Case Law Details
ITAT CHENNAI
Soorya Educational Trust
V/s.
Income-tax Officer
IT APPEAL NO. 579 (MDS.) OF 2012- ASSESSMENT YEAR 2008-09
MAY 31, 2012
ORDER
Abraham P. George, Accountant Member –
In this appeal filed by the assessee, its grievance is that exemption under Section 11 of Income-tax Act, 1961 (in short ‘the Act’) was denied to it. As per the assessee, it was not engaged in any activity of a commercial nature, but was only imparting education and never worked or functioned for making profits. Therefore, vide definition of “charitable purpose” given in Section 2(15) of the Act, it was eligible for exemption under Section 11 of the Act.
2. Short facts as culled out from assessment order for impugned assessment year are that assessee had filed its return claiming exemption under Sec. 11 of the Act on its income. During the course of assessment proceedings, assessee was required to explain charitable activities carried on by it. As per the assessee, it was running a Distance Education Programme for Annamalai University, on Hotel Management and Catering Technology resulting in grant of Diploma and graduation, based on a Memorandum of Understanding (MOU) entered with Annamalai University. Assessee was to conduct the classes as per the terms of MOU, students were to pay the fees to the University and in turn, the University was to pay a part of such fees to the assessee. The courses conducted were two-year Diploma in Hotel Management and Catering Technology, three-year degree in Hotel Management and Tourism and a one-year Craft Programme. The theory and practical classes were to be conducted by the assessee. However, conducting of examination, evaluation and awarding of degree/diploma to the students were to be done by M/s Annamalai University. Assessing Officer (A.O.) was of the opinion that assessee was providing only contact centres and class rooms for conduct of theory and practical classes as approved by Annamalai University and thus it was only a technical collaborator for the Distance Education Courses conducted by M/s Annamalai University. As per the A.O., assessee was neither a school nor a college where formal schooling or collegiate education was imparted to students with regular attendance and regular classes conducted by qualified staff. Further, assessee was not affiliated to the Government nor recognized by UGC or any other authority for the purpose of education. Assessing Officer also noted that assessee indeed was given deemed registration under Section 12A of the Act by the Tribunal, but, however, according to him, such grant of registration under Section 12A of the Act would not mean that assessee was a charitable Trust. The Income and Expenditure of the assessee, as per the A.O., showed that it was receiving fees from Annamalai University for students enrolled and also derived income on bank deposits and had also received discounts. A.O. thus came to a conclusion that assessee was not doing any charitable activity. He also relied on the TDS certificate issued by the Annamalai University which mentioned that fees were paid by the University to the assessee for professional and technical services. As per the A.O., if education was to be considered charitable, there should be an element of public benefit or philanthropy. But, the assessee was running on commercial lines, hence, exemption could not be granted. He thus denied the claim of exemption under Section 11 of the Act. Reliance was placed on the decision of Hon’ble Apex Court in the case of Sole Trustee, Lok Shiksena Trust v. CIT (101 ITR 234) for ruling that unless formal schooling was involved, an activity could not be considered as education. A.O. also noted that just because Rs. 65,000/- was paid to poor students, it would not make assessee a charitable one.
3. A.O. also came to a finding that assessee had contravened Section 11(5) and Section 13(1) of the Act. For coming to this conclusion, he relied on the following entries in the accounts –
(i) One of the trustees, Shri Victor Vijayaraj had withdrawn Rs. 30 lakhs on 4.3.2008, which was repaid only on 6.3.2008.
(ii) During the period 9.8.2007 to 6.2.2008, the same trustee had periodically withdrawn cash totalling to Rs. 5,60,000/- for which no interest was paid.
(iii) On 31.3.2008, Shri Victor Vijayaraj had withdrawn Rs. 1,80,000/- as salary.
(iv) A sum of Rs. 2,78,000/- was seen debited as PCP expenses.
(v) A sum of Rs. 2,50,000/- was withdrawn on 2.1.2008 by Dr. Louis Prakasam Kannaiah, another trustee.
(vi) A sum of Rs. 7200/- was being drawn by the same trustee on monthly basis.
(vii) An advance of Rs. 2,86,000/- was shown in the balance-sheet.
(viii) A sum of Rs. 7,25,000/- was advanced to Sri Ramachandra Educational Trust.
4. All these, as per the A.O., resulted in contravention of Section 13(1) as well as Section 11(5) of the Act. Relying on Instruction No. 1112 of CBDT, the A.O. came to an opinion that profits of the institution was diverted for personal use and therefore, the income had to be subjected to tax. In the result, A.O. denied exemption of tax to the assessee.
5. Aggrieved, assessee moved in appeal before CIT (Appeals). It was claimed that assessee’s activity was nothing but “education”, falling within the meaning of Section 2(15) of the Act and also under Section 10(23C) of the Act. Reliance was placed by the assessee on following decisions, before the CIT (Appeals):-
(a) CIT v. Secretary, Regional Committee National Sports Club of Assam [1989] 180 ITR 648 (Gau)
(b) Royal Choral Society v. IRC [1944] 12 ITR (Supp) 12(CA) (English case).
(c) CIT v. Bar Council, Madras [1943] 11 ITR 1 (Mad)
(d) Ecumenical Christian Centre v. CIT [1983] 139 ITR 226 (Kar)
(e) Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC)
(f) Gujarat State Co-operative Union v. CIT [1992] 103 CTR 195 IR 279 (Guj)
(g) CIT v. Sri Thyaga Brahma Gana Sabha (Regd) [1991] 188 ITR 160 (Mad)
6. However, the CIT(Appeals) was not impressed. According to him, assessee’s role was limited to carrying out the instructions of Annamalai University and it could not deviate from such instructions. It could not admit even a single student and could not reject any students admitted by the said University. Assessee could not conduct any examination nor could award any certificate or degrees. Activities of the assessee were nothing but providing infrastructure and technical manpower. Assessee, according to CIT(Appeals), was working on commercial principles and solely aimed at earning profits. The MOU with Annamalai University clearly showed that assessee was being remunerated for rendering professional services and providing infrastructure. The surplus generated in the relevant previous year came to Rs. 1,13,55,617/- which was quite substantial and the claim of charity was unsubstantiated. Relying on the decision of Hon’ble jurisdictional High Court in the case of Regional Computer Centre v. CIT (311 ITR 182), Hon’ble Uttarakhand High Court in the case of CIT v. National Institute of Aeronautical Engg. Educational Society 315 ITR 428 and of the co-ordinate Bench of this Tribunal in the case of Rajah Sir Annamalai Chettiar Foundation v. Director of Income-tax (Exemptions) [10 ITR (Trib) 424], the CIT(Appeals) confirmed the denial of exemption under Section 11 of the Act.
7. Insofar as the issue of violation under Section 13(1)(c) of the Act was concerned, submission of the assessee before CIT(Appeals) was that funds of Rs. 30 lakhs withdrawn on 4.3.2008 were re-transferred to accounts of the Trust on 6.3.2008, and it was held by the trustee for a short period of two days only and that too only for the purpose of meeting the construction cost relating to the construction being carried out by the Trust. In other words, as per the assessee, as soon as it was found that transfer of funds to the trustee inappropriate, the money was returned. As for the observation of the A.O. that Shri Victor Vijayaraj, trustee was paid Rs. 5,60,000/-, it was submitted before CIT(Appeals) that actual withdrawal was only Rs. 1,90,000/- of which Rs. 1,80,000/- was salary. According to assessee, the said Shri Victor Vijayaraj was an engineering graduate with seven years’ experience and salary of Rs. 1,80,000/- per year was not unreasonable. As for the sum of Rs. 2,78,000/- charged towards PCP expenses, assessee submitted that it was sums due from the assessee for work done and not a payment in the nature of advance or a loan. As for the sum of Rs. 2,50,000/-withdrawn by Dr. Louis Prakasam Kannaiah, another trustee, submission of the assessee before CIT(Appeals) was that it was not at all a payment made to the said person, but was an item of expenditure incurred for building. The narration alone was wrong but the actual expenditure was correctly charged to the building account. As for sum of Rs. 7200/- drawn by same trustee on monthly basis, submission of the assessee was that these were rent paid for property taken on lease from the said trustee and used by the Trust. As per the assessee, such rentals were justified considering the location of the said property. As for sum of Rs. 2,86,000/- given as advance reflected in its balance-sheet, submission of the assessee was that such advance was not given to any related party. As for sum of Rs. 7,25,000/- advanced to Sri Ramachandra Educational Trust, submission of the assessee was that such Trust was also having educational objectives and it was given as an interest-free advance for education purpose only. However, none of these submissions found any positive response from the CIT(Appeals). According to him, these were all clear and undisputed violation of the nature mentioned in Section 13(1)(c) of the Act. Relying on the decision of Hon’ble jurisdictional High Court in the case of Ramalingam Charities v. CIT (56 DTR 328) and that of Hon’ble Delhi High Court in the case of P.T. Kanahya Lal Punj Charitable Trust v. DIT(E) (297 ITR 66), CIT(Appeals) observed that advancing loan to the members of the Trust resulted in violation of the nature mentioned in Section 13(1)(c) of the Act. Thus, he confirmed the order of A.O. denying the assessee benefit of exemption under Section 11 of the Act, on account of this reason also.
8. Now before us, learned A.R., strongly assailing the orders of authorities below, took us through the Memorandum of Understanding (MOU) entered between the assessee and Annamalai University, placed at paper-book pages 10 to 18. According to him, assessee was conducting Personal Contact educational programmes in a full-fledged manner and had to take care of both theory and practical classes for all the progammes. As per the MOU, the degrees were awarded by Annamalai University and therefore, courses conducted by the assessee could not be considered as a private course or any private awarding of degree. Learned A.R. submitted that activities of the assessee were purely in the nature of education and could not be compared with a coaching centre, which was preparing students for competitive examinations. Unless and until the classes conducted by the assessee were attended by the students, they would not be eligible for writing the examination of Annamalai University under its Distance Education Programmes. The faculty and teachers were employed by the assessee and it was obliged to do so under the agreement with Annamalai University. Assessee was required to maintain students register, and keep the attendance of the students. It had to conduct periodical performance assessment and report to Directorate of Distance Education of Annamalai University. No fees was directly received by the assessee, but the fees were paid by the students to the Annamalai University. Assessee was to prepare the study materials for the students and educate each of them. In other words, except for conducting examination and awarding degrees, all the education activities of the Distance Education, were carried on by the assessee. Assessee was entitled only for share of fees collected by Annamalai University. In the face of such a situation, to say that assessee was not engaged in an activity of education would be unfair. Relying on the Trust Deed of the assessee, placed at paper-book pages 19 to 32, learned A.R. submitted that the primary aim of the Trust was promotion of education. None of the trustees could take any part of the surplus and whatever surplus was there, were used only for the development of infrastructure. Therefore, according to him, conclusion of the lower authorities that assessee was not in the field of education was entirely wrong. There was no finding by the Revenue that it was collecting any fees more than what was paid by the University to it. The fees were paid by the students directly to the University and it could not be stated that Annamalai University was engaged in a business of making money by selling education. Relying on the decision of Hon’ble Delhi High Court in the case of Institute of Chartered Accountants of India v. The Director General of Income Tax (Exemptions) in Writ Petition (Civil) N.1927 of 2010, placed at paper-book pages 65 to 121, learned A.R. submitted that conduct of courses in which degrees were awarded by a recognized University could not be equated or categorized with a coaching class conducted by private institutes, for preparing students to appear for entrance examination or for pre-admission or examinations or for other professional examinations. The courses conducted by the assessee could not be equated with that of a private coaching institute. A.R. pointed out that Hon’ble Delhi High Court had considered the decision of Hon’ble Apex Court in the case of Sole Trustee, Loka Shikshana Trust (supra) relied on by the A.O. for denying the benefit of exemption under Section 11 of the Act to the assessee. According to him, what education connoted was the process of training and developing knowledge, skill, mind and character of students by formal schooling and formal education and thus required an organized and systematic training where the institution would be accountable to some authority. Relying on the decision of Hon’ble Gujarat High Court in the case of Gujarat State Co-operative Union v. CIT (195 ITR 279), learned A.R. submitted that though in the context of the provision of Section 10(22) the concept of education could not be given any wide or extended meaning as held by Hon’ble Apex Court, it surely encompassed systematic dissemination of knowledge and training in specialized subjects. Strong reliance was placed by the learned A.R. on the decision of Hon’ble Kerala High Court in the case of CIT v. St. Mary’s Malankara Seminary in I.T. Appeal Nos.183 and 184 of 2011 dated 16th February, 2012, (copy of the judgment placed at paper-book pages 63-64) for arguing that even an educational institution imparting religious teaching like making a person fit to perform the duties of the priest, was entitled for exemption under Section 10(23C) of the Act. According to him, education per se was charity and relying on the decision of Hon’ble Apex Court in the case of Dharmadeepti v. CIT (114 ITR 454), submitted that “not involving the carrying on of any activity for profit” governed only objects of general public utility and not relief to the poor, education and medical relief.
9. Insofar as violation of Section 13(1) and Section 11(5) of the Act was concerned, A.R. submitted that none of these violations were material enough to deny the exemption sought under Sections 11 and 12 of the Act. According to him, insofar as the sum of Rs. 30 lakhs transferred to Trust account was concerned, it was held by the concerned trustee only for two days and there was no benefit whatsoever derived by him. The amount was held by the trustee in an S.B. account and no interest could be earned from an S.B. account for such a short period of deposit. It was only an error which was corrected within two days. Insofar as the other items, which were considered violation of Section 13(1)(c) of the Act was concerned, A.R. submitted that some of these were mistaken figures like Rs. 5,60,000/- considered by the A.O. instead of Rs. 1,90,000/- and salary being considered as a benefit taken by the trustee. Some of the items were advances given to non-related parties and some of the expenses were considered to be the drawings of the trustees. Insofar as advance of Rs. 7,25,000/- to Sri Ramachandra Educational Trust was concerned, A.R. submitted that the said Trust was an institution registered under Section 12A and a copy of certificate of such registration was also filed.
10. Per contra, learned D.R. submitted that assessee was nothing but a coaching institute and was only rendering professional services as per the MOU with Annamalai University. The said agreement clearly indicated that assessee was entitled to a part of the fees remitted by the students, as professional fees for the services rendered by it. Even TDS certificate issued by Annamalai University clearly showed it as professional fees. Conducting coaching class will not be an education. Decision of Hon’ble Apex Court in the case of Sole Trustee, Loka Shikshana Trust (supra) clearly laid down that formal schooling and formal education alone could be considered as education and the term “education” could not be given a wide meaning so as to encompass any type of coaching, so as to be eligible for exemption provided under the Act. Insofar as violation under Section 13(1)(c) of the Act was concerned, learned D.R. submitted that it was an admitted position that one of the trustees had enjoyed benefit of Rs. 30 lakhs atleast for two days and this was enough for bringing the assessee within Section 13(1)(c) of the Act. Whether the aberration was for a temporary period or not, violation stood established. Therefore, according to him, the lower authorities were justified in taking a view that assessee was only a coaching institute working for commercial benefit by which it had earned huge profits. The amount given to poor students was miniscule and to consider assessee as a charitable institute eligible for exemption will be not in accordance with spirit of the law giving exemption to genuine educational institutions doing work of charity.
11. We have perused the orders and heard the rival submissions. We have to resolve two issues. First is whether assessee is an education institution eligible for exemption under Sections 11 and 12 of the Act and second is whether various items of payments/investments mentioned by the A.O. constituted violation of Section 13(1)(c) and / or Section 11(5) of the Act. For resolving the first aspect, it is essential to reproduce the Memorandum of Understanding entered by the assessee with Annamalai University :-
“The agreement made on this day of 11th February 2004 between the Registrar, Annamalai University, India (Hereinafter called Party No.1) and Soorya Institute of Management Studies – SIMS managed by Soorya Educational Trust (Reg. No.1311/2003) 375, Mahatma Gandhi Road, Pondicherry – 605001. (Hereinafter called Party No.2).
Whereas the Annamalai University, the authority running Distance education programmes, has resolved to admit students to all programmes viz., one year P.G. Diploma in Hotel Management, two year Diploma in Hotel Management and Catering Technology (DHMCT) Three year B.Sc. Hotel Management and Tourism and one year craft programmes four in number of the Party No.2 through Distance Education in a full-fledged manner in India. The Party No.1 enters into this agreement with the Party No.2 subject to the under mentioned terms and conditions.
Preamble: Whereas the Annamalai University, Annamalainagar, the unitary and residential in character with nine faculties encompassing Arts, Science, Education, Indian Languages, Engineering & Technology, Fine Arts, Agriculture, Medicine & Dentistry along with well established Distance Education Directorate, both in India and Overseas, is desirous to collaborate for imparting specialized education in Hotel Management, Tourism & Catering Technology offered by the Party No.1 and Party No.2.
The Annamalai University will be represented by the Registrar while Soorya Educational Trust will be represented by its Managing Trustee.
(a) Resolved that the Party No.2 is to offer the programmes approved by Party No.1 jointly with the Party No.2 through Distance Education mode of Annamalai University 50% cost of the first advertisement will be borne by the Party No.1 (any one of leading dailies) and subsequent advertisement charges will be met by the Party No.2. The Party No.2 shall at its own cost give advertisement in dailies and other Media with due approval of the Party No.1
(b) The development of curricula and conduct of the programmes will be the responsibility of Soorya Educational Trust. The syllabi, regulations and scheme of examinations will be approved by the Academic Council of Annamalai University.
(c) Annamalai University is responsible for confirming the admission and for the conduct of examination, evaluation and award of Diploma/Degree to the enrolled students.
(d) The conduct of Personal Contact Programme for the programme concerned in a full-fledged manner will be the responsibility of the Party No.2. T.A. & D.A. for the faculties engaged from the University during Personal Contact Programme will be borne by the Party No.2.
(e) The Soorya Educational Trust will take care of the conduct of Theory and Practical classes for all programmes as per the calendar finalized jointly by the Party No.1 and the Party No.2.
(f) The Directorate of Distance Education, the Controller of Examinations and the Soorya Educational Trust, Pondicherry will jointly chart out the scheme of examinations for the programmes for each year. The University will send scheme for conduct of examinations and application forms for registration to the examinations to the centres of Party No.1 and the Party No.2.
(g) The activities of the Party No.2 should not contravene the terms and conditions of this agreement. The University is not responsible for the misconduct of Soorya Institute of Management Studies to any third party.
(h) The Party No.2 is responsible and accountable to the Party No.1 in respect of the Coordinatorship.
(i) The Party No.2 will send to the Directorate of Distance Education a panel of Resource Persons handling theory & practical classes with complete details including,
(1) Name
(2) Age
(3) Qualification
(4) Experience in years regarding he/she has worked or/is working with full address.
The panel needs to be submitted in advance, as it requires prior approval by the University authorities.
(j) The Soorya Educational Trust are required to maintain students attendance register for both theory and practicals of all programmes and forward a statement of attendance to the Directorate of Distance Education.
(k) Periodical students’ performance assessment in both theory and practicals, studying at Soorya Institute of Management Studies may be made by the Party No.2 and a report be forwarded to the Directorate of Distance Education.
(l) With regard to any dispute that may arise between the Party No.1 and the Party No.2 in respect of any of the matters under this agreement, the place of jurisdiction for taking any legal action will be only Chidambaram, Cuddalore District, Tamilnadu, India and no other place.
(m) The agreement will be in force from the academic year 2004-05 for the Degree, P.G. Diploma, Diploma and Craft programmes for a period of ten years and in continuance thereafter. If there is breach of any terms and conditions, the agreement can be terminated by giving three months notice in writing by either party ending with the end of any academic year. Thereafter, the programme should be conducted for another two years to enable the registered candidates to complete the programme and also the examination will be conducted for another five years.
(n) Both the parties agree not to have tie-up for the said programmes with any other institutions. In case the Soorya Educational Trust has got already tie up with any other University or Institution with reference to any Diploma, Degree or Craft programme, the tie up should be terminated with effect from today i.e. 11th February 2004. In this matter, if there be any legal dispute it should be settled by the Soorya Educational Trust only and Annamalai University will not be having any binding in any way.
(o) The Party No.1 and the Party No.2 agree for all the above said terms and conditions.
(p) In this agreement the term ‘University’ includes the ‘Directorate of Distance Education’.
The Party No.1 and the Party No.2 will also adhere the following guidelines:
1. The Party No.1 authorizes party of the Party No.2 conduct Programmes
• B.Sc. in Hotel Management And Tourism – 3 years
• Diploma in Hotel Management and Catering Technology – DHMCT – 2 years
• PG Diploma in Hotel Management – 1 year
• Craft Programmes – Front office, House Keeping, Production, Service – 1 year
or any other Programmes decided by the Directorate of Distance Education Annamalai University from time to time.
2. The Party No.1 agrees to run the following Hotel Management and Catering Technology Programms courses through the Party No.2
• B.Sc. in Hotel Management And Tourism – 3 years
• Diploma in Hotel Management and Catering Technology – DHMCT – 2 years
• PG Diploma in Hotel Management – 1 year
• Craft Programme – Front office, House Keeping, Production, Service – 1 year
3. The Party No.1 shall advertise about the Programmes in national dailies, and will be responsible to sell the application forms and collect the filled-in application forms from eligible candidates and admit students through the Directorate of Distance Education Annamalai University, Annamalai Nagar, Chidambaram, Tamil Nadu as per terms and conditions of the fees structure prescribed in the prospectus supplied by Directorate of Distance Education, Annamalai University, Annamalai Nagar, Chidambaram, Tamil Nadu.
4. The Party No.1 shall agree to share the total fees collected from the students in the following ratio. 60% of the tuition fees and 75% of the Laboratory fees to the Party No.2 and 40% of the tuition fees and 25% of the Laboratory fees to the Party No.1. The share due to Party No.2 shall be payable by Party No.1 in the month of August, October and December. All the other fees except tuition and Laboratory fees collected will belong to the Party No.1
5. The Party No.2 shall enroll 10% students with Directorate of Distance Education, Annamalai University, in all hotel management programmes with the approval by the Party No.1.
6. The Party No.1 shall print and issue Part – I and Part – II study materials of B.Sc. in Hotel Management & Tourism.
7. The Party No.2 shall print and issue Part – III study materials of B.Sc. in Hotel Management and Tourism, Diploma in Hotel Management and Catering Technology, P.G. Diploma in Hotel Management and Craft Programmes.
8. The Party No.1 shall decide hours for the Personal Contact Programme at Soorya Institute of Management Studies, Pondicherry and arrange examination centres, conduct the examination as per the rules and regulations of the Directorate of Distance Education, Annamalai University, Annamalai Nagar, Chidambaram, Tamil Nadu and coordinate all affairs related with the examinations including the issue of marks list at the end of the year “Degree / Diploma” certificate at the end of the programme.
9. The Party No.2 shall provide a premises to establish an institute with all infrastructure and shall bear all the expenditure in the establishment of centres anywhere in India. The Party No.2 shall appoint Principal / Director to the institute with the approval of Party 1 to manage day to day affairs of the institute. Also shall manage all the expenses including salary to the staff, rent for the premises, electricity bill, water bill, etc. incurred in the day-to-day affairs.
10. The Party No.2 shall collect charges for providing uniforms & shoes, arranging practicals classes, with consultations of Party No.1. The Party No.2 shall agree to prepare study materials for the programmes with the guidance of the Party No.1
11. The Party No.1 will provide the Party No.2 application forms and prospectus in readiness to distribute and their sale proceeds will be vested with the Party No.1. The Party No.2 should issue the application forms to the candidates, collecting the prescribed application fee of Rs.100/- and sending the same to the Party No.1. The applicants should submit the filled-in Application Forms along with the relevant documents to the Directorate of Distance Education, Annamalai University, Annamalai Nagar.
12. The prescribed centres of the Party No.1 shall have the right provisionally to spot admit the eligible students; However, all the applications with xerox copies of original certificates with due attestation along with fees remittance should be forwarded to the Director, Directorate of Distance Education, Annamalai Nagar, for confirmation of admission. The Director, Directorate of Distance Education, Annamalai University is responsible to confirm the admission on scrutinizing of applications and to issue identity cares to the respective centres of the Party No.1 / the Party No.2 for distribution to the students.
13. The prescribed tuition fees to be paid for the programme should be paid by way of demand draft drawn in favour of the Director, Directorate of Distance Education, Annamalai University by remitting into the Account of the Party No.1
14. Preparation of quality assured study materials will be the responsibility of the Party No.2 and supplied to various centres for distribution to students in time. The printing of publicity materials will be the sole responsibility of the Party No.2 and the Party No.1 will have no share.
15. The entire examination process from the stage of fixing the examiners, preparation of question papers, conduct of examinations, valuation, publication of results and issuance of Diploma / Degrees will be the responsibility of the Party No.1 and the examination fees collected thereof will be the sole share of the Party No.1. The examination application form duly filled in and accompanied with the requisite fees by way of Demand Draft in favour of the Controller of Examinations, Annamalai University, payable at Chennai will be sent by the students to the Party No.1. The theory and practical examinations shall be conducted by the Annamalai University in the selected Examination centres. The Party No.2 will be paid Rs.20/- per candidate for every practical examination wherever they hold.
16. The University will have the right to inspect the Soorya Educational Trust centres and the ongoing programmes.”
What we can discern from the above agreement is that the degrees and diplomas were awarded by Annamalai University. The curricula and conduct of programmes were the responsibility of the assessee. The curricula had to be in accordance with the syllabus prescribed by Academic Council of Annamalai University. Assessee was to conduct theory and practical classes. The programmes were to be conducted in a full-fledged manner. Scheme of the examinations were to be sorted out jointly. Resource persons were to be recruited by the assessee and panel of such resource persons had to be approved by Annamalai University. Attendance register was required to be maintained by the assessee for both theory and practicals and statement of attendance was to be given to the Annamalai University. Performance assessment of students were to be conducted by the assessee and records had to be submitted to the University. Assessee was also prevented from having any other tie-up with any other University or institution. Assessee was entitled for a share of fees collected from the students in the nature of tuition fees and laboratory fees. All other fees collected belonged to University. This is clear from clause No.4. Any other charges, if collected from students could be done only on consultation with Annamalai University, as per clause No.10. The tuition fee was to be paid directly by the students to Annamalai University and not to the assessee. All these would clearly show that assessee was imparting a type of oral education and students studying in assessee’s institution were being awarded formal Diploma/degree. There is no case for the Revenue that Annamalai University was existing for any commercial purposes. Assessee was only getting a part of the fees from Annamalai University and nothing more. When assessee was employing teachers and teaching the students for getting a formal degree or diploma of a recognized University and when attendance to such classes was compulsory for being eligible to write the examinations, we cannot place the assessee at par with a coaching centre. Coaching centre only trains the students to face competitive, professional, entrance examinations or similar examinations. Here, the training given by the assessee was for award of formal degrees or diploma courses and scheme of the examination was jointly decided by assessee and Annamalai University. Assessee had a say in charting out the scheme of examination and assessee was solely responsible for conducting classes. As already mentioned, assessee was only getting a share of the fees from Annamalai University. In our opinion, as long as Annamalai University was not considered a commercial institution, assessee also could not be considered a commercial institution. If Annamalai University was an educational institution, then assessee, which was conducting classes for the said University under its authority, was also an educational institution. If we have a look at the objects of the assessee-Trust, it runs as under:-
1. To found, to manage, to run and to administer educational institutions, with a purpose to impart education, training, research and development.
2. The areas of interest shall be,
(a) Arts
(b) Science
(c) Medical
(d) Engineering
(e) Commerce
(f) Hotel Management & Catering Technology
(g) Finance
(h) Physical
(i) Computer Science
(j) Information Technology
(k) Agriculture
(l) Marine Science
(m) Horticulture and kindered disciplines
Now existing or to be invented/discovered in the future.
4. To provide a conducive atmosphere, adequate facility and/or patronage for research work.
5. To provide and arrange to publish the result of research periodically or otherwise.
6. To provide adequate infrastructure such as hostels, library, playground, gymnasium, auditorium, laboratory, research centre, hospital, transport, means of communications, physiotherapy and such equipped and furnished facilities.
7. To arrange for exchange of scholars and students and also employees for the Furtherance and advancement of the aims of the Trust.
8. To interact with other trusts or societies or organisations, professing same or kindred views.
Ex-facie the above objects are nothing but educational.
12. Now we have to see whether the substantial surplus generated by the assessee for the relevant previous year would make it a commercial entity. Assessee was, no doubt, receiving a part of fees from Annamalai University for imparting education. If we have a look at definition of “charitable purpose” under Section 2(15) of the Act, it runs as under:-
“charitable purpose” includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility.
Education per se is charitable as can be seen from the above definition. The same will be charitable irrespective of the fact that while imparting education, certain fees has been charged. There is no condition to hold that for becoming charitable while imparting education, it should be imparted free or without charging any fees. Lower authorities gave much weightage to the fact that assessee generated substantial surplus and the education imparted was not free of cost. No doubt, a Trust which imparted education without charging fees would qualify for exemption under Sections 11 and 12 of the Act, but this does not mean that other trusts which are charging fees for imparting education, would not be considered to be charitable in nature. The Act contemplates exemption to be granted to an eligible Trust or institute in respect of its income. It is therefore manifested in such provisions that only when there is income, there could be a claim of exemption. Thus statute envisages that there are chances of a Trust or institute earning income by way of surplus so as to grant exemption under Sections 11 and 12 of the Act, subject to the conditions prescribed under Sections 11(5) and 13 of the Act. If the Trust is not expected to earn surplus, there would not be a question of allowing any exemption from tax liability. When the scheme of the Act allowed exemption from tax liability, the same could be only envisaged where there is a likelihood of earning surplus. Merely because the education activity had resulted in a surplus, would not be a ground to hold that assessee was not carrying on charitable activity. There is no case for the Revenue that surplus generated by the assessee on account of its activities were divided among the trustees or taken by the trustees but, for certain violation allegedly falling under Section 13(1)(c) of the Act. A look at the Income and Expenditure and balance-sheet of the assessee placed at paper-book page 8 clearly shows that excess of income generated Rs. 1,13,97,056.73 was utilized in making investment in various assets of the Trust. Hon’ble Gujarat High Court in the case of Gujarat State Co-operative Union v. CIT (195 ITR 279), after considering the judgment of Hon’ble Apex Court in the case of Sole Trustee, Loka Shikshana Trust (supra), had held as under:-
“The Supreme Court, in the above observations, by referring to the systematic instruction, schooling or training given o the young has only cited an instance in order to indicate as to what the word “education” appearing in Section 2(15) of the Act which defines “charitable purposes” is intended to mean. We are certain that these observations were not intended to keep out of the meaning of the word “education”, persons other than “young”. The expression “schooling” also means “that schools, instructs or educates” (The Oxford English Dictionary, Vol. IX, page 217). The Supreme Court has observed that the word “education” also connotes the whole course of scholastic instruction which a person has received.
This clearly indicates that the observations of the Supreme Court were not intended to give a narrow or pedantic sense to the word “education’.
By giving further illustrations of a traveler gaining knowledge, victims of swindlers and thieves becoming wiser, the visitors to night clubs adding to their knowledge the hidden mysteries of life, the Supreme Court has indicated that the word “education” is not used in a loose sense so as to include acquisition of even such knowledge. The observations of the Supreme Court only indicate the proper confines of the word “education” in the context of the provisions of section 2(15) of the Act. It will not be proper to construe these observations in a manner in which they are construed by the Tribunal when it infers from these observations, in para 17 of its judgment, that the word “education” is limited to schools colleges and similar institutions and does not extend to any other media for such acquisition of knowledge. The observations of the Supreme Court do not confine the word “education” only to scholastic instructions but other forms of education also are included in the word “schooling” also means instructing or educating. It, therefore, cannot be said that the word “education” has been given an unduly restricted meaning by the Supreme Court in the said decision.
Though, in the context of the provision of section 10(22), the concept of education need not be given any wide or extended meaning, it surely would encompass systematic dissemination of knowledge and training in specialised subjects as is done by the assessee. The changing times and the ever widening horizons of knowledge may bring in changes in the methodology of teaching and a shift for the better in the institutional set-up. Advancement of knowledge brings within its fold suitable methods of its dissemination and though the primary method of sitting in a classroom may remain ideal for most of the initial education, it may become necessary to have a different outlook for further education. It is not necessary to nail down the concept of education to a particular formula or to flow it only through a defined channel. Its progress lies in the acceptance of new ideas and development of appropriate means to reach them to the recipients.”
Assessee here, in our opinion, did fall within the concept of rendering a formal education and could not be equated with a coaching institute. We are, therefore, of the opinion that assessee could not have been denied the eligible exemption under Sections 11 and 12 of the Act for a reason that it was not doing charitable activity as defined under Section 2(15) of the Act.
13. Coming to the aspect of violation under Section 13(1)(c) of the Act, it is an admitted position that a sum of Rs. 30 lakhs was withdrawn from the assessee-Trust on 4.3.2008 and held by one of the trustees Shri Victor Vijayaraj for two days and returned on 6.3.2008. The period for which the amount was held by the trustee came to two days only and it will not be reasonable to take a view that any benefit could have been derived by Shri Victor Vijayaraj in such a short period of two days. Assessee’s contention that the money was returned as soon as the mistake was recognized, appears to be reasonable. A look at Section 13(1)(c)(ii) would clearly show that only if a part of the income or property of the Trust is used or applied directly or indirectly for the benefit of a trustee, it would result in denial of exemption under Sections 11 and 12 of the Act. As mentioned by us, Revenue has not been able to demonstrate that any benefit was derived by Shri Victor Vijayaraj out of the sum of Rs. 30 lakhs lying in his bank account for a period of two days.
14. Insofar as the other violations noted by the A.O. viz., Rs. 5,60,000/-drawn by Shri Victor Vijayaraj during the period 9.8.2007 to 6.2.2008, submission of the assessee was that it was only a mistake and the sum was only Rs. 1,90,000/-. Again, as per the assessee, out of this Rs. 1,90,000/-, sum of Rs. 1,80,000/- was salary paid to the said trustee, who was an engineering graduate with seven years’ experience. These submissions of the assessee have not been objectively considered by the lower authorities. Similarly, assessee’s explanation that the sum of Rs. 2,78,000/- appearing as PCP expenses was nothing but sums due to a trustee has also not been verified. Similar claim of the assessee that a sum of Rs. 2,50,000/- considered drawn by Dr. Louis Prakasam Kannaiah on 2.1.2008 was not, in fact, drawing at all, but was expenses incurred under the head “Building Account” also has not been verified. Its claim that Rs. 7200/- drawn from bank by Dr. Louis Prakasam Kannaiah every month, was rent for premises taken on lease has also not been verified. Insofar as Rs. 7,25,000/- advanced to Sri Ramachandra Educational Trust, assessee’s submission was that this was an educational Trust registered under Section 12AA of the Act and hence, not a violation under Section 11(5) of the Act and this aspect has also not been looked into by the lower authorities. Assessee’s explanation that an advance of Rs. 2,86,000/- mentioned by the A.O. had no connection with any related party has also not been verified. In our opinion none of the explanations on the alleged violations have been verified by the authorities below. Therefore, we are of the opinion that the question whether there was any violation under Section 13(1)(c) of the Act and / or Section 11(5) of the Act, requires a reconsideration by the A.O.
15. Thus while holding that assessee is eligible for exemption under Sections 11 and 12 of the Act, we direct the A.O. to verify the explanations given by the assessee insofar as alleged violation under Section 13(1)(c) was concerned, for the amounts of Rs. 5,60,000/-, Rs. 1,80,000/-, Rs. 2,78,000/-, Rs. 2,50,000/-, Rs 7200 and Rs. 7,25,000/-. If these are explained satisfactorily, assessee shall be given exemption claimed under Sections 11 and 12 of the Act.
16. In the result, appeal filed by the assessee is allowed for statistical purposes. Ordered accordingly.
