ADIT (Exemptions)-III, Hyderabad V. Islamic Educational Society, Hyderabad

ITA 1616/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59339 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 12-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B V PRASAD REDDY
• Keywords: Capital asset; Depreciation; Charitable institution; Cost of acquisition
• Section: 12A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1616/HYD/11 : A SSTT. YEAR 2008-09 ASST . DIRECTOR OF INCOME - TAX(EXEMPTION)-III, HYDERABAD. V/S. M/S. ISLAMIA EDUCATIONAL SOCIETY, SECUDNERABAD. ( PAN - AAATI 2583 A ) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.V.PRASAD REDDY RESPONDENT BY : SHRI Y.RATNAKAR DATE OF HEARING 2 1.3.2012 DATE OF PRONOUNCEMENT 22.3.2012 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) IV, HYDERABAD, DATED 23.6.20011 FOR THE ASSESSMENT YEARS 2008-09. 2. EFFECTIVE GROUNDS OF THE REVENUE IN THIS APPEA L ARE AS UNDER- 1. THE ORDER OF THE LEARNED. CIT(A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LEARNED. CIT(A) ERRED TO HOLD THAT THE ASSESSEE IS ELIGIBLE FOR CLAIM UNDER SECTION 11 IN ABSENCE OF APPROVAL UNDER SUB-CLAUSE (VI) TO THE SECTION 10(23C). 3. THE LD. CIT(A) FAILED TO SEE THAT APPROVAL SUB-CLAU SE (VI) TO THE SECTIONS 10(23C) IS DISTINCT FROM REGISTRATION U/S. 12A OF THE ACT. 4. THE LD. CIT(A) FAILED TO SEE THAT SUB-CLAUSE (VI) T O THE SECTION 10(23C) AS INSERTED BY THE FINANCE ACT, 1998 W.E.F. 01.04.1999 STATES THAT THE UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATIONAL PURPOSE MAY BE APPROVED BY THE PRESCRIBED AUTHORITY. THE ISSUE IS EXPLICITLY DEALT WITH BY TH E ACT ITSELF AND THE INTENTION OF THE LEGISLATURE IS QUITE CLEAR FORM IT. 5. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE DECISI ON OF THE APEX COURT IN THE CASE OF CIT VS. BAR COUNSEL OF MAHARASHTRA WAS MADE IN THE YEAR 1981 PRIOR TO INTRODUCTION OF THE SUB-CLAUSE (VI) TO THE SECTION 10(23C) (INSERTE D BY THE FINANCE ACT, 1998 W.E.F. 01.04.1999) ITA NO.1616/HYD/11 M/S. ISLAMIA EDUCATIONAL SOCIETY, SECUDNERABAD. 2 6. THE LD. CIT(A) FAILED TO SEE THAT IN THE CITED CASE OF AMERICAN HOTEL AND LODGING ASSN. EDUCATIONAL INSTITUTE VS. CBDT (2008) ( 170 TAXMAN 306)(SC), THE HONBLE SUPREME COURT SET ASIDE THE ORDER OF THE CBDT DECLINING APP ROVAL UNDER SECTION 10(23C)(VI) AND RESTORED THE APPLICATION OF THE ASSESSEE FOR FR ESH DISPOSAL AND DID NOT DISPENSE WITH THE REQUIREMENT OF APPROVAL UNDER SECTION 10(2 3C)(VI). IN THE CONTRARY, THE DECISION OF THE APEX COURT STR ENGTHENED THE VIEW THAT THE APPROVAL UNDER SECTION 10(23C)(VI), BY THE PRESCRIB ED AUTHORITY, IS A PREREQUISITE FOR ENJOYING EXEMPTION BY ANY UNIVERSITY OR OTHER EDUCA TIONAL INSTITUTION. 7. THE CIT(A) OUGHT TO HAVE SUSTAINED THE DISALLOW ANCE OF DEPRECIATION IN THE LIGHT OF DECISION OF THE CASE OF ESCORTS LTD. AND ANOTHER VS . UNION OF INDIA. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN ISSUE INVOLVED IN THIS APPEAL RE LATES TO ASSESSEES CLAIM FOR EXEMPTION OF ITS INCOME UNDER S.11 OF THE ACT. WE FIND THAT THIS MAIN ISSUE INVOLVED IN THE ABOVE GROUNDS IS COVERED BY T HE ORDER OF THE HYDERABAD BENCH A OF THE TRIBUNAL DATED 15.4.2009 IN THE CASES OF VASAVI ACADEMY OF EDUCATION, HYDERABAD IN ITA NO.11 33/HYD/2006 FOR THE ASSESSMENT YEAR 2003-04 AND ORDER DATED 17.4.20 09 IN ITA NO.1206/HYD/2007 FOR THE ASSESSMENT YEAR 2004-05, W HEREIN IT WAS HELD THAT IF DONATIONS ARE RECEIVED COMPULSORILY FOR THE ADMISSION OF STUDENTS, BY WHATEVER NAME IT MAY BE CALLED, I.E. DONATION, B UILDING FUND, AUDITORIUM FUND, ETC. OVER AND ABOVE THE PRESCRIBED FEE, FROM THE STUDENTS, THE ASSESSEE WOULD NOT BE ENTITLED FOR EX EMPTION EITHER UNDER S.10(23C) OR UNDER S.11 OF THE ACT. FURTHER, WE FI ND THAT THE CONSTITUTIONAL BENCH OF APEX COURT IN THE CASE OF T .M.A. PAI FOUNDATIONS AND OTHERS VS. STATE OF KARNATAKA & OTHERS (2002) 8 SCC 481 EXAMINED THE ISSUE OF COLLECTION OF CAPITATION FEES FOR THE ADMISSION OF STUDENTS OVER AND ABOVE FEES PRESCRIBED BY THE PRIVATE INSTI TUTION AND HELD THAT THE INSTITUTION WHICH ARE COLLECTING CAPITATION FEES FO R ADMISSION OF STUDENTS OVER AND ABOVE THE FEES PRESCRIBED CANNOT BE CONSTR UED AS CHARITABLE/EDUCATION INSTITUTION. APEX COURT FURTHE R OBSERVED THAT THE FEES COLLECTED OVER AND ABOVE THE PRESCRIBED FEE FOR ADM ISSION OF THE STUDENT HAS TO BE CONSTRUCTED AS CAPITATION FEE. THE APEX COURT, FURTHER OBSERVED THAT THE CONCERNED UNIVERSITY AND REGULATED BODY HA S TO TAKE ACTION FOR WITHDRAWAL OF THE RECOGNITION IN CASE IT IS FOUND T HAT THE EDUCATIONAL INSTITUTION RECEIVED ANY MONEY OVER AND ABOVE THE F EES PRESCRIBED FOR THE ITA NO.1616/HYD/11 M/S. ISLAMIA EDUCATIONAL SOCIETY, SECUDNERABAD. 3 COURSES. SAME VIEW WAS TAKEN BY APEX COURT IN THE C ASE OF ISLAMIC ACADEMY OF EDUCATION AND ANOTHER VS. STATE OF KARNA TAKA & ANOTHER (2003) 6 SCC 697. IF THE DONATIONS WERE RECEIVED C OMPULSORILY FOR ADMISSION OF STUDENTS, THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION EITHER U/S 10(23C) OR U/S 11 OF THE IT ACT. SINCE THE LOW ER AUTHORITIES HAVE NOT EXAMINED THE COLLECTION OF CAPITATION FEES IN THIS CASE, IN OUR OPINION, THE MATTER REQUIRES TO BE EXAMINED BY THE ASSESSING OFF ICER WHETHER THE ASSESSEE IS COLLECTING THE CAPITATION FEES FROM STU DENTS OR NOT AND IT IS NECESSARY FOR BRINGING THE ACTUAL FACTS ON RECORD F OR DECIDING THE ISSUE EFFECTIVELY. SIMILAR VIEW WAS TAKEN BY US IN THE C ASE OF M/S. JAMIA NIZAMIA IN ITA NO.763/HYD/2007 DATED 30.6.2008, IN THE CASE OF INTERNATIONAL EDUCATIONAL ACADEMY, HYDERABAD IN ITA NO.494/HYD/2007 AND 518/HYD/2008 FOR THE ASSESSMENT YEARS 2002- 200 3 AND 2004-05 AND SRI SAI SUDHIR EDUCATIONAL SOCIETY, HYDERABAD IN IT A NO.999/HYD/20-06 FOR THE ASSESSMENT YEAR 2003-04. THEREFORE, WE S ET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT BACK THE MATTER TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION TO ASSESSING OFFICER THAT HE SHALL RECONSIDER THE ENTIRE ISSUE IN THE LIGHT OF JUDGMENT OF SUPREME CO URT IN THE CASE OF M/S ISLAMIC ACADEMY OF EDUCATION & ANOTHER VS. STATE OF KARNATAKA AND ANOTHER (SUPRA), AND IN THE CASED OF T.M.A. PAI FOU NDATION AND OTHERS VS. STATE OF KARNATAKA AND OTHERS (SUPRA), AND FIND OUT WHETHER THE ASSESSEE HAS RECEIVED ANY MONEY OVER AND ABOVE THE FEES PRES CRIBED AND THEREAFTER DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTE R GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE MAKE IT CLEAR THAT THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S 11 IN CA SE IT COLLECTED ANY MONEY BY WHATEVER NAME IT IS CALLED I.E., DONATION, BUILDING FUND, AUDITORIUM FUND ETC. ETC., OVER AND ABOVE THE PRESC RIBED FEE FOR ADMISSION OF STUDENTS. 4. BEFORE PARTING WE MAY NOTE THAT THE LEARNED CO UNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THERE IS NO NECES SITY OF SETTING ASIDE ITA NO.1616/HYD/11 M/S. ISLAMIA EDUCATIONAL SOCIETY, SECUDNERABAD. 4 THE MATTER TO THE FILE OF THE ASSESSING OFFICER AND PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF S.A. RAHIM AND OTHERS V/S. CIT(333 ITR 379), WHEREIN IT WAS HELD PLACING RELIANCE ON THE EARLIER JUDGMENT OF THE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT V/S. KRISHNA MINING CO. (107 ITR 702), THAT THE TRIBUNAL CAN GO INTO THE ONLY ISSUE RAISED BEFORE IT AND NOT ON OTH ER ISSUES. IT WAS OBSERVED BY THE HONBLE HIGH COURT THAT THE EXPRESS ION SUCH ORDER AS IT THINKS FIT IN S.254(1) WAS WIDE ENOUGH TO INCLUDE THE POWER OF REMAND TO THE AUTHORITY, COMPETENT TO MAKE THE REQUISITE O RDER IN ACCORDANCE WITH LAW, EVEN THOUGH THE TRIBUNAL COULD NOT HAVE MADE AN ORDER ENHANCING THE ASSESSMENT. HOWEVER, THE TRIBUNAL IS NOT SUPPO SED TO MAKE OUT A THIRD CASE ARBITRARILY. WE HAVE CAREFULLY GONE TH ROUGH THIS JUDGMENT. THIS JUDGMENT IS DELIVERED IN THE CONTEXT, WHEREIN THE I SSUE IS WHETHER THE SALE TRANSACTIONS WERE GENUINE OR NOT AND NOT RELATING T O THE QUANTUM OF SALE PRICE. HOWEVER, THE TRIBUNAL ON APPEAL REDUCED THE SALE PRICE TO HALF OF THE AMOUNT CLAIMED BY THE ASSESSEE, INSTEAD OF DECI DING ON THE GENUINENESS OF THE TRANSACTION, WITHOUT ANY DOCUMEN TARY EVIDENCE. IN THAT CIRCUMSTANCE, THE HONBLE HIGH COURT HAS HELD AS ABOVE. IN THE PRESENT CASE, THE ISSUE IS RELATING TO ALLOWABILITY OF EXEMPTION UNDER S.11 OR UNDER S.10(23C), AND WHILE ADJUDICATING ON THIS ISSUE ONE HAS TO SEE THE ELIGIBILITY OF CLAIMING OF DEDUCTION UNDER S.11 . THIS ASPECT HAS NOT BEEN PROPER ADDRESSED BY THE CIT(A) WHILE GRANTING THE ALTERNATIVE CLAIM OF THE ASSESSEE FOR EXEMPTION UNDER S.11. SINCE TH E ASSESSING OFFICER HAS NO OCCASION TO EXAMINE THE CLAIM OF THE ASSESSEE UN DER S.11, WE HAVE GIVEN SUITABLE DIRECTIONS, IN THE PRECEDING PARA, T O THE ASSESSING OFFICER FOR VERIFICATION. THAT BEING SO, THE RATIO LAID DOW N BY THE JURISDICTIONAL HIGH COURT IN THE CASE NOTED ABOVE, HAS NO APPLICATION T O THE FACTS OF THE PRESENT CASE. ITA NO.1616/HYD/11 M/S. ISLAMIA EDUCATIONAL SOCIETY, SECUDNERABAD. 5 5. THE NEXT ISSUE INVOLVED IN THESE APPEAL RELATE S TO THE ADDITION MADE ON ACCOUNT OF DEPRECIATION CLAIMED BY THE ASSE SSEE. THE ASSESSING OFFICER HAS OBSERVED THAT THE TRUST HAD CLAIMED EXP ENDITURE ON ACCOUNT OF DEPRECIATION. HE WAS OF THE VIEW THAT SINCE THE PU RCHASE OF CAPITAL ASSET USED TO PROMOTE THE OBJECTIVE OF THE TRUST IS ALLOW ED AS APPLICATION OF INCOME, DEPRECIATION IS NOT ALLOWABLE ON CAPITAL AS SET WHERE THE ENTIRE COST OF ACQUISITION IS EITHER WRITTEN OFF IN THE FIRST Y EAR ITSELF OR THE COST OF ACQUISITION IS TREATED AS APPLICATION OF INCOME. TH E ASSESSING OFFICER HAS DRAWN SUPPORT FROM THE DECISION OF THE APEX COURT I N THE CASE OF ESCORTS LTD. (199 ITR 44). THE CIT(A), ON APPEAL, HAS ALL OWED THE CLAIM OF THE ASSESSEE. AGAINST THE ORDER OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US FOR ALL THE YEARS UNDER CONSIDERATION. 6. WE HEARD BOTH THE PARTIES ON THIS ISSUE. SIMIL AR ISSUE CAME UP FOR CONSIDERATION BEFORE THE JAIPUR BENCH OF THIS T RIBUNAL IN THE CASE OF JAIPUR STOCK EXCHANGE (108 TTJ 393)(JP), WHEREIN IT WAS HELD THAT DEPRECIATION ON FIXED ASSETS IS AN ALLOWABLE DEDUCT ION, WHICH IS NECESSARY TO ARRIVE AT THE INCOME AVAILABLE FOR APPLICATION T O CHARITABLE PURPOSE. FURTHER, IN THE CASE OF MAHILA SIDH NIRMAN YOJNA V/ S. IAC (50 ITD 472), IT HAS BEEN HELD BY THE DELHI BENCH OF THE TRIBUNAL TH AT MERELY BECAUSE ENTIRE VALUE OF ASSET IS ALLOWABLE AS EXPENDITURE U NDER S.11, IT IS NOT SUFFICIENT TO DENY CLAIM FOR DEPRECIATION UNLESS TH E VALUE OF ASSET HAS BEEN ACTUALLY ALLOWED AS EXPENDITURE. IF NOT SO ALLOWED IN THE YEAR OF ACQUISITION, ASSESSEE WILL BE ENTITLED TO DEPRECIAT ION. FURTHER, IT WAS HELD BY THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF DY. CIT V/S. ADI SANKARA TRUST (46 SOT 230) THAT WHERE AN ASSESSEE T RUST IS CLAIMING DEPRECIATION ON ASSETS WHERE COST OF THE RELEVANT A SSETS STOOD CLAIMED AS AN APPLICATION OF INCOME FOR A PRECEDING AND/OR THE CURRENT YEAR UNDER S.11(1), ITS CLAIM UNDER S.32(1)IS ELIGIBLE ONLY IN RESPECT OF BUSINESS ASSETS AND WHERE ENTIRE COST OF THE ASSET STANDS AL LOWED BY WAY OF ITA NO.1616/HYD/11 M/S. ISLAMIA EDUCATIONAL SOCIETY, SECUDNERABAD. 6 APPLICATION OF INCOME UNDER S.11(1), THE DEPRECIATI ON CLAIMED BY THE ASSESSEE UNDER S.32(1) IS NOT ALLOWABLE AS THE TRUS T IS NOT UNDERTAKING ANY BUSINESS ACTIVITY. IN VIEW OF THE ABOVE, THE ASSES SING OFFICER IS DIRECTED TO VERIFY IN RESPECT OF EACH ASSET ON WHICH DEPRECIATI ON CLAIMED, WHETHER THE VALUE OF SUCH ASSET WAS IN FACT ALLOWED UNDER S.11, AND IF IT WAS SO ALLOWED, THE DEPRECIATION WOULD NOT BE ALLOWED IN R ESPECT OF SUCH ASSET. ONLY IF THE VALUE OF THE ASSET WAS NOT ALLOWED AS E XPENDITURE UNDER S.11, THE ASSESSING OFFICER IS REQUIRED TO ALLOW DEPRECIA TION THEREON, AS PER THE RATE APPLICABLE TO THOSE ASSETS, AS HELD IN THE CAS E OF MAHILA SIDH NIRMAN YOJNA, CITED SUPRA. THIS ISSUE RAISED BY THE REVE NUE IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATI ON, IN THE LIGHT OF THE ABOVE OBSERVATIONS. THE ASSESSING OFFICER SHALL AC CORDINGLY REDECIDE THE ISSUE IN ACCORDANCE WITH LAW AND AFTER GIVING REASO NABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 7. IN THE RESULT, REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 22.3.2012 SD/- SD/- ( SAKTIJIT DEY ) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/- 22 MARCH, 2012 COPY FORWARDED TO: 1. M/S. ISLAMIA EDUCATIONAL SOCIETY, 9 - 4 - 146 TO 153, REGIMENTAL BAZAR, SECUNDERABAD. 2 . ASST . DIRECTOR OF INCOME - TAX (EXEMPTION) - I II , HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) IV, HYDERABAD. 4. COMMISSIONER OF INCOME-TAX III, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S