A.D.I.T(E)-I, Kolkata, Kolkata V. The Bhowanipur Gujarati Education Society, Kolkata

ITA 2844/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4281 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 21-09-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 23-12-2013
• Court: TRIBUNAL
• Department Lawyers: RAJAT KR KUREEL
• Assessee Lawyers: MIRAJ D. SHAH
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(3); 12A; 11

Judgement Text

1 ITA NO. 2844/KOL/2013 BHOWANIPUR GUJARATI EDUCATION SOCIETY, AY 2007-08 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA [BEFORE SHRI N. V. VASUDEVAN, JM & SHRI M. BALAGAN ESH, AM] I.T.A NO. 2844/KOL/2013 ASSESSMENT YEAR: 2007-08 ASSISTANT DIRECTOR OF INCOME-TAX (E)-1, VS. BHOWAN IPUR GUJARATI EDUCATION SOCIETY KOLKATA. (PAN: AAATT5940Q) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 21.09.2016 DATE OF PRONOUNCEMENT: 14.10.2016 FOR THE APPELLANT: SHRI RAJAT KR. KUREEL, JCIT , SR. DR FOR THE RESPONDENT: SHRI MIRAJ D. SHAH, AR ORDER PER SHRI M. BALAGANESH, AM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-XIV, KOLKATA VIDE APPEAL NO. 175/CIT(A)-XIV/09-10 DATED 06.09.2013. ASSESSME NT WAS FRAMED BY ITO (EXEMP.)-II, KOLKATA U/S. 143(3)/11 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2007-08 VIDE HIS ORDER DATED 17.12.2009. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN TREATING THE TOUR EXPENSES OF RS. 29,43,011/- AND F ASHION SHOW EXPENSES OF RS. 36,53,054/- AS APPLICATION OF INCOME IN THE FACTS AND CIRCUMSTA NCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSES SEE IS A CHARITABLE SOCIETY REGISTERED U/S 12A OF THE ACT WITH EFFECT FROM 1.11.1973. THE MAI N ACTIVITIES OF THE SOCIETY ARE IMPARTING EDUCATION. THE ASSESSEE SOCIETY RUNS A COLLEGE IN THE NAME OF BHAWANIPUR EDUCATION SOCIETY COLLEGE, A VOCATIONAL ART ACADEMY, A SECON DARY SCHOOL AND A HIGHER SECONDARY SCHOOL. THE LD AO OBSERVED THAT THE ASSESSEE SOCIE TY HAD SUBMITTED AUDITED ACCOUNTS FOR ALL THE UNITS I.E SCHOOLS, COLLEGES, VOCATIONAL ART ACA DEMY AND THE SOCIETY ITSELF. SL. NO. NAME OF THE SECTION TOTAL REVENUE INCOME (RS.) TOTAL REVENUE EXPENDITURES (RS.) CAPITAL EXPENDITURE (RS.) TOTAL APPLICATION OF INCOME (RS.) 1. THE B.G.E. SOCIETY 2,47,73,567/- 1,10,54,455/ - 43,11,576/- 1,53,66,031/- 2. THE B.E.S. COLLEGE 9,10,28,007/- 8,39,72,251/- 22,50,051/- 8,62,22,302/- 3. THE B.E.S COLLEGE (VOCATIONAL ART ACADEMY) 39,79,582/- 48,05,030/- 16,099/- 48,21,129 /- 2 ITA NO. 2844/KOL/2013 BHOWANIPUR GUJARATI EDUCATION SOCIETY, AY 2007-08 4. THE B.G.E.S SCHOOL (ICSE) 43,20,518/- 1,16,94,138/- 21,50,362/- 1,38,4 4,500/- 5. THE B.G.E.S SCHOOL (ISC) 99,74,119/- 64,04,78 4/- 64,04,784/- TOTAL 13,40,75,794/- 11,79,30,660/- 87,28,088/- 1 2,66,58,784/- 3.1. THE INCOME OF THE SOCIETY INCLUDES DIVIDEND, INTEREST, VOLUNTARY CONTRIBUTIONS, RENT, ETC. THE INCOME OF THE SCHOOL AND COLLEGES INCLUDE TUITION FEES, DEVELOPMENT FEES AND OTHER FEES. FROM THE BOOKS OF ACCOUNTS PRODUCED FOR EACH UNIT WHICH WERE ALSO SUBJECTED TO VERIFICATION ON TEST CHECK BASIS BY THE LD AO, THE LD AO OBSERVED THAT ASSESSEE HAD INCURRED SUBSTANTIAL EXPENDITURES IN DIFFERENT HEADS UNDER T HE NORMAL ACADEMIC CURRICULUM OF THE SCHOOLS AND COLLEGES. THE LD AO OBSERVED THAT THE FOLLOWING EXPENSES INCURRED BY THE ASSESSEE SOCIETY SHALL NOT BE REGARDED AS APPLICATI ON OF INCOME AS ACCORDING TO HIM THE SAME ARE NOT RELEVANT FOR THE PURPOSE OF OBJECTS OF RUNN ING AN EDUCATIONAL SOCIETY :- (A) TOUR EXPENSES FOREIGN TOUR PROVIDED TO STUDEN TS OF BHOWANIPUR GUJARATI EDUCATION SOCIETY COLLEGE (B) FUNCTIONS AND FESTIVALS ANNUAL FASHION SHOW AND MR. AND MRS UNIVERSITY EXPENSES. 3.2. THE ASSESSEE REPLIED BEFORE THE LD AO AS BELO W:- THE MANAGEMENT HAS ALWAYS FELT THAT SEEING IS BEL IEVING AND HAS BEEN THE FIRST AMONG THE EDUCATIONAL INSTITUTES TO UNDERTAKE FOREIGN TOURS F OR THE BENEFITS OF THE STUDENTS. WE BELIEVE THAT HANDS ON APPROACH WILL MAKE THE STUDENTS MORE COMPETENT TO HANDLE THE COMPETITIVE WORLD ONCE THEY PASS OUT OF THE COLLEGE. THIS EDUC ATIONAL FOREIGN TOURS ARE OPEN TO ALL STUDENTS OF THE INSTITUTE AND THE SELECTION IS MADE DEPENDING UPON THEIR APTITUDE, EDUCATIONAL/ACADEMIC BRILLIANCE AND OTHER REQUIREME NTS. 3.3. THE LD AO CONCLUDED THAT ONLY A SECTION OF TH E STUDENTS GET THE OPPORTUNITY OF FOREIGN TOUR AND THESE TOURS ARE NOT IN THE FORM OF EXCURSION. THE SAME LOGIC WAS ALSO APPLIED TO LOCAL TOURS OFFERED TO STUDENTS OF ISC A ND ICSE SCHOOLS. HE FURTHER CONCLUDED THAT THESE OPPORTUNITIES ARE TREATED AS SPECIAL OFF ERS GIVEN TO SPECIAL CATEGORY OF STUDENTS AND NOT RELATED TO CONVENTIONAL EDUCATIONAL PROGRAMMES / OF THE SCHOOLS / COLLEGES. ACCORDINGLY HE HELD THAT THE EXPENDITURE ON TOUR WOULD NOT BE T REATED AS APPLICATION OF INCOME TO THE TUNE OF RS. 29,43,011/- FOR THE PURPOSE OF SECTION 11 OF THE ACT. 3.4. THE LD AO OBSERVED THAT THE ASSESSEE HAD SHOW N EXPENSES OF RS. 35,04,242/- AND RS. 1,48,812/- UNDER ANNUAL FASHION SHOW AND MR. & MRS. UNIVERSITY HELD BY THE COLLEGE. HE 3 ITA NO. 2844/KOL/2013 BHOWANIPUR GUJARATI EDUCATION SOCIETY, AY 2007-08 HELD THAT THIS EXPENDITURE IS NOT RELATED TO EDUCAT IONAL PROGRAMME OFFERED BY THE INSTITUTION. HE CONCLUDED THAT THIS ACTIVITY DOES NOT FALL UNDER THE DEFINITION OF EDUCATION U/S 2(15) OF THE ACT. RATHER IT ONLY ADDS TO THE ADVERTISEMENT FOR THE COLLEGE AND ACCORDINGLY HELD THAT THE SAME WOULD NOT BE TREATED AS APPLICATION OF INC OME TO THE TUNE OF RS. 36,53,054/- FOR THE PURPOSE OF SECTION 11 OF THE ACT. 4. THE LD CITA OBSERVED THAT THESE TOURS WERE COND UCTED YEAR ON YEAR BY THE ASSESSEE AND HELD THAT THE EXPENSES WERE INCURRED ON SCHOOL AND COLLEGE STUDENTS FOR EDUCATION TOURS IN INDIA AND FOREIGN COUNTRIES. HE HELD THAT THER E IS NO MATERIAL TO SUGGEST THAT THESE TOURS WERE FOR SPECIAL CATEGORY STUDENTS. HE HELD THAT THESE TRIPS WERE VERY MUCH PART OF EDUCATION CO-CURRICULAR ACTIVITIES FOR THE STUDENTS WHICH WAS AIMED TO DEVELOPMENT OF THE STUDENTS. ACCORDINGLY HE HELD THAT THE SAME WOUL D AMOUNT TO APPLICATION OF INCOME FOR THE OBJECTS OF THE ASSESSEE SOCIETY. 5. WITH REGARD TO FASHION SHOW AND MR. & MRS. UNI VERSITY EXPENSES, THE LD CITA OBSERVED THAT THE COLLEGE IS RUNNING A VOCATIONAL T RAINING DEPARTMENT WHICH HAS SEVERAL STUDENTS AND HAS FEES EARNING OF CLOSE TO RS 40 LAC S DURING THE YEAR UNDER APPEAL. HE OBSERVED THAT THIS DEPARTMENT OF THE COLLEGE HOLDS ANNUAL FASHION SHOW WITH A VIEW TO PROVIDING A PLATFORM TO THEIR STUDENTS TO DISPLAY W HAT THEY HAVE LEARNT. SUCH PLATFORM HELPS THE STUDENT IN DEVELOPMENT OF SKILL AS WELL SERVES AS A PLATFORM FOR MEETING OF STUDENTS AND THE INDUSTRY WHICH ULTIMATELY HELPS IN EMPLOYMENT O F THE STUDENTS. 6. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. THE LD. CIT (A) - XIV, KOLKATA HAS ERRED IN DE LETING THE DISALLOWANCE OF RS.29,43,011/- CLAIMED ON ACCOUNT OF FOREIGN TOURS DEBITED UNDER T HE HEAD OF TOUR EXPENSES, OVERLOOKING THE FACT THAT 125 STUDENTS WERE TAKEN ON FOREIGN TOUR T HROUGH A TOUR OPERATOR 'CLUB 7' FOR ENTERTAINMENT, THEREBY ALLOWING ASSESSEE'S UNACCEPT ABLE CLAIM THAT THE FOREIGN TOUR WAS ORGANISED IN COURSE OF IMPARTING EDUCATION. 2. THE LD. CIT (A)-XIV, KOLKATA HAS ERRED IN DELETI NG THE DISALLOWANCE OF RS.36,53,054/- CLAIMED ON ACCOUNT OF A FASHION SHOW DEBITED UNDER THE HEAD OF FUNCTION & FESTIVAL A/C, IGNORING THE FACT THAT THE FASHION SHOW WAS ORGANIS ED IN COLLEGE HAD PARTICIPATION FROM STUDENTS UNCONNECTED WITH THE VOCATIONAL COURSE IN FASHION DESIGNING, THEREBY BE LYING THE ASSESSEE'S CLAIM THAT THE FASHION SHOW WAS ORGANISE D IN COURSE OF IMPARTING VOCATIONAL EDUCATION. 3. THE LD. CIT(A) HAS ERRED BY NOT CONSIDERING THE FACT THAT THE DOCTRINE OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. 4 ITA NO. 2844/KOL/2013 BHOWANIPUR GUJARATI EDUCATION SOCIETY, AY 2007-08 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK OF THE ASSESSEE CONTAINING THE VARIOUS SCRUTINY ASSESSMENT ORDERS PASSED U/S 143(3) OF THE ACT FOR THE ASST YEARS 200 3-04 , 2004-05 , 2007-08 , 2008-09 AND 2010-11 TOGETHER WITH ITS AUDITED FINANCIAL STATEME NTS COMPRISING FROM PAGES 1 TO 38 OF PAPER BOOK. IT IS NOT IN DISPUTE THAT THE ASSESSEE SOCIETY IS AN EDUCATIONAL INSTITUTION IMPARTING EDUCATION AND IS GRANTED REGISTRATION U/S 12A OF THE ACT WITH EFFECT FROM 1.11.1973 AND ITS INCOME IS EXEMPT U/S 11 OF THE AC T. WE FIND THAT THE ASSESSEE SOCIETY IS ALSO HAVING REGISTRATION U/S 10(23C) OF THE ACT AS AN EDUCATIONAL INSTITUTION. THE LD AR ARGUED THAT THE SOCIETY IS RUNNING A DEGREE COLLEGE AFFILIATED TO CALCUTTA UNIVERSITY AS WELL AS RUNNING A SCHOOL AFFILIATED TO ISC BOARD. HE S TATED THAT THE COLLEGE IS ALSO RECOGNIZED BY THE UNIVERSITY GRANTS COMMISSION (UGC) U/S 2(F) AND 12(B) OF THE UGC ACT. WE FIND THAT THE LD AO HAD ONLY TREATED THE TOUR EXPENSES AND FA SHION SHOW EXPENSES AS NOT APPLIED FOR THE CHARITABLE OBJECTS OF THE SOCIETY. NOW THE SH ORT QUESTION THAT ARISES FOR OUR CONSIDERATION IS WHETHER THE SAME WOULD BE CONSTRUE D AS APPLICATION OF INCOME IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IT IS NOT IN DISPUTE THAT THE ASSESSEE SOCIETY IS ALSO RUNNING A VOCATIONAL ART ACADEMY FOR IMPARTING TRAINING IN DE CORATING AND DESIGNING. WE FIND THAT THE ASSESSEE HAS BEEN INCURRING THESE TWO EXPENSES I.E TOUR EXPENSES AND FUNCTIONS AND FESTIVALS EXPENSES IN THE EARLIER YEARS ALSO. FROM THE PAPER BOOK FILED BY THE ASSESSEE CONTAINING THE AUDITED FINANCIALS FOR 31.3.2003 , 31.3.2004 , 31.3 .2008 AND 31.3.2010, THESE EXPENSES WERE INCURRED IN THOSE YEARS ALSO AND CLAIMED AS APPLICA TION OF INCOME WHICH WERE DULY ACCEPTED BY THE LD AO :- ASST YEARS TOUR EXPENSES FUNCTIONS & FESTIVALS (ON LY FASHION SHOW EXPENSES 2003-04 40,08,550 8,87,378 2004-05 53,72,012 9,71,755 2008-09 37,03,218 23,32,705 2010-11 59,08,897 48,58,897 7.1. WITH REGARD TO THE TOUR EXPENSES INCURRED BY THE ASSESSEE , WE HOLD THAT THE AFORESAID TOUR EXPENSES INCURRED ON STUDENTS BECOMES AN INTEG RAL PART OF LEARNING AND ENABLES AN OPPORTUNITY FOR THE STUDENTS TO GAIN HANDS ON EXPER IENCE FROM SUCH TRIPS BY IMBIBING DIFFERENT CULTURAL VALUES , LANGUAGE, LITERATURE OF DIFFERENT COUNTRIES, WHICH WOULD BE PART 5 ITA NO. 2844/KOL/2013 BHOWANIPUR GUJARATI EDUCATION SOCIETY, AY 2007-08 AND PARCEL OF THE VOCATIONAL ART ACADEMY COURSE RUN BY THE ASSESSEE SOCIETY. THESE TOURS WOULD ALSO ENABLE THE STUDENTS TO UNDERSTAND THE HI STORY OF DIFFERENT COUNTRIES WHICH WOULD DEFINITELY FALL UNDER THE CATEGORY OF IMPARTING EDU CATION. MOREOVER, THESE TYPE OF TOURS WOULD ALSO PROVIDE GREATER CLOSE BONDING BETWEEN TH E STUDENTS AND THE TEACHERS WHICH IN TURN WOULD INCREASE THE CONFIDENCE OF THE STUDENTS TO INTERACT WITH THE TEACHERS THEREBY IMPROVING THE COMMUNICATION AND INTERACTIVE SKILLS OF THE STUDENTS. WE FIND THAT THE LD CITA OBSERVED THAT THE 2015 SECONDARY CURRICULUM IS SUED BY THE CENTRAL BOARD OF SECONDARY EDUCATION , NEW DELHI OAT PAGE 234 HAD SU GGESTED ESSENTIAL ACTIVITIES FOR STUDENTS WHICH INCLUDE THINGS LIKE USING OF BUS, MI LKING OF DAIRY ANIMALS, HELPING ORGANIZING PICNICS, CONDUCTING TOURS AND EXCURSIONS AND MANY OTHER ACTIVITIES. ACCORDINGLY HE HELD THAT THE VIEW OF THE LD AO THAT TOURS DO NOT FORM PART OF CONVENTIONAL EDUCATION AS INCORRECT. WE FIND THAT THE EDUCATI ON AS SUCH IS FAST CHANGING REQUIRING OUT OF THE BOX APPROACH TO BE IMBIBED ON THE STUDENTS WHIC H IN TURN COULD BE GATHERED FROM OUTSIDE CLASS ROOM ACTIVITIES WHICH FORMS AN INTEGR AL PART OF EDUCATION . THE LD AR ALSO STATED THAT THE TOURS ARE HIGHLY SUBSIDIZED AND THE STUDENTS PAY A SMALL PART OF THE COST AND THE REST OF THE COST IS BORNE BY THE ASSESSEE SOCIE TY. HE STATED THAT THESE TOURS ARE PURELY ACADEMIC IN NATURE AND ARE CONDUCTED AND OPEN FOR A NY STUDENT OF THE INSTITUTION OF A PARTICULAR AGE WHO WANT TO PARTICIPATE IN THE TOUR. WE FIND THAT THERE IS NO MATERIAL BROUGHT ON RECORD BY THE LD AO TO SUGGEST DISCRIMINATION OF THE STUDENTS WHO GET SELECTED TO PARTICIPATE IN THE TOUR. IN VIEW OF THESE FINDIN GS, WE HAVE NO HESITATION IN HOLDING THAT THE INCURRENCE OF TOUR EXPENSES WOULD DEFINITELY FORM P ART OF THE APPLICATION OF INCOME OF THE ASSESSEE SOCIETY AND IS PART AND PARCEL OF THE ACTI VITY OF IMPARTING EDUCATION. 7.2. IT IS NOT IN DISPUTE THAT THE VOCATIONAL TRAI NING DEPARTMENT OF THE ASSESSEE SOCIETY CONDUCTS ANNUAL FASHION SHOWS AND MR & MRS UNIVERSI TY COMPETITION. THE LD AR ARGUED THAT ASSESSEE SOCIETY IS RUNNING A FULL TIME DIPLOM A PROGRAM IN FASHION AND INTERIOR DEPARTMENT UNDER THE VOCATIONAL ART ACADEMY AND THE SAID DEPARTMENT IS SPREAD OVER 11000 SQ.FT. HE ARGUED THAT THE COURSE OF FASHION DESIGNING IS ABOUT LEARNING ON HOW TO DESIGN AND MANUFACTURE CLOTHES AND THIS LEARNING IS ULTIMATELY SHOWCASED TO THE WORLD INCLUDING FASHION DESIGNERS, RECRUITING COMPANIES E TC THROUGH THE FASHION SHOWS. WE HOLD THAT THESE SHOWS ADMITTEDLY PROVIDES A PLATFORM FOR THE STUDENTS TO DISPLAY THEIR TALENTS AND ALSO TO EXHIBIT WHAT THEY HAD LEARNT IN THE CLASSRO OM. THIS ALSO CREATES LOT OF EMPLOYMENT OPPORTUNITIES FOR THE STUDENTS. WE HOLD THAT THES E EVENTS HELP IN STUDENTS SHEDDING THEIR 6 ITA NO. 2844/KOL/2013 BHOWANIPUR GUJARATI EDUCATION SOCIETY, AY 2007-08 INHIBITIONS AND COME OUT OF STAGE FEAR WHICH IN TUR N ENABLES THE STUDENTS TO MEET THE SOCIETY AT LARGE WITH GREATER CONFIDENCE . THIS IS SIMILAR TO INSTITUTES LIKE NATIONAL INSTITUTE OF FASHION TECHNOLOGY SET UP BY GOVERNMENT OF INDIA WH O ARE ALSO HOLDING FASHION SHOWS FOR SIMILAR PURPOSES, AS RIGHTLY POINTED OUT BY THE LD CITA. WE HOLD THAT THIS ALSO FORMS AN INTEGRAL PART OF EDUCATION, LEARNING AND TRAINING O F STUDENTS. WE FIND THAT THE LD AO TREATED THESE EXPENDITURES TO BE IN THE NATURE OF ADVERTISE MENT FOR THE INSTITUTION, WHICH IN TURN WOULD AGAIN HAVE TO BE CONSTRUED AS APPLICATION OF INCOME IN PURSUANCE OF THE OBJECTS OF THE ASSESSEE SOCIETY. HENCE IN ANY CASE, THIS WOULD ON LY FALL UNDER THE AMBIT OF APPLICATION OF INCOME. 7.3. WE FIND FROM THE PAPER BOOK FILED BY THE ASSE SSEE THAT SIMILAR EXPENSES WERE ALLOWED AS APPLICATION OF INCOME BY THE LD AO FOR THE ASST YEARS 2003-04 , 2004-05, 2008-09 AND 2010-11 IN SECTION 143(3) PROCEEDINGS. 7.4. IN VIEW OF THE AFORESAID FINDINGS, WE HOLD T HAT BOTH THE TOUR EXPENSES AND FASHION SHOW AND MR & MRS UNIVERSITY EXPENSES INCURRED BY T HE ASSESSEE SOCIETY WOULD HAVE TO BE CONSTRUED AS APPLICATION OF INCOME IN PURSUANCE OF OBJECTS OF THE ASSESSEE SOCIETY. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.10.2016 SD/- SD/- (N. V. VASUDEVAN) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED : 14 TH OCTOBER, 2016 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT ADIT(E)-1, KOLKATA. 2 RESPONDENT THE BHOWANIPUR GUJARATI EDUCATION SOCIE TY, 5, LALA LAJPATRAI SARANI, KOLKATA-700 020 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .