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TMI Blog2023 (3) TMI 562X X X X Extracts X X X X X X X X Extracts X X X X ..... ommon order by adverting to facts from the Writ Petition No. 8518 of 2009 for brevity. 2. The petitioners, the present trustees of the American School of Bombay Education Trust, ('ASB' for short) have filed the present petition to set aside the impugned order dated 27th February 2009 passed by respondent no.4 and to direct the respondents to grant them the exemption to the income that was rejected by the impugned order under Section (u/s) 10(23C)(vi) of the Income Tax Act, 1961 (the Act) in relation to Assessment Year (A.Y.) 2002-03 to A.Y. 2005-06. 3. The ASB is constituted under the Indian Trusts Act, 1882, vide the trust deed, as amended in July-1995 and August-2008. The ASB was set up after the embassy of the United States of America was granted specific permission by the Ministry of External Affairs, New Delhi. The Trust is set-up solely for the purpose of education and not for the purpose of profit. The relevant extract of the recital of the Trust Deed is reiterated as under- "A. The Settlor is desirous of establishing and / or conducting a school or other institution to provide education training and discipline to the beneficiaries under these presents and for providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit foundation u/s. 501(c)(3) of the Internal Revenue Code. 6. SAIESF would incur various expenses in support of ASB, i.e. school material and freight, salaries of teachers and administrators, education grants, etc. The surplus if any, arising from time to time was entirely repatriated to the Petitioners in India and, thereafter, invested by the Petitioners in accordance with the provisions of section 11(5) of the Act. The fact SAIESF was formed for the sole purpose of assisting and supporting ASB and the entire expenses incurred by SAIESF were towards the educational purpose of ASB has been certified by the Consulate General of the United States, Mumbai, vide his letter dated April 3, 2007. Copy of the accounts of SAIESF and vouchers (along with bank statements) have been furnished to the Tax Authorities during the Assessment / Appellate proceedings. 7. ASB had applied for an exemption under Section 10(23C) (vi) and had been granted u/s 10(22) of the Act for assessment years for the years 1998-99 to 2001-02 and 2006-07 to 2026-27. Sr.No. A.Y. Particulars 1 1998-99 Exemption under section 10(22) of the Act upheld by the ITAT, Mumbai, vide order dated 28 November 2018 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case for A.Y.1999-2000 to A.Y. 2001-02 in [Writ Petition No.2186 of 2014 and CM No.4561 of 2015] wherein the petitioner challenged the CBDT order dated 29th October 2013. This was pursuant to the directions of the Delhi High Court in Writ Petition No.10579 of 2009 dated 20th January 2011, to adjudicate the petitioner's application for exemption u/s 10(23C)(vi) of the Act, afresh based on the principles that have been laid down by the Hon'ble Supreme Court in the case of American Hotel (supra). 11. Learned Senior Counsel further submitted that once it is established that ASB / the petitioners exists to provide education and not for profit, the exemption u/s 10(22) (omitted w.e.f. 1.4.1999) and section 10(23C)(vi) (inserted w.e.f. 1.4.1999) of the Act cannot be denied. 12. It is submitted at the time of the application for exemption under section 10(23C)(vi) of the Act, the scope of verification at the stage of registration is limited, as observed by the Hon'ble Supreme Court, in the case of American Hotel & Lodging Association, Educational Institute v/s. CBDT (2008) 170 Taxman 306 (SC). The Court noted that the threshold condition for granting approval u/s. 10(23C) (vi) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 10(22) as it stood at the relevant time. It is in this context that the 'words' existing solely for educational purposes and not for the purposes of profit" in section 10(22), which words also find place in section 10(23C)(vi), came for consideration. This Court held that the location of the University is not relevant, what is relevant is - whether there is imparting of education in India. Therefore, the test formulated by this Court to decide the character of the recipient of income under section 10(22) is whether there is in fact existence of an activity which is the nature of "imparting of education in India". This is how the 'words' in India" have come into judgment and not by incorporation from section 11(1)(a) of 1961 Act as contended on behalf of the Department. 32. We shall now consider the effect of insertion of provisos to section 10(23C)(vi) vide Finance Act, 1998. section 10(23C)(vi) is analogous to section 10(22). To that extent, the judgments of this Court as applicable to section 10(22) would equally apply to section 10(23C)(vi). The problem arises with the insertion of the provisos to section 10(23C)(vi) with the insertion of the provisos to section 10(23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for deciding this appeal is the thirteenth proviso. Under that proviso, the circumstances are given under which the prescribed authority is empowered to withdraw the approval earlier granted. Under that proviso, if the prescribed authority is satisfied that the trust, fund, university or other educational institution etc. has not applied its income in accordance with the third proviso or if it finds that such institution, trust or fund etc. has not invested / deposited its funds in accordance with the third proviso or that the activities of such funds or institution or trust etc., are not genuine or that its activities are not being carried out in accordance with the conditions subject to while approval is granted then the prescribed authority is empowered to withdraw the approval earlier granted after complying with the procedure mentioned therein. 33. Having analyzed the provisos to section 10(23C)(vi) one finds that there is a difference between stipulation of conditions and compliance thereof. The threshold conditions are actual existence of an educational institution and approval of the prescribed authority for which every applicant has to move an application in the standar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not applicable to the present case as the decision would be applied prospectively and not retrospectively. 16. The learned counsel for the petitioner submitted that at the time of granting exemption u/s 10(23C)(vi) of the Act, the scope of verification is confined to ascertaining the trust or institution's existence solely for education purpose and not for profit; and that the monitoring conditions pertaining to the application of income; investment of surplus in prescribed modes are to be verified only at a later stage. The learned counsel also submitted as under: (i) SAIESF, which exists as a separate trust in the USA, has had its accounts compiled by the Certified Public Accountant ("CPA") in accordance with the statements on standards for accounting and review services issued by the American Institute of Certified Public Accountants. Further, SAIESF was not required to get its accounts audited under the domestic tax laws of the USA. (ii) The accounts of SAIESF were subjected to detailed scrutiny by the Internal Revenue Services ("IRS"), Government of USA. By an order dated 1st February 2001, based on the said scrutiny, IRS has approved SAIESF as a not for profit foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence Educational Society (Regd.) v/s. CIT (2011) 197 Taxman 504 (Delhi) 6) DIT (Exemption) v/s. Delhi Public School Society (2018) 92 Taxmann.com 132 (Delhi) 19. The Petitioner was held to be an educational institution and existing solely for education purposes and not for profit was examined in detail by the Income-tax Appellate Tribunal (hereinafter referred to as "Tribunal"), Mumbai, vide order dated 28 November 2018. The revenue raised similar contention: the Petitioner has not produced the books of accounts; the Petitioner is unable to produce any evidence retaining to correctness of its accounts of SAISEF and the books of accounts of SAISEF have not been audited by the Revenue. The Hon'ble Tribunal, following the decision of the Hon'ble Supreme Court in the case of American Hotel (supra), has observed that ASB is an educational institution existing solely for educational purposes and not for profit. The order of the Hon'ble Tribunal, Mumbai, has been accepted by the Tax Authorities, and no appeal has been filed till date against the same before this Hon'ble High Court by the Tax Authorities. Hence, the Department has accepted that the Petitioner is wholly and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of those receipts and balance was being repatriated to India. It is pertinent to note that this arrangement continued till mid 2004. Thereafter, the entire receipts were received in India. .... ... But before that date, the special arrangement whereby a part of the receipts were being received abroad has led to the present complication for various reasons. ...." "8. ... In the case of American Hotel Lodging Association Education Institution, ... the entire receipts were being first received in India. Part of this was being spent in India and the balance was being repatriated abroad. The Hon'ble Supreme Court rejected the argument of the Department that all the expenses should be incurred in India. The Hon'ble Court held that the Department is not correct to introduce the word "India" into the third proviso to section 10(23C) of the IT Act. The plain words of the said proviso do not require the application of the entire income to be in India. According to the Hon'ble Court, it is open to the prescribed authority to stipulate, while granting approval, that the approval is given subject to utilization of a certain percentage of income in the accounts for imparting edu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for educational purposes and the funds are invested in the prescribed manner." ".... Secondly, a situation like this where a part of the receipts are received outside India and a portion of that is also spent outside India has never been envisaged in the provisions of section 10(23C) (vi) of the Act. A plain reading of the section would clearly show that this provision is meant for institutions where it is possible to examine the accounts properly to ensure that income is properly applied for educational purposes and the funds are invested in the prescribed manner." We disagree with the respondent no.4 on the following observation: "A complicated situation like that of the applicant where a portion is received outside India and expenditure is incurred outside and then a substantial amount is repatriated to India as mentioned in paragraph 4(iii) was never contemplated in law. In this case, it is impossible to conduct transnational verification, examine law and practice of other countries and then to check what amounts are received outside and how they have been spent etc. The record shows the serious problem faced by the assessing officer. In the return then by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the said case has held that at the time of considering the application for approval under Section 10(23C)(vi) of the Act, the Commissioner should confine the enquiry ordinarily to the nature of income earned and whether it is for education or education related objects of the society or the trust. There is no doubt that even after the ruling in the New Noble Education Society's (supra) case, verification of expenditure is contemplated at the initial stage of approval. 30. In our view, the respondents can be concerned only with the application of income in the hands of ASB/the petitioners once received in India. This is because in the present case, ASB/the Petitioners are not transferring/repatriating any money outside India to any person or entity. Therefore, in our view the respondents can have absolutely no concern about the receipts and expenses made by an entity outside the country merely because it is transferring its surplus or even a portion thereof to an entity in India. In this case, the petitioners inasmuch as it would strictly be the concern between the person or entity transferring the surplus and the authorities of that country. Furthermore, it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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