Hyndavi Educational Society, Hyderabad V. ADIT, Hyderabad

ITA 661/HYD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66314 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-02-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 19-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M H NAIK
• Assessee Lawyers: S RAMA RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 660/HYD/2009 A.Y. 2003-04 ITA NO. 661/HYD/2009 A.Y. 2004-05 HYNDAVI EDUCATIONAL SOCIETY, PEMBARTHI, JANAGAON PAN: AAAAH1156M V S. AS S T. DIRECTOR OF INCOME - TAX(EXEMPTION) II, HYDERABAD (APPELLANT) (RESPONDENT ) APPELLANT BY : SHRI S.RAMA RAO RESPONDENT BY : SHRI M.H.NAIK DATE OF HEARING: 09.08.2012 DATE OF PRONOUNCEMENT: 05.10.2012 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGA INST DIFFERENT ORDERS OF THE CIT(A) FOR THE ABOVE ASSESSMENT YEARS . SINCE FACTS OF BOTH THE CASES ARE SIMILAR AND BELONG TO SAME ASSESSEE, THESE ARE CLUBBED TOGETHER, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE MAIN GRIEVANCE IN THESE APPEALS IS WITH REGARD TO NON-GRANTING OF EXEMPTION U/S. 11 OF THE INCOME-TAX ACT, 1961 IN BOTH THE YEARS. IN ADDITION TO THIS, IN ASSESSMENT YEAR 2003-04 THE AS SESSEE ALSO HAS A GRIEVANCE FOR CONSIDERING THE ALTERNATE CLAIM U/S. 10(23C)(VI) OF THE ACT. WE WILL CONSIDER THE FACTS OF ASSESSMENT YEAR 2003- 04. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A SOCIETY ENGAGED IN RUNNING EDUCATIONAL INSTITUTIONS. DURING THE COURS E OF ASSESSMENT PROCEEDINGS FOR THE A.Y. 2003-04, THE ASSESSING OFF ICER NOTICED THAT AN AMOUNT OF RS. 1.80 LAKHS HAD BEEN PAID TO SHRI V. S RINIVAS REDDY, A FOUNDER MEMBER, OUT OF THE CORPUS FUND. SIMILARLY, SHRI P.V. RANGANATH, ITA NO. 660 & 661/HYD/2009 M/S. HYNDAVI EDUCATIONAL SOCIETY ======================== 2 SON OF ANOTHER FOUNDER MEMBER WAS ALSO PAID RS. 1,5 7,217 FROM OUT OF THE CORPUS FUND. THE ASSESSING OFFICER OBSERVED THAT TH IS CONSTITUTED A CLEAR VIOLATION ON THE PART OF THE ASSESSEE SOCIETY AND A TTRACTED THE CONSEQUENCES OF SECTION 13(1)(C)(II) OF THE ACT REA D WITH SECTION 13(3). HE FOUND THAT THE ASSESSEE HAD NO EXPLANATION TO OFFER IN THIS REGARD. ACCORDINGLY, THE ASSESSING OFFICER PROCEEDED TO COM PUTE THE INCOME OF THE ASSESSEE-SOCIETY BY APPLYING THE PROVISIONS OF SECTION 13(1)(C) AND DENYING THE EXEMPTION U/S. 11. HE ALSO OPINED THAT IN VIEW OF SUCH VIOLATION, THE INCOME FROM THE EDUCATIONAL INSTITUT IONS RUN BY THE SOCIETY WAS ALSO NOT ELIGIBLE FOR EXEMPTION AS THE CONDITIO N LAID DOWN IN SECTION 10(23C)(IIIIAD)/VI THAT THE EDUCATIONAL INSTITUTION SHOULD NOT EXIST FOR PROFIT WAS NOT MET. ACCORDINGLY, BESIDES THE EXCES S OF INCOME OVER EXPENDITURE OF RS. 19,66,261, DONATIONS RECEIVED DU RING THE YEAR AMOUNTING TO RS. 42,19,611 WERE BROUGHT TO TAX, AS SECTION 11(1)(B) WAS NO LONGER APPLICABLE TO THE ASSESSEE SOCIETY. 4. ON APPEAL, THE CIT(A) OBSERVED THAT VOLUNTARY CONTR IBUTION RECEIVED BY THE ASSESSEE IS WITH A SPECIFIC DIRECTI ON WHICH IS FORMING PART OF THE CORPUS FUND SHALL NOT BE INCLUDED IN THE TOT AL INCOME. ACCORDING TO THE CIT(A) THE ASSESSEE FAILED TO SUBSTANTIATE THAT DONATION RECEIVED BY THE ASSESSEE IS IN THE NATURE OF CORPUS DONATION OR THAT EVEN RS. 38,82,394 OUT OF TOTAL DONATION OF RS. 42,19,611 WAS OF THE N ATURE OF CORPUS DONATION WHEREAS THE REMAINING SUM OF RS. 3,32,217 WAS NOT T O BE ADJUSTED TOWARDS CORPUS FUND AND WAS TO BE REFUNDED TO THE DONOR. T HE ASSESSEE MADE A PLEA BEFORE THE LOWER AUTHORITIES THAT A SUM OF RS. 3,32,217 WHICH WAS REFUNDED TO THE RESPECTIVE DONORS I.E., TO SRI V. S RINIVAS REDDY AND SRI P.V. RAMANA IS NOT PART OF THE CORPUS FUND AND WRONGLY T AKEN INTO CORPUS FUND AND THE SAME WAS REFUNDED. HOWEVER, THE CIT(A) NOT AGREED WITH THE ASSESSEE AND OBSERVED THAT THE ASSESSEE IS NOT ENTI TLED FOR EXEMPTION U/S. 11 AS WELL AS EXEMPTION U/S. 10(23C) OF THE ACT FOR THE A.Y. 2003-04. SIMILARLY FOR THE A.Y. 2004-05, THERE IS A TRANSFER OF RS. 12,42,515 OUT OF CORPUS FUND TO THREE MEMBERS OF THE SOCIETY THROUGH JOURNAL ENTRY AND PAID TO SRI V. SRINIVAS REDDY THROUGH THEIR INDIVID UAL LEDGER ACCOUNT. THE ITA NO. 660 & 661/HYD/2009 M/S. HYNDAVI EDUCATIONAL SOCIETY ======================== 3 ASSESSEE TAKEN SAME PLEA BEFORE THE LOWER AUTHORITI ES THAT IT IS A CLERICAL ERROR. HOWEVER, THE CIT(A) HAS NOT AGREED WITH THE ASSESSEE AND EXEMPTION U/S. 11 WAS REJECTED FOR THE A.Y. 2004-05 ALSO. AGAINST THIS THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED AR SUBMITTED THAT IN THE ASSESSMENT ORD ER THE ASSESSING OFFICER MENTIONED THAT THE ASSESSEE REPAI D THE CORPUS FUND OF RS. 1,80,000 TO SRI V. SRINIVASA REDDY AND RS. 1,57 ,217 TO SRI P.V. RAMANA DURING THE A.Y. 2003-04. COPIES OF THE ACCOUNTS OF THE UNSECURED LOANS BY THE MEMBERS OF THE SOCIETY ARE SUBMITTED BEFORE US. COPIES OF THE FINAL ACCOUNTS AND CONSOLIDATED RECEIPTS AND PAYMENTS ACC OUNT ARE ALSO SUBMITTED BEFORE US IN A PAPER BOOK. IT CAN BE SEEN THEREFROM THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED CORPUS FUND OF RS. 38,82,394 AND THE AGGREGATE OF THE CORPUS FUND AS O N THE LAST DATE OF THE PREVIOUS YEAR WAS RS. 69,21,994. COPY OF THE CORPUS FUND ACCOUNT IS ALSO PLACED ON RECORD. THEREFORE, THERE WAS AN INCREASE IN THE CORPUS FUND COMPARED TO THE EARLIER YEAR. THIS IS ALSO CLEAR FR OM THE CONSOLIDATED BALANCE SHEET AS ON 31.3.2003. IN SO FAR AS REPAYME NTS TO MR. P.V. RAMANA ARE CONCERNED, THE AR SUBMITTED THAT HE INTR ODUCED RS. 19,45,000 OF ADDITIONAL CORPUS FUND DURING THE YEAR . FURTHER, THE AR SUBMITTED THAT IN THE ACCOUNT OF P.V. RAMANA, THERE ARE UNSECURED LOANS TO THE EXTENT OF RS. 15,26,620- AS PER THE DETAILS OF THE UNSECURED LOANS SHOWN IN THE BALANCE SHEET. EVEN WITH REGARD TO MR . SRINIVAS REDDY, THE SAID PERSON INTRODUCED RS. 2,66,497 DURING THE YEAR . THE DETAILS OF THE CORPUS FUND WOULD CLEARLY INDICATE THAT THESE TWO P ERSONS HAVE INTRODUCED CORPUS FUND EVEN DURING THE YEAR AND THEY DID NOT W ITHDRAW ANY EXISTING CORPUS FUND. 6. THE AR SUBMITTED THAT WITH REGARD TO SRI P.V. RAMAN A, IT CAN BE SEEN THAT ON 13.7.2002, HE INTRODUCED RS. 3,71,327 BUT ONLY AN AMOUNT OF RS. 2,14,110 IS CREDITED TO THE CORPUS FUND ACCOUNT AND THE BALANCE IS RETURNED. SIMILARLY, IN THE CASE OF SRINIVAS REDDY ON 10.4.2002 HE INTRODUCED RS. 2,78,497 - AND ONLY AN AMOUNT OF RS. 98,497 IS CREDITED TO THE CORPUS FUND OUT OF THIS AMOUNT AND THE BALANCE AMOUNT WAS NOT ITA NO. 660 & 661/HYD/2009 M/S. HYNDAVI EDUCATIONAL SOCIETY ======================== 4 CREDITED TO THE CORPUS FUND. THE ONLY PLACE WHERE R EPAYMENT WAS NOTED IS IN THE DETAILS SUBMITTED BEFORE THE ASSESSING OFFIC ER, A COPY OF WHICH IS PLACED ON RECORD. THEREFORE, IT IS NOT CORRECT FOR THE ASSESSING OFFICER TO MENTION THAT THE AMOUNT DEPOSITED TOWARDS CORPUS FU ND IS WITHDRAWN BY THE MEMBERS OF THE SOCIETY. THEREFORE, THE ASSESSIN G OFFICER IS NOT JUSTIFIED IN REJECTING THE CLAIM FOR EXEMPTION U/S 11 OF THE ACT OR CLAIM U/S. 10(23C)(VI) OF THE ACT. 7. THE DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIE S. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE MAIN CONTENTION OF THE ASSESSEE'S COUNSEL BEFOR E US IS THAT THE FUND TO WHOM IT WAS REFUNDED, THE RECIPIENTS WERE NOT FOUND ER MEMBERS OF THE SOCIETY AND PROVISIONS OF SECTION 13(1)(C) ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. TO THIS EFFECT, HE DREW OUR ATTE NTION TO THE LIST OF FOUNDER MEMBERS AND SUBMITTED THAT SRI V. SRINIVAS REDDY AND SRI P.V. RAMANA ARE NOT FOUNDER MEMBERS. HE SUBMITTED THAT THE RECIPIENTS OF THE AMOUNT HAVE NOT MADE ANY SUBSTANTIAL CONTRIBUTI ON TO THE TRUST IN THE ASSESSMENT YEARS UNDER CONSIDERATION AND ALSO PLEAD ED THAT THE PAYMENTS WERE MADE FOR THE BENEFIT OF THE TRUST RATHER THAN FOR THE BENEFIT OF THE RECIPIENTS. HAD THE ASSESSEE NOT MADE THESE PAYMEN TS THE VERY EXISTENCE OF THE ASSESSEE TRUST IS AFFECTED. WE FIND MERIT I N THE ARGUMENT OF THE ASSESSEE'S COUNSEL. THE MISCONDUCT OF THE OFFICE B EARERS, IF ANY, COULD NOT HAVE RENDERED THE ASSESSEE AS NON CHARITABLE ORGANI SATION AND THE ASSESSEE COULD NOT BE MADE TO LOSE THE BENEFIT OF E XEMPTION U/S. 11 ON THAT COUNT. THE FACT WHETHER DEFAULTING OFFICE BEARERS ARE THE FOUNDER MEMBERS OF THE ASSESSEE TRUST OR NOT HAS TO EXAMINE D. IF THEY HAVE NO MANAGERIAL POWER AND PAYMENT TO THESE DEFAULTING OF FICE BEARERS IS THRUST UPON THE ASSESSEE DUE TO CIRCUMSTANCES BEYOND THE C ONTROL OF THE ASSESSEE AND THAT PAYMENT ITSELF CANNOT BE CONSIDERED TO CAN CEL THE BENEFIT U/S. 11 OR 10(23C) OF THE ACT. FOR THE WRONG DOINGS OF SOM E OFFICE BEARERS, THE ASSESSEE CANNOT BE BLAMED OR PENALISED. IF THE PAY MENT WAS MADE TO THE DEFAULTING OFFICER BEARERS ON GOOD AND SUFFICIENT R EASON IT CANNOT BE SAID THAT THERE IS A VIOLATION OF PROVISIONS OF SECTION 13(1)(C) OF THE ACT. ITA NO. 660 & 661/HYD/2009 M/S. HYNDAVI EDUCATIONAL SOCIETY ======================== 5 9. THE PERSON REFERRED TO IN SUBSECTION (2) OF SECTION 13 IS THE FOUNDER MEMBER OF THE TRUST. THE CONDITION MENTIONED IN SE CTION 13(1)(C)(II) OF THE ACT IS THAT THE INCOME OF THE TRUST SHOULD NOT BE USED OR APPLIED DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF ANY PERSO N FALLING IN THE PROHIBITED CATEGORY. BENEFIT HERE WOULD MEAN ANY PAYMENT WITH OUT ANY CONTRIBUTION BY SUCH PERSON TO THE TRUST. IF A PERSON IN THE PR OHIBITED CATEGORY RENDERS SERVICES, IN VIEW OF SUCH SERVICES A PAYMENT IS MAD E, THEN THAT CASE CANNOT FALL IN CLAUSE (II) SECTION 13(1)(C) OF THE INCOME- TAX ACT. THE EXPENDITURE INCURRED ON THOSE INTERESTED PERSONS WOULD BE A COM PENSATION FOR SUCH SERVICES. A BENEFIT WOULD BE SAID TO HAVE BEEN GI VEN TO THE PERSONS OF PROHIBITED CATEGORY IF THEY IN RETURN DO NOTHING BU T ONLY ENJOY THE BENEFIT/FRUITS OF THE RUST AND TAKE AWAY THE FUNDS OR INCOME OF THE SOCIETY FOR THEIR PERSONAL BENEFIT OR WITHOUT DOING OR DISC HARGING ANY SERVICES TO THE TRUST, BUT WHERE PERSONS OF PROHIBITED CATEGORY RENDER SERVICES TO THE SOCIETY AND IN TURN, GET SOME REMUNERATION, SALARY OR BENEFIT AS A MEMBER THEN PROVISIONS OF SECTION 13(2) WOULD BE APPLICABL E AND NOT OF SUBSECTION (1) OF SECTION 13 AND FOR APPLYING THE PROVISIONS O F SECTION 13(2), IT HAS TO BE SHOWN BY REVENUE THAT THE AMOUNT SO PAID TO THE PERSONS OF PROHIBITED CATEGORY WAS IN EXCESS OF WHAT MAY BE REASONABLY PA ID FOR THE SERVICES RENDERED BY THEM. IN THE PRESENT CASE, THE ASSESSE E TAKEN A PLEA BEFORE US THAT THE AMOUNT WAS PAID TO THE NON FOUNDER MEMBERS ON ACCOUNT OF A DISPUTE BETWEEN THE ASSESSEE SOCIETY AND THEM AND T HERE WAS A PRACTICAL PROBLEM TO KEEP THESE RECIPIENTS OF THE AMOUNT WITH IN THE COMMITTEE OF OFFICE BEARERS AND THE SITUATION SO WARRANTED THAT HAD THE ASSESSEE NOT PAID THIS AMOUNT, THE SOCIETY COULD NOT HAVE CONTIN UED AND NON- CONTINUATION OF THE SOCIETY WOULD AFFECT THE INTERE ST OF LARGER NUMBER OF STUDENTS OF THE ASSESSEE SOCIETY THEREBY CREATING B IGGER PROBLEM THAN THIS. BEING SO, THE ASSESSEE REFUNDED THIS PORTION OF MON EY CONTRIBUTED BY THESE TWO PERSONS, VIZ., SRI V. SRINIVAS REDDY AND SRI P.V. RAMANA AND THAT REFUND OF MONEY CANNOT BE CONSIDERED AS A BENE FIT GIVEN TO THESE PERSONS AND RATHER BENEFIT TO THE SOCIETY ITSELF AN D IT RESULTED IN PERPETUAL EXISTENCE OF ASSESSEE SOCIETY. BEING SO, THE ASSES SING OFFICER IS DIRECTED TO ITA NO. 660 & 661/HYD/2009 M/S. HYNDAVI EDUCATIONAL SOCIETY ======================== 6 EXAMINE THE PRACTICAL SITUATION WHICH WARRANTED THE ASSESSEE TO MAKE PAYMENTS AND DECIDE THE ISSUE IN ACCORDANCE WITH LA W. 10. REGARDING ALLOWABILITY OF EXEMPTION U/S. 10(23C)(II IAD)/(VI), WE ARE OF THE OPINION THAT THERE IS NO ALLEGATION THAT THE ASSESSEE IS NOT IMPARTING EDUCATION. THE ARGUMENT OF THE DEPARTMEN T IS THAT SOME BENEFIT GIVEN TO THE FOUNDER MEMBER OF THE TRUST DI SABLES THE TRUST FROM GETTING EXEMPTION U/S. 10(23C)(IIIAD)/(VI). IN OUR OPINION, THIS CANNOT BE DONE. FIRSTLY, THERE IS NO EVIDENCE THAT SUCH BENE FIT HAS BEEN GIVEN TO THE FOUNDER MEMBER OF THE TRUST. SECONDLY, EVEN IF IT IS SO, SUCH INSTANCES WOULD ONLY HIT THE CASE OF THE ASSESSEE WITHIN THE MEANING OF SECTIONS 11 TO 13 AND CANNOT BE IMPORTED TO DENY EXEMPTION U/S. 10 (23C)(IIIAD) OF THE ACT PROVIDED A CLEAR FINDING ON THE BASIS OF MATERI AL ON RECORD IS GIVEN THAT THE ASSESSEE TRUST IS NOT SOLELY FOR THE PURPOSE OF IMPARTING EDUCATION. SOME DISALLOWANCES OF EXPENSES OR PAYMENTS CLAIMED BY THE ASSESSEE CANNOT BE HELD TO BE A SEPARATE OBJECT FOR WHICH TH E TRUST IS EXISTING THEREBY HOLDING THAT THE TRUST IS NOT EXISTING SOLE LY FOR EDUCATION PURPOSES. EXEMPTION PROVISIONS MUST BE STRICTLY CONSTRUED BUT IF THE CASE OF THE ASSESSEE FALLS WITHIN THE AMBIT OF EXEMPTION THEN T HEY SHOULD BE APPLIED LIBERALLY. MERE CERTAIN LAPSES AND DISALLOWANCES C ANNOT BECOME BASIS FOR DENYING EXEMPTION U/S. 10(23C)(IIIAD) OF THE ACT. THEREFORE, THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER TO HA VE A FRESH LOOK ON THE ENTIRE SUBJECT AND DECIDE THE ISSUE IN THE LIGHT OF THE OBSERVATIONS MADE BY US FOR BOTH THE YEARS. THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH OCTOBER, 2012 SD/ - (SAKTIJIT DEY) SD/ - (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED THE 5 TH OCTOBER, 2012 ITA NO. 660 & 661/HYD/2009 M/S. HYNDAVI EDUCATIONAL SOCIETY ======================== 7 TPRAO COPY FORWARDED TO: 1. M/S. HYNDAVI EDUCATIONAL SOCIETY, C/O. SRI S. RAMA RAO, ADVOCATE, FLAT NO. 103, H. NO. 3-6-542/4, INDIRADEVI NILAYAM, ST. NO. 7, HIMAYATHNAGAR, HYDERABAD-500 029. 2. 3. 4 THE ASST. DIRECTOR OF INCOME - TAX (EXEMPTIONS) - II, HYDERABAD. THE COMMISSIONER OF INCOME-TAX (APPEALS)-IV, HYDERA BAD. THE DIRECTOR OF INCOME-TAX (EXEMPTIONS), HYDERABAD. 5 DR A BENCH, ITAT, HYDERABAD.