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2015 (12) TMI 37 - ITAT MUMBAI

2015 (12) TMI 37 - ITAT MUMBAI - TMI - Non-granting of exemption u/s. 10(23C)(iiiab) - denial of benefits of exemption u/s. 11 also - Held that:- An identical issue was considered by the Tribunal, Pune Bench in the case of Deccan Education Society [2015 (7) TMI 649 - ITAT PUNE ] wherein also the Tribunal had the occasion to consider the fact that the institution was accepting capitation fees in the form of donation and the Tribunal allowed exemption u/s. 10(23C)(iiiab) of the Act finding that no .....

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Government grant receipt is less than 50%, the assessee cannot be denied exemption u/s. 10(23C)(iiiab) of the Act on the ground that the condition of “substantially financed” by the Government stands violated . Thus no hesitation to hold that the institution is “substantially financed by the Government”. Thus, fulfilling the third condition also for the eligibility for claiming exemption u/s. 10(23C)(iiiab) of the Act.It would not be out of place to mention here that even after the survey and se .....

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registration u/s. 12A of the Act as mentioned elsewhere. There is not even a whisper in the orders of the authorities below which could suggest that the facts of the case are hit by the provisions of Sec. 13 of the Act. After considering the facts in totality in the light of the decision of the Tribunal in assessee’s own case while restoring the registration u/s. 12A of the Act in our understanding of the facts qua the relevant provisions of the Act, we are of the opinion that the assessee is e .....

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No. 6564 & 6606/Mum/2014, I.T.A. No. 6681/Mum/2014, I.T.A. No. 6607/Mum/2014, I.T.A. No. 6682/Mum/2014, I.T.A. No. 6608/Mum/2014, I.T.A. No. 6683/Mum/2014 & I.T.A. No. 6609/Mum/2014 For the Petitioner : Shri Vijay Mehta & Shri Paresh Shaparia For the Respondent : Shri Manjunatha Swamy ORDER PER N.K. BILLAIYA, AM: The captioned appeals are by the assessee and the Revenue directed against the order of the Ld. CIT(A)-37, Mumbai pertaining to assessment years 2003-04 and 2005-06 to 2011- .....

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tives. We have also carefully gone through the relevant documentary evidences qua the issues. We have also perused the orders of the authorities below. 4. Briefly stated the facts of the case are that the assessee-society was formed in 1932 with the only aim and object of running Educational Institutions. The assessee is imparting education through various High Schools, Degree Colleges of Commerce and Science, Management studies in Technology, Packaging etc. at various places in Mumbai and Navi .....

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various sections, colleges and institutions and has claimed exemptions u/s. 10(22) of the Act which is now 10(23C)(iiiab). The following chart will explain the position clearly. 4.3. AS can be seen from the aforementioned chart, exemption in A.Y. 2007-08 was granted by the Ld. CIT(A) vide order dated 7 The South Indian Education Society 7.12.2010 and no appeal has been filed against this order of the Ld. CIT(A). 4.4. For assessment year 2008-09, the First Appellate authority vide his order dated .....

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e following chart: A.Y Exemption u/s. 11 granted Order u/s. Dated 1995-96 Not claimed as exemption u/s. 10(22) was granted 250 & by ITA 30/4/1998 & 28/10/2003 1996-97 Not claimed as exemption u/s. 10(22) was granted 143(3) 31/3/1999 1997-98 Yes 143(3) 20/5/1999 1998-99 Yes 143(3) 04.1.2001 2003-04 Yes 143(3)(Original assessment) 30/3/2006 2003-04 (Reassessment) No 143(3)rws 147 30/12/2010 2004-05 Not by AO but CIT(A) not Allowed Corpus donation u/s. 11(1)(d) but allowed other income u/s. .....

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n accepting capitation fees from its students. The authorities came to know the modus operandi which was like where the students paid capitation fees in cheque, the same was accounted for but where the capitation fees was paid in cash, the same was routed through cheque by taking donations from parties in lieu of cash. Further, such capitation fees was classified into two categories, (i) receipted i.e. where receipts were issued which are duly found reflected in the books of account and (ii) non .....

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nonymous donation u/s. 115BBC of the Act. 5.1. We also find that the First Appellate authority has allowed the claim u/s. 11 of the Act in respect of receipts other than capitation fees. The Department has preferred an appeal against this action of the Ld. CIT(A) and the assessee is in appeal against the rejection of its claim u/s. 10(23C)(iiiab) of the Act as well as u/s. 11 of the Act. 6. We will first take up the issue relating to the granting of exemption u/s. 10(23C) of the Act. The provisi .....

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hree conditions: a) Institution should solely exist for purposes of educational purposes. b) Institution should not exist for the purposes of profit c) Institution should be wholly or substantially financed by the Government. Now let us see whether the assessee fulfills all these mandatory conditions or not. It is clear that the institution should exist for the purposes of education. Thus the provision does not prohibit the institution from generating surplus from its activities. It is an undisp .....

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y an educational institution by itself would not make it ineligible to claim exemption u/s. 10(23C)(iiiab) of the Act. In other words, there may be an educational institution which is not collecting capitation fees but still can be said to exist for the purpose of profit. 6.2. This issue was elaborately discussed by the Tribunal when the assessee preferred an appeal against the cancellation of registration u/s. 12A of the Act in ITA No. 3288/M/2013. The Commissioner has cancelled the registratio .....

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upon by the assessee that the mere accepting the capitation fee cannot be brought into the scope of Section 12AA(3) if the prominent activity of the assessee are not doubted being imparting of education and promotion of education. The assessee has been carrying on the activity in the field of education through its aided and unaided institutions since the year 1932. The various educational institutions run by the assessee are affiliated with the Boards of School Education and Universities. These .....

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ld and therefore, the activity of imparting education is no more genuine. When nothing has been brought on record to say that the assessee has carried out the activities other then imparting and promoting the education then the cancellation of registration on the ground of accepting the capitation fee which has been used for the purpose of achieving the objects of the assessee is not sustainable in law in view of the various decisions as discussed above. Accordingly, we set aside the impugned or .....

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mbers of the society or has been used for the purpose otherwise than on the objects of the society. There is not even a whisper of mal-appropriation of the societies fund by the members for their personal benefits. 6.8. At this juncture, it would be relevant to consider the decision of the Hon ble Supreme Court in the case of Queen s Educational Society Vs CIT 372 ITR 699 wherein the Hon ble Supreme Court has referred to and relied upon tests laid down by it in its earlier judgements in the case .....

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stt. Years 2000-01 and 2001-02, the excess of income over expenditure stood at ₹ 6,58,862/- and ₹ 7,82,632/- respectively. It was also noticed that the appellant society had made investment in fixed assets including building at ₹ 9,52,010/- in F. Y. 1999-2000 and ₹ 847,742/- in F. Y. 2000- 01 relevant for asstt. years 2000-01 and 2001-02 respectively. Thus, if the amount of investment into fixed assets such as building, furniture and fixture etc. were also kept in view, t .....

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g and the surplus, i.e. the excess of the receipts over expenditure. In the year under appeal (and in the earlier year appeals) has enabled the appellant to acquire its own property, acquire computers, library books, sports equipments etc. for the benefit of the students. And more importantly the members of the society have not utilized any part of the surplus for their own benefit. The A.O wrongly interpreted the resultant surplus as the main objective of the assessee trust. As held above, prof .....

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ve the objective, it has to raise its own funds. But such surplus would not come within the ambit of denying exemption u/s. 10(23C) (iiiad) of the Act." 6.9. An identical issue was considered by the Tribunal, Pune Bench in the case of Deccan Education Society in ITA No. 1480/PN/2014 wherein also the Tribunal had the occasion to consider the fact that the institution was accepting capitation fees in the form of donation and the Tribunal allowed exemption u/s. 10(23C)(iiiab) of the Act findin .....

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Now the third conditions remains to be seen which is - the institution should be wholly or substantially financed by the Government. 7.1. At the very outset, we have to state that no percentage has been specified in the Act to define what the law meant by wholly or substantially financed by the Government nor any methodology is prescribed in the Act to compute the contribution made by the Government. In our understanding, the percentage of amount received from the Government should be computed .....

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408,000 58,919,000 34% 2004-05 226,043,000 110,181,000 115,862,000 57,878,000 50% 2005-06 247,681,000 134,875,000 112,806,000 49,426,000 44% 2006-07 297,549,000 167,259,000 130,290,000 58,441,000 45% 2007-08 326,004,135 209,091,973 116,912,162 77,789,619 67% 2008-09 324,309,198 240,738,421 83,570,777 86,456,961 103% 2009-10 388,151,926 273,525,517 114,626,409 95,942,503 84% 2010-11 518,856,628 291,789,070 227,067,558 99,006,591 44% 2011-12 492,282,047 319,719,588 172,562,459 148,484,944 86% 7.2. .....

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nal Mumbai Bench in the case of Vivek Education Society in ITA No. 5896/M/2011 dated 7.12.2012 has categorically held that provisions of Sec. 14 of C&AG Act are not applicable while interpreting provisions of Sec. 10(23C)(iiiab) of the Act. It would be pertinent to refer the ratio laid down by the Hon ble Karnataka High Court in the case of National Education Society in ITA No. 808 of 2009, Indian Institute of Management 196 Taxman 279 and CIT Vs Deshiya Vidya Shala Samithi in ITA No. 1133 o .....

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ax Act. However, it has been the subject matter of interpretation by various Courts in various contexts. The authorities in deciding what constitutes a substantial portion of the finance have taken note of the statutory provisions contained in the Banking Regulation Act, 1949, where a person who has the beneficial interest of more than 10% of the total capital subscribed by all the partners of the firm has been held to be having substantial interest. Similarly, substantial interest has also been .....

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2% of the total revenue do constitute substantial financial aid from the Government and thus the institution assessee is entitled to the benefit of the aforesaid provisions. 7.5. Similarly, in the case of National Education Society, the Hon ble High Court has considered whether 35.94% of contribution would amount to substantially financed by the Government and the Court answered yes . 7.6. Similarly, in the case of Indian Institute of Management (supra), the Hon ble Court accepted the contributi .....

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ion here that even after the survey and search operation, the Government grants are still received by the Institution which establishes the fact that even in the eyes of the Government, the institution is solely existing for imparting education. We, therefore, direct the AO to grant exemption u/s. 10(23C)(iiiab) of the Act. 9. Continuing further and for the same of completeness, let us now consider the issue relating to the grant of benefits of Sec. 11 of the Act which has been denied for the fa .....

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13(1)(c) of the Act which read as under: in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previ .....

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by the provisions of Sec. 13 of the Act. 12. The Tribunal in the case of Padanilam Welfare Trust Vs DCIT 20 Taxman 113 has held that the cancellation of registration u/s. 12A on the ground of accepting capitation fee is not sustainable in law which means that acceptance of capitation fee should not per se be treated as a business activity resulting into making the institution for running for the purpose of making profit. In the case of ADIT Vs St. Francis Education Trust in ITA No. 2669/M/2012 .....

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arned by a trust is utilised for charitable purposes it cannot be held that trust is carrying out business. FAA has rightly pointed out that there is no evidence on record that profit earned by the assessee-trust were not utilised by it for non charitable purposes. It is also a fact that there is no instance of violation of provisions of sections 11-13 of the Act by the trust. In our opinion principles enumerated by the Hon ble Supreme Court in the cases of Gujarat Maritime Board and Surat City .....

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the institution. 14. After considering the facts in totality in the light of the decision of the Tribunal in assessee s own case while restoring the registration u/s. 12A of the Act and other decisions referred to hereinabove, in our understanding of the facts qua the relevant provisions of the Act, we are of the opinion that the assessee is entitled for the benefit of Sec. 11 of the Act. We, therefore, direct the AO to grant the benefits of Sec. 11 of the Act. 15. Since we have directed for th .....

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Karnataka High Court in the case of Deshiya Vidya Shala Samithi (supra) and Tribunal Pune Bench in the case of Deccan Education Society (supra). One more reason for declining the claim of exemption to the assessee relates to the fact that the assessee is running Senior Citizen home and therefore does not exist solely for educational purposes. 16.1. A perusal of the Memorandum and Rules of the assessee society shows that at clause-17 it is mentioned that to establish and/or manage, run, administe .....

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cule and except in A.Y. 2008-09 the expenditures are much higher than the income. Further it is an undisputed fact that this clause is very much there in the Memorandum of the society since its inception. Therefore, we do not find much weight in denying the benefits for such activity. We hold in favour of the assessee and against the Revenue. 17. The Ld. Departmental Representative has filed a book exhibiting various judicial decisions but have referred to only 2 decisions namely Vodithala Educa .....

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