ORDER
P. MOHANARAJAN, J.M.:
Both these appeals are by the revenue and are directed against the orders of the learned Commissioner (Appeals)-IV and II, Bangalore dated 23-3-1999 and 27-3-2001 for the assessment years 1994-95 and 1996-97 respectively. The issues involved in both these appeals are identical and similar.
2. We have heard both sides and perused the records. The assessee is running an educational institution in the name and style of Mallya Aditi International School at Yelahanka New Town, Bangalore-560 064. The following persons are the trustees of the aforesaid trust :
1.
Mrs. Anne Warrior
Bangalore
2.
Mrs. Tara Chandavarkar
Bangalore
3.
Mrs. Geetha Narayanan
Bangalore
4.
Mrs. Margaret Chowryappah
Bangalore
5.
Mrs. Marcia Jamal
U.S.A
6.
Mrs. Valli Muthiah
Bangalore
7.
Mrs. Jyotsna Bhadarkar
Bangalore
8.
Mrs. Latha Jagannathan
Bangalore
9.
Ms. Kiran Mazumdar
Bangalore
3. For both the years under consideration, the assessee had claimed exemption under section 10(22) of the Income Tax Act, 1961. The assessing officer was of the view, that the assessee is not entitled to exemption, as there was surplus funds year after year. The trustees were employed in the educational institution and the trustees have visited foreign countries at the expenses of the trust. Huge amounts of donations have been received from the parents of the students and the trust received a sum of Rs. 1.5 crores from the United Breweries (UB) Ltd., Group of companies headed by Mr. Vijay Mallya, on the following terms and conditions :
(a) The name ‘Mallya’ will be added to the name of the school.
(b) Ms. Kiran Mazumdar shall be appointed as trustee on the board of trustees of assessee.
Besides that, for the assessment year 1994-95, the assessee had received donations from Mrs. Valli Muthiah, a trustee at Rs. 1 Lakh, and from TTK Biomed Ltd., at Rs. 5 Lakhs. Considering these aspects, the assessing officer came to a conclusion, that Mallya Aditi International School is being run on commercial lines and does not qualify to be regarded as a charitable organisation within the meaning of section 10(22) read with section 2(15) of the Income Tax Act, 1961. The assessing officer also made an observation, that the benefits of the school run by the assessee percolates only to the elite and affluent sections of the society. Accordingly, the exemption under section 10(22) was denied. On first appeal, the assessee was successful. Aggrieved with the same, the revenue is in appeal before us.
4. The learned Departmental Representative Shri Rajendra submitted that there is no element of charity in running the institution, as the sole purpose of running the institution is to earn profit. The same is obvious from the details furnished by the assessing officer for having received the donations from the parents of the students at the time of admissions. This transaction indicates that there is an element of profit. Three of the trustees have been employed in the institution and the salaries had been paid to them. This is a vital irregularity which will vitiate the claim of assessee for exemption. The trustees visited foreign countries at the expenditure of the trust which is yet another irregularity, which will clearly indicate that the fund of the trust had been misused by the trustees. For the assessment year 1994-95, the assessee had received an enormous sum of Rs. 1.50 crores from the UB Group of companies headed by Mr. Vijay Mallya, for inducting one Ms. Kiran Mazumdar as trustee on the board of trustees of the assessee and also to add the name of Mr. Mailya with the name of the school. All these transactions and activities will clearly indicate that there is profit motive to earn income. Therefore, the assessee loses the character of charitable institution. The learned Departmental Representative relied on the above order in every aspect. He took us to the objections raised by the assessing officer in his order. The learned Departmental Representative finally summed up the submissions for denying the claim of the assessee as follows :
1. The trust is run on a commercial basis.
2. The assessee earned surplus income.
3. The payments made to trustees as Principal and Vice-Principal is opposed to all norms of law.
4. Foreign trip of the trustees at the expenses of the trust.
5. The donations received from the parents of the students are involuntary.
6. Huge donations received from business group to name the school after the individual and to induct a particular person as trustee.
5. On the other hand, the learned counsel contended that there was no infirmity in the orders of the learned Commissioner (Appeals). The first appellate authority has meticulously considered each and every point raised by the assessee and the objections raised by the assessing officer while denying the exemption under section 10(22) of the Income Tax Act. The learned counsel for the assessee further contended that the assessing officer himself had admitted in the assessment order that the trust exists solely for the purpose of education. Therefore, revenue’s stand that the assessee is run on commercial basis is incorrect. A major portion of the surplus was from the donation for the school building and all the surplus has been utilised for educational purposes. It is not the case of the department that the surplus has been utilised for commercial reasons. The object for which the trust is founded is clear from the trust deed, that purpose is only education.
6. The learned counsel further submitted that it is not denied that there exists a regular surplus of income over expenditure over a period of years. The assessing officer had overlooked the fact that there has also been years when the expenditure was excess than income and voluntary donations were major part of the surplus in other years.
7. On the issue of receiving donation at Rs. 1.50 crores from UB Group, the learned counsel submitted that it is natural for any one giving large donation to stipulate certain conditions. About 8 children from UB Group had been admitted between 1985 and 1991 in the school before the donations were received. They were admitted after having fulfilled the normal criteria for admission. The renaming of school after Mr. Mallya does not amount to carrying out any activity of profit.
8. The learned counsel further submitted that certain trustees were appointed as employees of the educational institution which does not necessarily mean that there was any irregularity or mismanagement of funds. The objects for which the trust is found is clear from the trust deed which clearly shows that just trust exists solely for the purposes of education. This is further fortified by the manner in which all surpluses have been utilised by assessee for establishing the school. The assessing officer has clearly admitted in para 4 of his order that the assessee exists solely for educational purposes. It has been stated that the dictionary meaning of the word ‘sole’ is’ ‘being the only one’ or ‘singly’. Once the assessing officer has arrived at the above conclusion he cannot state that the assessee could have existed for profit. There are several judicial pronouncements dealing with situations were surplus existed. A perusal of the trust deed would clearly show that all the objects of the trust are educational and without profit motive. Even in the event of dissolution no trustee or private individual is entitled to any surplus funds. Further, all surplus funds have been utilised by the assessee in the setting up of its school and this fact has not been denied by the assessing officer.
9. The learned counsel for the assessee further argued that the payment of trustees as Principal and Vice-Principal does not amount to any irregularity. It is for the betterment of the object of the trust they were appointed as Principal and Vice-Principal to upgrade imparting of education. The payments that were made to them towards salary as Principal and Vice-Principal cannot be considered to be excessive or exorbitant. Further, the foreign trip also, has been approved by the board of trustees. It is necessary to travel within the country and also abroad to acquire modern views in imparting education as well as to run the institution in a better manner. The learned counsel further stated that no stay allowances have been claimed by these persons and they have also not claimed any foreign exchange allowances for the purposes of foreign travel. The Principal and the Vice-Principal had intended to make the school as international school and for this purpose it was necessary for them to study the system abroad. They, did not draw any stay allowances and they did not take any benefit from the institution during the stay abroad and they have spent on their own. They as Principal and Vice-Principal have claimed only for their air tickets. Therefore, the learned counsel vehemently contended that the stand of the revenue is without any basis. Submitting as above and also relying on the learned Commissioner (Appeals)’s order in every aspect, the counsel for the assessee submitted that the order of the learned Commissioner (Appeals) has to be confirmed.
10. We have heard the rival submissions and perused the records. To fall within the exemption provided under section 10(22), the assessing officer has to clarify whether the institution exists solely for the purpose of education.
The learned Commissioner (Appeals), while considering the apprehension of the assessing officer that there was no benefit to the weaker sections of the society and observed as follows :
‘Another observation of the assessing officer is that in order to constitute charitable activity the benefit must accrue to the weaker sections of the society. Since the school charges a high fees, this was not a charitable activity. If this reasoning was true none of the professional institutions in the country would be considered charitable. Neither would the Chamber of Commerce or many such organizations.’
11. From the facts appearing on record it is seen that the assessee is a public trust running an educational institution in the name and style of Mallya Aditi International School at Yelahanka, Bangalore. The trust is managed by nine women trustees and over a period of ten years, it has been widely acclaimed as one of the finest centres for primary and secondary education in India. It has also established a voluntary training centre under tile name of Srishti. We have had the benefit of going through the trust deed. The trust deed is very explicit that the trust exists solely for educational purposes without any profit motive. The original trust deed was dated 28-3-1985 and subsequently, the same was amended by amendment dated 22-12-1989 with the approval of the Commissioner of the concerned range. The first paragraph of the preamble sets out the intention of the author Mrs. Tara Chandavarkar, in no uncertain terms that the trust was being created for promoting education and technical skills and knowledge and other charitable activities set forth in the deed. The objects of the trust as envisaged in clause (iv) of the trust deed are :
(i) to promote education and for this purpose to establish, manage, maintain and run schools, training institutes, laboratories, colleges, public halls, residing rooms;
(ii) to establish training schools and to impart technical and other training in various fields without any profit motive;
(iii) to assist students to pursue their academic, professional and other studies by providing scholarships, hostel facilities, supply of food, books and other equipments free of cost or at concessional rates or otherwise and generally to render assistance, financial without any profit motive.
Thus, it could be seen that all the objectives of the trust are in the field of education and nothing beyond.
12. Though, the trust has the recognition under section 12A of the Income Tax Act, 1961 (the Act), the assessee has been claiming the benefit under the provisions of section 10(22) of the Act. This is evident by the following :
(i) the claim as per the return of income for the assessment year is under section 10(22);
(ii) for the assessment year 1992-93, there was an assessment under section 143(3) and, as per the order dated 30-9-1993, the assessing officer has admitted that claim under section 10(22);
(iii) vide assessee’s letter dated 30-1-1996 , a specific request was made to the Commissioner, Karnataka-II, Bangalore to clarify whether any return has to be filed in view of the assessee falling under the provisions of section 10(22) of the Act. Vide the letter of the Income Tax Officer (Accounts), Bangalore, dated 6-6- 1996, it was clarified that the trust is advised to file the return of income.
All these facts will lead to only one conclusion that the assessee is solely existing for educational purposes and its activities are charitable in nature.
13. From the paper book filed by the assessee, we have had the benefit of going through the assessment orders for the assessment years 1984-85,1985-86 and 1992-93. In all these years, the assessee has been carrying out similar activities as in the year under consideration. For the assessment year 1984-85, the assessing officer made the following observations :
“In response to notice under section 143(2) Mrs. Geetha Narayanan, appeared from time to time and the case was discussed. The trust came into existence, with its charitable objects from 30-7-1982 and it had applied for registration under section 12A and same had been considered by the Commissioner, K-II, vide No. Trust 718/10A/Vol. II/U-18, dated 30-8-1982. In view of its charitable objects and registration under section 12A, the assessee’s trust is entitled for exemption under section 11 of the Income Tax Act.”
In the assessment order for the assessment year 1992-93, the assessing officer had observed as follows :
“After discussion and scrutiny of books of accounts, it is seen that the assessee is carrying on educational activities and income qualifies for exemption under section 10(22). ”
From the aforesaid facts, it is abundantly clear that the stand of the assessee has been accepted by the revenue, after scrutinising the records maintained by the assessee in meticulous manner with complete details.
14. The learned Departmental Representative while submitting the case of the revenue contended that the trust is run on commercial basis. The learned Commissioner (Appeals) in her order meticulously considered in detail about each and every objection raised by the assessing officer in the assessment order at paras 31 to 39 of her order dated 23-3-1999, after relying on the various decisions of the Hon’ble High Court and Supreme Court.
15. From the facts, appearing on record, we are of the view that the assessing officer did not appreciate the fact that the cost of education depends on the facilities that ate being provided. The more the facilities, the greater the costs and based on this, practically all educational institutions charge fees. Even the high fees charged, if these fees go towards the furtherance of the cause of the education, it cannot be said that the institution is run on commercial lines. Page 25 of the paper book filed by the assessee contains the tabulated statements of income and the surplus. From the statement, it is apparent that the donations were primarily responsible for the surplus and this surplus had been fully used to set up the campus for the educational centre of the trust. Merely because the activities result in a surplus, it does not mean or that it does not automatically follow that the trust exists for the purpose of profits. The assessing officer had not pointed out a single incident or activity as that of commercial in nature.
16. The learned counsel at the time of hearing pointed out that the fees charged by the trust from the general category students are not sufficient to meet the expenditure. It is only on account of very high fees charged from a small section of foreign expatriate students, the operational results appear satisfactory. He referred to p. 30 of the paper book, wherein the details of contributions of establishment charges and tuition fees collected from the regular students and non-resident students have been shown. On looking into these details, we are of the view that the assessee had clearly established how the fees are collected and how they were applied. The assessing officer did not look into the vital points of material in proper perspective but, on the other hand, had attempted to cement his conclusion with the help of isolated observations.
17. The learned counsel had relied on the decision of the Hon’ble Andhra Pradesh High Court in the case of Governing Body of Rangaraya Medical College v. Income Tax Officer (1979) 117 ITR 284 (AP). The facts in relation to calling of donation and fees from students in the cited decision are identical with the case on hand. The facts of the aforesaid case are that the Governing Body of Rangaraya Medical College was a society founded on 16-4-1964, under the Societies Registration Act to manage the college, which was started by another society, namely, Medical Education Society, Kakinada, six years earlier. There was no registered documents transferring the buildings to the society, as the society was awaiting orders of the government on the exemption claimed by the society from registration charges and stamp duty. As the transfer was not complete in accordance with the law, the construction of the buildings had to be undertaken in the name of the society. The society was collecting a compulsory contribution of Rs. 12,000 per seat and the bank accounts and deposits were maintained in the name of the society itself and not in the name of the college. The Income Tax Officer rejected the plaim made by the petitioner society for exemption under section 10(22) of the Income Tax Act, 1961. The objects of the governing body were; to manage the medical college and ancillary institutions; to encourage research and study in the concerned faculties in the college; to institute additional courses and postgraduate courses; to organise and maintain hospitals, clinics, laboratories, etc., for clinical teaching and research and training of the students.
18. Upon the aforesaid facts, the Hon’ble Andhra Pradesh High Court held as follows :
“That the assessee-society was not different from the medical college. It was only because of the pendency of the petition for exemption from stamp-duty and registration fees, which was pending with the government, that the construction of the buildings had to be undertaken in the name of the Medical Educational Society. Further, there is no distinction between the petitioner-society and the college and the society was an educational institution with no motive of private or personal profit. Merely because certain surplus arose from the society’s operations, it cannot be held that the institution was run for purpose of profits so long as no person or individual was entitled to any portion of the said profit and the said profit was utilised for the purpose and for the promotion of the objects of the institution. Hence, the income of the petitioner was entitled to exemption from income-tax under section 10(22) of the Income Tax Act, 1961. ”
19. The learned Departmental Representative while making his submissions stated that the contribution received from some donors were not voluntary and herefore, exemption under section 10(22) is not available to the assessee. For the above said contention, he relied on the decision of the Hon’ble Apex Court in the case of Municipal Corporation of Delhi v. Children Book Trust AIR 1992 SC 1456 (SC). The contention of the assessee that any income of the educational institution complying for the cause of the trust namely, education in accordance with the provisions under section 10(22) of the Income Tax Act is excludible, this was not accepted by the assessing officer. To apply the decision of the Hon’ble Apex Court cited supra, the assessing officer had not pointed out any single instance of receipt of donation which is involuntary. No single instance has been pointed out by the assessing officer. Therefore, the decision will not help the case of the revenue. On the other hand, in para 10 of the aforesaid Supreme Court decision, it has been observed as under :
“Education per se is charitable purpose. Therefore, even if the school charges a fee, that would be irrelevant. The society must satisfy the following conditions :
i. that is supported by voluntary contributions;
ii. applies its own income to promote its objects and members;
iii. it does not pay dividend to any other members.”
Besides that, in the aforesaid decision of the Hon’ble Apex Court, the Children Book Trust did not comply with the provisions of section 115 of the Municipal Corporation Act (66 of 1957), therefore, observations made by the Hon’ble Apex Court are not applicable to the facts of the present case on hand. In the present case the facts are different and the issue arises under the Income Tax Act.
20. The learned Departmental Representative at the time of hearing contended that the trust has benefited the trustees by paying higher salaries as compared to other staff members. The trustees were permitted to travel abroad using the funds of the trust. Therefore, he fully supported the order of assessment that there has been misuse of trust fund by the trustees. We are unable to accept the contention raised by the learned Departmental Representative in this regard. During the assessment proceedings, the assessee was asked to furnish the details of educational qualification of the Principal and Vice-Principal who are none other than two trustees and also the details relating to foreign trip of the Principal and Vice-Principal. The assessee had replied by letter dated 26-3-1997, giving the details in respect of the queries raised by the assessing officer. The contents of the said letter are reproduced for better appreciation of the case :
“1. Qualification of Principal and Vice-Principal before starting the trust and as on date
Mrs. A. Warrior-Principal
Before starting the trust :
(a) Certificate of education, with distinction in the practice of teaching, from the University of London.
(b) Member of the executive committee of the Board of Management of the Kodaikanal International School.
(c) Taught at St. Joseph’s Convent School, Orissa and Bishop Cotton Girls’ School, Bangalore.
(d) Started a nursery school for Mitralaya Girls’ School.
(e) Deputy Head of the British School for 4 years.
(f) Head of Bangalore International School for 11 years.
As on date
(a) Was offered the Principalship at British School, Delhi.
(b) Chairperson of the Board of Management, Kodaikanal International School.
(c) Certificate course on school-based assessment from the University Cambridge Local Examinations Syndicate.
Mrs G. Narayanan-Vice-Principal.
(a) B.Sc (Hons.), Central College, Bangalore. (b) B.Ed., Gold Medalist.
(c) Teaching experience of 13 years (1971-1984).
As on date
(a) Certificate in ‘Managing Educational Systems’.
(b) MA in International Education from Oxford Brooks University, with distinction.
Teaching experience-26 years (1971-1997).
2. Qualification of employees under serial Nos. 3-25Salary list of March, 1994 and February, 1997Lists enclosed.
3. Whether any of the trustees have gone abroad.
Consequent to the change in the status of the school to an international school in 1994, Mrs. Warrior went to the USA to visit
(a) The International School of Minnesota.
(b) Minnesota Educational Computing Corporationa premier software centre for schools, to expand facilities, and to seek advice on upgrading educational software and other facilities.
(c) Chanhassen Elementary School, to set up links.
(d) Other local schools in the area.
Mrs. Narayanan visited Kathmandu to meet the Director, Lincoln School, Kathmandu, to have a discussion regarding a uniform fee structure for international students within the sub-continent.
4. Donations received-name, father’s name, address and class. List enclosed.
5. Details of reimbursement of expenses to trustees for credit card payments, telephone, car, etc.,nil
21. A cursory perusal of the reply at p. 33 of the paper book clearly shows that the apprehension of the revenue is totally devoid of any merits. The details given in the letter dated 26-3-1997, were not refuted by the revenue. Mrs A. Warrior, the Principal has a long standing experience in the field of education, teaching and was the Head of the Bangalore International School for over 11 years. Her experience and the certificates obtained by her is clear proof to show that she is highly qualified educationist. So also Mrs. Geetha Narayanan, the Vice-Principal, also a qualified teacher. She had obtained a Master’s Degree in International Education from Oxford Brooke’s University with distinction and she has a long standing experience of over 26 years. Therefore, the contention of the revenue fails. The salary structures for various categories of staff are prefixed scales and the details were also provided at pp. 26 to 24 of the paper book. The salaries which are paid to Mrs. A. Warrior and Mrs. G, Narayanan, are not in the capacity as trustees but in the capacity as Principal and Vice-Principal respectively of the educational institution run by the trust. The assessee runs the international school, teaches students appearing for International General Certificate for Secondary Education (IGCSE) and Advanced International Certificate Education (AICE) examinations. The assessee has also got international affiliation and these activities do necessarily require foreign travel. The details relating to foreign travel have been furnished by the assessee in the paper book at pp. 30 and 31. The assessing officer did not give any convincing reason to conclude that the foreign travel was not exclusively for the purpose of education. From the records, it is seen that a number of other teachers have also gone abroad. As we have already discussed that the assessee runs to impart education for the students appearing for IGCSE and AICE. It is also to be seen that the school has international affiliation. Therefore, the foreign travel of the Principal and Vice-Principal is necessary for up-keeping of the objects of the trust. One should not forget that these two persons have travelled only in the capacity as Principal and Vice-Principal and not as trustees. It is to be noted that no stay allowances have been claimed by the trustees and they have also not claimed any foreign exchange for the purpose of foreign travel. In the absence of any claim of stay allowance and foreign exchange, which clearly show that they have not actually derived any financial benefit from the trust. For these reasons, we are unable to accept the stand taken by the revenue. We have had the benefit of going through the assessment order and the written submission by the assessee and various documents and also the order of the learned Commissioner (Appeals). Considering the totality of the facts and the circumstances of the case and also various decisions of High Courts and Supreme Courts the learned Commissioner (Appeals) granted benefit to the assessee. Before us, the learned departmental Representative was unable to lodge any conclusion drawn by the learned Commissioner (Appeals) with any convincing materials.
22. On the issue regarding receiving huge donations, the learned Departmental Representative fully supported the order of assessment. We have considered the above submissions and we find that by insisting that his family name should be added to the name of the school, Sri Vijaya Mallya has not derived any financial benefit. For giving such a substantial amount of donation it was natural for him to insist on the naming of the school and also the appointment of Ms. Kiran Mazumdar as a trustee. This is because it was in his interest to ensure that the donation given by him is properly utilised by the institution. The assessing officer has not pointed out as to how many children of the UB Group have benefitted by way of admission. It is stated on the assessee’s behalf that only eight children of this group have been admitted till December, 1996. Looking to the over all involvement of the UB Group the admission of some of its children was natural. It has been strongly stated on behalf of the institution that they have followed all the normal criteria for admission with regard to the children of UB Group also. From a perusal of the above, we find that the benefit given to the UB Group does not appear to be out of any extraneous consideration or financial in nature.
23. The assessing officer apprehended that the trust is used as an instrument to defraud the tax revenue. On this issue, the learned Commissioner (Appeals), had observed as under, at p. 66 of her order :
“The last ground of the assessing officer that the trust is used as an instrument to defraud tax revenue is based on the trust being given recognition under sections 80G and 12A as charitable institution. In this regard, I have to state that the trust is applying under these sections year after year and it is for the authority giving these certificates to examine whether the same are being properly used.”
24. For all these reasons and considering the nature, facts and circumstances of the case, we do not find any infirmity in the orders of the learned Commissioner (Appeals). It is, therefore, confirmed. It is ordered accordingly.
25. In the result, the appeals filed by the revenue are dismissed.