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TMI Blog2018 (2) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... our of the assessee by the decision of the co-ordinate bench in the case of Jyothy Charitable Trust [2015 (11) TMI 1295 - ITAT BANGALORE]. Deduction of twenty-five per cent was held to be allowable not on total income as computed under the IT Act. Any amount or expenditure, which was application of income, is not to be considered for determining twenty five per cent to be accumulated. - ITA No.425/Bang/2016 - - - Dated:- 31-1-2018 - SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Appellant : Shri H Sambhu Sharma, C.A For The Respondent : Shri Pradeep Kumar, ACIT (DR) ORDER Per INTURI RAMA RAO, AM : This is an appeal by the assessee-trust directed against the order of Commissioner of Income-tax (Appeals)-14, Bangalore, dated 25/11/2016 for the assessment year 2012-13. 2. The appellant raised the following grounds of appeal. 1. That, the order of the learned Commissioner of Income Tax (Appeals) in so far as is prejudicial to the interests of the appellant, is bad and erroneous in law and against the facts and circumstances of the case. 2. The learned Commissioner Of Income Tax (Appeals) is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of promoting and imparting education. The return of income for the assessment year 2012-13 was filed on 29/9/2013 declaring nil income. Against the said return of income, the assessment was completed by the Income-tax Officer (Exemptions), Ward-1, Bangalore, vide order dated 27/3/2015 passed u/s 143(3) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] at total income of ₹ 1,37,93,610/-. While doing so, the ld. Assessing Officer had denied the exemption claimed under the provisions of clause (vi) of sub section (23C) of sec. 10 of the Act on the ground that the appellant was existing only for the purpose of making profit. The facts set out by the Assessing Officer in paragraphs 19 to 23 of the assessment order, while denying the exemption u/s 10(23C), are reproduced below:- 19. On, going through the facts of the case and the submissions made, the following facts emerge:- a) Whenever an educational institution makes huge/large profit/surplus year after year, it ceases to exist for educational purpose and becomes profit making organization, even though it may plough such profits back into purchase of assets for the institution/o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isaged in section 2(15) of Income Tax Act. In view of this, exemption claimed u/s. 11 12 for the AN 2012-13 is disallowed and the net surplus generated is considered for taxation in the status of AOP. 23. The assessee has exercised its option for claiming deduction under Sec.10(23C)(vi) of the Act, vide its letter dated 18-02-2015. It is important to mention here that, as per the provisions of the section 19 3CJ(vi) of the I.T Act,1961 any university or other educational institution existing solely for educational purpose and not for the purposes of profit , other than those mentioned in sub clause (iliab) or sub clause (iliad) and which may be approved by the prescribed authority . As section 2(15) is invoked in this case, and in view of this, exemption claimed u/s. 11 12 for the A.Y 2012-13 is disallowed and the net surplus generated is considered for taxation in the status of AOP. Further, the Assessing Officer had not allowed carry forward of excess income over expenditure on the gross income but on the net income. 4. Being aggrieved, an appeal was preferred before the ld. CIT(A), who vide impugned order, had confirmed the action of the Assessing Officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anner to the prescribed authority11 for the purpose of grant of the exemption, or continuance thereof, under sub-clause (iv) or sub-clause (v) 12[or sub-clause (vi) or sub-clause (via)] : 13[ Provided further that the prescribed authority, before approving any fund or trust or institution or any university or other educational institution or any hospital or other medical institution, under sub-clause (iv) or subclause (v) or sub-clause (vi) or sub-clause (via), may call for such documents (including audited annual accounts) or information from the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, as it thinks necessary in order to satisfy itself about the genuineness of the activities of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, and the prescribed authority may also make such inquiries as it deems necessary in this behalf:] Provided also that the fund or trust or institution 14[or any university or other educational institution15 or any hospital or other medical instituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such funds do not continue to remain so invested or deposited after the 30th day of March, 25[1993] : 26[ Provided also that the exemption under sub-clause (vi) or sub-clause (via) shall not be denied in relation to any funds invested or deposited before the 1st day of June, 1998, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 if such funds do not continue to remain so invested or deposited after the 30th day of March, 2001:] 27[ Provided also that the exemption under sub-clause (iv) or sub-clause (v) 26[or sub-clause (vi) or sub-clause (via)] shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the third proviso to this sub-clause, subject to the condition that such voluntary contribution is not held by the trust or institution 28[or any university or other educational institution or any hospital or other medical institution], otherwise than in any one or more of the forms or modes specified in subsection (5) of section 11, after the expiry of one year from the end of the previous year in which such asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... countant and setting forth such particulars as may be prescribed:] 35[ Provided also that any amount of donation received by the fund or institution in terms of clause (d) of sub-section (2) of section 80G 36[in respect of which accounts of income and expenditure have not been rendered to the authority prescribed under clause (v) of sub-section (5C) of that section, in the manner specified in that clause, or] which has been utilised for purposes other than providing relief to the victims of earthquake in Gujarat or which remains unutilised in terms of sub-section (5C) of section 80G and not transferred to the Prime Minister s National Relief Fund on or before the 31st day of March, 2004 shall be deemed to be the income of the previous year and shall accordingly be charged to tax:] Provided also that where the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or subclause (via) does not apply its income during the year of receipt and accumulates it, any payment or credit out of such accumulation to any trust or institution registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r other medical institution referred to in the first proviso makes an application on or after the 1st day of June, 2006 for the purposes of grant of exemption or continuance thereof, such application shall be 42[made on or before the 30th day of September of the relevant assessment year] from which the exemption is sought :] 43[ Provided also that any anonymous donation referred to in section 115BBC on which tax is payable in accordance with the provisions of the said section shall be included in the total income :] 44[ Provided also that all pending applications, on which no notification has been issued under sub-clause (iv) or sub-clause (v) before the 1st day of June, 2007, shall stand transferred on that day to the prescribed authority and the prescribed authority may proceed with such applications under those sub-clauses from the stage at which they were on that day:] 45[ Provided also that the income of a trust or institution referred to in subclause (iv) or sub-clause (v) shall be included in its total income of the previous year if the provisions of the first proviso to clause (15) of section 2 become applicable to such trust or institution in the said previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles that emanate from the views expressed by this Court are set out in paragraph 11 in Queen's Educational Society ( supra ), which are extracted below:- '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 overa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n excess of what has been held by this Court to be permissible (6 to 15%) in Islamic Academy of Education v. State of Karnataka [2003] 6 SCC 697 (paragraph 156) though the percentage of surplus in Islamic Academy of Education (supra) was in the context of the determination of the reasonable fees to be charged by private educational bodies. 7. Thus, the legal position that emerges out of the decision of the Hon ble Apex Court in the above case is that so long as the surplus generated is not far in excess of what has been held to be reasonable i.e from 6 to 15%, the institution would not cease to be institution exists solely for education purpose and not for the purpose of profit. In the present case, after providing for the depreciation, the surplus would be around 18% of the gross receipts which is not far in excess of 15%. Therefore, applying the ratio laid down by the Hon ble Apex Court in the case of Visvesvaraya Technological University Vs. ACIT (Supra). We hold that the appellant exist solely for the educational purpose and not for the purpose of profit, and therefore is entitled for exemption of its income under clause (vi) of section 10(23C). Thus the grounds of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s relevant or the income as computed in accordance with the provisions of IT Act. In other words, whether outgoings from out of gross income which are in the nature of application of income, should be first deducted from the gross income and 25 per cent of only the remaining amount should be allowed to be accumulated or set apart. The Special Bench of the ITAT on the issue held as follows:- 9. Coming to the merits of the issue, we are of the view that the same is clearly covered by the decision of the Hon ble Supreme Court in the case of CIT vs. Programme for Community Organization (supra). In the decision, their Lordships, after taking note of provisions of s. 11(1)(a), have held as under : Having regard to the plain language of the above provision, it is clear that a charitable or religious trust is entitled to accumulate twenty-five per cent of its income derived from property held under trust. For the present purposes, the donations the assessee received, in the sum of ₹ 2,57,376, would constitute its property and it is entitled to accumulate twenty-five per cent thereout. It is unclear on what basis the Revenue contended that it was entitled to ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y expenditure which is in the shape of application of income is not to be taken into account. Having found that trust is entitled to exemption under s. 11(1), we are to go to the stage of income before application thereof and take into account 25 per cent of such income. Their Lordships have pointed that the same has to be taken on commercial basis and not total income as computed under the IT Act. Their Lordships in the decided case rejected the contention of the Revenue that the sum of ₹ 1,70,369 which was spent and applied by the assessee for charitable purposes was required to be excluded for purpose of taking amount to be accumulated. Having regard to the clear pronouncement of their Lordships of the Supreme Court, it is difficult to accept that outgoings which are in the nature of application of income are to be excluded. The income available to the assessee before it was applied is directed to be taken and the same in the present case is ₹ 3,42,174. Twenty five per cent of the above income is to be allowed as a deduction. Similar view has also been taken by the Hon ble Madhya Pradesh High Court in Parsi Zorastrian Anjuman Trust vs. CIT (supra). No reason w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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