ADIT, Hyderabad V. Madina Education & Welfare Soceity, Hyderabad

ITA 3/HYD/2011

• Counselvise Citation: 322514 RSA 2011
• Duration Of Justice: 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 03-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B V PRASAD REDDY
• Assessee Lawyers: P MURALIKRISHNA
• Keywords: Charitable institution
• Section: 260A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AN D SHRI AKBER BASHA, ACCOUNTANT MEMBER ITA NO. 3/HYD/2011 (ASSESSMENT YEAR 2006-07) ADIT(E)-I HYDERABAD VS M/S. MADINA EDUCATION & WELFARE SOCIETY, HYDERABAD PAN: AAATM8561G APPELLANT RESPONDENT APPELLANT BY: SHRI B.V. PRASAD REDDY RESPONDENT BY: SHRI P. MURALI KRISHNA DATE OF HEARING: 20.09.2011 DATE OF PRONOUNCEMENT: 13.10.2011 ORDER PER ASHA VIJAYARAGHAVAN, J.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-IV, HYDERA BAD DATED 15.10.2010 FOR THE ASSESSMENT YEAR 2006-07. 2. FACTS OF THE CASE ARE THAT THE TOTAL INCOME OF T HE ASSESSEE WAS DETERMINED AT RS. 30,60,055 AS AGAINST THE 'NIL ' INCOME SHOWN AFTER CLAIMING EXEMPTION U/S. 11 OF THE INCOME-TAX ACT, 1961. 3. AGAINST THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL BEFORE THE C IT(A): (A) THE ORDER OF THE ASSESSING OFFICER DATED 29.12.2009 IS CONTRARY TO LAW AND FACTS. (B) THE ASSESSING OFFICER ERRED IN HOLDING THAT THE PROVISIONS OF SECTION 10(23C)(VI) OF THE I.T. ACT 1961 ARE APPLICABLE TO THE SOCIETY. (C) THE ASSESSING OFFICER ERRED IN HOLDING THAT IN THE ABSENCE OF NOTIFICATION U/S. 10(23C)(VI) OF THE I.T . ACT, 1961, THE EXEMPTION UNDER SECTION 11 SHOULD BE DENIED TO THE APPLICANT SOCIETY. I.T.A. NO. 3/HYD/2011 M/S. MADINA EDUCATION & WELFARE SOCIETY ============================== 2 (D) THE ASSESSING OFFICER ERRED IN HOLDING THAT THE PAYMENT OF RS. 2,40,000 AS HONORARIUM TO THE SECRETARY IS IN VIOLATION OF THE PROVISIONS OF SECT ION 13(1)(C) OF THE I.T. ACT, 1961. (E) THE ASSESSING OFFICER ERRED IN NOT ACCEPTING TH E CLAIM OF THE APPELLANT SOCIETY FOR EXEMPTION OF ITS INCOME U/S. 11 OF THE I.T. ACT, 1961. (F) THE ASSESSING OFFICER ERRED IN DETERMINING THE TAXABLE INCOME AT RS. 30,60,055 AND THE TAX PAYABLE THEREON AT RS. 14,93,520. (G) THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALT ER ANY OF THE AFORESAID GROUNDS AS THE OCCASION MAY REQUIRE. 4. THE ASSESSEE FURTHER RAISED ADDITIONAL GROUNDS B EFORE THE CIT(A): (A) THE ASSESSING OFFICER ERRED IN ISSUING NOTICE U /S. 148 OF THE INCOME-TAX ACT, 1961. (B) THE APPELLANT CONTENDS THAT THE CONDITIONS PRECEDENT FOR ISSUE OF NOTICE U/S. 148 OF THE ACT HAS NOT BEEN FULFILLED. THE APPELLANT CRAVES LEAVE OF THE LEARNED CIT(A) TO COMMUNICATE THE REASONS RECORDED BY THE ASSESSING OFFICER FOR FILING DETAILED OBJECTIONS. (C) THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALT ER ANY OF THE AFORESAID GROUNDS AS THE OCCASION MAY REQUIRE. 5. THE CIT(A) IN HIS ORDER AT PARA 8.3 DISCUSSED TH E VARIOUS CASES DECIDED BY THE ITAT, HYDERABAD BENCHES AND HE LD AS FOLLOWS: 'KEEPING IN VIEW THE OBSERVATIONS OF THE HONBLE IT AT IN THE ABOVE REFERRED CASE, THE ASSESSING OFFICER I S THEREFORE DIRECTED TO VERIFY THIS ASPECT AGAIN WHIL E GIVING EFFECT TO THIS ORDER. IN CASE IT IS FOUND T HAT BESIDES FULFILLING THE OTHER PREREQUISITE FOR EXEMP TION UNDER SECTION 11, THE APPELLANT HAS NOT CHARGED ANY FEES FROM THE STUDENTS OVER AND ABOVE THE PRESCRIBE D FEES, THE APPELLANT WOULD BE ENTITLED FOR EXEMPTION UNDER SECTION 11, EVEN THOUGH THE NOTIFICATION UNDE R SECTION 10(23C)(VI) HAS NOT BEEN RECEIVED BY IT. T HE GROUND NO. 2 AND 3 ARE ALLOWED SUBJECT TO SUCH VERIFICATION.' I.T.A. NO. 3/HYD/2011 M/S. MADINA EDUCATION & WELFARE SOCIETY ============================== 3 6. THE LEARNED DR SHRI B.V. PRASAD REDDY RELIED ON THE ORDER OF THE ASSESSING OFFICER AND THE DEPARTMENT HAS RAI SED THE FOLLOWING GROUNDS BEFORE US: (A) THE ORDER OF THE CIT(A) IS NOT ACCEPTABLE AS IT IS ERRONEOUS ON FACTS AND IN LAW. (B) THE CIT(A) ERRED IN HOLDING THAT THE ASSESSEE I S ELIGIBLE FOR EXEMPTION U/S. 11 OF THE IT ACT AND EXEMPTION U/S. 11 CAN BE ALTERNATIVELY CLAIMED. (C) THE CIT(A) OUGHT TO HAVE CONFIRMED THE ASSESSMENT AS IT IS MANDATORY ON THE PART OF THE ASSESSEE TO OBTAIN NOTIFICATION U/S. 10(23C)(VI) OF THE I.T. ACT. (D) THE DECISION OF THE ITAT IN ST. THERESA'S SOCIE TY HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEAL U/S. 260A HAS BEEN PREFERRED BEFORE THE A.P. HIGH COURT. 7. THE LEARNED DR SUBMITTED THAT THE DECISION OF TH E TRIBUNAL IN ST. THERESA'S SOCIETY'S CASE, RELIED UPON BY THE CI T(A),HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND AN APPEAL U/S. 260A OF THE ACT HAS BEEN PREFERRED BEFORE THE HONBLE A.P. HIGH COURT. HE SUBMITTED THAT THE ASSESSEE HAS NOT OBTAINED THE NO TIFICATION UNDER S. 10(23C)(VI) OF THE ACT AND THEREFORE, THE EXCESS OF INCOME OVER EXPENDITURE WAS RIGHTLY BROUGHT TO TAX BY THE ASSES SING OFFICER. HE RELIED ON THE ORDER OF THE DDIT(E). THE LEARNED CO UNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT(A) AND HAS REFERRED TO THE RELEVANT PORTIONS OF THE APPELLATE ORDER OF THE CIT (A) IN SUPPORT OF HIS SUBMISSIONS. 8. WE HAVE HEARD BOTH THE PARTIES. WE FIND NO INFI RMITY IN THE ORDER OF THE CIT(A) INASMUCH AS THE CIT(A) FOLLOWED THE DECISION OF THE ITAT HYDERABAD BENCH IN THE CASE OF M/S. VASAVI ACADEMY OF EDUCATION IN I.T.A. NO. 1749/HYD/09 DATED 4.2.2010 WHEREIN THE TRIBUNAL NOTED THAT THE APEX COURT IN THE CASE OF T MA PAI FOUNDATION & ORS VS. STATE OF KARNATAKA & ORS. (200 2) 8 SCC 481 HAD TAKEN A SIMILAR VIEW. FURTHER, THIS TRIBUNAL A LSO NOTED THAT THE I.T.A. NO. 3/HYD/2011 M/S. MADINA EDUCATION & WELFARE SOCIETY ============================== 4 APEX COURT IN THE CASE OF ISLAMIC ACADEMY OF EDUCAT ION & ORS. VS. STATE OF KARNATAKA AND ORS (2003) 6 SCC 697 HAS TAK EN A SIMILAR VIEW. FURTHER, SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF JAMIA NIZAMIA IN ITA NO. 763/HYD/2007 DATED 30.6.2008 AND INTERNATIONAL EDUCATION ACADEMY, HYDERABAD IN ITA N O. 494/HYD/2007 AND 518/HYD/2008 AND SRI SAI SUDHEER E DUCATIONAL SOCIETY, HYDERABAD IN ITA NO. 999/HYD/2006. THE C IT(A) HAS DIRECTED THE ASSESSING OFFICER TO VERIFY SPECIFICAL LY THE DONATIONS RECEIVED COMPULSORILY FOR THE ADMISSION OF STUDENTS BY WHATEVER THE NAME IT MAY BE CALLED I.E., DONATION, BUILDING FUND, AUDITORIUM FUND ETC., OVER AND ABOVE THE PRESCRIBED FEE FROM T HE STUDENTS FOR ADMISSION AND OBSERVED THAT THE ASSESSEE WOULD NOT BE ENTITLED FOR EXEMPTION EITHER UNDER SEC. 10(23C) OR UNDER SEC. 1 1 OF THE ACT IN CASE THE DONATION RECEIVED UNDER WHATEVER HEAD IS O VER AND ABOVE THE PRESCRIBED FEES AND IN CASE THE ASSESSEE HAS NO T CHARGED ANY FEES OVER AND ABOVE THE PRESCRIBED FEES THE ASSESSE E WOULD BE ENTITLED TO EXEMPTION U/S. 11 OF THE ACT EVEN THOUG H NO NOTIFICATION U/S. 10(23)(VI) HAS NOT BEEN RECEIVED BY IT. IN TH E CASE OF ADIT(E) VS. ARAVINDA EDUCATIONAL SOCIETY (ITA NO. 1380/HYD/ 2011) IT HAS BEEN HELD AS FOLLOWS: '4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY. WE FIND THAT IT IS NOW SETTLED WITH SER IES OF DECISIONS OF THE HYDERABAD BENCHES OF THE TRIBUNAL, AS IN THE CASE OF NATIONAL INSTITUTE OF TOURISM & HOSPITALITY (ITA NO. 1203/HYD/2010) DATED 11 TH MARCH, 2011; IN THE CASE OF VARDHAMAN COLLEGE OF ENGINEERING, HYDERABAD (ITA NO. 741/HYD/2009) DATED 8.4.2011; AND IN THE CASES OF RAVI RISHI EDUCATIONAL SOCIETY, HYDERABAD AND OTHERS (ITA NOS. 1289 TO 1291/HYD/2010 AND CROSS-OBJECTIONS THEREIN AND OTHERS) DATED 13.4.2011; THAT AN ASSESSEE CAN MAKE ALTERNATIVE CLAIM UNDER S. 121 OF THE ACT AND IT IS NOT MANDATORY FOR THE ASSESSEE TO OBTAIN A NOTIFICATION UNDER S. 10(23C)(VI) OF THE ACT. THE ISSUE BEING COVERED IN FAVOUR OF THE ASSESSEE WITH SERIES OF DECISIONS OF THE TRIBUNAL, WE HOLD THAT THE ASSESSE E CAN MAKE ALTERNATIVE CLAIM FOR EXEMPTION UNDER S. 1 1 OF THE ACT AND THERE BEING NO MISTAKE IN THE ORDER OF I.T.A. NO. 3/HYD/2011 M/S. MADINA EDUCATION & WELFARE SOCIETY ============================== 5 THE CIT(A), ON THIS ISSUE, WE HOLD THAT NO INTERFER ENCE WITH HIS ORDER IS CALLED FOR. 5. WE, HOWEVER, FIND THAT THE HYDERABAD BENCH OF THE TRIBUNAL IN DIRECTOR OF INCOME-TAX (EXEMPTIO N) V/S. VASAVI ACADEMY OF EDUCATION IN ITA NO. 1449/ HYD/2008, VIDE ORDER DATED 4.2.2010, HAS HELD THAT AN EDUCATIONAL INSTITUTION IS ENTITLED FOR EXEMPTION U NDER S. 10(23C) OR UNDER S. 11, IF NO DONATION WAS COLLE CTED FROM THE STUDENTS. WE BEING IN AGREEMENT WITH THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN T HE CASE OF VASAVI ACADEMY OF EDUCATION (SUPRA), DIRECT THE ASSESSING OFFICER TO VERIFY THE ASPECT OF DONAT ION, CAPITATION FEE, ETC., IF ANY COLLECTED BY THE ASSES SEE, AND FURTHER DIRECT THAT IF IT IS FOUND THAT BESIDES FULFILLING OTHER PREREQUISITES FOR EXEMPTION UNDER S. 11, THE ASSESSEE HAS NOT CHARGED ANY MONEY BY WHATEVER NAME IT IS CALLED, I.E., DONATION, BUILDIN G FUND, AUDITORIUM FEE ETC., OVER AND ABOVE THE PRESCRIBED FEE FOR THE ADMISSION OF STUDENTS, THE ASSESSEE WOULD BE ENTITLED FOR EXEMPTION UNDER S. 1 1, EVEN THOUGH THE NOTIFICATION UNDER S. 10(23C)(VI) O F THE ACT HAS NOT BEEN RECEIVED BY IT. WE DIRECT ACCORDINGLY.' 9. WITH RESPECT TO THE SECOND ISSUE BEING THE AMOUN T OF RS. 2,40,000 PAID TO THE SECRETARY AS HONORARIUM, THE A SSESSING OFFICER HELD THAT THERE IS A VIOLATION OF THE PROVISIONS OF SECTION 13(C) AND HENCE EXEMPTION U/S. 11 HAS TO BE DENIED. AGGRIEVE D, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND EXPLAINED THAT THE SECRETARY WAS A WHOLE TIME EMPLOYEE AND CEO OF THE SOCIETY WHO HAS BEEN SPENDING ALL HIS TIME TOWARDS DEVELOPM ENT OF THE INSTITUTION. IT WAS ALSO SUBMITTED THAT THE SECRET ARY, MR. KHAZA MOHAMMED ARIFUDDIN IS A BACHELOR OF ARTS AND MASTER OF LAW FROM OSMANIA UNIVERSITY. FURTHER PAYMENT OF HONORARIUM OF RS. 20,000 PER MONTH WAS DULY DECLARED BY HIM IN HIS INCOME-TA X RETURNS. HENCE IT WAS PRAYED THAT THE HONORARIUM CANNOT BE S TATED TO BE IN EXCESS OF WHAT MAY BE REASONABLY PAID FOR SUCH SERV ICES. 10. THE CIT(A) HELD THAT THE HONBLE MUMBAI ITAT IN CASE OF SMT. CHANDARKALA SOMANI CHARITABLE TRUST VS. ITO (3 0 ITD 70) HAD OBSERVED THAT THE WORD 'BENEFIT' HAS TO BE INTERPRE TED AS AN I.T.A. NO. 3/HYD/2011 M/S. MADINA EDUCATION & WELFARE SOCIETY ============================== 6 ADVANTAGE, PROFIT, FRUIT OR PRIVILEGE AND, IN THE C ONTEXT IN WHICH IT IS USED IN THE PRESENT SECTION, IT HAS TO BE TREATED A S AN ADVANTAGE OF A PECUNIARY NATURE. THE CIT(A) ALSO REFERRED TO TH E DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF MANICKVASA GAM CHETTIAR (53 ITR 292). THE CIT(A), THEREFORE, WAS OF THE OP INION THAT LOOKING INTO THE BACKGROUND OF MR. ARIFUDDIN AND THE NATURE OF SERVICES BEING RENDERED BY HIM, THE HONORARIUM OF RS. 20,000 PER MONTH CANNOT BE CONSIDERED AS 'UNREASONABLE' OR 'EXCESSIV E'. THE CIT(A) FURTHER HELD THAT THE DEPARTMENT HAS NOT EST ABLISHED THAT THERE HAS BEEN FAILURE ON THE PART OF THE ASSESSEE IN TERMS OF PROVISIONS OF SECTION 13(1)(C) OF THE ACT, FOR THE PROVISIONS TO BE APPLIED THE CIT(A) OBSERVED THAT IN THE PRESENT CAS E THE ASSESSING OFFICER HAS PROCEEDED TO DENY EXEMPTION TO THE ASSE SSEE WITHOUT ESTABLISHING THE BENEFIT GRANTED TO THE SECRETARY O N ACCOUNT OF PAYMENT OF HONORARIUM OF RS. 20,000 PER MONTH. TH E CIT(A) DIRECTED THE ASSESSING OFFICER NOT TO DENY EXEMPTIO N U/S. 11 ON THIS GROUND. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS APPEAL: WITH REGARD TO PAYMENT OF HONORARIUM TO SPECIFIED MEMBERS, THE DEPT., PREFERRED AN APPEAL BEFORE THE HONBLE HIGH COURT IN THE CASE OF VILLAGES AND PARTNERSHIP FOR THE A.Y. 2002-03 WITH A VIEW TO MAINTAIN CONSISTENCY, FURTHER APPEAL IS REQUESTED. 11. WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT S HRI ARIFUDDIN HAS BEEN A WHOLE TIME SECRETARY SINCE THE FORMATION OF THE SOCIETY IN THE YEAR 1991 AND HAS BEEN DEVOTING ALL HIS TIME FOR THE ADVANCEMENT OF THE SOCIETY. CONSIDERING THE QUALIF ICATIONS, EXPERTISE AND COMMITMENT SHOWN BY HIM OVER THE YEAR S, THE HONORARIUM OF RS. 20,000 PER MONTH IS REASONABLE AN D NOT EXCESSIVE FOR THE SERVICES RENDERED BY HIM. THE ME RE TRANSACTION OF PAYMENT OF HONORARIUM OF RS. 20,000 PER MONTH TO THE SECRETARY OF THE ASSESSEE SOCIETY WOULD NOT BE VIOLATIVE OF S ECTION 13(1)(C) OF THE ACT. THE 'BENEFIT' IMPLIES SOMETHING OVER AND ABOVE WHAT IS I.T.A. NO. 3/HYD/2011 M/S. MADINA EDUCATION & WELFARE SOCIETY ============================== 7 REASONABLE AND ADEQUATE AND FOR THE PURPOSE OF SECT ION 13(1)(C) THERE SHOULD BE A CASE OF ANY 'BENEFIT' BEING PASSE D TO THE SPECIFIED PERSONS. IN THIS CASE, THE ASSESSEE SOCI ETY IS LIABLE TO PAY CERTAIN CONSIDERATION FOR SUCH SERVICES AND DOE S NOT DISPUTE THAT SHRI ARIFUDDIN WAS RENDERING SUFFICIENT SERVIC ES JUSTIFYING THE PAYING OF RS. 20,000 PER MONTH. FURTHER, AS RIGHTL Y POINTED OUT BY THE CIT(A), THE DEPARTMENT HAS NOT ESTABLISHED REGA RDING 'BENEFIT' TO THE SECRETARY FOR INVOKING THE PROVISIONS OF SEC TION 13(1)(C). IN THESE CIRCUMSTANCES, THE HONORARIUM PAID TO THE SEC RETARY OF THE SOCIETY WHICH IS NOT PROVED TO BE IN EXCESS OF NORM AL AND PREVAILING REMUNERATION BEING PAID FOR IDENTICAL SERVICES, CAN NOT BE CONSIDERED AS 'BENEFIT' TO THE INTERESTED PERSONS I N ORDER TO ATTRACT THE PROVISIONS OF SECTION 13(1)(C) THEREBY DENYING THE CLAIM OF EXEMPTION U/S. 11 OF THE ACT. HENCE, WE CONFIRM TH E ORDER OF THE CIT(A) AND DISMISS THE DEPARTMENTAL APPEAL ON THIS GROUND. 12. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH OCTOBER, 2011. SD/- (AKBER BASHA) ACCOUNTANT MEMBER SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED THE 13 TH OCTOBER, 2011 TPRAO COPY FORWARDED TO: 1. ASST. DIRECTOR OF INCOME-TAX (E)-I, 3 RD FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD-04. 2. M/S. MADINA EDUCATION & WELFARE SOCIETY, 3-6-126 , HIMAYATHNAGAR, HYDERABAD. 3. THE CIT(A)-IV, HYDERABAD 4. THE DIT(E), HYDERABAD 5. DR, B-BENCH, ITAT, HYDERABAD.