INSURANCE INSTITUTE OF INDIA, MUMBAI V. DIT (E), MUMBAI

ITA 2852/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84335 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 26-11-2014
• Assessment Year: 2013-2014
• Appeal Filed On: 12-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Assessee Lawyers: GAUTAM S NAYAK; VISHESH SAN GOI
• Keywords: Charitable institution; Competent authority
• Section: 12A; 12AA

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,M UMBAI - I BENCH. , , BEFORE S/SH. RAJENDRA, ACCOUNTANT MEMB ER & VIVEK VARMA, JUDICIAL MEMBER /. ITA NO.2852/MUM/2013, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR-2013-14 INSURANCE INSTITUTE OF INDIA, PLOT NO. C-46, G. BLOCK, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400051. # # # # . . . /PAN:AAAPN3551F V/S. DIT(E), 6TH FLOOR, PIRAMAL CHAMBERS, PAREL, MUMBAI -400012 ( #$ / APPELLANT) ( %&#$ / RESPONDENT) !'( !'( !'( !'( ) ) ) ) / ASSESSEE BY : SHRI GAUTAM S. NAYAK & VISHESH SAN GOI * ) / REVENUE BY : SHRI KISHAN VYAS ! ! ! ! * ** * (+ (+ (+ (+ / DATE OF HEARING : 26-11-2014 ,-' * (+ / DATE OF PRONOUNCEMENT : 26-11-2014 ! ! ! ! , 1961 * ** * 254 )1 ( (.( (.( (.( (.( / / / / ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM ! ! ! ! : CHALLENGING THE ORDER DATED 28.02.2013 OF THE DIREC TOR OF INCOME TAX (EXEMPTION) (DIT- E),MUMBAI THE ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED DIRECTOR OF INCOME TAX (EXEMPTIONS) WAS NOT JUSTIFIED IN REJECTING YOUR APPELLANT'S APPLICATION FOR GRANT OF REGISTRATION U /S.12AA. 2. THE LEARNED DIRECTOR OF INCOME TAX (EXEMPTIONS) ERRED IN CONCLUDING THAT YOUR APPELLANT WAS NOT AN EDUCATIONAL INSTITUTION. 3. THE LEARNED DIRECTOR OF INCOME TAX (EXEMPTIONS) FAILED TO CONSIDER THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN YOUR APPELLANT'S O WN CASE, WHERE THE TRIBUNAL HAD HELD THAT YOUR APPELLANT WAS AN EDUCATIONAL INSTITUTION FOR THE PURPOSES OF S.10(22), EXISTING SOLELY FOR THE PURPOSE OF EDUCATION, EVEN THOUGH IT WAS EA RNING A SURPLUS. 4. THE LEARNED DIRECTOR OF INCOME TAX (EXEMPTIONS) ERRED IN HOLDING THAT YOUR APPELLANT WAS NOT A CHARITABLE INSTITUTION, ON THE MERE GROUND TH AT YOUR APPELLANT WAS EARNING A SURPLUS, WITHOUT EXAMINING THE FEE STRUCTURE OF YOUR APPELLA NT, AND WITHOUT APPRECIATING THE REASONS FOR THE SURPLUS OR THE FACT THAT THE SURPLUS COULD BE UTILIZED ONLY FOR EDUCATIONAL ACTIVITIES OF YOUR APPELLANT. BRIEF FACTS 2. THE ASSESSEE, FILED AN APPLICATION FOR REGISTRATION U/S 12A OF THE ACT ON 24.08.2012 BEFORE THE DIT-E.HE ISSUED A NOTICE,DATED 21.11.2012,TO TH E ASSESSEE REQUIRING IT TO FURNISH CERTAIN DETAILS/ DOCUMENTS.AFTER VERIFYING THE SAME,HE HELD THAT REGISTRATION U/S 12AA(1)(B) OF THE ACT COULD BE GRANTED IF THE COMMISSIONER WAS SATISF IED ABOUT THE OBJECTS AND GENUINENESS OF ITS ACTIVITIES, THAT BOTH THE REQUIREMENTS WERE CUM ULATIVE AND NOT ALTERNATIVE, THAT THE ONUS WAS ON THE ASSESSEE TO PRODUCE ALL RELEVANT DOCUMEN TS TO ENABLE THE REGISTERING AUTHORITY TO ARRIVE AT THE REQUISITE SATISFACTION ABOUT THE OBJE CTS OF THE INSTITUTION,THAT THE ASSESSEE WAS AN EXAMINING BODY FOR CONDUCTING PRE-RECRUITMENT TESTS FOR RECRUITMENT AGENTS ON BEHALF OF THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRD A),THAT IT ALSO CONDUCTED EXAMINATION COVERING MORE THAN 50 SUBJECTS,THAT IT HAD BEEN EA RNING HUGE SURPLUS EVERY YEAR,THAT MAIN SOURCES OF ITS INCOME WERE FEE INCOME AND SALE OF S TUDY COURSES,THAT THE ASSESSEE HAD ITA/2852/MUM/2013/I I OF INDIA 2 GENERATED HUGE SURPLUS OUT OF INCOME, THAT IN THE F INANCIAL YEARS 2003-04 TO 2007-08 IT HAD EARNED PROFIT RANGING BETWEEN 58% TO 81%, THAT IT W AS APPROVED BY COMPETENT AUTHORITY U/S. 10(23C(VI),THAT IT HAD CONTRAVENED THE CONDITIONS O F APPROVAL IN REGARD TO UTILISATION OF ITS ACCUMULATED INCOME.HE RELIED UPON THE JUDGMENTS OF CHILDREN BOOK TRUST(3SCC390) AND QUEENS EDUCATIONAL SOCIETY(319ITR160) AND HELD THA T HE WAS NOT SATISFIED ABOUT THE CHARITABLE ACTIVITIES OF THE ASSESSEE.FINALLY,HE HE LD THAT THE ASSESSEE HAD FAILED TO COMPLY WITH THE MANDATORY REQUIREMENTS PRESCRIBED U/S.12AA R.W. R.17A,THAT THE APPLICATION FILED BY THE ASSESSEE FOR GRANT OF REGISTRATION WAS TO BE REJECT ED. 3. BEFORE US,AUTHORISED REPRESENTATIVE(AR)THAT FESS FO R CONDUCTING EXAMINATION WAS FIXED BY IRDA,THAT IT WAS GETTING RS. 50 ONLY FROM RS.400 CH ARGED AS EXAM FEE,THAT IF EXAM FEE AND INTEREST INCOME WERE IGNORED THE ASSESSEE WAS SUFFE RING LOSSES,THAT IT HAD INCURRED EXPENDITURE IN LAST THREE AY.S.MORE THAN ITS INCOME IF THE ABOVE TWO ITEMS WERE NOT CONSIDER -ED,THAT EXEMPTION GRANTED TO THE INSTITUTION U/S.1 0 (23)(VI)OF THE ACT WAS IN FORCE,THAT THE TRIBUNAL HAD WHILE DECIDING THE APPEAL FILED BY THE ASSESSEE FOR THE AY. HAD HELD THAT THE ASSESSEE WAS CARRYING OUT EDUCATIONAL ACTIVITIES,TH AT ACITIVITIES OF THE ASSESSEE WERE DIRECTLY RELATED TO EDUCATION AND HENCE WERE CHARITABLE IN N ATURE,THAT IT WAS NOT CARRYING OUT ANY COMMERCIAL ACTIVITY.HE REFERRED TO THE CIRCULAR NO. 194 OF THE CBDT.HE RELIED UPON THE CASES OF TOLANI EDUCATION SOCIETY (351ITR184-BOMBAY HC),S HANTI DEVI PROGRESSIVE EDUCATION SOCIETY(340ITR320-DELHI HC),VANITA VISHRAM TRUST(32 7ITR121-BOMBAY HC)AND ADITANAR EDUCATIONAL INSTITUTION (224 ITR310).DEPARTMENTAL REPRESENTATIVE(DR)SUPPORTED THE ORDER OF THE DIT-E. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE DIT-E HAS REFUSED TO GRANT REGISTRATION BECAUSE HE WAS OF THE OPINION THAT THE TRUST WAS NOT CARRYING OUT CHARITABLE ACTIVITIES AND IT HAD HUGE SURPLUS.WE ARE OF THE OPINION THAT PRINCIPLES GOVERNING THE REGISTRATION OF EDUCATIONAL/CHARITABL E INSTITUTIONS HAVE TO BE UNDERSTOOD IN CORRECT PERSPECTIVE.THE HONBLE APEX COURT HAS IN T HE MATTER OF ADITANAR EDUCATIONAL INSTITUTION(SUPRA),WHILE DECIDING THE ISSUE OF SURP LUS,HELD AS UNDER: IF AN EDUCATIONAL SOCIETY OR A TRUST OR OTHER SIMI LAR BODY RUNNING AN EDUCATIONAL INSTITUTION SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR THE PUR POSES OF PROFIT COULD BE REGARDED AS 'OTHER EDUCATIONAL INSTITUTION' COMING WITHIN SECTION 10(2 2) OF THE ACTTHE LANGUAGE OF SECTION 10(22) OF THE ACT IS PLAIN AND CLEAR AND THE AVAILA BILITY OF THE EXEMPTION SHOULD BE EVALUATED EACH YEAR TO FIND OUT WHETHER THE INSTITUTION EXIST ED DURING THE RELEVANT YEAR SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT . AFTER MEETING THE EXPENDITURE, IF ANY SURPLUS RESULTS INCIDENTALLY FROM THE ACTIVITY LAWF ULLY CARRIED ON BY THE EDUCATIONAL INSTITUTION, IT WILL NOT CEASE TO BE ONE EXISTING SOLELY FOR EDU CATIONAL PURPOSES, SINCE THE OBJECT IS NOT ONE TO MAKE PROFIT. THE DECISIVE OR ACID TEST IS WHETHE R, ON AN OVERALL VIEW OF THE MATTER, THE OBJECT IS TO MAKE PROFIT. IN EVALUATING OR APPRAISI NG THE ABOVE, ONE SHOULD ALSO BEAR IN MIND THE DISTINCTION/DIFFERENCE BETWEEN THE CORPUS, THE OBJECTS AND THE POWERS OF THE CONCERNED ENTITY. WE FIND THAT IN THE CASE OF VANITA VISHRAM TRUST HO NBLE BOMBAY HIGH COURT HAS HELD THAT WHILE DECIDING THE ISSUE OF EXEMPTION A HOLISTIC VI EW SHOULD BE TAKEN AND IT SHOULD BE SEEN AS WHAT ARE THE MAIN PURPOSES OF THE INSTITUTION.IT WA S FURTHER STATED THAT THOUGH THE OBJECTS CLAUSE COULD CONTAIN VARIED OBJECTS BUT DECIDING FA CTOR SHOULD BE THE ACTUAL ACTIVITIES CARRIED OUT BY THE TRUST.IF WE CONSIDER THE OBJECTS OF THE ASSESSEE TRUST,IT BECOMES CLEAR THAT IT IS NOT ESTABLISHED FOR COMMERCIAL PURPOSES.WHILE DEALING W ITH SECTION 10(23C)OF THE ACT,HONBLE BOMBAY HIGH COURT HAS HELD THAT THE PURPOSE, GOAL, OBJECT AND MISSION OF THE INSTITUTION SHOULD BE LOOKED IN TO BEFORE ARRIVING AT FINAL CON LUSION,THAT WHERE THE PURPOSE OF THE INSTITUTION AND THE DEFINING CHARACTER OF ITS MISSI ON WAS EDUCATION THE TEST WAS FULFILLED.IT WAS ITA/2852/MUM/2013/I I OF INDIA 3 ALSO HELD THAT IF INCIDENTALLY IF A SURPLUS IS GEN ERATED IT WOULD NOT RENDER SUCH AN INSTITUTION AS EXISTING FOR PROFIT. FROM THE ABOVE DISCUSSION IT IS CLEAR THAT IF AN IN STITUTIONS IS NOT ENGAGED IN COMMERCIAL ACTIVITIES IT IS ENTITLED TO CLAIM EXEMPTION UNDER RELEVANT PROVISIONS OF THE ACT.SECONDLY,THE MOST IMPORTANT FACTOR TO BE CONSIDERED IS THE PURPO SE FOR WHICH THE INSTITUTION IS ESTABLISHED. ACTIVITIES CARRIED OUT BY AN INSTITUTION IS ALSO VE RY IMPORTANT CRITERIA TO DECIDE THE TRUE CHARACTER OF ANY INSTITUTION.GENERATION OF SURPLUS IN ITSELF IS NOT A DECISIVE FACTOR.IT IS TO BE REMEMBERED THAT AT THE TIME OF REGISTRATION WHAT IS TO BE SEEN TO LOOK AT THE OBJECTS OF THE TRUST AND NOT APPLICATION OF FUNDS.IF AT THE LATER STAGE IT IS FOUND THAT THE TRUST IS NOT CARRYING OUT CHARITABLE ACTIVITIES NECESSARY ACTION CAN BE T AKEN AT ANY STAGE-EVEN REGISTRATION GRANTED TO IT CAN BE CANCELLED.BUT,AT THE TIME OF GRANTING OF REGISTRATION WHAT IS IMPORTANT IS TO DECIDE AS TO WHETHER THE OBJECTS OF THE TRUST ARE CHARITAB LE OR NOT.WE FIND THAT NOT ONLY THE OBJECTS OF THE ASSESSEE-TRUST,BUT ALSO THE ACTIVITIES INCLUDIN G CONDUCTING EXAMS AS PER THE GUIDELINES OF IRDA CANNOT BE HELD TO BE COMMERCIAL IN NATURE. IN THE MATTER OF JANKI JI EDUCATION SOCIETY THE HON BLE PUNJAB AND HARYANA HIGH COURT (39 TAXMANN.COM2)HAS HELD AS UNDER: ASSESSEE WAS DECLINED REGISTRATION UNDER SECTION 1 2AA ON GROUND THAT FUNDS WERE SURPLUS AND WERE NOT UTILISED FOR CHARITABLE PURPOSE-TRIBUN AL REVERSED ORDER RELYING UPON AN EARLIER DECISION WHEREIN IT WAS HELD THAT OBJECT OF SECTION 12AA IS TO EXAMINE GENUINENESS OF OBJECTS OF TRUST,BUT APPLICATION OF INCOME OF TRUST FOR CHA RITABLE OR RELIGIOUS PURPOSES-WHETHER ASSESSEE WAS RIGHTLY ALLOWED REGISTRATION UNDER SEC TION 12AA-HELD,YES- THE HONBLE COURT ,IN SHORT,HELD THAT OBJECT OF SEC .12AA WAS TO EXAMINE THE OBJECTS OF THE TRUST ONLY AND NOT THE APPLICATION OF INCOME.APPLIC ATION OF INCOME WAS TO BE EXAMINED LATER ON.BOARD CIRCULAR(F.NO.194/16-17-II(A-I)TALKS ABOUT AVAILABILITY OF EXEMPTION WHERE EDUCATIONAL INSTITUTIONS/ HOSPITALS ARE MAKING PROF IT.IN THAT CIRCULAR IT HAS BEEN MENTIONED THAT WHERE ALL THE OBJECT OF TRUST ARE EDUCATIONAL AND T HE SURPLUS,IF ANY,FROM RUNNING THE EDUCATION -AL INSTITUTIONS IS USED FOR EDUCATIONAL PURPOSES O NLY IT CAN BE HELD THAT THE INSTITUTION IS EXISTING FOR EDUCATIONAL PURPOSES AND FOR PURPOSES OF PROFIT. CONSIDERING THE ABOVE WE HOLD THAT BECAUSE OF AVAIL ABLE SURPLUS THE ASSESSEE CANNOT BE DENIED REGISTRATION.THERE IS NO DOUBT THAT THE TRUS T WAS ESTABLISHED BASICALLY FOR CHARITABLE PURPOSES.THE ACTIVITIES CARRIED OUT BY THE ASSESSEE TILL THE TIME OF FILING OF APPLICATION OF REGISTRATION WERE NOT COMMERCIAL IN NATURE. CONSIDE RING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE,WE ARE OF THE OPINION THAT THE DIT-E WA S NOT JUSTIFIED IN REJECTING THE APPLICATION,FILED BY THE ASSESSEE,FOR REGISTRATION AS PER THE PROVISIONS OF SECTION 12A OF THE ACT. EFFECTIVE GROUND OF APPEAL IS DECIDED IN FAVOU R OF THE ASSESSEE. AS A RESULT,THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. 1(2 !'( 3 4 5 * ( 67 . ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH ,NOVEMBER 2014 . / * ,-' 8 9! 26 ! , 201 4 - * . : SD/- SD/- ( / VIVEK VARMA) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 9! /DATE: 26.11 . 2014. ITA/2852/MUM/2013/I I OF INDIA 4 / / / / * ** * %( %( %( %( ; '( ; '( ; '( ; '( / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / #$ 2. RESPONDENT / %&#$ 3. THE CONCERNED CIT(A)/ < = , 4. THE CONCERNED CIT / < = 5. DR I BENCH, ITAT, MUMBAI / >. %(! , . . . 6. GUARD FILE/ . 1 & & & & ( ( ( ( %( %(%( %( //TRUE COPY// /! / BY ORDER, ? / 6 DY./ASST. REGISTRAR , /ITAT, MUMBAI