M/s SMB Geeta Hing School, Kurukshetra V. ACIT, Kurukshetra

ITA 1114/CHANDI/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57595 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 17-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILESH GUPTA
• Assessee Lawyers: K R CHHABRA
• Keywords: Capital asset; Depreciation; Charitable institution; Rule of consistency; Capital expenditure
• Section: 37; 6; 11; 143(3); 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 1114/CHD/2011 ASSESSMENT YEAR: 2007-08 M/S SMB GEETA HIGH SCHOOL, V ACIT, CIRCLE, RAILWAY ROAD, KURUKSHETRA. KURUKSHETRA. PAN: AAETS-4366H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.R.CHHABRA RESPONDENT BY : SHRI AKHILESH GUPTA DATE OF HEARING : 12.01.2012 DATE OF PRONOUNCEMENT : 23.01.2012 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER DATED 29.09.2011 PASSED BY THE LD . CIT(A) U/S 250(6) OF THE INCOME-TAX ACT,1961 (IN SHORT 'THE AC T'). 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: 1. ORDERS PASSED BY LD. ACIT AND CIT(A) ARE ILLEGA L, ARBITRARY AND BAD IN LAW. 2. ON FACTS AND IN CIRCUMSTANCES OF THE CASE LD. AC IT AND CIT(A) WERE NOT JUSTIFIED IN HOLDING THAT THE ASSES SEE SOCIETY DOES NOT EXIST FOR EDUCATIONAL PURPOSES AND BUT FOR THE PROFIT. 3. ON FACTS AND IN CIRCUMSTANCES OF THE CASE, LD. A CIT AND CIT(A) WAS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE SOCIETY FOR ITS INCOME EXEMPT U/S 10(23C)(IIIAB ) OF THE IT ACT WHEN THE SOCIETY WAS SUBSTANTIALLY FINAN CED BY THE GOVERNMENT. 4. ON FACTS AND IN CIRCUMSTANCES OF THE CASE, LD. A CIT AND CIT(A) WAS NOT JUSTIFIED IN NOT ALLOWING THE AMOUNT SPENT ON ACQUISITION OF FIXED ASSETS WHICH WERE ACQUIRED FOR THE PURPOSE OF EDUCATION. 2 3. WE HAVE CAREFULLY PERUSED THE FACTS OF THE CASE, RIVAL SUBMISSIONS AND THE CASE LAWS RELIED UPON BY THE CO NTENDING PARTIES AND THE RELEVANT MATERIAL ON RECORD. THE F ACTS OF THE CASE, ARE THAT THE ASSESSEE SOCIETY IS RUNNING A SE NIOR SECONDARY SCHOOL, SINCE 1947. IT HAS BEEN GRANTED PERMANENT RECOGNITION BY THE DIRECTOR, SCHOOL EDUCATION, HARY ANA. THE ASSESSEE APPELLANT IS CHARGING NOMINAL FEES. THE AS SESSEE IS AIDED SCHOOL BY THE HARYANA GOVERNMENT. DURING THE YEAR UNDER REFERENCE, THE ASSESSEE HAS RECEIVED GRANT OF RS.45,44,848/-, FROM THE STATE OF HARYANA. THE ASS ESSEE SOCIETY HAD BEEN RECEIVING SUCH GRANT FROM THE STAT E OF HARYANA. THE ASSESSEE HAD BEEN GRANTED EXEMPTION U/ S 10(23C)(IIIAB) OF THE ACT, BY THE DEPARTMENT, IN TH E PAST VIDE ASSESSMENTS COMPLETED U/S 143(1) AND ALSO 143(3) OF THE ACT. THE SCHOOL IS RECEIVING GRANT OF 75%, FROM THE GOVE RNMENT OF HARYANA, IN RESPECT OF SANCTIONED STAFF AND OTHER E XPENSES ARE MET BY SCHOOL FROM ITS OWN SOURCES. THE AO, BY PLA CING RELIANCE, ON THE DECISION OF THE HON'BLE UTTARAKHAN D HIGH COURT IN THE CASE OF CIT V QUEENS EDUCATIONAL SOCIETY ( 2009) 319 ITR 160 (UTTTARAKHAND), DENIED THE EXEMPTION TO THE SOCIETY. THE RELEVANT HEAD NOTE OF THE SAID DECISION IS REPR ODUCED HEREUNDER : EXEMPTION-EDUCATIONAL INSTITUTION -REGISTERED EUCA TIONAL SOCIETY IMPARTING EDUCATION TO CHILDREN-SOCIETY APP LYING INCOME EARNED FROM RUNNING OF SCHOOL ON FIXED ASSET S TO EXPAND INSTITUTION-NOT ENTITLED TO EXEMPTION-INCOME -TAX ACT,1961, S. 10(23C)(IIIAD). 4. THE AO INDICATED THAT THE ASSESSEE SOCIETY APPLI ED FOR EXEMPTION U/S 10(23C) OF THE ACT, FOR THE ASSESSMEN T YEAR 3 2004-05 TO 2007-08, WHICH WAS REJECTED BY THE CCIT, PANCHKULA VIDE F.NO. CCIT/PKL/10(23C)/2008-09/1015 DATED 23.0 5.2008. THE AO ALSO OBSERVED THAT THE AID RECEIVED BY THE A SSESSEE IS 30% OF THE GROSS RECEIPTS. THIS IS UNDISPUTED FACT THAT THE SOCIETY HAS BEEN GRANTED REGISTRATION U/S 12AA OF T HE ACT SINCE 01.04.2007. THE PRESENT APPEAL PERTAINS TO THE ASS ESSMENT YEAR 2007-08. 5. THE LD. CIT(A) UPHELD THE FINDING OF THE LD. AO. 6. BEFORE CIT(A), THE ASSESSEE PLACED RELIANCE ON T HE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT, IN THE CA SE OF PINE GROVE INTERNATIONAL CHARITABLE TRUST V UOI & OTHERS (2010) 327 ITR 73 (P&H). THE ASSESSEE ALSO PLACED RELIANCE ON THE CBDT CIRCULAR ISSUED VIDE F.NO. 194/16-17/IT/A-1. THE L D. CIT(A) ALSO CONSIDERED THE COMMENTS OF THE AO, ON THE SUBM ISSIONS FILED BY THE ASSESSEE, IN THE MATTER. ULTIMATELY, CIT(A) UPHELD THE FINDINGS OF THE AO. 7. IN THE PRESENT CASE, WE HAVE TO ANALYZE THE PROV ISIONS OF SECTION 10(23C) OF THE ACT AND ITS SUB-CLAUSES. TH E EXEMPTION UNDER THE SAID SECTION IS GRANTED TO ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATI ONAL PURPOSE AND NOT FOR THE PURPOSE OF PROFIT AND WHICH IS WHOL LY OR SUBSTANTIALLY FINANCED BY THE GOVERNMENT. THE REVE NUE HAS NOT DISPUTED THAT THE ASSESSEE SOCIETY IS EXISTING SOLELY FOR EDUCATIONAL PURPOSES. THERE IS NO FINDING BY THE LO WER AUTHORITIES, INDICATING THAT THE SOCIETY APPELLANT DOES NOT EXIST SOLELY FOR EDUCATIONAL PURPOSES. SIMILARLY, THERE IS NO FINDING THAT THE ASSESSEE APPELLANT EXISTS FOR THE PURPOSE OF PROFIT. THE 4 ASSESSEE SOCIETY HAD BEEN IN EXISTENCE SINCE 1947, SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR THE PURPOSE OF PRO FIT. FURTHER, THE SOCIETY IS RUNNING A SCHOOL AIDED BY T HE GOVERNMENT OF HARYANA. THE AO, FOLLOWING THE DECIS ION OF THE QUEENS EDUCATIONAL SOCIETY (SUPRA) DISALLOWED THE CAPITAL EXPENDITURE INCURRED FOR EDUCATIONAL PURPOSE. IT I S FURTHER MENTIONED THAT SOCIETY HAD BEEN GRANTED EXEMPTION B Y THE REVENUE WHILE PROCESSING THE RETURN U/S 143(1) OR M AKING THE SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT. THE REV ENUE HAS FAILED TO BRING ON RECORD ANY MATERIAL, EVIDENCING DEPARTURE OF THE APPELLANT FROM ITS ACTIVITIES IN PURSUANCE OF I TS OBJECT, IN THE ASSESSMENT YEAR UNDER REFERENCE, WHICH INSPIRED THE REVENUE AUTHORITY TO DECLINE EXEMPTION. THIS APPROA CH OF THE REVENUE RUNS CONTRARY TO THE CONCEPT OF NATURAL JUS TICE AND THE PRINCIPLE OF CONSISTENCY, PARTICULARLY AS ENUNCIATE D BY THE HON'BLE SUPREME COURT, IN THE CASE OF RADHASOAMI SA TSANG V CIT 193 ITR 321, REPRODUCED HEREUNDER RELIGIOUS TRUST-EXEMPTION-TRUST REVOCABLE AT DISCR ETION OF CENTRAL COUNCIL-RELIGIOUS SECT BIFURCATING INTO TWO -ONE GROUP HELD TO BE ENTITLED TO EXEMPTION-EXEMPTION CLAIMED BY OTHER GROUP ON SAME FUNDAMENTAL FACTS-OTHER GROUP ALSO EN TITLED TO EXEMPTION RES JUDICATA- APPLICABLE WHERE FUNDA MENTAL ASPECTS FOUND AS A FACT EARLIER-INCOME-TAX ACT, 196 1, S.11.. TRUST NO FORMAL DOCUMENT NECESSARY TO CREATE TRU ST. 8. IT IS PERTINENT TO MENTION HERE THAT THE SOCIETY HAD BEEN GRANTED REGISTRATION U/S 12AA OF THE ACT W.E.F. 1.4 .2007, BY THE CIT AFTER SATISFYING THE ACTIVITIES OF THE SOCIETY IN PURSUANCE OF THE OBJECT CLAUSE. IN VIEW OF THIS, NO DEPARTURE FR OM SUCH ACTIVITIES CAN BE PRESUMED IN THE ASSESSMENT YEAR U NDER 5 REFERENCE. BOTH THE OBJECTS AND THE ACTIVITIES OF THE SOCIETY, SINCE 1947, HAD BEEN SOLELY FOR EDUCATIONAL PURPOSE S. IN VIEW OF THIS FACTUAL BACKGROUND, THERE IS HARDLY ANY CAS E FOR REVENUE, ON THE BASIS OF THE DECISION OF UTTARAKHAND HIGH CO URT IN QUEENS EDUCATIONAL SOCIETY (SUPRA) WHICH HAS BEEN DISCUSSED AND DISSENTED BY THE JURISDICTIONAL HIGH COURT, IN THE CASE OF PINE GROVE INTERNATIONAL CHARITABLE TRUST (SUPRA). FURTHER, THE HON'BLE JURISDICTIONAL HIGH COURT, IN THE CASE OF P INE GROVE INTERNATIONAL CHARITABLE TRUST (SUPRA), HAS REVERSE D THE FINDINGS OF THE CHIEF COMMISSIONER, IN RESPECT OF A NUMBER O F SUCH CASES, AS IS CLEARLY EVIDENT FROM THE PERUSAL OF TH E SAID DECISION, RENDERED BY THE HON'BLE JURISDICTIONAL HI GH COURT. THE CONTENTION OF THE ASSESSEE BEFORE THE AO AS WEL L AS CIT(A) THAT ITS APPROVAL FOR EXEMPTION U/S 10(23C) OF THE ACT WAS DECLINED BY THE CCIT, PANCHKULA, ON TECHNICAL GROUN D I.E. NON- ATTENDANCE BY THE ASSESSEE COMPANY, IS PERTINENT TO BE CONSIDERED, IN THE LIGHT OF THE SAID DECISION OF TH E JURISDICTIONAL HIGH COURT, IN SIMILAR CASE. IN THIS CONTEXT, IT I S MENTIONED, AS INDICATED EARLIER, THAT NUMBER OF SIMILAR CASES WHE RE SUCH EXEMPTION WAS DECLINED BY THE CCIT, CHANDIGARH/CCIT , PANCHKULA, WERE REVERSED BY THE HON'BLE JURISDICTIO NAL HIGH COURT, IN THE CASE OF PINE GROVE INTERNATIONAL CHAR ITABLE TRUST (SUPRA). THEREFORE, CIT(A) WAS NOT JUSTIFIED IN NOT PROPERLY APPRECIATING THE CONTENTION RAISED BY THE ASSESSEE, PARTICULARLY IN THE CONTEXT OF THE DECISION OF THE JURISDICTIONA L HIGH COURT IN SIMILAR CASES, AS ADJUDICATED IN THE CASE OF PINE G ROVE INTERNATIONAL CHARITABLE TRUST (SUPRA). THE RELEVA NT AND OPERATIVE PART OF THE SAID DECISION IS REPRODUCED H EREUNDER : 6 'UNDER SECTION 10(22) OF THE INCOME-TAX ACT, 1961, WHICH WAS THE PRECURSOR TO SECTION 10(23C)(VI), THE ACTUAL EXISTE NCE OF THE EDUCATIONAL INSTITUTION WAS A PRE-CONDITION FOR THE APPLICATION FOR INITIAL APPROVAL UNDER SECTION 10(22). ON GRANT OF APPROVAL THE CHARGING SECTIONS 11 AND 13 WERE NOT TO APPLY. AFTE R THE GRANT OF EXEMPTION UNDER SECTION 10(22), THERE WAS NO ROOM F OR ASSESSMENT NOR ANY SCOPE FOR RAISING ANY DEMAND : T HE GRANT OF APPROVAL I UNDER SECTION 10(22) HAD AN AUTOMATIC EF FECT. EVEN AFTER THE NEW DISPENSATION FROM APRIL 1,1999 T HE TEST OF PRE-DOMINANT OBJECT OF THE ACTIVITY CONTINUES TO AP PLY AS UNDER SECTION 10(22) OF THE ACT. AS LONG AS AN INSTITUTIO N EXISTS SOLELY FOR EDUCATIONAL PURPOSES IT WOULD\ QUALIFY FOR GRAN T OF EXEMPTION UNDER SECTION 10(23C)(VI) OF THE ACT. MERELY BECAUS E PROFITS HAVE RESULTED FROM THE ACTIVITY OF IMPARTING EDUCATION T HAT WOULD NOT CHANGE THE CHARACTER OF THE INSTITUTION EXISTING SO LELY FOR EDUCA- TIONAL PURPOSE. FROM APRIL 1, 1999, MONITORING PROVISIONS HAVE BEEN INCORPORATED BY INSERTING NUMEROUS PROVISOS TO SECTION 10(23C) O F THE ACT. THE PROCEDURE FOR OBTAINING EXEMPTION HAS BEEN PRESCRIB ED BY VARIOUS PROVISOS WHICH POSTULATE THE FILING OF AN A PPLICATION BY A UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION IN THE PRESCRIBED FORM AND MANNER THE PRESCRIBED AUTHORITY IS THEN TO APPROVE SUCH UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION AND IN THAT REGARD MAY CALL FOR SUCH DOCUMENTS INCLUDING AUDITED ANNUA L ACCOUNTS TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE AC TIVITIES OF SUCH UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION. THE EXEMPTION COULD BE GRANTED FOR A PERIOD NOT EXCEEDING THREE A SSESSMENT YEARS. AT THE INITIAL STAGE WHEN THE APPLICATION FOR EXEMP TION IS FILED BY AN EDUCATIONAL INSTITUTION THE SCOPE OF INQUIRY IS RESTRICTED ONLY TO ASCERTAINING THE GENUINENESS OF THE ACTIVIT IES OF SUCH AN INSTITUTION SUCH AN INQUIRY MAY EVEN EXTEND TO EXAM INATION OF THE ACCOUNTS OF THE INSTITUTION, APPLICATION OF ITS INCOME TO THE OBJECT AND PURPOSES OF EDUCATION AND OTHER COGNATE ASPECTS. ONCE ON THE BASIS OF THE GENUINENESS OF THE ACTIVIT IES OF AN EDUCATIONAL INSTITUTION APPROVAL IS GRANTED FOR EXE MPTION THE MONITORING PROVISIONS WOULD COME INTO PLAY AND THE ASSESSING OFFICER HAS TO EXAMINE WHETHER THE CONDITIONS ON WH ICH THE EXEMPTION WAS GIVEN, HAVE BEEN FULFILLED OR NOT. . ONLY IF THE EDUCATIONAL INSTITUTION ACTUALLY EXISTS FOR EDUCATI ONAL PURPOSES IS THE EDUCATIONAL INSTITUTION PERMITTED TO OPERATE SUBJEC T TO THE MONITORING CONDITIONS. AN EDUCATIONAL INSTITUTION WOULD NOT CEASE TO EXIST 'SOLELY' FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF 'PROF IT MERELY BECAUSE IT HAS GENERATED SURPLUS INCOME OVER A PERI OD OF FOUR OR FIVE YEARS AFTER MEETING ITS EXPENDITURE.. RULE 2BC OF THE INCOME-TAX RULES. 192_HAS PRESCRIBED THE LIMIT OF RS. 1 CRORE WHERE THE REQUIREMENT OF SEEKING APPROVAL FOR EXEMP TION WOULD NOT BE APPLICABLE. IF THE TURNOVER IS MORE THAN RS. 1 CRORE EXEMPTION IN TERMS OF SECTION 10(23C)(VI) IS REQUIR ED. THE THIRD PROVISO POSTULATES THE INVESTMENT AND DEPOSITS OF SURPLUS_FUNDS. AN EDUCATIONAL INSTITUTION COULD MAK E DEPOSITS AND CAN ALSO EARN INTEREST, WHICH IS PERMISSIBLE. T HERE ARE 7 CERTAIN LIMITS IMPOSED ON THE ACCUMULATIONS WHICH O F COURSE HAVE TO BE MET. THE WORDS 'NOT FOR THE PURPOSE OF PROFIT' ACCOMPANY ING THE WORDS 'EXISTING SOLELY FOR EDUCATIONAL PURPOSES'' H AVE TO BE READ AND INTERPRETED IN VIEW OF THE THIRD PROVISO TO SEC TION 10(23C)(VI), WHICH PRESCRIBES THE METHODOLOGY FOR T HE UTILIZATION AND ACCUMULATION OF INCOME AT THE HANDS OF THE EDUC ATIONAL INSTITUTIONS BY IMPOSING TWO RESTRICTIONS, NAMELY, (I) THAT ACCU- MULATION OF SURPLUS UP TO 15 PER CENT, CAN BE FOR A NY NUMBER OF YEARS BY THE EDUCATIONAL INSTITUTION FOR THE PURPOS ES FOR WHICH IT IS ESTABLISHED ; AND (II) IF THE ACCUMULATION IS MO RE THAN 15 PER CENT, OF THE INCOME IT CAN BE ACCUMULATED FOR A MAX IMUM PERIOD OF FIVE YEARS TO BE UTILIZED FOR ACHIEVING THE OBJ ECTS OF THE INSTITUTION. THE INEVITABLE CONSEQUENCE IS THAT 85 PER CENT, OF THE INCOME HAS TO BE APPLIED FOR ITS OBJECTS BY THE INSTITUTION. ON A TRUE AND PROPER INTERPRETATION OF THE PROVISIO NS OF SECTION 10(23C)(VI) READ WITH THE THIRD PROVISO THERETO, CAPITAL EXPENDITURE INCURRED BY THE INSTITUTION FOR THE ATT AINMENT OF THE OBJECTS OF THE INSTITUTION HAS TO BE DEDUCTED FROM ITS GROSS RECEIPTS/INCOME THIS IS BECAUSE THE THIRD PROVISO C ONTAINS THE EXPRESSION 'APPLIES ITS INCOME, OR ACCUMULATES IT F OR APPLICATION OR, WHOLLY AND EXCLUSIVELY TO THE OBJECTS FOR WHICH IT IS ESTABLISHED'. THE WORD WHOLLY REFERS TO THE QUANT UM OF EXPENDITURE, AND THE WORD 'EXCLUSIVELY' REFERS TO T HE MOTIVE, OBJECT OR THE PURPOSE OF EXPENDITURE. EVEN OTHERWISE, UNLIKE THE PROVISIONS OF SECTIONS 3 7 AND 36(I)(XII) OF THE ACT, IN THE CASE OF AN EDUCATIONA L INSTITUTION, CAPITAL EXPENDITURE IS TO BE DEDUCTED WHENEVER THE INSTITUTION APPLIES ITS INCOME FOR THE ACHIEVEMENT OF ITS OBJEC T. THE 'WORDS 'APPLIES ITS INCOME' MEAN 'TO PUT TO USE OR 'TO TU RN TO USE_OR 'TO MAKE USE' OR 'TO PUT TO PRACTICAL USE' . IN CLA USE 11 OF FORM 56D OF THE RULES IT IS MENTIONED THAT THE AMOUNT OF INCOME OF AN UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION THAT HA S BEEN OR DEEMED TO HAVE BEEN UTILIZED WHOLLY AND EXCLUSIVELY FOR ITS OBJECTS SHALL HAVE THE MEANING ASSIGNED TO IT IN SU B-SECTIONS (L) AND (1A) OF SECTION 11. BOTH ON PRINCIPLE AND PRECEDENTS THE CAPITAL EXPENDITURE IS TO BE DEDUCTED FROM THE GRO SS INCOME OF THE EDUCATIONAL INSTITUTIONS. HAD IT BEEN THE INTENTION OF THE LEGISLATURE TO EXCLUDE CAPITAL EXP ENDITURE WHILE APPLYING THE INCOME OF THE INSTITUTION UNDER THE THIRD PROVISO TO SECTION LO(23C)(VI) THE PROVISO WO ULD HAVE CONTAINED AN EXPRESS EMBARGO AGAINST SUCH EXCLUSION . THE DETERMINATION OF THE EXISTENCE OF EDUCATIONAL INSTITUTION SOLELY FOR EDUCATIONAL PURPOSES IS REQU IRED TO BE DONE ON THE BASIS OF ITS OBJECTS INCLUDING THE U TILIZATION OF ITS INCOME IN ACCORDANCE WITH THE CONDITIONS LAI D DOWN IN THE THIRD PROVISO TO SECTION 10(23C)(VI) OF THE ACT.. MERELY BECAUSE THERE ARE SURPLUSES IN THE HANDS OF THE EDUCATIONAL INSTITUTION THAT WOULD NOT IPSO FACTO L EAD TO AN INEVITABLE CONCLUSION THAT SUCH AN EDUCATIONAL INSTITUTION EXISTS FOR MAKING PROFIT AND NOT SOLELY FOR EDUCATIONAL PURPOSES. THE ASSESSEE SOCIETY RAN A SCHOOL SOLELY FOR EDUCAT IONAL PURPOSES. IT WAS REGULARLY ASSESSED BY THE ASSESSIN G OFFICER AT 8 NIL INCOME ON ACCOUNT OF GRANT OF EXEMPTION FROM PA YMENT OF INCOME-TAX. THE INCOME-TAX OFFICER INFORMED THE ASS ESSEE THAT APPROVAL IN TERMS OF SECTION 10(23C) OF THE ACT COU LD ONLY BE GRANTED TO A UNIVERSITY OR EDUCATIONAL INSTITUTION AND NOT TO A SOCIETY/ TRUST, AND CALLED FOR A LIST OF INSTITUTIO NS RUN BY THE ASSESSEE. THE ASSESSEE IN RESPONSE TO THE LETTER OF THE INCOME-TAX OFFICER FILED A REPLY GIVING DETAILS OF EXCESS OF INCOME OVER EXPENDITURE BEFORE DEPRECIATION AND CAP ITA! EXPENDITURE INCURRED BY THE SCHOOL RUN BY IT FROM T HE ASSESSMENT YEAR 2006-07 AND SUBMITTED THAT THE PHRASEOLOGY OF THE PROVISIONS OF SECTION 10(23C)(VI ) OF THE ACT WOULD ENCOMPASS EDUCATIONAL INSTITUTIONS RUN BY A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT 1860. PURSUANT TO A SHOW CAUSE NOTICE TO WHICH THE ASSES SEE REPLIED, THE CHIEF COMMISSIONER WITHDREW THE EXEMPT ION ON THE GROUND THAT THE PROFITS WERE SUBSTANTIAL AND AROSE YEAR AFTER YEAR AND STATING THAT IF SUBSTANTIAL PROFITS WERE E ARNED IN ONE YEAR IT SHOULD BE THE DUTY OF THE INSTITUTION TO LO WER ITS FEES FOR THE SUBSEQUENT YEAR SO THAT SUCH PROFITS WERE NOT INTENTIONALLY GENERATED. ON A WRIT PETITION: HELD, ALLOWING THE PETITION, (I) THAT THE INTERPRET ATION OF THE CHIEF COMMISSIONER THAT THERE HAD TO BE A REASO NABLE PROFIT ONLY AND ONLY THEN CAN AN INSTITUTION BE SAI D NOT TO EXIST SOLELY FOR THE PURPOSES OF PROFIT, WAS TOTALL Y A MISCONCEPTION OF LAW. THE METHODOLOGY ADOPTED BY TH E CHIEF COMMISSIONER WHILE COMPUTING SURPLUS IN NOT DEDUCTING THE CAPITAL EXPENDITURE INCURRED BY THE A SSESSEE FROM THE GROSS INCOME WAS CONTRARY TO THE THIRD PRO VISO TO SECTION 10(23C)(VI) OF THE ACT. ADMITTEDLY, IN THE CASE OF THE ASSESSEE THE APPLICATION OF INCOME FOR THE ATTAINME NT AND ACHIEVEMENT OF ITS OBJECTS IN THE LAST THREE YEARS, WAS MORE THAN 100 PER CENT. THE ASSESSEE COULD NOT BE HELD T O BE AN INSTITUTION EXISTING FOR THE PURPOSE OF MAKING PROF IT SO AS NOT TO BE ENTITLED TO EXEMPTION IN VIEW OF THE PROV ISIONS OF SECTION W(23CXNILOF THE ACT. THE CHIEF COMMISSIONER FAILED TO KEEP IN VIEW THE THIRD PROVISO WHILE WRON GLY HOLDING THAT SINCE SUBSTANTIAL PROFITS WERE BEING EARNED_ YEAR AFTER YEAR IT COULD NOT BE SAID THAT THE SURPL US WAS ARISING INCIDENTALLY AND, THEREFORE, THE ASSESSEE W AS NOT ENTITLED TO EXEMPTION. (II) THAT THE CONTENTION OF THE DEPARTMENT THAT SOC IETIES REGISTERED UNDER THE 1860 ACT DID NOT FALL WITHIN T HE AMBIT OF THE EXPRESSION 'OTHER EDUCATIONAL INSTITUTIONS' AND, TH EREFORE, EXEMPTION HAD BEEN RIGHTLY WITHDRAWN UNDER SECTION 10(23C)(IV) OF THE ACT, WAS NOT TENABLE BECAUSE AFTER THE NOTIC E WAS ISSUED FOR WITH DRAWING THE EXEMPTION ON THAT GROUND, A RE PLY WAS FILED BY THE ASSESSEE ASSERTING THAT IN VIEW OF THE LAW L AID DOWN BY THE COURTS SUCH A GROUND WAS NOT TENABLE. THE CHIEF COMMISSIONER THEREAFTER DID NOT ISSUE ANY NOTICE TO THE ASSESSEE TAKING THIS GROUND AS THE BASIS FOR WITHDRAWAL OF E XEMPTION NOR WAS THERE ANY FINDING RECORDED IN THE ORDERS. EDUCA TIONAL INSTITUTIONS REGISTERED AS SOCIETIES WOULD CONTINUE TO RETAIN THEIR CHARACTER AS SUCH AND WOULD BE ELIGIBLE TO APPLY FO R EXEMPTION UNDER SECTION 10(23C)(VI) OF THE ACT. (III) THAT IT WAS OBLIGATORY ON THE PART OF THE CHI EF COMMISSIONER OR THE DIRECTOR, WHICH ARE THE PRESCRI BED 9 AUTHORITIES, TO COMPLY WITH PROVISO THIRTEEN. ACCO RDINGLY, IT HAD TO BE ASCERTAINED WHETHER THE EDUCATIONAL INSTITUTI ON HAD BEEN APPLYING ITS PROFIT WHOLLY AND EXCLUSIVELY TO THE O BJECT FOR WHICH THE INSTITUTION WAS ESTABLISHED. MERELY BECAUSE AN INSTITUTION HAD EARNED PROFIT THAT WOULD NOT BE THE DECIDING FA CTOR TO CONCLUDE THAT THE EDUCATIONAL INSTITUTION EXISTED F OR PROFIT. CAPITAL ASSETS ACQUIRED/CONSTRUCTED BY THE EDUCATIO NAL INSTITUTIONS HAD BEEN TREATED AS INCOME IN THE BLAN KET MANNER WITHOUT RECORDING ANY FINDING WHETHER THE CAPITAL A SSETS HAD BEEN APPLIED AND UTILIZED TO ADVANCE THE PURPOSE OF EDUCATION. IT WAS OBLIGATION ON THE PART OF THE PRESCRIBED AUT HORITY WHILE EXERCISING POWER UNDER THE THIRTEENTH PROVISO TO CO NSIDER WHETHER EXPENDITURE INCURRED AS CAPITAL INVESTMENT WAS ON THE OBJECT OF EDUCATION OR NOT. THEREFORE, THE ORDERS I N QUESTION WERE LIABLE TO BE QUASHED. (IV) THAT WHERE MORE THAN 15 PER CENT, OF THE INCOM E OF AN EDUCATIONAL INSTITUTION IS ACCUMULATED ON OR AFTER APRIL 1, 2002, THE PERIOD OF ACCUMULATION OF THE AMOUNT EXCEEDING 15 PER CENT, WAS NOT PERMISSIBLE BEYOND FIVE YEARS, PROVIDED THE EXCESS INCOME HAD BEEN APPLIED OR ACCUMULATED FOR APPLICAT ION WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EDUCATION. (V) THAT ON AN APPLICATION MADE BY AN INSTITUTION, THE PRESCRIBED AUTHORITY COULD GRANT APPROVAL SUBJECT TO SUCH COND ITIONS AS IT MAY DEEMS FIT PROVIDED THAT THEY WERE NOT IN CONFLI CT WITH THE PROVISIONS OF THE ACT. THE PARAMETERS OF EARNING PROFIT BEYOND 15 PERCENT AND ITS INVESTMENT WHOLLY FOR EDUCATIONAL PURPOSES MAY BE EXPRESSLY STIPULATED AS PER THE STATUTORY RE QUIREMENT. THEREAFTER THE ASSESSING AUTHORITY MAY ENSURE COMPL IANCE WITH THOSE CONDITIONS. THE CASES WHERE EXEMPTION HAD BEE N GRANTED EARLIER AND THE ASSESSMENTS WERE COMPLETE WITH THE FINDING THAT THERE WAS NO CONTRAVENTION OF THE STATUTORY PROVISI ONS, NEED NOT BE REOPENED. HOWEVER, AFTER GRANT OF APPROVAL IF IT CAME TO THE NOTICE OF THE PRESCRIBED AUTHORITY THAT THE CONDITI ONS ON WHICH APPROVAL WAS GIVEN, HAD BEEN VIOLATED OR THE CIRCUM STANCES MENTIONED IN THE THIRTEENTH PROVISO EXISTED, THEN B Y FOLLOWING THE PROCEDURE ENVISAGED IN THE THIRTEENTH PROVISO, THE PRESCRIBED AUTHORITY COULD WITHDRAW THE APPROVAL. ADITANAR EDUCATIONAL INSTITUTION V. ADDL . CIT [1997] 224 ITRJ 310 (SC) AND AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE V. CBDT [2008] 301 ITR 86 (SC) APPLIED. CIT ( ADDL .) V. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION [1980] 121 ITR 1 (SC), DIRECTOR OF INCOME - TAX ( EXEMPTION ) V. STERNAL SCIENCE OF MAN ' S SOCIETY [2007] 290 ITR 535 (DELHI) AND CITY MONTESSORI SCHOOL (REGD.) V. UNION OF INDIA [2009] 315 ITR 48 (ALL) RELIED ON. MUNICIPAL CORPORATION OF DELHI V CHILDREN BOOK TRUS T [1992] AIR 1992 SC 1456 EXPLAINED AND DISTINGUISHED. CIT V QUEENS EDUCATIONAL SOCIETY [2009] 319 ITR 160 (UTTARAKHAND) DISSENTED FROM. 10 9. HAVING REGARD TO THE ABOVE LEGAL AND FACTUAL DISCUSSIONS, THE GROUND OF APPEAL BEARING NO. 2 & 3 ARE SQUARELY COVERED BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT, REPRODUCED ABOVE. FURTH ER, THE HON'BLE JURISDICTIONAL HIGH COURT HAS CATEGORICALLY HELD THAT EXPENDITURE INCURRED ON FIXED ASSETS FOR THE P URPOSE OF UNDERTAKING ACTIVITIES IN PURSUANCE OF THE OBJEC T CLAUSE, WOULD NOT CONSTITUTE INCOME OF THE SOCIETY. FURTHER , THE LD. 'AR', IN THE COURSE OF PRESENT APPELLATE PROCEEDIN GS CONTENDED THAT CAPITAL EXPENDITURE, WHOLLY AND EXCLUSIVELY, IN PURSUANCE OF THE OBJECT OF EDUCATIO N IS ENTITLED FOR EXEMPTION AND WOULD NOT CONSTITUTE PAR T OF THE TOTAL INCOME OF THE ASSESSEE IN VIEW OF THE LAW LAI D DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CAS E OF PINE GROVE INTERNATIONAL CHARITABLE TRUST (SUPRA). THER EFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT, GROUND NO.4 OF THE ASSES SEE IS ALSO ALLOWED. THEREFORE, RESPECTFULLY, FOLLOWING T HE SAID DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23RDJAN.,2012. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23 RD JAN.,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH