Dy.Director of Income-Tax (Exemptions)-II, Hyderabad V. Vijaya Charity Trust, Hyderabad

ITA 1446/HYD/2014

• Counselvise Citation: 144622514 RSA 2014
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 08-08-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 01-09-2014
• Court: TRIBUNAL
• Department Lawyers: S K GUPTA
• Assessee Lawyers: S RAMA RAO
• Keywords: Gift
• Section: 12AA; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. ASST. YEAR APPELLANT RESPONDENT 1446/HYD/2014 2004-05 DY. DIRECTOR OF INCOME TAX (EXEMPTIONS)-II, HYDERABAD VIJAYA CHARITY TRUST, MEHDIPATNAM, HYDERABAD [PAN: AAATV5403C] 1449/HYD/2014 VIJAYA CHARITY TRUST, MEHDIPATNAM, HYDERABAD [PAN: AAATV5403C] DY. DIRECTOR OF INCOME TAX (EXEMPTIONS)-II, HYDERABAD FOR REVENUE : SHRI S.K. GUPTA, DR FOR ASSESSEE : SHRI S. RAMA RAO, AR DATE OF HEARING : 18-09-2015 DATE OF PRONOUNCEMENT : 30-09-2015 O R D E R THESE ARE CROSS-APPEALS BY ASSESSEE AND REVENUE AG AINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-IV, H YDERABAD DATED 13-06-2014. BOTH ASSESSEE AND REVENUE AGGRIEVED ON THE ORDER OF CIT(A). 2. BRIEFLY STATED, ASSESSEE, EVEN THOUGH REGISTERED UNDER THE REGISTRATION OF TRUSTS, HOWEVER HAS NOT BEEN REGIST ERED U/S. 12AA OF THE INCOME TAX ACT [ACT]. IN FACT, ASSESSEE HAS NOT EV EN APPLIED FOR REGISTRATION. IT IS RUNNING A SCHOOL AND HAS CERTAI N RECEIPTS FROM THE SCHOOL. IT ALSO SOLD SOME PROPERTY DURING THE YEAR ON WHICH THERE IS A CAPITAL GAIN. AS PER THE INCOME AND EXPENDITURE ST ATEMENT FURNISHED ALONG WITH RETURN, ASSESSEE HAS FEES RECEIPTS OF RS . 5,31,665/- AND PROFIT ON SALE OF PLOT AT RS. 8,45,510/-. ASSESSEE CLAIMED EXEMPTION U/S. 10(23C)(IIIAD) OF THE ENTIRE INCOME AND FILED NIL R ETURN. DURING THE I.T.A. NOS. 1446 & 1449/HYD/2014 VIJAYA CHARITY TRUST :- 2 -: COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER (AO) DID NOT ALLOW THE DEDUCTION U/S. 10(23C)(IIIAD) BOTH ON THE RECEI PTS OF SCHOOL AS WELL AS PROFIT ON SALE OF PLOT. AO WAS OF THE OPINION THA T SINCE THE OBJECTS OF ASSESSEE DOES NOT HAVE ANY OBJECT OF RUNNING SCHOOL S, ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S. 10(23C). HE TOOK THE R ECEIPTS FROM THE SCHOOL AT NIL AS AGAINST LOSS REPORTED AND BROUGHT TO TAX LONG TERM CAPITAL GAIN AND ASSESSED TOTAL INCOME AT RS. 8,39,884/-. 3. IN APPEAL BEFORE THE LD. CIT(A), IT WAS CONTENDE D THAT AOS OBSERVATION OF ASSESSEE NOT PURSUING THE OBJECTS WH ILE RUNNING A SCHOOL IS NOT CORRECT AND FILED THE TRUST DEED AND SUBMITT ED THAT THE ONLY AIM AND OBJECT WAS TO PROVIDE EDUCATION AND IT WAS RUNN ING AN EDUCATIONAL INSTITUTION FOR THAT PURPOSE. LD. CIT(A) UPHELD AS SESSEES CONTENTIONS AND ALLOWED THE EXEMPTION U/S. 10(23C) BY STATING A S UNDER: 5.3 I FAIL TO UNDERSTAND THE SIGNIFICANCE OF THES E OBSERVATIONS OF THE ASSESSING OFFICER. EVEN IF THE ASSESSING OFFICERS OBSERVATIONS AND CONCLUSIONS ARE HELD TO BE CORRECT, IT HAS NO MATERIAL INFLUENCE ON THE ISSUES IN THE CASE. I T IS NOT DISPUTED THAT THE APPELLANT IS RUNNING A SCHOOL. THE APPELLA NTS CLAIM OF EXEMPTION IS UNDER SEC.10(23C)(IIIAD). THIS DOES NO T REQUIRE ANY REGISTRATION, AS FOR MAKING A CLAIM UNDER SEC.11 OR EVEN UNDER SOME OF THE OTHER CLAUSES OF SEC.10(23C). SEC.10(23C) A PPLY TO ANY INCOME RECEIVED BY ANY PERSON ON BEHALF OF .. (E MPHASIS ADDED). THEREFORE, THE BENEFIT OF THIS SECTION IS AVAILABLE TO AN AOP AS MUCH TO A TRUST AND THE APPELLANT IS NEITHER REQ UIRED TO BE A VALID TRUST IN ORDER TO CLAIM ITS BENEVOLENCE NOR EVEN TO HAVE ANY SET OF WEE-DEFINED OBJECTS. 5.4 I, THEREFORE, HOLD THAT THE ASSESSING OFFICERS CONCLUSION THAT THE APPELLANT WAS NOT PURSUING ITS OBJECTS WHI LE RUNNING THE SCHOOL HAD NO SIGNIFICANCE FOR THE APPELLANTS CLAI M. 4. REVENUE IS AGGRIEVED ON THIS ISSUE AND RAISED GR OUNDS THAT CIT(A) OUGHT TO HAVE APPRECIATED THAT AS PER THE OBJECTS A SSESSEE-TRUST IS NOT I.T.A. NOS. 1446 & 1449/HYD/2014 VIJAYA CHARITY TRUST :- 3 -: EXISTING SOLELY FOR EDUCATIONAL PURPOSES AND HENCE, IT IS NOT ELIGIBLE FOR EXEMPTION U/S. 10(23C)(IIIAD) OF THE ACT. 5. LD. DR SUBMITTED THAT ASSESSEE-TRUST IS BEING AS SESSED AS AOP AND THEREFORE, IT IS NOT ELIGIBLE FOR CLAIM U/S. 10 (23C). FURTHER, THIS IS NOT EXISTING SOLELY FOR EDUCATIONAL PURPOSES AND RE FERRED TO THE OBJECTS WHICH INCLUDE MEDICAL RELIEF TO THE NEEDY POOR AND RUNNING OF ORPHANAGE HOMES, TO THE OLD AGE HOMES, INSTITUTIONS FOR PROTE CTION OF ORPHANS ETC. HE REFERRED TO THE PROVISIONS OF SECTION 10(23C) TO SUBMIT THAT THE WORD USED SOLELY SHOULD BE CONSIDERED THAT TRUST SHOUL D EXIST SOLELY FOR THE PURPOSE OF EDUCATION. LD. AR, HOWEVER, SUBMITTED T HAT TRUST AND EDUCATIONAL INSTITUTION ARE ENTIRELY DIFFERENT AND WHAT THE PROVISION EXEMPTS ARE THE RECEIPTS FROM/INCOMES FROM EDUCATI ONAL INSTITUTIONS EXISTING SOLELY FOR EDUCATIONAL PURPOSES AND ASSES SEE FULFILLS THE CONDITIONS PRESCRIBED UNDER THE ACT. 6. I HAVE CONSIDERED THE ISSUE AND EXAMINED THE RIV AL CONTENTIONS AND THE PROVISIONS. AS FAR AS SECTION 10(23C) IS C ONCERNED IT PROVIDES FOR EXEMPTION OF ANY INCOME RECEIVED BY ANY PERSON ON BEHALF OF ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT IF THE AGGREGATE ANNUAL RECEIPTS OF SUCH UNIVERSITY OR EDUCATIONAL I NSTITUTION DO NOT EXCEED THE AMOUNT OF ANNUAL RECEIPTS AS MAY BE PRESCRIBED . THERE IS NO DISPUTE WITH REFERENCE TO THE LATER PART OF THE CONDITION A S ASSESSEES RECEIPTS ARE ONLY TO AN EXTENT OF RS. 5,32,000/-. AS CAN BE SEE N FROM THE ABOVE PROVISION, REFERENCE IS ONLY TO THE INCOME RECEIVED ON BEHALF OF OTHER EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATI ONAL PURPOSES. THE INTENTION OF LEGISLATURE IS VERY CLEAR THAT THE EDU CATIONAL INSTITUTION SHOULD EXIST SOLELY FOR EDUCATIONAL PURPOSES THEN, THE RECEIPTS OR INCOME RECEIVED BY ANY PERSON IS EXEMPT. HERE ANY PERSON CAN BE AOP ALSO. IN I.T.A. NOS. 1446 & 1449/HYD/2014 VIJAYA CHARITY TRUST :- 4 -: FACT, THERE IS NO SEPARATE STATUS OF TRUST AS DEFIN ED UNDER THE DEFINITION OF PERSON. TRUSTS AND SOCIETIES ARE GENERALLY CA TEGORIZED UNDER THE CLASS ASSESSMENT OF PERSONS OR BODY OF INDIVIDUA LS WHETHER INCORPORATED OR NOT? THEREFORE, REVENUES OBJECTIO N THAT ASSESSEE-TRUST IS ASSESSED AS AN AOP AND THEREFORE, DOES NOT ENTIT LE FOR SECTION 10(23C) EXEMPTION HAS NO VALIDITY, BECAUSE PROVISIONS OF SE CTION 10(23C) ARE APPLICABLE TO ANY INCOME OF THE NATURE PRESCRIBED R ECEIVED BY ANY PERSON. CONSEQUENTLY, SINCE THE SCHOOL IS EXISTING SOLELY FOR THE PURPOSE OF EDUCATION AND THE RECEIPTS FROM THE SCHOOL ARE C OVERED BY THE PROVISIONS OF SECTION 10(23C)(IIIAD), I CONCUR WIT H THE OPINION OF THE LD. CIT(A), IN GRANTING THE EXEMPTION TO ASSESSEES REC EIPTS. THERE IS NO MERIT IN REVENUES GROUNDS RAISED AND ACCORDINGLY R EVENUES APPEAL IS DISMISSED. 7. THE OTHER ISSUE AGITATED BY ASSESSEE IS WITH REF ERENCE TO EXEMPTION CLAIMED ON THE CAPITAL GAINS INCOME RECEIVED BY THE TRUST. ASSESSEE HAD RECEIVED A PLOT OF LAND THROUGH A GIFT DEED DT. 15- 09-2000, THE SAME WAS SOLD FOR A SUM OF RS. 8,56,000/- AND COMPUTED THE C APITAL GAINS AT RS. 8,39,884/-. IN THE COURSE OF ASSESSMENT PROCEEDING S, ASSESSEE CLAIMED EXEMPTION OF THIS AMOUNT, ON THE REASON THAT SALE P ROCEEDS HAVE BEEN APPLIED TO CHARITY I.E., RUNNING SCHOOL. AO REJEC TED THIS CLAIM ON THE GROUND THAT IN THE ABSENCE OF A VALID TRUST, THE AS SET BEING AN AOP AND THE LAND HAD NEVER BEEN SHOWN TO BE AN ASSET OF THE SCHOOL AND CONSEQUENTLY, THE EXEMPTION CANNOT BE EXTENDED TO T HE CAPITAL GAINS DERIVED BY ASSESSEE-TRUST. HE TAXED THE ENTIRE AMO UNT AND LEVIED TAX AT 20% ON LONG TERM CAPITAL GAIN SO ASSESSED. 8. BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT WHI LE APPELLANT COULD BE TREATED AS AN AOP, ITS INCOME WAS EXEMPT U/S. 11 OF THE ACT AND AIMS AND OBJECTS OF ASSESSEE WAS TO PROVIDE EDUCATI ON AS IT WAS RUNNING I.T.A. NOS. 1446 & 1449/HYD/2014 VIJAYA CHARITY TRUST :- 5 -: AN EDUCATIONAL INSTITUTION AND CONSEQUENTLY, EXEMPT ION U/S. 11 OR U/S. 10(23C) WAS AVAILABLE TO ASSESSEE. LD. CIT(A) HOWE VER, DID NOT AGREE WITH THE CONTENTIONS OF ASSESSEE. ORDER OF CIT(A) IN PARA 6.3 AND 6.4 ARE AS UNDER: 6.3 THERE IS NO REFERENCE TO EXEMPTION U/S. 11 IN THE ASSESSMENT ORDER. IN AN UNDATED NOTE SUBMITTED BEF ORE THE ASSESSING OFFICER BY SRI V. KRISHNA MURTHY, IT WAS SUBMITTED THAT THE APPELLANT HAD CLAIMED EXEMPTION U/S. 10(23C)(II IAD). THERE IS NO INDICATION OF ANY CLAIM U/S. 11 BEING MADE BEFOR E THE ASSESSING OFFICER NOR OF ANY SUCH CLAIM HAVING BEEN EXAMINED BY THE LATTER. THE REQUIREMENT OF SECTION 11 ARE ENTIRELY DIFFEREN T FROM THOSE OF SEC.10(23C)(IIIAD). NO EVIDENCE HAS BEEN FILED TO SHOW THAT THE APPELLANT IS REGISTERED U/S. 12AA. FURTHER, AS POI NTED OUT BY THE ASSESSING OFFICER, WHILE THE AIMS AND OBJECTS OF TH E TRUST AS PER THE TRUST DEED INCLUDE TO RENDER FINANCIAL HELP TO ANY EDUCATIONAL, MEDICAL OR CHARITABLE ORGANIZATION, THE APPELLANT IS ITSELF ENGAGED IN RUNNING AN EDUCATIONAL INSTITUTION. CONTRARY TO TH E APPELLANTS SUBMISSIONS IN THIS REGARD, THE TWO CANNOT BE TREAT ED AS SAME. RENDERING OF FINANCIAL HELP WOULD IMPLY A PAYMENT P ER SE, WHETHER A ONETIME PAYMENT OR A PERIODIC ONE. ON THE OTHER HAND, THE RUNNING OF AN EDUCATIONAL INSTITUTION INVOLVES ITS ACTUAL ADMINISTRATION ON A DAY TO DAY BASIS. IT CANNOT TH EREFORE BE SAID THAT THE ACTIVITIES OF THE APPELLANT WERE IN ACCORD ANCE WITH ITS OBJECTIVES AS PER THE TRUST DEED AND THAT BEING SO, THE APPELLANT CANNOT BE HELD TO BE ELIGIBLE FOR EXEMPTION U/S. 11 . 6.4 WHAT NEEDS TO BE EXAMINED HERE HOWEVER, IS WHET HER THE CAPITAL GAINS CAN BE SAID TO BE EXEMPT U/S. 10(23C) (IIIAD). EXEMPTION U/S. 10(23C)(IIIAD) IS AVAILABLE TO ANY INCOME RECEIVED ON BEHALF OF ANY EDUCATIONAL INSTITUTION EXISTING S OLELY FOR EDUCATIONAL PURPOSES. THE CAPITAL GAINS ARE OBVIO USLY NOT A RECEIPT FROM THE ACTIVITY OF RUNNING AN EDUCATIONAL INSTITU TION. FURTHER, THE ASSET SOLD BY THE APPELLANT WAS ADMITTEDLY AN ASSET BELONGING TO THE APPELLANT AND NOT TO THE EDUCATIONAL INSTITUTIO N BEING RUN BY IT. THEREFORE THE EXEMPTION U/S. 10(23C)(IIIAD) CANNOT BE EXTENDED TO ANY AND EVERY INCOME OF AN ASSESSEE ENGAGED IN RUNN ING AN EDUCATIONAL INSTITUTION. THE ASSESSING OFFICER HAS THEREFORE CORRECTLY BROUGHT THE CAPITAL GAINS TO TAX AS AN IN COME NOT EXEMPT UNDER THIS SECTION. 9. ASSESSEE AGGRIEVED AND RAISED THE FOLLOWING GROU NDS: I.T.A. NOS. 1446 & 1449/HYD/2014 VIJAYA CHARITY TRUST :- 6 -: 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE IN COME ON SALE OF LAND DERIVED BY THE APPELLANT IS NOT ENTITL ED FOR DEDUCTION U/S. 10(23C)(IIIAD) OF THE I.T.ACT. 3. THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE T AX IS TO BE COLLECTED ONLY AFTER DEDUCTION OF THE MINIMUM TA XABLE AMOUNT OF RS. 50,000/-. 4. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THERE WAS LOSS IN RUNNING THE EDUCATIONAL INST ITUTION AND SUCH AMOUNT IS TO BE REDUCED FROM THE PROFIT ON SAL E OF LAND. 10. AFTER HEARING THE LD. COUNSEL AND LD. DR AND PE RUSING THE PAPER BOOK PLACED ON RECORD, I AGREE WITH THE ORDER OF TH E LD. CIT(A). ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 11 AS IT IS NOT REGISTERED U/S.12AA OF THE INCOME TAX ACT. APART FROM THE RECEIPTS FROM S CHOOL, ASSESSEE HAD INCOME FROM CAPITAL GAINS ON SALE OF PROPERTY. IT IS SEEN THAT THE PROPERTY WAS A GIFT TO ASSESSEE-TRUST AND NOT TO SC HOOL I.E., EDUCATIONAL INSTITUTION. MOREOVER, SAID PLOT WAS ALSO NOT BEIN G USED FOR THE PURPOSE OF EDUCATIONAL INSTITUTION AS THE SCHOOL IS BEING R UN IN A RENTED BUILDING. THEREFORE, THE PROPERTY WHICH WAS SOLD WAS PROPERTY OF THE TRUST BUT NOT PROPERTY OF THE EDUCATIONAL INSTITUTION. THEREFORE , I AM OF THE OPINION THAT THE GAIN FROM SALE OF PROPERTY CANNOT BE CONSI DERED AS INCOME DERIVED BY THE EDUCATIONAL INSTITUTION SO AS TO CON SIDER IT AS EXEMPT U/S. 10(23C)(IIIAD) OF THE ACT. THE ORDER OF CIT(A) ON THIS ISSUE IS TO BE UPHELD AND ACCORDINGLY, THE GROUND NO.2 RAISED BY ASSESSEE ON THIS ISSUE IS REJECTED. 11. GROUND NO.3 IS ON ALLOWING THE MINIMUM DEDUCTIO N OF RS. 50,000/-. IT WAS THE CONTENTION THAT AO BROUGHT TO TAX ENTIRE CAPITAL GAIN WITHOUT ALLOWING THE MINIMUM NON-TAXABLE AMOUN T OF RS. 50,000/- AS PER THE FINANCE ACT. THIS CONTENTION OF ASSESSE E IS TO BE ALLOWED AS THE RATE FOR THE PURPOSE OF TAXING THE INCOME IS PR ESCRIBED UNDER THE FINANCE ACT AND MINIMUM AMOUNT EXEMPT FROM TAX HAS TO BE ALLOWED TO I.T.A. NOS. 1446 & 1449/HYD/2014 VIJAYA CHARITY TRUST :- 7 -: ASSESSEE. I AM SURPRISED AT THE OPINION OF CIT(A) THAT ASSESSEE HAS NOT MADE ANY SUBMISSIONS IN THIS REGARD AND DID NOT FIN D ANY BASIS FOR THIS CLAIM. LAW WHICH PRESCRIBES MINIMUM TAXABLE AMOUNT OF RS. 50,000/- IN THE CASE OF AOP AND AO IS BOUND TO ALLOW THE EXE MPTION OF THIS AMOUNT. THEREFORE, THIS GROUND OF ASSESSEE IS ALLO WED. 12. GROUND NO. 4 PERTAINS TO SETTING OFF THE LOSS I N RUNNING THE EDUCATIONAL INSTITUTION TO THE PROFIT ON SALE OF LA ND. ASSESSEES CLAIM IS THAT IT HAS INCURRED LOSS IN RUNNING THE SCHOOL AND THE SAME HAS TO BE SET OFF TO THE PROFIT ON SALE OF LAND. IF ASSESSEE IS ASSESSED U/S. 11, THE EXEMPTION COULD HAVE BEEN CONSIDERED AS PER ASSESSE ES CONTENTIONS BUT IN THIS CASE, ASSESSEES CLAIM IS EXEMPTION U/S. 10 (23C). INCOMES U/S. 10 ARE NOT TO BE FORMING PART OF GROSS TOTAL INCOME AND ITS OUTSIDE THE PURVIEW OF COMPUTATION OF INCOME, THEREFORE, WHETHE R THERE IS INCOME OR LOSS, THE SAME CANNOT BE CONSIDERED WHILE COMPUTING THE OTHER TAXABLE INCOMES. ACCORDINGLY, CIT(A) IS CORRECT IN NOT ALL OWING THE SET OFF OF THE LOSS INCURRED FROM THE EDUCATIONAL INSTITUTION. I DO NOT FIND ANY MERIT IN ASSESSEES CONTENTION, KEEPING IN VIEW OF SCHEME OF COMPUTATION OF INCOMES AND EXEMPTIONS BEING ALLOWED U/S. 10(23C). THE GROUND IS ACCORDINGLY, REJECTED. ASSESSEES APPEAL IS PARTLY ALLOWED. 13. IN THE RESULT, REVENUES APPEAL IS DISMISSED AN D ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER, 2015 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 30 TH SEPTEMBER, 2015 TNMM I.T.A. NOS. 1446 & 1449/HYD/2014 VIJAYA CHARITY TRUST :- 8 -: COPY TO : 1. DY. DIRECTOR OF INCOME TAX (EXEMPTIONS)-II, 3 RD FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. VIJAYA CHARITY TRUST, H.NO. 12-2-823/A25/1, SANT OSH NAGAR COLONY, MEHDIPATNAM, HYDERABAD. C/O. S. RAMA RAO, ADVOCATE, FLAT NO. 102, DOOR NO. 3-6-643, SHRIYAS ELEGANCE, STREET NO. 9, HIMAYATHNAGAR, HYDERABAD. 3. CIT(APPEALS)-IV, HYDERABAD. 4. THE DIRECTOR OF INCOME TAX (EXEMPTIONS), HYDERAB AD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.