International School Of Hyderabad, ... vs Assessee

3. Briefly, the facts are the assessee a society is sponsored

and managed by the International Crops Research Institute for

the Semi-Arid Tropics ('ICRISAT'). The assessee claiming itself to

be a non profit educational institution applied for registration Page 1 of 14 ITA No.1715 of 2014 International School of Hyderabad

u/s 12A of the Act and registration was also granted to the

assessee u/s 12AA of the Act w.e.f. 1.4.2004. For the A.Y under

consideration the assessee filed its return of income on

29.09.2011 declaring total income at Nil after claiming

exemption u/s 11 of the Act. In the course of the assessment

proceedings, the AO while verifying assessee's claim of

exemption u/s 11 of the Act, called upon the assessee to furnish

various informations including the books of accounts. In

response to query raised by the AO, it was submitted by the

assessee that the Department of Agricultural Research &

Education (DARE), Ministry of Agriculture, Govt. of India vide its

letter in DO No.12-35/80-IC-I dated 13 February, 1981 has

approved the proposal of ICRISAT for establishing an

international school to cater to the needs of the children of the

internationally recruited staff of the Institute subject to fulfilling

certain terms and conditions. Subsequently, the Ministry of

External Affairs (MEA) vide letter No.DII/451/80(16/38) dated

13.3.2003 has also accorded approval to ICRISAT wherein it has

amended certain conditions specifically declaring that the

students admitted by the school should have come from an

International/British system of education and has to return to

the International/British system of education. AO on going

through the approval granted by the DARE and MEA noted that

the initial admission to the assessee's international school is

Page 2 of 14 ITA No.1715 of 2014 International School of Hyderabad

restricted to the children of non Indian members of the ICRISAT.

In other words, even the staff of the ICRISAT who are of Indian

nationality were not permitted to admit their children in the

assessee's school. However, subsequently on the request of

ICRISAT, on behalf of the assessee's school, conditions were

relaxed by the Govt. of India by permitting the assessee to enroll

the children of employees of Indian nationality who will stay for

a brief period of 2 to 3 years and have come from an

International/British system of education. Further condition

was imposed restricting the number of such students to 5

students per class per academic year. On verifying the details

submitted by the assessee the AO noted that the assessee has

admitted more than 5 students of Indian nationality in each

class. Even, the students are not the wards of internationally

recruited staff of Indian nationality of the ICRISAT. He observed

that even the other foreign students who are admitted in various

classes of assessee's school are not children of internationaly

recruited staff of ICRISAT. Thus, the AO was of the view that the

process of admission adopted by the assessee is in clear

violation of the terms and conditions stipulated by the MEA. The

AO further observed that the assessee in the matter of

construction of school building and acquiring of property of the

institution has violated the terms and conditions of approval.

Further on verification of the accounts of the assessee, AO noted

Page 3 of 14 ITA No.1715 of 2014 International School of Hyderabad

that the assessee has collected capital fee of Rs.1.75 lakhs per

student and the total capital fee collected during the financial

year 2010-11 amounted to Rs.1,56,87,500. From the aforesaid

facts, the AO opined that the collection of large sums of money

for admission of students in the school proves that the

Institution does not exist solely for educational purposes, but

instead for the purpose of profit. Accordingly the AO called upon

the assessee to explain why the amount of capital fee should not

be brought to tax by denying exemption u/s 11 of the I.T. Act.

Though the assessee submited a written note strongly objecting

to the proposed disallowance of exemption u/s 11 of the I.T. Act,

but the AO refused to accept the contentions of the assessee

stating the following reasons:

a) "The assessee, International School of Hyderabad has not been granted any immunity or privileges extended as in the case of ICRISAT.

b) It has to abide by the law of the land.

c) It is clear from the G.Os issued from time to time by the Ministries that granting approval for establishing school for catering the needs of internationally recruited staff is subject to certain terms and conditions.

d) The admission to the school will be only to the children of non-Indian Members of the ICRISAT.

The school shall not carry on its rolls students of Indian Nationality. However, on behalf of International School of Hyderabad the ICRISAT appealed to the Govt. of India to allow the admission of children of Indian Nationals of the ICRISAT to the School. The same is accorded subject to fulfilling of certain conditions, which were not adhered to by the assessee.

e) On verification of the details, it is seen that there are 254 students studying in the school, out of

Page 4 of 14 ITA No.1715 of 2014 International School of Hyderabad

which only 10 students are wards of employees of ICRISAT. These 10 students include foreign and Indian nationals. The rest of the students are not the children of employees of ICRISAT. Though they are either foreign or Indian nationals, the GOs issued by the ·Govt. of India from time to time are preventing them from enrolling as students in the school.

f) The assessee society has obtained Registration U/s. 12AA of the I.T.Act.

g) Granting of Registration u/s 12A does not grant the society a blanket exemption to the assessees.

h) It is clear from the act and also from the various judicial decisions that it is the Assessing Officer who will examine the affairs of the society year after year and to find out that whether the assessee has violated any provisions of section 11 to 13 of the I.T.Act or not.

i) Following the judgment of Supreme Court in the case of M/s. Islamic Academy of Education & Another Vs. State of Karnataka and Another and in the case of T.M.A.Pai Foundation and Others Vs. State of Karn'ataka and Others, the Hon'ble ITAT also made it clear in umpteen number of cases that the assessee is not entitled for exemption': u/s 11 in case it collected any money by whatever name it is called i.e., donation, building fund, auditorium fund etc., over and above the prescribed fee for admission of students".

4. Thus on the basis of the aforesaid reasoning the AO

concluded that in view of the ratio laid down by the Hon'ble

Supreme Court in the cae of TMA Pai Foundation & Others vs.

State of Karnataka and Others, exemption u/s 10(23C) and u/s

11 is available to those colleges/institutions who are solely run

for educational/philanthropic purposes and not for the purpose

of profit. He concluded that as the assessee has charged

capitation fee of Rs.1.75 lakhs per student, it is not entitled for

Page 5 of 14 ITA No.1715 of 2014 International School of Hyderabad

exemption u/s 11 of the Act and accordingly treated the income

over expenditure of Rs.1,22,98,693 as per the income and

expenditure account as income of the assessee during the

relevant year. Further AO also disallowed the depreciation

claimed of Rs.18,25,570. In addition to the above, the AO also

treated the entire capital fee collected during the year

amounting to Rs.1,56,87,500 as income of the assessee. Thus

the total income was determined at Rs.4,52,87,684.

5. Being aggrieved by the assessment order so passed,

assessee preferred an appeal before the ld CIT (A). In course of

hearing of appeal before the first appellate authority assessee

advanced elaborate arguments contesting reasonings of the AO

on which he denied exemption to the assessee u/s 11 of the I.T.

Act. The ld CIT (A) after considering the submissions of the

assessee in the light of the material available on record, did not

find any of the objections of the AO for denial of exemption u/s

11 of the Act sustainable, except the allegations of the AO that

the assessee has collected capitation fee of Rs.1.75 lakhs per

year from each student. The ld CIT (A) relying upon some

decisions of the ITAT observed that if donations are received

compulsorily from students by whatever name called, viz.,

donations/ building fund/auditorum fund etc. over and above

the prescribed fee from the student, the assessee would not be

Page 6 of 14 ITA No.1715 of 2014 International School of Hyderabad

entitled for exemption u/s 10(23C) or u/s 11. Accordingly, she

sustained the disallowance of exemption claimed by the

assessee u/s 11 of the Act.

6. The ld AR before this forum apart from making oral

submissions has also filed a detailed written submission. The

sum and substance of the argument of the ld AR is to the effect

that there being no fee prescribed by any competent authority as

far as the assessee institution is concerned, the departmental

authorities could not have come to a conclusion that the

assessee has collected capitation fee over and above the

prescribed fee. The ld AR referring to the Andhra Pradesh

Educational Institution Regulation of Admission and Prohibition

of Capitation fee Act, 1983 submitted that as per section 2(b) of

the said act, capitation fee means any amount colelcted in

excess of the fee prescribed u/s 7. Referring to section 7 of the

said Act, the ld AR submitted that as per the said provisions,

the government by way of notification, regulated the tution fee

or any other fee that may be levied and collected for in any of

the educational institutions in respect of each class of student.

Further as per the said provisions, no educational institution

shall collect any fee in excess of the fee notified by the Govt. It

was submitted by the assessee that the charter of the institution

prescribes that it is not bound by the Indian Education

Page 7 of 14 ITA No.1715 of 2014 International School of Hyderabad

Syllabus. Further, it it not governed by any authority of India

such as the CBSE, CISCE, State Board etc. Hence, as such, no

fee has been prescribed by any such authority for unaided

school. He further submitted that the MEA nor the DARE has

prescribed any fees that the assessee should charge from its

student. The ld AR submitted, the assessee is affiliated to the

foreign accrediation bodies such as International Baccalaureate

Organizationa and University of Cambridge and no fee is

prescribed by any of the recognised bodies as well. Thus, it was

submitted by the assessee, since there is neither any regulatory

authority prescribing fee for assessee institution, nor there being

any prescribed fee, departmental authorities were not correct in

denying exemption u/s 11 to the assessee on the reasoning that

the assessee has collected money over and above the prescribed

fee. He submitted,the capital fee of Rs.1.75 lakhs collected from

each student is part of assessee's fee structure.

7. The ld AR submitted that at no stage either during the

assessment proceedings or before the first appellate authority,

any inquiry is made to ascertain the facts whether there is any

fee prescribed for the assessee school to come to a conclusion

that the assessee has collected fees over and above the

prescribed fee. He submitted that even the assessee was never

called upon to explain these aspects.

Page 8 of 14

ITA No.1715 of 2014 International School of Hyderabad

8. The ld AR referring to the decision of the TMA Pai

Foundation (Supra) relied upon by the AO submitted before us

that even in the said judgment the Hon'ble Supreme Court

observed that in case of professional colleges the fee chargeable

should be subject to such a ceiling as may be prescribed by the

authority or by a competent Court. However,the ld AR drawing

our attention to the observations made by the Hon'ble Supreme

Court in this judgment, subsequently in paragraph 61 of the

judgment submitted that however, in respect of private school,

maximum autonomy has to be with the management with

regard to administration including the right of appointment,

disciplinary powers, admission of students and the fees to be

charged. Thus, it was submitted by the ld AR that without

properly analysing the ratio laid down by the Hon'ble Supreme

Court the departmental authorities were not correct in denying

exemption u/s 11 of the I.T. Act. In fact to substantiate its claim

that there is no prescribed fee, in case of the assessee

institution, the ld AR in course of hearing of appeal submitted a

sworn affidavit of Dr. Oli Tooher Hancock, the Principal of

International School of Hyderabad.

9. The ld AR further submitted, the assessee institution has

been functioning for the last so many years and until the

Page 9 of 14 ITA No.1715 of 2014 International School of Hyderabad

impugned A.Y, the Department has never denied exemption to

the assessee for the aforestated reasons, though the assessee is

following the same method of charging fees. Thus there is a

legitimate expectation on the part of assessee that it is eligible

for exemption u/s 11 of the Act. In this context, he relied on the

decision of the Hon'ble Delhi High Court in DDIT vs. Shanti Devi

Progressive Education Society (2012) (340 ITR 320).

10. The ld DR on the other hand strongly supporting the

reasoning of the AO and the CIT (A) submitted before us that the

so called capital fee of Rs.1.75 lakhs collected from each of the

student clearly demonstrate the profit motive of the assessee, as

the assessee has charged more than the prescribed fee which is

nothing but in the nature of capitation fee, assessee is not

eligible for exemption either u/s 10(23C) or section 11 of the

Act. The ld DR further submitted, before the Departmental

authorities, the assessee never took the plea that there is

neither any regulatory authority in India as far as the assessee

is concerned, nor there is any prescribed fee for the assessee. As

the submissions have been made by the assessee for the first

time before this forum and also since an affidavit has been filed

on the aforesaid basis, the same may be remitted back to the file

of the AO for examination.

Page 10 of 14

ITA No.1715 of 2014 International School of Hyderabad

11. We have considered the submissions of the parties and

perused the materials on record as well as the orders of the

Revenue authorities. We have also carefully applied our mind to

the decisions placed before us. As can be seen, though, the AO

denied exemption u/s 11 to the assessee on various reasons

including the charging of capitation fee, the ld CIT (A) has not

found any of the reasons sustainable except the one relating to

collection of capitation fee. As the Department is not in appeal, we

are not required to go into other reasons mentioned by the AO for

denying benefit u/s 11. Thus, the only issue which requires

consideration is whether the denial of exemption u/s 11 of the Act

to the assessee on the allegation of charging capitation fee over

and above the fees prescribed under the Act is sustainable.

Submissions of ld AR in this regard before us, in pith and

substance, is as far as the assessee institution is concerned, it is

not affiliated to any Indian curriculum bodies like CBSE, CSICE or

State Boards. It is further submission of ld AR that there is no fee

prescribed to the assessee either by DARE/MEA or any of the

bodies to which it is affiliated. In this context a sworn affidavit of

the Principal of the Institution has been submitted before this

forum contents of which are as under:

"I, the above named deponenet do hereby solemnly affirm and state as under:

1. That the Appellent is a non profit educational institution sponsored and managed by the

Page 11 of 14 ITA No.1715 of 2014 International School of Hyderabad

International Crops Research Institute for the Semi- Arid Tropics (iICRISAT').

2. That the Appellant was established by the approval given by the Department of Agricultural Research and Education (DARE) vide its letter in D.O No.12-35/80-IC-I dated 13 February, 1981 along with terms and conditions for operation.

3. That subsequently, the Ministry of External Affairs (MEA) vide its letter No.DII/451/80(16/38) dated 13-3-2003 has given approval to ICRISAT wherein it has amended certain conditions.

4. That the deponent is the Principal of the above named assessee school and hence is fully conversant of the facts deposed below.

5. That the captioned appeal was filed on 3 November 2014 by the Appellent.

6. That the captioned appeal was fixed for hearing on 19 March 2015 and further adjourned to 21 April 2015. The case was partly heard on the said date and is pending for hearing on 27 April 2015.

7. The critical grounds taken by the Appellant in the matter relates to denial of exemption u/s 11 for the reason that the Appellant collects a capital fee over and above the prescribed fee.

8. That the Appellant is affiliated only to international bodies (viz., International Baccalaureate Organization and the University of Cambridge and is not affiliated to any Indian curriculum prescribing body like CBSE, CISCE or any of the State Boards.

9. That there is no fee prescribed to the Appellant either by DARE/MEA or by any of the bodies to which it is affiliated to.

10. That the one-time admission/capital fee of INR 1,75,000 charged by the Appellant for the financial year 2010-11 (corresponding to A.Y 2011-12) is part of the fee structure approved by the school management. The fee structure for the financial year under consideration i.e. 2010-11 is attached as Annexure 1".

Page 12 of 14 ITA No.1715 of 2014 International School of Hyderabad

12. Thus, as can be seen from the content of the sworn

affidavit, it is the contention of the assessee that neither there is

a regulating authority/prescribed body in India, as far as the

assessee is concerned, nor there is any fee prescribed for the

assessee either by DARE/MEA or by any of the bodies to which

it is affiliated to. It is further submission of the assessee that the

one time admission/capital fee of Rs.1.75 lakhs from each of the

student is part of the fee structure approved by the school

management, hence it cannot be said that the assessee has

charged any fees over and above the prescribed fee for applying

the ratio of the decision of the ITAT for denying exemption u/s

11 of the I.T. Act to the assessee.

13. Having considered the specific contention of the ld AR and

assertions made in the affidavit, we are of the view that the

aforesaid issue requires examination by the AO. On a perusal of

the assessment order as well as order of the first appellate

authority, it is not clear whether they have examined this aspect

while coming to the conclusion that the assessee has charged

fees over and above the prescribed fee. As the Departmental

authorities have not made any inquiry for ascertaining the fact,

whether there is any fees prescribed for the assessee, we are

inclined to remit the matter back to the file of the AO for

examining afresh. The AO must consider the assertion made in Page 13 of 14 ITA No.1715 of 2014 International School of Hyderabad

the affidavit as well as other materials on record and decide the

issue accordingly and in accordance with law after due

opportunity of being heard to the assessee. AO must also keep

in view the principle of law as laid down by the judicial

authorities on the issue while deciding the matter.

14. In the result, appeal filed by the assessee is allowed for

statistical purposes.

Order pronounced in the Open Court on 8thMay, 2015.

Sd/- Sd/- (P.M. Jagtap) (Saktijit Dey) Accountant Member Judicial Member

Hyderabad, dated 8th May, 2015.

Vnodan/sps

Copy to:

1. M/s. International School of Hyderabad, ICRISAT, Patancheru, Medak Distt. Telangana

2. Dy. Director of Income Tax (Exemptions)-II Hyderabad

3. CIT(A) - IV Hyderabad

4. Director of Income Tax (Exemptions) Hyderabad

5. The DR, ITAT, Hyderabad

6. Guard File

By Order

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