TMI Blog2016 (12) TMI 1415X X X X Extracts X X X X X X X X Extracts X X X X ..... ted utilization of surplus by the respondent-assessee for only charitable purposes. The table as placed clearly shows that the respondent-assessee has utilized its surplus only for charitable purposes. Revenue has also neither argued nor drawn our attention to any material on record to the contrary. The charges for its services were also considered by the Tribunal and were found to be extremely reasonable,concessional, highlighting the charitable character of the respondent assessee. - Decided in favour of assessee - I. T. A. No. 602 of 2010 - - - Dated:- 23-12-2016 - MR. S. J. VAZIFDAR AND MR. DEEPAK SIBAL, JJ. For The Appellant : Mr. Denesh Goyal, Advocate For The Respondent : Mr. Pankaj Jain, Senior Advocate with Ms. Divya Suri, Advocate and Mr. Sachin Bhardwaj, Advocate DEEPAK SIBAL, J. : The present appeal under Section 260-A of the Income Tax Act, 1961 (for short the Act) is at the instance of the Revenue to challenge therein the order of the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (for short the Tribunal), through which, the Tribunal set aside the order of the Commissioner of Income Tax, Jalandhar-I, Jalandhar (for short the Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars 2010-11 to 2014- 15, an application dated 23.03.2009 was made to the Commissioner of Income Tax, Jalandhar-I, Jalandhar, by the assessee, which through order dated 22.09.2009, was rejected. The Commissioner found that the assessee was generating substantial surplus and was spending only a small percentage for charitable purposes. The Commissioner, was of the view that the assessee had disentitled itself for the grant of renewal of exemption under Section 80G of the Act as according to him, the assessee had deviated from its charitable objects. The Commissioner's order was taken up in appeal by the assessee before the Tribunal, which was allowed after observing therein that there was no mis-utilization of funds by the assessee and that generating of surplus was not fatal to the grant of exemption under Section 80G of the Act as such surplus was found to have been utilized by the assessee in large scale expansion of its facilities which in turn were used for charitable purposes. The Tribunal further noted that the hospital charges of the assessee, as compared to other commercial establishments, were very nominal, which further threw light on its charitable character. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax, Ludhiana, are similar in substance and appear to have been inspired by the view taken by the Uttrakhand High Court in the case of M/s Queens Educational Society (supra), which we have not accepted. 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) (vi) 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. The Revenue challenged the above said judgment of this Court before the Apex Court through a Special Leave Petition, which, after conversion into a Civil Appeal being Civil Appeal No. 9606 of 2013 , through order dated 10.05.2016, was dismissed, by observing as under :- In all those appeals which have come from the High Court of Punjab and Haryana and filed by the Department of Income Tax except one from Gujarat High Court, the High Court has followed its aforesaid judgment in Pinegrove International Charit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indirectly, for the purposes of such business; (ii) the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not, contain any provision for the transfer or application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose; (iii) the institution or fund is not expressed to be for the benefit of any particular religious community or caste; (iv) the institution or fund maintains regular accounts of its receipts and expenditure; (v) the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India or under section 25 of the Companies Act, 1956 (1 of 1956), or is a University established by law, or is any other educational institution recognised by the Government or by a University established by law, or affiliated to any University established by law, or is an institution financed wholly or in part by the Government or a local authority; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in computing the period of six months, any time taken by the applicant in not complying with the directions of the Commissioner under sub-rule (3) shall be excluded.] As per Rule 11 AA (2), the application for the grant of exemption under Section 80G of the Act is required to be accompanied by a copy of registration granted under Section 12A or a copy of the exemption granted under Section 10(23) or Section 10(23C), as the case may be, along with notes on the activities of the institution since its inception or during the last three years, whichever is less and copies of accounts of the institution since its inception or during the last three years, whichever is less. Thus, the registration under Section 12A or the exemption under Section 10(23) and Section 10(23C) are only one of the factors, which make eligible an applicant for the grant of exemption under Section 80G of the Act. Rule 11AA(3) further provides that in addition to the above information, which is required to be supplied by the applicant, the Commissioner may call for any further information as he deems necessary in order to satisfy himself about the genuineness of the activities of the applicant. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able trust or is registered under the Societies Registration Act, 1860 or under any law corresponding to that Act or under Section 25 of the Companies Act, 1956 or is a University established by law or is any other institution recognized by the Government or by a University established by law or affiliated to any University established by law or is an institution financed wholly or in part by the Government or a Local Authority. To assail the order of the Tribunal, Mr. Denesh Goyal, learned counsel appearing for the Revenue, relied upon the judgment of a Division Bench of Karnataka High Court in Visvesvaraya Technological University vs. Assistant Commissioner of Income Tax (2014) 362 ITR 279 (Karnataka) and a judgment of the Apex Court in Visvesvaraya Technological University vs. Assistant Commissioner of Income Tax (2016) 384 ITR 37 (SC) . According to him, the permissible extent of the surplus that could be generated by the respondent-assessee to retain its charitable character was between 6% to 15%. Since the generated surplus, in the case in hand, was much beyond the above percentage, the assessee would be deemed to have deviated from its charitable objects and thus d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iiiad) of the Act. xx xx xx xx 37. As observed earlier, an exemption under section 10(23C)(iiiab) cannot be either claimed or granted unless all the ingredients as reflected therein are satisfied/fulfilled. The expression not for purposes of profit will have to be read in the light of the word existing used in sub-clause (iiiab). It is true that the university was set up and is existing for the educational purposes. That by itself is not sufficient. What is necessary is that it should not exist for profit. There could be surplus every year, but the word surplus will have to be read and understood in proper perspective. In our opinion, surplus cannot be more than 10 per cent. to 15 per cent. so as to meet contingencies or unforeseen expenditure. 38. The constant increase in surplus year after year by way of collection of fees under various heads, more than what is required, in our opinion, would not amount to reasonable surplus and it would indicate that the university is systematically making profit. As observed earlier and seen from different tables, it cannot be stated that fees collected by the university under different heads, is reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of about 500 crores within a span of about 10 years. Whether such surplus could be treated as reasonable surplus . Our answer is no. 40. What is reasonable surplus, which, an educational institution such as the University can collect and still seek exemption under Section 10(23C) (iiiab) claiming that they are existing solely for educational purpose and not for purposes of profit. It is true that each institution, such as the University, has a freedom to fix its own fee structure taking into consideration the need to generate funds to run the institution. They must also be able to generate reasonable surplus which must be used for the betterment and growth of the educational institution. Thus, while fixing the fee structure it must be fixed keeping in view the infrastructure and facilities available, the investments made, salaries paid to the teachers and staff, future plan for expansion and/or betterment of institution etc. In any case such institutions cannot make profit or charge exorbitantly more than what they need. The surplus can be generated for the benefit/use of the institution and not to the extent so as to keep it in fixed deposits to earn huge income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in excess of its expenditure. Over and above this if the Government also pay them the grants which they are entitled for under the provisions of the Act of 1994. That apart, we did not find the university giving any relief or benefit to the students in terms of monies. This being the position, it cannot be stated that though the university was set up for educational purpose, it is no more a profiteering institution. In other words, it is undoubtedly making profits which cannot be exempted under the provisions of section 10(23C)(iiiab) of the Income-tax Act. The fact that the university has unreasonable surplus of income over the expenditure during the years in question, it cannot, by any stretch of imagination, lead to the conclusion that it exists not for the purposes of profit, though the predominant nature of the activity is educational. In the above quoted judgment, the assessee was issued notice under Section 148 of the Act as according to the Revenue, certain income of the assessee for several preceding Assessment Years had escaped notice. When the assessee did not respond, notices under Section 142(1) were issued, but even then no returns were filed. This led to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was dismissed. The judgment of the Karnataka High Court in Visvesvaraya's case (supra) does support the case of the appellant but the same was taken up in appeal before the Apex Court, which found that huge surplus had been accumulated by the University and that the difference between the fees collected and the actual expenditure incurred for the purposes, for which fee was collected, was significant. It was further noted by the Apex Court that the expenditure incurred represented only a minuscule part of the fees collected and that no remission, rebate or concession in the amount of fees charged under different heads for the next academic year had been granted by the University to the students. The surplus generated was also found to be far in excess of 6% to 15%, as held permissible by the Apex Court in Islamic Academy of Education v. State of Karnataka (2003) 6 SCC 697 . Having held so, the Apex Court further deciphered from the records produced before it as also before the High Court that the surplus accumulated by the University had already been or was intended to be spent on building infrastructure of the University. It was thus found that the accumulated sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the written submissions filed that between 1994 and 2009 the University had actually spent about ₹ 504 crores on infrastructure and the available surplus in the year 2010 which was in the range of ₹ 440 crores was also intended to be applied for different infrastructural work, details of which have also been brought on record. However, the said amount was attached by the Revenue pursuant to the demands raised in terms of the assessments made. Even in a situation where direct government grants have not been forthcoming and allocation against permissible heads like salary, etc. had not been made the University has thrived and prospered. There can, however, be no manner of doubt that the surplus accumulated over the years has been ploughed back for educational purposes. In such a situation, following the consistent principles laid down by this Court referred to earlier and specifically what has been said in paragraph 19 in Queen's Educational Society (supra), extracted above, it must be held that the first requirement of Section 10(23C)(iiiab), namely, that the appellant University exists solely for educational purposes and not for purposes of profit is satisfied. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n educational society and ploughed back to construct its own premises would fall foul of Section 10(23C) is to ignore the language of the Section and to ignore the tests laid down in the Surat Art Silk Cloth case, Aditanar case and the American Hotel and Lodging case. It is clear that when a surplus is ploughed back for educational purposes, the educational institution exists solely for educational purposes and not for purposes of profit. In fact, in S.RM.M.CT.M. Tiruppani Trust v. Commissioner of Income Tax, (1998) 2 SCC 584, this Court in the context of benefit claimed under Section 11 of the Act held: 9. In the present case, the assessee is not claiming any benefit under Section 11(2) as it cannot; because in respect of this assessment year,the assessee has not complied with the conditions laid down in Section 11(2). The assessee, however, is entitled to claim the benefit of Section 11(1) (a). In the present case, the assessee has applied ₹ 8 lakhs for charitable purposes in India by purchasing a building which is to be utilised as a hospital. This income, therefore, is entitled to an exemption under Section 11(1). In addition, under Section 11 (1)(a), the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment in that particular year, is that apart from annual grants the value of the land made available; the investment by the Government in the buildings and other infrastructure and the expenses incurred in running the institution must all be taken together while deciding whether the institution is wholly or substantially financed by the Government. The situation before us, on facts, is different leading to the irresistible conclusion that the appellant University does not satisfy the second requirement spelt out by Section 10 (23C) (iiiab) of the Act. The appellant University is neither directly nor even substantially financed by the Government so as to be entitled to exemption from payment of tax under the Act. [Emphasis supplied] Thus, on the first issue, the Apex Court held that if the surplus accumulated over the years is ploughed back for educational purposes, the institution would continue to exist solely for educational purposes and not for the purpose of profit. However, on the second issue, on facts, the Apex Court came to the conclusion that the assessee therein was neither directly nor substantially financed by the Government and thus, not coming under the expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asstt.Year Receipts Expenditure (not including capital expenditure) Capital Expenditure Income/ Surplus of receipts over expenditure Income applied for charitable purposes % of income applied (5/4 100) 2004-05 19,439,010 13,866,921 10,718,054 -5,145,965 24,584,975 126.47 2005-06 23,249,776 16,752,591 5,157,093 1,340,092 21,909,684 94.24 2006-07 27,335,430 20,782,115 6,509,794 43,521 27,291,909 99.81 2007-08 34,623,674 28,462,973 10,226,358 -4,065,657 38,689,331 111.74 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of St.Anne, reported at 146 ITR 28 and the decision of the Hon'ble Gujarat High Court in the case of Satya Vijay Patel Hindu Dharmashala trust Vs. CIT, Gujarat-I, reported at 86 ITR 683. Now we want to discuss the intention of the assessee trust whether the assessee trust is running for making the profit or not. As the learned CIT-I, Jalandhar in the impugned order at page No.2 para No.3 is of the opinion that the trust appeared to be engaged in profiteering rather than in charitable and philanthropic activities as contemplated in the objects of the trust. By reading these words of the learned CITI, Jalandhar in the impugned order, we are of the considered opinion that he has not himself clear whether the assessee trust is engaged in the profiteering rather than in charitable or not. As per the arguments advanced by the learned counsel for the assessee on the treatment of T.B. Patients in the assessee trust hospital as presently the assessee is charging ₹ 100/- per day from a T.B. Patient and this includes the charges for his stay, medicine, food, doctor's fee, nursing fee and even the cost of washing of linen. [Emphasis supplied] In fact, the utilization of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32,846,384 28,014,153 9,000,648 -4,168,417 37,014,801 112.69 The above table needs to be corrected. The percentage of income applied shown in Column No. 6, though shown to be after applying the formula of the figure arrived at under Column No. 5 divided by the figure arrived at in Column No. 4 x 100, actually and factually should be the figure arrived at in Column No. 5 divided by the receipts shown in Column No. 1 x 100. The above table clearly shows that the respondent-assessee has utilized its surplus only for charitable purposes. Mr. Goyal has also neither argued nor drawn our attention to any material on record to the contrary. The charges for its services were also considered by the Tribunal and were found to be extremely reasonable. The same are reproduced below :- GULABDEVI MEMORIAL HOSPITAL TRUST JALANDHAR List of Hospital Charges with effect from 01.03.2008 1. Registration Fee 20.00 Re Visting Fee 10.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vericocal (Swelling of Scrotum) 1800.00 Thyroid Nodule (Thyroid swelling) 1800.00 Fistula in ano (Disease of ano-rectal region) 1800.00 Hydropcele (Fluid in scrotal sac) 1800.00 C) Other Charges Advance Laparoscopic Surgery (Operation by Lapropscopy) 5500.00 Chest inutubation insertion of tube in chest) 600+60 Biopsy 600+60 Abscess Major 600+60 OT Charges for minor/major operations 650.00 Minor Dressing 40.00 Major Dressing 100.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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