TMI Blog2008 (1) TMI 456X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese 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 Parasha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 639 1,766,087 - ---------------------------------------------- 52,105,093 61,931,764 71,729,127 88,414,190 ---------------------------------------------- 20,292,994 22,356,390 29,961,763 38,849,382 ---------------------------------------------- 27,678,296 20,436,537 45,807,371 23,955,232 ---------------------------------------------- - 3,000,000 2,500,000 2,000,000 ---------------------------------------------- 47,971,290 45,792,927 78,269,134 64,804,014 ---------------------------------------------- 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 thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gencies 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, acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively. 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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