M/s Valley Public School, Panchkula V. CIT(E), Chandigarh

ITA 1633/CHANDI/2017

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 7979 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 01-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G.S. PHANI KISHORE
• Keywords: Charitable institution; Set aside
• Section: 10; 12A; 10(23C)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, B, CHANDIGARH . . , , BEFORE SHRI N.K. SAINI, VICE PRESIDENT & SHRI SANJAY GARG, JUDICIAL MEMBER ./ ITA NO. 1633/CHD/2017 / ASSESSMENT YEAR : 2016-17 M/S VALLEY PUBLIC SCHOOL , MANSA DEVI ROAD, PANCHKULA VS. ! THE CIT (EXEMPTIONS), CHANDIGARH ' # ./ PAN NO: AAAAV7063K '$/ APPELLANT &' '$ / RESPONDENT ()*+ /ASSESSEE BY : SH. PARISKHIT AGGARWAL, CA *+ / REVENUE BY : SHRI G.S. PHANI KISHORE, CIT DR , -*) .# /DATE OF HEARING : 17.09.2019 /0 *) .# / DATE OF PRONOUNCEMENT : 20.12.2019 / ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE APPELL ANT AGAINST THE ORDER DATED 31.10.2017 OF THE COMMISSIONER OF INCOME TAX (EXEMPTIONS ), CHANDIGARH [HEREINAFTER REFERRED TO AS CIT(E)] A GAINST THE DENIAL OF APPROVAL U/S 10(23C)(VI) OF THE INCOM E TAX ACT, 1961 (IN SHORT 'THE ACT') BY THE LD. CIT (E). 2. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE APPELLANT SCHOOL IS RUN AND MANAGED BY A SOCIETY NAMED AS SHIVALIK PUB LIC CHARITABLE ITA NO. 1633-CHD/2017 M/S VALLEY PUBLIC SCHOOL, PANCHKULA 2 TRUST. THE SAID SOCIETY IS REGISTERED UNDER THE S OCIETYS REGISTRATION ACT XXI OF 1860 ON 26.2.1991. THE SAID SOCIETY HAS ALSO BEEN REGISTERED AS A CHARITABLE INSTITUTION U/S 12A OF THE I.T. A CT VIDE LETTER F.N. 227(217-B))92-93/PRO/789 DATED 9.4.1992 FROM THE OF FICE OF COMMISSIONER OF INCOME TAX, ROHTAK, HARYANA. THE APPELLANT SCHOOL, WHICH IS MANAGED AND RUN BY THE AFORESAID SHIVALIK PUBLIC CHARITABLE TRUST, MOVED AN APPLICATION FOR REGISTRATION U/S 10(23C)(VI) OF THE ACT TO THE LD. CIT (E) CLAIMING ITSELF TO BE THE SCHOOL / INSTITUTION SOLELY EXISTING FOR EDUCATIONAL PURPOSES AND NOT FOR PROFI TS. HOWEVER, THE LD. CIT (E) REJECTED THE AFORESAID APPLICATION OF THE A PPELLANT OBSERVING THAT THOUGH THE APPLICATION HAS BEEN MOVED BY THE S CHOOL ITSELF BUT THE SAME IS RUN AND MANAGED BY COMMITTEE OF SHIVALIK P UBLIC CHARITABLE TRUST AND THAT SINCE BOTH THE SCHOOL AND TRUST ARE SEPARATE ENTITIES, HENCE, THE AFFAIRS OF THE APPELLANT COULD NOT BE EX AMINED IN FULLEST TERMS IN THE ABSENCE OF FINANCIAL STATEMENT OF THE MANAGI NG TRUST. THE LD. CIT(E) FURTHER OBSERVED THAT THE APPELLANT ITSELF H AS CLAIMED THAT PRIOR TO FINANCIAL YEAR 2015-16, THE APPELLANT HAD NOT CL AIMED ANY EXEMPTION AND HAD PAID THE TAXES ON ITS PROFITS. HE OBSERVED THAT THE APPELLANT HAD ADMITTED ITSELF THAT PRIOR TO THE FILING OF THE PR ESENT APPLICATION, IT WAS MANAGING ITS OPERATION ON COMMERCIAL / PROFIT BASIS . THE LD. CIT(E) FURTHER OBSERVED THAT, HOWEVER, A PERUSAL OF THE CO PY OF THE ITRS REVEALS THAT THE APPELLANT HAD BEEN WRONGLY CLAIMING EXEMPT ION U/S 10(23C)(IIIAD) OF THE ACT DESPITE THE FACT THAT ITS GROSS RECEIPTS HAD ITA NO. 1633-CHD/2017 M/S VALLEY PUBLIC SCHOOL, PANCHKULA 3 EXCEEDED RS. ONE CRORE. MOREOVER, THE APPELLANT H AD BEEN RUNNING THE SCHOOL ON COMMERCIAL BASIS. THE LD. CIT (E) FURTHE R OBSERVED THAT ITRS OF ASSESSMENT YEARS 2015-16 AND 2016-17 WERE FILED BY THE APPELLANT MERELY BEFORE 6 DAYS OF APPLYING FOR APPROVAL U/S 1 0(23C)(VI) OF THE ACT WHICH SHOWED THAT THE APPELLANT HAD BEEN RUNNING SC HOOL ON COMMERCIAL BASIS AND THAT THERE WAS NO EVIDENCE THAT THE APPEL LANT SCHOOL WAS EXISTING SOLELY FOR EDUCATIONAL PURPOSES AND NOT FO R PROFIT. THE LD. CIT (E) OBSERVED THAT THE APPELLANT SCHOOL HAD GIVEN A DVANCE OF RS. 1.56 CRORES TO ANOTHER TRUST NAMELY SHIVALIK EDUCATION TRUST IN 2010. THE LD. CIT(A) IN THIS RESPECT OBSERVED THAT THE APPELL ANT INSTITUTION HAD TRANSFERRED ITS RECEIPTS TO A TRUST THAT WAS CONTRO LLED BY A FAMILY. THE MEMBERS OF THE SAID TRUST WERE THE SAME WHO HAD ADV ANCED THE MONEY TO THE APPELLANT AND EARNED INTEREST THEREUPON. THAT T HIS ARRANGEMENT LED TO THE CONCLUSION THAT THE AFFAIRS OF THE APPELLANT IN STITUTION WERE NOT TRANSPARENT AND WERE GEARED TO BENEFIT THE STAKE HO LDERS WHO WERE RELATED. HE FURTHER OBSERVED THAT EVEN THERE WAS A DISPUTE WITH REGARD TO THE LEASED LAND ON WHICH THE SCHOOL WAS CONSTRUCTED . THE LD. CIT(E), THEREFORE, CONCLUDED FROM THE ENTIRE FACTS AND CIR CUMSTANCES THAT IT CANNOT BE SAID THAT THE APPELLANT SCHOOL SOLELY EX ISTED FOR CHARITABLE PURPOSES AND NOT FOR PROFIT. HE, THEREFORE, REJECTE D THE APPLICATION MOVED BY THE APPELLANT SCHOOL U/S 10(23C) (VI) FOR GRANT OF APPROVAL. ITA NO. 1633-CHD/2017 M/S VALLEY PUBLIC SCHOOL, PANCHKULA 4 3. BEING AGGRIEVED BY THE SAID ORDER OF THE CIT(E), THE APPELLANT HAS COME IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS OF LD. REPRE SENTATIVES OF BOTH THE PARTIES AND HAVE ALSO GONE THROUGH THE RECORD. THE APPELLANT IS AGGRIEVED AGAINST THE DENIAL OF APPROVAL U/S 10(23C )(VI) OF THE ACT. THE RELEVANT PART OF THE PROVISIONS OF SECTION 10(23C)( VI) FOR THE SAKE OF READY REFERENCE, IS REPRODUCED AS UNDER:- INCOME NOT INCLUDED IN TOTAL INCOME. SECTION 10 . IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR OF ANY PERSON, ANY INCOME FALLING WITHIN ANY OF THE FOLLOWING CLAUSES SHALL NOT BE INCLUDED . (23C) ANY INCOME RECEIVED BY ANY PERSON ON BEHALF O F (VI) ANY UNIVERSITY OR OTHER EDUCATIONAL INSTIT UTION EXISTING SOLELY FOR EDUCATIONAL PURPOSES AND NOT FO R PURPOSES OF PROFIT, OTHER THAN THOSE MENTIONED IN S UB- CLAUSE (IIIAB) OR SUB-CLAUSE (IIIAD) AND WHICH MAY BE APPROVED BY THE PRESCRIBED AUTHORITY; OR PROVIDED THAT THE FUND OR TRUST OR INSTITUTION OR A NY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION REFERRED TO IN SUB-CLA USE (IV) OR SUB-CLAUSE (V) OR SUB-CLAUSE (VI) OR SUB-CLAUSE (VI A) SHALL MAKE AN APPLICATION IN THE PRESCRIBED FORM AND MANN ER TO THE PRESCRIBED AUTHORITY FOR THE PURPOSE OF GRANT O F THE EXEMPTION, OR CONTINUANCE THEREOF, UNDER SUB-CLAUSE (IV) OR SUB-CLAUSE (V) OR SUB-CLAUSE (VI) OR SUB-CLAUSE (VI A) : PROVIDED FURTHER THAT THE PRESCRIBED AUTHORITY, BEF ORE APPROVING ANY FUND OR TRUST OR INSTITUTION OR ANY U NIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION, UNDER SUB-CLAUSE (IV) OR SUB-C LAUSE (V) ITA NO. 1633-CHD/2017 M/S VALLEY PUBLIC SCHOOL, PANCHKULA 5 OR SUB-CLAUSE (VI) OR SUB-CLAUSE (VIA), MAY CALL FO R SUCH DOCUMENTS (INCLUDING AUDITED ANNUAL ACCOUNTS) OR INFORMATION FROM THE FUND OR TRUST OR INSTITUTION O R ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION, AS THE CASE MAY BE, A S IT THINKS NECESSARY IN ORDER TO SATISFY ITSELF ABOUT THE GENU INENESS OF THE ACTIVITIES OF SUCH FUND OR TRUST OR INSTITUTION OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION, AS THE CASE MAY BE, [AND THE COMPLIANCE OF SUCH REQUIREMENTS UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE BY SUCH FUND OR TRUST OR IN STITUTION OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION, AS THE CASE MAY BE, AS ARE MATERIAL FOR THE PURPOSE OF ACHIEVING ITS OBJEC TS AND THE PRESCRIBED AUTHORITY,] MAY ALSO MAKE SUCH INQUI RIES AS IT DEEMS NECESSARY IN THIS BEHALF: .. 5. A PERUSAL OF THE ABOVE RELEVANT PROVISIONS REVEA L THAT AS PER THE FIRST PROVISO, THE APPLICATION FOR APPROVAL U/S 10 (23C)(VI) IS TO BE MADE BY THE CONCERNED UNIVERSITY OR INSTITUTION. SECOND PROVISO PROVIDES THAT THE PRESCRIBED AUTHORITY BEFORE APPROVING ANY SUCH UNIVERSITY OR EDUCATIONAL INSTITUTION MAY CALL FOR THE RECORDS / ACCOUNTS OR ANY OTHER INFORMATION FROM SUCH UNIVERSITY OR INSTITUTION AS IT THINKS NECESSARY IN ORDER TO SATISFY ITSELF ABOUT THE GENUINENESS OF TH E ACTIVITIES OF SUCH INSTITUTION AND FURTHER THAT THE PRESCRIBED AUTHOR ITY MAY ALSO MAKE SUCH ENQUIRIES AS IT DEEM NECESSARY IN THIS BEHALF. TH OUGH, AS PER THE ABOVE PROVISIONS, THE APPLICATION FOR APPROVAL IS TO BE M ADE BY THE CONCERNED UNIVERSITY OR THE INSTITUTION , BUT CERTAINLY SINC E THE SCHOOL IS RUN AND MANAGED BY THE TRUST, HENCE, THE APPLICATION IS TO BE MOVED BY SUCH ITA NO. 1633-CHD/2017 M/S VALLEY PUBLIC SCHOOL, PANCHKULA 6 INSTITUTION THROUGH SAID TRUST. THE SCHOOL, IN THIS CASE, CANNOT BE A SAID TO BE A SEPARATE ENTITY, RATHER, THE SAID TRUST IS THE LEGAL ENTITY AND AS THE ASSESSEE, WHICH IS ASSESSED TO INCOME TAX ACT AND T HE INCOME EARNED FROM THE SCHOOL IS TO BE INCLUDED IN THE TOTAL INCO ME OF THE TRUST. HOWEVER, THE FACTS ON THE FILE REVEAL THAT THE RETU RNS OF INCOME FOR ASSESSMENT YEAR 2009-10 AND ASSESSMENT YEAR 2015-16 HAVE BEEN FILED BY THE SCHOOL AS A SEPARATE ASSESSEE, WHEREAS, THE FACTS ON THE FILE SPEAK THAT THE SCHOOL IS RUN AND MANAGED BY A TRUST NAMED AS SHIVALIK PUBLIC CHARITABLE TRUST. IF THE SCHOOL IS NOT A SEPARATE ENTITY, HOW IT CAN FILE RETURN AS AN ASSESSEE IS NOT DECIPHERABLE FROM THE DOCUMENTS AND EVIDENCE ON THE FILE. FURTHER, THE MANAGING TRUST IN QUESTION I.E. SHIVA LIK PUBLIC CHARITABLE TRUST HAD ALREADY REGISTERED AS A CHARI TABLE INSTITUTION U/S 12A OF THE ACT, WHEREAS, THE LD. CIT(E) HAS OBSERV ED THAT IT IS THE CLAIM OF THE APPELLANT SCHOOL / INSTITUTION THAT IT WAS RUNNING ON COMMERCIAL BASIS. NOW THE QUESTION ARISES, IF SCHO OL WAS RUNNING ON COMMERCIAL BASIS, THEN HOW THE ACTIVITY OF THE SAID TRUST NAMELY SHIVALIK PUBLIC CHARITABLE TRUST CAN BE SAID TO B E CHARITABLE, WHEREAS, IT HAS BEEN REGISTERED INSTITUTION U/S 12A OF THE A CT. MOREOVER, IF THE SCHOOL IS MANAGED BY SHIVALIK PUBLIC CHARITABLE TR UST, THEN, HOW THE SCHOOL WHICH IS NOT A DIFFERENT OR A SEPARATE ENTIT Y, CAN GIVE LOAN TO ANY OTHER TRUST NAMELY SHIVALK EDUCATION TRUST? ITA NO. 1633-CHD/2017 M/S VALLEY PUBLIC SCHOOL, PANCHKULA 7 6. SINCE, THERE IS NO CLARIFY OF FACTS AND UNDER TH E CIRCUMSTANCES, THE MATTER, IN OUR VIEW, IS REQUIRED TO BE EXAMINED AF RESH AT THE HANDS OF THE LD. CIT(E) WITH AN OPPORTUNITY TO THE APPELLANT TO EXPLAIN ABOUT ITS LEGAL EXISTENCE, ITS ACTIVITIES AND CAPACITY TO MO VE THE PRESENT APPLICATION AS AN INDIVIDUAL ENTITY AND NOT THROUGH THE TRUST BY WHOM IT HAS BEEN CONTROLLED AND MANAGED. IN VIEW OF THIS, THE IMPUGNED ORDER OF THE LD. CIT (E) IS SET ASIDE FOR DECISION AFRESH IN ACCORDANCE WITH LAW. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20.12.2019 SD/- SD/- ( . . / N.K. SAINI) ( ! / SANJAY GARG) '#$ / VICE PRESIDENT %& / JUDICIAL MEMBER DATED : 20.12.2019 .. 2*&)3454) / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. &' '$ / THE RESPONDENT 3. , 6) / CIT 4. , 6) ( )/ THE CIT(A) 5. 47 &)8 , . 8 , 9:;< / DR, ITAT, CHANDIGARH 6. ;= - / GUARD FILE 2 , / BY ORDER, > / ASSISTANT REGISTRAR