International Educational Academy, Hyderabad V. Assistant Director of Income Tax (Exemptions) - III, Hyderabad, Hyderabad

ITA 3/HYD/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6114 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 01-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K E SUNIL BABU
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Depreciation; Charitable institution; Question of law; Revenue expenditure; Capital expenditure
• Section: 143(3); 12A; 12AA; 32; 11

Judgement Text

ITA NO 3 OF 2015 INTERNATIONAL EDUCATIONAL ACADEM Y HYDERABAD PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO.3/HYD/2015 (ASSESSMENT YEAR: 2010-11) INTERNATIONAL EDUCATIONAL ACADEMY, HYDERABAD PAN:AAATI 4248 J VS ASSTT. DIRECTOR OF INCOME TAX (EXEMPTIONS)-III HYDERABAD FOR ASSESSEE : SHRI V. RAGHAVENDRA RAO FOR REVENUE : SHRI K.E. SUNIL BABU, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2010-11. IN TH IS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF T HE CIT (A) IN UPHOLDING THE ORDER OF THE AO HOLDING THAT THE ASSE SSEE IS NOT ENTITLED TO EXEMPTION U/S 10(23C)(VIA) OR U/S 11 OF THE I.T. ACT. ALONG WITH THE FORM 36, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - IV HYDERABAD [CIT(A)] HAS ERRED ON FACTS AND IN LAW 2(A) LEARNED CIT(A) IS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE IS NOT ENTITLED TO EXEMPTION EITHER IX] S. 10(23C)(VI) OF THE I.T. ACT OR U/S 11 OF THE ACT (B) LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT THE CONTRIBUTIONS TO THE BUILDING FUND ON BEHALF OF THE STUDENTS DO NOT DISQUALIFY THE ASSESSEE FROM THE DATE OF HEARING : 11.08.2016 DATE OF PRONOUNCEMENT : 19.10.2016 ITA NO 3 OF 2015 INTERNATIONAL EDUCATIONAL ACADEM Y HYDERABAD PAGE 2 OF 6 ELIGIBILITY TO EXEMPTION U/S 10(23C)(VI) OF I.T. AC T SO LONG AS THE ASSESSEE DID NOT EXIST SOLELY FOR THE PURPOSES OF PROFIT. (C) LEARNED CIT (A) IS NOT JUSTIFIED IN CONFIRMING TH E DENIAL OF EXEMPTION U/S 10(23C) (VI) OF I.T. ACT WHICH IS AGAINST THE PROVISIONS OF ), SUB CLAUSE (I ) & (II) OF CLAUSE (E) OF THE PROVISO IX]. 143(3) OF T HE INCOME TAX ACT. 3(A) LEARNED CIT(A) IS NOT JUSTIFIED IN DENYING EXEMPTION IS] S. 11 OF THE I.T. ACT BY TREATING THE CONTRIBUTIONS MADE ON BEHALF OF THE STUDENTS AS DONATIONS. THE CONTRIBUTIONS ARE VOLUNTARY IN NATURE AND GIVEN FOR THE CORPUS FUND FOR THE PURPOSES OF BUILDING CONSTRUCTION AND APPLIED FOR THE SPECIFIED PURPOSE. (B). THE DECISION OF SUPREME COURT IN THE CASE OF TH E T.M.A PAI FOUNDATION ARE NOT APPLICABLE TO PROVISIONS OF THE INCOME TAX ACT UNTIL AND UNLESS TH E REGISTRATION GRANTED U/S 12A TO THE ASSESSEE IS WITHDRAWN. 4. LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE AMOUNT OF RS. 53,79,001/- SPENT FOR BUILDING REGULARIZATION SCHEME (BRS) HAS TO BE DISALLOWED. SHE HAS FAILED TO NOTICE THAT THIS EXPENDITURE WAS NOT CLAIMED AS EXPENDITURE IN INCOME & EXPENDITURE ACCOUNT. THE A.O HAS ERRED IN MAKING ADDITION OF THIS AMOUNT TO THE INCOME ALTHOUGH THE ASSESSEE HAS NOT CLAIMED IT AS EXPENDITURE. 5(A) LEARNED CIT(A) HAS ERRED IN NOT GRANTING DEPRECIATION ON THE ASSETS ON THE GROUND THAT THE COST THEREOF WAS CLAIMED AS APPLICATION OF INCOME. (B) LOWER AUTHORITIES HAVE ERRED IN NOT DISTINGUISHING THE PROVISIONS FOR APPLICATION OF INCOME U/S 10(23C)(VI) OR SEC. 11 OF INCOME TAX ACT FROM THE PROVISIONS OF ACT FOR ALLOWANCE OF DEPRECIATION U/S 32 OF THE LT. ACT. ITA NO 3 OF 2015 INTERNATIONAL EDUCATIONAL ACADEM Y HYDERABAD PAGE 3 OF 6 6. FOR THESE AND ANY OTHER GROUNDS OF APPEAL THAT MAY BE RAISED AT/BEFORE THE DATE OF HEARING, IT IS PRAYED THAT EXEMPTION BE GRANTED TO THE ASSESSEE U/S 10(23)(VI) OR SEC. 11 OF I.T. ACT. 2. FURTHER, VIDE LETTER DATED NIL, THE ASSESSEE RAIS ED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL ALONG WITH A N APPLICATION FOR ADMISSION OF ADDITIONAL GROUNDS: 1. LEARNED CIT (A) IS NOT JUSTIFIED IN CONFIRMING THE DENIAL OF EXEMPTION U/S 10(23C)(VI) OF I.T. ACT WHIC H IS AGAINST THE PROVISIONS OF SUB CLAUSE (I) AND (II) OF CLAUSE (E) OF THE PROVISO U/S 143(3) OF THE I.T. AC T. 3. IT IS STATED THAT THE ADDITIONAL GROUND RAISED IS PURELY LEGAL IN NATURE AND IT DOES NOT REQUIRE ANY FRESH F ACTS TO BE GONE INTO OR INVESTIGATED AND THAT IN VIEW OF THE DECISI ON OF THE HON'BLE SUPREME COURT IN THE CASE OF NTPC LTD REPORTED IN 2 83 ITR 273 (S.C), THE TRIBUNAL HAD POWERS TO ADMIT A LEGAL GRO UND EVEN WHEN IT IS NOT RAISED IN THE FIRST APPEAL BEFORE THE CIT (A). THEREFORE, IT WAS PRAYED THAT THE ADDITIONAL GROUND OF APPEAL BE ADMITTED AND REMANDED TO THE FILE OF THE CIT (A) FOR ADJUDICATIO N. THE LEARNED DR, HOWEVER, OPPOSED THE ADMISSION OF THE ADDITIONA L GROUNDS. ON GOING THROUGH THE ADDITIONAL GROUND, WE FIND THA T IT IS PURELY A QUESTION OF LAW AND THERE IS NO REQUIREMENT OF INVE STIGATION OF FACTS BY THE AO. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF NTPC LTD ( CITED SUPRA), THIS GROUND OF APPEAL IS ADMITTED. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A SOCIETY ENGAGED IN EDUCATION ACTIVITIES. IT IS REGISTERED A S A CHARITABLE TRUST U/S 12AA OF THE ACT AS WELL AS U/S 10(23C) OF THE ACT. DURING THE RELEVANT A.Y, THE ASSESSEE FILED ITS RETU RN OF INCOME FOR ITA NO 3 OF 2015 INTERNATIONAL EDUCATIONAL ACADEM Y HYDERABAD PAGE 4 OF 6 THE A.Y 2010-11 ON 30.09.2010 CLAIMING EXEMPTION U/S 11 AND 10(23)(VIA) OF THE ACT AND THEREFORE ADMITTING NIL INCOME. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, T HE AO FOUND THAT (I) THE ASSESSEE HAS COLLECTED BUILDING FUND F ROM THE STUDENTS IN EXCESS OF THE REGULAR FEE TO THE TUNE OF RS.53,5 5,000 (II) PAID RS.53,79,001 AS PENALTY UNDER BUILDING REGULARIZATI ONS SCHEME TO GREATER HYDERABAD MUNICIPAL CORPORATION FOR REGULAR IZING THE UNAUTHORIZED CONSTRUCTION AND CAPITALIZED THE SAME (III) PAID RS.10,00,000 TO KIMS FOUNDATION & RESEARCH CENTRE WHOSE OBJECTIVES ARE DIFFERENT FROM THAT OF THE ASSESSEE SOCIETY. IN VIEW OF THE SAME, THE AO ASKED THE ASSESSEE TO EXPLAIN A S TO WHY EXEMPTION U/S 11 OR U/S 10(23)(VIA) CANNOT BE DENIE D TO THE ASSESSEE SOCIETY IN VIEW OF THE JUDGMENT OF THE HON 'BLE SUPREME COURT IN THE CASE OF T.M.A. PAI FOUNDATION AND OTHER S VS. STATE OF KARNATAKA & OTHERS (2002) 8 SCC 48. THE ASSESSEE FI LED ITS EXPLANATION JUSTIFYING ITS CLAIM. HOWEVER, THE AO W AS NOT SATISFIED WITH THE ASSESSEES CONTENTIONS AND HOLDING THAT TH E ASSESSEE HAS COLLECTED THE BUILDING FUND FROM ALL THE STUDENTS A DMITTED TO THE COLLEGE IN CONTRAVENTION TO THE JUDGMENT OF THE HON 'BLE APEX COURT (CITED SUPRA), HE HELD THAT THE ASSESSEE IS N OT ENTITLED FOR EXEMPTION EITHER U/S 11 OR U/S 10(23C)(VIA) OF THE ACT. ACCORDINGLY, HE BROUGHT THE ENTIRE INCOME I.E. EXCE SS OF INCOME OVER EXPENDITURE AND ALSO THE BUILDING FUND COLLE CTED TOTALING TO A SUM OF RS.1,09,13,984. 5. AS REGARDS THE PENALTY PAID FOR REGULARIZATION O F UNAUTHORIZED CONTRIBUTION OF A BUILDING, HE HELD TH AT THE PENALTY CANNOT BE CONSTRUED AS CAPITAL EXPENDITURE AND SINC E THE BUILDING COST HAS ALREADY BEEN SHOWN AS APPLICATION OF INCOM E, HE HELD THAT THE PENALTY OF ANY NATURE PAID CANNOT BE TREAT ED AS CAPITAL ITA NO 3 OF 2015 INTERNATIONAL EDUCATIONAL ACADEM Y HYDERABAD PAGE 5 OF 6 EXPENDITURE. SINCE THERE WAS NO PROOF OF ANY DEVIAT ION IN THE PLAN OR THE COST OF SUCH DEVIATION IS REFLECTED IN THE B OOKS OF ACCOUNT OF THE ASSESSEE, HE HELD THAT THE PENALTY PAID ALSO CA NNOT BE TREATED AS REVENUE EXPENDITURE AND IS THEREFORE, TO BE BROU GHT TO TAX. 6. AS REGARDS THE DONATION TO KIMS FOUNDATION & RESEARCH, HE OBSERVED THAT THOUGH THE ASSESSEE HAS FILED A COPY OF THE REGISTRATION U/S 12A OF THE DONEE AGENCY, HE HAS FAILED TO PROVIDE NECESSARY INFORMATION TO PROVE THAT THE OBJ ECTS OF BOTH THE SOCIETIES ARE THE SAME. FOR SIMILAR REASONS, HE DISALLOWED THE ASSESSEES CLAIM OF DONATION OF RS.25,000 TO EENADU RELIEF FUND. THEREFORE, HE DISALLOWED THE CLAIM OF DONATION AND BROUGHT IT TO TAX. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BE FORE THE CIT (A) WHO PARTLY ALLOWED THE SAME. THE CIT (A) HAS ALLOWE D THE CLAIM OF PENALTY PAID UNDER THE BUILDING REGULARIZATION SCHE ME, BUT CONFIRMED THE DISALLOWANCE OF THE CLAIM U/S 11 OR 1 0(23C)(IVA) OF THE ACT IN RESPECT OF THE BUILDING FUND COLLECTED F ROM THE STUDENTS AS WELL AS THE DONATION GIVEN TO KIMS FOUNDATION & RESEARCH AND EENADU RELIEF FUND. AGAINST THIS ORDER OF THE CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US. 7. BY VIRTUE OF THE ADDITIONAL GROUNDS, IT IS THE C ONTENTION OF THE ASSESSEE THAT AS LONG AS THE ASSESSEES REGI STRATION U/S 10(23C)(VI) IS NOT REJECTED BY THE RELEVANT AUTHORI TIES, SUCH EXEMPTION CANNOT BE DENIED TO THE ASSESSEE BY VIRTU E OF THE PROVISO TO SUB CLAUSES (I) & (II) OF CLAUSE 2 OF TH E PROVISO U/S 143(3) OF THE I.T. ACT. THE OTHER GROUNDS RAISED A LONG WITH FORM 36 ARE ON THE MERITS OF THE ADDITIONS CONFIRMED BY THE CIT (A). HOWEVER, WE FIND THAT IF THE ADDITIONAL GROUND OF A PPEAL IS ALLOWED, THEN THERE WOULD BE NO NECESSITY TO ADJUDI CATE ON MERITS ITA NO 3 OF 2015 INTERNATIONAL EDUCATIONAL ACADEM Y HYDERABAD PAGE 6 OF 6 OF THE ADDITIONS CONFIRMED BY THE CIT (A). WE THERE FORE, DEEM IT FIT AND PROPER TO ADMIT THE ADDITIONAL GROUND OF APPEAL AND REMAND THE SAME TO THE FILE OF THE CIT (A) FOR ADJUDICATIO N IN ACCORDANCE WITH LAW. NEEDLESS TO MENTION THAT THE ASSESSEE SHA LL BE GIVEN A FAIR OPPORTUNITY OF HEARING. THE ASSESSEE SHALL AL SO BE AT LIBERTY TO AGITATE THE FINDINGS OF THE CIT (A) ON THE ADDIT IONAL GROUND OF APPEAL AS WELL AS ON THE MERITS OF THE ADDITIONS NO T ADJUDICATED BY US AT THIS STAGE, IF THE DECISION OF THE CIT (A) WA S TO BE AGAINST THE ASSESSEE. 8. IN THE RESULT, ASSESSEES APPEAL IS ACCORDINGLY PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH OCTOBER, 2016. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 19 TH OCTOBER, 2016. VINODAN/SPS COPY TO: 1 INTERNATIONAL EDUCATIONAL ACADEMY, 8-300/1 SHAIKP ET,GOLKONDA PO, HYDERABAD 500008 2 ASSTT. DIRECTOR OF INCOME TAX (EXEMPTIONS) III, I T TOWERS, AC GUARDS, SAIFABAD, HYDERABAD 500004 3 CIT (A)-IV HYDERABAD 4 DIRECTOR OF INCOME TAX (EXEMPTIONS) HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER