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TMI Blog2013 (6) TMI 674X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,604. The assessee claimed exemption under section 10(23C)(iiiab) of the Act. The case of the assessee was selected for scrutiny and notice under section 143(2) was issued to the assessee on September 17, 2010. During the course of assessment, the Assessing Officer observed that one of the objects of the trust is : " To do all such acts, deeds and things in addition to and in furtherance of the above purposes and in the advancement of any other charitable object of public utility not involving any activity for profit" . The Assessing Officer was of the view that for claiming exemption under section 10(23C)(iiiab), it is essential that educational institution should solely impart education. Since the objects of the trust were not solely for educational purpose, the assessee is not entitled to claim exemption under section 10(23C)(iiiab) of the Act. The Assessing Officer further objected to the payments made by the assessee to the Lions Club to the tune of Rs. 16,77,076 and other miscellaneous payment amounting to Rs. 10,69,770 including amount paid to M/s. Meenakshi Sundararajan Fine Arts Academy Rs. 3,11,000. The Assessing Officer pointed out that Dr. K. S. Lakshmi, secretary-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Director of Collegiate Education and this fact has been recorded by the Assessing Officer at page 2 in paragraph 4 of his order. The salary of the teaching staff is reimbursed by the Government. Learned counsel contended that the term " substantially funded" has not been defined in the Act. Therefore, from the facts and circumstances of each case, substantial funding by the Government has to be determined. Learned counsel referred to page 8 of the paper book wherein the assessee has placed on record the income and expenditure account for the year ended March 31, 2009. Learned counsel further submitted that the Assessing Officer as well as the Commissioner of Income-tax (Appeals) has misconstrued the meaning of " exists solely" for educational purposes. The assessee-trust is running college, which is solely set up for imparting education and not for profit. The other objects as mentioned in the objects of the trust are subservient to the attainment of the main object, i.e., education. As regards contribution to the Lions Club International (service organisation) is concerned, learned counsel submitted that contributions have been made to the Lions Club International (service orga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 10(23C)(iiiab). The learned Departmental representative pointed out that the payments of Rs. 3,11,000 to M/s. Meenakshi Sundararajan Fine Arts Academy were made from various departments of the college, viz., Biochemistry, Tamil, Commerce, Hindi, Maths, English, Administration, Physics, etc., although the said departments had nothing to do with fine arts. 6. We have heard the submissions made by the representatives of both the parties and have perused the orders of the authorities below as well as the judgments relied on by learned counsel. The issues which have emerged from the submissions made by the parties are : (a) Whether the assessee is substantially funded by the Government ? (b) Whether the assessee exists solely for educational purposes and not for purposes of profit ? (c) Whether the assessee is entitled to claim benefit under the pro visions of section 10(23C)(iiiab) ? Before adverting to the facts of the present case, it would be necessary to see the relevant provisions of section 10(23C) of the Act. The relevant extracts of the section are reproduced herein below : "10. Incomes not included in total income.-In computing the total income of a prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment of the hon'ble High Court in the abovementioned case is reproduced below : " 4. This court had an occasion to consider section 10(23C) (iiiab) in the case of the CIT v. National Education Society in IT Appeal No. 808/2009, where it was held as under : ' Para 4. The word ' substantial' has not been defined under the Income-tax Act. However, it has been the subject matter of interpretation by various courts in various contexts. The authorities in deciding what constitutes a ' substantial' portion of the finance have taken note of the statutory provisions contained in the Banking Regulation Act, 1949, where a person who has the beneficial interest of more than 10 per cent. of the total capital subscribed by all the partners of the firm has been held to be having substantial interest. Similarly, ' substantial interest' has also been defined in the Explanation to section 40A(2)(a) of the Income-tax Act, where a person who is having voting power of not less than 20 per cent in the case of the company, is deemed to have substantial interest in the business of the company. Para 5. In the case of assessee itself, when the grant was more than 50 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate Education, Chennai as well as University Grants Commission. So far as substantial funding of the assessee from Government is concerned, the assessee satisfies conditions. 7. The next issue is with regard to the object of the assessee-trust. The Assessing Officer opined that the assessee is not entitled for claiming deduction under the provisions of section 10(23C)(iiiab) as it is not constituted solely for educational purposes. A perusal of section 10(23C)(iiiab) shows that the educational institution should exist " solely" for educational purposes and not for purposes of profit, that is to mean that the institution should provide education and not indulge in any profit-making activity. The determination of the existence of educational institution solely for educational purposes is to be done on the basis of its objects and utilisation of its income in accordance with the conditions laid down in the third proviso to section 10(23C). Merely for the reason that the educational institution has surplus funds, it would not ipso facto lead to an inevitable conclusion that an educational institution exists for making profits and not solely for educational purposes. The learned Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and by means of pecuniary and other help to students of the institution. A holistic reading of the object clause would establish beyond doubt that the sole purpose for the establishment of the petitioner was to further the cause of education amongst women belonging to a particular class, as stated therein. Though the objects clause contained varied objects including the management and development of movable and immovable properties, the statement of fact before the court which is not disputed is that the only activity which has been carried out by the trust ever since its inception is the conduct of educational institutions. The court, it must be emphasised, is not dealing with an institution which has sought approval for the first time or which has been set up in the proximate past. The trust has a history of over eighty years during the course of which the only activity is of con ducting educational institutions. 11. The fact that the trust exists solely for educational purposes is evidenced from the assessment orders for the assessment years 2000- 01 and 2006-07, copies of which form a part of the record before the court. Both these orders which have been made under section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied objects, so long as the record demonstrates that the assessee only conducts educational institutions, it must be regarded as existing solely for the purpose of education. No other activity is carried on. Secondly, the fact that a surplus may incidentally arise from the activities of the trust, after meeting the expenditure incurred for conducting educational activities would not disentitle the trust of the benefit of the provisions of section 10(23C). 12. In so far the aspect of surplus is concerned, one must in addition, advert to the provision which has been made by Parliament in the third proviso to section 10(23C). By the third proviso, it has been clarified that in the case, inter alia, of universities or other educational institutions which have applied its income or accumulated it for application wholly and exclusively to the objects for which it is established and in a case where fifteen per cent. of income is accumulated on or after 1st April, 2002, the period of the accumulation of the amount exceeding fifteen per cent., shall in no case exceed five years. This provision would establish that Parliament did not regard the accumulation of income by a university or edu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is that the amounts were contributed to the said organisations as it is mandatory under study curriculum to undertake some social activities along with education. We concur that for holistic development in the education, it is essential for the students to participate in social activities. However, we are of the opinion that these activities could have been undertaken by the assessee through various schemes set up by the Government, viz., NSS, NCC, etc. The Lions Club International (service organisation) may be undertaking some charitable activities, but by and large, it is a social club, and cannot be strictly construed to be a social organisation for undertaking social work as envisaged in the study curriculum. As regards the contribution to the Meenakshi Sundararajan Fine Arts Academy, there is no explanation furnished by the assessee that as to why contributions were made. The only plausible reason for making contribution to the abovesaid two organisations is that secretary-cum-correspondent of the assessee was an office bearer of the abovesaid organisation. The expenditure claimed by the assessee towards the contribution to the aforesaid two organisations cannot be a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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