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TMI Blog2024 (7) TMI 350X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act is that the usage of the phrase wholly relates to the purposes and not to the property of the trust. The word wholly is strikingly different from the word mainly . Rather, the former should be understood to be closely akin to the phrase solely . Put otherwise, there is no scope for the purposes being partially public or religious in nature. It would not be sufficient if some of the objects are charitable or religious in nature. In the present case undisputedly, the assessee has engaged itself in charging capitation fee which is dehors the objective of the charitable trust. Therefore, the claim of the assessee for exemption as per Section 11 and 12 of the Act does not hold any water. In view of the aforenoted pronouncements of law, the ITAT has wrongly sustained the exemption claimed by the assessee. Lastly, it is seen that the ITAT has placed reliance on the decision of the ITSC in the assessee s own case for the other AYs for computing the excess of income over the expenditure. It is however trite that the order of the ITSC is final and conclusive for a particular AY for which the application has been filed. Accordingly, in view of the aforesaid, the impugned order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016 to 699/2016 are stated to be pending before this Court. 5. It appears that on 27 June 2013, a search under Section 132 of the Act was conducted in the case of Santosh Group, including the case of the assessee. During the course of search, it was found that the said group charged capitation fee for admission in the concerned courses and such fee did not find any mention in the ITR. Consequently, the reassessment proceedings were initiated by the AO under Section 147/148 of the Act and a notice pursuant thereto under Section 148 was served upon the assessee after recording reasons to believe. 6. The assessee filed a reply to the aforesaid notice submitting that the ITR which was originally filed on 31 October 2007 may be treated as ITR filed in response to the notice under Section 148 of the Act. Resultantly, a notice dated 10 October 2014 was issued under Section 143 (2) of the Act. Vide letter dated 24 November 2014, the assessee raised objections against the said notice, however, the same came to be disposed of as rejected on 2 February 2015. 7. Thereafter, an assessment order under Section 143 (3) read with Section 148 of the Act was framed by the AO on 19 March 2015. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is doing a charitable activity. iii. The CIT(A) had rightly applied the ratio of the ITSC to set off the amount of ₹3,00,00,000/-. 10. It is in the aforesaid factual backdrop that the Revenue seeks to ventilate its grievance against the order of the ITAT. 11. The record would reflect that the notice was issued to the assessee on the first date of hearing i.e., 8 December 2023. On the following date of hearing i.e., 5 March 2024, since the assessee remained unrepresented, Mr. Ruchir Bhatia, learned senior standing counsel appearing on behalf of the Revenue was directed to file an affidavit of service. Pursuant to the said order, the affidavit of service was duly placed before us on 13 May 2024 and consequently, the appeal was formally admitted by this Court. The relevant extract of the order dated 13 May 2024 is reproduced as under:- 3. Having heard Mr. Bhatia, learned counsel appearing in support of the appeal, we formally admit this appeal on the following questions of law: 2.1 Whether the Income Tax Appellate Tribunal [ ITAT ] erred in law in quashing the notice under section 148 of the Income Tax Act, 1961 [ Act ] on ground of difference in quantum of income escapement as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be considered at the stage of reopening assessment proceedings, the jurisdiction assumed by the AO is valid and proper. He placed reliance on the decision of the Supreme Court in the cases of Phool Chand Bajrang Lal v. ITO [(1993) 4 SCC 77] and Raymond Woollen Mills Ltd. v. ITO [(1999) 236 ITR 34]. 14. On the aspect of exemption under Section 11 of the Act, Mr. Bhatia placed reliance on the judgment rendered by the Supreme Court in the case of T.M.A. Pai Foundation v. State of Karnataka [(2002) 8 SCC 481] to submit that the collection of capitation fee in lieu of admission cannot be considered to be a charitable function. He asserted that any institution which violates law prohibiting collection of capitation fees is not charitable in nature and thus, it is not entitled for exemption under Section 11 of the Act. 15. He contended that since the assessee is charging capitation fee, the said reason alone is sufficient to reach the conclusion that the activities of the assessee are not genuine and the assessee is not entitled to claim any benefit envisaged in Sections 11 and 12 of the Act. He also relied upon the decisions in the cases of P.A. Inamdar v. State of Maharashtra [(2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ITAT has seemingly relied upon the correctness and sufficiency of the material based upon which the reassessment proceedings have been initiated against the assessee. However, in our considered opinion, the said position is not countenanced in law. 20. Reliance may be placed upon the decision of the Supreme Court in the case of Sri Krishna Pvt. Ltd. (supra), whereby, it has been held that the establishment of escapement of income is not a condition precedent for reopening assessment. Rather, what needs to be reckoned at the stage of issuing notice under Section 148 of the Act is whether there exist any reason to believe that income has escaped assessment. The relevant extract of the said decision is reproduced hereunder as:- 9.--- It is necessary to reiterate that we are now at the stage of the validity of the notice under Sections 148/147. The enquiry at this stage is only to see whether there are reasonable grounds for the Income Tax Officer to believe and not whether the omission/failure and the escapement of income is established. It is necessary to keep this distinction in mind. 21. A similar view was taken by the Supreme Court in the case of Raymond Woollen (supra), where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons to initiate reassessment proceedings and the ITAT has erred in holding that the said proceedings were bad in law. It cannot be gainsaid that the difference in the quantum of capitation fee could not be a valid reason for setting aside the reassessment proceedings at the juncture of issuance of notice under Section 148 of the Act. Undeniably, the material seized by the Revenue and the admission made by P. Mahalingam, as already noted above, would constitute fresh tangible material which would warrant reassessment of the income of the assessee. Thus, the reopening of assessment ought not to have been interdicted by the ITAT vide the impugned order. 24. Further, the ITAT, on merits, has held that since the assessee is duly registered under Section 12A read with Section 10 (23C) (iv) of the Act and the registration is still valid, the assessee is entitled for claiming benefits as per the provisions of Section 11 of the Act. Paragraph no. 56 of the order of the ITAT is culled out as under: 56. Even otherwise on the merits of the case, it respect to the allowing the exemption u/s 11 of the income tax act we find that the assessee is registered u/s 12 A of the act as well as u/s 10 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the object, the whole trust would fail and no part of the income would be exempt from tax. The same view has been expressed by the Court of Appeal in Oxford Group v. Inland Revenue Commissioners [(1949) 2 All ER 537]. 27. In the landmark decision of TMA Pai Foundation (supra), the Supreme Court took a view that charging of capitation fee must be forbidden and the object of education is mandatorily charitable in nature. Paragraph no. 57 of the said decision is reproduced hereunder for reference:- 57. We, however, wish to emphasize one point, and that is that inasmuch as the occupation of education is, in a sense, regarded as charitable, the Government can provide regulations that will ensure excellence in education, while forbidding the charging of capitation fee and profiteering by the institution. Since the object of setting up an educational institution is by definition charitable , it is clear that an educational institution cannot charge such a fee as is not required for the purpose of fulfilling that object. To put it differently, in the establishment of an educational institution, the object should not be to make a profit, inasmuch as education is essentially charitable i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. Thus, it is clear that section 10 (23C) and section 11 deal with income that are not to be treated as part of total income. Section 10 (23C) exempts the income received by the institution existing solely for educational purposes provided that it is registered and applies its income, wholly and exclusively to the objects for which it is established. However, incidental profit if any received in the course of its educational activities shall not deprive the institution of its exemption. The provisions are explicit as the primary condition is that an institution must solely exist for educational purposes. Whereas, under section 11, though the object is same, it deals with income from property held by charitable or religious trusts. Section 11 of the Act states that income from property held for religious or charitable purposes shall not be included in the total income of the previous year. Section 12 deals with income of trusts or institutions from contributions. Any voluntary contribution received by such t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luntary contribution either directly or indirectly to the institution or through some other person or institution or trust, as quid pro quo for the seat in any educational institution, would render the activity of both the entities ungenuine. Such actions would render the object of charity a farce and the transaction will have to be treated as a commercial activity, depriving the assessees of the benefits of sections 11 and 12 of the Act. 30. Reverting to the facts of the present case, undisputedly, the assessee has engaged itself in charging capitation fee which is dehors the objective of the charitable trust. Therefore, the claim of the assessee for exemption as per Section 11 and 12 of the Act does not hold any water. In view of the aforenoted pronouncements of law, the ITAT has wrongly sustained the exemption claimed by the assessee. 31. Lastly, it is seen that the ITAT has placed reliance on the decision of the ITSC in the assessee s own case for the other AYs for computing the excess of income over the expenditure. It is however trite that the order of the ITSC is final and conclusive for a particular AY for which the application has been filed. The said position is reinforce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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