Sarada Vidyapith, Kolkata V. CIT (Exemption) Kolkata, Kolkata

ITA 1177/KOL/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2443 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 23-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RADHEY SHYAM
• Assessee Lawyers: P.K. RAY
• Keywords: Set aside
• Section: 143(3); 12A

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA ( ) . . , . . ! , ' #$ ) [BEFORE SHRI P.M. JAGTAP, VICE PRESIDENT (KZ) & SHR I A. T. VARKEY, JM] I.T.A. NO. 1177/KOL/2017 ASSESSMENT YEARS: 2016-17 SARADA VIDYAPITH PAN: AAALS 1808 C VS. CIT (EXEMPTIONS), KOLKATA APPELLANT RESPONDENT DATE OF HEARING 09.07.2019 DATE OF PRONOUNCEMENT 04.09.2019 FOR THE APPELLANT SHRI P.K. RAY, AR FOR THE RESPONDENT SHRI RADHEY SHYAM, CIT, DR ORDER PER SHRI A.T.VARKEY, JM THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF CIT(EXEMPTIONS), KOLKATA DATED 24.03.2017 BY WHICH HE DID NOT GRANT APPROVAL U/S 10(23C)(VI) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT ). 2. BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT T RUST ORIGINALLY CREATED ON 12.09.2002 AND THEREAFTER BY A DEED OF TRUST DATE 22.09.2014 I T SET-UP A SCHOOL UNDER THE NAME SARADA VIDYAPITH AT SONARPUR, SOUTH 24 PARGANAS, WEST BEN GAL WITH THE SOLE OBJECT OF PROVIDING COMPREHENSIVE SECOND DAY LEVEL EDUCATION FOR YOUNG BOYS AND GIRLS IN NEARBY VILLAGES. THE APPELLANT TRUST IS ALSO AFFILIATED WITH WB BOARD OF SECONDARY EDUCATION AND WB BOARD OF HIGHER SECONDARY EDUCATION. THE APPELLANT TRUST ALS O HOLDS VALID REGISTRATION UNDER SECTION 12A AND 80G, DATED 24.09.2014. IT IS NOTED THAT THE APPELLANT TRUST HAD ALSO APPLIED FOR REGISTRATION U/S 10(23)(VI) VIDE APPLICATION DATED 29.03.2016 WHICH WAS HOWEVER REJECTED BY THE LD. CIT(EXEMPTIONS). BEING AGGRIEVED BY THE REJ ECTION ORDER OF THE LD. CIT(E), THE APPELLANT TRUST IS NOW IN APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. BEFORE WE PROCEED TO EXAMINE THE CORRECTNES S OF THE LD. CIT(E)S ORDER, IT SHALL FIRST BE RELEVANT TO TAKE NOTE OF THE PRIMARY CONDITIONS SET OUT IN SECTION 10(23)(VI) FOR GRANT OF APPROVAL TO AN INSTITUTION UNDER THE PROVISO WHICH ARE AS UNDER: 2 ITA NO.1177/KOL/2017 SARADA VIDYAPITH AY 2016-17 (I) THE INSTITUTION IS EXISTING SOLELY FOR EDUCATIO NAL PURPOSES, AND (II) NOT FOR THE PURPOSE OF PROFIT. 4. IT EMERGES FROM THE ORDER OF THE LD. CIT(E) THAT , ACCORDING TO HIM THE SECOND CONDITION LAID DOWN IN THE ABOVE SECTION WAS NOT FU LFILLED BY THE APPELLANT. THE LD. CIT(E) NOTED THAT THE TRUST HAD ACTUALLY DERIVED SUBSTANTI AL PROFITS OVER THE YEARS AND THAT SUCH INCOME WAS NOT CORRECTLY ROUTED THROUGH THE INCOME & EXPENDITURE ACCOUNT THEREBY GIVING AN INCORRECT PICTURE THAT THE INSTITUTION DID NOT E XIST FOR THE PURPOSE OF PROFIT. AFTER CONDUCTING A DETAILED ANALYSIS, THE LD. CIT(E) CAME TO THE FOLLOWING CONCLUSION IN RESPECT OF THE SURPLUS DERIVED BY THE APPELLANT TRUST IN TH E EARLIER THREE ASSESSMENT YEARS ASST YEAR AS PER ASSESSEE AS PER LD. CIT(E) 2013-14 8,36,835/- 27,37,410/- 2014-15 6,14,603/- 21,65,994/- 2015-16 7,95,329/- 30,58,402/- 5. WHEN CONFRONTED WITH THE ABOVE ANALYSIS, THE APP ELLANT EXPLAINED THAT THE ENTIRE NATURE OF RECEIPTS AND POINTED OUT THAT CERTAIN REC EIPTS WERE COLLECTED FOR SPECIFIED PURPOSES SUCH AS CREATION OF NEW ASSETS IN THE SCHOOL, PRIZE S, MAINTENANCE OF LIBRARY ETC. AND THEREFORE NOT ROUTED THROUGH THE I&E A/C. IT WAS FURTHER EXPL AINED THAT ALL THE RECEIPTS, IRRESPECTIVE WHETHER THEY WERE ROUTED THROUGH I&E OR NOT, WERE U TILIZED EXCLUSIVELY FOR THE BENEFIT AND PURPOSES OF THE SCHOOL AND ITS STUDENTS AND THEREFO RE IT COULD NOT BE SAID THAT THE TRUST EXISTED FOR THE PURPOSES OF MAKING PROFIT. AT THE T IME OF HEARING, THE LD. AR APPEARING ON BEHALF OF THE APPELLANT TOOK US THROUGH THE NATURE OF EACH RECEIPT OF THE APPELLANT AND CONTENDED THAT THE ACCOUNTS WERE PREPARED IN A PROP ER AND FAIR MANNER. HE SUBMITTED THAT RECEIPTS COLLECTED BY WAY OF DEVELOPMENT FEE, SEVAB HANDAR, LABORATORY FUND WAS MEANT FOR SPECIFIED PURPOSES I.E. THE DEVELOPMENT OF INFRASTR UCTURE AND CREATION/ACQUISITION OF NEW ASSETS FOR THE SCHOOL AND THEREFORE THE PURPOSE BEI NG SPECIFIC ANDIN THE CAPITAL FIELD WAS RIGHTLY NOT TREATED AS A REVENUE RECEIPT IN THE BOO KS OF THE TRUST. HE FURTHER POINTED OUT THAT 3 ITA NO.1177/KOL/2017 SARADA VIDYAPITH AY 2016-17 THE RECEIPTS TOWARDS THE PRIZE FUND, SSOBF WAS ALSO MEANT FOR SPECIFIC PURPOSES AND HENCE WRONGLY CLASSIFIED BY THE LD. CIT(E) AS REVENUE INC OME. REFERRING TO THE ASSESSMENTS FRAMED U/S 143(3) IN APPELLANTS OWN CASE FOR AYS 2 013-14 & 2014-15, THE LD. AR SUBMITTED THAT THE NATURE OF RECEIPTS AS DISCUSSED IN THE FOREGOING AND ALSO THE ACCOUNTS OF THE APPELLANT TRUST HAD BEEN ACCEPTED BY THE AOS. H E THUS CONTENDED THAT THE LD. CIT(E)S ALLEGATION THAT THE APPELLANT TRUST HAD PROFIT MOTI VE AND THAT IT HAD INCORRECTLY PRESENTED ITS BOOKS OF ACCOUNTS, WAS FACTUALLY UNJUSTIFIED. THE L D. AR ALSO RELIED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF MALCO VIDY ALAYA MATRICULATION HIGHER SECONDARY SCHOOL (103 TAXMANN.COM 104) TO CONTEND T HAT GENERATION OF SUBSTANTIAL SURPLUS CANNOT BE VIEWED ADVERSELY FOR THE PURPOSES OF GRAN TING REGISTRATION U/S 10(23)(VI) AS LONG AS IT WAS APPLIED TOWARDS THE OBJECTS OF THE TRUST. HE ALSO RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ANAND EDUCA TION SOCIETY VS DGIT(E) [205 TAXMAN 408] AND CONTENDED THAT THE RATIO WHICH EMAN ATES FROM THIS JUDGMENT IS THAT THE ONLY PRE-REQUISITE CONDITION FOR GRANT OF RECOGNITI ON U/S 10(23)(VI) IS THE EXISTENCE OF EDUCATIONAL INSTITUTION. OTHER CONDITIONS SUCH AS ACCUMULATION OF SURPLUS, ITS APPLICATION ETC. WAS A MATTER OF ASSESSMENT OF INCOME OF THE TR UST AND IT IS ONLY WHEN IN THE INCOME-TAX ASSESSMENT THE ASSESSEE IS FOUND TO BE IN VIOLATION OF THESE FURTHER STIPULATIONS AND CONDITIONS THAT THE REGISTRATION CAN BE CANCELLED. PER CONTRA, THE LD. CIT, DR APPEARING ON BEHALF OF THE REVENUE RELIED ON THE ORDER OF THE LD . CIT(E) AND ARGUED THAT THE LD. CIT(E) HAD SUFFICIENTLY PROVED THAT THE APPELLANT TRUST EX ISTED WITH A PROFIT MOTIVE AND HENCE HE WAS RIGHT IN LAW TO REJECT THE APPLICATION U/S 10(23)(V I) OF THE ACT. 6. AFTER GIVING OUR THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE AND THE MATERIAL AVAILABLE ON RECORD, IT IS NOTED THAT THOUGH THE LD . CIT(E) ACKNOWLEDGES THE FACT THAT THE APPELLANT'S TRUST OBJECTIVE FALL UNDER THE AMBIT OF SEC. 2(15) OF THE ACT AND IT RUNS AN EDUCATIONAL INSTITUTION, HE DID NOT ACCORD REGISTRA TION U/S 10(23)(VI) SINCE ACCORDING TO HIM THE APPELLANT TRUST FURNISHED DISTORTED ACCOUNTS. I N HIS OPINION THE SURPLUS OF THE TRUST WAS HIGHER THAN WHAT WAS REPORTED IN THE AUDITED ACCOUN TS. THIS EMANATED FROM HIS OBSERVATION THAT THE RECEIPTS TOWARDS DEVELOPMENT FEE, LIBRARY FUND, LABORATORY FUND, SARDASEVABHANDAR, PRIZE FUND, SSOBF, EW FUND ETC. WERE ACTUALLY IN TH E NATURE OF REVENUE RECEIPTS WHICH WERE NOT ROUTED THROUGH THE I&E A/C RESULTING IN IN CORRECT DEPICTION OF ACCOUNTS. WE HOWEVER FIND THAT THESE OBSERVATIONS OF THE LD. CIT (E) ARE FACTUALLY UNSUSTAINABLE IN AS 4 ITA NO.1177/KOL/2017 SARADA VIDYAPITH AY 2016-17 MUCH AS THE APPELLANT TRUST HAD SUBSTANTIATED THAT THE RECEIPTS COLLECTED BY WAY OF DEVELOPMENT FEE, LIBRARY FUND, LABORATORY FUND WERE MEANT FOR SPECIFIED PURPOSES I.E. THE DEVELOPMENT OF INFRASTRUCTURE AND CREATION/ACQUISIT ION OF NEW ASSETS I.E. LIBRARY, LABORATORY ETC. FOR THE SCHOOL. THEREFORE THE PURPOSE OF RECEI PT BEING SPECIFIC & CAPITAL IN NATURE APPEARS TO HAVE BEEN RIGHTLY CREDITED IN THE BALANC E SHEET RATHER THAN REVENUE RECEIPT IN THE BOOKS OF THE TRUST. IT IS FURTHER NOTED THAT THE RE CEIPTS TOWARDS THE PRIZE FUND, SSOBF ETC WERE TOWARDS SPECIFIC OBJECTIVE SUCH AS AWARDING ME RITORIOUS STUDENTS ETC. HENCE, IN OUR CONSIDERED VIEW THE ACCOUNTING OF SUCH THE RECEIPTS TOWARDS THESE FUNDS SET APART FOR SPECIFIC PURPOSES DIRECTLY THROUGH THE BALANCE SHEE T CANNOT BE FAULTED WITH. 7. ON PERUSAL OF THE ASSESSMENT ORDERS PASSED U/S 1 43(3) FOR THE AYS 2013-14 & 2014- 15, IT IS NOTED THAT EVEN THE AO OF THE APPELLANT A CCEPTED THE METHOD OF ACCOUNTING FOLLOWED AND NO FAULT WAS FOUND. ACCORDINGLY THE APPELLANTS CLAIM FOR EXEMPTION WAS ALLOWED. IT IS PARTICULARLY NOTED THAT IN THE INCOME-TAX ASSESSMEN T FOR AY 2014-15, THE AO SEPARATELY ADDED THESE BALANCE SHEET ITEMS OF RECEIPTS WHILE C OMPUTING THE AGGREGATE RECEIPTS DURING THE YEAR AND THEREAFTER SEPARATELY DEDUCTED THE PAY OUTS MADE OUT OF SUCH FUNDS TO ARRIVE AT THE NET SURPLUS AVAILABLE FOR APPLICATION TOWARDS C HARITABLE PURPOSES. IN VIEW OF THESE FACTS WE ARE THEREFORE OF THE CONSIDERED VIEW THAT THE LD . CIT(E)S FINDING THAT THE ACCOUNTING METHODOLOGY FOLLOWED BY THE APPELLANT TRUST WAS INC ORRECT AND THAT THE SURPLUS REPORTED IN THE BOOKS WERE DISTORTED, IS COMPLETELY UNTENABLE O N FACTS AND IN LAW. 8. APART FROM THE ABOVE, WE ALSO FIND MERIT IN THE LD. ARS CONTENTION THAT MERE EARNING OF SURPLUS CANNOT LEAD TO AN IPSO FACTO CON CLUSION THAT THE APPELLANT TRUST EXISTED WITH A VIEW TO EARN PROFIT. THE OBJECT OF THE APPEL LANT TRUST MAKES IT AMPLY CLEAR THAT IT EXISTS SOLELY FOR EDUCATIONAL PURPOSES. FROM THE ACCOUNTS OF THE APPELLANT IT IS ALSO NOTED THAT THE SURPLUS EARNED BY THE APPELLANT TRUST IS EITHER SPE NT TOWARDS THE OBJECTS OF THE TRUST OR ACCUMULATED FOR FUTURE APPLICATION IN THE EDUCATION AL FIELD. THE LD. CIT(E) HAS NOT BROUGHT ON RECORD ANY SPECIFIC MATERIAL WHATSOEVER TO SHOW THAT THE SURPLUS GENERATED WAS UTILIZED OTHERWISE THAN FOR THE BENEFIT OF THE SCHOOL OR FOR THAT MATTER TOWARDS ANY EXTRANEOUS ACTIVITIES. IN THIS REGARD, WE FIND SUPPORT FROM TH E JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF MALCO VIDYALAYA MATRICULATION HIGHER SECONDARY SCHOOL (SUPRA) WHEREIN ON SIMILAR FACTS AND CIRCUMSTANCES THE HON BLE HIGH COURT HELD THAT MERELY 5 ITA NO.1177/KOL/2017 SARADA VIDYAPITH AY 2016-17 BECAUSE THE ASSESSEE INSTITUTION HAD DERIVED SURPLU S BEYOND A CERTAIN PERCENTAGE IN A YEAR, IT WOULD NOT MEAN THAT THE ASSESSEE INSTITUTION WOULD NOT COME UNDER THE CATEGORY OF 'NOT FOR PROFIT INSTITUTION PROVIDED THERE HAS NOT BEEN DIV ERSION OF THE SURPLUS OF THE INSTITUTION. THE RELEVANT EXTRACTS OF THE JUDGMENT IS AS FOLLOWS: 9. THE RESPONDENT ALSO ERRED IN GOING BY THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT VISVESVARAYA TECHNOLOGICAL UNIVERSITY (SUPRA) . MERELY BECAUSE THERE HAS BEEN A SURPLUS GENERATION BEYOND A PERCENTAGE IN A YEAR, THAT WOULD NOT MEAN THAT THE PETITIONER INSTITUTION WOULD NOT COME UNDER THE CAT EGORY OF 'NOT FOR PROFIT INSTITUTION'. THE PETITIONER HAS STATED THAT WHATEVER SURPLUS IS GENERATED WOULD GO ONLY TOWARDS THE DEVELOPMENT OF THE SCHOOL. THE PETITIONER CANNOT BE FAULTED FOR PARKING THE SURPLUS IN AN INTEREST BEARING ACCOUNT. IN FACT, THE PETITIONE R MUST BE COMPLIMENTED FOR MANAGING THEIR FINANCES IN A PRUDENT MANNER. ONLY IF IT CAN BE SHOWN THAT THERE HAS BEEN DIVERSION OF THE SURPLUS GENERATED BY THE INSTITUTI ON, THE AUTHORITY WOULD BE JUSTIFIED IN REJECTING THE APPLICATION OR WITHDRAWING THE EXEMPT ION GRANTED. THIS POWER OF THE AUTHORITY IS ALWAYS AVAILABLE UPON DISCOVERY OF MAT ERIALS THAT ARE ADVERSE TO THE PETITIONER. BUT, NO SUCH MATERIAL HAS BEEN INDICATE D IN THE IMPUGNED ORDER. 10. THIS COURT THEREFORE HAS TO NECESSARILY HOLD THAT THE APPROACH OF THE RESPONDENT SUFFERS FROM MISDIRECTION IN LAW. THE RESPONDENT AS SUMED THAT THE WRIT PETITIONER MUST PRODUCE A WRITTEN MEMORANDUM SETTING OUT THEIR OBJE CTS. IN THE STATUTORY PROVISION, THERE IS NO SUCH REQUIREMENT. THE RESPONDENT HAS NE EDLESSLY ASSUMED THAT THE WRIT PETITIONER IS WITHHOLDING SOME MATERIAL. THE PETITI ONER IS A SCHOOL AND NECESSARILY ITS ACTIVITIES WILL HAVE TO BE ONLY FOR EDUCATIONAL PUR POSES. THE PETITIONER CANNOT HAVE ANY OTHER ACTIVITY. IN ANY EVENT, THE RESPONDENT HAS NO T INDICATED THE EXTRANEOUS ACTIVITIES OF THE PETITIONER. THE PETITIONER CANNOT BE CALLED UPON TO PROVE THE NEGATIVE. LIKEWISE, THE PETITIONER HAS BEEN UNFAIRLY CHARACTERIZED AS A PROFITEERING INSTITUTION. THE PETITIONER HAS CATEGORICALLY STATED THAT THE SURPLU S GENERATED BY THE INSTITUTION IS BEING UTILIZED ONLY FOR THE DEVELOPMENT OF THE SCHOOL. 9. IN THE LIGHT OF THE AFORESAID DISCUSSION, WE ARE THEREFORE INCLINED TO SET ASIDE THE ORDER OF LD. CIT(E) AND REMAND THE MATTER BACK TO HIS FIL E TO RE-CONSIDER THE APPLICATION FOR REGISTRATION OF THE APPELLANT TRUST IN THE LIGHT OF THE AFORESAID OBSERVATIONS. THE QUESTION AS TO WHETHER ANY ITEM OF RECEIPT IS CAPITAL OR REVENU E IN NATURE IS THE LOOKOUT OF THE AO OF THE APPELLANT AND IS NOT THE ISSUE BEFORE LD.CIT(E). AT THE COST OF REPETITION, WE STATE THE LD. CIT(E) WHILE CONSIDERING THE APPLICATION OF A TRUST FOR REGISTRATION U/S. 10(23)(VI) HAS TO VERIFY THE OBJECTS OF THE INSTITUTION/TRUST/SOCIETY AND LOOK INTO WHETHER IT EXISTS FOR EDUCATIONAL PURPOSES. FURTHER, EVEN IF THE APPELLAN T IS FOUND TO HAVE GENERATED SURPLUS BUT IF 6 ITA NO.1177/KOL/2017 SARADA VIDYAPITH AY 2016-17 THE SAME IS BEING ULTIMATELY UTILIZED FOR THE OBJEC TS OF THE APPELLANT TRUST THEN IT CANNOT BE SAID TO EXIST WITH A PROFIT MOTIVE. IT HAS TO BE RE MEMBERED THAT IF THE APPELLANT TRUST HAS SURPLUS OR ANY INCOME HAS ESCAPED ASSESSMENT THERE ARE SUFFICIENT POWER VESTED WITH THE DEPARTMENT TO TAX THE APPELLANT TRUST AS PER LAW AN D IN ACCORDANCE WITH LAW. WITH THE AFORESAID OBSERVATION, WE ARE INCLINED TO SET ASIDE THE ORDER OF THE LD. CIT(E) AND REMAND THE MATTER BACK TO HIS FILE FOR FRESH ADJUDICATION OF THE APPLICATION FOR REGISTRATION U/S. 10(23)(VI) OF THE ACT. 10. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSE. ORDER IS PRONOUNCED IN THE OPEN COURT ON 4TH SEPTEMBER, 2019 SD/- SD/- (P.M. JAGTAP) (ABY. T. VARKEY) VICE-PRESIDENT JUDICIAL MEMBER DATED : 4TH SEPTEMBER, 2019 BISWAJIT (SR. P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT SARADA VIDYAPITH, SRI RAMKRISHNA PAL LY, SONARPUR, KOLKATA 700 150. 2 RESPONDENT CIT (EXEMPTIONS), KOLKATA. 3. THE CIT(A) -, KOLKATA. 4. 5. CIT KOLKATA DR, ITAT, KOLKATA. / TRUE COPY, BY ORDER, ASSISTANT REGISTRAR/H.O.O. ITAT, KOLKATA