Many educational trusts are merely a tax-dodging scams, leading to a decline in the quality of Indian education. Its time to review the tax benefits to these many profit making trusts

Two-thirds of the world is said to be covered by water. The rest, it may have been observed, is now teeming with Indian students – from students pursuing higher studies but graduates and high school students, along with those going for vocational and professional courses. Are they the fodder for tax-dodging “charities”, leading to a serious decline in education?

I am a product of what was known all over the world as one the best maritime training institution in the world - the Training Ship Rajendra (previously Dufferin) and the Directorate of Maritime Engineering. My contemporaries now head similar training establishments in countries as diverse as the US, Canada, Australia, Malaysia and Persian Gulf, and there is no part of the world where the maritime administration will not have a few Indians. But here in India, maritime training has now been brought down to such an extent that graduates are unable get placements. Just a few decades ago, we had dozens of shipping companies chasing each one of us.

Meanwhile in India, there are over a hundred maritime training institutes now, each one of them run by a "educational trust" and therefore also enjoys tax-free status or other benefits. Even then, the maritime education has largely run aground. So what went wrong with education in India? Many things, sure, but one of them was this whole tax-exempted game of "trusts".

One of the many examples, a bit more flagrant because its is named after the governor of India, is the DY Patil "group" of educational institutions, sports stadia, other stuff and of course, trusts. If you've lived or studied in Maharashtra, you can't be unaware of the venerable DY Patil group, “Padmashree” and more.

It seems that somewhere down the line, they forgot to get their Trust registered. But that did not stop them from moving ahead with their core agenda -- massive physical expansion. The Income Tax department had different ideas. Some is what the IT department found out about the educational trusts of “DY Patil Padmashree”

"The appellant-Trust for a longer period of 20 years or so remained under bona fide impression that it was duly registered u/s 12A(a) of the Act."

"According to the Commissioner of Income-tax, right from the date of inception, the Trust did not file any return of income and the returns were filed for the first time after issue of notice under section 148/153C of the Act. The main plea of the assessee before the Commissioner of Income-tax was that since the Trust has been granted 80G certificate bearing No 165/D- 88/0f 89-90 dated 09.06.1989 in response to application dated 23.4.1989 from 1.11.1988 to 31.3.1992, the Trust must have been registered by the Commissioner of Income-tax."

"The Commissioner of Income-tax further rejected assessee's request for condonation of delay observing that he was not satisfied with the reason that registration was already allowed and since the papers are lost, the delay should be condoned. Further, it was observed by the Commissioner of Income-tax that assessee has not maintained books of account in the normal course of business of the Trust and has not been getting its account books audited which was mandatory. In the absence of any return of income having been filed by the assessee, the Commissioner of Income-tax held that the assessee has deliberately prevented the Department from visiting its activities and, therefore, the assessee did not deserve condonation of delay."

"it was pointed out that the Commissioner has referred to the report of the Assessing Officer specifically in paras 12.2 to 12.3 wherein it is observed that income earned by the Society is totally on commercial lines and the society is not being run for charitable purposes."

"On the basis of the seized/impounded documents during the course of search/survey and the enquiries conducted later on it was concluded by CIT, Central, Pune vide order dated 30-11-2007 that the activities of the trust are neither genuine nor are being carried out in accordance with the objects of the trust. "

More details of the case can be found here

http://indiankanoon.org/doc/93595729/

http://indiankanoon.org/doc/33105958/

http://indiankanoon.org/doc/93932260/

Mark the Commissioner’s words: “The activities of the trust and neither genuine nor being carried out in accordance with the objects of the trust.” There is no dearth of similar information on a large number of other educational institutions. Large amounts of cash move around as capitation and other fees.

There is no reason to continue with this business of "tax-free trusts" instead of straight-forward corporate methods in education. As has been tried out in other countries, education can run on legitimate corporate basis, subsidies can go directly to the students or their parents. Or it is the State that runs education as a social measure.

In India, perpetrators of such tax-evasion are not only getting away with it but are bagging gubernatorial posts.

In this way, education has been systematically destroyed in India. Rich families are sending even junior and secondary school students to study abroad, because costs as well as quality of education are seen to be better. The latest one hears is that one of African countries, with a recently reviving economy, is putting up a large number of high-school-cum colleges and has been seeking teachers as well as support staff from India. To their surprise, while they received enough applications for staff who were to be provided board and lodging as well as decent salaries with high savings potential, they also started receiving serious enquiries from parents of students. Why, flourishing healthcare chains are now opening medical colleges to train future Indian doctors abroad – and that too in Cayman Islands! Please see this:

http://www.healthcitycaymanislands.com/ which acknowledges the role of Dr Devi Shetty of Bengaluru.

(Veeresh Malik started and sold a couple of companies, is now back to his first love—writing. He is also involved in helping small and midsize family-run businesses re-invent themselves.)