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2012 (6) TMI 602 - AT - Income TaxExemption u/s 11 - denial on ground of entity being not an educational institution - assessee, running a Distance Education Programme for Annamalai University, on Hotel Management and Catering Technology resulting in grant of Diploma and graduation, based on a Memorandum of Understanding (MOU) entered with Annamalai University - Revenue contended assessee to be only technical collaborator for the Distance Education Courses and not doing any charitable activity - alleged contravention of section 11(5) and 13(1) - Held that - On perusal of Memorandum of Understanding entered by the assessee with Annamalai University and objects of the Trust it is clear that ex-facie the objects are nothing but educational and assessee was imparting a type of oral education and students studying in assessee s institution were being awarded formal Diploma/degree. There is no case for the Revenue that Annamalai University was existing for any commercial purposes. In our opinion, if Annamalai University was an educational institution, then assessee, which was conducting classes for the said University under its authority, was also an educational institution. Whether the substantial surplus generated by the assessee for the relevant previous year would make it a commercial entity - Held that - Merely because the education activity had resulted in a surplus, would not be a ground to hold that assessee was not carrying on charitable activity. There is no case for the Revenue that surplus generated by the assessee on account of its activities were divided among the trustees or taken by the trustees but, for certain violation allegedly falling under Section 13(1)(c). Therefore, assessee could not have been denied the eligible exemption u/s 11 and 12 for a reason that it was not doing charitable activity as defined u/s 2(15). Violation u/s 13(1)(c) - sum of ₹ 30 lakhs withdrawn from the assessee-Trust and held by one of the trustees for two days - Held that - It will not be reasonable to take a view that any benefit could have been derived by trustee in such a short period of two days. No violation could be established. Further, A.O. is directed to verify the explanations given by the assessee insofar as alleged violation u/s 13(1)(c) was concerned. If these are explained satisfactorily, assessee shall be given exemption claimed u/s 11 and 12 - Decided in favor of assessee for statistical purposes.
Issues Involved:
1. Denial of exemption under Section 11 of the Income-tax Act, 1961. 2. Violation of Section 13(1)(c) and Section 11(5) of the Income-tax Act, 1961. Detailed Analysis: 1. Denial of Exemption under Section 11 of the Income-tax Act, 1961: The primary grievance of the assessee was the denial of exemption under Section 11 of the Act on the grounds that it was not engaged in charitable activities but was running a commercial operation. The assessee argued that it was imparting education through a Distance Education Programme for Annamalai University, which included conducting classes, practicals, and assessments, while the University handled admissions, examinations, and awarding of degrees. The Assessing Officer (A.O.) contended that the assessee was merely a technical collaborator and not an educational institution recognized by any authority like UGC or the Government. Consequently, the A.O. denied the exemption, citing that the activities did not constitute "education" as defined under Section 2(15) of the Act and relied on the Supreme Court decision in Sole Trustee, Lok Shiksena Trust v. CIT (101 ITR 234). Upon appeal, the CIT(Appeals) upheld the A.O.'s decision, emphasizing that the assessee's role was limited to providing infrastructure and technical manpower, and it operated on commercial principles. The CIT(Appeals) noted the substantial surplus generated by the assessee, indicating a profit motive. Before the Tribunal, the assessee argued that its activities were purely educational, conducted under the aegis of Annamalai University, and should not be equated with coaching classes. The Tribunal examined the Memorandum of Understanding (MOU) between the assessee and Annamalai University, which outlined the responsibilities of both parties, including the conduct of classes, maintenance of attendance, and performance assessments by the assessee, while the University handled admissions and examinations. The Tribunal concluded that the assessee was indeed engaged in imparting formal education, as the degrees and diplomas awarded were recognized by Annamalai University. The Tribunal emphasized that education per se is considered charitable under Section 2(15) of the Act, and the generation of surplus does not negate the charitable nature of the activity. The Tribunal thus held that the assessee was eligible for exemption under Sections 11 and 12 of the Act. 2. Violation of Section 13(1)(c) and Section 11(5) of the Income-tax Act, 1961: The A.O. identified several transactions as violations of Section 13(1)(c) and Section 11(5) of the Act, including withdrawals by trustees and advances made to other entities. The A.O. argued that these transactions constituted diversion of income for personal use, thereby disqualifying the assessee from exemption. The assessee contended that the transactions were either errors that were promptly corrected or legitimate expenses. For instance, the withdrawal of Rs. 30 lakhs by a trustee was held for only two days and returned promptly. Other amounts were claimed to be salaries, rent, or advances for educational purposes. The Tribunal noted that the lower authorities had not objectively verified the explanations provided by the assessee. The Tribunal directed the A.O. to reconsider and verify the transactions in question, specifically the amounts of Rs. 5,60,000/-, Rs. 1,80,000/-, Rs. 2,78,000/-, Rs. 2,50,000/-, Rs. 7200, and Rs. 7,25,000/-. If satisfactorily explained, the assessee should be granted the exemption under Sections 11 and 12 of the Act. Conclusion: The Tribunal allowed the appeal for statistical purposes, holding that the assessee was eligible for exemption under Sections 11 and 12 of the Act, subject to verification of the alleged violations under Section 13(1)(c) and Section 11(5) by the A.O.
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