St. Joseph Education Society, Hyderabad V. Dy. DIT, Hyderabad

ITA 298/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59317 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 25-01-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 24-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS; MAYA MAHESWARI
• Assessee Lawyers: S RAMA RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBE R. ITA NO.298/HYD/2010 (ASSESSMENT YEAR 2005- 06) ST. JOSEPH EDUCATION SOCIETY, HYDERABAD (PAN - AADTS 0206 P ) V/S DY. DIRECTOR OF INCOME- TAX(EXEMPTION)-I, HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.RAMA RAO RESPONDENT BY : SHRI V.SRINIVAS & SMT. MAYA MAHESWARI DATE OF HEARING 23.2.2012 DATE OF PRONOUNCEMENT 16.3.2012 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE CIT(A) IV, HYDERABAD DATED 29.1.2010 F OR THE ASSESSMENT YEAR 2005-06. 2. FACTS OF THE CASE LEADING TO THE FILING OF THE PRESENT APPEAL ARE THAT THE ASSESSEE IS A SOCIETY RUNNING EDUCATIO NAL INSTITUTIONS. THE ASSESSING OFFICER FELT THAT THE ASSESSEE SOCIETY HA S NOT OBTAINED THE MANDATORY APPROVAL UNDER S.10(23C)(VJ), THOUGH ITS RECEIPTS EXCEEDED RS. 1 CRORE DURING THE YEAR. ACCORDINGLY, THE ASSE SSING OFFICER OPINED FOR THE VERY NON-RECEIPT OF SUCH NOTIFICATION FROM THE PRESCRIBED AUTHORITY, IT WAS NOT ENTITLED FOR EXEMPTION UNDER S.10(23C)(VI). ITA NO.298/HYD/2010 ST. JOSEPH EDUCATION SOCIETY, HYDERABAD 2 3. FURTHER, THE ASSESSEE SUBMITTED THAT SINCE IT WAS REGISTERED UNDER S.12A, THE PROVISIONS OF S.11 TO 1 3 ARE APPLICABLE TO ITS CASE. THE ASSESSING OFFICER DID NOT GRANT EXEM PTION TO THE ASSESSEE SOCIETY UNDER S.11 OF THE ACT ALSO, ON THE GROUND T HAT IT IS AN EDUCATIONAL INSTITUTION AND ENTITLED FOR EXEMPTION ONLY UNDER S.10(23)(VI) OF THE ACT, AND AS THE ASSESSEE HAS NO T GOT THE APPROVAL UNDER S.10(23C)(VI) IT WAS AS SUCH NOT ENTITLED FOR EXEMPTION UNDER ANY PROVISION OF THE ACT. FOR THIS PROPOSITION, HE RELIED ON THE DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF MAHESWARA EDUCATIONAL SOCIETY, NARSAMPET. 4. THE ASSESSING OFFICER FURTHER FOUND THAT THE A SSESSEE HAS INVESTED CERTAIN AMOUNTS IN CHIT FUNDS, VIZ. SRINI CHIT FUNDS PRIVATE LTD., AND JOSEPHS CHIT FUNDS PVT. LTD. IT WAS SUB MITTED BEFORE THE ASSESSING OFFICER THAT SUCH INVESTMENTS SHOULD NOT BE CONSIDERED AS VIOLATION OF PROVISIONS OF S.11(5) AS IT WAS NEITH ER AN INVESTMENT NOR A TERM DEPOSIT OR FIXED DEPOSIT. THE ASSESSING OF FICER DID NOT AGREE WITH THE ASSESSEE AND OPINED THAT THE CHIT CONTRIBU TIONS AMOUNTED TO VIOLATION OF PROVISIONS OF S.11(5) OF THE ACT AND T HEREFORE, HE HELD THAT THE ASSESSEE NOT HAVING INVESTED IN SPECIFIC MODE S MENTIONED IN THE SAID SECTION, IT WAS NOT ENTITLED FOR EXEMPTION UND ER S.11 FOR THIS REASON. 5. AGGRIEVED, BEFORE THE CIT(A), THE LEARNED REPR ESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE SINCE THE ASSES SEE IS REGISTERED UNDER S.12A, IT IS ELIGIBLE FOR EXEMPTION UNDER S.1 1. THE AUTHORISED REPRESENTATIVE SUBMITTED THAT S.10(23C) AND S.11 AR E NOT MUTUALLY EXCLUSIVE, BUT THEY ARE SUPPLEMENT TO EACH OTHER IN OPERATION, IT WAS SUBMITTED THAT THE HONBLE ITAT IN ASSESSEES OWN C ASE FOR THE ITA NO.298/HYD/2010 ST. JOSEPH EDUCATION SOCIETY, HYDERABAD 3 ASSESSMENT YEAR 2004-05, VIDE ORDER DATED 6.10.2008 IN ITA NO.914/HYD/2008, HELD THAT THE PROVISIONS OF S.11 TO 13 WOULD APPLY IRRESPECTIVE OF APPROVAL UNDER S.10(23C). 6. THE LEARNED AR PUT FORTH THE ARGUMENTS WITH RE GARD TO DENIAL OF EXEMPTION UNDER S.11 OF THE ACT, ON ACCOU NT OF INVESTMENTS MADE, IN THE FOLLOWING MANNER- (A) INVESTMENTS IN VIOLATION OF THE MODES SPECIFIED UND ER S.11(5) APPLY ONLY TO SUCH FUNDS WHICH ARE ACCUMULATED OR S ET APART WITHIN THE MEANING OF S.11(2)(B). IT WAS FURTHER S UBMITTED THAT PROVISIONS OF S.11(2)(B) COULD ONLY APPLY WHE N THE ASSESSEE DOES NOT SPEND 85% OF THE INCOME DERIVED BY IT, AND SUCH AMOUNT IN EXCESS OF 85% IS PUT IN DEPOSIT. IN THE CASE OF THE ASSESSEE, AGGREGATE RECEIPT WAS RS.9,96 ,59,046, WHEREAS THE EXPENDITURE ON REVENUE ACCOUNT AND CAPI TAL ACCOUNT AGGREGATE TO RS.10,42,19,104. IT WAS SUBMI TTED THAT SINCE THE ASSESSEE HAD ALREADY SPENT 85% OF THE REC EIPTS FOR ITS ACTIVITIES, THE PROVISIONS OF S.11(5) HAD NO AP PLICATION, AS THERE IS NO APPLICATION OF PROFITS WITHIN THE MEANI NG OF S.11(2)(B). (B) ON THE ISSUE OF CHIT CONTRIBUTIONS MADE DURING THE YEAR, IT WAS SUBMITTED THAT THE AMOUNTS CONTRIBUTED WAS ONLY TO THE TUNE OF RS.6,13,099 OUT OF THE AGGREGATE PAYMENTS M ADE DURING THE YEAR OF RS.10,42,19,104. THE ASSESSEE A VERRED THAT RECEIPTS FROM BIDDING OF CHITS WERE RS.4,57,50 0 AS AGAINST THE TOTAL RECEIPTS OF RS.11,06,20,567. TH E ASSESSEE THEREFORE, SUBMITTED THAT RECEIPTS AND PAYMENTS ON ACCOUNT ITA NO.298/HYD/2010 ST. JOSEPH EDUCATION SOCIETY, HYDERABAD 4 OF CHITS WERE VERY NOMINAL AND THE PAYMENTS TOWARDS CHITS WERE NOT FOR PURPOSE OF INVESTMENT, BUT ONLY FOR FA CILITATING DAY TO DAY WORKING NEEDS OF SOCIETY. IT WAS SUBMIT TED THAT CHIT BIDDINGS TO THE TUNE OF RS.4,57,000 WERE MADE ON VARIOUS DATES WHENEVER MONEY WAS REQUIRED. IT WAS AVERRED THAT THE ASSESSEE HAD NOT FOLLOWED SUCH METHOD OF A CCOUNTING FOR THE CHITS, WHICH IS APPLICABLE FOR INVESTMENT, BUT HAS DECLARED THE SAME IN THE REGULAR DAY TO DAY REQUIRE MENT 7. THE CIT(A) HAVING GONE THROUGH THE SUBMISSION S OF THE ASSESSEE, FIRSTLY FOLLOWING THE DECISION OF THE HYD ERABAD BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESS MENT YEAR 2004-05, HELD THAT THE ASSESSEE IS ENTITLED TO MAKE ALTER NATE CLAIM FOR EXEMPTION UNDER S.11 SUBJECT TO THE PROVISIONS OF S .11 TO 13 OF THE ACT, EVEN IF THE APPROVAL UNDER S.10(23C) HAS NOT B EEN RECEIVED. 8. WITH RESPECT TO THE INVESTMENT IN CHIT FUND, TH E CIT(A) HELD THAT THE CONTRIBUTIONS MADE BY THE ASSESSEE TO THE CHIT FUNDS ARE TO BE CONSIDERED AS INVESTMENTS ONLY. HE DID NOT F IND ANY MERIT IN THE CONTENTION OF THE ASSESSEE THAT CHIT FUND CONTRIBUT IONS WERE MADE SO AS TO ARRANGE FOR WORKING CAPITAL. FURTHER, THE CI T(A) HELD THAT SINCE THE ASSESSEE FAILED TO COMPLY WITH THE BASIC PRE-CO NDITION OF KEEPING ITS FUNDS IN ANY OF THE MODES SPECIFIED IN S.11(5), ASSESSEE WAS NOT ENTITLED TO CLAIM EXEMPTION UNDER S.11 OF THE ACT, EVEN ALTERNATIVELY. 9. WE HEARD THE PARTIES. THE PROVISIONS OF S.11 T O 13 WOULD APPLY TO THE ASSESSEE, AS THEY HAVE NOT OBTAINED AP PROVAL UNDER S.10(23C). ACCORDING TO S.13(1)(D), IN THE CASE OF A TRUST FOR CHARITABLE OR RELIGIOUS PURPOSE OR A CHARITABLE REL IGIOUS INSTITUTION, ANY ITA NO.298/HYD/2010 ST. JOSEPH EDUCATION SOCIETY, HYDERABAD 5 INCOME THEREOF FOR ANY PERIOD DURING THE PREVIOUS Y EAR, OR FUNDS, OF THE TRUST OR INSTITUTION ARE INVESTED OR DEPOSITED AFTER 28 TH DAY OF FEBRUARY, 1983, OTHERWISE THAN IN ANY ONE OR MORE O F THE FORMS OR MODES SPECIFIED IN SUB-SECTION(5) OF S.11, THE TRUS T LOSES ITS EXEMPTION UNDER S.11. HENCE, THE ARGUMENT OF THE AU THORISED REPRESENTATIVE THAT THE PROVISIONS OF S.11(2)(V) C OME INTO PLAY ONLY WHEN THE ASSESSEE DOES NOT SPEND 85% OF THE INCOME DERIVED BY IT AND SUCH AMOUNT IN EXCESS OF 85% IS TO BE DEPOSITED , IS NO CORRECT. IT IS CLEAR FROM THE SAID PROVISIONS OF THE ACT THAT T HE EXEMPTION UNDER S.11 IS LOST, IF THE ASSESSEE INVESTS ANY AMOUNT, H OWSOEVER SMALL OR BIG IT MAY BE, WHICH IS NOT IN ACCORDANCE WITH S.13 (1)(D) READ WITH S.11(5). THE STATUTORY PROVISIONS IN THIS REGARD AR E UNAMBIGUOUS AND CATEGORICAL. 10. AS FOR THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT BIDDINGS FROM THE CHITS, VIZ. WITHDRA WALS AGGREGATING TO F RS.4,57,500 FROM THE CHITS, WERE MADE WHENEVER MON EY WAS REQUIRED FOR REGULAR BUSINESS NEEDS, AND THE CHIT AMOUNTS, AS SUCH, WERE NOT IN THE NATURE OF INVESTMENTS, WE MAY REFER TO THE D ECISION OF THE VISAKHAPATNAM BENCH OF THE TRIBUNAL DATED 27.6.2008 IN THE CASE OF PRIYADARSHINI EDUCATIONAL ACADEMY V/S. ACIT (ITA NO S.470 TO 72/V/2005), WHEREIN IT AS OBSERVED THAT A CHIT FUN D SCHEME IS AN INSTRUMENT COMBINING BOTH SAVINGS AND BORROWALS. T HE ASSESSEE, AT THE TIME OF HEARING, SUBMITTED THAT DETAILS OF CHI T CONTRIBUTION FOR THE ASSESSMENT YEAR 2005-06, FROM WHICH WE FIND THAT TH ERE HAVE BEEN SUBSTANTIAL PAYMENTS. HOWEVER, THERE ARE CERTAIN RECEIPTS ALSO. THE RATIO OF THE DECISION OF THE VISAKAHAPTNAM BENCH OF THE TRIBUNAL IN THE CASE OF PRIYADARSHINI EDUCATIONAL ACADEMY (SUPRA) I S THAT IF THE BORROWING ACTIVITY OUTWEIGHS THE SAVINGS ACTIVITY, THEN THE ITA NO.298/HYD/2010 ST. JOSEPH EDUCATION SOCIETY, HYDERABAD 6 CONTRIBUTIONS WILL TANTAMOUNT TO REPAYMENT OF LOAN AND THE COROLLARY IS THAT IF THE SAVINGS ACTIVITY OUTWEIGHS THE BORROWIN GS ACTIVITY, THEN THE CONTRIBUTIONS WOULD PARTAKE THE CHARACTER OF INVEST MENT. IN THE PRESENT CASE, IN THE CIRCUMSTANCES OF THE CASE, THE RE IS NEED TO EXAMINE THE NATURE OF THE ACTIVITY OF THE ASSESSEE IN RELATION TO CHITS, SO AS TO DETERMINE WHETHER THE ACTIVITY OF THE ASSE SSEE TANTAMOUNT TO SAVINGS/INVESTMENT ACTIVITY OR REPAYMENT OF LOANS, AND CONSEQUENTLY WHETHER THE ASSESSEE HAS VIOLATED THE PROVISIONS OF S.11(5) OF THE ACT. WE ACCORDINGLY SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER, WITH A DIRECTION TO EXAMINE THE DETAILS OF CHIT CON TRIBUTIONS IN THE LIGHT OF THE CHIT BIDDINGS BY THE ASSESSEE, AND DECIDE TH E PREDOMINANT NATURE OF THE ASSESSEES ACTIVITY IN RELATION OF TH E CHITS, IN THE LIGHT OF THE RATIO OF THE DECISION OF THE VISAKHAPATNAM BENC H DECISION OF THE TRIBUNAL IN THE CASE OF PRIYADARSHINI EDUCATIONAL A CADEMY VS. ACIT (SUPRA), AND IN CONSONANCE THEREWITH REDECIDE THE A SSESSEES ELIGIBILITY FOR EXEMPTION UNDER S.11 OF THE ACT. HE SHALL REDE CIDE THE MATTER IN ACCORDANCE WITH LAW, AFTER GIVING DUE OPPORTUNITY O F HEARING TO THE ASSESSEE. 11. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 16.3.2012 SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER. JUDICIAL MEMBER. DT/- 16TH MARCH, 2012 COPY FORWARDED TO: 1. ST. JOSEPH EDUCATION SOCIETY, C/O. SHRI S.RAMA RAO , FLAT NO.102, SHIRYA'S ELEGANCE, NO.3-6-643, STREET NO.9, ITA NO.298/HYD/2010 ST. JOSEPH EDUCATION SOCIETY, HYDERABAD 7 HIMAYATNAGAR, HYDERABAD 500029 2. DY. DIRECTOR OF INCOME - TAX(EXEMPTION) I, HYDERABAD 3 . COMMISSIONER OF INCOME - TAX(APPEALS) I V HYDERABAD 4 . COMMISSIONER OF INCOME - TAX, III , HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE , ITAT, HYDERABAD B.V.S.