TMI Blog1994 (9) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... that the exemption under section 10(22) was not made dependent, like section 10(21) or section 11, on the mode and manner of application of the income and the application of non-application of the income had no relevance in determining the question of exemption under section 10(22). He therefore erred in holding that the appellant was not entitled to exemption under section 10(22) because it had not applied its income towards educational purpose. (3) The learned CIT (Appeals), without appreciating the actual working of the appellant in the field of education and research in Mathematics, erred in holding that the appellant did not exist for the purpose of education and that section 10(22) did not apply. (4) The learned CIT (Appeals) erred in holding that the appellant was not entitled to exemption under section 10(21) because (i) it had paid an amount of Rs. 30 lakhs and above to the contractor when it was not necessary, and (ii) the appellant did not spend any money for carrying out scientific research. These findings of the CIT (Appeals) are factually and legally not tenable. (5) The learned CIT (Appeals) erred in holding that the appellant was not entitled to exemption unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for technical reasons by lower authorities. " 3. Before discussing the issues in dispute, it would be convenient to give the necessary factual background of the case. The assessee is a society registered under the Societies Registration Act. The Memorandum lists out the following as its objects : (i) to encourage and facilitate the pursuit of Mathematics ; (ii) to promote and encourage the fundamental research in Mathematics ; (iii) to support exchange of ideas and propagation of development in Mathematics ; (iv) to endeavour in numerous ways to spread and cultivate appreciation and studies in Mathematics at various levels and in various aspects ; (v) to encourage and facilitate the pursuit of other branches of knowledge and supportive activities in suitable ways ; (vi ) to provide facilities in fulfilment of these objects. The assessee has been recognised by the Prescribed Authority as a Scientific Research Association for the purposes of section 35(1)(ii) of the Income-tax Act. The assessee was also registered as a public trust by the Charity Commissioner, Pune, vide certificate dated 5-1-1975. The Director of Education, Maharashtra vide his letter dated 31-5-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing into millions of rupees on these heads were all bogus. The assessee had also not fulfilled the conditions as laid down under the proviso to section 10(21) as regards the depositing or investing of its contributions in the modes and manners provided in section 11(5) of the IT Act ; (c) as regards the assessee's claim of exemption under section 11, the Assessing Officer came to the conclusion that the amounts which the assessee had claimed to have spent on alleged scholarships, travelling and subsistence allowance and purchase of books could not be considered as application of income on the objects of the trust. He accordingly held that the entire amounts marginal rate. 4. The above findings of the Assessing Officer were challenged in the first appeals. The learned CIT (Appeals) in his detailed order running into about 70 pages made a detailed discussion of the facts, the contentions of the assessee and the department and the findings of the Assessing Officer. After full consideration of all the relevant aspects and hearing the authorised representative(s) of the assessee and the Assessing Officer Shri S.P. Joshi, the learned CIT recorded his findings rejecting the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the objects of the Association. Thus, the assessee did not qualify for exemption under section 10(21) of the Act. As regards the claim of exemption under section 11, the learned CIT (Appeals) has again endorsed the finding of the Assessing Officer to the effect that the assessee had contravened the provisions of section 11(5) and therefore fell within the purview of section 13(1)(a). In this view of the matter, the assessee was not entitled to any exemption under section 11 of the Act. In view of these findings, the assessee's appeals were dismissed by the learned first appellate authority and it was held that the action of the Assessing Officer to tax the entire income of Rs. 75,98,970 for the assessment year 1986-87 and at Rs. 45,79,300 for the assessment year 1987-88 at the maximum marginal rate was proper and correct. 5. In the present appeals, although as many as 12 formal grounds have been raised, yet the issues involved therein are the same as before the learned CIT (Appeals). The issue of levy of interest under sections 139 and 217 has also been raised in ground No. 10 of the appeals. Let us now discuss each issue separately. (A) : Exemption under section 10(22) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Statistical Institute had also organised a joint programme along with the Pratishthana for conducting summer programme in June 1978 in various branches of Algebra. 7. On the basis of the above facts and the Court/Tribunal decisions cited below, the learned counsel contended that the Pratishthana was essentially existing solely for the purpose of education and not for profit within the meaning of section 10(22) and was, therefore, entitled to exemption under that provision of law : (1) National Institutes of Construction, Management Research (NICMAR) v. ITO [1990] 34 ITD 445 (Bom.), (2) Gujarat State Co-operative Union v. CIT [1992] 195 ITR 279 (Guj.), and (3) IAC v. Matrusri Educational Society [1994] 48 ITD 583 (Hyd.). Elaborating, he submitted that, apart from being an educational institution, the Pratishthana was also research association engaged in higher learning in the field of mathematics. Inasmuch as the education by way of lectures etc. was being imparted at the doctoral and post-doctoral level, there could not be any formal classes conducted in any school/college. However, a good number of lectures and seminars were organised to conduct study in researc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting only for the purpose of private profit of persons. As regards the CIT's letter dated 7-4-1980, it was contended by the learned departmental representative that, that letter could not be of any assistance to the assessee in the present case. Firstly, that letter was subsequently cancelled with retrospective effect by the same CIT. Secondly, the view of the matter taken by the CIT in connection with the statutory provisions of the Income-tax Act could not validly bind the Assessing Officer in the discharge of his quasi-judicial function of making assessment under the said Act. Reference in this connection was made by him to the following decisions : (1) S.B. Adityan v. First ITO [1964] 52 ITR 453 (Mad.), and (2) Birla Vidhya Vihar Trust v. CIT [1982] 136 ITR 445 (Cal.). The learned departmental representative further contended that even the aforesaid letter of the CIT which was only an administrative act could not serve as a promissory estoppel on the part of the department thereby debarring the department from refusing to grant exemption under section 10(22). For this purpose, reliance was placed on the decision of the Calcutta High Court in the case CIT v. Bankam Investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xistence and functioning. In the case of the assessee Pratishthana, there was neither body nor soul to make it as an institution. The facts admitted by the assessee and unearthed during the investigation show that calling the assessee Pratishthana " an institution " would be clearly a misnomer. If at all it was an institution, it was only a one-man institution. Moreover, it was not existing solely for educational purposes, but mainly and substantially, if not solely, for the purpose of private profit. The word used in clause (22) of section 10 is ' existing ' and not ' established ' or ' founded '. For howsoever laudable purposes a Body or Organisation may be established or founded, it cannot be held to be existing for those objects and purposes if a serious deviation or departure is found therefrom. In the present case, for adjudging the issue as to whether the assessee Pratishthana was existing solely for educational purposes, it will have to be seen what had been the concrete nature of its activities and how its income and expenditure has been handled. In other words, it will have to be seen as to whether the income and the expenditure was solely devoted to or applied for the so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that case was running a regular engineering college, which had civil engineering, mechanical engineering, computer science, electronics and communication engineering branches with 290 annual intake of students. In the case before us, there is neither college or school nor any building to run a college or school nor any paid or duly appointed teachers, nor any laboratory or equipment, nor any payment of salaries, honoraria or fees nor any student regularly enrolled or qualified. In the presence of these facts, it would be difficult to hold that there was any educational institution existing at all. The next such decision is the decision of the Bombay Bench of the Tribunal in National Institutes of Construction, Management Research (NICMAR)'s case. In this case, the education given by the assessee was of course of graduate level and therefore, it was observed that there could not be ' normal schooling ' as understood in the ordinary parlance. However, the Post-graduate diploma course in construction management was a full-time course of 18 months' duration and was equivalent to M.E. or M.B.A. of Indian universities. Not only that, the assessee was running a core faculty by engaging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by personal efforts as distinct from institutional effort cannot constitute such activity into an institution much less an educational institution. The second decision relied upon by the revenue is the judgment of the Calcutta High Court in the case of Birla Vidhya Vihar Trust. It has been observed therein that in order to attract exemption under section 10(22), an university or institution must exist solely for educational purposes and not for the purpose of profit. The position in such a case should be determined with respect to cumulative effect of all the relevant facts. For this purpose, the facts of the accounting year are material but not decisive. In the present case, on a cumulative consideration of all the facts and circumstances concerning the constitution, management, functioning, application of income and expenditure and the activities of the assessee Pratishthana, the only conclusion which can be reached is that, firstly, there was no institution as such in existence ; secondly, such institution, even if any, was not solely existing for educational purpose and ; thirdly, it was existing mainly and substantially, if not solely, for the purposes of private profit, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed that the expenditure had not been incurred on the objects of research. The assessee has further contravened the provisions of section 11(5) of the Income-tax Act. One of the requirement of section 10(21) was that the assessee must not deposit/invest any sum by way of contributions received by it in any mode or form otherwise than as specified in section 11(5). In the instant case, it is seen that disproportionate amount exceeding Rs. 30 lakhs was given to the contractor. It has rightly been held by the two revenue authorities that in the context of the value of the contract awarded, the value of the work done and the contractual relationship between the parties, the amount paid to the contractor could not be held to be the advance payment of contract money, but was a deposit and investment and there was thus contravention of the provisions contained in section 11(5). Moreover, the bogus expenditure claimed on account of purchase of books, payment of scholarships, payment of subsistence allowance and travelling allowance clearly shows that the assessee had not applied its income wholly and exclusively to the objects for which it was established and had not accumulated its income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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