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TMI Blog2018 (2) TMI 602X X X X Extracts X X X X X X X X Extracts X X X X ..... om 01/04/2009 is concerned, even that cannot be assailed, because the evidence and material discussed in detail in the impugned order reflect such entries in the Books of Accounts which reflect illegality having existing on record right from the Financial Year 2010-11 onwards and therefore the illegalities and transactions offending the said provisions cannot be split or bifurcated for the period in question only after the search and seizure operations were carried out on 16/12/2015 and the illegality cannot be allowed to be perpetuated for the preceding periods for which such evidence pointing out the illegalities exist on record. - Decided against assessee. - Writ Petition Nos. 3468-3472/2018 (T-IT) - - - Dated:- 5-2-2018 - Vineet Kothari, J. For the Petitioner : Mr. S.S. Naganand, Sr. Counsel for Mr. S. Sriranga, Advocate For the Respondent : Mr. Jeevan J. Neeralagi, Advocate for R-2 ORDER 1. The first petitioner - Navodaya Education Trust and Shri. Sunki Rajender Reddy and three others being the Trustees of the petitioner No.1 - Trust have filed these writ petitions in this Court on 20/01/2018 aggrieved by the order passed by the Respondent Director Gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apitation Fees) for Admission to the Medical Courses run by the Medical College of the Trust and such cash donations were also used for construction of Temple inside the Trust premises, paying speed money for getting approvals, incurring election expenses of one of the Trustees, Shri. Sunki Rajender Reddy, petitioner No.2 for his election, to buy personal Assets for the Trustees and for money laundering for claiming bogus Long Term Capital Gains and Gifts etc. 7. On the basis of the said material against the petitioner - Trust which could disentitle the petitioner Trust from continuing to enjoy the benefit of exemption from Income Tax under Section 10(23-C) of the Act, the Respondent issued a Show Cause Notice to the petitioner - Trust vide Annexure F dated 28/11/2017 and called upon the petitioner - Trust to Show Cause as to why approval under Section 10(23-C) of the Act may not be withdrawn. 8. The petitioner - Trust accordingly filed its detailed Objections and submissions before the said Authority vide Annexure G on 11/12/2017 and thereafter giving an opportunity of hearing to the petitioner - Trust, the impugned order came to be passed on 21/12/2017 against which the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for illegal activities of the other petitioners, who are Trustees of the said Trust and the very purpose of grant of exemption under Section 10(23-C) of the Act stood defeated and all these revelations were unearthed during the search and seizure operations under Section 132 of the Act on 16/12/2015 and consequent to which, after giving due and reasonable opportunity of hearing to the petitioners, the impugned detailed order with all reasons assigned therein including the case laws discussed, has been rightly passed against the petitioner- Trust and no interference in the same is called for and the present writ petitions deserve to be dismissed. 13. Before coming to the rival contentions and the case laws cited at the bar, it is considered appropriate to have a little more detailed look into the facts and reasons assigned by the Respondent Authority in passing the impugned order and it would be best to quote the relevant portion of the said order Annexure A dated 21/12/2017 which discusses in detail the reasons for such withdrawal of exemption. 12.4. On verification of an another digital file by name 2010 _TOTAL _CONSOLIDATED found and seized from Mr. Venkatesh Manv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd utilized by the Trustees for their personal use. In short, the trustees are systematically engaged in personal (unjust) enrichment through this means of commercialization of the professional courses run through the NET. (iii) Since collection of any amount exceeding the prescribed fee is prohibited by law, the NET obviously cannot maintain regular records like receipt book or cash book to account for the Donations collected. The evidence of the Donation collected is found written in computer printed statements. Evidences thereof were found in the possession of Shri Venkatesh Manvikar and in the office premises of NET and the residential premises of Rajender Reddy. Mr. Venkatesh Manvikar has quite systematically and punctiliously noted the amount of Donation received from each student, in the digital files. He has also maintained account of amounts utilized for incurring expenses of NET in cash, cash payments for illegal expenditure and the cash taken by the Trustees for their personal purpose. Evidences of investments, expenditure and entries of cash paid for money laundering were found from the residence of Shri Rajender Reddy and Smt. Swathi Reddy, way beyond their kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im by giving loan to Mr. Aditya Mundada of ₹ 1 crore. Thus, the funds of NET are being misused by the trustees for their personal purpose. 14.2 Secondly, huge amounts are paid as less rent to Shri Sunki Rajender Reddy, Smt. Swathi Reddy, Mr. Amrut Reddy and Ms. Nandika Reddy by NET. Further, huge honorarium is also paid to Shri. Sunki Rajender Reddy and Smt. Swathi Reddy by NET. In the preliminary statement recorded on 16-12-2015, Smt. Swathi Reddy in her reply to Q.No.01 has stated that she is into voluntarily activity of taking care of temple maintenance and that she does not get any remuneration from any trust or company. As Smt. Swathi Reddy is not involved in day today activities of NET, payment of honorarium to her is not justified. The details of honorarium paid to Smt. Swathi Reddy is as under:- Sl. No. F.Y. Amount of honorarium paid 1 2009-10 6,00,000 2 2010-11 12,00,000 3 2011-12 12,00,000 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter granted approval for AY 1999-00 to 2001-02. (later got the approval for subsequent years also i.e. after the date of assessment). The facts of the case are different from the facts of the present case. d) CIT Vs Fr. Mullers Charitable Institutions: The issue involved is violation of provisions u/s 13(1)(d) and hence the same is not relevant for the present case. 16.1 The facts of the case laws/judgements on which the assessee trust relied upon in their submission other than what have been mentioned above are not applicable to the present case as the issue involved in those cases are regarding registration u/s 12A of the IT Act. 16.2 The relevant provisions of Section 10(23C) reads as under Government or the prescribed authority is satisfied that (i) such fund or institution of trust or any university or other educational institution or any hospital or other medical institution has not - (A) applied its income in accordance with the provisions contained in clause (a) of the third proviso; or (B) invested or deposited its funds in accordance with the provisions contained in clause (b) of the third proviso; or (ii) the activities of such f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of law and the conditions prescribed while granting the recognition. 16.6. Education would remain as a charity only in a case where education is imparted systematically for a fee prescribed by Government. A private aided or unaided professional institution or any other educational institution of a State is required to collect fees with regard to infrastructure and benefit of students of that educational institution. Collection of money over the above fee prescribed by Committee would amount to collection of capitation fee and such an institution would face legal consequences for same (Vodithala Education Society Vs. ADIT, [2008] 20 SOT 353 (HYD.)) 16.7. In the case of SCIENTIFIC EDUCATIONAL ADVANCEMENT SOCIETY v. UNION OF INDIA AND ANOTHER [2010], 323 ITR 84(P H), the Hon ble High Court held that Educational institution should exist solely for purposes of education and if it is not, the society is not eligible for exemption u/s 10(23C)(vi) of the Act. 16.8 The Hon ble ITAT, Hyderabad vide their order on 22-3-2012 in the case of M/s Islamic Educational Society had observed, as under: Further, we find that the Constitutional Bench of Apex Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the prescribed authority, as the case may be], or any university or other educational institution referred to in sub- clause (vi) or any hospital or other medical institution referred to in sub-clause (via), is approved by the prescribed authority and subsequently that Government or the prescribed authority is satisfied that (i) such fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not - (A) applied its income in accordance with the provisions contained in clause (a) of the third proviso; or (B) invested or deposited its funds in accordance with the provisions contained in clause (b) of the third proviso; or (ii) the activities of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution are not genuine; or (B) are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved. it may, at any time after giving a reasonable opportunity of showing cause against the proposed action to the concerned fund or institution or trust or any univer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Fees, including in the case of Ms. Mohini Jain Vs. State of Karnataka and others (1992) 3 SCC 666, and others as quoted in the impugned order itself above clearly shows that the petitioner - Educational Trust in question was acting for profits, contrary to law. This itself would disentitle the Educational Trust from the benefit of exemption under Section 10(23-C) of the Act. 18. The other facts against the petitioner - Trust like payment of huge honorarium to the Trustees, huge amounts paid as Lease Rent to Shri. Sunki Rajender Reddy, Smt. Swathi Rajender Reddy, Mr. Amrut Reddy and Ms. Nandika are also glaring and very damaging for the very foundation of exemption to the Educational Institutions. The Authority concerned has also found that ₹ 86.10 crores was shown for the Financial Years 2010-11 to 2014-15 under the Heading TRF , (Transfer to Trustees) for building up their personal assets and other pay offs or payment of speed money etc. for seeking approvals etc. This clearly shows that the petitioner - Educational Trust was running like a business establishment, rather than for educational purpose. 19. It cannot be expected of the Respondent - Authority to ask on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The beginning of this viciousness at the entry level of Medical and Engineering Colleges permeates the professional practices of these fields throughout and the ill-effects of the same on the poor and middle class sections of the society is indeed a traumatic experience. 23. The purpose of exempting such Institutions from Income Tax was obviously to restrict such exemption upon a very strict compliance with the parameters for the same and only bona fide, chaste and pure Educational Institutions could expect such exemptions from the Income Tax which as per the said norms and the rules of interpretation of such provisions of exemption have to be strictly construed by the Courts of law. Any liberal or flexible interpretation looking over the strict compliance of the conditions is likely to defeat the very purpose of grant of such exemption and the business houses which additionally want to run Educational Institutions also as business enterprises cannot be allowed to take the benefit of exemption from Income Tax under the cover of a registered Educational Trust through the Books of Accounts of the Trust, in which all kinds of other business activities may keep on happening. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the assessment year concerned the object is to make profit as opposed to educating persons . 27. In American Hotel and Lodging Association Educational Institute Vs. Central Board of Direct Taxes and others reported in (2008) 10 SCC 509, the Hon ble Supreme Court dealt with a case of a non-profit Educational organization set up in USA having its branch Office in India mainly to comply with its obligations under various Agreements with the Government of India (Ministry of Tourism) and the Branch collected amounts of fees from Educational Institutions/persons wishing to take the courses offered in the field of Hospitality and fees for the required course material was remitted back to USA after deducting the incidental costs by Indian Branch, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was passing through the cover and shields of the Books of Accounts of the petitioner - Trust rendering it as merely a skeleton for the purpose of exemption to Educational Trust and rather than a real Educational Trust, solely existing for the purpose of Education. Such sham or bogus Trusts cannot be held to be entitled to exemption under the provisions of Section 10(23-C) of the Act and therefore the Respondent Authority has rightly withdrawn the approval of the petitioner - Trust under the said provision. 30. As far as the withdrawal of the approval with effect from 01/04/2009 is concerned, even that cannot be assailed, because the evidence and material discussed in detail in the impugned order reflect such entries in the Books of Accounts which reflect illegality having existing on record right from the Financial Year 2010-11 onwards and therefore the illegalities and transactions offending the said provisions cannot be split or bifurcated for the period in question only after the search and seizure operations were carried out on 16/12/2015 and the illegality cannot be allowed to be perpetuated for the preceding periods for which such evidence pointing out the illegalities exi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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