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TMI Blog2018 (2) TMI 1733X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, but instead of performing its activity in real sense, it has got involved itself in huge profit making. Under the circumstances, it cannot be said that the applicant university is doing activities in the course of fulfillment of its objects. We, therefore, do not find any infirmity in the order of CIT (E) in denying the approval to the assessee-applicant. - Decided against assessee - ITA No. 910/Chd/2017 - - - Dated:- 23-2-2018 - Shri Sanjay Garg, Judicial Member Ms. Annapurna Gupta, Accountant Member Appellant By : Sh. M.R.Sharma Respondent By : Sh. Gulshan Raj, CIT DR ORDER Per Sanjay Garg, Judicial Member: The appellant, I.K. Gujral Punjab Technical University has preferred the present appeal against the order of the Commissioner of Income Tax (Exemptions), [hereinafter referred to as CIT(E)], Chandigarh dated 31.3.2017 rejecting the application of the applicant University for grant of approval for exemption from taxation u/s 10(23C)(vi) of the Income Tax Act. 2. While rejecting the application of the applicant, the Ld. CIT(E) has observed that the applicant had not filed any return of income and as per the requirement of application u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to examine whether the applicant measures up to the conditions of existing solely for educational purposes and not for profits. After considering the material on record, the Ld. CIT(E) observed that the appellant/applicant had had been indulging in profit making whereby it had generated huge surpluses in the last few years. Further that surpluses so generated had been parked in FDRs generating huge interest income which was further increasing from year to year. He further observed that the source of the funds in FDR was not only out of the surpluses accumulated but also from the grants in aid received during the past few years from Punjab Government, UGC, SERB etc. that had not been utilized. He in this respect also referred to certain observations made in audit report wherein in the notes on accounts as on 31.03.2015, it has been mentioned that out of total grant received of ₹ 2.70 crore, only expenditure of ₹ 15.50 lakh had actually been expended and an amount of ₹ 1.06 crore had been booked but not expended. The balance amount had been parked in form of FDRs in the banks. The Ld. CIT(E) further observed that a total of 180 affiliated colleges were being run u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Policy, sexual harassment policy, discipline policy and travel policy. No action has been taken by PTU to check whether these policies have been fallowed, We asked the detailed information regarding total number of students, their classesand fee structure via E-mail dated 2.1.2016. 8.2.2016. 9.1.2016, in respect of Distance Education Program, but no action has been taken in this regard due to which the total amount of fee is to be received could not be co- related with this actual amount received. We have apprehend that there is a leakage of revenue in this regard. In spite of pointing out this observation in our previous audit reports as well as a number of reminders given during the current fear, the information was not provided to us. We fail to understand why the required informationis not provided to us. We would suggest that in order to avoid leakage of revenue, accounts must be maintained on Double Entry Scheme of accounting and thus required information be provided. So that this actual income could be ascertained and revenue could be avoided. 3. The Ld. CIT(E) further observed that in the notes on account for 31.03.2015, the auditors observed that various departments o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree years was wrong. That there was no evidence of spending any amount out of the receipts on any other activity. That the surplus funds have been parked in the FDRs but that does not mean that the Applicant University has been engaged in any profit making activity. That all the officers of the University including the Vice Chancellor are nominated / appointed by the State Government. He, in this respect, has relied upon the Punjab Technical University Act, 1996. He has further relied upon the notification No.13/127/09-ITE2/767 dated 1.3.2011 of the Punjab Government to show that the tuition fee chargeable for various courses run by the University has been fixed by the Punjab Government. He has further relied upon the Notification dated 11.4.2017 of the Punjab Government to state that the applicant University has been appointed as the authority competent to conduct Online Centralized Counselling for admission to various degree level Engineering and Architecture course. He has further submitted that the university has been getting substantial income out of entrance test fee etc. collected from the students who are aspirant to seek admission in various technical colleges in the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have considered the rival contentions and have also gone through the record. Before further deliberation on the matter, it will be appropriate to reproduced here the relevant provisions of section 10(23C)(vi) of the Act. Incomes not included in total income. 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 income received by any person on behalf of- .. (vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the prescribed authority; or Provided that 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 sub-clause (via) shall make an application in the prescribed form67 and manner to the prescribed authority68 for the purpose of grant of the exemption, or continuance thereof, under sub-clause (iv) or sub-clause (v) or sub-clause (vi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv) or subclause (v) or sub-clause (vi) or sub-clause (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 under section 12AA or to any 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 sub-clause (via) shall not be treated as application of income to the objects for which such fund or trust or institution or university or educational institution or hospital or other medical institution, as the case may be, is established : 8. As per the above reproduced provisions, any income received by any person on behalf of any University or other educational institution existing solely for educational purposes and not for the purposes of profit and which may be approved by the prescribed authority is not to be included while computing the total income for the purpose of taxation. It has been further prescribed that such institution or university shall make an application in the prescribed form and manner to the prescribed author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is also operating in the same area/city, which is involved in the educational activity for the purpose of profit and is offering its income for taxation as per the provisions of law. The Ld. counsel for the applicant/appellant could not establish how the activity of the applicant- university has been different from that of Lovely University to say that the applicant university has been running solely for educational purposes and not for profit. The Appellant-University is not only making huge profits from its activities but also is not utilizing the same for promoting and making available affordable education, rather, University is involved in earning income from surplus generated by further investing the same in FDRs and earning huge interest income which fact also shows that the University is not running solely for educational purposes but for making profits. 11. Another glaring fact that is evident from the data submitted before us is that the applicant is spending on an average only 60% of its receipt / income on its stated charitable activities of imparting education, either by way of incurring running / operating expenses or by way of investing in fixed assets. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the applicant reveals that the applicant never stood to the requirements of complying the provisions of Section 10(23C)(vi) of the Act. The excess generated by the applicant is being parked in FDRs as has already been pointed out above. Further it is revealed from the balance sheet of the applicant that a major portion of the funds available with it was applied in current assets more specifically in the form of cash and FDRs and very little funds were utilized for investing in fixed assets for the purpose of carrying on the activity of the applicant. This is evident from the following figures of sources and application of funds in various years as extracted from the audited balance sheet of the applicant filed before us as under : Financial Year Sources of Funds (in crores) Application of funds (in Crores) (in fixed assets) (in FDRs Cash) 2010-11 687.71 38.79 813.74 2011-12 884.38 52.45 800.49 2012-13 1098.34 55.13 101 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of collection and accumulation of huge funds running into thousands of crores which are lying unused and are increasing day by day and year by year shows that the applicant has failed to act for the achievement of the object for which it was established. 13. The genuineness of the activity of the applicant is also put to a question by note of auditor s in their report in which they have raised serious doubts about the financial activity of the university and pointed out that the university has delegated franchise in respect of distance education to private players M/s NIMA and M/s Elfin Eduventures. For the year ending on 31.3.2015, an amount of ₹ 17.12 lacs has been paid to M/s NIMA and ₹ 39.70 lacs to M/s Elfin Eduventures. The auditors in their report, as reproduced in earlier paras of this order, have pointed out that the university has failed to provide the details of services offered by the aforesaid agencies despite repeated requests. The auditors have pointed out that the total payment made to the C F during the year was ₹ 8.83 cores. As per the agreement, the C F was required to appoint minimum staff of seven persons at office. However, the applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for entrance examination, generating huge surplus and further what is more disturbing is that it has not been used for the educational activity rather it is parked and blocked in the shape of FDRs in banks without any vision or plan of expending the same for education purposes . Rather than to act as an instrument in facilitation and providing technical education and knowledge to the aspiring students and thereby contributing for the progress of the country, we are afraid to say that the university has acted otherwise by blocking the funds in the banks. So far as the argument of the Ld. Counsel that the fee is fixed by the Punjab Government and his reliance upon the notification dated 1.3.2011 is concerned, we find that the fee for the various technical courses has been fixed by the government in the state of Punjab but the said notification is regarding tuition fee only. The said notification is issued so that the private institutions may not charge exorbitant tuition fee hence a limitation has been put on them. However, it has been specifically provided in the said notification that fee and charges other than the tuition fee should be determined by the Punjab Technical Univer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008) 301 ITR 86 (SC) and the decision of the constitutional Bench of the Supreme Court rendered in the case of ACIT Vs. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1, has observed that the test to be applied is whether the pre-dominant object of the activity is to earn profit or not. Similarly, the Hon'ble Supreme Court in the case of Queen Educational Society Vs. CIT (supra) in para 11 of the order has laid down the following parameters. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut any visible plan or vision to expend the same for achieving the sole purpose of education, denotes that the university is engaged in the profit making activity. It is not the case where while performing its educational activities, some profits have been earned or some surplus are generated or accumulated which is incidental to the main activity of the assessee, rather it is a case where the main motive appears to be to earn profit for which the educational activity is carried out. The argument that as per the statutory provisions, the university is not entitled to expend the money on any other activity and that since it is a government organization, hence, surplus cannot be utilized by the trust members for their personal use or that the surplus ultimately have to be spent on educational activity only, in our view, at this stage is of no help to the applicant university. While granting approval under the relevant provisions of section 10(23C)(vi) of the Act, the Commissioner has to see the activities of the assessee as on date vis-a-vis the accounts and other relevant information. As on date, the applicant university is engaged in the profit making and has accumulated surpl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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