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TMI Blog2021 (11) TMI 382X X X X Extracts X X X X X X X X Extracts X X X X ..... of the additions made by the CIT (Appeals) before the Tribunal, whereas reference was made to the provisions of Section 13(1)(c) of the Act only to draw support for denying exemption under Section 11 of the Act. The Tribunal has rightly rejected the plea of the revenue as bereft of merit. The alleged breach of Section 13(1)(c) of the Act based on these factors is baseless, wholly untenable. Whether collection of capitation fees in the name of voluntary contribution and general of huge surplus would tantamount to commercialization of education by the assessee and, therefore, the assessee institution was rightly not considered by the Assessing Officer as existing solely for educational purposes within the meaning of Section 2(15) or Section 10(23)(c) ? - It is not in dispute that the assessee is imparting education, as such proviso to Section 2(15) of the Act introduced by the Finance Act, 2008 would not be applicable. At this juncture, it would be profitable to refer to the Circular No.11/2008 dated 19.12.2008 issued by CBDT. Having regard to the proviso inserted to Section 2(15) amended vide Finance Act, 2008 wherein, it has been clarified that the newly inserted proviso t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anmathi, Adv.) Respondent (Common) (By Sri V. Chandrashekar, Adv. A/W Sri S. Annamalai, Adv. For Sri M. Lava, Adv.) J U D G M E N T S. SUJATHA, J., These appeals are filed by the revenue under Section 260A of the Income Tax Act, 1961 ( Act for short) challenging the common order of the Income Tax Appellate Tribunal, Bangalore Bench B , Bangalore, dated 30.12.2014 in ITA Nos.125 126/Bang/2014 relating to the assessment years 2009-10 and 2010-11. 2. These appeals were admitted by this Court to consider the following substantial questions of law:- 1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that there was no violation of Section 13(1)(c) of the Income Tax Act, 1961, while not considering the facts and material brought on record by the Assessing Officer for the period in question; and the Tribunal has erred in not adjudicating on the issue of denial of deduction in its proper perspective? 2. Whether collection of capitation fees in the name of voluntary contribution and general of huge surplus would tantamount to commercialization of education by the assessee and, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Being aggrieved, the revenue preferred appeals before the Tribunal, the same having been dismissed, these appeals are preferred by the revenue. 5. Learned counsel for the revenue argued that the Tribunal failed to appreciate that the assessee had violated the provisions of Section 13(1)(c) of the Act and therefore, the assessee is not entitled to claim exemption under Sections 11, 12 and 13 of the Act. The two trustees namely, Sri. Suresh Nagpal and Smt. Geetha Nagpal were paying remuneration/salary not in proportionate to the pay-scales of a professor and administrative officer respectively. Smt. Geetha Nagpal had not rendered any services for which she was remunerated. It was only diversion of funds of the assessee trust. The breach of Section 13(1)(c) being apparent, the Tribunal ought to have allowed the appeal filed by the revenue. The assessee collecting the capitation fee in the garb of voluntary contribution amounts to commercial activities. Such institutions cannot be considered as charitable institutions within the meaning of Section 2(15) of the Act. 6. Learned counsel for the assessee justifying the impugned order submitted that mere existence of surplus does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive staffs. In other words, the department cannot manage or control the managerial affairs of the educational trust. These aspects would not come within the purview of the authorities to decide the income tax liability merely on suspicion that the assessee is claiming huge expenditures to get the corresponding benefits of allowable deductions. No grounds are raised by the revenue relating to the deletion of the additions made by the CIT (Appeals) before the Tribunal, whereas reference was made to the provisions of Section 13(1)(c) of the Act only to draw support for denying exemption under Section 11 of the Act. The Tribunal has rightly rejected the plea of the revenue as bereft of merit. The alleged breach of Section 13(1)(c) of the Act based on these factors is baseless, wholly untenable. Thus, we answer the substantial question of law No.1 in favour of the assessee and against the revenue. Re. Substantial Question of Law No.2. 10. Section 2(15) of the Act reads thus 2(15) Charitable purpose includes relief of the poor, education, yoga, medical relief, preservation of environment (including water-sheds, forests and wildlife) and preservation of monuments or places ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering Section 13(1)(d) of the Act has held that it is only the income from such investment or deposit which has been made in violation of Section 11(5) of the Act that is liable to be taxed and that the violation under Section 13(1)(d) does not tantamount to denial of exemption under Section 11 on the total income of the assessee. Reference has been made to the judgment of the Hon ble Bombay High Court in the case of DIT (Exemptions) vs. Sheth Mafatlal Gangalbhai Foundation Trust reported in (2001) 249 ITR 533 (Bombay), wherein the question whether violation of Section 11(5) read with Section 13(1)(d) by the assesseetrust attracts the maximum marginal rate of tax and the entire income of the trust? was considered and held that in case of contravention of Section 13(1)(d), the maximum marginal rate of tax under Section 164(2), proviso is applicable only to that part of income of the trust which has forfeited exemption and not the entire income. The Hon ble Delhi High Court in the case of DIT (Exemption) vs. Agrim Charan Foundation reported in (2002) 253 ITR 593 (Delhi) has held that the legislature has clearly contemplated that in a case, where the whole or part of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or institution is, relief to the poor, education or medical relief, it will constitute charitable purpose even if it incidentally involves in carrying of commercial activities. 17. The Hon ble High Court of Gujarat in the case of Director of Income Tax (Exemption) vs. Sabarmati Ashram Gaushala Trust reported in (2014) 223 Taxman 43 has held that where generation of surplus would not render the activity as being in the nature of trade, commerce or business, there was no intention to make profits in the activities of the trust and the assessee was entitled to exemption under Section 11 of the Act. 18. The breach of Section 13(1)(c) of the Act as alleged by the department is based on the remuneration paid to the two trustees namely, Sri. Suresh Nagpal and Smt. Geetha Nagpal treating that the amounts were diverted by the assessee trust to the said trustees in the guise of commission and professional income of the trustees. Similarly, the assessing officer has regarded the income of the trust being diverted and the cash deposits in the bank accounts of the trustees namely, Sri. Suresh Nagpal and Smt. Geetha Nagpal have remained unexplained which has been deleted by the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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