The ACIT, 1(1), Bhopal V. Shanti Niketan Montessori School Society, Hoshagabad

ITA 238/IND/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66740 (ITAT-INDORE)
• Duration Of Justice: 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 01-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: S S SOLANKI
• Keywords: Charitable institution; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AAAAH2866C I.T.A.NO. 238 /IND/201 2 . A.Y. : 2008 - 09 ACIT, 1(1), INDORE SHANTI NIKETAN MONTESSORI SCHOOL SOCIETY, COLLECTORATE ROAD, HOSHANGABAD VS APPELLANT RESPONDENT APPELLANT BY : SHRI R.A.VERMA, SR. DR RESPONDENT BY : SHRI S.S. SOLANKI, C. A. DATE OF HEARING : 29 .0 8 .2012 DATE OF PRONOUNCEMENT : 31 . 10 .201 2 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 16.02.2012 FOR THE ASSESSMENT YEAR 2008-09, -: 2: - 2 IN THE MATTER OF ORDER PASSED BY THE ASSESSING OFFI CER U/S 144/147 OF THE INCOME-TAX ACT, 1961. 2. THE ONLY GRIEVANCE OF THE REVENUE RELATES TO CIT(A) S ACTION ALLOWING EXEMPTION TO ASSESSEE SOCIETY U/S 10(23C)(IIIAD) OF THE INCOME-TAX ACT, 1961. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE RUNS AN EDUCATIONAL INSTITUTION IN THE NAME OF SHANTI NIKET AN MONTESSORI HIGHER SECONDARY SCHOOL AT HOSHANGABAD. IT IS REGISTERED WITH REGISTRAR OF FIRMS AND SOCIETY VIDE CERTIFICATE NO.11342 DATED 21.6.1982 WITH THE PRIMARY OBJECT TO PROMOTE EDUCATIONAL. THE ASSESSEE WAS GIVEN PERMISSION BY D ISTT. EDUCATION OFFICER, HOSHANGABAD FOR CLASS 3 RD AND ONWARDS (UP TO 12TH) FROM 20.9.82 & ONWARDS. THE ASSESSEE CLAIM ED EXEMPTION U/S 10(23C), WHICH WERE DECLINED BY THE A SSESSING OFFICER ON THE PLEA THAT THE ASSESSEE HAS NOT FILED THE RETURN OF INCOME AND ITS OBJECT WAS NOT WHOLLY AND EXCLUSIVEL Y PROMOTION OF EDUCATION. -: 3: - 3 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) ALLOWED ASSESSEES CLAIM OF EXEMPTION AFTER RECORDING FOLLO WING OBSERVATIONS :- 2.2. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT WITH REFERENCE TO THE FACTS OBTAINING FROM THE RECORD. COPY OF REGISTRATION CERTIFICATE AND COPY OF BY-LAWS, CLAIMED TO HAVE BEEN PRODUCED IN ASSESSMENT PROCEEDINGS BEFORE THE AO, EVER SINCE INCEPTION OF THE APPELLANT SOCIETY, CLEARLY EVIDENCES THE FACT THAT THE CONSTITUTION OF THE APPELLANT WAS A CO-OPERATIVE SOCIETY AND IT WAS DULY REGISTERED WITH REGISTRAR OF THE SOCIETIES, MADHYA PRADESH. NO EVIDENCE WHATSOEVER WAS BROUGHT BY THE AO ON RECORD TO CONCLUSIVELY ESTABLISH THAT THE APPELLANT SOCIETY WAS FORMED FOR PURPOSES OTHER THAN FULFILLMENT OF ITS OBJECTIVES VIZ., FOR ADVANCEMENT OF EDUCATIONAL SYSTEM. SINCE THE APPELLANT SOCIETY IS RUNNING A -: 4: - 4 SCHOOL, THIS EDUCATIONAL INSTITUTION STATUTORILY WAS AFFILIATED WITH CENTRAL BOARD OF SECONDARY EDUCATION (CBSE) SINCE 2005 AND THE AFFILIATION SO GRANTED WAS EFFECTIVE FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR, UNDER CONSIDERATION. COPY OF THE AFFILIATION LETTER WAS SUBMITTED TO THE AO VIDE APPELLANT'S LETTER DATED 08.12.2010. THE EDUCATIONAL INSTITUTION RUN BY THE APPELLANT SOCIETY IS ALSO AFFILIATED WITH THE MP BOARD OF SECONDARY EDUCATION, BHOPAL. COPY OF AFFILIATION CERTIFICATE ISSUED BY THE MP BOARD OF SECONDARY EDUCATION WAS ALSO PLACED ON RECORD IN ASSESSMENT PROCEEDINGS BEFORE THE AO. THE ACCOUNTS OF THE APPELLANT SOCIETY WERE SUBJECTED TO STATUTORY AUDIT AND THIS FACT, COUPLED WITH THE FACT OF FILING AUDIT REPORT IN ASSESSMENT PROCEEDINGS, WAS NOT DISPUTED BY THE AO. 2.3. IN THE WRITTEN SUBMISSIONS FILED IN PROCEEDINGS BEFORE THE AO ON 08.12.2010, -: 5: - 5 WHICH WERE IN RESPONSE TO THE NOTICE/QUESTIONNAIRE ISSUED BY THE AO, IT WAS SUBMITTED THAT THE APPELLANT SOCIETY WAS FORMED ON 21.06.1982; IT WAS REGISTERED WITH THE REGISTRAR OF SOCIETIES, MP AND IN EVIDENCE COPY OF REGISTRATION CERTIFICATE WAS FILED BEFORE THE AO. THE NAMES OF THE MEMBERS OF THE SOCIETY WERE ALSO LISTED IN THE SAID REPLY FILED BEFORE THE AO. IT WAS SPECIFICALLY EMPHASIZED BEFORE THE AO THAT THE APPELLANT SOCIETY WAS FORMED SOLELY FOR PURPOSE OF PROVIDING EDUCATION FACILITY AND THAT THE APPELLANT WAS RUNNING A SCHOOL TITLED AS 'SHANTI NIKETAN MONTESORI HIGHER SECONDARY SCHOOL' IN SADAR BAZAR, HOSHANGABAD. THE OFFICE OF THE APPELLANT SOCIETY WAS STATED TO HAVE BEEN LOCATED IN THE SCHOOL PREMISES ONLY. II WAS STATED THAT THE APPELLANT SOCIETY HAD NO BANK ACCOUNT IN ITS NAME. HOWEVER, THE EDUCATIONAL INSTITUTION RUN BY THE APPELLANT SOCIETY HAD ITS -: 6: - 6 BANK ACCOUNTS IN PUNJAB NATIONAL BANK AND CANARA BANK AND THIS FACT WAS EVIDENT FROM THE COPIES OF THE RELEVANT BANK STATEMENTS FILED BEFORE THE ASSESSING OFFICER. IT WAS EXPLAINED THAT THERE WAS NO SPECIFIC PROVISION FOR SUBMISSION OF QUARTERLY REPORTS TO THE REGISTRAR OF COOPERATIVE SOCIETIES AND GOVERNMENT OF MP. THE GROSS RECEIPTS OF THE APPELLANT'S SOCIETY WERE MUCH LESS THAN RS.1 CRORE AND THIS FACT CERTIFIED BY THE STATUTORY AUDITORS, WAS NOT DISPUTED BY THE AO. IN THE PRESENCE OF THIS ACCEPTED POSITION OF FACTS, THE APPELLANT SOCIETY WAS NOT OBLIGED TO APPLY FOR EXEMPTION U/S 1O(23C)(IIIAD) OF THE ACT. FOR THIS PROPOSITION, I PLACE RELIANCE ON THE DECISIONS IN P.C.RAJA RATNAM INSTITUTION V. MUNICIPAL CORPORATION OF DELHI & ORS. (1990) 181 ITR 354 (SC) AND IN ADITANAR EDUCATIONAL INSTITUTION V, ADDL. CIT (1997) 139 CTR (SC) 7; AND OF THE HYDERABAD BENCH OF THE TRIBUNAL IN ST.JOSEPH'S UPPER -: 7: - 7 PRIMARY SCHOOL V. ITO (1983) 16 TTJ (HYD.) 389. IT WAS CLARIFIED TO THE AO ON THE BASIS OF AUDITED ACCOUNTS THAT THE APPELLANT EDUCATIONAL INSTITUTION HAD PURCHASED MOVABLE ASSETS SUCH AS FURNITURE AND COMPUTERS, FOR THE SCHOOL AND NO IMMOVABLE ASSETS WERE PURCHASED DURING THE RELEVANT PREVIOUS YEAR. THE FACT THAT NO INVESTMENT IN FDR WAS MADE BY THE APPELLANT SOCIETY, DURING THE RELEVANT PREVIOUS YEAR, WAS ALSO SUBSTANTIATED BY THE AUDITED ACCOUNTS AND BANK STATEMENTS FILED. THE AO HAD NOT DISPUTED THE CASH SYSTEM OF ACCOUNTING FOLLOWED BY THE APPELLANT. THIS EDUCATIONAL INSTITUTION AFFORDED TUITION FACILITY UP TO 11TH STANDARD ONLY AS PER THE STIPULATIONS OF THE STATE GOVERNMENT AND CBSE. THE AUDITED ACCOUNTS ALSO DEMONSTRATED THE FACT THAT THIS EDUCATIONAL INSTITUTION COLLECTED ONLY TUITION FEE AND BUS FARE AND NO OTHER CHARGES WERE RECOVERED FROM -: 8: - 8 THE STUDENTS. IT WAS EXPLAINED BEFORE THE AO ON THE BASIS OF AUDITED ACCOUNTS WITH SUPPORTING BILLS AND VOUCHERS THAT THE ADVERTISEMENT EXPENSES WERE PROVED TO HAVE BEEN INCURRED FOR PUBLICITY IN NEWS PAPERS AND WALL PAINTINGS, POSTERS, BANNERS ETC. TRAVELING EXPENSES WERE INCURRED FOR MANAGEMENT ACTIVITIES OF THE SCHOOL AND THAT THE TELEPHONES AND VEHICLES WERE WHOLLY AND EXCLUSIVELY USED FOR THE SCHOOL PURPOSES AND HENCE, THE EXPENDITURE RELATING THERETO, WAS FULLY ALLOWABLE. NONE OF THE AFOREMENTIONED SUBMISSIONS, MADE IN PROCEEDINGS BEFORE THE AO, VIDE APPELLANT'S LETTER DATED 08.12.2010, WERE PROVED BY THE A0 AS FALSE. THE ENTIRE RECEIPTS, RECOVERED FROM THE STUDENTS WERE WHOLLY AND EXCLUSIVELY APPROPRIATED FOR PROVIDING BETTER EDUCATIONAL FACILITIES TO THE STUDENTS. -: 9: - 9 2.4 NO EVIDENCE WHATSOEVER WAS BROUGHT BY THE ASSESSING OFFICER ON RECORD TO CONCLUSIVELY PROVE THAT THE RECEIPTS WERE APPROPRIATED FOR PURPOSES OTHER THAN THE OBJECTIVES OF THE APPELLANT SOCIETY FOR ADVANCEMENT OF EDUCATION TO THE STUDENTS. THE ASSESSING OFFICER HAD ALSO NOT BROUGHT ANY EVIDENCE ON RECORD TO PROVE THAT THE APPELLANT SOCIETY WAS FORMED NOT FOR ADVANCEMENT OF EDUCATIONAL ACTIVITY BUT FOR PURPOSES OF EARNING AND ACCUMULATING PROFITS. IN THE ABSENCE OF EVIDENCE TO SUGGEST CHARGING OF CAPITATION FEE, IN MY CONSIDERED VIEW, THE APPELLANT SOCIETY HAS TO BE HELD TO BE ELIGIBLE FOR THE EXEMPTION' CLAIMED (CIT V. KHALSA RURAL HOSPITAL & NURSING TRAINING INSTITUTE (2008) 304 ITR 20 (P&H). 2.5. I HAVE ALSO CAREFULLY GONE THOUGH THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE AO. (I)IN GOETZ INDIA LTD. V. CIT 284 ITR 323 IT WAS -: 10: - 10 HELD THAT: THE CLAIM FOR EXEMPTION COULD NOT BE ALLOWED UNLESS THE RETURN WAS FILED. THIS DECISION OF THE SUPREME COURT, RELIED UPON BY THE AO, HAS ABSOLUTELY NO APPLICATION TO THE FACTS OF THE APPELLANT'S CASE, UNDER CONSIDERATION, SINCE THE RETURN OF INCOME WAS PROVED TO HAVE BEEN FILED BY THE APPELLANT VIDE ACKNOWLEDGEMENT NO. 110001193 DATED 31.03.2010. (II) SECOND DECISION RELIED UPON BY THE AO WAS CIT V. MAHARAJA SAWAI MANSINGHJI MUSEUM TRUST 169 ITR 379 (RAJ.). THIS WAS A CASE OF A MUSEUM AND IT WAS CLAIMED THAT PERSONS ADD SOMETHING TO THEIR KNOWLEDGE BY VISITING THE MUSEUM AND THUS IT WAS AN EDUCATIONAL INSTITUTE. THE RAJASTHAN HIGH COURT HAD HELD THAT: 'IT IS AMPLY CLEAR FROM A BARE READING OF IT THAT THE 'EDUCATIONAL INSTITUTE' MUST EXIST SOLELY FOR EDUCATION PURPOSES. 'SOLELY' MEANS EXCLUSIVELY AND NOT PRIMARILY. SIMPLY BECAUSE -: 11: - 11 CERTAIN PERSONS MAY ADD SOMETHING TO THEIR KNOWLEDGE BY VISITING THE MUSEUM, IT CANNOT BE SAID THAT THE MUSEUM EXISTS SOLELY FOR EDUCATIONAL PURPOSE'. BY OBSERVING AS ABOVE, IT WAS HELD THAT MUSEUM WAS NOT AN EDUCATIONAL INSTITUTION AND HENCE, WAS NOT ENTITLED FOR THE EXEMPTION CLAIMED. THESE WERE NOT THE FACTS PREVAILING FOR CONSIDERATION IN THE CASE OF THE APPELLANT SINCE THE APPELLANT SOCIETY IS RUNNING AN EDUCATIONAL INSTITUTION DULY RECOGNIZED BY THE MIL STATE GOVERNMENT AND CBSE AND THE APPELLANT SOCIETY WAS NOT PROVED TO HAVE BEEN ENGAGED IN ANY ACTIVITY OTHER THAN ADVANCEMENT OF EDUCATIONAL SYSTEM. THE AO HAD ALSO NOT BROUGHT EVIDENCE ON RECORD TO PROVE THE CONTRARY IN THIS RECORD. 1. (III) THE THIRD DECISION, RELIED UPON BY THE A.O. WAS THAT OF THE SUPREME COURT IN SOLE TRUSTEE, LOKA SHIKSHANA TRUST V. CIT, 101 ITR 2]4 (SC). THAT TRUST WAS FORMED WITH THE OBJECT OF -: 12: - 12 EDUCATING THE PEOPLE BY SPREAD OF KNOWLEDGE ON ALL MATTERS OF GENERAL INTEREST AND WELFARE THROUGH PUBLICATION OF JOURNALS AND NEWSPAPERS. THE SUPREME COURT HELD THAT: ' .. .IT SEEMS THAT THE EDUCATIONAL EFFECTS OF A NEWS PAPER OR PUBLISHING BUSINESS ARE ONLY INDIRECT, PROBLEMATICAL, AND QUITE INCIDENTAL SO THAT, WITHOUT IMPOSING ANY CONDITION OR QUALIFICATION UPON THE NATURE OF INFORMATION TO BE DISSEMINATED OR MATERIAL TO BE PUBLISHED, THE MERE PUBLICATION OF NEWS OR VIEWS COULD NOT BE SAID TO SERVE A PURELY OR EVEN A PREDOMINANTLY EDUCATIONAL PURPOSE IN ITS ORDINARY AND USUAL SENSE' WHERE AS IN CASE OF THE APPELLANT SOCIETY, AS REITERATED TIME AND AGAIN, THE FACT THAT THE APPELLANT SOCIETY, DULY REGISTERED AS EDUCATIONAL INSTITUTION BY THE REGISTRAR OF SOCIETIES, MP, WAS RUNNING SCHOOL FOR IMPARTING EDUCATION TO THE STUDENTS UP TO 12 TH STANDARD AND THIS EDUCATIONAL INSTITUTION WAS DULY RECOGNIZED BY -: 13: - 13 THE CONCERNED AUTHORITIES OF THE STATE AND CENTRAL GOVERNMENTS. THIS WAS NOT A TRUST FORMED FOR PUBLICATION OF JOURNALS AND NEWSPAPERS AND HENCE, THE CASE OF THE APPELLANT SOCIETY WAS DISTINGUISHABLE FROM THAT OF THE DECISION IN SOLE TRUSTEE (SUPRA) RELIED UPON BY THE AO. AS ADMITTED BY THE AO, THE SUPREME COURT IN SOLE TRUSTEE'S CASE (SUPRA) HAD HELD THAT THE WORD 'EDUCATION' CONNOTES THE PROCESS OF TRAINING AND DEVELOPING THE KNOWLEDGE, SKILL, MIND AND CHARACTER OF STUDENTS BY NORMAL SCHOOLING AND HAS NOT BEEN USED IN THE WIDE AND EXTENSIVE SENSE. THE APPELLANT SOCIETY IS RUNNING AN EDUCATIONAL INSTITUTION, IMPARTING EDUCATION TO THE STUDENTS UP TO 12 TH STANDARD AND SINCE THIS EDUCATIONAL INSTITUTION IS RUNNING A SCHOOL FOR THE ABOVE PURPOSE HAS STATUTORILY REQUIRED, HAD OBTAINED AFFILIATION FROM THE MP BOARD OF SECONDARY EDUCATION AND ALSO FROM CENTRAL BOARD OF -: 14: - 14 SECONDARY EDUCATION. IF THE APPELLANT SOCIETY WAS NOT RUNNING AN EDUCATIONAL INSTITUTION/SCHOOL FOR IMPARTING EDUCATION TO STUDENTS UP TO 12 TH STANDARD, AS ERRONEOUSLY ASSUMED BY THE AO, THEN, THERE WOULD HAVE BEEN NO MANDATORY REQUIREMENT FOR THE SAID INSTITUTION TO SEEK AND OBTAIN AFFILIATION FROM THE MP BOARD OF SECONDARY EDUCATION AND CENTRAL BOARD OF SECONDARY EDUCATION. THE AO HAD NOT BROUGHT ANY EVIDENCE ON RECORD TO SUCCESSFULLY CONTROVERT THIS FACT OBTAINING FROM THE RECORD. IN THE EVENT OF ANY DOUBT OR DISPUTE, BEFORE HOLDING ANY ADVERSITY AGAINST THE APPELLANT SOCIETY, ON PRESUMPTIONS AND ASSUMPTIONS, IT WAS INCUMBENT UPON THE AO TO HAVE CONDUCTED THE NEEDED ENQUIRIES FROM THE CONCERNED AUTHORITIES OF THE STATE AND CENTRAL GOVERNMENTS WHO HAD ACCORDED AFFILIATION TO THE EDUCATIONAL INSTITUTION RUN BY THIS APPELLANT EDUCATIONAL SOCIETY. THE ASSESSING OFFICER HAD ALSO NOT BROUGHT ANY -: 15: - 15 EVIDENCE ON RECORD EVEN TO REMOTELY SUGGEST THAT THE APPELLANT SOCIETY WAS ENGAGED IN ACTIVITIES OTHER THAN RUNNING A SCHOOL FOR IMPARTING EDUCATION TO THE STUDENTS. THE AO HAD ALSO NOT BROUGHT ANY EVIDENCE ON RECORD TO CONCLUSIVELY PROVE THAT THE RECEIPTS SHOWN AS PER AUDITED ACCOUNTS WERE FROM SOURCES OTHER THAN FROM THE EDUCATIONAL INSTITUTION RUN BY THE APPELLANT SOCIETY. UNLESS THERE WAS EVIDENCE TO ESTABLISH, BEYOND ALL SHADOWS OF DOUBT, THAT THE APPELLANT WAS ENGAGED IN COMMERCIAL ACTIVITIES WITH A MOTIVE TO EARN PROFIT, THE IMPUGNED RECEIPTS FROM THE EDUCATIONAL INSTITUTION/SCHOOL RUN BY THE APPELLANT, COULD BY NO STRETCH OF IMAGINATION, BE PRESUMED AS COMMERCIAL PROFITS ASSESSABLE AS INCOME IN THE HANDS OF THE APPELLANT. AS ALREADY STATED, THE SOLE TRUSTEES CASE (SUPRA) WAS ENGAGED IN NEWSPAPER PUBLICATIONS WHILE IN THE CASE OF -: 16: - 16 THE APPELLANT SOCIETY, IT WAS NOT SO. AS SUCH, THE RATION LAID DOWN BY THE SUPREME COURT IN THAT CASE HAS NO APPLICATION AT ALL TO THE CASE OF THE APPELLANT SOCIETY SINCE THE FACTS IN THE CASE RELIED UPON BY THE AO ARE ENTIRELY DIFFERENT AND DISTINGUISHABLE FROM THAT OF THE APPELLANT. (IV) THE FOURTH DECISION, RELIED UPON BY THE AO WAS THAT OF MADRAS HIGH COURT IN RAO BAHADUR A. K. D. DHARMARAJA EDUCATION CHARITY TRUST V. CIT 182 ITR 80 (MAD.). IN THIS CASE THE OBJECT OF THE TRUST WAS TO RUN EDUCATIONAL INSTITUTE AND TO SPEND SOME MONEY FOR RELIGIOUS PURPOSE REGARDING TWO TEMPLES. FACTUALLY ONLY A SMALL AMOUNT WAS SPENT FOR EDUCATIONAL PURPOSES LEAVING A HUGE SURPLUS FOR OTHER CHARITABLE PURPOSE. UNDER THESE CIRCUMSTANCES IT WAS HELD THAT SUCH AN INSTITUTE CANNOT SOLELY BE CALLED AN EDUCATIONAL INSTITUTION QUALIFYING FOR THE CLAIMED -: 17: - 17 EXEMPTION. HOWEVER, IN THE CASE OF THE APPELLANT SOCIETY, UNDER CONSIDERATION, THE ENTIRE RECEIPT WAS SPENT FOR THE PURPOSE OF EDUCATION ONLY AND NOT A SINGLE PENNY WAS PROVED TO HAVE BEEN SPENT FOR PURPOSES OTHER THAN EDUCATION. IN THIS VIEW OF THE MATTER, THIS DECISION OF THE MADRAS HIGH COURT, RELIED UPON BY THE AO, BEING ENTIRELY ON DIFFERENT FACTS, HAS NO APPLICATION TO THE FACTS OF THE CASE OF THE APPELLANT SOCIETY. (A) IT IS NOT UNUSUAL FOR THE REVENUE TO TREAT EVERY CASE OF PROFIT MAKING ACTIVITY AS CONSTITUTING BUSINESS, SO AS TO JEOPARDIZE THE RIGHT OR CHARITABLE INSTITUTION TO EXEMPTION, EVEN WHERE THE OBJECTS AND ACTIVITIES ARC CLEARLY CHARITABLE, IN MY CONSIDERED VIEW, INCIDENTAL SURPLUS SHOULD NOT COME IN THE WAY OF EXEMPTION. IT COULD CONTINUE TO BE A PHILANTHROPIC/EDUCATIONAL ACTIVITY AS LONG AS THE PROFIT IS TO BE UTILIZED FOR THE PURPOSE OF THE OBJECTS. THERE IS DIFFERENCE BETWEEN PRIVATE -: 18: - 18 PROFIT AND A PROFIT OF CHARITABLE INSTITUTION. IT WAS SO DECIDED IN A GROUP OF CASES IN PINE GROVE INTERNATIONAL CHARITABLE TRUST V. UOI (2010) 327 ITR 73 (P&H). THE HIGH COURT POINTED OUT THAT DEPARTMENTAL RELIANCE UPON THE DECISION IN MUNICIPAL CORPORATION OF DELHI V. CHILDREN BOOK TRUST, AIR 1992 (SC) 1456 WAS MISCONCEIVED BECAUSE THAT DECISION RELATED TO A PROVISION UNDER DELHI MUNICIPAL CORPORATION ACT 1957, WHICH DOES NOT CONTAIN THE MECHANISM FOR UTILIZATION OF SURPLUS IN THE CONTEXT OF A TRUST OR INSTITUTION WITH THE SOLE OBJECT OF EDUCATION. THE JUDGMENT OF THE 11 MEMBER BENCH IN TMA PAI FOUNDATION V. STATE OF KARNATAKA (2002) 8 SCC 481, HAS HELD THAT EDUCATIONAL INSTITUTIONS HAVE TO GENERATE FUNDS FOR BETTERMENT AND GROWTH OF EDUCATION, SO THAT THE SURPLUS CANNOT, THEREFORE, BE FAULTED. THE HIGH COURT ALSO RELIED UPON THE DECISION OF THE SUPREME COURT IN ADITANAR EDUCATIONAL INSTITUTION V. ADDL.CIT 1997224 ITR -: 19: - 19 310 (SC). IN COMING TO THE CONCLUSION, THE HIGH COURT DESCENDED FROM THE DECISION OF THE UTTARAKHAND HIGH COURT IN CIT V. QUEEN'S EDUCATIONS SOCIETY (2009) 31 ITR 160 AS RUNNING CONTRARY TO THE PROVISIONS OF SECTION 10(23C)(IIIAD) AND THE SPEECH OF THE FINANCE MINISTER RECORDED IN THE JUDGMENT IN AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE V. CBDT (2008) 301 ITR 86 SC. IN MY CONSIDERED VIEW, IF THIS DECISION OF THE HIGH COURT IS ACCEPTED BY THE CBDT ON PRINCIPLE IN A PUBLIC CIRCULAR, A NUMBER OF DISPUTES RAISED BY THE AUTHORITIES ON THE BASIS OF CHILDREN'S BOOK TRUST CASE (SUPRA) AND THE DECISION IN QUEEN'S EDUCATIONAL SOCIETY'S CASE COULD BE GIVEN A QUIETUS IN THE INTEREST OF PUBLIC EDUCATIONAL INSTITUTIONS. SOMETHING MORE IS NECESSARY TO DISCREDIT THE EXEMPTION THAN A MERE INCIDENCE OF PROFIT, WHICH IS MEANT TO MEET CAPITAL EXPENDITURE/EXPENDITURE NEEDED FOR RUNNING THE -: 20: - 20 EDUCATIONAL INSTITUTION AND TO BE PLOUGHED BACK. (B) MERELY BECAUSE A CHARITABLE INSTITUTION ESTABLISHED FOR THE PURPOSE OF RUNNING AN EDUCATIONAL INSTITUTION, WAS MAKING SURPLUS FROM THE CURRENT INCOME, IT CANNOT HE ASSUMED, THAT IT WAS FORMED WITH THE OBJECT OF EARNING PROFIT, AND THAT ITS ACTIVITY IS COMMERCIAL IN NATURE, IT WAS IN THIS CONTEXT, THE TRIBUNAL IN SHRI KRISHNA EDUCATION AND WELFARE TRUST V. CIT (2010) 5 ITR (TRIB.) 750 (DEL.) DIRECTED REGISTRATION OF THE TRUST IN A CASE, WHERE THE OBJECTS WERE EDUCATIONAL IN CHARACTER. (C ) IN VANITA VISHTRAM TRUST V. CHIEF CIT, (2 010) 327 ITR 121 (BOM), IT WAS HELD THAT IF AFTER MEETING THE EXPENDITURE, A SURPLUS RESULTS INCIDENTALLY FROM AN ACTIVITY LAWFULLY CARRIED ON BY THE EDUCATIONAL INSTITUTION, THE INSTITUTION WOULD NOT CEASE TO BE ONE WHICH IS EXISTING SOLELY FOR EDUCATIONAL PURPOSES SINCE THE OBJECT IS NOT TO MAKE PROFIT. IF TRUST EXISTS SOLELY FOR EDUCATIONAL -: 21: - 21 PURPOSES AND CONDUCTS AN EDUCATIONAL INSTITUTION, THE FACT THAT IT HAD OBJECTS WOULD NOT DISENTITLE IT TO THE EXEMPTION SO LONG AS THE ACTIVITY CARRIED OUT BY IT IN THE ASSESSMENT YEAR WAS THAT OF RUNNING AN EDUCATIONAL INSTITUTION AND NOT FOR PROFIT. (D) IN ACIT V. VATSALYA SENIOR SECONDARY SCHOOL, (2010) 130 TTJ (URO) 27 (IND.), SIMILAR ISSUE CAME UP FOR CONSIDERATION. THE JURISDICTIONAL BENCH OF ITAT INDORE HELD THAT: 'IN THE PRESENT APPEAL FIRSTLY, THE INCOME WAS BELOW THE PRESCRIBED LIMIT AND SECONDLY, THE INCOME WAS APPLIED SOLELY FOR EDUCATIONAL PURPOSE I.E. CONSTRUCTION OF BUILDING. IT WAS NOT THE CASE THAT HUGE SURPLUS FUNDS WERE AVAILABLE WITH THE ASSESSEE OR SUCH FUNDS WERE MISUSED BY ANY INDIVIDUAL FOR HIS PERSONAL GAIN. THE AO HAD DISALLOWED THE CLAIM OF THE SCHOOL WHEREAS THE PROVISO ITSELF DOES NOT INCLUDE PROVISIONS OF SECTION 10(23C)(IIIA) IN TREATING THE AMOUNT AS -: 22: - 22 INCOME FROM BUSINESS OR FROM PROFESSION. IT SEEMS THAT THE AO HAD WRONGLY INTERPRETED THE WORDS 'NOT FOR PURPOSES OF PROFIT', BECAUSE THE INSTITUTION/SCHOOL WAS PRIMARILY TO ACHIEVE OBJECT OF EDUCATION. THE INCOME GENERATED FROM SCHOOL MUST BE UTILIZED EXCLUSIVELY FOR EDUCATIONAL ACTIVITIES AND NOT FOR PERSONAL GAIN AND IF THIS CONDITION WAS FULFILLED/COMPLIED WITH, THEN THE INCOME OF THE ASSESSEE MUST BE TREATED AS EXEMPTED. SECTION 1O(23C)(IIIA) IS AN INDEPENDENT SECTION AND HAS NO DIRECT OR INDIRECT LINK WITH THE REGISTRATION UNDER SECTION 12A. IT WAS NOT THE CASE THAT THE ASSESSEE SCHOOL HAD ACCUMULATED HUGE PROFIT OR MISUTILISED THE FUNDS IN ANY MANNER AGAINST THE OBJECTS PURSUED BY THE ASSESSEE AND THE PROVISIONS OF THE ACT, AND, IN FACT, THE PROFIT, IF ANY, WAS INVESTED IN THE BUILDING WHICH WAS VERY MUCH NECESSARY TO ACHIEVE THE OBJECTS OF PROVIDING EDUCATION OR FOR THE EXPANSION OF -: 23: - 23 EDUCATIONAL ACTIVITIES OF THE INSTITUTION. HENCE, DENIAL OF EXEMPTION TO THE ASSESSEE WAS NOT JUSTIFIED. (E) I HAVE ALSO GONE THROUGH THE OBJECTS OF THIS EDUCATIONAL INSTITUTION AVAILABLE ON RECORD AND I FIND THAT THE INTENTION OF THE FOUNDERS FOR FORMATION OF THIS EDUCATIONAL INSTITUTION WAS FOR ADVANCEMENT OF EDUCATION AND PUBLIC WELFARE AND CULTURAL ACTIVITIES RELATING TO PROMOTION AND DEVELOPMENT OF EDUCATION AND NONE OF THESE OBJECTS WERE UNRELATED TO THE ADVANCEMENT OF EDUCATION AND NONE OF THE OBJECTS WERE PROVED TO HAVE BEEN FOR EARNING COMMERCIAL PROFITS. AS ALREADY STATED, THE AO HAD NO BROUGHT ANY EVIDENCE ON RECORD TO CONCLUSIVELY PROVE THAT THE SURPLUS APPEARING IN AUDITED ACCOUNTS WAS UTILIZED FOR THE PURPOSES OTHER THAN FOR WHICH THE APPELLANT EDUCATIONAL INSTITUTION WAS FORMED. (V) THE FIFTH DECISION, RELIED UPON BY THE AO, WAS -: 24: - 24 THAT OF SUPREME COURT IN DHARMAPOSHANAM CO. V. CIT (1978) 114 ITR 463 (SC). THIS WAS THE CASE OF AN ASSOCIATION REGISTERED AS A COMPANY WHICH INCLUDED MANY OBJECTS WHICH WERE PROFIT GENERATING. UNDER THESE CIRCUMSTANCES THE COURT CONCLUDED IN PARA 12 OF ITS ORDER THAT: 'IT IS NOT POSSIBLE TO AGREE WITH THE CONTENTION THAT WHAT SHOULD BE TAKEN INTO CONSIDERATION IS THE ACTIVITY ACTUALLY CONDUCTED BY THE ASSESSEE, AND NOT WHAT IS MENTIONED IN THE MEMORANDUM OF ASSOCIATION. WHETHER A TRUST IS FOR CHARITABLE PURPOSE FALLS TO BE DETERMINED BY REFERENCE TO ALL THE OBJECTS FOR WHICH THE TRUST HAS BEEN BROUGHT INTO EXISTENCE..... .IT WOULD BE A DIFFEREN T CASE WHERE ONE OR MORE OF THE OBJECTS MENTIONED IN MEMORANDUM OF ASSOCIATION, ALTHOUGH INCLUDED THEREIN, WERE NEVER INTENDED TO BE UNDERTAKEN. IF THERE IS EVIDENCE POINTING TO THAT CONCLUSION, CLEARLY THE COURT WILL IGNORE THE OBJECT AND PROCEED TO CONSIDER THE SAME AS IF IT -: 25: - 25 DID NOT EXIST IN THE MEMORANDUM'. MOREOVER IT WAS A CASE WHERE THE ASSESSEE WAS DERIVING INCOME FROM PROPERTY, MONEY LENDING, CHIT FUND AND KURRIES AND CLAIMED EXEMPTION U/S 11. IN THE INSTANT CASE OF THE APPELLANT SOCIETY, UNDER CONSIDERATION, ITS ONLY OBJECT WAS IMPARTING EDUCATION TO STUDENTS UP TO 12 TH STANDARD AND THE AO HAD NOT BROUGHT ANY EVIDENCE ON RECORD TO CONCLUSIVELY PROVE THAT THE APPELLANT WAS ENGAGED IN ANY ACTIVITY OTHER THAN RUNNING THE SCHOOL FOR IMPARTING EDUCATION TO THE CHILDREN THROUGH ITS EDUCATIONAL INSTITUTION RECOGNIZED BY THE M P STATE GOVERNMENT AND CENTRAL GOVERNMENT. IN THIS VIEW OF THE MATTER, THIS DECISION OF THE SUPREME COURT RELIED UPON BY THE AO IS NOT AT ALL APPLICABLE FOR DRAWING ADVERSE INFERENCES AGAINST THE APPELLANT SOCIETY. (VI) THE SIXTH DECISION RELIED UPON BY THE ;\0 WAS THAT OR THE SUPREME COURT IN DELHI STOCK EXCHANGE ASSOCIATION LTD V. CIT (1997) 225 ITR 235 (SC). IN -: 26: - 26 THAT EASE THE ISSUE BEFORE SUPREME COURT WAS REGARDING EXEMPTION U/S 11 OR THE ACT. IT WAS HELD BY THE COURT THAT: THERE MUST BE OBLIGATION TO SPEND THE INCOME FOR CHARITABLE PURPOSES SO LONG AS THERE IS NO PROHIBITION ON THE APPELLANT STOCK EXCHANGE UNDER ITS ARTICLES OF ASSOCIATION FROM DISTRIBUTING THE WHOLE OR PART OF ITS INCOME B Y WA Y OF DIVIDENDS AMONG ITS SHAREHOLDERS, IT WAS NOT ENTITLED TO THE EXEMPTION U/S 11 OF THE ACT. THIS JUDGMENT WAS DELIVERED IN THE CONTEXT OF SECTION 11 OF THE ACT AND HAD NO APPLICATION AT ALL FOR DETERMINING THE ALLOWABILITY OF EXEMPTION TO THE APPELLANT SOCIETY, U/S 10(23C) OF THE ACT. THE AUDITED ACCOUNTS DEMONSTRATE THE FACT THAT THE APPELLANT SOCIETY HAD SPENT THE ENTIRE RECEIPT FOR PURPOSES OF IMPARTING EDUCATION ONLY TO THE STUDENTS STUDYING UP TO 12 TH STANDARD AND NOT A SINGLE PENNY WAS SPENT FOR OTHER PURPOSES. THERE IS NO PROVISION .FOR DISTRIBUTION OF DIVIDEND BY THE APPELLANT SOCIETY. FOR THESE REASONS, THE -: 27: - 27 DECISION IN DELHI STOCK EXCHANGE (SUPRA), RELIED UPON BY THE AO, IS ALSO HELD INAPPLICABLE TO THE FACTS OF THE APPELLANT SOCIETY'S CASE, UNDER CONSIDERATION. (VII) THE SEVENTH DECISION RELIED UPON BY THE AO, WAS THAT OF SUPREME COURT IN EAST INDIA INDUSTRIES V. CIT 65 ITR 611 (SC). IN THAT CASE, CHARITABLE TRUST WAS FORMED FOR CHARITABLE AS WELL AS FOR NON-CHARITABLE PURPOSES. THE TRUSTEE WAS EMPOWERED TO EMPLOY THE TRUST FUNDS EVEN TOTALLY FOR ONE CHARITABLE PURPOSE. OBJECTS OF THE TRUST WERE NEITHER CHARITABLE NOR RELIGIOUS IN CHARACTER. TRUST PROPERTY NOT HELD UNDER TRUST OR OTHER OBLIGATION WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSE WITHIN THE MEANING OF SECTION 4(3)(1) AND HENCE, IT WAS HELD THAT DEDUCTION U/S 15B WAS NOT AVAILABLE IN RESPECT OF DONATION TO SUCH TRUST. THESE WERE NOT THE FACTS OBTAINING FOR ADJUDICATION IN THE CASE OF THE APPELLANT SOCIETY, UNDER CONSIDERATION. THE APPELLANT SOCIETY WAS -: 28: - 28 ENGAGED IN RUNNING EDUCATIONAL INSTITUTION FOR IMPARTING EDUCATION TO STUDENTS AND IT WAS NOT PROVED TO HAVE BEEN ENGAGED IN ANY ACTIVITY OTHER THAN IMPARTING EDUCATION. THE APPELLANT SOCIETY WAS ALSO NOT PROVED TO HAVE ACCEPTED ANY DONATIONS. HENCE, THE DECISION OF THE SUPREME COURT IN EAST INDIA INDUSTRIES LIMITED (SUPRA), IN MY CONSIDERED VIEW, IS NOT AT ALL APPLICABLE FOR DECIDING THE CRUX OF THE ISSUE, UNDER CONSIDERATION. 2.6 FOR THE REASONS EXTENSIVELY ENUMERATED ABOVE, I HAVE NO HESITATION IN HOLDING THAT THE APPELLANT SOCIETY WAS ENTITLED FOR EXEMPTION U/S 10(23(C)(IIIAB) OF THE ACT. WITH THESE OBSERVATIONS, THIS GROUND OF APPEAL IS ALLOWED. 5. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEAL BEFORE US. SHRI S. S. SOLANKI, C. A. APPEARED ON BE HALF OF THE ASSESSEE AND SHRI R. A. VERMA, LD. SENIOR DR APPEAR ED ON BEHALF OF THE DEPARTMENT. IT WAS CONTENDED BY SHRI VERMA THAT -: 29: - 29 THE ASSESSEE HAS NOT FILED ITS RETURN OF INCOME AND COULD NOT EXPLAIN THE MAIN OBJECT OF RUNNING EDUCATIONAL SOCI ETY, THEREFORE, THE ASSESSING OFFICER WAS JUSTIFIED IN D ECLINING CLAIM OF EXEMPTION U/S 10(23). 6. ON THE OTHER HAND, SHRI S. S. SOLANKI, C. A. INVITE D OUR ATTENTION TO THE COPY OF PROCESSING SHEET OF OFFICE OF ACIT I, BHOPAL, CONFIRMING THE FILING OF RETURN AND COMPUTA TION OF INCOME, COPY OF AUDIT REPORT FOR ASSESSMENT YEAR 20 08-09 ALONGWITH INCOME AND EXPENDITURE, WHEREIN GROSS REC EIPT OF ASSESSEES SCHOOL WAS LESS THAN RS. 1 CRORE. OUR AT TENTION WAS ALSO DRAWN TO THE OBJECT CLAUSE OF THE SOCIETY FOR WHICH DETAILED FINDING HAS BEEN RECORDED BY THE LD.CIT(A) TO THE EFFECT THAT THE ASSESSEE WAS FULLY ENGAGED IN THE EDUCATIO NAL ACTIVITY. 7. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. THE ASSESSEE RUNS AN EDUCATIONAL INSTITUTI ON IN THE NAME OF SHANTI NIKETAN MONTESSORI HIGHER SECONDARY SCHOOL. IT IS REGISTERED WITH REGISTRAR OF FIRMS AND SOCIET IES VIDE CERTIFICATE NO.1132342 DATED 21.6.1982. THE ASSESSE E HAS FILED ITS RETURN OF INCOME WHEREIN GROSS RECEIPT WA S SHOWN AT RS. 93.97 LAKHS, WHICH INCLUDED BANK INTEREST OF RS . 1205/-. -: 30: - 30 THE RETURN WAS FILED ALONGWITH AUDITED ACCOUNTS AND AUDIT REPORT, THE CIT(A) HAS CLEARLY RECORDED A FINDING T O THE EFFECT THAT OBJECT OF THE ASSESSEE SOCIETY SINCE INCEPTION WAS FOR EDUCATION. IT WAS DULY REGISTERED WITH REGISTRAR OF SOCIETIES, MADHYA PRADESH. IT WAS STATUTORILY AFFILIATED BY CE NTRAL BOARD OF SECONDARY EDUCATION (C.B.S.E) SINCE 2005 AND THE AFFILIATION SO GRANTED WAS EFFECTIVE FROM THE PREVI OUS YEAR UNDER CONSIDERATION. COPY OF AFFILIATION LETTER WAS SUBMITTED BEFORE THE ASSESSING OFFICER VIDE LETTER DATED 8.12 .2010. THE ASSESSEE WAS ALSO AFFILIATED WITH M. P. BOARD OF SE CONDARY EDUCATION, BHOPAL. COPY OF AFFILIATION CERTIFICATE WAS ALSO PLACED BEFORE THE ASSESSING OFFICER. THE ASSESSEE S OCIETY WAS FORMED ON 21.6.1982 AND IT WAS REGISTERED WITH REGI STRAR OF SOCIETIES, MADHYA PRADESH. IT WAS FORMED SOLELY FOR THE PURPOSE OF PROVIDING EDUCATION FACILITY AND FOR THI S PURPOSE, IT WAS RUNNING A SCHOOL TITLED AS SHANTI NIKETAN MONT ESSORI HIGHER SECONDARY SCHOOL IN SADAR BAZAR, HOSHANGABAD . THE GROSS RECEIPT OF ASSESSEE SOCIETY WAS LESS THAN RS. 1 CRORE AND THIS FACT WAS FULLY SUPPORTED THROUGH STATUTORY AUD ITED ACCOUNTS FILED WITH THE RETURN OF INCOME. ACCORDING LY, IT WAS -: 31: - 31 ELIGIBLE TO APPLY FOR EXEMPTION U/S 10(23C)(IIIAD) OF THE INCOME-TAX ACT, 1961. NO EVIDENCE WAS BROUGHT ON RE CORD BY THE ASSESSING OFFICER TO PROVE RECEIPTS WERE APPROP RIATED FOR THE PURPOSE OTHER THAN ADVANCEMENT OF EDUCATION TO THE STUDENTS NOR ANY MATERIAL WAS BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SUBSTANTIATE HIS STAND THAT TH E ASSESSEE SOCIETY WAS FORMED NOT FOR ADVANCEMENT OF EDUCATION AL ACTIVITIES FOR THE PURPOSE OF EARNING PROFITS. THE LD. CIT(A) HAS DISCUSSED VARIOUS CASE LAWS IN HIS APPELLATE ORDER AND APPLIED THE PROPOSITION OF LAW TO THE FACTS OF THE INSTANT CASE AND CAME TO THE CONCLUSION THAT THE ASSESSEE WAS WHOLLY AND EXCLUSIVELY ENGAGED IN EDUCATIONAL ACTIVITIES. THE DETAILED FIN DINGS RECORDED BY THE LD.CIT(A) HAS NOT BEEN CONTROVERTED BY BRINING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) FOR ALLOWING CLAIM OF EXEMPTION U/S 10(23C)(IIIAD) OF THE INCOME-TAX A CT, 1961. -: 32: - 32 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2012. SD/ - SD/ - (JOGINDER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 31 ST OCTOBER, 2012. CPU* 8.9.19