M/S. NEW PUNJAB EDUCATIONAL SOCIETY, LUDHIANA V. COMMISSIONER OF INCOME TAX (EXEMPTIONS), CHANDIGARH

ITA 583/ASR/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9320 (ITAT-AMRITSAR)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2018-2019
• Appeal Filed On: 29-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR DEVENDER SING H LD
• Assessee Lawyers: ASHWANI KUMAR LD
• Keywords: Depreciation; Charitable institution; Opportunity of being heard
• Section: 12A; 12AA; 6; 2

Judgement Text

IN THE INCOME TAX APPELLAT E TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. N.S.SAINI, ACCOUNTANT MEMBER AND SH. N.K.CHOUDHRY, JUDICIAL MEMBER ITA NO.583(ASR)/2018 ASSESSMENT YEAR: 20 18-19 M/S. NEW PUNJAB EDUCATIONAL SOCIETY, AGWAR LOPON JAGRAON, LUDHIANA VS. THE CIT (EXEMPTIONS), CHANDIGARH. [PAN:AACAN 2849P] (APPELLANT) (RESPONDENT) APPELLANT BY: SH. ASHWANI KU MAR (LD.CA) RESPONDENT BY: DR. DEVENDER SING H (LD. CIT-DR) DATE OF HEARING: 21.05.2019 DATE OF PRONOUNCEMENT: 21.06.2019 ORDER PER N.K.CHOUDHRY, JM: THIS APPEAL HAS BEEN PREFERRED BY THE APPELLANT SOC IETY AGAINST THE ORDER DATED 28/09/2018 IMPUGNED HEREIN, PASSED BY THE LD. CIT(EXEMPTIONS), CHANDIGARH U/S 10(23C)(VI) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS THE ACT) WHEREBY THE LD. CIT(E) REJECTED THE APPLICATION OF THE ASSESSEES SOCIETY. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE SOCIETY HAS BEEN CREATED ON 09-07-2001 AND APPLIED FOR REGISTR ATION U/S 10(23C) (VI) OF THE ACT BEFORE THE LD. CIT(E), CHAND IGARH ON 18/09/2017, WHICH WAS TAKEN INTO CONSIDERATION , WHILE FIXING THE DATE OF HEARING ON 6/12/2017 AND CERTAIN QUERIES/CLAR IFICATIONS AS MENTIONED IN PARA NO.5 OF THE ORDER, HAVE BEEN SOU GHT FOR. THE ASSESSEE SOCIETY VIDE ITS LETTER DATED 18/12/2018 SUBMI TTED ITA NO.583/ASR/2018 (A.Y.2018- 19) M/S NEW PUNJAB EDUCATIONAL SOCIETY V S. CIT(E) 2 THE REPLY, THEREAFTER THROUGH E-MAIL, ADDITIONAL QU ERY WAS RAISED ON DATED 21/09/2018 WHICH WAS ALSO REPLIED BY THE ASSESSE E SOCIETY VIDE LETTER DATED 24/09/2018. THEREAFTER, CONSI DERING THE REPLIES AND DOCUMENTS, THE LD. CIT(E) DECLINED THE REGI STRATION BY REJECTING THE APPLICATION FILED BY THE ASSESSEE SOCIETY. 3. AGGRIEVED AGAINST THE ORDER IMPUGNED HEREIN, THE ASSESSEE PREFERRED THE INSTANT APPEAL. 4. HAVING HEARD THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. LET US TO PERUSE THE RELEVANT PROVISIONS OF LAW , WHICH DEALS WITH THE CONSIDERAT ION OF APPLICATION FOR REGISTRATION U/S 12A OF THE ACT. SECTION 12AA (1) THE CHIEF COMMISSIONER OR COMMISSIONER, ON RECE IPT OF AN APPLICATION FOR REGISTRATION OF A TRUST OR IN STITUTION MADE UNDER CLAUSE (A) [OR CLAUSE (AA) OF SUB-SECTIO N (1)] OF SECTION 12A, SHALL (A) CALL FOR SUCH DOCUMENTS OR INFORMATION FROM THE TRUST OR INSTITUTION AS HE THINKS NECESSARY IN ORDE R TO SATISFY HIMSELF ABOUT THE GENUINENESS OF ACTIVITIES OF THE TRUST OR INSTITUTION AND MAY ALSO MAKE SUCH INQUIRIES AS HE MAY DEEM NECESSARY IN THIS BEHALF; AND (B) AFTER SATISFYING HIMSELF ABOUT THE OBJECTS OF T HE TRUST OR INSTITUTION AND THE GENUINENESS OF ITS ACTIVITIES, HE - (I) SHALL PASS AN ORDER IN WRITING REGISTERING THE TRUST OR INSTITUTION; (II) SHALL, IF HE IS NOT SO SATISFIED, PASS AN ORDE R IN WRITING REFUSING TO REGISTER THE TRUST OR INSTITUTI ON, AND A COPY OF SUCH ORDER SHALL BE SENT TO THE APPLI CANT : ITA NO.583/ASR/2018 (A.Y.2018- 19) M/S NEW PUNJAB EDUCATIONAL SOCIETY V S. CIT(E) 3 PROVIDED THAT NO ORDER UNDER SUB-CLAUSE (II) SHALL BE PASSED UNLESS THE APPLICANT HAS BEEN GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD . FROM THE PROVISIONS, IT IS CLEAR THAT BEFORE DECIDING THE APPLICATION U/S 12A OF THE ACT, THE COMMISSIONER IS AT LIBERTY TO CALL FOR SUCH DOCUMEN TS OR INFORMATION FROM THE SOCIETY OR INSTITUTION AS HE T HINKS NECESSARY IN ORDER TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE ACTIVITIES OF THE SOCIETY OR INSTITUTION AND MAY ALSO MADE SUCH ENQUIRIES AS HE MAY DEEM NECESSARY IN THIS BEHALF. FURTHER BEFORE PASSI NG AN ORDER, THE LD. CIT(E) IS EMPOWERED TO SATISFY HIMSELF ABOUT THE AIMS AND OBJECTS OF THE SOCIETY O R INSTITUTION AND THE GENUINENESS OF ITS ACTIVITIES. 4.1 WHILE COMING TO THE INSTANT CASE, FIRST OBJECTION F OR REJECTION IS THAT THE SALARIES PAID TO THE TEACHERS ARE VERY LOW AND ARE NOT IN SYNC WITH THE GUIDELINES OF THE REGULAT ORY AUTHORITIES. FURTHER IT IS OBSERVED BY THE LD. CIT(E) THAT THERE ARE INSTANCES, WHERE THE EMOLUMENTS ARE NOT EVEN WHAT I S PRESCRIBED UNDER THE MINIMUM WAGES ACT. WE OBSERVE THAT THE LD. CIT(E) HAS NOT POINTED OUT ANY SPECIFIC INSTANCE AN D IF THERE WOULD BE ANY VIOLATION OF THE MINIMUM WAGES ACT THEN CERTAINLY THE SOCIETY SHALL FACE THE APPROPRIATE CONSEQUENCES/ACTIONS AS PER THE MINIMUM WAGES ACT. IN OUR CONSIDERED VIEW, THE LD. CIT(E) INSTEAD OR REJECTING THE APPLICATION ON THIS GR OUND, COULD HAVE MADE THE CONDITION(S) AND WOULD HAVE SUBJECTED TH E REGISTRATION, TO FOLLOW THE MINIMUM WAGES ACT AND OTHE R ANCILLARY ACTS WHICH ARE ENACTED FOR THE WELFARE OF THE EMPLOYEES ITA NO.583/ASR/2018 (A.Y.2018- 19) M/S NEW PUNJAB EDUCATIONAL SOCIETY V S. CIT(E) 4 INCLUDING TEACHING AND NON-TEACHING ETC. BY THE ASSESSE SOCIE TY AND THEREFORE THIS GROUND OF REJECTION IS NOT SUSTAINA BLE. 4.2 THE LD. CIT(E) ALSO CONSIDERED THE FINANCIAL STATEMENT OF THE SCHOOL FOR F.Y.2014-15, 2015-16 & 2016-17 AND OBSE RVED THAT THE SURPLUS OF INCOME OVER EXPENDITURE WITHOUT CONSIDERING DEPRECIATION ARE BETWEEN 25 TO 45 % OF THE GROSS RECEIP TS DURING THE LAST THREE YEARS. IT WAS FURTHER OBSERVED THAT IT N EEDS TO BE FLAGGED THAT EDUCATIONAL INSTITUTIONS HAVE BEEN ALL OWED TO GENERATE REASONABLE SURPLUS BUT THE SAME NEEDS TO BE REDEPLOYED INTO THE STATED OBJECTS OF THE ENTITY AT TH E TIME IT WAS ESTABLISHED. FINALLY THE LD. CIT(E) OBSERVED THAT THE ASSESSEE SOCIETY FAILS TO BE AN ENTITY IN THE CATEGORY OF NOT F OR THE PURPOSES OF PROFIT WHICH IS A PRE-CONDITION FOR GRANT O F APPROVAL U/S 10(23C)(VI) OF THE I.T. ACT. BOTH THE ISSUES INTER A LIA GO ON TO CONFIRM THAT THE APPLICANT SOCIETY DOES NOT QUALIFY FOR THE TAG 'EXISTING ' NOT FOR PROFITS. WE NOTE THAT WHILE CONSIDERING APPLICATION FOR REGISTRATION U/S 12A OF THE ACT, THE LD. CIT(E) IS NOT SUPPOSED TO ACT LIKE ASSESSING OFFICER. IF THE ASSE SSEE HAS NOT BEEN FOLLOWING THE PRESCRIBED NORMS AS PRESCRIBED UNDER SEC.11 OF THE ACT THEN CERTAINLY T HE ASSESSING OFFICER IS EMPOWERED TO TAKE APPROPRIATE ACTION FOR DECLINING THE BENEFIT TO THE ASSESSEE. WITH REGARD TO THE OBJECTION OF THE LD. CIT(E) TO THE EFFECT THAT IT REFLECTS FROM FINANCIAL STATEMEN TS OF F.Y. 2014-15, 2015-16 AND 2016-17, IT WAS OBSERVED THAT THE SURPLUSES OF INCOME OVER EXPENDITURE WITHO UT ITA NO.583/ASR/2018 (A.Y.2018- 19) M/S NEW PUNJAB EDUCATIONAL SOCIETY V S. CIT(E) 5 CONSIDERING DEPRECIATION ARE BETWEEN 25 TO 45% OF T HE GROSS RECEIPT AND THE APPELLANT SOCIETY HAS NET SUR PLUS @ 27, 42.18 AND 34.21 DURING THE SAID FINANCIAL YEA RS AND THE ACCUMULATED SURPLUSES HAVE NOT EVIDENCED TO HAVE BEEN DEPLOYED INTO EDUCATION. THE APEX COURT I N QUEENS EDUCATION SOCIETY VS. CIT [2015] 372 ITR 69 9 (SC) LAID DOWN THE FOLLOWING PRINCIPLES TO DEAL WIT H ACCUMULATED SURPLUS, WHICH FOR THE SAKE OF READY REFERENCE AND BREVITY, ARE REPRODUCED HEREIN BELOW. '11. THUS, THE LAW COMMON TO SECTION 10(23C)(IIIAD ) AND (VI) MAY BE SUMMED UP AS FOLLOWS. (1) WHERE AN EDUCATIONAL INSTITUTION CARRIES ON THE ACTIVITY OF EDUCATION PRIMARILY FOR EDUCATING PERSONS, THE FACT THAT IT MAKES A SURPLUS DOES NOT LEAD TO THE CONCLUSION THAT IT CEASES TO EXIST SOLE LY FOR EDUCATIONAL PURPOSES AND BECOMES AN INSTITUTION FOR THE PURPOSE OF MAKING PROFIT. (2) THE PREDOMINANT OBJECT TEST MUST BE APPLIEDTHE PURPOSE OF EDUCATION SHOULD NOT BE SUBMERGED BY A PROFIT MAKING MOTIVE. (3) A DISTINCTION MUST BE DRAWN BETWEEN THE MAKING OF A SURPLUS | AND AN INSTITUTION BEING CARRIED ON 'FO R PROFIT'. NO INFERENCE ARISES ' THAT MERELY BECAUSE IMPARTING EDUCATION RESULTS IN MAKING PROFIT, IT BECOMES AN ACTIVITY FOR PROFIT. (4) IF AFTER MEETING THE EXPENDITURE, A SURPLUS ARISES INCIDENTALLY FROM THE ACTIVITY CARRIED ONLY THE EDUCATIONAL INSTITUTION, IT WILL NOT; CEASE, TO BE ONE EXISTING SOLELY FOR EDUCATIONAL PURPOSES. (5) THE ULTIMATE TEST IS WHETHER ON AN OVERALL VIEW OF THE MATTER IN THE CONCERNED ASSESSMENT YEAR THE ITA NO.583/ASR/2018 (A.Y.2018- 19) M/S NEW PUNJAB EDUCATIONAL SOCIETY V S. CIT(E) 6 OBJECT IS TO MAKE PROFIT AS OPPOSED TO EDUCATING PERSONS. 4.3 IN THE INSTANT CASE, THE ASSESSEE SOCIETY IN THE FINANCIAL YEAR 2015-16 HAS MADE THE ADDITION TO THE SCHOOL BUILDING, COMPUTERS, FURNITURE AND WATER COO LER BY INCURRING/DEPLOYING THE AMOUNTS OF RS. 2321088/- , 75,750, 57,721 AND 43000/- RESPECTIVELY. FURTHER IN THE FINANCIAL YEAR 2017-18 AS ON 31 ST MARCH, 2018, THE ASSESSEE SOCIETY HAS INCURRED THE EXPENSES OF RS.15,45,000/- QUA BU SES AND RS.1,12,228/- QUA CCTV CAMERAS THEREFORE, IT CANNO T BE SAID THAT THE ASSESSEE HAS NOT REDEPLOYED SURPLUS FUNDS INTO THE STATED AIMS AND OBJECTS OF THE SOCIETY. FURTHER EVEN OTH ERWISE AS IT REFLECTS FROM THE FINANCIAL STATEMENT FOR THE A SST. YEAR: 2014-15 AND 2016-17, THE ASSESSEE HAD LOSSES WHEREAS FOR TH E F.Y.2015-16 THERE ARE NET SURPLUS OF 13.30% WITH RESPE CT TO GROSS RECEIPTS. AS IT IS WELL SETTLED BY APEX COURT IN THE CASE OF QUEENS EDUCATION SOCIETY (SUPRA) THAT A DISTINCTION MUST BE DRAWN BETWEEN THE MAKING OF A SURPLUS AND AN INSTITUTION BEING CARRIED ON FOR PRO FIT. FURTHER IF AFTER MEETING THE EXPENDITURE, A SURPLUS ARISES INCIDENTALLY FROM THE ACTIVITY CARRIED BY TH E EDUCATIONAL INSTITUTION, IT WILL NOT CEASED TO BE O NE EXISTING SOLELY FOR EDUCATION PURPOSES. FURTHER THE ULTIMATE TEST IS WHETHER ON AN OVERALL VIEW OF THE M ATTER IN THE CONCERNED ASSESSMENT YEAR THE OBJECT IS TO MAKE PROFIT AS OPPOSED TO EDUCATING PERSONS. HENCE, IN VIEW OF THE DIC TUM OF QUEENS EDUCATION SOCIETY (SUPRA) IT CAN-NOT BE CONSTRUED THAT THE ASSESSEE IS INVOLVED IN MAKING T HE PROFIT AND THUS OPPOSED TO THE EDUCATING PERSONS. ITA NO.583/ASR/2018 (A.Y.2018- 19) M/S NEW PUNJAB EDUCATIONAL SOCIETY V S. CIT(E) 7 FURTHER THE INFERENCE ALSO CANNOT BE DRAWN THAT THE ASSESSEE SOCIETY INCIDENTALLY ACCUMULATED LARGE SCA LE CASH, THEREFORE, THE SOCIETY IS RUNNING SCHOOL FOR NON- CHARITABLE PURPOSES AND/OR FOR COMMERCIAL PURPOSES. THE APPELLANT SOCIETY IS RUNNING A SCHOOL IN THE NAME AN D STYLE OF ' NEW PUNJAB SENIOR SECONDARY PUBLIC SCHOOL', AGWAR H LAPON, JAGRAON (LUDHIANA) AND HAVING AFFILIATION OF PUNJAB SCHOOL EDUCATION BOARD VIDE SCHOOL CODE NO.0021797 SERIAL NO.1 320 DATED 08/05/2015 AND THE LD. CIT(E) HAS NOT RAISED AN Y DOUBT QUA AIMS AND OBJECTS OF THE SOCIETY AND THERE IS NO OTH ER BASE AND REASON FOR SUSTAINING THE ORDER UNDER CHALLENGE AND FOR DECLINING THE REGISTRATION THEREFORE ON THE AFORESAID ANALYZATIONS AND OBSERVATIONS, WE ARE INCLINED TO GRANT THE REGISTR ATION TO THE SOCIETY AND HENCE DIRECT THE CIT(E) TO GRANT THE REGISTR ATION TO THE SOCIETY. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE SOCIETY ST ANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.06.2019. SD/- SD/- (N.S.SAINI) (N.K.CHOUDHRY) ACCOUNTANT MEMBER JUD ICIAL MEMBER DATED:21.06.2019 /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) M/S. NEW PUNJAB EDUCATIONAL SCIETY, AGWAR LOPON JAGRAON, LUDHIANA. (2) THE CIT(EXEMPTIONS), CHANDIGARH. (3) THE SR DR, I.T.A.T., AMRITSAR TRUE COPY BY ORDER