TMI Blog2015 (7) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. 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 failed to establish that there was any illegal activity or 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. From the submission of the assessee we find that out of more than 47000 students the assessee trust has collected donations from only 1217 students out of which only 23 persons had admitted to have given donations for admission. 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iiiab). Donation of ₹ 2,92,18,001/- has been claimed to be corpus donation and the details of such donations were also enclosed with the return of income which also includes anonymous donations. 3. During the course of assessment proceedings, the Assessing Officer noted that the details of income, expenditure and surplus 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 purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment in shares, debentures and bonds as against ₹ 1,52,89,372/- in the preceding year. The AO further noted from the details filed vide letter dated 3.9.2010, that the assessee has received Salary Grants from the State Govt. of ₹ 28,70,35,473/-, 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. During the course of assessment proceedings the Assessing Officer asked the assessee to explain as to why its claim of exemption u/s.10(23C) (iiiab) should not be denied in view of the following issues : 1) Where some of the institutions of the assessee trust (DES) are substantially financed or aided by the State Government, by way of salary grants to the teachers and non-teaching staff of such institutions, with no surplus income, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 FCP (BCS) PG 16854015 13423257 BMCC (Non-Grant)-BBA/BFT 14690224 10910743 DES Law College 14072598 7069937 IMDR 18712177 6985208 Others (annual receipt ₹ 1 Crore) 91857201 5874222 Grand total 18,22,45,641 109,10,290 845,14,218 9. It was submitted that the assessee receives very little support from the State Government for the purpose of creating the infrastructur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 capitation fee received by it under the garb and guise of corpus donation to grant admission to students in various courses/institutions run by the assessee society. The Assessing Officer also asked the assessee to explain as to why provisions of section 115BBC be not applied to amounts received and credited as corpus donations where the name and address of the donor is not given or supported by identity proof. The Assessing Officer also asked the assessee to explain as to why the exemption be not denied 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(22) of the IT Act, being an educational institution, registration u/s 12A(a) is not necessary in its case. It was also argued that the provisos 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 requirement of filing return of income. The assessee also claimed that the donations were not anonymous as PAN of 9 persons are mentioned in the letter dated 6.12.2010. 14. Regarding the donor s admission of donations being capitation fee for admission, the assessee argued that out of 877 donors, summons u/s 131 along with questionnaire were issued to 83 persons, out of which 22 persons confirmed giving donation and also referred to admission of certain persons. Thus only 2.51% of the donors alleged that there was a nexus between the donation and certain admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns given to the students named in the impugned show cause notice, which is also apparent from the very length of time between the two. i) It is denied that that the assessee has violated the provisions of Maharashtra Educational Institutions (Prohibition of capitation fee) Act, 1987, or the law laid down by the Hon'ble Supreme Court of India in the case of Islamic Academy of Education. The assessee re-iterated its request for an opportunity to cross examine the aforesaid 22 donors in order to establish beyond doubt the presence or absence of a nexus between 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 possibly fatal infirmities which are patent without a cross examination' in the aforesaid 22 statements on oath: (a) The d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 condition precedent to the said admission but more than 88 days after the said admission. In such circumstances, there is obviously no quid pro quo between the donation and the said admission. (g) Deponent No.7 Shri Nishant T Gadpayle has allegedly deposed that he gave the amount (Rs. 98,000/-) in repayment of loan. The assessee submits that it had never given any loan to Shri Gadpayle, and that his other statement, regarding unavailability of draft facility with the extension counter Branch, is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cific. Drawing attention to the clauses of Sec.10(23C) which provide for exemption of income of educational institutions, the Assessing Officer emphasized that while there is no string attached to the eligibility of exemption under clause (iiiab) to institutions existed solely for educational purposes and not for the purpose of profit and which are wholly or substantially financed by the Govt., or under clause (iiiad) 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 exemption u/s. 10(23C) though the assessee has the option of claiming exemption u/s. 11 of the Act in such cases subject to the conditions prescribed thereof. Noting that such other institutions of the assessee which do not fall under clauses (iiiab) or (iiiad) were not approved either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee constituted grants from the Govt. and 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 the assessee society is clearly covered by the definition of other educational institution as defined in Sec. 10(23C)(iiiab) in spite of the fact that some of the institutions of the assessee are not aided by the Govt., the assessee placed reliance on the following decisions:- 1. Aditanar Educational Institution Vs. Addl.CIT 224 ITR 310(SC) 2. Pingrove International Charitable Trust Vs. UoI and Ors 327 ITR 83 (P H) 3. Birla Vidya Vihar Trust Vs. CIT 136 ITR 445 (Cal.) 21. It was submitted that the Assessing Officer held to the contrary without negating the position that the assessee is an institution existed solely for educa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l rights in law and such testimonies could not be the basis of drawing adverse inference against the assessee. It was submitted that the Assessing Officer was not justified in denying exemption u/s.10(23C) on charge of alleged acceptance of capitation fee. It was submitted that merely because assessee has accepted donations does not lead to the inference that it existed for the purpose of profit. 24. Based on the arguments advanced by the assessee the Ld.CIT(A) 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 and Mr. Firodiya Advocate on behalf of the assessee. The Assessing Officer submitted the party-wise outcome of the cross examinations carried out along with the comparative analysis in the context of their original depositions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 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 nor had there any documentary evidence to support the adverse depositions. Referring to sections 91 and 92 of the Indian Evidence Act, 1872 it was submitted that oral evidence was not admissible for contradicting documentary evidence. It was further submitted that while the Assessing Officer did not understand Marathi the deponents did not understand English leading to a situation where one of the deponents namely Shri Gadpayale s reply that the donation was given to repay the debt of gratitude 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 contribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and the same are not voluntary contributions or corpus donations. The date(s) of contributions in question coincides with the date(s) of admission and it is only the deposit of the amount and the issue of the receipt thereof, which were delayed by the assessee intentionally so 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 amounts in addition to prescribed fees for admissions, the assessee is not eligible for deduction u/s.10(23C). Even otherwise, the income of unaided institutions of the assessee with gross receipts exceeding Rs. One crore, amounting to ₹ 7,86,39,996/- is not eligible for deduction as the assessee has not obtained the approval of the prescribed authority as required under sub-clause (vi) of sec.10 (23C). He acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 appellant society. e. The exemption u/s 10(23C)(iiiab) was allowable to the appellant society as it was substantially financed by the Govt. f. It was incorrect to hold that the exemption u/s 10(23C)(iiiab) was not allowable to the appellant society as this exemption was allowable only to the educational institutes and not to the society running various educational institutions. g. without prejudice, the exemption u/s 10(23C)(iiiab) ought to have been granted to the various educational-institutions 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 rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33. Referring to pages 115 to 123 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the copy of rules and regulations of Deccan Education Society and submitted that the society 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 students giving the details of donations totalling to ₹ 2,84,28,001/-. He submitted that the issue to be decided in this case is as to whether the individual colleges or schools are to be treated as separate institutions for availing of the benefit of provisions of section 10(23C) or the society as a whole which consists of all the institutions run by it. 34. Referring to pages 177 to 179 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to various ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Referring to pages 188 to 189 of the paper book he submitted that the Assessing Officer in the order passed u/s.143(3) on 13-10- 2003 for A.Y. 2005-06 has allowed the claim of exemption u/s.10(23C) (iiiab) to Deccan Education Society. Referring to pages 192 and 193 of the paper book he submitted that the Assessing Officer for A.Y. 2007-08 in the order passed u/s.143(3) on 04-09- 2009 has allowed the claim of exemption u/s.10(23C)(iiiab) . 38. Referring to the decision of the Hon ble Bombay High Court in the case of Vanita Vishram Trust Vs. Chief CIT reported in 327 ITR 121 he submitted that the Hon ble High Court 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 Institution Vs. Addl.CIT reported in 39 CCH 178 he submitted that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 200-10 and 2010-11 order dated 14-10-2014 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 accordingly directed to assess the assessee as sole taxing unit. 42. He also relied on the decision of Hon ble Punjab and Haryana High Court in the case of Pinegrove International Charitable Trust and others Vs. Union of India and others reported in 327 ITR 73 which has since been upheld by the Hon ble Supreme Court in the case of M/s. Queen s Educational Society (copy of order filed in paper book) and the decision of the Ahmedabad Bench of the Tribunal in the case of DIT (Exemptions) Vs. N.H. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 196 Taxmann 276 (kar.) he submitted that Hon ble High Court in the said decision has held that the assessee which is an educational institution and is in receipt of only 37.85% of total income financed by Government grant and deriving the balance income from being tuition fee, donations etc., still qualifies for exemption u/s.10(23C) (iiiab) because in the absence of any definition for the word substantial in the Act, what is to be seen is what is the total 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 violated the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987. The Ld. Counsel for the assessee drew the attention of the Bench to the copy of the Act placed at paper book pages 180 to 186 and submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption 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 surplus and the institutes have not received any grants and the gross receipt is more than ₹ 1 crore. 52. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). He submitted that the assessee trust is existing solely for profit. The assessee has received pay orders or Demand Drafts towards Capitation Fee from the relatives, friends or children of the persons who have deposed before the Assessing Officer. All of them signed in the standard formats prescribed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case is a Public Charitable Trust and is operating various educational institutions mainly across various places in Maharasthra which included 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 impugned assessment year also the assessee filed return of income declaring Nil income after claiming exemption u/s.10(23C) (iiiab). However, for the impugned assessment year the Assessing Officer noted that amongst the various institutions run by the assessee there were unaided institutions whose annual receipts exceeds ₹ 1 crore. These institutions were neither approved u/s.10(23C)(vi) nor registered u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 prescribed fees for admissions. In view of the above, the Ld.CIT(A) held that the assessee trust is not entitled to exemption u/s.10(23C) and upheld the action of the Assessing Officer. 59. It is the submission of the Ld. Counsel for the assessee that the trust is not being run on commercial lines. The money collected from students towards fees and donations are spent only for the purpose of education. No portion of the funds of the trust has been diverted for the personal benefit of any of the 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 decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 (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 (243,775) 6 Abhivyakti 339,318 364,488 (25,170) 7 Pre-Primary School, Satara 346,742 214,119 132,623 8 Sangli Board Office, Sangli 420,845 864,872 (444,027) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,695,944 3,172,135 2,523,810 23 DES New Primary, Pune 5.75S.830 4,293,906 1,465,924 24 DES Pre-Primary, Pune 6,014,857 1,436,180 4,578,676 25 Institute of Management Research 6,936,239 5,946,310 989,929 26 DES Secondary, Pune 7,789,173 5,510,641 2,278,532 27 Jagganath Rathi Vocational Institute, Pune 8,751,432 8,467,541 283,891 55,502,143 40,918,00 14,584,142 NAM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Income-tax, in revision, suo motu, held that the assessee was not entitled to exemption, as the exemption under section 10(22) of the Income-tax Act, 1961, would apply to educational institutions as such and not to anyone who might be financing the running of such an institution. The Appellate Tribunal, by a common order for all three years, held that the assessee was an educational institution within the ambit of section 10(22) of the Act. On a reference at the instance of the Revenue, the High Court 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see itself could be termed as an educational institution coming within section 10(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 High Court in Katra Education Society v. ITO [1978] 111 ITR 420, to hold that an educational society could be regarded as an educational institution if the society was running an educational institution. We are of the view that an educational society or a trust or other similar body running an educational institution solely for educational purposes and not for the purpose of profit could be regarded as other educational institution coming within section 10(22) of the Act. (See CIT v. Doon Foundation [1985] 154 ITR 208 (Cal) and Agarwal Shiksha Samiti Trust v. CIT [1987] 168 ITR 751 (Raj). It will be rather unreal and hyp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 66. The second question that arises for our consideration as to whether the trust is for profit motive. It is the allegation of the Revenue that the assessee trust was collecting the capitation fee in the garb of donation and was therefore running with a profit motive. We find the Assessing Officer has not reported the violation, if any, by the assessee trust to the Government of Maharashtra for taking any action for violation of The Maharashtra Educational 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 by Ld. Counsel for the assessee and not controverted by the Ld. Departmental Representative. Therefore, changing the stands after their wards completed their education from the institutions run by the assessee trust are contradictory. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 been illegally admitted and the purpose of education as contemplated in the section would be served only if the students have been legally admitted and not otherwise, went beyond the requirements of the section. Of course, the requirement of an educational institution to provide admissions strictly in accordance with the prescribed rules, regulations and statute needs to be adhered to in letter and spirit, but violation could not lead to its losing the character as an entity existing solely for 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 deali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not informed the Government of Maharashtra if he was serious about any such violation done by the society. The submission of the Ld. Counsel for the assessee that as against 70 Management Quota Seats it has collected donation from 9 students and such donation is within the permissible limit 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. We must at the inception itself note that the three components scrutinized by the Assessing Officer are the Admission Fee, Corpus Fund and the Loans taken from parents. Thus it really can't be disputed that even the source of funds is relatable to the activity of education. It may be noticed that there are factual findings on the loans having been availed of by the assessee from a nationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under : 13. Though the assessee has denied receipt of capitation fee/donations and running on commercial lines, however, without going into the merits of such plea, the pertinent question is the consequences of acceptance of capitation fee/donations by the assessee at the stage of examining assessee's application for registration under section 12AA of the Act. Somewhat similar situation arose 10 before the Mumbai Bench of the Tribunal in the case of Ramarao Adik Education Society (supra) wherein 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of application of funds and the character of the activities carried out by an assessee and not the colour and nature of the sources 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 case cannot in any way held as opposed to public policy. The objection expressed by the Commissioner could at a maximum be attributed to the question of accepting capitation fees / donations. In this context, the Commissioner-DR has raised a contention that the donations received by the Assessee-Trust are not voluntary and that fact also should be contributed to justify the cancellation of the registration. On the basis of the aforesaid decision of the Tribunal, which has been rendered after considering the judgments of the Hon'ble Karnataka High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast is the scope and the purpose of introduction of s. 12AA in the statute. All those judgments as listed above, in agreement have said that the activities ought to be in fulfilment of the objects for which a trust is created. Sentiments should be in line with the purpose for which the trust is created. The purpose should be philanthropic, charitable, or for public general utility. Service without profit has to be the motive. As in the present case the objects are to undertake, to run and to improve the educational institution for 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; the provisions of s. 12AA prescribes conditions for registration of a trust and therefore in the absence of registration disentitles any trust from claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance 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 any such liberty of misuse of the registration or the provisions by going haywire rather furthering the objects of the trust or genuinely not pursuing the activities for which it was established. 11.5 Considering the arguments and the facts of this case we have noted that the most important feature of s. 12AA is, as also referred to us in this appeal for our adjudication, that this section has only laid down the procedure of registration and this section nowhere speaks that while considering the 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke the benefit of the provisions of ss. 11 and 12 unless it establishes the prescribed utilization of the income, even if, at all the trust holds the registration in its hands. Therefore at the stage of granting registration the CIT is not expected to bother himself about the other provisions of the Act and supposed to confine himself to the procedure 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 accomplished the objects as indicated in clause No. 3(4) only for the benefit of public at large without there being any activity undertaken as per object clause Nos. 3(1) and 3(2), it would be deprived of any benefits which otherwise were available to it under s. 11 or s. 12. This certainly is not the legislative intention as reflected in the sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings 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 cancel the registration which shall effect and interrupt the other proceedings under the Act and so prematurely punish a person without judicious hearing as prescribed by the statute. Held portion is worth reproduction as did in para (xii) p. 35 ante. 11.9 We have also gone through a decision referred from the side of the Revenue namely the Jammu Kashmir Bank Priority Sector Asset Risk Fund vs. CIT (ITA No. 61/Asr/2006 order dt. 1st Sept., 2006) (supra); cited in support of the argument that firstly 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is undisputed sole object of the assessee trust. Similarly, fees for testing charges and licence fees are not also towards rendering of any services of pollution control 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 words employed in the CBDT circular (supra) 'the object of' general public utility' will only be a mask or a device to hide the true purpose which is trade, commerce, or business or rendering of any service in relation to trade, commerce or business'. 19. In any event, as a plain reading of s. 12AA(3) would indicate that a registration granted under s. 12AA can only be withdrawn when the CIT is satisfied that (a) the activities of the trust or the institution are not 'genuine'; or (b) the activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant institute, admittedly, 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 failed to establish that there was any illegal activity or 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 trust are not carried out in accordance with the objects of the trust/institution. Thus t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are tempted to write 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 information to the concerned office bearers working under the Maharashtra Capitation Fees (Prohibition) Act. These authorities have enough power to deal with such nature of default, side by side the CIT is to limit his jurisdiction within the ambits of provisions of the Act and expected to give a finding on facts that either the objects are not for general public utility or not achieved as prescribed under law. However presently the situation is that the Revenue has not said about any immoral activity 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the third category. With the result, totality of the circumstances thus warrants, in the light of the foregoing discussion, not to endorse the view of the learned CIT; consequence there upon reverse those findings. The order of cancellation of registration is hereby revoked. Grounds allowed. 8.10 In view of the above cited decisions, we hold that the finding given by the Ld.CIT that the assessee was collecting huge donation 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 has accumulated its surplus which is within the permissible limit of 15% u/s.11 and 12. 8.11 So far as the 2 decisions relied on by Ld.CIT are concerned we find the Ld. Counsel for the assessee has distinguished the same. We fully agree with his arguments. In any c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 entitled to claim deduction u/s.11(1)(a) and 11(1)(d) CIT(A) upheld findings of AO holding that there was a direct nexus between admissions granted under the management quota and voluntary contributions collected by assessee- Held, 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(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 spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und pointed out by the CIT to cancel the registration granted to the assessee under s. 12A on the ground of accepting capitation fees is not sustainable in law. The CIT is not to conduct investigation into the sources of 72. We find the Hon ble Supreme Court in the case of M/s. Queen s Educational 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 We have not been able to persuade ourselves to accept the view expressed by the Division Bench of the Uttrakhand High Court in the case of Queens Educational Society (supra). There are variety of reasons to support our opinion. Firstly, the scope of the third proviso was not under consideration, inasmuch as, the case before the Uttrakhand High Court pertained to Section 10(23C)(iiiad) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity 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 borne in mind that merely because profits have resulted from the activity of imparting education would not result in change of character of the institution that it exists solely for educational purpose. A workable solution has been provided by Hon'ble the Supreme Court in para 33 of its judgment in American Hotel and Lodging Association's case (supra). Thus, on an application made by an institution, the prescribed authority can grant approval subject to such terms and conditions as it may 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013) 351 ITR 184, the Bombay High Court has expressed a view in line with the Punjab and Haryana High Court view, following the judgments of this Court in the Surat Art Silk Manufacturers 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 the present case, the sole and dominant nature of the activity is education and the Petitioner exists solely for the purposes of imparting education. An incidental surplus which is generated, and which has resulted in additions to the fixed assets is utilized as the balance-sheet would indicate towards upgrading the facilities of the college including for the purchase of library books and the improvement of infrastructure. With the advancement of technology, no college or institution can afford to remain stagnant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to which approval has been given, such approval and exemption must forthwith be withdrawn. All these cases are disposed of making it clear that revenue is at liberty to pass fresh orders if such necessity is felt after taking into consideration the various provisions of law contained in Section 10(23C) read with Section 11 of the Income Tax Act. 73. From the submission of the Ld. Counsel for the assessee we further find that out of more than 47000 students the assessee trust has collected donations from only 1217 students out of which only 23 persons had admitted to have given donations for admission. 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 for purposes other than education. Therefore, we are of the considered opinion that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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