OBEROI FOUNDATION, MUMBAI V. CIT (E), MUMBAI

ITA 3469/MUM/2019

AI Insights

The case involves the Oberoi Foundation, a charitable institution engaged in educational activities, which appealed against the order of the Commissioner of Income Tax (Exemptions) under section 263 of the Income Tax Act, 1961. The Commissioner had set aside the original assessment order, claiming it was erroneous and prejudicial to the interests of the revenue because the Assessing Officer had not properly examined the reasonableness of the rent paid to Oberoi Realty Limited, where one of the trustees was a managing director and shareholder. The Tribunal, however, found that the Assessing Officer had indeed examined the issue and that the foundation had complied with the requirements of section 10(23C) by applying a significant portion of its receipts to educational purposes.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123272 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 31-10-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 21-05-2019
• Other Referred Cases: ITO v. Virendra Singh Memorial Shiksha Samiti (35 SOT 1) (URO), CIT v. Seethakathi Trust [2007] 295 ITR 520 (Mad.), CIT v. Lagan Kala Upvan [2003] 259 ITR 489 (Delhi), Gujarat State Co-operative Union v. CIT [1992] 195 ITR 279
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Charitable institution; Opportunity of being heard; Assessment record; TDS; Set aside
• Section: 68; 69; 12; 28; 69C; 11; 143(3); 12AA; 195; 43D; 13(2); 13; 10(23C)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI BEFORE SHRI ABY T. VARKEY, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO.3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation Commerz, 3 rd Floor International Business Park Oberoi Garden City, Off. W.E. Highway Goregaon (E), Mumbai - 400063 PAN: AAATO1684L V. CIT (Exemptions) 6 th Floor, Piramal Chambers Lalbaug, Mumbai – 400 012 (Appellant) (Respondent) Assessee Represented by : Shri Vijay Mehta Department Represented by : Shri K.C. Salvamani Date of Hearing : 01.11.2022 Date of Pronouncement : 23.01.2023 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Exemptions) [hereinafter in short “Ld.CIT(E)”] dated 29.03.2019 for the Assessment Year 2014-15. 2. Brief facts of the case are, the assessee is a charitable institution engaged in the educational activity and is running a school at Goregaon, 2 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation Mumbai. The assessee institution is approved u/s. 10(23C) of the Act by the Chief CIT. The assessee is also registered u/s. 12AA of the Act. The return of income for A.Y. 2014-15 was filed on 26.09.2014 in which the assessee has claimed exemption u/s.10(23C) of the Act. The assessment was completed u/s. 143(3) of the Act on 06.10.2016. Subsequently, while verifying the assessment records, the Ld.CIT(E) found that the assessment order was erroneous and prejudicial to the interests of the revenue as the Assessing Officer has not made proper enquiry which ought to have made during the course of the assessment proceedings. The Ld.CIT(E) has observed that while the assessee has made claim of exemption u/s.10(23C) of the Act, the Assessing Officer has allowed exemption u/s. 11 of the Act without assigning any reason. The Ld.CIT(E) has further observed that the assessee has made payment of rent of ₹.27,48,59,794/- in respect of school building to one M/s. Oberoi Realty Limited. One of the trustees of the assessee trust was the Managing Director and shareholder of Oberoi Realty Limited. The Ld.CIT(E) has found the payment of rent to be excessive. He has observed that the reasonableness of the rent has not been examined by the Assessing Officer. In response to the contention of the assessee that the excess rent cannot be disallowed u/s. 13 of the Act, as the assessee 3 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation is claiming exemption u/s. 10(23C) of the Act. The Ld. CIT(E) has observed that having allowed the exemption u/s. 11 of the Act, the Assessing Officer was duty bound to examine the application of Section 13 of the Act. Moreover, according to the Ld.CIT(E), the excess payment may affect the claim of exemption u/s. 10(23C) of the Act. The Ld.CIT(E) has also found several other issues in respect of which proper examination has not been carried out by the Assessing Officer. However, except the above issue of excess rent, the other issues have now become academic as the Assessing Officer has already passed an order u/s. 143(3) r.w.s. 263 of the Act in which no adverse view has been taken in respect of all these issues except the issue of excessive rent. 3. The Assessing Officer has since passed an order u/s. 143(3) r.w.s. 263 of the Act on 28.12.2019. After a detailed discussion, the Assessing Officer has held that the rent to the extent of ₹.24 crores only is reasonable and the balance rent of ₹.3,48,59,794/- is excessive. The Assessing Officer has discussed the provisions of section 10(23C) of the Act and held that the excess payment is in violation of the provisions of Section 10(23C) of the Act. Accordingly, he has reduced the said amount from the total expenditure and determined the net income after reducing such revised amount of expenditure from the gross receipt. 4 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation 4. Ld CIT(E) after observing the issues discussed in his order, held that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue and without properly verifying the issues as highlighted by him in his order. 5. Aggrieved assessee filed appeal before us raising following grounds in its appeal: - “1. The Hon'ble Commissioner of Income Tax (CIT) (Exemptions) has erred in law and facts in passing the Order u/s.263 of the Income Tax Act, 1961 (the Act) and setting aside the Order u/s 143(3) of the Act passed by the Learned A.O., in spite of the fact that assessment for the impugned assessment year had already been concluded by the learned A.O. u/s. 143(3) of the Act, after seeking explanations and details necessary for the completion of assessment. 2. The Hon'ble CIT (Exemptions) has erred in law and facts by passing the Order u/s. 263of the Act in undue haste without providing- (i) a reasonable time to the Appellant to compile the required details; (ii) adequate opportunity of being heard.. 3. The Hon'ble CIT (Exemptions) has erred in law and facts in passing the Order u/s. 263 of the Act on the ground that the learned A.O. had allowed exemption u/s. 11 of the Act instead of Section 10(23C) (vi) of the Act without appreciating the fact that the rectification application of the Appellant in the said matter is already pending before the learned A.O. and the same issue cannot be made a subject matter of passing the Order u/s. 263 of the Act. 4.1 The Hon'ble CIT (Exemptions) has erred in law and facts in passing the Order u/s. 263 of the Act on the grounds of non- 5 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation enquiry by the learned A O., of the details of payment of rent of Rs.27.48,59,794/- and accommodation expenses of Rs.3,00.408/- by the Appellant to Oberoi Realty Ltd. where the Managing Director thereof is the Trustee of the Appellant, without appreciating the fact that the details of the same were duly submitted by the Appellant during the course of the assessment proceedings and were duly examined by the learned A.O. 4.2. The Hon'ble CIT (Exemptions) has erred in law and facts in raising the objections on payment of rent made by the Appellant to Oberoi Realty Ltd. where Managing Director thereof is the Trustee of the Appellant, for occupying its Building premise, without appreciating the fact that the act of the Appellant in paying rent to Oberoi Realty Ltd. does not amount to diversion of the funds of the Appellant attracting clause (g) of sub section (2) Section 13. 5. The Hon'ble CIT (Exemptions) has erred in law and facts in passing the Order u/s. 263 of the Act, on the grounds of non- verification of AIR details by the learned A.O., without appreciating the fact that the Appellant had submitted the necessary details, during the course of assessment proceedings and the same was duly examined by the learned A.O. during the course of the assessment proceedings.” 6. At the time of hearing, Ld. AR submitted that the Ld. CIT(E) has wrongly acquired the jurisdiction u/s. 263 of the Act. It is submitted that the Assessing Officer has duly examined the reasonableness of the rent in the original assessment proceedings. Various correspondence between the assessee and the Assessing Officer in the original assessment proceedings have been relied upon. It is further pointed out that the rent paid by the assessee is most reasonable considering the locality and comparable cases. On this count also, the Ld. CIT(E) has 6 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation erred in setting aside the assessment order. Further, the Ld. CIT(E) has erred in not making any minimal enquiry and straight away passing the order u/s. 263 of the Act which is contrary to the established precedents on the subject. Referring to the order passed by the Assessing Officer u/s. 143(3) r.w.s. 263 of the Act, it is submitted that the Ld. CIT(E) has passed the order u/s. 263 of the Act upon proposal of revision received from the Assessing Officer and not on his own. This is contrary to the prescription of Section 263 of the Act and, hence, the order passed by the Ld. CIT(E) needs to be quashed. 7. It is further submitted that instead of getting into all the above submissions, the assessee would be satisfied if the Assessing Officer is directed to carry out the correct calculation of income u/s. 10(23C) of the Act. It is submitted that the so-called excess rent cannot become the income of the assessee because Section 13 of the Act is not applicable to a case where the exemption is claimed u/s. 10(23C) of the Act. Reliance is placed in this regard, on CBDT Circular no. 557 dated 19.03.1990 (page no. 164 of the paper book). Reliance is also placed upon the order of Lucknow Bench of the Hon'ble Tribunal in the case of ITO v. Virendra Singh Memorial Shiksha Samiti (35 SOT 1) (URO). In 7 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation this case, it has been held that Section 13 has no application to Section 10(23C) of the Act. 8. Further submitted that the Ld. CIT(E) has observed that the Assessing Officer ought to have examined the applicability of Section 13 of the Act (referred page no. 9, para (e)(i) ofthe Ld. CIT's order). It is submitted that the said direction needs to be modified and the Assessing Officer may kindly be directed to pass a fresh order on this limited issue. It is submitted that the only effect of holding any payment to be excessive in the case of the institution claiming exemption u/s. 10(23C) of the Act, would be to in respect of examination of the obligation of the assessee to spend 85% of receipt without considering the excessive payment. In the present case, the assessee has spent ₹.70,06,59,613/- (without considering the excessive payment) which is 96.76% of gross receipt, which is in excess of statutory mandate of 85%, and hence assessee has complied with the legal requirement. The chart showing percentage of receipt spent has been placed on record. 9. It is prayed that the Assessing Officer may kindly be directed to pass a fresh order on the above limited issue to examine the calculation of amount spent by the assessee and not to disallow any expenditure 8 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation unless the amount spent on the object of the trust falls below the statutory limit of 85%. 10. Ld.DR relied on the orders of the Authorities below. 11. Considered the rival submissions and material placed on record, we observe from the record that the assessee had paid an amount of ₹.27,48,59,794/- to Oberoi Realty Limited, in which one of the trustee is director and holding substantial shares. The Ld.CIT(E) while verifying the assessment records observed that the Assessing Officer has not verified this transaction and also other issues highlighted by him. However, it is brought to our notice that the Assessing Officer while completing the assessment u/s 143(3) r w s 263, he has deleted the other issues after due verification and however, he has verified the payment of rent issue and disallowed only to the extent of ₹.348,59,794/-, according to him, which is excessive. The issue before us is, whether the issue raised by the Ld.CIT(E) in the revision proceedings are proper and whether the provision of section 11 is applicable in the case of entities which claims deductions u/s 23C of the Act. 9 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation 12. It is brought to our notice that the assessee has specifically submitted the details of payment of rent before Assessing Officer and even Assessing Officer has verified the same while verifying the compliance of TDS provisions. In our view, the payment of rent is substantial and Assessing Officer has asked certain information on TDS compliance. The real issue raised by the assessee in this appeal is whether the provisions of section 11 is applicable and in the subsequent proceedings, the Assessing Officer has verified the allowability of the rent and he has not properly verified the same. In our view, the venturing in the subsequent proceedings are beyond the scope of the grounds raised before us. We do not wish to enter that domain. 13. Let us take up the issue of applicability of section 11 in the case of assessee, who intend to claim benefit u/s 23C of the Act. We observe from various judicial pronouncements that an institution is found to be existing to carry on the education activities and the receipts are applied for the purpose of carrying on the main object of education and not for purpose of profit then the receipts has to be eliminated from the gross total income. The provisions of section 11 to 13 of the Act are not applicable. The similar view was taken by Lucknow bench of ITAT in the 10 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation case of ITO v. Virendra Singh Memorial Shiksha Samiti (35 SOT 1), the relevant ratio is reproduced below: - “15. We have considered the rival submissions and perused the material on record. In our considered view, the judgment of learned CIT(A) in annulling the assessment is basically incorrect. An assessment order is annulled only when Assessing Officer passes the order without jurisdiction. Once Assessing Officer has acquired a valid jurisdiction on the basis of return filed by the assessee then assessment cannot be annulled. It can only be modified. Thus, the order of the learned CIT(A) is set aside and the assessment order is not treated as annulled. 16. Now, it is an undisputed fact that various expenses claimed by the society are not verifiable and therefore, could be inflated. But the Assessing Officer has not pointed out any instance out of various expenses as to whether it was not at all incurred or it was incurred excessively or the funds or money relating to such expenses was diverted to other persons and in particular, to the founder member of the society. Thus, rest of the inferences other than the expenditure being not verifiable/proved are hypothetical and therefore, not acceptable. There is no material evidence collected by the Assessing Officer to prove that expenditure, if inflated, has resulted in the benefit to the founder member of the society. The inflation of expenses though it not proved, may only create suspicion that somebody might be benefited but to say that it is only the founder member who is benefited is only far-fetched. In fact, an organization is run with the help of several employees though there may be only one or two controllers/supervisors/managers. It is not a case of Assessing Officer that all the expenses are personally incurred by the founder member, and that he is at liberty to pocket a portion of the expenses debited in P&L. a/c. In an organization which employs several persons who for duty incur expenses, it cannot be alleged that it is only founder member who is responsible for expenses and hence pilferage. Though it is not proved that expenses are actually inflated in the present case, but even if it is so then inference that alleged extra expenditure has benefited the founder member is not substantiated and proved. Therefore, provisions of section 13(2) 11 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation could not be invoked. There has to be direct nexus of outflow of money with the. interested members as it was in the case of Bal Bharti Nursery School (supra) or in Bharat Diamond Bourse's case (supra). 17. In this regard, we refer to section 13 as under- 13. (1) Nothing contained in under section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof - ..... (c) In the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof - ..... (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the-previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3) (2) Without prejudice to the generality of the provisions of cl. (c) and cl. (d) of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),-..... (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services............ 12 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation (g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3). (3) The persons referred to in clause (c) of sub- section (1) and sub-section (2) are the following namely: (a) the author of the trust or the founder of the institution, (b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution upto the end of the relevant previous year exceeds fifty thousand rupees; (c) where such author, founder or person is an HUF, a member of the family. (cc) any trustee of the trust or manager (by whatever name called) of the institution (d) any relative of any such author, founder, person, (member, trustee or manager) as aforesaid: (e) any concern in which any of the persons referred to in clause (a), (b), (c). (cc) and (d) has a substantial interest." 18. Let us examine whether case of the revenue falls under clause (2) under section 13(1)(c) or under section 13(2). It is not disputed that the person referred to in sub-section (3) is the founder member of the trust. The condition mentioned under section 13(1)(c)(ii) is that income of the trust should be used or applied directly or indirectly for the benefit of any person falling in the prohibited category. Benefit here would mean some ex gratia expenditure without any contribution by such person to the society. The term 'benefit' exclude from its ambit a two way process. If the person in the prohibited category renders services and in lieu thereof a benefit is provided then the case does not fall in clause (ii) under section 13(1)(c). The 13 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation expenditure incurred on those interested persons would be a compensation for such services. A benefit would be said to have been given to the persons of prohibited category, if they in return do nothing but only enjoy the fruits of the trust/society and take away the funds/income of the society for their personal benefit or discharging personal obligation, but where persons of prohibited category render services to the society and in turn, get some remuneration, salary and allowances etc. as a member then provisions of sub-section (2) would be applicable and not of sub-section (1) and for applying the provisions of sub-section (2) under section 13, it has to be shown by the revenue that amount paid to the persons of prohibited category was in excess of what may be reasonably paid for such services. In other words, the Assessing Officer has to collect material to show that payment to the persons of prohibited category was unreasonable as compared to the market rates for the services rendered. In the present case, there is no material on record firstly to show that alleged inflated expenditure has gone to the persons of prohibited category, therefore, the case of the revenue made out on the basis under section 13(1) cannot be upheld; The question of invoking section 13(2) in the present case also does not arise because section 13(2) could be invoked only when there is a claim of expenses in the form of salary/allowances or perquisites to the persons of prohibited category for some services rendered. The Assessing Officer has not made out a case on these premises. Thus, neither section 13(1) under section 13(2) is applicable on the facts of the present case. 19. Now coming to the question as to whether difference in cost of construction arising on account of valuation done by the DVO could be added as income we are of the considered view that firstly, there is no case made out for referring the under construction of the school building to the DVO by rejecting the books and pointing out defects therein. Even otherwise, if an addition is proposed to be made under section 69 as unexplained investment in school building then same would be treated as application of funds for charitable purposes. This investment would, therefore, come within the ambit of 85 per cent of total income applied for charitable purposes within the 14 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation meaning of section 11(1), if the case of assessee is to be considered for exemption under that section. 20. The learned Departmental Representative has argued that excess cost of construction could not be held to be covered within the limit of 85 per cent of income being applied for charitable purposes because such excess investment is not coming out of or derived from property held under the trust which Is a basic condition for giving exemption under section 11(1). In our considered view, the Assessing Officer has not made out any case that excels investment in property to be added under section 69 is not coming out of property held under the trust or is not income from such property. For taxing excess Investment under section 69, he has to prove that the property held under the trust is not capable of yielding income to the extent excess investment is made out. Since the case of the assessee is also covered under sections 11 to 13 as held by the Assessing Officer, by virtue of it being registered under section 12A/12AA, its income is to be computed as per income and expenditure account under sections 11 to 13 and not under sections 28 to 43D under the head 'Income from business and profession'. Section 11(1) starts with "subject to the provisions of sections 60 to 63........". It means that sections 60 to 63 would have overriding effect if there is a conflict between sections 11 to 13 and sections 60 to 63. However, the application under section II is not made subject to section 68 to section 69C. In other words, provisions of sections 68 to 69C could not be applied overriding sections 11 to 13. It means that in the event of conflict between sections 11 to 13 and sections 68 to 69C, the provisions of sections 11 to 13 will prevail. Thus, where it is claimed that unexplained investment is income out of property held under trust, then onus would shift to the Assessing Officer to prove otherwise. Thus, it is for the Assessing Officer to show with material on record that property held under the trust is not capable of generating excess income which is alleged to be invested in the construction of the property and therefore, beyond the scope of sections 11 to 13 and provisions of sections 68 to 69C would be applicable in addition to the computation of income under these sections. We, therefore, reject the argument of learned Departmental Representative that addition under section 69 for excess 15 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation investment has to be independently carried out notwithstanding exemption of income under sections 11 to 13. 21. Now, we come to the main argument of the learned Authorised Representative that in a case where provisions under section 10(23C)(iiiad) are applicable, the provisions of sections 11 to 13 would not be applicable. 22. In this regard, we refer to the decision of Hon'ble Supreme Court in the case of American Hotel & Lodging Association Educational Institute (supra) wherein it is held that if a trust is an educational institution then its income is excluded from the total income. In this regard, we refer to the following part of the headnotes of that decision: - "Actual existence of the educational institution was the precondition for the application for initial approval under section 10(22) of the Income-tax Act, 1961 (which was omitted with effect from 1-4-1999). On the grant of approval, sections 11 and 13 did not apply. Once an applicant institution came within the phrase 'exists solely for educational purposes and not for profit' no other condition like application of income was required to be complied with. The prescribed authority was only required to examine the nature, activities and genuineness of the institution. The mere existence of profit/surplus did not disqualify the institution. Therefore, when exemption was given to an institution there was no assessment or demand. Section 10(22) had an automatic effect. Under section 10(22), the test was restricted to the character of the receipt of the income, viz., whether it had the character of an educational institution of India. Its character outside India was irrelevant for deciding whether its income would be exempt under section 10(22). In deciding the character of the recipient, it was not necessary to look at the profits of each year, but to consider the nature of the activities undertaken in India. If the Indian activity had no co-relation to education, exemption had to be denied." 23. From the above, it is clear that for granting exemption to an educational institution under section 10(22) it is not 16 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation necessary to look at the profit of each year but to consider the activities of the trust and once approval under section 10(22) is granted, the provisions of sections 11 to 13 did not apply. It is undisputed fact that assessee is an educational institution imparting education from Class KG to Class VIII. No other activities have been alleged. The argument of learned Departmental Representative that some benefit is imparted to the founder of the trust resulting from inflated expenditure would also disable the trust from getting exemption under section 10(22) is out rightly rejected because firstly, there is no evidence that such benefit has been imparted to the founder member of the trust and secondly, even if it is so then such instances would only hit the case of the assessee within the meaning of sections 11 to 13 and cannot be imported to deny exemption under section 10(22)/10(23C)(iiiad) provided a clear finding on the basis of material on record is given that assessee trust is not existing solely for educational purposes. Here purpose is what described in the memorandum of objects of the trust. Some items of disallowances out of expenses claimed cannot be held to be a separate object for which trust is existing thereby holding that trust is not existing solely for educational purposes. We agree with the learned Authorised Representative that exemption provisions must be strictly construed but if the case of the assessee falls within the ambit of exemption then they should be applied liberally. 24. In the case of CIT v. Seethakathi Trust [2007] 295 ITR 520 (Mad.), the Assessing Officer had alleged that trust followed the provisions of section 11(5) and section 13(1)(d) and therefore, it is neither eligible for exemption under sections 11 to 13 nor under section 10(22). In this regard, the Hon'ble Madras High Court held that once an educational institution is entitled to the benefit under section 10(22) then it is not necessary to consider claim of the assessee under section 11. The Hon'ble Madras High Court referred to the CBDT Circular No. 712, dated 25-7-1995 [[1995] 127 CTR (St) 2] wherein it is also explained that if an educational institution is entitled to exemption under section 10(22) then benefit conferred under this section cannot be denied on the ground of violation under section 11(5). In this regard, we refer to following portion from that judgment as under: - 17 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation "Aggrieved by the said orders of the Assessing Officer dated 31-3-2003, the assessee preferred appeals before the CIT(A), who, by order dated 12-2-2004, held that the assessee is entitled to exemption under section 10(22) of the Act since the educational institutions are entitled to the benefit under section 10(22), 10(22A) and 10(23C) of the Act and for the said purpose, it is not necessary to consider the assessee's claim for deduction under section 11 of the Act. Against the said order of the CIT(A), the revenue went in appeal and the Tribunal, by order dated 8-3-2006, confirmed the order of the CIT(A) taking note of its earlier order dated 5-1-2004, in the assessee's own case for the assessment year 1998-99, wherein it was held that since the assessee trust had been maintaining separate statement of accounts for educational and charitable activities and were not mingled with both activities and as such, the assessee trust being carrying on the activity of educational purposes, it is entitled to exemption under section 10(22), 10(22A) and 10(23C) of the Act and in which case, it is not necessary to pass an order in respect of the alternative plea of the assessee trust in regard to the deduction under section 11 of the Act. That apart, the CBDT themselves, issued a circular bearing No. 712, dated 25-7-1995. [see [1995] 127 CTR (St) 2: [1995] 215 ITR (St) 3], to the effect that the educational institutions are entitled to exemption under section 10(22) of the Act and consequently, the benefit conferred under section 10(22) cannot be denied on the ground of violation under section 11(5) of the Act. The said circular reads as follows:- Circular No. 712, dated 25-7-1995 Subject: Investment of funds by educational institutions covered under section 10(22) of the Income-tax Act- Clarification regarding. Under section 10(22) of the Income-tax Act, any income of a university or other educational institution, existing 18 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation solely for educational purposes and not for purposes of profit, is exempt from tax. 2. The Board have received representations from various institutions which fulfil the conditions laid down under section 10(22) of the Act, but are denied exemption because their funds are not invested in accordance with the provisions of section 11(5) of the Act. It is hereby clarified that since of section 10(22) does not impose any restriction regarding mode of investment of funds, such Institutions are not required to invest their funds in the modes specified under section 11(5) of the Income-tax Act. This clarification will not apply to the institutions seeking exemption under section 11 of the Act. (Sd) Under Secretary to the Government of India Since the substantial questions of law raised in these appeals are centrifuged on the point whether the assessee is entitled to the benefit under section 10(22) of the Act in view of the alleged violation under section 11(5) read with section 13(1)(d) of the Act, in view of the above circular of the CBDT dated 25-7-1995 [see [1995] 127 CTR (St) 2: [1995] 215 ITR (St) 3], we do not see any substantial question of law that arises for our consideration." 25. The Hon'ble Delhi High Court in the case of CIT v. Lagan Kala Upvan [2003] 259 ITR 489 (Delhi), has held that conditions laid down in sections 11 and 13 are not relevant for the purposes of applying the provisions of section 10(22). In that case it was found by the Assessing Officer that interest-free loan was given to interested persons. The interested person was given a portion of the house of the trust and loan was given to another society for construction. The trust was running an educational institution and was covered under section 10(22). The Assessing Officer invoked the provisions of sections 11 to 13 and denied the benefit to the assessee under section 10(22), The Hon'ble Court, referring to the decision of Apex Court in the case of Aditanar Educational Institution (supra) held that exemption under section 10(22) has to be determined with reference to the objects of the society and exemption cannot be denied merely because during the course of working of the society, there was some surplus. In this context, the conditions contained under section 11 or 13 were considered irrelevant. 19 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation We refer to the relevant portion of the judgment from the above case as under: - "We are of the view that the contentions urged on behalf of the revenue are without any substance. In fact, the main ground, viz., violation under section 13 of the Act, on which the exemption was denied by the Assessing Officer, has no bearing on the question whether the assessee exists solely for educational purposes and not for purposes of profits, so as to fall within the ambit under section 10(22) of the Act. The test to determine when an institution would qualify for exemption under section 10(22) of the Act has been laid down by the Apex Court in Aditanar Educational Institution v. Addl. CIT [1997] 139 CTR (SC) 7:11997] 224 ITR 310 (SC), as follows (p. 318):- 'We may state that the language under section 10(22) of the Act is plain and clear and the availability of the exemption should be evaluated each year to find out whether the institution existed 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 lawfully carried on by the educational Institution, it will not cease to be one existing solely for educational purposes since the object is not one to make profit. The decisive or acid test is whether on an overall view of the matter, the object is to make profit. In evaluating or appraising the above, one should also bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity Thus, the question of eligibility of exemption under the said section has to be determined with reference to the objects of the assessee (society) and the exemption cannot be denied merely because while the working of the society some surplus results. Similarly, in the context of exemption under section 10(22), the conditions as stipulated in either section 11 or 13 of the Act are irrelevant." 26. The Hon'ble Gujarat High Court in the case of Gujarat State Co-operative Union v. CIT [1992] 195 ITR 279, held that exemption under section 11 is only in respect of income derived from the property and to the extent provided under section 11. However, no such limit is provided under section 10(22) which only lay emphasis that sole purpose of the existence of the 20 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation institution should be educational. Therefore, mere existence of profit will not disqualify the institution if its sole purpose is education and not making profit. In this regard, we refer to following portion of the judgment "Under section 10(22) of the Income-tax Act, 1961, it is provided that, in computing the total income of a previous year of any person, any income falling within the said clause, i.e, any income of a university or other educational institution existing solely for educational purposes and not for purposes of profit shall not be included. Though in the context of the provisions of section 10(22), the concept of education need not be given any wide or extended meaning, it surely would encompass systematic dissemination of knowledge and training in specialized subjects. The question whether an educational institution is existing solely for educational purposes can be decided with reference to the activities actually carried on by it. Advancement of knowledge brings within its fold suitable methods of its dissemination and though the primary method of sitting in a classroom may remain ideal for most of the initial education it may become necessary to have a different outlook for further education. It is not necessary to nail down the concept of education to a particular formula. Its progress lies in acceptance of new ideas and development of appropriate means to reach them to the recipients, Section 11(a) applies to income derived from property held under trust wholly for charitable or religious purpose while section 10(22) covers any income of a university or other educational institution existing solely for educational purposes and not for purposes of profit. The exemption incorporated under section 11(a) is only in respect of the extent to which the income derived from the property is applied for charitable purpose which includes educational charity. If the income is only accumulated or set apart for such purpose, the exemption is limited to the extent of 25 per cent of the income from the property held under such trust. The exemption under section 10(22), on the other hand, is without any such limitation. The language under section 10(22) emphasizes that the sole purpose of the existence of the institution should be educational. The very provision of exemption under section 10(22) indicates that the income of such institutions is contemplated. Therefore, mere existence of profit will not disqualify the institution if the sole purpose of its 21 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation existence is not profit making but is educational activities. Incidental activities connected with the educational purposes for which the institution exists which result in income will not disqualify the institution, under section 10(22), by its very nature, contemplates income of such institutions which is to be exempted under that provision." 14. Further, in our considered view, even if we consider the findings of Assessing Officer in subsequent proceedings, he has proposed disallowance of ₹.3,48,59,794/- as excessive rent. We observe that the assessee has applied the receipt to the extent of ₹.70,06,59,613/- for the education purpose, which is 96.76% of the receipts. In case, the excess rent is disallowed, even then, the proceed applied for the education purpose would be ₹.66,57,99,819/-, which is equal to 91.95% of the receipts, which is much above the obligation imposed under section 10(23C) of the Act. This finding are from the subsequent proceedings in order giving effect to the revision order passed u/s 263 of the Act. Before us, Ld AR submitted that proper direction may be given to Assessing Officer in order to examine the calculation properly. We do not have mandate in this proceedings to give direction to Assessing Officer. However, we can only adjudicate the validity of the order passed by the Ld CIT(E). 22 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation 15. In our considered view, Ld.CIT(E) has no doubt came to the conclusion that the order passed by the Assessing Officer is erroneous but as per the above discussion, it is not prejudicial to the interest of revenue. In order to invoke the provision of section 263, both the condition has to be satisfied, it is not enough Ld.CIT(E) finds that it is erroneous, he has to give a finding that it is also prejudicial to the interest of revenue. As submitted before us that the revision proceedings was initiated only on the behest of Assessing Officer and the same Assessing Officer has determined the actual rent. We find that the receipts were applied above 85% of the receipts for the purpose of education. Therefore, in our considered view, the proceedings initiated u/s 263 of the Act is not proper and accordingly, it is set aside. 16. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 23 rd January, 2023 Sd/- Sd/- (ABY T. VARKEY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 23/01/2023 Giridhar, Sr.PS 23 ITA NO. 3469/MUM/2019 (A.Y. 2014-15) Oberoi Foundation Copy of the Order forwarded to: 1. The Assessee 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum