THE issue before the Bench is - Whether any interference is required by the High Court when the assessee-trust has been imparting education and the fees approved by the competent authority are being utilised to create educational infrastructure. NO is the HC's answer.
Facts of the case
The assessee is a trust registered u/s 12A. It had filed its return disclosing its total loss at Rs.3,96,54,653/- and claimed exemption u/s 11. However, the AO completed the assessment u/s 143(3) determining the total income at Rs.03,06,53,610/-. The AO had also disallowed
exemption u/s 11 on the ground that the assessee was making systematic profit year after year. In addition, the AO also noticed that the assessee had incurred capital expenditure of Rs.51,24,483/- and diverted income to capital funds amounting to Rs.28,75,204/- which as per AO could not be treated as application of income u/s 11(1). Finally, the AO also added depreciation of Rs.95,90,956/- to the income of assessee. On appeal, the CIT(A) deleted all the additions made in the assessment order and directed the AO to allow the benefit of exemption to the assessee u/s 11. On further appeal, the Tribunal upheld the order of the CIT(A).
On appeal before the High Court, the counsel for revenue submitted that the trust deed of the assessee did not mention any condition that the assessee will run the institution and invest the surplus to expand its activity out of the fees collected from the students who were pursuing their course. It was further submitted that assessee’s activity of collecting the fees from the students as their course fee for studying in the assessee’s institution did not find place in the aims and objectives of the trust deed, neither it was mentioned in the notes submitted to the CIT for the purpose of registration u/s 12AA. Therefore, the registration granted in favour of the assessee by the CIT on the premise of the trust deed, aims and objectives and notes on the activity had no relevance regarding the real activity carried on by the assessee after obtaining the registration. The counsel submitted that the assessee had been generating profit and creating fixed assets out of huge amount of loans availed from banks and claiming financial charges as expenditure out of the student's fees.
However, counsel for assessee contended that the Tribunal was fully justified in granting exemption u/s 11. The counsel contended that the assessee having valid registration u/s 12AA was required to be assessed by applying all the provisions of Section 11 and 13, and the AO having not done so, the order was bad in law. It was further contended that since the registration was not withdrawn on the date of assessment order, the income of the assessee was exempted in entirety. The AO was wrong in holding that the capital expenditure was not applicable for charitable purpose.
Having heard the parties, the High Court held that,
++ the perusal of the assessment order reveals that, for withdrawal of exemption, the AO has assigned various reasons comprising of limitation in the objects of the trust deed, generation of huge profit, application of income in the garb of capital expenses, no application of income for the benefit of persons specified in Section 13(3), collection of fees out of canteen expenses of students and collection from students over and above the prescribed fees, etc. It is seen that the CIT(A) has considered every aspect of the assessment order with reference to the reasons given by the AO for disallowing exemption and relying upon the latest judicial pronouncements expressed in similar facts that are involved in the present case, came to the conclusion that the AO's approach in denying exemption to the assessee was not in accordance with law and held that the assessee's educational institution is entitled to claim exemption u/s 11. The Tribunal, which is the final fact finding authority, after hearing the appeal filed by the Department also did not incline to interfere with the order of the CIT(A) by observing that the fees collected by the assessee from the students for imparting such education having been approved by the AICTE and the assessee is spending the amount for building necessary infrastructure for imparting the education in various fields which is the charitable purpose for which the trust was established. The Tribunal was also of the view that the AO has wrongly presumed that there is any contravention of Section 13. Therefore, there is no infirmity in the order of the CIT(A) requiring any interference;
++ it is a settled position of law that capital expenditure incurred by an educational institution is the basic necessity if such expenditure promotes the object of the trust. The Supreme Court in the case of S.RM. M.CT.M. Tiruppani Trust vs. CIT, and the High Court of Delhi in the case of CIT Vs. Divine Light Mission, have held that capital expenditure incurred by a trust for acquiring capital asset would be application of money and the assessee would be entitled to exemption u/s 11(1). The Madras High Court also in the case of CIT Vs. Kannika Parameswari Devasthanam & Charities, held that as long as the expenditure had to be incurred out of the income earned by the trust, even if such expenditure is for capital purposes on the objects of the trust, the income would be exempt. Moreover, the High Court of Uttarakhand in the case of CIT vs. Jyoti Prabha Society, has held that the educational society which had utilized rental income for the purposes of imparting education by maintaining the buildings and constructing new building for the same purpose, would be entitled to the exemption claimed u/s 11. Accordingly, this court holds that capital expenditure if incurred by an educational institution like assessee for attainment of the object of the Society, it would be entitled to exemption u/s 11.
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