Judgment:
1. The assessee, the Entrepreneurship Development Institute of India (EDII), is a society registered under the provisions of Societies Registration Act, 1960 and it is also registered under the Bombay Public Trust Act, 1950 on 3rd June, 1983. The said institute is promoted by Central Government financial institutions like IDBI, IFCI, ICICI, SBI, etc. The main object of the institute is to impart training to the trainers who in turn will impart training to the entrepreneurs.
This is clear from the main object contained in the memorandum of association of the said institute which is reproduced hereunder : 4(a) to organise programmes and train trainers, motivators and other individuals drawn from different fields connected with entrepreneurship development and training; to identify, select, and train potential entrepreneurs, draw up appropriate programmes for vocational and in-plant training; to equip the selected trainees in setting up industrial and other ventures, including self-employment ventures, in different sectors; to impart orientation or training in industrial promotion, planning and implementation and management of industrial ventures to persons drawn from different segments of society; In the first meeting of the governing body of the said society, a resolution was passed on 25th May, 1983 by the sponsors in which it was decided that the promoters and/or sponsors would contribute various amounts for creating a corpus fund so as to earn regular interest income. The relevant extract from the said resolution is reproduced hereunder : It is agreed by the promoter institutions to contribute towards corpus fund by way of grant as under : During the year under consideration the Financial Institutions (FIs) contributed 50% of the promised amounts and the Govt. of Gujarat contributed Rs. 15 lakhs out of its total commitment of Rs. 25 lakhs.
Thus an aggregate sum of Rs. 81 lakhs was received by way of contribution towards corpus fund from the FIs and the Govt. of Gujarat.
The institution also received certain assignment fees from State Governments in the course of carrying out entrepreneurship development programmes (EDP for short). After taking into consideration the expenses incurred for EDP and other expenses and after taking into consideration the interest income, the institute submitted a return showing a net deficit of Rs. 3,42,030. The return was acceptecd Under Section 143(3).
2. Subsequently, the assessment was set aside by the learned Commissioner of Income-tax Under Section 263 of the Act. The Commissioner observed in the said order that the assessee is not a public charitable trust since the benefit out of funds held under trust did not go to the members of public. It renders services to persons who pay the consultation fees. Since there is no charity involved, the contributions made by the sponsors and the Govt. of Gujarat amounting to Rs. 81 lakhs cannot be construed as voluntary contributions received by a trust created wholly for charitable or religious* purpose towards the corpus. He also observed that out of Rs. 81 lakhs received towards corpus, Rs. 10 lakhs are from SBI. The balance sheet showed that a sum of Rs. 65,28,653 have been kept in savings bank account with SBI.Therefore, the applicability of the provisions of Section 13(1)(c) read with Section 13(3)(b) will have to be verified. According to the learned Commissioner, the ITO's order accepting the declared amount of deficit shown by the assessee, without going into the question of taxability of Rs. 81 lakhs received as contribution by it and without examining the applicability of the provisions of Section 13, is an order which is erroneous and prejudicial to the interests of revenue.
He, therefore, set aside the assessment order with a direction to reframe the same in the light of observations made in this order.
3. The Assessing Officer made a fresh assessment in the light of directions given in the order Under Section 263. The A.O. arrived at the conclusion that the institution is not entitled to grant of exemption Under Section 10(22) as no educational institution is being run by the assessee. He also observed that the assessee is not entitled to the benefit of Sections 11 and 12 of the I.T. Act. The income of the assessee was accordingly determined at Rs. 77,57,970 in which the contribution received from the FIs and Govt. of Gujarat towards corpus of Rs. 81 lakhs was also included as income liable to tax.
4. On appeal by the assessee, the CIT(A), after taking into consideration the entire relevant facts and material came to the conclusion that the appellant-institution is clearly entitled to grant of exemption Under Section 10(22). He also observed that the assessee is also eligible for grant of exemption Under Section 11 and, therefore, the contributions received towards the corpus from FIs and Govt. of Gujarat cannot be treated as income liable to tax.
5. The assessee has preferred appeal against the order Under Section 263 passed by the learned Commissioner. The revenue has preferred appeal against the order of the learned CIT(A) in relation to the fresh assessment made by the A.O.6. Before us, the learned counsel for the assessee vehemently argued that the order passed by the Commissioner Under Section 263 is wholly without jurisdiction. The institution is registered under the provisions of Registration of Societies Act as well as under the provisions of the Bombay Public Trust Act. It has also been registered under Section. 12A of the I.T. Act, 1961 vide certificate dated 24th February, 1984. The memorandum and articles of association clearly reveals that the institute is meant for undertaking educational programmes, namely, for training the trainers, motivators and other individuals drawn from different fields connected with entrepreneurship development and training. The word "educational" purpose used in Section 10(22) would clearly cover within its ambit such an institution. The articles of the said society also prohibit payment of any profit or dividend to the members or to any other persons. The educational activities so undertaken by the society is not for any profit motive but such training programmes have been undertaken for development of entrepreneurship which is necessary for promoting trade and industry. He invited our attention towards the reply submitted in response to the show-cause notice Under Section 263 with a view to support his contention that the original assessment order passed by the A. O. cannot be regarded as erroneous and prejudicial to the interests of revenue. As regards alleged violation of the various sub-sections of Section 13, the learned counsel submitted that the CIT, while passing the order Under Section 263 has not properly appreciated the relevant facts and circumstances. The SBI with whom the amount is lying in the savings bank account cannot constitute any violation of Section.
13(2)(b) merely because SBI is one of the sponsors and his contributed Rs. 10 lakhs towards the corpus of the institute. The SBI is carrying on banking business and has accepted the deposit in the normal course of its banking business. The SBI has not derived any benefit by accepting the deposit. Section 23(2)(ii) is applicable only if the benefit is derived by the settler. Furthermore, the amounts invested with SBI is covered by one of the approved mode of investment prescribed Under Section 11(5). Hence there is no violation of the provisions of Section. 13. He submitted that the institution qualifies for grant of exemption Under Section 10(22) as well as Under Section 11 /12 of the Act. The contributions made by the FIs and the Govt. of Gujarat, aggregating to Rs. 81 lakhs are towards the corpus of the institution is apparent from the resolution passed by the governing body. The same by no stretch of imagination could be treated as income liable to tax. He, therefore, urged that the order passed by the CIT Under Section 63 should be cancelled and the original assessment order should be restored.
7. The learned Sr. D.R. relied on the reasons mentioned in the order passed by the CIT Under Section 63.
8. As regards the revenue's appeal, the learned Sr. D.R. submitted that it would be consequential in nature depending on the order of the Tribunal in assessee's appeal against the order Under Section 63. He further submitted that he would, however, rely on the elaborate reasons given in the order of the CIT Under Section 63 as well as in the fresh assessment order passed by the A.O. The CIT(A) has erred in accepting the assessee's contention with regard to claim of exemption Under Section 10(22) and Under Section 11. He has also erred in deleting the additions made in the declared income in such fresh assessment order.
9. The learned counsel for the assessee, with regard to the revenue's appeal, submitted that the CIT(A) has passed an elaborate order in which he has accepted the various contentions of the assessee. He relied on the reasoning and conclusions derived by the CIT(A) and supported the same.
10. We have carefully considered the rival submissions made by the learned representatives. A perusal of the memorandum of articles of the said society clearly reveals that the main object of the society is to organise programmes and train the trainers and in furtherance of such objects the institution has carried out entrepreneurship development programmes. The institution has been set up for achieving an important national objective, i.e. for imparting education to people at large in the field of development of entrepreneurship qualities. This is of prime importance in a country which is seeking rapid industrialisation especially in the backward areas. In order to achieve this national objective, the FIs including the SBI and the Govt. of Gujarat sponsored the said institute. The expression "educational purposes" referred to in Section 2(15) and Section 10(22) does not necessarily contemplate only University education but such expression used in the aforesaid provisions has very wide connotation which obviously includes such educational programmes of training to trainers for the purpose of entrepreneurship development. Such a view is clearly supported by the decisions in CIT v. Academy of General Education [1984] 150 ITR 135 (Kar.) and CIT v. Bimetal Bearings Ltd. [1985] 152 ITR 85 (Mad.).
10.1 It will also be worthwhile to mention that the institution does not exist for any profit, motive. The articles clearly prohibit distribution of any income to the members or to any other person as is clear from Rule 3 of the relevant rules of this institute, which is reproduced hereunder : The grants made by the Central and State Govt. and Central Financial Institutions may be applied subject to such limitations as the respective Governments and Central Financial Institutions may from time to time stipulate. No portion of the income and property of the Institute shall be paid or transferred directly or indirectly by way of dividends, bonus, or otherwise howsoever by way of profits to the persons who may at any time be or have been members of the Institute or to any persons claiming through them: Provided that nothing herein contained shall prevent payment of remuneration in return for any service rendered to the Institute as may be approved by the Governing Body.
The mere fact that the institution charged assignment fees from different State Governments in the course of carrying out the primary object of the institution and such fees were intended for meeting a part of the cost of training programmes would not lead to the conclusion that the assessee is engaged in consultancy business. Since the profit motive is absent and such activity is being carried out for fulfilment of the primary object of conducting EDPs, the collection of such assignment fees would not in any manner adversely affect the assessee's claim for grant of exemption Under Section 10(22) or Under Section 11, read with Section 12 of the I.T. Act. We are, therefore, of the considered opinion that the appellant is clearly entitled to grant of exemption Under Section 10(22) as well as Under Section 11, read with Section 12oftheI.T. Act, 1961.
10.2 We also do not find any merit in the view taken by the learned CIT in the order Under Section 263 that the contribution of Rs. 81 lakhs received from the FIs and Government of Gujarat should be treated as income. Such contributions have been made towards the corpus and the same cannot, therefore, be treated as income liable to tax.
Furthermore, the fact that a sum of Rs. 65,28,653 have been kept deposited with SBI in savings bank account could not in any manner violate the provisions of Section 13(1)(c), read with Section 13(2)(b).
SBI is carrying on the business of banking and in such normal banking activity it has accepted the said deposit in the savings bank account.
Investment of the deposit of the charitable institutions with SBI is one of the approved modes of investment presribed Under Section 11(5).
In view of the aforesaid facts and circumstances and in view of the aforesaid legal position, the original assessment order passed by the Assessing Officer cannot be regarded as erroneous and prejudicial to the interests of revenue. We, therefore, set aside the order of the Commissioner passed Under Section 263 and restore the original assessment order passed by the A.O. accepting the declared amount of deficit shown in the return of income.
11. In view of our decision in the assessee's appeal against the order Under Section 263, the appeal submitted by the revenue against the order of the CIT(A) does not survive. Even on merits, the order passed by the learned CIT (A) does not require any interference in view of the detailed reasons given hereinbefore as well as in view of the elaborate reasons given in the order of the CIT(A).
12. In the result, the assessee's appeal is allowed and the revenue's appeal is dismissed.