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TMI Blog2012 (6) TMI 602X X X X Extracts X X X X X X X X Extracts X X X X ..... esulting in grant of Diploma and graduation, based on a Memorandum of Understanding (MOU) entered with Annamalai University. Assessee was to conduct the classes as per the terms of MOU, students were to pay the fees to the University and in turn, the University was to pay a part of such fees to the assessee. The courses conducted were two-year Diploma in Hotel Management and Catering Technology, three-year degree in Hotel Management and Tourism and a one-year Craft Programme. The theory and practical classes were to be conducted by the assessee. However, conducting of examination, evaluation and awarding of degree/diploma to the students were to be done by M/s Annamalai University. Assessing Officer (A.O.) was of the opinion that assessee was providing only contact centres and class rooms for conduct of theory and practical classes as approved by Annamalai University and thus it was only a technical collaborator for the Distance Education Courses conducted by M/s Annamalai University. As per the A.O., assessee was neither a school nor a college where formal schooling or collegiate education was imparted to students with regular attendance and regular classes conducted by qualified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vi) A sum of Rs. 7200/- was being drawn by the same trustee on monthly basis. (vii) An advance of Rs. 2,86,000/- was shown in the balance-sheet. (viii) A sum of Rs. 7,25,000/- was advanced to Sri Ramachandra Educational Trust. 4. All these, as per the A.O., resulted in contravention of Section 13(1) as well as Section 11(5) of the Act. Relying on Instruction No. 1112 of CBDT, the A.O. came to an opinion that profits of the institution was diverted for personal use and therefore, the income had to be subjected to tax. In the result, A.O. denied exemption of tax to the assessee. 5. Aggrieved, assessee moved in appeal before CIT (Appeals). It was claimed that assessee's activity was nothing but "education", falling within the meaning of Section 2(15) of the Act and also under Section 10(23C) of the Act. Reliance was placed by the assessee on following decisions, before the CIT (Appeals):- (a) CIT v. Secretary, Regional Committee National Sports Club of Assam [1989] 180 ITR 648 (Gau) (b) Royal Choral Society v. IRC [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n other words, as per the assessee, as soon as it was found that transfer of funds to the trustee inappropriate, the money was returned. As for the observation of the A.O. that Shri Victor Vijayaraj, trustee was paid Rs. 5,60,000/-, it was submitted before CIT(Appeals) that actual withdrawal was only Rs. 1,90,000/- of which Rs. 1,80,000/- was salary. According to assessee, the said Shri Victor Vijayaraj was an engineering graduate with seven years' experience and salary of Rs. 1,80,000/- per year was not unreasonable. As for the sum of Rs. 2,78,000/- charged towards PCP expenses, assessee submitted that it was sums due from the assessee for work done and not a payment in the nature of advance or a loan. As for the sum of Rs. 2,50,000/-withdrawn by Dr. Louis Prakasam Kannaiah, another trustee, submission of the assessee before CIT(Appeals) was that it was not at all a payment made to the said person, but was an item of expenditure incurred for building. The narration alone was wrong but the actual expenditure was correctly charged to the building account. As for sum of Rs. 7200/- drawn by same trustee on monthly basis, submission of the assessee was that these were rent paid for pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement with Annamalai University. Assessee was required to maintain students register, and keep the attendance of the students. It had to conduct periodical performance assessment and report to Directorate of Distance Education of Annamalai University. No fees was directly received by the assessee, but the fees were paid by the students to the Annamalai University. Assessee was to prepare the study materials for the students and educate each of them. In other words, except for conducting examination and awarding degrees, all the education activities of the Distance Education, were carried on by the assessee. Assessee was entitled only for share of fees collected by Annamalai University. In the face of such a situation, to say that assessee was not engaged in an activity of education would be unfair. Relying on the Trust Deed of the assessee, placed at paper-book pages 19 to 32, learned A.R. submitted that the primary aim of the Trust was promotion of education. None of the trustees could take any part of the surplus and whatever surplus was there, were used only for the development of infrastructure. Therefore, according to him, conclusion of the lower authorities that assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led for exemption under Section 10(23C) of the Act. According to him, education per se was charity and relying on the decision of Hon'ble Apex Court in the case of Dharmadeepti v. CIT (114 ITR 454), submitted that "not involving the carrying on of any activity for profit" governed only objects of general public utility and not relief to the poor, education and medical relief. 9. Insofar as violation of Section 13(1) and Section 11(5) of the Act was concerned, A.R. submitted that none of these violations were material enough to deny the exemption sought under Sections 11 and 12 of the Act. According to him, insofar as the sum of Rs. 30 lakhs transferred to Trust account was concerned, it was held by the concerned trustee only for two days and there was no benefit whatsoever derived by him. The amount was held by the trustee in an S.B. account and no interest could be earned from an S.B. account for such a short period of deposit. It was only an error which was corrected within two days. Insofar as the other items, which were considered violation of Section 13(1)(c) of the Act was concerned, A.R. submitted that some of these were mistaken figures like Rs. 5,60,000/- considered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the A.O. constituted violation of Section 13(1)(c) and / or Section 11(5) of the Act. For resolving the first aspect, it is essential to reproduce the Memorandum of Understanding entered by the assessee with Annamalai University :- "The agreement made on this day of 11th February 2004 between the Registrar, Annamalai University, India (Hereinafter called Party No.1) and Soorya Institute of Management Studies - SIMS managed by Soorya Educational Trust (Reg. No.1311/2003) 375, Mahatma Gandhi Road, Pondicherry - 605001. (Hereinafter called Party No.2). Whereas the Annamalai University, the authority running Distance education programmes, has resolved to admit students to all programmes viz., one year P.G. Diploma in Hotel Management, two year Diploma in Hotel Management and Catering Technology (DHMCT) Three year B.Sc. Hotel Management and Tourism and one year craft programmes four in number of the Party No.2 through Distance Education in a full-fledged manner in India. The Party No.1 enters into this agreement with the Party No.2 subject to the under mentioned terms and conditions. Preamble: Whereas the Annamalai University, Annamalainagar, the unitar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistration to the examinations to the centres of Party No.1 and the Party No.2. (g) The activities of the Party No.2 should not contravene the terms and conditions of this agreement. The University is not responsible for the misconduct of Soorya Institute of Management Studies to any third party. (h) The Party No.2 is responsible and accountable to the Party No.1 in respect of the Coordinatorship. (i) The Party No.2 will send to the Directorate of Distance Education a panel of Resource Persons handling theory & practical classes with complete details including, (1) Name (2) Age (3) Qualification (4) Experience in years regarding he/she has worked or/is working with full address. The panel needs to be submitted in advance, as it requires prior approval by the University authorities. & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Party No.2 conduct Programmes * B.Sc. in Hotel Management And Tourism - 3 years * Diploma in Hotel Management and Catering Technology - DHMCT - 2 years * PG Diploma in Hotel Management - 1 year * Craft Programmes - Front office, House Keeping, Production, Service - 1 year or any other Programmes decided by the Directorate of Distance Education Annamalai University from time to time. 2. The Party No.1 agrees to run the following Hotel Management and Catering Technology Programms courses through the Party No.2 * B.Sc. in Hotel Management And Tourism - 3 years * Diploma in Hotel Management and Catering Technology - DHMCT - 2 years * PG Diploma in Hotel Management - 1 ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a premises to establish an institute with all infrastructure and shall bear all the expenditure in the establishment of centres anywhere in India. The Party No.2 shall appoint Principal / Director to the institute with the approval of Party 1 to manage day to day affairs of the institute. Also shall manage all the expenses including salary to the staff, rent for the premises, electricity bill, water bill, etc. incurred in the day-to-day affairs. 10. The Party No.2 shall collect charges for providing uniforms & shoes, arranging practicals classes, with consultations of Party No.1. The Party No.2 shall agree to prepare study materials for the programmes with the guidance of the Party No.1 11. The Party No.1 will provide the Party No.2 application forms and prospectus in readiness to distribute and their sale proceeds will be vested with the Party No.1. The Party No.2 should issue the application forms to the candidates, collecting the prescribed application fee of Rs.100/- and sending the same to the Party No.1. The applicants should submit the filled-in Application Forms along with the relevant documents to the Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curricula and conduct of programmes were the responsibility of the assessee. The curricula had to be in accordance with the syllabus prescribed by Academic Council of Annamalai University. Assessee was to conduct theory and practical classes. The programmes were to be conducted in a full-fledged manner. Scheme of the examinations were to be sorted out jointly. Resource persons were to be recruited by the assessee and panel of such resource persons had to be approved by Annamalai University. Attendance register was required to be maintained by the assessee for both theory and practicals and statement of attendance was to be given to the Annamalai University. Performance assessment of students were to be conducted by the assessee and records had to be submitted to the University. Assessee was also prevented from having any other tie-up with any other University or institution. Assessee was entitled for a share of fees collected from the students in the nature of tuition fees and laboratory fees. All other fees collected belonged to University. This is clear from clause No.4. Any other charges, if collected from students could be done only on consultation with Annamalai University, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; Commerce (f) Hotel Management & Catering Technology (g) Finance (h) Physical (i) Computer Science (j) Information Technology (k) Agriculture (l) Marine Science (m) Horticulture and kindered disciplines Now existing or to be invented/discovered in the future. 4. To provide a conducive atmosphere, adequate facility and/or patronage for research work. 5. To provide and arrange to publish the result of research periodically or otherwise. 6. To p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections 11 and 12 of the Act, subject to the conditions prescribed under Sections 11(5) and 13 of the Act. If the Trust is not expected to earn surplus, there would not be a question of allowing any exemption from tax liability. When the scheme of the Act allowed exemption from tax liability, the same could be only envisaged where there is a likelihood of earning surplus. 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) of the Act. A look at the Income and Expenditure and balance-sheet of the assessee placed at paper-book page 8 clearly shows that excess of income generated Rs. 1,13,97,056.73 was utilized in making investment in various assets of the Trust. Hon'ble Gujarat High Court in the case of Gujarat State Co-operative Union v. CIT (195 ITR 279), after considering the judgment of Hon'ble Apex Court in the case of Sole Trustee, Loka Shikshana Trust (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts as is done by the assessee. The changing times and the ever widening horizons of knowledge may bring in changes in the methodology of teaching and a shift for the better in the institutional set-up. Advancement of knowledge brings within its fold suitable methods of its dissemination and though the primary method of sitting in a classroom may remain ideal for most of the initial education, it may become necessary to have a different outlook for further education. It is not necessary to nail down the concept of education to a particular formula or to flow it only through a defined channel. Its progress lies in the acceptance of new ideas and development of appropriate means to reach them to the recipients." Assessee here, in our opinion, did fall within the concept of rendering a formal education and could not be equated with a coaching institute. We are, therefore, of the opinion that assessee could not have been denied the eligible exemption under Sections 11 and 12 of the Act for a reason that it was not doing charitable activity as defined under Section 2(15) of the Act. 13. Coming to the aspect of violation under Section 13(1)(c) of the Act, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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