Appeal details
Counselvise Citation
[2012] 140 COUNSELVISE.COM (IT) 58797 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
11 month(s) 29 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
29-02-2012
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
E
Next Hearing Date
22-12-2011
Assessment Year
2003-2004
Appeal Filed On
01-03-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI B.C. MEENA ITA NOS. 1099 & 1100/DEL/2011 ASSESSMENT YEARS: 2002-03 & 2003-04 NITYA EDUCATION SOCIETY, VS. JOINT CIT, B-43, SECTOR-56, NOIDA RANGE, NOIDA (UP). NOIDA (PAN: AAATN4801G) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI GN GUPTA, ADVOCATE RESPONDENT BY: SMT. S. MOHANTHY, SENIOR DR DATE OF HEARING : 22.12.2011 DATE OF PRONOUNCEMENT : 29.02.2012 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE PRESENT TWO APPEALS ARE DIRECTED AT THE INSTANC E OF ASSESSEE AGAINST THE SEPARATE ORDERS OF EVEN DATE I.E. 23.9. 2010 PASSED BY THE LEARNED CIT(APPEALS) ON THE APPEALS OF ASSESSEE FOR ASSESSM ENT YEARS 2003-04 AND 2004-05. THE ISSUES AGITATED BY THE ASSESSEE IN BOT H THE APPEALS ARE COMMON, THEREFORE, WE HEARD THEM TOGETHER AND DEEM IT APPROPRIATE TO DISPOSE OF THEM BY THIS COMMON ORDER. THE GROUNDS O F APPEALS TAKEN BY THE ASSESSEE ARE NOT IN CONSONANCE WITH RULE 8 OF THE I TAT'S RULES, THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. IN BRIEF, THE GRIEVANCE OF ASSESSEE IS THAT LEARNED FIRST APPELLATE AUTHORITY HAS ERRED IN CONFIRMING THE ADDITION OF RS.33,94,100 AND RS.8,85,600 IN ASSESSMENT YEARS 2002-03 AND 2003-04. 2 2. THE BRIEF FACTS ARE THAT ASSESSEE IS A SOCIETY R EGISTERED WITH THE REGISTRAR OF SOCIETIES, MEERUT (UP) W.E.F. 18.12.20 00. THE SOCIETY WAS FORMED WITH AN AIM AND OBJECT OF IMPARTING EDUCATIO N. IT FILED ITS RETURN OF INCOME-TAX FOR ASSESSMENT YEAR 2002-03 ON 17 TH SEPTEMBER 2003 DECLARING NIL INCOME. SIMILARLY, IN ASSESSMENT YEAR 2003-04, RETURN WAS FILED ON 24 TH SEPTEMBER, 2003 DECLARING NIL INCOME. THE ASSESSMEN T HAS BEEN REOPENED IN BOTH THE YEARS AND NOTICED UNDER SEC. 148 DATED 12. 10.2006 WAS ISSUED AND SERVED UPON THE ASSESSEE IN BOTH THE ASSESSMENT YEA RS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON SCRUTINY OF ACCOUNTS, IT REVEALED TO THE ASSESSING OFFICER THAT ASSESSEE HAS SHOWN A DONATION OF RS.33 ,94,100 AND RS.88,600 RECEIVED IN ASSESSMENT YEARS 2002-03 AND 2003-04 RE SPECTIVELY. THE ASSESSEE CLAIMED EXEMPTION FROM TAX ON THESE AMOUNT S ON THE GROUND THAT THEY ARE CORPUS DONATIONS FOR A SPECIFIED OBJECT. A CCORDING TO THE ASSESSING OFFICER, THE ASSESSEE SOCIETY IN ITS RETURN OF INCO ME-TAX HAS NOT SPECIFIED AS TO HOW THE SAME IS EXEMPT FROM TAX. HE FURTHER OBSE RVED THAT ASSESSEE IS NOT REGISTERED UNDER SEC. 12AA OF THE INCOME-TAX ACT, 1 961. HE CONFRONTED THE ASSESSEE AS TO WHY THE ALLEGED DONATION ADDED TO TH E CORPUS BE NOT TAKEN AS REVENUE RECEIPTS AND EXCESS INCOME OVER EXPENDITUR E BE NOT BROUGHT TO TAX. IN RESPONSE TO THE QUERY OF ASSESSING OFFICER, IT W AS CONTENDED BY THE 3 ASSESSEE THAT NO INCOME AND EXPENDITURE ACCOUNT HAS BEEN PREPARED AS THERE IS NO FUNCTIONING DURING THE PERIOD ENDED ON 31.3.2 002 AND 31.3.2003. SO, THERE IS NO QUESTION OF EXCESS INCOME OVER THE EXPE NDITURE. THE ASSESSEE HAS ONLY RECEIVED THE CORPUS DONATION. IT IS READY TO F ILE THE CONFIRMATION FROM THE DONOR. THE ASSESSEE HAS FILED CONFIRMATION FROM SOME OF THE DONORS. IT WAS FURTHER CONTENDED BY THE ASSESSEE THAT IT HAS A PPLIED FOR A PLOT OF LAND WITH GREATER NOIDA AUTHORITY ON WHICH IT COULD SET UP AN INSTITUTION SOLELY MEANT FOR EDUCATION. A SUM OF RS.41,44,100 HAS BEEN PAID BY THE ASSESSEE TO THE AUTHORITY TOWARDS THE PLOT. ACCORDING TO THE AS SESSEE, ITS TOTAL RECEIPT DOES NOT EXCEEDS RS 1 CRORE IN EACH OF THE ASSESSME NT YEAR. IT IS EXISTING SOLELY FOR THE PURPOSE OF EDUCATION AND NOT FOR THE PURPOSE OF PROFIT AND, THEREFORE, UNDER SECTION 23C(III)(A)(D), IT IS ENTI TLED FOR EXEMPTION. LD ASSESSING OFFICER HAS MADE A REFERENCE TOWARDS THE DEFINITION OF INCOME COMPRISED IN SEC. 2(24) AS WELL AS (IIA) WHICH EXPL AINED VOLUNTARY CONTRIBUTION. HE ALSO MADE REFERENCE TO SECTION 11( 1)(D) WHICH PROVIDES THAT INCOME IN RESPECT OF ANY TRUST OR SOCIETY GOVERNED BY SECTION 11 RECEIVED IN THE FORM OF VOLUNTARY CONTRIBUTION SUBJECT TO A SPE CIFIC DIRECTION THEN THAT WILL NOT FORM PART OF INCOME OF THE TRUST OR INSTIT UTION. LD ASSESSING OFFICER THEREAFTER MADE A REFERENCE TO THE DECISION OF MADR AS HIGH COURT IN THE CASE OF CIT VS. DEVI EDUCATIONAL INSTITUTION REPORTED IN 153 ITR 571 AND HELD 4 THAT ASSESSEE HAS MERELY MADE PART PAYMENT TO NOIDA AUTHORITY FOR THE PURPOSE OF TAKING ALLOTMENT OF LAND. IT HAS NOT DEM ONSTRATED THE EXISTENCE OF AN EDUCATIONAL INSTITUTION, THEREFORE, IT IS NOT EN TITLED FOR EXEMPTION OF ITS INCOME DURING THESE ASSESSMENT YEARS UNDER SEC. 10( 23C)(IIIAD) OF THE INCOME-TAX ACT, 1961. ACCORDINGLY, ASSESSING OFFICE R MADE THE ADDITIONS IN BOTH THE ASSESSMENT YEARS 3. APPEAL TO THE LEARNED CIT(APPEALS) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 4. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE IMPUG NING THE ORDERS OF LEARNED REVENUE AUTHORITY BELOW HAS SUBMITTED THAT REGISTRATION UNDER SEC. 12AA OF THE INCOME-TAX ACT, 1961 HAS BEEN GRANTED T O THE ASSESSEE ON 29 TH SEPTEMBER 2009. THE COPY OF SUCH REGISTRATION CERTI FICATE IS BEING PLACED ON PAGE 34 OF THE PAPER BOOK. THE ASSESSEE SOCIETY HAS BEEN ACCORDED A PROVISIONAL SANCTION BY THE CBSE FOR THE AFFILIATIO N OF ITS SCHOOL, NAMELY, ACCENT INTERNATIONAL SCHOOL W.E.F. 1.04.2006 TO 31. 03.2007. THIS SANCTION WAS ACCORDED ON 8.2.2006. HE ALSO BROUGHT TO OUR NO TICE ALLOTMENT LETTER OF GREATER NOIDA INDUSTRIAL DEVELOPMENT AUTHORITY FOR A PLOT MEASURING TWO ACRES FOR ESTABLISHMENT OF A SENIOR SECONDARY SCHOO L. THIS LETTER WAS ISSUED ON 13 TH JULY 2001. ON THE STRENGTH OF THESE DOCUMENTS, HE POINTED OUT THAT AS 5 FAR AS OBJECTS OF THE ASSESSEE SOCIETY THAT IT IS M EANT FOR IMPARTING EDUCATION HAS NOT BEEN DOUBTED BY THE REVENUE AUTHORITIES. T HE ASSESSEE HAS BEEN GRANTED REGISTRATION UNDER SEC. 12A OF THE ACT. IT MEANS ITS ACTIVITIES AS FAR AS IN CONNECTION WITH ITS OBJECTS CONTAINED IN THE MEM ORANDUM ARE FOUND TO BE GENUINE. THE SOCIETY IS MEANT FOR EDUCATIONAL PURP OSES AND NOT FOR THE PURPOSE OF PROFIT. 5. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE FIRST ISSUE WHICH EMERGES OUT FROM THE RECORD IS, WHETHER THE A SSESSEE SOCIETY IS AN EDUCATIONAL INSTITUTION, TO THAT EXTENT THERE IS NO DISPUTE WITH THE REVENUE. THE SECOND FOLD OF THE DISPUTE IS WHETHER IT IS ENT ITLED TO CLAIM EXEMPTION UNDER SEC. 10(23C)(IIIAD) OF THE ACT OR NOT? FOR B UTTRESSING THIS ISSUE, HE POINTED OUT THAT OBJECTS OF THE SOCIETY ARE EDUCATI ONAL. IT HAS TAKEN DUE AND IRREVERSIBLE STEP FOR THE ESTABLISHMENT OF AN INSTI TUTION FOR CARRYING OUT THE SAID EDUCATIONAL OBJECT SET OUT IN THE MEMORANDUM O F ASSOCIATION, THE SOCIETY DESERVES TO BE TREATED AS AN EDUCATIONAL IN STITUTION CONTEMPLATED BY SECTION 10(23C)(IIIAD). HE POINTED OUT THAT THE LD ASSESSING OFFICER HAS PLACED HIS RELIANCE ON THE DECISION OF MADRAS HIGH COURT IN THE CASE OF CIT VS. DEVI INSTITUTIONAL REPORTED IN 153 ITR 571. ON THE STRENGTH OF THIS DECISION, ASSESSING OFFICER OBSERVED THAT EXPRESSIO N EXISTING EMPLOYED IN 6 SEC. 10(23C)(IIIAD) IS TO BE CONSTRUED IN SUCH A WA Y THAT DEMONSTRATES THE EXISTENCE OF THE INSTITUTION AS IMPARTING OF EDUCAT ION DURING THE RELEVANT YEAR. THE EXISTENCE OF THE INSTITUTION IS A PRE-CON DITION FOR CLAIMING THE BENEFIT UNDER THIS SECTION. HE FURTHER SUBMITTED TH AT THE HON'BLE MADRAS HIGH COURT OBSERVED THAT THIS VIEW REQUIRES RE-CON SIDERATION. IN THIS CONNECTION LEARNED COUNSEL MADE REFERENCE TO THE DE CISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF MR.AR EDUCATIONAL SOCIETY VS. CIT REPORTED IN 253 ITR 589. HE TOOK US THROUGH THE REL EVANT OBSERVATIONS AVAILABLE ON PAGE 592. THE LEARNED COUNSEL FOR THE ASSESSEE THEREAFTER MADE REFERENCE TO THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. DOON FOUNDATION REPORTED IN 154 ITR 208 AND SUB MITTED THAT IF THE ASSESSEE HAD TAKEN STEPS TOWARDS THE RUNNING OF A F ULL-FLEDGED TEACHING COURSE THEN IT WOULD BE CONSTRUED THAT EDUCATIONAL INSTITUTION HAD BEEN ESTABLISHED AND IT WILL ENTITLE FOR AN EXEMPTION. H E THEREAFTER MADE REFERENCE TO THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. SHREE NARAIN CHANDRIKA TRUST REPORTED IN 252 ITR 456. IN THIS CASE, THE ASSESSEE LAID DOWN THE FOUNDATION FOR THE HOSPITAQL RUN BY T HE TRUST IN THE YEAR 1973 THOUGH HOSPITAL WAS OPENED IN THE YEAR 1978. THE TR UST HAS BECOME PARTNER IN THREE FIRMS. THE QUESTION WHICH AROSE WAS WHETHE R THE INCOME OF THE ASSESSEE, PRIOR TO HOSPITAL BECOMING FUNCTIONAL IS EXEMPT. IT WAS HELD THAT 7 INCOME DERIVED AT THE PRIMARY STAGE IS ENTITLED TO EXEMPTION. THE LEARNED COUNSEL FOR THE ASSESSEE FOR BUTTRESSING HIS POINT FURTHER MADE A REFERENCE TO THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CA SE OF CIT VS. ST. GEORGE FORANKA CHURCH REPORTED IN 170 ITR 62 WHEREIN IT WA S HELD THAT CONSTRUCTION OF THE BUILDING AMOUNTS TO APPLICATION OF THE INCOME FOR THE PURPOSE OF SECTION 11 OF THE ACT. THE STRESS OF THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT IF A SOCIETY STARTS ITS ACTIVITY F OR ERECTING AN ESTABLISHMENT IN THE LINE OF IMPARTING EDUCATION THEN FROM THE START OF THAT ACTIVITY, IT IS TO BE CONSTRUED THAT THE SOCIETY IS EXISTING FOR THE PURP OSE OF EDUCATION AND NOT FOR THE PURPOSE OF PROFIT. 6. THE LEARNED COUNSEL FOR THE ASSESSEE TOOK US THR OUGH THE ORDER OF THE LEARNED CIT(APPEALS) AND POINTED OUT THAT LEARNED F IRST APPELLATE AUTHORITY HAS RELIED UPON THE DECISION OF HON'BLE S UPREME COURT IN THE CASE OF AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATION AL INSTITUTE VS. CBDT AND ORS. REPORTED IN 301 ITR 86. HE POINTED OU T THAT THE JUDGMENT HAS TO BE CONSIDERED AFTER TAKING INTO CONSIDERATIO N THE FACT AND CIRCUMSTANCES ON WHICH SUCH JUDGMENT WAS RENDERED. THE ISSUE BEFORE THE HON'BLE SUPREME COURT WAS ALTOGETHER IN A DIFFERENT CONTEXT. THE HONBLE COURT HAS NOT PROPOUNDED THE PROPOSITION FROM WHICH PERIOD EXISTENCE OF A SOCIETY IS TO BE CONSTRUED FOR THE PURPOSE OF EDUCA TION. WHETHER, IT IS TO BE 8 CONSTRUED DURING THE ESTABLISHMENT PHASE OR AFTER T HE INSTITUTION HAS BECOME FUNCTIONAL. 7. ACCORDING TO THE LEARNED COUNSEL, IT IS DISTINGU ISHABLE ON FACTS. SIMILARLY, HE POINTED OUT THAT THE OTHER DECISION O F HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SORABJI NUSSERWANJI P AREKH REPORTED IN 201 ITR 939 IS ALSO DISTINGUISHABLE ON FACTS. 8. ON THE OTHER HAND, LEARNED DR SUBMITTED THAT LEA RNED CIT(APPEALS) HAS PUT RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF AMERICAN HOTEL AS WELL AS ON THE DECISION OF HON'BL E MADRAS HIGH COURT IN THE CASE OF ADDITIONAL CIT VS. ADITANAIR EDUCATIONA L INSTITUTION REPORTED IN 118 ITR 234. THE ASSESSEE HAS NOT COMMENCED ANY EDU CATIONAL ACTIVITY IN THE PRESENT YEAR. HOW THE ASSESSING OFFICER CAN INF ER THAT ASSESSEE WOULD BE ONLY IN THE ACTIVITY OF EDUCATION. MERELY, IT HAS B EEN ALLOTTED LAND DOES NOT MEAN THAT THERE IS NO PROFIT MOTIVE IN THE OPERATIO N/ACTIVITY. THERE CAN BE MIXED OBJECTIVE AT THE END OF ASSESSEE AND IT IS QU ITE PRE-MATURE TO DECLARE THAT THE ASSESSEE EXISTS SOLELY FOR THE EDUCATIONAL PURPOSES. SHE POINTED OUT THAT LD ASSESSING OFFICER HAS RIGHTLY HELD THAT ASS ESSEE HAS NOT COMMENCED EDUCATIONAL ACTIVITIES, THEREFORE, IT CANNOT BE TRE ATED AS SOLELY EXISTING FOR THE 9 PURPOSE OF EDUCATION WHICH CAN SHOWER THE BENEFIT O F SEC. 10(23C)(IIIAD) OF THE ACT. 9. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. BEFORE WE CONSIDER THE RESPECTIVE ARGUMENTS RAISED BY THE LEARNED REPRESENTATIVES, IT IS IMPERATIVE UPON US T O TAKE NOTE OF THE RELEVANT STATUTORY PROVISIONS WHICH READ AS UNDER: SEC.2. IN THIS ACT, UNLESS THE CONTEXT OTHERWISE REQUIRES XXX XXX XXX (24) INCOME INCLUDES - XXX XXX XXX (IIA) VOLUNTARY CONTRIBUTION RECEIVED BY A TRUST CR EATED WHOLLY OR PARTLY FOR CHARITABLE OR RELIGIOUS PURPOSES OR B Y AN INSTITUTION ESTABLISHED WHOLLY OR PARTLY FOR SUCH PURPOSES OR B Y AN ASSOCIATION OR INSTITUTION REFERRED TO IN CLAUSE (2 1) OR CLAUSE (23), OR BY A FUND OR TRUST OR INSTITUTION REFERRED TO IN SUB-CLAUSE (IV) OR SUB-CLAUSE (V) OR BY AN UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION REFERRED TO IN SUB-CLAUSE (IIIAD) OR SU B-CLAUSE (VI) OR BY ANY HOSPITAL OR OTHER INSTITUTION REFERRED TO IN SUB-CLAUSE (IIIAE) OR SUB CLAUSE (23C) OF SECTION 10 OR BY AN ELECTORAL TRUST. SEC.10. IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR OF ANY PERSON, ANY INCOME FALLING WITHIN ANY OF THE FOLLOWING CLAUSES SHALL NOT BE INCLUDED - 10 XXX XXX XXX (23C) ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTI ON EXISTING SOLELY FOR EDUCATIONAL PURPOSES AND NOT FO R PURPOSES OF PROFIT IF THE AGGREGATE ANNUAL RECEIPTS OF SUCH UNIVERSITY OR EDUCATIONAL INSTITUTION DO NOT EXCEED THE AMOUNT OF ANNUAL RECEIPTS AS MAY BE PRESCRIBED; OR. 10. THE FIRST SUBSTANTIAL QUESTION FOR OUR CONSIDER ATION IN THESE APPEALS IS WHETHER THE ASSESSEE SOCIETY IS AN EDUCATIONAL INST ITUTION. THE ASSESSEE HAS BEEN GRANTED SANCTION FOR AFFILIATION WITH THE CBSE . IN ITS AIMS AND OBJECTS, IT HAS BEEN CONTEMPLATED THAT ASSESSEE IS TO RUN AN EDUCATIONAL INSTITUTION. THOSE OBJECTS AND THEIR GENUINENESS HAVE BEEN LOOKE D INTO BY THE PRESCRIBED AUTHORITY WHILE GRANTING REGISTRATION UNDER SEC. 12 A OF THE ACT THOUGH SUCH REGISTRATION HAS BEEN GRANTED ON 29 TH SEPTEMBER 2009 W.E.F. 30.3.2009 BUT THE MECHANISM PROVIDED IN SECTION 12AA FOR GRANT OF SUCH REGISTRATION WOULD INDICATE THAT LEARNED CIT ON RECEIPT OF AN AP PLICATION FOR REGISTRATION OF A TRUST OR INSTITUTION UNDER CLAUSE (A) OR CLAUS E (AA) OF SUB-SECTION (1) OF SECTION 12A SHALL CALL FOR SUCH DOCUMENTS OR INFORM ATION FROM THE TRUST OR INSTITUTION AS HE THINKS NECESSARY IN ORDER TO SATI SFY HIMSELF ABOUT THE GENUINENESS OF ACTIVITIES OF THE TRUST OR INSTITUTI ON AND MAY ALSO MAKE SUCH INQUIRY AS HE MAY DEEM NECESSARY IN THIS BEHALF. LE ARNED CIT THEREAFTER WOULD DENY OR GRANT REGISTRATION. THIS MECHANISM WO ULD SUGGESTS THAT HE 11 MUST HAVE CONDUCTED AN INQUIRY ABOUT THE GENUINENES S OF ACTIVITIES OF THE TRUST THOUGH THIS INQUIRY HAS BEEN CONDUCTED IN 200 9 NOT IN THE ACCOUNTING YEAR RELEVANT TO THESE ASSESSMENT YEARS. BUT IT SUG GESTS THAT AIMS AND OBJECTS CONTAINED IN THE MEMORANDUM OF ASSOCIATION ARE GENU INE AND CHARITABLE IN NATURE. THEY ARE FOR THE EDUCATIONAL PURPOSES. FROM THE DOCUMENTS PLACED ON THE RECORD AND DOCUMENTS REFERRED BY THE LEARNED COUNSEL FOR THE ASSESSEE, IT IS ASCERTAINABLE THAT AIMS AND OBJECTS OF THE SOCIETY WAS TO RUN AN EDUCATIONAL INSTITUTION AND THEY ARE NOT FOR THE PU RPOSE OF PROFIT. 11. THE NEXT QUESTION ARISES FOR OUR CONSIDERATION IS WHETHER ASSESSEE HAS ACTUALLY WORKED IN THE FIELD OF EDUCATION OR GRANT OF BENEFIT UNDER SEC. 23C(IIIAD) IS DEPENDENT ON THE FATE OF ACTUALLY FUN CTIONING OF THE SCHOOL OR IT CAN BE GRANTED TO THE ASSESSEE DURING THE CONSTRUCT ION PERIOD. THE MAIN EMPHASIS OF THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT EXPRESSION EXISTING EMPLOYED IN SECTION 10(23C)(IIIAD) OF THE ACT DOES NOT CONVEY THE MEANING OF ACTUAL FUNCTIONING OF THE INSTITUTION. THE ASSES SEE IS A SOCIETY. IT IS EXISTING FOR EDUCATIONAL PURPOSES. IT HAS APPLIED F OR ALLOTMENT OF LAND WHICH HAS BEEN ALLOTTED TO IT. IT HAS MADE PART PAYMENT F OR THE PLOT OF LAND, SITE PLAN WAS SANCTIONED AND IT STARTED CONSTRUCTION OF THE S CHOOL BUILDING. THE SCHOOL WAS ULTIMATELY BECAME FUNCTIONAL WHEN AN APPROVAL F ROM THE CBSE WAS GRANTED. THUS, ACCORDING TO THE LEARNED COUNSEL, TH E EXPRESSION EXISTING IS 12 ASSOCIATED WITH THE SOCIETY AND NOT THE FUNCTIONALI TY OF THE INSTITUTION. ON THE OTHER HAND, THE STRESS OF THE ARGUMENTS OF LEARNED DR IS THAT EXPRESSION EXISTING CONTEMPLATES THAT UNLESS AN INSTITUTION IS ACTIVE IN THE FIELD OF EDUCATION, MERE FACT THAT IT IS IN THE PROCESS OF E STABLISHING ITSELF WOULD NOT MAKE SUCH INSTITUTION AS ELIGIBLE FOR BENEFIT OF SE C. 10(23C(IIIAD) OF THE ACT. SHE EMPHASIZED THAT UNLESS EDUCATIONAL ACTIVITIES C OMMENCED, IT CANNOT BE SAID THAT THE ASSESSEE SOCIETY IS EXISTING SOLELY F OR THE PURPOSE OF EDUCATION. SHE REFERRED THE DECISION OF HON'BLE MADRAS HIGH CO URT IN THE CASE OF DEVI EDUCATIONAL INSTITUTION WHICH HAS BEEN RELIED UPON BY THE LEARNED ASSESSING OFFICER ALSO. THE RELEVANT OBSERVATIONS ARE AS UNDE R: THE TRIBUNAL HAS MERELY PROCEEDED ON THE BASIS TH AT SINCE THE ASSESSEE-SOCIETY HAS ALREADY TAKEN STEPS TO SET UP AN EDUCATIONAL INSTITUTION, IT SHOULD BE TAKEN TO COME WITHIN THE SCOPE OF SECTION 10(22). AS ALREADY STATED, WE FEEL THAT THE MERE TA KING OF THE PRELIMINARY OR NECESSARY STEPS FOR THE ESTABLISHMEN T OF AN EDUCATIONAL INSTITUTION CANNOT AMOUNT TO ACTUAL BRINGING INTO E XISTENCE OF AN EDUCATIONAL INSTITUTION. SINCE SECTION 10(22) USES THE EXPRESSION EXISTING SOLELY FOR EDUCATIONAL PURPOSES, THE ACT UAL EXISTENCE OF THE EDUCATIONAL INSTITUTION IS A PRECONDITION FOR THE A PPLICATION OF SECTION 10(22) AND THE MERE TAKING OF STEPS FOR THE ESTABLI SHMENT OF THE EDUCATIONAL INSTITUTION MAY NOT BE SUFFICIENT TO AT TRACT THE EXEMPTION UNDER SEC. 10(22).. 13 HOWEVER, IN A SUBSEQUENT DECISION, HON'BLE MADRAS H IGH COURT HAS OBSERVED THAT THIS JUDGMENT REQUIRES RECONSIDERATIO N. THE OBSERVATIONS OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF AR EDU CATIONAL SOCIETY ARE AS UNDER: THE JUDGMENT OF THIS COURT IN THE CASE OF DEVI EDU CATIONAL INSTITUTION CASE (SUPRA) LAID EMPHASIS ON THE WORD EXISTING IN SECTION 10(22) OF THE ACT, AND CONCLUDED THAT THE I NSTITUTION MUST HAVE BEEN FUNCTIONAL IN THE RELEVANT PREVIOUS YEAR. THE WORD EXISTING IS NOT THE SAME THING AS BEING FUNCTIONA L. THERE IS NO DOUBT AT ALL THAT THE EDUCATIONAL INSTITUTION EXISTS IN T HE SENSE THAT THE SOCIETY HAS BEEN FORMED, THE SOCIETY IS A LEGAL ENTITY, ITS OBJECTS ARE CLEARLY INTENDED TO BRING INTO EXISTENCE EDUCATIONAL INSTIT UTION, FOR WHICH PRELIMINARY STEPS HAVE BEEN TAKEN, AND THE OBJECT O F THE INSTITUTION IS NOT PROFIT. WE ARE OF THE PRIMA FACIE VIEW THAT THE WIDTH OF THE PROVISION IS NOT REQUIRED TO BE CUT DOWN BY INSISTI NG THAT THE EDUCATIONAL ACTIVITY MUST HAVE BEEN CARRIED ON IN T HE RELEVANT PREVIOUS YEAR, EVEN THOUGH THERE IS NO DOUBT WHATSOEVER THAT THE SOCIETY WAS ENGAGED IN TAKING THE STEPS REQUIRED TO MAKE THE ED UCATIONAL ACTIVITY OPERATIVE, THE STEPS SO TAKEN BEING THE CONSTRUCTIO N OF THE BUILDINGS AND OTHER FACILITIES IN WHICH THE TASK OF IMPARTING THE EDUCATION WAS TO BE CARRIED OUT XXX XXX XXX 14 HAVING REGARD TO THESE FACTS, AND IN THE LIGHT OF P RIMA FACIE VIEW THAT THE EARLIER JUDGMENT OF THIS COURT REQUIRES RECONSI DERATION. WE DIRECT THE TRIBUNAL TO REFER THE FOLLOWING QUESTION OF LAW : 12. IN VIEW OF THE SUBSEQUENT DECISIONS, THE PREFER ENCE TO THE VIEW EXPRESSED EARLIER CANNOT BE GIVEN. A DIVISION BENCH OF HON'BLE CALCUTTA HIGH COURT IN DOON FOUNDATIONS CASE HAS EXAMINED T HE QUESTION OF AN INCOME OF AN EDUCATIONAL INSTITUTION EXISTING SOLEL Y FOR THE EDUCATIONAL PURPOSE AND NOT FOR PROFIT. IN THIS CASE, THE ASSES SEE HAD JUST BEGAN ITS ACTIVITIES AND IN THE RELEVANT YEAR, IT WAS JUST ST ARTED PREPARATION OF REGULAR CLASSES FOR TEACHING OF HINDI AND PURCHASE SOME BOO KS. IN A WAY, ACTUALLY CLASSES HAD NOT BEGUN. THE HONBLE COURT HAS OBSERV ED AS UNDER: .THE CONDITION PRECEDENT FOR CLAIMING EXEMPTION U NDER SECTION 10(22) IS, WHETHER THE EDUCATIONAL INSTITUTION EXIS TS SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT . THERE IS NO DISPUTE NOR CAN IT BE DISPUTED THAT THE ASSESSEE-SO CIETY EXISTS SOLELY FOR EDUCATIONAL PURPOSES. THE ASSESSEE HAS COMMENCE D ACTIVITIES CONNECTED WITH THE IMPARTING OF EDUCATION. FOR THE PURPOSES OF HOLDING REGULAR CLASSES FOR TEACHING OF HINDI, THE ASSESSEE HAS TAKEN ALL PRELIMINARY STEPS INCLUDING PURCHASE OF BOOKS A ND PERIODICALS. SUCH ACTIVITIES ARE THE STEPS TOWARDS RUNNING OF A FULL-FLEDGED TEACHING COURSE. WE ARE, THEREFORE, UNABLE TO ACCEPT THE CON TENTION OF THE REVENUE THAT THE ASSESSEE DID NOT START RUNNING ANY EDUCATIONAL INSTITUTION DURING THE PREVIOUS YEAR IN QUESTION. 15 13. SIMILARLY, HON'BLE KERALA HIGH COURT HAS CONSID ERED THIS ASPECT IN THE CASE OF SHREE NARAYAN CHANDRIKA TRUST. IN THIS CASE , THE FOUNDATION OF THE HOSPITAL WAS LAID DOWN IN THE YEAR 1973 THOUGH THE HOSPITAL STARTED ITS OPERATION IN 1978. HONBLE COURT HAS HELD THAT INCO ME DERIVED AT THE PRIMARY STAGE IS ENTITLED FOR EXEMPTION AND THE REL EVANT OBSERVATIONS OF THE HONBLE COURT READ AS UNDER: THE QUESTION, THEREFORE, ARISES WHETHER THE INCO ME OF THE ASSESSEE-TRUST DURING THESE YEARS IS EXEMPT, AS THE RE WAS NO HOSPITAL AS SUCH IN EXISTENCE DURING THAT PERIOD. COUNSEL FOR T HE ASSESSEE REFERRED TO THE DECISIONS IN DOON FOUNDATIONS CASE (1985) 1 54 ITR 208 (CAL.) AND SECONDARY BOARD OF EDUCATION VS. ITO (1972) 86 ITR 408 (ORISSA). IN BOTH THESE CASES, THE INCOME DERIVED A T THE PRELIMINARY STAGES OF THE ESTABLISHMENT OF THE EDUCATIONAL INST ITUTIONS CONCERNED WAS HELD ENTITLED TO THE EXEMPTION. IN DOON FOUNDAT IONS CASE (1985) 154 ITR 208 (CAL.), THE ASSESSEE HAD ONLY TAKEN THE PRELIMINARY STEPS TOWARDS THE RUNNING OF A TEACHING COURSE; AND THE I NCOME DERIVED DURING THIS PERIOD WAS HELD TO BE THAT OF AN EDUCAT IONAL INSTITUTION. IN THE OTHER CASE, SECONDARY BOARD OF EDUCATIONS CASE (1972) 86 ITR 408 (ORISSA) HAD A FUND CONSTITUTED UNDER THE ORISS A SECONDARY EDUCATION ACT, 1953. ONE OF THE SOURCES OF THE INCO ME OF THE BOARD WAS THE PROFIT FROM COMPILATION, PUBLICATION AND PR INTING AND SALE OF TEXT BOOKS. THE INCOME WAS TO BE UTILIZED TOWARDS D EVELOPMENT AND EXPANSION OF EDUCATIONAL PURPOSES AND THE SURPLUS, IF ANY, WAS TO FORM PART OF A SINKING FUND TO BE DEVOTED TO THE CAUSE O F EDUCATION AS AND 16 WHEN NECESSARY. THE INCOME DERIVED FROM THE ACTIVIT IES MENTIONED ABOVE WAS TREATED AS THAT OF AN EDUCATIONAL INSTITU TION AND EXEMPTED. 14. HON'BLE SUPREME COURT IN THE CASE OF ADDITIONAL CIT VS. SURAT ART SILK CLOTH MANUFACTURER ASSOCIATION REPORTED IN 121 ITR 1 HELD THAT THE TEST OF PRE-DOMINANT OBJECT OF THE ACTIVITY IS TO BE SEE N WHETHER IT EXISTS SOLELY FOR EDUCATION AND NOT TO EARN PROFIT. HONBLE COURT HAS FURTHER OBSERVED THAT THE PURPOSES WOULD NOT LOOSE ITS CHARACTER MERELY B ECAUSE SOME PROFIT ARISE FROM THE ACTIVITY BECAUSE IT IS PRACTICALLY NOT POS SIBLE TO CARRY ON EDUCATIONAL ACTIVITY IN SUCH A WAY THAT THE EXPENDITURE EXACTLY BALANCES THE INCOME AND THERE IS NO RESULTANT PROFIT, FOR, TO ACHIEVE THE O BJECT. IT WOULD NOT ONLY BE DIFFICULT IN PRACTICE BUT WOULD ALSO REFLECT UNSOUN D PRINCIPLES OF MANAGEMENT. IN ORDER TO ASCERTAIN WHETHER THE INSTI TUTE IS CARRIED ON WITH THE OBJECT OF MAKING PROFIT OR NOT, IT IS DUTY OF THE P RESCRIBED AUTHORITY UNDER THE ACT TO ASCERTAIN WHETHER THE BALANCE OF INCOME IS A PPLIED WHOLLY AND EXCLUSIVELY TO THE OBJECTS FOR WHICH THE TRUST OR S OCIETY IS ESTABLISHED. THUS, IN A WAY, ONE HAS TO DETERMINE GENUINENESS OF THE A CTIVITIES OF A SOCIETY OR INSTITUTION BY CONSIDERING ALL THE FACTS AND CIRCUM STANCES AND IF IT IS ESTABLISHED THAT PRE-DOMINANT OBJECT OF THE SOCIETY EXISTS SOLELY FOR EDUCATION AND NOT TO EARN PROFIT EVEN THOUGH THERE IS INCIDENTAL PROFIT, THE INSTITUTION WOULD GET BENEFIT OF THE DIFFERENT PROV ISIONS OF THE INCOME-TAX 17 ACT, 1961. THE INCIDENTAL PROFIT WOULD NOT CHANGE T HE CHARACTER OR OBJECT OF THE SOCIETY THAT IT IS ONLY MEANT FOR EARNING PROFI T. ON AN ANALYSIS OF THE ACTIVITIES OF AN INSTITUTION, IT CAN BE ASCERTAINED WHETHER ITS PRE-DOMINANT OBJECT IS FOR EDUCATION ONLY AND NOT FOR PROFIT. IN OTHER WORDS, IT DEPENDS UPON FACTS AND CIRCUMSTANCES OF EACH CASE. AS FAR A S THE FINDINGS OF THE LEARNED CIT(APPEALS) BASED ON THE DECISION OF HON'B LE SUPREME COURT IN THE CASE OF AMERICAN HOTELS IS CONCERNED, IN THAT D ECISION, HON'BLE SUPREME COURT THOUGH OBSERVED THAT ACTUAL EXISTENCE OF THE EDUCATIONAL INSTITUTION WAS THE PRE-DOMINANT CONDITIONS FOR THE APPLICATION FOR INITIAL APPROVAL UNDER SEC. 10(22) OF THE ACT. ONCE AN APPLICANT INS TITUTION CAME WITHIN THE PHRASE, EXISTS FOR EDUCATIONAL PURPOSE AND NOT FO R PROFIT THEN NO OTHER CONDITION LIKE APPLICATION OF INCOME WAS REQUIRED T O BE APPLIED WITH. IN THIS CASE, HONBLE COURT HAS NOT INTERPRETED SECTION 10( 23C)(IIIAD) OF THE ACT FROM THE ANGLE THAT FROM WHICH PERIOD, THE EXISTENC E OF A SOCIETY FOR THE PURPOSE OF EDUCATION IS TO BE CONSTRUED. IN THE PRE SENT CASE, SOCIETY IS IN EXISTENCE BUT ACTUAL EDUCATIONAL ACTIVITY HAS NOT T AKEN PLACE. IN THE DECISIONS OF HON'BLE CALCUTTA HIGH COURT, HON'BLE KERALA HIGH COURT, IT HAS BEEN OBSERVED THAT FROM CONSTRUCTION PERIOD IT IS TO BE STATED THAT EDUCATIONAL INSTITUTION IS EXISTING. THUS, THE JUDGMENT OF HON' BLE SUPREME COURT IS NOT DIRECT ON THE POINT. RESPECTFULLY FOLLOWING THE DEC ISION OF THE HON'BLE 18 KERALA HIGH COURT AS WELL AS HON'BLE CALCUTTA HIGH COURT, WE ALLOW BOTH THE APPEALS AND DIRECT THE ASSESSING OFFICER TO GRA NT BENEFIT OF SECTION 10(23C)(IIIAD) OF THE INCOME-TAX ACT, 1961. 15. IN THE RESULT, BOTH THE APPEALS FILED BY THE A SSESSEE ARE ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 29.02.201 2 SD/- SD/- ( B.C. MEENA ) ( RAJ PAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29/02/2012 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR
