Sri Balaji Educational and Charitable Trust, Rasipuram V. ITO, Salem

CO 91/CHNY/2011

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6745 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-12-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 31-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T VASUDEVAN
• Keywords: Capital asset; Charitable institution; Non passing of speaking order; Revenue expenditure
• Section: 12A; 12AA; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER I.T.A.NO. 789/MDS/2011 AND C.O.NO.91/MDS/2011 (IN ITA NO.789/MDS/2011) (ASSESSMENT YEAR : 2008-09) THE INCOME-TAX OFFICER, WARD-II(2), NO.3, GANDHI ROAD, SALEM-7. VS. M/S. SRI BALAJI EDUCATIONAL AND CHARITABLE TRUST, 131, N.R.APARTMENT, NAMAKKAL ROAD, RASIPURAM-637 408. PAN AABTS 6648 H (APPELLANT) (RESPONDENT/CROSS OBJECTOR) APPELLANT BY : SHRI R.B.NAIK, IRS, COMMISSIONER OF INCOME-TAX RESPONDENT BY : SHRI T. VASUDEVAN, ADVOCA TE DATE OF HEARING : 1 ST DECEMBER, 2011 DATE OF PRONOUNCEMENT : 12 TH DECEMBER, 2011 O R D E R PER DR. O.K. NARAYANAN, VICE-PRESIDENT THIS APPEAL IS FILED BY THE REVENUE. THE RELEVANT ASSESSMENT YEAR IS 2008-09. THE APPEAL IS DIRECTED AGAINST THE ITA 789 & CO 91/11 :- 2 -: ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), SALEM DATED 15.2.2011. THE ASSESSMENT IN THIS CASE HAS BEEN CO MPLETED UNDER SEC.143(3) READ WITH SEC.147 OF THE INCOME-TA X ACT, 1961. THE CROSS OBJECTION IS FILED BY THE ASSESSEE. 2. THE ASSESSEE IN THE PRESENT CASE IS AN EDUCATION AL AND CHARITABLE TRUST. IT IS CONSTITUTED BY A TRUST DEE D DATED 28.6.2007. THE ASSESSEE COMMENCED ITS EDUCATIONAL ACTIVITIES I N THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THE INITIAL CORPUS OF THE ASSESSEE IS ` 5005/-, CONTRIBUTED BY THE TRUSTEES. THEREAFTER, THE ASSESSEE RECEIVED A CORP US DONATION OF ` 27,77,800/-. THE DONATIONS WERE RECEIVED FROM THE TRUSTEES AND WELL WISHERS. THE ASSESSEE ALSO SPENT A SUM OF ` 23,72,850/- ON CONSTRUCTION OF THE SCHOOL BUILDING. THERE IS ALSO A PRE-OPERATIVE EXPENSES OF ` 1,43,157/-. THE ASSESSEE TRUST HAS ALSO MADE A FIXED DEPOSIT IN BANK OF ` 2,25,000/-. 3. FOR THE ASSESSMENT YEAR UNDER APPEAL, THE ASSES SEE FILED ITS RETURN OF INCOME DECLARING NIL INCOME. INITIAL LY RETURN WAS PROCESSED UNDER SEC.143(1). THEREAFTER, NOTICE UND ER SEC.148 WAS ISSUED STATING THE REASON THAT THE CLAIM OF EXE MPTION MADE BY THE ASSESSEE CANNOT BE GRANTED UNDER SECTIONS 11 AND 12 OF ITA 789 & CO 91/11 :- 3 -: THE INCOME-TAX ACT, 1961 AS THE ASSESSEE IS NOT REG ISTERED UNDER SEC.12A. IN RESPONSE TO THE NOTICE A NIL RETURN WA S FILED BY THE ASSESSEE. THEREAFTER THE ASSESSMENT WAS COMPLETED UNDER SEC.143 WHEREIN THE ASSESSING OFFICER DETERMINED TH E TAXABLE INC0ME OF THE ASSESSEE AT ` 27,82,805/- WHICH INCLUDED AN INITIAL AMOUNT OF ` 5005/- AND THE SUBSEQUENT DONATION OF ` 27,77,800/-. THE INCOME HAS BEEN ASSESSED IN THE STATUS OF AOP. 4. IN FIRST APPEAL, THE COMMISSIONER OF INCOME-TAX (APPEALS) HELD THAT THE CORPUS DONATIONS RECEIVED BY THE ASSE SSEE TRUST CANNOT BE HELD TO BE INCOME. ACCORDINGLY, HE DELET ED THE TAXABLE INCOME DETERMINED BY THE ASSESSING AUTHORITY. 5. THE REVENUE IS AGGRIEVED AND THEREFORE, THE APPE AL BEFORE US. 6. THE GROUNDS RAISED BY THE REVENUE IN THE PRESENT APPEAL READ AS BELOW : 2. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THA T SECTION 12A SPECIFICALLY STATES THE PROVISIONS OF SECTIONS 11 AND 12 OF THE IT ACT SHALL NOT APPLY TO INCOME OF TRUST UNLESS THE TRUST IS REGISTERED U/S. 12AA OF THE IT ACT. ITA 789 & CO 91/11 :- 4 -: 3. THE LEARNED CIT(A) HAS FAILED TO FOLLOW THE RATI O OF THE DECISION OF U.P.FOREST CORPORATION VS. DCIT (SC ) 297 ITR 1 WHEREIN IT WAS HELD THAT REGISTRATION OF A TRUST UNDER SECTION 12A IS A CONDITION PRECEDENT FO R AVAILING BENEFIT UNDER SECTION 11 AND 12. 4. ARTICLE 141 OF THE CONSTITUTION OF INDIA LAYS D OWN THAT RATIO DECIDENDI OF THE DECISION OF THE APEX CO URT IS BINDING ON ALL COURTS AND TRIBUNAL OF THE COUNTRY. THEREFORE THE CIT(A) OUGHT TO HAVE HELD THAT THE TR UST IS NOT ELIGIBLE FOR CLAIMING EXEMPTION U/S.11 OF IT ACT. 7. WE HEARD SHRI R.B.NAIK, THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENUE AND SHRI T. VA SUDEVAN, THE COUNSEL APPEARING FOR THE ASSESSEE. TO DECIDE THE MATTER IN FAVOUR OF THE ASSESSEE, THE COMMISSIONER OF INCOME- TAX (APPEALS) HAS EXTENSIVELY RELIED ON TWO DECISIONS O F THE INCOME- TAX APPELLATE TRIBUNAL. THOSE DECISIONS ARE THE FO LLOWING : (I) SOCIETY FOR INTEGRATED DEVELOPMENT IN URBAN AND RURAL AREAS VS. DCIT (90 ITD 493)(HYD.) (II) MAHILA SIDH NIRMAN YOJNA VS. INSPECTING ASST. COMMISSIONER (50 ITD 472)(DELHI A). ITA 789 & CO 91/11 :- 5 -: 8. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS NOT DISCUSSED ANYTHING ABOUT THE FACTS OF THE PRESENT C ASE AND HOW THOSE FACTS ARE COMPATIBLE WITH THE FACTS CONSIDERE D BY THE TRIBUNAL IN THE ABOVE TWO DECISIONS. AFTER EXTENSI VELY REPRODUCING THE EXTRACTS FROM THE ORDERS OF THE TRI BUNAL IN THE ABOVE STATED CASES, THE COMMISSIONER OF INCOME-TAX (APPEALS) STRAIGHTAWAY HELD THAT THE DONATIONS RECEIVED BY TH E ASSESSEE ARE NOT TAXABLE. 9. ON THIS GROUND ALONE THE ORDER OF THE COMMISSION ER OF INCOME-TAX (APPEALS) IS LIABLE TO BE SET ASIDE. TH E ORDER IS ABSOLUTELY A NON SPEAKING ORDER. WITHOUT POINTING OUT THE NEXUS BETWEEN THE FACTS OF THE PRESENT CASE AND THE FACTS OF THOSE DECISIONS OF THE TRIBUNAL, IT IS NOT POSSIBLE TO HO LD THAT THE RATIO OF THOSE DECISIONS ARE STRAIGHTAWAY APPLICABLE TO THE PRESENT CASE. BUT WE DO NOT OVERLOOK CERTAIN BASIC PRINCIPLES LAI D DOWN IN THE ABOVE STATED DECISIONS OF THE TRIBUNAL. IN THE ORD ER PASSED BY THE ITAT, HYDERABAD BENCH IN THE CASE OF SOCIETY F OR INTEGRATED DEVELOPMENT IN URBAN & RURAL AREAS VS. DCIT (90 ITD 493(HYD.) THE TRIBUNAL HAS REPRODUCED EXTRACTS FROM AN EARLIE R ORDER OF THE ITAT, HYDERABAD BENCH RENDERED IN THE CASE OF NIRMA L AGRICULTURAL SOCIETY VS. ITO. IN THAT DECISION, TH E TRIBUNAL HAS ITA 789 & CO 91/11 :- 6 -: HELD THAT EVEN IN A CASE WHERE NO EXEMPTION IS GRAN TED UNDER SECTIONS 11 & 12, THE ASSESSING OFFICER CAN ASSESS ONLY INCOME AFTER DEDUCTING THE EXPENDITURE AND IT IS NOT POSSI BLE TO TREAT THE ENTIRE RECEIPTS AS INCOME OF A SOCIETY. 10. THE MOST IMPORTANT PRINCIPLE COMING OUT OF THE ABOVE DECISIONS OF THE TRIBUNAL WHICH MAY BE APPLICABLE T O THE PRESENT CASE IS THAT EVEN IF THERE IS NO CASE OF BENEFITS A VAILABLE UNDER SECTIONS 11 AND 12, THE INCOME IN THE HANDS OF AN A SSESSEE CAN BE COMPUTED ONLY ON THE BASIS OF WELL KNOWN PRINCIP LES LAID DOWN IN THE ACCOUNTANCY AND TAXATION. THE GROSS COLLECT ION CANNOT BE TAXED AS INCOME. CORRESPONDING EXPENDITURE NECESSA RY TO CARRY ON THE ACTIVITIES SHOULD BE DEDUCTED. THE NET ALON E CAN BE TAXED AS INCOME. 11. EVEN THE ABOVE BASIC PRINCIPLE HAS NOT BEEN FOL LOWED BY THE ASSESSING AUTHORITY IN THE PRESENT CASE. AFTER HAV ING FOUND THAT THE ASSESSEE IS NOT REGISTERED UNDER SEC.12A AND CO NSEQUENTLY THE ASSESSEE HAS NOT ENTITLED FOR THE BENEFITS OF S EC.11 AND 12, THE ASSESSING AUTHORITY STRAIGHTAWAY WENT TO TREAT THE ENTIRE DONATIONS RECEIVED BY THE ASSESSEE TRUST AS ITS TAX ABLE INCOME. THIS APPROACH IS NOT CORRECT. IF THE ASSESSEE HAS INCURRED EXPENDITURE IN CARRYING ON ITS ACTIVITIES, THOSE EX PENDITURE MUST BE ITA 789 & CO 91/11 :- 7 -: DEDUCTED FROM THE GROSS DONATIONS AND THE BALANCE A LONE COULD BE CONSIDERED TO DECIDE WHETHER THE SURPLUS IS TAXA BLE OR NOT. 12. ANOTHER IMPORTANT ASPECT IS THAT THE ASSESSING AUTHORITY HAS NOT AT ALL CONSIDERED THE APPLICABILITY OF THE PROV ISIONS OF LAW CONTAINED IN SEC.10(23C)(IIID) OF THE INCOME-TAX AC T, 1961. THE ASSESSEE IS NOT A REGISTERED TRUST. THE ASSESSEE T RUST IS CARRYING ON THE SOLE ACTIVITY OF RUNNING EDUCATIONAL INSTITU TION. SUCH INSTITUTION IS EXEMPT FROM TAXATION UNDER SEC.10(23 C)(IIID) WITH A RIDER THAT IF THE GROSS REVENUE IS MORE THAN ` ONE CRORE IN A YEAR, THE ASSESSEE SHALL FURTHER BE BOUND TO OBSERVE CERT AIN REGULATORY PROVISIONS. IN THE PRESENT CASE, THE GROSS REVENUE OF THE ASSESSEE TRUST IS LESS THAN ` ONE CRORE. THEREFORE, PRIMA FACIE THE CASE OF THE ASSESSEE SEEMS TO BE COVERED BY SEC.10(23C)(IIID). THIS ASPECT SHOULD HAVE BEEN GO NE INTO. THEREFORE, WE FIND THAT THE MATTER MUST GO BACK TO THE ASSESSING OFFICER TO EXAMINE IN DETAIL, THE CASE OF THE ASSES SEE, WHETHER IT IS FALLING UNDER SEC.10(23C)(IIID), OR IF NOT, WHET HER THE DEDUCTIONS ARE THEREFORE TO BE GIVEN IN COMPUTING THE TAXABLE INCOME. 13. WHY WE ARE EXPLAINING TO THIS EXTENT IS BECAUSE THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS RELIED ON CERTAIN DECISIONS OF THE TRIBUNAL WITHOUT CO-RELATING TO TH E FACTS OF THE ITA 789 & CO 91/11 :- 8 -: PRESENT CASE. THERE IS NO LAW THAT CORPUS DONATION AS SUCH IS ELIGIBLE FOR DEDUCTION IN THE CASE OF A CHARITABLE SOCIETY IF IT IS NOT REGISTERED UNDER SEC.12A. BUT THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS GIVEN AN IMPRESSION IN HIS ORDER THAT IF THE ASSESSEE IS A CHARITABLE SOCIETY, CORPUS DONATIONS ARE AUTOMATICALLY ELIGIBLE FOR DEDUCTION UNDER SEC.10(2 3C)(IIID) FROM TAXATION EVEN IF IT IS NOT REGISTERED UNDER SEC.12A . HE HAS ALSO GIVEN ANOTHER IMPRESSION THAT CONSTRUCTION OF SCHOO L BUILDING IS AUTOMATICALLY ELIGIBLE FOR DEDUCTION AS REVENUE EXP ENDITURE. IN THE CASE OF NIRMAL AGRICULTURAL SOCIETY V. ITO, THE TRIBUNAL HAS HELD THAT THE COST OF CONSTRUCTION OF HOUSES NEEDS TO BE TREATED AS REVENUE EXPENDITURE IN THE HANDS OF THAT ASSESSEE. THIS IS BECAUSE THE SOCIETY WAS CONSTRUCTING HOUSES FOR POO R PEOPLE ON THE LAND OWNED BY THE BENEFICIARIES THEMSELVES AS P ART OF THE ACTIVITIES CARRIED ON BY THAT SOCIETY. THEREFORE, THE TRIBUNAL HELD THAT THOUGH, A HOUSE IS CAPITAL ASSET, THE EXPENDIT URE INCURRED BY THAT SOCIETY WOULD BE ONLY IN THE NATURE OF REVENUE EXPENDITURE FOR THAT SOCIETY DID NOT HAVE ANY OWNERSHIP EITHER ON L AND OR ON THE HOUSE CONSTRUCTED THEREON. IT WAS SPENDING MONEY I N ITS ORDINARY COURSE OF ACTIVITY, AMONG OTHER THINGS, IN CONSTRUC TING HOUSES FOR POOR PEOPLE IN THEIR OWN LAND. THEREFORE, AS FAR A S THAT ASSESSEE ITA 789 & CO 91/11 :- 9 -: WAS CONCERNED, THE EXPENDITURE WAS REVENUE IN NATUR E. THIS PROPOSITION IS APPLIED BEFORE THE COMMISSIONER OF I NCOME-TAX (APPEALS) TO THE PRESENT CASE SO AS TO DRAW AN INFE RENCE THAT THE EXPENDITURE INCURRED FOR CONSTRUCTION OF BUILDINGS FOR EDUCATIONAL AND OTHER CHARITABLE ACTIVITIES ARE AS SUCH DEDUCTI BLE IN COMPUTING THE INCOME. THE DIFFERENCE IS THAT IN THE PRESENT CASE THE ASSESSEE HAS SCHOOL BUILDINGS IN ITS OWN LAND THERE BY OWNING THAT PROPERTY WHEREAS IN THE EARLIER CASE, THE SOCIETY W AS NOT OWNING THE PROPERTY EITHER OF LAND OR HOUSE. THE COMMISSI ONER OF INCOME-TAX (APPEALS) HAS OVERLOOKED THIS CARDINAL D IFFERENCE. 14. NOW TO CONCLUDE THE CASE, WE SET ASIDE THE ORDE R OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND REMIT BACK THE MATTER TO THE ASSESSING AUTHORITY FOR RECONSIDERATION OF T HE CASE OF THE ASSESSEE. THE ASSESSING OFFICER IS DIRECTED TO EXAM INE THE APPLICABILITY OF SEC.10(23C)(IIID) IN THE CASE OF T HE ASSESSEE AND WITHOUT PREJUDICE TO THAT THE CASE OF DEDUCTION OF EXPENDITURE IN COMPUTING THE TAXABLE INCOME. THE ASSESSEE SHALL B E HEARD BEFORE PASSING THE ORDERS. 15. AS FAR AS THE CROSS OBJECTION FILED BY THE ASSE SSEE IS CONCERNED, THE CASE IS THAT THE ASSESSING AUTHORITY SHOULD HAVE EXAMINED THE APPLICABILITY OF SEC.10(23C)(IIID) IN FAVOUR OF THE ITA 789 & CO 91/11 :- 10 - : ASSESSEE. THIS ISSUE WE HAVE ALREADY DIRECTED IN F AVOUR OF THE ASSESSEE. 16. IN RESULT, THE APPEAL FILED BY THE REVENUE AS WELL AS THE CROSS OBJECTION FILED BY THE ASSESSEE ARE TREATED A S ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON MONDAY, THE 12 TH OF DECEMBER, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR.O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 12 TH DECEMBER, 2011 MPO* COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR