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2021 (5) TMI 381 - AT - Income TaxExemption u/s. 11 12 - commercialization of education - paying huge commission to middle men to bring students to assessee s institution - next contention is that there was huge surplus earned by assessee which shows that assessee is involved in business activities and hence exemption u/s. 11 should be denied to the assessee - HELD THAT - Assessee is an education institution and there is no denial by the department that assessee has carried out education activities as predominant activity and in the course of carrying out predominant object of imparting education, the assessee incidentally earned surplus. The reasons as to why the Assessing Officer has concluded that there is commercialization of education is the ground that the assessee is having agents and it is paying commission to them. It is erroneous to state that the assessee has appointed brokers / agents. The assessee is running several educational courses. As the assessee is having admission from all over the country, it is essential to have the services of public relation persons to make people all over, aware of the institution and the courses being offered. These public relation persons familiarize the society at large about the institutions and various educational facilities available and these people are paid certain nominal amounts for the services rendered by them. It is not a case of broker and commission payment but payment for liasoning which is very much essential in these days and especially considering the number of educational institutions available and also the vast area from where the students come from. This cannot be a reason to conclude that the assessee is carrying on a commercial venture. Being so, there was no addition in this regard in these assessment years under consideration. There is no question of denial of exemption u/s. 11. Therefore, the ground raised by the revenue with regard to granting exemption u/s. 11 12 though assessee has paid huge commission to agent/middle men to bring students to the institution is misconceived. Assessee earned surplus in carrying out educational activities - As rightly pointed out by the ld. AR, as held in Queens Education Society 2015 (3) TMI 619 - SUPREME COURT a distinction must be drawn between the making of a surplus and an institution being carried on for profit . No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. 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. The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to imparting education. As noted earlier, the assessee is running 9 institutions and having large number of students and the income expenditure of assessee in these assessment years. Thus, it shows that the surplus earned by the assessee in these assessment years is incidental while carrying out the main objects of the assessee trust. Further, it is noted that surplus generated has been ploughed back for educational purposes only. The dominant objective is to impart education and not to make profits. The surplus arising is incidental. The excess of income by itself does not lead to an inference of profit motive. The entire surplus of the society is redeployed for the objects of the Trust. The objects of the assessee are not doubted and when the objects are genuine, the surplus cannot be treated as a sin. Profitable activity does not necessarily mean that there is a profit motive. It is incorrect to state that the assessee is not existing for educational purposes but is existing for profit. Being so, the assessee being education institution is to be considered to be existing solely for education purposes only. There is no ground with regard to denial of exemption u/s. 11 on account of collection of capitation fees. Being so, the reliance placed by the ld. DR is totally misconceived. Therefore the relevant ground by the revenue is dismissed.
Issues Involved:
1. Applicability of Section 2(15) of the Income Tax Act. 2. Eligibility for exemption under Sections 11 and 12 of the Income Tax Act. 3. Payment of commission to agents/middlemen. 4. Generation of surplus income and its implications. 5. Payments to related parties and potential violations of Sections 13(1)(c) and 13(3) of the Income Tax Act. 6. Additions made by the Assessing Officer (AO) based on various grounds. Detailed Analysis: 1. Applicability of Section 2(15): The primary issue was whether the activities of the assessee trust fell within the definition of "charitable purpose" under Section 2(15) of the Income Tax Act, considering the trust's engagement in educational activities and the payment of commissions to agents. 2. Eligibility for Exemption under Sections 11 and 12: The CIT(A) held that the assessee was eligible for exemption under Sections 11 and 12 despite the payment of commissions to agents, as the impounded material related to a different financial year (FY 2011-12) and not the assessment years (AY 2010-11 and 2011-12) under consideration. 3. Payment of Commission to Agents/Middlemen: The AO argued that the payment of commissions to agents for bringing students indicated commercialization of education, which was against the charitable purpose. However, the CIT(A) and the Tribunal found that the impounded documents and statements related to FY 2011-12, not the years under appeal. The Tribunal concluded that the payment to agents was for promotional activities and did not indicate a profit motive. 4. Generation of Surplus Income: The AO denied exemption under Section 11, citing the generation of surplus income year after year as indicative of commercial activities. The CIT(A) and the Tribunal, however, emphasized that the surplus was incidental and ploughed back into the trust's educational activities. Citing precedents, they held that generating surplus does not necessarily imply a profit motive if the surplus is used for charitable purposes. 5. Payments to Related Parties and Potential Violations of Sections 13(1)(c) and 13(3): The AO noted payments to family members of the trustees, which were argued to be in violation of Sections 13(1)(c) and 13(3). The CIT(A) found the payments reasonable and justified based on the qualifications and contributions of the individuals involved. The Tribunal upheld this view, noting that the payments were on par with industry standards and necessary for the trust's operations. 6. Additions Made by the AO: The AO made several additions based on various grounds, including unaccounted receipts and investments by trustees. The CIT(A) and the Tribunal found that these additions were not substantiated by relevant evidence for the assessment years in question. The Tribunal also noted that any potential taxability of deposits in individual accounts should be examined in the hands of the individuals, not the trust. Conclusion: The Tribunal upheld the CIT(A)'s decision, granting the assessee exemption under Sections 11 and 12 of the Income Tax Act. The appeals by the revenue were dismissed, with the Tribunal emphasizing that the trust's activities were primarily educational and any surplus generated was incidental and used for charitable purposes. The Tribunal also found no substantial evidence of violations of Sections 13(1)(c) and 13(3) for the assessment years under consideration.
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