Vidyodya Educational Society, Visakhapatnam V. THE DCIT, Visakhapatnam

ITA 369/VIZ/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3792 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 19-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V APPALA RAJU
• Keywords: Depreciation; Maximum Marginal Rate; Set aside
• Section: 12A; 11

Judgement Text

ITA NO.369 /VIZAG/2016 VIDYODAYA EDUCATIONAL SOCIETY, VSKP 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . .. . . . . . ' , % BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NO.369/VIZAG/2016 ( / ASSESSMENT YEAR: 2009-10) VIDYODAYA EDUCATIONAL SOCIETY VISAKHAPATNAM DCIT, CIRCLE - 4(1) VISAKHAPATNAM [PAN NO. AAATV5299E ] ( ' / APPELLANT) ( ()' / RESPONDENT) / APPELLANT BY : SHRI I. KAMA SASTRY, AR / RESPONDENT BY : SHRI V. APPALA RAJU, DR / DATE OF HEARING : 25.04.2018 / DATE OF PRONOUNCEMENT : 2 6.04.2018 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2, {CIT(A)},GU NTUR VIDE ITA NO.130/2011-12 DATED 15.6.2016 FOR THE ASSESSMENT Y EAR 2009-10. ITA NO.369 /VIZAG/2016 VIDYODAYA EDUCATIONAL SOCIETY, VSKP 2 2. THE ASSESSEE IS AN EDUCATIONAL INSTITUTION AND FILED THE RETURN OF INCOME FOR THE AY 2009- DECLARING NIL INCOME ON 26. 10.2010. THE ASSESSEE CLAIMED EXEMPTION U/S 10(23C) OF THE INCOM E TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') STATING THAT THE GROSS RECEIPTS OF THE ASSESSEE DOES NOT EXCEED RS.1.00 CRORE. THE CASE WA S SELECTED FOR SCRUTINY AND DURING THE ASSESSMENT PROCEEDINGS, THE A.O. OBSERVED THAT THE ASSESSEE HAD RECEIVED GROSS RECEIPTS OF ` 19,65,000/- AND CLAIMED THE EXPENDITURE TO THE EXTENT OF ` 19,46,330/- UNDER VARIOUS HEADS SUCH AS SALARIES, VEHICLE MAINTENANCE, OFFICE EXPENSES, INSURANCE, DEPRECIATION, INTEREST ON LOAN, ETC. AND ARRIVED A T THE NET INCOME OVER EXPENDITURE OF ` 18,670/- AND CLAIMED THE SAME AS EXEMPTION U/S 10(23C) OF THE ACT. THE ASSESSEE CLAIMED THAT IT I S AN EDUCATIONAL INSTITUTION AND THE GROSS RECEIPTS ARE LESS THAN ` 1 CRORE, HENCE, THE ASSESSEE IS ENTITLED FOR EXEMPTION U/S 10(23C) OF T HE ACT. THE ASSESSING OFFICER CALLED FOR THE BOOKS OF ACCOUNTS AND DURING THE ASSESSMENT PROCEEDINGS THE A.O. FOUND THAT THE ENTIRE EXPENDIT URE IS NOT SUPPORTED BY VOUCHERS. THE ASSESSEE ALSO DID NOT PRODUCE THE BOOKS OF ACCOUNTS AND THE ASSESSEE DID NOT FURNISH COPY OF THE REGIST RATION U/S 12A OF THE ACT. HENCE, THE A.O. HELD THAT THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S 11 OF THE ACT AND FOR THE ASSESSEES FAILURE TO PRODUCE BOOKS OF ACCOUNTS AND THE RELEVANT VOUCHERS, THE A. O. DISBELIEVED THE ITA NO.369 /VIZAG/2016 VIDYODAYA EDUCATIONAL SOCIETY, VSKP 3 CLAIM OF THE ASSESSEE THAT IT IS EXISTING SOLELY FO R EDUCATIONAL PURPOSE AND ACCORDINGLY, REJECTED THE CLAIM OF THE ASSESSEE U/S 10(23C) OF THE ACT AND ASSESSED THE ENTIRE GROSS RECEIPTS OF ` 19,65,000/- AT MAXIMUM MARGINAL RATE. 3. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND ARGUED THAT THE ASSESSEE IS A N EDUCATIONAL INSTITUTION AND THE INCOME IS EXEMPT U/S 10(23C) OF THE ACT SINCE THE GROSS RECEIPTS DO NOT EXCEED ` 1.00 CRORE. THE ASSESSEE ALSO SUBMITTED THAT IN THE ABSENCE OF REGISTRATION U/S 12A OF THE ACT, THE A.O., CANNOT DENY THE EXEMPTION U/S 10(23C) OF THE ACT. THE LD. CIT(A) CALLED FOR THE REMAND REPORT FROM THE A.O. AND THE A.O. FURNIS HED THE REMAND REPORT STATING THAT THE ASSESSEE PRODUCED BOOKS OF ACCOUNTS AT REMAND STAGE I.E. CASH BOOK AND LEDGER AND ON VERIFICATION OF THE BOOKS OF ACCOUNTS WITH RELEVANT VOUCHERS, IT WAS FOUND THAT THE ENTIRE EXPENDITURE WAS INCURRED IN CASH AND ON SELF-MADE V OUCHERS. FURTHER THE A.O., STATED IN THE REMAND REPORT THAT THE ASSE SSEE FAILED TO PRODUCE BILLS EVEN FOR PAYMENT OF ELECTRICAL CHARGES, TELEP HONE CHARGES ETC. THE ASSESSEE ALSO DID NOT PRODUCE ANY BANK ACCOUNT STAT EMENT AND FAILED TO PROVE THE GENUINENESS OF THE EXPENDITURE SINCE IT W AS INCURRED ON SELF - MADE VOUCHERS. THE LD. CIT(A) CONSIDERED THE REMAN D REPORT AND THE SUBMISSIONS MADE BY THE ASSESSEE AND HELD THAT THE ASSESSEE IS NOT ITA NO.369 /VIZAG/2016 VIDYODAYA EDUCATIONAL SOCIETY, VSKP 4 ELIGIBLE FOR EXEMPTION U/S 10(23C) OF THE ACT. THE LD.CIT(A) ALSO HELD THAT THE ASSESSEE FAILED TO PRODUCE EVIDENCE IN RES PECT OF THE EXPENDITURE AND HAS TO BE TREATED AS NOT EXISTING SOLELY FOR EDUCATIONAL PURPOSE BUT EXISTING FOR PROFIT MOTIVE AND FOR THE BENEFIT OF MANAGEMENT, ACCORDINGLY, UPHELD THE ORDER OF THE A. O. TO TAX THE ENTIRE RECEIPTS AT MAXIMUM MARGINAL RATE. 4. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE IS IN APPEAL BEFORE US. DURING THE APPEAL HEARING, THE LD. A.R. ARGUED THAT THE ASSESSEE IS A REGISTERED SOCIETY REGISTERED UNDER S OCIETIES ACT, 1860. ASSESSEE ALSO PLACED COPY OF REGISTRATION CERTIFICA TE IN PAGE NO.41 OF THE PAPER BOOK AND ARGUED THAT IN CASE OF SOCIETY, THE INCOME OF THE ASSESSEE CANNOT BE CHARGED AT MAXIMUM MARGINAL RATE . AS PER SECTION 167B OF THE ACT IN CASE A SOCIETY, REGISTERED UNDER SOCIETIES ACT, THE INCOME SHALL BE CHARGED AT NORMAL RATES. ACCORDING LY, ARGUED THAT THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAVE COMMIT TED ERROR IN ASSESSING THE INCOME OF THE ASSESSEE AT THE MAXIMUM MARGINAL RATE. 5. THE NEXT SUBMISSION OF THE ASSESSEE IS THAT THE ASSESSEE IS AN EDUCATIONAL INSTITUTION AND THE GROSS RECEIPTS OF T HE ASSESSEE WERE LESS THAN ` 1.00 CRORE, HENCE ARGUED THAT THE ASSESSEES INCOM E IS ENTITLED ITA NO.369 /VIZAG/2016 VIDYODAYA EDUCATIONAL SOCIETY, VSKP 5 FOR EXEMPTION U/S 10(23C) OF THE ACT, THUS REQUESTE D FOR EXEMPTION U/S 10(23C) OF THE ACT. 6. THE THIRD ARGUMENT OF THE ASSESSEE IS EVEN IF IT IS PRESUMED THAT THE ASSESSEE IS EXISTING FOR PROFIT MOTIVE AND FOR THE BENEFIT OF MANAGEMENT, THE A.O. HAS TAXED THE ENTIRE RECEIPTS WHICH IS NOT CORRECT. THE ASSESSEE HAS INCURRED THE EXPENDITURE UNDER THE HEAD SALARIES, VEHICLE MAINTENANCE, TELEPHONE CHARGES, ELECTRICAL CHARGES, OFFICE EXPENSES, DEPRECIATION, ETC. THEREFORE, EVEN IF IT IS PRESUMED THAT THE ASSESSEE IS CARRYING ON BUSINESS ACTIVITY, THE ENTI RE RECEIPTS CANNOT BE TREATED AS INCOME AND ONLY THE PROFIT ELEMENT SHOUL D BE ASSESSED TO TAX, HENCE REQUESTED TO ESTIMATE THE REASONABLE INCOME A S AN ALTERNATIVE SUBMISSION. 7. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORT ED THE ORDER OF THE LOWER AUTHORITIES. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. IN THE INSTANT CASE, THOUGH THE ASSESSEE IS CLAIMED TO HAV E RUNNING EDUCATIONAL INSTITUTION SOLELY FOR EDUCATIONAL PURPOSE, THE ASS ESSEE HAS NOT ESTABLISHED WITH RELEVANT EVIDENCES, BOOKS OF ACCOU NTS AND THE DOCUMENTS THAT THE ASSESSEE IS SOLELY ENGAGED FOR T HE EDUCATION. ITA NO.369 /VIZAG/2016 VIDYODAYA EDUCATIONAL SOCIETY, VSKP 6 THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LOWER AUTHORITIES, HENCE, THE ASSESSEES GROUND FOR TREAT ING THE INSTITUTION AS EDUCATIONAL INSTITUTION EXISTING SOLELY FOR THE PUR POSE OF EDUCATION IS DISMISSED. ACCORDINGLY, THE ASSESSEE IS NOT ENTITL ED FOR EXEMPTION U/S 10(23C) OF THE ACT. 9. THE NEXT SUBMISSION OF THE ASSESSEE IS THAT THE ENTIRE GROSS RECEIPTS SHOULD NOT BE TREATED AS INCOME AND ONLY T HE PROFIT ELEMENT REQUIRED TO BE ASSESSED TO TAX. IN THIS CASE, THE ASSESSEE HAS RECEIVED THE GROSS RECEIPTS OF ` 19,65,000/- AND THE ASSESSEE HAS PRODUCED THE BOOKS OF ACCOUNTS, BILLS AND VOUCHERS BEFORE THE A. O. THOUGH THE BILLS AND VOUCHERS ARE INCURRED IN SELF- MADE VOUCHERS, T HE ENTIRE RECEIPT CANNOT BE INCOME AND TAXED. ONCE IT IS BELIEVED THA T THE ASSESSEE IS CARRYING ON BUSINESS ACTIVITY, THE EXPENDITURE RELA TABLE TO EARNING INCOME REQUIRED TO BE ALLOWED AS DEDUCTION. IN THE INSTANT CASE, AS PER THE BOOKS OF ACCOUNTS AND THE PROFIT & LOSS ACCOUNT , THE GROSS RECEIPTS OF THE ASSESSEE WERE ` 19,65,000/- AND THE EXPENDITURE WAS ` 19,64,330/- RESULTING IN PROFIT OF ` 18,670/-. AS PER THE ASSESSMENT ORDER, THE ASSESSEE HAS CLAIMED THE EXPENDITURE SUC H AS SALARIES, VEHICLE MAINTENANCE, OFFICE EXPENSES, INSURANCE, DEPRECIATI ON, INTEREST ON LOANS AND TELEPHONE CHARGES, ETC., BUT THERE WAS NO PROPE R EVIDENCE. DURING THE APPEAL HEARING, FOR A QUERY FROM THE BENCH, THE LD. A.R. EXPRESSED ITA NO.369 /VIZAG/2016 VIDYODAYA EDUCATIONAL SOCIETY, VSKP 7 NO OBJECTION FOR ESTIMATION OF INCOME @ 20% OF THE GROSS RECEIPTS. WE HAVE GONE THROUGH THE SUBMISSIONS OF THE ASSESSEE A S WELL AS ORDERS OF THE LOWER AUTHORITIES AND THE ARGUMENTS OF THE LD.D R AND OF THE VIEW THAT THE ESTIMATION OF INCOME @ 20% OF THE GROSS RE CEIPTS IS REASONABLE, ACCORDINGLY, WE DIRECT THE A.O. TO ESTI MATE THE INCOME @ 20% ON GROSS RECEIPTS AND ASSESSESS THE SAME AS INC OME. THE ASSESSEES APPEAL ON THIS GROUND IS PARTLY ALLOWED. 10. THE NEXT SUBMISSION OF THE ASSESSEE IS TAXING T HE INCOME AT MAXIMUM MARGINAL RATE. AS PER SECTION 167B OF THE ACT, IN CASE OF AN ASSESSEE REGISTERED UNDER SOCIEITES ACT, THE SAME I S EXCLUDED FOR TAXING THE INCOME AT FOR MAXIMUM MARGINAL RATE. FOR READY REFERENCE WE EXTRACT RELEVANT PART OF SECTION 167B(1) OF THE ACT WHICH READS AS UNDER: 167B. (1) WHERE THE INDIVIDUAL SHARES OF THE MEMBERS OF AN ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS (OTHER THAN A COMPANY OR A CO-OPERATIVE SOCIETY OR A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860 (21 OF 1860) OR UN DER ANY LAW CORRESPONDING TO THAT ACT IN FORCE IN ANY PART OF INDIA) IN THE WHOLE OR ANY PART OF THE INCOME OF SUCH ASSOCIATION OR BODY ARE INDETERMINATE OR UNKNOWN, TAX SHALL BE CHARGED ON T HE TOTAL INCOME OF THE ASSOCIATION OR BODY AT THE MAXIMUM MARGINAL RATE : PLAIN READING OF SECTION 167B OF THE ACT INDICATE S THAT THE INCOME OF COMPANY OR COOPERATIVE SOCIETY OR A SOCIE TY REGISTERED UNDER ITA NO.369 /VIZAG/2016 VIDYODAYA EDUCATIONAL SOCIETY, VSKP 8 SOCIETIES ACT OF 1860 ARE EXCLUDED FROM CHARGING TH E TAX AT MAXIMUM MARGINAL RATE ( MMR ) AND WOULD BE CHARGEABLE AT N ORMAL RATES. IN THE SIMILAR FACTS AND CIRCUMSTANCES, THE COORDINATE BENCH OF ITAT IN ITA NOS.212 TO 215/VIZAG/2014 IN THE CASE OF SRI LAKSHM IGANAPATHI SEVA SAMITHI VS. CIT DATED 26.8.2016 HELD THAT IN CASE O F SOCIETY, THE APPLICATION OF MAXIMUM MARGINAL RATE DOES NOT ARISE . FOR READY REFERENCE, WE REPRODUCE THE EXTRACT OF RELEVANT PAR T OF THE ORDER OF THE TRIBUNAL IN PARA NO.13 WHICH READS AS UNDER: 13. ..AS REGARDS THE APPLICABILITY OF MAXIMUM MA RGINAL RATE OF TAX IS CONCERNED, THE CIT WAS OF THE OPINION THAT THE A .O. OUGHT TO HAVE APPLIED MAXIMUM MARGINAL RATE OF TAX TO THE INCOME OF THE SOCIETY. BUT, THE FACT IS THAT ONCE THE SOCIETY IS REGISTERED UND ER THE SOCIETIES REGISTRATION ACT, THE APPLICABILITY OF MAXIMUM MARG INAL RATE DOES NOT ARISE, IT IS BECAUSE THE SOCIETIES ARE REGISTERED U NDER THE SOCIETIES REGISTRATION ACT ARE PROHIBITED FROM DISTRIBUTION O F ANY SURPLUS TO ITS MEMBERS. ONCE THE DISTRIBUTION OF PROFIT TO ITS ME MBERS IS PROHIBITED, THE QUESTION OF DETERMINATION OF SHARE OF EACH INDIVIDU AL MEMBER DOES NOT ARISE. HENCE, THE CIT WAS NOT CORRECT IN COMING TO THE CONCLUSION THAT THE RATE OF TAX APPLICABLE TO THE ASSESSEE IS MAXIM UM MARGINAL RATE OF TAX WITHOUT UNDERSTANDING THE PROVISIONS. 11. THE ASSESSEE IS A SOCIETY REGISTERED UNDER SO CIETIES ACT, 1860 AS EVIDENCED FROM THE REGISTRATION CERTIFICATE. THE FA CTS ARE SIMILAR IN THIS CASE, THEREFORE, FOLLOWING THE DECISION OF COO RDINATE BENCH AND SECTION 167B OF THE ACT, WE HOLD THAT THE INCOME OF THE ASSESSEE IS TO BE TAXED AT NORMAL RATES BUT NOT AT MAXIMUM MARGINA L RATE, ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT( A) AND ALLOW THE APPEAL OF THE ASSESSEE ON THIS GROUND. ITA NO.369 /VIZAG/2016 VIDYODAYA EDUCATIONAL SOCIETY, VSKP 9 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 26 TH APR18. SD/- SD/- ( . ) ( . .. . . . . . ' ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 26.04.2018 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT VIDYODAYA EDUCATIONAL SOCIETY, C HINNAMUSHIDIVADA, VISAKHAPATNAM 2. / THE RESPONDENT THE DCIT, CIRCLE-4(1), VISAKHAP ATNAM 3. + / THE PR. CIT-2,VISAKHAPATNAM 4. + ( ) / THE CIT (A)-2, VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM