No sec. 10(23C) relief to school collecting fees in name of development fund to be created for benefit of trustee

Facts:

a)  The assessee-trust established a higher secondary school. There was a search in the premises of husband of managing trustee of trust. The seized material found during the course of search operation showed excess collection over and above the fees in the name of development fund.

b)  Before the Assessing officer, the assessee claimed exemption under section 10(23C). The Assessing Officer held that since it was a family trust which was established for the benefit of children of managing trustee, thus, claim of the assessee for exemption under section 10(23C) was to be rejected;

c)  The CIT(A), however, allowed the claim of the assessee on the ground that it was a capital receipt. The aggrieved revenue filed the instant appeal.

The Tribunal held in favour of revenue as under:

1)  Section 10(23C) provides that the educational institution existing solely for educational purposes and not for purposes of profit is eligible for exemption. In the instant case, the trust was established for the benefit of the children of managing trustee;

2)   It was a private family trust. Now, the question for consideration was as to when the trust itself was established for the benefit of the two children of managing trustee, whether the trust had any profit motive or not?;

3)  A bare reading of the trust deed clearly showed that the trust was established for the benefit of two children of managing trustee;

4)  There was a clause in the trust deed which enabled the children of managing trustee to appropriate the profit. The assessee had no obligation to reinvest the profit in the educational activities. Therefore, it could be concluded that the assessee was not in existence solely for educational purposes. It existed only for profit motive and, hence, it was not eligible for exemption under 10(23C). – ACIT v. Sabarigiri Trust [2014] 43 taxmann.com 19 (Cochin - Trib.)