M/s Vikas Education Society, Dhuri V. ITO, Ludhiana

CO 33/CHANDI/2010

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 5257 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-10-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 02-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S S KEMWAL
• Keywords: Capital asset; Charitable institution; Capital expenditure
• Section: 143(3); 6; 11

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI G. S.PANNU, ACCOUNTANT MEMBER AND MS.SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.884 /CHD/2010 ( ASSESSMENT YEAR : 2007-08 ) THE INCOME-TAX OFFICER, VS. M/S VIKAS EDUCATION SOCIETY, WARD-IV(2), LUDHIANA. GRAIN MARKET, DHURI. . PAN: AAATV5650M & C.O. NO.33/CHANDI/2010 (IN ITA NO.884 /CHD/2010) ASSESSMENT YEAR : 2007-08 M/S VIKAS EDUCATION SOCIETY, VS. THE INCOME TAX OF FICER, GRAIN MARKET, DHURI. WARD IV(2), LUDHIANA . PAN: AAATV5650M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.S.KEMWAL RESPONDENT BY : SHRI SUDHIR SEHGAL O R D E R PER SUSHMA CHOWLA, J.M, THE APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (A), LUDHIANA DATED 03.03.2010 RELATING TO ASSESSMENT YEAR 2007- 08 AGAINST ORDER PASSED U/S 143(3) OF THE ACT. THE ASSESSEE HAS FILED CROSS OBJECTION AGAINST THE APPEAL FILED BY THE REVENUE. 2 2. BOTH THE APPEAL OF THE REVENUE AND CROSS OBJECTI ON FILED BY THE ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E TRUST WAS RUNNING AN ENGINEERING COLLEGE IN THE NAME OF LUDHIANA COLLEGE OF ENGINEERING AND TECHNOLOGY, KATANI KALAN. THE ASSESSEE TRUST HAD C LAIMED EXEMPTION U/S 11 OF THE INCOME TAX ACT AND FILED THE RETURN OF INCOM E SHOWING NIL INCOME. THE ASSESSING OFFICER WAS OF THE VIEW THAT UNDER TH E PROVISIONS OF SECTION 11 OF THE ACT, ONLY INCOME OF THE TRUST OF THE PREVIOU S YEAR TO THE EXTENT IT IS APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES IS NOT TO BE INCLUDED IN THE TOTAL INCOME. THE EXPLANATION OF THE ASSESSEE WAS THAT I T WAS NOT CARRYING ON ANY OTHER BUSINESS BUT ONLY ACTIVITIES WAS RELATING TO THE RUNNING OF EDUCATIONAL INSTITUTIONS AND THE EXPENDITURE INCURRED WERE LINK ED TO SUCH ACTIVITIES. THE UTILIZATION OF THE INCOME IN THE FIXED ASSETS AND F OR INCURRING EXPENDITURE I.E. SALARY OF STAFF, ETC. AS WELL AS CAPITAL EXPENDITUR E INVESTMENT IN FIXED ASSETS I.E. CLASS ROOM, TABLE, CHAIRS AND COMPUTERS ETC., WAS CLAIMED BY THE ASSESSEE AS APPLICATION OF INCOME. FURTHER, RESERVE AND SU RPLUS WERE EXPLAINED TO HAVE BEEN USED FOR INVESTMENT IN ASSETS IN THE FORM OF B UILDING. THE ASSESSING OFFICER NOTED THE ASSESSEE TO HAVE INVESTED HUGE AM OUNTS IN FDRS WHICH WERE CLAIMED TO HAVE BEEN GIVEN AS SECURITY TO THE ALL I NDIA COUNCIL FOR TECHNICAL EDUCATION FOR RUNNING B.TECH AND MBA COURSES. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE INTEREST INCOME ACCRUED ON THE SE FDRS REMAINED ACCUMULATED AND HENCE THIS INCOME WAS NOT APPLIED F OR THE OBJECTS OF THE ASSESSEE TRUST THE ASSESSING OFFICER RELYING ON TH E RATIO LAID DOWN BY THE HON'BLE UTTRAKHAND HIGH COURT IN QUEENS EDUCATIONA L SOCIETY, HALDWANI (ITA NOS. 103 & 104 OF 2000) OBSERVED THAT THE ASS ESSEE WAS FOUND TO BE GENERATING HUGE SURPLUSES YEAR AFTER YEAR AND SUCH INSTITUTION BEING RUN ON 3 COMMERCIAL BASIS FOR MAKING PROFITS WAS NOT ENTITLE D TO THE CLAIM OF EXEMPTION U/S 11 OF THE INCOME TAX ACT IN RESPECT OF THE INCO ME APPLIED FOR THE PURPOSES OF THE TRUST. THE ASSESSING OFFICER FURTHER OBSER VED THAT THE ASSESSEE HAVING APPLIED THE PROFITS EARNED FROM RUNNING OF COLLEGE ON CONSTRUCTION OF BUILDING AND INVESTMENT IN FIXED ASSETS HAD VIOLATED THE PRO VISIONS OF SECTION 11 OF THE ACT. THE PROFITS WORKED OUT BY THE ASSESSEE WHICH WAS CLAIMED AS EXEMPT U/S 11 OF THE ACT, WERE TREATED AS INCOME OF THE YEAR U NDER CONSIDERATION. BEFORE THE CIT(A), THE PLEA OF THE LD. AR FOR THE ASSESSEE WAS THAT THE ISSUE ARISING IN THE PRESENT APPEAL IS COVERED BY THE LATEST JUDG MENT IN THE CASE OF PINEGROVE INTERNATIONAL CHARITABLE TRUST & ORS VS. UNION OF INDIA AND OTHERS (CWP NO.6031 OF 2009- DATE OF DECISION 29.1.2010) A ND AT PAGE 50 OF THE JUDGMENT IT WAS HELD THAT WHERE THE PRE DOMINANT OBJECT OF THE SOCIETY IS TO CARRY OUT THE CHARITABLE PURPOSES AND NOT TO EARN P ROFIT, IT WOULD NOT LOOSE IT CHARACTER OF A CHARITABLE PURPOSE MERELY BECAUSE SO ME PROFITS ARISES FROM THE ACTIVITIES. IT WAS ALSO POINTED OUT BY THE LD. AR THAT THE JUDG MENT IN QUEENS EDUCATIONAL SOCIETY (SUPRA) HAVE ALSO BEEN REFERRED IN PARA 8.8 OF THE JUDGMENT AND THE HON'BLE COURT HAD HELD AS UNDER:- WE HAVE NOT BEEN ABLE TO PERSUADE OURSELVES TO ACC EPT THE VIEW EXPRESSED BY THE DIVISION BENCH OF THE UTTRAKHAND HON'BLE COURT IN THE CASE OF M/S QUEENS EDUCATIONAL SOCIETY (SUPRA). 4. THE LD. AR ALSO EXPLAINED IN DETAILS THE PURPOSE AND NATURE OF FDRS MAINTAINED BY THE ASSESSEE AND POINTED OUT THAT THE SAID FACTS WERE NOT CONTROVERTED BY THE ASSESSING OFFICER AND THE ONLY OBJECTION OF THE ASSESSING OFFICER WAS THAT SINCE THE ASSESSEE WAS ACCUMULATIN G ITS INCOME IN THE SHAPE OF FDRS, THE AIMS AND OBJECTS OF TRUST ARE NOT FULF ILLED AND HENCE IN VIOLATION OF THE PROVISIONS OF SECTION 11 OF ACT. IT WAS FUR THER EXPLAINED THAT IT WAS NOT THE CASE OF THE ASSESSING OFFICER THAT 85% OF THE I NCOME HAD NOT BEEN UTILIZED 4 OR THE MODE OF INVESTMENT WAS NOT WITHIN THE PARAME TERS OF THE SAID SECTION. THE FDRS KEPT AS A SECURITY WAS CLAIMED TO HAVE BEE N MAINTAINED IN THE ORDINARY COURSE OF RUNNING THE EDUCATIONAL INSTITUT IONS AND THESE BEING MAINTAINED WITH SCHEDULED BANKS, THERE WAS NO JUSTI FICATION FOR WITHDRAWING THE EXEMPTION U/S 11 OF THE ACT. DURING THE COURSE OF APPELLATE PROCEEDINGS THE ASSESSING OFFICER, WARD - IV(2) WAS ALSO PRESEN T AND SHE MAINTAINED THAT THE DECISION IN THE ASSESSMENT ORDER DESERVES TO BE SUSTAINED. THE CIT(A) APPLYING THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PINEGROVE INTERNATIONAL CHARITABLE TRUS T VS. UNION OF INDIA (SUPRA) HELD AS UNDER:- 4. I HAVE CAREFULLY CONSIDERED THE CONTENTION OF T HE LD. COUNSEL FOR THE APPELLANT AND PERUSED THE RELEVANT RECORD. IT IS SEEN THAT IN THIS CASE AS THE APPELL ANT HAD SHOWN SURPLUS OF INCOME OVER EXPENDITURE FOR THE LA ST FEW YEARS AND OUT OF SUCH INCOME INVESTMENTS WERE MADE FOR BUILDING, FURNITURE AND OTHER ASSETS OF TH E ENGINEERING COLLEGE RUN BY IT, IN VIEW OF THE RATIO OF DECISION OF THE HON'BLE UTTRAKHAND HIGH COURT IN TH E CASE OF M/S QUEENS EDUCATIONAL SOCIETY, CIVIL LINE, HALDWANI, DISTT. NAINITAL (SUPRA), THE A.O. WAS OF THE VIEW THAT THE APPELLANT VIOLATED THE PROVISIONS OF SECTION 11 OF THE ACT AND, THEREFORE, NOT ENTITLED TO EXEMPTION UNDER THE PROVISIONS OF THAT SECTION. HOWEVER AS BROUGHT OUT IN THE WRITTEN SUBMISSIONS O F THE LD. COUNSELS THESE ISSUES CAME UP FOR DISCUSSIO N BY THE HON'BLE JURISDICTIONAL HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF PINEGROVE INTERNATIONAL CHARITABLE TRUST VS. UNION OF INDIA AND OTHERS IN C WP NO.6031 OF 2009. AS PER PARA 6.5 OF THIS JUDGEMENT FOLLOWING SUBSTANTIVE QUESTIONS OF LAW WERE NOTED T O HAVE ARISEN FOR DECISION OF THE HON'BLE COURT :- (A) WHETHER AN EDUCATIONAL INSTITUTION WOULD CEASE TO EXIST SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT MERELY BECAUSE IT HAS GENERATED SURPLUS INCOME OVER A PERIOD OF 4/5 YEARS AFTER MEETING ITS EXPENDITURE? (B) WHETHER THE AMOUNT SPENT ON ACQUIRING/CONSTRUCTING CAPITAL ASSETS WHOLLY AND EXCLUSIVELY BECOMES PART OF THE TOTAL INCOME OR IT BECOMES ENTITLED TO EXEMPTION U/S 10(23C)(VI) OF THE ACT? 5 (C) WHETHER AN INSTITUTION REGISTERED AS A SOCIETY UNDER THE SOCIETIES REGISTRATION ACT, 1860, LOSE ITS CHARACTER AS AN EDUCATIONAL INSTITUTION, ELIGIBLE TO APPLY FOR EXEMPTION U/S 10(23C)(VI) OF THE ACT? 4.1 IN PARA 8.3 OF THIS ORDER THE HON'BLE HIGH COURT OBSERVED THAT SECTION 11(1)(A) IS PARI MATERIAL TO THE THIRD PROVISO TO SECTION 10(23C)(VI) OF THE ACT AND THAT THE ONLY DIFFERENCE WAS WITH REGARD TO PERCENTAGE O F INCOME AND THE PERIOD FOR WHICH IT COULD BE CARRIED FORWARD. THEREFORE, POSITION WITH RESPECT TO ISSUE IN HAND WOULD BE SAME WHETHER AN ASSESSEE HAS CLAIMED EXEMPTION U/S 10(23C)(VI) OR U/S 11 OF THE ACT. AFTER MAKING DETAILED DISCUSSIONS IN THIS DECISION IN PAR A 8.13 OF THE ORDER OF THE HON'BLE HIGH COURT SUMMED UP THE PRINCIPLES OF LAW. IN THIS PARA IT IS HELD BY THE HON'BLE COURT THAT MERELY BECAUSE AN INSTITUTION HAS EARNED PROFIT WOULD NOT BE DECIDING FACTOR TO CONCLUDE THAT THE EDUCATIONAL INSTITUTION EXISTS FOR PROFIT. 4.2 AT ITEM NO.(3) IN THIS PARA IT HAS BEEN FURTHER HEL D BY THE HON'BLE JURISDICTIONAL HIGH COURT THAT THE CAPITAL EXPENDITURE WHOLLY AND EXCLUSIVELY TO THE OBJECTS OF THE EDUCATION IS ENTITLED TO EXEMPTION AND WOULD NOT CONSTITUTE PART OF THE TOTAL INCOME. 4.3 AS PER THIS DECISION IF THE CAPITAL ASSETS HAD BEEN APPLIED AND UTILIZED TO ADVANCE THE PURPOSE OF EDUCATION (IN THAT CASE), THE EXPENDITURE INCURRED IN RESPECT OF SUCH CAPITAL ASSETS WAS ENTITLED FOR EXEMPTION. 4.4 THE DECISION OF THE HON'BLE UTTRAKHAND HIGH COURT I N THE CASE OF M/S QUEENS EDUCATIONAL SOCIETY WHICH HA S BEEN RELIED UPON BY THE A.O. TO DECIDE THIS CASE AG AINST THE APPELLANT WAS ALSO CITED ON BEHALF OF THE DEPARTMENT BEFORE THE HON'BLE HIGH COURT. HOWEVER IT WAS OBSERVED BY THE HON'BLE JUDGES AS UNDER :- THIRDLY, THE UTTRAKHAND HIGH COURT HAS NOT APPRECIATED CORRECTLY THE RATIO OF THE JUDGEMENT RENDERED BY THE HON'BLE SC IN THE CASE OF ADITANAR EDUCATIONAL INSTITUTION AND WHILE APPLYING THE SAID JUDGEMENT INCLUDING THE JUDGEMENT WHICH HAD BEEN RENDERED BY THE HON'BLE SC IN THE CASE OF CHILDREN BOOK TRUST (SUPRA), IT LOST SIGHT OF THE AMENDMENT WHICH HAD BEEN CARRIED OUT W.E.F. 1.4.1999 LEADING TO THE INTRODUCTION OF THE PROVISIONS OF SECTION 10(23C)(VI) OF THE ACT. LASTLY THAT VIEW IS NOT CONSISTENT WITH THE LAW LAID DOWN BY THE HON'BLE 6 SC IN AMERICAN HOTEL & LODGING ASSOCIATION EDUCATIONAL INSTITUTE (SUPRA) 4.5 IN VIEW OF THE ABOVE I AM INCLINED TO AGREE WITH TH E LD. COUNSEL THAT THE FINDINGS OF THE A.O. ON THE BASIS OF JUDGEMENT OF QUEENS EDUCATIONAL SOCIETY (SUPRA) ARE NOT THE CORRECT FINDINGS. FURTHER IN VIEW OF THE R ATIO OF THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF PINEGROVE INTERNATIONAL CHARITABLE TRUS T (SUPRA), IT IS TO BE HELD THAT THE A.O. WAS NOT JUS TIFIED IN DENYING EXEMPTION CLAIMED BY THE APPELLANT U/S 11 OF THE ACT JUST BECAUSE IT HAD SHOWN INCOME IN THE PAST FEW YEARS AND FURTHER HAD INVESTED SUCH INCOME IN F IXED ASSETS OF THE EDUCATIONAL INSTITUTE RUN BY IT. 5. THE CIT(A) IN PARA 4.6 FURTHER HELD THAT THE FDR S WITH PNB WERE MADE BY THE ASSESSEE FOR GIVING SECURITY TO ALL INDIA CO UNCIL FOR TECHNICAL EDUCATION FOR RUNNING THE B.TECH COURSE IN THE ENGI NEERING COLLEGE RUN BY THE ASSESSEE. THE CIT(A) THUS HELD THAT THE FDRS WILL H AVE TO BE CONSIDERED AS HAVING BEEN PURCHASED FOR MEETING THE MAIN OBJECTS OF THE ASSESSEE SOCIETY I.E. OF IMPARTING EDUCATION. SIMILARLY, OTHER FDRS OF RS . 20 LACS WERE FOR RUNNING MBA COURSE IN THE COLLEGE RUN BY THE ASSESSEE SOCIE TY AND THE SAID INVESTMENT IN FDRS WERE TO BE TAKEN AS APPLICATION FOR THE AIM S AND OBJECTS OF THE ASSESSEE SOCIETY. THE CIT(A) CONCLUDED BY HOLDING THAT THERE IS NO JUSTIFICATION IN THE ORDER OF ASSESSING OFFICER THA T NO PART OF THE INTEREST EARNED BY THE ASSESSEE ON THESE FDRS WAS UTILIZED F OR THE AIMS AND OBJECTS OF THE ASSESSEE TRUST AND THAT IT HAD VIOLATED THE PRO VISIONS OF SECTION 11 OF THE ACT. IN VIEW OF THE ABOVE, THE CIT(A) FURTHER HELD THAT AS THE RESERVE SURPLUS OF THE COLLEGE OF THE ASSESSEE TRUST HAD BEEN USED FOR ACQUIRING ASSETS IN THE FORM OF BUILDING OF ENGINEERING COLLEGE PRIMARILY R UN BY THE ASSESSEE FOR IMPARTING EDUCATION, WHICH IS THE MAIN OBJECT AND AIM OF THE ASSESSEE TRUST AND FURTHER THE FDRS IN QUESTION BEING PURCHASED TO ACHIEVE THE AIMS AND OBJECTS OF THE SOCIETY, THE ASSESSEE TRUST COULD NO T BE SAID TO HAVE VIOLATED THE PROVISIONS OF THE SECTION 11 OF THE ACT. THE ASSE SSING OFFICER WAS DIRECTED TO 7 ALLOW EXEMPTION U/S 11 OF THE INCOME TAX ACT. 6. SHRI S.S.KEMWAL APPEARED FOR THE REVENUE AND SHR I SUDHIR SEHGAL APPEARED FOR THE REVENUE AND PUT FORWARD THEIR CONT ENTIONS. 7. THE ISSUE IN THE PRESENT CASE IS SQUARELY COVERE D BY THE JUDGMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PINEGROVE EDUCATIONAL TRUST & OTHERS VS. UNION OF INDIA [(2010) 37 DTR (P &H) 105]. THE CIT(A) HAD ALLOWED THE EXEMPTION CLAIMED U/S 11 OF THE INCOME TAX ACT TO THE ASSESSEE IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE JURISDIC TIONAL HIGH COURT IN THE CASE OF PINE GROVE INTERNATIONAL CHARITABLE TRUST V S. UNION OF INDIA. FURTHER, IN VIEW OF THE APPLICATION OF INCOME EARNED BY THE ASSESSEE TRUST DURING THE YEAR UNDER CONSIDERATION, TO THE OBJECTS OF TRUST I NCLUDING INVESTMENT IN INFRASTRUCTURE, WE ARE IN CONFORMITY WITH THE ORDER OF THE CIT(A) THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF EXEMPTION U/S 11 OF THE ACT. WE UPHOLD THE ORDER OF CIT(A) IN ALLOWING THE CLAIM OF THE ASSESS EE IN RESPECT OF THE INTEREST EARNED ON FDRS AS THE SAID FDRS WERE PURCHASED TO A CHIEVE THE AIMS AND OBJECTS OF THE ASSESSEE TRUST AND INTEREST INCOME E ARNED THEREON, BEING PART OF THE INCOME EARNED DURING THE YEAR BY THE ASSESSEE T RUST WAS FOUND TO HAVE BEEN UTILIZED AND APPLIED TO THE EXTENT OF 85% OF INCOME AND SUCH APPLICATION OF INCOME ENTITLES THE ASSESSEE TO CLAIM OF EXEMPTION U/S 11 OF THE ACT. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE RATIO LAI D DOWN IN THE PINEGROVE INTERNATIONAL CHARITABLE TRUST & ORS. VS. UNION OF INDIA AND OTHERS (SUPRA). IN THE ENTIRETY OF FACTS AND CIRCUMSTANCES, WE ARE IN CONFORMITY WITH THE FINDINGS OF THE CIT(A) AND UPHOLD THE ALLOWANCE OF EXEMPTION U/S 11 OF THE ACT TO THE ASSESSEE TRUST. IN VIEW THEREOF THE GR OUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. 8 8. THE ASSESSEE VIDE ITS GROUNDS IN THE CROSS OBJEC TION HAS SUPPORTED THE ORDER OF CIT(A) AND IN VIEW OF OUR DISMISSING THE A PPEAL OF THE REVENUE THE SAME IS ALLOWED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 19 TH OCTOBER, 2010. SD/- SD/- (G.S.PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :19 TH OCTOBER, 2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR