$
$ # parameters without enclosing double quotes passed to the echo command
$ echo Gone               with       the                           wind
Gone with the wind
$
$ # As you can see, there's only one space between "Gone" and "with"
$ # and between "with" and "the"; and "the" and "wind"
$ # The shell did that. That is the shell's default behavior.
$ #
$ # Now pass the same parameters with enclosing double quotes to the echo command
$ # (To be technically accurate, this now is just one argument, as opposed to four arguments in the earlier case)
$
$ echo "Gone               with       the                           wind"
Gone               with       the                           wind
$
$ # the embedded spaces are preserved now
$

echo $line | sed 's/.*<college>\(.*\) <\/college>$/\1/'

<Record><sno>1</sno><empid>E0001</empid><name>Rejsh suderam</name><college>IIT Chennai </college>

echo "$line" | sed 's/.*<college>\(.*\) <\/college>$/\1/'

echo "$var" >> $targetfile