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2018 (2) TMI 602

ged in illegal activities and could not be said to be existing purely for Educational purposes, and rather various other business activities of the said family of Trustees and their money was passing through the cover and shields of the Books of Accounts of the petitioner - Trust rendering it as merely a skeleton for the purpose of exemption to Educational Trust and rather than a real Educational Trust, solely existing for the purpose of Education. Such sham or bogus Trusts cannot be held to be entitled to exemption under the provisions of Section 10(23-C) and therefore the Respondent Authority has rightly withdrawn the approval of the petitioner - Trust under the said provision. - As far as the withdrawal of the approval with effect from 01/04/2009 is concerned, even that cannot be assailed, because the evidence and material discussed in detail in the impugned order reflect such entries in the Books of Accounts which reflect illegality having existing on record right from the Financial Year 2010-11 onwards and therefore the illegalities and transactions offending the said provisions cannot be split or bifurcated for the period in question only after the search and seizure oper .....

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y time after giving a reasonable opportunity of hearing withdraw such approval and such approval shall not apply in relation to anonymous donations in terms of Proviso-15 to Section 10(23-C) of the Act and such approval shall be void if it is subsequently found that it has been obtained by fraud or misappropriation or misrepresentation of facts. 6. A search and seizure operation was carried out under Section 132 of the Act on 16/12/2015 at the various places including the said Educational Institutions and Residential Houses of the Trustees and inter alia it was found during the course of the said search and seizure operations that the petitioner - Trust was collecting cash donations from students (Capitation Fees) for Admission to the Medical Courses run by the Medical College of the Trust and such cash donations were also used for construction of Temple inside the Trust premises, paying speed money for getting approvals, incurring election expenses of one of the Trustees, Shri. Sunki Rajender Reddy, petitioner No.2 for his election, to buy personal Assets for the Trustees and for money laundering for claiming bogus Long Term Capital Gains and Gifts etc. 7. On the basis of the said .....

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re, the impugned order deserves to be quashed. 12. On the other hand, learned counsel for the Respondent - Department, Mr. Jeevan J. Neeralagi however, supported the impugned order and urged that the petitioner - Trust was indulging in illegal activities like collecting of capitation fees contrary to the decisions of the Hon ble Supreme Court of India and the Trust had indulged in money laundering for private profit purposes of the Trust and various assets were purchased from Trust funds in the name of the Trustees etc, and therefore, it cannot be said that the petitioner - Trust existed solely for Educational purposes, whereas in fact the same was used only as a shield and cover for illegal activities of the other petitioners, who are Trustees of the said Trust and the very purpose of grant of exemption under Section 10(23-C) of the Act stood defeated and all these revelations were unearthed during the search and seizure operations under Section 132 of the Act on 16/12/2015 and consequent to which, after giving due and reasonable opportunity of hearing to the petitioners, the impugned detailed order with all reasons assigned therein including the case laws discussed, has been righ .....

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capitation fees for the undergraduate and post graduate courses in medicine. As already discussed elaborately, sufficient evidence has been found that the Management of NET collects Donations (capitation fee) from the candidates in cash and without any acknowledgement or issue of receipt. Other vital facts found are: (i) That the amount of Donation is fixed for various courses. The amount is fixed based on existing demand and amount of Donation collected by other institutions conducting similar courses; (ii) Further, as already explained in paragraphs supra, evidences shows that a substantial part of the Donation amount collected is taken and utilized by the Trustees for their personal use. In short, the trustees are systematically engaged in personal (unjust) enrichment through this means of commercialization of the professional courses run through the NET. (iii) Since collection of any amount exceeding the prescribed fee is prohibited by law, the NET obviously cannot maintain regular records like receipt book or cash book to account for the Donations collected. The evidence of the Donation collected is found written in computer printed statements. Evidences thereof were found in .....

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t has been used by the trustees for their personal purposes, like personal investments/ expenditure or moneys used for contesting elections, cash paid for obtaining accommodation entries etc. There is also evidence that the NET through its Chairman and office-bearers have made payoffs of paid speed money. 14.1 Further, it is also seen from the regular books of account of NET that funds of NET are being used by the trustees for purchase of their personal assets. For example, during the F.Y.2012-13 an amount of ₹ 3 crore has been given by NET to Shri Sunki Rajender Reddy, which has been utilized by him by giving loan to Mr. Aditya Mundada of ₹ 1 crore. Thus, the funds of NET are being misused by the trustees for their personal purpose. 14.2 Secondly, huge amounts are paid as less rent to Shri Sunki Rajender Reddy, Smt. Swathi Reddy, Mr. Amrut Reddy and Ms. Nandika Reddy by NET. Further, huge honorarium is also paid to Shri. Sunki Rajender Reddy and Smt. Swathi Reddy by NET. In the preliminary statement recorded on 16-12-2015, Smt. Swathi Reddy in her reply to Q.No.01 has stated that she is into voluntarily activity of taking care of temple maintenance and that she does no .....

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uthority and later granted approval for AY 1999-00 to 2001-02. (later got the approval for subsequent years also i.e. after the date of assessment). The facts of the case are different from the facts of the present case. d) CIT Vs Fr. Mullers Charitable Institutions: The issue involved is violation of provisions u/s 13(1)(d) and hence the same is not relevant for the present case. 16.1 The facts of the case laws/judgements on which the assessee trust relied upon in their submission other than what have been mentioned above are not applicable to the present case as the issue involved in those cases are regarding registration u/s 12A of the IT Act. 16.2 The relevant provisions of Section 10(23C) reads as under Government or the prescribed authority is satisfied that - (i) such fund or institution of trust or any university or other educational institution or any hospital or other medical institution has not - (A) applied its income in accordance with the provisions contained in clause (a) of the third proviso; or (B) invested or deposited its funds in accordance with the provisions contained in clause (b) of the third proviso; or (ii) the activities of such fund or institution or tru .....

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anting the recognition. 16.6. Education would remain as a charity only in a case where education is imparted systematically for a fee prescribed by Government. A private aided or unaided professional institution or any other educational institution of a State is required to collect fees with regard to infrastructure and benefit of students of that educational institution. Collection of money over the above fee prescribed by Committee would amount to collection of capitation fee and such an institution would face legal consequences for same (Vodithala Education Society Vs. ADIT, [2008] 20 SOT 353 (HYD.)) 16.7. In the case of SCIENTIFIC EDUCATIONAL ADVANCEMENT SOCIETY v. UNION OF INDIA AND ANOTHER [2010], 323 ITR 84(P&H), the Hon ble High Court held that Educational institution should exist solely for purposes of education and if it is not, the society is not eligible for exemption u/s 10(23C)(vi) of the Act. 16.8 The Hon ble ITAT, Hyderabad vide their order on 22-3-2012 in the case of M/s Islamic Educational Society had observed, as under: Further, we find that the Constitutional Bench of Apex Court in the case of T.M.A. Pai foundations and others Vs State of Karnataka & Oth .....

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r other educational institution referred to in sub- clause (vi) or any hospital or other medical institution referred to in sub-clause (via), is approved by the prescribed authority and subsequently that Government or the prescribed authority is satisfied that - (i) such fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not - (A) applied its income in accordance with the provisions contained in clause (a) of the third proviso; or (B) invested or deposited its funds in accordance with the provisions contained in clause (b) of the third proviso; or (ii) the activities of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution - are not genuine; or (B) are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved. it may, at any time after giving a reasonable opportunity of showing cause against the proposed action to the concerned fund or institution or trust or any university or other educational institution or any hospital or other medical institution, rescind the notificatio .....

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ed in the impugned order itself above clearly shows that the petitioner - Educational Trust in question was acting for profits, contrary to law. This itself would disentitle the Educational Trust from the benefit of exemption under Section 10(23-C) of the Act. 18. The other facts against the petitioner - Trust like payment of huge honorarium to the Trustees, huge amounts paid as Lease Rent to Shri. Sunki Rajender Reddy, Smt. Swathi Rajender Reddy, Mr. Amrut Reddy and Ms. Nandika are also glaring and very damaging for the very foundation of exemption to the Educational Institutions. The Authority concerned has also found that ₹ 86.10 crores was shown for the Financial Years 2010-11 to 2014-15 under the Heading TRF , (Transfer to Trustees) for building up their personal assets and other pay offs or payment of speed money etc. for seeking approvals etc. This clearly shows that the petitioner - Educational Trust was running like a business establishment, rather than for educational purpose. 19. It cannot be expected of the Respondent - Authority to ask on each single entry in the Accounts of the Trust, the explanation of the petitioner - Trust or other Trustees and if a reasonabl .....

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e fields throughout and the ill-effects of the same on the poor and middle class sections of the society is indeed a traumatic experience. 23. The purpose of exempting such Institutions from Income Tax was obviously to restrict such exemption upon a very strict compliance with the parameters for the same and only bona fide, chaste and pure Educational Institutions could expect such exemptions from the Income Tax which as per the said norms and the rules of interpretation of such provisions of exemption have to be strictly construed by the Courts of law. Any liberal or flexible interpretation looking over the strict compliance of the conditions is likely to defeat the very purpose of grant of such exemption and the business houses which additionally want to run Educational Institutions also as business enterprises cannot be allowed to take the benefit of exemption from Income Tax under the cover of a registered Educational Trust through the Books of Accounts of the Trust, in which all kinds of other business activities may keep on happening. 24. It is only after the search operations under Section 132 of the Act, which in the present case revealed the ugly part of the Trust activiti .....

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If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the assessment year concerned the object is to make profit as opposed to educating persons . 27. In American Hotel and Lodging Association Educational Institute Vs. Central Board of Direct Taxes and others reported in (2008) 10 SCC 509, the Hon ble Supreme Court dealt with a case of a non-profit Educational organization set up in USA having its branch Office in India mainly to comply with its obligations under various Agreements with the Government of India (Ministry of Tourism) and the Branch collected amounts of fees from Educational Institutions/persons wishing to take the courses offered in the field of Hospitality and fees for the required course material was remitted back to USA after deducting the incidental costs by Indian Branch, but the CBDT rejected the Application under Section 10(22) of the Act that there was a surplus repatriated outside India. Under these circumstances, the Supreme Court held that the scope of .....

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