COMMISSIONER OF INCOME TAX HALDWANI V. M/S JYOTI PRABHA SOCIETY

ITA/138/2007

AI Insights

The case involves the Commissioner of Income-tax, Haldwani, Nainital as the appellant and M/s Jyoti Prabha Society as the respondent. The core issue was whether the respondent's activity of letting out properties to another educational society constitutes a charitable activity, thereby making its income eligible for exemption under Section 11 of the Income Tax Act, 1961. The ITAT and CIT(A) had previously ruled in favor of the respondent, which the Revenue challenged in the High Court. The court examined the historical context and the specific activities of the respondent society, concluding that the letting out of properties for educational purposes aligns with charitable objectives.

• Counselvise Citation: [2008] 140 COUNSELVISE.COM (IT) 733773 (HC-UTTARAKHAND)
• Appeal Type: Others
• Pronouncement Date: 29-08-2008
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax Vs. Saraswati Poor Students' Fund, Income Tax Officer Vs. Shri Maganbhai S. Patel Education Trust, Aditaner Educational Institution Vs. ACIT, Sole Trustee Loka Shikshana Trust Vs. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: AARTI VISSANJI; PUJA BANGA
• Assessee Lawyers: PITAMBER MAULEKHI
• Keywords: Charitable activity; Educational institution; Exemption under section 11; Letting out property
• Section: 147; 148; 11; 143(1)(a); 12(A); 260-A

Judgement Text

"IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL Income Tax Appeal No. 137 of 2007 (Assessment Year 1996-97) Commissioner of Income-tax Haldwani, Nainital. ...…………. Appellant Versus M/s Jyoti Prabha Society Ramnee Park, Tallital, Nainital. ...…………. Respondent Along with Income Tax Appeal No. 138 of 2007 (Assessment Year 2001-02) Commissioner of Income-tax Haldwani, Nainital. ...…………. Appellant Versus M/s Jyoti Prabha Society Ramnee Park, Tallital, Nainital. ...…………. Respondent Mr. Pitamber Maulekhi, Advocate for the appellant-Revenue. Mrs. Aarti Vissanji assisted by Ms. Puja Banga, Advocates for the respondent. Coram : Hon’ble Prafulla C. Pant, J. Hon’ble Dharam Veer, J. Prafulla C. Pant, J. (oral) Both these appeals, preferred under Section 260-A of 2 the Income Tax Act, 1961 (hereinafter referred as the Act) are directed against the same judgment and order dated 31st of October 2006, passed by the Income Tax Appellate Tribunal, Delhi Bench ‘G’, New Delhi (hereinafter referred as ITAT), whereby the said authority has dismissed the appeals of the Revenue, and affirmed the order passed by the Commissioner of Income-tax (Appeals) –II, Dehradun [hereinafter referred as CIT(A) –II], holding that the respondent / assessee is entitled to the exemptions under Section 11 of the Act. 2) Heard learned counsel for the parties and perused the record. 3) Brief facts of the case are that the assessee Society M/s Jyoti Prabha Society, Nainital, filed its return of income for the assessment year 1996-1997 showing net deficit of Rs. 9,50,000/- and for the assessment year 2001- 2002, showing nil income. Said returns were processed under Section 143(1)(a) of the Act. The Assessing Officer (hereinafter referred as the AO) took the view that the assessee / respondent is not involved in the charitable activity, as such, he re-opened the cases under Section 147 of the Act, and issued notices under Section 148 thereof. After receiving the reply from the assessee / respondent, the AO found that, though, the assessee is registered under Section 12-A of the Act, as a charitable society, but its activity of letting out the building to other Society to run the educational institution does not constitute the charitable purpose. Consequently, after examining the income and current expenditures shown by the assessee, the AO assessed tax to the tune of Rs. 7,89,668 (for Assessment 3 Year 1996-97) and a sum of Rs. 6,86,959/- (for assessment Year 2001-02). Aggrieved by the assessment, the respondent preferred Appeals before the CIT(A)-II Dehradun. Said authority considering the fact that the respondent society and the society to whom the buildings are let out are charitable societies and have the similar object of imparting education, took the view that the charitable purpose is not lost by merely letting out the building to another charitable society. It took note of the fact that the assessee (present respondent) has a historical background, as under: “In March 1879, German Missionaries purchased properties of North India for educational activities. A society by the name of United Provinces Institute of the Blessed Virgin Mary, was registered in 1949. Till 1972, the Institute was running The St. Mary’s Convent School, The St. Mary’s Boarding Department, and the Nirmala Balika Vidyalaya, a Hindi Medium School for poor children at Nainital. Similar activities were also conducted at other places. In the year 1972, the activities of the Institute at Nainital were bifurcated for administrative convenience. The Immovable properties used for these educational institutions were vested with the appellant society and were to be let out to the Remnee Educational Society for promotion of educational activities. The management of the educational institutions were vested in the Ramnee Educational Society.” The CIT(A)-II, Dehradun also relied on the principle of law laid down in Commissioner of Income Tax Vs. Saraswati 4 Poor Students’ Fund. 150 ITR 142 (Kar), Income Tax Officer Vs. Shri Maganbhai S. Patel Education Trust; 74 ITD 481 and Aditaner Educational Institution Vs. ACIT, 224 ITR 310, and allowed the appeals filed by the assessee. The Revenue challenged said orders of CIT(A)-II, passed on 18.05.2005, in Appeal No. 6/NTL/CIT(A)-II/04-05 (for assessment year 1996-97) and Appeal No. 90/NTL/CIT(A)- II/04-05 (for assessment year 2001-02). Both the appeals were registered by the ITAT as ITA No. 3431/Del/05 and ITA No. 3428/Del/05, respectively. After hearing the parties, the ITAT accepted the reasoning given in the orders of the CIT(A)-II, and dismissed the appeals filed by the Revenue. Hence, these appeals. 4) The question of law involved in these appeals, reads as under: Whether, on the facts and circumstances of the case, Income Tax Appellate Tribunal was legally justified in holding that letting out of properties to another institution constitute charitable activity on the part of the assessee society making its income eligible for exemption under Section 11? 5) The objects of the respondent society, for which it was registered with the Registrar of Societies, Uttar Pradesh, are as under: “a) To heal and teach charity and truth and to establish construct, organize, consolidate, support, develop, conduct, acquire, takeover, equip, endow, improve, alter, extend, administer educational institutions, research institutions for the benefit and 5 uplift of all persons, irrespective of caste, creed or religion. b) To takeover, manage, establish, administer, carry on, conduct, develop, equip, improve, alter and close down or dispose of educational, scientific and technical institutions, works and activities of all kinds in any part of India in pursuance of this Memorandum for the benefit of the entire community, irrespective of caste, creed, race or religion. c) To takeover and dispose of, establish, maintain and develop schools, hostels, colleges other institutions for the diffusion of useful knowledge, work guilds, sewing, needlework classes, libraries, reading rooms, recreation centers and other educational and technical institutions of all kinds for the benefit of the entire community, irrespective of caste, creed, race or religion. d) To educate, train and instruct adults and children of the entire community, irrespective of caste, creed, race or religion, language or social status either by establishing conducting, administering or carrying on such schools, hostels, colleges, instructing and training centers and to equip, improve and develop, alter or close down such schools, colleges and other institutions. e) To support and promote the advancement of educational activities in all its branches, particularly schools, colleges, cultural, technical and social science center and institutions for all persons, irrespective of religion, race, caste, community or social status.” 6 The above objects make it abundantly clear that the Society exists for charitable purposes. It is true that the activities of the respondent society includes letting out of the properties to the educational institutions. Had the rental income earned by the respondent society not utilized for the educational purposes it could have been said that the letting out of the property on the part of the respondent society has lost the charitable purpose. But, in the present case there is concurrent finding of fact on the part of the CIT(A) and the ITAT that the rental income earned by the respondent society is being utilized again for the purposes of imparting education by maintaining the buildings and constructing new buildings for the same purpose. As such, we are of the view that the charitable purpose is not lost and it cannot be said that the assessee / respondent is not entitled to the exemption claimed by it under Section 11 of the Act. 6) Mr. Pitamber Maulekhi, learned counsel for appellant / Revenue drew attention of this Court to the case of Sole Trustee Loka Shikshana Trust Vs. Commissioner of Income Tax; (1975) 101 ITR 234 (SC), and argued that where the assessee is earning profits it cannot be said that the charitable purpose is adhered to. We have gone through said case law and we find that the facts of said case were entirely different to the present case. The referred case pertains to a Trust which was printing and publishing newspaper, whereas in the present case there is concurrent finding of fact that the respondent / assessee is not earning profits by doing any business. Rather, its activities are limited to constructing, maintaining and letting out the buildings for the purposes of running institutions imparting education. 7 7) On behalf of the respondent / assessee our attention is drawn to the judgment and order dated 23rd of February 2007, passed in I.T.A. No. 129 of 2003, in which the Division Bench of this Court in respect of the same respondent society has held that letting out of the properties by the society on nominal rent to run the educational institutions is basically to achieve the objects for which the assessee society is registered. 8) For the reasons as discussed above, we are of the view that CIT(A) and ITAT have rightly held that the income of respondent / assessee is exempted under Section 11 of the Income Tax Act, 1961. The question of law raised in these appeals, accordingly, stand answered. Both the appeals filed by the Revenue are dismissed. (Dharam Veer, J.) (Prafulla C. Pant, J.) Dt. August 29, 2008. H. Negi "