Deputy Commissioner of Income Tax, (Exemptions), Circle-1, Bengaluru V. M/s. JMJ Education Society, Bengaluru

ITA 2895/BANG/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 6422 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-03-2021
• Assessment Year: 2011-2012
• Appeal Filed On: 28-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEERA MALHOTRA I BENGALURU
• Assessee Lawyers: H N KHINCHA
• Keywords: Capital asset; Loose papers; Charitable institution; Benefit of exemption; TDS
• Section: 133A; 12AA; 48; 73; 13; 22; 131; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI , JUDICIAL MEMBER IT A NO S . 2894 & 2895/BANG/2017 ASSESSMENT YEAR S : 2020 - 11 & 2011 - 12 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, BANGALORE. VS. M/S. JMJ EDUCATION SOCIETY, NO.89 & 90, SOLADEVANAHALLI, HESARAGHATTA MAIN ROAD, BENGALURU 560 090. PAN: AAATJ 3122G APPELLANT RESPONDENT APPELLANT BY : MS. NEERA MALHOTRA, CIT(DR - I), BENGALURU. RESPONDENT BY : SHRI H.N. KHINCHA, CA DATE OF HEARING : 1 2 .0 3 .202 1 DATE OF PRONOUNCEMENT : 16 .0 4 .202 1 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE TWO APPEALS ARE BY THE REVENUE DIRECTED AGAINST THE DIFFERENT ORDERS, BOTH DATED 20.10.2017 OF THE CIT(APPEALS)-14, BANGALORE FOR THE ASSESSMENT YEARS 2010-11 & 2011-12. THE COMMON GROUNDS OF APPEAL ARE AS FOLLOWS:- APPLICABILITY TO SECTION 2(15) : 1. THE CIT(A) IS OPPOSED TO FACTS AND CIRCUMSTANCES OF THE CASE. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) IS RIGHT IN HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S 11 AND 12 OF THE I.T. ACT, 1961, THOUGH THE ITA NOS.2894 & 2895/BANG/2017 PAGE 2 OF 27 ASSESSEE TRUST IS PAYING HUGE COMMISSION TO AGENTS/MIDDLEMEN TO BRING STUDENTS TO ITS INSTITUTIONS WHICH IS AGAINST THE SPIRIT OF IMPARTING EDUCATION. EVEN THOUGH IMPARTING OF EDUCATION IN ITSELF IS A CHARITABLE ACTIVITY U/S 2(15) OF I.T. ACT, IN THE INSTANT CASE THE EDUCATION IS COMMERCIALLY EXPLOITED BY SELLING EDUCATION IN THE OPEN MARKET WITH THE HELP OF THE AGENTS/MIDDLEMEN BY PAYMENT OF COMMISSION. 3. WHETHER THE CIT(A) WAS RIGHT IN LAW IN STATING THAT THERE WAS NO SURPLUS AND DENYING EXEMPTION U/S 11 TO THE ASSESSEE SOCIETY IS NOT PROPER WHEN THE ASSESSEE IS GENERATING PROFITS YEAR AFTER YEAR AND CREATING SURPLUS. 4. ANY OTHER GROUNDS TO BE RAISED AT THE TIME OF HEARING THE APPEAL. 2. THE ASSESSEE IS A REGISTERED SOCIETY UNDER SOCIETIES REGISTRATION ACT AND DULY APPROVED U/S. 12AA OF THE INCOME-TAX ACT, 1961 [THE ACT]. IT IS ENGAGED IN PROVIDING EDUCATIONAL FACILITIES TO THE SOCIETY AT LARGE AND FOR THIS PURPOSE HAS PUT UP VARIOUS EDUCATIONAL INSTITUTIONS. THERE WAS A SURVEY IN THE CASE OF ASSESSEE U/S 133A OF THE ACT ON 26.06.2012. DURING THE COURSE OF SURVEY, VARIOUS INCRIMINATING DOCUMENTS, LOOSE PAPERS, DIARIES ETC. WERE FOUND AND IMPOUNDED U/S. 133A WHICH PRIMARILY SHOWS THAT ASSESSEE IS COLLECTING DONATIONS/CONTRIBUTIONS, DEVELOPMENT FEES FROM THE STUDENTS. IT ALSO INDICATED PAYMENT OF AGENCY COMMISSION TO THE MIDDLE MEN WHO BRINGS STUDENTS FOR ADMISSION TO DIFFERENT COURSES. DURING THE COURSE OF SURVEY, IT WAS FOUND THAT THERE WAS A PHYSICAL CASH OF RS.25,85,451 AS AGAINST THE CASH BALANCE IN BOOKS OF ACCOUNTS AT RS.11,99,24,977 OF ALL THE COLLEGES PUT TOGETHER. FURTHER, THE ORIGINAL SALE DEEDS IN RESPECT OF PURCHASE OF PROPERTIES IN DEVANAHALLI AREA OF BANGALORE, BY THE PRESIDENT OF THE SOCIETY, SHRI B M REDDY, SECRETARY OF THE SOCIETY, SHRI PREMNATH REDDY AS ALSO THE FAMILY MEMBERS WERE FOUND AND IMPOUNDED, WHICH WERE SHOWING SIGNIFICANT INVESTMENTS INCLUDING THE INVESTMENT IN CASH. IT WAS ALSO FOUND THAT HUGE AMOUNT HAS BEEN PAID TO ITA NOS.2894 & 2895/BANG/2017 PAGE 3 OF 27 FAMILY MEMBERS OF PRESIDENT AND SECRETARY AS SALARY AND OTHER PERKS IN THE NATURE OF CHAUFFER DRIVEN CARS, RENT FREE ACCOMMODATION, TELEPHONE EXPENSES AND ELECTRICITY EXPENSES. THE AO NOTED FROM THE INCOME & EXPENDITURE ACCOUNT THAT ASSESSEES SURPLUS WORKS OUT TO 21% IN AY 2009- 10 & 32% IN AY 2010-11 OF GROSS RECEIPTS. ACCORDING TO THE AO, THE ASSESSEE IS NOT EXISTING FOR CHARITABLE PURPOSES, BUT ENGAGED IN PROFITABLE ACTIVITIES. SINCE THERE WERE SEVERAL DEPOSITS IN BANK ACCOUNTS OF MR. PREM NATH REDDY, SECRETARY AND MRS. SHALINI REDDY, DIRECTOR OF SOCIETY, CERTAIN EMPLOYEES OF THE SOCIETY WERE SUMMONED U/S. 131 AND THEIR STATEMENTS RECORDED AND THE AO WAS OF THE OPINION THAT EXEMPTION U/S. 11 OF THE ACT CANNOT BE GRANTED TO THE ASSESSEE. THUS, HE DENIED EXEMPTION U/S. 11 AND CONSIDERING THE SURPLUS OF INCOME OF ASSESSEE, HE MADE THE FOLLOWING ADDITIONS:- AY 2010-11 INCOME AS PER THE INCOME & EXPENDITURE A/C : RS.21,96,75,046 ADDITION ON ACCOUNT OF: INVESTMENT IN PURCHASE OF LAND BY PREMNATH REDDY: RS. 1,10,25,000 EXPENDITURE RELATING TO CLOSE RELATIVES IN VIOLATION OF SEC 13(3) RS. 25,00,000 TOTAL INCOME RS.23,32,00,046 AY 2011-12 INCOME AS PER THE INCOME & EXPENDITURE A/C : RS.19,17,30,178 ADDITION ON ACCOUNT OF: INVESTMENT IN BANK ACCOUNT OF PREMNATH REDDY: RS. 9,89,452 INVESTMENT IN PURCHASE OF LAND BY PREMNATH REDDY: RS. 9,75,000 EXPENDITURE RELATING TO CLOSE RELATIVES IN VIOLATION OF SEC 13(3) RS. 33,00,000 TOTAL INCOME RS.19,69,94,630 THE AO ALSO HELD AS FOLLOWS:- ACCORDINGLY THE AMOUNT OF RS.21,36,000/- WILL BE ADDED FOR THE FINANCIAL YEAR 2011-12 AND AMOUNT OF RS.1,51,19,000/- + 51,57,000 = 2,02,76,000/- WILL BE TREATED AS UNACCOUNTED RECEIPTS FOR THE CURRENT FINANCIAL YEAR (A.Y. 2013-14). ITA NOS.2894 & 2895/BANG/2017 PAGE 4 OF 27 3. AGAINST THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). 4. THE CIT(APPEALS) ON THE PAYMENTS MADE TO AGENTS OR BROKERS, IMPOUNDED MATERIAL 49/AIT/JMJ AND STATEMENTS RECORDED FROM THE SECRETARY WAS OF THE VIEW THAT MATERIAL IMPOUNDED RELATES TO FY 2011-12 WHICH HAS IMPLICATION FOR AY 2012-13 AND NOT TO PRESENT AYS 2010-11 & 2011-12. HENCE THE CIT(A) HELD THAT THE CONCLUSION DRAWN BY THE AO WITH REGARD TO DENIAL OF EXEMPTION ON GROUNDS OF PAYMENT OF COMMISSION TO AGENTS AND COLLECTION OF DEVELOPMENT FEE WAS NOT PROPER. 5. THE NEXT GROUND ON WHICH EXEMPTION U/S. 11 WAS DENIED BY THE AO WAS ON THE REASON OF SURPLUS INCOME YEAR AFTER YEAR. THE AO HELD THAT DUE TO HUGE GENERATION OF SURPLUS, THE ASSESSEE SOCIETY WAS HIT BY PROVISIONS OF SECTION 2(15) AND ACCORDINGLY NOT ENTITLED TO EXEMPTION U/S. 11. THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT THOUGH THERE WAS GENERATION OF SURPLUS YEAR AFTER YEAR, THE ENTIRE AMOUNT HAS BEEN REDEPLOYED FOR THE OBJECTS OF THE TRUST ONLY AND DREW ATTENTION TO THE FINANCIAL STATEMENTS IN THIS REGARD. IT WAS CONTENDED THAT IF THERE IS SURPLUS GENERATED AND THE SAME IS UTILIZED FOR THE OBJECTS OF THE TRUST, THEN THE TRUST IS ENTITLED FOR EXEMPTION U/S. 11. RELIANCE WAS PLACED ON QUEENS EDUCATIONAL SOCIETY V. CIT, 55 TAXMANN.COM 255 (SC) AND CCIT V. ST. PETERS EDUCATIONAL SOCIETY, 70 TAXMANN.COM 171 (SC) . FOLLOWING THESE JUDGMENTS, THE CIT(A) HELD THAT THE VIEW TAKEN BY THE AO ON THIS GROUND WAS NOT PROPER. 6. THE THIRD REASON ON WHICH AO DENIED EXEMPTION U/S. 11 WAS WITH REGARD TO PAYMENTS MADE TO RELATED PARTIES GIVING PERSONAL BENEFITS WHICH WAS IN VIOLATION OF SECTION 13(1)(C) AND 13(3) OF THE ACT. THE ASSESSEE SUBMITTED THAT SMT. SHALINI REDDY WAS OFFERED THE POSITION OF FULL TIME DIRECTOR (ADMISSIONS) CARRYING A SALARY OF RS.3,50,000 P.M. BY WAY OF LETTER OF APPOINTMENT FROM VIT UNIVERSITY ON 31.8.2010. HER SALARY WAS INCREASED FROM AUGUST, 2010 ONLY AND SINCE SHE HAD AN OFFER OF APPOINTMENT WITH HIGHER SALARY, THE SALARY PAID BY THE TRUST CANNOT BE ITA NOS.2894 & 2895/BANG/2017 PAGE 5 OF 27 CONSIDERED AS A PERSONAL BENEFIT ACCORDED TO HER. THE CIT(A) OBSERVED THAT SMT. SHALINI REDDY HAILS FROM BUSINESS FAMILY AND GRADUATED AS GOLD MEDALIST FROM RENOWNED UNIVERSITY IN ANDHRA PRADESH. SHE JOINED THE MANAGEMENT TEAM OF ACHARYA INSTITUTES (TAKEN OVER BY THE ASSESSEE SOCIETY) DURING 1991 AND SINCE THEN HOLDING THE PORTFOLIO OF DIRECTOR (ADMISSIONS) AND PLAYING A VITAL ROLE TO ACCOMPLISH THE VISION AND MISSION OF THE SOCIETY. SHE FOCUSED ON ADMISSION RELATED ACTIVITIES AND WAS INSTRUMENTAL IN GETTING CREDENTIALS, APPROVALS, ACCREDITATIONS, RECOGNITIONS & AFFILIATIONS FOR VARIOUS EDUCATIONAL INSTITUTIONS UNDER THE SOCIETY. SHE WAS ACTIVELY INVOLVED IN ESTABLISHING GLOBAL ASSOCIATIONS WITH UNIVERSITIES ABROAD IN CHINA, USA, UK AND SPAIN. SHE WAS THOROUGHLY FAMILIAR WITH EDUCATION SCENARIO IN INDIA AND ABROAD. VEHICLE IS PROVIDED TO HER IN HER OFFICIAL CAPACITY AS DIRECTOR (ADMISSIONS). THEREFORE, THE CIT(A) WAS OF THE OPINION THAT REMUNERATION PAID TO HER IS ON PAR WITH OTHER EMPLOYEES HAVING SIMILAR EXPERIENCE. 7. IN THE CASE OF MRS. KIRAN REDDY, THE ASSESSEE SUBMITTED THAT SALARY WAS INCREASED FROM JANUARY, 2010 FROM 79,000 TO RS.1,17,000 TAKING INTO ACCOUNT HER QUALIFICATION OF PH.D IN MANAGEMENT SCIENCES AND THEREFORE PAYMENT MADE IS NOT EXCESSIVE AS COMPARED TO WHAT SHOULD HAVE BEEN PAID. THE CIT(A) OBSERVED THAT SHE IS HEADING THE COLLEGE AS PRINCIPAL AND ACTING AS CEO FOR AIMS ESTABLISHED IN 1994. SHE HAS DONE HER MA & MBA FROM REPUTED UNIVERSITIES WITH PH.D. HAVING 20 YEARS OF RICH EDUCATIONAL EXPERIENCE. WITH HER LEADERSHIP AIMS IS NOW RATED AS MOST REPUTED EDUCATIONAL INSTITUTION IN KARNATAKA STATE. HER CONTRIBUTION IS WIDE SPREAD IN ALL FACETS. APART FROM ACADEMIC RESPONSIBILITIES, SHE IS ALSO AN ACTIVE MEMBER OF BANGALORE UNIVERSITY IN VARIOUS COMMITTEES AND FACILITATED WITH WOMEN OF THE DECADE BY I-NEWS & JMC COMMUNICATIONS, HYDERABAD IN 2010. THEREFORE, CIT(A) HELD THAT REMUNERATION PAID TO HER WAS AT PAR WITH EDUCATIONAL INSTITUTIONS RUN BY THE SOCIETY. ITA NOS.2894 & 2895/BANG/2017 PAGE 6 OF 27 8. WITH REGARD TO PROVIDING RENTAL PAYMENT TO THE ACCOMMODATION TO SECRETARY AND FAMILY MEMBERS WITH TELEPHONE, IT WAS CONTENDED BY THE ASSESSEE THAT RESIDENCE IS AT THE HEART OF THE CITY BEING USED AS CITY OFFICE TO CARRY ON VARIOUS MEETINGS WITH REGULATORY AUTHORITIES AND DISCUSSIONS WITH THOSE WHO GIVE LECTURES TO THE INSTITUTION. THE COLLEGE IS LOCATED IN FAR END OF THE CITY IN A REMOTE LOCATION WHERE THE STAKEHOLDERS EXPRESSED THEIR DIFFICULTIES TO REACH THE CAMPUS LOCATION. MORE OVER ALL THE OFFICES OF THE REGULATORY AUTHORITIES ARE SITUATED WITHIN THE CITY TO ADDRESS THE CONCERNS AND TO FACILITATE SMOOTHING FUNCTIONING OF INSTITUTIONS. TO DEAL WITH DOMAIN EXPERTS IN VARIOUS FIELDS, TIE UPS WITH UNIVERSITIES, ETC. WITHIN INDIA AND ABROAD FOR R&D PROGRAMS, THE SECRETARY NEEDS TO CARRY OUT DISCUSSIONS AND MEETINGS. THEREFORE THE ASSESSEE IDENTIFIED SPACE AT RMV II STAGE, BANGALORE WHICH IS CENTRALLY LOCATED AND ACCESSIBLE TO ALL FOR THE SECRETARY. THE SECRETARY IS USING THE SMALL PORTION AND PREDOMINANT AREA OF THE BUILDING IS USED FOR PURPOSES OF INSTITUTIONAL ACTIVITIES. HE HAS BEEN PROVIDED CAR TO MOVE AROUND IN CONNECTION WITH ACTIVITIES OF INSTITUTION. THERE ARE MORE THAN 2000 FOREIGN STUDENTS PURSUING THEIR STUDIES IN VARIOUS STREAMS SPONSORED BY VARIOUS COUNTRIES, WHOSE AMBASSADORS / HIGH COMMISSIONERS / FIRST SECRETARIES VISIT THE INSTITUTION AND PROPER FACILITIES FOR THEIR STATURE, HIGH END CARS ARE PROCURED BY THE INSTITUTIONS. HENCE, THE ACCOMMODATION FOR CITY OFFICE AND OTHER EXPENSES MET ARE FOR THE PURPOSE OF CARRYING OUT OPERATIONS OF THE INSTITUTIONS AND ARE ALLOWABLE GENUINE OPERATIONAL EXPENSES. 9. AS REGARDS PAYMENT MADE TO CHAUFFEUR DRIVEN CAR TO PRESIDENT AND SECRETARY, IT WAS SUBMITTED THAT SINCE THE INSTITUTIONS ARE LOCATED IN THE FAR END OF CITY, IT WAS PROVIDED TO ENABLE THEM DISCHARGE THEIR FUNCTIONS PROPERLY. 10. THE CIT(APPEALS) HELD THAT THE ACCOMMODATION AND VEHICLE IS CONSIDERED TO BE PART OF THE NECESSITY FOR ENSURING THAT TRUST ACTIVITIES ARE ITA NOS.2894 & 2895/BANG/2017 PAGE 7 OF 27 CARRIED ON TO THE BEST INTEREST OF THE SOCIETY RELYING ON THE FOLLOWING DECISIONS CITED BY THE ASSESSEE:- CHIREC EDUCATION SOCIETY V. ADIT (2013) 40 TAXMANN.COM 26 (AP) DCIT V. R.N. SHETTY TRUST (2015) 59 TAXMANN.COM 68 (BANG TRIB) ITO V. HUMAN RESOURCE DEVELOPMENT & MANAGEMENT TRUST (2011) TAXMANN.COM 478 (CUTTACK) ITO V. LATA MANGESHKAR MEDICAL FOUNDATION (2017) 83 TAXMANN.COM 69 (PUNE TRIB) SHREE KAMDAR EDUCATION TRUST. V. ITO (2016) 74 TAXMANN.COM 253 (GUJ) 11. THE CIT(A) DIRECTED THE AO TO DELETE THE ADDITIONS ON THE ABOVE ACCOUNT AND ALSO ON THE GROUND OF VIOLATION OF PROVISIONS OF SECTION 13(1)(C) AND SECTION 13(3) AND GRANT EXEMPTION U/S. 11 OF THE ACT. 12. REGARDING THE DEPOSITS IN BANK ACCOUNT BY SHRI PREMNATH REDDY, THE AO MADE ADDITION OF RS.9,89,452 ON THE BASIS OF CASH CREDIT ANALYSIS. THE ASSESSEE CONTENDED THAT SHRI PREMNATH REDDY IS AN INDIVIDUAL FILING HIS RETURNS OF INCOME AND TAXABLILITY OF THE SAME HAS TO BE EXAMINED IN HIS HANDS AND NOT THE ASSESSEE SOCIETY. THE CIT(A) ACCEPTED THIS CONTENTION AND HELD THAT WHEN THE CASE OF AN INDIVIDUAL IS ANALYSED, ADDITION IF ANY, SHOULD BE IN HIS INDIVIDUAL HANDS AND NOT THE ASSOCIATED INSTITUTION. HE HELD THAT THE AO HAS NOT CONCLUSIVELY DEMONSTRATED THAT THE DEPOSITS MADE HAVE BEEN SOURCE BY THE ASSESSEE SOCIETY AND THEREFORE DELETED THE ADDITION. 13. ON THE PURCHASE OF LAND BY SHRI PREMNATH REDDY, THE AO MADE AN ADDITION OF RS.9,75,000. THE ASSESSEE SUBMITTED THAT THERE ARE NO PROPERTIES INTO WHICH INVESTMENT IS MADE. THE ADVANCE IS ACTUALLY GIVEN BY ITA NOS.2894 & 2895/BANG/2017 PAGE 8 OF 27 THE TRUST TOWARDS PURCHASE OF AGRICULTURAL LAND DIRECTLY TO THE VENDORS AND FOR AY 2010-11 THE AMOUNT PAID RS.13 LAKHS AS ADVANCE FOR WHICH COPIES OF LAND ADVANCE IN THE BOOKS OF ACCOUNT OF ASSESSEE WAS FURNISHED. THE CIT(A) OBSERVED THAT THERE WAS NO DISCUSSION IN THE ORDER REGARDING THE BASIS OF ADDITION AS CONTENDED BY THE ASSESSEE AND DELETED THE ADDITION. 14. SIMILAR IS THE POSITION FOR THE AY 2010-11. 15. NOW THE REVENUE IS IN APPEALS BEFORE US ONLY WITH REGARD TO GRANTING EXEMPTION U/S. 11 & 12 OF THE ACT, THOUGH THERE WAS PAYMENT OF HUGE COMMISSION TO AGENTS OR MIDDLE MEN TO BRING STUDENTS TO THE INSTITUTION AGAINST THE SPIRIT OF IMPARTING EDUCATION WITH COMMERCIAL BENEFIT. THE LD. DR SUBMITTED THAT SEIZED MATERIAL 49/AIT/JMJ SHOWS THE PAYMENT OF COMMISSION TO VARIOUS AGENTS WHO BROUGHT THE STUDENTS TO THE COLLEGE FOR ADMISSION. SHE DREW OUR ATTENTION TO PAGE 51 OF IMPOUNDED ANNEXURE 49/AIT/JMJ WHICH IS A COMMUNICATION SENT BY AN AGENT, JOE SEBASTIAN DATED 16.11.2011 ABOUT ADMISSION OF STUDENT K.P. AVASTHY AND CLAIMING ITS COMMISSION. FURTHER SHE DREW OUR ATTENTION TO PAGE 60 OF SAME ANNEXURE WHICH IS A LETTER DATED 19.1.2012 OF DR. HARISH, RESIDENT OF KAMMANAHALLI, BANGALORE REGARDING ADMISSION OF STUDENT JESSENA FERNANDES FOR M.SC. PROGRAM. DOWN BELOW IN THE SAME LETTER, THERE WAS A FIGURE OF 10K MENTIONED WHICH IS SHOWING AMOUNT OF COMMISSION PAID BY ASSESSEE TO HIM. SIMILARLY AS PER PAGE 49 OF SAME ANNEXURE, THERE IS A LETTER SENT BY P.N. SILESH, AGENT STATING ADMISSION OF 2 STUDENTS AND REQUESTING COMMISSION OF RS.10,000. SIMILAR DETAILS ARE APPEARING FROM PAGE 40 TO 42 OF THE SAME ANNEXURE IN RESPECT OF ADMISSION AGENT DIGVIJAYA TO WHOM SIGNIFICANT AMOUNT HAS BEEN PAID IN CASH. SHE ALSO STATED THAT ON OATH, SECRETARY, MR. PREM NATH REDDY ADMITTED THAT COMMISSION HAS BEEN PAID TO VARIOUS AGENTS WHO BROUGHT THE STUDENTS FOR ADMISSION TO THE VARIOUS INSTITUTIONS. ITA NOS.2894 & 2895/BANG/2017 PAGE 9 OF 27 16. THE LD. DR SUBMITTED THAT SURVEY CONDUCTED ON 26.6.2012 SHOWS THAT ASSESSEE IS HAVING HUGE SURPLUS INCOME FOR EACH OF THESE ASSESSMENT YEARS AND ASSESSEE IS ENGAGED IN PROFITABLE ACTIVITIES AND IT IS CONDUCTING EDUCATION ACTIVITIES IN A BUSINESS MANNER AND HAS APPOINTED VARIOUS MIDDLE MEN TO BRING STUDENTS TO THE INSTITUTION AND PAID HUGE COMMISSION TO BROKERS AND AGENTS. THIS HAS ALSO BEEN SUPPORTED BY THE STATEMENT OF MRS. SHALINI REDDY ON 17.7.2012 AND ALSO STATEMENT RECORDED FROM PREM NATH REDDY ON 28.6.2012. THE ASSESSEE IS ALSO COLLECTING EXCESSIVE TUITION FEES WHICH IS NOT RECORDED IN THE BOOKS OF ACCOUNT. THE ASSESSEE GROUP HAS BEEN PAYING HUGE SALARY , TELEPHONE EXPENSES, ELECTRICITY EXPENSES TO PRESIDENT, SECRETARY AND FAMILY MEMBERS OF TRUSTEES AS LISTED IN PARA 16 OF ASSESSMENT ORDER FOR AY 2011-12. THUS, ACCORDING TO HER, THESE PAYMENTS MADE TO RELATIVES AND FAMILY OF TRUSTEES WERE COVERED BY SECTION 13(3) OF THE ACT AND ASSESSEE CANNOT BE CALLED AS CHARITABLE INSTITUTION TO GRANT EXEMPTION U/S. 11 OF THE ACT. 17. THE LD. DR FURTHER SUBMITTED THAT THERE WAS HUGE BANK BALANCE IN THE ACCOUNT OF TRUSTEE, VIZ., MR PREM NATH REDDY. THE OBJECT OF ASSESSEE CANNOT BE CONSIDERED AS CHARITABLE ACTIVITIES AND THE ASSESSEE IS NOT SOLELY EXISTING FOR EDUCATION PURPOSES. ACCORDING TO THE LD. DR, THERE IS AMPLE MATERIAL ON RECORD TO ESTABLISH THAT ASSESSEE TRUST HAD INDULGED IN VARIOUS BUSINESS ACTIVITIES AND COULD NOT BE SAID TO BE EXISTING SOLELY FOR EDUCATION PURPOSES. IT RENDERED VARIOUS PROFITABLE ACTIVITIES WHICH IS FOR THE BENEFIT OF TRUSTEES AND THEIR RELATIVES AND HUGE MONEY HAS BEEN TRANSFERRED FOR THEIR PERSONAL BENEFIT, AS SUCH NO BENEFIT OF EXEMPTION U/S. 11 CAN BE GRANTED TO THE ASSESSEE. SHE RELIED ON THE JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF NAVODAYA EDUCATION TRUST V. UOI, 405 ITR 30 (KARN) WHEREIN IT WAS HELD THAT WHERE ASSESSEE TRUST REGISTERED U/S. 12AA WAS RUNNING VARIOUS EDUCATIONAL INSTITUTIONS, IN VIEW OF THE FACT THAT ASSESSEE COLLECTED CAPITATION FEE FROM STUDENTS FOR ADMISSION TO MEDICAL ITA NOS.2894 & 2895/BANG/2017 PAGE 10 OF 27 COLLEGE, WITHDRAWAL OF EXEMPTION U/S. 10(23C)(VI) DID NOT REQUIRE ANY INTERFERENCE. WITH REGARD TO THE SECOND GROUND THAT THERE WAS HUGE SURPLUS EARNED BY THE ASSESSEE YEAR AFTER YEAR WHICH SHOWED THAT ASSESSEE WAS ENGAGED IN PROFITABLE ACTIVITIES, AS SUCH SHE SUBMITTED THAT ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S. 11 OF THE ACT. SHE ALSO RELIED ON THE JUDGMENT OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. KARNATAKA GOLF ASSOCIATION (AOP) IN ITA NO.418/2008 DATED 1.12.2020. 18. THE LD. AR SUBMITTED THAT FOR THE ASSESSMENT YEARS UNDER CONSIDERATION, THERE WAS NO ADDITION TOWARDS PAYMENT OF ALLEGED HUGE COMMISSION TO THE AGENTS OR BROKERS. THE IMPOUNDED MATERIAL 49/AIT/JMJ DOES NOT SHOW ANY PAYMENT OF COMMISSION TO THE BROKERS IN THESE ASSESSMENT YEARS UNDER CONSIDERATION. AS SUCH, THE GROUND RAISED BY THE REVENUE TO DENY EXEMPTION U/S. 11 ON ACCOUNT OF PAYMENT OF COMMISSION TO BROKERS/AGENTS WONT SURVIVE. HE ALSO SUBMITTED THAT DEPARTMENT IS NOT IN APPEAL BEFORE THIS TRIBUNAL FOR VIOLATION OF SECTION 13(1)(C) OF THE ACT. ACCORDING TO THE LD. AR, THE LD. DR IS PRECLUDED FROM EXTENDING THE SCOPE OF APPEAL BEFORE THIS TRIBUNAL. HE SUBMITTED THAT HER ARGUMENT AMOUNTS TO EXTENDING THE SCOPE OF APPEAL BEFORE THE TRIBUNAL FOR WHICH SHE HAS NO ENTITLEMENT. FINALLY HE SUBMITTED THAT EVEN IF THERE WAS PAYMENT OF COMMISSION TO VARIOUS PARTIES, THERE IS NO REASON FOR DENIAL OF EXEMPTION U/S. 11 BY THE AO, WHICH IS PAID FOR RENDERING SERVICES TO THE ASSESSEE. 19. THE LD. AR SUBMITTED THAT THE PRIMARY OBJECTION IN THE GROUNDS OF APPEAL OF THE REVENUE IS LIMITED TO GRANTING EXEMPTION U/S. 11 & 12 OF THE ACT. HE SUBMITTED THAT IF THERE IS NO PROHIBITION IN EARNING SURPLUS FROM CHARITABLE ACTIVITIES OF THE INSTITUTION, THAT CANNOT BE A REASON TO DENY EXEMPTION U/S. 11 OF THE ACT. HE RELIED ON THE FOLLOWING JUDGMENTS:- (I) QUEENS EDUCATIONAL SOCIETY V. CIT, 55 TAXMANN.COM 255 (SC) ITA NOS.2894 & 2895/BANG/2017 PAGE 11 OF 27 (II) ACIT(E) V. MAHIMA SHIKSHA SAMITI [2017] 79 TAXMANN.COM 38 (JAIPUR TRIB.) (III) GANAPAT UNIVERSITY V. ARVIND SHANKAR [2016] 73 TAXMANN.COM 373 (GUJ) (IV) DIT (EXEMPTIONS) V. DELHI PUBLIC SCHOOLS SOCIETY,[2018] 100 TAXMANN.COM 370 (SC) (V) DIT (EXEMPTION)V. DELHI PUBLIC SCHOOL (100 TAXMANN.COM 320) (SC). 20. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN CONTENTION OF THE LD. DR IS THAT ASSESSEE CANNOT BE GRANTED EXEMPTION U/S. 11 ON THE REASON THAT ASSESSEE HAS PAID HUGE COMMISSION TO MIDDLE MEN TO BRING STUDENTS TO ASSESSEES INSTITUTION. THE NEXT CONTENTION IS THAT THERE WAS HUGE SURPLUS EARNED BY ASSESSEE WHICH SHOWS THAT ASSESSEE IS INVOLVED IN BUSINESS ACTIVITIES AND HENCE EXEMPTION U/S. 11 SHOULD BE DENIED TO THE ASSESSEE. 21. IN THE PRESENT CASE, THE ASSESSEE IS AN EDUCATION INSTITUTION AND THERE IS NO DENIAL BY THE DEPARTMENT THAT ASSESSEE HAS CARRIED OUT EDUCATION ACTIVITIES AS PREDOMINANT ACTIVITY AND IN THE COURSE OF CARRYING OUT PREDOMINANT OBJECT OF IMPARTING EDUCATION, THE ASSESSEE INCIDENTALLY EARNED SURPLUS. THE QUESTION IS WHETHER IT CAN LEAD TO CONCLUSION THAT ASSESSEE CEASED TO SOLELY EXIST FOR EDUCATION PURPOSES AND BECOMES AN INSTITUTION FOR THE PURPOSE OF MAKING PROFIT? 22. WE HAVE CAREFULLY GONE THROUGH THE ACTIVITIES CARRIED ON BY THE ASSESSEE FOR THE ASSESSMENT YEARS UNDER CONSIDERATION. IT IS ADMITTED BY THE AO THAT ASSESSEE IS RUNNING FOLLOWING INSTITUTIONS:- 1. ACHARYA INSTITUTE OF TECHNOLOGY 2. ACHARYA POLYTECHNIC 3. ACHARYA & B M REDDY COLLEGE OF PHARMACY 4. ACHARYAS N R INSTITUTE OF NURSING 5. ACHARYA COLLEGE OF EDUCATION ITA NOS.2894 & 2895/BANG/2017 PAGE 12 OF 27 6. ACHARYA INSTITUTE OF FASHION TECHNOLOGY 7. ACHARYA INSTITUTE OF GRADUATE STUDIES 8. ACHARYA PRE-UNIVERSITY COLLEGE 9. ACHARYA HOSTELS 23. THE A.O. RECORDED THE FINDING ON PAYMENT OF COMMISSION TO THE CONSULTANTS / AGENTS IN PARA 9 OF THE ASSESSMENT ORDER RELATING TO ASSESSMENT YEAR 2010-2011, AS FOLLOWS:- 9 COMMERCIALIZATION OF EDUCATION & PAYMENT OF COMMISSION/CONSULTATION CHARGES TO AGENTS. IT WAS GATHERED THAT THE COMMISSION IS PAID TO PERSONS WHO BRING STUDENTS FOR ADMISSION TO DIFFERENT PROGRAMMES, WHICH PRIMA FACIE APPEARS TO BE FOR THE PROMOTION OF COMMERCIAL ACTIVITIES AND NOT FOR CHARITABLE PURPOSE. SUCH PAYMENT OF COMMISSION PAYMENT FOR BRINGING STUDENTS IS AGAINST PUBLIC POLICY .THIS SHOWS THAT THE ASSESSEE IS RUNNING THE INSTITUTE ON PURELY COMMERCIAL BASIS AND NOT FOR CHARITABLE PURPOSES. 9.1 DURING THE COURSE OF SURVEY VARIOUS DETAILS IN NATURE OF COMMUNICATIONS SENT BY VARIOUS AGENTS WHO USED TO BRING STUDENTS FOR ADMISSION TO DIFFERENT ACADEMIC COURSES LIKE ENGINEERING, PHARMACY, MANAGEMENT, NURSING ETC. ARE FOUND AND IMPOUNDED, AS PER ANNEXURE 49/AIT/JMJ. THESE COMMUNICATION ARE INDICATING THE NAMES AND ADDRESS OF AGENTS, THE NAMES OF THE STUDENTS, THE ACADEMIC COURSE, THE AMOUNT OF FEES AS ALSO AMOUNT OF COMMISSION. IN MANY CASES THE ASSESSEE SOCIETY HAS PAID COMMISSION IN CASH, WHICH IS NOT EVEN REFLECTED IN THE BOOKS OF ACCOUNTS. FOR EXAMPLE AS PER PAGE 51 OF IMPOUNDED ANNEXURE 49/AIT/JMJ THERE IS A COMMUNICATION SENT BY AGENT SHRI. JOJO SEBASTIAN DATED 16.11.11 ABOUT ADMISSION OF K P AVASTHI AND CLAIMING HIS COMMISSION.FURTHER AS PER PAGE 50 OF THE SAME ANNEXURE IS A LETTER DATD 19.01.12 OF DR.HARISH RESIDENT OF KAMANAHALLI, BANGALORE REGARDING ADMISSION OF A STUDENT JESSNA FERNANDEZ FOR MSC PROGRAMME. DOWN BELOW IN THE SAME LETTER THERE IS A FIGURE OF 10 IS MENTIONED, WHICH IS SHOWING THE AMOUNT OF COMMISSION PAID BY THE ASSESSEE TO HIM. SIMILARLY AS PER PAGE 49 OF SAME ANNEXURE, THERE IS A LETTER SENT BY P N SHILESH, AN AGENT, STATING ADMISSION OF TWO OF STUDENTS AND REQUESTING A COMMISSION OF RS.10,000/-. SIMILAR DETAILS ARE APPEARING FROM PAGE NO.40-42 OF THE SAME ANNEXURE IN RESPECT OF ADMISSION AGENT DIGVIJAY TO WHOM SIGNIFICANT AMOUNT HAS BEEN PAID BY THE ASSESSEE IN CASH. ITA NOS.2894 & 2895/BANG/2017 PAGE 13 OF 27 9.2 DURING THE COURSE OF POST SURVEY ENQUIRIES THIS OFFICE HAS CONFRONTED THESE ISSUES TO THE SECRETARY, SHRLPREMANTH REDDY IN HIS STATEMENT ON OATH ON 28-06-2012 AND HIS EXPLANATION WAS SOUGHT TO THE SPECIFIC PAYMENT OF COMMISSION, AS APPEARING IN PAGE NO.40,41,42,50, AND 51 OF ANNEXURE 49/AIT/JMJ AND WHETHER THE SAME WAS REFLECTED IN THE BOOKS OF ACCOUNTS. SHRI PREMNATH REDDY VERY CLEARLY AND CATEGORICALLY STATED THAT SOME OF THE PAYMENT OF COMMISSION IS MADE IN CASH, AND IT IS NOT RECORDED IN THE BOOKS OF ACCOUNTS AND NO TDS HAVE BEEN MADE ON THEM. FOR CLARITY-THE RELEVANT EXTRACT OF HIS STATEMENT ON OATH IS REPRODUCED AS HEREUNDER. Q.30 I AM SHOWING YOU PAGE NO.51 OF IMPOUNDED ANNEXURE 49/AIT/JMJ WHICH IS A LETTER DATED 16-11-2011 WRITTEN BY JOE JOE SEBASTIAN, APPARENTLY FROM BANGALORE REQUESTING FOR RELEASE OF SERVICE CHARGE FOR ADMISSION OF THE STUDENTS HE HAS ALSO WRITTEN NAME OF STUDENT AS K P AVASTHI PLEASE GO THROUGH IT AND EXPLAIN THE TRANSACTION? ANS. I DO NOT KNOW THIS PERSON. WE MIGHT NOT HAVE PAID ANY AMOUNT. Q.31 CAN YOU CONFIRM TO ME WHETHER ADMISSION OF THIS BOY K.P. ASWATHI HAS BEEN DONE IN ANY PROGRAMME AT YOUR COLLEGES AND WHETHER ANY AMOUNT IS PAID TO JOE SEBASTIAN? ANS. THE STUDENT MIGHT HAVE TAKEN ADMISSION. ABOUT THE PAYMENT I WILL CHECK UP AND CONFIRM BY 02-07-2012. Q.32 I AM SHOWING YOU ANOTHER LETTER AS PER PAGE NO.50 OF THE SAME ANNEXURE WHICH IS DATED 19-01-2012 WRITTEN BY ONE DR.HARISH FROM KAMANAHALLI, BANGALORE REQUESTING FOR COMMISSION AS REGARDS ADMISSION OF ONE STUDENT JESSENA FERNANDYS A STUDENT OF M.SC IN YOUR COLLEGE WHO TOOK ADMISSION IN 09-06-2011. DOWN BELOW IN THE SAME LETTER A FIGURE OF '10K' IS WRITTEN IN RED INK INDICATING PAYMENT OF RS.10,000/- TO HIM PLEASE GO THROUGH THIS PAPER AND CONFIRM THE TRANSACTION? ANS. WE HAVE PAID HIM A SUM OF RS.10,000/-. Q.33 WHETHER YOU HAVE MADE TDS ON RS.10,OOO/- PAYMENT? ANS. WE HAVE NOT DONE TDS ON PAYMENT OF RS.10,OOO/-. Q.34 I AM SHOWING YOU ANOTHER LETTER (PAGE 49 OF THE SAME ITA NOS.2894 & 2895/BANG/2017 PAGE 14 OF 27 ANNEXURE) DATED 27-08-2011 WRITTEN BY ONE P.N.SILESH MENTIONING THAT HE HAVE GIVEN YOU TWO ADMISSIONS FOR THE SESSION 2011-12 AND HAS REQUESTED FOR PAYMENT OF SERVICE CHARGES. DOWN BELOW IN THE SAME LETTER A FIGURE OF RS.10,000/- PAYMENT IS MENTIONED. PLEASE GO THROUGH THIS PAPER AND CONFIRM THE TRANSACTION? ANS. WE HAVE PAID RS. 10,000/- TO HIM. Q.35 I AM SHOWING YOU ANOTHER LETTER DATED 22-09-2011 ( PAGE 48 OF THE SAME ANNEXURE), WRITTEN BY ONE RAFEEQ. M, MENTIONING ADMISSION OF 8 STUDENTS AND REQUESTING FOR SERVICE CHARGES? PLEASE GO THROUGH THIS PAPER AND TELL ME AS TO HOW MUCH AMOUNT HAS BEEN PAID TO HIM? ANS. I NEED TO FIND OUT ON THIS. AND WILL GIVE MY REPLY ON 02-07- 2012. Q.36.1 AM SHOWING YOU A COMPUTER PRINTED SHEET, AS PER PAGE 47 OF ANNEXURE 49/AI T/JMJ, THIS SHEET SHOWS PAYMENT DETAILS TO VARIOUS CONSULTANTS/AGENTS FOR ADMISSION FOR THE F. Y 2011- 12. IN THIS SHEET NAMES OF RAFEEQ, DR. HARISH AND GIRISH (SHILESH) ARE MENTIONED, ABOUT WHICH YOU HAVE ALREADY CONFIRMED MAKING SOME PAYMENTS IN THE FOREGOING QUESTIONS OF THIS STATEMENTS. PLEASE GO THROUGH THE SHEET AND CONFIRM THE TRANSACTION. ANS. THESE ARE DETAILS OF MONEY COLLECTED BY THE AGENTS FROM THE STUDENTS. Q.37 DO YOU ACCEPT THAT ALL THESE PEOPLE ARE YOUR CONSULTANTS AGENTS. ANS. YES. Q.39 CAN YOU PLEASE CONFIRM WHETHER THE PAYMENTS APPEARING IN THE SHEET AS PER QUESTION NO.36 IS RECORDED IN THE REGULAR BOOKS OF ACCOUNTS? ANS. I WILL VERIFY AND WILL GIVE MY REPLY ON 02-07-2012. Q.40 I AM SHOWING YOU PAGE NO.40, 41 AND 42 OF THE SAME ANNEXURE WHICH IS THE DETAILS OF STUDENTS BROUGHT BY AGENT ITA NOS.2894 & 2895/BANG/2017 PAGE 15 OF 27 DIGVIJAY. THESE PAGES ARE SHOWING PAYMENT OF RS.2,35,OOO/- + RS.1,15,OOO/-. CAN YOU PLEASE GO THROUGH THESE SHEETS AND CONFIRM THE PAYMENTS MADE TO HIM. ANS. I GONE THROUGH THESE PAPERS. AS PER PAGE NO.42 WE HAVE PAID A SUM OF RS.1,35,OOO/- TO DIGVIJAY WHICH IS WRITTEN IN RED INK. AS PER PAGE 41 WE HAVE PAID A SUM OF RS.95,OOO/- TO DIGVIJAY WHICH IS WRITTEN WITH THE PENCIL. Q.41 CAN YOU PLEASE CONFIRM WHETHER PAYMENTS MADE TO DIGVIJAY OF RS.1,35,OOO/- + RS.95,OOO/- HAS BEEN MADE IN CASH OR CHEQUE. ANS. I NEED TO VERIFY THIS FROM MY ACCOUNTS TEAM. NORMALLY WE GIVE A SLIP TO THE ACCOUNTS DEPARTMENT AND ON THE BASIS OF THAT PAYMENTS ARE MADE TO THE AGENT. Q.43 I AM SHOWING YOU PAGE NO.35, 36, 37 & 38 OF THE SAME ANNEXURE AS PER WHICH REPRESENTATION AGREEMENT HAS BEEN PREPARED WITH DIFFERENT PERSONS WHO ARE SUPPOSE TO ACT AS YOUR CONSULTANTS/AGENTS FOR ADMISSION PURPOSES AT DIFFERENT PLACES NAMELY JHARKAND, KERALA, ASSAM AND TRIPURA ETC. CAN YOU PLEASE GO THROUGH THE CONTENTS OF THESE PAGES AND CONFIRM YOUR ACTIVITIES WITH THESE PERSONS. ANS. THESE ARE STANDARD AGREEMENT FORMATS FOR THE PEOPLE WHO ARE WORKING FOR US IN DIFFERENT STATES. Q.44 ON THE BASIS OF YOUR ABOVE STATEMENT, DO YOU ACCEPT THAT AGENTS WERE HELPING YOU IN GETTING STUDENTS FOR ADMISSION AND IN TURN YOU ARE PAYING THEM COMMISSION OR SERVICE CHARGES ETC. ACCORDINGLY THE EDUCATIONAL ACTIVITIES WERE BEING RUN ON COMMERCIAL PRINCIPLES. ANS. EARLIER I WAS MYSELF GOING TO DIFFERENT STATES AND CITIES AND WE USE TO GIVE ADVERTISEMENT IN THE NEWSPAPER AND USE TO ADMIT THE STUDENTS. HOWEVER THIS WAS WORKING OUT TO BE LITTLE COSTLIER AND THEREFORE FROM LAST FOUR YEARS WE HAVE ASK THESE PERSONS TO BRING STUDENTS TO US AND WE ARE PAYING THEM PER A STUDENT BASIS FOR A SUM OF RS.5,OOO/- TO RS.10,OOO/-. Q.45 THIS AMOUNTS TO COMMERCIALIZATION ONLY. ANS. IN MY OPINION THIS IS PROMOTIONAL ACTIVITY. ITA NOS.2894 & 2895/BANG/2017 PAGE 16 OF 27 9.3 FROM THE ABOVE FACTS, THE FOLLOWING THINGS ARE VERY CLEAR. I) THE ASSESSEE HAS ACTUALLY APPOINTED VARIOUS AGENTS, TO BRING STUDENTS FOR ADMISSION. II) SIGNIFICANT AMOUNT IS PAID TO THEM AS COMMISSION/ CONSULTATION CHARGES. III) SOME OF THE COMMISSION IS NOT DEBITED IN THE BOOKS OF ACCOUNTS. IV) TDS IS NOT MADE IN RESPECT OF COMMISSION PAID IN CASH. V) THE PAYMENT OF COMMISSION AMOUNTS TO RUNNING THE ORGANIZATION ON COMMERCIAL BASIS LIKE A BUSINESS ENTERPRISES AND THUS AMOUNTS TO COMMERCIALIZATION OF EDUCATION, WHICH IS AGAINST THE VERY BASIS OF CHARITABLE PURPOSE ENVISAGED U/S 2(15) OF THE INCOME TAX ACT. 9.4 FROM THE ABOVE, IT IS EVIDENT THAT THE COMMISSION TO THE BROKERS IS PAID FOR BRINGING THE STUDENTS FOR ADMISSION TO VARIOUS COURSES RUN BY JMJ. THE PAYMENT OF COMMISSION AND TDS ISSUE PROVE THAT THE JMJ IS INDULGING IN DEVELOPMENT OF BRAND NAME 'JMJ' AND SELLING THE EDUCATION IN THE OPEN MARKET WITH THE HELP OF THE AGENTS/CONSULTANTS TO THE VULNERABLE STUDENTS CHARGING HUGE FEES INCLUDING A PORTION TOWARDS COMMISSION. THE STUDENTS AND THEIR PARENTS ARE EXPLOITED IN GUISE OF IMPARTING EDUCATION. EVEN THOUGH IMPARTING OF EDUCATION IN ITSELF IS A CHARITABLE ACTIVITY U/S.2(15) OF I.T.ACT, IN THE INSTANT CASE THE EDUCATION IS COMMERCIALLY EXPLOITED AND CANNOT BE CLASSIFIED AS CHARITABLE U/S.2(15) OF LT. ACT. 24. THE LD.AR POINTED OUT THAT IN THE ASSESSMENT YEARS UNDER CONSIDERATION, THERE WAS NO ADDITION TOWARDS PAYMENT OF HUGE COMMISSION TO AGENTS/BROKERS. IT IS ALSO NOTED THAT EXEMPTION U/S. 11 WAS NOT DENIED TO THE ASSESSEE ON THE REASON OF PAYMENT OF HUGE COMMISSION TO BROKERS / AGENTS. THE MATERIAL GATHERED BY THE DEPARTMENT DURING THE COURSE OF ITA NOS.2894 & 2895/BANG/2017 PAGE 17 OF 27 SURVEY MARKED AS 49/AIT/JMJ IS NOT RELEVANT TO THE ASSESSMENT YEARS UNDER CONSIDERATION. THE AO REFERRED TO PAGE 51 OF IMPOUNDED ANNEXURE 49/AIT/JMJ WHICH IS A LETTER DATED 16.11.2011 WRITTEN BY JOE SEBASTIAN REQUESTING FOR RELEASE OF SERVICE CHARGE FOR ADMISSION OF STUDENT K.P. AVASTHY, WHO HAS TAKEN ADMISSION NOT IN THESE ASSESSMENT YEARS UNDER CONSIDERATION I.E., AY 2010-11 RELEVANT TO FY ENDING ON 31.3.2010 AND AY 2011-12 RELEVANT TO FY ENDING ON 31.3.2011. 25. THE NEXT SEIZED MATERIAL, PAGE 50 WHICH IS DATED 19.1.2012 WRITTEN BY DR. HARISH, KAMMANAHALLI, BANGALORE REQUESTING PAYMENT OF COMMISSION OF RS.10,000 FOR ADMISSION OF STUDENT BY NAME JESSENA FERNANDES ON 9.6.2011 FOR M.SC IS ALSO NOT UNDER THE ASSESSMENT YEARS UNDER CONSIDERATION. THE NEXT MATERIAL OF SAME ANNEXURE 49/AIT/JMJ IS LETTER DATED 27.8.2011 WRITTEN BY P.N. SILESH STATING THAT HE HAS ARRANGED FOR ADMISSION OF 2 STUDENTS IN THE ACADEMIC YEAR 2011-12 AND REQUESTING FOR PAYMENT OF COMMISSION OF RS.10,000, WHICH IS ALSO NOT RELEVANT TO THE ASSESSMENT YEARS UNDER CONSIDERATION. PAGE 48 OF THE IMPOUNDED MATERIAL DATED 22.9.2011 WRITTEN BY RAFEEQ M. MENTIONING ADMISSION OF 8 STUDENTS REQUESTING FOR SERVICE CHARGES, THIS MATERIAL IS ALSO NOT RELATING TO ASSESSMENT YEARS UNDER CONSIDERATION. PAGE 47 OF ANNEXURE 49/AIT/JMJ WHICH SHOWS PAYMENT DETAILS TO VARIOUS AGENTS FOR ADMISSION IS FOR FY 2011-12. IN THIS, NAMES OF RAFEEQ, DR. HARISH & GIRISH (SILESH) ARE MENTIONED. THIS MATERIAL IS ALSO NOT RELATING TO ASSESSMENT YEARS UNDER CONSIDERATION. IN PAGES 35, 36, 37, 38, 40, 41 & 42 OF THE IMPOUNDED MATERIAL, WE DONT FIND ANY DATES AND HENCE WE ARE NOT IN A POSITION TO CONSIDER THE SAME TO THE AY TO WHICH IT RELATES. 26. THE REASONS AS TO WHY THE ASSESSING OFFICER HAS CONCLUDED THAT THERE IS COMMERCIALIZATION OF EDUCATION IS THE GROUND THAT THE ASSESSEE IS HAVING AGENTS AND IT IS PAYING COMMISSION TO THEM. IT IS ERRONEOUS TO STATE THAT THE ASSESSEE HAS APPOINTED BROKERS / AGENTS. THE ASSESSEE IS RUNNING ITA NOS.2894 & 2895/BANG/2017 PAGE 18 OF 27 SEVERAL EDUCATIONAL COURSES. AS THE ASSESSEE IS HAVING ADMISSION FROM ALL OVER THE COUNTRY, IT IS ESSENTIAL TO HAVE THE SERVICES OF PUBLIC RELATION PERSONS TO MAKE PEOPLE ALL OVER, AWARE OF THE INSTITUTION AND THE COURSES BEING OFFERED. THESE PUBLIC RELATION PERSONS FAMILIARIZE THE SOCIETY AT LARGE ABOUT THE INSTITUTIONS AND VARIOUS EDUCATIONAL FACILITIES AVAILABLE AND THESE PEOPLE ARE PAID CERTAIN NOMINAL AMOUNTS FOR THE SERVICES RENDERED BY THEM. IT IS NOT A CASE OF BROKER AND COMMISSION PAYMENT BUT PAYMENT FOR LIASONING WHICH IS VERY MUCH ESSENTIAL IN THESE DAYS AND ESPECIALLY CONSIDERING THE NUMBER OF EDUCATIONAL INSTITUTIONS AVAILABLE AND ALSO THE VAST AREA FROM WHERE THE STUDENTS COME FROM. THIS CANNOT BE A REASON TO CONCLUDE THAT THE ASSESSEE IS CARRYING ON A COMMERCIAL VENTURE. BEING SO, THERE WAS NO ADDITION IN THIS REGARD IN THESE ASSESSMENT YEARS UNDER CONSIDERATION. THERE IS NO QUESTION OF DENIAL OF EXEMPTION U/S. 11. THEREFORE, THE GROUND RAISED BY THE REVENUE WITH REGARD TO GRANTING EXEMPTION U/S. 11 & 12 THOUGH ASSESSEE HAS PAID HUGE COMMISSION TO AGENT/MIDDLE MEN TO BRING STUDENTS TO THE INSTITUTION IS MISCONCEIVED. ACCORDINGLY THIS GROUND OF APPEAL IS DISMISSED. 27. THE NEXT OBJECTION IS THAT ASSESSEE EARNED SURPLUS IN CARRYING OUT EDUCATIONAL ACTIVITIES. AS RIGHTLY POINTED OUT BY THE LD. AR, AS HELD IN QUEENS EDUCATION SOCIETY (SUPRA), A DISTINCTION MUST BE DRAWN BETWEEN THE MAKING OF A SURPLUS AND AN INSTITUTION BEING CARRIED ON FOR PROFIT. NO INFERENCE ARISES THAT MERELY BECAUSE IMPARTING EDUCATION RESULTS IN MAKING A PROFIT, IT BECOMES AN ACTIVITY FOR PROFIT. IF AFTER MEETING EXPENDITURE, A SURPLUS ARISES INCIDENTALLY FROM THE ACTIVITY CARRIED ON BY THE EDUCATIONAL INSTITUTION, IT WILL NOT 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 PROFIT AS OPPOSED TO IMPARTING EDUCATION. AS NOTED EARLIER, THE ASSESSEE IS RUNNING 9 ITA NOS.2894 & 2895/BANG/2017 PAGE 19 OF 27 INSTITUTIONS AND HAVING LARGE NUMBER OF STUDENTS AND THE INCOME & EXPENDITURE OF ASSESSEE IN THESE ASSESSMENT YEARS ARE AS FOLLOWS:- P ARTICULARS AY 2010 - 11 AY 2011 - 12 GROSS RECEIPTS 68.05 CRORES 57.40 CRORES EXPENDITURE TOWARDS EDUCATION 46.08 CRORES 56.0 3 CRORES SURPLUS 21.96 CRORES 19.17 C RORES 28. FOR CLARITY, WE REPRODUCE THE INCOME & EXPENDITURE ACCOUNT HEREUNDER:- ITA NOS.2894 & 2895/BANG/2017 PAGE 20 OF 27 ITA NOS.2894 & 2895/BANG/2017 PAGE 21 OF 27 ITA NOS.2894 & 2895/BANG/2017 PAGE 22 OF 27 29. THUS, IT SHOWS THAT THE SURPLUS EARNED BY THE ASSESSEE IN THESE ASSESSMENT YEARS IS INCIDENTAL WHILE CARRYING OUT THE MAIN OBJECTS OF THE ASSESSEE TRUST. FURTHER, IT IS NOTED THAT SURPLUS GENERATED HAS BEEN PLOUGHED BACK FOR EDUCATIONAL PURPOSES ONLY. THE DOMINANT OBJECTIVE IS TO IMPART EDUCATION AND NOT TO MAKE PROFITS. THE SURPLUS ARISING IS INCIDENTAL. THE EXCESS OF INCOME BY ITSELF DOES NOT LEAD TO AN INFERENCE OF PROFIT MOTIVE. IN THIS CONNECTION USEFUL REFERENCE CAN BE MADE TO THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF MAHARAJA KRISHNA KAPOOR EDUCATIONAL CHARITABLE TRUST AND MANAGEMENT SOCIETY V.UNION OF INDIA 326 ITR 385 IN WHICH THE HIGH COURT HAS ALSO CONSIDERED THE CASE OF QUEENS EDUCATIONAL SOCIETY (REFERRED BY THE ASSESSING OFFICER IN HER ORDER) AS ITA NOS.2894 & 2895/BANG/2017 PAGE 23 OF 27 ALSO THE CASE OF CHILDREN BOOK TRUST. FURTHER IN THE CASE OF PINEGROVE INTERNATIONAL CHARITABLE TRUST V. UNION OF INDIA 327 ITR 73 IT WAS HELD FOLLOWING THE SUPREME COURT JUDGMENT IN THE CASE OF T.M.A. PAI FOUNDATION V. STATE OF KARNATAKA (8SCC 481) THAT EXISTENCE OF SURPLUS CANNOT BE FAULTED IN VIEW OF THE NECESSITY OF GENERATE FUNDS, ESPECIALLY FOR HUGE CAPITAL INVESTMENTS REQUIRED FOR PROVIDING EDUCATIONAL FACILITIES. IT MAY INCIDENTALLY BE MENTIONED HERE THAT THOUGH THE SURPLUS FOR THE YEAR ENDING 31.03.2011 I.E., YEAR UNDER APPEAL WAS RS.19,17,30,178/-. THE ADDITIONS TO CAPITAL ASSETS AMOUNTED TO RS.16,88,37,797/- AND THE AMOUNT ADVANCED FOR BUILDING AND OTHER PURPOSES, DEPOSITS PAID AMOUNTED TO 7,23,53,136. FROM THIS IT IS VERY CLEAR THAT THE ENTIRE SURPLUS OF THE SOCIETY IS REDEPLOYED FOR THE OBJECTS OF THE TRUST. THE OBJECTS OF THE ASSESSEE ARE NOT DOUBTED AND WHEN THE OBJECTS ARE GENUINE, THE SURPLUS CANNOT BE TREATED AS A SIN. PROFITABLE ACTIVITY DOES NOT NECESSARILY MEAN THAT THERE IS A PROFIT MOTIVE. SUCH A VIEW HAS BEEN HELD IN THE FOLLOWING CASES: (I) CIT V. MANAV MANGAL SOCIETY 328 ITR 421 (II) SRI KRISHNA EDUCATION & WELFARE TRUST 5 ITR (TRIB) 750 (III) VANITHA VISHRAM TRUST V. CCIT 327 ITR 121. THEREFORE, IT IS INCORRECT TO STATE THAT THE ASSESSEE IS NOT EXISTING FOR EDUCATIONAL PURPOSES BUT IS EXISTING FOR PROFIT. BEING SO, THE ASSESSEE BEING EDUCATION INSTITUTION IS TO BE CONSIDERED TO BE EXISTING SOLELY FOR EDUCATION PURPOSES ONLY. 30. IN THE DECISIONS CITED BY THE LD. AR, IN THE CASE OF QUEENS EDUCATIONAL SOCIETY V. CIT, 55 TAXMANN.COM 255 (SC), THE ASSESSEE SOCIETY WAS ENGAGED IN IMPARTING EDUCATION AND HAD TO MAINTAIN A TEACHING AND NON-TEACHING STAFF AND HAD TO PAY FOR THEIR SALARIES AND OTHER INCIDENTAL EXPENSES. IT, THEREFORE, BECAME NECESSARY TO CHARGE CERTAIN FEE FROM THE ITA NOS.2894 & 2895/BANG/2017 PAGE 24 OF 27 STUDENTS FOR MEETING ALL THESE EXPENSES. THE ASSESSEE FILED ITS RETURN CLAIMING EXEMPTION OF INCOME UNDER SECTION 10(23C)(IIIAD). THE AO FOUND THAT ASSESSEE HAD GENERATED SOME SURPLUS DURING RELEVANT YEARS. HE THUS TAKING A VIEW THAT ASSESSEE-SOCIETY WAS RUNNING EDUCATIONAL INSTITUTION WITH PROFIT MOTIVE, REJECTED ASSESSEE'S CLAIM. THE TRIBUNAL NOTED THAT THE SURPLUS HAD ENABLED THE ASSESSEE TO ACQUIRE ITS OWN PROPERTY, ACQUIRE COMPUTERS, LIBRARY BOOKS, SPORTS EQUIPMENTS ETC. FOR THE BENEFIT OF THE STUDENTS. MOREOVER THE MEMBERS OF THE ASSESSEE SOCIETY HAD NOT UTILIZED ANY PART OF THE SURPLUS FOR THEIR OWN BENEFIT. THE TRIBUNAL THUS TAKING A VIEW THAT PROFIT WAS ONLY INCIDENTAL TO THE MAIN OBJECT OF SPREADING EDUCATION, ALLOWED ASSESSEE'S CLAIM FOR EXEMPTION. THE HIGH COURT, HOWEVER, RELYING UPON THE ORDER PASSED IN THE CASE OF ADITANAR EDUCATIONAL INSTITUTION V. ADDL. CIT [1997] 224 ITR 310 (SC) , RESTORED THE ORDER PASSED BY AO. THE HONBLE SUPREME COURT HELD THAT WHERE A SURPLUS WAS MADE BY EDUCATIONAL INSTITUTION WHICH WAS PLOUGHED BACK FOR EDUCATIONAL PURPOSES, SAID INSTITUTION WAS TO BE HELD TO BE EXISTED SOLELY FOR EDUCATIONAL PURPOSE AND NOT FOR PURPOSE OF PROFIT. THIS JUDGMENT IN QUEENS EDUCATIONAL SOCIETY (SUPRA) WAS FOLLOWED AND SIMILARLY HELD IN THE CASE OF CCIT V. ST. PETERS EDUCATIONAL SOCIETY, 70 TAXMANN.COM 171 (SC). 31. IN ACIT(E) V. MAHIMA SHIKSHA SAMITI [2017] 79 TAXMANN.COM 38 (JAIPUR TRIB.) THE FACTS WERE THAT THE ASSESSEE WAS A REGISTERED SOCIETY HAVING MAIN OBJECTS OF SETTING UP OF EDUCATIONAL INSTITUTIONS AND OPERATING THEM FOR THE PROMOTION OF EDUCATION. THE ASSESSEE CLAIMED EXEMPTION UNDER SECTION 11(1)(A). THE AO DENIED EXEMPTION HOLDING THAT ASSESSEE DID NOT FALL WITHIN THE AMBIT OF THE TERM EDUCATION AS DEFINED UNDER SECTION 2(15) AND THAT ASSESSEE HAD GENERATED SYSTEMATIC SURPLUS, YEAR ON YEAR, WHICH ESTABLISHED THAT IT WAS RUNNING EDUCATIONAL INSTITUTIONS WITH PROFIT MOTIVE, THUS, NOT FOR A CHARITABLE PURPOSE. ALSO, ASSESSEE'S DONATION TO JAIPUR NATIONAL UNIVERSITY WAS NOT AS PER THE PROVISIONS OF SECTION 11 READ ITA NOS.2894 & 2895/BANG/2017 PAGE 25 OF 27 WITH SECTIONS 12 AND 13 OF THE ACT. FURTHER, SALARY PAYMENTS MADE TO PERSONS COVERED BY SECTION 13(3) WERE HIGHER THAN REASONABLE. THE TRIBUNAL HELD THAT WHERE ASSESSEE AN EDUCATIONAL SOCIETY HAD PLOUGHED BACK SURPLUS GENERATED BY IT YEAR AFTER YEAR IN FURTHERANCE OF ITS EDUCATIONAL OBJECTIVES, IT WOULD BE ENTITLED TO EXEMPTION UNDER SECTION 11. 32. IN GANAPAT UNIVERSITY V. ARVIND SHANKAR [2016] 73 TAXMANN.COM 373 (GUJ), THE ASSESSEE A UNIVERSITY WAS ESTABLISHED UNDER THE BOMBAY PUBLIC TRUST ACT. IT ENJOYED REGISTRATION UNDER SECTION 12AA AND APPROVAL UNDER SECTION 80G(5). THE ASSESSEE FILED AN APPLICATION SEEKING EXEMPTION UNDER SECTION 10(23C)(VI). THE COMMISSIONER TAKING INTO ACCOUNT EXTREMELY HIGH FEE CHARGED BY ASSESSEE FROM STUDENTS, OPINED THAT IT WAS NOT EXISTING SOLELY FOR EDUCATIONAL PURPOSE. HE THUS REJECTED ASSESSEE'S APPLICATION. THE HONBLE HIGH COURT OF KARNATAKA GUJARAT HIGH COURT HELD THAT GENERATING CERTAIN INCIDENTAL SURPLUS AFTER CARRYING OUT EDUCATIONAL ACTIVITIES BY ITSELF WOULD NOT INDICATE THAT TRUST EXISTED FOR PROFIT PURPOSE AND, THUS, APPLICATION FILED BY SAID TRUST FOR EXEMPTION OF INCOME UNDER SECTION 10(23C)(VI) CANNOT BE REJECTED ON AFORESAID BASIS. 33. IN DIT (EXEMPTIONS) V. DELHI PUBLIC SCHOOLS SOCIETY,[2018] 100 TAXMANN.COM 370 (SC) , A SSESSEE-SOCIETY WAS SET UP WITH MAIN OBJECT TO ESTABLISH EDUCATIONAL INSTITUTIONS AND HAD BEEN ENJOYING EXEMPTION UNDER SECTION 10(22) SINCE AY 1977-78. IN VIEW OF SUBSTITUTION OF SECTION 10(22) WITH SECTION 10(23C)(VI) WITH EFFECT FROM 1.4.1999, ASSESSEE APPLIED FOR APPROVAL OF EXEMPTION UNDER SECTION 10(23C)(VI) FOR AY 2008-09 ONWARDS. THE ADDITIONAL DIRECTOR REJECTED THE APPLICATION ON GROUNDS THAT ASSESSEE HAD ENTERED INTO FRANCHISE AGREEMENTS FOR OPENING SCHOOLS AND FRANCHISEE FEE RECEIVED BY IT FROM SATELLITE SCHOOLS IN LIEU OF ITS NAME, LOGO AND MOTTO AMOUNTED TO A 'BUSINESS ACTIVITY' WITH A PROFIT MOTIVE AND NO SEPARATE BOOKS OF ACCOUNT WERE MAINTAINED BY ASSESSEE FOR BUSINESS ACTIVITY AS REQUIRED UNDER SECTION 11(4A). THE HIGH COURT HELD THAT SINCE ASSESSEE HAD ITA NOS.2894 & 2895/BANG/2017 PAGE 26 OF 27 MAINTAINED ACCOUNTS IN COMPLIANCE TO SEVENTH PROVISO TO SECTION 10(23C)(VI) AND SECTION 11(4A) WHICH WAS AUDITED IN DETAIL AND, FURTHER, SURPLUSES ACCRUED IN FORM OF FRANCHISEE FEE FROM SATELLITE SCHOOLS WERE FED BACK INTO MAINTENANCE AND MANAGEMENT OF SCHOOLS THEMSELVES, ASSESSEE HAD FULFILLED REQUIREMENTS TO QUALIFY FOR EXEMPTION UNDER SECTION 10(23C)(VI). THE HONBLE SUPREME COURT DISMISSED SLP AGAINST HIGH COURT RULING THAT WHERE ASSESSEE SOCIETY WAS SET UP WITH OBJECT OF IMPARTING EDUCATION AND IT HAD ENTERED INTO FRANCHISE AGREEMENTS WITH SATELLITE SCHOOLS AND ALSO USED GAINS ARISING OUT OF THESE AGREEMENTS IN FORM OF FRANCHISEE FEES FOR FURTHERANCE OF EDUCATIONAL PURPOSES, IT FULFILLED REQUIREMENTS TO QUALIFY FOR EXEMPTION UNDER SECTION 10(23C)(VI). 34. THE LD. DR RELIED ON THE JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF NAVODAYA EDUCATION TRUST V. UOI, 405 ITR 30 (KARN) WHEREIN IT WAS HELD THAT WHERE ASSESSEE TRUST REGISTERED U/S. 12AA WAS RUNNING VARIOUS EDUCATIONAL INSTITUTIONS, IN VIEW OF THE FACT THAT IT COLLECTED CAPITATION FEE FROM STUDENTS FOR ADMISSION TO MEDICAL COLLEGE, WITHDRAWAL OF EXEMPTION U/S. 10(23C)(VI) DID NOT REQUIRE ANY INTERFERENCE. THE RELIANCE PLACED BY THE LD. CIT(DR) IS TOTALLY MISCONCEIVED AS THE AO HIMSELF RECORDED IN THE ASSESSMENT ORDER IN PARA 8.11 AS FOLLOWS:- HOWEVER NO ACTION IS WARRANTED IN THE A.Y. 2010-11 ON ACCOUNT OF THIS FEES WHICH HAS BEEN COLLECTED AS DEVELOPMENT FEES SINCE NO DIRECT EVIDENCE HAS BEEN FOUND FOR F.Y. 2009-10 RELEVANT TO A.Y. 2010-11. ITA NOS.2894 & 2895/BANG/2017 PAGE 27 OF 27 35. FURTHER, THERE IS NO GROUND WITH REGARD TO DENIAL OF EXEMPTION U/S. 11 ON ACCOUNT OF COLLECTION OF CAPITATION FEES. BEING SO, THE RELIANCE PLACED BY THE LD. DR IS TOTALLY MISCONCEIVED. THEREFORE THE RELEVANT GROUND BY THE REVENUE IS DISMISSED. 36. IN THE RESULT, THE APPEALS BY THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF APRIL, 2021. SD/- SD/- ( BEENA PILLAI ) ( CHANDRA POOJARI ) JUDICI AL MEMBER ACCOUN TA NT MEMBER BANGALORE, DATED, THE 16 TH APRIL, 2021. / DESAI S MURTHY /DEVADAS COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.