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Deccan Education Society, Pune Versus Addl. CIT, Range-1, Pune

2015 (7) TMI 649 - ITAT PUNE

Entitlement to claim of exemption u/s.10(23C) (iiiab) - Whether the income of the assessee shall be exempt from tax u/s 10(23C)(iiiab) or under any other exemption provisions under the IT Act, when there are irrefutable evidence that the assessee collected capitation fee in the form of corpus donations, in relation to granting admission to students in its institutions, using its discretion under management quota or other-wise, in an arbitrary and commercial manner? - Held that:- As far as the ob .....

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ly, fulfils the requirements of imparting formal education by a systematic teaching and instructions. Since the question about the imparting of education has not been doubted or challenged by the Revenue therefore. In our considered opinion the impugned order passed by the respondent is unsustainable in law. Strange enough there is nothing on record to prove sightlessly that the purpose of imparting of education was not fulfilled by this institute thus the Revenue Department has hopelessly faile .....

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dmission. We find out of the above 23 persons only 6 were available for cross examination. We find the relatives or parents of the students have filled up the declaration stating that they have given voluntary donations to the institutions, even some of them claimed deduction u/s.80G also. Nothing has been brought on record that any such amount of donation has not been accounted for in the books of account or has been utilised by any of the trustees or their relatives or has not been utilised fo .....

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(23C) of the Act. Therefore, we find no reason to deviate in absence of any evidence brought on record for denying the exemption claimed u/s.10(23C) for the year. So far as the decision relied on by Ld. Departmental Representative is concerned, the same in our opinion is not applicable to the facts of the present case which was in context of section 10(23C)(iiiad). In view of our reasons given above we hold that the Ld.CIT(A) is not justified in denying the exemption u/s.10(23C) (iiiab) of the I .....

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d u/s.12A of the Income-tax Act. It availed exemption u/s.10(22) upto A.Y. 1989-99 and thereafter u/s.10(23C)(iiiab). It has also been granted approval u/s.80G of the Income-tax Act for the purpose of deduction under the section to the donors of the assessee. The assessee trust filed its return of income for the impugned assessment year on 29-09-2008 declaring total income at NIL. The return was duly accompanied with Audit report in Form No.10BB and Auditor s report as per section 34(2) of B.P.T .....

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declared by the assessee as per the income and expenditure account filed with the return of income are as under : Table-1 (Income in Rs.) Rent 125,97,417 Interest received from bank 209,70,765 Grants 29,07,70,462 Income from other sources 22,52,05,938 Transfer from reserve 200,000 Total 54,97,44,562 Table-2 (Expenditure & Surplus in Rs.) (I) Amount applied to charitable purposes 1. Expenditure on objects of the trust 41,40,54,914 2. Administrative Expenses (a) Expenditure in respect of prope .....

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ed assets at the beginning and end of an accounting period showing additions, disposal, acquisitions, and other movements, and the accumulated depreciation in the balance sheet as on 31st March 2008; as per the Accounting Standard (AS-10)-Fixed assets." 5. The Assessing Officer further observed from the balance sheet that the value of immovable properties (at cost) has increased to ₹ 24,30,66,596/- from ₹ 15,51,39,019/- in the last year. (Sch 5). Further, building under construc .....

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,473/-, other grants of ₹ 34,86,635/- and non-salary grants of ₹ 248,354/-, aggregating to ₹ 29,07,70,462/. Grants for HA School (Rs.1,68,13,416/-) and for RCF ₹ 1,40,82,332/-. The assessee submitted the list of 32 institutions run by the trust, at Pune, Wai (Satara Distt), Satara, Sangli and Mumbai, consisting of schools (primary to higher secondary), colleges (arts, science, law), vocational institutes (Nursing, physiotherapy), management and engineering college. 6. Dur .....

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utions, whether income/surplus of the unaided institutions would also be covered under the provisions of Section 10(23C)(iiiab), and eligible for exemption under that section? 2) Whether the income of the assessee shall be exempt from tax u/s 10(23C)(iiiab) or under any other exemption provisions under the IT Act, when there are irrefutable evidence that the assessee collected capitation fee in the form of corpus donations, in relation to granting admission to students in its institutions, using .....

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Mumbai, Sangli, Satara, Wai and Tirupati. Educational institutions run by the assessee include many which are "grantable or aided", i.e. which receive grants from the Maharashtra State Government for payment of salary to the teaching and non-teaching staff. Hence the assessee has always claimed exemption u/s 10(23)(iiiab). Neverthless, as envisaged under section 11, the assessee always applies not less than 85% of its gross income towards the objects of the trust by way of revenue and .....

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institutions amount to ₹ 29,07,70,462/- out of which all but salary grant of ₹ 16,85,956/- has been spent during the year. 8. The Assessing Officer noted from the details of institutions and courses for such institutions filed by the assessee which are totally unaided and where their income exceeds ₹ 1 crore which are as under : Name of the institution Gross Income Interest (included in Gross Income) Surplus FCP (Micro-Biology) 10530849 6616502 FCP (BCS) UG 15528577 8852032 FC .....

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reating the infrastructure by running unaided institutions. However, the fees charged by these institutions are controlled through University, Zilla Parishad and Shikshan Shulka Samiti etc. It was argued that the unaided institutions are not assessees by themselves and form a composite and indivisible part of the assessee s operations and the assessee seeks to utilise the surplus of unaided institutions to satisfy the needs of aided institutions. The fees for various courses of unaided instituti .....

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18,001/- received from about 900 persons were voluntary and towards the corpus and not in relation to admission of students in any of the educational institutions run by the assessee trust. The Assessing Officer issued summons u/s.131 dated 23-11-2010 to 56 donors of Pune and 27 outstation donors selected randomly who had donated singly or cumulatively more than ₹ 50,000/- to the assessee trust during the relevant year. From the list submitted by the assessee, the Assessing Officer noted t .....

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ssions of their wards/relatives who do not have qualifying marks or failed in the entrance test taken by the assessee s various institutions for grant of admissions in various courses. Copies of the replies and statements of the 16 donors were given to the assessee and the assessee was confronted by the Assessing Officer asking him to explain as to why the claim of exemption made u/s.10(23C)(iiiab) or under any other provisions of the I.T. Act be not denied to the assessee in view of the capitat .....

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ed since the assessee has violated provisions of section 13(1)(d) by investing in the form of shares. 11. It was explained by the assessee that in all courses of FCP there is defined management quota for admission which varies from 5% in case of grantable course to 15% in the case of non grantable course. In the absence of any guidelines from the University of Pune in this regard the admission in the management quota are given strictly on the recommendation of eminent persons well associated wit .....

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r admission to MCA in FCP, MCS in FCP, BCP, BCS, Bio-Technology, Organic Chemistry etc. The assessee also requested the Assessing Officer to grant opportunity to cross examine all the donors whose statements were recorded and who have stated that the donations were not towards the corpus of the rust. The assessee also requested to provide the details of the number of donors to whom summons u/s.131 are issued and the total number of donors who responded to the aforesaid summons. 12. The Assessing .....

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stated to be residents of Pune as also outside Pune. Copies of replies given by the donors denying any of their relatives being admitted to any of the educational institutions and/or the donation being given to secure admission was also given to the assessee. 13. On the issue of applicability of Section 10(23C)(iiiab), the assessee submitted that as per the assessee's audited accounts, for financial year 2007-08, the assessee's gross income is ₹ 54,95,44,582/- and such gross incom .....

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ovisos to Section 10(23C) are not applicable to the assessee and that it was not required to apply in Form 56/56D and be approved by the prescribed authority for grant of exemption, hence the assessee never applied for grant of approval/exemption. Further, the provisions of section 115BBC expressly excludes reference to the assesses assessed u/s.10(23C)(iiiab). It was also stated that u/s 139(4C)(e) also educational institutions falling u/s.10(23C)(iiiab) are expressly excluded from the requirem .....

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t there was a nexus between the donation and certain admissions. 15. The assessee in its submission dated 16.12.2010 further argued without prejudice to any other submission, that : (a) The issuance of show cause notice is based on the material arbitrarily gathered behind the assessee's back avowedly under Section 131 of the IT Act; (b) The collection of statements of the witnesses behind the assessee's back contravenes the propriety in law of section 131 of the said Act, causing immense .....

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n evidence for any purpose whatsoever, as no opportunity of crossexamining the said witnesses was ever granted to the assessee, thus disregarding the cardinal principle of law of evidence. (e) No reasons have been disclosed for ignoring the letters and statements written to the assessee by the witnesses under their own signatures thct the donations given to the assessee were voluntary, and as such the notice suffers from non-application of mind in law. (f) Even otherwise, no such deposition can .....

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itnesses are ipse dixit prevaricated, untrue and incorrect. It is denied that any donation was collected by the assessee from any person with a view to secure admission in the assessee's institutions for their ward or relative. All statements to that effect made by the witnesses are false and are denied by the assessee. It is reiterated that there is no causa causans between the donations given to the assessee and the admissions given to the students named in the impugned show cause notice, .....

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n the said donation and the said alleged admission. 16. Regarding the observation made on 14.12.2010, that the opportunity for cross-examination of witnesses cannot be given as no fault in their statement/reply has been pointed out by the assessee, the assessee in its submission dated 16.12.2010 stated that the assessee did not have the opportunity of examining the 1051 sheets of impounded documents, which were received on 13.12.2010. The assessee further pointed out following 'factual and p .....

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tions were given in consideration of an admission. The assessee should be confronted with such evidence so that the assessee has an opportunity to disprove it. (c) The deponents were not asked as to whether they claimed a deduction u/s. 80G of the IT Act in computing their total income for AY 2008-09. If the donors have claimed such a deduction on the basis of the 80G certificate given to them by the assessee, the donors have obviously admitted the fact that the amounts paid to the assessee was .....

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ortedly without management quota) . (ii) Shri Kedar S.Edke has stated that his cousin Shri Ninad N. Mohrir was admitted to MSc (Biotechnology) course, but the list of students admitted to that course does not include his name. (Note: Shri Ninad Mohrir was admitted to MSc(Org. Chemistry, as clarified to the AR after verifying from Shri Kedar Edke on phone). (iii) Deponent No.14 Shri Narayan M. Chaudhari has alleged that his nephew Vishal Digambar Patil was admitted to MCA Course, however the list .....

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that the donation for MCA was not uniform. Similarly, by citing example of five donors it has been argued that for BSc (Comp. Sc.) the donation amount varies from 25,000/- to ₹ 200,000/-. (f) There is a time gap of at least 88 days between the date of admission and realization of the amount of donation by credit to the assessee's (bank) account. Thus it is patent that the donor gave the donation not before the admission (which allegedly was given in consideration of the donation) as a .....

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totally untrue. (h) Deponent No. 11 Dr. Sanjay Pendse has stated that his donation was not meant to secure or help any admission, and that his inability to explain the sources of donation cannot be taken against the assessee. (i) The deponent were not informed of the penal consequences of making a false statement on oath as per section 181 of the IPC. The assessee claimed that if the aforesaid patent infirmities had been brought to the notice of the deponents, -they would have deposed different .....

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assessee as a public charitable trust always appeals to every one for donation to promote the noble cause of education. The amount of donation and the time of donation is left entirely to the discretion of the donors. 18. Regarding the investment of funds in shares amounting to ₹ 712,650/-, it was stated that it was only 0.0018% of the total investment of ₹ 38,50,80,789/- as on 31.3.2008, it was claimed that they were donated to the assessee in 2006 and sold in March, 2010. It was al .....

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were substituted with the new provisions with the aim of withdrawing the freedom of huge accumulations which were often kept idle and unutilized for years together, enjoyed by the institutions under the said provisions. Referring to the provisions of Sec.10(23C), the Assessing Officer stressed upon that the provisions envisaged giving the benefit of exemption to income received by persons on behalf of educational institutions solely existing for educational purposes and not for the purpose of pr .....

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) to such educational institutions whose aggregate annual receipts were less than ₹ 1 crore, exemption under clause (vi) to institutions which do not fall under any of the above two categories needed the nod of the prescribed authority. In the opinion of the Assessing Officer, merely because certain institutions run by an assessee were wholly or substantially financed by the Govt. does not ipso facto makes the other unaided educational institutions run by the said entity eligible to exempt .....

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e incomes of such unaided institutions might have also been utilized/applied for running the aided institutions. Thus, the income of such unaided institutions whose aggregate annual receipts exceeded Rs. One crore, quantified at ₹ 7,86,39,996/- was held to be taxable income of the assessee trust. However, no separate addition to this effect was made on this ground while computing the total income of the assessee in the assessment order as the assessee was held to be not eligible for any ex .....

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#8377; 1 crore, run by the assessee society were not eligible for exemption u/s.10(23C) or Sec.11 of the I.T. Act. Stressing that the entity under assessment is Deccan Education Society, it was argued that the various educational activities were being carried out by the assessee in an integrated manner and the individual institutions run by the assessee are not separate legal entity by themselves and they could not be registered under the provisions of Sec.10(23C)(vi) or Sec.l2A and therefore, i .....

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therefore, it was legally entitled to get the benefit of exemption u/s. 10(23C). It was argued that it was for this reason that the assessee did not get itself registered U/S.12A of the I.T. Act. It was pointed out that in fact, the Department itself has confirmed this aspect, through a letter issued by the Chief CIT, Pune. Despite this, the assessee has been applying more than 85% of its income towards its objects in compliance of the provisions of Sec.11 & 12. To support its argument that .....

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tted that the Assessing Officer held to the contrary without negating the position that the assessee is an institution existed solely for educational purposes and substantially funded by the Govt. in total disregard to the judicial precedents and flagrant violations of the principle of natural justice and denied the benefit of exemption u/s.10(23C). It was pleaded that the action of the Assessing Officer in holding that the income of unaided institutions run by the assessee having receipts over .....

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ficially divide the institutions as aided and unaided to deny the benefit of exemption. In case of unaided institutions whose actual receipts exceeded ₹ 1 crore, it was argued that the word other educational institution in clause (iiiab) refers to the assessee society and not to the individual educational institution. Relying on various decisions it was argued that the Assessing Officer was not justified on facts and in law in holding that the income of the unaided institutions whose annua .....

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y the Assessing Officer on the statements of some of the donors alleging payment of donation in lieu of admission citing that they were recorded on the back of the assessee and without affording the assessee the opportunity to cross examine the deponents in blatant violation of the principles of natural justice. Relying on various decisions it was argued that collection of statements behind the back of the assessee u/s.131 of the I.T. Act contravenes the propriety of law causing immense prejudic .....

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directed the Assessing Officer to afford an opportunity to the assessee and furnish a report to that effect. In compliance to the said direction, the Assessing Officer sent his report wherein it was stated that summons u/s.131 of the Act were issued to the parties who had confirmed in their depositions having given donations to the assessee to secure admissions and the assessee was given opportunity to cross examine them. The cross examinations of the deponents were carried out by Mr. Ghatpande .....

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constitutional obligations a miss in the process. The Assessing Officer further stated that the assessee had huge surplus and investments and therefore soliciting capitation fees in the guise of donation was not driven by any necessity of funds for carrying out its activities but by mere profiteering. The Assessing Officer further reported that despite repeated requests the assessee was unable to furnish the list of successful candidates who secured admissions in the institutions on merit. The A .....

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donation. The Assessing Officer further reported that the assessee during the entire process of cross examination never denied the modus operandi described by the deponents stated to be adopted by the assessee to collect the donations. 26. The Ld.CIT(A) forwarded the copy of the remand report to the assessee to enable it to file its comments, if any. The assessee in its rejoinder stated that the Assessing Officer has merely repeated the contents of the order of his predecessor without making an .....

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of the testimonies of the remaining 17 donors remain uncorroborated in the course of cross examination. Referring to the questions posed to the deponents during cross examination it was submitted that the answers to those questions clearly proved beyond doubt that the donations were given voluntarily without being forced or controlled by the assessee and in none of the cases the donors had lodged any complaint against the assessee either with the tax authorities or any other statutory authority .....

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was interpreted by the Assessing Officer as repayment of loan. It was argued that the donations were not received in terms of quid-pro-quo for admission and were merely the way of expression of gratitude by parents and their relatives after securing admissions who desired to advance the noble cause of education by contributing to the assessee financially, given the position that Government non-salary grants are not disbursed for years. It was further submitted that the donations were an event s .....

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space, certain equipment, a certain number of staff per student and payment to staff as per VIth Pay Commission norms. The creation of such infrastructure is a condition precedent for starting of any new course by the assessee for which substantial funds are required. Since the Government has stopped disbursing non salary grants for the last 10 years most of the educational institutions have to look upon their operating surplus and donations from philanthropic persons to finance such donations. .....

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e will ultimately be denied education and suffer immensely. 28. The decision of Hon ble Delhi High Court in the case of Shanti Devi Progressive Education Society was brought to the notice of the Ld.CIT(A). It was accordingly submitted that the Assessing Officer may be directed to grant exemption u/s.10(23C) of the I.T. Act. 29. However, the Ld.CIT(A) was also not satisfied with the arguments advanced by the assessee and upheld the action of the Assessing Officer in denying exemption u/s.10(23C) .....

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as to claim that there was no link between the admissions and the contributions. This is not a case where the assessee is starved of funds to carry on or to expand its activity thereby forcing it to solicit contributions in addition to prescribed fees and therefore the collection of contribution at the time of admissions either by way of capitation fees or otherwise is a pure commercial consideration for admissions. As the institutions of the assessee are run on commercial lines by collecting am .....

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and assessing the surplus of the year and the contributions received by the assessee in the guise of corpus donations aggregating to ₹ 11,06,10,500/- (which includes income of unaided institutions of ₹ 7,86,39,996/-) as taxable business income. 30. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds : The following grounds are taken without prejudice to each other - On facts and in law, 1] The learned CIT(A) erred in denying the exem .....

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has violated Maharashtra Educational Institution (Prohibition of Capitation Fee) Act, 1987 and therefore, it is not entitled to the exemption. b. The appellant does not exist for educational purposes as it generates surplus profits and therefore, it is not entitled to the exemption. c. The exemption u/s 10(23C)(iiiab) is available to an institute and the appellant being a society running various educational institutes, the exemption is not allowable to the appellant. 4] 'The learned CIT(A) .....

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ohibition of Capitation Fee) Act, 1987. c. If a few donors under a mistaken impression considered that they had given the donation for admission of their students, it did not prove that the appellant was collecting donations for imparting education. d. All the donations received were duly accounted for in the books of the appellant society and the educational authorities had not raised any objection for the donations collected and they exercised good control over the financial management of the .....

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ns of the appellant society which satisfied the conditions u/s 10(23C)(iiiab). 5] The appellant requests for admission of additional evidences if any required in support of the above grounds. 6] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal. 31. The assessee has also raised an additional ground which reads as under : Without prejudice to the grounds raised in the appeal memo, in case, it is held that the exemption u/s.10(23C) is allowable to each of .....

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on on behalf of any university or other educational institution existing solely for education purpose and not for purpose of profit and which is wholly or substantially financed by the Government is exempt from tax. Referring to the Explanation which has been inserted by the Finance (No.2) Act 2014, w.e.f. 01-04-2015 he submitted that the words substantially financed by the Government means if the grant from the Government is more than 50%. Referring to provisions of section 10(23C)(iiiad) he su .....

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t purposes of profit other than those mentioned in sub clause (iiiab) or sub clause (iiiad) and which may be approved by the prescribed authority is exempt from tax. He accordingly submitted that the various institutions run by the assessee trust may be categorised into 3 types, i.e. (i) some of the institutions run by the trust are aided where the Government grant is more than 50%, (ii) some of the institutions run by the trust are not substantially financed by the Government but where the gros .....

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ty exists solely for educational purposes. Referring to pages 161 & 162 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the number of students studying in various colleges run by the society and which numbered to 47,251. He submitted that out of 47,251 students only 1,217 students have given donations. Referring to pages 124 to 160 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the donations received from 877 studen .....

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un by the society where some of the institutions are incurring losses, the grants received is more than 50% and the gross receipt is less than ₹ 1 crore and more than ₹ 1 crore etc. 35. Referring to the decision of the Hon ble Supreme Court in the case of Aditanar Educational Institution Vs. Addl.CIT he submitted that the Hon ble Supreme Court in the said decision has held that an educational society or a trust or other similar body running an educational institution solely for educa .....

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evant assessment year which received various amounts towards admission fees, corpus funds and loan from parents. The Assessing Officer sought to assess them in the hands of the assessee but the Tribunal held that the assessee was entitled to exemption. On further appeal by the Revenue, the Hon ble High Court dismissed the appeal filed by the Revenue holding that the source of funds was relatable to the activity of education. The loans have been availed by the assessee from nationalised banks for .....

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he exemption u/s.10(22) has been granted to the assessee for a number of years prior to the assessment years in question and for subsequent years. Accordingly, relying on the principle of consistency the Hon ble High Court held that the assessee existed only for educational purposes and not for the purpose of profit making and therefore is entitled to exemption u/s.10(22). 37. Referring to pages 188 to 189 of the paper book he submitted that the Assessing Officer in the order passed u/s.143(3) o .....

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in the said decision has held that rejection of approval under section 10(23C) is not valid where the charitable trust, whose sole activity was running educational institutions for last 80 years and primary object of trust is to provide education for women and investment of surplus from activities applied for educational purposes. It must be regarded as existing solely for education. 39. Referring to the decision of the Bangalore Bench of the Tribunal in the case of Sadvidya Educational Institu .....

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e Management quota and voluntary contributions collected by the assessee. The Tribunal held that if educational institution has collected money in form of voluntary contributions from public and may be from parents of the students who are studying in institution and issued receipts acknowledging said amount towards building fund and made requisite entries in the books and deposited same in the bank, requirement of section 11(1)(d) is fulfilled. Assessee trust was running several schools starting .....

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mption u/s.11 in respect of building fund as well as college development fund. 40. Referring to the decision of the Chennai Bench of the Tribunal in the case of Padanilam Welfare Trust Vs. DCIT reported in 10 ITR (Tribunal) 479 he submitted that the Tribunal in the said decision has held violation of prohibition of Capitation Fees Act cannot be a ground taking away the registration of a charitable organisation. It has been held that capitation fee per se is not in the nature of illegal income in .....

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-2014 he submitted that the Tribunal in the said decision has held that accounts of 4 units of Serampore college were separately audited and a consolidated financial statement was also prepared and looked into for the purpose of taxation considering the Serampore college as one and the sole taxable unit. The Tribunal held that although Serampore college consists of 4 units but a single taxable entity who are under the name of Serampore college or Senate of Serampore both are one and same. It was .....

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Kapadia Education Trust and submitted that in absence of any finding by the revenue authorities that any part of such donation has gone into for the benefit of any of the trustees and that such money has not been utilised for the purpose of education of the society exemption u/s.10(23C) cannot be denied. 43. So far as the aspect regarding as to whether the trust has to be treated as a whole or individual institutions be granted the benefit of exemption u/s.10(23C) the Ld. Counsel for the assesse .....

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ed, in a manner which results directly or indirectly in conferring any benefit, amenity or perquisite (whether converted into money or not), on any interested person as specified in sub-section (3) of section 13? If so, details thereof. 44. Referring to the above he submitted that when the form itself asks the assessee to state the legal status, i.e. whether it is a trust or a registered society/others, then there is no requirement of treating each institution as separate entity for claiming exe .....

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) and (iiiac) of clause 23 of section 10 any university or educational institution shall be considered as being substantially financed by the Government for any previous year if the Government grant to such university or other educational institution etc. exceeds 50% of the total receipts including any voluntary contributions for such university or other educational institution etc., as the case may be. 46. Referring to the decision of the Hon ble Karnataka High Court in the case of CIT Vs. Indi .....

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receipts and from what source and whether the grant of 37.85% of total receipts constitute substantial finance by the Government. He submitted that the Notification by CBDT was issued on 12-12-2014 and since the assessment year involved in the instant case is A.Y. 2008-09 the decision of Hon ble Karnataka High Court shall prevail. 47. As regards the allegation of the Assessing Officer that assessee has collected capitation fees in the guise of donation he submitted that the assessee has not vio .....

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ay be an intention but nobody is compelled for giving donation. He submitted that at the time of admission the donor has written one version and before the Assessing Officer the donor has stated otherwise. Thus, there is contradictory statement by the donors before the college authorities and the Assessing Officer. He submitted that there is no such evidence before the Assessing Officer that unless you give donation there will be no admission in the institutions run by the assessee trust. Furthe .....

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he people come to the society and it happens with all charitable institutions and not with the assessee only. He submitted that the donations were taken by the assessee voluntarily. So far as the merit list is concerned he submitted that it is a public document. The Ld. Counsel for the assessee reiterated that the assessee does not exist for profit and has not violated the Capitation Fee Act. 50. Referring to the decision of the Hon ble Rajasthan High Court in the case of Chief CIT Vs. Geetanjal .....

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a). 51. In his alternate contention, the Ld. Counsel for the assessee submitted that the assessee trust may be granted exemption u/s.10(23C) (iiiab) to the institutes which are substantially financed by the Government, the details of which are placed at page 177 of the paper book and to the institutions whose gross receipt is less than ₹ 1 crore and may be taxed only the surplus of 2 colleges, i.e. DES Law College and Institute of Management Development and Research, Pune where there is su .....

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scribed by the College authorities. Therefore, the circumstantial evidence shows that the admissions were given for money and the donation was quid-pro-quo for the admission and such donation was not voluntary. The trust had sufficient funds and was not in distress. Therefore, by accepting capitation fee in the guise of voluntary donation for giving admission they have violated the provisions of section 10(23C). 53. So far as the argument of the Ld. Counsel for the assessee that wordings of sect .....

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accordingly submitted that the order of the Ld.CIT(A) being in order has to be upheld. 55. The Ld. Counsel for the assessee in his rejoinder submitted that the trust is not charging any fees more than the prescribed limit which is fixed by the Government. The donations received every year appear in the accounts and the Government has not taken any action. Such type of collection is continuing since long. Merely because some donors have stated that they have given donation for admission that does .....

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ision relied on by Ld. Departmental Representative is concerned he submitted that the issue before Hon ble Karnataka High Court was under sub clauses (iiiad) of clause (23C) of section 10. However here, the issue is under sub clause (iiiab) and (iiiac) of clause (23C) of section 10. He also relied on the latest decision of Hon ble Supreme Court in the case of M/s. Queen s Educational Society Vs. CIT vide Civil Appeal No.5167 of 2008 order dated 16-03-2015. He further submitted that the courts ha .....

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cluded primary to higher secondary schools, arts, science, commerce and law colleges, vocational institutes like Nursing, Physiotheraphy, Management and Engineering Colleges. Therefore, it is abundantly clear from the various documents filed before us that it is engaged in imparting education. Though the trust is not registered u/s.12A of the I.T. Act, however, it was claiming its income as exempt from tax u/s.10(22) of the I.T. Act upto 1998-99 and u/s.10(23c) (iiiab) thereafter. For the impugn .....

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nstitutions of the assessee which do not fall in clause (iiiab) or (iiiad) and not approved under clause (vi) of section 10(23C) or registered u/s.12A of the I.T. Act would not be eligible for exemption either u/s.10(23C) or section 11 of the I.T. Act. Further, the Assessing Officer noted that donations received by the assessee towards corpus fund were in the nature of capitation fees collected in lieu of admissions, keeping in mind the commercial interest. Therefore, the institution indulges in .....

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(23C)(vi). He also rejected the argument of the assessee that the word other educational institutions in clause (iiiab) refers to the assessee society and not the individual educational institution. According to him the exemption u/s.10(23C) is institution specific and not person specific and the eligibility for exemption of income or otherwise in respect of each institute of the society has to be decided with reference to specific sub clause provided in section 10(23C) and applicable to that in .....

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of receipt thereof were delayed by the assessee intentionally so as to claim that there was no link between the admissions and the donations. Further, according to Ld.CIT(A) the assessee was not starved of funds to carry out or expand its activity and therefore receipt of such contribution at the time of admission either by way of capitation fee or otherwise is a purely commercial consideration for admissions. The institutions are running on commercial lines by collecting amounts in addition to .....

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trustees. There is nothing on record that any person has been denied admission for non payment of donations nor any student or parent has made any complaint to the Government for violation of The Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987. It is also the submission of the Ld. Counsel for the assessee that since the wordings of provisions of section 10(23C) are similar to that of provisions of section 10(22) of the I.T. Act, therefore, in view of the decision .....

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ent places, viz, Pune, Mumbai, Sangli, Satara, Vahi and Tirupati and the number of students are more than 47000. Some of the colleges are receiving grants from the Government where such grants are substantial. Similarly, there are 27 institutions run by the trust where the gross receipt is less than ₹ 1 crore and no grant has been received from the Government. Similarly, there are 3 institutions where the trust has not received any grant and the gross receipt is more than ₹ 1 crores, .....

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,455,538 249,438 1,890,094 70% 4 Technical Institute, Pune 4; 597,062 3,704,790 892,272 2,223,000 48% 5 Navin Marathi Shala, Pune 5,610,342 5,204,816 405,526 3,854,738 69% 14,450,783 13,332,115 1,118,668 9,253,849 ABOVE ONE CRORES UNITS 6 Dravin Highschool, Wai 10,631,057 10,477,016 214,042 8,589,940 80% 7 Chintamanrao College of 14,312,040 13,292,847 1,019,193 12,257,297 86% 8 New English School Tilak Road, 15,498,360 15,929,992 (431,631) 11,784,538 76% 9 New English School Ramanbag, 16,694,815 .....

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376,881,12 54,730,234 281,516,613 443,062,141 390,213,24 55,848,901 290,770,462 NAME OF THE INSTITUIONS (Unaided Institutions) GROSS RECEIPTS EXPENDI TURE SURPLUS/ DEFICIT GRANTS % of the Grants with Total Gross Receipts BELOW ONE CRORES UNITS 1 Sangli Board Hostel, Sangli 3,833 124,173 (120,340) 2 DES Secondary, Pune(Development Fund) 6,583 - 6,583 3 NMITD Proposed College, Mumbai 10,829 325,688 (314,859) 4 Pre-Primary School, Satara (Deposit) 105,291 1,690 103,601 5 IARDA 119,770 363,544 (243 .....

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ah Kantilal Prashala Primary, Sangli (E) 1,317,049 568,307 748,742 16 Shah Kantilal Prashala Secondary, Sangli 373,658 595,301 (221,643) 17 Shah Kantilal Prashala Pre-Primary, Sangli 301,527 228,752 72,776 18 Shah Kantilal Prashala Computer 373438 225,007 148,431 19 DES New Pre-Primary, Pune 1,21-1,091 707,205 503,887 20 Balak Mandir Satara 1,436 ,571 674,350 762,221 21 Ranade Balak Mandir, Pune 4,292,^-17 2,063,116 2,229,301 22 DES Primary, Pune 5,695,944 3,172,135 2,523,810 23 DES New Primary, .....

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ge 14,072,598 7,776,889 6,295,709 2 Institute of Management Development & 18,712,177 12,044,777 6,667,400 3 DES Central Office 15,395,524 17,199,171 (1,803,648) 48,180,298 37,020,837 11,159,461 TOTAL NON AIDED INSTITUTIONS 103,682,441 77,938,838 25,743,603 Grand Total 549,744,582 468,152,078 81,592,504 61. The first question that has to be decided in this appeal is as to whether all the institutions are to be considered independently since individual audited accounts are also available or al .....

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oses. The assessee received donations from a trust during the previous years relevant to the assessment years 1965-66, 1966-67 and 1967-68, in sums of ₹ 15,71,370, ₹ 5,62,432.25 and ₹ 4,78,899.67, respectively. The assessee filed "nil" returns for all three years, on the ground that it was an educational institution existing solely for educational purposes. The Income-tax Officer closed the assessments stating that there was no taxable income. The Commissioner of Inco .....

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rt held in favour of the assessee on the ground that the sole purpose for which the assessee had come into existence was education at the levels of college and school and that an educational society could be regarded as an educational institution, if the society was running an educational institution not for the purpose of profit, but its existence was solely for the purpose of education. The Revenue appealed to the Supreme Court . The Hon ble Supreme Court held as under (page 316 and 317) : The .....

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lege here could come under the 'other educational institution'. " Proceeding further, the High Court held that the assessee came into existence for the purpose of establishing, running, managing or assisting colleges, schools and other educational organisations and in pursuance of its objects, the assessee has established a college. It was further held that the medium through which the assessee could effectuate its objects is the college and by employing this medium, the assessee im .....

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running an educational institution not for the purpose of profit, but its existence was solely for the purpose of education. On the basis of the above findings, the High Court answered the question referred to it in the affirmative and in favour of the assessee. It is this judgment which is objected to by the assessee as also by the Revenue in the main appeals Civil Appeals Nos. 2578-2580 of 1979 and 356, 356A and 356B of 1980. Counsel for the Revenue mainly stressed the plea that the exemption .....

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(22) of the Act. The High Court has concurred with this view. The High Court has further held that the medium through which the assessee could effectuate its objects is the college and by employing this medium, the assessee imparts education and it cannot be stated that the assessee is only a financing body and does not, on the facts, come within the scope of "other educational institution" occurring in section 10(22) of the Act. Reliance was placed on the decision of the Allahabad Hig .....

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on Foundation [1985] 154 ITR 208 (Cal) and Agarwal Shiksha Samiti Trust v. CIT [1987] 168 ITR 751 (Raj). It will be rather unreal and hypertechnical to hold that the assessee society is only a financing body and will not come within the scope of "other educational institution" as specified in section 10(22) of the Act. The object of the society is to establish, run, manage or assist colleges or schools or other educational institutions solely for educational purposes and in that regard .....

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he High Court does not merit interference. The plea of the Revenue to the contrary is untenable and we repel the same. All the appeals filed by the Revenue shall stand dismissed, but there shall be no order as to costs. 63. Though the above decision was rendered in the context of provisions of section 10(22), however, it has been omitted by the Finance Act No.2 of 1998 w.e.f. 01-04-1999. We find the provisions of section 10(23C) (iiiab) are similar to that of the provisions of section 10(22). Th .....

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cing legal status. 65. From the above, it is very clear that it is the trust or the society that has to apply for registration and claim exemption. Had it been the intention of the legislature to grant exemption only to the institutions individually or independently and not to the society as a whole, the language would have been different. The society or trust may run more than one institutions. Therefore, the argument of the Revenue that it should be institution specific and not the Society as .....

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Institutions (Prohibition of Capitation Fee) Act, 1987. None of the persons who have deposed against the assessee by stating that they had given donation for the purpose of getting admission has complained to the Government for any such violation by the society. It is also to be noted that those persons have filled up the requisite proforma stating that they have given donation to the assessee voluntarily and not for seeking admission. Even some of them claimed deduction u/s.80G, a fact stated .....

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Nothing has been brought on record that any student has been denied admission for not giving donation. Merely because some of the donors stated that they have given the donation for admission the same in our opinion will not disentitle the society from getting exemption which is existing solely for educational purposes and which is otherwise entitled to the exemption. 67. We find a somewhat similar issue had come up before the Hon ble Rajasthan High Court in the case of Chief CIT and Another Vs. .....

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er section 10(23C). For the assessment year 2010-11 and onwards, the assessee was granted approval under section 10(23C)(vi). On a writ petition the single judge allowed the writ petition by setting aside the order passed by the Chief Commissioner under section 10(23C) and directed the authority to decide afresh the proceedings for the assessment year 2008-09 and onwards till the assessment year 2010-11 by passing afresh speaking order after affording opportunity of hearing to the assessee. On a .....

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l purposes or it existed for the purposes of profit. Further, it was not the case of the Revenue that the students who were admitted were not imparted education in the college in which they were admitted or the admissions granted were fake or non-existent or that the income generated by admitting the students was not used for the purpose of the assessee. The emphasis on the part of the Chief Commissioner that the purpose of education would not be served if the education is for students who have .....

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the purpose of education. Therefore, there, was no interference with the order of the single judge. 68. We find the Pune Bench of the Tribunal in the case of Shikshana Prasaraka Mandali Vs. CIT Central Pune vide ITA Nos.1348 and 1349/PN/2010 order dated 27-03-2014 (where one of us - Accountant Member is a party) while dealing with denial of registration u/s.12A for violation of The Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987 by accepting donations has observed .....

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CIT cancelled the registration granted earlier on the ground that the objects of the assessee trust are not genuine since the assessee trust is collecting huge donation from students for admission to the various institutes run by it in violation of the Maharashtra Educational Institutions (Prohibition of Capitation Fe) Act, 1987. The collection of such donations according to him is illegal and therefore the activities of the said society are not genuine. He further observed that the institutes a .....

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is collecting huge donation from students for admission to various institutes which is in clear violation of the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987, we find there is no such complain before the Government of Maharashtra or AICTE or any other Government Department either by the Income Tax Department or by any of the student/parents stating that the assessee society has charged Capitation fee for giving admission which is in violation of the Maharashtra .....

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t prescribed by the Government of Maharashtra and that all such receipts are reflected in the accounts could not be controverted by the Ld. Departmental Representative. 8.4. . . . . . . . . . . . . 8.5 . . . . . . . . . . . . 8.6 . . . . . . . . . . . . 8.7 We find the Hon ble Delhi High Court in the case of Shanti Devi Progressive Education Society (Supra) has observed as under : "26. We have considered all these opinions as well as the submissions made by learned counsel for the parties. .....

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ve been addressed only towards the object of creating additional infrastructure and easing the liability of the assessee towards the interest burden of loan repayment. What is pertinent to be taken note of is that there is no finding or allegation of any diversion of these funds for the purpose other than carrying on educational activity. There is no diversion of funds to the individual members or taking away of profits for some other activity. It does appear to us that the Assessing Authority a .....

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has to be imparted, all these activities require funds. There may be an original corpus of the Society but thereafter the corpus for such activity can be created only through voluntary donations either from any philanthropist or through collection of funds in the process of admission. We are not concerned with the morality of the issue while deciding whether exemption has to be granted. Personal prejudices seem to have stepped in when allegations were made without any material against certain m .....

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ergence of funds to the members of the Society. Similarly, the factum of construction being carried out by Ahluwalia Construction Co. (P) Ltd., stated to be a family concern of the President, was not material as there was no allegation of any inflated cost of construction or unreasonable profits being derived from the same by third parties as a mode of divergence of funds." 8.8 We find the Pune Bench of the Tribunal in the case of Dr. D.Y. Patil Education society (Supra) has observed as und .....

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n the Commissioner of income-tax was considering cancellation of registration on the basis of the plea that the assessee was accepting capitation fee/donations. Following discussion by our co-ordinate Bench is relevant: "48. Now the question is the legal consequence of the assessee accepting capitation fees / donations from students seeking admission to various courses offered by the Institutions run by the Assessee-Trust. Even in the matter of capitation fees / donations, the Commissioner .....

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ation fees / donations are used for the purpose of not only by the Assessee- Trust but also for other Institutions of similar nature It is to be seen that application of funds for the charitable activities of another eligible Institution amounts to application of funds for charitable purposes. The law has made it very clear that the charitable activities may be carried out directly by an eligible Institution or through another eligible Institution for that matter. Therefore, those observations o .....

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tles the assessee to claim exemption. The Court observed that for arriving at such satisfaction primarily he has to look at the object of the trust, when the same is reduced into writing in the form of trust deed. If on the date of the application the trust has received income from its property, then find out how the said income has been expended, and whether it can be said that the income is utilized towards charitable and religious purposes. Therefore, for the purposes of registration u/s. 12A .....

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ources out of which necessary funds were collected by the assessee. In other words, the source of funds is not an important ingredient in assessing the character of the activities carried on by a Charitable Institution. The Allahabad High Court in the case of CIT Vs. Red Rose School [163 Taxmann 19] has held that educational activities carried on by a Society are for charitable purposes and not against the public policy. Therefore, the activities carried on by the Assessee-Society in the present .....

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ter considering the judgments of the Hon'ble Karnataka High Court in the case 11 of Sanjevamma Hanumanthe Gowda Charitable Trust (supra) and that of the Allahabad High Court in the case of CIT v Red Rose School 163 Taxmann 19 (AIL), it is quite clear that the objection raised by the Commissioner with regard to the receipt of capitation fee/donations are factors to be considered at the time of assessments while examining the eligibility of the assessee trust for the benefit of section 11 & .....

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e matter back to his file to be examined afresh strictly in terms of the scope of the enquiry envisaged under section 12AA(1) of the Act. 8.9 We find the Pune Bench of the Tribunal in the case of Maharashtra Academy of Engineering & Educational Research (MAEER) Vs. CIT reported in (2010) 133 TTJ (Pune) 706 while adjudicating cancellation of registration u/s.12AA for taking donation and capitation fee has observed as under : (VI) Conclusion : 11. In the recent past the question of interpretat .....

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nt to enter into the controversy whether the applicability of s. 12AA(3) was retrospective or prospective in nature. Rather we can make an observation that this issue stood answered by Co-ordinate Benches. We want to express that earlier to this section there was no guidelines in the statute for refusal of registration, therefore it was considered eminent to introduce in the statute the said procedure. What bothered the Tribunals and High Courts in the recent past is the scope and the purpose of .....

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r imparting education in divergent fields; deliberated upon ante. 11.2 In any case we have to examine the purpose of enactment of ss. 12A, 12AA and 12AA(3), viz-a-viz ss. 11 and 12. While reading several case laws as cited supra an important point of view of the Hon'ble Courts have come to our notice that mere registration under s. 12AA would not by itself be a ground for exclusion of such an income from the total income of a trust. To our understanding, also acknowledged in the precedents; .....

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exemption as prescribed under ss. 11 and 12 of the Act. It is not the other way round that the benefit of ss. 11 and 12 shall be automatic once the registration is granted. Thus the outcome is that these provisions make it clear that if the trust is not registered under s. 12AA it would not be able to claim any exemption or exclusion of its income from the total income of the previous year, even if such income is otherwise liable for exclusion under any of the clauses of s. 11 and s. 12 of the A .....

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adjudication. Thus in a case of refusal of registration, the trust would even not be allowed to enter the room to seek a claim of such exclusion of a receipt from the total income. In simple words; in case of no registration a trust is debarred by law to claim exemption. This is the first step to climb to the level where the exemptions are placed. At this first step the CIT is conferred with the powers to call for such documents and information in order to satisfy himself about the genuineness .....

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activities are not genuine or not being carried out in accordance with the object of the trust. The need for the enactment had arisen due to belief of some quarter that in the absence of explicit law the CIT cannot exercise the power of cancellation of registration. To overcome this hurdle this sub-section is incorporated and now in operation. Naturally these powers are conferred with a view to ensure that if once a registration has been granted under s. 12AA, a trust or institution may not take .....

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e application of registration, the CIT shall also look into the procedure of earning of income and sources from where receipts are derived. The argument was, it also does not speak anywhere that while considering the registration the CIT shall also see the manner in which the receipts or the income is being spent by the trust. To our humble understanding of various related provisions, the power of enquiry, in respect of sources of receipts and the utilization of income is entrusted in separate s .....

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hich beneficial law is made and also be not in conflict with the general public utility. Naturally an institution if established to carry out an illegal activity or activities are causing any type of nuisance not in the interest of the public at large should definitely lead to cancellation of registration. Therefore, this is the first requisite of the statute to mandate for the registration and in the absence of such registration disentitlement of exemption. So what is explicit is that though an .....

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ity and to get away from the ambits of the tax. An institution has to follow the norms as laid down in other related sections for availing prescribed benefits. 11.6 Procedure of registration is a first step and a preliminary stage where the CIT shall restrict the enquiries as to whether the trust is actually and whole heartedly performing all the duties and activities for which it was created. On careful reading of this section it was gathered that at this initial stage there is no scope of any .....

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re of registration as laid down therein. For this view, we draw support from the order of the respected Co-ordinate Bench Tribunal, New Delhi pronounced in the case of Aggarwal Mitra Mandal Trust vs. Director of IT (Exemption) (supra), a portion reproduced below (p. 186 of paper book) : "............In this situation, if the registration applied for under s. 12A is not granted to it for violation of the provisions of s. 13(l)(b) and it is ultimately found that the assessee-trust actually ac .....

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rovisions become operative or relevant only at the stage of assessment when the AO is required to examine the claim of the assessee for benefits under s. 11 or s. 12 while computing the total income of the assessee of the relevant previous year. The application of s. 13 thus falls within the exclusive domain of the AO and the provisions contained therein can be invoked by him while framing the assessment and not by the CIT while considering the application for registration under s. 12AA." 1 .....

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it may, the real and the only substantial objection for refusal of registration was that the institution has collected donations thus adopted some wrong means of collection of fees. But whether at this preliminary stage he had the right to draw an adverse inference so as to refuse registration or alternatively confine himself to the enquiry about the objects and the activities of the trust as per the limits of the jurisdiction of s. 12AA of the Act. Rather this is also not the case of the learn .....

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ch Tribunal, Kolkata pronounced in the case of Kalinga Institute of Industrial Technology (supra) and have found that almost on identical situation, as in the present appeal, it was held that consequence upon a search while the assessment proceedings are pending a cancellation of registration by invoking s. 12AA(3) is a premature action on the part of CIT, because it is expected from him to take precaution to let the assessment get completed, if possible expeditiously, instead of rushing to canc .....

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irstly the CIT has been vested with the powers vide s. 12AA(3), inserted w.e.f. 1st Oct., 2004, to enquire about the genuineness of the activities of a trust and to satisfy himself that such activities are being carried out in accordance with the objects of the trust. Secondly in case of dissatisfaction he is empowered to cancel the already granted registration. Thirdly in case it is found that the activities are not in conformity with the object that too is the good reason for cancellation of r .....

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gistration the heavy burden is on the learned CIT to conclusively demonstrate that all had gone haywire i.e., objects are meant for personal benefits; that engaged in immoral activities or that there is no element of public benefit. In the present appeal none of the above criteria for rejection of registration was in existence, however mainly confined to the finding that by charging donation the trust has infringed the rules of Prohibition of Capitation Fee Act. 11.10 Before we part with it is w .....

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ons for the public good, and any collection for fees or charges, in the course of discharging these regulatory functions, cannot be viewed as a consideration of rendering these services of pollution control measures. We are unable to see any substance in learned CIT's stand that the income earned by assessee as licence fees, consent fees and testing charges are receipts in consideration of rendering the services to trade, commerce or business. What is termed as consent fees is in fact fees a .....

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l either. These are not the services with a profit motive but essentially only to recoup the cost of getting the samples tested or processing of licences. In any event, these activities, if these can be at all be construed as rendering of services, these are wholly subservient to the public utility objective of pollution control, and, it cannot be anyone's case that even though the State Pollution Boards like the assessee before us are set up under an Act of the Parliament, but, to use the w .....

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#39;; or (b) the activities of the assessee are not being carried out in accordance with the objects of the trust or the institution. There cannot be any other legally sustainable reason for cancelling or withdrawing the registration granted under s. 12AA. By no stretch of logic, the activities of the assessee can be said to be not genuine and the assessee is admittedly pursuing the objects for which it was established. When the assessee is engaged in bona fide activities, with the framework of .....

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11 as the activities of the assessee cannot be said to be for 'charitable purposes' defined under s. 2(15), but then this aspect of the matter is relevant for the assessment proceedings and not in the context of exercise of CIT's powers under s. 12AA(3). The impugned order passed by the learned CIT is thus vitiated in law on this count as well. 20. For the detailed reasons set out above, we quash the order of the learned CIT and hold that the learned CIT did not have any good reasons .....

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case of the Revenue that the assessee was not imparting education. As we know the term education means to teach subjects to students for the development of his mind and also to equip students to deal with reality. The training process is either theoretical or practical but student has to be taught the essentials of the selected subjects so as to develop his skill and knowledge for the subjects studied by him. The appellant institute, admittedly, fulfils the requirements of imparting formal educ .....

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infringement of any law so that to doubt the genuineness of the activities. If it was so then it can be held that the allegations of the Revenue as discussed above, remained unsupported thus deserves our dismissal. 11.12 Based upon the facts of this case, we now sum up above discussion; the sine qua non for cancellation of registration are two conditions prescribed in s. 12AA(3) needs to be satisfied are : (a) That activities of the trust/institution are not genuine. (b) That activities of the .....

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om the angle by which an assessment of an income is made by the AO. We are afraid about the ramification if we approve the action of learned CIT because in that case it may adversely affect the imparting of education especially when the Revenue has not made out a case that the very purpose for creation of the trust was defeated. Rather we wonder that what purpose does it serve to Revenue by cancelling a registration if the activities are in public interest because in case of any breach of the la .....

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r part might have been devoted towards achieving the objects i.e., imparting education, as in this case, but the AO shall be automatically forbidden to grant advantage of exemption consequent upon the cancellation as is mandatory in statute; relevant section already reproduced ante. The outcome of the deliberation made in detail hereinabove is that percurian opinion is to debar the CIT to enter into the area of investigation of source of income and also application of income, so that the amount .....

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ite an idiomatic language due to the sensitivity of the issue, that a CIT cannot be allowed to hold a baton of morality in his hand to hit an immoral; but the statute has given him a flexible stick for inflicting tax on defaulter; that includes a trust or educational institution. The gist is that if the CIT had an information of some wrongful means of earning fees in the form of a donation or the information tells about excessive charging of fees; then the CIT in his rights can pass on the infor .....

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y of the appellant or the collection of fees was by wrongful means; hence deregistration sans our approval. Nevertheless the list of fifteen cases, as highlighted by learned CIT, lack desired positive finding as it was left blank on the excuse that even the other authorities could not lay their hands on alleged defaults so it was also difficult for the Revenue authorities to trace the correct position. While dealing with the facts ante, it was found that after exhaustive enquiry few instances; f .....

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Capitation Fee Act. But on facts that too did not stand the test of those provisions since admittedly did not exceed the prescribed limit. 11.14 Facts of this appeal are peculiar, as already discussed in above paras in detail and thereupon can comment that prima facie no case was made out by the learned CIT so as to even vaguely demonstrate that the activities of the appellant were not genuine or activity of imparting of education, for which the trust was created, were not carried out. Even the .....

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. 12AA(3) condition. Second aspect is, that though the donations received are meant to fulfill the objects but together with fees have infringed Anti Capitation Prohibition Act; then comes within the clutches of that Act but definitely not under s. 12AA(3) provisions. The third aspect is, that the donation plus fees do not exceed the prescribed limit of Anti Capitation Fee Act i.e., five times the normal fees; further that no evidence of misutilization other than the prescribed activity then no .....

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ation for admission of students to various institutes run by it in violation of provisions of Maharashtra Educational institutions (Prohibition of Capitation Fee) Act, 1987 for which the activities of the assessee trust are illegal and therefore the activities are not genuine is not correct. Further, the conclusion of the Ld. CIT that the institutes are being run on commercial lines with profit motive due to the substantial surplus created year after year is also not correct since the assessee h .....

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ration u/s.12A of the I.T. Act, 1961. We accordingly set-aside the order of the Ld.CIT and direct him to grant registration u/s.12A of the Income Tax Act. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed. 69. Although the above decision was rendered in the context of denial of registration u/s.12A of the I.T. Act we find the issue there was also denial of registration u/s.12A on the ground that the institutions are accepting capitation fee in guise of vo .....

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onations against building fund, development fund against admissions under Management Quota for which exemption u/s.11 was denied by the Assessing Officer has held as under (Head Notes) : Charitable or religious trust-Exemption u/s 11-Assessee-trust was a registered Society and ran several educational institutions in city of Mysore starting from nursery to PUC-Assessee trust was also registered u/s 12AA and had also obtained exemption u/s 11 and 12- Some of the educational institutions run by ass .....

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ons collected by way of DDs and donation receipt books for admissions given during FYs 2005-06 and 2006-07 relating to fees and alleged donations collected from students who got admissions into the schools/college run by the assessee were impounded and statement of secretary of assessee was also recorded-AO observed that assessee was collecting voluntary contributions/building fund/development funds against admissions given under management quota in institutions run by assessee and was not entit .....

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s and deposited same in the bank, requirement of section 11(l)(d) is fulfilled- Assessee was running several Schools starting from nursery to PUC and said fact has been endorsed by AO-No question of assessee collecting 'capitation fees' in guise of 'building fund or development fee-Further voluntary contributions received were for the specific purpose of 'building fund or development fee - Further voluntary contributions received were for the specific purpose of building and asse .....

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towards the objects of the assessee trust and as such, there was no violation of s.13 of the Act as ascribed by the Revenue, The assessee had obtained the signatures of the parents of the successful students in preprinted letters without giving the details of amounts' donated, date of contributions etc., but contained the donors' names and their addresses. However, the assessing authority had chosen not to cross-examine such parents who have admitted their children to the institution of .....

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of a charitable organization-Capitation fee per se is not in the nature of illegal income-There is nothing to show in the seized materials that the assessee had made any profit out of the activities carried on by it and any portion of that profit has been enjoyed by any of the trustees or the relatives. Surplus funds of the assessee-trust year to year have been used only for the purposes of furthering the objects of the assesseetrust- There is no distribution of profit or such other benefits to .....

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cational Society vs. CIT vide Civil Appeal No.5167/2008 order dated 16-03-2015 has approved the decision of the Hon ble Punjab and Haryana High Court in the case of Pine Grove International Charitable Trust Vs. Union of India reported in 327 ITR 73 has observed as under : 23. The Punjab and Haryana High Court, by the impugned judgment dated 29th January, 2010 expressed its dissatisfaction with the view taken by the Uttarakhand High Court in the case of Queen s Educational Society as follows: 8.8 .....

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of Section 10(23C)(iiiad). Secondly, the judgment rendered by the Uttarkhand High Court runs contrary to the provisions of Section 10(23C)(vi) of the Act including the provisos thereunder. Section 10(23C)(vi) of the Act is equivalent to the provisions of Section 10(22) existing earlier, which were introduced with effect from 1st April, 1999 and it ignores the speech of the Finance Minister made before the introduction of the said provisions, namely. Section 10(23C) of the Act [See observations i .....

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ct from 1st April, 1999 leading to the introduction of the provisions of Section 10(23C) of the Act. Lastly, that view is not consistent with the law laid down by Hon'ble the Supreme Court in American Hotel and Lodging Association Educational Institute (surpa). It then summed up its conclusions as follows: 8.13 From the aforesaid discussion, the following principles of law can be summed up:- (1) It is obligatory on the part of the Chief Commissioner of Income Tax or the Director, which are t .....

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he Act, as has been laid down by Hon'ble the Supreme Court in the case of American Hotel and Lodging Association (supra). To decide the entitlement of an institution for exemption under Section 10(23C)(vi) of the Act, the test of predominant object of the activity has to be applied by posing the question whether it exists solely for education and not to earn profit [See 5-Judges Constitution Bench judgment in the case of Surat Art Silk Cloth Manufacturers Association (supra)]. It has to be b .....

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deems fit provided that they are not in conflict with the provisions of the Act. The parameters of earning profit beyond 15% and its investment wholly for educational purposes may be expressly stipulated as per the statutory requirement. Thereafter the Assessing Authority may ensure compliance of those conditions. The cases where exemption has been granted earlier and the assessments are complete with the finding that there is no contravention of the statutory provisions, need not be reopened. .....

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itutions, which are registered as a Society, would continue to retain their character as such and would be eligible to apply for exemption under Section 10(23C)(vi) of the Act. [See para 8.7 of the judgment-Aditanar Educational Institution case (supra)] (5) Where more than 15% of income of an educational institution is accumulated on or after 1st April, 2002, the period of accumulation of the amount exceeding 15% is not permissible beyond five years, provided the excess income has been applied o .....

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aw. And finally held: 8.15 As a sequel to the aforesaid discussion, these petitions are allowed and the impugned orders passed by the Chief Commissioner of Income Tax withdrawing the exemption granted under Section 10(23C)(iv) of the Act are hereby quashed. However, the revenue is at liberty to pass any fresh orders, if such a necessity is felt after taking into consideration the various propositions of law culled out by us in para 8.13 and various other paras. 8.16 The writ petitions stand disp .....

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ufacturers Association Case and Aditanar Educational Institution case as follows: …..The fact that the Petitioner has a surplus of income over expenditure for the three years in question, cannot by any stretch of logical reasoning lead to the conclusion that the Petitioner does not exist solely for educational purposes or, as that Chief Commissioner held that the Petitioner exists for profit. The test to be applied is as to whether the predominant nature of the activity is educational. In .....

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to remain stagnant. The Income-tax Act 1961 does not condition the grant of an exemption under Section 10(23C) on the requirement that a college must maintain the status-quo, as it were, in regard to its knowledge based infrastructure. Nor for that matter is an educational institution prohibited from upgrading its infrastructure on educational facilities save on the pain of losing the benefit of the exemption under Section 10(23C). Imposing such a condition which is not contained in the statute .....

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for profit, the test is met. 25. We approve the judgments of the Punjab and Haryana, Delhi and Bombay High Courts. Since we have set aside the judgment of the Uttarakhand High Court and since the Chief CIT s orders cancelling exemption which were set aside by the Punjab and Haryana High Court were passed almost solely upon the law declared by the Uttarakhand High Court, it is clear that these orders cannot stand. Consequently, Revenue s appeals from the Punjab and Haryana High Court s judgment .....

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rities must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down. Further, it is of great importance that the activities of such institutions be looked at carefully. If they are not genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdraw .....

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