M/s. Sardulgarh Education Society, MANSA V. The ACIT, Bathinda

ITA 574/ASR/2013

• Counselvise Citation: 57420914 RSA 2013
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 24-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 06-09-2013
• Court: TRIBUNAL
• Department Lawyers: TARSEM LAL
• Assessee Lawyers: TARUN BANSAL
• Keywords: Depreciation; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH. A.D. JAIN, JUDICIAL MEMBER I.T.A. NO. 574(ASR)/2013 ASSESSMENT YEAR: 2009 - 10 PAN: AAJTS3307F SARDULGARH EDUCATION SOCIETY C/O SH. S.K.BANSAL, ADVOCATE OPP. A - BLOCK GURUDWARA, B - 641, RANJIT AVENUE, AMRITSAR - 143001 VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX, CIRCLE - 1, BHATINDA. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. TARUN BANSAL RESPONDENT BY: SH. TARSEM LAL, DR. DATE OF HEARING: 24.06.2015 DATE OF PRONOUNCEMNET: 21 .08.2015 ORDER PER A.D.JAIN (JM): THIS IS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2009 - 10, TAKING THE FOLLOWING GROUNDS: (I) THAT THE L D. CIT(A) HAS NOT APPRECIA TED THE OBJECTIVE CLAUSE OF THE EDUCATIONAL INSTITUTION THAT IT IS M AINLY OR SOLELY FOR EDUCATIONAL PURPOSE. (II) THAT THE EDUCATIONAL INSTIT UATION HAS BEEN APPROVED BY THE CENTRAL BOARD OF SECONDARY EDUCATION [CBSE], DELHI VIDE THE I R LETTER DATED 11.6.10. (I ) ALTERNATIVE GROUND: THAT THE LD. AO/CIT(A) HAS NOT APPRECIATED THE FACT THAT IN THE YEAR UNDER APPEAL THE AMOUNT SPENT AT RS.9,18,960/ - IS A CAPITAL EXPENDITURE. (II) THAT THE LD. AO/CIT(A) HAS NOT APPRECIATED THE FACT THAT THE APPELLANT HAS NOT CLAIMED DEPRECIATION BEFORE FUNCTIO NING OF THE SCHOOL. (III) THAT THE CAPITAL EXPENDITURE AT RS.9,18,960/ - IS NOT TAXABLE IN THE Y EAR UNDER APPEAL. (IV) THAT THE LD. AO/CIT(A) BOTH HAVE ACCEPTED THE CAPITAL CONTRIBUTION AT RS.10,99,500/ - . 2 . ITA NO.574 (ASR)/2013 ASST. YEAR 2009 - 10 2. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE STATES AT THE BAR THE GROUND NOS. 3 & 5 ARE NOT PRESSED. REJECTED AS WITHDRAWN. 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO T HAT THE MAIN AIMS AN D OBJECTIVE OF THE ASSESSEE SOCIETY WAS TO IMPART EDUCATION. THE ASSESSEE ALLEGED TO HAVE RECEIVED DONATIONS FROM 112 PERSONS IN CASH, FOR A TOTAL AMOUNT OF RS.10,99,500/ - . AGAINST SUCH RECEIPTS, THE ASSESSEE SOCIETY CLAIMED EXPENSES ON ACCOUNT OF BANK CHA RGES AND INTEREST, BOOKS AND PERIODICALS, PURCHASE OF DRESS AND LEASE RENT. THE EXCESS OF INCOME OVER EXPENDITURE OF RS.9,18,956/ - ALONGWITH UNSECURED LOAN OF RS.2,00,000/ - AND SECURED LOAN OF RS.19,13,547/ - FROM OBC, SARDULGARH WERE SHOWN TO HAVE BEEN UTI LIZED FOR THE CONSTRUCTION OF THE SCHOOL BUILDING, WHICH STARTED DURING THE YEAR UNDER CONSIDERATION. IT WAS ALSO NOTICED BY THE AO THAT THE ASSESSEE SOCIETY DID NOT INITIATE ITS AVOWED AIM AND OBJECTIVE DURING THE YEAR UNDER CONSIDERATION. THERE WAS NEITH ER ANY ENROLMENT OF ANY STUDENT, N OR RECRUITMENT OF ANY TEACHER OR STAFF DURING THE YEAR. EVEN THE CONSTRUCTION OF THE SCHOOL BUILDING HAD NOT BEEN COMPLETED DURING THE YEAR UNDER CONSIDERATION. THE ASSETS PURCHASED WERE NOT PUT TO USE DURING THE YEAR AND NO DEPRECIATION HAD ALSO BEEN CLAIMED. IT WAS ALSO HELD BY THE AO THAT THERE WAS NO CORPUS FUND WITH THE SOCIETY AND THE DONATIONS WERE ALLEGED TO HAVE BEEN RECEIVED FROM AGRICULTURISTS, WHO WERE NOT MEN OF MEANS . THE AFFIDAVITS OF SUCH DONORS , WITHOUT SUPPORTING DOCUMENTARY EVIDENCE, WERE HELD TO BE NOTHING BUT SEL F SERVING STATEMENTS, GIVING TO PROVE THE GENUINENESS OF THE DONATIONS. EVEN 3 . ITA NO.574 (ASR)/2013 ASST. YEAR 2009 - 10 THE COLLATERAL SECURITY WAS OBSERVED AS ALSO FURNISHED BY THE MEMBERS OF THE FAMILY WHO HAD FLOATED THE ASSESSEE SOC IETY. THE AO OBSERVED THAT FROM THE NATURE OF THE ACTIVITIES OF THE ASSESSEE SOCIETY, OF HAVING CREATED A CHARGE ON THE PROPERTY BY THE SAME PERSONS, WHO WERE THE FOUNDERS OF THE SOCIETY, IT WAS ABUNDANTLY CLEAR THE ASSESSEE SOCIETY WAS NOT AN EDUCATIONAL SOCIETY, BUT A FAMILY ENTERPRISE SET UP FOR THE PURPOSE OF PROFIT. NOT EVEN A SINGLE PENNY WAS OBSERVED AS SPENT ON EDUCATION DURING THE YEAR AND THUS, THE RECEIPTS, ACCORDING TO THE A.O., COULD NOT BE CONSTRUED AS EXEMPT U/S 10(23) OF THE I.T. ACT. I T W AS HELD BY THE AO THAT IN SUCH CIRCUMSTANES, AS THERE WAS NO BENEFICIARY AND THE EDUCATIONAL INSTITUTION WAS NOT FUNCTIONAL DURING THE YEAR, THE CLAIM OF EXEMPTION U/S 10(23C)(IIIAD) WAS WHOLLY MISPLACED AND THAT THUS , IT COULD NOT BE ALLOWED. 4. DURING T HE APPELLATE PROCEEDINGS BEFORE THE CIT(A), THE ASSESSEE CONTENDED THAT THE EXEMPTION U/S 10(23C)(IIIAD) OF THE ACT WAS CLAIMED, AS ITS TOTAL RECEIPTS DID NOT EXCEED RS. ONE CRORE AND IT EXISTED SOLELY FOR THE PURPOSE OF EDUCATION, AND NOT FOR THE PURPOSE OF PROFIT; THAT THE SOCIETY INCURRED EXPENSES ON BOOKS AND PERIODICALS, DRESS PURCHASE, BANK INTEREST AND CHARGES AND LEASE RENT, IN AS MUCH AS SECURED AND UNSECURED LOANS WERE USED FOR CONSTRUCTION OF THE SCHOOL BUILDING AND UNDER SUCH CIRCUMSTANCES, THE ASSESSEE WAS ENTITLED FOR EXEMPTION U/S 10(23C)(IIIAD) OF THE ACT. RELIANCE WAS PLACED ON CERTAIN JUDGEMENTS. THE CIT(A) HELD THAT IN THE CASE OF NITYA EDUCATION SCOIETY VS. JCIT, NOIDA RANGE, NOIDA , 51 SOT 103 (DELHI), EXEMPTION U/S 10(23C)(IIIAD) WAS ALLOWED, AS THE ASSESSEE HAD CORPUS DONATION FOR A SPECIFIED OBJECT, WHILE IN 4 . ITA NO.574 (ASR)/2013 ASST. YEAR 2009 - 10 THE ASSESSEES CASE, THERE WAS NO CORPUS FUND WITH THE ASSESSEE; THAT THE CONSTRUCTION WORK STARTED WITH THE CASH DONATIONS RECEIVED FROM PERSONS WHO WERE AGRICULTURISTS; THAT TH E AFFIDAVITS FILED BY THEM WERE NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE IN RESPECT OF THE DEPOSITIONS MADE; THAT FURTHER, IN THE CASE OF CIT VS. DOON FOUNDATION, 154 ITR 208 (CAL.) , IT WAS HELD THAT THE ASSESSEE HAD BEGUN REGULAR CLASSES FOR TEACHING OF HINDI AND HAD PURCHASED SOME BOOKS AND PERIODICALS FOR ITS LIBRARY DURING THE RELEVANT ASSESSMENT YEAR, WHILE IN THE ASSESSEES CASE, THERE WAS NEITHER ANY TEACHER, NOR ANY STAFF MEMBER AND EVEN A SINGLE PENNY HAD NOT BEEN SPENT FOR EDUCATION; THAT I N SUCH A SITUATION, THE RECEIPTS OF THE ASSESSEE COULD NOT BE CONSTRUED AS EXEMPT U/S 10(23C)(IIIAD) OF THE ACT; THAT IN THE CASE OF CIT VS. SREE NARAYA NA CHANDRIKA TRUST, 212 ITR 456 (KERALA), IT HAS BEEN HELD THAT THE WORK RELATING TO THE HOSPITAL STARTED IN THE YEAR 1973, THOUGH IT BECAME FUNCTIONAL AS A HOSPITAL ONLY ON APRIL 25, 1978 AND THAT THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO THE EXEMPTION U/S 10(22A) FOR THE YEARS 1977 - 78 AND 1979 - 80; THAT IT HAS FURTHER BEEN MENTIONED IN THE SAID JUDGMENT THAT THE TRIBUNAL FOUND AS A FACT THAT THE TRUST JOINED THE FIRMS AS PARTNER ONLY TO RAISE INCOME FOR THE PURPOSE OF RUNNING THE HOSPITAL; THAT HOWEVER, IN THE PRESENT CASE, THE FUNDS HAVE NOT BEEN UTILIZED IN A MANNER SO AS TO EARN ANY INCOME THEREFROM; THAT IN THE CASE OF AMERICAN HOTEL & LODGING ASSOCIATION EDUCATIONAL INST ITUTE VS. CBDT & OTHERS, 301 ITR 86 (SC), THE QUESTION INVOLVED WAS WHETHER THE INSTITUTION EXISTED SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PROFIT; THAT IN THE CASE UNDER CONSIDERATION, THE AO FOUND THAT THE LOAN 5 . ITA NO.574 (ASR)/2013 ASST. YEAR 2009 - 10 HAD BEEN SANCTIONED BY THE BANK FOR CONSTRUCTION OF THE SCHOOL BUILDING AND THE COLLATERAL WAS THE LANDED PROPERTY OF PERSONS WHO BELONGED TO THE SAME FAMILY WHICH HAD FLOATED THE SOCIETY, WHICH CLEARLY INDICATED THAT T HE ASSESSEE SOCIETY WAS NOTHING BUT A FAMILY ENTERPRISE OF THE SAME PERSONS, WHO HAD HAD FOUNDED IT FOR THE PURPOSES OF PROFIT; THAT FURTHER, THE FINDINGS OF THE AO HAD NOT BEEN REBUT TED BY THE ASSESSEE BY ADDUCING ANY EVIDENCE IN SUPPORT OF ITS CONTENTIONS; THAT THE TOTALITY OF THE FACTS A ND CIRCUMSTANCES OF THE CASE LE D TO THE CONCLUSION THAT THE SOCIETY EXISTED FOR THE PURPOSES OF EARNING PROFIT AND IT DID NOT EXIST SOLELY FOR EDUC ATIONAL PURPOSES; AND THAT ACCORDINGLY, HE [THE LEARNED CIT(A)] WAS NOT INCL INED TO AGREE WITH THE ASSESSEE THAT THE ASSESSEE SOCIETY WAS ENTITLED FOR EXEMPTION U/S 10(23C)(IIIAD) OF THE ACT. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS REITE RATED THE ASSESSEES STAND BEFORE THE TAXING AUTHORITIES. WRITTEN SUBMISSIONS HAVE ALSO BEEN FILED. 6. ON THE OTHER HAND, THE LEARNED DR HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER, CONTENDING THAT NO EDUCATIONAL PURPOSE WAS CARRIED OUT BY THE ASSE SSEE DURING THE YEAR UNDER CONSIDERATION; THAT THE ASSESSEE DID NOT POSSESS ANY CORPUS FOR CARRYING OUT ANY EDUCATIONAL PURPOSE; AND THAT THE ASSESSEE HAD TAKEN LOAN ONLY FOR PROFIT, ELSE WHY ANYONE WOULD TAKE A LOAN IN ORDER TO DO PROFIT. 6 . ITA NO.574 (ASR)/2013 ASST. YEAR 2009 - 10 7. WE HAVE HEA RED THE PARTIES AND HAVE PERUSED THE MATERIAL ON RECORD. THE LEARNED CIT(A) HAS HELD THAT THE ASSESSEE IS NOT ENTITLED TO EXEMPTION U/S 10(23C)(IIIAD) OF THE ACT. AS PER THIS SECTION, FOR EXEMPTION TO BE GRANTED THEREUNDER, THE INSTITUTION SHOULD BE EXISTI NG SOLELY FOR EDUCATIONAL PURPOSES AND ITS AGGREGATE RECEIPT SHOULD NOT EXCEED THE AMOUNT PRESCRIBED. IT IS NOBODYS CASE THAT THE AGGREGATE RECEIPT OF THE ASSESSEE INSTITUTION EXCEEDS THE AMOUNT PRESCRIBED. NOW, THE ONLY OTHER THING REQUIRED TO BE CONSIDE RED IS , AS TO WHETHER DURING THE YEAR, THE INSTITUTION EXISTED SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFI T . THE CASE OF THE ASSESSEE IS THAT DURING THE YEAR, IT HAD RECEIVED DONATION S AMOUNTING TO RS.10,99,500/ - . THEREAGAINST, IT HAD CLA IMED EXPENSES ON ACCOUNT OF BANK CHARGES AND INTEREST, BOOKS AND PERIODICALS, PURCHASE OF DRESS AND LEASE RENT. THE EXCESS OF INCOME OVER EXPENDITURE WAS SHOWN TO HAVE BEEN UTILIZED FOR CONSTRUCTION OF THE SCHOOL BUILDING STARTED DURING THE YEAR. THE ASSES SEEE WAS HEL D NOT TO HAVE INITIATED ITS AIM AND OBJECT DURING THE YEAR. NO STUDENT WAS ENROLLED. NO TEACHER OR STAFF WAS RECRUITED. THE CONSTRUCTION OF SCHOOL BUILDING WAS NOT COMPLETED. THE ASSETS PURCHASED WERE NOT PUT TO USE. NO DEPRECIATION WAS CLAIMED THEREON. THERE WAS NO CORPUS FUND WITH THE SOCIETY . EVEN THE COLLATERAL SECURITY WAS FOUND TO BE FURNISHED BY TH E MEMBERS OF THE FAMILY WHICH HAD F LOATED THE ASSESSEE SOCIETY. THERE WAS NO BENEFICIARY. THE EDUCATIONAL INSTITUTION WAS NOT FUNCTIONAL DURING THE YEAR. THE CIT(A) ENDORSED THESE FINDINGS OF THE AO, DISTINGUISHING THE CASE LAWS CITED ON BEHALF OF THE ASSESSEE , AS ABOVE, AND FURTHER HOLDING THAT THE COLLATERAL FOR THE LOAN SANCTIONED BY THE BANK FOR 7 . ITA NO.574 (ASR)/2013 ASST. YEAR 2009 - 10 CONSTRUCTION OF THE SCHOOL BUILDING WAS THE LANDED PROPERTY OF THE SAME FAMILY AS HAD FLOATED THE ASSESSEE SOCIETY, CLEARLY INDICATING THAT IT WAS BUT A FAMILY ENTERPRISE OF ALL TH E PERSONS, WHO HAD FOUNDED IT FOR PURPOSES OF PROFIT. 8. IN THIS REGARD, IT IS SEEN THAT THE ONLY ACTIVITY CARRIED ON BY THE ASSESSEE DURING THE YEAR IS THAT OF CONSTRUCTION OF THE SCHOOL BUILDING. THIS FACT REMAINS UNDISPUTED BY BOTH TH E TAXING AUTHORIT IES. NOW, IN COMMISSIONER OF INCOME TAX VS. O M SARALA BABU EDUCATIONAL TRUST , RENDERED BY THE HONBLE ALLAHABAD HIGH COURT ON 27.07.2014, IN ITA NO. 100/2014 (COPY P L ACED ON RECORD), THE ASSESSEE HAD TAKEN VARIOUS STEPS, INCLUDING THE CONSTRUCTION OF T HE BUILDING OF THE SCHOOL. THE CIT(A) ALLOWED A SIMILAR CLAIM U/S 10(23C)(IIIAD) OF THE ACT. THIS WAS CONFIRMED BY THE TRIBUNAL. THE ORDER OF THE TRIBUNAL WAS CONFIRMED BY THE HONBLE HIGH COURT. NO DECISION TO THE CONTRARY HAS BEEN BROUGHT TO OUR NOTICE. IT THUS CANNOT , ON FACTS, BE SAID THAT DURING THE YEAR, THE ASSESSEE INSTITUTION DID NOT EXIST SOLELY FOR EDUCATIONAL PURPOSES. ALL THE OTHER DISTINCTIONS SOUGHT TO BE MADE OUT BY THE LEARNED CIT(A) DO NOT ACT DETRIMENTAL TO THE CLAIM OF THE ASSESSEE, P ARTICULARLY WHEN THE EXPENSES INCURRED WERE EXPENSES INCURRED ONLY ON ACCOUNT OF BANK CHARGES AND INTEREST, BOOKS AND PERIODICALS AND PURCHASE OF DRESSES AND LEASE RENT AND NOTHING ELSE. 9. APROPOS THE DONATION S TOO, THE AFFIDAVITS OF THE DONORS WERE SIM PLY REJECTED SUMMARILY, WITHOUT CONTROVERTING THE CONTENTS THEREOF AND WITHOUT SHOWING THE DONATIONS TO BE SHAM. IT IS PERTINENT TO NOTE THAT T HE CAPITAL 8 . ITA NO.574 (ASR)/2013 ASST. YEAR 2009 - 10 CONTRIBUTION OF RS.10,99,500/ - WAS ACCEPTED BY BOTH THE AUTHORITIES BELOW. MOREOVER, THE ASSESSEE HAS OBVIOUSLY CORRECTLY NOT CLAIMED DEPRECATIOIN ON THE ASSETS, SINCE THE SCHOOL DID NOT START FUNCTIONING DURING THE YEAR. 10. FOR THE ABOVE DISCUSSION, THE GRIEVANCE OF THE ASSESSEE IS FOUND TO BE JUSTIFIED AND IT IS ACCEPTED AS SUCH. THE ORDER UNDER APPE AL IS REVERSED. ACCORDINGLY, THE ASSESSEES CLAIM U/S 10(23C)(IIIAD) OF THE ACT IS ALLOWED. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED, AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST AUGUST, 2015 . SD/ - (A.D. JAIN) JUDICIAL MEMBER DATED: 21 .08. 2015 /P K/ COPY OF THE ORDER FORWARDED TO: 1 . THE ASSESSEE: SARDULGARH EDUCATION SOCIETY, SARDULGARH, D IST: MANSA 2 . THE ACIT, 3 . THE CIT(A), 4 . THE CIT, 5 . THE SR DR, I.T.A.T., TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.