TMI Blog2019 (9) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... quisition of a running school or, rather, adoption of a running school. Prima facie , the affiliation to a recognized university, which is not in doubt, should allay any doubt in the matter. In fact, quality is an aspect which, though integral to education, as it indeed is to any other human endeavor, is something the assessment of which is outside the scope of the instant proceedings. Then, it would raise a question as to whether any education can be regarded as not so on account of poor quality, besides the issue of its definition, i.e., as to what constitutes quality education . - Without doubt, the cost of education, as of any other service, can not be properly compared without taking into account its quality; rather, the quality of both the input resources as well as the output. If the educational activity carried out in pursuance of its objects by the assessee-society, could be, on account of its pricing, discounted, i.e., not regarded as education , given its definition u/s. 2(15)? - Held that:- Education, as defined u/s. 2(15), makes the same an irrelevant consideration. One could argue for a need for effecting some change/s in law, which has to be read, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). The same included imparting primary/secondary and higher education, etc., through opening of schools/colleges and institutions in the backward areas of the state so as to serve the children/youth of the area, enabling them to seek productive employment in life and, thus, integrate in the nation building process. It, besides running an engineering college by the name Guru Ram Dass Institute of Engineering and Technology , affiliated to the Punjab Technical University, Jalandhar, was found to have adopted a school by the name Harbhajan International School (at Lehra Bega), being a run by Dasmesh Educational and Welfare Society (DEWS), during, as it appears, financial year (fy) 2011-12. The assessee was, accordingly, in examination of its application u/s. 12AA, enquired of the legal steps adopted for the purpose, i.e., in the take-over of the said school. The assessee, which had been till then claiming exemption u/s. 10(23C), had reported losses at ₹ 55.90 lacs and ₹ 26.72 lacs for the previous years relevant to assessment years (AYs.) 2015-16 and 2014-15 respectively, filing its returns under ITR-5, i.e., as applicable to a business enterprise, claiming business l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty in law of these reasons, that shall determine the sustainability or otherwise in law of the impugned order, i.e., in the facts and circumstances of the case. 4.2 In this regard, the first issue that confronts us is if educational activity could be regarded as charitable purpose (as defined u/s. 2(15)), where undertaken in a manner that results in profit, i.e., an excess of income over expenditure. That is, the education is so priced that it not only covers all costs, but also yields adequate operating surplus, sufficient to meet the financing cost as well as finance expansion (growth), which we observe to be the case, and which the ld. CIT(E) refers to as profiteering . It would be relevant to present the working results for the only year (fy 2014-15) for which data is on record (PB pgs. 16-30): (Amt. in Rs. lacs) Particulars/ College Schools Misc. Total (%) Receipts 540.83 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.3.2014) is itself ₹ 238.31 lacs (that of school being not reflected in its annual accounts), so that the deficit is largely on account of non-recovery of depreciation. The balance loss, as it appears, is to the account of the school, HIS, taken over. Rather than, therefore, the school adding to the profit and, thus, asset-base, it has depleted it s the assessee s, reserves, the operating loss for the latest year (i.e., for which figures are available) being at ₹ 12.07 lacs. No immovable property, i.e., land and/or building, has been taken-over (PB pg. 29), so that it cannot be alleged that the school was taken over with the view to acquire land and building in the guise of adopting a school. Rather, the ld. counsel for the assessee, Sh. Vineet Krishan, would explain that the taking over of the school, affiliated to CBSE, was for the reason that some problems with regard to the housing of the school arose, which is being now run accommodating the students under the existing land and building of the college. The affiliation with CBSE, he would, with reference to the balance-sheet of the society, clarify that the FDRs (held jointl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation, more so to that of technical nature, yet are of the view that the same cannot be factored into our adjudication, particularly considering that the courses offered are accredited. The matter is left to be considered by the regulatory authorities, i.e., besides the market forces. 4.4 The only issue that survives is if the educational activity carried out in pursuance of its objects by the assessee-society, could be, on account of its pricing, discounted, i.e., not regarded as education , given its definition u/s. 2(15). Education is a service, as any other. Where charged for, as it admittedly is in the instant case, why should it be regarded as charitable , particularly considering that the pricing yields a healthy profit. This is the question we need to address. In the facts of the present case, the society has assumed secured loans at a cost, so that it is clearly and, rather, aggressively, pursuing growth in-as-much as the revenue generated is toward not only meeting the costs, including financing costs, but also retire debt. We are, however, in agreement with the ld. counsel, Sh. Vineet Krishan, that education, as defined u/s. 2(15), makes the same an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of law itself by a bar with reference to profit, or in the context of sec. 10(23C)(iiiad)/(vi), specifically providing for the educational institution, income from which gets exempt there-under, to be existing solely for education and not for profit , so that the Apex Court found it useful to refer to the elucidation of and the connotation of the preposition for per its earlier decisions, which is the reason for our enlisting it s decisions over time, which thus document the progression of law in the matter. For the other objects constituting a charitable purpose, the genuineness of the purpose gets tested by the obligation created to spend the income exclusively or essentially on charity, i.e., its charitable objects. We, therefore, fully endorse the assessee s stand that profit-making, or running the school on business or commercial principles, would not exclude it from being regarded as existing for a charitable purpose. Why, even regarding it as a business; education admittedly being a service that has become increasingly competitive and professional over time, which rather gets borne out by the fact of the same being provided through franchisee units, paying a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It would be a different matter where the capitation fees, which dubious practice is also rampant in the education sector, is resorted to, to grant admission to educational institutions. In fact, this issue again arose, in the context of non-grant of section 80(G)(vi) approval, in Adesh Foundation (in ITA No. 665/Asr/2017, dated 18/3/2019), where the tribunal, after an extensive discussion in the matter, held that inquiry into the need for donations is not precluded and, indeed, relevant, taking into account the entirety of the facts and circumstances. However, the denial of approval could only be on some firm footing, i.e., where it is a distinct possibility, and not a mere possibility of capitation fees, strongly denied by the applicant, emphasizing on it s past conduct. The approval was granted subject to a legal undertaking toward non-acceptance of any capitation fee in the garb of donation. 4.5 Finally, the assessee may have returned its income as a business enterprise in the past. Where assessed as a business loss, the assessee cannot claim set-off against income for the years for which it is regarded as a charitable institution, claiming ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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