ITO, Kottayam V. Mar Gregorious EducationalSociety, Kottayam

ITA 55/COCH/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65063 (ITAT-COCHIN)
• Duration Of Justice: 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 15-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 29-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: R KRISHNA IYER
• Keywords: Charitable institution; Cancellation of registration
• Section: 12AA; 11

Judgement Text

1 ITA NO.55/COCH/2012 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. 55/COCH/2012 (ASSESSMENT YEAR 2008-09) ITO, WD.1 VS MAR GREGORIOUS EDUCATIONAL KOTTAYAM SOCIETY, III FLOOR, UNITY BUILDING K.K. ROAD,KOTTAYAM 686002 PAN : AABTM0710G (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. S VIJAYAPRABHA RESPONDENT BY : SHRI R KRISHNA IYER DATE OF HEARING : 15-11-2012 DATE OF PRONOUNCEMENT : 21-12-2012 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX(A)-IV, KOCHI DATED 19-12 -2011 AND PERTAINS TO ASSESSMENT YEAR 2008-09. 2. SMT. S VIJAYAPRABHA, THE LD.DR SUBMITTED THAT THE TAXPAYER SOCIETY WAS REGISTERED U/S 12AA OF THE ACT. ACCORDING TO T HE LD.DR, APART FROM THE 2 ITA NO.55/COCH/2012 FEES, THE TAXPAYER IS ALSO COLLECTING CAUTION AND R EFUNDABLE DEPOSITS FROM STUDENTS. THE FEES COLLECTED WERE CREDITED TO THE INCOME AND EXPENDITURE ACCOUNT. HOWEVER, THE CAUTION AND REFUNDABLE DEPOS ITS WERE DIRECTLY CREDITED TO BALANCE-SHEET. THE LD.DR SUBMITTED THA T THE CAUTION AND REFUNDABLE DEPOSITS WERE NOT INCLUDED IN THE TOTAL INCOME OF THE TAXPAYER SOCIETY. THE LD.DR FURTHER SUBMITTED THAT DURING T HE YEAR UNDER CONSIDERATION THE TAXPAYER INVESTED THE INCOME IN T HE FIXED ASSETS LIKE FURNITURE, BUILDING, ETC. WITH A VIEW TO EXPAND THE INSTITUTION. ACCORDING TO THE LD.DR, INVESTMENT OF FUNDS IN THE INFRASTRUCTUR E AND BUILDING CANNOT BE CONSIDERED TO BE APPLICATION OF INCOME FOR THE CHAR ITABLE PURPOSE. APART FROM THIS, THE TAXPAYER HAS ALSO PAID SALARY TO THE EMPLOYEES OF THE SOCIETY AND ALSO PAID INTEREST ON THE BORROWED FUNDS TO THE MEMBERS OF THE SOCIETY. THEREFORE, THE LD.DR SUBMITTED THAT THE T AXPAYER CANNOT BE TREATED AS CHARITABLE INSTITUTION; HENCE NOT ELIGIB LE FOR EXEMPTION U/S 11 OF THE ACT. THE LD.DR FURTHER SUBMITTED THAT THE DELH I HIGH COURT IN THE CASE OF SAFDARJUNG ENCLAVE EDUCATIONAL SOCIETY VS MUNICIP AL CORPORATION OF DELHI (1990) 181 ITR 154 (DEL) HAD AN OCCASION TO CONSIDE R AN IDENTICAL ISSUE AND FOUND THAT WHEN THE PROFIT FROM RUNNING THE SCHOOL WAS SPENT FOR CONSTRUCTION OF THE BUILDING, THE SOCIETY CANNOT CL AIM EXEMPTION. THE LD.DR 3 ITA NO.55/COCH/2012 AGAIN PLACED HER RELIANCE ON THE JUDGMENT OF THE APE X COURT IN YOGIRAJ CHARITY TRUST VS COMMISSIONER OF INCOME-TAX (1976) 103 ITR 777 (SC) AND SUBMITTED THAT WHEN THE ASSESSEE RUNS THE INSTITUTI ON ON PROFIT MOTTO IT CANNOT CLAIM EXEMPTION UNDER THE INCOME-TAX ACT. 3. ON THE CONTRARY, SHRI R KRISHNA IYER, THE LD.REP RESENTATIVE FOR THE TAXPAYER SUBMITTED THAT THE TAXPAYER SOCIETY WAS RE GISTERED U/S 12AA OF THE ACT BY THE COMMISSIONER OF INCOME-TAX. THE MAI N OBJECT OF THE TAXPAYER SOCIETY IS EDUCATION. ACCORDING TO THE LD .REPRESENTATIVE, THE TAXPAYER SOCIETY HAS ESTABLISHED AND IS MANAGING TH REE EDUCATIONAL INSTITUTIONS. ACCORDING TO THE LD.REPRESENTATIVE, THE INSTITUTIONS ARE AFFILIATED TO THE UNIVERSITY AND REGULATED BY THE C ONCERNED REGULATORY BODY. ACCORDING TO THE LD.REPRESENTATIVE, THE TOTAL RECEI PT DURING THE YEAR UNDER CONSIDERATION IS RS.9,56,89,948. THE TAXPAYER SOCI ETY HAS ALSO INCURRED EXPENDITURE IN PAYMENT OF SALARY, INTEREST ON BORRO WED FUNDS, ETC. TO THE EXTENT OF RS.7,40,16,158. THE TAXPAYER SOCIETY HAS ALSO INCURRED EXPENDITURE IN CONSTRUCTION OF BUILDING, FURNITURE, LABORATORY EQUIPMENT, ETC. FOR THE EDUCATIONAL INSTITUTION TO THE EXTENT OF RS. 7,50,43,606. THUS, THE TOTAL EXPENDITURE WAS RS.14,90,59,764 WHEREAS T HE TOTAL RECEIPT FOR THE 4 ITA NO.55/COCH/2012 YEAR UNDER CONSIDERATION IS ONLY RS.9,56,89,948. T HE EXCESS APPLICATION OF FUND IS TO THE EXTENT OF RS.5,33,69,816. THEREFORE , ACCORDING TO THE LD.REPRESENTATIVE, THE TAXPAYER HAS APPLIED RS.5,33 ,69,816 OVER AND ABOVE THE TOTAL RECEIPT OF RS.9,56,89,948. REFERRING TO THE CONTENTION OF THE LD.DR THAT INVESTMENT OF FUNDS IN BUILDING, FURNITURE AND LABORATORY EQUIPMENT CANNOT BE CONSIDERED TO BE APPLICATION OF FUNDS, TH E LD.REPRESENTATIVE SUBMITTED THAT THE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS ST GEORGE FORANA CHURCH (1988) 170 IT R 62 (KER) HAD AN OCCASION TO CONSIDER AN IDENTICAL ISSUE. THE KERAL A HIGH COURT FOUND THAT WHEN THE SURPLUS FUNDS WERE UTILIZED FOR MAKING ADD ITIONS TO THE BUILDING AND THE BUILDING WAS LET OUT FOR RENT AND THE RENT RECEIVED THEREFROM WAS APPLIED FOR CHARITABLE PURPOSE, THE FUNDS USED FOR CONSTRUCTION OF BUILDING AMOUNTS TO APPLICATION OF INCOME FOR CHARITABLE PUR POSE. IN VIEW OF THIS JUDGMENT OF THE JURISDICTIONAL HIGH COURT, ACCORDING TO THE LD.REPRESENTATIVE, THE FUNDS RELEASED FOR CONSTRUCT ION OF THE BUILDING, PURCHASE OF FURNITURE, PURCHASE OF LABORATORY EQUIP MENTS FOR THE EDUCATIONAL INSTITUTION IS ONLY AN APPLICATION OF I NCOME. ACCORDING TO THE LD.REPRESENTATIVE, THE TAXPAYER HAS USED THESE FUND S FOR PURCHASING THE EQUIPMENTS AND CONSTRUCTION OF THE BUILDING ONLY FO R THE PURPOSE OF 5 ITA NO.55/COCH/2012 RUNNING THE EDUCATIONAL INSTITUTION AND NOT FOR ANY OTHER PURPOSE. THE LD.REPRESENTATIVE HAS ALSO PLACED RELIANCE ON THE JU DGMENT OF THE APEX COURT IN S.RM.M.CT.M. TIRUPPANI TRUST VS COMMISSION ER OF INCOME-TAX (1998) 230 ITR 636 (SC) AND SUBMITTED THAT THE APEX COURT FOUND THAT PURCHASING A BUILDING FOR CARRYING OUT CHARITABLE A CTIVITY AMOUNTS TO APPLICATION OF INCOME. THEREFORE, ACCORDING TO THE LD.REPRESENTATIVE, THE ASSESSING OFFICER IS NOT CORRECT IN SAYING THAT THE CONSTRUCTION OF THE BUILDING USING THE SOCIETY FOUND IS NOT FOR CHARITA BLE PURPOSE. ACCORDING TO THE LD.REPRESENTATIVE, APPLICATION OF FUNDS FOR CON STRUCTION OF THE BUILDING, PURCHASING OF FURNITURE AND ALLIED EQUIPMENTS IS AL SO APPLICATION OF FUNDS FOR CHARITABLE PURPOSE, THEREFORE, ELIGIBLE FOR EXE MPTION U/S 11 OF THE ACT. THE LD.REPRESENTATIVE FURTHER SUBMITTED THAT THE TA XPAYER CANNOT RUN THE INSTITUTION WITHOUT PAYMENT OF SALARIES TO ITS EMPL OYEES. THEREFORE, SALARY TO SECRETARY AND OTHER MEMBERS, WHO ARE EMPLOYED BY SOCIETY NEEDS TO BE PAID FOR THE WORK THEY HAVE DONE. THE TAXPAYER HAS ALSO BORROWED FUNDS FROM THE MEMBERS OF THE SOCIETY FOR MAKING INVESTME NT IN THE CONSTRUCTION OF BUILDING AND PURCHASING FURNITURE IN THE EARLIER YEARS. THE TAXPAYER HAS PAID INTEREST ON SUCH BORROWAL. ACCORDING TO THE L D.REPRESENTATIVE, BORROWING FUNDS FOR THE PURPOSE OF CHARITABLE ACTIV ITY IS NOT PROHIBITED AT 6 ITA NO.55/COCH/2012 ALL. THEREFORE, THE PAYMENT OF INTEREST AND REPAYM ENT OF BORROWED FUNDS IS ALSO APPLICATION OF INCOME. REFERRING TO THE OR DER OF THE ADMINISTRATIVE COMMISSIONER DATED 20/12/2011 THE LD.REPRESENTATIVE SUBMITTED THAT THE ADMINISTRATIVE COMMISSIONER ISSUED NOTICE U/S 12AA( 3) FOR CANCELLATION OF THE REGISTRATION ON THE GROUND THAT THE INSTITUTION WAS NOT BEING CARRIED OUT IN ACCORDANCE WITH THE OBJECT OF THE SOCIETY. AFTER HEARING THE TAXPAYER, THE ADMINISTRATIVE COMMISSIONER FOUND THAT THE TAXP AYER SOCIETY IS CARRYING ON ITS ACTIVITY STRICTLY IN ACCORDANCE WIT H THE OBJECT OF THE TAXPAYER SOCIETY AND THEREFORE, THE ADMINISTRATIVE COMMISSIO NER HAS WITHDRAWN NOTICE ISSUED FOR CANCELLATION. FOR THE SUBSEQUENT ASSESSMENT YEAR 2009- 10 THE ASSESSING OFFICER PROPOSED TO DENY EXEMPTION U/S 11 ON IDENTICAL SET OF FACTS. THE TAXPAYER FILED AN APPLICATION U/S 14 4A OF THE ACT BEFORE THE JCIT. THE JCIT BY ORDERS DATED 09/12/2011AND DATED 12/12/2011 FOUND THAT THE ADMINISTRATIVE EXPENSES FOR RUNNING THE IN STITUTION HAVE TO BE ALLOWED. THIS DIRECTION WAS GIVEN AFTER TAKING NOT E OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR THE YEAR UNDER CO NSIDERATION. THE JCIT HAS ALSO FOUND THAT THE LOAN WAS BORROWED IN THE IN ITIAL YEARS AND THE SAME WAS USED FOR EDUCATIONAL PURPOSE. THEREFORE, THE J CIT FOUND THAT THERE WAS NO REASON TO DISALLOW THE INTEREST PAID ON THE LOAN BORROWED FOR 7 ITA NO.55/COCH/2012 CHARITABLE PURPOSE. THIS DIRECTION OF THE JCIT WAS ISSUED FOR THE ASSESSMENT YEAR 2009-10. THE JCIT SPECIFICALLY DIRECTED THE A SSESSING OFFICER TO TAX THE TAXPAYER U/S 115BBC IN RESPECT OF ANY DONATIONS. S INCE THE TAXPAYER IS RUNNING ENGINEERING COLLEGE IT HAS TO NECESSARILY H AVE A WELL EQUIPPED LABORATORY FOR WHICH THE TAXPAYER HAS TO RECEIVE CA UTION AND REFUNDABLE DEPOSIT FROM THE STUDENTS. ACCORDING TO THE LD.REP RESENTATIVE, AT THE END OF THE COURSE, THE CAUTION AND REFUNDABLE DEPOSIT W ILL BE REFUNDED TO THE RESPECTIVE STUDENTS. THEREFORE, IT IS NOT CORRECT TO SAY THAT THE CAUTION AND REFUNDABLE DEPOSITS ARE NOT TAKEN INTO ACCOUNT WHIL E COMPUTING THE TOTAL RECEIPT. THE LD.REPRESENTATIVE SUBMITTED THAT THE ENTIRE TOTAL RECEIPT INCLUDING THE CAUTION AND REFUNDABLE DEPOSIT WERE T AKEN INTO ACCOUNT AT THE TIME OF RECEIPT AND IT WAS REFUNDED AS SOON AS THE COURSE IS COMPLETED BY THE RESPECTIVE STUDENT. THEREFORE, IT IS NOT CO RRECT TO SAY THAT THE CAUTION AND REFUNDABLE DEPOSIT DO NOT FORM PART OF THE TOTAL RECEIPT. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICE R DISALLOWED THE CLAIM OF THE TAXPAYER ON THE GROUND THAT THE CAUTION AND REF UNDABLE DEPOSIT WAS CREDITED TO THE BALANCE-SHEET. THE ASSESSING OFFIC ER HAS ALSO FOUND THAT THE 8 ITA NO.55/COCH/2012 TAXPAYER IS PAYING SALARY TO THE SECRETARY AND ALSO PAYING INTEREST ON THE BORROWED FUNDS TO THE MEMBERS OF THE SOCIETY. THE FIRST OBJECTION OF THE ASSESSING AUTHORITY IS THAT UTILIZATION OF THE SOCI ETY FUNDS FOR CONSTRUCTION OF BUILDING CANNOT BE CONSIDERED TO BE APPLICATION OF INCOME. 5. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF TH E DELHI HIGH COURT IN THE CASE OF SAFDARJUNG ENCLAVE EDUCATIONAL SOCIET Y (SUPRA). IN THE CASE BEFORE THE DELHI HIGH COURT, THE PETITIONER SOCIETY WAS RUNNING A SCHOOL AND CLAIMED EXEMPTION FROM PAYMENT OF MUNICIPAL TAX ES U/S 115(4) OF THE DELHI MUNICIPAL CORPORATION ACT. IT IS NOT A CASE UNDER THE INCOME-TAX ACT. THE TAXPAYER NEVER CLAIMED EXEMPTION UNDER THE INCO ME-TAX ACT. THE DELHI HIGH COURT FOUND THAT THE PETITIONER SOCIETY WAS NOT DISTRIBUTING ITS PROFIT OR APPLYING THE PROFITS EARNED FROM RUNNING OF THE SCHOOL ON CONSTRUCTION OF THE SCHOOL BUILDING WOULD NOT ENTIT LE FOR EXEMPTION U/S 115(4) OF THE ACT OF THE DELHI MUNICIPAL ACT FROM PAYMENT OF MUNICIPAL TAX. SINCE THIS CASE WAS NOT UNDER THE INCOME-TAX ACT AND THE EXEMPTION WAS CLAIMED FROM PAYMENT OF MUNICIPAL TAX UNDER THE DELHI MUNICIPAL ACT, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE JUDGMENT OF THE DELHI HIGH COURT MAY NOT BE OF ANY ASSISTANCE TO THE REVE NUE. 9 ITA NO.55/COCH/2012 6. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMENT OF THE APEX COURT IN THE CASE OF YOGIRAJ CHARITY TRUST (SUPRA). IN TH E CASE BEFORE THE APEX COURT, THE TAXPAYER TRUST HAD AN UNCONTROLLED DISCR ETION TO SPEND THE WHOLE OF THE TRUST FUND ON ANY OF THE NON CHARITABLE OBJEC T OF THE TRUST. THE NON CHARITABLE OBJECTS AUTHORIZED THE OPENING AND MAINTA INING OF COMMERCIAL INSTITUTIONS WHERE WORK AT LIVING WAGES ARE PROVIDE D TO THE POOR AND ALSO TO CONTRIBUTE TO COMMERCIAL, TECHNICAL, INDUSTRIAL INS TITUTIONS OR COMMERCIAL CONCERNS, INSTITUTIONS, ASSOCIATIONS OR BODIES IMPA RTING ANY TYPE OF TRAINING OR PROVIDING EMPLOYMENT. IN THOSE FACTUAL CIRCUMST ANCES, THE APEX COURT FOUND THAT THE TRUST DEED GAVE UNCONTROLLED DISCRET ION TO THE TRUSTEES TO SPEND THE WHOLE OF THE TRUST FUND ON ANY OF THE NON -CHARITY BY THE TRUST, THEREFORE, THE INCOME OF THE TRUST WAS NOT EXEMPT F ROM INCOME-TAX ACT. IN THE CASE BEFORE US, IT IS NOBODYS CASE THAT THE SO CIETY WAS GIVEN UNCONTROLLED DISCRETION TO SPEND THE MONEY FOR ANY NON CHARITABLE PURPOSE. THE CONTENTION OF THE REVENUE IS THAT THE FUNDS WERE INVESTED IN CONSTRUCTION OF THE BUILDING. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CONSTRUCTION OF THE BUILDING, PURCHASING FURNIT URE AND LABORATORY EQUIPMENTS FOR RUNNING THE EDUCATIONAL INSTITUTION IS APPLICATION OF INCOME 10 ITA NO.55/COCH/2012 FOR CHARITABLE PURPOSE, THEREFORE, IT CANNOT BE CON SIDERED TO BE AN APPLICATION OF FUND FOR NON CHARITABLE ACTIVITY. T HEREFORE, THE JUDGMENT OF THE APEX COURT IN YOGIRAJ CHARITY TRUST (SUPRA) IS N OT APPLICABLE TO THE FACTS OF THIS CASE. 7. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF TH E KERALA HIGH COURT IN ST. GEORGE FORANA CHURCH (SUPRA). IN THE CASE BEFORE THE KERALA HIGH COURT THE TAXPAYER, A RELIGIOUS INSTITUTION MA DE ADDITION TO THE BUILDING WITH THE INTENTION OF LETTING THEM OUT. T HE ADDITION WAS MADE AGAINST INVESTMENT OF RS.51,396. THE INCOME-TAX OF FICER FOUND THAT THE APPLICATION OF FUNDS FOR ADDITION TO THE BUILDING C ANNOT BE CONSIDERED TO BE AN APPLICATION OF INCOME FOR THE PURPOSE OF THE OBJE CT OF THE TRUST. THE KERALA HIGH COURT FOUND THAT CONSTRUCTION OF THE BU ILDING FOR THE PURPOSE OF GETTING SOME RENTAL INCOME WHICH WOULD BE IN TURN A PPLIED FOR CHARITABLE OR RELIGIOUS PURPOSE, WOULD BE SUFFICIENT FOR THE PURP OSE OF SECTION 11(1) OF THE ACT. 8. WE HAVE ALSO GONE THROUGH THE JUDGMENT OF THE AP EX COURT IN THE CASE OF S.RM.M.CT.M. TIRUPPANI TRUST (SUPRA). IN T HE CASE BEFORE THE APEX 11 ITA NO.55/COCH/2012 COURT, THE OBJECT OF THE TAXPAYER BEFORE THE APEX CO URT WAS TO CARRY OUT THIRUPPANI OR REPAIRS TO OLD HINDU TEMPLES, BUILDIN G NEW ONES, GIVING AND TO OR ESTABLISHING HOSTELS, EDUCATIONAL AND INDUSTR IAL INSTITUTIONS, ETC. DURING THE ASSESSMENT YEAR 1970-71, THE TAXPAYER BE FORE THE APEX COURT CLAIMED THE ADVANCE GIVEN TO S.RM.M.CT.M FIRM, RANG OON WAS REALIZED AND INVESTED IN A BUILDING FOR STARTING HOSPITAL. THE T RIBUNAL FOUND THAT THE AMOUNT TO THE EXTENT OF RS.8 LAKHS WAS TO BE TREATE D AS INCOME OF THE TAXPAYER AND GRANTED EXEMPTION U/S 11(1) OF THE ACT . HOWEVER, ON REFERENCE TO HIGH COURT, THE HIGH COURT FOUND THAT THE SUM OF RS.8 LAKHS WAS AN ASSET ACQUIRED IN REALIZATION OF AN OUTSTAND ING DUE AND HENCE RS.8 LAKHS COULD NOT BE INCLUDED IN THE INCOME OF THE TA XPAYER FOR THE PURPOSE OF SECTION 11(1) OF THE ACT. THEREFORE, THE HIGH C OURT FOUND THAT THE ASSESSEE COULD NOT CLAIM EXEMPTION U/S 11(1) IN RES PECT OF RS.8 LAKHS. IN RESPECT OF BALANCE AMOUNT OF RS.1,64,210.03 SINCE T HE TAXPAYER HAS NOT INVESTED IN ACCORDANCE WITH DECLARATION FILED U/S 1 1(2), THE HIGH COURT FOUND THAT THERE CANNOT BE ANY EXEMPTION ON THE BAL ANCE AMOUNT ALSO. REVERSING THE JUDGMENT OF THE MADRAS HIGH COURT, THE APEX COURT FOUND THAT THE TAXPAYER HAS APPLIED RS.8 LAKHS FOR PURCHA SING A BUILDING WHICH IS TO BE UTILIZED AS HOSPITAL. THEREFORE, THE ASSESSE E IS ENTITLED FOR EXEMPTION 12 ITA NO.55/COCH/2012 U/.S 11(1) OF THE ACT. THE APEX COURT FURTHER FOUN D THAT THE ASSESSEE CAN ACCUMULATE 25% OF THE TOTAL INCOME. THE BALANCE AM OUNT OF RS.1,64,210.03 CONSISTS LESS THAN 25%. THEREFORE, THE ASSESSEE IS ENTITLED FOR EXEMPTION IN RESPECT OF THE ENTIRE AMOUNT. 9. IN THE CASE BEFORE US, THE ASSESSING OFFICER FOU ND THAT THE CAUTION AND REFUNDABLE DEPOSIT WAS DIRECTLY CREDITED TO THE BAL ANCE-SHEET OF THE INSTITUTION WHICH WAS AVAILABLE FOR MAKING ADDITION TO THE FIXED ASSET. THE CAUTION AND REFUNDABLE DEPOSITS MAY BE AVAILABLE WI TH THE TAXPAYER BUT IT IS A LIABILITY TO BE REFUNDED TO THE RESPECTIVE STUDEN T ON COMPLETION OF THEIR COURSE. THEREFORE, THE CAUTION AND REFUNDABLE DEPO SIT CANNOT BE TREATED AS INCOME OF THE TAXPAYER. IT HAS TO BE KEPT READY FOR REFUND AS SOON AS THE STUDENT COMPLETES HIS / HER RESPECTIVE COURSE. IN THE CASE BEFORE US, THE TOTAL RECEIPT OF THE TAXPAYER FOR THE YEAR UNDER CO NSIDERATION IS RS.9,56,89,948. THE TOTAL EXPENDITURE INCLUDING IN VESTMENT IN BUILDING, FURNITURE LABORATORY EQUIPMENT IS TO THE EXTENT OF RS.14,90,59,764. THEREFORE, TO THE EXTENT OF RECEIPT OF RS.9,56,89,9 48 THE TAXPAYER IS ENTITLED FOR EXEMPTION U/S 11 OF THE ACT. THE AVAILABILITY OF THE CAUTION AND REFUNDABLE DEPOSIT WITH THE TAXPAYER CANNOT BE A RE ASON TO DISALLOW THE 13 ITA NO.55/COCH/2012 CLAIM OF THE TAXPAYER ON THE GROUND THAT THE SAME W AS AVAILABLE FOR MAKING INVESTMENT IN THE FIXED DEPOSIT. THEREFORE, THIS T RIBUNAL IS OF THE CONSIDERED OPINION THAT EVEN THOUGH THE TAXPAYER IN CURRED AN EXPENDITURE OF RS. 14,90,59,764 IT IS ENTITLED FOR EXEMPTION U/ S 11 TO THE EXTENT OF RS. 9,56,89,948. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE ORDER OF THE LOWER AUTHORITY ON THIS ISSUE IS CONFIRMED. 10. THE NEXT OBJECTION OF THE DEPARTMENT IS PAYMENT OF SALARY TO THE MEMBER SECRETARY AND INTEREST ON BORROWED FUNDS. T HE SOCIETY CANNOT BE RUN WITHOUT MANPOWER. FOR EMPLOYING SOMEBODY TO RU N THE INSTITUTION THE TAXPAYER HAS TO NECESSARILY PAY SALARY. FROM THE I NITIAL YEAR, THE TAXPAYER BORROWED THE FUNDS AND PAID INTEREST TO THE MEMBERS OF THE SOCIETY. THERE IS NO BAR UNDER THE INCOME-TAX ACT FOR BORROWAL OF FUNDS FROM THE MEMBERS OF THE SOCIETY. THE BAR U/S 13 IS ONLY IN RESPECT OF APPLICATION OF FUNDS DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF ANY PERSO N REFERRED TO IN SUB SECTION (3) OF SECTION 13 OF THE ACT. IN THIS CASE, IT IS NOT THE CASE OF THE REVENUE THAT ANY PART OF THE INCOME OF THE TRUST WAS APPLIE D TO THE BENEFIT OF THE PERSONS REFERRED TO IN SECTION 13(3) OF THE ACT. T HE INTEREST WAS PAID 14 ITA NO.55/COCH/2012 ADMITTEDLY AT THE RATE OF 10% WHICH IS BELOW THE MA RKET RATE. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE COMMISSIONER OF INCOME- TAX(A) HAS RIGHTLY FOUND THAT THE ENTIRE INCOME WAS APPLIED FOR CHARITABLE PURPOSE. IT IS ALSO A FACT THAT THE ADMINISTRATIVE COMMISSIONER INITIATED PROCEEDINGS FOR CANCELLATION OF REGISTRATION U/S 12 AA(3) ON IDENTICAL SET OF FACTS. THE ADMINISTRATIVE COMMISSIONER FOUND THAT THERE WAS NO REASON TO CANCEL THE REGISTRATION SINCE THE TAXPAYER IS CARRY ING ON ITS ACTIVITY IN ACCORDANCE WITH THE OBJECT OF THE TRUST. FURTHERMOR E, FOR THE ASSESSMENT YEAR 2009-10 THE JCIT IN EXERCISE OF JURISDICTION U/ S 144A OF THE ACT, ON IDENTICAL SET OF FACTS, HAS DIRECTED THE ASSESSING OFFICER TO GRANT EXEMPTION U/S 11 OF THE ACT. THE ONLY DIRECTION AGAINST THE TAXPAYER SOCIETY IS TO TAX THE DONATION, IF ANY, RECEIVED U/S 115BBC OF THE AC T. IN SPITE OF THE DIRECTION OF THE JCIT NO DONATION WAS BROUGHT TO TA X, PROBABLY, THE TAXPAYER MAY NOT HAVE RECEIVED ANY DONATION AT ALL. ACCORDI NGLY, THE ASSESSING OFFICER HIMSELF ALLOWED THE CLAIM OF THE TAXPAYER U /S 11 OF THE ACT ON IDENTICAL SET OF FACTS FOR THE ASSESSMENT YEAR. TH EREFORE, THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE COMMISSI ONER OF INCOME-TAX(A). ACCORDINGLY THE SAME IS CONFIRMED. 15 ITA NO.55/COCH/2012 11. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DECEMBER, 2012. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 21 ST DECEMBER, 2012 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME-TAX 4. THE COMMISSIONER OF INCOME-TAX(A) 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH