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TMI Blog2017 (10) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... charge the fees from student then it would not be possible for trust to carry on its activities for which it is established as the excess would not be available for ploughing back for development of the educational facility for the students. Hence, we do not find that the order of the Ld. CIT in cancelling the registration to the trust is sustainable. Further, merely because of the reason that assessee has borrowed some amount from the bank and given the same for purchase of the land through bearer cheques amounts to utilization of the fund for non educational purposes. It is an application of the fund for the objects of the trust. It is not the case of the revenue that the above loans given by the assessee are for altogether different purposes. We do not approve of such finding of CIT-A for the reason as assessee is carrying on educational activity, section 2 (15) does not also prescribe such condition, the assessee does not derive any profit looking at the excess of income or expenditure which is also meager, and All the fees charged by the assessee are for attainment of the ultimate object of the assessee of educational activities. In view of the above facts we direct the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed without granting adequate opportunity of hearing, by recording incorrect facts and findings and the appellant ought to have been granted benefit of registration under the law. 4. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other. Brief facts 4. Assessee, appellant, is a society deriving income from running a school and has claimed its income exempt under section 11 of the income tax act, 1961. For the assessment year 2008 09 the assessee filed its return of income declaring nil income on 29/09/2008. During the course of assessment proceedings, the books of accounts of the assessee were examined by the Ld. assessing officer and tested the claim of the assessee under section 11 and 12 of the income tax act. The Ld. assessing officer examined the income and expenditure statement of the assessee where he found that fees is charged from students under different heads such as admission fee, tuition fee, computer fee, late fee, games fee, library fee, examination fee, miscellaneous fees, prospectus fees, signs and fees and all those f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s received from the students is not a voluntary contribution c. the assessee has only object of imparting education, which is imparted by charging fees from the students and is no relief is provided to the poor and needy by way of a cheaper and subsidise education. Further, if the students have to pay more than what is to be spent on them for imparting education, then there is no relief provided and the activity is merely a commercial and business activity. d. He relied heavily on the decision of the Hon ble High Court of Uttarakhand in the case of CIT versus Queens education society 177 Taxmann 321. e. The assessee society has taken a term loan of ₹ 2.64 crores for purchase of land and construction of building of the school in such fund has been given to 3rd parties through bearer cheques as advance for purchase of land. 6. Consequently he passed an order under section 12AA(3) of the act on 04/07/2012 holding that assessee society exists for profit and no longer engaged in charitable activities. Hence, the registration granted to the society originally was withdrawn w.e.f. 01/04/2007. Arguments of assessee 7. Assessee aggrieved with that order has preferred an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Thus, the law common to Section 10(23C) (iiiad) and (vi) may be summed up as follows: (1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied - the purpose of education should not be submerged by a profit making motive. (3) 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. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes. (5) 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 educating persons. 12. The Uttarakhand High Court in the impugned judgment date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Uttarakhand High Court held: Thus, in view of the established fact relating to earned profit, we do not agree with the reasoning given by the ITAT for granting exemption. 14. Having said this, the impugned judgment goes on to quote Aditanar Educational Institution (Supra) as follows:- After meeting the expenditure, if any surplus result incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purpose since the object is not one to make profit. The decisive or acid test is whether on an overall view of the matter, the object is to make profit. In evaluating or appraising the above, one should also bear in mind the distinction difference between the corpus, the objects and powers of the concerned entity. If one looks at the object clause, there are other noble and pious objects but assessee society has done nothing to achieve the other objects except pursuing main object of providing education and earning profit. Further, with profit earned the society has strengthened or enhanced its capacity to earn more rather than to fulfil other noble objects for the cause of poor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portion are also set out, it becomes clear that the passage relied upon by the High Court has absolutely nothing to do with the present case. The entirety of the passage is now set out hereinbelow: '82. In other words, what we want to stress is, where a society or body is making systematic profit, even though that profit is utilised only for charitable purposes, yet it cannot be said that it could claim exemption. If, merely qualitative test is applied to societies, even schools which are run on commercial basis making profits would go out of the purview of taxation and could demand exemption. Thus, the test, according to us, must be whether the society could survive without receiving voluntary contributions, even though it may have some income by the activities of the society. The word part mean an appreciable amount and not an insignificant one. The part in other words, must be substantial part. What is substantial would depend upon the facts and circumstances of each case.' 19. It is clear, therefore, that the Uttarakhand High Court has erred by quoting a non existent passage from an applicable judgment, namely, Aditanar and quoting a portion of a proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 10. Therefore in view of the above decision of the Hon ble Supreme Court, we do not find that assessee is not engaged in the educational activities as merely charging of the fees does not make it existing for the purposes of the profit. This fact is also fortified for the reason that assessee has earned very meager amount of sum and which is also not alleged to have been applied for non-educational purposes. The assessee is running an educational institute but that does not mean that assessee must run it for free. Further it is also not alleged that the fees charged by the assessee is exorbitant and the primary motive of the assessee is to earn the profit. If the assessee does not charge the fees from student then it would not be possible for trust to carry on its activities for which it is established as the excess would not be available for ploughing back for development of the educational facility for the students. Hence, we do not find that the order of the Ld. CIT in cancelling the registration to the trust is sustainable. 11. Further, merely because of the reason that assessee has borrowed some amount from the bank and given the same for purchase of the land thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,71,886/- out of salary claimed and that too relying upon the assessee s case for AY 2008-09 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in holding that assessee society has been running institution on commercial basis and has further erred in taxing the income/surplus of ₹ 20,76,171/- shown by the assessee, more so when Ld. CIT(A) has granted the benefit of exemption u/s 11 12 of the Act and Ld. CIT(A) further erred in not granting the exemption u/s 10(23C)(iiiad) or u/s 10(23C)(vi) to the appellant society. 16. For assessment year 2006 07 The Ld. assessing officer for the similar reasons as stated by the assessing officer in his order for assessment year 2008 09 in case of the assessee has reopened the assessment of the assessee by issuing notice under section 148 of the income tax act on 06/10/2010. Subsequently against the returned income filed on 21/07/2006 declaring nil income assessment under section 143 (3), read with section 147 of the income tax act, 1961, was framed denying the exemption to the assessee under section 11 and 12 of the act. Further, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal of the assessee is allowed with about direction. 21. In the result ITA No. 4555/del/2012 filed by the assessee for assessment year 2006 07 is partly allowed for statistical purposes. ITA No. 4556/del/2012/assessment year 2007-08 22. This appeal is filed by the assessee against the order of the LD CIT (A)-II, Dehradun dated 02.07.2012 for the Assessment Year 2007-08. 23. The assessee has raised the following grounds of appeal:- 1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the impugned assessment order that too without complying the mandatory conditions of section 147 to 151 of the Income Tax Act, 1961 and reopening of the case and framing the impugned assessment order is bad in law and beyond the jurisdiction of the Ld. A.O. 2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of ₹ 18,68,341/- out of salary claimed and that too by relying upon the assessee s case for AY 2008-09. 3. That having regard to the facts and circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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