The ITO, Ward-1., Narasaraopeta V. M/s Subbaraya & Narayana College Committee, Guntur

ITA 615/VIZ/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2853 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2005-2006
• Appeal Filed On: 17-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S S GOPINATH
• Section: 12A; 148; 10; 11

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SRI B.R. BASKARAN, ACCOUNTANT MEMBER I.T.A. NOS.610 TO 615/VIZAG/2008 ASSESSMENT YEARS : 2000-01 TO 2005-06 RESPECTIVEL Y THE ITO WARD-1, NARASARAOPET, GUNTUR DIST. VS. SRI SUBBARAYA & NARAYANA COLLEGE COMMITTEE, NARASARAOPET, GUNTUR DIST. (APPELLANT) (RESPONDENT) PAN NO.AAETS 8784C APPELLANT BY : SHRI G.S.S. GOPINATH, DR RESPONDENT BY : S HRI G.V.N. HARI, CA O R D E R PER BENCH : 1. THESE SIX APPEALS, FILED AT THE INSTANCE OF THE REVENUE, ARE DIRECTED AGAINST THE COMMON ORDER DATED 29.8.2008 PASSED BY LD CIT(A ), GUNTUR AND THEY RELATE TO THE ASSESSMENT YEARS 2000-01 TO 2005-06. SINCE THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON IN NATURE, WE ALSO FIND IT CONVE NIENCE TO DISPOSE THEM OFF BY THIS CONSOLIDATED ORDER: 2. THE REVENUE HAS TAKEN FOLLOWING GROUNDS IN A LL THESE APPEALS. 1) THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN LA W IN ALLOWING ASSESSEES APPEAL. 2) THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE ASS ESSEE HAS SATISFIED CONDITION LAID DOWN IN PROVISIONS OF SEC.10 (23C)(I IIAB) BY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. DISTRIBUTORS (P) LTD., (83 ITR 377). 3) THE LD. CIT(A) HAS ERRED IN WRONGLY APPLYING THE PROPOSITION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. DISTRIBUTORS ( P) LTD., (83 ITR 377) TO THE ASSESSEES CASE WITHOUT APPRECIATING FACTS AND CIRCUMSTANCES OF THE CITED CASE. 2 4) THE LD CIT(A) HAS ERRED IN WRONGLY APPLYING MEAN ING OF EXPRESSION WHOLLY AND MAINLY TO WORDS USED AS WHOLLY OR SUB STANTIALLY USED IN THE PROVISIONS OF SECTION 10(23C)(IIIAB) OF IT ACT, 196 1. 5) THE LD. CIT(A) OUGHT NOT TO HAVE HELD THAT THE A SSESSEE IS ELIGIBLE FOR EXEMPTION U/S 11 TO 13 WITHOUT GIVING AN OPPORTUNIT Y TO THE ASSESSING OFFICER TO VERIFY WHETHER ALL THE CONDITIONS OF PRO VISIONS OF THESE SECTIONS ARE SATISFIED BY ASSESSEE OR NOT. 6) ANY OTHER GROUNDS URGED AT THE TIME OF HEARING. 3. THE FACTS ARE STATED IN BRIEF. THE ASSESSEE IS A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT AND IS A RECOGNIZED EDUC ATIONAL INSTITUTION AFFILIATED TO THE ACHARYA NAGARJUNA UNIVERSITY. THE ASSESSEE SOC IETY IS CONDUCTING CLASSES FOR UNDERGRADUATE, GRADUATE AND POST GRADUATE DEGRE ES. THE ASSESSEE SOCIETY GETS GRANTS-IN-AID FROM THE UNIVERSITY GRANTS COMMI SSION (U.G.C.) OF THE CENTRAL GOVERNMENT. THE ASSESSEE SOCIETY CLAIMED EXEMPTION U/S 10(23C)(IIIAB) OF THE ACT AS IT RECEIVES SUBSTANTIAL GRANT IN AID FROM TH E U.G.C. OF THE CENTRAL GOVERNMENT. THE ASSESSING OFFICER OPENED THE ASSES SMENTS FOR ASSESSMENT YEARS 2000-01 TO 2004-05 BY ISSUING NOTICE U/S 148 AND COMPLETED THE ASSESSMENTS OF THESE YEARS ON 28.9.2007. THE ASSES SMENT OF THE ASSESSMENT YEAR 2005-06 WAS TAKEN UP FOR SCRUTINY AND THE SAME WAS COMPLETED ON 24.12.2007. 4. THE ASSESSEE IS RUNNING THE DEGREE COURSES U NDER TWO DIVISIONS, VIZ., AIDED SECTIONS AND UN-AIDED SECTIONS. THE ASSESSEE DO NO T GET GRANT IN AID FOR UNAIDED SECTION. THE AO NOTICED THAT THE ASSESSEE MADE SURPLUS FROM THE UNAIDED SECTIONS. HENCE THE AO TOOK THE VIEW THAT THE ASSESSEE WAS EXISTING FOR PROFIT AND HENCE IT CAN AVAIL EXEMPTION ONLY U/S 10 (23C)(VI) OF THE ACT. HOWEVER FOR AVAILING EXEMPTION U/S 10(23C(VI), THE ASSESSEE IS REQUIRED TO OBTAIN APPROVAL FROM THE PRESCRIBED AUTHORITY. SINCE THE ASSESSEE DID NOT HAVE THE REQUIRED APPROVAL, THE AO CAME TO THE CONCLUSION THAT THE AS SESSEE IS NOT ENTITLED TO EXEMPTION U/S 10(23C(VI) OF THE ACT. SINCE THE ANN UAL GROSS RECEIPTS OF THE ASSESSEE EXCEEDED 1.00 CRORE, THE AO TOOK THE VIEW THAT THE ASSESSEE IS PRECLUDED FOR AVAILING EXEMPTION U/S 11 OF THE ACT. ACCORDINGLY, THE AO 3 COMPLETED THE ASSESSMENTS FOR ALL THE SIX ASSESSMEN T YEARS BY BRINGING INTO TAX THE SURPLUS SHOWN IN THE INCOME AND EXPENDITURE ACC OUNT. 5. THE ASSESSEE WAS GRANTED REGISTRATION U/S 12A OF THE ACT WITH EFFECT FROM 1.4.2006 BY THE LD CIT VIDE HIS ORDER DATED 22.12.2 006. SINCE THE LD CIT DECLINED TO CONDONE THE DELAY IN FILING APPLICATION SEEKING REGISTRATION U/S 12A OF THE ACT, THE ASSESSEE FILED APPEAL BEFORE THE TRIBU NAL. THE ITAT, VISAKHAPATNAM, VIDE ITS ORDER DATED 31.1.2008 DIREC TED THE LD CIT TO CONDONE THE DELAY IN APPLYING FOR REGISTRATION U/S 12A OF T HE ACT. ACCORDINGLY THE LD CIT, VIDE HIS ORDER DATED 14.3.2008, GRANTED REGISTRATIO N TO THE ASSESSEE SOCIETY FROM THE DATE OF ITS INCEPTION. 6. THE ASSESSEE ALSO FILED APPLICATION BEFORE T HE CHIEF COMMISSIONER OF INCOME TAX, HYDERABAD-III, SEEKING APPROVAL U/S 10( 23C)(VI) OF THE ACT. HOWEVER THE LD CCIT, VIDE HIS LETTER DATED 04-06-2008 DECLI NED TO CONSIDER THE APPLICATION AND THE COMMUNICATION OF LD CCIT IS EXTRACTED BELOW : IT IS SEEN FROM THE INFORMATION FURNISHED BY YOU FOR FINANCIAL YEARS 1998-99 TO 2004-05 THAT 60% TO 79% OF THE RECEIPTS OF THE SOCIETY ARE BEING RECEIVED AS GRANT S-IN-AID. THEREFORE, YOUR CLAIM FOR EXEMPTION IS GOVERNED BY CLAUSE (IIIAB) OF SECTION 10(23C) AND IT CAN NOT BE CONSIDERED FOR AP PROVAL UNDER SECTION 10(23C)(VI). AS APPROVAL OF THE PRESCRIBED AUTHORITY IS NOT REQ UIRED FOR EXEMPTION U/S 10(23)(IIIAB), YOU MAY MAKE YOUR CLAI M IN THIS REGARD BEFORE THE ASSESSING OFFICER. 7. THE ASSESSEE HAD PREFERRED APPEALS BEFORE LD CIT(A) AGAINST THE ASSESSMENT ORDERS FOR ALL THESE SIX YEARS. THE LD CIT(A), BY HIS COMMON ORDER, HELD THAT THE ASSESSEE IS ENTITLED TO EXEMPTION U/S 10(23C(IIIAB) OF THE ACT. THE RELEVANT OBSERVATIONS OF LD CIT(A) ARE EXTRACTED BE LOW: 11.00 HOWEVER, IN ORDER TO QUALIFY FOR THE EXEMPT ION U/S 10(23C)(IIIAB), THE APPELLANT-SOCIETY ALSO NEEDS TO BE WHOLLY OR SUBSTANTIALLY FINANCED BY THE GOVERNMENT. NOWHERE IS THE MEANING OF THE TERM WHOLLY OR SUBSTANTIALLY CLARI FIED. BEFORE ME THE AUTHORIZED REPRESENTATIVE SUBMITTED A CHART SHO WING THE 4 PERCENTAGE OF AID RECEIVED FROM THE GOVERNMENT VIS- -VIS THE TOTAL INCOME OF THE APPELLANT TRUST. THE DETAILS SHOW TH AT THE PERCENTAGE OF AID RECEIVED TO THE TOTAL FUNDS AVAIL ABLE WITH THE APPELLANT RANGES FROM 79.4% IN A.Y. 1999-2000 TO 60 .2% IN A.Y. 2005-06. S.NO. ASST. YEAR PERCENTAGE 1. 1999-2000 79.4 2. 2000-01 76.2 3. 2001-02 73.8 4. 2002-03 65.4 5. 2003-04 61.3 6. 2004-05 66.1 7. 2005-06 60.2 THE APPELLANTS AUTHORIZED REPRESENTATIVE ARGUED B EFORE ME THAT SINCE THE PERCENTAGE OF AID RECEIVED TO THE TO TAL FUNDS AVAILABLE WITH THE APPELLANT-SOCIETY WAS MORE THAN 51%, IT AMOUNTED TO BEING SUBSTANTIALLY FINANCED BY THE GOV ERNMENT. IT WAS ALSO SUBMITTED THAT THE TERM EMPLOYED BEING WH OLLY OR SUBSTANTIALLY AND NOT WHOLLY AND SUBSTANTIALLY, THE FACT THAT MORE THAN 60% OF THE FUNDS WAS FROM THE GOVERNMENT MADE THE APPELLANT-SOCIETY ELIGIBLE FOR THE EXEMPTION U/S 10 (23C)(IIIAB) OF THE ACT. 12.00 THE SUPREME COURT IN CASE OF CIT VS. DISTRIBU TORS P LTD. (83 ITR 377) HAD ADJUDICATED ON THE MEANING OF THE TERM WHOLLY AND MAINLY IN THE CONTEXT OF SEC. 23A OF THE INCOM E TAX ACT, 1922. WHILE DOING SO, THE APEX COURT HELD MAINLY IN THAT CLAUSE MUST NECESSARILY TAKE ITS COLOUR FROM THE WORD WHO LLY PRECEDING THE WORD. THE COMPANY WHICH COMES UNDER THE SCOPE OF THOSE PROVISIONS MUST BE ONE WHOSE PRIMARY BUSINESS MUST BE IN THE DEALING IN OR HOLDING OF INVESTMENTS. IN THAT CAS E THE SUPREME COURT HAD HELD THAT THOUGH THE ASSETS USED BY THE A SSESSEE- COMPANY IN ITS DEALING IN SHARES WERE FAR MORE THAN THOSE USED FOR INVESTMENT IN THE SHARES OF THE MANAGED COMPANIES, IF THE VALUE OF THE MANAGING AGENCIES HELD BY THE ASSESSEE WERE TAKEN INTO CONSIDERATION, IT COULD NOT BE SAID THAT THE ASSETS OF THE COMPANY USED IN ITS DEALING IN SHARES WOULD EXCEED THE VALU E OF ITS OTHER ASSETS. ON THESE FACTS, THE SUPREME COURT TOOK THE VIEW THAT THE ASSESSEE WAS NOT A COMPANY WHOSE BUSINESS CONSISTED MAINLY IN THE DEALING IN OR HOLDING OF INVESTMENTS WITHIN THE MEANING OF CL.(I) OF EXPLN. 2 OF S.23A OF THE 1922 ACT. 5 13.00 ALTHOUGH THE TERM EMPLOYED IN SEC. 10(23C)(II IAB) IS WHOLLY OR SUBSTANTIALLY, THE SUPREME COURTS RULING CAN B E TAKEN AS EQUALLY APPLICABLE IN THIS CASE. IN THIS CASE, A S UBSTANTIAL PORTION OF THE FUNDS OF THE INSTITUTION CAN BE SAID TO BE F ROM GOVERNMENT FINANCE, SINCE SUCH FINANCE EVEN IN THE YEAR 2005-0 6 CONSTITUTES 60% OF THE TOTAL FUNDS AVAILABLE WITH IT. IT IS AL SO CLEAR THAT THE AIDED SECTION CONTINUES TO BE THE PRIMARY AREA OF A CTIVITY OF THE INSTITUTION SINCE THE NUMBER OF COURSES RUN BY THE AIDED SECTION AS WELL AS THE NUMBER OF STUDENTS IN THE AIDED SECTION IS SUBSTANTIALLY MORE THAN THE COURSES RUN AND THE NUMBER OF STUDENT S IN THE UNAIDED SECTION . IN VIEW OF THIS, I HOLD THAT THE EDUCATIONAL INSTITUTION CONTINUES TO BE SUBSTANTIALLY FINANCED BY THE GOVERNMENT EVEN UP TO THE A.Y. 2005-06 AND IS THERE FORE ENTITLED TO EXEMPTION U/S 10(23C)(IIIAB) FOR THE YE ARS UNDER APPEAL. 18.00 ALTHOUGH THE MAIN CLAIM OF THE APPELLANT FOR EXEMPTION UNDER SECTION 10(23C)(IIIAB) HAS BEEN ALLOWED BY ME IN THE PRECEDING PARAGRAPHS, THE ALTERNATIVE CLAIM MADE BY THE APPELLANT IS ALSO DISCUSSED BRIEFLY. THE ASSESSING OFFICER H AD RELIED ON THE DECISION OF THE ITAT, HYDERABAD BENCH IN THE CASE O F VODITHALA EDUCATIONAL SOCIETY VS. CIT (ITA NO.1138/H/06 DATED 31.10.2007) TO DENY THE APPELLANTS CLAIM TO EXEMPTION UNDER SE CTION 11 OF THE ACT. 19.00 THE ITAT, HYDERABAD BENCH IN TWO DECISIONS P ASSED AFTER THE CASE RELIED UPON BY THE ASSESSING OFFICER HELD THAT THE EXEMPTION U/S 10(23C)(VI) AND SEC.11 ARE NOT MUTUAL LY EXCLUSIVE. IN THE CASE OF ADI (EXEMPTIONS) VS. RAJASTHANI SIKS HA SAMATHI (ITA NO.80 AND 81/HYDERABAD/08) AND HYDERABAD B BEN CH IN ITA NO.233/HYD/07 IN THE CASE OF DDI (EXEMPTIONS) VS. S T. THERASA CONVENT SOCIETY), THE ITAT HELD THAT THE DECISION I N VODITHALA EDUCATIONAL SOCIETY WERE BASED ON THE FACTS OF THAT PARTICULAR CASE. THE ITAT RELIED ON THE DECISION OF THE BAR C OUNCIL OF UP VS. CIT AND THE A.P. HIGH COURT IN A.P. RIDING CLUB (IT R 143 ITR 584) WHILE HOLDING THAT THE TWO PROVISIONS, VIZ., SECTIO N 10(23C)(VI) AND SECTION 11 WERE NOT MUTUALLY EXCLUSIVE AND EDUCATIO NAL INSTITUTIONS COULD CLAIM EXEMPTION U/S 11 EVEN IF GROSS ANNUAL R ECEIPTS EXCEEDED RS.1 CRORE. 20.00 SINCE THE APPELLANT HAS NOW BEEN GRANTED RE GISTRATION UNDER SECTION 12A EFFECTIVE FROM THE DATE OF ITS IN CEPTION, THE SOCIETY CAN MAKE A CLAIM TO EXEMPTION U/S 11 PROVID ED THE OTHER CONDITIONS PRESCRIBED IN SECS. 11 TO 13 ARE SATISFI ED. 6 7.1 AGGRIEVED BY THE ORDER OF LD CIT(A), THE RE VENUE IS IN APPEAL BEFORE US WITH THE GROUNDS EXTRACTED IN PARA NO.2 SUPRA. 8. WE HAVE HEARD THE PARTIES AND CAREFULLY PERU SED THE RECORD. THE FIRST AND SIXTH GROUNDS ARE GENERAL IN NATURE. IN GROUND NUM BERS 2 TO 4, THE REVENUE IS ASSAILING THE DECISION OF LD CIT(A) IN HOLDING THAT THE ASSESSEE IS ENTITLED TO EXEMPTION U/S 10(23C(IIIAB) OF THE ACT. FROM THE ORDER OF LD CIT(A), WE NOTICE THAT THE ASSESSEE IS RECEIVING MORE THAN 60% OF THE GROSS RECEIPTS FROM THE CENTRAL GOVERNMENT. HENCE THE LD CIT(A) TOOK THE V IEW THAT THE ASSESSEE FALLS IN THE CATEGORY OF SUBSTANTIALLY FINANCED BY THE G OVERNMENT PROVIDED IN SECTION 10(23C(IIIAB) OF THE ACT. IN RESPONSE TO THE APPLI CATION FILED BY THE ASSESSEE BEFORE THE LD CCIT (PRESCRIBED AUTHORITY) SEEKING A PPROVAL U/S 10(23C)(VI) OF THE ACT, THE LD CCIT HAS ALSO OPINED THAT THE ASSESSEE IS GOVERNED BY THE PROVISIONS OF SECTION 10(23C)(IIIAB) OF THE ACT AS THE ASSESSEE SOCIETY IS RECEIVING 60% TO 79% OF ITS RECEIPTS AS GRANTS IN AID FROM TH E GOVERNMENT. THUS BOTH THE LD CCIT AND LD CIT(A) HAVE EXPRESSED SIMILAR VIEWS. THE LD DR COULD NOT PRODUCE ANY OTHER MATERIAL OR CASE LAW TO CONTRADIC T THE FINDINGS OF LD CIT(A). IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY NECESSITY T O INTERFERE WITH THE DECISION OF LD CIT(A). 8.1 IN GROUND NUMBER 5, THE REVENUE IS PROTESTI NG THAT THE LD CIT(A) OUGHT NOT TO HAVE HELD THAT THE ASSESSEE IS ELIGIBLE FOR EXEM PTION U/S 11 TO 13 WITHOUT GIVING AN OPPORTUNITY TO THE AO TO VERIFY WHETHER A LL THE CONDITIONS OF PROVISIONS OF THESE SECTIONS ARE SATISFIED BY THE ASSESSEE OR NOT . WE NOTICE FROM THE ORDER OF LD CIT(A), WHICH IS EXTRACTED IN PARA N0.17 SUPRA, THAT THE LD CIT(A) HAS HELD THAT THE ASSESSEE CAN MAKE A CLAIM FOR EXEMPTION U/ S 11 PROVIDED OTHER CONDITIONS PRESCRIBED IN SECTIONS 11 TO 13 ARE SATI SFIED. THUS THE LD CIT(A) HAS NOT DIRECTED THE AO TO GRANT EXEMPTION U/S 11, INST EAD THE ASSESSEE IS GIVEN AN OPTION TO CLAIM EXEMPTION U/S 11 THAT TOO SUBJECT T O THE FULFILLMENT OF THE CONDITIONS PRESCRIBED IN SECTIONS 11 TO 13 OF THE A CT. HENCE, IN OUR OPINION, THERE IS NO FORCE IN THE GROUND RAISED BY THE REVENUE. 7 9. IN THE RESULT, THE APPEALS FILED BY THE REVE NUE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 22.12.2009 SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER VG/SPS VISAKHAPATNAM DATE : 22.12.2009 A COPY OF THIS ORDER IS FORWARDED TO : 01 THE ITO, WARD-1, NARASARAOPET, GUNTUR DIST. 02 SRI SUBBARAYA & NARAYANA COLLEGE COMMITTEE, PALN AD ROAD, NARASARAOPET, GUNTUR (DIST), A.P. 03 CIT (A), GUNTUR 04 CIT, GUNTUR 05 DR, ITAT, VISAKHAPAATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT, VISAKHAPATNAM BENCH