ACIT, Palakkad V. M/s.Al Ameen Educational Trust, Palakkad

ITA 464/COCH/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68992 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-10-2013
• Assessment Year: 2010-2011
• Appeal Filed On: 11-07-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: K KITTU
• Keywords: Charitable institution
• Section: 12AA; 12; 11

Judgement Text

1 ITA NO. 464/COCH/2013 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO.464/COCH/2013 (ASSESSMENT YEAR 2010-11) A.C.I.T., CIR.1 VS M/S AL AMEEN EDUCATIONAL PALAKKAD TRUST, KULAPPULLY, SHORNUR PALAKKAD DIST. PAN : AABTA0780A (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. LATHA V KUMAR RESPONDENT BY : SHRI K KITTU DATE OF HEARING : 10-10-2013 DATE OF PRONOUNCEMENT : 25-10-2013 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A)-V, KOCHI DATED 05-04-2013 AND PERTAINS TO ASSESSMENT Y EAR 2010-11. 2. SMT. LATHA V KUMAR, THE LD.DR SUBMITTED THAT THE ASSESSING OFFICER REJECTED THE CLAIM OF EXEMPTION U/S 11 OF THE ACT O N THE GROUND THAT THE EDUCATIONAL ACTIVITY IS ANCILLARY OR INCIDENTAL TO THE OBJECT OF THE TRUST. THEREFORE, THE ASSESSEE IS NOT PERFORMING ANY CHARI TABLE ACTIVITY FOR THE PURPOSE OF CLAIMING EXEMPTION U/S 11 OF THE ACT. A CCORDING TO THE LD.DR, 2 ITA NO. 464/COCH/2013 THE ASSESSEE, WITHOUT ENGAGING ITSELF IN ANY CHARIT ABLE ACTIVITY IS CLAIMING EXEMPTIONS U/S 11 & 12 OF THE ACT. THE LD.DR POINT ED OUT THAT MERE REGISTRATION U/S 12AA DOES NOT AUTOMATICALLY EXEMPT THE INCOME OF THE ASSESSEE. THE ASSESSING OFFICER, FOR THE PURPOSE O F GRANTING EXEMPTION, IS BOUND TO EXAMINE THE EXPENDITURE INCURRED BY THE AS SESSEE AND WHETHER THERE IS ANY VIOLATION OF SECTIONS 11, 12 AND 13 OF THE ACT NEEDS TO BE EXAMINED BY THE ASSESSING OFFICER. HOWEVER, THE CI T(A) FOUND THAT ONCE REGISTRATION WAS GRANTED, THE ASSESSING OFFICER CAN NOT GO BEYOND THE REGISTRATION. ACCORDING TO THE LD.REPRESENTATIVE, NO DOUBT, THE ASSESSING OFFICER CANNOT GO BEYOND THE REGISTRATION, BUT AT T HE SAME TIME REGISTRATION U/S 12AA ALONE DOES NOT AUTOMATICALLY EXEMPT THE IN COME OF THE ASSESSEE. REGISTRATION, ACCORDING TO THE LD.DR, MA Y BE A FACTOR TO IDENTIFY THE ASSESSEE AS A CHARITABLE INSTITUTION BUT WHETHE R THE ASSESSEE IS ACTUALLY PERFORMING CHARITABLE ACTIVITY OR NOT NEED S TO BE EXAMINED IN THE ASSESSMENT PROCEEDINGS. THEREFORE, THE CIT(A) IS N OT JUSTIFIED IN ALLOWING THE APPEAL OF THE ASSESSEE. 3. ON THE CONTRARY, SHRI K KITTU, THE LD.REPRESENTA TIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS RUNNING AN EDUCATION AL INSTITUTION. IN FACT, ACCORDING TO THE LD.REPRESENTATIVE, THE ASSESSEE IS RUNNING AN ENGINEERING COLLEGE. THEREFORE, THE ASSESSEE IS A CHARITABLE I NSTITUTION WITHIN THE MEANING OF SECTION 2(15) OF THE ACT SINCE A SYSTEMA TIC EDUCATION IS PARTED 3 ITA NO. 464/COCH/2013 WHICH RESULTED IN CONFORMATION OF A DEGREE OF RECOG NISED UNIVERSITY. THE LD.REPRESENTATIVE SUBMITTED THAT ONCE REGISTRATION WAS GRANTED U/ 12AA OF THE ACT, THE ASSESSING OFFICER CANNOT GO BEYOND THE REGISTRATION. THE LD.REPRESENTATIVE PLACED HIS RELIANCE ON THE JUDGME NT OF THE APEX COURT IN THE CASE OF ACIT VS SURAT CITY GYMKHANA (2008) 300 ITR 214 (SC) AND SUBMITTED THAT THE REGISTRATION OF TRUST U/S 12AA O F THE ACT IS A FAIT ACCOMPLI AND THE ASSESSING OFFICER CANNOT THEREAFTER MAKE AN Y FURTHER PROBE INTO THE OBJECT OF THE TRUST. THE LD.REPRESENTATIVE HAS ALS O PLACED RELIANCE ON THE JUDGMENT OF THE MADHYA PRADESH HIGH COURT IN MADHYA PRADESH MADHYAM VS CIT (2002) 256 ITR 278 (MP) AND SUBMITTE D THAT ONCE REGISTRATION WAS GRANTED AS A CHARITABLE INSTITUTIO N THE ASSESSING OFFICER CANNOT GO BEYOND THE REGISTRATION IN THE ASSESSMENT PROCEEDINGS. ACCORDING TO THE LD.REPRESENTATIVE, RUNNING AN ENGI NEERING COLLEGE ITSELF IS A CHARITABLE ACTIVITY; THEREFORE, THE ASSESSING OFF ICER IS NOT JUSTIFIED IN SAYING THAT THE ASSESSEE HAS NOT DONE ANY CHARITABL E ACTIVITY. ACCORDING TO THE LD.REPRESENTATIVE, THE ASSESSING OFFICER HAS OVERSTEPPED HIS POWERS IN ASSESSING THE TRUST BY SUBJECTING THE ENTIRE INC OME TO TAX. ACCORDING TO THE LD.REPRESENTATIVE, THE ASSESSEE IS UTILIZING 85 % OF THE INCOME FOR CHARITABLE PURPOSE, VIZ. RUNNING OF ENGINEERING COL LEGE. THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE. 4 ITA NO. 464/COCH/2013 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NO T IN DISPUTE THAT THE ASSESSEE IS RUNNING AN ENGINEERING COLLEGE. NO DOU BT, RUNNING AN ENGINEERING COLLEGE AFTER GETTING NECESSARY APPROVA L FROM THE CONCERNED REGULATORY AUTHORITY AND AFFILIATION FROM THE CONCE RNED UNIVERSITY IS A CHARITABLE ACTIVITY. THEREFORE, THE ASSESSING OFFI CER MAY NOT BE CORRECT IN SAYING THAT THE ASSESSEE IS NOT CARRYING OUT ANY CH ARITABLE ACTIVITY. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT RUNNING A RECOGNIZED ENGINEERING COLLEGE AFTER GETTING NECESSARY APPROVAL FROM RESPE CTIVE AUTHORITIES ITSELF IS A CHARITABLE ACTIVITY. 5. THE CIT(A), HOWEVER, FOUND THAT ONCE REGISTRATIO N WAS GRANTED, THE ASSESSING OFFICER CANNOT GO BEYOND THE REGISTRATION . NO DOUBT, THE ASSESSING AUTHORITY CANNOT GO BEYOND THE REGISTRATI ON GRANTED BY THE COMMISSIONER OF INCOME-TAX. BUT AT THE VERY SAME T IME, THE CIT(A) PRESUMED THAT THE REGISTRATION GRANTED BY COMMISSIO NER OF INCOME-TAX WOULD EXEMPT THE ENTIRE INCOME OF THE ASSESSEE AUTO MATICALLY. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT REGISTRA TION U/S 12AA IS ONLY TO IDENTIFY A CHARITABLE INSTITUTION AND MERE GRANT OF REGISTRATION WILL NOT AUTOMATICALLY EXEMPT THE ENTIRE INCOME OF THE ASSES SEE. THE INCOME OF THE ASSESSEE HAS TO BE EXEMPTED BY THE ASSESSING OF FICER BY EXAMINING THE ENTIRE RECEIPTS AND EXPENDITURE FOR THE YEAR UN DER CONSIDERATION AND 5 ITA NO. 464/COCH/2013 WHETHER THE ASSESSEE HAS VIOLATED SECTIONS 11, 12 A ND 13 OF THE ACT ALSO NEEDS TO BE EXAMINED. THE POWER OF THE ASSESSING O FFICER TO EXAMINE THE RECEIPTS AND EXPENDITURE OF THE ASSESSEE FOR THE PU RPOSE OF EXEMPTIONS UNDER SECTIONS 11, 12 AND 13 OF THE ACT HAS NOTHING TO DO WITH THE REGISTRATION GRANTED U/S 12AA OF THE ACT. EVEN THO UGH REGISTRATION U/S 12AA WAS GRANTED, IF THE ASSESSEE VIOLATED THE PROV ISIONS OF SECTIONS 11, 12 AND 13 OF THE ACT, THIS TRIBUNAL IS OF THE CONSI DERED OPINION THAT THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION. 6. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMENT OF THE APEX COURT IN SURAT CITY GYMKHANA (SUPRA). IN THIS CASE, THE CASE OF THE REVENUE WAS REJECTED ON THE GROUND THAT THE REVENUE DID NOT CHALLENGE THE CORRECTNESS OF THE DECISION OF THE GUJARAT HIGH COU RT. NO DECISION WAS RENDERED ON MERIT. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE JUDGMENT OF THE APEX COURT IN THE CASE OF SURAT CITY GYMKHANA (SUPRA) MAY NOT BE APPLICABLE TO THE FACTS OF THE C ASE. 7. WE FIND THAT THE APEX COURT IN THE CASE OF AMERI CAN HOTELS & LODGING EDUCATIONAL INSTITUTE VS CBDT (2008) 301 IT R 86 (SC) HAD AN OCCASION TO CONSIDER AN IDENTICAL ISSUE. THE APEX COURT FOUND THAT FOR GRANT OF EXEMPTION U/S 10(22), EXISTENCE OF EDUCATI ONAL INSTITUTION WAS A PRECONDITION. REFERRING TO THE JUDGMENT OF THE APE X COURT IN CIT VS SURAT 6 ITA NO. 464/COCH/2013 ART SILK CLOTH MANUFACTURERS ASSOCIATION (1980) 121 ITR 1 (SC), THE APEX COURT FOUND THAT THE TEST OF PREDOMINANT OBJECT OF THE ACTIVITY IS TO BE SEEN WHETHER IT EXISTS SOLELY FOR EDUCATION AND NOT TO E ARN PROFIT. HOWEVER, THE PURPOSE WOULD NOT LOSE ITS CHARACTER MERELY BECAUSE SOME PROFIT ARISES FROM THE ACTIVITY. THAT, IT IS NOT POSSIBLE TO CAR RY ON EDUCATIONAL ACTIVITY IN SUCH A WAY THAT THE EXPENDITURE EXACTLY BALANCES TH E INCOME AND THERE IS NO RESULTANT PROFIT, FOR, TO ACHIEVE THIS, WOULD NO T ONLY BE DIFFICULT OF PRACTICAL REALIZATION BUT WOULD REFLECT UNSOUND PRI NCIPLES OF MANAGEMENT. IN ORDER TO ASCERTAIN WHETHER THE INSTITUTE IS CARR IED ON WITH THE OBJECT OF MAKING PROFIT OR NOT IT IS DUTY OF THE PRESCRIBED A UTHORITY TO ASCERTAIN WHETHER THE BALANCE OF INCOME IS APPLIED WHOLLY AND EXCLUSIVELY TO THE OBJECTS FOR WHICH THE APPLICANT IS ESTABLISHED. 8. THEREFORE, THE CIT(A) MAY NOT BE CORRECT IN SAYI NG THAT THE ASSESSING OFFICER CANNOT EXAMINE THE ISSUE ONCE REG ISTRATION WAS GRANTED. REGISTRATION U/S 12AA IS ONLY TO IDENTIFY AN INSTIT UTION AS CHARITABLE INSTITUTION AND SUCH REGISTRATION WILL NOT AUTOMATI CALLY EXEMPT THE INCOME OF THE INSTITUTION. THE ASSESSING OFFICER IS BOUND TO EXAMINE THE INCOME OF THE CHARITABLE INSTITUTION WHICH WAS REGISTERED U/S 12AA AND FIND OUT WHETHER ASSESSEE HAS VIOLATED SECTIONS 11, 12 AND 1 3 OF THE ACT. THE RECEIPT AND EXPENDITURE OF THE INSTITUTION ALSO NEE DS TO BE ASCERTAINED WHETHER THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WAS PROPERLY 7 ITA NO. 464/COCH/2013 APPLIED FOR CHARITABLE PURPOSE. IT IS ALSO NEED TO BE EXAMINED WHETHER THERE WAS ANY VIOLATION OF SECTIONS 11, 12 AND 13 O F THE ACT. IF THERE IS ANY VIOLATION OF SECTIONS 11, 12 AND 13 OF THE ACT, THE ASSESSING OFFICER IS ENTITLED TO DENY THE EXEMPTION EVEN THOUGH REGISTRA TION U/S 12AA OF THE ACT WAS GRANTED. THE ASSESSING OFFICER, OF COURSE, CAN NOT CANCEL THE REGISTRATION GRANTED BY THE COMMISSIONER OF INCOME- TAX. HOWEVER, HE MAY PLACE THE MATTER BEFORE THE COMMISSIONER OF INC OME-TAX FOR INITIATING PROCEEDINGS FOR CANCELLING THE REGISTRATION GRANTED U/S 12AA(3) OF THE ACT. THEREFORE, WHAT IS REQUIRED FIRST IS THE ASSESSIN G OFFICER HAS TO EXAMINE THE RECEIPT AND EXPENDITURE OF THE ASSESSEE IN THE LIGHT OF PROVISIONS OF SECTIONS 11, 12 AND 13 OF THE ACT. IT IS ALSO NECE SSARY TO ASCERTAIN WHETHER THE ASSESSEE HAS COLLECTED ANY MONEY OVER AND ABOVE THE PRESCRIBED FEE FOR ADMISSION OF THE STUDENTS. SINCE SUCH AN EXERC ISE WAS NOT DONE BY THE LOWER AUTHORITIES, THIS TRIBUNAL IS OF THE CONSIDER ED OPINION THAT THE ASSESSING OFFICER HAS TO RECONSIDER THE MATTER AFRE SH. ACCORDINGLY, THE ORDERS OF LOWER AUTHORITIES ARE SET ASIDE AND THE I SSUE OF EXEMPTION IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RECONSIDERATION. THE ASSESSING OFFICER SHALL RE-EXAMINE THE MATTER WITH REGARD TO RECEIPTS AND EXPENDITURE OF THE ASSESSEE IN THE LIGHT OF PROVISI ONS OF SECTIONS 11, 12 AND 13 OF THE ACT AND THEREAFTER DECIDE THE SAME AF RESH IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF HEA RING TO THE ASSESSEE. 8 ITA NO. 464/COCH/2013 9. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 TH OCTOBER, 2013. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 25 TH OCTOBER, 2013 PK/- COPY TO: 1. A.C.I.T., CIR.1, PALAKKAD 2. M/S AL-AMEEN EDUCATIONAL TRUST, KULAPPULLY, SHOR NUR, PALAKKAD DIST 3. THE COMMISSIONER OF INCOME-TAX, THRISSUR 4. THE COMMISSIONER OF INCOME-TAX(A)-V, 2 ND FLOOR, SAN JUAN TOWERS, OLD RAILWAY STATION ROAD, ERNAKULAM NORTH, KOCHI 682 018 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH