Ganga Educational Society, Nizamabad, Hyderabad V. CIT (Exemptions), Hyderabad, Hyderabad

ITA 1471/HYD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2294 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 31-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Keywords: Benefit of exemption; Set aside
• Section: 12A; 13; 10(23C); 101; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1471/HYD/2016 GANGA EDUCATIONAL SOCIETY, NIZAMABAD [PAN: AAAAG5898B] VS CIT(EXEMPTIONS), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI A.V. RAGHU RAM, AR FOR REVENUE : SHRI PATHLAVATH PEERYA, CIT-DR DATE OF HEARING : 04-12-2017 DATE OF PRONOUNCEMENT : 20-12-2017 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (EXEMPTIONS)-HYDERABAD, D ATED 30-09-2016. ASSESSEE HAS RAISED THE FOLLOWING GROUN DS: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME -TAX (EXEMPTIONS) REJECTING APPROVAL U/S. 10(23C) ERRONE OUS BOTH ON FACTS AND IN LAW IS PERVERSE. 2. THE LEARNED CIT(E) ERRED IN HOLDING THAT THE OBJ ECT OF ADMITTING CHILDREN ENGAGED IN CHILD LABOUR FOR EDUCATION AS N OT AN OBJECT CONNECTED TO EDUCATION ON THE GROUND THAT THE SOCIE TY RUNS ONLY A PHARMACY COLLEGE WITHOUT APPRECIATING THE LEGAL POS ITION THAT THE SOCIETY NEED NOT CONFINE ITSELF ONLY TO RUNNING PHA RMACY COLLEGE BUT COULD OPEN OTHER EDUCATIONAL INSTITUTIONS AND FURTH ER THAT THE DECISION IN THE CASE OF NOBEL EDUCATIONAL SOCIETY O F THE A.P. HIGH I.T.A. NO. 1471/HYD/2016 :- 2 - : COURT IN FACT SUPPORTS GIVING APPROVAL WHERE THE OB JECTS ARE ANCILLARY TO THE OBJECT OF EDUCATION. GROUND NO.3 IS GENERAL IN NATURE. 2. BRIEFLY STATED, ASSESSEE IS A TRUST AND IS RECOGNIZ ED U/S. 12A OF THE INCOME TAX ACT [ACT]. ASSESSEE RUNS A PHARMAC Y COLLEGE. IT FILED AN APPLICATION SEEKING EXEMPTION U/S. 10(23C)( VI) OF THE ACT. LD.CIT(E) HAS REJECTED THE APPLICATION FOR THE FOLLOWI NG REASONS: 3. ON VERIFICATION OF THE AIMS AND OBJECTS OF THE SOCIETY MENTIONED IN THE MEMORANDUM OF THE SOCIETY SUBMITTED ALONG WI TH ITS APPLICATION IS FOUND TO INCLUDE THE FOLLOWING: 4. WE ARE MAKING EFFORTS TO PICK UP THE CHILDREN F ROM VARIOUS VILLAGES WHO ARE ENGAGED TO WORTH AND GIVING ADMISSION WITH REFERENC E TO CHILD LABOUR ACT. 4. IT CAN BE SEEN THAT THE AIMS AND OBJECTS OF THE SOCIETY MENTIONED SUPRA IS NOT 'SOLELY' FOR EDUCATIONAL PURPOSE. AS S EEN FROM THE INFORMATION FILED BY THE ASSESSEE, THE SOCIETY IS ENGAGED IN CA RRYING OUT EDUCATIONAL ACTIVITIES IN THE NAME AND STYLE OF 'GANGA PHARMACY COLLEGE'. THE OBJECTIVE MENTIONED SUPRA SPEAKS OF GIVING ADMISSION WITH REF ERENCE TO CHILD LABOUR ACT. THE SOCIETY RUNS ONLY A PHARMACY COLLEGE AND T HE OBJECTIVE MENTIONED SUPRA HAS NO RELEVANCE TO THE PHARMACY COLLEGE RUN BY THE SOCIETY. FURTHER, THE SOCIETY IS NOT RUNNING ANY SCHOOL TO C ONSIDER THIS OBJECTIVE THAT IS EXCLUSIVELY/SOLELY FOR EDUCATION PURPOSE. HENCE, THE EXISTENCE OF THE ABOVE MENTIONED OBJECT, WHICH IS NOT FOR EDUCAT IONAL PURPOSE MAKES AMPLY CLEAR THAT THE INTENTION OF THE SOCIETY IS NO T SOLELY AND EXCLUSIVELY FOR THE PURPOSES OF EDUCATION. 5. THE HON'BLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF M/S NEW NOBLE EDUCATIONAL SOCIETY HAS ALSO HELD THAT 'E VEN IF THE APPLICATIONS HAVE NOT APPLIED THEIR INCOME TO ACHIEVE THESE NON- EDUCATIONAL OBJECTS, THEY WOULD STILL BE DISENTITLED TO THE BENEFIT OF B EING EXEMPTED U/S.10(23C)(VI) OF THE I.T.ACT, 1961, AS THE EXEMPT ION THERE UNDER IS AVAILABLE ONLY TO EDUCATIONAL INSTITUTION WHOSE EXI STENCE IS SOLELY FOR THE PURPOSES OF EDUCATION.' THUS THE ASSESSEE HAS NOT F ULFILLED ONE OF THE PREREQUISITE CONDITIONS LAID DOWN UNDER SECTION 10( 23C)(VI) OF I.T. ACT, 1961. 6. IN VIEW OF THE FOREGOING, THE APPLICATION SEEKIN G APPROVAL U/S. 10(23C)(VI) OF THE I.T. ACT, 1961 SUBMITTED BY M/S. GANGA EDUCATIONAL I.T.A. NO. 1471/HYD/2016 :- 3 - : SOCIETY, NIZAMABAD, TELANGANA FOR ASSESSMENT YEAR 2 015-16 CANNOT BE ENTERTAINED AND ACCORDINGLY STANDS REJECTED. 3. CONTESTING THE ABOVE, IT WAS THE CONTENTION THAT THE SAID OBJECT IS AN ANCILLARY OBJECT AND THE DECISION OF THE H ON'BLE AP HIGH COURT IN FACT SUPPORTS THE CASE OF ASSESSEE. 4. LD.DR, RELIED ON THE ORDER OF LD.CIT(E). 5. WE HAVE CONSIDERED THE ISSUE. HON'BLE JURISDICTIO NAL HIGH COURT IN THE ABOVE REFERRED CASE OF NEW NOBLE EDUCA TIONAL SOCIETY & ORS. VS. CCIT & ANR. [334 ITR 303] HAS CONSIDERED THE ISSUE AND DECIDED AS UNDER: EXEMPTION UNDER S. 10(23C)(VI)EDUCATIONAL INSTITU TION EDUCATIONAL VIS-A-VIS OTHER PURPOSES IF THERE ARE SEVERAL OBJECTS OF A SOCIETY SOME OF WHICH RELATE TO 'EDUCATION', AND OT HERS WHICH DO NOT, AND THE TRUSTEES OR THE MANAGERS, IN THEIR DISCRETION, ARE ENTITLED TO APPLY THE INCOME OR PROPERTY TO ANY OF THOSE OBJECTS, THE INS TITUTION WOULD NOT BE ELIGIBLE TO BE REGARDED AS ONE EXISTING SOLELY FOR EDUCATIONAL PURPOSES, AND NO PART OF ITS INCOME WOULD BE EXEMPT FROM TAXBUT IF THE PRIMARY OR DOMINANT PURPOSE OF AN INSTITUTION IS 'EDUCATIONAL' , ANOTHER OBJECT WHICH IS MERELY ANCILLARY OR INCIDENTAL TO THE PRIMARY OR DOMINANT PURPOSE WOULD NOT DISENTITLE THE INSTITUTION FROM THE BENEFITTES T WHICH HAS, THEREFORE, TO BE APPLIED IS WHETHER THE OBJECT, WHICH IS SAID TO BE NON-EDUCATIONAL, IS THE MAIN OR PRIMARY OBJECT OF THE INSTITUTION OR IT IS ANCILLARY OR INCIDENTAL TO THE DOMINANT OR PRIMARY OBJECT WHICH IS 'EDUCATI ONAL'OBJECTS OF A SOCIETY, SUCH AS MAINTAINING UNITY AMONG MEMBERS, S OLVING PROBLEMS OF MEMBERS OF SOCIAL GROUNDS, PROVIDING EMPLOYMENT, PR OMOTING ECONOMIC NEEDS, AND UPLIFTMENT OF THE SOCIALLY AND ECONOMICA LLY WEAKER SECTIONS OF THE SOCIETY, CANNOT BE CHARACTERIZED AS THOSE WHERE BY THE EDUCATIONAL INSTITUTION CAN BE SAID TO EXIST SOLELY FOR THE PUR POSES OF EDUCATION PUBLICATION OF JOURNALS, MAGAZINES, OR OTHER MEDIA FOR DIFFUSION OF USEFUL KNOWLEDGE FOR PROMOTION OF EDUCATION IS INCIDENTAL AND ANCILLARY TO THE PRIMARY OBJECT OF THE SOCIETY I.E., TO RUN AN EDUCA TIONAL INSTITUTIONTO CONDUCT SEMINARS, SYMPOSIUMS, WORKSHOPS AND INVITE EXPERTS FROM INDIA AND ABROAD TO IMPROVE THE QUALITY OF EDUCATION AND TO SUPPORT STUDENTS TO ELEVATE THEMSELVES TO INTERNATIONAL STANDARDS IS AL SO INCIDENTAL AND ANCILLIARY TO THE PRIMARAY OBJECT OF EDUCATION I.T.A. NO. 1471/HYD/2016 :- 4 - : HELD : IF THERE ARE SEVERAL OBJECTS OF A SOCIETY SOME OF W HICH RELATE TO 'EDUCATION', AND OTHERS WHICH DO NOT, AND THE TRUSTEES OR THE MA NAGERS, IN THEIR DISCRETION, ARE ENTITLED TO APPLY THE INCOME OR PRO PERTY TO ANY OF THOSE OBJECTS, THE INSTITUTION WOULD NOT BE ELIGIBLE TO B E REGARDED AS ONE EXISTING SOLELY FOR EDUCATIONAL PURPOSES, AND NO PART OF ITS INCOME WOULD BE EXEMPT FROM TAX. IN OTHER WORDS, WHERE THE MAIN OBJ ECTS ARE DISTRIBUTIVE, EACH AND EVERYONE OF THEM MUST RELATE TO 'EDUCATION ' IN ORDER THAT THE INSTITUTION MAY BE HELD ENTITLED FOR THE BENEFITS U NDER S. 10(23C)(VI). BUT IF THE PRIMARY OR DOMINANT PURPOSE OF AN INSTITUTION I S 'EDUCATIONAL', ANOTHER OBJECT WHICH IS MERELY ANCILLARY OR INCIDENTAL TO T HE PRIMARY OR DOMINANT PURPOSE WOULD NOT DISENTITLE THE INSTITUTION FROM T HE BENEFIT. THE TEST WHICH HAS, THEREFORE, TO BE APPLIED IS WHETHER THE OBJECT, WHICH IS SAID TO BE NON-EDUCATIONAL, IS THE MAIN OR PRIMARY OBJECT O F THE INSTITUTION OR IT IS ANCILLARY OR INCIDENTAL TO THE DOMINANT OR PRIMARY OBJECT WHICH IS 'EDUCATIONAL'. THE TEST IS THE GENUINENESS OF THE P URPOSE TESTED BY THE OBLIGATION CREATED TO SPEND THE MONEY EXCLUSIVELY O N 'EDUCATION'. IF THAT OBLIGATION IS THERE, THE INCOME BECOMES ENTITLED TO EXEMPTION. ADDL. CIT VS. SURAT ART SILK CLOTH MANUFACTURERS A SSOCIATION (1979) 13 CTR (SC) 378 : (1980) 121 ITR 1 (SC) AND SOLE TRUST EE, LOKA SHIKSHANA TRUST VS. CIT 1975 CTR (SC) 281 : (1975) 101 ITR 23 4 (SC) RELIED ON. (PARA 29) OBJECTS OF A SOCIETY, SUCH AS MAINTAINING UNITY AMO NG MEMBERS, SOLVING PROBLEMS OF MEMBERS OF SOCIAL GROUNDS, PROVIDING EM PLOYMENT, PROMOTING ECONOMIC NEEDS, AND UPLIFTMENT OF THE SOCIALLY AND ECONOMICALLY WEAKER SECTIONS OF THE SOCIETY, CANNOT BE CHARACTERIZED AS THOSE WHEREBY THE EDUCATIONAL INSTITUTION CAN BE SAID TO EXIST SOLELY FOR THE PURPOSES OF EDUCATION. EVEN IF THE APPLICANTS HAVE NOT APPLIED THEIR INCOME TO ACHIEVE THESE NON-EDUCATIONAL OBJECTS, THEY WOULD STILL BE DISENTITLED TO THE BENEFIT OF BEING EXEMPTED UNDER S. 10(23C)(VI) AS THE EXEMP TION THEREUNDER IS AVAILABLE ONLY TO EDUCATIONAL INSTITUTIONS WHOSE EX ISTENCE IS SOLELY FOR THE PURPOSES OF EDUCATION. THE AFORESAID OBJECTS ARE NE ITHER INTEGRALLY CONNECTED WITH, NOR ARE THEY ANCILLARY OR INCIDENTA L TO, THE PRIMARY OBJECT OF 'EDUCATION'. ON A CONJOINT READING OF SUB-SS. (3 ) AND (4) OF S. 8 OF A.P. ACT 35 OF 2001, IT IS ONLY WHEN THE AMENDMENT TO TH E OBJECTS OF THE SOCIETY IS INTIMATED TO THE REGISTRAR AND THE REGISTRAR, ON BEING SATISFIED THAT THE AMENDMENT IS NOT CONTRARY TO THE PROVISIONS OF THE ACT, REGISTERS AND CERTIFIES SUCH AN ALTERATION, WOULD IT BE A VALID A LTERATION UNDER THE ACT. IT IS ONLY FROM THE DATE THE REGISTRAR CERTIFIES THE A LTERATION THAT THE AMENDMENT, TO THE OBJECTS OF THE SOCIETY, COMES INT O FORCE. THE CHIEF CIT CANNOT BE FAULTED FOR REJECTING THE APPLICATIONS SE EKING APPROVAL UNDER S. 10(23C)(VI). I.T.A. NO. 1471/HYD/2016 :- 5 - : (PARAS 30 TO 32) PUBLICATION OF JOURNALS, MAGAZINES, OR OTHER MEDIA FOR DIFFUSION OF USEFUL KNOWLEDGE FOR PROMOTION OF EDUCATION IS INCIDENTAL AND ANCILLARY TO THE PRIMARY OBJECT OF THE SOCIETY I.E., TO RUN AN EDUCA TIONAL INSTITUTION. IT IS THE APPLICANT'S CASE THAT PUBLICATION OF JOURNALS AND M AGAZINES IS TO PROVIDE KNOWLEDGE TO STUDENTS AND THE TEACHING STAFF. IN AS MUCH AS THE PETITIONER IS AN EDUCATIONAL INSTITUTION, THE MERE FACT THAT T HE OBJECT OF PUBLICATION OF JOURNALS AND MAGAZINES FOR PROMOTION OF EDUCATION I S NOT RESTRICTED, IN SO MANY WORDS, ONLY FOR THE BENEFIT OF STUDENTS AND TE ACHING STAFF IS OF NO SIGNIFICANCE. IT IS NOT EVEN THE CASE OF THE PRESCR IBED AUTHORITY THAT PUBLICATION OF THESE JOURNALS AND MAGAZINES WAS FOR ANYONE ELSE. THE PRESCRIBED AUTHORITY WAS, THEREFORE, NOT JUSTIFIED IN REJECTING THE APPLICATION ON THIS GROUND. (PARA 34) THE OBJECTS OF THE PETITIONER SOCIETY INCLUDED 'TO CONDUCT SEMINARS, SYMPOSIUMS, WORKSHOPS AND INVITE EXPERTS FROM INDIA AND ABROAD TO IMPROVE THE QUALITY OF EDUCATION AND TO SUPPORT STU DENTS TO ELEVATE THEMSELVES TO INTERNATIONAL STANDARDS', WHICH THE P RESCRIBED AUTHORITY HELD NOT TO BE FOR THE PURPOSES OF EDUCATION, IS IN CIDENTAL AND ANCILLARY TO THE PRIMARY OBJECT OF CARRYING ON EDUCATIONAL ACTIV ITIES BY THE EDUCATIONAL INSTITUTION. THE CHIEF CIT WAS, THEREFORE, NOT JUST IFIED IN REJECTING THE PETITIONER'S APPLICATION ON THIS GROUND. (PARAS 35 & 36) CONCLUSION : IF THE PRIMARY OR DOMINANT PURPOSE OF AN INSTITUTIO N IS 'EDUCATIONAL', ANOTHER OBJECT WHICH IS MERELY ANCILLARY OR INCIDEN TAL TO THE PRIMARY OR DOMINANT PURPOSE WOULD NOT DISENTITLE THE INSTITUTI ON FROM THE BENEFIT OF EXEMPTION UNDER S. 10(23C)(VI); THE TEST WHICH HAS, TO BE APPLIED IS WHETHER THE OBJECT, WHICH IS SAID TO BE NON-EDUCATI ONAL, IS THE MAIN OR PRIMARY OBJECT OF THE INSTITUTION OR IT IS ANCILLAR Y OR INCIDENTAL TO THE DOMINANT OR PRIMARY OBJECT WHICH IS 'EDUCATIONAL'. 6. CONSIDERING THE ISSUE IN THE LIGHT OF THE PRINCIPLE S THEREIN, WE ARE OF THE OPINION THAT THE FOURTH OBJECT IS ONLY IDENTIC AL AND ANCILLARY TO THE PRIMARY OBJECT OF EDUCATION. IT MAY BE TRUE THAT ASSESSEE DOES NOT RUN A SCHOOL TO CONSIDER THIS OBJEC TIVE, BUT THE OBJECTS OF THE TRUST ARE INCORPORATED FOR FUTURE USE ON LY. IF THERE IS I.T.A. NO. 1471/HYD/2016 :- 6 - : NO OBJECT, THE TRUST WOULD BE PREVENTED IN OPENING/RUN NING A SCHOOL. THEREFORE, HAVING AN OBJECT SHOULD NOT PREVEN T THE ASSESSEE IN CLAIMING EXEMPTION OF INCOME U/S. 10(23C)(VI). M OREOVER, THE READING OF OBJECT (BADLY DRAFTED INDEED, GIVING DIFFE RENT MEANING) INDICATES THAT THE MAIN INTENTION IS TO MAKE EFFORTS TO P ICK UP CHILDREN FROM VARIOUS VILLAGES, ENGAGED TO WORTH WITH REFERENCE TO CHILD LABOUR ACT AND GIVING THEM ADMISSION IN SCHOO L. THE INTENTION IS TO EDUCATE THE CHILDREN, WHO ARE EXPLOITED IN VILLAGES WITH REFERENCE TO CHILD LABOUR ACT. THIS OBJECT IN OU R VIEW IS ANCILLIARY TO THE MAIN OBJECT OF EDUCATION. THEREFOR E, WE ARE OF THE VIEW THAT THE OBJECTION OF LD.CIT(E) IS NOT MAINTAINABLE. 7. CONSIDERING THE ABOVE, WE SET ASIDE THE ORDER OF L D.CIT(E) AND RESTORE THE ISSUE TO THE FILE OF LD.CIT(E) TO GRANT EXEMPTION, IF OTHER CONDITIONS ARE SATISFIED. LD.CIT(E) CAN ALSO P LACE A CONDITION THAT IF THE FUNDS ARE UTILISED FOR ANY OTHER PURPOSE OTHE R THAN FOR EDUCATION, THE EXEMPTION CAN BE WITHDRAWN AT ANY TIME, SO AS TO PROTECT THE INTEREST OF REVENUE. 8. IN THE RESULT, APPEAL IS CONSIDERED ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DECEMBER, 2017 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD, DATED 20 TH DECEMBER, 2017 TNMM I.T.A. NO. 1471/HYD/2016 :- 7 - : COPY TO : 1. GANGA EDUCATIONAL SOCIETY, NIZAMABAD. C/O. K. VA SANT KUMAR, A.V. RAGHU RAM, P. VINOD & M. NEELIMA DEVI, ADVOCATES, 610, BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD. 2. CIT(EXEMPTIONS), HYDERABAD. 3. ADDL.CIT (E) - HYDERABAD. 4. D.R. ITAT, HYDERABAD. 5. GUARD FILE.