Arya Shiksha Mandal, Jalandhar V. The Commissioner of Income Tax (Exemption), Chandigarh

ITA 522/ASR/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8679 (ITAT-AMRITSAR)
• Duration Of Justice: 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 21-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHAWANI SHANKARDR
• Assessee Lawyers: Y K SUD
• Keywords: Charitable institution; Benefit of exemption
• Section: 12A; 12AA; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH: (CIRCUIT BENCH AT JALANDHAR) BEFORE SHRI A. D. JAIN, JUDICIAL MEMBER, AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A NO.522/ASR/2016 (ASSESSMENT YEAR-N/A) M/S ARYA SHIKSHA MANDAL K.M.V. CAMPUS TANDA ROAD, JALANDHAR. PAN NO.AAAAA8052D (ASSESSEE) VS .. CIT-(EXEMPTIONS) CHANDIGARH. (REVENUE) ASSESSEE BY SHRI . Y. K. SUD, AR. REVENUE BY SHRI BHAWANI SHANKAR,DR. ORDER PER, A. D. JAIN, JUDICIAL MEMBER: THIS IS ASSESSEES APPEAL AGAINST THE ORDER DATED 3 0.09.2016 PASSED BY THE CIT(EXEMPTIONS), REJECTING THE ASSESSEES APPLICATI ON FILED U/S 12AA OF THE I.T. ACT. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: DATE OF HEARING 17.01.2017 DATE OF PRONOUNCEMENT 27 .03.2017 I.T.A NO.522/ASR/2016 2 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE COMMISSIONER OF INCOME TAX(EXEMPTION) WAS NOT JUSTIFIED IN REJECTING THE APPLICATIONS OF THE APPE LLANT FOR REGISTRATION U/S 12AA OF THE INCOME TAX ACT. 3. THAT THE CLAIM OF THE APPELLANT FOR REGISTRAT ION U/S 12AA HAS BEEN REJECTED ON IRRELEVANT ERRONEOUS AND UNWARRANTED CONSIDERATIONS. 4. THAT THE CIT(EXEMPTION) HAS TRAVELED BEYOND TH E SCOPE OF ENQUIRY ENVISAGED U/S 12AA FOR GRANTING REGISTRA TION AND AS SUCH HIS ORDER IS AGAINST THE LAW AND FACTS OF THE CASE. 5. THAT THE CIT(E) FAILED TO APPRECIATE THAT THE ASSESSEE WAS ALREADY ENJOYING EXEMPTION U/S 10(23C)(IIIAD) A ND WAS CONSIDERED AS ENGAGED IN THE SOLE OBJECT OF IMPARTING EDUCATION AND THEREFORE REGISTRATION U/S 12AA COULD NOT HAVE BEEN DENIED. 6. THAT THE CIT EXCEEDED HIS JURISDICTION IN GIVI NG A FINDING THAT SINCE THE ASSESSEE IS ENJOYING EXEMPTION U/S 10(23C)(IIIAD) FOR A NUMBER OF YEARS THEREFORE THER E WAS NO NEED TO SEEK REGISTRATION U/S 12AA WITHOUT CHANG E IN CIRCUMSTANCES. I.T.A NO.522/ASR/2016 3 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE SOCI ETY IS REGISTERED UNDER THE SOCIETIES REGISTRATION ACT AND THE MAIN OBJECTS OF THE SOCIETY ARE TO ESTABLISH AND RUN EDUCATIONAL INSTITUTIONS. THE SOCIETY HAS ESTAB LISHED AND IS RUNNING EIGHT EDUCATIONAL INSTITUTIONS, THE DETAILS OF WHICH HAVE BEEN GIVEN IN PARA 10 OF THE CIT(E)S ORDER. THE SOCIETY IS MORE THAN 70 YEARS O LD AND WAS ENJOYING EXEMPTION U/S 10(22) OF THE IT ACT TILL ASST. YEAR 2006-07 AN D THEREAFTER, IT HAS BEEN AVAILING EXEMPTION U/S 10(23C)(IIIAD) TILL DATE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE ALSO APPLIED FOR REGISTRATION U/S 12AA OF THE INCOME TAX ACT BY FILING APPLICATION IN FORM NO. 10A (PAPER BOOK PAGE 2) ALO NGWITH MEMORANDUM OF ASSOCIATION (PAPER BOOK PAGES 7 TO 16). THE APPLICA TION FOR REGISTRATION WAS REJECTED BY THE CIT(E). HENCE THIS APPEAL. 4. THE LD. CIT(E) HAS HELD AS FOLLOWS: 8 AS THE SOLE OBJECT OF THE SOCIETY HAS BEEN CLAIM ED AS PROVIDING EDUCATION THE APPLICANT HAD ALL THE REASO NS TO APPLY FOR EXEMPTION UNDER THE PROVISION OF SECTION 10)(23 C)(VI) RATHER THAN 12AA THIS ISSUE GETS CORROBORATED WHEN FOR THE PAST NUMEROUS YEARS THE SOCIETY HAS BEEN FILING RET URNS AND CLAIMING EXEMPTION U/S 10(23C)(IIIAD). IN ANSWER TO A SPECIFIC QUERY SEEKING THE RATIONALE FOR APPLICATION U/S 12A IT HAS BEEN STATED THAT EXEMPTION U/S 10(23C)(IIIAD) HAS BEEN A LLOWED TO THE I.T.A NO.522/ASR/2016 4 SOCIETY BY INCOME TAX DEPARTMENT FOR EARLIER YEARS. NOTWITHSTANDING THE CLAIMS EXEMPTION IS AVAILABLE T O ANY UNIVERSITY OR EDUCATIONAL INSTITUTIONS. THE JUDICIA RY IN THE CASE OF PINEGROVE INTERNATIONAL HAS HELD THAT SUCH INSTI TUTIONS THAT ARE REGISTERED AS SOCIETIES ARE ELIGIBLE FOR EXEMPT ION U/S 10(23C) 9 ALTHOUGH THE JUDICIAL PRECEDENTS HAVE ALLOWED ALTERNATIVE CLAIMS EITHER FOR 12AA OR 10(23C) BUT A T THE SAME TIME HAVEN'T ALLOWED SHIFTING FROM ONE PROVISION TO THE OTHER WHEN THE APPLICANT HAS CONSISTENTLY AVAILED BENEFIT S FOR A NUMBER OF YEAR UNDER SECTION 10(23C)(IIIAD). NATURA L PROGRESSION ENTAILS AND ENTITLES THE EDUCATIONAL SO CIETIES TO GO FOR 10(23C)(VI) IN SUCH CASES. THERE IS NO CHANGE I N CIRCUMSTANCES ADDUCED BY THE APPLICANT THAT WOULD N ECESSITATE EXAMINATION OF EXEMPTION UNDER A DIFFERENT SET OF C ODES THAT ENTAIL SEPARATE CONDITIONALTIES. 10. AS REGARD NUMBER OF INSTITUTIONS RUN UNDER AMBI T OF SOCIETY THE APPLICANT STATED THAT THERE ARE FOLLOWING SCHOO LS WHICH ARE UNDER IT:- (I) KANYA MAHA VIDYALAYA, JALANDHAR. (II) DOABA COLLEGE, JALANDHAR. (III) KMV COLLEGIATE SR. SEC. SCHOOL, JALANDHAR. I.T.A NO.522/ASR/2016 5 (IV) DC COLLEGIATE SR. SEC SCHOOL, JALANDHAR. (V) DEV RAJ GIRLS SR. SEC SCHOOL, JALANDHAR. (VI) DEV RAJ PUBLIC SCHOOL, JALANDHAR. (VII) SANSKRITI KMV SCHOOL, JALANDHAR. (VIII) JALANDHAR MODEL SR.SEC. SCHOOL, JALANDHAR 9. ON PERUSAL OF THE RESPONSE AND OTHER MATERIAL WI TH THE DEPARTMENT IT WAS GATHERED THAT OUT OF ABOVE NOTED SCHOOL/INSTITUTES M/S DOABA COLLEGE AND KANYA MAHAVIDYALA HAVE HAD APPLIED FOR EXEMPTION U/S 10(2 3C)(VI) SEPARATELY AND SAME WERE REJECTED BY THIS OFFICE FOR THE REASON OF PENDENCY OF APPEAL IN THE HON'BLE HIGH CO URT VIS-A- VIS EARLIER REJECTION OF APPLICATION U/S 10(23C)(VI ). ON ONE HAND INSTITUTES WHICH ARE BEING RUN UNDER IT ARE COMING ON INDIVIDUAL BASIS FOR EXEMPTION UNDER SECTION 10(23C )(VI) AND WHEN ON THAT FACET APPLICANT GOT FAILURE IT OPTED T O GO FOR 12AA SO THAT ALL THE INSTITUTES UNDER IT CAN GET AUTOMAT ICALLY COVERED UNDER EXEMPTION. APART FROM THE ABOVE IT IS ALSO CL EAR THAT DEPARTMENT HAS HELD A COUPLE OF THE INSTITUTIONS UN DER ( THE SOCIETY NOT FIT TO BE CAPTIONED EXISTING 'SOLELY FO R EDUCATION' AND NOT FOR PROFITS. THIS ASPECT OF THE INSTITUTES UNDE R IT POINT TOWARDS PROCLIVITIES TOWARDS PROFIT- MAKING AN ASPE CT THAT HAS I.T.A NO.522/ASR/2016 6 BEEN FROWNED UPON BY THE JUDICIARY AND HELD TO BE N OT ATTUNED TO THE NOBLE TASK OF EDUCATION. 10. NOTWITHSTANDING THE SAME THE CLAIMS FOR REGISTR ATION U/S 12A WERE EXAMINED. THE AUDITED ACCOUNTS REVEALS THA T OVER THE PERIOD OF TIME THE EMPHASIS OF THE SOCIETY IS MAINL Y ON PROVIDING LOAN TO SCHOOLS WHICH ARE UNDER ITS AEGIS AND TO EARN INTEREST INCOME NO. NO OTHER ACTIVITY IN PURSUANCE OF OBJECTS HAVE BEEN DONE. THIS THING ALSO GETS EXACERBATED BY THE FACT THAT THE SCHOOLS/INSTITUTIONS WHICH ARE RUNNING UND ER IT ARE SEPARATELY FILING THEIR RETURN OF INCOME AND SEPARA TELY FILING THEIR CLAIMS FOR EXEMPTIONS IN THEIR INDIVIDUAL CAP ACITY. IT CAN'T BE ALLOWED THAT FOR THE SAME ACTIVITY TWO SETS OF E NTITIES CLAIM TWO SETS OF EXEMPTIONS. 11. THOUGH NOT REQUIRED IN PRESENT CASE ON PERUSAL OF FINANCIALS OF THE SCHOOL/INSTITUTIONS RUNNING UNDER THE APPLICANT SOCIETY IT IS REVEALED THAT EMPHASIS OF ALL THE SCH OOLS HAVE BEEN MAINLY ON ADDING TO THEIR VEHICLES LIKE TATA WINGER , ERTIGA, MARUTI OMNI, BUSES ETC. THE PRESENT EMPHASIS ON THI S ASPECT AND THEREBY GENERATION OF ANOTHER SOURCE OF INCOME DOESN'T FIT INTO THE DEFINITION OF EDUCATION AS LAID DOWN BY TH E APEX COURT IN THE CASE OF SOLE TRUSTEE LOK SIKSHAN TRUST. 12. IN THE INSTANT CASE, GIVEN ALL OF THE ABOVE, IT IS CLEARLY CONCLUDED THAT APPLICANT'S ACTIVITIES ARE NOT CORRO BORATED BY ITS I.T.A NO.522/ASR/2016 7 STATED OBJECTS THE ENTITIES ON THE BASIS OF WHICH T HE APPLICANT SEEKS TO PUT FORWARD ITS CASE ARE SEEN TO BE SEPARA TE ENTITIES HAVING INDIVIDUAL PANS AND SEEKING EXEMPTIONS UNDER A DIFFERENT CODE. THE SOCIETY ITSELF HAS NOT BEEN ABL E TO ADDUCE ANY CHANGE IN CIRCUMSTANCES THAT WOULD WARRANT EXAM INATION OF ITS CASE FOR EXEMPTION UNDER A SET OF CODES(WITH DIFFERENT CONDITIONALITIES) DIFFERENT FROM WHAT IT HAD CLAIMI NG EARLIER. THE APPLICATION FOR REGISTRATION U/S 12AA IS ACCORD INGLY REJECTED. 5. THE CIT(E) HAS AGREED IN PARA 4 OF HIS ORDER THA T THE CIT, WHILE GRANTING REGISTRATION, HAS TO SATISFY HIMSELF THAT THE OBJEC TS OF THE TRUST ARE CHARITABLE AND THE ACTIVITIES OF THE TRUST ARE GENUINE. HOWEVER, THE D CIT WHO EXAMINED THE CASE TRIED TO EXAMINE THE APPLICATION OF THE INCOME, WHICH IS NOT PERMISSIBLE AT THE STAGE OF GRANTING OF REGISTRATION. 6. IN CIT VS. SURYA AND BAHARA EDUCATIONAL AND CHA RITABLE TRUST, 355 ITR 280 (P & H), IT HAS BEEN HELD THAT U/S 12AA OF THE IT ACT, THE INCOME TAX AUTHORITIES ARE TO EXAMINE THE GENUINENESS OF THE T RUST, WHEREAS THE APPLICATION OF THE INCOME OF THE TRUST IS NOT TO BE CONSIDERED. 7. IN CIT VS. VIJAY VARGIYA VANI CHARITABLE TRUST , 369 ITR 360 (RAJ), IT HAS BEEN HELD THAT AT THE TIME OF REGISTRATION OF A TRU ST, ONLY THE GENUINENESS OF THE I.T.A NO.522/ASR/2016 8 OBJECTS OF THE TRUST IS TO BE SEEN, NOT THE APPLICA TION OF INCOME FOR CHARITABLE PURPOSE. 8. IN SHREE ANJANEYA MEDICAL TRUST VS. CIT, 382 I TR 399 (KER), IT HAS BEEN HELD THAT AT THE TIME OF REGISTRATION OF A TRUST, O NLY THE GENUINENESS OF THE TRUST HAS TO BE EXAMINED AND THAT NO EXAMINATION OF THE APPLI CATION OF THE FUNDS OR THE ETHICAL BACKGROUND OF THE SETTLORS OF THE TRUST IS CALLED FOR. 9. IN VIKAS LOK SEVA FIRM VS. CIT, 147 ITD 294 (A GRA) AND IN SHRI GIAN GANGA VOCATIONAL AND EDUCATIONAL SOCIETY VS. CIT, 143 ITD 297 (DEL), THE SAME POSITION HAS BEEN FOLLOWED. 10. IN PARA 9 OF THE ORDER, THE CIT(E) HAS GIVEN A FINDING THAT ALTHOUGH JUDICIAL PRECEDENTS HAVE ALLOWED ALTERNATIVE CLAIMS EITHER U /S 12AA, OR 10(23C), THE ASSESSEE CANNOT BE PERMITTED TO SHIFT HIS CLAIM FRO M S. 10(23C) TO S. 12A. HE HAS FURTHER STATED THAT SINCE THE ASSESSEE WAS ALLOWED EXEMPTION U/S 12(23C)(IIIAD) IN THE PAST, IT CANNOT BE GRANTED EXEMPTION U/S 12A. 11. IN CIT AND ANR VS. KVS. SOCIETY OF ADVANCE MAN AGEMENT STUDIES, 352 ITR 269 (ALL), IT HAS BEEN HELD THAT DENIAL OF EXEM PTION U/S 10 (23C) (VI) OF THE I.T. ACT DOES NOT CALL FOR CANCELLATION OF REGISTRA TION U/S 12A ON THE BASIS OF SUCH I.T.A NO.522/ASR/2016 9 DENIAL; THAT THE EXEMPTION CAN BE CLAIMED WITHOUT A PPLYING FOR REGISTRATION; AND THAT BOTH THE PROCEEDINGS ARE INDEPENDENT OF EACH O THER. 12. IN BHARATI VIDYAPEETH MEDICAL FOUNDATION VS. A CIT, 155 TTJ 152 (PUNE), IT HAS BEEN HELD THAT WHEN THE LAW PERMITS THE ASSE SSEE TRUST TO CLAIM EXEMPTION EITHER U/S 10(23C) OR U/S 11 OF THE IT ACT, THE CHO ICE SHOULD BE LEFT TO THE ASSESSEE AND THE ASSESSEE CANNOT BE DENIED EXEMPTION U/S 11 ON THE GROUND THAT IT OUGHT TO HAVE CLAIMED EXEMPTION U/S 10(23C), MORE SO, WHEN I T HAS BEEN GRANTED THE BENEFIT OF EXEMPTION U/S 11 IN THE PAST. 13. FURTHER, THE CIT(E) HAS GIVEN ANOTHER REASON FO R DECLINING REGISTRATION, IN PARA 9, THAT TWO OF THE INSTITUTIONS, NAMELY, DOABA COLLEGE AND KANYA MAHA VIDAYALAYA, RUN BY THE ASSESSEE SOCIETY, HAVE BEEN DECLINED REGISTRATION U/S 10(23C)(VI) ON THE GROUND THAT THEY ARE NOT SOLELY ESTABLISHED FOR THE PURPOSE OF IMPARTING EDUCATION AND ARE MAKING SYSTEMATIC PROFI TS. THIS FINDING OF THE CIT(E) CANNOT BE SUSTAINED, SINCE IN CASES OF BOTH THE INS TITUTIONS, THE ITAT HAS ALLOWED THE EXEMPTION U/S 10(23C)(IIIAB) BY GIVING A FINDIN G OF FACT THAT BOTH THE INSTITUTIONS ARE SOLELY ENGAGED FOR THE PURPOSE OF EDUCATION AND ARE NOT SET UP FOR PROFIT MAKING. I.T.A NO.522/ASR/2016 10 14. IN PARA 10 OF THE ORDER, THE CIT(E) HAS GIVEN A WRONG FINDING THAT FROM THE EXAMINATION OF THE ACCOUNTS OF THE SOCIETY, IT IS S EEN THAT THE SOCIETY IS ENGAGED IN PROVIDING LOANS TO SCHOOLS UNDER ITS AEGIS, TO EARN INTEREST INCOME. THIS FINDING OF THE CIT(E) IS TOTALLY MISPLACED, AS IS AVAILABLE FR OM THE COPY OF ACCOUNTS OF INTEREST INCOME FILED BEFORE US, AS BEFORE THE AUTH ORITY BELOW, FOR THE PAST 3 YEARS, WHICH CLEARLY SHOWS THAT INTEREST HAS BEEN EARNED O NLY ON FDRS AND SAVINGS BANK ACCOUNT AND NO INTEREST HAS BEEN CHARGED ON THE LOA NS GRANTED TO THE SCHOOLS. 15. IN VIEW OF THE ABOVE, THE ORDER OF THE LD. CIT( EXEMPTIONS) IS NOT SUSTAINABLE IN LAW. IT IS, ACCORDINGLY, REVERSED. HE IS DIRECTE D TO GRANT REGISTRATION U/S 12AA TO THE ASSESSEE FORTHWITH. 16. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/03/2017. SD/- SD/- (T. S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 27/03/2017 *AKV* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT I.T.A NO.522/ASR/2016 11 4. CIT(APPEALS) 5. DR: ITAT BY ORDER AR/SR.P.S./P.S.