The Income-tax Officer, Jammu V. M/s. NSM College of Education, Jammu

ITA 578/ASR/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85963 (ITAT-AMRITSAR)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 29-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Charitable institution; Capital expenditure
• Section: 12AA; 37; 6; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO. 578(ASR)/2014 ASSESSMENT YEAR:2009-10 PAN :AAAAN4108M INCOME TAX OFFICER, VS. M/S. NSM COLLEGE OF EDUCAT ION, WARD 2(2), JAMMU. PATTA BOHRI, JAMMU. (APPELLANT) (RESPONDENT) APPELLANT BY:SH.V.K.SINGH, DR RESPONDENT BY:SH.JOGINDER SINGH, CA DATE OF HEARING:19/02/2015 DATE OF PRONOUNCEMENT:26/02/2015 ORDER PER B.P.JAIN,AM: THIS APPEAL OF THE REVENUE ARISES FROM THE ORDER O F THE CIT(A), JAMMU DATED 03.07.2014 FOR THE ASSESSMENT YEAR 2009 -10. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER THE CIT(A) JAMMU WAS RIGHT IN LAW IN DE LETING THE ADDITION MADE ON ACCOUNT OF SURPLUS INCOME OVER EXP ENDITURE AS THE TRUST HAD GENERATED SURPLUS PROFIT OUT OF T OTAL RECEIPTS AND IT HAS NOT SPENT ALL ITS RECEIPTS ON MAIN AIMS AND OBJECTS OF THE TRUST. ITA NO.578(ASR)/2014 2 2. WHETHER THE CIT(A) JAMMU WAS RIGHT IN LAW IN DEL ETING THE ADDITION MADE ON ACCOUNT OF SURPLUS INCOME OVER EXP ENDITURE WHEN THE ASSESSEE IS NOT REGISTERED U/S 12AA OF THE ACT AND THE CONDITIONS U/S 11 AND 13 AS REFERRED IN SECTION 12( 1) HAVE ALSO NOT BEEN FULFILLED BY THE ASSESSEE. 3. WHETHER THE CIT(A) JAMMU WAS RIGHT IN LAW IN DEL ETING THE ADDITION MADE ON ACCOUNT OF SURPLUS INCOME OVER EXP ENDITURE BY NOT CONSIDERING THE DECISION OF THE HONBLE ITAT , JAIPUR BENCH IN THE CASE OF JHUNJHUNU ACADEMY SAMMITTEE VS . ITO (2006) REPORTED IN 103 TTJ 260. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS DECLARED AGGREGATE ANNUAL RECEIPTS OF RS.83,26,256/- AND HAS CLAIMED D EDUCTION UNDER SECTION 10(23C) (IIIAD) OF THE INCOME TAX ACT, 1961 ( IN S HORT, THE ACT), OF EXCESS OF INCOME OVER EXPENDITURE AMOUNTING TO RS.15,78,92 0/-. THE ASSESSEE HAS DECLARED FIXED ASSETS AS AT 31.03.2009 AMOUNTING TO RS.17,25,450/-. IT WAS OBSERVED BY THE AO THAT THE INCOME OVER EXPENDITURE IS IN EXCESS OF 15% IN CONTRAVENTION TO THE PROVISIONS OF SECTION 11(1)(B) OF THE ACT. THE ASSESSEE SUBMITTED THE EXPLANATION , WHICH DID NOT FIND FAVO UR TO THE AO AND ACCORDINGLY, THE AO TREATED THE SAID SURPLUS OF RS. 15,78,920/- AND RS. 3,29,719/- OVER AND ABOVE 15% OF THE RECEIPTS AS IN COME OF THE ASSESSEE BUT THE SAME WAS RESTRICTED TO SURPLUS OF RS.15,78,920/ -. 3. THE LD. CIT(A) VIDE PARA 4 OF HIS ORDER REVERSED THE ORDER OF THE AO AND ALLOWED THE EXEMPTION AS CLAIMED BY THE ASSESSE E. 4. THE LD. DR RELIED UPON THE ORDER OF THE A.O. ITA NO.578(ASR)/2014 3 5. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, RELIED UPON THE SUBMISSIONS MADE BEFORE THE AO AND THE LD. CIT(A) AND THE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE UNDISPUTED FACTS IN THE PRESENT CASE ARE THAT T HE ASSESSEE IS NOT REGISTERED U/S 12AA OF THE ACT. THE ASSESSEES RECEIPTS DURING THE YEAR ARE LESS THAN 1 CRORE I.E. AT RS.83,26,256/- AND THE ASSESSEE HAS D ECLARED A SURPLUS OF RS.15,78,920/-. THE AO IN THE PRESENT CASE HAS OBS ERVED THAT THERE IS CONTRAVENTION OF SECTION 11(1)(B) OF THE ACT. AT T HE OUTSET, WE ARE OF THE VIEW THAT THE ASSESSEE HAS NOT BEEN REGISTERED U/S 12AA OF THE ACT THEN THE PROVISIONS OF SECTIONS 11 TO 13 CANNOT BE MADE APPL ICABLE. THEREFORE, APPLICATION OF SECTION 11(1)(B) REFERRED TO IN AO S ORDER IN PARA 2.2 AND ADDITION OF RS.3,29,719/- THERETO IN PARA 6.3 OUTRI GHTLY CANNOT BE MADE. MOREOVER, THE ASSESSEE HAS CLAIMED THE INSTITUTION AS AN EDUCATIONAL INSTITUTION, EXISTING SOLELY FOR EDUCATIONAL PURPOS ES AND NOT FOR THE PURPOSE OF PROFIT, WHERE AGGREGATE RECEIPTS OF SUCH INSTITU TION DID NOT EXCEED RS.1 CRORE AS PER RULE 2BC OF THE I.T. RULES, 1962. THE QUESTION ARISES WHETHER THE INSTITUTION EXISTS SOLELY FOR THE PURPOSE OF EDUCATION AND NOT FOR THE PURPOSE OF PROFIT AND AGGREGATE ANNUAL RECEIPTS OF SUCH INSTITUTION DOES NOT EXCEED RS.1 CRORE AS PER RULE 2BC OF THE I.T. RULES , 1962. THERE IS NOTHING ITA NO.578(ASR)/2014 4 ON RECORD BROUGHT OUT BY THE AO THAT THE ASSESSEES INSTITUTION DOES NOT EXIST SOLELY FOR THE EDUCATIONAL PURPOSES OR FOR PURPOSE S OF PROFIT OR ANNUAL RECEIPTS EXCEED RS. 1 CRORE. THEREFORE, GROUND NO.2 RAISED BY THE REVENUE IS MIS-CONCEIVED AND THEREFORE, THE SAME IS DISMISSED. 7. AS REGARDS GROUND NO.3 WITH REGARD TO THE DECISI ON OF THE ITAT, JAIPUR BENCH IN THE CASE OF JHUNJHUNU ACADEMY SAMMI TTEE VS. ITO (2006) REPORTED IN 103 TTJ 260, THE SAME ALSO WITH REFEREN CE TO THE EXEMPTION U/S 11 AND ACCORDINGLY IS NOT APPLICABLE IN THE PRESEN T FACTS AND CIRCUMSTANCES OF THE CASE AND OUR FINDINGS HEREINABOVE. THEREFORE , OUTRIGHTLY, GROUND NO.3 RAISED BY THE REVENUE IS MIS-CONCEIVED AND IS DISMI SSED. 8. AS REGARDS GROUND NO.1 RAISED BY THE REVENUE TH AT THE ASSESSEE HAD GENERATED SURPLUS PROFIT AND HAS NOT SPENT ALL ITS RECEIPTS ON MAIN AIMS AND OBJECTS OF THE TRUST. THE ASSESSEE HAS RELIED UPON THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PINEGROV E INTERNATIONAL CHARITABLE TRUST VS. UNION OF INDIA REPORTED IN 32 7 ITR 73, WHERE THE HONBLE HIGH COURT, DISTINGUISHING THE DECISION IN THE CASE OF CIT VS. QUEENS EDUCATIONAL SOCIETY (2009) 177 TAXMAN 326 HA S HELD AS UNDER: MERELY BECAUSE THERE ARE SURPLUSES IN THE HANDS OF THE EDUCATIONAL INSTITUTION WOULD NOT IPSO FACTO LEAD TO AN INEVITA BLE CONCLUSION THAT ITA NO.578(ASR)/2014 5 SUCH AN EDUCATIONAL INSTITUTION IS EXISTING FOR MAK ING PROFITS AND NOT SOLELY FOR EDUCATIONAL PURPOSES. THEREFORE, THE INT ERPRETATION PUT FORTH BY THE CHIEF COMMISSION THAT THERE HAS TO BE A REAS ONABLE PROFIT ONLY AND THEN ONLY AN INSTITUTION CAN BE SAID TO BE NOT REASONABLE PROFIT ONLY AND THEN ONLY AN INSTITUTION CAN BE SAID TO BE NOT EXISTING SOLELY FOR THE PURPOSES OF PROFIT, IS TOTALLY A MISCONCEPT ION OF LAW. THERE IS A DEFINITE PURPOSE BEHIND THE ALLOWING OF SETTING UP EDUCATIONAL INSTITUTIONS AT THE HANDS OF PRIVATE ENTREPRENEURS INCLUDING TRUSTS/SOCIETIES BY THE GOVT. VARIOUS OTHER EDUCAT IONAL COLLEGES LIKE ENGINEERING AND PHARMACY ETC. COULD NOT HAVE BEEN E STABLISHED FOR WANT OF FUNDS. THE GOVT. WITH A DEFINITE IDEA AND O BJECT PURPORTEDLY OPENED THIS AREA OF EDUCATION FOR THE PRIVATE SECTO R. THE GOVERNMENT, WHO IS LACKING FUNDS, APPEARS TO HAVE THOUGHT THAT PRIVATE SECTOR COULD DO THIS JOB VERY WELL. ONCE THE VERY INTENTIO N OF THE GOVERNMENT, IS TO PROMOTE EDUCATION IN THE PRIVATE SECTOR SUCH AN ACTION LIKE THAT OF THE CHIEF COMMISSIONER WOULD SE RIOUSLY DISCOURAGE THOSE ACTIVITIES AND THE AVOWED OBJECT COULD NEVER BE ACHIEVED. 9. THE LD. CIT(A) HAS RELIED UPON THE DECISION OF T HE HONBLE SUPREME COURT, IN THE CASE OF TMA PAI FOUNDATION VS. STATE OF KARNATAKA (2002) 8 SCC 481, WHERE THE 11 JUDGE CONSTITUTION BENCH HAS HELD AS UNDER: THE PRIVATE EDUCATIONAL INSTITUTIONS ARE BOUND TO GENERATE FUNDS FOR BETTERMENT AND GROWTH OF THE INSTITUTIONS AND FOR W HICH THERE MAY BE A SURPLUSES FOR FURTHERANCE OF EDUCATION. THEREFORE, IT IS NOT ONLY PERMISSIBLE BUT AN IMPORTANT REQUIREMENT TO RUN TH E INSTITUTIONS OF SUCH STRENGTH. FURTHER, AN ADITANAR EDUCATIONAL I NSTITUTION (SUPRA). HONBLE SUP0REME COURT HAS OBSERVED THAT WHEN SURPL US IS UTILIZED FOR EDUCATIONAL PURPOSES I.E. FOR INFRASTRUCTURE DE VELOPMENT, IT CANNOT BE SAID THAT THE INSTITUTION WAS HAVING THE OBJECT TO MAKE PROFIT. HONBLE SUPREME COURT HAS RIGHTLY OBSERVED TIME AND AGAIN THAT SURPLUSES USED FOR MANAGEMENT AND BETTERMENT OF THE INSTITUTIONS COULD NOT BE TERMED AS PROFIT. IF THE STAND OF THE DEPARTMENT/REVENUE IS ACCEPTED TO BE CORRECT, ESPECIALLY IN THE WAKE O F THE METHODOLOGY ADOPTED BY THE CHIEF COMMISSIONER IN ASCERTAINING P ROFITS, THEN NO EDUCATIONAL INSTITUTION LIKE THE PETITIONER SOCIETY COULD BE SAID TO BE EXISTING SOLELY FOR EDUCATIONAL PURPOSES AS IN EVER Y CASE OF AN EDUCATIONAL INSTITUTION THERE IS BOUND TO BE A PROF IT. THE PROVISION OF ITA NO.578(ASR)/2014 6 SECTION 10(23C)(VI) WOULD BE RENDERED OTIOSE IF THE INTERPRETATION ADOPTED BY THE CHIEF COMMISSIONER IS ACCEPTED AND T HE MANNER IN WHICH EXEMPTION VALIDLY GRANTED TO THE PETITIONER-S OCIETY HAS BEEN WITHDRAWN. THE APPROACH OF THE CHIEF COMMISSIONER I S WHOLLY ERRONEOUS BEING CONTRARY TO THE EXPRESS PROVISIONS OF THE THIRD PROVISO TO SECTION 10(23C)(VI) FOR THE FOLLOWING RE ASONS- (I) UNLIKE THE PROVISIONS OF SECTIONS 37 AND 36(XII), THE INCURRIN G OF CAPITAL EXPENDITURE IS NOT EXPRESSLY EXCLUDED IN THE THIRD PROVISO; AND (II) HAD IT BEEN THE INTENTION OF THE LEGISLATURE TO EXC LUDE CAPITAL EXPENDITURE WHILE APPLYING THE INCOME OF THE TRUST AS PER THE THIRD PROVISO TO SECTION 10(23C)(VI) THEN THE SAID PROVI SO WOULD HAVE CONTAINED AN EXPRESS EMBARGO AGAINST SUCH EXCLUSION . WE HAVE NOT ABLE TO PERSUADE OURSELVES TO ACCEPT TH E VIEW EXPRESSED BY THE DIVISION BENCH OF THE UTTRAKHAND HIGH COURT IN THE CASE OF M/S. QUEENS EDUCATIONAL SOCIETY (SUPRA). 10. IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT C ASE AND DECISIONS OF THE HONBLE PUNJAB & HARYANA HIGH COURT, IN THE CASE O F PINEGROVE INTERNATIONAL CHARITABLE TRUST VS UOI ( SUPRA) AND HONBLE SUPREME COURT, IN THE CASE OF TMA PAI FOUNDATION VS. STATE OF KARN ATAKA (SUPRA), IN THE ABSENCE OF ANY NON-CHARITABLE PURPOSE OR NON PROF IT MOTIVE ON RECORD AND ANNUAL RECEIPTS BEING LESS THAN RS.1 CRORE AS PER R ULE 2BC OF THE I.T. RULES, 1962, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A), WHO HAS RIGHTLY DELETED THE ADDITION, MADE BY THE AO. THUS, GROUND NO.1 OF THE REVENUE IS DISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA NO.578(ASR)/2014 IS DISMISSED. ITA NO.578(ASR)/2014 7 ORDER PRONOUNCED IN THE OPEN COURT ON 26TH FEBRUARY, 2015. SD/- SD/- (A.D.JAIN) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 26TH FEBRUARY, 2015 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. NSM COLLEGE OF EDUCATION, PATTA B OHRI, JAMMU 2. THE ITO WARD 2(2), JAMMU 3. THE CIT(A), JAMMU 4. THE CIT, JAMMU. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.