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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
Before: SH. ANIL CHATURVEDI & SH. ANUBHAV SHARMA
ORDER PER ANUBHAV SHARMA, JM :
The appellant has come in appeals against the order dated 31.03.2017 passed by the Learned Commissioner of Income Tax (Appeals)-I, Noida [in short ‘Ld. CIT(E)-I’] u/s 250 of the Income Tax Act, 1961 (hereinafter referred as “the Act”) being Appeal No.80/2015- 16/Noida (A.Y.2012-13) & 209/2015-16/Noida (A.Y. 2010-11).
Heard and perused the record. As directed by Bench on 08.02.2023, assessee has filed following revised grounds: 1. “That the Ld. CIT(A) has erred both in law as well as on the facts of the case in passing the impugned order without the authority of law vested in him. & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 2
2. That the acquisition of jurisdiction by the Ld. CIT(A) u/s 251 is itself bad in law for enhancing income by introducing a new ground not relevant to the grounds of appeal before him or to the assessment order.
3. That the Ld. CIT(A) has erred on facts and in law in failing to decide the appeal of the assessee on merits of the case and diverting the issue to irrelevancy on the basis of his own jejune imagination.
4. That the Ld. CIT(A) has erred on facts and in law in holding that education in consideration of any fee is not charity and thus the receipt of fee is independent activity liable to tax under SECTION 56 "INCOME FROM OTHER SOURCES without any deduction of expenses incurred for carrying out the same activity.
5. That the order of Ld. CIT(A) is perverse being self contradictory as well as contrary to the Act and registration granted by the Commissioner of Income Tax (Exemption) u/s 12AA read with S.2(15).
6. That the order of the Ld. CIT (A) is per incuriam, overriding the interpretation of law laid down by the Hon'ble Supreme Court that education is a charitable purpose under the Income Tax Act.
7. That the Ld. CIT(A) has erred in law and on facts in holding that the income of the Society/Educational Institution is not "income derived from property held in Society" within the meaning of S.11(1)(a).
8. That the Ld. CIT(A) has erred in law and on facts in holding that the fees collected by the Educational Institution from the students/their guardians is not voluntary contribution, but a contractual levy and payment.
9. That the Ld. CIT(A) has erred in law and on facts in disallowing application of expenses incurred for charitable purpose, while admitting the same to have been genuine incurred for the same.
10. The appellant denies his liability to tax as upheld by the learned CIT(A) and determined and computed by the learned assessing officer and the manner in which it has been so determined or computed. & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 3
11. The learned CIT (Appeals) has erred in law and on facts in sustaining the following additions which are impugned in this appeal: a. Rs. 19,40,343/- on account of surplus claimed as application of income b. Rs. 5,44,011/-on account of disallowing the claim of depreciation on fixed assets
12. That the Ld. CIT(A) has erred on facts and in law in enhancing the income of the assessee by Rs. 1,55,99,853/-, arbitrarily on the basis of conjecture and surmises, without any evidence on record with him.”
It was pointed out on the basis of the judgement of the Co- ordinate Bench in the case of Adarsh Public School vs. JCIT, order dated 31st January 2018 which has been followed in the case of Sunshine Educational Development Society vs. JCIT, ITA No.4727/Del/2017 order dated 16.12.2021 that the grounds raised stands covered in favour of the assessee by orders in favour of similarly situated in these two assessees. It was pointed out on the basis of the order of CIT(A)-1, Noida dated 30.03.2017 that in the case of present assessee and aforesaid referred assessees Sunshine Educational Development Society and Adarsh Public School, the Learned CIT(A) has passed similar orders on the same line of discussions.
Learned DR however, could not dispute the aforesaid facts emanating from the order of Learned CIT(A) in the case of present assessee and two assessees referred upon. In light of aforesaid, the Bench is inclined to concur and follow the findings of Learned Co- ordinate Benches wherein the issues have been decided by following observations. The extract from Para nos.18 to 20 in case of Sunshine Educational Development Society are reproduced : & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 4 “18. We find that exactly similar nature of finding was made by the same CIT(A) in the case of Adarsh Public School (supra) wherein the Tribunal has held in detail the issues involved in the entire findings which, for the sake of ready reference, are reproduced as under :- “The aforesaid appeal has been filed by the assessee against impugned order dated 30/03/2017 passed by the ld. CIT (Appeals)-I, NOIDA for the quantum of assessment passed u/s.143(3) for the Assessment Year 2011-12. The assessee has raised the following grounds of appeal.
1. The Ld. CIT (Appeal) has erred, in law, in issuing the notice u/s 251(2) of the I.T. Act 1961.
2. The Ld. CIT (Appeal) has erred, in law, in holding that income of educational institutions is to be dealt with for exemption from the incidence of tax u/s 10(23)(C) only and not under the provisions of sections 11 & 12 of the Act.
3. The Ld. CIT(Appeal) has erred, on facts & in law, in holding that income of the appellant society by way of fees & other charges from the students cannot be said to be income from property held under trust and therefore not eligible for exemption u/s 11 of the Act.
4. The Ld. CIT (Appeal) has erred, on facts & in law, in holding that cost of education cannot be recovered by educational institutions from the students by way of fees and therefore cannot be adjusted against the expenditure incurred.
5. The Ld. CIT (Appeal) has erred in holding that donations received by the appellant are not eligible to exemption being in violation of the provisions of section 11(1)(d) in as much as such observations have been made contrary to facts & without application of mind.
6. Without prejudice to above, the Ld. CIT (Appeal) has erred, on facts & in law, in holding that income of the appellant cannot be assessed under the head "Profits & gains from business or profession" even where exemption u/s 10 or 11 is not to be allowed.
7. Without prejudice to above, the Ld. CIT (Appeal) has erred, on facts & in law, in holding that income of the appellant has to be assessed under the residual head "Income from other sources" but the expenditure incurred for running the school cannot be allowed as deduction u/s 57.”
2. The brief facts of the case are that assessee is a society registered under ‘Registration of Societies Act, 1860’, which is carrying out educational activities upto Senior Secondary Level and a running school in the name of “Adarsh Public School” in NOIDA. Looking to its activities for “charitable purposes” in terms of section 2(15), i.e., ‘education’ it has been granted & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 5 registration u/s.12A by the Commissioner of Income Tax, Ghaziabad, vide certificate dated 05.09.2013. Accordingly, the assessee was entitled for benefits u/ss.11 & 12 of the IT Act. It has filed its return of income for the Assessment Year 2011-12 on 08.08.2011, declaring ‘NIL’ income after computing the income as per section 11. During the course of assessment proceedings, the Assessing Officer on perusal of the ITR and annexure thereto noted that, there is no audit report as required u/s.12A (b) in Form 10B. He observed that in absence of such report the benefit of Sections 11 & 12 cannot be allowed. In response to the show cause notice as to why claim of exemption should not be disallowed, the assessee vide letter dated 23.01.2014, filed a copy of Form 10B, however as per the AO, assessee did not give any explanation. The Assessing Officer on the perusal of the said audit report dated 18.07.2011 observed that, it appears to have been prepared recently and has been back dated just to show that this audit report was obtained in time. In support of his observation, he has pointed out certain discrepancies which have been highlighted at pages 2 to 3 of the assessment order. Thus, he denied the exemption u/ss.11 & 12 and taxed the surplus income of Rs.6,63,292/- in the following manner:- Gross receipts as per income and expenditure account disclosed by the assessee : Rs.1,04,85,689 (-) Application of income : Rs. 98,22,397 Taxable income : Rs. 6,32,292
3. Aggrieved by the said denial of benefit of Section 11 for the aforesaid reason and taxing of surplus, assessee preferred an appeal before the ld. CIT (A). However, the ld. CIT (A) vacated the finding and the reasoning of the Assessing Officer that audit report in form 10B is back dated and accepted the assessee’s contention on this aspect, but proceeded to issue a notice of enhancement u/s.251 (2) mainly on the following reasons:- (i) That mere registration u/s 12A of the Act is not enough for claiming exemption u/s 11 unless conditions specified in sections 11 to 13 are satisfied. According to him, the person claiming exemption must satisfy the condition specified u/s 11(1) to the effect that income, sought to be exempt, must be derived from property held under trust. In other words, income derived by it from an activity of running school cannot be said to be income from property held under trust in as much as such activity does not amount to be a property held under the trust. According to him, balance sheet of the assessee does not disclose any property from which any income is derived. & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 6 (ii) Since the appellant is not eligible for exemption u/s 11, therefore, the entire receipts by way of fees and other charges from the students would be treated as its income for the reasons that, firstly, since the appellant is not claiming any income u/s 28, therefore, the question of allowing any deduction incurred does not arise; and secondly, once the income is found to be not eligible for exemption u/s 11, the provisions of chapter IV-D would not apply.
4. Thereafter, the ld. CIT (A) discussed in detail the concept and theory of ‘charitable purposes’ as defined in Section 2(15) and conditions laid down in Sections 11 to 13 for granting of benefit. The detailed discussion on provision of law has been discussed from paragraphs 14 to 60 (pages 4 to 18 of the appellate order), which being of pure academic in nature, hence no discussion as such is required to be dealt with. He has also referred to following judgments and propositions laid down by the Hon'ble Apex Court: (i) ACIT vs. Surat Art & Silk Cloth Manufacturers Association, Surat, (1980) AIR 387 SC. (ii) Ms Mohini Jain Vs. State of Karnataka and Others, (1992) AIR 185 SC. (iii) Unnikrishnan J.P. & Ors. etc. vs. State of Andhra Pradesh & Ors. (1993) AIR 2178 SC (iv) TMA Pai Foundation & Ors. vs. State of Karnataka & Ors., (2002) 8 SCC 481 (v) Islamic Academy of Education & Anr. Vs. State of Karnataka & Ors. (2003) 6 SCC 697. (vi) PA Inamdar & Ors. State of Maharashtra & Ors. (2005) AIR 3226 SC.”
5. Ld. CIT (A) also discussed the provisions of Section 10(23C)(iv) & (v) and observed that, once the income of Educational institution are exempted u/s.10(23C), then legislature does not intend to give same benefit in Sections 11 & 12 again. According to him there is no conflict and overlapping between the provision contained in Sections 11 to 12 and Section 10(23C). On this ground, he held that assessee is not eligible for exemption u/ss.11 and 12, once the provision of Section 10(23C) (iv) and (v) are applicable. Thereafter referring to various judgments, he held that, since imparting of education is a matter of pure charity, therefore, the educational institutions are not permitted to receive or recover the cost of charity from its beneficiaries by way of charging fees. In other words, according to him, charging of fees would amount to uncharitable activities and in this context he has referred to the aforesaid judgments of Hon'ble Supreme Court. & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 7 In his exhaustive and elaborate order, he has discussed the entire concept of charity as enshrined in Section 2(15) and procedure laid down in Sections 11 to 13. However, the relevance for such an elaborate discussion does not seem to be appropriate on the facts of the assessee’s case. Interpreting the provision contained in Section 11, Ld. CIT (A) has gone to the extent of holding that the benefit is only available to a ‘Trust’, because the word used in Section 11(1)(a) is that, income should be derived from the property held under the trust wholly for charitable or religious purpose. Assessee being a society and is not a Trust, hence it is not entitled for benefit u/s.11. According to him, since sources of income are students, therefore, students cannot be reckoned as ‘property held under the trust’ and activity of imparting education also cannot be reckoned as property. In his view, self imposed obligation to do charity cannot be held to be property and donation receipt by the assessee cannot be held to be voluntarily. After making such observations he held that; Firstly, assessee is not entitled for benefit u/ss.11 and 12; Secondly, its income cannot be taxed as business income, albeit it has to be taxed as “income from other sources” u/s.56(1); and Lastly, the assessee is not entitled for any deduction against its income under the provision of Section 57 and accordingly the entire receipts of Rs.1,04,85,689/- would be taxed. Thus, the entire receipts stood taxed by the ld. CIT (A).
6. Before us the ld. counsel for the assessee, Mr. K. C. Singhal, after drawing our attention to the various observations of the ld. CIT(A), submitted that mainly three reasons have been given by the ld. CIT(A) to tax the entire receipts:- (i) Since the assessee is eligible for exemption under specific provision of Section 10(23C) then it cannot avail exemption under the general provision of Section 11; (ii) Income derived by the assessee from its activity of running school cannot said to be income derived from property held under the Trust; (iii) Charging of fees amounts to under charitable activities because educational institutions are not permitted to extract or recover the cost of charity from its beneficiaries by way of fees. & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 8
7. In support of the aforesaid reasoning, Ld. CIT (A) has referred to certain judgments of Hon'ble Supreme Court which according to learned counsel has no applicability at all on the facts of the assessee’s case, albeit in principle they support the case of the assessee. On the first issue he submitted that, now this issue stands directly covered in favour of the assessee by the judgment of Hon'ble Jurisdictional High Court in the case of CIT vs. Indian Institute of Engineering Society (2013) 218 Taxman 151 (Alld); and Punjab and Haryana High Court in the case of CIT vs. Mahasabha Gurukul Vidhaypeeth (2010) 326 ITR 26 ( P & H), wherein in both the judgments it has been held that claim u/s.11 cannot be denied merely because the assessee did not avail exemption u/s.10(23C). He further submitted that similar observation has been made by the Hon'ble Supreme Court in the case of CIT vs. Bar Council of Maharashtra, (1981) 130 ITR 28 (SC), wherein the Hon'ble Apex Court held that there are other allied provision like 10(23C) which clearly indicate that Legislature did not intend to Rule out Section 11 when exemption was claimable under specific provision of Section 10.
8. So far as the issue, whether income derived by the assessee from an activity of running school can be treated as income from property held under the trust or not, he submitted that section 2(24) defines the scope of ‘income’ which also refers to voluntary contribution received by the charitable trust or institution and Section 11(1)(d). Section 11(1)(d) refers to voluntary contribution received by the charitable trust which forms part of the corpus which legislature has considered to be capital receipt not chargeable to tax. Section 11 refers to voluntary contribution other than the ones falling u/s. 11(1)(d) thereby treating it as property held under the trust. Further, Section 11 envisages that revenue consideration shall be deemed to be income derived from property held under the Trust. Thus, ld. CIT (A) was incorrect in law in holding that contribution received by way of fees from the beneficiaries is not an income from the property held under the trust. He further referred to various judgments wherein it has been held that exemption cannot be disallowed if the source of income held under the trust is under legal obligation and here the assessee was under obligation to apply the income for charitable purposes. The judgment relied upon by him are as under:- i. CIT-v- Gujarat Maritime Board 295 ITR 561 SC All India Spinners Association-v-CIT 12 ITR 482 PC ii. iii. CIT-v-Andhra Chamber of Commerce 55 ITR 722 SC Delhi Stock Exchange Association Ltd-v-CIT 225 ITR 235 iv. SC & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 9 Institute of Chartered Accountants of India-v-DGIT 358 v. ITR 91 (Del) 8. Mr. Singhal submitted that if the interpretation of ld. CIT(A) is accepted, then no educational institution will ever be able to claim exemption which certainly cannot be the intention of the legislature. He further submitted that, assessee came into existence as society with the sole object of providing education and hence it was under obligation to set up an infrastructure for the same and to carry out such activities. In the Memorandum of Association, there was no clause under which any of the fund of the society could be diverted for a private gain and in fact section 14 of the ‘Registration of Societies Act, 1860’ specifically provides that in case of dissolution, the property of the society shall not be paid or distributed to any member but the same shall be given to some other society. As regards his finding that the entire receipts by way of fees and charging of fees would amount to uncharitable activities. He submitted that, firstly the judgments relied upon by the ld. CIT(A) were mostly on the issue of capitation fees and not the normal fees charged by the school or institution; in fact the Hon'ble Supreme Court have held that charging of fees is essential for carrying out the educational institutional activities. In support, he drew out attention in various paragraphs of the judgment of the Hon'ble Supreme Court which we shall deal in the latter part of our order.
Lastly, on the issue of denying exemption/deduction u/s.11 and taxing the income under the head ‘income from other sources’, he submitted that here in this case the assessee has been granted registration u/s.12A, and therefore, its income has to be computed in accordance with Section 11 to Section 13 and not only that in the earlier years as well as in the subsequent years the assessee has been granted exemption u/s.11; and therefore, such a finding is not only incorrect in law but also on facts.
On the other hand, learned Senior Departmental Representative, after referring to the various observations made by the ld. CIT (A), strongly relied upon the order and submitted that the ld. CIT(A) had dealt with the issue threadbare after analyzing each and every provision and judicial precedents and then has reached to the conclusion that assessee was not entitled for claim of benefit u/s.11. He thus, strongly relied upon the order of Ld. CIT (A).
We have heard the rival submissions and perused the relevant finding given in the impugned order as well as the material referred to before us. We have already discussed in brief various facets of the observations made by the ld. CIT(A) & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 10 while exercising his power of enhancement u/s.251(2) and taxing the entire receipts of Rs.1,04,85,689/- as income from other sources. It is an admitted fact that assessee society has been formed and registered under the ‘Registration of Societies Act, 1860’, with the sole object of providing education and in pursuance of such an object it has set up an infrastructure in the form of school which is named as ‘Adarsh Public School’, from where it is providing education upto Senior Secondary level. Looking to its object which is for ‘charitable purpose’ in terms of section 2(15) and is solely for imparting education, it has been granted registration u/s.12A by the competent authority, i.e., Ld. CIT Ghaziabad. Once registration u/s.12A is granted, then it is fait accompli and accordingly, all its receipts / income are subject to computation and benefit u/s.11 to 12 and restrictions provided u/s 13. Such a registration u/s 12A has neither been withdrawn nor has any action been taken by the competent authority to withdraw such certificate of exemption granted u/s.12A. That is the reason why the assessments have completed u/s. 143(3) for the subsequent assessment year, wherein the assessee has been given the benefit of Section 11. Here in the impugned assessment year the case of the Assessing Officer was that the audit report in Form 10B was not filed along with return of income and the one which was filed during the course of the assessment proceeding was back dated. This allegation of the Assessing Officer has been negated by the ld. CIT(A) who has found that audit report in Form 10B was proper. Thus, the ground and the finding of the Assessing Officer to deny the claim of benefit of section 11 has been overruled by the first appellate authority, which finding has now attained finality as revenue is not in appeal or in cross objection. The Assessing Officer has only taxed the surplus over income and expenditure account, however the ld. CIT(A) has proceeded to tax the entire receipt albeit on different grounds.
Now we shall deal in brief the various observations and findings of the ld. CIT(A) by which he has denied exemption/benefit of Section 11 to the assessee. Coming to his first objection that assessee is not entitled for benefit/exemption u/s.11, because there is a separate provision under the Act u/s. 10(23C)(iv), (v) and (vi) where it could have or can claim the exemption and since assessee has not availed the exemption u/s.10(23C), therefore, it is debarred from claiming exemption u/s.11. At the outset, such an observation is against the principle laid down by the Hon'ble Supreme Court in the case of CIT vs. Bar Council of Maharashtra (supra), wherein the their Lordships have observed and held as under:- 6. At the outset it may be stated that we were not inclined to permit counsel for the revenue to urge his first & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 11 contention as in our view the revenue must be deemed to have given up the same. We may point out that precisely this very contention was raised by the revenue before the Tribunal and was negative by it. The Tribunal on a detailed analysis of the concerned provisions took the view that the two provisions were not mutually exclusive but operated under different circumstances, that section 11 was relatively wider in its scope and ambit, that while section 10(23A) granted absolute exemption in respect of particular types of income, section 11 imposed certain conditions for the exemption but such exemption was available for all sources, and that there was nothing inherently improbable or inconceivable about the two provisions operating simultaneously and as such the claim for exemption under section 11 was available to the assessee-Council provided it satisfied 11 the requirements of that provision. We may point out that there are other allied provisions like for instance clause (23C) in section 10 which clearly indicate that the Legislature did not intend to rule out section 11 when exemption was claimable under such specific provisions of section 10. It was after negativing the contention in this manner that the Tribunal went on to consider the claim for exemption made by the assessee-Council under section 11 but on merits found that there was no material or evidence on record to show whether or not the securities were held by the assessee-Council for any of the charitable purposes and, therefore, it remanded the case. The remand order was never challenged by the revenue by seeking a reference on the ground that a remand was unnecessary because section 11 was ruled out by reason of exemption having been obtained by the assessee- Council under section 10(23A) nor was any such contention raised when reference was sought by the assessee- Council nor when the matter was being argued in the High Court. In these circumstances, it is clear to us that the revenue acquiesced in the view taken by the Tribunal that the claim for exemption under section 11 could not be said to be ruled out by reason of the provisions of section 10(23A). We, therefore, proceed to deal with the second contention which was principally argued before us in these appeals.
Thus, the aforesaid observation of the Hon'ble Apex Court, makes it very clear that there is no bar or disharmony between Section 10(23C) and Section 11; and exemption of Section 11 cannot be denied even when there is a specific provision of Section 10(23C). This principle has been reiterated by the Hon'ble Jurisdictional High Court in the case of CIT vs. Indian Institute of Engineering Society, reported in 218 Taxman 151 (All), wherein Their Lordships had observed as under:- & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 12
Shri Awasthi, learned counsel, submitted that as the assessee claimed exemption, being an educational institution as such it was required to obtain exemption from the prescribed authority under Section 10(23C) of the Act, which is mandatory. Since no exemption from the prescribed authority under Section 10(23C) of the Act has been obtained as such the assessee was not entitled to claim benefits under Section 11 of the Act. The submission is wholly misconceived. Admittedly, the assessee is an educational institution and was established for charitable purposes for running educational institutions and imparting education. Section 10 of the Act deals with the income not liable to be included in total income of the assessee while Section 11 deals with the income from property held for charitable or religious purposes. Both Section 10(23C) and Section 11 of the Act are independent sections. The assessee was registered under Section 12A of the Act. As such the assessee was rightly granted benefits under Section 11 of the Act.” 14. This judgment of Hon’ble jurisdictional High Court clearly negates the theory of ld. CIT (A). Further Hon'ble Punjab and Haryana High Court in the case of CIT vs. Mahasabha Gurukul Vidhyapeeth (2010) 2 Taxmann.com 283 (P & H) too have upheld the same proposition that once all the requisite conditions for exemption u/s.11 have been met and even if condition u/s. 10(23C) have not been complied with, then there should be no bar to seek exemption u/s.11. In view of the aforesaid binding judicial precedents, we reject the observation and finding of the ld. CIT (A) that assessee cannot claim exemption/benefit of Section 11 or is not entitled for benefit u/s 11 as assessee was eligible for such an exemption u/s. 10(23C). 15. Ld. CIT(A) while denying the exemption of Section 11 to assessee society has held that, since imparting of education is a matter of pure charity, therefore, the educational institution is not permitted to receive or recover the cost of charity from its beneficiary by way of fees, i.e., charging of fees itself would amount uncharitable activity. We are unable to subscribe to this proposition at all, because if fees is not charged from the students then how the activity of imparting education can be carried out. Fees collected from the students itself feeds the charity, unless some other considerations are received for profiteering and personal gains of trustees or members of the society. Strong reliance has been placed by the ld. CIT (A) upon the judgment of Hon'ble Apex Court in the case of ACIT vs. Surat Art Silk Cloth Manufactures Association (supra). In our humble understanding of the said judgment and the principle laid down by the Constitutional Bench of Hon'ble Apex Court, & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 13 nowhere the Hon'ble Apex court has held that the charging of fees or some profit for carrying out charitable activity would be reckoned as not charitable. The Hon'ble Apex Court held that if primary or dominant purpose of a trust or institution is charitable, then any other object which by itself is not charitable and is mere ancillary to the dominant purpose then also it is held to be valid charity. The primary test which is to be applied is, whether the main or primary object of the trust is charitable or not. It is an undeniable that under the Income Tax Act, educational activity has been specifically treated as charitable purpose and if the entire activities of the assessee is purely for carrying out education then the test of dominant and main purpose stands fulfilled as laid down by the Hon'ble Apex court. Hon'ble Apex Court has further held that if any activity for profit is carried out in the course of actual carrying out its purpose, then the activity for profit must be intertwined or wrapped up with or implied in the purpose of the institution or trust, in other words it must be an integral part of such purpose. What is to be looked into whether the activity is propelled by a dominant profit motive and whether the dominant object of the activity is profit making or carrying out a charitable purpose, if it is former then the purpose would not be charitable, but, if it is latter the charitable character of the purpose would not be lost. Thus, in no way the principle laid down by the Hon'ble Apex Court can be interpreted or understood in the manner that if certain receipt or income is generated out of an activity which is charitable and such a receipt or income is wholly applied for carrying out charitable purpose, then it cannot be reckoned for non charitable purpose. Here in this case, the charging of fees is a part of receipt during the course of carrying out educational activity which has been completely applied for that activity alone, therefore such a receipt by way of fees has to be seen as an application of income for charitable purpose. As regards another constitutional bench judgment of Hon'ble Apex Court in the case of TMA Pai Foundation and others (supra), it is seen that the Hon'ble Apex Court in the context of ‘capitation fee’ and profiteering, itself culled out the exception in the following manner:- 66. In such professional unaided institutions, the Management will have the right to select teachers as per the qualifications and eligibility conditions laid down by the State/University subject to adoption of a rational procedure of selection. A rational fee structure should be adopted by the Management, which would not be entitled to charge a capitation fee. Appropriate machinery can be devised by the state or university to ensure that no capitation fee is charged and that there is no profiteering, though a reasonable surplus for the & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 14 furtherance of education is permissible. Conditions granting recognition or affiliation can broadly cover academic and educational matters including the welfare of students and teachers.” [Emphasis added is ours] 16. Thus, the Hon'ble Apex Court held that in principle there should be no ‘capitation fee’ or profiteering, but reasonable surplus to meet the cause of education and augmentation of facility does not amount to profiteering. Nowhere the Hon'ble Apex Court has held that educational institution is debarred from taking any kind of fees from the students albeit they have expressed caution in a limited way on a capitation fee for the purpose of profiteering. Similarly in the other judgment relied upon by the ld. CIT (A), that is, in the case of Islamic Academy of Education & Ors vs. State of Karnataka (supra), the Hon'ble Apex Court again following the principle of the constitutional Bench in the case of TMA Pai Foundation & Others (supra) and observed as under:- 212. So far as the first question is concerned, in our view the majority judgment is very clear. There can be no fixing of a rigid fee structure by the government. Each institute must have the freedom to fix its own fee structure taking into consideration the need to generate funds to run the institution and to provide facilities necessary for the benefit of the students. They must also be able to generate surplus which must be used for the betterment and growth of that educational institution. In paragraph 56 of the judgment it has been categorically laid down that the decision on the fees to be charged must necessarily be left to the private educational institutions that do not seek and which are not dependent upon any funds from the Government. Each institute will be entitled to have its own fee structure. The fee structure for each institute must be fixed keeping in mind the infrastructure and facilities available, the investments made, salaries paid to the teachers and staff, future plans for expansion and/or betterment of the institution etc. Of course there can be no profiteering and capitation fees cannot be charged. It thus needs to be emphasized that as per the majority judgment imparting of education is essentially charitable in nature. Thus the surplus/profit that can be generated must be only for the benefit/use of that educational institution. Profits/surplus” cannot be diverted for any other use or purpose and cannot be used for personal gain or for any other business or enterprisers.” [Emphasis added is ours] & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 15
17. The aforesaid judgment clearly clinches the issue and completely negates the view of the Ld. CIT (A). Thus, none of the judgments as referred to by the ld. CIT(A) have been analysed in proper prospective rather his interpretation of the principles laid down by the Apex Court are incorrect and out of context. Before us the learned counsel had submitted the total fees charged from various students during the year the details and bifurcation of which is as under:-
CLA TUTI MO NO. BUS STU REST ADMIS TOTAL SS ON NT OF (300*1 DEN ANNUAL SION FEE HS STU 2) TS FEES S DEN TRA TS VEL LIN G BY BUS 1000 3,600 5 NUR 500 12 60 3,60,000 18,000 60,000 1000 3,600 7 LKG 500 12 78 4,68,000 25,200 78,000 1000 3,600 8 UKG 500 12 70 4,20,000 28,800 70,000 1000 3,600 12 69 4,96,800 43,200 69,000 1 600 12 1000 3,600 15 2 600 12 83 5,97,600 54,000 83,000 1000 3,600 10 3 5,76,000 36,000 600 12 80 80,000 1000 3,600 17 4 600 12 78 5,61,600 61,200 78,000 1000 3,600 15 5 600 12 70 5,04,000 54,000 70,000 1000 3,600 17 6 700 12 76 6,38,400 61,200 76,000 1000 3,600 15 7 700 12 77 6,46,800 54,000 77,000 1000 3,600 19 8 700 12 79 6,63,600 68,400 79,000 1000 3,600 17 9 900 12 60 6,48,000 61,200 60,000 1000 3,600 18 10 900 12 57 6,15,600 64,800 57,000 1000 3,600 7 11 1,100 12 33 4,35,600 25,200 33,000 1000 3,600 5 12 1,100 12 29 3,82,800 18,000 29,000 TOTAL 80,14,800 6,73,200 9,99,000 FINE 2,65,095 27,750 30,500 4,70,900 1,04,81, 245 B/S 82,79,895 7,00,950 10,29,500 & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 16
From the above details, it is quite evident that the assessee school has been charging fees only from its students and there is no capitation fee at all. Such fees have been charged from the students for the running of the school and has been applied for its dominant purpose/object of carrying out educational activity. If we apply the principle and ratio laid down by the Hon'ble Apex Court in the aforesaid cases, then the fees charged by the assessee is neither for profiteering nor for carrying any activity beyond its dominant object. Thus, allegation of the ld. CIT (A) on this score also is hereby rejected.
19. Now coming to the observation that assessee’s income by way of fees cannot be held to be derived from property held under the trust, because students cannot be treated as property. If such a proposition or view of ld. CIT (A) is upheld, then probably no education institution in the country would ever be eligible/entitled for exemption u/s.11 and perhaps will defeat the entire purpose of legislature and the definition of ‘charitable purpose’ of education as defined in Section 2(15). Section 12 of the Act clearly provides that any voluntary contribution received by a trust wholly for charitable or religious purpose, then for the purpose of Section 11 it is deemed to be income derived from the property held under the trust. Such a deeming provision of revenue contribution is held as income derived from the trust which is subject to computation and conditions laid down in Section 11 to 13. If the assessee is carrying out any obligation for educational activity, then it has to be treated as the ‘trust’ under the provision of Section 11; and this proposition has been clearly held by the Hon'ble Supreme Court in the case of CIT vs. Gujarat Maritime Board (Supra), that if the assessee is under legal obligation to apply the income then it is entitled to be registered as charitable trust. In the case before the Hon’ble Supreme Court, the authority Gujarat Maritime Board was carrying out the development of minor port which was in the realm of ‘carrying out objects of general public utility’. The Hon'ble Apex Court held that such an authority is to be reckoned as charitable trust for the purpose of Section 11. In this case one of the main objection raised on behalf of the department was that said Board was not entitled for the benefit of Section 11 as it was not a trust under the ‘Public Trust Act’ and therefore, it was not entitled to claim registration u/s. 12A. Since it was not held under the trust therefore, it is not entitled for exemption u/s. 11(1)(a). The relevant contention of the Revenue as well as the finding of the Hon'ble Apex Court reads as under:- 12. One of the objections raised on behalf of the Department was that Gujarat Maritime Board is not entitled to the benefit of section 11 of the 1961 Act as the said Board & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 17 was not a trust under Public Trust Act and, therefore, it was not entitled to claim registration under section 12A of the 1961 Act. The Department's case was that the Maritime Board was a statutory authority. It was not a trust. Its business was not held under a trust. Its property was not held under trust. Therefore, the Board was not entitled to be registered as a Charitable Institution. It was the case of the Department that the Board was performing statutory functions. Development of minor ports in the State of Gujarat cannot be termed as the work undertaking for charitable purposes and in the circumstances the Commissioner rejected the Board's application under section 12A of the 1961 Act in the light of the above case of the Department, we are required to consider the expression 'any other object of general public utility' in section 2(15) of the 1961 Act. 13. …….......
We have perused number of decisions of this Court which have interpreted the words, in section 2(15), namely, 'any other object of generally public utility'. From the said decisions it emerges that the said expression is of the widest connotation. The word 'general' in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose—CIT v. Ahmedabad Rana Caste Association [1983] 140 ITR 1 (SC). The said expression would prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote or protect the interest of a particular trade or industry that object becomes an object of public utility, but not so, if it seeks to promote the interest of those who conduct the said trade or industry—CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC). If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity—Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1 (SC).
The present case in our view is squarely covered by the judgment of this Court in the case of CIT v. Andhra Pradesh State Road Transport Corpn. [1986] 159 ITR 1 in which it has been held that since the Corporation & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 18 was established for the purpose of providing efficient transport system, having no profit motive, though it earns income in the process, it is not liable to income-tax.
Applying the ratio of the said judgment in the case of Andhra Pradesh State Road Transport Corpn. (supra), we find that, in the present case, Gujarat Maritime Board is established for the predominant purpose of development of minor ports within the State of Gujarat, the management and control of the Board is essentially with the State Government and there is no profit motive, as indicated by the provisions of sections 73, 74 and 75 of the 1981 Act. The income earned by the Board is deployed for the development of minor ports in India. In the circumstances, in our view the judgment of this Court in Andhra Pradesh State Road Transport Corpn.'s case (supra) squarely applies to the facts of the present case.
Before concluding we may mention that under the scheme of section 11(1) of the 1961 Act, the source of income must be held under trust or under other legal obligation. Applying the said test it is clear, that Gujarat Maritime Board is under legal obligation to apply the income which arises directly and substantially from the business held under trust for the development of minor port in the State of Gujarat. Therefore, they are entitled to be registered as 'Charitable Trust' under section 12A of the 1961 Act.”
20. This principle has been reiterated by the Hon'ble Delhi High Court in the case of Institute of Chartered Accountants of India- v-DGIT, 358 ITR 91 (Del). Thus, the assessee society which has been registered under ‘Registration of Societies Act, 1860’ with the sole object of providing education and has a legal obligation for applying its income for such charitable purpose, then for the purpose of Section 11 it has to be treated as trust and income derived from carrying out such obligation has to be reckoned as income derived from property under the trust and therefore, on the ground also as raked by the ld. CIT (A), exemption u/s.11 cannot be denied. Accordingly, in view of the finding given above and various legal principle as discussed above, we hold that none of the observations and the finding of the ld. CIT(A) are sustainable and the grounds taken and the reasoning given by him to deny the benefit/exemption u/s.11 to the assessee cannot be upheld either in law or on facts.
Accordingly, in view of our finding given above, the entire receipts which has been taxed under the head ‘income from other sources’ is set aside and we direct the Assessing Officer & 4463/Del/2017 Confrere Educational Society vs. ITO(E) 19 to grant exemption u/s.11 as per the income and expenditure account submitted by the assessee.
In the result, the appeal of the assessee is allowed.”
The aforesaid finding and the principle as discussed in the aforesaid order shall apply mutatis mutandis here in this case also, insofar as findings and observation of ld. CIT (A) is concerned, because they are almost same. Further, the aforesaid judgment of the Tribunal has discussed in detail from para 12 onwards and came to the conclusion after considering the catena of judgments of Hon’ble Supreme Court and Hon’ble High Courts that there is no bar or disharmony between section 10(23C) & section 11; and exemption of section 11 cannot be denied even when there is a specific provision of section 10(23C). Once all the requisite conditions for exemption u/s 11 have been met and even if, conditions specified u/s 10(23C) have not been complied with, then there is no bar to seek exemption under section 11. Therefore, we also reiterate the same observations and findings as has been made in the aforesaid order of the coordinate Bench of the Tribunal.
The Tribunal in the aforesaid order has dealt with various judgments as has been discussed by the ld. CIT(A) in his order from para 15 onwards, which are not reiterated.”
Consequent to the above, the issues raised are decided in favour of the assessee. The appeals are allowed.