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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 ..... ctivity 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 in providing educational facilities to the society at large and for this purpose has put up various educational institutions. There was a survey in the case of assessee u/s 133A of the Act on 26.06.2012. During the course of survey, various incriminating documents, loose papers, diaries etc. were found and impounded u/s. 133A which primarily shows that assessee is collecting donations/contributions, development fees from the students. It also indicated payment of agency commission to the middle men who brings students for admission to different cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee went in appeal before the CIT(Appeals). 4. The CIT(Appeals) on the payments made to agents or brokers, impounded material 49/AIT/JMJ and statements recorded from the Secretary was of the view that material impounded relates to FY 2011-12 which has implication for AY 2012-13 and not to present AYs 2010-11 & 2011-12. Hence the CIT(A) held that the conclusion drawn by the AO with regard to denial of exemption on grounds of payment of commission to agents and collection of development fee was not proper. 5. The next ground on which exemption u/s. 11 was denied by the AO was on the reason of surplus income year after year. The AO held that due to huge generation of surplus, the assessee society was hit by provisions of section 2(15) and accordingly not entitled to exemption u/s. 11. The assessee submitted before the CIT(A) that though there was generation of surplus year after year, the entire amount has been redeployed for the objects of the trust only and drew attention to the financial statements in this regard. It was contended that if there is surplus generated and the same is utilized for the objects of the trust, then the trust is entitled for exemption u/s. 11. Reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reputed educational institution in Karnataka State. Her contribution is wide spread in all facets. Apart from academic responsibilities, she is also an active member of Bangalore University in various Committees and facilitated with Women of the Decade by I-News & JMC Communications, Hyderabad in 2010. Therefore, CIT(A) held that remuneration paid to her was at par with educational institutions run by the society. 8. With regard to providing rental payment to the accommodation to Secretary and family members with telephone, it was contended by the assessee that residence is at the heart of the city being used as City office to carry on various meetings with regulatory authorities and discussions with those who give lectures to the institution. The college is located in far end of the city in a remote location where the stakeholders expressed their difficulties to reach the campus location. More over all the offices of the regulatory authorities are situated within the City to address the concerns and to facilitate smoothing functioning of institutions. To deal with domain experts in various fields, tie ups with universities, etc. within India and abroad for R&D programs, the Secr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the associated institution. He held that the AO has not conclusively demonstrated that the deposits made have been source by the assessee society and therefore deleted the addition. 13. On the purchase of land by Shri Premnath Reddy, the AO made an addition of Rs. 9,75,000. The assessee submitted that there are no properties into which investment is made. The advance is actually given by the trust towards purchase of agricultural land directly to the vendors and for AY 2010-11 the amount paid Rs. 13 lakhs as advance for which copies of land advance in the books of account of assessee was furnished. The CIT(A) observed that there was no discussion in the order regarding the basis of addition as contended by the assessee and deleted the addition. 14. Similar is the position for the AY 2010-11. 15. Now the revenue is in appeals before us only with regard to granting exemption u/s. 11 & 12 of the Act, though there was payment of huge commission to agents or middle men to bring students to the institution against the spirit of imparting education with commercial benefit. The ld. DR submitted that seized material 49/AIT/JMJ shows the payment of commission to various agents who brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . According to the ld. DR, there is ample material on record to establish that assessee trust had indulged in various business activities and could not be said to be existing solely for education purposes. It rendered various profitable activities which is for the benefit of trustees and their relatives and huge money has been transferred for their personal benefit, as such no benefit of exemption u/s. 11 can be granted to the assessee. She relied on the judgment of the Hon'ble High Court of Karnataka in the case of Navodaya Education Trust v. UOI, 405 ITR 30 (Karn) wherein it was held that where assessee trust registered u/s. 12AA was running various educational institutions, in view of the fact that assessee collected capitation fee from students for admission to medical college, withdrawal of exemption u/s. 10(23c)(vi) did not require any interference. With regard to the second ground that there was huge surplus earned by the assessee year after year which showed that assessee was engaged in profitable activities, as such she submitted that assessee is not entitled for exemption u/s. 11 of the Act. She also relied on the judgment of Hon'ble High Court of Karnataka in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has carried out education activities as predominant activity and in the course of carrying out predominant object of imparting education, the assessee incidentally earned surplus. The question is whether it can lead to conclusion that assessee ceased to solely exist for education purposes and becomes an institution for the purpose of making profit? 22. We have carefully gone through the activities carried on by the assessee for the assessment years under consideration. It is admitted by the AO that assessee is running following institutions:- 1. Acharya Institute of Technology 2. Acharya Polytechnic 3. Acharya & B M Reddy College of Pharmacy 4. Acharya's N R Institute of Nursing 5. Acharya College of Education 6. Acharya Institute of Fashion Technology 7. Acharya Institute of Graduate Studies 8. Acharya Pre-University College 9. Acharya Hostels 23. The A.O. recorded the finding on payment of commission to the consultants / agents in para 9 of the assessment order relating to assessment year 2010-2011, as follows:- "9 Commercialization of Education & Payment of Commission/Consultation Charges to Agents. It was gathered that the commission is paid to person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement on oath is reproduced as hereunder. Q.30 I am showing you Page NO.51 of impounded annexure 49/AIT/JMJ which is a letter dated 16-11-2011 written by Joe Joe Sebastian, apparently from Bangalore requesting for release of service charge for admission of the students he has also written name of student as K P Avasthi please go through it and explain the transaction? Ans. I do not know this person. We might not have paid any amount. Q.31 Can you confirm to me whether admission of this boy K.P. ASwathi has been done in any programme at your colleges and whether any amount is paid to Joe Sebastian? Ans. The student might have taken admission. About the payment I will check up and confirm by 02-07-2012. Q.32 I am showing you another letter as per Page No.50 of the same annexure which is dated 19-01-2012 written by one Dr.Harish from Kamanahalli, Bangalore requesting for commission as regards admission of one student Jessena Fernandys a student of M.Sc in your college who took admission in 09-06-2011. Down below in the same letter a figure of "10K" is written in red ink indicating payment of Rs. 10,000/- to him please go through this paper and confirm the transaction? Ans. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e give a slip to the accounts department and on the basis of that payments are made to the agent. Q.43 I am showing you page No.35, 36, 37 & 38 of the same annexure as per which representation agreement has been prepared with different persons who are suppose to act as your consultants/agents for admission purposes at different places namely Jharkand, Kerala, Assam and Tripura etc. can you please go through the contents of these pages and confirm your activities with these persons. Ans. These are standard agreement formats for the people who are working for us in different states. Q.44 on the basis of your above statement, do you accept that agents were helping you in getting students for admission and in turn you are paying them commission or service charges etc. accordingly the educational activities were being run on commercial principles. Ans. Earlier I was myself going to different states and cities and we use to give advertisement in the newspaper and use to admit the students. However this was working out to be little costlier and therefore from last four years we have ask these persons to bring students to us and we are paying them per a student basis for a sum of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requesting payment of commission of Rs. 10,000 for admission of student by name Jessena Fernandes on 9.6.2011 for M.Sc is also not under the assessment years under consideration. The next material of same Annexure 49/AIT/JMJ is letter dated 27.8.2011 written by P.N. Silesh stating that he has arranged for admission of 2 students in the academic year 2011-12 and requesting for payment of commission of Rs. 10,000, which is also not relevant to the assessment years under consideration. Page 48 of the impounded material dated 22.9.2011 written by Rafeeq M. mentioning admission of 8 students requesting for service charges, this material is also not relating to assessment years under consideration. Page 47 of Annexure 49/AIT/JMJ which shows payment details to various agents for admission is for FY 2011-12. In this, names of Rafeeq, Dr. Harish & Girish (Silesh) are mentioned. This material is also not relating to assessment years under consideration. In pages 35, 36, 37, 38, 40, 41 & 42 of the impounded material, we don't find any dates and hence we are not in a position to consider the same to the AY to which it relates. 26. The reasons as to why the Assessing Officer has concluded that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Gross receipts 68.05 crores 57.40 crores Expenditure towards education 46.08 crores 56.03 crores Surplus 21.96 crores 19.17 crores 28. For clarity, we reproduce the Income & Expenditure account hereunder:- 29. Thus, it shows that the surplus earned by the assessee in these assessment years is incidental while carrying out the main objects of the assessee trust. Further, it is noted that surplus generated has been ploughed back for educational purposes only. The dominant objective is to impart education and not to make profits. The surplus arising is incidental. The excess of income by itself does not lead to an inference of profit motive. In this connection useful reference can be made to the judgment of Punjab & Haryana High Court in the case of Maharaja Krishna Kapoor Educational Charitable Trust and Management Society v.Union of India 326 ITR 385 in which the High Court has also considered the case of Queens Educational Society (Referred by the Assessing Officer in her order) as also the case of Children Book Trust. Further in the case of Pinegrove International Charitable Trust v. Union of India 327 ITR 73 it was held following the Supreme Court judgment in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see's claim for exemption. The High Court, however, relying upon the order passed in the case of Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310 (SC), restored the order passed by AO. The Hon'ble Supreme Court held that where a surplus was made by educational institution which was ploughed back for educational purposes, said institution was to be held to be existed solely for educational purpose and not for purpose of profit. This judgment in Queens Educational Society (supra) was followed and similarly held in the case of CCIT v. St. Peter's Educational Society, 70 taxmann.com 171 (SC). 31. In ACIT(E) v. Mahima Shiksha Samiti [2017] 79 taxmann.com 38 (Jaipur Trib.) the facts were that the assessee was a registered society having main objects of setting up of educational institutions and operating them for the promotion of education. The assessee claimed exemption under section 11(1)(a). The AO denied exemption holding that assessee did not fall within the ambit of the term education as defined under section 2(15) and that assessee had generated systematic surplus, year on year, which established that it was running educational institutions with profit motive, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nchisee fee from satellite schools were fed back into maintenance and management of schools themselves, assessee had fulfilled requirements to qualify for exemption under section 10(23C)(vi). The Hon'ble Supreme Court dismissed SLP against High Court ruling that where assessee society was set up with object of imparting education and it had entered into franchise agreements with satellite schools and also used gains arising out of these agreements in form of franchisee fees for furtherance of educational purposes, it fulfilled requirements to qualify for exemption under section 10(23C)(vi). 34. The ld. DR relied on the judgment of the Hon'ble High Court of Karnataka in the case of Navodaya Education Trust v. UOI, 405 ITR 30 (Karn) wherein it was held that where assessee trust registered u/s. 12AA was running various educational institutions, in view of the fact that it collected capitation fee from students for admission to medical college, withdrawal of exemption u/s. 10(23c)(vi) did not require any interference. The reliance placed by the ld. CIT(DR) is totally misconceived as the AO himself recorded in the assessment order in para 8.11 as follows:- "However no action is warr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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