ITI Education Committee, Bangalore V. Income-Tax Officer(Exemption), Bangalore

ITA 425/BANG/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5591 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 22-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR A
• Assessee Lawyers: H SAMBHU SHARMA
• Keywords: Depreciation; Charitable institution
• Section: 143(3); 80G; 12AA; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, B ENGALURU BEFORE S HRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER I TA NO. 425 / BANG/2 0 1 7 (ASSESSMENT YEAR: 20 12 - 13 ) M/S.ITI EDUCATION COMMITTEE, VIDYAMANDIR, DOORAVA NINAGAR, BENGALURU. PAN : AAAAI0748L VS. APPELLANT THE INCOME - TAX OFFICER (EXEMPTIONS), WARD - 1, BENGALURU RESPONDENT APPELLANT BY : SHRI H SAMBHU SHARMA, C.A RESPONDENT BY : SHRI PRADEEP KUMAR, ACIT(DR) DATE OF HEARING : 27/11/2017 DATE OF PRONOUNCEMENT : 31 / 01 /201 8 O R D E R PER I NTURI RAMA RAO, AM : THIS IS AN APPEAL BY THE ASSESSEE - TRUST DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME - TAX (APPEALS) - 14, BANGALORE, DATED 25/11/2016 FOR THE ASSESSMENT YEAR 2012 - 13. 2. THE APPELLANT RAISED THE FOLLOWING GROUNDS OF APPEAL. 1. THAT, THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN SO FAR AS IS PREJUDICIAL TO THE INTERESTS OF THE APPELLANT, IS BAD AND ERRONEOUS IN LAW AND AGAINST THE FACTS AN D CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING THE CLAIM OF THE APPELLANT FOR EXEMPTION UNDER SECTION 11 OF THE ACT, IN RESPECT OF SURPLUS OF THE SOCIETY ARISEN IN THE COURSE OF RUNNING EDUCATIONAL SCHOOLS & ITA NO . 425 /BANG/201 7 PAGE 2 OF 16 INSTITUTIONS, IN SPITE OF THE APPELLANT IS EXISTING FOR CHARITABLE (EDUCATION) PURPOSES AND COMPLYING WITH ALL THE APPLICABLE PROVISIONS OF SECTION 11 OF THE ACT. 3. THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) IS ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN COMING TO CONCLUSION THAT THE APPELLANT HAS EARNED UNREASONABLE PROFIT AND THEREBY IT IS EXISTING FOR PURPOSES OF PROFIT; AND HENCE IN ELIGIBLE TO CLAIM EXEMPTION UNDER SECTION 11, IN SPITE THE APPELLANT GOT ONLY REASONABLE SURPLUS. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN COMING TO CONCLUSION THA T ONLY 15% OF NET EDUCATIONAL INCOME (GROSS EDUCATIONAL INCOME LESS EXPENDITURE TOWARDS EDUCATIONAL PURPOSE) IS TO BE TAKEN INTO CONSIDERATION FOR ACCUMULATION UNDER SECTION 11(1)(A); AS AGAINST APPELLANT'S CONTENTION FOR ACCUMULATION IS THAT OF 15% OF GRO SS EDUCATIONAL INCOME. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DENYING THE ALTERNATE EXEMPTION UNDER SECTION 10(23C)(VI) IN SPITE THE APPELLANT FULFILLED ALL PR OVISIONS OF SECTION 10(23C)(VI) INCLUDING CARRY FORWARD SURPLUS FOR FUTURE YEARS FOR EDUCATIONAL PURPOSE IN ACCORDANCE WITH THE THIRD PROVISO TO SECTION 10(23C) OF THE ACT. 6. FOR THESE AND OTHER GROUNDS OF APPEAL WHICH MAY BE TAKEN AT THE TIME OF HEARING , IT IS PRAYED THAT THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS, THE ADDITIONS MADE IN THE ORDER OF ASSESSMENT OF RS 1,37,93,610/ - IS DELETED AND THE SURPLUS GENERATED BY THE APPELLANT BE EXEMPTED UNDER TH E ACT. 7. EACH OF THE ABOVE GROUNDS IS WITHOUT PREJUDICE TO ONE ANOTHER AND THE APPELLANT CRAVES LEAVE OF THE HONORABLE COMMISSIONER TO ADD, DELETE, AMEND OR OTHERWISE MODIFY ONE OR MORE OF THE ABOVE GROUNDS EITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 3. BRIEFLY, FACTS OF THE CASE ARE THAT THE APPELLANT IS A SOCIETY REGISTERED UNDER KARNATAKA SOCIETIES REGISTRATION ACT WITH SOLE OBJECT OF PROMOTING AND IMPARTING EDUCATION. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012 - 13 WAS FILED ON 29/9/2013 DECLARING NIL INCOME. AGAINST THE SAID RETURN OF INCOME , THE ASSESSMENT WAS COMPLETED BY THE INCOME - TAX OFFICER (EXEMPTIONS), WARD - 1, BANGALORE , VIDE ORDER DATED 27/3/2015 PASSED U/S 143(3) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO ITA NO . 425 /BANG/201 7 PAGE 3 OF 16 AS 'THE ACT' FOR SHORT ] AT TOTAL INCOME OF RS.1,37,93,610/ - . WHILE DOING SO, THE LD . ASSESSING OFFICER HAD DENIED THE EXEMPTION CLAIMED UNDER THE PROVISIONS OF CLAUSE (VI) OF SUB SECTION (23C) OF SEC. 10 OF THE ACT ON THE GROUND THAT THE APPELLANT WAS EXIST ING ONLY FOR THE PURPOSE OF MAKING PROFIT. THE FACTS SET OUT BY THE ASSESSING OFFICER IN PARA GRAPHS 19 TO 23 OF THE ASSESSMENT ORDER , WHILE DENYING THE EXEMPTION U/S 10(23C) , ARE REPRODUCED BELOW: - 19. ON, GOING THROUGH THE FACTS OF THE CASE AND THE SUBMISSIONS MADE, THE FOLLOWING FACTS EMERGE: - A) WHENEVER AN EDUCATIONAL INSTITUTION MAKES HUGE/LARGE PROFIT/SURPLUS YEAR AFTER YEAR, IT CEASES TO EXIST FOR EDUCATIONAL PURPOSE AND BECOMES PROFIT MAKING ORGANIZATION, EVEN THOUGH IT MAY PLOUGH SUCH PRO FITS BACK INTO PURCHASE OF ASSETS FOR THE INSTITUTION/ORGANIZATION. SUCH ACTIVITY CAN BETTER BE TERMED AS ACTIVITY FOR PROFIT. B) THE PURPOSE FOR WHICH THE TRUST/INSTITUTION IS ESTABLISHED MUST BE ACCOMPLISHED BY CARRYING OUT SUCH ACTIVITY WHICH ARE CHA RITY IN NATURE AS PER THE DEED/MOA OF THE TRUST. C) IN THE INSTANT CASE, THE PRE - DOMINANT OBJECT OF THE ACTIVITY IS MAKING PROFIT, WHEREAS ITS OBJECTS ARE PRIMARILY FOR SERVING THE CHARITABLE PURPOSE. HERE, THE PURPOSE OF THE ASSESSEE IS SUBMERGED BY PR OFIT MAKING MOTIVE IN THE GUISE OF CHARITABLE TRUST. IF THE PROFIT/SURPLUS ARISES AS A RESULT OF INCIDENTAL, IT CAN BE ACCEPTED THAT THE ASSESSEE IS NOT ENGAGED IN PROFIT MAKING. D) HAVING REGARD TO THE FACTS AND CIRCUMSTANCES, OF THE CASE, ONE CAN COME TO THE CONCLUSION THAT THE DOMINANT OBJECT OF THE ASSESSEE IS PROFIT MAKING, AS CAN BE SEEN THAT THE ASSESSEE IS MAKING SYSTEMATIC PROFIT YEAR AFTER YEAR. 20. AS OBSERVED BY THE HON'BLE COURTS, IN THE CASES REFERRED, THE CRUCIAL CONDITION IS THAT SURPLUS SHOULD RESULT ONLY INCIDENTALLY AND SHOULD NOT BE AIMED FOR. IF SUBSTANTIAL PROFITS ARE EARNED IN YEAR IF (IT) WOULD BE THE DUTY OF THE INSTITUTION TO LOWER ITS FEES FOR THE SUBSEQUENT YEAR SO THAT SUCH PROFITS ARE NOT INTENTIONALLY GENERATED. IF PROFITS CONTINUE YEAR AFTER YEAR, THEN IT CANNOT BE SAID THAT THE SURPLUS ARE DUE TO INCIDENTAL. 21. THE HON'BLE SUPREME COURT'S ORDER IN THE CASE OF QUEEN'S EDUCATIONAL SOCIETY VS. COMMISSIONER OF INCOME TAX (CA NO.5167 OF 2008 - SC), THE HON'BLE S.C. WHILE DISMIS SING THE APPEAL OF THE APPELLANT, I.E. QUEEN'S EDUCATIONAL SOCIETY HAS STATED THERE IS NO MERIT IN THE CASE WARRANTING ADMISSION ITA NO . 425 /BANG/201 7 PAGE 4 OF 16 OF APPLICANT'S APPEAL. IT ALSO OBSERVED THAT THE ASSESSEE'S ACTIVITIES SHOULD BE CARRIED OUT IN ACCORDANCE WITH THE CONDITIONS. 22. IN VIEW OF THE ABOVE, I AM OF THE CONSIDERED OPINION THAT THE ASSESSEE TRUST/INSTITUTION IS NOT IN EXISTENCE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EDUCATION AND THE EDUCATIONAL INSTITUTIONS ARE BEING USED FOR THE PURPOSE OF GENERATING HUGE AMOUNT OF SURPLUS AS AGAINST THE RULING GIVEN BY THE HON'BLE SUPREME COURT IN THE CASE OF P.A. INAMDAR (SUPRA) AND ALSO THE DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF VISVESVARAYA TECHNOLOGICAL UNIVERSITY (SUPRA).ACCORDINGLY, ASSESSEE CANNOT BE CONSIDERED AS ENGAGED IN THE CHARITABLE ACTIVITIES IN THE NATURE OF EDUCATION AS ENVISAGED IN SECTION 2(15) OF INCOME TAX ACT. IN VIEW OF THIS, EXEMPTION CLAIMED U/S. 11 & 12 FOR THE AN 2012 - 13 IS DISALLOWED AND THE NET SURPLUS GENERATED IS CONSIDERED F OR TAXATION IN THE STATUS OF AOP. 23. THE ASSESSEE HAS EXERCISED ITS OPTION FOR CLAIMING DEDUCTION UNDER SEC.10(23C)(VI) OF THE ACT, VIDE ITS LETTER DATED 18 - 02 - 2015. IT IS IMPORTANT TO MENTION HERE THAT, AS PER THE PROVISIONS OF THE SECTION 19 3CJ(VI) OF THE I.T ACT,1961 ' ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATIONAL PURPOSE AND NOT FOR THE PURPOSES OF PROFIT', OTHER THAN THOSE MENTIONED IN SUB CLAUSE (ILIAB) OR SUB CLAUSE (ILIAD) AND WHICH MAY BE APPROVED BY THE PRESCRI BED AUTHORITY '. AS SECTION 2(15) IS INVOKED IN THIS CASE, AND IN VIEW OF THIS, EXEMPTION CLAIMED U/S. 11 & 12 FOR THE A.Y 2012 - 13 IS DISALLOWED AND THE NET SURPLUS GENERATED IS CONSIDERED FOR TAXATION IN THE STATUS OF AOP. FURTHER, THE ASSESSING OFFICER HAD NOT ALLOWED CARRY FORWARD OF EXCESS INCOME OVER EXPENDITURE ON THE GROSS INCOME BUT ON THE NET INCOME . 4. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE THE LD . CIT(A), WHO VIDE IMPUGNED ORDER, HAD CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 5. BEING AGGRIEVED, THE APPELLANT IS BEFORE US IN THE PRESENT APPEAL. 5.1 THE LD AR SUBMITTED THAT THE ASSESSEE IS EXISTING SOLELY FOR THE EDUCATION PURPOSE, AS NO PART OF THE SURPLUS INCOME GENERATED IS UTILIZED WHOLLY FOR EDUCATION PURPOSE. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAD COME TO WRONG CONCLUSION THAT THE APPELLANT WAS MAKING ITA NO . 425 /BANG/201 7 PAGE 5 OF 16 HUGE PROFITS WITHOUT APPRECIATING THE FACT THAT AFTER DEDUCTION OF THE DEPRECIATION FROM THE SURPLUS GENERATED, THE PROFITS WOULD ONLY 18% OF THE GROSS REC EIPTS. HE FURTHER SUBMITTED THAT THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF VISVESVARAYA TECHNOLOGICAL UNIVERSITY VS. ACIT (2014) 362 ITR 279 (KAR) RELIED UPON BY THE ASSESSING OFFICER CAME TO BE OVER - RULE D BY THE HON BLE APEX COURT IN THE CASE OF VISVESVARAYA TECHNOLOGICAL UNIVERSITY VS. ACIT ( 384 ITR 37 ) . HE FURTHER SUBMITTED THAT CARRY FORWARD OF EXCESS INCOME OVER EXPENDITURE SHOULD BE CALCULATED ON THE GROSS RECEIPTS NOT ON THE NET RECEIPTS AND RELIANCE WAS PLACED ON THE DEC ISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE FOLLOWING CASES: - I. DCIT, BANGALORE VS. M/S PEOPLES EDUCATION SOCIETY (9 - 6 - 2017) II. THE CAPUCHIN FRIAR SERVICES SOCIETY VS. DCIT (9 - 10 - 2015) III. JYOTHY CHARITABLE TRUST VS. DCIT (14 - 8 - 2015) 5.2 ON THE OTHER HA ND, LD DR PLACED RELIANCE ON THE ORDERS OF THE LOWER AUTHORITIES. 5.3 WE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE IN THE GROUNDS OF APPEAL IS WHETHER THE ASSESSING OFFICER WAS JUSTIFIED IN DENYING THE EXEMPTION UNDER C LAUSE (VI) OF SECTION 10(23C) OF THE ACT ON THE GROUND THAT THE APPELLANT WAS NOT EXISTING ONLY FOR EDUCATION PURPOSE. THE RELEVANT PROVISIONS OF THE ACT ARE EXTRACTED BELOW: - 1 0 (23C) ANY INCOME RECEIVED BY ANY PERSON ON BEHALF OF ( VI ) ANY UNIVE RSITY OR OTHER EDUCATIONAL INSTITUTION 3 EXISTING 3 SOLELY 3 FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT, OTHER THAN THOSE MENTIONED IN SUB - CLAUSE ( IIIAB ) OR SUB - CLAUSE ( IIIAD ) AND WHICH MAY BE APPROVED 4 BY THE PRESCRIBED AUTHORITY 5 ; OR ( VIA ) .............................. PROVIDED THAT THE FUND OR TRUST OR INSTITUTION 8 [OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION 9 OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION] REFERRED TO IN SUB - CLAUSE ( IV ) OR SUB - CLAUSE ( V ) 8 [OR SUB - CLAUSE ( VI ) OR SUB - CLAUSE ( VIA )] SHALL MAKE AN APPLICATION IN THE PRESCRIBED FORM 10 AND MANNER TO THE PRESCRIBED AUTHORITY 11 FOR THE PURPOSE OF GRANT OF THE EXEMPTION, OR CONTI NUANCE THEREOF, UNDER SUB - CLAUSE ( IV ) OR SUB - CLAUSE ( V ) 12 [OR SUB - CLAUSE ( VI ) OR SUB - CLAUSE ( VIA )] : ITA NO . 425 /BANG/201 7 PAGE 6 OF 16 13 [ PROVIDED FURTHER THAT THE PRESCRIBED AUTHORITY, BEFORE APPROVING ANY FUND OR TRU ST OR INSTITUTION OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION, UNDER SUB - CLAUSE (IV) OR SUB - CLAUSE (V) OR SUB - CLAUSE (VI) OR SUB - CLAUSE (VIA), MAY CALL FOR SUCH DOCUMENTS (INCLUDING AUDITED ANNUAL ACCOUNT S) OR INFORMATION FROM THE FUND OR TRUST OR INSTITUTION OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION, AS THE CASE MAY BE, AS IT THINKS NECESSARY IN ORDER TO SATISFY ITSELF ABOUT THE GENUINENESS OF THE ACTI VITIES OF SUCH FUND OR TRUST OR INSTITUTION OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION, AS THE CASE MAY BE, AND THE PRESCRIBED AUTHORITY MAY ALSO MAKE SUCH INQUIRIES AS IT DEEMS NECESSARY IN THIS BEHALF: ] PROVIDED ALSO THAT THE FUND OR TRUST OR INSTITUTION 14 [OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION 15 OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION] REFERRED TO IN SUB - CLAUSE ( I V ) OR SUB - CLAUSE ( V ) 14 [OR SUB - CLAUSE ( VI ) OR SUB - CLAUSE ( VIA )] 16 [( A ) APPLIES ITS INCOME, OR ACCUMULATES IT FOR APPLICATION, WHOLLY AND EXCLUSIVELY TO THE OBJECTS FOR WHICH IT IS EST ABLISHED AND IN A CASE WHERE MORE THAN FIFTEEN PER CENT OF ITS INCOME IS ACCUMULATED ON OR AFTER THE 1ST DAY OF APRIL, 2002, THE PERIOD OF THE ACCUMULATION OF THE AMOUNT EXCEEDING FIFTEEN PER CENT OF ITS INCOME SHALL IN NO CASE EXCEED FIVE YEARS; AND] 17 [( B ) DOES NOT INVEST OR DEPOSIT ITS FUNDS, OTHER THAN ( I ) ANY ASSETS HELD BY THE FUND, TRUST OR INSTITUTION 18 [OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION 19 OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION] WHERE SUCH ASSETS FORM PART OF THE CORPUS OF THE FUND, TRUST OR INSTITUTION 20 [OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDI CAL INSTITUTION] AS ON THE 1ST DAY OF JUNE, 1973; 21 [( IA ) ANY ASSET, BEING EQUITY SHARES OF A PUBLIC COMPANY, HELD BY ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION WHERE SUC H ASSETS FORM PART OF THE CORPUS OF ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION AS ON THE 1ST DAY OF JUNE, 1998;] ( II ) ANY ASSETS (BEING DEBENTURES ISSUED BY, OR ON BEHALF OF, ANY COMPANY OR CORPORATION), AC QUIRED BY THE FUND, TRUST OR INSTITUTION 22 [OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION 23 OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION] BEFORE THE 1ST DAY OF MARCH, 1983; ( III ) ANY ACCRETION TO THE SHARES, FORMING PART OF THE CORPUS MENTIONED IN SUB - CLAUSE ( I ) 24 [AND SUB - CLAUSE ( IA )], BY WAY OF BONUS SHARES ALLOTTED TO THE FUND, TRUST OR INSTITUTION 24A [OR AN Y UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION] ; ITA NO . 425 /BANG/201 7 PAGE 7 OF 16 ( IV ) VOLUNTARY CONTRIBUTIONS RECEIVED AND MAINTAINED IN THE FORM OF JEWELLERY, FURNITURE OR ANY OTHER ARTICLE AS THE BOARD MAY, BY NOTIFICATION IN THE OFFICIAL GA ZETTE, SPECIFY, FOR ANY PERIOD DURING THE PREVIOUS YEAR OTHERWISE THAN IN ANY ONE OR MORE OF THE FORMS OR MODES SPECIFIED IN SUB - SECTION (5) OF SECTION 11 :] PROVIDED ALSO THAT THE EXEMPTION UNDER SUB - CLAUSE ( IV ) OR SUB - CLAUSE ( V ) SHALL NOT BE DENIED IN RELATION TO ANY FUNDS INVESTED OR DEPOSITED BEFORE T HE 1ST DAY OF APRIL, 1989, OTHERWISE THAN IN ANY ONE OR MORE OF THE FORMS OR MODES SPECIFIED IN SUB - SECTION (5) OF SECTION 11 IF SUCH FUNDS DO NOT CONTINUE TO REMAIN SO INVESTED OR DEPOSITED AFTER THE 30TH DAY OF MARCH, 25 [1993] : 26 [ PROVIDED ALSO THAT THE EXEMPTION UNDER SUB - CLAUSE ( VI ) OR SUB - CLAUSE ( VIA ) SHALL NOT BE DENIED IN RELATION TO ANY FUNDS INVESTED OR DEPOSITED BEFORE THE 1ST DAY OF JUNE, 1998, OTHERWISE THAN IN ANY ONE OR MORE OF THE FORMS OR MODES SPECIFIED IN SUB - SECTIO N (5) OF SECTION 11 IF SUCH FUNDS DO NOT CONTINUE TO REMAIN SO INVESTED OR DEPOSITED AFTER THE 30TH DAY OF MARCH, 2001:] 27 [ PROVIDED ALSO THAT THE EXEMPTION UNDER SUB - CLAUSE ( IV ) OR SUB - CLAUSE ( V ) 26 [OR SUB - CLAUSE ( VI ) OR SUB - CLAUSE ( VIA )] SHALL NOT BE DENIED IN RELATION TO VOLUNTARY CONTRIBUTION, OTHER THAN VOLUNTARY CONTRIBUTION IN CASH OR VOLUNTARY CONTRIBUTION OF THE NATURE REFERRED TO IN CLAUSE ( B ) OF THE THIRD PROVISO TO THIS SUB - CLAUSE, SUBJECT TO THE CONDITION THAT SUCH VOLUNT ARY CONTRIBUTION IS NOT HELD BY THE TRUST OR INSTITUTION 28 [OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION], OTHERWISE THAN IN ANY ONE OR MORE OF THE FORMS OR MODES SPECIF IED IN SUB - SECTION (5) OF SECTION 11 , AFTER THE E XPIRY OF ONE YEAR FROM THE END OF THE PREVIOUS YEAR IN WHICH SUCH ASSET IS ACQUIRED OR THE 31ST DAY OF MARCH, 1992, WHICHEVER IS LATER:] PROVIDED ALSO THAT NOTHING CONTAINED IN SUB - CLAUSE ( IV ) OR SUB - CLAUSE ( V ) 29 [OR SUB - CLAUSE ( VI ) OR SUB - CLAUSE ( VIA )] SHALL APPLY IN RELATION TO ANY INCOME OF THE FUND OR TRUST OR INSTITUTION 29 [OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION], BEING PROFI TS AND GAINS OF BUSINESS, UNLESS THE BUSINESS IS INCIDENTAL TO THE ATTAINMENT OF ITS OBJECTIVES AND SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED BY IT IN RESPECT OF SUCH BUSINESS: PROVIDED ALSO THAT ANY 30 [NOTIFICATION ISSUE D BY THE CENTRAL GOVERNMENT UNDER SUB - CLAUSE ( IV ) OR SUB - CLAUSE ( V ), BEFORE THE DATE ON WHICH THE TAXATION LAWS (AMENDMENT) BILL, 2006 RECEIVES THE ASSENT OF THE PRESIDENT * , SHALL, AT ANY ONE TIME 31 , HAVE EFFECT FOR SUCH ASSESSMENT YEAR OR YEARS, NOT EXCEEDING THREE ASSESSMENT YEARS] (INCLUDING AN ASSESSMENT YEAR OR YEARS COMMENCING BEFORE THE DATE ON WHICH SUCH NOTIFICATION IS ISSUED) AS MAY BE SPECIFIED IN THE NOTIFICATION:] ITA NO . 425 /BANG/201 7 PAGE 8 OF 16 32 [ PROVIDED ALSO THAT WHERE AN APPLICATION UNDER THE FIRST PROVISO IS MADE ON OR AFTER THE DATE ON WHICH THE TAXATION LAWS (AMENDMENT) BILL, 2006 RECEIVES THE ASSENT OF THE PRESIDENT, * EVERY NO TIFICATION UNDER SUB - CLAUSE (IV) OR SUB - CLAUSE (V) SHALL BE ISSUED OR APPROVAL UNDER 33 [SUB - CLAUSE (IV) OR SUB - CLAUSE (V) OR] SUB - CLAUSE (VI) OR SUB - CLAUSE (VIA) SHALL BE GRANTED OR AN ORDER REJECTING THE APPLICATION SHA LL BE PASSED WITHIN THE PERIOD OF TWELVE MONTHS FROM THE END OF THE MONTH IN WHICH SUCH APPLICATION WAS RECEIVED: PROVIDED ALSO THAT WHERE THE TOTAL INCOME, OF THE FUND OR TRUST OR INSTITUTION OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPI TAL OR OTHER MEDICAL INSTITUTION REFERRED TO IN SUB - CLAUSE (IV) OR SUB - CLAUSE (V) OR SUB - CLAUSE (VI) OR SUB - CLAUSE (VIA), WITHOUT GIVING EFFECT TO THE PROVISIONS OF THE SAID SUB - CLAUSES, EXCEEDS THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO TAX IN ANY PREV IOUS YEAR, SUCH TRUST OR INSTITUTION OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION SHALL GET ITS ACCOUNTS AUDITED IN RESPECT OF THAT YEAR BY AN ACCOUNTANT AS DEFINED IN THE EXPLANATION BELOW SUB - SECTION (2) OF SECTION 288 AND FURNISH ALONG WITH THE RETUR N OF INCOME FOR THE RELEVANT ASSESSMENT YEAR, THE REPORT OF SUCH AUDIT IN THE PRESCRIBED FORM 34 DULY SIGNED AND VERIFIED BY SUCH ACCOUNTANT AND SETTING FORTH SUCH PARTICULARS AS MAY BE PRESCRIBED:] 35 [ PROVIDED ALSO THAT ANY AMOUNT OF DONATION RECEIVED BY THE FUND OR INSTITUTION IN TERMS OF CLAUSE ( D ) OF SUB - SECTION (2) OF SECTION 80G 36 [IN RESPECT OF WHICH ACCOUNTS OF INCOME AND EXPENDITURE HAVE NOT BEEN RENDERED TO THE AUTHORITY PRESCRIBED UNDER C LAUSE ( V ) OF SUB - SECTION (5C) OF THAT SECTION, IN THE MANNER SPECIFIED IN THAT CLAUSE, OR] WHICH HAS BEEN UTILISED FOR PURPOSES OTHER THAN PROVIDING RELIEF TO THE VICTIMS OF EARTHQUAKE IN GUJARAT OR WHICH REMAINS UNUTILISED IN TERMS OF SUB - SECTION (5C) OF SECTION 80G AND NOT TRANSFERRED TO THE PRIME MIN ISTER S NATIONAL RELIEF FUND ON OR BEFORE THE 31ST DAY OF MARCH, 2004 SHALL BE DEEMED TO BE THE INCOME OF THE PREVIOUS YEAR AND SHALL ACCORDINGLY BE CHARGED TO TAX:] PROVIDED ALSO THAT WHERE THE FUND OR TRUST OR INSTITUTION OR ANY UNIVERSITY OR OTHER EDUCA TIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION REFERRED TO IN SUB - CLAUSE (IV) OR SUB - CLAUSE (V) OR SUB - CLAUSE (VI) OR SUB - CLAUSE (VIA) DOES NOT APPLY ITS INCOME DURING THE YEAR OF RECEIPT AND ACCUMULATES IT, ANY PAYMENT OR CREDIT OUT OF SU CH ACCUMULATION TO ANY TRUST OR INSTITUTION REGISTERED UNDER SECTION 12AA OR TO ANY FUND OR TRUST OR INSTITUTION OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION REFERRED TO IN SUB - CLAUSE (IV) OR SUB - CLAUSE (V) OR SUB - CLAUSE (VI) OR SUB - CLAUSE (VIA) SHALL NOT BE TREATED AS APPLICATION OF INCOME TO THE OBJECTS FOR WHICH SUCH FUND OR TRUST OR INSTITUTION OR UNIVERSITY OR EDUCATIONAL INSTITUTION OR HOSPITAL OR OTHER MEDICAL INSTITUTION, AS THE CASE MAY BE, IS ESTABLISHED : PROVIDED ALSO THAT WHERE THE FUND OR INSTITUTION REFERRED TO IN SUB - CLAUSE (IV) OR TRUST OR INSTITUTION REFERRED TO IN SUB - CLAUSE (V) IS NOTIFIED BY THE ITA NO . 425 /BANG/201 7 PAGE 9 OF 16 CENTRAL GOVERNMENT 40 [OR IS APPROVED BY THE PRESCRIBED AUTHORITY, AS THE CASE MAY BE,] OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION REFERRED TO IN SUB - CLAUSE (VI) OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION REFERRED TO IN SUB - CLAUSE (VIA), IS APPROVED BY THE PRESCRIBED AUTHORITY AND SUBSEQUENTLY THAT GOVERNMENT OR THE PRESCRIBED AUTHORITY IS SATISFIED THAT ( I ) SUCH FUND OR INSTITUTION OR TRUST OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION HAS NOT ( A ) APPLIED ITS INCOME IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN CLAUSE ( A ) OF THE THIRD PROVISO; OR ( B ) INVESTED OR DEPOSITED ITS FUNDS IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN CLAUSE ( B ) OF THE THIRD PROVISO; OR ( II ) THE ACTIVITIES OF SUCH FUND OR INSTITUTION OR TRUST OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDI CAL INSTITUTION ( A ) ARE NOT GENUINE; OR ( B ) ARE NOT BEING CARRIED OUT IN ACCORDANCE WITH ALL OR ANY OF THE CONDITIONS SUBJECT TO WHICH IT WAS NOTIFIED OR APPROVED, IT MAY, AT ANY TIME AFTER GIVING A REASONABLE OPPORTUNITY OF SHOWING CAUSE AGAINST THE PROP OSED ACTION TO THE CONCERNED FUND OR INSTITUTION OR TRUST OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION, RESCIND THE NOTIFICATION OR, BY ORDER, WITHDRAW THE APPROVAL, AS THE CASE MAY BE, AND FORWARD A COPY OF THE ORDER RESCINDING THE NOTIFICATION OR WITHDRAWING THE APPROVAL TO SUCH FUND OR INSTITUTION OR TRUST OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION AND TO THE ASSESSING OFFICER:] 41 [ PROVIDED ALSO THAT IN CASE THE FUND OR TRUST OR INSTITUTION OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION REFERRED TO IN THE FIRST PROVISO MAKES AN APPLICATION ON OR AFTER THE 1ST DAY OF JUN E, 2006 FOR THE PURPOSES OF GRANT OF EXEMPTION OR CONTINUANCE THEREOF, SUCH APPLICATION SHALL BE 42 [MADE ON OR BEFORE THE 30TH DAY OF SEPTEMBER OF THE RELEVANT ASSESSMENT YEAR] FROM WHICH THE EXEMPTION IS SOUGHT :] 43 [ PROVIDED ALSO THAT ANY ANONYMOUS DONATION REFERRED TO IN SECTION 115BBC ON WHICH TAX IS PAYABLE IN ACCORDANCE WITH THE PROVISIONS OF THE SAID SECTION SHALL BE INCLUDED IN THE TOTAL INCOME :] 44 [ PROVIDED ALSO THAT ALL PENDING APPLIC ATIONS, ON WHICH NO NOTIFICATION HAS BEEN ISSUED UNDER SUB - CLAUSE (IV) OR SUB - CLAUSE (V) BEFORE THE 1ST DAY OF JUNE, 2007, SHALL STAND TRANSFERRED ON THAT DAY TO THE PRESCRIBED AUTHORITY AND THE PRESCRIBED AUTHORITY MAY PROCEED WITH SUCH APPLICATIONS UNDER THOSE SUB - CLAUSES FROM THE STAGE AT WHICH THEY WERE ON THAT DAY:] ITA NO . 425 /BANG/201 7 PAGE 10 OF 16 45 [ PROVIDED ALSO THAT THE INCOME OF A TRUST OR INSTITUTION REFERRED TO IN SUB - CLAUSE (IV) OR SUB - CLAUSE (V) SHALL BE INCLUDED IN ITS TOTAL INCOME OF THE PREVIOUS YEAR IF THE PROVISIONS OF THE FIRST PROVISO TO CLAUSE (15) OF SECTION 2 BECOME APPLICABLE TO SUCH TRUST OR INSTITUTION IN THE SAID PREVIOUS YEAR, WHETHER OR NOT ANY APPROVAL GRANTED OR NOTIFICATION ISSUED IN RESPECT OF SUCH TRUST OR INSTITUTION H AS BEEN WITHDRAWN OR RESCINDED; 6 . THUS, FROM THE PERUSAL OF THE ABOVE PROVISIONS, IT IS CRYSTAL CLEAR THAT FOR THE ENTITLEMENT OF EXEMPTION UNDER CLAUSE (VI) OF SECTION 10(23C), THE ONLY REQUIREMENT IS THAT THE EDUCATION INSTITUTION OR UNIVERSITY MUST EXIST WHOLLY FOR THE EDUCATIONAL PURPOSE AND WITHOUT ANY PROFIT MOTIVE. IN THE PRESENT CASE, THE ASSESSING OFFICER HAD COME TO CONCLUSION THAT THE APPELLANT EXISTED FOR ONLY FOR PROFIT MOTIVE AS ACCORDED TO HIM , IT DERIVED PROFIT OF MORE THAN 26%. THE APPELLANT HAD DISPUTED THE CALCULATION OF THE PERCENTA GE OF PROFIT BY SUBMITTING THAT DEPRECIATION SHOULD ALSO BE CONSIDERED AS PART OF EXPENDITURE. BE THAT AS IT MAY, THE ASSESSING OFFICER HAD TO COME THIS CONCLUSION DRAWING SUPPORT FROM THE DECISION OF HON BLE KARNATAKA HIGH COURT IN THE CASE VISVESVARAYA TECHNOLOGICAL UNIVERSITY VS. ACIT ( 362 ITR 279 ) . IN THIS DECISION, THE HON BLE KARNATAKA HIGH COURT HELD THAT SO LONG AS THE INSTITUTION IS MAKING A REASONABLE SURPLUS, THE INSTITUTION WOULD NOT CEASE TO BE ONE EXISTING SOLELY FOR EDUCATIONAL PURPOSE WI TH OBJECT NOT TO MAKE PROFIT. THE HON BLE HIGH COURT, WHILE DEALING WITH THE ISSUE WHAT COULD BE REASONABLE SURPLUS HELD THAT AN INSTITUTION MAKING A PROFIT 500 CRORES WITH A SPAN OF ABOUT 10 YEARS CANNOT BE TERMED AS A REASONABLE SURPLUS . THIS PRINC IPLE WAS REITERATED BY THE HON BLE APEX COURT VISVESVARAYA TECHNOLOGICAL UNIVERSITY VS. ACIT (SUPRA), WHEREIN THE HON BLE APEX COURT , AFTER REFERRING TO ITS EARLIER DECISION IN THE CASE OF QUEEN S EDUCATION SOCIETY, VS. CIT , (2015) 8 SCC 47, CIT VS. SURA T ART SILK CLOTH MANUFACTURERS ASSN., (1980) 2 SCC 31, AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE VS. CBDTS & ORS. (2008) 10 SCC 509, ADITANAR EDUCATIONAL INSTITUTION VS. CIT (19 97) 3 SCC 346 HELD AS FOLLOWS: 6. THE RELEVANT PRINCIPLES OF LAW WHICH WILL GOVERN 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 ITA NO . 425 /BANG/201 7 PAGE 11 OF 16 A LONG LINE OF DECISIONS OF THIS COURT WHICH HAVE BEEN ELABORATELY NOTICED AND EXTRACTED IN A RECENT PRONOUNCEMENT I.E. QUEEN'S EDUCATIONAL SOCIETY V. CIT [2015] 372 ITR 699/231 TAXMAN 286/55 TAXMANN.COM 255 (SC) . THE PRINCIPLES THAT EMANATE FROM THE VIEWS EXPRESSED BY THIS COURT ARE SET OUT IN PARAGRAPH 11 IN QUEEN'S EDUCATIONAL SOCIETY ( SUPRA ), WHICH ARE EXTRACTED BELOW: '11. THUS, THE LAW COMMON TO SECTION 10(23C)(IIIAD) AND (VI) MAY BE SUMMED UP AS FOLL OWS: (1) WHERE AN EDUCATIONAL INSTITUTION CARRIES ON THE ACTIVITY OF EDUCATION PRIMARILY FOR EDUCATING PERSONS, THE FACT THAT IT MAKES A SURPLUS DOES NOT LEAD TO THE CONCLUSION THAT IT CEASES TO EXIST SOLELY FOR EDUCATIONAL PURPOSES AND BECOMES AN INSTITUT ION FOR THE PURPOSE OF MAKING PROFIT. (2) THE PREDOMINANT OBJECT TEST MUST BE APPLIED THE PURPOSE OF EDUCATION SHOULD NOT BE SUBMERGED BY A PROFIT MAKING MOTIVE. (3) A DISTINCTION MUST BE DRAWN BETWEEN THE MAKING OF A SURPLUS AND AN INSTITUTION BEING C ARRIED ON 'FOR PROFIT'. NO INFERENCE ARISES THAT MERELY BECAUSE IMPARTING EDUCATION RESULTS IN MAKING A PROFIT, IT BECOMES AN ACTIVITY FOR PROFIT. (4) IF AFTER MEETING EXPENDITURE, A SURPLUS ARISES INCIDENTALLY FROM THE ACTIVITY CARRIED ON BY THE EDUCATIO NAL INSTITUTION, IT WILL NOT BE CEASE TO BE ONE EXISTING SOLELY FOR EDUCATIONAL PURPOSES. (5) 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 EDUCATING PERSONS.' 7 . TO THE ABOVE PRINCIPLES, ONE FURTHER TEST AS LAID DOWN IN CIT V. SURAT ART SILK CLOTH MFRS. ASSN. [1978] 121 ITR 1/[1979] 2 TAXMAN 501 (SC) AND CULLED OUT IN AMERICAN HOTEL & LODGING ASSOCIATION EDUCATIONAL INSTITUTE V. CBDT [2008] 301 ITR 86/170 TAXMAN 306 (SC) MAY BE ADDED WHICH IS AS FOLLOWS : 'IN ORDER TO ASCERTAIN WHETHER THE I NSTITUTE IS CARRIED ON WITH THE OBJECT OF MAKING PROFIT OR NOT IT IS THE DUTY OF THE PRESCRIBED AUTHORITY TO ASCERTAIN WHETHER THE BALANCE OF INCOME IS APPLIED WHOLLY AND EXCLUSIVELY TO THE OBJECTS FOR WHICH THE APPLICANT IS ESTABLISHED.' (PARAGRAPH 37) TH E ABOVE PRINCIPLE HAS BEEN SPECIFICALLY REITERATED IN PARAGRAPH 19 OF THE DECISION IN QUEEN'S EDUCATIONAL SOCIETY ( SUPRA ) IN THE FOLLOWING TERMS: 'THE FINAL CONCLUSION THAT IF A SURPLUS IS MADE BY AN EDUCATIONAL SOCIETY AND PLOUGHED BACK TO CONSTRUCT ITS OWN PREMISES WOULD FALL OUT OF SECTION 10(23C) IS TO IGNORE THE LANGUAGE OF THE 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 IN STITUTION V. CIT [(1997) 3 SCC 346] AND AMERICAN HOTEL & LODGING CASE [AMERICAN HOTEL & LODGING ASSN. EDUCATIONAL INSTITUTE ITA NO . 425 /BANG/201 7 PAGE 12 OF 16 V. CBDT [(2008) 10 SCC 509]. IT IS CLEAR THAT WHEN A SURPLUS IS PLOUGHED BACK FOR EDUCATIONAL PURPOSES, THE EDUCATIONAL INSTITUTION EXISTS SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT.' 8. IN THE PRESENT CASE, WE FIND THAT DURING A SHORT PERIOD OF A DECADE I.E. FROM THE YEAR 1999 TO 2010 THE APPELLANT UNIVERSITY HAD GENERATED A SURPLUS OF ABOUT RS.500 CRORES. THERE I S 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 COLLECTED AND THE ACTUAL EXPENDI TURE INCURRED FOR THE PURPOSES FOR WHICH FEES WERE COLLECTED IS SIGNIFICANT. IN FACT THE EXPENDITURE INCURRED REPRESENTS ONLY A MINUSCULE PART OF THE FEES COLLECTED. NO REMISSION, REBATE OR CONCESSION IN THE AMOUNT OF FEES CHARGED UNDER THE DIFFERENT HEADS FOR THE NEXT ACADEMIC YEAR(S) HAD BEEN GRANTED TO THE STUDENTS. 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 V. STATE OF KARNATAKA [2003] 6 SCC 697 (PARAGRAPH 156) THOUGH THE PERCENTAGE OF SURPLUS IN ISLAMIC ACADEMY OF EDUCATION (SUPRA) WAS IN THE CONTEXT OF THE DETERMINATION OF THE REASONABLE FEES TO BE CHARGED BY PRIVATE EDUCATIONAL BODIES. 7 . THUS, THE LEGAL P OSITION THAT EMERGES OUT OF THE DECISION OF THE HON B LE APEX COURT IN THE ABOVE CASE IS THAT SO LONG AS THE SURPLUS GENERATED IS NOT FAR IN EXCESS OF WHAT HAS BEEN HELD TO BE REASONABLE I.E FROM 6 TO 15%, THE INSTITUTION WOULD NOT CEASE TO BE INSTITUTION EXISTS SOLELY FOR EDUCATION PURPOSE AND NOT FOR THE PU RPOSE OF PROFIT. IN THE PRESENT CASE, AFTER PROVIDING FOR THE DEPRECIATION, THE SURPLUS WOULD BE AROUND 18% OF THE GROSS RECEIPTS WHICH IS NOT FAR IN EXCESS OF 15%. THEREFORE, APPLYING THE RATIO LAID DOWN BY THE HON BLE APEX COURT IN THE CASE OF VISVESVA RAYA TECHNOLOGICAL UNIVERSITY VS. ACIT (SUPRA). WE HOLD THAT THE APPELLANT EXIST SOLELY FOR THE EDUCATIONAL PURPOSE AND NOT FOR THE PURPOSE OF PROFIT , AND THEREFORE IS ENTITLED FOR EXEMPTION OF ITS INCOME UNDER CLAUSE (VI) OF SECTION 10(23C). THUS THE GRO UNDS OF APPEAL NO.2 AND 3 FILED BY THE ASSESSEE ARE ALLOWED. 11 . AS REGARDS GROUND NOS.4 AND 5 RAISED WITH REGARD TO CALCULATION OF CARRY FORWARD OF INCOME TO SUBSEQUENT YEARS , T HIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE C O - ORDINATE BENCH IN THE CASE OF JYOTHY CHARITABLE TRUST I N ITA NO.662/BANG/2015 DATED 14.8.2015, WHEREIN AT PARAS . 15, 16 AND 17 IT IS HELD AS UNDER: ITA NO . 425 /BANG/201 7 PAGE 13 OF 16 1 5 . T H E T H I R D IS S U E T H A T A R IS E S F O R C O N S I D E RA T I O N IN T H I S A P PEA L IS A S T O W HE T H E R 1 5 % A C C U M U L A T I O N F O R AP P L IC A T I O N I N F U T UR E HA S T O B E C A L C U L A T E D O N G R O SS R E C E I P TS O R N E T R E C E I P TS A FT E R DEDU CT I O N O F RE V E NU E E X PE ND I T U R E . T H E A SS E SS E E CL A I M E D A C C U M U L A T I O N O F I N C O M E F O R APP L I C A T I O N F O R C HA R I T AB L E P U R P O SE A T 1 5 % O F T H E G R O SS R E C E I P TS. TH E A O W A S O F T H E V I E W T HA T A CC U M U L A T I O N WI L L B E A L L O W E D ON L Y TO T H E E X TE N T O F 1 5 % O F T H E I N C O M E A FT E R R E V E N U E E X P EN D I T URE . IN O T HE R W O RD S I N C O M E TO B E S E T AP A R T U / S . 11 ( 1 ) ( A ) O F T H E A CT HA S TO B E C O M PU T E D A T 1 5 % O F T H E NE T I N C O M E I . E ., G RO SS R E C E I P T S M I NU S R E V E NU E E XP E N D I T U R E A N D NO T O N T H E GR O SS RE C E I P T S A S C L A I M E D B Y T H E A SS E SS EE . S I N CE IN T H E C A SE O F T H E A S S E S S E E , T H E G R O SS R E C E I P T S A FT E R R E V E N U E E X P E ND IT U R E W A S N IL, T H E A O D E N I E D T H E B ENE F IT O F A C C U M U L A T I O N T O T H E A SS E S S EE . 1 6 . O N A PP EA L B Y T H E A S S E SS E E , T H E CI T ( A ) C O NF I R M E D T H E O R D E R O F T H E A O. H EN CE G RO U N D N O . 4 RA I S E D B Y T H E A SS E S S E E BE F O R E T H E T R I B U N A L. 1 7 . T H E IS S U E T O B E D E C I D E D I S T HE R E F OR E A S TO W HE T H E R F O R T H E PU RPO SE O F C O M PU TI N G A CC U MU L A TI O N O F I N C O M E O F 1 5 % U ND E R S E C . 1 1 ( 1 )( (A ) O F T H E A C T, ON E HA S TO T A K E T H E G R O SS R E C E I P TS O R GRO SS R E C E I P T S A F T E R E XP E N D IT U R E F O R C H A R IT A B LE P U R P O S E I. E ., T H E N E T RE C E I P TS. T H I S IS IS S U E IS N O L O NG E R RE S I N T E G R A A N D HA S B E E N DE C I DE D B Y T H E S P E CI A L B EN CH MU M B A I IN T H E C A S E O F B A I S O NA B A I HI R JI A G I A R Y T R U S T V S. I T O 9 3 I T D 0 0 7 0 ( SB ) . T H E F A CTS IN T H E A F O RE S A ID C A S E W E R E T H A T T H E A S S E S S E E W A S A PU B LIC CH AR I TA B LE T RU ST E N J O Y I N G E X E M P T I O N UND E R S. 1 1 O F T H E IT A C T . A S P E R T H E R E Q U I R E ME N T O F S. 1 1 (1 ) O F T H E IT A CT, A S IT P R E V A I L E D A T T H A T PO I N T O F TI M E , T H E A SS E S SE E H A D T O A P P L Y 7 5 PE R C E N T O F I T S I N C O M E F O R T H E OB J E CTS A N D P U R P O S E S O F T H E TR U ST A N D T H E A S S E SS E E W A S P ERM ITT E D TO A C C U M U L A T E O R S E T A P A R T U P T O 2 5 PE R C EN T O F I T S I N C O M E , W H ICH W A S S UB J E CT TO F U L F I L L M E N T O F O T HE R C O N D ITI O N S. W H ILE C A LC U L A T I N G T H E A F ORE S A I D 2 5 PE R C E N T, T H E I M POR T A N T Q U E S T I O N W H I CH A R O SE W A S A S T O W H E T H E R F O R T H IS P U R P O S E , T H E G R O SS I N C O M E EAR N E D B Y T H E A SS E S S E E IS R E L E V A N T O R TH E I N C O M E A S C O M P U T E D IN A C C OR DA N CE W I T H T H E P R O VIS I O N S O F IT A C T . IN O T HE R W O R D S, W H E T HE R O U T G O I NG S F RO M OU T O F GR O S S I N C O M E W H I CH AR E I N T H E N A T U R E O F A P P L IC A T I O N O F I N C O M E , S H O U L D B E F I R ST D E DU C TE D F RO M T H E GR O SS I N C O M E A N D 2 5 P E R CE N T O F ON L Y T H E R EM A I N I N G A M O U N T S H O U L D B E A L L O W E D T O B E A C C U M U L A T E D O R S E T A P A R T. T H E S P E C I A L B E N C H O F T H E I T A T O N T H E IS S U E H E LD A S F O LL O W S : - 9 . CO M I N G T O T H E ME R IT S O F T H E IS SU E, W E A R E O F T H E V I E W T H AT T H E S A M E I S C L EAR L Y C OV ER E D B Y T H E D EC I S I O N O F T H E H O N B L E SUP RE M E COU R T I N T H E C A S E O F C I T VS . P R OG RAMME F O R C O MM UN IT Y O R G A N I Z A TI O N ( SUP R A ). I N T H E D EC I SI O N , T H E I R L O R DSH I P S , A F T E R T A K I N G NO T E O F P R OV I S I ON S O F S . 11 ( 1 )(A), H A V E H E L D A S U N D ER : 'H A V I N G R E G AR D T O TH E P L A I N L A N G U A GE O F T H E A B O V E PR O VI S I O N , I T I S C L EA R T H A T A C H A RI TA B LE O R R E L I G IO US T R U S T I S E N T I T L E D T O A C C U M UL AT E T WE N TY - FIV E P E R C E N T O F I T S I N C O M E D E RIV E D F R O M P RO P ER T Y H E LD U N D E R T R U S T . F O R T H E ITA NO . 425 /BANG/201 7 PAGE 14 OF 16 P R E S E N T P U R POS E S , T H E D ON A T IO N S T H E A S S E SS E E RE C E IV E D , I N T H E S U M O F R S . 2 , 5 7 , 3 7 6 , W O U L D CONS T I T U T E I T S PRO P E R T Y A N D I T I S E N T I T L E D T O A C C U M U L A T E T WE N TY - F I V E P E R C E N T T H E R E O U T . I T I S U NC L EA R O N W H A T B A SI S T H E R E V E N U E CO NT EN D E D T H A T I T W A S E N T I T L E D T O A CC U M UL A T E ON LY T W E N T Y FI V E PE R C E N T O F R S . 8 7 , 0 1 0 . F O R T H E A FOR E S A I D RE A SO N S , T H E CI V I L A P P EA L I S D I S M I S S E D . ' IT I S C L EAR F R O M T H E A B O V E T H AT D E DU C TI O N O F T W E N T Y - F I V E P ER CE N T WA S H E L D T O B E A LL O WA B L E NO T O N T O T AL I N C O ME AS C O M P U T E D U N D ER T H E I T A C T . A N Y A M OU N T O R E XP E ND IT U R E, W H I C H W AS A PP L I CA TI O N O F I N C O M E, I S NO T T O B E C ONS I D ERED F O R D E T E R M I N I N G T W E N T Y F I V E P ER CE N T T O B E ACC U M U L AT E D . T H E I R L O R D S H I PS , AS NO T ED EAR L I ER, AF F I R MED T H E D EC I S I O N O F K ERA L A H I G H COU RT I N ( 1997 ) 14 1 C TR ( KE R ) 50 2 : ( 1 9 97 ) 22 8 ITR 62 0 ( K ER) ( SUP R A ) W H ERE I N I T I S H E L D AS UND ER : ' AT T H E O U T S ET , T H E S T A T U T OR Y L A N GU A GE O F S . 1 1 (1 ) ( A ) O F T H E I T A C T , 1 9 6 1 , R E L A T E S T O T H E INCOM E D E R IVE D B Y T H E T R U S T FRO M PR O P E R TY . T H E TR U S T I S R E Q U IR E D T O B E W HO LLY F O R C H A RI TA B LE O R R E L I G I O U S P U R POS E S , A N D T H E INCOM E I S E X P E C T E D T O H A V E R E L A T IO N T O TH E E X TE N T T O W HIC H S U C H I N COM E I S A P P L IE D T O S U C H P U R POS E S I N I N D I A . I T I S T H E RE A F TE R T H E S T A T U T O R Y PROVI S I O N P R O C EE DS F U R T H E R T H A T S U C H I N C O M E I S N O T T O B E U N D E RS T OO D T O B E I N EX C E S S O F 2 5 P E R C E N T O F T H E I N C O M E F R O M S U C H P R OP E R T I E S . I N O T H E R W O R D S , T H E V E R Y L AN G UA GE O F T H E S TAT U T OR Y P R OVI S IO N U N D E R C O N S I D E R AT I O N S ET S A P A R T 2 5 PE R C E N T O F TH E I N C O M E F R O M T H E SO U RC E O F P ROP ER T Y W I T H R EF E R EN C E T O TH E E X T E N T T O W HIC H S U C H I N C O M E I S A P P L I E D F O R S U C H P U R P O S E S , C H A RI TA B LE O R R E L I G IO U S . I N OT H E R W O R D S , FO R TH E P U RPOS E O F S . 1 1 (1 )(A ) O F T H E A C T , T H E INCOM E I N T E R M S O F R E L E V A N C E W O ULD B E TH E I N C O M E O F T H E T R U S T FRO M A N D O UT O F W H I C H 2 5 P E R C E N T I S S E T A P A R T I N A CCOR D AN C E W I T H T H E S P I R I T O F T H E S TAT U T OR Y P R O V I S I O N . ' T H I S M E A N S T H A T , W H E N I T I S E ST A B L I S H E D T H AT T R US T I S E N T ITL E D T O F U L L B E N E F I T O F E X EM P T I O N UND ER S . 1 1 ( 1 ), T H E S A I D T R U S T I S T O G E T T H E B E N E F I T O F T WE N T Y - F I V E P E R C E N T A N D T H I S T WE N T Y - F I V E P E R C E N T H A S T O B E U N D E R S T OO D AS I N C O ME O F T H E T R U S T U ND ER T H E RE L E V A N T H E A D O F S . 11 ( 1 ) . IN O T H ER W O R DS , I N C O M E T H AT I S NO T T O B E I N C L U D ED F O R T H E PU R P OS E O F C O M P U TI N G T H E T O T AL I N C O M E W OU L D B E T H E A M O UN T E XP E ND ED F O R P U R PO S ES O F T R U S T I N I ND I A. T H EI R L O R DSH I P S I N T H E A BOV E C A S E H A V E E M PH A S I ZED O N T H E C L E AR A N D UN A M B I GU O U S L A NGU A G E O F S . 11 ( 1 )(A) A N D D EC I D E D T H E MA T T E R O N T H E B A S I S O F T H E S A M E. IT H AS B E E N H E L D T H A T AS P ER T H E S T A T U T O RY L A NGU A G E O F T H E A BOV E S EC T I O N T H E I N C O ME W H I CH I S T O B E T A K EN F O R PU R P O S E O F AC C U M U L A TI O N I S T H E I N C O M E D ER I V ED B Y T H E T R U S T F R O M P R OP ER T Y . IF B O T H T H E D EC I S I O N S A RE CAR E F U LL Y R E A D , I T B EC O M ES E V I D E N T T H AT A N Y ITA NO . 425 /BANG/201 7 PAGE 15 OF 16 E XP E ND I T U RE W H I CH I S I N T H E S H A P E O F A PP L I CA T I O N O F I N C O M E I S NO T T O B E T A K EN I N T O AC C OUN T . H A V I N G F O U N D T H A T T R U S T I S E N TI T L ED T O E X E M P T I O N U N D E R S . 1 1 ( 1 ), W E A R E T O G O T O T H E S T A G E O F I N C O M E B EF O RE A P P L I CA T I O N T H E R E O F A N D T A K E I N T O A C C O U N T 2 5 P ER C E N T O F S U C H I N C O ME. T H E I R L O R D S H I P S H A V E PO I N T ED T H A T T H E S A ME H A S T O B E T A K E N O N ' C O MM E RC I A L ' B A S I S A N D NO T ' T O T AL I N C O M E' A S C O M PU T ED UND ER T H E IT A C T . T H E I R L O R D S H I P S I N T H E D E C I D ED C A S E RE J E C T ED T H E C ON T E N TI O N O F T H E R E V E NU E T H AT T H E SU M O F R S 1,70,36 9 W H I C H W AS S P E N T A N D A PP L I ED B Y T H E A S S E S S EE F O R C H AR I T A B L E P U R P O S E S W AS RE QU I RED T O B E E X C L UD ED F O R P U R POS E O F T A K I N G A M O U N T T O B E A C C U M U L A T E D . HA V I N G RE G ARD T O T H E C L EAR P R O N O UN C E M E N T O F T H E I R L O R D S H I P S O F T H E S U P R E ME COU R T , I T I S D I F F I C U L T T O ACCE P T T H A T O U T G O I NG S W H I CH ARE I N T H E N A T U RE O F A P P LI C A TI O N O F I N C O M E ARE T O B E E X C L U D E D . T H E I N C O M E A V A IL A B L E T O T H E A S S E S S EE B E F O RE I T W AS A PP LI E D I S D I R E C T ED T O B E T A K EN A N D T H E S A M E I N T H E P RE S E N T C A S E I S R S . 3,42,174 . T W E N T Y F I V E P ER C E N T O F T H E A B OV E I N C O M E I S T O B E A LL O W ED A S A D E DU C TI ON . S I M I LA R V I E W H AS A L S O B E E N T A K E N B Y T H E H ON B L E MA D HY A P R A D E S H H I G H C OU RT I N P AR S I Z O RA S T R I AN A N J U M AN T R US T V S . C IT ( S UP RA). N O REA SO N W H A T SO E V ER H AS B EEN G I V E N B Y T H E R E V E NU E A U T H O R I TI E S F O R D E DU C T I N G R S . 2,17, 1 2 6 I N T H I S CA S E F O R PU R P OS ES O F S . 11 ( 1 ) ( A). T H E D EC I S I O N C IT E D O N B E H A L F O F T H E R E V E NU E D I D NO T T A K E I N T O A C C OU N T T H E D EC I S I O N O F T H E SUP R E M E COU R T R E F ERR E D T O A B O V E. T H E C I RC U L AR O F C B D T H A S A L S O B E E N C ON S I D ERED B Y T H E H ON B L E KE RA L A HI G H C O U R T I N IT S D EC I S I O N RE F ER R ED T O A BOV E. A CC O R D I NG L Y T H E QU E S TI O N R E F ERRED T O I S A NS W ERED I N T H E A FF I R M A T I V E A N D I N F A VOU R O F T H E A S S E S S E E . 12 . THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH I N THE ABOVE CASE, WE ALLOW THE ASSESSEE S APPEAL. 1 3 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY , 2018 SD/ - SD/ - ( SUNIL KUMAR YADAV ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : BENGALURU. D A T E D : 31 / 01 /201 8 VMS/EKS ITA NO . 425 /BANG/201 7 PAGE 16 OF 16 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME - TAX APPELLATE TRIBUNAL BANGALORE