M/s Gagan Eduction Society C/o, Aligarh V. Addl. CIT, Aligarh

ITA 150/AGR/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6714 (ITAT-AGRA)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 26-05-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 13-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK MISHRA
• Keywords: Capital asset; Depreciation; Charitable institution; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 142(1); 133A; 12A; 12AA; 250; 147; 12; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND SHRI P.K. BANSAL, ACCOUNTANT MEMBER ITA NOS.113 TO 116/AGR/2009 & 147, 148 & 150/AGR/20 09 ASST. YEARS: 2003-04, 2002-03, 2001-02 & 2000-01 & 2004-05, 2005-06, & 2006-07 M/S GAGAN EDUCATION SOCIETY, VS. ADDL. C.I.T., R ANGE-1, C/O. SHRI DEEPAK SINGH, ADVOCATE, ALIGARH. 2, COURT OF WARDS COMPOUND, ALIGARH (U.P.) (PAN : AAALG 0084 G). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PANKAJ GARGH, ADVOCATE RESPONDENT BY : SHRI ASHOK MISHRA, JR. D.R. ORDER PER P.K. BANSAL, A.M.: ALL THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE A GAINST THE ORDERS OF THE CIT(A). THE ITA NOS.116, 115 & 114 RELATING TO ASSESSMENT YEARS (A.Y.) 2000-01, 2001-02 & 2002-03. IN ALL THESE THREE APPEALS THE COMMON ISSUE RELATING T O THE EXEMPTION UNDER SECTION 10(23C)(IIIAD) OF THE INCOME-TAX ACT, 1961 (THE ACT HEREINAFTER) . 2. FIRST WE ARE DISPOSING OF THESE THREE APPEALS SI NCE THE ISSUES INVOLVED IN THESE THREE APPEALS ARE COMMON. 3. THE BRIEF FACTS IN ALL THESE THREE YEAS ARE COMM ON. IN ALL THESE THREE YEAS, NOTICES UNDER SECTION 148 WERE ISSUED AND IN RESPONSE TO WHICH TH E ASSESSEE FILED RETURNS FOR THE RESPECTIVE 2 A.YS. ON 17.08.2004 DECLARING NIL INCOME AND CLAIME D EXEMPTION UNDER SECTION 10(23C)(IIIAD). THE ASSESSEE IS RUNNING TWO SCHOOLS IN THE NAME OF GAGAN PUBLIC SCHOOL, ONE AT AGRA ROAD AND OTHER AT EXHIBITION ROAD. IN THE RETURN FILED, THE ASSESSEE HAS SHOWN THE RECEIPTS FROM THESE TWO SCHOOLS AS FOLLOWS :- ASST. YEAR AGRA ROAD EXHIBITION ROAD 2000-01 20,36,479/- 36,66,170/- 2001-02 39,79,577/- 37,93,126/- 2002-03 53,94,939/- 40,20,333/- 4. PROCEEDINGS UNDER SECTION 147 WERE INITIATED IN ALL THESE THREE YEARS AS IN THE A.Y. 2003- 04 VIDE ORDER DATED 31.12.2004 THE A.O. HELD THAT T HE SOCIETY IS RUNNING THE SCHOOL FOR PROFIT AND NOT FOR CHARITABLE PURPOSES. COPY OF THE REASONS A S RECORDED AT PAGE 2 OF THE ASSESSMENT ORDER READS AS UNDER :- AS PER RENEWAL CERTIFICATE OF SOCIETY DATED 05.06. 1999 FILED BY THE SECRETARY WITH APPLICATION FOR REGISTRATION/S 12A OF THE INCOME TA X ACT, 1961, THE SOCIETY WAS ESTABLISHED ON 29.04.1989. SINCE THAN A SOCIETY IN THE NAME OF GAGAN PUBLIC SCHOOL IS BEING RUN BY THE SOCIETY. ACCORDING TO BYE LAWS OF SOCIETY ITS AIMS AND OBJECTS WERE EDUCATIONAL/ CHARITABLE. BUT AS PER ASSESSMENT ORDE R U/S 143(3) PASSED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX,RANGE-1,ALIGARH. SOCIETY IS NOT WORKING WHOLLY AND EXCLUSIVELY FOR EDUCATIONAL/ CHARITABLE PURPOSE SOC IETY IS WORKING FOR BENEFITS OF ORGANIZER. ITS MINUTES BOOKS HAVE ALSO NOT BEEN MA INTAINED PROPERLY. AND THE ORGANIZATION HAS ALSO BEEN HELD TO BE FOR PRIVATE P ROFIT OF THE MANAGEMENT. A SURVEY U/S 133 A WAS CONDUCTED ON 08.08.2002. PRI OR TO SURVEY NO RETURN WAS FILED BY THE SOCIETY. SOCIETY HAS FILED ITS FIRST RETURN ON 27.11.2003 SHOWING NIL INCOME FOR A.Y.2003-04. SOCIETY HAS FILED APPLICATION FOR REGI STRATION U/S 12A ON 08.03.2003 AND GOT REGISTRATION U/S FROM F.Y.2003-2004(A.Y.2004-20 05), PRIOR TO THAT NO REGISTRATION WAS ALLOWED. AS PER AUDITED ACCOUNTS FOR A.Y.2000-2 001, 2001-2002 AND 2002-20003 FILED BY THE SOCIETY OF THE SOCIETY WITH APPLICATIO N FOR REGISTRATION U/S 12A FOLLOWING AMOUNTS WERE SURPLUS EXCESS O9F INCOME OVER EXPENDI TURE. 3 ASSESSMENT YEAR SURPLUS AMOUNT 2000-01 RS.19 ,43,228/- 2001-02 RS. 19,21,168/- 2002-03 RS.19,73,898/- AS PER ASSESSMENT U/S 143(3) COMPLETED ON 31.03.200 6 ON TOTAL INCOME OF RS.53,53,840/-, THE SOCIETY IS NOT WORKING FOREDUCATIONAL/ CHARITAB LE PURPOSE AND HAS GOT NO REGISTRATION U/S 12A, ALSO POSSES TAXABLE INCOME. IT IS ALSO BEI NG RUN FOR PRIVATE PROFIT. AND INCOME NOT EXEMPT FROMTAX. THEREFORE, I HAVE REASON TO BEL IVE THAT FOLLOWING INCOME HAVE CERTAINLY ESCAPED ASSESSMENT. ASSESSMENT YEAR SURPLUS AMOUNT 2000-04 RS.19,43,228/- 2001-02 RS.19,21,168/- 2002-03 RS.19,73,898/- SHRI S.C.SHARMA AND SMT. SHASHI BALA SHARMA ARE HOL DING IMPORTANT PORTFOLIOS OF THE SOCIETY. THE INCOME TAX RETURN IS SIGNED AND VERIFI ED BY SHRI S.C.SHARMA. 5. COPIES OF THE NOTICES AS WELL AS THE REASONS ISS UED ON 09.06.2006 WERE SERVED ON THE ASSESSEE ON 16.06.2006 AND THE ASSESSEE WAS REQUIRE D TO EXPLAIN VIDE NOTICE DATED 07.08.2006 WHY INCOME OVER EXPENDITURE MAY NOT BE TAXED AS NEI THER THE SOCIETY IS REGISTERED UNDER SECTION 12AA NOR IT IS RUNNING FOR CHARITABLE PURPOSE. THE ASSESSEE, IN REPLY THERETO, CLAIMED THAT THE SOCIETY IS RUNNING EDUCATION INSTITUTION FOR CHARIT ABLE PURPOSE AND IS ENTITLED FOR EXEMPTION UNDER SECTION 10(23C)(IIIAD) OF THE ACT. THE A.O., ON THE BASIS OF THE A.Y. 2003-04 WHERE THE QUESTION OF THE PROVISIONS OF SECTION 11/12 OF THE ACT WAS INVOLVED, DENIED THE EXEMPTION IN EACH OF THE A.Y. TO THE ASSESSEE UNDER SECTION 10(2 3C)(IIIAD). THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) IN EACH OF THE A.Y. THE CIT(A) A LSO DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER :- 4 THIS ISSUE UNDER APPEAL HAS BEEN EXAMINED. THE MAI N ISSUE INVOLVED IN THIS APPEAL IS AGAINST THE ACTION OF THE A.O IN DENYING EXEMPTION U/S 10(23C) (IIIAD) OF I.T.ACT TO THE APPELLANT. THE AO HAS HELD THAT T HE SCHOOLS BE BEING RUN BY THE APPELLANT FOR FOR FIT AND NOT FOR CHARITABLE PURPOS ES AND HENCE THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S 10(23C)(IIIAD). DURING A PPELLATE PROCEEDINGS, IT HAS BEEN ARGUED ON BEHALF OF THE APPELLANT THAT THE SOC IETY IS NOT RUNNING THE SCHOOL FOR PROFIT BUT IS ENGAGED IN IMPARTING EDUCATION, W HICH IS A CHARITABLE PURPOSE. THE MAIN REASON ON THE BASIS OF WHICH THE AO HAS HE LD THAT THE SOCIETY IS RUNNING THE SCHOOLS FOR PROFIT AND NOT FOR CHARITABLE PURPO SES IS ON THE BASIS OF INSTANCES NOTICED IN ASSESSMENT YEAR 2003-04.THE MOST CRUCIAL ASPECT WHICH HAS BEEN BROUGHT ON RECORD BY THE AO FOR HOLDING THAT THE SO CIETY IS RUNNING THE SCHOOLS FOR PROFIT AND NOT FOR CHARITABLE PURPOSES IS THAT A.Y. 2003-04, SMT.SHASHI BALA SHARMA, SECRETARY OF THE SOCIETY, HAS SURRENDERED A N AMOUNT OF RS.50,00,000/-. THE A.O BROUGHT ON RECORD THAT SMT. SHASHI BALAL SH ARMA IN HER RETURN FILED FOR A.Y.2003-04 DECLARED AN INCOME AT RS.4577/- FROM IN TEREST AND RS.17,482/- OF LIC AND DRAWINGS OF RS.24,000/-, WHICH FACTS CLEARLY PR OVE THAT SMT. SHASHI BALA SHARMA IS NOT HAVING ANY OTHER SOURCE OF INCOME THA N DECLARED IN THE RETURN FILED BY HER AND THAT THE SURRENDER AMOUNT OF RS.50,00,00 0/- REPRESENTS THE AMOUNT EARNED/ SIPHONED FROM M/S GAGAN EDUCATION SOCIETY. THIS IS MATERIAL EVIDENCE, WHICH SHOWS THAT FOR ALL PRACTICAL PURPOSES, PROFIT IS BEING EARNED FROM THE EDUCATIONAL ACTIVITY ON A REGULAR BASIS FOR WHICH S MT. SHASHI BALA SHARMA HAS MADE THE SURRENDER INA.Y.2003-04. BESIDES THE ABOVE, THE AO ALSO BROUGHT ON RECORD T HAT THERE IS BENEFIT TO THE PRESIDENT OR THE SECRETARY OF THE SOCIETY, IN W HOSE NAME THE SCHOOL BUILDING OR THE LAND EXISTS, BENEFITED BYWAY OF CONSTRUCTION. A S REGARDS THE CONTENTION THAT THE FOUNDER OF THE SOCIETY HAS UNEQUIVOCALLY TRANSF ERRED THE TITLE OF THE LAND AT AGRA ROAD (ON WHICH THE SCHOOL BUILDING OF THE SOCI ETY HAS BEEN CONSTRUCTED BY THE SOCIETY) AND LAND AT EXHIBITION ROAD, IN FAVOUR OF THE SOCIETY BY A REGISTERED SALE DEED DATED 18.06.2008 AND AN AGREEM ENT TOP SELL DATED 10.07.2008, RESPECTIVELY, THESE ARE POST FACTO EVEN TS AND HENCE THE SAME HAS NO MATERIAL BEARING ON THE STATUS OF THE CASE OF THE A PPELLANT IN THE YEAR UNDER CONSIDERATION. THE AO HAS ALSO BROUGHT ON RECORD TH AT THE CONSTRUCTION MATERIAL PURCHASED IN THE NAME OF THE SOCIETY WERE USED IN T HE CONSTRUCTION OF HOUSE OF SMT. SHASHI BALA SHARMA, SECRETARY OF THE SOCIETY. ALL THE ABOVE FACTS CLEARLY ESTABLISH THAT THE SOC IETY RUNS THE SCHOOLS FOR THE PURPOSES OF PROFIT AND NOT FOR THE CHARITABLE P URPOSES. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THA T THE AO HAS RIGHTLY HELD THAT THE SCHOOLS ARE BEING RUN BY THE APPELLANT SOCIETY FOR THE PURPOSE OF PROFIT AND NOT FOR THE CHARITABLE PURPOSES. THEREFORE, THE AO HAS ALSO RIGHTLY DENIED EXEMPTION U/S 10(23C) (IIIAD) TO THE APPELLANT. THE ACTION OF THE AO ON THIS SCORE IS ACCORDINGLY CONFIRMED. THE CASE LAWS RELIED UPON BY THE LEARNED AR IS CLEARLY DISTINGUISHABLE AND HENCE THE SAME DO NOT HELP THE APPELLANTS CASE. 5 6. SIMILAR FINDINGS WERE GIVEN IN EACH OF THESE A.Y S. 7. THE LD. A.R. BEFORE US CONTENDED THAT THE PROVIS IONS OF SECTION 10(23C)(IIIAD) ARE APPLICABLE IN THE CASE OF THE ASSESSEE. IT IS NOT DENIED THAT THE ASSESSEE IS NOT RUNNING THE EDUCATION INSTITUTION. THE A.O. HAS ACCEPTED THE R ECEIPT AND EXPENDITURE ACCOUNT AND ALSO ALL THE ASSETS AND LIABILITIES AS PER THE BALANCE SHEET AND PROFIT & LOSS ACCOUNT. REFERRING TO THE PROVISIONS OF THE SECTION 10(23C)(IIIAD), IT WAS PO INTED OUT THAT THE AGGREGATE ANNUAL RECEIPTS IN THE CASE OF THE ASSESSEE FROM EDUCATION INSTITUTION IN EACH OF THE A.Y. IS LESS THAN RS.1 CRORE. THE SOCIETY IS EXISTING SOLELY FOR EDUCATION PURPOS E AND NOT FOR ANY OTHER PURPOSE. THUS, THE ASSESSEE IS ENTITLED FOR EXEMPTION UNDER SECTION 10 (23C)(IIIAD). THE PROVISIONS OF SECTION 10(23C)(IIIAD) ARE DIFFERENT AS COMPARED TO THE EXE MPTION AVAILABLE UNDER SECTION 11 & 13 OF THE ACT. IT WAS ALSO POINTED OUT THAT THE SOCIETY IS R EGISTERED UNDER SECTION 12AA SUBSEQUENTLY VIDE CIT ALIGARH LETTER NO. F.NO.C.I.T.(PRO)/ALG./12A/20 03-04/2666 DATED 21.01.2004 AT REGISTRATION NO.CIT/ALG./PRO/12AA/36/2003-04. THE A.O. IN THE A.Y. 2007-08 HAS GIVEN A CLEAR CUT FINDING THAT THE ASSESSEE SOCIETY IS RUNN ING EDUCATION INSTITUTION FOR ONLY CHARITABLE PURPOSE TO FULFILL ALL THE CONDITIONS LAID DOWN UND ER SECTION 11 & 12 OF THE ACT. COPY OF THE ASSESSMENT ORDER FOR A.Y. 2007-08 WAS PUT UP AT PAG E 65 TO 66 OF THE PAPER BOOK. 8. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE O RDERS OF THE AUTHORITIES BELOW. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE MATERIAL ON RECORD ALONGWITH THE ORDERS OF THE TAX AUTHORITIES BELOW. SUB-SECTION (15) OF SECTION 2 OF THE I.T. ACT AS WERE IN EXISTENCE DURING THE YEAR UNDER CONSIDER ATION READS AS UNDER :- 6 CHARITABLE PURPOSE INCLUDES RELIEF OF THE POOR, E DUCATION, MEDICAL RELIEF AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY. 10. THUS, CARRYING ON THE EDUCATION IS A CHARITABLE PURPOSE. THE SENSE IN WHICH THE WORD EDUCATION HAS BEEN USED IN SUB-SECTION (15) OF SECT ION 2 OF THE ACT IS THE SYSTEMATIC INSTRUCTION, SCHOOLING OR TRAINING GIVEN TO THE YOUNG IN PREPARA TION FOR THE WORK OF LIFE. SIMILARLY EXTENDING FINANCIAL ASSISTANCE/SCHOLARSHIP, ETC., TO STUDENTS FOR THEIR EDUCATIONAL PURPOSE WOULD SQUARELY FALL WITHIN THE CONNOTATION OF EDUCATION AS PER T HE RATIO LAID DOWN IN THE CASE OF CIT VS. SARASWATH POOR STUDENTS FUND, 150 ITR 142 (KARNATAK A). THE ASSESSEE WAS RUNNING TWO SCHOOLS. THUS, IT IS NOT CORRECT TO SAY THAT THE A SSESSEE WAS NOT ENGAGED IN THE EDUCATION ACTIVITIES WHICH FALL UNDER CHARITABLE PURPOSE. TH IS FACT IS ALSO CLEAR FROM THE ASSESSMENT ORDER FOR THE A.Y. 2007-08, COPY OF WHICH WAS PLACED BEFO RE US FROM PAPER BOOK PAGES 65 TO 66 MENTIONING THAT THE ASSESSEE WAS ENGAGED FOR CHARIT ABLE PURPOSE WHERE THE EXEMPTION WAS AVAILABLE TO EDUCATIONAL INSTITUTION UNDER SECTION 10(22) OF THE ACT WHICH WAS OMITTED BY THE FINANCE (NO.2) ACT, 1998 W.E.F. 01.04.1999. THE EX EMPTION IN THE SAID SECTION AT THE RELEVANT TIME WAS OF AN INCOME OF ANY UNIVERSITY OR OTHER E DUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT . NOW THE EXEMPTION IS AVAILABLE TO EDUCATION INSTITUTION UNDER SECTION 10(23C) SUB-CLAUSES (IIIA B) TO (IIIAE) WERE INSERTED BY FINANCE (NO.2) ACT, 1998 W.E.F. 01.04.1999. THE ISSUE BEFORE US R ELATES TO SUB CLAUSE (IIIAD) WHICH READS AS UNDER :- ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION EX ISTING SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT IF THE AGGREGATE ANN UAL RECEIPTS OF SUCH UNIVERSITY OR EDUCATIONAL INSTITUTION DO NOT EXCEED THE AMOUNT OF ANNUAL RECEIPTS AS MAY BE PRESCRIBED. 7 11. INCOME TAX RULES 2BC PRESCRIBES THE LIMIT OF RS .1 CRORE. IT MEANS THAT IF THE TURNOVER IS RS.1 CRORE OR LESS, THEN THE EDUCATIONAL INSTITUTIO N HAS NOT TO BE APPROVED BY PRESCRIBED AUTHORITY. OTHERWISE, EDUCATIONAL INSTITUTION HAS TO GET APPRO VED BY THE PRESCRIBED AUTHORITY. IN THE CASE OF THE ASSESSEE, IN EACH OF THE A.Y. THE ANNUAL RECEIP TS AS DETAILED ABOVE IS LESS THAN RS.1 CRORE. THEREFORE, IN OUR OPINION, THE ASSESSEE IS NOT REQU IRED TO GET APPROVED BY ANY PRESCRIBED AUTHORITY. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS DEFAULTED THE PROVISO TO SECTION 10(23C) OF THE ACT. MERELY THIS SURPLUS HAS ARISEN TO THE ASSESSEE DURING THE COURSE OF CARRYING ON THE EDUCATION ACTIVITY DOES NOT MEAN THAT THE AS SESSEE IS NOT EXISTING FOR EDUCATION PURPOSE. EVEN NO SUCH EVIDENCE OR MATERIAL WAS BROUGHT ON RE CORD WHICH MAY PROVE THAT THE ASSESSEE WAS ENGAGED IN ANY OF THE ACTIVITIES OTHER THAN THE EDU CATION ACTIVITIES SO THAT THE ASSESSEE MAY BE DISENTITLED FOR THE EXEMPTION UNDER SECTION 10(23C) (IIIAD) OF THE ACT, RATHER THE A.O. HAS ACCEPTED BY ALLOWING EXEMPTION TO THE ASSESSEE UNDE R SECTION 11 DURING THE A.Y. 2007-08 THAT THE ASSESSEE IS A GENUINE EDUCATIONAL INSTITUTION A ND THE ACTIVITIES OF THE ASSESSEE ARE GENUINE AND HAS BEEN CARRIED ON AS PER THE OBJECTS OF THE ASSES SEE. WE ACCORDINGLY SET ASIDE THE ORDER OF THE A.O. AND ALLOW THE EXEMPTION TO THE ASSESSEE UNDER SECTION 10(23C)(IIIAD) OF THE ACT. THE AFORESAID VIEW IS SUPPORTED BY THE DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE OF CITY MONTESSORY SCHOOL (REGD.) VS. UNION OF INDIA & OTHE RS, 315 ITR 48 (ALLD) AND THAT OF EWING CHRISTIAN COLLEGE SOCIETY VS. CHIEF COMMISSIONER OF INCOME-TAX, 318 ITR 160 (ALLD.) AND AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE VS. CBDT, 301 ITR 86 (SC) 12. IN THE RESULT, ALL THE THREE APPEALS ARE ALLOWE D. 8 ITA NOS.113, 147, 148 & 150 13. IN ALL THESE FOUR YEARS, SINCE THE ISSUE INVOLV ED IS COMMON, THEREFORE, ALL THESE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER. 14. THE FIRST ISSUE INVOLVED IN ALL THESE APPEALS R ELATE TO NOT ALLOWING EXEMPTION UNDER SECTION 11 & 12 OF THE ACT. THE LEAD CASE RELATES TO THE A.Y. 2003-04 AND BOTH THE COUNSELS POINTED OUT THAT IN THE A.Y. 2004-05, 2005-06 & 200 6-07 EXEMPTION HAS BEEN DENIED MAINLY ON THE BASIS OF A.Y. 2003-04. 15. THE BRIEF FACTS OF THE CASE RELATING TO A.Y. 20 03-04 ARE THAT THE ASSESSEE WAS GRANTED REGISTRATION UNDER SECTION 12AA VIDE LETTER DATED 2 1.01.2004 W.E.F. 01.04.2002 AT REGISTRATION NO.CIT/ALG./PRO/12AA/36/2003-04. THE ASSESSEE SUBM ITTED INCOME TAX RETURN ON 27.11.2003 IN FORM NO.3A WHILE THE DUE DATE FOR FILING THE RET URN WAS EXTENDED TO 30.11.2003 DECLARING RETURNED INCOME AT NIL AS DETAILED BELOW:- 2003-04 GROSS RECEIPTS RS.12031000/- INTEREST RS. 24015/- ------------------- TOTAL RS.12055015/- ------------------- LESS I) REVENUE EXPENSES RS.7264359/- II) DONATION RS.1573600/- III) AMOUNT SET APART FOR SPECIFIED PURPOSE RS.1408804/- IV) INCOME TO THE EXTENT OF 15% OF GROSS RECEIPT U/S 11(1)(A) RS.1808252/- RS.12055015/- INCOME RETURNED RS.NIL 9 16. THE RETURN WAS ACCOMPANIED BY FORM NO.10 DATED 27.09.2003 CLAIMING THE ACCUMULATION BUT COPY OF THE RESOLUTION WAS NOT ENCLOSED THEREWI TH. THE ASSESSEE WAS RUNNING TWO SCHOOLS NAMELY GAGAN PUBLIC SCHOOL, ONE AT JAIL ROAD AND OT HER AT AGRA ROAD. A SURVEY UNDER SECTION 133A OF THE ACT WAS CONDUCTED ON 08.08.2002. DURIN G THE COURSE OF SURVEY, STATEMENT OF SMT SHASHI BALA SHARMA, SECRETARY OF THE SOCIETY WAS RE CORDED. SMT. SHASHI BALA SHARMA SURRENDERED AN INCOME AMOUNTING TO RS.50,00,000/- A S INCOME FROM OTHER SOURCES IN HER INDIVIDUAL CAPACITY. A NOTICE UNDER SECTION 142(1) FOR THE SAID A.Y. WAS ISSUED ON 18.11.2003. THE CIT(A) VIDE LETTER DATED 23.12.2003 ASKED THE A DDL. COMMISSIONER OF INCOME-TAX, RANGE-I, ALIGARH WHETHER THE SURVEY WILL HAVE ANY ADVERSE EF FECT ON THE ASSESSMENT OF THE INCOME AND DETERMINING OF THE TAX IN WHICH SURVEY WAS CONDUCTE D. THE ADDL. COMMISSIONER, VIDE LETTER DATED 06.01.2004 POINTED OUT THAT REGISTRATION UNDE R 12A, IN HIS OPINION, WILL NOT HAVE ANY ADVERSE EFFECT ON THE ASSESSMENT OF INCOME AND DETE RMINING OF TAX LIABILITIES FOR THE F.Y. IN WHICH THE SURVEY WAS CONDUCTED AS INCOME HAS BEEN S URRENDERED BY THE DIRECTRESS SMT. SHASHI BALA SHARMA IN HER INDIVIDUAL CAPACITY AMOUNTING TO RS.50,00,000/- AND DUE TAX HAS ALREADY BEEN PAID BY HER. SHE HAS DULY DISCLOSED AND SURRENDERE D INCOME IN HER INCOME-TAX RETURN. AFTER POINTING OUT THE DEFECTS IN THE AUDIT REPORT AND TH E MINUTES BOOK ETC. THE A.O. TOOK THE VIEW THAT THE ASSESSEE IS NOT ELIGIBLE FOR EXEMPTION UNDER SE CTION 10(23C)(VI) AS THE RECEIPTS WERE IN EXCESS OF RS.1 CRORE DURING THE YEAR UNDER CONSIDER ATION. HE ULTIMATELY BY DENYING EXEMPTION TO THE ASSESSEE UNDER SECTION 11 DETERMINED THE TOT AL INCOME OF THE ASSESSEE AT RS.53,53,840/- BY MAKING VARIOUS ADDITIONS/DISALLOWANCES WHICH WERE C HALLENGED BEFORE THE CIT(A). THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING A S UNDER:- THIS ISSUE UNDER APPEAL HAS BEEN EXAMINED. THE MAI N ISSUE INVOLVED IN THIS APPEAL IS AGAINST THE ACTION OF THE A.O IN DENYING EXEMPTION U/S 10(23C) (IIIAD) 10 OF I.T. ACT TO THE APPELLANT. THE AO HAS HELD THAT THE SCHOOLS BE BEING RUN BY THE APPELLANT FOR FOR FIT AND NOT FOR CHARITABLE PURPOS ES AND HENCE THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S 10(23C)(IIIAD). DURING A PPELLATE PROCEEDINGS, IT HAS BEEN ARGUED ON BEHALF OF THE APPELLANT THAT THE SOC IETY IS NOT RUNNING THE SCHOOL FOR PROFIT BUT IS ENGAGED IN IMPARTING EDUCATION, W HICH IS A CHARITABLE PURPOSE. THE MAIN REASON ON THE BASIS OF WHICH THE AO HAS HE LD THAT THE SOCIETY IS RUNNING THE SCHOOLS FOR PROFIT AND NOT FOR CHARITABLE PURPO SES IS ON THE BASIS OF INSTANCES NOTICED IN ASSESSMENT YEAR 2003-04.THE MOST CRUCIAL ASPECT WHICH HAS BEEN BROUGHT ON RECORD BY THE AO FOR HOLDING THAT THE SO CIETY IS RUNNING THE SCHOOLS FOR PROFIT AND NOT FOR CHARITABLE PURPOSES IS THAT A.Y. 2003-04, SMT.SHASHI BALA SHARMA, SECRETARY OF THE SOCIETY, HAS SURRENDERED A N AMOUNT OF RS.50,00,000/-. THE A.O BROUGHT ON RECORD THAT SMT. SHASHI BALAL SH ARMA IN HER RETURN FILED FOR A.Y.2003-04 DECLARED AN INCOME AT RS.4577/- FROM IN TEREST AND RS.17,482/- OF LIC AND DRAWINGS OF RS.24,000/-, WHICH FACTS CLEARLY PR OVE THAT SMT. SHASHI BALA SHARMA IS NOT HAVING ANY OTHER SOURCE OF INCOME THA N DECLARED IN THE RETURN FILED BY HER AND THAT THE SURRENDER AMOUNT OF RS.50,00,00 0/- REPRESENTS THE AMOUNT EARNED/ SIPHONED FROM M/S GAGAN EDUCATION SOCIETY. THIS IS MATERIAL EVIDENCE, WHICH SHOWS THAT FOR ALL PRACTICAL PURPOSES, PROFIT IS BEING EARNED FROM THE EDUCATIONAL ACTIVITY ON A REGULAR BASIS FOR WHICH S MT. SHASHI BALA SHARMA HAS MADE THE SURRENDER INA.Y.2003-04. BESIDES THE ABOVE, THE AO ALSO BROUGHT ON RECORD T HAT THERE IS BENEFIT TO THE PRESIDENT OR THE SECRETARY OF THE SOCIETY, IN W HOSE NAME THE SCHOOL BUILDING OR THE LAND EXISTS, BENEFITED BYWAY OF CONSTRUCTION. A S REGARDS THE CONTENTION THAT THE FOUNDER OF THE SOCIETY HAS UNEQUIVOCALLY TRANSF ERRED THE TITLE OF THE LAND AT AGRA ROAD (ON WHICH THE SCHOOL BUILDING OF THE SOCI ETY HAS BEEN CONSTRUCTED BY THE SOCIETY) AND LAND AT EXHIBITION ROAD, IN FAVOUR OF THE SOCIETY BY A REGISTERED SALE DEED DATED 18.06.2008 AND AN AGREEM ENT TOP SELL DATED 10.07.2008, RESPECTIVELY, THESE ARE POST FACTO EVEN TS AND HENCE THE SAME HAS NO MATERIAL BEARING ON THE STATUS OF THE CASE OF THE A PPELLANT IN THE YEAR UNDER CONSIDERATION. THE AO HAS ALSO BROUGHT ON RECORD TH AT THE CONSTRUCTION MATERIAL PURCHASED IN THE NAME OF THE SOCIETY WERE USED IN T HE CONSTRUCTION OF HOUSE OF SMT. SHASHI BALA SHARMA, SECRETARY OF THE SOCIETY. ALL THE ABOVE FACTS CLEARLY ESTABLISH THAT THE SOC IETY RUNS THE SCHOOLS FOR THE PURPOSES OF PROFIT AND NOT FOR THE CHARITABLE P URPOSES. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THA T THE AO HAS RIGHTLY HELD THAT THE SCHOOLS ARE BEING RUN BY THE APPELLANT SOCIETY FOR THE PURPOSE OF PROFIT AND NOT FOR THE CHARITABLE PURPOSES. THEREFORE, THE AO HAS ALSO RIGHTLY DENIED EXEMPTION U/S 10(23C) (IIIAD) TO THE APPELLANT. THE ACTION OF THE AO ON THIS SCORE IS ACCORDINGLY CONFIRMED. THE CASE LAWS RELIED UPON BY THE LEARNED AR IS CLEARLY DISTINGUISHABLE AND HENCE THE SAME DO NOT HELP THE APPELLANTS CASE. 11 17. THE LD. A.R. BEFORE US CONTENDED THAT THE INCOM E OF BOTH THE SCHOOLS WERE RS.1,20,31,000/- AND AFTER ADDING THEREON THE INTER EST DERIVED BY THE ASSESSEE AMOUNTING TO RS.24,015/-, THE TOTAL RECEIPTS WERE RS.1,20,55,015 /-. THE ASSESSEE CLAIMED STATUTORY ACCUMULATION UNDER SECTION 11(1)(A) @15% AMOUNTING TO RS.18,08,252/-. THE ASSESSEE HAS INCURRED REVENUE EXPENDITURE DURING THE YEAR AT RS. 88,37,958/- OUT OF WHICH RS.5,63,179/- WAS DISALLOWED BY THE A.O. ON ONE PRETEXT OR THE OTHER. THIS REVENUE EXPENDITURE ALSO INCLUDES THE DONATION OF RS.15,73,600/- GIVEN BY THE ASSESSEE TO THE ANOTHER CHARITABLE ORGANIZATION OUT OF THE INCOME OF THE YEAR UNDER CONSIDERATION TO GAGAN ACA DEMIC SOCIETY. THE ASSESSEE HAS INCURRED CAPITAL EXPENDITURE TO THE EXTENT OF RS.28,57,957/- . THE CAPITAL EXPENDITURE HAD BEEN ALLOWED IN PART IN A.Y. 2004-05, 2005-06 & 2006-07 AND IN THE A.Y. 2007-08, THE A.O. ALLOWED ALL THE CAPITAL EXPENDITURE. THE ASSESSEE HAS SET APART A SUM OF RS.14,08,804/- TO BE UTILIZED FOR THE PURPOSE OF THE SOCIETY IN THE SUCCEEDING YEAR. THE REGISTRATION UNDER SECTION 12A IS GRANTED FROM THE FINANCIAL YEAR 2002-03 I.E. A.Y. 2003-04. IN THE REASONS RECORDED, IT WAS WRONGLY MENTIONED THAT THE REGISTRATION UNDER SECTION 12AA WAS GRANTED FROM A.Y. 2004-05. FOR THIS, OUR ATTENTION WAS DRAWN TO PAGE NO.3 OF THE PAPER B OOK WHICH CONTAINS THE COPY OF THE REGISTRATION CERTIFICATE. IT WAS CONTENDED THAT IT IS WRONG TO SAY THAT THE INSTITUTION IS WORKING FO R THE PRIVATE PROFIT OF THE MANAGEMENT. THE A.O. HAS ACCEPTED THE RECEIPT AND EXPENDITURE ACCOUNT AND ALSO ACCEPTED THE ASSET AND LIABILITIES AS PER BALANCE SHEET. IT CANNOT BE SAID THAT THE FUNDS HAVE BEEN DIVERTED FOR NON CHARITABLE PURPOSES. TH E A.O. HIMSELF DURING THE A.Y. 2007-08 WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3 ) ASSESSED THE ASSESSEE AT NIL AND ALLOWED THE EXEMPTION TO THE ASSESSEE UNDER SECTION 11 BY A CCEPTING THE RETURNED INCOME OF THE ASSESSEE. ONCE THE REVENUE HAS ACCEPTED THAT THE ASSESSEE IS RUNNING THE SCHOOL FOR CHARITABLE PURPOSE, THE FINDING GIVEN BY THE AUTHORITIES BELOW THAT THE SCH OOL IS NOT RUNNING FOR CHARITABLE PURPOSE IS NOT 12 CORRECT. THE REGISTRATION GRANTED TO THE ASSESSEE UNDER SECTION 12AA WAS NOT REJECTED. REFERRING TO SECTION 12AA(3), IT WAS CONTENDED THAT THE CIT(A ) SPECIFICALLY EMPOWERED IF THE ACTIVITIES OF THE TRUST OR INSTITUTION ARE NOT GENUINE OR ARE NOT BEING CARRIED OUT IN ACCORDANCE WITH THE OBJECTS OF THE TRUST OR INSTITUTION, TO CANCELL THE REGIST RATION OF THE TRUST. THE CONTINUATION OF THE REGISTRATION TO THE TRUST OR INSTITUTION ITSELF PRO VES THAT THE TRUST IS ENGAGED GENUINELY IN CHARITAB LE ACTIVITIES. REFERRING TO THE DONATION MADE AMOUNTI NG TO RS.1573600/- TO GAGAN ACADEMIC SOCIETY, IT WAS POINTED OUT THAT THIS SECTION IS NO T APPLICABLE FOR MAKING THE DONATION TO THE CHARITABLE TRUST OUT OF CURRENT YEARS INCOME. THE ASSESSEE HAS RIGHTLY CLAIMED THE STATUTORY ACCUMULATION UNDER SECTION 11(1)(A) @ 15% OF THE GR OSS INCOME. THE A.O. WAS NOT JUSTIFIED IN ADDING BACK THE SURPLUS RS.14,08,804/- AS IT REPRES ENTS INCOME SET APART BY THE ASSESSEE APPLICATION FOR CHARITABLE PURPOSE AS SPECIFIED UND ER SECTION 11(2). THE ASSESSEE HAS PASSED NECESSARY RESOLUTION AND SUBMITTED THE FORM (INTIMA TED THE AO ALONG WITH THE RETURN IN THE PRESCRIBED FORM). THE RESOLUTION WAS PASSED BY CIR CULAR DOESNT MEAN THAT NO RESOLUTION WAS PASSED IN THIS REGARD. MERELY THE ASSESSEE DERIVED THE PROFIT DURING THE YEAR DOES NOT MEAN THAT THE ASSESSEE IS NOT ENGAGED IN CHARITABLE ACTIVITIE S. SECTION 250 DEFINES THE CHARITABLE PURPOSE. IMPARTING OF EDUCATION IS ONE OF THE CHARITABLE PUR POSE. REFERRING TO THE ADVANCE MADE TO SMT. URVASHI SHARMA AMOUNTING TO RS.1,55,000/-, IT WAS P OINTED OUT THAT THE ASSESSEE HAS EARNED THE INTEREST @ 15%. THE LOAN WAS GIVEN AT AN INTEREST MORE THAN BANK RATE AND ADEQUATE SECURITY IN THE FORM OF GUARANTEE BOND WAS TAKEN FROM HER. THE LOAN WAS REPAID BY HER WITH INTEREST IN THE F.Y. 2004-05. ATTENTION WAS DRAWN TO SECTION 13(4) AND IT WAS POINTED OUT THAT 5% OF THE FUND OF THE INSTITUTION COULD BE INVESTED IN THE CONCERN ED CONCERN, ONLY INCOME EARNED THEREONLY IS NOT ELIGIBLE FOR AVAILING OF EXEMPTION UNDER SECTION 11 OR 12 OF THE ACT. SO FAR THE REST OF THE INCOME, THE ASSESSEE IS ENTITLED FOR EXEMPTION. TH E MAIN OBJECTION OF NOT ALLOWING THE CAPITAL 13 EXPENDITURE WAS THAT THE LAND HAS NOT BEEN REGISTER ED IN THE NAME OF THE ASSESSEE. IN THIS REGARD, IT WAS POINTED OUT THAT ULTIMATELY THE CONVEYANCE D EED WAS REGISTERED ON 18.06.2008 IN FAVOUR OF THE ASSESSEE BY THE PRESIDENT AND SECRETARY OF THE SOCIETY. THE A.O. HAS ACCEPTED THIS FACT AND ACCORDINGLY THE ASSESSEE WAS ALLOWED THE EXEMPTION UNDER SECTION 11 AND 12 OF THE I.T. ACT BY THE A.O. DURING THE A.Y. 2007-08. THE ASSESSEE HAS NOT CLAIMED ANY DEPRECIATION DURING THE YEAR. THEREFORE, QUESTION OF DEPRECIATION DOES NOT ARISE IN RESPECT OF THE VARIOUS EXPENSES DISALLOWED FOR WANT OF PROPER SUPPORTING OR ON THE PLEA THAT THE EXPENSES HAS NOT BEEN INCURRED AS PER THE A.O. FOR THE PURPOSE OF EDUCATIONAL INST ITUTION. IT IS SUBMITTED THAT THE ASSESSEE HAS INCURRED ALL THE EXPENSES GENUINELY FOR THE PURPOSE OF EDUCATIONAL INSTITUTION. THERE IS NO EVIDENCE ON RECORD THAT THE EXPENSES HAVE BEEN INCU RRED FOR THE PERSONAL BENEFIT OF THE OFFICE BEARERS. EVEN OTHERWISE ALSO IT WAS POINTED OUT TH AT IF THE DISALLOWANCE SO MADE IN THE A.Y. 2003-04 AMOUNTING TO RS.5,63,179/- IS CONCERNED, TH E 15% STATUTORY ACCUMULATION ALLOWABLE UNDER SECTION 11 (1)(A) WILL ALSO CORRESPONDINGLY I NCREASE. EVEN OTHERWISE ALSO IT WAS CONTENDED THAT THE APPLICATION OF THE INCOME INCLUDING THE ST ATUTORY ACCUMULATION UNDER SECTION 11(1)(A) WAS MUCH MORE THAN THE EXPENDITURE SO DISALLOWED. THUS, IT WAS VEHEMENTLY CONTENDED THAT IN VIEW OF THE FINDING GIVEN IN THE A.Y. 2007-08, THE ASSESSEE SHOULD BE ALLOWED EXEMPTION UNDER SECTION 11 OF THE ACT. LD. D.R., ON THE OTHER HAND , RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 18. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW AND THE CASSE LAWS RELIED ON BEFO RE US AND PERUSED THE MATERIAL ON RECORD. WE NOTED THAT THE FIRST CONTENTION OF THE REVENUE FOR THE DENYING EXEMPTION TO THE ASSESSEE UNDER SECTION 11 & 12 WAS THAT THE SCHOOLS WERE RUN BY TH E ASSESSEE SOCIETY FOR THE PURPOSE OF PROFIT AND NOT FOR CHARITABLE PURPOSE. THIS CONTENTION OF THE AUTHORITIES BELOW CANNOT BE SUSTAINED IN VIEW OF THE FACT THAT THE DEPARTMENT HAS DULY ACCEP TED DURING THE A.Y. 2007-08 THAT THE 14 INSTITUTION HAS BEEN ESTABLISHED ONLY FOR CHARITABL E PURPOSE AND ACCORDINGLY ALLOWED THE EXEMPTION TO THE ASSESSEE UNDER SECTION 11 & 12. W E ALSO NOTED THAT THE SOCIETY IS REGISTERED UNDER SECTION 12AA BY THE CIT AND THE REGISTRATION OF THE SOCIETY HAS NOT BEEN CANCELLED BY THE IT BY INVOKING SECTION 12AA(3). THE DEPARTMENT HAS ALL THE POWER TO CANCEL THE REGISTRATION IN CASE THEY FIND THAT THE ASSESSEE IS NOT ENGAGED IN CHARITABLE ACTIVITIES, AS HAS BEEN HELD BY US EARLIER. IMPARTING OF THE EDUCATION IS A CHARITABL E PURPOSE IN VIEW OF THE PROVISION OF SECTION 2(15). WE HAVE TO SEE WHETHER THE EDUCATIONAL INST ITUTION IS EXISTING SOLELY FOR EDUCATION PURPOSE OR NOT. BY ALLOWING THE EXEMPTION TO THE A SSESSEE UNDER SECTION 11 DURING THE A.Y. 2007-08, THE A.O. HAS HIMSELF ACCEPTED THAT THE ASS ESSEE IS A GENUINE EDUCATION INSTITUTION AND THE ACTIVITIES OF THE ASSESSEE ARE GENUINE AND HAS BEEN CARRIED OUT AS PER THE OBJECTS OF THE ASSESSEE. WE ACCORDINGLY DO NOT AGREE WITH THE FIN DING OF THE CIT(A) THAT THE ASSESSEE IS NOT ENGAGED IN CHARITABLE ACTIVITIES. WE HAVE TO SEE W HAT THE MAIN OBJECT OF THE ASSESSEE IS. IF THE MAIN OBJECT OF THE ASSESSEE IS IMPARTING OF THE EDU CATION AND DURING THE COURSE OF IMPARTING OF THE EDUCATION, IF SOME SURPLUS HAS ARISEN TO THE AS SESSEE, IT CANNOT BE SAID THAT THE ASSESSEES INSTITUTION IS NOT ENGAGED FOR CHARITABLE PURPOSE A S DEFINED UNDER SECTION 2(15) OF THE ACT. THE HONBLE SUPREME COURT IN THE CASE OF ACIT VS. SURAT CITY GYMKHANA, 300 ITR 214 HAS HELD THAT ONCE THE TRUST IS REGISTERED UNDER SECTION 12A , IT IS A FAIT ACCOMPLI AND THE A.O. CANNOT THEREAFTER MAKE A FURTHER PROBE INTO THE OBJECTS OF THE TRUST. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND HOLD THAT THE ASSESSEE INSTITUTION IS ENGAGED FOR CHARITABLE PURPOSE. ONCE THE ASSESSEE IS ENGAGED AND IS DULY REGISTERED UNDER SECTION 12AA, UNLESS AND UNTIL THE ASSESSEE VIOLATES THE TERMS AND CONDITIONS AS STIPU LATED UNDER SECTION 12 TO 13, IN OUR OPINION, THE ASSESSEE CANNOT BE DENIED EXEMPTION UNDER SECTION 1 1 OF THE ACT. 15 THE OTHER ISSUE RELATES TO THE DONATION OF RS.1573 600/-. THE ASSESSEE HAS DONATED A SUM OF RS.15,73,600/- OUT OF THE CURRENT YEAR INCOME TO GANGAN ACADEMIC SOCIETY. THE SOCIETY IS ALSO ENGAGED IN IMPARTING EDUCATION AND IS REGISTER ED UNDER SECTION 12A OF THE ACT AS POINTED OUT BY THE LD. A.R. THE DONATION SO PAID WAS NOT TREAT ED AS AN APPLICATION OF THE INCOME BY THE A.O. AND CONFIRMED BY THE CIT(A). WE HAVE GONE THROUGH THE PROVISIONS OF EXPLANATION TO SECTION 11(2) OF THE ACT. THIS EXPLANATION HAS BEEN INSERT ED BY THE FINANCE ACT 2002 BY AMENDING SECTION 11(2). THIS EXPLANATION PROVIDES THAT THE AMOUNT ACCUMULATED CANNOT BE CREDITED OR PAID TO ANY OTHER TRUST OR INSTITUTION REGISTERED UNDER SECTION 12AA OR TO ANY FUND OR INSTITUTION OR TRUST OR ANY UNIVERSITY OR ANY OTHER EDUCATIONAL IN STITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION REFERRED TO IN S.10(23C), AS ANY SUCH C REDIT OR PAYMENT SHALL NOT BE TREATED AS APPLICATION OF INCOME FOR CHARITABLE OR RELIGIOUS P URPOSE, EITHER DURING THE PERIOD OF ACCUMULATION OR THEREAFTER. ANY SUCH CREDIT OR PAYM ENT BY THE DONOR TRUST TO ANOTHER TRUST OR INSTITUTION SHALL BE DEEMED TO BE THE INCOME OF THE DONOR TRUST IN SUCH YEAR OF CREDIT OR PAYMENT. 19. THE AMENDMENT IN OUR OPINION IS APPLICABLE ONLY TO THE PAYMENT MADE TO OTHER TRUSTS/ INSTITUTIONS OUT OF AMOUNT ACCUMULATED U/S 11(2) AN D NOT TO PAYMENT OUT OF CURRENT YEARS INCOME, WHICH WILL CONTINUE TO BE TREATED AS APPLIC ATION OF INCOME. SIMILARLY, PAYMENT MADE TO ANOTHER TRUST/ INSTITUTION OUT OF THE 15% ACCUMULAT ION PERMISSIBLE U/S 11(1) (A) WILL NOT BE HIT BY THE ABOVE AMENDMENT. THOUGH THE EXPLANATION TO SECT ION11(2) REFERES TO AMOUNT CREDITED OR PAID TO ANOTHER TRUST OUT OF INCOME REFERRED TO IN SECTI ON 11(1)(A), THE REFERENCE CLEARLY IS TO ONLY THAT PART OF THE INCOME WHICH IS ACCUMULATED U/S 11(2). THIS IS BECAUSE THE EXPLANATION STATES THAT ANY AMOUNT CREDITED OR PAID TO OTHER TRUSTS/ INSTITUTIO NS SHALL NOT BE TREATED AS APPLICATION OF INCOME OF THE DONOR TRUST EITHER DURING THE PERIOD OF ACCU MULATION OR THEREAFTER. SO FOR AS AMOUNTS 16 ACCUMULATED UNDER SECTION11(1)(A) ARE CONCERNED, TH ERE IS NO NEED TO TREAT ANY DONATION MADE OUT OF SUCH ACCUMULATION AS AN APPLICATION OF INCOM E TOWARDS CHARITABLE OR RELIGIOUS PURPOSES, AS THERE IS NO OBLIGATION TO SPEND SUCH ACCUMULATION W ITHIN A SPECIFIED PERIOD, NOR IS THERE ANY PROVISION OF TAXING SUCH ACCUMULATION IF IT IS NOT SPENT FOR CHARITABLE OR RELIGIOUS PURPOSES. EVEN IF THE EXPLANATION WERE TO APPLY, THERE WOULD ACCOR DINGLY BE NO CONSEQUENCE. SINCE THE 15% ACCUMULATION U/S 11(1) IS UNCONDITIONAL AND NEED NO T BE SPENT AT ALL BY THE TRUST, THE QUESTION OF NOT TREATING THE SAME AS APPLICATION OF INCOME IN C ASE IT IS CREDITED OR PAID TO ANOTHER TRUST ( IN THE SUBSEQUENT YEAR) DOES NOT ARISE. THUS THE EXPLA NATION COVERS ONLY PAYMENTS MADE FROM AMOUNTS ACCUMULATED FOR A SPECIFIED PERIOD U/S 11(2 ) AND NOT FROM UNCONDITIONAL ACCUMULATION CONTEMPLATED IN S.11(1). SINCE THE 15% ACCUMULATION U/S 11(1) IS UNCONDITIONAL AND NEED NOT BE SPENT AT ALL BY THE TRUST, THE QUESTION OF TREATING THE SAME AS INCOME IN CASE IT IS CREDITED OR PAID TO ANOTHER TRUST( IN THE SUBSEQUENT YEAR) DOES NOT ARISE IN ANY CASE, SECTION 11(3), WHICH BEINGS WITH THE WORDS INCOME REFERRED TO IN SUB- SECTION (2), MAKES IT EXPLICITLY CLEAR THAT THE RESTRICTION IMPOSED BY SECTION 11(3)(D) APPLIES ONL Y TO INCOME ACCUMULATED U/S 11(2) AND NOT TO THE CURRENT YEARS INCOME OR TO THE ACCUMULATION U/ S 11(1). 20. IN VIEW OF OUR AFORESAID FINDING, WE SET ASIDE THE ORDER OF CIT(A) ON THIS ISSUE AND DIRECT THE A.O. TO ALLOW DEDUCTION TO THE ASSESSEE IN RESP ECT OF DONATION PAID TO GAGAN ACADEMIC SOCIETY PROVIDED THAT THE SOCIETY IS DULY REGISTERE D UNDER SECTION 12AA AS A CHARITABLE INSTITUTION. 21. THE OTHER ISSUE RELATES TO THE THE LOAN AMOUNTI NG TO RS.1,55,000/- ADVANCED TO TO SMT. URVASHI GAUR ON 10.06.2002 @ 15% PER ANNUM. THIS L OAN HAS BEEN REPAID BY HER ALONG WITH INTEREST IN THE F.Y. 2004-05. SMT. URVASI GAUR IS A PERSON SPECIFIED UNDER SECTION 13(3). INTEREST 17 HAS BEEN CHARGED FROM HER MORE THAN THE BANK INTERE ST WHICH, IN OUR OPINION, IS ADEQUATE INTEREST. SECTION 13(4) IN THIS REGARD IS RELEVANT . THIS SECTION STATES AS UNDER :- NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE (C) O F SUB-SECTION (1) BUT WITHOUT PREJUDICE TO THE PROVISIONS CONTAINED IN CL AUSE (D) OF THAT SUB-SECTION IN A CASE WHERE THE AGGREGATE OF THE FUNDS OF THE TRUST OR INSTITUTION INVESTED IN CONCERN IN WHICH ANY PERSON REFERRED TO IN SUB-SECT ION (3) HAS A SUBSTANTIAL INTEREST, DOES NOT EXCEED FIVE PER CENT OF THE CAPI TAL OF THAT CONCERN, THE EXEMPTION UNDER SECTION 11 OR SECTION 12 SHALL NOT BE DENIED IN RELATION TO ANY INCOME OTHER THAN THE INCOME ARISING TO THE TRUST O R THE INSTITUTION FROM SUCH INVESTMENT, BY REASON ONLY THAT THE FUNDS OF THE TR UST OR THE INSTITUTION HAVE BEEN INVESTED IN A CONCERN IN WHICH SUCH PERSON HAS A SU BSTANTIAL INTEREST. 22. FROM A PLAIN READING OF THIS SECTION, IT IS APP ARENT THAT WHERE THE AGGREGATE OF THE FUNDS OF THE TRUST OR INSTITUTION INVESTED IN CONCERN IN WHICH ANY PERSON REFERRED TO IN SUB-SECTION (3) OF SECTION 13 HAS A SUBSTANTIAL INTEREST, DOES NOT EXC EED 5% OF THE CAPITAL OF THAT CONCERN, THE EXEMPTION UNDER SECTION 11 OR 12 SHALL NOT BE DENIE D IN RELATION TO ANY INCOME OTHER THAN THE INCOME ARISING TO THE TRUST OR THE INSTITUTION FROM SUCH INVESTMENT. THE SAID INCOME FROM THE INVESTMENT SHALL BE CHARGED TO TAX IN THE HANDS OF THE TRUST OR INSTITUTION, IN ACCORDANCE WITH THE PROVISIONS OF SECTION 164(2) OR 164(3), AS THE CASE MAY BE, AS IF THE RELEVANT INCOME, NOT SO EXEMPT, WERE THE INCOME OF AN ASSOCIATION OF PERSO NS. NEITHER THE A.O. NOR THE PARTIES HAS LOOKED INTO THE PROVISIONS OF SECTION 13(4) AND ITS APPLICABILITY IN THE CASE OF THE ASSESSEE. THUS, WE ARE OF THE OPINION THAT THE EXEMPTION UNDER SECT ION 11 CANNOT BE TOTALLY DENIED TO THE ASSESSEE ON THE BASIS OF THE INTEREST INCOME EARNED BY THE A SSESSEE ON THE LOAN ADVANCED TO SMT. URVASHI SHARMA. THE CONTENTION OF THE ASSESSEE IS THAT THE INTEREST HAS BEEN TAKEN AS INCOME IN THE YEAR WHEN THE LOAN HAS BEEN REPAID BY SMT. URVASHI SHARM A. THE BALANCE SHEET OF SMT. URVASHI SHARMA HAS NOT BEEN BROUGHT TO RECORD SO AS TO ASCE RTAIN WHAT WAS THE TOTAL CAPITAL OF SMT. URVASHI SHARMA. WHETHER THE MONEY LET OUT TO HER AM OUNTING TO RS.1.55,000/- IS WITHIN 5% OF 18 HER TOTAL CAPITAL OR NOT. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND RESTORE THIS ISSUE TO THE A.O. WITH THE DIRECTION THAT THE A.O. SHALL VERIFY FROM RECORD OF THE CONCERNED A.Y. WHETHER THE ASSESSEE HAS RECEIVED INTEREST @ 15% FROM SMT. URVA SHI SHARMA OR NOT. HE IS ALSO FURTHER DIRECTED TO VERIFY WHETHER THE LOAN ADVANCED BY THE ASSESSEE TO SMT. URVASHI SHARMA DURING THE YEAR DO NOT EXCEED 5% OF THE CAPITAL OF SMT. URVASH I SHARMA. IN CASE AMOUNT INVESTED BY THE ASSESSEE BY WAY OF LOAN TO SMT. URVASH SHARMAI DO N OT EXCEED 5% OF THE CAPITAL OF SMT. URVASHI SHARMA, THE A.O. IS DIRECTED TO ALLOW EXEMPTION TO THE ASSESSEE UNDER SECTION 11 OF THE ACT. 23. COMING TO THE NEXT ISSUE, WHICH RELATES TO THE CLAIM OF THE ASSESSEE IN RESPECT OF CAPITAL EXPENDITURE ON THE BASIS OF THE AUDITED BALANCE SHE ET FILED BEFORE US, THE ASSESSEE CLAIMED THAT HE HAS INCURRED RS.28,57,957/- AS CAPITAL EXPENDITURE DURING THE YEAR AND IF THE SAID CAPITAL EXPENDITURE IS ALLOWED AS AN APPLICATION, THE INCOM E OF THE ASSESSEE WILL BE NIL. WE NOTED FROM THE COPY OF THE BALANCE SHEET AS AUDITED AND FILED BEFORE US IN THE PAPER BOOK IN RESPECT OF GAGAN PUBLIC SCHOOL AT EXHIBITION ROAD AND AGRA ROA D THAT THE ASSESSEE HAS INCURRED CAPITAL EXPENDITURE DURING THE YEAR UNDER CONSIDERATION. T HOUGH THE ASSESSEE HAS INCURRED CAPITAL EXPENDITURE DURING THE YEAR UNDER CONSIDERATION BUT THE ASSESSEE HAS NOT FILED ANY CONSOLIDATED BALANCE SHEET BEFORE US SO THAT THE INCURRING OF TH E CAPITAL EXPENDITURE AS CLAIMED BY THE ASSESSEE BE VERIFIED. THERE IS DISTINCTION OF EXPENDITURE I NCURRED FOR THE PURPOSE OF EARNING THE INCOME WHICH ARE DEDUCTIBLE IN COMPUTING THE INCOME FOR TH E PURPOSE OF SECTION 11 AND THE EXPENDITURE INCURRED FOR CARRYING OUT THE PURPOSE OF THE TRUST WHICH MUST BE CONSIDERED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE. UNDER SECTION 11(1) (A) 15% ACCUMULATION IS PERMISSIBLE AND THAT ACCUMULATION HAS TO BE CALCULATED WITH REFERENCE TO THE INCOME OF THE TRUST FIRST IN COMMERCIAL SENSE AND ACCORDING TO ITS ACCOUNT AFTER DEDUCTING A 15% STATUTORY ACCUMULATION 85% OF THE INCOME HAS TO BE APPLIED FOR CHARITABLE OR RELIGIOU S PURPOSES. THE 85% SHOULD BE OF THE 19 COMMERCIAL INCOME AND NOT OF THE INCOME AS DETERMIN ED UNDER SECTION 2(45) OF THE ACT. THE INCOME INCLUDES VOLUNTARY CONTRIBUTION. IN CASE TH E ASSESSEE COULD NOT APPLY 85% OF THE INCOME DURING THE RELEVANT ACCOUNTING YEAR, THE EXPLANATIO NS 2 OF SECTION 11(1) PROVIDES THAT NO TAX WILL BE LEVIED ON UNSPENT PORTION IF THE CONDITION STIPU LATED THEREIN ARE COMPLIED WITH. APPLICATION OF THE INCOME FOR CHARITABLE PURPOSES SHOULD NOT BE DI STINGUISHED ON THE BASIS OF APPLICATION FOR REVENUE PURPOSES AND APPLICATION FOR CAPITAL PURPOS ES. EVEN IF THE EXPENDITURE HAS BEEN INCURRED FOR ACQUIRING CAPITAL ASSET TO BE USED FOR THE OBJE CT OF THE TRUST, IN OUR OPINION, THE ASSESSEE WILL BE ENTITLED FOR THE EXEMPTION AS THIS WILL TANTAMOU NT TO APPLICATION OF THE INCOME FOR CHARITABLE PURPOSES. IN THE CASE BEFORE US, WE NOTED FROM THE AUDITED BALANCE SHEET THAT THE ASSESSEE HAS INCURRED THE CAPITAL EXPENDITURE FOR RUNNING THE ED UCATIONAL INSTITUTION. THIS CAPITAL EXPENDITURE, IN OUR OPINION, WILL BE AN APPLICATION OF THE INCOM E FOR CHARITABLE PURPOSE AND THE ASSESSEE WILL BE ENTITLED FOR DEDUCTION UNDER SECTION 11 OF THE A CT. THIS, IN OUR OPINION, IS A LEGAL PLEA AND THE CLAIM OF THE ASSESSEE CANNOT BE DENIED. WE, THEREF ORE, RESTORE THIS ISSUE TO THE FILE OF THE A.O. WITH THE DIRECTION THAT THE A.O. SHOULD VERIFY THE QUANTUM OF THE CAPITAL EXPENDITURE FROM THE AUDITED BALANCE SHEET AND ALLOW THE APPLICATION TO THE ASSESSEE UNDER SECTION 11 TO THE EXTENT THE ASSESSEE HAS INCURRED THE CAPITAL EXPENDITURE. THE ASSESSEE IS FREE IN CASE HE SO CHOOSES TO SUBMIT CONSOLIDATED BALANCE SHEET OF BOTH THE EDUCA TIONAL INSTITUTIONS RUN BY THE ASSESSEE FOR THE PURPOSE OF VERIFICATION OF THE FIGURES OF THE CAPIT AL EXPENDITURE INCURRED BY THE ASSESSEE BEFORE THE A.O. NO OTHER ISSUE WAS ARGUED OR RAISED BY E ITHER OF THE SIDE BEFORE US RATHER THE LD. A.R. CONTENDED THAT EVEN IF THE DISALLOWANCE OF THE EXPE NSES OF RS.5,63,189/- IS CONFIRMED, BUT THE ASSESSEE IS ALLOWED STATUTORY ACCUMULATION UNDER SE CTION 11 AND THE APPLICATION UNDER SECTION 11 IN RESPECT OF THE CAPITAL EXPENDITURE, THE INCOME O F THE ASSESSEE WILL BE NIL AND ACCORDINGLY THE 20 CLAIM OF THE ASSESSEE IN RESPECT OF RS.14,08,804/- WILL MERELY BE ACADEMIC AND THE ASSESSEE THEREFORE DID NOT PRESS THE CLAIM BEFORE US AND ACC ORDINGLY WE DISMISS THIS CLAIM OF THE ASSESSEE. 24. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 25. IN RESPECT OF THE APPEAL RELATING TO THE A.YS. 2004-05, 2005-06 & 2006-07, BOTH THE LD. A.R. AND LD. D.R. AGREED THAT THE ISSUES INVOLVED A RE COMMON. WHETHER THE ASSESSEE IS RUNNING AN INSTITUTION FOR CHARITABLE PURPOSES, WHETHER THE ASSESSEE IS ENTITLED FOR STATUTORY ACCUMULATION UNDER SECTION 11(1)(A)), WHETHER THE ASSESSEE IS EN TITLED FOR CLAIM OF APPLICATION UNDER SECTION 11 IN RESPECT OF THE CAPITAL EXPENDITURE OR NOT. ACCO RDING TO THE LD. A.R., IF THE STATUTORY ACCUMULATION AND APPLICATION OF THE CAPITAL EXPENDI TURE IS ALLOWED, EVEN IF THE DISALLOWANCE OF THE EXPENDITURE IS SUSTAINED, THE INCOME OF THE ASS ESSEE WILL BE NIL. FOR THIS, HE SUBMITTED THE COMPUTATION BEFORE US IN RESPECT OF EACH OF THE A.Y DETAILED AS UNDER:- A.Y.2004-05 RECEIPT EXPENDITURE INCLUDING CAPITAL EXPENDITURE 1. BY FEES RECEIVED RS.11,436,225 REVENUE EXPEND ITURE RS.9796617 2. BY INTEREST ON BANK FDR RS. 96,250 CAPITAL EXPENDITURE R S.1648911 3. BY SAVING BANK INTEREST RS. 9,299 TOTAL: RS. 11,541,774 R.S.1445529 A.Y.2005-06 A.Y.2006-07 GROSS RECEIPT 12625125 134 21458 LESS 15% U/S 11(1)(A) 1895268 2013218 BALANCE 10729857 11408240 21 LESS APPLICATION: REVENUE EXPENDITURE 9358760 10749350 CAPITAL EXPENDITURE 2533600 2397080 TOTAL APPLICATION 11892360 13146430 TAXABLE INCOME NIL NIL 26. WE HAVE ALREADY HELD DURING THE A.Y. 2003-04 TH AT THE ASSESSEE IS A CHARITABLE INSTITUTION. WE HAVE ALREADY ALLOWED DEDUCTION TO THE ASSESSEE @ 15% UNDER SECTION 11(1)(A)) OF THE ACT. WE HAVE ALSO ALLOWED CAPITAL EXPENDITURE AS AN APPL ICATION OF THE INCOME UNDER SECTION 11 OF THE ACT BUT RESTORED THE ISSUE RELATING TO THE CAPITAL EXPENDITURE FOR THE PURPOSE OF VERIFYING THE FIGURES AS CLAIMED BY THE ASSESSEE TO THE A.O. WE HAVE CONFIRMED THE DISALLOWANCE OF THE EXPENSES IN THE A.Y. 2003-04 AND RESTORED THE ISSUE SO FAR THE ADVANCE TO SMT. URVASHI SHARMA IS CONCERNED TO THE FILE OF THE A.O. ACCORDINGLY, WE RESTORE THIS ISSUE FOR THE A.YS. 2004-05, 2005-06 & 2006-07 RELATING TO THE VERIFICATION OF T HE CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE TO THE FILE OF THE A.O. WITH THE DIRECTION THAT THE A.O. SHALL ALLOW EXEMPTION TO THE ASSESSEE UNDER SECTION 11 IN RESPECT OF THE CAPITAL EXPENDITURE TO THE EXTENT IT IS FOUND THAT THE ASSESSEE HAS INCURRED THE CAPITAL EXPENDITURE. THE ISSUE RELATI NG TO THE DISALLOWANCE OF THE EXPENSE THOUGH RELATING TO A.Y. 2004-05, THE ISSUE OF THE DISALLO WANCE OF THE EXPENSES HAS BEEN CONFIRMED BY US WHILE THE ISSUE RELATING TO THE ADVANCE MADE TO SMT . URVASHI SHAMA HAS BEEN RESTORED TO THE FILE OF THE A.O. THIS ISSUE FOR THE A.Y. 2004-05 IS ALS O RESTORED TO THE FILE OF THE A.O. WITH THE SIMILAR DIRECTION AS HAS BEEN GIVEN DURING THE A.Y. 2003-04. 22 27. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E FOR A.Y. 2000-01, 2001-02, 2002-03, ARE ALLOWED WHILE THE APPEALS FOR THE AY. 2003-04 TO 20 06-07 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. (ORDER PRONOUNCED IN THE OPEN COURT ON 23.07.201 0). SD/- SD/- (R.K. GUPTA) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: AGRA DATE: 23 RD JULY, 2010. PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT BY ORDER 3. CIT CONCERNED 4. CIT (APPEALS) CONCERNED 5. DR, ITAT, AGRA BENCH, AGRA 6. GUARD FILE ASSIST ANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY