The Commissioner Of Income Tax, Alwar v. M/S. Model Public School Socieity, Bhiwadi. 2. Db Income Tax Appeal

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR. 1. DB INCOME TAX APPEAL NO.73/2008 The Commissioner of Income Tax, Alwar.VersusM/s. Model Public School Socieity, Bhiwadi.2.DB INCOME TAX APPEAL NO.85/2008The Commissioner of Income Tax, Alwar.VersusM/s. Model Public School Socieity, Bhiwadi.3.DB INCOME TAX APPEAL NO.99/2008 The Commissioner of Income Tax, Alwar.VersusM/s. Model Public School Socieity, Bhiwadi.4.DB INCOME TAX APPEAL NO.100/2008 The Commissioner of Income Tax, Alwar.VersusM/s. Model Public School Socieity, Bhiwadi.5. DB INCOME TAX APPEAL NO.101/2008 The Commissioner of Income Tax, Alwar.VersusM/s. Model Public School Socieity, Bhiwadi.6.DB INCOME TAX APPEAL NO.103/2008 The Commissioner of Income Tax, Alwar.VersusM/s. Model Public School Socieity, Bhiwadi.7.DB INCOME TAX APPEAL NO.595/2008 The Commissioner of Income Tax, Alwar.VersusM/s. Model Public School Socieity, Bhiwadi.8.DB INCOME TAX APPEAL NO.598/2008 The Commissioner of Income Tax, Alwar.VersusM/s. Model Public School Socieity, Bhiwadi. 9. DB INCOME TAX APPEAL NO.604/2008 The Commissioner of Income Tax, Alwar.VersusM/s. Model Public School Socieity, Bhiwadi.10.DB INCOME TAX APPEAL NO.738/2008 The Commissioner of Income Tax, Alwar.Versus M/s. Model Public School Socieity, Bhiwadi. DATE OF ORDER ::: 22.11.2016. HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE MAHENDRA MAHESHWARI Mrs. Parinitoo Jain, for the appellant.Mr. Anant Kasliwal, for the respondent. 1.All these appeals involve common question of law and facthence are decided by this common judgment. 2. By way of these appeals, the department has challengedthe judgment and order of the Tribunal whereby the Tribunal hasallowed the appeal of the assessee. 3.The facts of the case are that the school has more thanone thousand children out of, which nine students were givenfree exemption and all these children were of staff members.These exemptions have been allowed to the meritoriousstudents only. Total receipts of the school of the society is1,74,61,091/-, which does not include building fund amount ofRs.3,16,500/-, out of such huge receipts the surplus generatedby the society is Rs.67,01,868/- after claiming huge expenses.The school is indulging in commercial activities like plying ofbuses, running hostels and mess, organizing tours etc. No separate books of a/c have been maintained for such activities.The society is not at all bothered to take into a/c its soundfinancial position and charging fees from the students in mindless gradually increasing way. The society has invested2,26,97,760/- in FDRs and bank a/cs and it is earning hugeinterest of Rs.18,11,753/- out of such investment. This incomeis in no way connected with the working of school or purposes ofeducation. 4.In exercise of powers conferred by the sub-clause (vi) ofthe Clause (23C) of Section 10 of the Income Tax Act, 1961 (43of 1961), the Central Board of Direct Taxes vide order dated23.3.2007 hereby approves that an income received by anyperson on behalf of “M/s. Model Public School Society, OppAshiana Green, Bhiwadi” (hereinafter the “Institution”) shall notbe included in the total income of such person as assesseable,subject to the following conditions: “(a)The institution will apply its income ofaccumulate for application, wholly andexclusively to the objects for while it isestablished and in a case where more thanfifteen per cent of its income is accumulatedon or after the 1[st] day of April, 2002. ThePeriod of the accumulation of the amountexceeding fifteen per cent of its income shallin no case exceed five years;b) the Institution will not invest or deposit itsfund (other than voluntary contributionreceived and maintained in the form ofjewellery, furniture, etc.) for any period duringthe previous years relevant to the assessmentyears mentioned above otherwise than in anyone or more of the forms of modes specified insub section (5) of the section 11; “(a)The institution will apply its income ofaccumulate for application, wholly andexclusively to the objects for while it isestablished and in a case where more thanfifteen per cent of its income is accumulatedon or after the 1[st] day of April, 2002. ThePeriod of the accumulation of the amountexceeding fifteen per cent of its income shallin no case exceed five years;b) the Institution will not invest or deposit itsfund (other than voluntary contributionreceived and maintained in the form ofjewellery, furniture, etc.) for any period duringthe previous years relevant to the assessmentyears mentioned above otherwise than in anyone or more of the forms of modes specified insub section (5) of the section 11; c) this approval will not apply in relation to anyincome being profits and gains of business unless the business is incidental to theattainment of the objectives of the Institutionand separate books of account are maintainedin respect of such business; d) the Institution will regularly file its return ofincome before the Income Tax authority inaccordance with the provisions of the Incometax Act, 1961; e) that in the event of dissolution of theInstitution, its surplus and the assets will begiven to an organization with similarobjectives., f) the institution will continue to be exist solelyfor educational purpose. g) The institute will get its accounts audited byan accountant as defined in Explanationbelow sub section (2) of section 288 andfurnish along with the return of Income, Thereport of such audit in the prescribed formduly signed and verified by such accountantand setting forth such particulars as may beprescribed. 2. This order is applicable only to therecipients of income on behalf of the institutionand not to any other receipt or income of suchrecipients. Taxability or, otherwise of theincome of the Institution would be separatelyconsidered as per the provisions of theIncome tax Act,1961. 3. This order is applicable for AssessmentYear 1999-2000 and onwards. 4. The above order is liable to be rescinded bythe Central Government, if it is subsequentlyfound that the activities of the institution arenot genuine or if they are not carried out inaccordance with all or any of the conditionssubject to which it was notified.” 5.The Supreme Court in the case of VisvesvarayaTechnological University vs. Assistant Commissioner of IncomeTax AIR 2016 SC 2014, in para 6 has held as under: The relevant principles of law which willgovern the first issue i.e. whether aneducational institution or a university, as maybe, exists only for educational purpose andnot for profit are no longer res integra, havingbeen dealt with by a long line of decisions of this Court which have been elaboratelynoticed and extracted in a recentpronouncement i.e. Queen's EducationalSociety v. Commissioner of Income TaxMANU/SC/0287/2015: (2015) 8 SCC 47. Theprinciples that emanate from the viewsexpressed by this Court are set out inparagraph 11 in Queen's Educational Society(supra), which are extracted below: 11.Thus, the law common to Section10(23C)(iiiad) and (iv) may be summed up asfollows: “1.Where an educational institution carrieson the activity of education primarily foreducating persons, the fact that it makes asurplus does not lead to the conclusion that itceases to exist solely for educationalpurposes and becomes an institution for thepurpose of making profit. 2.The predominant object test must beapplied-the purpose of education should notbe submerged by a profit making motive. 3.A distinction must be drawn betweenthe making of a surplus and an institutionbeing carried on “for profit”. No inferencearises that merely because impartingeducation results in making a profit, itbecomes an activity for profit. 11.Thus, the law common to Section10(23C)(iiiad) and (iv) may be summed up asfollows: “1.Where an educational institution carrieson the activity of education primarily foreducating persons, the fact that it makes asurplus does not lead to the conclusion that itceases to exist solely for educationalpurposes and becomes an institution for thepurpose of making profit. 2.The predominant object test must beapplied-the purpose of education should notbe submerged by a profit making motive. 3.A distinction must be drawn betweenthe making of a surplus and an institutionbeing carried on “for profit”. No inferencearises that merely because impartingeducation results in making a profit, itbecomes an activity for profit. 4.If after meeting expenditure, a surplusarises incidentally from the activity carried onby the educational institution, it will not becease to be one existing solely foreducational purposes. 5.The ultimate test is whether on anoverall view of the matter in the concernedassessment year the object is to make profitas opposed to educating persons.” 6.In that view of the matter, all issues are answered in favour of the assessee and against the department. 7.The appeals are accordingly disposed of. 8.A copy of this order be placed in each file. (MAHENDRA MAHESHWARI), J. (K.S. JHAVERI), J.