J B Educational Society, Hyderabad V. Commissioner of Income Tax (Examptions), Hyderabad

ITA 1870/Hyd/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0758 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 17-10-2019
• Assessment Year: 2016-2017
• Appeal Filed On: 16-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y.V.S.T. SAI
• Assessee Lawyers: ITS NATURE OF ACTIVITY WAS
• Keywords: Search and seizure; Charitable institution
• Section: 132; 10; 12AA; 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO.1870/HYD/2017 ASSESSMENT YEAR: 2016 - 17 M/S. J.B. EDUCATIONAL SOCIETY, H. NO. 6 - 3 - 248/3, ROAD NO.1, BANJARA HILLS, HYDERABAD 500 034. PAN: AAATJ 3217 A VS. COMMISSIONER OF INCOME TAX (EXEMPTIONS), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO.1871/HYD/2017 ASSESSMENT YEAR: 2016 - 17 M/S. JOGINAPALLY B.R. EDUCATIONAL SOCIETY, H. NO. 6 - 3 - 248/3, ROAD NO.1, BANJARA HILLS, HYDERABAD 500 034. PAN: AAATJ 4159 P VS. COMMISSIONER OF INCOME TAX (EXEMPTIONS), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI S. RAMA RAO REVENUE BY: SRI Y.V.S.T. SAI, DR DATE OF HEARING: 17/10/2019 & 05/12/2019 DATE OF PRONOUNCEMENT: 20 /12/2019 ORDER THESE TWO APPEALS ARE FILED BY THE ASSESSEES AGAINST THE ORDERS OF THE LD. CIT (EXEMPTIONS), HYDERABAD IN APPEAL NO 2 CIT(E)/HYD/10(23C)(VI)/23 & 24/2016 - 17, DATED 29/09/2017 PASSED U/S. 10(23C)(VI) R.W.S 250(6) OF THE ACT FOR THE A.Y. 2016 - 17. SINCE THE ISSUES AND FACTS IN BOTH THESE APPEALS ARE IDENTICAL, THEY ARE HEARD TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER. 2. IN BOTH THE APPEALS THE ASSESSEES HAVE RAISED SEVERAL GROUNDS HOWEVER, THE CRUX OF THE ISSUE IS THAT THE LD. CIT (E) HAD ERRED IN REJECTING THE FRESH APPLICATION MADE U/S. 10(23C)(VI) OF THE ACT SOLELY FOR THE REASON THAT FOR CERTAIN EARLIER YEARS THE APPROVAL GRANTED U/S. 10(23C)(VI) OF THE ACT WAS WITHDRAWN DUE TO VIOLATIONS OF THE CONDITIONS IMPOSED ON THE ASSESSEE WHILE GRANTING APPROVAL FOR THE PURPOSE OF SUB - CLAUSE (VI) OF CLAUSE (23C) OF SECTION 10 OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT BOTH THE ASSESSEES HAD FILED APPLICATION SEEKING CONTINUANCE OF APPROVAL U/S. 10(23C)(VI) OF THE ACT IN THE PRESCRIBED FORM NO. 56D. THE LD. CIT (E) REJECTED THE APPLICATION OF BOTH THE ASSESSEES BECAUSE OF THE FOLLOWING REASONS: - IN THE CASE OF M/S. JOGINAPALLY B.R. EDUCATIONAL SOCIETY : (I) DURING THE COURSE OF SEARCH CONDUCTED IN 2009 - 10 CERTAIN FINDINGS WERE ADVERSE AND INCRIMINATING EVIDENCES WERE FOUND DUE TO WHICH REGISTRATION U/S. 12AA OF THE ACT GRANTED TO THE TRUST WAS CANCELLED AND FURTHER T HE APPROVAL GRANTED U/S. 3 10(23C)(VI) OF THE ACT IN 2008 WAS ALSO CANCELLED BY THE DGIT (INV.) HYDERABAD VIDE ORDER DATED 16/12/2011. (II) THE APPEAL AGAINST THE AFORESTATED ORDER OF THE HONBLE DGIT (INV.), HYDERABAD IS STILL PENDING IN THE HONBLE HIGH COURT . IN THE CASE OF M/S. J.B. EDUCATIONAL SOCIETY : (I) IN THE WRIT PETITION FILED BY THE ASSESSEE THE HONBLE HIGH COURT OBSERVED THAT IF THE APPEALS OF THE ASSESSEE WITH RESPECT TO THE ASSESSMEN TS ARE ALLOWED THEN THE FRESH REGISTRATION MAY BE CONSIDERED BY THE AUTHORITY CONCERNED IN ACCORDANCE WITH LAW. (II) ON THE ABOVE OBSERVATION OF THE HONBLE HIGH COURT , THE LD. CIT (E) WAS OF THE VIEW THAT (A) CONSIDERING THE FACT , IN REJECTING / REVOKING OF APPROVAL U/S. 10(23C)(VI) IS SO COMPACT AND BASED ON INFORMATION AND PARTICULARS THAT THERE IS NO MATERIAL TO COME TO ANOTHER CONTRARY DECISION . I N OTHER WORDS, NO VIEW OTHER THAN REJECTION IS POSSIBLE. (B) IN THE EVENT OF THE ASSE SSEES APPEALS BEING ALLOWED BY THE TRIBUNAL, THEN THE QUESTION OF FRESH REGISTRATION MAY BE CONSIDERED BY THE DEPARTMENTAL AUTHORITIES IN ACCORDANCE WITH LAW. (III) ACCORDINGLY, THE LD. CIT (E) WAS OF THE VIEW THAT THE ISSUE OF CONSIDERING THE FRESH REGISTRATION ARISES IN THE EVENT THE APPEALS ARE ALLOWED BY THE TRIBUNAL. 4 (IV) THEREAFTER THE LD. CIT (E) OBSERVED THAT IN THE TWO CRITICAL ASSESSMENT YEARS 2009 - 10 AND 2010 - 11 THE TRIBUNAL HAD UPHELD THE ADDITION TO SUBSTANTIAL EXTENT AND THEREFORE, TO THAT EXTENT THE VIO LATION WITH RESPECT TO SECTION 10(23C)(VI) WAS CONFIRMED. MOREOVER, THE REVENUE I S ON APPEAL BEFORE THE H ONBLE HIGH COURT AGAINST THE PARTIAL RELIEF GRATED. (V) THE TRIBUNAL HAD ALSO CONFIRMED THE ORDER FOR REJECTING THE REGISTRATION U/S. 12AA OF THE ACT AND FURTHER DID NOT COMMENT ON THE WITHDRAWAL OF APPROVAL U/S. 10(23C)(VI) OF THE ACT AS THE MATTER WAS PENDING BEFORE THE HONBLE HIGH COURT. (VI) THE TRIBUNAL HAD NOT GRANTED FULL RELIEF TO THE ASSESSEE. (VII) THE RATIO LAID DOWN BY THE HONBLE MADRAS H IGH COURT IN THE CASE VALLIAMMAI SOCIETY VS. DGIT [2010] 327 ITR 337 (MADRAS) IS APPLICABLE IN THE CASE OF THE ASSESSEE. (VIII) THE RELIANCE PLACED BY THE ASSESSEE IN THE CBDT CIRCULAR NO.14/2015, DATED 17/08/2015 IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. 4. BEFORE US, THE LD. AR SUBMITTED THAT IN THE SEARCH AND SEIZURE PROCEEDINGS CONDUCTED U/S. 132 OF THE ACT ON 10/09/2009 CERTAIN DISCREPANCIES WERE FOUND AND ACCORDINGLY THE BENEFIT OF APPROVAL U/S. 10(23C)(VI) OF THE ACT WAS WITHDRAWN. HOWEVER, FOR THE AY 2011 - 12, 2012 - 13 AND 2013 - 14 THE RETURNS FILED BY THE ASSESSEE SOCIET IES AND 5 THEY WERE ACCEPTED WITHOUT MAKING ANY ADDITIONS AND NO ADVERSE INFERENCE WAS DRAWN BY THE DEPARTMENT. IT WAS FURTHER SUBMITTED THAT FOR THE AY 2015 - 16, THE LD. AO VIDE ORDER DATED 27/12/2017 AND 22/12/2017 IN THE CASE OF JOGINAPALLY BR EDUCATIONAL SOCIETY AND JB EDUCATIONAL SOCIETY RESPECTIVELY HAD HELD THAT AS COULD BE SEEN FROM THE SAME IT IS SEEN THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS RELEVANT TO THE ACHIEVEMENT OF AIMS AND OBJECTS OF THE ASSESSEE SOCIETY . FURTHER, IN BOTH THOSE CASES, THE INCO ME WAS ASSESSED AS NIL. IT WAS THEREFORE PLEADED THAT SINCE THE OBJECTS OF THE ASSESSEE SOCIETIES ARE THE SAME WHEN THEY WERE ORIGINALLY GRANTED APPROVAL U/S. 10(23C)(VI) OF THE ACT AND SINCE THERE IS NO VIOLATIONS TO THE CONDITIONS STIPULATED WHILE GRANT ING THE APPROVAL EARLIER AS ON DATE, THE RELEVANT APPLICATION MAY BE TREATED AS A FRESH APPLICATION AND THE APPROVAL MAY BE GRANTED. IT WAS FURTHER PLEADED THAT THE ASSESSEES SOCIETIES ARE CHARITABLE SOCIETIES IMPARTING EDUCATION AND IF SUCH RELIEF IS NOT GRANTED IT WILL ADVERSELY AFFECT THE PUBLIC AT LARGE. LD DR ON THE OTHER HAND VEHEMENTLY ARGUED IN SUPPORT OF THE ORDERS OF THE LD. CIT (E) AND REQUESTED FOR DISMISSING THE APPEALS OF THE ASSESSEE. 5. WE HAVE HEARD THE RIVAL SU BMISSIONS AND CAREFULLY P ERUSED THE MATERIALS ON RECORD. AT THE OUTSET, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE DECISION RELIED BY THE LD. CIT IS NOT APPLICABLE IN THE RELEVANT CASE BEFORE US. MOREOVER, I T IS 6 PERTINENT TO MENTION THAT THE APPROVAL U/S. 10(23C)(VI) IS GRANTED TO ANY CHARITABLE INSTITUTION BASED ON THE CHARITABLE ACTIVITY THE INSTITUTION IS SUPPOSE TO CONDUCT , IE., THE ACTIVITY MENTIONED IN THE DEED WHICH GOVERNS THE INSTITUTION. IN THE CASE OF THE ASSESSEES, THE REVENU E HAD EARLIER GRANTED APPROVAL U/S. 10(23C)(VI) OF THE ACT BY EXAMINING THE ACTIVITIES MENTIONED IN THE DEED OF THE ASSESSEES SOCIETIES . THEREAFTER , WHEN THE ASSESSEES SOCIETIES HAD VIOLATED THE CONDITIONS STIPULATED BY THE LD. CIT WHILE GRANTING THE APP ROVAL U/S. 10(23C)(VI) OF THE ACT, ADDITIONS WERE MADE AND THE APPROVAL WITHDRAW N FOR TH OSE ASSESSMENT YEARS. HOWEVER, I T CANNOT BE PRESUMED THAT THE ASSESSEES SOCIETIES IS BOUND TO ERR YEAR AFTER YEAR BY VIOLATING THE PROVISIONS OF SECTION 10(23C)(VI) OF THE ACT. IT WILL NOT BE APPROPRIATE TO WITHDRAW THE APPROVAL OR RESIST FROM GRANTING APPROVAL U/S. 10(23C)(VI) OF THE ACT WHEN THE ASSESSEES SOCIETIES ARE CONDUCTING ITS CHARITABLE ACTIVITIES IN THE SUBSEQUENT YEARS SINCERELY AND DILIGENTLY FOR THE BENEFIT OF THE PUBLIC AT LARGE WITHOUT VIOLATING ANY OF THE CONDITIONS STIPULATED . SUCH ACTION OF TH E REVENUE WILL DEPRIVE THE BENEFICIARIES OF THE ASSESSEES SOCIETIES IN OBTAINING THE BENEFITS WHICH IS DETRIMENTAL TO THE LARGER INTEREST OF THE PUBLIC. THE CIRCULAR NO. 14/2015 [F. NO. 197/38/2015 - ITA - I], DATED 17/08/2015 HAD MADE CERTAIN CLARIFICATIONS BASED ON THE DECISION OF THE HONBLE APEX COURT AND THE RELEVANT PORTION OF THE CIRCULAR IS EXTRACTED HEREIN BELOW FOR REFERENCE: - 7 1. SCOPE OF ENQUIRY WHILE GRANTING APPROVAL 1.1 CLARIFICATION HAS BEEN SOUGHT ON THE SCOPE OF ENQUIRY THAT CAN BE MADE BY THE PRESCRIBED AUTHORITY WHILE GRANTING APPROVAL U/S 10(23C)(VI), I.E., WHETHER IT WOULD BE SUFFICIENT FOR THE PRESCRIBED AUTHORITY TO CONSIDER THE NATURE, EXISTENCE FOR NON - PROFIT PURPOSES AND GENUINENESS OF THE APPLICANT INSTITUTION OR THE CONDITIONS PRE SCRIBED UNDER VARIOUS PROVISOS ARE ALSO REQUIRED TO BE CONSIDERED AT THE STAGE OF GRANTING APPROVAL. 1.2 IN THIS CONNECTION, ATTENTION IS DRAWN TO THE DECISION OF HON'BLE SUPREME COURT IN CASE OF AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE VS. CBDT [301 ITR 86](2008) IN WHICH IT HAS BEEN HELD THAT AT THE TIME OF GRANTING APPROVAL U/S 10(2 3C)(VI), THE PRESCRIBED AUTHORITY IS TO BE SATISFIED THAT THE INSTITUTION EXISTED DURING THE RELEVANT YEAR SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PROFIT. ONCE THE PRESCRIBED AUTHORITY IS SATISFIED ABOUT FULFILMENT OF THIS CRITERIA I.E. THE THRESHOLD PRE - CONDITION OF ACTUAL EXISTENCE OF AN EDUCATIONAL INSTITUTION UNDER SECTION 10(23C)(VI), IT WOULD NOT BE JUSTIFIABLE, IN DENYING APPROVAL ON OTHER GROUNDS, ESPECIALLY WHERE THE COMPLIANCE DEPENDS ON EVENTS THAT HAVE N OT TAKEN PLACE ON THE DATE ON WHICH THE APPLICATION FOR GRANT OF APPROVAL HAS BEEN MADE. 1.3 HOWEVER, THE PRESCRIBED AUTHORITY IS ELIGIBLE TO GRANT APPROVAL U/S 10(23C)(VI), SUBJECT TO SUCH TERMS AND CONDITIONS AS DEEMED NECESSARY INCLUDING THOSE FALLING W ITHIN THE FRAMEWORK OF VARIOUS PROVISOS TO THE SAID CLAUSE OF SECTION 10. IT HAS ALSO BEEN CLARIFIED IN THE SAID JUDGMENT THAT THE COMPLIANCE OF PRESCRIBED CONDITIONS CAN BE GAUGED WHILE MONITORING THE CASE AND IN CASE OF ANY BREACH THEREOF, THE APPROVAL C AN BE WITHDRAWN. IT IS, THEREFORE, CLARIFIED THAT THE PRINCIPLE LAID DOWN BY THE APEX COURT IN AMERICAN HOTELS CASE (SUPRA) MUST BE FOLLOWED WHILE CONSIDERING THE APPLICATIONS FILED SEEKING APPROVAL FOR EXEMPTION U/S 10(23C)(VI). 6. FROM THE ABOVE IT IS CLEAR THAT AT THE TIME OF GRANTING APPROVAL U/S. 10(23C)(VI) OF THE ACT THE RELEVANT REVENUE AUTHORITY IS TO BE SATISFIED THAT THE INSTITUTION EXISTED DURING THE RELEVANT YEAR SOLELY FOR EDUCATIONAL PURPOSE AND NOT FOR PROFIT. THEREFORE, WHEN THE ASSESSEE HAS COME OUT WITH THE FRESH APPLICATION THE REVENUE HAS TO ONLY EXAMINE THAT DURING THE RELEVANT AY THE INSTITUTION EXISTED / EXISTING ONLY FOR THE PURPOSE OF EDUCATION. A VIOLATION MADE DURING THE EARLIER ASSESSMENT YEAR NEED NOT BE IMPORTED TO THE RELE VANT ASSESSMENT YEAR WHILE 8 DECIDING THE ISSUE FOR THE RELEVANT ASSESSMENT YEAR. AS IT APPEARS FROM THE ORDERS OF THE LD. CIT DATED 29/09/2017, DURING THE PERIOD 1/4/2016 TILL 29/09/2017, NO VIOLATION IS POINTED OUT. FURTHER, FROM THE ASSESSMENT ORDER OF T HE ASSESSEES FOR THE AY 2015 - 16 DATED 27/12/2017 AND 22/12/2017 (CITED SUPRA) IT IS EVIDENT THAT THERE WAS NO VIOLATION. IN SUCH CIRCUMSTANCES, WE FAIL TO UNDERSTAND AS TO WHY THE ASSESSEE SOCIETIES HAVE TO BE PENALISED WHICH WILL ULTIMATELY RESULT IN HAR DSHIPS TO THE PUBLIC AT LARGE. AT THIS JUNCTURE, IT IS PERTINENT TO TAKE NOTE OF THE DECISION RENDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF COUNCIL FOR THE INDIAN SCHOOL CERTIFICATE EXAMINATIONS VS. DIRECTOR GENERAL OF INCOME TAX [2014] 364 ITR 508 (DELHI) WHEREIN IT WAS HELD AS UNDER: HELD, ALLOWING THE PETITION, (I) THAT THE FACT THAT THE ASSESSEE HAD GENERATED CERTAIN PROFITS WOULD NOT DILUTE THE PURPOSES FOR WHICH THE ASSESSEE HAD BEEN ESTABLISHED. THE ACTIVITY CARRIED ON BY THE ASSESSEE WAS SOLELY IN THE FIELD OF EDUCATION. THERE W AS NO DISTRIBUTION OF THE SURPLUS ACCUMULATED BY THE ASSESSEE. A PROVISION OF SERVICER IN THE NATURE OF CHARITY WOULD NOT CEASE TO BE CHARITABLE ONLY BECAUSE IT ENTAILS RECEIVING A CHARGE FOR THE SERVICE. THE NATURE OF THE ACTIVITY CARRIED ON BY AN ENTITY WOULD BE PREDOMINANT FACTOR TO DETERMINE WHETHER THE PURPOSE OF THE ORGANIZATION IS CHARITABLE. IT IS NOT NECESSARY THAT A CHARITABLE ACTIVITY ENTAILS GIVING OR PROVIDING A SERVICE AND RECEIVING NOTING IN RETURN. COLLECTION OF A CHARGE FOR PROVIDING EDU CATION WOULD, NONE THE LESS, BE CHARITABLE PROVIDED THE FUNDS COLLECTED ARE ALSO UTILISED FOR THE PRESERVATION OF THE CHARITABLE ORGANIZATION OR FOR FURTHERANCE OF ITS OBJECTS. THE ASSESSEE HAD PROVIDED AN EXPLANATION FOR THE SURPLUSES BEING ACCUMULATED. IF THE SURPLUSES HAD BEEN GENERATED FOR THE PURPOSES OF MODERNISING THE ACTIVITIES AND BUILDING OF THE NECE3SSARY INFRASTRUCTURE TO SERVE THE OBJECT OF THE ORGANISATION, IT WOULD BE ERRONEOUS TO CONSTRUE THAT THE GENERATION OF SURPLUSES HAD IN ANY MANNER NEGATED OR DILUTED THE OBJECT OF THE ORGANIZATION. NEW DOC 2019 - 12 - 10 11.44.38HE ASSESSEE HAD BEEN EXISTING SOLELY FOR EDUCATIONAL PURPOSES. GENERATION OF PROFIT AND ITS DISTRIBUTION WAS NOT THE OBJECT OF THE ASSESSEE. THE FACT THAT 9 SURPLUSES HAD BEEN G ENERATED IN ORDER TO BUILD THE INFRASTRUCTURE FOR MODERNISING RATHER THAN DILUTING THEM. THE CONCLUSION OF THE PRESCRIBED AUTHORITY THAT THE INCREASE IN THE FEES FOR GENERATING SURPLUS WOULD BY ITSELF EXCLUDE THE ASSESSEE FROM THE AMBIT OF SECTION 10(23C)( VI) WAS CLEARLY ERRONEOUS. GENERATION OF PROFIT OR SURPLUS BY AN ORGANIZATION IS GENERATION OF PROFIT / SURPLUS, AS LONG AS THE SURPLUSES GENERATED ARE ACCUMULATED / UTILISED ONLY FOR EDUCATIONAL PURPOSES. THE SAME WOULD NOT DISABLE THE ASSESSEE FROM CLA IMING EXEMPTION UNDER SECTION 10(23C)(VI). THUS, THE CONCLUSION OF THE PRESCRIBED AUTHORITY THAT THE ASSESSEE WAS NOT ENTITLED TO EXEMPTION U/S. 10(23C)(VI) SINCE IT HAD GENERATED A SURPLUS WAS NOT AVAILABLE. ADDL. CIT VS. SURAT ART SILK CLOTH MANUFACTURE RS ASSOCIATION [1980] 121 ITR 1 (SC), ADITANAR EDUCATIONAL INSTITUTION VS. ADD. CIT [1997] 224 ITR 310 (SC) AND AMERICAN HOTEL AND LODGING ASSOCIATION VS. CBDT [2008] 301 ITR 86 (SC) APPLIED. CIT VS. QUEENS EDUCATIONAL SOCIETY [2009] 319 ITR 160 (UTTARAKH AND) DISTINGUISHED. (II) THAT THE FACT THAT THE ASSESSEE CONDUCTED THEEXAMINATION FOR CLASSES 10 TH AND 12 TH STUDENTS WITH RESPECT TO SCHOOLS THAT ARE AFFILIATED WITH THE ASSESSEE AND INDISPUTABLE. THE NATURE OF THE PREDOMINANT ACTIVITY, THEREFORE, COULD N OT BE QUESTIONED. THERE WAS NO DOUBT ABOUT THE GENUINENESS OF THIS ACTIVITY OF THE ASSESSEE, THUS THE CONCLUSION DRAWN BY THE PRESCRIBED AUTHORITY THAT THE ACTIVITIES OF THE ASSESSEE WERE NOT GENUINE MERELY BECAUSE A CONTRACT ENTERED INTO BY THE ASSESSEE H AD BEEN BROUGHT INTO QUESTION, WAS NOT WARRANTED. IT WAS ALSO NOT THE PRESCRIBED AUTHORITYS CASE THAT THE ASSESSEE CARRIES ON ANY ACTIVITY OTHER THAN FOR EDUCATIONAL PURPOSE. HOWEVER, THE OBSERVATIONS MADE BY THE AUDITOR RAISE A SEPARATE QUESTION WITH RE SPECT TO THE APPLICATION OF THE FUNDS OF THE ASSESSEE. (III) THAT A CLEAR DISTINCTION MUST BE DRAWN BETWEEN INEFFICIENT UTILIZATION OF FUNDS AND UTILIZATION OF FUNDS FOR OBJECTS OTHER THAN THAT FOR WHICH A SOCIETY HAS BEEN ESTABLISHED. MERELY BECAUSE THE FUNDS OF THE ASSESSEE MAY NOT HAVE BEN UTILIZED IN THE BEST POSSIBLE MANNER CANNOT LEAD TO A CONCLUSION THAT THEY HAVE BEEN APPLIED TO THEHE OBJECT FOR WHICH THE ASSESSEE HAS BEEN ESTABLISHED. IT IS NOT ESSENTIAL THAT ALL DECISIONS MADE BY THE MANAGEMENT OF A SOCIETY YIELD OPTIMUM RESULTS. A MANAGEMENT OF A SOCIETY WHICH IS EITHER NEGLIGENT OR HAS NOT PERFORMED ITS FUNCTIONS DILIGENTLY WITH THE REQUISITE SKILL MAY BE GUILTYOF MISMANAGING THE AFFAIRS OF THE SOCIETY. BUT IT WOULD BE QUITE ANOTHER THING TO STATE THAT THE FUNDS HAVE BEEN DEPLOYED WHOLLY AND EXCLUSIVELY FOR ITS OBJECTS. A WELL MANAGED SOCIETY MAY USE ITS FUNDS OPTIONALLY, WHILE A SOCIETY THAT IT IS NOT AS WELL MANAGED MAY DEPLOY ITS FUNDS INEFFICIENTLY BUT THE SAME WOULD BE SYNONYMOUS WITH TH E FUNDS BEEN DEPLOYED FOR PURPOSES OTHER THAN ITS OBJECTS. THERE IS NO OTHER STATED OBJECT FOR WHICH THE FUNDS OF THE ASSESSEE HAVE BEEN DEPLOYED. THE CONTRACT ENTERED INTO WITH R MAY NOT BE THE BEST DECISION FROM THE STANDPOINT OF THE PRESCRIBED AUTHORI TY AND PERHAPS IN THE OPINION OF THE PRESCRIBED AUTHORITY, THE ASSESSEE MAY HAVE ENDED UP PAYING MORE THAN THE VALUE OF SERVICES RECEIVED. BUT THE 10 SAME CANNOT BE READ TO MEAN THAT THE RESOURCES OF THE ASSESSEE HAVE BEEN DEPLOYED FOR PURPOSES OTHER THAN FO R ITS OBJECTS. THE WORDS WHOLLY AND EXCLUSIVELY TO THE OBJECT FOR WHICH IT HAS BEEN ESTABLISHED MUST BE READ TO MEAN THAT THE INCOME SHOULD NOT BE APPLIED FOR ANY PURPOSE OTHER THAN THE OBJECT FOR WHICH THE INSTITUTION HAS BEEN ESTABLISHED. THUS, THE A PPLICATION OF FUNDS MUST BE FOR CARRYING ON THE PURPOSE FOR WHICH THE ASSESSEE HAS BEEN ESTABLISHED AND NOT FOR ANY OTHER PURPOSE. THE ASSESSEE ENTERED INTO THE CONTRACT WITH R FOR DEVELOPMENT, IMPLEMENTATION AND MAINTENANCE OF AN E - ENABLED SYSTEM FOR MAN AGING REGISTRATION OF SCHOOLS / STUDENTS, EXAMINATION OF ANSWER SHEETS, COLLATING OF RESULTS, ETC. R HAD, UNDISPUTEDLY, DEVELOPED AND MAINTAINED A WEBSITE OF THE ASSESSEE, DEVELOPED SOFTWARE FOR ASSISTING IN THE AUTHORITIES CARRIED ON BY THE ASSESSEE. TH E RESULTS OF ISCE AND ISC FOR THE YEAR 2009 WAS COLLATED AND DISSEMINATED BY USE OF THE E - ENABLED SERVICES DEVELOPED AND IMPLEMENTED BY R. THE REGISTRATION OF SCHOOLS / STUDENTS WAS CARRIED OUT, DURING THE RELEVANT PERIOD, THROUGH THE SYSTEM DEVELOPED AND IMPLEMENTED BY R. HOWEVER, IN VIEW OF THE COMPLAINTS RECEIVED, THE CONTRACT WITH R WAS TERMINATED AND THE AMOUNT PAYABLE TO IT FOR THE WORK ALREADY DONE WAS DETERMINED AND AGREED BETWEEN THE ASSESSEE AND R AND THE BALANCE WAS REFUNDED BY R. THE AMOUNT IN CURRED BY THE ASSESSEE FOR MODERNIZATION AND COMPUTERIZATION COULD NOT BE STATED TO BE FOR THE PURPOSES OTHER THAN THE OBJECTS AS SPECIFIED IN THE ASSESSEES CHARTER. THE SAME CANNOT BE MISTAKEN TO BE DEPLOYED FOR ANY OTHER PURPOSE. THUS, ANY IRREGULARIT Y IN THE MANNER IN WHICH THE CONTRACT HAD BEEN ENTERED INTO WITH R WOULD NOT BE SUFFICIENT FOR A CONCLUSION ARRIVED AT BY THE PRESCRIBED AUTHORITY. (IV) THAT THE REASONABLENESS OF THE AMOUNT SPENT AND THE QUALITY OF THE DECISIONS OF THE MANAGEMENT ARE NOT THE SUBJECT MATTER IN RESPECT OF WHICH THE SATISFACTION OF THE PRESCRIBED AUTHORITY IS REQUIRED. ALTHOUGH THE PRESCRIBED AUTHORITY CAN EXAMINE WHETHER THE EXPENDITURE IS REAL, THE QUESTION WHETHER THE SAME WAS NECESSARY OR SHOULD HAVE BEEN INCURRED IS NOT WITHIN THE SCOPE OF THE SUBJECTIVE SATISFACTION OF THE PRESCRIBED AUTHORITY. THE MANNER IN WHICH THE AFFAIRS OF THE ASSESSEE ARE CONCLUDED, INCLUDING DETERMINING WHICH EXPENDITURE TO INCUR AND TO WHAT EXTENT, IS ENTIRELY WITHIN THE DISCRETION OF THE ASSES SEE. (V) THAT ALTHOUGH, IT HAS BEEN SUGGESTED THAT THE CONTRACT WITH R WAS ONLY A CONDUIT FOR DIVERTING THE FUNDS OF THE ASSESSEE, THE SAME WAS NOT BORNE OUT BY THE MATERIAL ON RECORD. IN ORDER TO SUSTAIN AN ALLEGATION OF THIS NATURE, THE PRESCRIBED AUTHO RITY WOULD ALSO HAVE TO GO A STEP FURTHER TO SHOW THAT THE FUNDS PAID BY THE ASSESSEE TO R FOUND THEIR WAY TO ANY MEMBER / MEMBERS OR IN THEIR BENEFIT. THIS WOULD INDICATE THAT R HAD BEEN USED AS A CONDUIT BY THE ASSESSEE FOR DISTRIBUTING ITS SURPLUS AND THE INCOME OF THE ASSESSEE WAS NOT APPLIED FOR ITS OBJECTS. HOWEVER, IN THE ABSENCE OF ANY SUCH EVIDENCE, IT WOULD NOT BE POSSIBLE TO CONCLUDE THAT THE INCOME OF THE ASSESSEE WAS NOT APPLIED WHOLLY AND EXCLUSIVELY TO THE OBJECTS FOR WHICH IT WAS ESTABLIS HED. 11 (VI) THAT EVEN IF IT WAS ASSUMED THAT THE PAYMENT TO R VIOLATED THE THIRD PROVISO TO SECTION 10(23C), THE EXEMPTION U/S. 10(23C)(VI) COULD BE DENIED ONLY FOR THE YEAR(S) DURING WHICH PAYMENTS HAD BEEN MADE BY THE ASSESSEE TO R. SINCE THE ASSESSEE BY I TS NATURE OF ACTIVITY WAS OTHERWISE ENTITLED TO EXEMPTION U/S. 10(23C)(VI) THE SAME WAS LIABLE TO BE GRANTED BY THE PRESCRIBED AUTHORITY FOR FUTURE YEARS SUBJECT TO THE CONDITIONS AS CONTAINED IN THE THIRD PROVISO TO SECTION 10(23C). 7. SINCE DURING THE RELEVANT PERIOD THE ASSESSEE SOCIETIES HAS N EITHER VIOLATED ANY OF THE PROVISIONS OF SECTION 10(23C)(VI) OF THE ACT NOR CONDUCTED ITSELF DETRIMENTAL TO THE CONDITIONS STIPULATED BY THE LD. CIT WHILE GRANTING APPROVAL U/S. 10(23C)(VI) OF THE ACT ON THE EARL IER INSTANCE, AND FURTHER PLACING RELIANCE ON THE CIRCULAR OF THE CBDT NO.14/2015 DATED 17/08/2015 (CITED SUPRA) AND THE DECISION OF THE HONBLE DELHI HIGH COURT (CITED SUPRA) WE ARE OF THE CONSIDERED VIEW THAT THE DECISION OF THE LD. CIT (E) TO REJECT THE APPLICATION FILED BY THE ASSESSEES U/S. 10(23C)(VI) IS NOT JUSTIFIED. THEREFORE, WE HEREBY DIRECT THE LD. CIT TO GRANT APPROVAL U/S. 10(23C)(VI) OF THE ACT TO BOTH THE ASSESSEES F ROM THE RELEVANT ASSESSMENT YEAR ONWARDS. NEEDLESS TO MENTION THAT IF THE ASSESSEE VIOLATES THE PROVISIONS OF SECTION 10(23C)(VI) OF THE ACT OR THE CONDITIONS STIPULATED BY THE REVENUE WHILE GRANTING APPROVAL U/S. 10(23C)(VI) OF THE ACT IN THE RELEVANT ASSESS MENT YEAR 2016 - 07 OR IN ANY SUBSEQUENT ASSESSMENT YEARS , THE REVENUE IS AT LIBERTY TO WITHDRAW THE APPROVAL GRANTED U/S. 10(23C)(VI) OF THE ACT IN THE YEAR IN WHICH THE ASSESSEE SOCIETIES HAS INDULGE IN SUCH VIOLATION. IT IS ORDERED ACCORDINGLY. 12 8. IN THE RESULT, APPEALS OF THE ASSESSEES ARE ALLOWED AS INDICATED HEREINABOVE. PRONOUNCED IN THE OPEN COURT ON 20 TH DECEMBER , 2019. SD/ - SD/ - ( V. DURGA RAO) ( A. MOHAN ALANKAMONY ) (JUDICIAL MEMBER) ACCOUNTANT MEMBER HYDERABAD, DATED: 20 TH DECEMBER , 2019 OKK COPY TO: - 1) M/S. J.B. EDUCATIONAL SOCIETY, H. NO. 6 - 3 - 248/3, ROAD NO.1, BANJARA HILLS, HYDERABAD 500 034. (II) M/S. JOGINAPALLY B.R. EDUCATIONAL SOCIETY, H. NO. 6 - 3 - 248/3, ROAD NO.1, BANJARA HILLS, HYDERABAD 500 034. 2) COMMISSIONER OF INCOME TAX (EX EMPTIONS), HYDERABAD. 3) THE ADD L CIT( EXEMPTIONS ) , HYDERABAD 4 ) THE DR, ITAT, HYDERABAD 5 ) GUARD FILE