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TMI Blog2021 (5) TMI 381X X X X Extracts X X X X X X X X Extracts X X X X ..... ns to make people all over, aware of the institution and the courses being offered. These public relation persons familiarize the society at large about the institutions and various educational facilities available and these people are paid certain nominal amounts for the services rendered by them. It is not a case of broker and commission payment but payment for liasoning which is very much essential in these days and especially considering the number of educational institutions available and also the vast area from where the students come from. This cannot be a reason to conclude that the assessee is carrying on a commercial venture. Being so, there was no addition in this regard in these assessment years under consideration. There is no question of denial of exemption u/s. 11. Therefore, the ground raised by the revenue with regard to granting exemption u/s. 11 12 though assessee has paid huge commission to agent/middle men to bring students to the institution is misconceived. Assessee earned surplus in carrying out educational activities - As rightly pointed out by the ld. AR, as held in Queens Education Society [ 2015 (3) TMI 619 - SUPREME COURT] a distinction must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-12. The common grounds of appeal are as follows:- Applicability to Section 2(15) : 1. The CIT(A) is opposed to facts and circumstances of the case. 2. Whether in the facts and circumstances of the case, the CIT(A) is right in holding that the assessee is eligible for exemption u/s 11 and 12 of the I.T. Act, 1961, though the assessee trust is paying huge commission to agents/middlemen to bring students to its institutions which is against the spirit of imparting education. Even though imparting of education in itself is a charitable activity u/s 2(15) of I.T. Act, in the instant case the education is commercially exploited by selling education in the open market with the help of the agents/middlemen by payment of commission. 3. Whether the CIT(A) was right in law in stating that there was no surplus and denying exemption u/s 11 to the assessee society is not proper when the assessee is generating profits year after year and creating surplus. 4. Any other grounds to be raised at the time of hearing the appeal. 2. The assessee is a registered society under Societies Registration Act and duly approved u/s. 12AA of the Income-tax Act, 1961 [the Act]. It is engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in violation of Sec 13(3) ₹ 25,00,000 Total Income ₹ 23,32,00,046 AY 2011-12 Income as per the Income Expenditure a/c : ₹ 19,17,30,178 Addition on account of: Investment in bank account of Premnath Reddy: ₹ 9,89,452 Investment in purchase of land by Premnath Reddy: ₹ 9,75,000 Expenditure relating to close relatives in violation of Sec 13(3) ₹ 33,00,000 Total Income ₹ 19,69,94,630 The AO also held as follows:- Accordingly the amount of ₹ 21,36,000/- will be added for the financial year 2011-12 and amount of ₹ 1,51,19,000/- + 51,57,000 = 2,02,76,000/- will be treated as unaccounted receipts for the current financial year (A.Y. 2013-14). 3. Against this, the assessee went in appeal before the CIT(Appeals). 4. The CIT(Appeals) on the payments made to agents or brokers, impounded ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in getting credentials, approvals, accreditations, recognitions affiliations for various educational institutions under the society. She was actively involved in establishing global associations with Universities abroad in China, USA, UK and Spain. She was thoroughly familiar with education scenario in India and abroad. Vehicle is provided to her in her official capacity as Director (Admissions). Therefore, the CIT(A) was of the opinion that remuneration paid to her is on par with other employees having similar experience. 7. In the case of Mrs. Kiran Reddy, the assessee submitted that salary was increased from January, 2010 from 79,000 to ₹ 1,17,000 taking into account her qualification of Ph.D in Management Sciences and therefore payment made is not excessive as compared to what should have been paid. The CIT(A) observed that she is heading the college as Principal and acting as CEO for AIMS established in 1994. She has done her MA MBA from reputed Universities with Ph.D. having 20 years of rich educational experience. With her leadership AIMS is now rated as most reputed educational institution in Karnataka State. Her contribution is wide spread in all facets. Apar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the following decisions cited by the assessee:- Chirec Education Society v. ADIT (2013) 40 taxmann.com 26 (AP) DCIT v. R.N. Shetty Trust (2015) 59 taxmann.com 68 (Bang Trib) ITO v. Human Resource Development Management Trust (2011) taxmann.com 478 (Cuttack) ITO v. Lata Mangeshkar Medical Foundation (2017) 83 taxmann.com 69 (Pune Trib) Shree Kamdar Education Trust. V. ITO (2016) 74 taxmann.com 253 (Guj) 11. The CIT(A) directed the AO to delete the additions on the above account and also on the ground of violation of provisions of section 13(1)(c) and section 13(3) and grant exemption u/s. 11 of the Act. 12. Regarding the deposits in Bank account by Shri Premnath Reddy, the AO made addition of ₹ 9,89,452 on the basis of cash credit analysis. The assessee contended that Shri Premnath Reddy is an individual filing his returns of income and taxablility of the same has to be examined in his hands and not the assessee society. The CIT(A) accepted this contention and held that when the case of an individual is analysed, addition if any, should be in his individual hands and not the associated institution. He held that the AO has not conclusively demonstrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is engaged in profitable activities and it is conducting education activities in a business manner and has appointed various middle men to bring students to the institution and paid huge commission to brokers and agents. This has also been supported by the statement of Mrs. Shalini Reddy on 17.7.2012 and also statement recorded from Prem Nath Reddy on 28.6.2012. The assessee is also collecting excessive tuition fees which is not recorded in the books of account. The assessee group has been paying huge salary , telephone expenses, electricity expenses to President, Secretary and family members of trustees as listed in para 16 of assessment order for AY 2011-12. Thus, according to her, these payments made to relatives and family of trustees were covered by section 13(3) of the Act and assessee cannot be called as charitable institution to grant exemption u/s. 11 of the Act. 17. The ld. DR further submitted that there was huge bank balance in the account of trustee, viz., Mr Prem Nath Reddy. The object of assessee cannot be considered as charitable activities and the assessee is not solely existing for education purposes. According to the ld. DR, there is ample material on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no prohibition in earning surplus from charitable activities of the institution, that cannot be a reason to deny exemption u/s. 11 of the Act. He relied on the following judgments:- (i) Queens Educational Society v. CIT, 55 taxmann.com 255 (SC) (ii) ACIT(E) v. Mahima Shiksha Samiti [2017] 79 taxmann.com 38 (Jaipur Trib.) (iii) Ganapat University v. Arvind Shankar [2016] 73 taxmann.com 373 (Guj) (iv) DIT (Exemptions) v. Delhi Public Schools Society,[2018] 100 taxmann.com 370 (SC) (v) DIT (Exemption)v. Delhi Public School (100 taxmann.com 320) (SC). 20. We have heard both the parties and perused the material on record. The main contention of the ld. DR is that assessee cannot be granted exemption u/s. 11 on the reason that assessee has paid huge commission to middle men to bring students to assessee s institution. The next contention is that there was huge surplus earned by assessee which shows that assessee is involved in business activities and hence exemption u/s. 11 should be denied to the assessee. 21. In the present case, the assessee is an education institution and there is no denial by the department that assessee has carried out education activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of Kamanahalli, Bangalore regarding admission of a student Jessna Fernandez for MSc programme. Down below in the same letter there is a figure of 10 is mentioned, which is showing the amount of commission paid by the assessee to him. Similarly as per Page 49 of same annexure, there is a letter sent by P N Shilesh, an agent, stating admission of two of students and requesting a commission of ₹ 10,000/-. Similar details are appearing from Page No.40-42 of the same annexure in respect of admission agent Digvijay to whom significant amount has been paid by the assessee in cash. 9.2 During the course of post survey enquiries this Office has confronted these issues to the Secretary, ShrLPremanth Reddy in his statement on oath on 28-06-2012 and his explanation was sought to the specific payment of commission, as appearing in page no.40,41,42,50, and 51 of annexure 49/AIT/JMJ and whether the same was reflected in the books of accounts. Shri Premnath Reddy very clearly and categorically stated that some of the payment of commission is made in cash, and it is not recorded in the books of accounts and no TDS have been made on them. For clarity-the relevant extract of his stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Harish and Girish (Shilesh) are mentioned, about which you have already confirmed making some payments in the foregoing questions of this statements. Please go through the sheet and confirm the transaction. Ans. These are details of money collected by the agents from the students. Q.37 do you accept that all these people are your consultants agents. Ans. Yes. Q.39 can you please confirm whether the payments appearing in the sheet as per question No.36 is recorded in the regular books of accounts? Ans. I will verify and will give my reply on 02-07-2012. Q.40 I am showing you page No.40, 41 and 42 of the same annexure which is the details of students brought by agent Digvijay. These pages are showing payment of ₹ 2,35,OOO/- + ₹ 1,15,OOO/-. Can you please go through these sheets and confirm the payments made to him. Ans. I gone through these papers. As per page No.42 we have paid a sum of ₹ 1,35,OOO/- to Digvijay which is written in red ink. As per page 41 we have paid a sum of ₹ 95,OOO/- to digvijay which is written with the pencil. Q.41 can you please confirm whether payments made to Digvijay of ₹ 1,35,OOO/- + & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the open market with the help of the agents/consultants to the vulnerable students charging huge fees including a portion towards commission. The students and their parents are exploited in guise of imparting education. Even though imparting of education in itself is a charitable activity u/s.2(15) of I.T.Act, in the instant case the education is commercially exploited and cannot be classified as charitable u/s.2(15) of LT. Act. 24. The ld.AR pointed out that in the assessment years under consideration, there was no addition towards payment of huge commission to agents/brokers. It is also noted that exemption u/s. 11 was not denied to the assessee on the reason of payment of huge commission to brokers / agents. The material gathered by the department during the course of survey marked as 49/AIT/JMJ is not relevant to the assessment years under consideration. The AO referred to page 51 of impounded Annexure 49/AIT/JMJ which is a letter dated 16.11.2011 written by Joe Sebastian requesting for release of service charge for admission of student K.P. Avasthy, who has taken admission not in these assessment years under consideration i.e., AY 2010-11 relevant to FY ending on 31.3.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing so, there was no addition in this regard in these assessment years under consideration. There is no question of denial of exemption u/s. 11. Therefore, the ground raised by the revenue with regard to granting exemption u/s. 11 12 though assessee has paid huge commission to agent/middle men to bring students to the institution is misconceived. Accordingly this ground of appeal is dismissed. 27. The next objection is that assessee earned surplus in carrying out educational activities. As rightly pointed out by the ld. AR, as held in Queens Education Society (supra), 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. 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. 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 imparting education. As noted earlier, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty does not necessarily mean that there is a profit motive. Such a view has been held in the following cases: (i) CIT v. Manav Mangal Society 328 ITR 421 (ii) Sri Krishna Education Welfare Trust 5 ITR (Trib) 750 (iii) Vanitha Vishram Trust v. CCIT 327 ITR 121. Therefore, it is incorrect to state that the assessee is not existing for educational purposes but is existing for profit. Being so, the assessee being education institution is to be considered to be existing solely for education purposes only. 30. In the decisions cited by the ld. AR, in the case of Queens Educational Society v. CIT, 55 taxmann.com 255 (SC), the assessee society was engaged in imparting education and had to maintain a teaching and non-teaching staff and had to pay for their salaries and other incidental expenses. It, therefore, became necessary to charge certain fee from the students for meeting all these expenses. The assessee filed its return claiming exemption of income under section 10(23C)(iiiad). The AO found that assessee had generated some surplus during relevant years. He thus taking a view that assessee-society was running educational institution with profit motive, rejected asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seeking exemption under section 10(23C)(vi). The Commissioner taking into account extremely high fee charged by assessee from students, opined that it was not existing solely for educational purpose. He thus rejected assessee's application. The Hon ble High Court of Karnataka Gujarat High Court held that generating certain incidental surplus after carrying out educational activities by itself would not indicate that trust existed for profit purpose and, thus, application filed by said trust for exemption of income under section 10(23C)(vi) cannot be rejected on aforesaid basis. 33. In DIT (Exemptions) v. Delhi Public Schools Society,[2018] 100 taxmann.com 370 (SC) , a ssessee-society was set up with main object to establish educational institutions and had been enjoying exemption under section 10(22) since AY 1977-78. In view of substitution of section 10(22) with section 10(23C)(vi) with effect from 1.4.1999, assessee applied for approval of exemption under section 10(23C)(vi) for AY 2008-09 onwards. The Additional Director rejected the application on grounds that assessee had entered into franchise agreements for opening schools and franchisee fee received by it from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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