The Himland Educational Society (Regd.), Sangrur V. ITO, Sunam

ITA 445/CHANDI/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68395 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-07-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 02-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K GARG
• Assessee Lawyers: N K SAINI
• Keywords: Capital asset; Depreciation; Charitable institution
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, A.M AND MS. SUSHMA CHOWLA, JM ITA NO. 445/CHD/2011 ASSESSMENT YEAR : 2007-08 THE HIMLAND EDUCATIONAL V I.T.O. SOCIETY (REGD) SUN AM SANGRUR ROAD, DIRBA TEHSIL SUNAM SANGRUR AAAAH 0150K (APPELLANT) (RESPONDENT) DEPARTMENT BY SHRI N.K. GARG ASSESSEE BY: SHRI N.K. SAINI DATE OF HEARING 11.7.2013 DATE OF PRONOUNCEMENT 2.8.2013 O R D E R PER T.R.SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER DATED 22. 2.2011 OF THE LD. CIT(A), PATIALA. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1 THAT THE LD. APPELLATE AUTHORITY ERRONEOUSLY CONFIRMED THE DISALLOWANCE OF EXEMPTION CLAIMED U/S 10(28C)(IIIAD) ON THE GROUND THAT APPELLANT CLAIMED EXEMPTION U/S 10(23C)(IIIAD) WHEREAS THE CASE DECID ED BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IS U/S 10(23C)(VI) AND NOT APPLICABLE AGAINST THE FACTS AN D CIRCUMSTANCES OF THE CASE. 2 THAT THE LD. APPELLATE AUTHORITY ERRONEOUSLY HELD THAT APPELLANT MADE SYSTEMATIC PROFITS WHICH ARE NO T COVER SOLELY FOR EDUCATIONAL PURPOSES WITHOUT CONSIDERI NG THE PLEADINGS AND EVIDENCE ON RECORD. 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASS ESSEE HAS CLAIMED DEDUCTION U/S 10(23C)(IIIAD) OF THE ACT. H E OBSERVED THAT THIS PROVISION APPLIES ONLY TO THE CASES WHERE THE 2 INSTITUTION EXITED SOLELY FOR THE PURPOSE OF EDUCAT ION. HOWEVER, THE ASSESSEE HAD PURCHASED THE BOOKS AND UNIFORMS A MOUNTING TO RS. 4,57,803/- AND SOLD THE SAME FOR RS. 4,67,38 3/- WHICH SHOWS THAT THE ASSESSEE WAS NOT EXISTING SOLELY FOR THE PURPOSE OF EDUCATION. FURTHER IT WAS NOTICED THAT THE ASSESSEE IS GENERATING SOME SURPLUS AFTER MEETING THE EXPEND ITURE AND THE DETAILS HAVE BEEN GIVEN BY THE ASSESSING OFFICE R AT PARA 2 WHICH ARE AS UNDER: F.Y. GROSS RECEIPT NET INCOME AFTER DEBITING DEPRECIATION INCOME BEFORE DEPRECIATION CAPITAL INVESTMENT 2005- 06 64,79,579 1,83,813 (2.83%) 10,29,884 (15.89%) 9,03,052 2006- 07 78,40,347 8,32,990(10.62%) 20,23,715 (25.81%) 7,30,139 ACCORDING TO THE ASSESSING OFFICER IN VIEW OF THESE SURPLUSES THE DECISION OF HON'BLE UTTRAKHAND HIGH COURT IN C ASE OF CIT V. QUEENS EDUCATIONAL SOCIETY (2009) 319 ITR 160 (UTTRAKHAND) WOULD BE APPLICABLE WHEREIN IT WAS HEL D THAT IN CASE OF EARNING SYSTEMATIC PROFITS HEREINAFTER WOUL D DISENTITLE THE INSTITUTE FROM CLAIMING THE DEDUCTION U/S 10(23 C)(VI). HE ALSO NOTICED THAT THE ASSESSEE HAS DEBITED DEPRECIA TION IN THE INCOME AND THE EXPENDITURE ACCOUNT WHICH SHOWS THAT THE ASSESSEE WAS PREPARING ACCOUNTS IN THE COMMERCIAL M ANNER AND THEREFORE, THE ASSESSEE WILL NOT BE ENTITLED T O DEDUCTION. IN THIS REGARD HE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN CASE OF MUNICIPAL CORPORATION OF DELHI V. CHILDREN BOOKS TRUST WHEREIN IT WAS HELD AS UNDER: THE VERY FACT THE TAX PAYER SOCIETY HAS CLAIMED D EPRECIATION IN THE INCOME AND EXPENDITURE ACCOUNT OF THE SCHOOL SHOWS THAT WHAT THEY ARE PREPARING IS NOT THE INCOME AND EXPENDITURE ACCOUNT BUT A PROFIT AND LOSS ACCOUNT AS IS DONE IN COMMERCIAL 3 ESTABLISHMENT. DEPRECIATION IS NOT EXPENDITURE BUT IS ONLY A DEDUCTION AT THE RATE OF CERTAIN PERCENTAGE OF THE CAPITAL ASSETS FOR ARRIVING AT PROFIT AND GAINS OF THE BUSI NESS. IN VIEW OF ABOVE THE DEDUCTION U/S 10(23C)(IIIAD) W AS DENIED. 4 ON APPEAL IT WAS MAINLY SUBMITTED THAT DEDUCTION U/S 19(23C)(IIIAD) WAS ALLOWED DURING ASSESSMENT YEAR 2 005-06. IT WAS SUBMITTED THAT THE PURCHASE AND SALE OF BOOKS A ND UNIFORM WAS PART OF INTEGRAL PROCESS OF IMPARTING EDUCATION . AS FAR AS GENERATING OF PROFITS IS CONCERNED, IT WAS ARGUED T HAT IN VIEW OF THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF PINEGROVE INTERNATIONAL CHARITABLE TRUST V UNION O F INDIA AND OTHERS, 327 ITR 73 (PH), THE DEDUCTION CANNOT BE DE NIED. THESE SUBMISSIONS WERE SENT BY THE LD. CIT(A) FOR T HE COMMENTS OF THE ASSESSING OFFICER AND IN THE REMAND REPORT IT WAS STATED THAT RATIO OF THE DECISION IN CASE OF PI NEGROVE INTERNATIONAL CHARITABLE TRUST V UNION OF INDIA AN D OTHERS ( SUPRA) IS NOT APPLICABLE. 5 THE LD. CIT(A) DID NOT FIND FORCE IN THE SUBMISSI ONS AND DECIDED THE ISSUE VIDE PARA 4.4 WHICH HIS AS UNDER: 4.4. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND RIVAL SUBMISSIONS OF BOTH THE A.O. IN HER REMAND RE PORT AND THE COUNSEL FOR THE APPELLANT IT IS SEEN THAT THE A PPELLANT HAD CLAIMED EXEMPTION US/10(23C)(IIIAD) AND THE JUDGMEN TS QUOTED BY THE LEARNED COUNSEL ARE IN RESPECT OF EXEMPTION U/S 10(23C(IV) AND ARE THEREFORE NOT APPLICABLE TO THE FACTS IN THIS CASE. THE A.O. HAS BEEN ABLE TO SHOW HOW THE APPELL ANT HAD MADE SYSTEMATIC PROFITS WHICH ARE NOT COVERED SOLE LY FOR EDUCATIONAL PURPOSES. IN VIEW OF THESE FINDINGS TH E ACTION OF THE A.O. IS UPHELD. 6 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT EXEMPTION U/S 19(23C)(IIIAD) HAS BEEN ALLOWED IN EA RLIER YEARS IN ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT. FURTHER HE CONTENDED THAT THE INSTITUTE WAS LOCATED IN A RURAL AREA AND IT W 4 AS NOT POSSIBLE FOR ALL THE STUDENTS TO GO TO THE D ISTT HEADQUARTERS OF SANGRUR OR SUNAM WHICH WAS 25 KMS A WAY FOR BUYING THE BOOKS AND UNIFORMS. AS FAR AS QUESTION O F SURPLUS IS CONCERNED, IT WAS SUBMITTED THAT HON'BLE PUNJAB & H ARYANA HIGH COURT HAS ALSO DISTINGUISHED THE DECISION IN C ASE OF CIT V. QUEENS EDUCATIONAL SOCIETY (SUPRA) IN CASE OF PINEGROVE INTERNATIONAL CHARITABLE TRUST V UNION OF INDIA AN D OTHERS ( SUPRA). IN ANY CASE IN SOME OF THE YEARS THE ASSES SEE HAS INCURRED LOSSES ALSO AND IN THIS REGARD HE REFERRED TO PAGE 4 OF THE PAPER BOOK. 7 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE STR ONGLY SUPPORTED THE ORDER OF ASSESSING OFFICER. 8 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. FIRSTLY THE EXEMPTION U/S 10(23C)(IIIAD) OF THE ACT HAS BEEN GI VEN TO THE ASSESSEE IN THE EARLIER YEARS IN THE IDENTICAL FACT S. SECONDLY PAGE 4 OF THE PAPER BOOK GIVES THE DETAILS OF SURPL US GENERATED WHICH READ AS UNDER: HIMLAND EDUCATIOAL SOCIETY (REGD.) SANGRUR ROAD, DIRBA, TEHSIL SUNAM, DIST SANGRUR: F.Y GROSS RECEIPTS EXCESS OF INCOME OVER EXPENDITURE AFTER DEP. EXCESS OF INCOME OVER EXPENDITURE BEFORE DEP. CAPITAL INVESTMENT DURING YEAR 2006-07 7840347.00 832900.00 2023715.00 730139.00 2005-06 6479579.00 183813.00 1029884.00 903052.00 2004-05 5042140.00 (-) 169940.00 (- )169940.00 1885357.00 2003-04 5106374.00 112414.00 1107018.00 1827991.00 2002-03 3901789.00 (- )813637.00 544539.00 408783.00 2001-02 2994080.00 243202.00 243202.00 1486098.00 2000-01 2245762.00 (-)7595.00 (-)7595.00 4685012.00 TOTAL 381157.00 4770828.00 11926432.00 5 ABOVE CLEARLY SHOW THAT IN SOME OF THE YEARS, NO SU RPLUS WAS GENERATED AND IN FACT THE EXPENDITURE EXCEEDED THE INCOME. IN ANY CASE THIS ISSUE HAS BEEN CONSIDERED BY HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF PINEGROVE INTERNATION AL CHARITABLE TRUST V UNION OF INDIA AND OTHERS ( SUPRA). IN THIS CASE AFTER THE DETAILED ANALYSIS THE DECISION IN CA SE OF CIT V. QUEENS EDUCATIONAL SOCIETY (SUPRA), WAS NOT ACCEPT ED. IN THIS CASE IT WAS CLEARLY HELD THAT WHERE SOME SURPL US WAS GENERATED WHILE IMPARTING EDUCATION THEN SUCH INSTI TUTION WOULD NOT CEASE TO EXIST SOLELY FOR EDUCATIONAL PURPOSE A ND THEREFORE, EXEMPTION U/S 10(23C) CANNOT BE DENIED. WE FURTHER FIND FORCE IN THE SUBMISSIONS THAT IF AN INSTITUTE IS LOCATED IN SOME RURAL AREA AND THEREFORE, THE STUDENTS ARE PROVIDED THE FACILITY OF BOOKS AND UNIFORM AT NOMINAL PROFIT THAT CANNOT LEA D TO THE CONCLUSION THAT SUCH INSTITUTE DOES NOT EXISTS SOLE LY FOR THE PURPOSE OF EDUCATION. FURTHER IT IS SETTLED LAW TH AT CHARITABLE INSTITUTIONS OR NON PROFIT INSTITUTIONS ARE ALSO EN TITLED TO DEPRECIATION AND CAN MAKE THEIR ACCOUNTS ON COMMERC IAL BASIS. IN THE LIGHT OF THESE OBSERVATIONS, WE ARE OF THE O PINION THAT THE ASSESSEE HAS BEEN WRONGLY DENIED THE EXEMPTION U/S 10(23C)(IIIAD) AND THEREFORE, WE SET ASIDE THE ORD ER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW TH E EXEMPTION. 9 IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2.8.2013 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 2.8.2013 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 6