Dy.Director of Income-Tax (Exemptions)-II, Hyderabad V. Good Shepherd Educational Society, Kurnool

ITA 1444/HYD/2014

• Counselvise Citation: 144422514 RSA 2014
• Duration Of Justice: 1 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-08-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 01-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K GUPTA
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation
• Section: 12AA; 11

Judgement Text

ITA NOS.1444 AND 1445 OF 2014 GOOD SHEPHERD EDUCATI ON SOCIETY NANDYAL PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD SMC A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NOS.1444 & 1445/HYD/2014 (ASSESSMENT YEARS: 2004-04 AND 2004-05) DY. DIRECTOR OF INCOME TAX (EXEMPTIONS) II HYDERABAD VS. GOOD SHEPHERD EDUCATIONAL SOCIETY NANDYAL PAN: AAAAG 1210 F (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI S.K. GUPTA, DR FOR ASSESSEE : SHRI S. RAMA RAO DATE OF HEARING : 28 .0 8 .2015 DATE OF PRONOUNCEMENT : 09 . 1 0. 2015 O R D E R BOTH ARE REVENUE APPEALS FOR THE A.YS 2003-04 AND 2004- 05 RESPECTIVELY. IN BOTH THESE APPEALS, COMMON ISSU ES RAISED BY THE REVENUE ARE THAT THE LEARNED CIT (A) HAS ERRONE OUSLY GRANTED RELIEF TO THE ASSESSEE BY HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S 10(23C)(IIIAD) OF THE I.T. ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE SO CIETY FILED ITS RETURN OF INCOME FOR THE RELEVANT A.Y CLAIMING EXEM PTION U/S 11 OF THE ACT. THE ASSESSEE IS RUNNING AN EDUCATIONAL INSTITUTION. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E AO REQUIRED THE ASSESSEE TO PRODUCE ITS BOOKS OF ACCOU NTS AND OTHER DETAILS. ASSESSEE PRODUCED THE SAME AND ON VERIFICA TION OF THE SAID DETAILS, THE AO OBSERVED THAT THE ASSESSEE SOC IETY HAS CONSTRUCTED A SCHOOL BUILDING ON THE LAND OWNED BY THE TREASURER OF THE SOCIETY, SMT. T. MARY PHILIP. THE ASSESSEES AUTHORIZED REPRESENTATIVE ADMITTED THAT THE SO CALL ED LEASE DEED ITA NOS.1444 AND 1445 OF 2014 GOOD SHEPHERD EDUCATI ON SOCIETY NANDYAL PAGE 2 OF 6 WAS IN FACT AN AGREEMENT FOR THE LEASE EXECUTED ON A RS.50/- STAMP PAPER AND THAT THE SAME WAS NOT REGISTERED. I N VIEW OF THIS ADMISSION OF THE REPRESENTATIVE OF THE ASSESSE E, THE AO CAME TO THE CONCLUSION THAT THE FUNDS OF THE SOCIETY WER E GIVEN AWAY TO THE TREASURER OF THE SOCIETY WITHOUT ANY SECURITY. HE ALSO OBSERVED THAT THE MUNICIPAL SANCTION FOR THE SCHOOL BUILDING WAS OBTAINED BY THE LAND OWNER SMT. T. MARY PHILIP. THU S, HE OBSERVED THAT IN THE ABSENCE OF LEGALLY ENFORCEABLE LEASE AGREEMENT, THERE IS NO SECURITY FOR THE FUNDS MADE OVER BY THE SOCIETY TO THE LAND OWNER AND THERE IS NO WAY THE C ONTINUED USER OF THE BUILDING COULD BE LEGALLY ENFORCED BY THE SO CIETY , NOR FOR THE RETURN OF THE SOCIETYS HUGE FUNDS. HE, THEREF ORE, HELD THAT THE UNAUTHORIZED ACTION OF THE SOCIETY ATTRACTS THE PROVISIONS OF SECTION 13(1)(C) OF THE ACT. FURTHER HE OBSERVED TH AT THE AFFAIRS OF THE SOCIETY ARE BEING RUN AS IF IT IS A FAMILY CONC ERN AND FOR THE BENEFIT OF THE FAMILY MEMBERS OF THE TREASURER AS T HE MEMBERS OF THE SOCIETY ARE CLOSE BLOOD RELATIONS. FURTHER HE O BSERVED THAT THE EXEMPTION PROVISIONS CONTAINED IN SECTIONS 10(2 3C)(IIIAD) AND (VI) ARE APPLICABLE ONLY WHEN THE INSTITUTIONS ARE RUN WITH A NO PROFIT MOTIVE. SINCE ACCORDING TO HIM, THE ENTIRE I NCOME OF THE SOCIETY INCLUDING THAT OF THE SCHOOL LOOSES THE BEN EFIT OF EXEMPTION U/S 11 OF THE I.T. ACT, THE ASSESSEE IS NOT ELIGIBLE FOR EXEMPTION U/S 11 AND U/S 10(23C)(IIIAD) OF THE ACT ALSO FOR THE INCOME OF THE SCHOOL. THE ASSESSMENT WAS ACCORDINGL Y CONCLUDED BY DISALLOWING THE EXEMPTION AS WELL AS THE CLAIM O F DEPRECIATION ON THE BUILDING NOT OWNED BY THE SOCIETY. AGGRIEVED , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A), WHO ALLOWED THE SAME AND THE REVENUE IS IN APPEAL BEFORE US. 3. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT THE SOCIETY IS FORMED BY THE FAMILY MEMBERS OF SMT. T. MARY PHILIP WHO IS THE TREASURER OF THE SOC IETY. HE ITA NOS.1444 AND 1445 OF 2014 GOOD SHEPHERD EDUCATI ON SOCIETY NANDYAL PAGE 3 OF 6 SUBMITTED THAT THE LAND OF THE TREASURER WAS ALLEGE DLY TAKEN ON LEASE BY THE ASSESSEE SOCIETY AND A SCHOOL BUILDING WAS CONSTRUCTED THEREON BY UTILIZATION OF HUGE FUNDS OF THE SOCIETY. HE SUBMITTED THAT THERE WAS NO SECURITY FOR THE AMO UNT ADVANCED TO THE TREASURER OF THE SOCIETY FOR CONSTR UCTION OF THE BUILDING AND THEREFORE, THE PROVISIONS OF SECTION 1 31(C) OF THE ACT ARE APPLICABLE AND THEREFORE, THE ASSESSEE IS NOT E LIGIBLE FOR EXEMPTION U/S 11 OF THE ACT. HE FURTHER SUBMITTED T HAT THE ASSESSEE SOCIETY WAS NOT ESTABLISHED SOLELY FOR THE PURPOSE OF EDUCATION AND THEREFORE, THE ASSESSEE WAS NOT ELIGI BLE FOR EXEMPTION U/S 10(23C)(IIIAD) OF THE I.T. ACT AS WEL L . HE SUBMITTED THAT THE CIT (A), ON AN ERRONEOUS APPRECI ATION OF FACTS, HAS ALLOWED THE CLAIM OF THE EXEMPTION U/S 10(23C)( IIIAD) OF THE ACT, EVEN THOUGH THE ASSESSEE HAS NOT RAISED ANY GR OUND OF APPEAL BEFORE THE CIT (A) ON THIS ISSUE. THUS ACCOR DING TO HIM THE ORDER OF THE CIT (A) IS TO BE SET ASIDE. 4. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, SUPPORTED THE ORDER OF THE LEARNED CIT (A) AND REIT ERATED THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AUTHORI TIES BELOW. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO FILED A PAPER BOOK CONTAINING PAGES 1 TO 48 IN SUPPORT OF HIS CONTENTI ONS AND HAS DRAWN MY ATTENTION TO THE LEASE DEEDS EXECUTED ON 1 .4.2000 AND 13.06.2006 RESPECTIVELY AND ALSO THE MEMORANDUM OF UNDERSTANDING EXECUTED ON 10.04.2001. COPY OF THE R EGISTRATION CERTIFICATE U/S 12AA OF THE ACT, DATED 25.11.2002 I S ALSO FILED BEFORE ME. 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND MATER IAL ON RECORD, I FIND THAT THE ASSESSEE IS A REGISTERED SO CIETY, VIDE CERTIFICATE NO.GI/NIL/2004 DATED 26.03.2004 ISSUED BY THE DISTRICT REGISTRAR (REGISTRATION AND STAMPS: KURNOO L). VIDE ORDER ITA NOS.1444 AND 1445 OF 2014 GOOD SHEPHERD EDUCATI ON SOCIETY NANDYAL PAGE 4 OF 6 DATED 25.11.2002, THE ASSESSEE IS ALSO GRANTED REGI STRATION U/S 12AA OF THE I.T. ACT AND THEREFORE, IT IS CLEAR THA T THE REVENUE IS SATISFIED ABOUT THE CHARITABLE ACTIVITIES OF THE SO CIETY. THE SOCIETY HAD ENTERED INTO A LEASE AGREEMENT WITH THE TREASUR ER OF THE SOCIETY, SMT. T. MARY PHILIP BY EXECUTING A LEASE D EED ON 1.4.2000 IN ORDER TO TAKE THE LAND OF THE LAND OWNE R ON LEASE FOR A PERIOD OF ONE YEAR ON A MONTHLY RENT OF RS.8000 W ITH PERMISSION TO CONSTRUCT A SCHOOL BUILDING THEREON. FURTHER I ALSO FIND THAT THE ASSESSEE AND SMT. T. MARY PHILIP HAVE ENTERED INTO MEMORANDUM OF UNDERSTANDING (MOU) ON 10.04.2001 TO CLARIFY WITH REGARD TO THE COST OF CONSTRUCTION OF THE STRU CTURES RAISED OR TO BE RAISED ON THE PART OF THE SAID LAND. THE CLAU SE NO.2 OF THE MOU WAS THAT THE LANDLORD ACCEPTS THAT SHE WOULD RE IMBURSE THE COST OF THE CONSTRUCTION OF THE STRUCTURES TO THE S OCIETY, IN CASE THE SOCIETY VACATES THE PROPERTY EITHER ON ITS OWN OR AT THE INSTANCE OF THE LAND OWNER ON ACCOUNT OF BREACH OF ANY OF THE TERMS AND CONDITIONS OF THE LEASE AGREEMENT, WHILE CLAUSE 3 MENTIONS THAT THE MARKET VALUE OF THE STRUCTURES AS ON THE DATE OF VACATING THE PREMISES AS FIXED BY THE REGISTERED VALUER WOULD BE THE AMOUNT TO BE REIMBURSED BY THE LAND OWNER TO THE SOCIETY. ACCORDINGLY, THE ASSESSEE HAS CONSTRUCTED THE BUILD ING ON THE SAID LAND. ASSESSEE HAS ALSO FURTHER EXECUTED ANOTH ER LEASE DEED ON 13.06.2006 FOR TAKING THE CONSTRUCTED SCHOOL BUI LDING ON RENT ON A MONTHLY RENT OF RS.10,000/-. CLAUSE NO.14 THER EOF ALSO SPECIFIES THAT THE LESSOR AGREES TO PAY THE AMOUNT OR MONEY FOR THE VALUE OF THE STRUCTURES/BUILDING CONSTRUCTED BY THE SOCIETY (CESSEE) AT THE TIME OF VACATION OF PREMISES BY THE SOCIETY, AS PER THE MARKET VALUE PREVAILING AT THE TIME OF VACATION OF THE SCHEDULED PROPERTY OR AS PER THE VALUE ARRIVED AT B Y BOTH THE PARTIES BY MUTUAL CONSENT. THUS, FROM THE ABOVE CLA USES OF THE AGREEMENTS, IT IS CLEAR THAT THE ASSESSEE HAD ACQUI RED THE PERMISSION TO CONSTRUCT THE STRUCTURES ON THE LEASE HOLD LAND AND ITA NOS.1444 AND 1445 OF 2014 GOOD SHEPHERD EDUCATI ON SOCIETY NANDYAL PAGE 5 OF 6 THAT THE LESSOR HAS ALSO AGREED FOR THE RETURN OF T HE VALUE OF THE STRUCTURES AT THE TIME OF VACATION OF THE BUILDING. I ALSO FIND FROM THE BALANCE SHEET OF THE ASSESSEE THAT THE BUI LDINGS ARE SHOWN TO BE OWNED BY THE ASSESSEE ITSELF. IN VIEW O F THE SAME, I AM OF THE OPINION THAT THE FUNDS ADVANCED BY THE AS SESSEE SOCIETY TO ITS TREASURER ARE SECURED BY THE ABOVE A GREEMENTS AND HENCE THERE IS NO VIOLATION OF ANY PROVISIONS OF TH E INCOME TAX ACT AND THAT THE PROVISIONS OF SECTION 131(C) ARE N OT ATTRACTED. FURTHER I ALSO FIND FROM THE OBJECTIVES AND AIMS OF THE SOCIETY WHICH ARE REPRODUCED BY THE CIT (A) AT PARA 7.4 OF ITS ORDER THAT THE AIMS AND OBJECTIVES OF THE SOCIETY ARE RUNNING OF AN EDUCATIONAL INSTITUTION AND CARRYING ON OF ANCILLAR Y ACTIVITIES. THE CIT (A) HAS FURTHER HELD THAT THE PROFIT AND LOSS A CCOUNT OF TWO YEARS ALSO SHOWS THAT THE ASSESSEE IS ONLY IN THE A CTIVITY OF RUNNING OF THE EDUCATIONAL INSTITUTIONS. THE LEARNE D DR HAS NOT BEEN ABLE TO BRING ON RECORD ANY MATERIAL EVIDENCE TO REBUT THIS FINDING OF THE CIT (A). THAT BEING THE CASE, I AM A LSO OF THE OPINION THAT THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S 10(23C)(IIIAD) OF THE ACT. ON GOING THROUGH FORM NO .35 AND THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE BEFORE THE CIT (A), I FIND THAT THE ASSESSEE HAD NOT RAISED ANY GROUNDS O F APPEAL BEFORE THE CIT (A) FOR EXEMPTION U/S 10(23C)(IIIAD) OF THE ACT. HOWEVER, THE POWERS OF THE CIT (A) ARE CO-TERMINUS WITH THE POWERS OF THE AO AND THE CIT (A) U/S 251 HAS THE PO WER EITHER QUASH THE ASSESSMENT OR ENHANCE THE ASSESSMENT. U/S 251, THE CIT (A) IS EMPOWERED TO CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT. SUB-SECTION (5) OF SECTION 250 PROVIDES THAT THE CIT (A) MAY, AT THE TIME OF APPEAL, ALLOW THE APPELLANT TO GO INTO ANY GROUND OF APPEAL NOT SPECIFIED IN THE GROUNDS OF AP PEAL, IF THE CIT (A) IS SATISFIED THAT THE OMISSION OF THAT GROU ND IN THE FORM OF APPEAL WAS NOT WILLFUL OR UNREASONABLE. I FIND THAT THE ASSESSEES CLAIM U/S 10(23C)(IIIAD) WAS MADE BEFORE THE AO, BU T THE AO HAS ITA NOS.1444 AND 1445 OF 2014 GOOD SHEPHERD EDUCATI ON SOCIETY NANDYAL PAGE 6 OF 6 DENIED THE SAID EXEMPTION. DURING THE APPELLATE PRO CEEDINGS, THE ENTIRE CLAIM OF THE ASSESSEE IS BEFORE THE CIT (A) AND THEREFORE, THE CIT (A) HAS THE POWER TO CONSIDER ENTIRE CLAIM OF THE ASSESSEE I.E. EXEMPTION U/S 11 OR U/S 10(23C)(IIIAD) OF THE ACT. THEREFORE, THE CIT (A) HAS THE POWER TO CONSIDER THE ASSESSEE S ALTERNATIVE CLAIM OF EXEMPTION U/S 10(23C)(IIIAD) OF THE ACT, E VEN THOUGH THE ASSESSEE HAS NOT SPECIFICALLY RAISED THE GROUND OF APPEAL IN FORM NO.35 OF THE ACT. THEREFORE, SINCE THE ASSESSEE IS ENTITLED TO THE DEDUCTION U/S 10(23C)(IIIAD) OF THE ACT AND ALSO U/ S 11 OF THE I.T. ACT, I DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT (A). 6. IN THE RESULT, REVENUES APPEALS FOR BOTH THE A. YS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH OCTOBER, 2015. S D/ - (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 9 TH OCTOBER, 2015. VNODAN/SPS COPY TO: 1. DY. DIRECTOR OF INCOME TAX (EXEMPTIONS)-II, 3 RD FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 500004 2. GOOD SHEPHERD EDUCATIONAL SOCIETY, NGOS SOCIETY, NANDYAL, KURNOOL DISTT. 3. CIT(A)-IV, HYDERABAD 4. DIRECTOR OF INCOME TAX (EXEMPTIONS) HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER