Deputy Commissioner of Income Tax (Exemption), Circle-1, Bengaluru V. M/s. Mahatma Gandhi Vidyapeetha Trust, Bengaluru

ITA 2707/BANG/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4186 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 13-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SUKUMAR
• Keywords: Capital asset; Depreciation; Charitable institution; Period of limitation; Cost of acquisition; Revised return; Revenue expenditure; Capital expenditure; TDS
• Section: 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NOS.2707 TO 2709/BANG/2017 ASSESSMENT YEAR : 2012-13 TO 2014-15 THE DY. COMMISSIONER OF INCOME-TAX, (EXEMPTIONS), CIRCLE-1, BENGALURU. M/S MAHATMA GANDHI VIDYAPEETHA TRUST, SAVIGE MALLESWARA GHILLS, KANAKAPURA ROAD, KUMARASWAMY LAYOUT, BENGALURU-560 078. PAN : AAATM 2020 Q. APPELLANT RESPONDENT CO NOS.40 TO 42/BANG/2018 (BY ASSESSEE) ASSESSMENT YEAR : 2012-13 TO 2014-15 M/S MAHATMA GANDHI VIDYAPEETHA TRUST, SAVIGE MALLESWARA GHILLS, KANAKAPURA ROAD, KUMARASWAMY LAYOUT, BENGALURU-560 078. PAN : AAATM 2020 Q. THE DY. COMMISSIONER OF INCOME- TAX, (EXEMPTIONS), CIRCLE-1, BENGALURU. APPELLANT RESPONDENT REVENUE BY : SHRI PRADEEP KUMAR, CIT ASSESSEE BY : SHRI S SUKUMAR, ADVOCATE ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 2 OF 41 DATE OF HEARING : 17.01.2019 DATE OF PRONOUNCEMENT : .02.2019 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT ITA NO.2707 TO 2709/BANG/2017 ARE APPEALS BY THE RE VENUE AGAINST THREE ORDERS ALL DATED 27.9.2017 OF CIT(A) -14, BANGALORE RELATING TO AY 2012-13 TO 2014-15. THE ASSESSEE HA S FILED C.O.NO.42, 40 & 41/BANG/2017 IN THE APPEALS FILED B Y THE REVENUE AGAINST THE VERY SAME ORDER OF CIT(A) FOR A Y 2012 -13 TO 2014-15 RESPECTIVELY. 2. THE ISSUES THAT ARISE FOR CONSIDERATION IN THE A PPEALS BY THE REVENUE AND THE COS OF THE ASSESSEE ARE IDENTICAL AND ARISE UNDER IDENTICAL FACTS AND CIRCUMSTANCES. THE APPEALS AS WELL AS THE C.O.S WERE HEARD TOGETHER. WE DEEM IT CONVENIENT TO PASS A COMMON ORDER. 3. THE REVISED GROUNDS OF APPEAL FILED BY THE REVEN UE IN ALL THE THREE APPEALS ARE IDENTICAL. FOR THE SAKE OF REFER ENCE, THE GROUNDS RAISED IN AY 2012-13 ARE GIVEN BELOW: 1. THE CIT(A) IS OPPOSED TO FACTS AND CIRCUMSTANCES OF THE CASE. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT(A) IS RIGHT IN HOLDING THAT THE ASSESSEE IS ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 3 OF 41 ELIGIBLE FOR EXEMPTION U/S 11 AND 12 OF THE I.T. AC T, 1961, THOUGH THE ASSESSEE TRUST HAS COLLECTED MORE THAN THE FEE DECLARED OR NOTIFIED IN RESPECT OF NRI /NRI SPONSORED AND OTHERS QUOTA I.E., MANAGEMENT QUOTA I N THE GARB OF VOLUNTARY CONTRIBUTIONS/CORPUS FUND AND THIS FACT OF COLLECTING MORE THAN THE FEE NOTIFIED HAS BEEN PROVED WITHOUT ANY DISPUTE IN AS MUCH AS THE ASSESSEE ITSELF FURNISHING THE DETAILS? 3. WHETHER THE CIT(A) WAS RIGHT IN LAW IN STATING T HAT THERE WAS NO SURPLUS THOUGH THE ASSESSEE HAS A NET SURPLUS OF 30.80% BEFORE ALLOWING DEPRECIATION AND 16.90% AFTER ALLOWING DEPRECIATION IN THE CURRENT Y EAR AND THE SAME IN RESPECT OF OTHER ASSESSMENT YEARS A S GIVEN BELOW : 4. WHETHER THE HON'BLE CIT(A) WAS RIGHT IN LAW IN N OT FOLLOWING THE HON'BLE SUPREME COURT DECISION IN THE CASE OF M/S. VISVESVARAYA TECHNOLOGICAL UNIVERSITY WHEREIN CONSTANT INCREASE IN SURPLUS YEAR AFTER YEA R BY WAY OF COLLECTION OF FEE/MONEY UNDER VARIOUS HEADS MORE THAN WHAT THEY REQUIRE TO SPEND FOR THE PURPOS E FOR WHICH THEY COLLECT WOULD NOT AMOUNT TO REASONABLE SURPLUS BUT WOULD AMOUNT TO MORE SURPLUS THOUGH THE TRUST IS COLLECTING RS.33,85,61,610/- AS OTHER INCO ME DURING THE YEAR ? ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 4 OF 41 5. ANY OTHER GROUNDS TO BE RAISED AT THE TIME OF FI LING HEARING THE APPEAL 4. THE GROUNDS OF APPEAL ARE IDENTICAL IN AY 2013-1 4 & 2014-15 EXCEPT FOR THE QUANTUM OF OTHER INCOME WHICH SHOULD HAVE BEEN RS.41,36,94,143 AND RS.47,66,73,657/- FOR AY 2013-1 4 & 2014-15 BUT HAS WRONGLY BEEN WRITTEN AS RS.33,85,61,610 IN THE GROUNDS OF APPEAL FOR ALL THE THREE AYS. 5. THE ASSESSEE IS A TRUST WHICH CAME INTO EXISTENC E BY VIRTUE OF A TRUST DEED DATED 3.10.1979. THE OBJECTS OF THE TRU ST ARE ADMITTEDLY FOR IMPARTING EDUCATION BY RUNNING SCHOOLS AND COLLEGES . THE ASSESSEE WAS GRANTED REGISTRATION U/S.12A(A) OF THE INCOME T AX ACT, 1961 (ACT). THE ASSESSEE FILED RETURN OF INCOME FOR ALL THE AFO RESAID THREE AYS, DECLARING NIL INCOME. IN THE COURSE OF ASSESSMENT PROCEEDINGS U/S.143(3) OF THE ACT, THE AO NOTICED THAT THE ASSE SSEE HAD DISCLOSED A SUM OF RS.33,85,61,610/- FOR AY 2012-13, RS.41,36,9 4,143/- FOR AY 2013-14 AND RS.47,66,73,657/- FOR AY 2014-15 AS OTH ER INCOME. THE AO CALLED UPON THE ASSESSEE TO FURNISH THE DETAILS OF OTHER INCOME SUCH AS SOURCE OF INCOME, NAME AND ADDRESS OF THE P ARTIES ETC., AND THE PURPOSE FOR WHICH THE AMOUNT WAS RECEIVED. 6. ON ANALYSIS OF THE DETAILS FURNISHED BY THE ASSE SSEE IN RESPONSE TO THE QUERY OF THE AO, THE AO NOTICED THAT 90% OF THE OTHER INCOME ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 5 OF 41 WAS AMOUNT COLLECTED BY THE ASSESSEE FROM STUDENTS EITHER AT THE TIME OF ADMISSION OR DURING THE COURSE OF ACADEMIC YEAR. THE AO NOTICED THAT THE OTHER INCOME FOR AY 2012-13 WAS BROKEN UPO N BY THE ASSESSSEE AS MISCELLANEOUS INCOME AT RS.15,44,02,98 7/- AND BALANCE SUM OF RS.18,41,58,623/- WAS ACCOUNTED UNDER VARIOU S HEADS LIKE CIL CHARGES, E-LEARNING CHARGES, SPORTS FEE, CULTURAL F EE, E-LIBRARY FEE, LANGUAGE FEE, UNIFORM FEE, ALUMNI FEE, GRADUATE FEE ETC. THE AO WAS OF THE VIEW THAT IN THE FORM OF OTHER INCOME THE ASSES SEE WAS COLLECTING CAPITATION FEE. HE WAS OF THE VIEW THAT THE ASSESS EE WAS COLLECTING FEE OVER AND ABOVE THE FEES FIXED BY THE GOVERNMENT IN RESPECT OF ALL CATEGORIES OF STUDENTS. HE OBSERVED THAT COLLECTIO N OF CAPITATION FEE WAS DEPRECATED BY THE HONBLE SUPREME COURT IN SEVE RAL DECISIONS. HE WAS OF THE VIEW THAT IF AN EDUCATIONAL INSTITUTI ON COLLECTED CAPITATION FEE THEN SUCH AN INSTITUTION SHOULD BE C ONSIDERED AS EXISTING FOR PROFIT AND FOR CHARITABLE PURPOSE WITHIN THE ME ANING OF THE DEFINITION OF CHARITABLE PURPOSE UNDER SEC.2(15) OF THE ACT. 7. THE AO HAS MADE A REFERENCE TO THE KARNATAKA EDU CATIONAL INSTITUTIONS (PROHIBITION OF CAPITATION FEE) ACT, 1 944 (ACT NO.23 OF 2011) WHICH PROVIDES THAT FEES TO BE COLLECTED FOR VARIOUS QUOTAS HAVE TO BE ON THE BASIS OF CONSENSUAL AGREEMENT. HIGHER FEES COULD BE COLLECTED FOR CERTAIN CATEGORIES OF ADMISSION TO SU BSIDIZE COST OF EDUCATION TO OTHER STUDENTS. THE CASE OF THE AO WA S THAT THE ASSESSEE IS NOT PERMITTED TO COLLECT ANY ADDITIONAL FEE IN T HE FORM OF VOLUNTARY ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 6 OF 41 CONTRIBUTION/CORPUR DONATION. HIS CASE IS THAT THE ASSESSEE HAS BEEN COLLECTING THE SO CALLED MISCELLANEOUS AND OTHER FE E FORM THE STUDENTS /PARENTS OF MANAGEMENT/NRI QUOTA STUDENT FOR SEVERA L YEARS VIOLATING THE TERMS AND CONDITIONS OF CONSENSUAL AGREEMENT AN D THE PROVISIONS OF KARNATAKA EDUCATIONAL INSTITUTIONS (PROHIBITION OF CAPITATION FEES) ACT, 1984. THE AO THEREAFTER OBSERVED THAT THE ASSESSEE FOR THE F.Y. 2011- 12 RELEVANT TO A.Y. 2012-13 HAD GROSS RECEIPTS FROM EDUCATIONAL ACTIVITIES OF RS.143,24,84,900/-. AFTER CONSIDERING THE REVENUE EXPENDITURE INCURRED, THE NET SURPLUS WAS 30.80% BE FORE ALLOWING DEPRECIATION AND 16.90% AFTER ALLOWING DEPRECIATION COMPUTED AS UNDER:- THE AO MADE SIMILAR COMPUTATION OF NET SURPLUS AFTE R AND BEFORE DEPRECIATION FOR AY 2007-08 TO 2011-12 AS FOLLOWS:- ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 7 OF 41 THE AO NOTICED FROM THE ABOVE TABLE WAS THAT THE AS SESSEE HAS BEEN GENERATING NET SURPLUS MARGIN BEFORE DEPRECIATION I N THE RANGE OF 31% TO 37% AND AFTER ALLOWING DEPRECIATION, THE NET SUR PLUS WAS VARYING BETWEEN 16% AND 29%, OVER A PERIOD OF SIX ASSESSME NT YEARS STARTING FROM A.Y. 2007-08 TO 2012-13. HE CONCLUDED THAT THE ASSESSEE HAS BEEN GENERATING HUGE AMOUNT OF SURPLUS/INCOME FOR T HE PAST SEVERAL YEARS WHICH CAN BE TERMED AS UNREASONABLE SURPLUS A S HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF P A LNAMDAR AN D ISLAMIC ACADEMY (SUPRA). THE AO WAS OF THE VIEW THAT IN THE LIGHT OF THE ABOVE MENTIONED FACTS AND CIRCUMSTANCE OF THE CASE, THAT THE ASSESSEE DOES NOT EXIST WHOLLY AND EXCLUSIVELY FOR THE PURPO SE OF EDUCATION AND THE EDUCATIONAL INSTITUTIONS ARE BEING USED FOR THE PURPOSE OF GENERATING HUGE AMOUNT OF SURPLUS AS AGAINST THE RU LING GIVEN BY THE HON'BLE SUPREME COURT IN THE CASE OF P.A. INAMDAR ( SUPRA) AND ALSO THE DECISION OF THE HON'BLE COURT OF KARNATAKA IN T HE CASE OF ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 8 OF 41 VISVESVARAYA TECHNOLOGICAL UNIVERSITY (SUPRA). ACCO RDINGLY, HE ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE CALLING UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ASSESSEE SHOULD NOT BE REGARDED AS NOT ENGAGED IN CHARITABLE ACTIVITIES IN THE NATURE OF EDUCATION AS ENVISAGED U/S 2(15) AND THEREFORE NOT ELIGIBLE TO CLAIM EXEMPTION U/S.1 1 OF THE ACT OF THE NET SURPLUS IN THE PROFIT AND LOSS ACCOUNT. 8. THE AO HAS REFERRED TO A WRITTEN SUBMISSION FILE D BY THE ASSESSEE DATED 23.3.2015 BUT HAS NOT SET OUT THE CO NTENTIONS OF THE ASSESSEE IN THE SAID SUBMISSIONS. THEREAFTER THE A O PROCEEDED TO RELY ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF VISVESHWARAYA TECHNOLOGICAL UNIVERSITY VS. ACIT 362 ITR 279 (KARN.) IN PREFERENCE TO THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF QUEENS EDUCATIONAL SOCIETY. HE OBSERV ED THAT AS PER THE DECISIONS OF HONBLE SUPREME COURT ON THE ISSUE, TH E PREDOMINANT OBJECT OF THE TRUST AS TO WHETHER IT IS PROVIDING E DUCATION HAS TO BE SEEN FOR ALLOWING EXEMPTION U/S11 OF THE ACT. HE HELD TH AT IF AN EDUCATION INSTITUTION IS COLLECTING EXORBITANT AMOUNT OF FEE FROM THE STUDENTS TO IMPART EDUCATION RESULTING IN HUGE AMOUNT OF SURPLU S I.E. MORE THAN15%, CONSISTENTLY YEAR AFTER YEAR, THEN IT CANN OT BE CALLED AS PROFIT INCIDENTA L TO THE MAIN ACTIVITY OF IMPARTING EDUCATION. SIM ILARLY, IN A CASE, IF AN EDUCATION INSTITUTION IS COLLECTING FEE AS FIXED BY THE GOVERNMENT/RELEVANT AUTHORITY BUT COLLECTS ADDITIONAL FEE/CAPITATION FEE FROM THE STUDENTS IN THE GARB OF VOLUNTARY ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 9 OF 41 CONTRIBUTIONS/DONATIONS/CORPUS DONATIONS RESULTING IN HUGE AMOUNT OF SURPLUS I.E. MORE THAN 15%, CONSISTENTLY YEAR AF TER YEAR, THEN IT CANNOT BE CALLED AS PROFIT INCIDENTAL TO THE MAIN A CTIVITY OF IMPARTING EDUCATION. IN THIS CASE, SUCH INSTITUTION IS NOT EA RNING THE INCOME LAWFULLY TO THE EXTENT OF SO CALLED VOLUNTARY CONTRIBUTIONS/DONATIONS/CORPUS DONATIONS AND, THERE FORE, AT THE OUTSET IT CANNOT BE CONSIDERED AS EXISTING SOLELY FOR EDUCATI ON PURPOSE. HE HELD THAT UNDER THE ABOVE TWO CIRCUMSTANCES, THE PR EDOMINANT OBJECT OF THE ACTIVITY IS TO EARN PROFITS AND, THEREFORE, SUC H INSTITUTION/TRUST CANNOT BE TERMED AS EXISTING SOLELY FOR EDUCATION/C HARITABLE PURPOSES AND NOT TO EARN PROFIT, THOUGH SUCH HUGE AMOUNT OF SURPLUS IS UTILISED/ACCUMULATED TOWARDS THE OBJECTS OF THE TRU ST/INSTITUTION. HE THEREAFTER CONCLUDED THAT THE ASSESSEE CANNOT BE RE GARDED AS ELIGIBLE TO EXEMPTION OF SURPLUS FROM TAX U/S.11 OF THE ACT, FO R THE FOLLOWING REASONS: (A) THOUGH THE ASSESSEE IS LAWFULLY COLLECTING FEE , BUT THE AMOUNT OF FEE COLLECTED IS RESULTING IN UNREASONABLE SURPLUS YEAR AFTER YEAR IN THE RANGE OF 50-60% AND, THEREFORE, THE PREDOMINANT OBJ ECT OR THE ACTIVITY OF THE ASSESSEE TRUST IS TO MAKE PROFIT RATHER THAN EXISTING SOLELY FOR EDUCATIONAL PURPOSES. (B) THE ASSESSEE WAS USING EDUCATIONAL INSTITUTION AS AN APPARATUS/TOOL TO MAKE PROFIT WHICH IN TURN HAS RESULTED IN UNREAS ONABLE SURPLUS. ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 10 OF 41 (C ) THE ASSESSEE HAS NOT APPLIED THE HUGE AMOUNT O F SURPLUS GENERATED YEAR AFTER YEAR BUT SIMPLY ACCUMULATED IN THE FORM OF FIXED DEPOSITS AND BANK BALANCES ETC. 9. THE AO THEREAFTER MADE A REFERENCE TO THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF VISVESVARAYA TECHNOLOG ICAL UNIVERSITY (SUPRA), WHICH WAS AN APPEAL FROM THE DECISION OF T HE HONBLE KARNATAKA HIGH COURT WHEREIN IT WAS HELD THAT CONST ANT INCREASE IN SURPLUS YEAR A YEAR BY WAY OF COLLECTION OF FEES/MO NIES UNDER VARIOUS HEADS, MORE THAN WHAT THEY REQUIRE TO SPEND FOR THE PURPOSE FOR WHICH THEY COLLECT SUCH AMOUNTS, WOULD NOT AMOUNT TO 'RE ASONABLE SURPLUS' AND IT WOULD INDICATE THAT THE INSTITUTION IS SYSTE MATICALLY MAKING PROFIT. THE AO ALSO MADE A REFERENCE TO THE DECISIO NS OF THE HON'BLE SUPREME COURT IN THE CASES OF P.A INARNDAR VS. STAT E OF MAHARASHTRA (6 SCC 537) AND ISLAMIC ACADEMY OF EDUCATION VS. STATE OF KARNATAKA (6 SSC 697) WHEREIN IT WAS HELD THAT THE EXISTENCE OF PROFIT OR SURPLUS UP TO 15% OF RECEIPTS CAN BE CONSIDERED AS REASONABLE AND NECESSARY FOR SUSTENANCE AND EXPANSION OF THE INSTITUTION. IT IS FURTHER OBSERVED BY THE HON'BLE SUPREME COURT THAT AN INSTITUTION CANNO T CHARGE ANYTHING UNREASONABLE UNDER THE GUISE OF SURPLUS AND MAKE/PR OFIT, INDIRECTLY OR SYSTEMATICALLY, AND THEN CLAIM THAT THEY ARE ESTABL ISHED FOR EDUCATIONAL PURPOSE AND NOT FOR PURPOSE OF PROFIT. THE AO FINA LLY HELD THAT THE ASSESSEE IS NOT ELIGIBLE TO CLAIM EXEMPTION U/S 11 & 12 AND COMPLETED ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 11 OF 41 THE ASSESSMENT OF THE ASSESSEE FOR THE AY 2012-13 T O 2014-15 BY APPLYING THE REGULAR PROVISIONS OF ACT AS ENVISAGED UNDER CHAPTER IV. 10. BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT THE CONCLUSION DRAWN BY THE AO ARE NOT FACTUALLY CORRECT. THE ASSESSEE SUBMITTED THAT IT HAD NOT VIOLATED THE PROVISION OF KARNATAKA EDUCATIONAL INSTITUTIONS (PROHIBITION OF CAPITATION FEES) ACT OF 1984. HE D REW ATTENTION OF THE CIT(A) TO THE OBSERVATIONS OF THE AO IN THE ORDER O F ASSESSMENT WHEREIN THE COMPLAINT OF THE AO WAS THAT INCOME UND ER THE HEAD OTHER INCOME WAS MONEY COLLECTED UNDER VARIOUS HEADS WAS IN FACT CAPITATION FEE WITH A DIFFERENT NOMENCLATURE. THE ASSESSEE ALS O MADE A REFERENCE TO THE ORDER OF THE AO WHEREIN THE AO HAS AGREED TH AT THE ASSESSEE WAS COLLECTING FEE LAWFULLY. THE ASSESSEE BROUGHT TO T HE NOTICE OF THE CIT(A) THAT THERE WAS NO INCREASE IN THE SURPLUS MA RGIN GENERATED BY THE ASSESSEE. DRAWING ATTENTION TO THE CHART PREPA RED BY THE AO AND SET OUT IN THE ORDER OF ASSESSMENT, THE ASSESSEE PO INTED OUT THAT EVEN AS PER THE CHART PREPARED BY THE AO, THE SURPLUS MARGI N HAS DECREASED FROM 2007-08 TO 2011-12 I.E., NET MARGIN BEFORE DEP RECIATION CAME DOWN TO 31% IN 2011-12 FROM 37% IN AY2007-08. FOR T HE INSTITUTION EVEN FROM THE TABLE PREPARED BY THE AO AT PARA 4.23 OF THE ASSESSMENT ORDER AT PAGE 17. IT WAS STATED THAT THE SURPLUS MA RGIN HAS INCOME REDUCED FROM 2007-08 FROM 37% WITHOUT DEPRECIATION TO 31% IN 2011- 12. IT WAS CONTENDED THAT THE AO HAS READ IN THE RE VERSE DIRECTION TO DRAW A CONCLUSION THAT THERE IS AN INCREASE IN THE NET SURPLUS. THE ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 12 OF 41 ASSESSEE SUBMITTED THAT SURPLUS HAS TO BE DETERMINE D WITH REFERENCE TO THE COMPUTATION PERMITTED U/S.11 AND NOT IN THE MAN NER PREPARED BY THE AO AT PARA 4.23 OF THE ASSESSMENT ORDER. 11. THE CIT(A) FORMULATED THE FOLLOWING POINTS AS ARISING FOR HIS CONSIDERATION: (1) WHETHER THE ASSESSEE HAS VIOLATED THE KARNATAKA EDUCATIONAL INSTITUTIONS (PROHIBITION OF CAPITATION FEES) ACT OF 1984 AS ALLEGED BY THE AO IN PARA 4.21. (2) WHETHER THE AMOUNT COLLECTED BY THE ASSESSEE IS AS PER RULES LAID DOWN AND AS PER THE CONSENSUAL AGREE MENT ENTERED INTO WITH THE GOVERNMENT OF KARNATAKA AND CONSORTIUM OF PRIVATE PROFESSIONAL INSTITUTIONS. (3) WHETHER THE ASSESSEE CAN BE ALLEGED TO BE COLLECTING CAPITATION FEE ON ACCOUNT OF THE FEE THA T THE ASSESSEE IS COLLECTING CERTAIN AMOUNT OVER AND ABOV E THE TUITION FEE. (4) WHETHER THERE IS ANY SURPLUS ARISING TO THE ASS ESSEE ON ACCOUNT OF THE ACTIVITY OF RUNNING OF EDUCATIONA L INSTITUTIONS AND IF SO, WHETHER THIS SURPLUS IS WIT HIN THE PERMISSIBLE LIMITS LAID DOWN BY THE HON'BLE SUPREME COURT. (5) IF, THERE IS ANY SURPLUS ARISING FROM THE ACTIV ITIES OF THE RUNNING OF EDUCATIONAL INSTITUTIONS WHETHER THA T SURPLUS IS SUBSTANTIAL OR WITHIN REASONABLE LIMITS. ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 13 OF 41 12. AS FAR AS THE ISSUE WHETHER THE ASSESSEE VIOLA TED THE PROVISIONS OF KARNATAKA EDUCATIONAL INSTITUTIONS (P ROHIBITION OF CAPITATION FEES) ACT OF 1984 BY WHICH COLLECTION OF CAPITATION FEE IS PROHIBITED, THE RELEVANT PROVISIONS IN THE S AID ACT ARE SECTION 3 TO 5 OF THAT ACT. AS PER THE PROVISIONS OF SEC.3 OF THAT ACT PROVIDES THAT NO CAPITATION FEE SHALL BE C OLLECTED BY OR ON BEHALF OF ANY EDUCATIONAL INSTITUTION OR BY ANY PERSON WHO IS IN CHARGE OF OR IS RESPONSIBLE FOR THE MANAGEMENT O F SUCH INSTITUTION. THE PROVISO TO THE SAID SECTION LAYS DOWN THAT CAPITATION FEE OR CASH DEPOSITS MAY BE COLLECTED AS PER RULES OR ORDERS THAT GOVERNMENT MAY ISSUE FROM TIME TO TIME. SECTION 4(2) OF THAT PROVIDES THAT IN ORDER TO REGULATE T HE CAPITATION FEE CHARGED OR COLLECTED DURING THE PERIOD SPECIFIED UN DER THE PROVISO TO SECTION 3, THE GOVERNMENT MAY, FROM TIME TO TIME, BY GENERAL OR SPECIAL ORDER, SPECIFY IN RESPECT OF EACH PRIVATE EDUCATIONAL INSTITUTION OR CLASS OR CLASSES OF SUCH INSTITUTIONS, (A) THE NUMBER OF SEATS SET APART AS GOVERNMENT SEA TS; (B) THE NUMBER OF SEATS THAT MAY BE FILLED UP BY TH E MANAGEMENT OF SUCH INSTITUTION,- (I) FROM AMONG KARNATAKA STUDENTS ON THE BASIS OF M ERIT, ON PAYMENT OF SUCH CASH DEPOSITS REFUNDABLE AFTER S UCH NUMBER OF YEARS, WITH OR WITHOUT INTEREST AS MAY BE SPECIFIED THEREIN, BUT WITHOUT THE PAYMENT OF CAPIT ATION FEE ; OR ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 14 OF 41 (II) AT ITS DISCRETION SECTION 5 OF THAT ACT ALSO LAYS DOWN THAT NO EDUCAT IONAL INSTITUTION SHALL COLLECT ANY FEES OR AMOUNT OR ACC EPT DEPOSITS IN EXCESS OF THE AMOUNTS NOTIFIED UNDER SUB-SECTION (1 ) OR PERMITTED UNDER THE PROVISO TO SECTION 3. SECTION 2(B) OF THAT ACT ALSO DEFINES, ' CAPITATION FEE ' TO MEAN ANY AMOUNT, BY WHATEVER NAME CALLED, PAID OR COLLECTED DIRECTLY OR INDIRECTLY IN EXCESS OF THE FEE PRESCRIBED UNDER SECTION 5, BUT D OES NOT INCLUDE THE DEPOSIT SPECIFIED UNDER THE PROVISO TO SECTION 3. IN EXERCISE OF POWERS PROVIDED BY THE PROVISIONS OF SE C.5 OF THAT ACT, GOVERNMENT MAY BY 'NOTIFICATION, TO REGULATE T HE TUITION FEE OR ANY OTHER FEE OR DEPOSIT OR OTHER AMOUNT THA T MAY BE RECEIVED OR COLLECTED BY ANY EDUCATIONAL INSTITUTIO N OR CLASS OF SUCH INSTITUTIONS IN RESPECT OF ANY OR ALL CLASS OR CLASSES OF STUDENTS. IN PURSUANCE OF THIS, THE KARNATAKA GOVE RNMENT PASSED ACT 8 OF 2006 TITLED AS THE KARNATAKA PROFESSIONAL EDUCATIONAL INSTITUTIONS (REGULATION OF ADMISSION AND DETERMINATION OF FEE) ACT, 2006. THIS ACT AT SECTION 7 DEALS WIT H THE FEE DETERMINATION BY A FEE REGULATORY COMMITTEE CONSTIT UTED UNDER THIS ACT. THE CIT(A) FOUND THAT IN THE CASE OF THE ASSESSEE, THE A.O HAS HIMSELF RECORDED AT PARA 4.32 OF THE ASSESSMENT ORDER THAT THE ASSESSEE WAS LAWFULLY COL LECTING FEE AND NO CONCLUSION WAS ARRIVED AT BY THE AO TO THE E FFECT THAT ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 15 OF 41 THE ASSESSEEE WAS COLLECTING ANY DEVELOPMENT FUND O R BUILDING FUND. FROM ANNEXURES WHICH WERE PROVIDED BY THE AS SESSEE BEFORE CIT(A), THE CIT(A) FOUND THAT THE ASSESSEE W AS COLLECTING UNIVERSITY FEE AMOUNTING IN RS.6,400 AND RS.27,960 SPLITTING VARIOUS FEE AS MENTIONED IN THE ANNEXURE. THIS AMOUNT ALSO CONSISTED OF REFUNDABLE DEPOSIT OF RS.8 ,000 CONSISTING OF RS.5,000 TOWARDS COLLEGE DEPOSIT AND RS.3,000 TOWARDS LIBRARY DEPOSIT. ALL OTHER ITEMS WHICH WERE MENTIONED IN THE FEE STRUCTURE WERE TOWARDS THE SUPPLY OF UNI FORM AND TOWARDS UTILISATION OF VARIOUS FACILITIES AVAILABLE IN THE INSTITUTIONS. IT WAS ALSO SUBMITTED BY THE ASSESSEE THAT THESE AMOUNTS WERE MENTIONED IN THE FEE RECEIPT ITSELF AN D WERE KNOWN TO EVERY STUDENT WHO WAS ADMITTED AND DID NOT VARY FROM ONE STUDENT TO ANOTHER STUDENT IN THE SAME BRA NCH. THE CIT(A) FOUND THAT THE UNIVERSITY FEE COLLECTED BY T HE ASSESSEE WAS THE FEE PAYABLE TO THE UNIVERSITY BY THE STUDEN T AND WAS ALLOWED AS PER THE PROVISIONS OF SECTION 2 OF THE A CT 8 OF 2006. THE OTHER AMOUNTS WERE EXPENSES FOR PROVIDING FACILITIES TO THE STUDENTS BY WAY OF UNIFORM, IDENTITY CARD ET C., AND THEREFORE CANNOT BE CONSIDERED AS CAPITATION FEE. T HE REFUNDABLE DEPOSITS WERE TO BE RETURNED WHEN THE CO URSE IS COMPLETED AND HENCE CANNOT BE TREATED AS CAPITATION FEE. THE CIT(A) WAS OF THE VIEW THAT TESTED AGAINST THE DEFI NITION PROVIDED BY THE ACT OF 1984, THE TUITION FEE COLLEC TED BY THE ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 16 OF 41 ASSESEE COMPARED WITH THE TUITION FEE PRESCRIBED BY THE CONSENSUAL AGREEMENT ENTERED INTO IN RESPECT OF THE ASSESSMENT YEAR UNDER CONSIDERATION, WAS IN KEEPING WITH THE F EE STRUCTURE DECIDED BY THE CONSENSUAL AGREEMENT IN RELATION TO THE TUITION FEE IN RESPECT OF STUDENTS ADMITTED UNDER CET AND C OMED-K CATEGORY. AS PER THE CONSENSUAL AGREEMENT, THE TUIT ION FEES IN RESPECT OF MANAGEMENT QUOTA IS NOT FIXED AND IT IS MENTIONED IN THE AGREEMENT THAT EACH INSTITUTION IS REQUIRED TO NOTIFY THE UPPER LIMIT OF THE FEE PAYABLE AND SHALL NOT COLLEC T ANYTHING MORE THAN THAT OF THE TUITION FEE. SINCE THERE IS N O LIMIT FIXED BY THE CONSENSUAL AGREEMENT IN RESPECT OF NRI STUDENTS AND MANAGEMENT QUOTA, THE ASSESSEE HAD FIXED THE FEE AN D THIS AMOUNT WHICH FIXED WAS COMMUNICATED WELL IN ADVANCE AND IT WAS THE SAME FOR ALL THE STUDENTS AND THERE WAS NO VARIATION. THE CIT(A) HELD THAT THE CONCLUSION DRAWN BY THE AO AT PARA 4.21 OF THE ASSESSMENT ORDER THAT THE ASSESEE HAS V IOLATED THE PROVISIONS OF KARNATAKA ACT IN RELATION OF PROHIBIT ION OF CAPITATION FEE WAS INCORRECT. 13. ON THE ISSUE WHETHER THE FEE COLLECTED BY THE ASSESSEE WAS IN ACCORDANCE WITH THE CONSENSUAL AGREEMENT, THE CI T(A) FOUND THE FOLLOWING FACTUAL POSITION. ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 17 OF 41 HE FOUND THAT THE ASSESSEE HAD DULY INTIMATED FEE T O BE COLLECTED FOR EACH OF THE COURSES AS PER THE PROCEDURE PRESCRIBED IN THE RELEVANT STATUTORY PROVISIONS. THERE WAS THEREFORE NO VIOLAT ION IN THE MATTER OF COLLECTION OF FEES BY THE ASSESSEE. 14. ON THE QUESTION WHETHER THE ASSESSEE WAS COLLE CTING CAPITATION FEE, THE CIT(A) FOUND THAT THE ASSESSEE WAS NOT COL LECTING ANY CAPITATION. 15. ON THE QUESTION WHETHER THE ACTIVITIES OF THE ASSESSEE RESULTED IN ANY SURPLUS, THE CIT(A) EXAMINED THE STREAM OF INCO ME OF THE ASSESSEE AND EXPENDITURE AND FOUND THAT INCOME STRE AM OF THE ASSESSEE WAS FEE RECEIPTS AND OTHER INCOME. THE OTH ER INCOME CONSISTED OF STATEMENT CONSISTS OF FEE RECEIPTS AND OTHER INCOME. THE OTHER INCOME CONSISTED OF INTEREST ON DEPOSITS HELD WITH BANKS, RENTAL INCOME RECEIVED ON ACCOUNT OF LETTING OUT OF PREMIS ES TO VIJAYA BANK, CAFETARIA AND FOR AN ATM AND HOSPITAL RECEIPTS ON A CCOUNT OF INSURANCE CLAIMS SETTLED. IN ADDITION, OTHER INCOME ALSO INCLUDED TDS MADE IN EARLIER YEARS BY VARIOUS PAYERS FOR WHICH C LAIM OF REFUND WAS ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 18 OF 41 MADE IN THE RETURNS FILED. OVER AND ABOVE THE INCO MES STATED ABOVE, OTHER INCOME ALSO INCLUDED THE FOLLOWING HEADS. THE CIT(A) FOUND THAT INCOME FORMING PART OF OTHER INCOME CANNOT BE CONSIDERED TO BE RECEIPTS ARISING FROM THE RUNNING OF EDUCATIONAL INSTITUTION, THOUGH SOME OF THEM MAY BE INCIDENTAL RECEIPTS. HE ALSO ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 19 OF 41 FOUND FROM EXAMINATION OF THE BALANCE SHEET THAT TH E ASSESSE HAD SUBSTANTIAL DEPOSITS IN BANK AND OTHER INCOME IS RE LATED TO THE INTEREST INCOME EARNED FROM THE DEPOSITS HELD BY THE ASSESSE E ON WHICH TDS AND HENCE, CANNOT BE CONSIDERED TO BE EARNED OUT OF THE ACTIVITY OF THE EDUCATIONAL INSTITUTIONS. HE HELD THAT INTEREST INCOME FROM THE DEPOSITS WERE TO BE CONSIDERED AS INCOME ARISING FROM THE ACTIVITY OF R UNNING EDUCATIONAL INSTITUTION. SIMILARLY, HE HELD THAT RENTAL INCOME CANNOT BE CONSIDERED TO HAVE ARISEN FROM THE ACTIVITY OF RUNNING THE EDU CATIONAL INSTITUTION. AFTER EXCLUDING THE AFORESAID ITEMS OF INCOME, THE CIT(A) COMPUTED THE NET SURPLS WAS DEFICIT BECAUSE FEES RECEIPTS WE RE RS.1,075,948,012 WHEREAS THE AMOUNT SPENT FOR ACTIVITIES OF THE TRU ST WAS RS. 1,272,227,302. THE CIT(A) THEREFORE CONCLUDED THAT THERE WAS NO NET SURPLUS ARISING FROM ACTIVITIES OF THE EDUCATIONAL INSTITUTION. 16. FOR THE ABOVE REASONS THE CIT(A) CAME TO THE C ONCLUSION THAT THERE WAS NO BASIS FOR THE AO TO HAVE DENIED THE BE NEFIT OF EXEMPTION TO THE ASSESSEE U/S.11 OF THE ACT. 17.THE ORDER OF ASSESSMENT AND ORDER OF CIT(A) IS I DENTICAL FOR AY 2013- 14 & 2014-15. AGGRIEVED BY THE ORDER OF THE CIT(A) , THE REVENUE HAS PREFERRED THE PRESENT APPEALS BEFORE THE TRIBUNAL. ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 20 OF 41 18. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. D R REITERATED THE STAND OF THE REVENUE AS REFLECTED IN THE GROUNDS OF APPEAL F ILED BEFORE THE TRIBUNAL. THE LD COUNSEL FOR THE ASSESEE REITERATED THE STAND TAKEN BY THE ASSESSEE FOR THE CIT(A) AND RELIED ON THE ORDER OF THE CIT(A). 19. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS. IN GR.NO.2 RAISED BY THE REVENUE, IT HAS BEEN CONTENDE D THAT THE ASSESSEE IS NOT ELIGIBLE FOR EXEMPTION U/S 11 AND 12 OF THE I.T. AC T, 1961, BECAUSE THE ASSESSEE TRUST HAS COLLECTED MORE THAN THE FEE DECL ARED OR NOTIFIED IN RESPECT OF NRI/NRI SPONSORED AND OTHERS QUOTA I.E., MANAGEMENT QUOTA IN THE GARB OF VOLUNTARY CONTRIBUTIONS/CORPUS FUND AND THIS FACT O F COLLECTING MORE THAN THE FEE NOTIFIED HAS BEEN PROVED WITHOUT ANY DISPUTE IN AS MUCH AS THE ASSESSEE ITSELF FURNISHED THE DETAILS. THE KARNATAKA EDUCAT IONAL INSTITUTIONS (PROHIBITION OF CAPITATION FEES) ACT OF 1984 (HEREI N AFTER CALLED THE STATE ACT) PROVIDES THAT NO EDUCATIONAL INSTITUTION OFFERING P ROFESSIONAL COURSES SHALL COLLECT ANY AMOUNT IN THE WAY OF CAPITATION FEE. E DUCATIONAL INSTITUTIONS ARE HOWEVER FREE TO COLLECT A FEE AND COLLECTION OF FEE IS REGULATED BY THE STATE GOVERNMENT IN PURSUANCE OF THE STATE ACT. THE GOVT . OF KARNATAKA HAS PASSED THE KARNATAKA PROFESSIONAL EDUCATIONAL INSTI TUTIONS (REGULATION OF ADMISSION AND DETERMINATION OF FEE) ACT 2006 (HEREI NAFTER REFERRED AS DETERMINATION OF FEE ACT). AS PER THE PROVISIONS O F DETERMINATION OF FEE ACT, THERE IS A FEE REGULATORY COMMITTEE WHICH DETERMINE S THE FEE TO BE CHARGED BY PRIVATE AIDED OR UN-AIDED PROFESSIONAL EDUCATION AL INSTITUTION AFFILIATED TO A UNIVERSITY. AS PER SEC. 7(3) PROVISO TO THE DETERM INATION OF FEE ACT, FEE ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 21 OF 41 REGULATORY COMMITTEE MAY ALLOW PROFESSIONAL EDUCATI ONAL INSTITUTION TO COLLECT A HIGHER RATE OF FEE FROM NON-RESIDENT INDI AN STUDENT FOR ADMISSION. 20. IT IS NOT IN DISPUTE THAT AS PER THE PROVISIONS OF THE DETERMINATION OF FEES ACT, A CONSENSUAL AGREEMENT WAS ENTERED INTO B ETWEEN GOVT. OF KARNATAKA AND THE KARNATAKA PVT. MEDICAL, DENTAL AN D ENGINEERING COLLEGE ASSOCIATION. THE CONSENSUAL AGREEMENT DOES NOT MAK E ANY REFERENCE TO ABOUT OTHER EXPENSES WHICH THE INSTITUTION MAY RECO VER FROM THE STUDENTS WHO ARE ADMITTED. CAPITATION FEE IS DEFINED AS AMO UNT COLLECTED FOR THE PURPOSE OF GIVING ADMISSION. 21. IT IS CLEAR FROM THE ORDER OF THE AO THAT THE C OMPLAINT OF THE AO WAS THAT THE ASSESSEE WAS COLLECTING FEES MUCH MORE THA N WHAT WAS AGREED IN TERMS OF CONSENSUAL AGREEMENT. IT IS ALSO CLEAR FR OM THE DETAILS FURNISHED BY THE ASSESSEE BEFORE THE CIT(A) THAT THE ASSESSEE HA S IN FACT NOT COLLECTED AMOUNTS IN EXCESS OF THE LIMITS AGREED UNDER THE CO NSENSUAL AGREEMENT. THE TUITION FEE COLLECTED BY THE ASSESEE COMPARED WITH THE TUITION FEE PRESCRIBED BY THE CONSENSUAL AGREEMENT ENTERED INTO IN RESPECT OF THE ASSESSMENT YEAR UNDER CONSIDERATION, WAS IN KEEPING WITH THE FEE ST RUCTURE DECIDED BY THE CONSENSUAL AGREEMENT IN RELATION TO THE TUITION FEE IN RESPECT OF STUDENTS ADMITTED UNDER CET AND COMED-K CATEGORY. AS PER THE CONSENSUAL AGREEMENT, THE TUITION FEES IN RESPECT OF MANAGEMEN T QUOTA IS NOT FIXED AND IT IS MENTIONED IN THE AGREEMENT THAT EACH INSTITUT ION IS REQUIRED TO NOTIFY THE UPPER LIMIT OF THE FEE PAYABLE AND SHALL NOT COLLEC T ANYTHING MORE THAN THAT OF THE TUITION FEE. SINCE THERE IS NO LIMIT FIXED B Y THE CONSENSUAL AGREEMENT ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 22 OF 41 IN RESPECT OF NRI STUDENTS AND MANAGEMENT QUOTA, TH E ASSESSEE HAD FIXED THE FEE AND THIS AMOUNT WHICH FIXED WAS COMMUNICATED WE LL IN ADVANCE AND IT WAS THE SAME FOR ALL THE STUDENTS AND THERE WAS NO VARIATION. 22 . IT IS CLEAR FROM THE DETAILS FURNISHED BY THE ASS ESSEE THAT NO CAPITATION FEE WAS COLLECTED AND FURTHER ACCEPTED IN MANAGEMEN T QUOTA WHERE THERE IS NO FEES FIXED BY CONSENSUAL AGREEMENT FEES COLLECTE D BY THE ASSESSEE WAS IN ACCORDANCE WITH THE COLLECTION OF ACT. IN THE ABOV E CIRCUMSTANCES CIT(A) WAS RIGHT IN COMING TO THE CONCLUSION THAT THE TUIT ION FEE COLLECTED BY THE ASSESSE WAS IN ACCORDANCE WITH THE CONSENSUAL AGREE MENT IN COLLECTION OF TUITION FEES AND THERE IS NO VIOLATION OF THE RELEV ANT PROVISIONS OF LAW. IT IS ALSO CLEAR FROM THE FINDINGS OF THE CIT(A) THAT THE ASSESEE HAS NOT BEEN COLLECTING ANY FEES AT THE TIME OF ADMISSION (COPY) WHICH IS NECESSARY TO CALL FEE COLLECTED IS COMPUTATION FEES THAT WHICH COLLE CTED AT THE TIME OF ADMISSION. EVEN GR.NO.2 OF THE REVENUE PROCEEDS ON THE FOOTING THAT THE TUITION FEE COLLECTED WAS IN REALITY A CAPITATION F EE. WE ARE OF THE VIEW THAT THE FINDINGS OF THE CIT(A) ON THIS ISSUE ARE CORREC T AND DOES NOT CALL FOR ANY INTERFERENCE. 23 . AS FAR AS GR.NO.3 & 4 RAISED BY THE REVENUE ARE C ONCERNED, THE SAME RELATES TO THE COMPLAINT OF THE AO THAT THE ASSESSE E HAS BEEN GENERATING SURPLUS OVER A PERIOD OF TIME AND THEREFORE AS PER THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF M/S.VISVES VARAYA TECHNOLOGICAL UNIVERSITY (SUPRA), THE ASSESSEE SHOULD BE DEEMED T O BE EXISTING FOR PURPOSE OF PROFIT AND NOT FOR CARRYING ON CHARITABLE ACTIVI TY OF PROVIDING EDUCATION. ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 23 OF 41 THE CHART PREPARED BY THE AO IN THIS REGARD IS ALRE ADY REPRODUCED IN THE GROUNDS OF APPEAL FILED BY THE REVENUE. THE DECISI ON OF THE HONBLE KARNATAKA HIGH COURT WAS SUBJECT MATTER OF APPEAL B EFORE THE HONBLE SUPREME COURT AND THE DECISION OF HONBLE SUPREME C OURT REPORTED IN 384 ITR 37. THE QUESTION BEFORE THE HIGH COURT AND THE SUPREME COURT IN THE CASE OF VISHWESHWARAIAH INSTITUTE OF TECHNOLOGY UNI VERSITY (SUPRA) WAS IN THE CONTEXT OF ALLOWABITY OF EXEMPTION U/S 10(23)( IIAB) OF THE ACT. THE VISVESVRAYA TECHNOLOGICAL UNIVERSITY (VTU) WAS CONS TITUTED UNDER THE VISVESWARAIAH TECHNOLOGICAL UNIVERSITY ACT, 1994. I T DISCHARGED FUNCTIONS EARLIER PERFORMED BY THE DEPARTMENT OF TECHNICAL ED UCATION, GOVERNMENT OF KARNATAKA. THE UNIVERSITY EXERCISES CONTROL OVER AL L GOVERNMENT AND PRIVATE ENGINEERING COLLEGES WITHIN KARNATAKA. THE UNIVERSITY CLAIMED EXEMPTION UNDER SECTION 10(23C)(IIIAB) OF THE ACT O N THE GROUND THAT IT IS SOLELY FOR THE PURPOSE OF EDUCATION AND WITHOUT ANY PROFIT MOTIVE AND IT IS WHOLLY OR SUBSTANTIALLY FINANCED BY THE GOVERNMENT. THE KARNATAKA HIGH COURT (IN THE JUDGMENT REPORTED IN (2014) 362 ITR 2 79 (KAR)) REJECTED THE CLAIM INTER ALIA ON THE GROUND THAT AN INSTITUTION WHICH REGULARLY MAKES MORE THAN 10% 15% SURPLUS IS EXISTING FOR PROFIT & IS NOT ELIGIBLE FOR EXEMPTION. ON APPEAL BY THE UNIVERSITY TO THE SUPREME COURT HE LD: (I) THE ENTITLEMENT FOR EXEMPTION UNDER SECTION 10( 23C) (IIIAB) IS SUBJECT TO TWO CONDITIONS. FIRSTLY THE EDUCATIONAL INSTITUTION OR THE UNIVERSITY MUST BE SOLELY FOR THE PURPOSE OF EDUCAT ION AND WITHOUT ANY PROFIT MOTIVE. SECONDLY, IT MUST BE WHOLLY OR SUBST ANTIALLY FINANCED BY THE GOVERNMENT. BOTH CONDITIONS WILL HAVE TO BE SAT ISFIED BEFORE EXEMPTION CAN BE GRANTED UNDER THE AFORESAID PROVIS ION OF THE ACT. ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 24 OF 41 (II) THE RELEVANT PRINCIPLES OF LAW WHICH WILL GOVE RN THE FIRST ISSUE I.E. WHETHER AN EDUCATIONAL INSTITUTION OR A UNIVERSITY, AS MAY BE, EXISTS ONLY FOR EDUCATIONAL PURPOSE AND NOT FOR PROFIT ARE NO LONGER RES INTEGRA, HAVING BEEN DEALT WITH BY A LONG LINE OF D ECISIONS OF THIS COURT WHICH HAVE BEEN ELABORATELY NOTICED AND EXTRACTED I N A RECENT PRONOUNCEMENT I.E. QUEENS EDUCATIONAL SOCIETY VS. COMMISSIONER OF INCOME TAX (2015) 8 SCC 47. TO THE ABOVE PRINCIPLES , ONE FURTHER TEST AS LAID DOWN IN CIT VS. SURAT ART SILK CLOTH MANUFA CTURERS ASSN (1980) 2 SCC 31 AND CULLED OUT IN AMERICAN HOTEL AN D LODGING ASSOCIATION EDUCATIONAL INSTITUTE VS. CENTRAL BOARD OF DIRECT TAXES AND OTHERS (2008)10 SCC 509 MAY BE ADDED WHICH IS A S FOLLOWS: IN ORDER TO ASCERTAIN WHETHER THE INSTITUTE IS CARRIED ON WITH THE OBJECT OF MAKING PROFIT OR NOT IT IS THE DUTY OF THE PRESCRIB ED AUTHORITY TO ASCERTAIN WHETHER THE BALANCE OF INCOME IS APPLIED WHOLLY AND EXCLUSIVELY TO THE OBJECTS FOR WHICH THE APPLICANT IS ESTABLISHED. THE ABOVE PRINCIPLE HAS BEEN SPECIFICALLY REITERATED IN PARAGRAPH 19 OF THE DECISION IN QUEENS EDUCATIONAL SOCIETY (SUPRA) IN THE FOLLOWING TERMS: THE FINAL CONCLUSION THAT IF A SURPLUS IS M ADE BY AN EDUCATIONAL SOCIETY AND PLOUGHED BACK TO CONSTRUCT ITS OWN PREM ISES WOULD FALL OUT OF SECTION 10(23-C) IS TO IGNORE THE LANGUAGE OF TH E SECTION AND TO IGNORE THE TESTS LAID DOWN IN SURAT ART SILK CLOTH CASE [CIT V. SURAT ART SILK CLOTH MANUFACTURERS ASSN.(1980) 2 SCC 31] , ADITANAR CASE [ADITANAR EDUCATIONAL INSTITUTION V. CIT [(1997) 3 SCC 346] AND AMERICAN HOTEL & LODGING CASE [AMERICAN HOTEL & LOD GING ASSN. EDUCATIONAL INSTITUTE V. CBDT [(2008) 10 SCC 509]. (III) IT IS CLEAR THAT WHEN A SURPLUS IS PLOUGHED B ACK FOR EDUCATIONAL PURPOSES, THE EDUCATIONAL INSTITUTION EXISTS SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT. (IV) IN THE PRESENT CASE, WE FIND THAT DURING A SHO RT PERIOD OF A DECADE I.E. FROM THE YEAR 1999 TO 2010 THE UNIVERSITY HAD GENERATED A SURPLUS ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 25 OF 41 OF ABOUT RS.500 CRORES. THERE IS NO DOUBT THAT THE HUGE SURPLUS HAS BEEN COLLECTED/ACCUMULATED BY REALIZING FEES UNDER DIFFERENT HEADS IN CONSONANCE WITH THE POWERS VESTED IN THE UNIVERSITY UNDER SECTION 23 OF THE VTU ACT. THE DIFFERENCE BETWEEN THE FEES COL LECTED AND THE ACTUAL EXPENDITURE INCURRED FOR THE PURPOSES FOR WH ICH FEES WERE COLLECTED IS SIGNIFICANT. IN FACT THE EXPENDITURE I NCURRED REPRESENTS ONLY A MINUSCULE PART OF THE FEES COLLECTED. NO REMISSIO N, REBATE OR CONCESSION IN THE AMOUNT OF FEES CHARGED UNDER THE DIFFERENT HEADS FOR THE NEXT ACADEMIC YEAR(S) HAD BEEN GRANTED TO THE S TUDENTS. THE SURPLUS GENERATED IS FAR IN EXCESS OF WHAT HAS BEEN HELD BY THIS COURT TO BE PERMISSIBLE (6 TO 15%) IN ISLAMIC ACADEMY OF EDUCATION AND ANOTHER VS. STATE OF KARNATAKA AND OTHERS (2003) 6 SCC 697 (PARAGRAPH 156) THOUGH THE PERCENTAGE OF SURPLUS IN ISLAMIC AC ADEMY OF EDUCATION (SUPRA) WAS IN THE CONTEXT OF THE DETERMI NATION OF THE REASONABLE FEES TO BE CHARGED BY PRIVATE EDUCATIONA L BODIES. (V) UNIVERSITIES AND EDUCATIONAL INSTITUTIONS ENTIT LED TO EXEMPTION UNDER THE ACT HAVE BEEN CATEGORIZED UNDER THREE DIF FERENT HEADS, NAMELY, THOSE COVERED BY SECTION 10(23C) (IIIAB); S ECTION 10(23C)(IIIAD) AND 10(23C)(VI) OF THE ACT. THE REQU IREMENT OF THE UNIVERSITY OR THE EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT IS THE CONSISTENT REQUIREMENT UNDER SECTION 10(23C) (IIIAB), 10(23C)( IIIAD) AND 10(23C)(VI). HOWEVER, IN CASES OF UNIVERSITIES COVE RED BY SECTION 10(23C)(IIIAB) FUNDING MUST BE WHOLLY OR SUBSTANTIA LLY BY THE GOVERNMENT WHEREAS IN CASES OF UNIVERSITIES COVERED BY SECTION 10(23C)(IIIAD) THE AGGREGATE ANNUAL RECEIPTS SHOULD NOT EXCEED THE AMOUNT AS MAY BE PRESCRIBED. UNIVERSITIES COVERED B Y SECTION 10(23C)(VI) ARE THOSE OTHER THAN MENTIONED IN SUB-C LAUSE (IIIAB) OR SUB- CLAUSE (IIIAD) AND WHICH ARE REQUIRED TO BE SPECIFI CALLY APPROVED BY THE PRESCRIBED AUTHORITY. ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 26 OF 41 (VI) HAVING REGARD TO THE TEXT AND THE CONTEXT OF T HE PROVISIONS OF SECTION 10 (23C) (IIIAB), 10 (23C) (IIIAD) AND 10 ( 23C) (VI) IT WILL BE REASONABLE TO REACH A CONCLUSION THAT WHILE SECTION 10 (23C) (IIIAB) DEALS WITH GOVERNMENT UNIVERSITIES, SECTION 10 (23C ) (IIIAD) DEALS WITH SMALL UNIVERSITIES HAVING AN ANNUAL TURNOVER OF L ESS THAN RUPEES ONE CRORE (AS PRESCRIBED BY RULE 2 (BC) OF THE INCO ME TAX RULES). ON A SIMILAR NOTE, IT IS POSSIBLE TO READ SECTION 10 ( 23C) (VI) TO BE DEALING WITH PRIVATE UNIVERSITIES WHOSE GROSS RECEIPTS EXCE EDS RUPEES ONE CRORE. RECEIPTS BY WAY OF FEE COLLECTION OF DIFFERE NT KINDS CONTINUE TO A MAJOR SOURCE OF INCOME FOR ALL UNIVERSITIES INCLU DING PRIVATE UNIVERSITIES. LEVY AND COLLECTION OF FEES IS INVARI ABLY AN EXERCISE UNDER THE PROVISIONS OF THE STATUTE CONSTITUTING TH E UNIVERSITY. IN SUCH A SITUATION, IF COLLECTION OF FEES IS TO BE UNDERST OOD TO BE AMOUNTING TO FUNDING BY THE GOVERNMENT MERELY BECAUSE COLLECTION OF SUCH FEES IS EMPOWERED BY THE STATUTE, ALL SUCH RECEIPTS BY WAY OF FEES MAY BECOME ELIGIBLE TO CLAIM EXEMPTION UNDER SECTION 10 (23C) (IIIAB). SUCH A RESULT WHICH WOULD VIRTUALLY RENDER THE PROV ISIONS OF THE OTHER TWO SUB-SECTIONS NUGATORY CANNOT BE UNDERSTOOD TO H AVE BEEN INTENDED BY THE LEGISLATURE AND MUST, THEREFORE, BE AVOIDED. (VII) IT WILL, THEREFORE, BE MORE APPROPRIATE TO HO LD THAT FUNDS RECEIVED FROM THE GOVERNMENT CONTEMPLATED UNDER SECTION 10(2 3C)(IIIAB) OF THE ACT MUST BE DIRECT GRANTS/CONTRIBUTIONS FROM GOVERN MENTAL SOURCES AND NOT FEES COLLECTED UNDER THE STATUTE. THE VIEW OF T HE DELHI HIGH COURT IN MOTHER DIARY FRUIT & VEGETABLE PRIVATE LIMITED V S. HATIM ALI & ANR [(2015) 217 DLT 470] WHICH HAD BEEN BROUGHT TO THE NOTICE OF THE COURT HAS TO BE UNDERSTOOD IN THE CONTEXT OF THE DE FINITION OF PUBLIC AUTHORITY AS SPECIFIED IN SECTION 2(H)(D)(II) OF T HE RIGHT TO INFORMATION ACT, 2005. RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF THE HIGH COURT OF KARNATAKA IN COMMISSIONER OF INCOME-TAX, BANGALO RE VS. INDIAN INSTITUTE OF MANAGEMENT (2014) 49 TAXMANN.COM 136 ( KARNATAKA). THE SITUATION BEFORE US, ON FACTS, IS DIFFERENT LEA DING TO THE IRRESISTIBLE ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 27 OF 41 CONCLUSION THAT THE UNIVERSITY DOES NOT SATISFY THE SECOND REQUIREMENT SPELT OUT BY SECTION 10 (23C) (IIIAB) OF THE ACT. T HE APPELLANT UNIVERSITY IS NEITHER DIRECTLY NOR EVEN SUBSTANTIAL LY FINANCED BY THE GOVERNMENT SO AS TO BE ENTITLED TO EXEMPTION FROM P AYMENT OF TAX UNDER THE ACT. 23. THE HONBLE SUPREME COURT IN THE CASE OF QUEEN S EDUCATIONAL SOCIETY 372 ITR 699 (SC) SUMMED UP THE L AW COMMON TO SECTION 10(23C) (IIIAD) AND (VI) AS FOLLOWS: WHERE AN EDUCATIONAL INSTITUTION CARRIES ON THE ACT IVITY OF EDUCATION PRIMARILY FOR EDUCATING PERSONS, THE FACT THAT IT M AKES A SURPLUS DOES NOT LEAD TO THE CONCLUSION THAT IT CEASES TO EXIST SOLELY FOR EDUCATIONAL PURPOSES AND BECOMES AN INSTITUTION FOR THE PURPOSE OF MAKING PROFIT. THE PREDOMINANT OBJECT TEST MUST BE APPLIED THE P URPOSE OF EDUCATION SHOULD NOT BE SUBMERGED BY A PROFIT MAKING MOTIVE. A DISTINCTION MUST BE DRAWN BETWEEN THE MAKING OF A SURPLUS AND AN INSTITUTION BEING CARRIED ON FOR PROFIT. NO INFER ENCE ARISES THAT MERELY BECAUSE IMPARTING EDUCATION RESULTS IN MAKING A PRO FIT, IT BECOMES AN ACTIVITY FOR PROFIT. IF AFTER MEETING EXPENDITURE, A SURPLUS ARISES INCI DENTALLY FROM THE ACTIVITY CARRIED ON BY THE EDUCATIONAL INSTITUTION, IT WILL NOT BE CEASE TO BE ONE EXISTING SOLELY FOR EDUCATIONAL PURPOSES. THE ULTIMATE TEST IS WHETHER ON AN OVERALL VIEW OF THE MATTER IN THE CONCERNED ASSESSMENT YEAR THE OBJECT IS TO MAKE PRO FIT AS OPPOSED TO EDUCATING PERSONS. IF A SURPLUS IS MADE BY AN EDUCATIONAL SOCIETY AND PLOUGHED BACK TO CONSTRUCT ITS OWN PREMISES WOULD FALL FOUL OF SECTI ON 10(23C) IS TO IGNORE THE LANGUAGE OF THE SECTION AND TO IGNORE TH E TESTS LAID DOWN IN THE SURAT ART SILK CLOTH CASE, ADITANAR EDUCATIONAL INSTITUTION VS ADDL.COMMISSIONER OF INCOME TAX CASE AND THE AMERICAN HOTEL AND LODGING CASE. IT IS CLEAR THAT WHEN A SURPLUS IS PL OUGHED BACK FOR EDUCATIONAL PURPOSES, THE EDUCATIONAL INSTITUTION E XISTS SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT . ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 28 OF 41 24. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ASSESSEE HAS NOT GENERATED SURPLUS WHICH INCREASED FROM YEAR TO YEAR AS CONTENDED IN THE GROUNDS OF APPEAL BY THE REVENUE AND BY THE AO IN T HE ORDER OF ASSESSMENT. THE ASSESSING OFFICER WHILE COMPUTING THE SURPLUS H AS TAKEN INTO ACCOUNT THE INCOME AND EXPENDITURE ACCOUNT FILED BY THE ASS ESSEE. HE OUGHT TO HAVE TAKEN THE STATEMENT OF COMPUTATION OF INCOME M ADE BY THE RESPONDENT TRUST FOR THE PURPOSE OF CLAIMING EXEMPT ION U/S 11. AS PER THE COMPUTATION OF INCOME FURNISHED ALONG WITH THE RETU RN OF INCOME, THERE IS DEFICIT OF RS.3,98,76,721/- FOR THE ASSESSMENT YEAR 2012-13 AFTER APPLYING THE PROVISIONS OF INCOME-TAX ACT AS PER SECTIONS 11 AND 12. THEREFORE, THERE IS NO SURPLUS AT ALL WHICH COULD BE CONSIDERED BY T HE ASSESSING OFFICER TO DENY EXEMPTION U/S. 11. SIMILARLY, FOR THE EARLIER YEARS ALSO, THERE WAS NO SURPLUS BUT THERE WERE EXCESS OF EXPENDITURE OVER I NCOME AS TABULATED BELOW:- 25. THE POSITION IN ASSESSMENT YEAR 2013-14 AND 2 014-15 IS ALSO IDENTICAL AS PER THE FOLLOWING DETAILS :- ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 29 OF 41 26. IT IS ALSO PERTINENT TO MENTION THAT CBDT CIRCU LAR NO.14/BANG/2015 DATED 17/8/2015 HAS GIVEN GUIDELINE S REGARDING GENERATION OF SURPLUS OUT OF GROSS RECEIPTS. THIS CIRCULAR WAS ISSUED IN THE CONTEXT OF PROVISION OF SEC. 10(23C)(VI) OF THE ACT. THE CBDT HAS OPINED THAT MERE GENERATION OF SURPLUS BY EDUCA TIONAL INSTITUTION CANNOT BE BASIS TO REJECT APPLICATION U/S 10(23C)(V I) FEE SURPLUS FOR EDUCATIONAL PURPOSE. THE ACCUMULATION HOWEVER SHOU LD NOT BE CONTRARY TO THE MANNER PRESCRIBED UNDER LAW. PERUS AL OF THE ORDER OF THE AO SHOWS THAT EXCEPT FOR MAKING ALLEGATION THAT THE ASSESEE HAS BEEN GENERATING THE SURPLUS WHICH IS INCREASING OVE R THE PERIOD OF TIME. ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 30 OF 41 THERE IS NO ALLEGATION OR MATERIAL BROUGHT ON RECOR D BY THE AO THAT THE SURPLUS GENERATED AND THAT ACCUMULATED IS CONTRARY TO ANY PROVISION OF THE ACT AND NOR IS THERE AN ALLEGATION THAT SURPLUS HAS NOT BEEN USED FOR THE PURPOSE OF EDUCATION. IN THIS CONTEXT IT IS AL SO RELEVANT TO MENTION THAT THE AO HAS SPELT OUT AS TO HOW THE ACCUMULATIO N IS CONTRARY TO PROVISION OF THE ACT. THE SURPLUS GENERATED BY THE ASSESSEE AND ITS UTILIZATION IS IN ACCORDANCE WITH LAW AND THE ALLEG ATIONS OF THE AO TO THE CONTRARY WAS RIGHTLY HELD TO BE NOT CORRECT BY THE CIT(A). WE, THEREFORE UPHELD THE ORDER OF THE CIT(A) AND DISMIS SED THE APPEAL OF THE REVENUE. 27. AS FAR AS CROSS-OBJECTION OF THE ASSESSEE IS CO NCERNED THE FIRST GROUND RAISED IN THE CROSS-OBJECTION IS WITH REGARD TO THE ORDERS OF ASST. BEING BARRED BY LIMITATION. THIS ISSUE IS APPLICAB LE ONLY IN ASST. YEAR 2012-13. IT IS SEEN FROM THE ORDER OF THE CIT(A) T HAT THIS GRIEVANCE OF THE ASSESEE PROJECTED BEFORE THE CIT(A) WAS THAT TH OUGH THE ORDER OF THE AO IS DATED 31/3/2015 SINCE THE SAME WAS DISPAT CHED BY THE AO BY POST AFTER THE PERIOD OF LIMITATION, THE DATE OF DI SPATCH SHOULD BE CONSIDERED AS THE DATE OF THE PASSING OF THE ORDER BY AO AND IN THAT EVENT ORDER OF THE AO IS PASSED BEYOND PERIOD OF LI MITATION PRESCRIBED IN LAW. WE HOWEVER FIND THAT THE ASSESEE HAS GIVEN UP THIS GROUND BEFORE THE CIT(A) AND THEREFORE WE ARE OF THE VIEW THAT THIS GROUND OF APPEAL DOES NOT ARISE OUT OF THE ORDER OF THE CIT(A ) AND THEREFORE DOES NOT REQUIRE ANY ADJUDICATION. ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 31 OF 41 28. THE OTHER GROUNDS OF CROSS OBJECTION FOR ASST. YEAR 2012-13 ARE WITH REGARD TO THE GRIEVANCE OF THE ASSESSEE THAT T HE ADDL. CIT DID NOT HAVE JURISDICTIONAL TO PASS THE IMPUGNED ORDER. TH E CIT(A) ON THIS ASPECT HELD THAT THE ADDITIONAL CIT HAD CONCURRENT JURISDICTION. TH E GRIEVANCE PROJECTED IN THE CROSS OBJECTION BY THE A SSESSEE ON THIS ASPECT IS THAT NOTIFICATION CONFERRING CONCURRENT J URISDICTION ON THE ADDITIONAL CIT WAS NOT FURNISHED TO THE ASSESSEE. IN OUR VIEW THIS WILL NOT MAKE THE ORDER OF ASSESSMENT INVALID. WE, THER EFORE FIND NO MERITS IN THIS GROUND RAISED BY THE ASSESSEE IN THE CROSS- OBJECTION FOR ASST. 2012-13 AND HENCE IT IS DISMISSED. 29. THE NEXT COMMON GRIEVANCE OF THE ASSESSEE PROJE CTED IN ASST. YEARS 2012-13 TO 2014-15 IS WITH REGARD TO THE DENI AL OF DEPRECIATION TO THE ASSESSEE ON THE GROUND THAT THE COST OF ACQUISI TION OF THE ASSET ON WHICH DEPRECIATION WAS CLAIMED BY THE ASSESSEE WAS ALREADY ALLOWED AS A DEDUCTION BY THE AO IN THE YEAR OF ACQUISITION . ACCORDING TO THE REVENUE ALLOWING DEPRECIATION WOULD BE CONFERRING D UAL BENEFIT ON THE ASSESSEE I.E FIRSTLY TREATING THE COST OF ACQUISITI ON OF THE CAPITAL ASSET AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES AND S ECONDLY ALLOWING DEPRECIATION ON THE SAME ASSET. ON THIS ASPECT, WE FIND THAT THE ISSUE IS NO LONGER RES INTEGRA. THE CASE OF THE REVENUE IS THAT WHERE CAPITAL EXPENDITURE ON ACQUISITION OF DEPRECIABLE ASSET IS CONSIDERED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE, ALLOW ING DEPRECIATION ON ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 32 OF 41 THE VERY SAME CAPITAL ASSET WOULD NOT AMOUNT TO DOU BLE ALLOWANCE. THE REVENUE PLACES RELIANCE ON JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF ESCORTS LIMITED & ANOTHER VS. UNION OF INDIA 199 ITR 43 (SC) . THE ASSESSEE POINTED OUT THAT HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF ALL SAINTS CHURCH, 148 ITR 786 (KAR) AND SOCIETY OF SISTERS OF ST. ANN, 146 ITR 28 (KAR) HAS TAKEN THE VIEW THAT WHERE CAPITAL EXPENDITURE ON ACQUISITION OF DEPRECI ABLE ASSET IS CONSIDERED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE, ALLOWING DEPRECIATION ON THE VERY SAME CAPITAL ASSET WOULD N OT AMOUNT TO DOUBLE ALLOWANCE. THE ASSESSEE ALSO POINTED OUT THAT THE D ECISION OF ESCORTS LTD. (SUPRA) WILL NOT BE APPLICABLE AS IT WAS RENDE RED ON A DIFFERENT SET OF FACTS. THE AO HOWEVER, HELD THAT ALLOWANCE OF D EPRECIATION WHEN THE COST HAS ALREADY BEEN RECOVERED BY WAY OF EXEMP TION AS APPLICATION OF INCOME AMOUNTS TO DOUBLE DEDUCTION AND DOUBLE BE NEFIT ON THE SAME ASSET. THE AO REFERRED TO THE DECISION OF THE OF HO N'BLE HIGH COURT OF KERALA IN THE CASE OF DDIT(E) V. LISSIE MEDICAL INS TITUTIONS, 348 ITR 344 (KER) WHEREIN IT WAS HELD THAT ALLOWING DEPRECI ATION OF A DEPRECIABLE ASSET WHEN THE COST OF ACQUISITION OF D EPRECIABLE ASSET WAS ALLOWED AS APPLICATION OF INCOME FOR CHARITABLE PUR POSE AMOUNTS TO DOUBLE DEPRECIATION AND THEREFORE DEPRECIATION CANN OT BE ALLOWED. THE AO ALSO DISTINGUISHED THE CASES CITED BY THE ASSESS EE. ON APPEAL BY THE ASSESSEE, THE CIT(A), CONFIRMED THE ORDER OF TH E AO. ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 33 OF 41 30. THE HONBLE KARNATAKA HIGH COURT IN ST. ANNS CONVENT 349 ITR 559 (KARN) AND DR.T.M.A. PAI FOUNDATION, MANIPAL IN ITA NO. 481 TO 485/BANG/2009 DATED 16.2.2010, HELD THAT THE CLAIM OF THE ASSESSEE FOR DEPRECIATION HAS TO BE ALLOWED. IDENTICAL ISSUE C AME UP FOR CONSIDERATION BEFORE ITAT BANGALORE BENCH IN THE CA SE OF DDIT(E) V. CUTCHI MEMON UNION (2013) 60 SOT 260 BANGALORE ITAT , WHEREIN SIMILAR ISSUE HAS BEEN DEALT WITH BY THIS TRIBUNAL. IN THE AFORESAID CASE, THE ASSESSEE CLAIMED DEPRECIATION AND THE AO DENIED DEPRECIATION ON THE GROUND THAT AT THE TIME OF ACQUIRING THE RELEVANT C APITAL ASSET, COST OF ACQUISITION WAS CONSIDERED AS APPLICATION OF INCOME IN THE YEAR OF ITS ACQUISITION. THE AO TOOK THE VIEW THAT ALLOWING DEP RECIATION WOULD AMOUNT TO ALLOWING DOUBLE DEDUCTION AND PLACED RELI ANCE ON THE DECISION OF HON'BLE SUPREME COURT IN ESCORTS LTD. ( SUPRA). THE CIT(A), HOWEVER, ALLOWED THE CLAIM OF ASSESSEE. ON FURTHER APPEAL BY THE REVENUE, THE TRIBUNAL HELD AS FOLLOWS:- 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IF D EPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTION FOR COMPUTI NG INCOME OF CHARITABLE INSTITUTIONS, THEN THERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERIVING THE INCOME AS IT I S NOTHING BUT A DECREASE IN THE VALUE OF PROPERTY THROUGH WEAR, DET ERIORATION, OR OBSOLESCENCE. SINCE INCOME FOR THE PURPOSES OF S ECTION 11(1) HAS TO BE COMPUTED IN NORMAL COMMERCIAL MANNE R, THE AMOUNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDU CTIBLE WHILE COMPUTING SUCH INCOME. IT WAS SO HELD BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR). IT WAS HELD IN CIT VS . TINY TOTS EDUCATION SOCIETY (2011) 330 ITR 21 (P&H), FOL LOWING CIT VS. MARKET COMMITTEE, PIPLI (2011) 330 ITR 16 ( P&H) : ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 34 OF 41 (2011) 238 CTR (P&H) 103 THAT DEPRECIATION CAN BE C LAIMED BY A CHARITABLE INSTITUTION IN DETERMINING PERCENTA GE OF FUNDS APPLIED FOR THE PURPOSE OF CHARITABLE OBJECTS. CLAI M FOR DEPRECIATION WILL NOT AMOUNT TO DOUBLE BENEFIT. THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LT D. 199 ITR 43 (SC) HAVE BEEN REFERRED TO AND DISTINGUISHED BY THE HONBLE COURT IN THE AFORESAID DECISIONS. 21. THE ISSUE RAISED BY THE REVENUE IN THE GR OUND OF APPEAL IS THUS NO LONGER RES INTEGRA AND HAS BEEN DECIDED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. MARKET COMMITTEE, PIPLI, 330 ITR 16 (P&H). THE HON BLE PUNJAB & HARYANA HIGH COURT AFTER CONSIDERING SEVER AL DECISIONS ON THAT ISSUE AND ALSO THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA), CAME TO THE CONCLUSION THAT DEPRECIATION IS ALLOWABLE ON CAPITA L ASSETS ON THE INCOME OF THE CHARITABLE TRUST FOR DETERMINING THE QUANTUM OF FUNDS WHICH HAVE TO BE APPLIED FOR THE PURPOSE O F TRUSTS IN TERMS OF SECTION 11 OF THE ACT. THE HONBLE PUNJAB & HARYANA HIGH COURT MADE A REFERENCE TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. ( SUPRA) AND OBSERVED THAT THE HONBLE SUPREME COURT WAS DEA LING WITH A CASE OF TWO DEDUCTIONS UNDER DIFFERENT PROVI SIONS OF THE ACT, ONE U/S. 32 FOR DEPRECIATION AND THE OTHER ON ACCOUNT OF EXPENDITURE OF A CAPITAL NATURE INCURRED ON SCIE NTIFIC RESEARCH U/S. 35(1)(IV) OF THE ACT. THE HONBLE COU RT THEREAFTER HELD THAT A TRUST CLAIMING DEPRECIATION CANNOT BE EQUATED WITH A CLAIM FOR DOUBLE DEDUCTION. THE HON BLE PUNJAB & HARYANA HIGH COURT HAS ALSO MADE A REFEREN CE TO THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SOCIETY OF SISTERS OF ANNE, 146 ITR 28 (K AR), WHEREIN IT WAS HELD THAT U/S. 11(1) OF THE ACT, INC OME HAS TO BE COMPUTED IN NORMAL COMMERCIAL MANNER AND THE AMO UNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDUCTIBLE WHILE COMPUTING SUCH INCOME. IN VIEW OF THE AFORESAID DEC ISION ON ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 35 OF 41 THE ISSUE, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) ON THE ABOVE ISSUE DOES NOT CALL FOR ANY INTERFERENCE. 22. CONSEQUENTLY, GROUND NO.5 RAISED BY THE REVENUE IS DISMISSED. 31. WE MAY ALSO ADD THAT THE LEGAL POSITION HAS SI NCE BEEN AMENDED BY A PROSPECTIVE AMENDMENT BY THE FINANCE ( NO.2) ACT, 2014 W.E.F. 1.4.2015 BY INSERTION OF SUB-SECTION (6 ) TO SECTION 11 OF THE ACT, WHICH READS AS UNDER:- (6) IN THIS SECTION WHERE ANY INCOME IS REQUIRED T O BE APPLIED OR ACCUMULATED OR SET APART FOR APPLICATION, THEN, FOR SUCH PURPOSES THE INCOME SHALL BE DETERMINED WITHOUT ANY DEDUCTION OR ALLOWANCE BY WAY OF DEPRECIATION OR OT HERWISE IN RESPECT OF ANY ASSET, ACQUISITION OF WHICH HAS BEEN CLAIMED AS AN APPLICATION OF INCOME UNDER THIS SECTION IN THE SAME OR ANY OTHER PREVIOUS YEAR. 10. AS ALREADY STATED, THE AFORESAID AMENDMENT IS PROSPECTIVE AND WILL APPLY ONLY FROM A.Y. 2015-16. IN VIEW OF THE ABOVE LEGAL POSITION, WE ARE OF THE VIEW THAT T HE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. CONS EQUENTLY, THE ISSUE RAISED BY THE REVENUE IN THIS REGARD IS W ITHOUT ANY MERIT AND THE SAME IS DISMISSED. 32. IN ASST. YEARS 2013-14 AND 2014-15, THE ASSESEE DID NOT MAKE A CLAIM OF DEPRECIATION IN THE ORIGINAL RETURN OF INC OME BUT MADE A CLAIM BEFORE THE AO FOR ALLOWING CLAIM OF DEPRECIATION BY FOLLOWING THE REVISED COMPUTATION OF TOTAL INCOME AND THE CIT(A) PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F GOETZE INDIA LTD, ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 36 OF 41 284 ITR 323 (SC) WHICH LAYS DOWN THAT THE CLAIM WHI CH IS NOT MADE BY FILING REVISED RETURN OF INCOME BEFORE THE AO CA NNOT BE ENTERTAINED BY THE AO. ON THIS ASPECT WE FIND THAT THE AFORESA ID DECISION OF THE HONBLE SUPREME COURT HAS BEEN INTERPRETED IN THE D ECISIONS RENDERED BY HONBLE HIGH COURTS NOT TO EXCEED THE POWER OF T HE TRIBUNAL NOR THE FIRST APPELLATE AUTHORITY VIZ., THE HONBLE DEL HI HIGH COURT IN THE CASE OF JE PAROLICS 306 ITR 42 DELHI AND DELHI HIGH COURT IN THE CASE OF BHARAT ALUMINUM 163 TAXMANN 430. IN THE LIGHT O F THE AFORESAID DECISIONS, WE ARE OF THE VIEW THAT THE CIT(A) OUGHT TO HAVE EXAMINED THE CLAIM OF THE ASSESSEE AND THIS ACTION IN INTERF ERING WITH THE CLAIM WAS NOT JUSTIFIED. 33. THE NEXT COMMON GROUND RAISED BY THE ASSESSEE I N THE CROSS- OBJECTION FOR ASST. YEAR 2012-13 TO 2014-15 IS WITH REGARD TO THE DISALLOWANCE OF EXPENSES INCURRED OUTSIDE INDIA TO ATTEND SEMINARS ETC., THIS EXPENDITURE WAS INCURRED TO ENRICH THE KNOWLED GE AND CONTRIBUTION TOWARDS THE GROWTH AND DEVELOPMENT OF STUDENTS. IT IS THE CASE OF THE REVENUE THAT THE EXEMPTION U/S 11 CAN B E ALLOWED ONLY IF THE CHARITABLE ACTIVITY IS PERFORMED IN INDIA AND S INCE THE EXPENSES IN QUESTION WERE INCURRED FOR TRAVEL OUTSIDE INDIA, TH E AMOUNT SHOULD BE CONSIDERED AS HAVING BEEN SPENT OUTSIDE INDIA AND T HEREFORE NOT ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT. ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 37 OF 41 34. ON THIS ASPECT, WE FIND THAT IN THE CASE OF M /S FOUNDATION FOR INDIAN SPORTING TALENT (FIST) IN ITA NO.1665 & 1666 /BANG/2017 DATED COVERED BY THE DECISION OF HONBLE DELHI HIGH COURT, PARAS 21 TO 24 READS AS UNDER:- 21. WE HAVE HEARD THE RIVAL SUBMISSIONS. IDENTIC AL ISSUE WAS CONSIDERED BY THE HONBLE DELHI HIGH COUR T IN THE CASE OF CIT V. ASSOCIATED CHAMBERS OF COMMERCE & INDUSTRY OF INDIA, ITA NO.343/2016 JUDGMENT DATED 24.05.2016. IN THE AFORESAID DECISI ON, THE HONBLE DELHI HIGH COURT UPHELD THE ORDER OF TH E TRIBUNAL THAT SENDING DELEGATES TO FOREIGN COUNTRIE S CANNOT BE HELD AS OUTSIDE THE MAIN OBJECTS OF THE ASSESSEE. THEREFORE, EXEMPTION CANNOT BE DENIED ON THE GROUND THAT EXPENSES WERE INCURRED OUTSIDE INDIA. 22. THE LD. DR, HOWEVER, PLACED RELIANCE ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT V. NATIONAL ASSOCIATION OF SOFTWARE & SERVICES COMPANIES, 345 ITR 362 (DEL), WHEREIN A CONTRARY VIEW WAS TAKEN. 23. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THE DECISION OF THE ITAT DELHI TRIBUNAL REND ERED IN THE CASE OF DDIT V. ASSOCIATED CHAMBER OF COMMERCE & INDUSTRY OF INDIA, ITA NO.6525/DEL/2013, ORDER DATED 31,97,2915 WHEREIN THE DECISION CITED B Y THE LD. DR IN THE CASE OF CIT V. NATIONAL ASSOCIAT ION OF SOFTWARE & SERVICES COMPANIES, 345 ITR 362 (DEL),WAS ALSO CONSIDERED AND THE TRIBUNAL FOLLOWIN G THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF H.E.H. NIZAMS RELIGIOUS ENDOWMENT TRUST V. CIT, 59 ITR 582, HELD AS FOLLOWS:- ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 38 OF 41 7. ON VIGILANT PERUSAL OF THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF H.E.H. NIZAM'S RELIGIOUS ENDOWMENT TRUST VS. COMMISSIONER OF INCOME TAX (SUPRA), WE ARE IN AGREEMENT WITH THE CONTENTION OF THE LD. COUNSEL OF THE ASSESSEE THAT THE FACTS OF THE PRESENT CASE ARE DISTINGUISHABLE FROM THAT CASE. ON CAREFUL READING OF SAID JUDGMENT OF HONBLE SUPREME COURT, IT IS AMPLY CLEAR THAT IN THAT CASE, THE ASSESSEE NIZAMS TRUST WAS DENIED EXEMPTION IN REGARD TO THE APPLICATION OF INCOME FROM PROPERTY AS PER SECOND PART OF CLAUSE (I) OF SECTION 4(3) OF THE INCOME TA X ACT 1922 (AS APPLICABLE AT THAT TIME) WHICH WERE APPLIED OR FINALLY SET APART FOR RELIGIOUS OR CHARITABLE PURPOSES OUTSIDE TAXABLE TERRITORIES. IN THE PRESENT CASE, IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE ASSOCIATION APPLIED ITS INCOME OR RECEIPTS OUTSIDE TAXABLE TERRITORIES BECAUSE THE ISSUE BEFORE US ONLY RELATES TO EXPENSE TOWARDS FOREIGN TRAVELLING OF DELEGATION SENT BY THE ASSESS EE ASSOCIATION FOR THE PURPOSES OF PROMOTION OF TRADE AND INDUSTRY IN INDIA WHICH IS THE MAIN OBJECT OF T HE ASSESSEE ASSOCIATION. IN VIEW OF ABOVE, WE RESPECTFULLY HOLD THAT THE BENEFIT OF THE RATIO OF THE SAID DECISION OF HONBLE SUPREME COURT IN THE CASE OF H.E.H. NIZAM'S RELIGIOUS ENDOWMENT TRUST VS. COMMISSIONER OF INCOME TAX (SUPRA) IS NOT AVAILABLE FOR THE REVENUE AS THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE DISTINGUISHABLE FROM THAT CASE. 8. UNDISPUTEDLY AND ADMITTEDLY, THE MAIN OBJECTIVE OF THE ASSESSEE ASSOCIATION IS TO PROMOTE TRADE AND INDUSTRY IN INDIA THAT IN THE PRESENT ERA OF ECONOM IC GLOBALIZATION, SENDING DELEGATION TO FOREIGN COUNTR IES CANNOT BE HELD AS OUTSIDE THE AMBIT OF MAIN OBJECTI VE OF ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 39 OF 41 THE ASSESSEE ASSOCIATION. PER CONTRA, FROM THE ARTI CLE OF ASSOCIATION AVAILABLE AT PAGE 3 TO 38 OF THE ASSESS EES PAPER BOOK, IT IS VIVID THAT THE MAIN OBJECTS AS CONTAINED IN CLAUSE (3) OF THE MEMORANDUM OF ASSOCIATION, OBJECTIVES CANNOT BE FULFILLED WITHOUT SENDING FOREIGN DELEGATION AND, THEREFORE, FOREIGN TRAVELLING EXPENSES INCURRED BY THE ASSESSEE CANNOT BE HELD AS APPLICATION OF INCOME OUTSIDE TAXABLE TERRI TORIES OF THE ASSESSEE. THEREFORE, WE ARE INCLINED TO AGRE E WITH THE CONCLUSION OF THE CIT(A) AND WE ARE UNABLE TO SEE ANY INFIRMITY, PERVERSITY OR ANY OTHER VALID RE ASON TO INTERFERE WITH THE SAME. ACCORDINGLY, GROUND NO. 1 AND 2 OF THE REVENUE BEING DEVOID OR MERITS ARE DISMISSED. 24. IN THE LIGHT OF THE AFORESAID DECISION OF THE T RIBUNAL WHICH WAS CONFIRMED BY THE HONBLE DELHI HIGH COURT , WE ARE OF THE VIEW THAT THE EXPENSES INCURRED IN FOREI GN CURRENCY HAS TO BE CONSIDERED AS APPLICATION FOR CHARITABLE PURPOSE AND INCURRED FOR THE CHARITABLE PURPOSES IN INDIA. WE HOLD ACCORDINGLY. 35. IN THE LIGHT OF THE ABOVE DECISION, WE ARE OF T HE VIEW THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF EXPENSES INCUR RED ON TRAVEL OUTSIDE INDIA BY ITS LECTURERS AND IN THE FACTS AND CIRCUMS TANCES OF THE CASE, THE SAME IS DIRECTED TO BE ALLOWED. ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 40 OF 41 36. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED WHILE CROSS OBJECTION BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 15 TH FEBRUARY, 2019 . SD/- ( JASON P BOAZ) SD/- ( N.V. VASUDEVAN) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, 15 TH FEBRUARY, 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER A SST. REGISTRAR, ITAT, BANGALORE. ITA NOS.2707 TO 2709/BANG/2017 CO NOS.40 TO 42/BAND/2018 PAGE 41 OF 41 * 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..