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TMI Blog2009 (8) TMI 860X X X X Extracts X X X X X X X X Extracts X X X X ..... d by necessary evidence, the CIT(A) has wrongly upheld that the expenditure of Rs. 14,61,000 incurred is not for the purpose of education. 4.Because the CIT(A) erred in law and has failed to appreciate that the income of the K.S. Saket PG College, Ayodhya being an educational institution aided substantially by State Government is exempt under section 10( 23C )( iiiab ) by the mandate of section 10 itself, according to which, in computing the total income of a previous year of any person, any income falling within any of the clauses of section 10 as enumerated therein shall not be included and taxed. 5.Because the CIT(A) has erred on facts and in law in upholding the entire surplus of Rs. 46,97,349 for the year as taxable income and wrongly confirmed the tax liability of Rs. 28,20,336." 2. We have heard the parties. 3. The brief facts relating to the issue involved and as have been revealed from the record are that the assessee was registered under section 12AA of the Act as per registration Nos. 58 and 59, dated 31-8-2000. A return declaring nil income was furnished on 31-3-2006 which was revised by way of another return declaring nil income furnished on 15-9-2006. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms: "That as regards payment made to testing agency. ( a )Payment of Rs. 14,61,000 made to testing agency is for conducting the entrance examination in the college. Entrance examination is very necessary in college because students apply for admission in very large numbers and it is impossible to admit them without entrance examination. ( b )It is the responsibility of principal to conduct the entrance examination in the college. As a matter of confidentiality, principal keeps the entire proceeding of entrance examination very secret. Moreover, entrance examination account is solely operated by the principal himself. College issues the cheques to the principal as per his requisition letter. Principal himself makes the payment to the testing agency. Even the college does not know the name and address of testing agency. Copies of these requisition letters are enclosed herewith as Annex 2. Further, the then principal Dr. Harendra Bahadur Singh has also retired from the college. Therefore, we are fully unable to give any more information in this regard. ( c )Since the payment to the testing agency was made by the principal himself and the college was not involved in this p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er at serial No. in 70-99.2000, dated 21st August, 2000 for claiming exemption of its income under section 11. ( iii )The assessee society is running an educational institution named K.S. Saket Degree College for which separate books of account are maintained under cash system of accounting. ( iv )The return of income of said educational institution was not required to be filed till assessment year 2004-05. Accordingly, the assessee society filed its return of income and claiming its income exempt under section 11 excluding the income of degree college, as in the past, vide acknowledgement No. 000247, dated 31st March, 2006 furnishing audit report in prescribed Form No. 10B (copy of return/balance sheet etc., enclosed). ( v )Asstt. CIT, Faizabad, issued notice under section 142 of IT Act, 1961 in the name of Kamta Prasad Sunder Lal Saket Post Graduate College for filing return of its income. The assessee society filed revised return in response to above notice vide acknowledgement No. 010000089, dated 15th September, 2006 showing income of society as well as surplus of degree college, claiming exemption as under : Income of Samiti Rs. 63,616.00 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and having denied exemption of its claim under section 10(23C)( iiiab ) of Income-tax Act, 1961. ( a )Dr. Ram Manohar Lohia Avadh University Registration for affiliation (granted only to educational institutions) ( b )State Government Reg. for reimbursement of salary and other grant ( c )University Grants Commission-Government of India Reg. for release of grant to carryout research and other activities. Ground No. IV The learned Assessing Officer has erroneously made observations that assessee has not furnished audit report under section 12A( b ) in respect of income of degree college without appreciating the fact that assessee society has claimed exemption of income of degree college under section 10(23C)( iiiab ) of Income-tax Act, 1961 (not under section 11 of Income-tax Act, 1961) which does not prescribed furnishing of any such report at all, hence his action does not have any merit at all. Ground No. V ( i )The learned Assessing Officer has made disallowance of Rs. 14,61,000 representing expenses incurred for payment to testing agencies for organizing and conducting entrance examination under BA, B.Com., B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , exemption under section 11 was claimed. The appellant subsequently filed a revised return on 15th September, 2006. In the revised return, the appellant also claimed exemption under section 10(23C)( iiiab ) in respect of income of Rs. 46,97,349 computed as net profit as per the books of account maintained for K.S. Saket Post Graduate College, Ayodhya Faizabad. 6.1 On careful perusal of the facts brought on record by the Assessing Officer. I find that the appellant claimed deduction of expenses amounting to Rs. 14,61,000 shown to have been paid to testing agencies. On inquiry conducted by the Assessing Officer in regard to the genuineness of the above expenditure, it came to light that the same is unvouched and therefore, unverifiable in nature. I find that the appellant, instead of producing bills and cash receipts in respect of payments made to testing agencies, simply produced a copy of the certificate issued by the principal of the college, thereby certifying that the amount has been paid in cash to different testing agencies. The record shows that the appellant has failed to furnish even the names and addresses of the persons/testing agencies, to whom such huge amount of pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y it was not to form income for the purpose of levy of income-tax. It was further submitted that the assessee s case was outside the scope of charging provisions and consequently outside the provisions relating to making of assessment. It was further pointed out by the learned Authorised Representative that the surplus of Rs. 46,97,349 was only because of grant of Rs. 4,35,28,100 from the State Government (towards salary) and grant of Rs. 1,78,92,946 from U.G.C. towards other grants. According to him, had there been no grants, the college was in loss. In view of these facts, it was submitted that college could not be said to be for profit. 4.2 Coming to merits, the learned Authorised Representative submitted that the assessee having furnished the certificate from the principal that expenditure of Rs. 14,61,000 was incurred by way of payment to various testing agencies, who conducted the admission test for payment to various classes, the same was for payment to various classes, the same was for work and should not have been disallowed. Coming to profit from college, the learned Authorised Representative submitted that its income was exempt under section 10(23C)( iiiab ) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore than 20,000 students from about 20 Districts are imparted education in this institution. Presently education is imparted in 30 different disciplines of five faculties namely arts, science, commerce, law and education. This institution was established in 1951 by the sincere efforts of following dignitaries of national repute. ( a )Late Shri Acharya Narendra Dev - A great socialist and educationalist of India ( b )Late Sant Shri Baba Raghav Das - A great religious activist ( c )Late Shri Parameshwar Nath Sapru - Leading advocate ( d )Late Shri Mahabir Prasad Agarwal - Hony. Magistrate of Faizabad ( e )Late Shri Jagdamba Pratap Singh - Raja Saheb, Ayodhaya All above dignitaries established the institution with their financial and other contribution with a view to impart education to the students of Faizabad and nearby cities and not with a view to earn any profit therefrom. Various national and international dignitaries as under have visited the institution in past. 1.Late Pt. Jawahar Lal Nehru 2.Late Smt. Indira Gandhi 3.Late Shri Jai Prakash Narain 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 10(23C) with effect from assessment year 1999-2000. The objects of the change is explained in Circular No. 772, dated 23rd December, 1998 in following words : "8. Provisions relating to exempting the income of educational institutions, universities, hospitals and other medical institutions : 8.1 Under the provisions of clauses (22) and (22A) of section 10 of the Income-tax Act, before amendment, educational and medical institutions enjoyed a blanket exemption from income-tax if they existed solely for educational purposes and not for the purposes of profit. In the absence of any monitoring mechanism for checking the genuineness of their activities these provisions have been misused. 8.2 The Act omits the aforesaid clauses (22) and (22A) from the statute. The exemption would, however, continue in respect of any university or other educational institution, hospital or other medical institution which is wholly or substantially financed by the Government, under the new sub-clauses ( iiiab ) and ( iiiac ) inserted in section 10(23C) of the Income-tax Act by the Finance (No. 2) Act, 1998. 8.3 Further, under sub-clauses ( iiiad ) and ( iiiae ) in section 10(23C), the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities [1982] 135 ITR 485 (Mad.), the High Court has held : ( a )Section 10(22) would exempt the whole of the income. ( b The question of 25 per cent accumulation would have no relevance in the context of section 10(22). In the case of Birla Vidhya Vihar Trust v. CIT [1981] 24 CTR (Cal.) 307/[1982] 136 ITR 445 (Cal.), the High Court has held that section 11(1) would be applicable to the case of application of income, while section 10(22) deals with the generation of income. Hence, the requirements of application of income under section 11 cannot be imported to section 10(22). The same will be the position of law for section 10(22A) and now for section 10(23C). Exemption for Government assisted institutions. Sub-clause ( iiiab ) of sub-section (23C) of section 10 grants exemption in respect of any income received by any person on behalf of any university or other educational institution when such university or other educational institution complies with the following conditions : ( a )The university or the educational institution should exist solely for educational purposes. ( b )The university or the educational institution should not exist for purposes of profit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r on notice by the Assessing Officer, the Assessing Officer has jurisdiction to verify as to whether conditions of section 10(23C)( iiiab ) are satisfied or not and therefore, pleaded that the assessee even if is entitled to exemption under section 10(23C)( iiiab ), has to establish that it exists solely for the purpose of education and not for profit. The learned Departmental Representative further submitted that so far expenditure of Rs. 14,61,000 was concerned, the assessee having failed to furnish the evidence as to whom the payment was made and also as to whether the expenditure was for education purpose, it has to be held that the assessee does not exist solely for education. So far as the allowance of exemption in other years is concerned, the learned Departmental Representative submitted that res judicata is not applicable to the income-tax assessments. He, therefore, submitted that once there is violation of provision of section 10(23C)( iiiab ), the Assessing Officer has powers to deny the exemption and tax the income. With respect to remanding the issue back to the Assessing Officer, the learned Departmental Representative submitted that he has no objection for remand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional nature. The head office is carrying on charitable activities and claiming exemption under section 11 whereas the assessee is also running a college which is for education purpose and income is claimed exempt under section 10( 23C )( iiid ). Since this aspect of the issue has not been objected to by the revenue authorities, the assessee s claim that it exists for the purpose of education so far as college is concerned, whereas activities of head office are of charitable nature also, has to be accepted. 6.5 Having come to the conclusion as above what remains for our decision is the profit purpose i.e., is the assessee running a college for profit. 6.6 So far as the question of purpose of profit is concerned, it is a very complicated issue and to find out as to whether an institution is for profit or not one has to consider its objects and its activities and the end result. If the institution s objects are of charitable or educational nature, activities are also of charitable or educational nature, then it is only the end result which can be examined for arriving at the finding in this respect and the end result, in our opinion, can be availability of surplus year aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic concerned, the necessity of conducting entrance examinations (tests) for admission to any institution or for the purpose of qualifying for a job. The institution/person, who is responsible for conducting such tests/examinations has to maintain absolute secrecy/confidentiality with respect to details of material for examinations/tests and in turn has to maintain secrecy and confidentiality of the person who sets the papers, printing press where the papers are got printed, as well as any other person or agency responsible for carrying on of any of these activities. In the assessee s case, the responsibility for carrying on the entrance examination for admissions to various classes of the college, as claimed by the assessee as per its written submissions dated 20-11-2007 furnished before the Assessing Officer itself (reproduced in para 3.3 of this order), was that of the college principal and therefore, we are of the opinion that the assessee had to have complete trust and confidence with respect to integrity of the principal. The principal s failure to disclose the name of agencies to whom payments for conducting the entrance examinations/tests were made, was not an abnormal or mo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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