Rajamala Educational Society, Gurgaon V. CIT, Faridabad

ITA 4485/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 9651 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 27-01-2010
• Assessment Year: 2009-2010
• Appeal Filed On: 26-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Assessee Lawyers: P D MITTAL
• Keywords: Capital asset; Depreciation; Charitable institution; Capital expenditure
• Section: 80G; 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `F : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI B.P. JAIN, ACCOUNTANT MEMBER I.T.A. NO.4485/DEL/2009 ASSESSMENT YEAR : 2009-10 RAJMALA EDUCATIONAL SOCIETY, COMMISSIONER OF INCOM E-TAX, SHAIL FARMS, FARUKH NAGAR. VS. FARIDABAD, HARYANA . GURGAON (HARYANA), PAN: AAATR8149K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P.D. MITTAL, CA RESPONDENT BY : SHRI H.K. LAL, SR. DR. O R D E R PER B.P. JAIN, ACCOUNTANT MEMBER. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX, FARIDABAD, DATED 09.10. 2009 UNDER SECTION 80G OF THE INCOME-TAX ACT, 1961 READ WITH RULE 11AA (5) OF THE INCOME TAX RULES, 1962. 2. SINCE THE ISSUE INVOLVED IS IDENTICAL, ALL THE G ROUNDS RAISED BY THE ASSESSEE ARE TAKEN TOGETHER. GROUND NOS. 1 TO 4 RE AD AS UNDER:- 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX, FA RIDABAD HAS FAILED TO APPRECIATE THE FACTS OF THE CASE & HA S DISMISSED/REJECTED THE APPLICATION FOR APPROVAL U/S 80G READ WITH RULE 11AA(5) OF I.T. RULES, 1962, WITHOUT APPR ECIATING THE FACTS I) THE SOCIETY IS RUNNING A HIGHER SECOND ARY SCHOOL 2 DULY RECOGNIZED BY CENTRAL BOARD OF SECONDARY EDUCA TION GOVT. OF INDIA II) DULY CONSTITUTED UNDER THE SOCIE TIES ACT III) HAVING EXCESS OF GROSS RECEIPTS ON ACCOUNT OF TUITI ON FEE & OTHER CHARGES RECOVERED FROM STUDENTS OVER THE ACTU AL EXPENDITURE TOWARDS IMPARTING THE EDUCATION BEING V ERY NOMINAL AS PER DETAILS BELOW PARTICULARS F.Y. 2008-09 F.Y. 2007-08 F.Y. 2006-07 GROSS RECEIPTS AS PER INCOME & EXPENDITURE ACCOUNT 8548682 14317623 6864331 LESS: DONATION TOWARDS CORPUS 1006024 9288899 380A4585 RECEIPTS OTHER THAN DONATIONS TOWARDS CORPUS BUT INCLUDING INTEREST INCOME & TUITION FEE OTHER CHARGES RECOVERED FROM STUDENT 7542658 5028724 3059746 SCHOOL ADMINISTRATION EXPENSES INCLUDING SALARY TO TEACHERS EXCEPT DEPRECIATION 5505724 4861201 3756287 DEPRECIATION 3042958 1804040 1183149 NET INCOME AFTER EXCLUDING DONATION TOWARDS CORPUS & AFTER REDUCING ALL EXP. INCLUDING DEPRECIATION. (1006024) (1636517) (1879690) 3 3. THE LEARNED COMMISSIONER OF INCOME-TAX, FARIDABA D DENIED THE APPROVAL UNDER SECTION 80G OF THE ACT TO THE ASSESS EE BEING AN EDUCATIONAL SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT FOR IMPARTING EDUCATION TO THE CHILDREN UNDER THE NAME AND STYLE AS RAJMALA SENIOR SECONDARY SCHOOL AT GURGAON. THE ASSESSEE HAD BEEN GRANTED REGISTRATION UNDER SECTION 12AA OF THE ACT. THE LEARNED COMMISS IONER OF INCOME-TAX OBSERVED THAT THE ASSESSEE HAD UTILIZED/APPLIED FUN DS TOWARDS CHARITY DURING THE FINANCIAL YEARS 2008-09, 2007-08 AND 2006-07 ON LY 64%, 34% & 54% RESPECTIVELY OF THE GROSS RECEIPTS OF THE FUNDS. T HE SURPLUS HAS BEEN UTILIZED MAINLY ON CAPITAL ACCOUNT. THE EXPENSES INCURRED O N CAPITAL ACCOUNT DOES NOT CONSTITUTE THE APPLICATION/UTILIZATION OF FUNDS FOR CHARITABLE PURPOSE. THE ASSESSEE HAS INVESTED IN CONSTRUCTION OF SCHOOL BUI LDING AND PURCHASE OF CAPITAL ASSETS MAINLY THE BUSES, WHICH DOES NOT CON STITUTE APPLICATION OF FUNDS FOR CHARITABLE PURPOSE. THE ASSESSEE HAS TO APPLY THE FUNDS TO THE EXTENT OF 85% AND CAN ACCUMULATE UPTO 15% OF THE RE CEIPTS IN NORMAL COURSE. THE ASSESSEE HAS NOT SUBMITTED ANY INTIMAT ION IN FORM NO.10 WHICH WAS MANDATORY. EXPLANATION SUBMITTED BY THE ASSESS EE WAS NOT SATISFACTORY AND THE LEARNED CIT ULTIMATELY HELD THAT THE SOCIET Y HAS VIOLATED THE 4 PROVISIONS OF SECTION 11(2) OF THE ACT AND ACCORDIN GLY REJECTED THE CLAIM OF THE SOCIETY UNDER SECTION 80G OF THE ACT. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI P.D. M ITTAL POINTED OUT PARA 4 WHERE THE LEARNED COMMISSIONER OF INCOME-TAX HAS REPRODUCED A CHART WHERE HE HAS EXCLUDED DEPRECIATION AND CAPITAL EXPE NSES OUT OF THE RECEIPTS. THE SAID CHART IS REPRODUCED FOR THE SAKE OF CLARIT Y AS UNDER:- FINANCIAL YEAR GROSS RECEIPTS EXPENSES EXCLUDING DEPRECIATION SURPLUS % OF APPLICATION OF FUNDS AMOUNT OF CAPITAL EXPENSES NOT ALLOWABLE AS APPLICATION OF FUND 2008-09 85,48,682 55,05,724 30,42,958 64% 39,53,262 2007-08 1,43,17,623 48,61,201 76,52,382 34% 79,72,860 2006-07 68,64,331 37,56,287 19,24,895 54% 49,71,773 IT WAS ARGUED THAT THE DEPRECIATION AND CAPITAL EXP ENSES ARE APPLICATION OF FUNDS OF THE INSTITUTION. THE LEARNED DR SHRI H.K. LAL ON THE OTHER HAND, SUPPORTED THE ORDER OF THE LD. CIT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. AS REGARDS DEPRECIATION THE L EARNED COUNSEL FOR THE ASSESSEE POINTED OUT AT PAGES 27, 19 & 9 FOR THE F. Y. 2006-07, 2007-08 AND 2008-09 AS PER SCHEDULE OF FIXED ASSETS, DEPRECIATI ON CLAIMED AT RS.11,83,149/-, RS.18,04,040/-AND RS.40,42,958/- RE SPECTIVELY. IN VIEW OF 5 THE DECISIONS OF VARIOUS COURTS OF LAW WHERE DEPREC IATION HAS BEEN CONSIDERED AS APPLICATION OF INCOME IN THE HANDS OF CHARITABLE INSTITUTIONS I.E. IN THE CASES OF (1) CIT VS. MANILAL RANCHHOLDD AS VISHRAM BHAWAN TRUST, 190 ITR 598 (GUJ.); (2) CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION, 264 ITR 110 (BOM.); & (3) CIT VS. RAIPUR PALLOTTINE SOCIETY, 180 ITR 579 (MP). THEREFORE, THE DEPRECIATION HAS TO B E CONSIDERED AS THE APPLICATION OF INCOME IN THE PRESENT CASE IN VIEW O F THE DECISION CITED HEREIN BEFORE. AS REGARDS CAPITAL EXPENDITURE OUR ATTENTI ON WAS INVITED TO THE AIMS AND OBJECTS OF THE SOCIETY AT PAGE 35 OF THE PAPER BOOK WHICH ARE REPRODUCED AS UNDER:- (A) TO OPEN NURSERY, PRIMARY, HIGHER & HIGHER SECONDARY SCHOOLS, DEGREE COLLEGE FOR POOR AND NEEDFUL PEOPLE. (B) TEACHING OF MODERN ARTS AND MODERN STUDY. (C) TEACHING & PRACTICING FROM ORCHARD, HORTICULTURE AN D OTHER AGRO RELATED ACTIVITIES. (D) TEACHING OF IDEOLOGY OF GREAT INDIAN SAINTS LEADERS & EDUCATION. (E) TO IMPROVE PUPILS MENTAL, PHYSICAL AND MORAL GROWTH THOUGH CULTURAL ACTIVITIES. (F) TO HELP THE PUPILS DEVELOP THEIR INNER QUALITIES AN D SPIRIT OF A CREATIVE LEADERSHIP. (G) TO OBTAIN MONEY FOR THE AIMS AND OBJECTS OF THE SOC IETY IN THE LAWFUL MANNER SUCH AS DONATIONS ETC. (H) TO DO ALL SUCH ACTS TO PROMOTE STUDY AND RESEARCH. 6 (I) TO DO ALL SUCH THINGS AS ARE IDENTICAL AND CONDUCTI VE FOR ATTAINMENT OF THE ABOVE OBJECTS OR ANY OF THEM. (J) TO EMPLOY AND/OR REMOVE ANY STAFF OR EMPLOYEE OF TH E SCHOOL/INSTITUTION UNDER THE CONTROL OF THE SOCIETY . (K) TO ACT FOR WELFARE OF THE STUDENTS AND TO PROMOTE E XTRA CULTURAL ACTIVITIES AMONG THE STUDENTS. (L) TO RECEIVE AND/OR DISBURSE AND/OR INVEST AND ARRANG E FOR SAFE CUSTODY OF THE FUNDS COMING IN THE HANDS OF THE SOCIETY. THE ASSESSEE HAS INCURRED THE EXPENDITURE ON CONSTR UCTING THE SCHOOL BUILDING AND ITS EXPANSION DURING THE SAID FINANCIA L YEARS AND FOR ACQUIRING THE BUS FOR CARRYING THE CHILDREN FROM AND TO SCHOO L AND HOME. THE FINDINGS OF THE LEARNED CIT THAT SUCH CAPITAL EXPENDITURE IS NOT AN APPLICATION OR UTILIZATION OF FUNDS CANNOT BE ACCEPTED SINCE WITHO UT HAVING THE BUILDING OF THE SCHOOL OR BUS, IT IS NOT POSSIBLE FOR THE SOCIE TY TO RUN THE SCHOOL. THEREFORE, SAID ACTIVITY IS WELL WITHIN THE AIMS AN D OBJECTS OF THE ASSESSEE EDUCATION SOCIETY. THEREFORE, IF THE DEPRECIATION A ND SUCH CAPITAL EXPENDITURE IS DEDUCTED OUT OF THE GROSS RECEIPTS SHOWN IN THE CHART REPRODUCED BY THE LEARNED CIT(A) HEREIN BEFORE, THE SURPLUS COMES TO A NEGATIVE FIGURE AND THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE HAS ACCUMULATED ANY AMOUNT IN THE PRESENT CIRCUMSTANCES AND FACTS OF THE CASE AND THE INTIMATION IN FORM 10, THEREFORE, IS NOT REQUIRED TO BE SUBMITTED BEFO RE THE COMMISSIONER OF 7 INCOME-TAX. MOREOVER, THE ASSESSEE IS ENJOYING THE EXEMPTION UNDER SECTION 12AA AND THERE IS NOTHING ON RECORD TO PROVE THAT T HE SAME HAS BEEN WITHDRAWN. IN THE CIRCUMSTANCES AND FACTS OF THE C ASE THE LEARNED COMMISSIONER OF INCOME-TAX IS NOT JUSTIFIED IN DENY ING THE APPROVAL UNDER SECTION 80G OF THE ACT. THE CASES RELIED UPON BY T HE LEARNED CIT ARE ALSO NOT APPLICABLE TO THE PRESENT SET OF FACTS. WE DIR ECT THE LEARNED COMMISSIONER OF INCOME-TAX TO GRANT APPROVAL UNDER SECTION 80G OF THE ACT ACCORDINGLY. THUS GROUND NOS. 1 TO 4 OF THE ASSESS EE ARE ALLOWED. 6. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 29 TH JANUARY, 2010. SD/- SD/- (I.P. BANSAL) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29 TH JANUARY, 2010. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.