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TMI Blog2009 (8) TMI 860X X X X Extracts X X X X X X X X Extracts X X X X ..... ry evidence, the CIT(A) has wrongly upheld that the expenditure of Rs. 14,61,000 incurred is not for the purpose of education. 4.Because the CIT(A) erred in law and has failed to appreciate that the income of the K.S. Saket PG College, Ayodhya being an educational institution aided substantially by State Government is exempt under section 10(23C)( iiiab) by the mandate of section 10 itself, according to which, in computing the total income of a previous year of any person, any income falling within any of the clauses of section 10 as enumerated therein shall not be included and taxed. 5.Because the CIT(A) has erred on facts and in law in upholding the entire surplus of Rs. 46,97,349 for the year as taxable income and wrongly confirmed the tax liability of Rs. 28,20,336." 2. We have heard the parties. 3. The brief facts relating to the issue involved and as have been revealed from the record are that the assessee was registered under section 12AA of the Act as per registration Nos. 58 and 59, dated 31-8-2000. A return declaring nil income was furnished on 31-3-2006 which was revised by way of another return declaring nil income furnished on 15-9-2006. A copy of audit report requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... college because students apply for admission in very large numbers and it is impossible to admit them without entrance examination. (b)It is the responsibility of principal to conduct the entrance examination in the college. As a matter of confidentiality, principal keeps the entire proceeding of entrance examination very secret. Moreover, entrance examination account is solely operated by the principal himself. College issues the cheques to the principal as per his requisition letter. Principal himself makes the payment to the testing agency. Even the college does not know the name and address of testing agency. Copies of these requisition letters are enclosed herewith as Annex 2. Further, the then principal Dr. Harendra Bahadur Singh has also retired from the college. Therefore, we are fully unable to give any more information in this regard. (c)Since the payment to the testing agency was made by the principal himself and the college was not involved in this process and even the name and address were not known to the college, therefore, it was not possible for college to deduct the TDS on this payment." 3.4 Along with the aforesaid reply, the assessee enclosed copies of bill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not required to be filed till assessment year 2004-05. Accordingly, the assessee society filed its return of income and claiming its income exempt under section 11 excluding the income of degree college, as in the past, vide acknowledgement No. 000247, dated 31st March, 2006 furnishing audit report in prescribed Form No. 10B (copy of return/balance sheet etc., enclosed). (v)Asstt. CIT, Faizabad, issued notice under section 142 of IT Act, 1961 in the name of Kamta Prasad Sunder Lal Saket Post Graduate College for filing return of its income. The assessee society filed revised return in response to above notice vide acknowledgement No. 010000089, dated 15th September, 2006 showing income of society as well as surplus of degree college, claiming exemption as under : Income of Samiti Rs. 63,616.00 Section 11 Surplus of college Rs. 46,97,350.00 Section 10(23C )(iiiab) (copies enclosed for ready reference) Ground No. II (i)The learned Dy. CIT, Circle, Faizabad has denied exemption under section 10(23C)(iiiab ) of IT Act, 1961 claimed in respect of surplus of degree college holding the running of educational institution as business activity, despite of having f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed audit report under section 12A(b) in respect of income of degree college without appreciating the fact that assessee society has claimed exemption of income of degree college under section 10(23C)(iiiab) of Income-tax Act, 1961 (not under section 11 of Income-tax Act, 1961) which does not prescribed furnishing of any such report at all, hence his action does not have any merit at all. Ground No. V (i)The learned Assessing Officer has made disallowance of Rs. 14,61,000 representing expenses incurred for payment to testing agencies for organizing and conducting entrance examination under BA, B.Com., B.Sc, M.Com., Law etc., holding erroneously to be not incurred for the purpose of education, the educational institution did not exist solely for educational purposes. (ii)Regarding payment of Rs. 14,61,000 to testing agencies it may be mentioned that as per regular practice consistently followed, amount was paid to testing agencies through principal of college (copy enclosed) who was paid cheques on the basis of requisition letters, signed by principal. The principal has given a declaration regarding expenditure of said sum in making payment to testing agencies. (iii)The conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer in regard to the genuineness of the above expenditure, it came to light that the same is unvouched and therefore, unverifiable in nature. I find that the appellant, instead of producing bills and cash receipts in respect of payments made to testing agencies, simply produced a copy of the certificate issued by the principal of the college, thereby certifying that the amount has been paid in cash to different testing agencies. The record shows that the appellant has failed to furnish even the names and addresses of the persons/testing agencies, to whom such huge amount of payment has been made in cash and no tax also has been deducted at source as per the applicable laws. I find sufficient merit in the observation of the Assessing Officer that the relevant information is well within the control of the appellant society, but for reasons best known to it the same has been withheld from the Assessing Officer as well as during the proceedings before me. On these facts of the case, the inescapable conclusion is that the above expenditure is not genuine and not incurred for the purposes of education. I am in agreement with the view of the Assessing Officer that the society did not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be for profit. 4.2 Coming to merits, the learned Authorised Representative submitted that the assessee having furnished the certificate from the principal that expenditure of Rs. 14,61,000 was incurred by way of payment to various testing agencies, who conducted the admission test for payment to various classes, the same was for payment to various classes, the same was for work and should not have been disallowed. Coming to profit from college, the learned Authorised Representative submitted that its income was exempt under section 10(23C)(iiiab) of the Act. With respect to non-furnishing of audit report under section 12A(b) with respect to accounts of the college [audit report under section 12A(b) with regard to the head office had been furnished], the learned Authorised Representative submitted that the assessee's income being exempt under section 10(23C), there was no question of furnishing the audit report under section 12A(b) of the Act. In support of its case, the learned Authorised Representative further relied on brief synopsis which are in the following terms :- "Our institution is a non-profit institution existing solely for educational purposes. The surplus resulting f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eb, Ayodhaya All above dignitaries established the institution with their financial and other contribution with a view to impart education to the students of Faizabad and nearby cities and not with a view to earn any profit therefrom. Various national and international dignitaries as under have visited the institution in past. 1.Late Pt. Jawahar Lal Nehru 2.Late Smt. Indira Gandhi 3.Late Shri Jai Prakash Narain 4.Late Dr. Sampurna Nand 5.Late Acharya Hazari Prasad Dwivedi 6.Late Smt. Mahadevi Verma 7.Shri Surya Bhan, Ex Governor of UP 8.Late Shri Vishnu Kant Shastri, Ex Governor of UP 9.Shri Raj Nath Singh, Ex Chief Minister of UP 10.Shri Mulayam Singh Yadav, Ex Chief Minister of UP 11.Shri T.N. Sheshan, Ex Chief Election Commr. of India Documents in support of our above submission are enclosed as annexure. These dignitaries not only have visited the institution but have also contributed from time to time out of Government fund. As per the Government rules funds can be granted only to non-profit institutions and not to any business organization. Merely disallowance of certain expenses (as is done in our case) cannot change the status of institution and nature of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , continue in respect of any university or other educational institution, hospital or other medical institution which is wholly or substantially financed by the Government, under the new sub-clauses (iiiab) and (iiiac) inserted in section 10(23C) of the Income-tax Act by the Finance (No. 2) Act, 1998. 8.3 Further, under sub-clauses (iiiad) and (iiiae) in section 10(23C), the income of other educational and medical institutions would also be exempt if their annual receipts are below a limit to be prescribed. The limit has since been prescribed at Rs. 1 crore, vide Notification No. S.O. 897(E), dated 12th October, 1998. 8.4 The income of the remaining educational and medical institutions would be exempt if they are approved by the prescribed authority on application made by them under sub-clauses (vi) and ( via) of section 10(23C). This approval would be subject to their adherence to conditions similar to those specified for sub-clauses (iv) and (v) of section 10(23C) regarding maintenance of accounts, expenditure and accumulation of funds and investment of funds in specified assets. The accumulated income is required to be invested in the modes specified in section 11(5). These in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any university or other educational institution when such university or other educational institution complies with the following conditions : (a)The university or the educational institution should exist solely for educational purposes. (b)The university or the educational institution should not exist for purposes of profit. (c)The university or the educational institution should be wholly or substantially financed by the Government. When these conditions are fulfilled, the exemption is total. There is similar exemption for hospitals and medical institutions wholly and financially assisted by Government. No other conditions are required to be complied with. There is no stipulation that the institution should be approved by the CBDT. The stipulation regarding the quantum of the aggregate annual receipts is not relevant, since the university or the educational institution is required to be wholly or substantially financed by the Government. The sub-clause is silent about the monitoring mechanism for checking the genuineness of the activities of the university or the educational institution and for checking the application of the income wholly and exclusively to the objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of section 10(23C)(iiiab ), the Assessing Officer has powers to deny the exemption and tax the income. With respect to remanding the issue back to the Assessing Officer, the learned Departmental Representative submitted that he has no objection for remanding the issue back to the Assessing Officer subject to assessee's commitment to furnish the evidence before the Assessing Officer and also to give reasons for not furnishing at the earlier stage. 6. We have considered the rival submissions, facts, circumstances and various decisions relied upon by the parties, provisions of section 10(23C)(iiiab) as well as provisions of sections 10, 11, 12A, 12AA and 13 of the Act. 6.1 Having applied our mind to the totality of the facts and circumstances of the case, we are of the opinion that the issues for our decision are as under : (i)If the assessee's claim of exemption of its income from the college is under section 10(23C)(iiiab) of the Act then we are to decide as to whether the college is existing solely for the purpose of education and is not for profit. (ii)If the assessee's claim of exemption is under section 11, then the question to be decided is as to whether the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also of charitable or educational nature, then it is only the end result which can be examined for arriving at the finding in this respect and the end result, in our opinion, can be availability of surplus year after year as a result of carrying on of the activities. 6.7 So far as the present case is concerned, first of all we are of the opinion that the revenue has not brought any material on record to show that the college account was having surplus or profit year after year. Even otherwise the revenue has not disputed the submission of the learned Authorised Representative that surplus of Rs. 46,97,349 at the previous year 2004-05 (relevant to assessment year 2005-06) was only because of salary grant of Rs. 4,35,28,100 from the State Government and another grant of Rs. 1,78,92,946 from U.G.C. towards other grants; otherwise the college would have been under huge losses. The revenue's plea was that the college run by the assessee was for profit motive. Consequently, we are inclined to accept the assessee's plea that so far as income of head office was concerned, the same having been claimed exempt under section 11 was not liable to be taxed and so far as surplus in the college ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h respect to integrity of the principal. The principal's failure to disclose the name of agencies to whom payments for conducting the entrance examinations/tests were made, was not an abnormal or motivated decision. Disclosure of such details by the principal even to the members of the assessee was very risky and therefore, the assessee's decision to have full trust and faith in its principal requires appreciation and not motivated to avoid the disclosure of few details. 6.9 (ii) In view of the nature of services for which the expenditure in question has been incurred and the fact that the revenue has not disputed the factum of conduction of entrance examinations/tests, we are of the opinion that non-disclosure of details of parties who conducted the entrance examinations cannot be a ground for holding that expenditure incurred by way of payment to such parties/agency, which was duly certified by the college principal, was not for education purpose. In the peculiar facts and circumstances of this case, we are of the opinion that the principal having certified incurring of the expenditure and there have been entrance examinations (tests) for admission to various classes in the coll ..... 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