised Representative further relied on Instruction No. 1122, dt. 29th Oct., 1977 reported in Birla Vidhya Vihar Trust vs. CIT (1981) 24 CTR (Cal) 307 : (1982) 136 ITR 445 (Cal) and also the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is admitted to be from the students which is sort of forced amount of receipt in the shape of donation. Copy of the minutes dt. 23rd April, 1993 filed by the society reveals that there is a mention of classwise fees to be charged from the students. However, there is no mention about the donations which are being charged. Also there is no such clause in the objects of the society to collect donation from the students. The surplus is increasing from year to year. This shows the assessee's motto to earn profit and not for solely and exclusively for educational purposes. The break-up of surplus generated by the assessee during the previous years relevant to asst. yrs. 1999-2000 to 2002-03 is as under: ------------------------------------------------------------ Asst. yr. Surplus from Hostel Surplus from School Total ------------------------------------------------------------ 1999-2000 0 164340 164340 2000-01 109615 307624 417239 2001-02 232227 775424 1007651 2002-03 124876 1576201 1701077 ------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e receipts of the society on account of donation~ and fees are as under: Asst. yr. 2001-02 Asst. yr. 2001-02 (i) Donations 1849725 2712750 (ii) Fees from students 1639240 2471470 (iii) Others 2286 14191 -------- -------- 3491251 5198411 -------- -------- The aforesaid receipts clearly indicate that the gross receipts emanating from the educational activity and verifiable from the objects of the society are Rs. 16,39,240 and Rs. 24,71,470 during the asst. yrs. 2001-02 and 2002-03 respectively and therefore, donations received are nothing but income from other sources which are not on account of rendering education. Neither the assessee nor the AO has brought on record (anything) to prove the following: (a) Whether the said donations have been received from each and every student and every month and separate receipts are issued or not. (b) Whether the said donations are consolidated amount of receipts received from family members of students or students or few of st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not registered under s. 12AA of the Act and therefore the conditions under ss. 11 and 13, as referred in s. 12(1) have not been fulfilled by the assessee, which are the necessary conditions for claiming an institution to be a charitable institution or an institution not for the purpose of profit. The counsel for the assessee has relied upon many decisions which are not relevant in the present case. 14. As regards findings of authorities below that the assessee has diverted the funds by applying the same as payment of salary to Shri Dilip Modi, the president of the society, salary to Smt. Nirja Modi, wife of the president and principal of the society, rent to Shri Mathura Prasad Modi and loan of Rs. 14,000 and Rs. 10,000 to Shri Dilip Modi and Smt. Nirja Modi, respectively. These are not the requirements of exempting the income under s. 10(23C)(iiiad) of the Act. The learned counsel for the assessee has made the arguments in this regard as mentioned hereinbefore. Under these circumstances, the AO could disallow the expenses to the extent he proves such expenses as unreasonable, which he failed to do. But this cannot be the basis to hold that the assessee institution is an insti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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