9911796707
TMI Blog2004 (6) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... anuary, 1999. In response to notice under section 158BC, the assessee filed the block return declaring nil undisclosed income. 3. After examining the materials placed on record, the Assessing Officer found as under: 1. That assessee Society was managed by Lt. Col. Prem Saran Satsangi, who was patron/Chairman of the Society as well as by other persons, who are relatives of Mr. P.S. Satsangi, namely, Dr. Rohit Jaiman (son-in-law) as President, Mrs. U.B. Satsangi (wife) as Vice President and Mrs. S.S. Jaiman (daughter) as Secretary. The other persons in the management were Col. S.P. Srivastava as Vice President and Mr. Lakshman Kumar as Joint Secretary. 2. The assessee Society was running four schools, namely, (i) at Satbari, Mehrauli, New Delhi; (ii) at Navrangpur, Gurgaon; (iii) at Ricco Industrial Area, Bhiwadi (Rajasthan); (iv) Utopia CSIS Malbaro Heights. 3. That perusal of the income and expenditure account for the block period revealed that if only revenue expenditure is taken into account to the exclusion of capital expenditure then the surplus would work out to higher figure every year. Percentage-wise, it will vary from 46% to 18%. Even after debiting the capital ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1997 1,75,000 son-in-law) ----------------------------------------------------------------- 6. Immovable properties owned by the Society were continuously being used for giving on hire to outsiders with the sole motive of earning profit. The hire charges received from year to year were quite substantial as per details given below:- Financial year Amount 1995-96 17,03,525 1996-97 55,98,968 1997-98 72,48,358 1998-99 (1-4-1998 to 15-1-1999) 69,59,249 7. The Society indulged in dealings in real estate with the sole motive of earning income e.g. (a) Property No. 29A, Kalu Sarai,New Delhi: The land in question was purchased in October, 1991 for Rs. 2,13,000 including stamp duty. Further, investment of Rs. 29,65,000 was made in constructing the super structure in the financial years 1991-92 and 1992-93. Second floor and third floor of the property were given on rent to one Shri Dinesh Kumar Goyal in May, 1992 and September, 1993. Subsequently, there was some dispute with the tenant and the whole property was sold to M/s. Mideast Integrated Steels Ltd. for an appa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of earning interest income. On many occasions the investments were made for a period of more than three years at a stretch for instance, investment of Rs. 33,05,543 was made in FDRs with PNB Chandanhola on26-7-1997for 39 months. In view of the above, the Assessing Officer issued show cause notice to the assessee to explain why the exemption under section 10(22) be allowed to the assessee. The assessee vide letter dated8th January, 2001explained as under: "It vehemently contended that it was existing solely for educational purposes and not for the purpose of profit. The observation made in the show cause notice that the society had been indulging in various non-educational activities was claimed to be based on misconception and incorrect. It was stated that the funds were invested to earn interest so as to pass on the benefit to the students and educational purposes as and when required. With regard to specific investments cited in the show cause notice, the following explanations were given:- (a) Rs. 1,80,000 was paid on2-9-1996to Anubhav Plantation on behalf of Col. P.S. Satsangi which has been recovered from him and has been accounted for in the books of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommercial nature out of the funds of the society. The society had acquired properties for the purpose of education and for running schools. And all the properties of the society were being used for running schools and the earning therefrom, if any, were being used for the educational objects of the society only. Reference was made to the decision of the Hon'ble Supreme Court of India in the case of S.R.M.M.CT.M. Tiruppani Trust v. Commissioner of Income-tax (230 ITR 636) to the effect that investments in capital assets by a charitable institution implies application of income for charitable purposes. (e) On the finding relating to investment in FDRs to earn interest, it was explained that the society had been receiving deposits under the various heads of emergency deposit, caution money and child personal money from its students and the same were invested in the fixed deposits with the scheduled banks or in eligible investments under section 11(5) of the Income-tax Act. The society was obliged to refund such deposits to the students at the time of their withdrawals/leaving the school. That the society had been enjoying "overdraft facility" from their banks against above FDRs to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the society were liberally used by the office bearers of the society and their family members for their personal purposes. These advances were interest free and interest in some of the accounts is found to have been charged only after the date of search as an after thought after the facts came to the light. There is no explanation why interest was not charged earlier. (iv) That money was advanced to Mrs. U.B. Satsangi for purchase of Farm Nos. 217 225 at Gurgaon. The explanation of the assessee that such farms were being used by the assessee to conduct study camps and other activities like sight seeing, picnic etc. is far fetched. The money was given only to make a personal investment and recovered only after the date of search. (v) That the sum of Rs. 4,55,650 was recovered from the possession of Col. P.S. Satsangi, Chairman of the assessee society. He had no source of income except the salary and interest income. Though he had offered the sum of Rs. 44,07,387 as undisclosed income in his own return but still there is no explanation from where this money was earned. (vi) That the explanation of the assessee regarding giving immovable properties on hire to the outsiders as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... huge profits year after year which would not have been possible without a motive for the same and conscious planning and efforts in that direction. The magnitude of the profits earned and accumulated by the assessee year after year smack of commerce and the same cannot be dismissed as being just incidental to "existence solely for educational purposes". In any case in the given circumstances, it could not be said that assessee society did not exist for the purpose of profit. 5. It cannot also be accepted in this case that the assessee was existing solely for educational purposes if one takes into consideration the substantial benefits derived by the Founder Chairman and his family members from the institution whether in the form of substantial perks, gainful employment or availability of funds for making personal investment. It is an admitted fact that the Founder Chairman and his family members exercised full control over the affairs of the institution. There is another fact that Chairman of the society Col. Satsangi, was found possessing unaccounted cash of about Rs. 44 lakhs during the course of the search. He did not have any ostensible source to explain the same for which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erials on record. He also referred to the judgment of Delhi High Court in the case of Kannada Education Society {supra) for the proposition that exemption under section 10(22) cannot be denied where the educational institution made profits but were applied for the spread of education. Proceeding further, it was submitted that incurring of capital expenditure has also to be considered towards the cause of education and, therefore, if the profits are utilized in the construction of school buildings then it has to be held that such profits were utilized for the cause of education and no adverse inference can be drawn from the fact that assessee earned profits. Further, judgment of Supreme Court in the case of Oxford University Press v. CIT [2001] 247 ITR 658 was referred to point out that even if profit activity could be carried on, if such profits are ultimately meant for education. He also referred to Special Bench decision of the Tribunal in the case of Bhartiya Janata Party. On facts, he pointed out that no salary was paid to Co. P.S. Satsangi and mere giving of loan cannot be said to be detrimental to the assessee. Further, it was submitted that section 13(2) was applicable only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that these conditions are satisfied. The Legislature in its wisdom had contemplated situations - (1) where the sole purpose of the institution may be the cause of education but in carrying out such activity, there may be some profit; or to meet the expenditure of the institution, a profit earning activity may be carried on; (2) where the institution may be involved in running schools and colleges but with the purpose of earning profits. That is perhaps the only reason that the Legislature, on one hand, exempted the income of such institution while on the other hand, has denied such exemption where education is imparted with the purpose of profit. Therefore, such distinction has to be kept in mind while granting exemption under section 10(22). 9. Let us explain the above distinction more elaborately. There may be an institution which may charge fees reasonably from its students in order to meet its expenditure. Such exercise may result in some surplus of receipts over expenditure. Further, such institute may also reasonably charge some more amount in order to meet future needs, i.e., construction of school building, hostel, etc. This may also result in surplus for the time being. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on with the purpose of profit, i.e., by running the schools/colleges purely on commercial basis, the assessee would not be entitled to exemption under section 10(22) but such case may be considered for exemption under section 11 if the conditions imposed by the Legislature are satisfied since the profit element has been omitted from the definition of the words "charitable purpose" w.e.f. 1-4-1984. 12. No direct decision has been brought to our notice by the learned counsel for the assessee for upholding the view that exemption under section 10(22) can be allowed in a case where the educational institution is run purely on commercial basis. However, much reliance has been placed on the judgment of Hon'ble Supreme Court in the case of Aditanar Educational Institution for the proposition that exemption under section 10(22) cannot be denied merely because there is some surplus arising from the running of educational institution. In our opinion, that judgment does not advance the case of the assessee before us. We have gone through the said judgment. It is an authority for the proposition that if any surplus results incidentally from the activity lawfully carried on by the educational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is permissible. Conditions granting recognition or affiliation can broadly cover academic and educational matters including the welfare of students and teachers." The above decision clearly shows that even the private institutions should charge the reasonable fees not involving the element of profit. Therefore, in order to discourage the institutions earning with profit motive, the Legislature can always provide dis-incentives. Considering this aspect of the matter, the Legislature has not allowed the income of private institutions to be exempt under section 10(22) of the Act - where such institution is being run purely on commercial basis. 15. In view of the above discussion, it is held that exemption under section 10(22) can be allowed only in the situations mentioned in the first category but such exemption cannot be allowed where education is imparted through running of schools and colleges on purely commercial basis. 16. In the present case, there is no dispute that the assessee society is found to impart education through running of school at various places. Subsequent to the search, the assessee has also been registered under section 12 A of the Act which also shows th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was surplus of income over expenditure to the tune of Rs. 2.90 crores. Even if capital expenditure of Rs. 1.27 crores is taken into consideration, still the net profit remained with the assessee was of Rs. 1.63 crores approximately. Analysis of each year would reveal that assessee was making huge profits every year except in assessment years 1990-91 and 1992-93 where after meeting the capital expenditure, there was loss of Rs. 36 lakhs and Rs. 33 lakhs respectively. If capital expenditure is excluded in these two years then there was profit of Rs. 28 lakhs in assessment year 1990-91 and Rs. 75 lakhs in assessment year 1992-93. It is also to be noted that assessee is neither receiving any grant from the Government nor donations from the public. The entire statement of affairs for all the 10 years before us reveal that the education is being imparted purely on commercial basis and, therefore, we are of the view that the case of the assessee falls in the second category since the educational institution was running purely on commercial basis. The fact that disproportionate fee is being charged from the persons to whom the education is being imparted itself shows that education was bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol. P.S. Satsangi had received the sum of Rs. 2 lakhs from M/s. Dianishi Leather Export P. Ltd. on account of property No. 29, Kalu Sarai/Sarvpriya flat. Similar is the position with reference to the cheque of Rs. 8 lakhs received on23rd July, 1993from Mideast Integrated Steel Co. Ltd. on account of property No. 29, Kalu Sarai/Sarvpriya Vihar flat. Subsequently, these amounts aggregating Rs. 10 lakhs were deposited in the name of school in the FDRs and the account of Col. P.S. Satsangi was credited. It is further seen that on13-9-1993there was sale of car on behalf of the school and the sale proceeds of Rs. 1,42,129 were retained by him directly and his account was debited. These entries show that Col. P.S. Satsangi was in a dominating position and was utilizing the funds of the society as and when he needed. These funds were utilized to the detriment of the institution as no interest was being charged from him. It is to be noted that interest was being charged on the advances from Dr. Rohit Jaiman on year to year basis which shows that when the amounts was given as advance on interest, it was duly charged. However, in the case of Col. P.S. Satsangi, no interest was charged on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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