M/s Jubilee Hills Education Society, Hyderabad V. ADIT (Exemptions)-I, Hyderabad

ITA 1626/HYD/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6072 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 22-09-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 22-10-2014
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Keywords: Charitable institution; Revenue expenditure; Capital expenditure
• Section: 12A; 11

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. 1626/HYD/2014 ASSESSMENT YEAR: 2011-12 M/S. JUBILEE HILLS EDUCATION SOCIETY, HYDERABAD [PAN: AAATJ1047L] VS ASST. DIRECTOR OF INCOME TAX (EXEMPTIONS)-1, HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.C. DEVDAS, AR FOR REVENUE : SHRI K. J. RAO, DR DATE OF HEARING : 22-09-2016 DATE OF PRONOUNCEMENT : 28-10-2016 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 (APPEALS)-IV, HYDERABAD DATED 08-08-2014. THE ISSUE IN THIS APPEAL IS WITH REFEREN CE TO TAXING OF THE BUILDING FUND AND OTHER DONATIONS RECEIVED BY ASS ESSEE STATING THEM TO BE IN VIOLATION OF THE RULES. 2. ASSESSEE IS RUNNING A SCHOOL IN JUBILEE HILLS AN D HAS BEEN REGISTERED U/S. 12A OF THE INCOME TAX ACT [ACT] AND A LSO OBTAINED REGISTRATION U/S. 80G. IT HAS FILED NIL RETURN OF INCO ME CLAIMING EXEMPTION U/S. 10(23C)(VI) OF THE ACT. ASSESSING OFFI CER (AO) REJECTED THE CLAIM OF ASSESSEE ON THE REASON THAT THE DONATIONS RECEIVED CANNOT BE CONSIDERED AS VOLUNTARY AND THEY ARE TO BE I.T.A. NO. 1626/HYD/2014 M/S. JUBILEE HILLS EDUCATION SOCIETY :- 2 -: CONSIDERED AS CAPITATION FEE AND ASSESSEE WAS COLLECTING DEVELOPMENT FUND FROM THE STUDENTS WHO HAVE BEEN GIVEN ADMISSIONS. ASSESSEE HOWEVER, WHILE SUBMITTING THE DETAILS OF DONATIONS RECEIVED VOLUNTARILY FROM OUTSIDERS AND AL SO FROM PARENTS OF THE STUDENTS, WHICH MAY HAVE A NEXUS WITH THE ADMISSIONS, SUBMITTED THAT THE AMOUNTS RECEIVED TOWARDS DEVELOPMENT FUND AND OTHER FUNDS WERE PURELY VOLUNTAR Y CONTRIBUTIONS TOWARDS A SPECIFIC PURPOSE OF DEVELOPME NT OF SCHOOL INFRASTRUCTURE FOR PROVIDING BETTER AMENITIES TO THE STUDE NTS AND THAT THESE AMOUNTS WERE NOT AVAILABLE FOR EXPENDITURE AT THE DISCRETION OF ASSESSEE, THAT THE CONTRIBUTIONS WERE IN TH E NATURE OF TIED-UP GRANTS AS DISCUSSED IN THE CASE OF NIRMAL AGR ICULTURAL SOCIETY VS. ITO [71 ITD 152] (HYD). IT WAS SUBMITTED THAT EVEN THE CONTRIBUTIONS WERE HELD TO BE A PART OF THE INCOME OF TH E SOCIETY, THEY CANNOT BE BROUGHT TO TAX AS THEY HAVE FULLY APPLIED FOR CHARITABLE PURPOSES. AO HOWEVER, DID NOT AGREE AND E VEN THOUGH ASSESSEE WAS REGISTERED AS A CHARITABLE INSTITUTION, HE WAS OF THE OPINION THAT THE PURPOSE OF THE ORGANISATION AS A WHOLE WAS TO MAKE PROFIT AND THAT ASSESSEE WAS NOT ENTITLED TO EXEMPTION EITHER U/S. 11 OR U/S. 10(23C)(VI), AS IT COLLECTED MONEY BY WHATEVER NAME CALLED I.E., DONATION, BUILDING FUND OR AUDITORIUM F UND ETC., OVER AND ABOVE PRESCRIBED FEE FOR ADMISSION OF STUDENTS AN D THAT IN VIEW OF THE FACT THAT ASSESSEE HAD COLLECTED SUCH FUNDS FROM STUDENTS, ASSESSEE IS NOT ELIGIBLE FOR EXEMPTION U/S. 1 0(23C)(VI) OR U/S. 11 OF THE ACT. HE RELIED ON THE FOLLOWING CASE L AW: I. RAJAH SIR ANNAMALAI CHETTIAR FOUNDATION VS. DIT(E) 201 1 [48 SOT 502 (CHENNAI); II. MISS MOHINI JAIN VS. STATE OF KARNATAKA [1992] [2 SC 666]; I.T.A. NO. 1626/HYD/2014 M/S. JUBILEE HILLS EDUCATION SOCIETY :- 3 -: III. TMA PAI FOUNDATION VS. STATE OF KARNATAKA [2002] [8 SC C 481 / AIR 2003 SC 355 (SC)]; IV. ISLAMIC ACADEMY OF EDUCATION AND ANOTHER VS. STATE OF KARNATAKA & ANOTHER [2003] [6 SCC 697]; V. VODITHALA EDUCATION SOCIETY VS. ADDL. DIT(E) [2008] [20 SOT 353 (HYD)]; AND VI. SOLE TRUSTEE, LOKA SHIKSHANA TRUST VS. CIT [1975] [10 1 ITR 234 (SC)]; 3. BEFORE THE LD.CIT(A) ASSESSEE SUBMITTED THAT ALL THE F UNDS WERE UTILISED FOR THE PURPOSE OF CHARITY AND ASSESSEE IS BEING AN EDUCATIONAL INSTITUTION RUNNING A SCHOOL IS NOT DISPUTED . THE RECEIPTS ARE EXEMPT U/S. 10(23C)(VI) OF THE ACT. IT AL SO RELIED ON HOST OF CASE LAW AS NOTED BY THE LD.CIT(A) IN PARA 4.8 . HOWEVER, LD.CIT(A) AGREED WITH THE OPINION OF AO AND REJECTED ASSESSEES CONTENTIONS. IN DOING SO, THE LD.CIT(A) RELIED ON THE FOLLOWING DECISIONS: I. VASAVI ACADEMY OF EDUCATION (ITA NO. 1133/HYD/2006, DATED 15.04.2009; II. JAMIA NIZAMIA (ITA NO. 763/HYD/2007, DATED 30.06.20 08; III. INTERNATIONAL EDUCATIONAL ACADEMY (ITA NO. 494/HYD/200 7); IV. SRI VENKATA SAI EDUCATIONAL SOCIETY (ITA NO. 1440/HYD/2011, DATED 09.04.2012. 4. BEFORE US APART FROM VARIOUS CONTENTIONS RAISED IN THE GROUNDS, IT WAS CONTENDED THAT THERE IS NO PRESCRIBED FE E FOR SCHOOLS IN ANDHRA PRADESH AND ASSESSEE IS NOT RUNNIN G ANY PROFESSIONAL EDUCATIONAL INSTITUTION SO AS TO COME WITHI N THE NORMS OF THE SUPREME COURT IN THE CASE OF TMA PAI FOUNDATION VS. STATE I.T.A. NO. 1626/HYD/2014 M/S. JUBILEE HILLS EDUCATION SOCIETY :- 4 -: OF KARNATAKA OR OTHER CASE LAW RELIED ON BY THE LD.CI T(A) IN THE ORDER. 5. THE BENCH ENQUIRED FROM THE DR THAT WHETHER THERE WAS ANY PRESCRIBED FEE AND ANY PROHIBITION FOR OBTAINING DON ATIONS. IN RESPONSE, AO, ACIT-(EXEMPTIONS CIRCLE), HYDERABAD VI DE HIS LETTER DT. 24-08-2016 HAS SUBMITTED AS UNDER: THIS IS SUBMITTED THAT THE REPORT CALLED FOR IN TH E ABOVE SAID CASE ON THE ISSUE OF THE GOVERNMENT OF AP/TELANGANA HAS PRESCRIBED ANY FEE AND NOTIFICATION IF ANY IS ENCLOSED AS SUBMITTED B Y THE ASSESSEE. THE ASSESSEE SUBMITTED THAT THE CBSE BOARD HAS NOT PRES CRIBED ANY FEE STRUCTURE EITHER FOR THE ACADEMIC YEAR 2010-11 ANY EARLIER OR SUBSEQUENT YEAR. 6. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE ARE OF TH E OPINION THAT ASSESSEE SHOULD SUCCEED ON ITS GROUNDS. FIRST OF ALL, THE BASIC PREMISE ON WHICH AO HAS DENIED THE DEDUCTION U/S. 10( 23C) IS THAT ASSESSEE IS EXISTING WHOLLY FOR THE PURPOSE OF PRO FIT. THIS IS NOT CORRECT. IN ADDITION, AO ALSO RELIED ON THE JUDIC IAL PRONOUNCEMENTS GIVEN IN THE CONTEXT OF ADMISSIONS TO THE PROFESSIONAL COLLEGES SUCH AS ENGINEERING AND MEDIC AL COLLEGES WHICH LD.CIT(A) ALSO FOLLOWED. IT IS ADMITTED THAT ASS ESSEE IS NOT RUNNING ANY INSTITUTE HAVING PROFESSIONAL COURSES LI KE ENGINEERING / MEDICINE. IT RUNS SCHOOLS UP TO CLASS-12, MAINLY FOLLOWING CBSE BOARD SYLLABUS. THERE IS NO PRESCRIBED FEE BY THE BO ARD AS ACCEPTED BY AO THAT CAN BE CONSIDERED AS ASSESSEE VIO LATION OF THE RULES. CONSEQUENTLY, THE ENTIRE PREMISE OF THE AOS BAS IS OF DENYING 10(23C) IS NOT CORRECT. SINCE THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CONTEXT OF ADMISSION T O PROFESSIONAL COLLEGES ARE INVOKED BY AO AND CIT(A) IN DENYING THE BENEFIT TO ASSESSEE WHO RUNS ONLY SCHOOLS, WE ARE OF THE OPINION I.T.A. NO. 1626/HYD/2014 M/S. JUBILEE HILLS EDUCATION SOCIETY :- 5 -: THAT THE ORDERS PASSED BY THE AUTHORITIES HAVE NO BASIS AT ALL IN THE FACTUAL CONTEXT. EVEN OTHERWISE, HON'BLE SUPREME COUR T HAS LAID DOWN THE NORMS IN THE CONTEXT OF EXEMPTION CLAIMED U/S . 10(23C) OF THE ACT IN THE DECISION OF QUEENS EDUCATIONAL SOCIE TY VS. CIT [372 ITR 699] (SC), THE SAME WERE REITERATED BY THE H ON'BLE SUPREME COURT IN THE CASE OF CCIT VS. ST. PETERS EDUCA TIONAL SOCIETY. AS PER THE PRINCIPLES LAID DOWN WHEN A SU RPLUS IS PLOUGHED BACK FOR EDUCATIONAL PURPOSES, EDUCATIONAL I NSTITUTIONS EXISTS WHOLLY FOR EDUCATIONAL PURPOSES AND NOT FOR THE PURPOSE OF PROFIT. THE HON'BLE SUPREME COURT WENT ON TO ESTABLIS H THE GUIDELINES, PARTICULARLY IN PARA 25 OF THE ORDER, WHI CH IS AS UNDER: 25. WE APPROVE THE JUDGMENTS OF THE PUNJAB AND HAR YANA, DELHI AND BOMBAY HIGH COURTS. SINCE WE HAVE SET ASIDE TH E JUDGMENT OF THE UTTARAKHAND HIGH COURT AND SINCE THE CHIEF COMMISSI ONER OF INCOME-TAXS ORDERS CANCELLING EXEMPTION WHICH WERE SET ASIDE BY THE PUNJAB AND HARYANA HIGH COURT WERE PASSED ALMOST SOLELY UPON T HE LAW DECLARED BY THE UTTARAKHAND HIGH COURT, IT IS CLEAR THAT THESE ORDERS CANNOT STAND. CONSEQUENTLY, THE REVENUES APPEALS FROM THE PUNJAB AND HARYANA HIGH COURT'S JUDGMENT DATED JANUARY 29, 2010, AND THE JU DGMENTS FOLLOWING IT ARE DISMISSED. WE REITERATE THAT THE CORRECT TESTS WHICH HAVE BEEN CULLED OUT IN THE THREE SUPREME COURT JUDGMENTS STATED ABO VE, NAMELY, SURAT ART SILK CLOTH, ADITANAR AND AMERICAN HOTEL AND LODGING , WOULD ALL APPLY TO DETERMINE WHETHER AN EDUCATIONAL INSTITUTION EXISTS SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT. IN ADDITIO N, WE HASTEN TO ADD THAT THE 13TH PROVISO TO SECTION 10(23C) IS OF GREAT IMP ORTANCE IN THAT ASSESSING AUTHORITIES MUST CONTINUOUSLY MONITOR FROM ASSESSME NT YEAR TO ASSESSMENT YEAR WHETHER SUCH INSTITUTIONS CONTINUE TO APPLY THEIR INCOME AND INVEST OR DEPOSIT THEIR FUNDS IN ACCORDANCE WIT H THE LAW LAID DOWN. FURTHER, IT IS OF GREAT IMPORTANCE THAT THE ACTIVIT IES OF SUCH INSTITUTIONS BE LOOKED AT CAREFULLY. IF THEY ARE NOT GENUINE, OR AR E NOT BEING CARRIED OUT IN ACCORDANCE WITH ALL OR ANY OF THE CONDITIONS SUBJEC T TO WHICH APPROVAL HAS BEEN GIVEN, SUCH APPROVAL AND EXEMPTION MUST FORTHW ITH BE WITHDRAWN. ALL THESE CASES ARE DISPOSED OF MAKING IT CLEAR THA T THE REVENUE IS AT LIBERTY TO PASS FRESH ORDERS IF SUCH NECESSITY IS F ELT AFTER TAKING INTO CONSIDERATION THE VARIOUS PROVISIONS OF LAW CONTAIN ED IN SECTION 10(23C) READ WITH SECTION 11 OF THE INCOME-TAX ACT.' I.T.A. NO. 1626/HYD/2014 M/S. JUBILEE HILLS EDUCATION SOCIETY :- 6 -: 6.1. KEEPING IN VIEW OF THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE ABOVE CASE AND ALSO ON THE FACT THA T THERE IS NO PROHIBITION FOR COLLECTING DONATIONS BOTH CAPITAL A ND REVENUE ALONG WITH FEE BY THIS EDUCATIONAL SOCIETY BY ANY AUT HORITY, SO FAR, WE ARE OF THE OPINION THAT ASSESSEE HAS NOT VIOLATED AN Y LAW SO AS TO DENY THE OF BENEFIT U/S. 10(23C) OF THE ACT. 7. AS SEEN FROM THE COMPUTATION OF INCOME ALSO, ASSESS EE HAD SHOWN GROSS INCOME AT RS. 7,97,36,517/- AND REVENUE EXPENDITURE AT RS. 7,97,86,632/- SHOWING A LOSS OF RS. 30,115/-. ON CAPITAL ACCOUNT, IT HAS SHOWN RECEIPTS TO THE TUNE OF RS. 2,92,7 0,572/- AND CLAIMED EXPENDITURE OF CAPITAL NATURE AT RS. 3,22, 66,504/-. EVEN IN THE CAPITAL FIELD, THERE IS A DEFICIT OF RS. 29 ,95,932/-. SINCE THERE IS NO SURPLUS IN THIS YEAR AT ALL, THE CONTENTION OF AO THAT IT EXISTS FOR THE PURPOSE OF PROFIT IS UNFOUNDED. FOLL OWING THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE ABOVE REFERRED CASES AND ON FACTS, WE ARE OF THE OPINION TH AT ASSESSEE IS ENTITLED FOR EXEMPTION U/S. 10(23C) / SECTION 11 OF THE ACT. THE ORDERS OF THE AO AND CIT(A) ARE ACCORDINGLY SET ASIDE . AO IS DIRECTED TO COMPUTE THE INCOME ON THE BASIS OF THE COMP UTATION FILED BY ASSESSEE. 8. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH OCTOBER, 2016 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD, DATED 28 TH OCTOBER, 2016 TNMM I.T.A. NO. 1626/HYD/2014 M/S. JUBILEE HILLS EDUCATION SOCIETY :- 7 -: COPY TO : 1. M/S. JUBILEE HILLS EDUCATION SOCIETY, BLOCK-III, ROAD NO. 71, JUBILEE HILLS, HYDERABAD. 2. THE ASST. DIRECTOR OF INCOME TAX (EXEMPTIONS)-1, HYDERABAD. 3. CIT (APPEALS)-IV, HYDERABAD. 4. THE DIRECTOR OF INCOME TAX (EXEMPTIONS), HYDERAB AD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.