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TMI Blog2012 (4) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... cieties, Meerut (UP) w.e.f. 18.12.2000. The society was formed with an aim and object of imparting education. It filed its return of income-tax for assessment year 2002-03 on 17th September 2003 declaring nil income. Similarly, in assessment year 2003-04, return was filed on 24th September, 2003 declaring nil income. The assessment has been reopened in both the years and noticed under sec. 148 dated 12.10.2006 was issued and served upon the assessee in both the assessment years. During the course of assessment proceedings, on scrutiny of accounts, it revealed to the Assessing Officer that assessee has shown a donation of Rs. 33,94,100 and Rs. 88,600 received in assessment years 2002-03 and 2003-04 respectively. The assessee claimed exemption from tax on these amounts on the ground that they are corpus donations for a specified object. According to the Assessing Officer, the assessee society in its return of income-tax has not specified as to how the same is exempt from tax. He further observed that assessee is not registered under sec. 12AA of the Income-tax Act, 1961. He confronted the assessee as to why the alleged donation added to the corpus be not taken as revenue receipts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ificate is being placed on page 34 of the paper book. The assessee society has been accorded a provisional sanction by the CBSE for the affiliation of its school, namely, Accent International School w.e.f. 1.04.2006 to 31.03.2007. This sanction was accorded on 8.2.2006. He also brought to our notice allotment letter of Greater Noida Industrial Development Authority for a plot measuring two acres for establishment of a Senior Secondary School. This letter was issued on 13th July 2001. On the strength of these documents, he pointed out that as far as objects of the assessee society that it is meant for imparting education has not been doubted by the revenue authorities. The assessee has been granted registration under sec. 12A of the Act. It means its activities as far as in connection with its objects contained in the Memorandum are found to be genuine. The society is meant for educational purposes and not for the purpose of profit. 5. The learned counsel for the assessee pointed out that the first issue which emerges out from the record is, whether the assessee society is an educational institution, to that extent there is no dispute with the revenue. The second fold of the disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erala High Court in the case of CIT v. St. George Forane Church [1988] 170 ITR 62/36 Taxman 42 wherein it was held that construction of the building amounts to application of the income for the purpose of section 11 of the Act. The stress of the learned counsel for the assessee is that if a society starts its activity for erecting an establishment in the line of imparting education then from the start of that activity, it is to be construed that the society is existing for the purpose of education and not for the purpose of profit. 6. The learned counsel for the assessee took us through the order of the Learned CIT(Appeals) and pointed out that Learned First Appellate Authority has relied upon the decision of Hon'ble Supreme Court in the case of American Hotel & Lodging Association, Educational Institute v. CBDT [2008] 301 ITR 86/170 Taxman 306. He pointed out that the judgment has to be considered after taking into consideration the fact and circumstances on which such judgment was rendered. The issue before the Hon'ble Supreme Court was altogether in a different context. The Hon'ble Court has not propounded the proposition from which period existence of a society is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub clause (23C) of Section 10 or by an electoral trust. Sec. 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included - ** ** ** (23C) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed; or. 10. The first substantial question for our consideration in these appeals is whether the assessee society is an educational institution. The assessee has been granted sanction for affiliation with the CBSE. In its aims and objects, it has been contemplated that assessee is to run an educational institution. Those objects and their genuineness have been looked into by the prescribed authority while granting registration under sec. 12A of the Act though such registration has been granted on 29th September 2009 w.e.f. 30.3.2009 but the mechanism provided in section 12AA for grant of such registration would indicate that Learned CIT on receipt of an application for registration of a trust or ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said that the assessee society is existing solely for the purpose of education. She referred the decision of Hon'ble Madras High Court in the case of Devi Educational Institution (supra) which has been relied upon by the learned Assessing Officer also. The relevant observations are as under: "...The Tribunal has merely proceeded on the basis that since the assessee-society has already taken steps to set up an educational institution, it should be taken to come within the scope of Section 10(22). As already stated, we feel that the mere taking of the preliminary or necessary steps for the establishment of an educational institution cannot amount to actual bringing into existence of an educational institution. Since Section 10(22) uses the expression "existing solely for educational purposes", the actual existence of the educational institution is a precondition for the application of Section 10(22) and the mere taking of steps for the establishment of the educational institution may not be sufficient to attract the exemption under sec. 10(22)....." However, in a subsequent decision, Hon'ble Madras High Court has observed that this judgment requires reconsideration. The o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. For the purposes of holding regular classes for teaching of Hindi, the assessee has taken all preliminary steps including purchase of books and periodicals. Such activities are the steps towards running of a full-fledged teaching course. We are, therefore, unable to accept the contention of the Revenue that the assessee did not start running any educational institution during the previous year in question...." 13. Similarly, Hon'ble Kerala High Court has considered this aspect in the case of Sree Narayana Chandrika Trust (supra). In this case, the foundation of the hospital was laid down in the year 1973 though the hospital started its operation in 1978. Hon'ble Court has held that income derived at the primary stage is entitled for exemption and the relevant observations of the Hon'ble Court read as under: "... The question, therefore, arises whether the income of the assessee-trust during these years is exempt, as there was no hospital as such in existence during that period. Counsel for the assessee referred to the decisions in Doon Foundation's case [1985] 154 ITR 208 (Cal.) and Secondary Board of Education v. ITO [1972] 86 ITR 408 (Orissa). In both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61. The incidental profit would not change the character or object of the society that it is only meant for earning profit. On an analysis of the activities of an institution, it can be ascertained whether its pre-dominant object is for education only and not for profit. In other words, it depends upon facts and circumstances of each case. As far as the findings of the Learned CIT(Appeals) based on the decision of Hon'ble Supreme Court in the case of American Hotels is concerned, in that decision, Hon'ble Supreme Court though observed that actual existence of the educational institution was the pre-dominant conditions for the application for initial approval under sec. 10(22) of the Act. Once an applicant institution came within the phrase, "exists" for educational purpose and not for profit then no other condition like application of income was required to be applied with. In this case, Hon'ble Court has not interpreted section 10(23C)(iiiad) of the Act from the angle that from which period, the existence of a society for the purpose of education is to be construed. In the present case, society is in existence but actual educational activity has not taken place. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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