Income Tax Appellate Tribunal - Hyderabad
Sree Educational Society,, Hyderabad vs Assessee on 20 June, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No. 564/HYD/2012
Assessment Year: 2011-12
Sree Educational Society, ... Appellant
Hyderabad - 500 029
(PAN - AAATS7411B)
Vs.
Commissioner of Income-tax(Central), ...Respondent
Hyderabad.
Appellant by : Shri Ajay Gandhi
Respondent by : Shri M.H. Naik
Date of Hearing : 20/06/2013
Date of Pronouncement : 31/07/2013
ORDER
PER ASHA VIJAYARAGHAVAN, J.M.:
This appeal preferred by the assessee is directed against the order of CIT(Central), Hyderabad dated 29/03/2012 passed u/s 12AA(3) of the Act, for the assessment year 2011-12.
2. Briefly the facts of the case are that the assessee, M/s Sree Educational Society, was granted registration u/s 12A of the IT Act effective from 30/12/1996. The society is running an Engineering college by the name of Sreenidhi Institute of Science & Technology. The main objectives of the society are to provide education, vocational guidance, training & research programmes, to promote professional, technical and vocational education etc. 2 ITA No. 564/H/12 Sree Educational Society The main trustees of the society are Sri K.T. Mahi and Smt. Sarita Mahi.
3. During the course of search, in the case of the above society, the Department collected evidence relating to collection of fees from students over and above the prescribed fees in the form of donation/capitation fees. The excess fees were collected for granting admission into the engineering courses offered by the institution of the society. The fees collected over and above prescribed fees was not accounted in the regular books of account of the society and the AO held that the same has been utilized for the benefit of the interested persons of the society. The AO had also reported about unexplained expenditure incurred by the society. The AO had referred to the statement recorded from the employee of the society, who had stated that fees for the convenor and the management quota seats is collected through bankers cheques and the capitation fees is collected in cash. The AO gathered that for AYs 2005-06, 2006-07, 2009-10 & 2010-11, the total unaccounted receipts amounted to Rs. 16,62,26,000/-. The AO had also reported that certain investments were made from out of donation/capitation fees collected from the students and were not recorded in the books of the society. The AO was of the view that due to the violations of the provisions of section 11 & 13 of the IT Act, the assessee society was not entitled for registration u/s 12A/12AA of the IT Act and, therefore, a show cause notice was issued to the assessee-society as to why the registration granted earlier u/s 12A/12AA by the CIT-I, Hyderabad shall not be cancelled u/s 12AA(3) of the IT Act. In response, it was submitted by the AR that the society is registered with the Registrar of the Societies , Hyderabad, under the AP (Telengana Area)/Societies Registration Act, 1350 Fasli 3 ITA No. 564/H/12 Sree Educational Society and the society is formed with an objective of providing education and to promote professional, technical and vocational education. Further it was submitted that the society is formed with no profit motive and no commercial activity is involved in its working and the society is fully complying to the requirement of section 11,12 & 12A of the IT Act and its accounts are being audited and the surplus funds being invested/deposited in the prescribed manner. The AR further submitted that all the fees collected are duly accounted in the books of account and none of the society members are aware of any collection of sum above the prescribed fees from students seeking admission under the management quota.
4. Referring to the seized material, it was stated that the amounts mentioned in the seized note books was maintained by an employee of the group concern. Though the notings and jottings in the said note book mention the name of the students, no where it is indicated that the amounts were collected by or on behalf of the society. It was stated that if at all these amounts were collected over and above the prescribed fees, such amounts were collected without the knowledge and without any connection with the society. It was submitted that the society has never collected any such amount from any student during any year since its inception and the allegation of collection of excess fees by the society is baseless. The AR further submitted that the unearthed estimated income of Rs. 16.50 lakhs was owned and accepted by Sri K.T. Mahi. Further, the amount was collected in the premises of Shri K.T. Mahi, which also happens to be the office of the society.
4 ITA No. 564/H/12Sree Educational Society
5. The CIT was of the view that the evidences relating to collection of donations/capitation fees were found and seized and during the course of search proceedings from the office premises of the society. Referring to the provisions of section 132(4A) of the Act, the CIT held that presumption can be drawn that the documents found from the premises of the Society are true and it belongs to the society and the society has to explain it and mention as to who has prepared the documents. He further held that during the course of search statement of Sri M. Ramesh Babu, an employee of the society was recorded and he had stated that fees for capitation fees is collected in cash and for the rest of the course the fees is collected in the form of Banker cheques/DDs. It was also recorded on the date of search that cash donations received for management seats are used to clear the expenses in cash and also the balance amounts are deposited in the personal account of Shri K.T. Mahi in Andhra Bank. From here the cash deposited will be transferred into various school's accounts as per requirements. The CIT observed that Sri K.T. Mahi admitted the sum of Rs. 16.5 lakhs as additional income in his individual hands. The CIT was of the view that the collection of money by the trustee or the employees of the society have a direct relationship with the trust itself and the misdemeanor by the trustee and the employees is the same as that of the trust. The CIT was also of the view that exorbitant amounts were collected for admission under the management quota, which shows that the educational institutions are not administering for charitable purpose but for a profit motive. He observed that the society has directly or indirectly collected substantial amounts which have not been recorded in the books of account. Similarly, the expenses have also not been accounted for in the books of account, which indicates that there is no transparency in the 5 ITA No. 564/H/12 Sree Educational Society financial affairs of the society and, hence, the activities of the society are not genuine and cannot be said that the activities are for charitable purpose. The CIT held as follows:
" It is also to be note that a proceeding was initiated by the DGIT(Inv.), Hyderabad for rescinding the approval accorded earlier u/s 10(23C)(vi) of the IT Act, which entitles the assessee society to claim exemption on the income of the educational institution. After detailed discussion the DGIT has passed a speaking order withdrawing/rescinding the approval granted earlier u/s 10(23C)(vi) of the IT Act. The DGIT has also observed in the said order that there is evidence of collection of donations/capitation fees which has been credited to the account of the secretary/trustee. He further observed that there is no evidence to suggest that the sum collected by the society has been utilized wholly and exclusively for the purpose of the society and education."
6. Aggrieved, the assessee is in appeal before us.
7. The learned counsel for the assessee Shri Ajay Gandhi put forth his first argument that amendment to section 12AA(3) was brought into effect from 1 st October, 2004 and the society has been registered u/s 12A much before 2004 and, hence, the CIT has no jurisdiction to pass the order u/s 12AA(3), where the charitable organization was registered before amendment to section 12AA(3). He relied on the following case laws for this proposition:
1. Oxford Academy for Career Development Vs. CIT & Ors., [2009] 29 DTR 160 (All. HC).
2. Ajit Education Trust Vs. CIT, [2010] 46 DTR 482 (Ahmd. Tribunal).
3. Kapoor Educational Society Vs. CIT [2010] 44 DTR 97, (Lucknow Tribunal)
8. The second argument of the learned counsel for the assessee is that the amounts said to have been collected and 6 ITA No. 564/H/12 Sree Educational Society added to the income of the assessee was actually owned up Shri K.T. Mahi, who happens to be the Secretary of the Society and the said amount was also assessed in his personal hands. A similar addition was also made in the assessment of the society. It is submitted that the amount said to have been collected was never its own income, it never reached the society and it had nothing to do with it and as such, the society has done no violation of any law including any provisions of the IT Act. It is submitted that if there was any impropriety done, it was done by Shri Mahi in his individual capacity and not by the society. It is also submitted that since the said amounts never reached the society in the first place there was no violation of section 13 of the Act nor was there any reason to cancel registration u/s 12AA of the Act.
9. The third argument of the learned counsel is that even if there is violation of section 13, it can only result in the assessing office making an addition in the year of violation but it cannot result in cancellation of registration u/s 12AA of the Act. The learned counsel relied on the following case laws:
1. CIT Vs. Karimia Trust, 302 ITR 57, Jharkhand
2. DIT Vs. Garden City Educational Trust, 191 Taxmann 238, Karnataka.
10. Lastly, in his argument, the learned counsel submitted that the society had collected donations from students for admission does not by itself result in its losing the character as a charity as per its original Memorandum of Articles of Association. He relied on the following case laws:
1. Hyndavi Educational Society Vs. ADIT, 86 DTR 196 (Hyd Tribunal) 7 ITA No. 564/H/12 Sree Educational Society
2. Maharashtra Housing & Area Development Authority Vs. ADIT(E)-1(1), 33 Taxmann.com 604, (Mumbai - Trib)
3. CIT Vs. Gitanjali University, 214 Taxman 11, Rajasthan
11. The learned DR, on the other hand, submitted that it was the society that was collecting capitation fees and in this regard the learned DR referred to the seized documents. It was submitted by the DR that it was an afterthought on the part of the society to disown collection of excess fund and attribute the same to have been collected by Shri K.T. Mahi. The learned DR submitted that benefit of exemption u/s 11 of the Act should be denied to the assessee. He also argued that acts done by the servant in the course of doing his duties on behalf of the master bind the master and the learned DR argued that Shri K.T. Mahi has collected the capitation fees on behalf of the society, therefore, the capitation fees is deemed to have been collected by the society. The learned DR relied on the following decisions:
1. Sai Vani Educational Society, Hyderabad in ITA No. 1369/Hyd/2012.
2. M/s Vasavi Academy of Education, Hyderabad in ITA No. 1120/Hyd/2009.
3. Vodithala Education Society, Hyd. in ITA No. 1138/H/06.
12. We have heard both the parties, perused the record and have gone through the orders of the authorities below as well as decisions cited. In the case of Ajit Education Trust Vs. CIT, [2010]134 TTJ (Ahd) 483, the Ahmedabad Bench held that "amendment of subsection (3) of s. 12AA w.e.f. 1 s t June, 2010 should not be applicable retrospectively and its operation has to be effective from the date it was introduced and onwards and therefore CIT was not justified in cancelling the registration granted to assessee u/s 12A, by invoking provisions of section 12AA(3); further, the trust being an educational institution and 8 ITA No. 564/H/12 Sree Educational Society undisputedly imparting education, cancellation of registration was not in accordance with law." The same ratio has been followed by the Lucknow Bench of ITAT in the case of Kapoor Educational Society Vs. CIT, [2010] 134 TTJ (Lucknow) 250.
13. Further, we are of the opinion that Shri K.T. Mahi seems to have collected capitation fees on his own without any authority of the society, therefore, the society is not involved in collection of capitation fees in cash. The argument of the learned DR that the acts of the servant will bind the master cannot be applied to the facts of the present case for the reason that Shri K.T. Mahi was never authorized to collect the excess capitation fees. The authority to collect the excess fees should have been given by the society and it is only, then, it can be said that the acts of the employees will bind the principal. Anything done by the employee beyond the scope of powers given to him will not bind the principal/society. The cash deposited in the Head Office by itself cannot be treated as fund collected by the society. The said amount has been assessed in the personal hands of the Shri K.T. Mahi as the collected amounts have not reached the society, therefore, the exemption u/s 11 cannot be denied. It cannot also be said that the seized documents, on which, the AO had placed reliance conclusively proved that it was only the society, which is received the excess money. The circumstances only show that it was Shri K.T. Mahi, who has collected excess money without the knowledge or the authority of the society. In other words, none of the monies were collected by Shri K.T. Mahi on the authority of the society.
14. In the case of CIT Vs. Geethanjali University, 214 Taxman 11 (Raj.) it was held that what is required for purpose of seeking 9 ITA No. 564/H/12 Sree Educational Society approval u/s 10(23)(C) is that university or education trust shall exist 'solely for educational purposes and not for purpose of profit". Furthermore though the admissions were not in accordance with prescribed rules still the said violation could not be to its losing character as an entity existing solely for educational purposes. Following the ratios of the decisions as mentioned above, in the present case though excess fees has been collected by Shri K.T. Mahi, the society does not loose its character as the Institution which is existing for educational purposes.
15. We also fortified by the decision of Bangalore "B" Bench in the case of Shri M.J. Balachander Vs. DCIT in ITA Nos. 90 to 94/Bang/2012 and others vide order dated 21/12/2012 wherein similar issue has been considered and the Tribunal has held that M.J. Balachander was collecting (ETF) extra tution fees on his own without any authority or consent of the society and the conclusion of the CIT was that ETF was collected by M.J. Balachander on his own and the society has nothing to do with ETF collection. The ITAT confirmed the findings of the CIT.
16. In the present case no material has been brought on record to show that the assessee solely exists for profit motive. The department has not been able to discharge its onus of showing as to how the conditions for grant of registration have been breached by the assessee. The registration has been granted to the society for many years in the past under the same facts and there is no change in the facts or in the activities of the society in the present year. It has also not been demonstrated by the Department as to how the object of the assessee has turned into a commercial one. The predominant object of the assessee is and 10 ITA No. 564/H/12 Sree Educational Society remains to carry out charitable purpose of advancement of education and not to earn profit. In fact no profit has been established to have been earned by the assessee. The DIT has failed to specify as to how profit earning is the predominant activity of the assessee and the society has been pursuing its object of imparting education to students. Therefore, the assessee society cannot be deprived off of the benefit of registration granted by the DIT(E) u/s 11 of the Act. Being so, in our opinion, registration granted u/s 12AA of the Act cannot be cancelled. However, the aforesaid findings given by us are nothing to do with the allowability of exemption u/s 11 of the Act. In case any discrepancy or irregularity with regard to the allowability of exemption u/s 11 is noticed by the AO, he can make an independent enquiry/examination at the time of assessment for each assessment year and decide in accordance with law.
17. In the result, appeal of the assessee is allowed.
Pronounced in the open court on 31/07/2013.
(CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated: 31 st July, 2013.
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Copy to:-
1) Sree Educational Society, 1-2-288/23/1, Domalguda,
Hyderabad - 500 029.
2) CIT(Central), Hyderabad.
3) Addl.CIT, Central Range - 1, Hyderabad
4) The Departmental Representative, I.T.A.T., Hyderabad.