ACIT, Rewari V. M/s Vivekanand Shaiksha Samiti, Rewari

ITA 472/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53002 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 18-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 28-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y K KAKKAR
• Assessee Lawyers: NARESH KR AGGARWAL
• Keywords: Capital asset; Charitable institution; Capital expenditure
• Section: 10

Judgement Text

ITA NO. 472/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 472/DEL/2011 A.Y. : 2007-08 ASSISTANT COMMISSIONER OF INCOME TAX, REWARI CIRCLE, AAYAKAR BHAVAN, MODEL TOWN, REWARI VS. M/S VIVEKANAND SHAIKSHA SAMITI, VPO DAHINA, REWARI (PAN: AAAAV3136B) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : NARESH KR. AGGARWAL, ADV. DEPARTMENT BY : Y.K. KAKKAR, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 29.11. 2010 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS READ AS UNDER:- (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LA W IN DELETING THE ADDITION OF ` 20,99,149/- MADE BY DISA LLOWING EXEMPTION U/S 10(23C)(IIIAD) WITHOUT APPRECIATING TH E FACTS OF THE CASE. ITA NO. 472/DEL/2011 2 (II) THAT THE APPELLANT CRAVES FOR THE PERMISSION T O ADD, DELETE OR AMEND THE GROUND OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 3. IN THIS CASE THE ASSESSEE SOCIETY IS RUNNING A S CHOOL IN THE NAME OF VIVEKANAND SR. SEC. SCHOOL, DAHINA. DURING THE YE AR UNDER CONSIDERATION, THE SOCIETY HAS DECLARED INCOME OVER EXPENDITURE AMOUNTING TO ` 20,99,149/ - AND CLAIMED WHOLE OF THE AMOUNT AS EXEMPT U/S 10(23C)(IIIAD) OF THE IT ACT. THE AO OBSE RVED THAT ON A PERUSAL OF INCOME & EXPENDITURE ACCOUNTS OF THE SOCIETY, IT REVEALS THA T THE SOCIETY HAS BEEN GENERATING SUBSTANTIAL SURPLUS ES YEAR AFTER YEAR. THEREFORE, THE ASSESSEE WAS REQUESTED TO EXPLAIN AS TO HOW THE SOCIETY COULD BE SAID TO BE 'EXISTING SOLELY FOR THE PURPOS E OF EDUCATION AND NOT FOR THE PURPOSE OF PROFIT' DRAWING ATTENTION TO THE JUDGMENT OF CIT V. QUEEN'S EDUCATIONAL SOCIETY [2009] 223 CTR 395 ( UTTARAKHAND). THE ASSESSEE SUBMITTED THAT DURING THE YEAR IT RECEIVED ` 66,24,188/- WHICH HAS BEEN USED TO MEET THE EXPENSES FOR CARRYIN G OUT EDUCATIONAL ACTIVITIES OF THE SOCIETY. 3.1.1 AFTER MEETING OUT THE EXPENDITURE, THE FUNDS OF THE SOCIETY AS ON 31.3.2007 IS ` 1,33,390/- WHICH IS MERELY EXC ESS BY ` 1,141/- BALANCE AS ON 31.3.2006. HENCE THE SOCIETY DOES NOT ACCUMULATE ANY INCOME BUT IT APPLIED ALMOST ALL ITS INCOME FOR THE FURTHERANCE OF ITS OBJECTS. THE SOCIETY IS SOLELY ENGAGED IN EDUCATIONA L ACTIVITIES AND THE OBJECT OF THE SOCIETY IS NOT TO MAKE PROFIT BUT TO IM PART EDUCATION. MERE EXISTENCE OF PROFIT/ SURPLUS DID NOT DISQUALIFY THE INSTITUTION IF THE SOLE PURPOSE OF ITS EXISTENCE WAS NOT PROFIT MAKING BUT EDUCATIONAL ACTIVITIES. 3.2 FROM THE INFORMATION FILED BY THE ASSESSEE, THE A O OBSERVED THAT THE SOCIETY HAS MADE SUBSTANTIAL FIXED DEPOSITS INDI CATING THAT THE ITA NO. 472/DEL/2011 3 FUNDS ARE NOT BEING DEPLOYED SOLELY FOR THE PURPOSE OF EDUCATION. HE CONCLUDED THAT THE SURPLUSES OR PROFITS GENERATED/E ARNED BY THE EDUCATIONAL INSTITUTION ARE NOT SUBSTANTIAL BUT ALS O CONSISTENT YEAR AFTER YEAR. HENCE THE SURPLUS/PROFIT GENERATED BY THE SOC IETY CAN'T BE REGARDED AS MERELY INCIDENTAL AS HAS BEEN CONTENDED BY THE SOCIETY. THE AO THEREFORE HELD THAT THE RATIO OF THE HON'BLE UTTARAKHAND HIGH COURT (SUPRA) IS SQUARELY APPLICABLE TO THE ASSESSE E. FURTHER DRAWING UPON OTHER JUDGMENTS, THE AO CONCLUDED THAT IT CAN NOT BE SAID THAT THE INSTANT SOCIETY AND THE EDUCATIONAL INSTITUTION RUN BY IT IS EXISTING SOLELY FOR THE PURPOSE OF EDUCATION AND NOT FOR THE PURPOSE OF PROFIT. THEREFORE, THE EXEMPTION CLAIMED AMOUNTING TO ` 20,99 ,149/- WAS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSE SSEE. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE FUNDS ARE NOT BEING DEPLOYED SOLELY FOR THE PUR POSE OF EDUCATION PRIMARILY ON ACCOUNT OF FIXED DEPOSITS IN THE BANK. THE ASSESSING OFFICER CONCLUDED THAT SUBSTANTIAL AND CONSISTENT SURPLUSES GENERATED BY THE SOCIETY CANNOT BE REGARDED AS MERELY INCIDENT AL AS HAS BEEN CONTENDED BY THE SOCIETY. LD. COMMISSIONER OF INCOME TAX (APPEALS) GAVE A FINDING THAT IT WAS EVIDENT THAT THE SURPLU SES GENERATED BY THE ASSESSEE HAS BEEN APPLIED IN FIXED AND OTHER ASSETS FOR THE PURPOSE OF IMPARTING EDUCATION. LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT IN FACT IT HAS TAKEN LOANS AND DONATI ONS FROM PUBLIC TO FUND THE CONSTRUCTION OF BUILDINGS. THE FIXED DEPO SITS WERE MADE BY THE SOCIETY AS PER THE STIPULATIONS BY THE UNIVERSI TIES FOR GIVING AFFILIATION TO THE COURSES INTRODUCED BY IT. HENCE , LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT IT CANNOT BE REGARDE D THAT THE SOCIETY IS NOT EXISTING SOLELY FOR THE PURPOSE OF EDUCATION AND NOT FOR THE ITA NO. 472/DEL/2011 4 PURPOSE OF PROFIT. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT IT WAS EVIDENT THAT THE FUNDS HAVE BE EN DEPLOYED SOLELY FOR THE PURPOSE OF EDUCATION. 4.1 LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER REFERRED TO THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF PINEGROVE INTERNATIONAL CHARITABLE TRUST & ORS. VS. UOI & ORS. (2010) 230 CTR 477 (P&H). LD. COMMISSIONER OF INCOME TAX ( APPEALS) OBSERVED THAT IN THIS CASE THE HONBLE JURISDICTIO NAL HIGH COURT HAS ELABORATELY DISCUSSED THE ISSUE IN DISPUTE AND LAID DOWN SOME PRINCIPLES U/S. 10(23C)(IV). LD. COMMISSIONER OF IN COME TAX (APPEALS) REFERRED THE FOLLOWING ASPECTS OF THE DECISION. 8.13 FROM THE AFORESAID DISCUSSION, THE FOLLOWING PR INCIPLES OF LAW CAN BE SUMMED UP: (1) IT IS OBLIGATORY ON THE PART OF THE CHIEF COMMI SSIONER OF INCOME TAX OR THE DIRECTOR, WHICH ARE THE PRESCRIBED AUTHORITIES, TO COMPLY WITH PROVISO THIRTEEN (UNNUMB ERED). ACCORDINGLY, IT HAS TO BE ASCERTAINED WHETHER THE EDUCATIONAL INSTITUTION HAS BEEN APPLYING ITS PROFI T WHOLLY AND EXCLUSIVELY TO THE OBJECT FOR WHICH THE INSTITUT ION IS ESTABLISHED. MERELY BECAUSE AN INSTITUTION HAS EARN ED PROFIT WOULD NOT BE DECIDING FACTOR TO CONCLUDE THAT THE EDUCATIONAL INSTITUTION EXISTS FOR PROFIT. (2) E PROVISIONS OF S. U/ S 10(23C)(IV) OF THE ACT ARE ANALOGUES TO THE ERSTWHILE S. 10(22) OF THE ACT, AS HAS BEEN LAID DOWN BY HON'BLE SUPREME COURT IN THE CASE OF AMERICAN HOT EL AND LODGING ASSOCIATION (SUPRA). TO DECIDE THE ENTI TLEMENT OF AN INSTITUTION FOR EXEMPTION U/ S 10(23C)(VI) OF THE ACT, ITA NO. 472/DEL/2011 5 THE TEST OF PREDOMINANT OBJECT OF THE ACTIVITY HAS T O BE APPLIED BY POSING THE QUESTION WHETHER IT EXISTS SO LELY FOR EDUCATION AND NOT TO EARN PROFIT (SEE 5 JUDGES CONS TITUTION BENCH JUDGMENT IN THE CASE OF SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION (SUPRA)). IT HAS TO BE BOR NE IN MIND THAT MERELY BECAUSE PROFITS HAVE RESULTED FROM T HE ACTIVITY OF IMPARTING EDUCATION WOULD NOT RESULT IN CHANGE OF CHARACTER OF THE INSTITUTION THAT IT EXISTS SOLELY FOR EDUCATIONAL PURPOSES. A WORKABLE SOLUTION HAS BEEN PROVIDED BY HON'BLE SUPREME COURT IN PARA 33 OF ITS JUDGMENT IN AMERICAN HOTEL AND LODGING ASSOCIATION'S CASE (SUPRA). THUS, ON AN APPLICATION MADE BY AN INSTITUT ION, THE PRESCRIBED AUTHORITY CAN GRANT APPROVAL SUBJECT TO SUCH TERMS AND CONDITIONS AS IT MAY DEEM FIT PROVIDED THA T THEY ARE NOT IN CONFLICT WITH THE PROVISIONS OF THE ACT. THE PARAMETERS OF EARNING PROFIT BEYOND 15% AND ITS INVESTMENT WHOLLY FOR EDUCATIONAL PURPOSES MAY BE EXPRESSLY STIPULATED AS PER THE STATUTORY REQUIREMEN T. HEREAFTER THE ASSESSING AUTHORITY MAY ENSURE COMPLIA NCE OF THOSE CONDITIONS. THE CASES WHERE EXEMPTION HAS BEEN GRANTED EARLIER AND THE ASSESSMENTS ARE COMPLETE WIT H THE FINDING THAT THERE IS NO CONTRAVENTION OF THE STATU TORY PROVISIONS, NEED NOT BE REOPENED. HOWEVER, AFTER GR ANT OF APPROVAL IF IT COMES TO THE NOTICE OF THE PRESCRIBE D AUTHORITY THAT THE CONDITIONS ON WHICH APPROVAL WAS GIVEN, HA VE BEEN VIOLATED OR THE CIRCUMSTANCES MENTIONED IN 13TH PROV ISO EXISTS, THEN BY FOLLOWING THE PROCEDURE ENVISAGED I N 13TH PROVISO, THE PRESCRIBE AUTHORITY CAN WITHDRAW THE A PPROVAL. ITA NO. 472/DEL/2011 6 (3) THE CAPITAL EXPENDITURE WHOLLY AND EXCLUSIVELY TO THE OBJECTS OF EDUCATION IS ENTITLED TO EXEMPTION AND WOU LD NOT CONSTITUTE PART OF THE TOTAL INCOME. (4) THE EDUCATIONAL INSTITUTIONS, WHICH ARE REGISTE RED AS A SOCIETY, WOULD CONTINUE TO RETAIN THEIR CHARACTER A S SUCH AND WOULD BE ELIGIBLE TO APPLY FOR EXEMPTION U/ S 10 (23C) (VI) OF THE ACT. (SEE PARA 8.7) OF THE JUDGMENT - AD ITANAR EDUCATIONAL INSTITUTION CASE (SUPRA). (5) WHERE MORE THAN 15% OF INCOME OF AN EDUCATIONAL INSTITUTION IS ACCUMULATED ON OR AFTER 1.4.2002, THE PERIOD OF ACCUMULATION OF THE AMOUNT EXCEEDING 15% IS NOT PERMISSIBLE BEYOND FIVE YEARS, PROVIDED THE EXCESS I NCOME HAS BEEN APPLIED OR ACCUMULATED FOR APPLICATION WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF EDUCATION. (6) THE JUDGMENT OF UTTARAKHAND HIGH COURT RENDERED IN THE CASE OF M/ S QUEENS EDUCATIONAL SOCIETY (SUPRA) AND THE CONNECTED MATTERS, IS NOT APPLICABLE TO CASES FALL W ITHIN THE PROVISIONS OF S. U/ S 10 (23C) (VI) OF THE ACT. THE RE ARE VARIOUS REASONS, WHICH HAVE BEEN DISCUSSED IN PARA 8.8 OF THE JUDGMENT, AND THE JUDGEMENT OF ALLAHABAD HIGH C OURT RENDERED IN THE CASE OF CITY MONTESSORI SCHOOL (SUPR A) LAYS DOWN THE CORRECT LAW. 8.14 WHEN THE FACTS OF THE LEAD CASE ARE EXAMINED I N THE LIGHT OF ABOVE DISCUSSION, IT IS EVIDENT THAT CAPITAL ASSETS ACQUIRED/ CONSTRUCTED BY THE EDUCATIONAL INSTITUTIONS HAVE BE EN TREATED AS INCOME IN A BLANKET MANNER WITHOUT RECORDING ANY FI NDING WHETHER THE CAPITAL ASSETS HAVE BEEN APPLIED AND UTILIZED TO ITA NO. 472/DEL/2011 7 ADVANCE THE PURPOSE OF EDUCATION. IT IS OBLIGATORY ON THE PART OF THE PRESCRIBED AUTHORITY WHILE EXERCISING POWER UND ER UNNUMBERED THIRTEEN PROVISO TO CONSIDER WHETHER EXPE NDITURE INCURRED AS CAPITAL INVESTMENT IS ON THE OBJECT OF ED UCATION OR NOT. THEREFORE, THE ORDERS IMPUGNED IN THESE PETITIO NS PASSED BY THE PRESCRIBED AUTHORITY ARE LIABLE TO BE QUASHED. IT IS APPROPRIATE TO MENTION THAT IN THESE CASES THE IMPUGNED ORDERS P ASSED BY THE CHIEF COMMISSIONER OF INCOME TAX, CHANDIGARH AND THOSE OF BY THE CHIEF COMMISSIONER OF INCOME TAX, LUDHIANA, AR E SIMILAR IN SUBSTANCE AND APPEAR TO HAVE BEEN INSPIRED BY TH E VIEW TAKEN BY THE UTTARAKHAND HIGH COURT IN THE CASE OF QUEENS EDUCATIONAL SOCIETY (SUPRA), WHICH WE HAVE NOT ACCEPTED. 8.15 AS A SEQUEL TO THE AFORESAID DISCUSSION, THESE PETITIONS ARE ALLOWED AND THE IMPUGNED ORDERS PASSED BY THE CHIEF COMMISSIONER OF INCOME TAX WITHDRAWING THE EXEMPTION GRANTED U/S 10(23C)(VI) OF THE ACT ARE HEREBY QUASHED. HOWE VER, THE REVENUE IS AT LIBERTY TO PASS ANY FRESH ORDERS, IF SUCH A NECESSITY IS FELT AFTER TAKING INTO CONSIDERATION THE VARIOUS PROPOSITIONS OF LAW CULLED OUT BY US IN PARA 8.13 VARIOUS OTHER PAR AS'. 4.2 CONSIDERING THE ABOVE, LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT APPLYING THE RATIO OF THE HONB LE JURISDICTIONAL HIGH COURT IN THE CASE OF PINEGROVE INTERNATIONAL CHARITA BLE TRUST & ORS. (SUPRA), THE DISALLOWANCE MADE BY THE ASSESSING OFF ICER OF ` 20,99,149/- IS DELETED. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. ITA NO. 472/DEL/2011 8 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT I N THIS CASE THE ASSESSING OFFICER HAS CONCLUDED THAT THE FUNDS ARE NOT BEING DEPLOYED SOLELY FOR THE PURPOSE OF EDUCATION PRIMARILY ON AC COUNT OF FIXED DEPOSITS IN THE BANK. THE ASSESSING OFFICER CONCL UDED THAT SUBSTANTIAL AND CONSISTENT SURPLUSES GENERATED BY THE SOCIETY C ANNOT BE REGARDED AS MERELY INCIDENTAL AS HAS BEEN CONTENDED BY THE S OCIETY. AGAINST THE ABOVE, THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) GAVE A FINDING THAT THE SURPLUSES GENERATED BY THE ASSESS EE HAS BEEN APPLIED IN FIXED AND OTHER ASSETS FOR THE PURPOSE OF IMPARTI NG EDUCATION. LD. COMMISSIONER OF INCOME TAX (APPEALS) ALSO FOUND THAT ASSESSEE HAS TAKEN LOANS AND DONATIONS FROM PUBLIC TO FUND THE C ONSTRUCTION OF BUILDINGS. THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS FURTHER FOUND THAT THE FIXED DEPOSITS WERE MADE BY THE SOCI ETY AS PER THE STIPULATIONS BY THE UNIVERSITIES FOR GIVING AFFILIA TION TO THE COURSES INTRODUCED BY IT. IN THE BACKGROUND OF THE DISCUSS ION, LD. COMMISSIONER OF INCOME TAX (APPEALS) FOUND THAT IT C ANNOT BE REGARDED THAT THE SOCIETY IS NOT EXISTING SOLELY FO R THE PURPOSE OF EDUCATION AND NOT FOR THE PURPOSE OF PROFIT. THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PIN EGROVE INTERNATIONAL CHARITABLE TRUST & ORS. (SUPRA) IS ALSO GERMANE AND SUPPORTS THE ITA NO. 472/DEL/2011 9 FINDING OF THE LD. COMMISSIONER OF INCOME TAX (APPEA LS). ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY OR ILLEGALITY IN THE O RDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), HENCE, WE UPHO LD THE SAME. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/10/2011. SD/- SD/- [ [[ [A.D. JAIN A.D. JAIN A.D. JAIN A.D. JAIN] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 21/10/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES