M/S SUTLEJ EDUCATIONAL CHARITABLE TRUST, LUDHIANA V. COMMISSIONER OF INCOME TAX , (EXAMPTION), CHANDIGARH

ITA 676/ASR/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4542 (ITAT-AMRITSAR)
• Duration Of Justice: 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 23-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRABHJOT KAUR
• Assessee Lawyers: P C GOYAL C A
• Keywords: Gift; Charitable institution; Competent authority

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. NO. 676/(ASR)/2017 ASSESSMENT YEAR: SUTLEJ EDUCATIONAL CHARITABLE TRUST, VILLAGE HAWAS, RAHON ROAD, LUDHIANA. [PAN: AACTS 4183Q] VS. COMMISSIONER OF INCOME TAX (EXEMPTIONS), CHANDIGARH. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. P. C. GOYAL, C.A. (A.R.) RESPONDENT BY: SMT. PRABHJOT KAUR, CIT (D.R.) DATE OF HEARING: 08.03.2018 DATE OF PRONOUNCEMENT: 09.05.2018 ORDER PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE-APPLICANT DIRECTE D AGAINST THE ORDER U/S. 10(23C)(VI) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) DATED 26.09.2017 BY THE COMMISSIONER OF INCOME TAX (EXEMPTIONS), CHA NDIGARH ('CIT(E)', OR THE COMPETENT AUTHORITY, FOR SHORT). 2. THE ASSESSEE IS A TRUST, FORMED AND REGISTERED ( UNDER THE SOCIETIES REGISTRATION ACT, 1860) ON 01.4.2001 AND 18.04.2001 RESPECTIVELY. THE TRUST DEED STOOD AMENDED (WITH EFFECT FROM 01.01.2003) ON 11.0 2.2003, AGAIN REGISTERED WITH THE OFFICE OF THE SUB-REGISTRAR, LUDHIANA (EAST). I T IS RUNNING A SCHOOL BY THE NAME SUTLEJ PUBLIC SENIOR SECONDARY SCHOOL AT VILLAGE HAWAS, RAHON ROAD, LUDHIANA ITA NO.676 (ASR)/2017 SUTLEJ EDUCATIONAL C HARITABLE TRUST V. CIT(E) 2 WHICH IS ALSO THE REGISTERED ADDRESS OF THE TRUST , SINCE THE YEAR 2002. THE SCHOOL, PRESENTLY UP TO CLASS XII (PB PG. 78), HAS BEEN, SU BJECT TO THE CONDITIONS SPECIFIED BY IT, VIDE ITS LETTER DATED 03.05.2015, AND THE F URTHER CONDITIONS AS MAY BE INTIMATED FROM TIME TO TIME, GRANTED PROVISIONAL AF FILIATION UP TO 31.03.2020 BY THE CENTRAL BOARD OF SECONDARY EDUCATION, DELHI (CBSE) (PB PGS. 76-77.) THERE IS NOTHING ON RECORD TO SUGGEST THE WITHDRAWAL OF THE SAID AFFILIATION, NOR, AGAIN, OF IT BEING REGULARIZED. PRIOR TO ITS APPLICATION UNDER S ECTION 10(23C)(VI), MADE ON 23.09.2016, THE APPELLANT-TRUST HAD BEEN AVAILING E XEMPTION U/S. 10(23C)(IIIAD) IN RESPECT OF THE INCOME OF THE SAID SCHOOL. 3. A PERUSAL OF THE IMPUGNED ORDER REVEALS THAT THE FOLLOWING REASONS PREVAILED WITH THE COMPETENT AUTHORITY IN REJECTING THE ASSES SEES APPLICATION U/S. 10(23C)(VI): A) THE APPELLANT-TRUST HAS SEVERAL OBJECTS, I.E., BESI DES THE ESTABLISHMENT AND RUNNING OF EDUCATIONAL INSTITUTIONS, WHICH, RATHER, CONSTITUTE THE MAJORITY OF THE OBJECT CLAUSES IN THE TRUST DEED. THERE IS IN F ACT NO MENTION OF THE EDUCATIONAL INSTITUTION (WHICH IS BEING RUN) THEREI N. THE PRIMARY CONDITION OF THE INSTITUTION EXISTING SOLELY FOR EDUCATION IS THUS NOT SATISFIED. B) THE AFFAIRS OF THE TRUST ARE TO BE, AS PER THE TRUS T DEED, RESTRICTED TO ONE FAMILY, WHICH HOLDS THE ENTIRE POWER TO CONTROL THE SAME. T HIS IS AS THE TRUSTEES OTHER THAN THE LIFETIME TRUSTEES, WHICH TOGETHER CONSTITU TE THE BOARD OF TRUSTEES (OR BOARD FOR SHORT) THE FINAL ARBITER OF ALL DECIS IONS OF THE TRUST, ARE TO BE APPOINTED BY THE LIFETIME TRUSTEES THEMSELVES, AND WHICH ARE TO BE FROM THE FAMILY OF THE SETTLER, WHO IS ALSO THE LIFETIME TRU STEE AND CHAIRMAN OF THE BOARD, AND WHO IS TO FURTHER APPOINT THE SECRETARY AND TREASURER, THE OTHER TWO OFFICE BEARERS OF THE TRUST. THIS IMPINGES ON T HE SECOND CONDITION NOT FOR PROFIT OF SECTION 10(23C)(VI). IN OTHER WORDS, NEITHER THE CONDITION OF EXISTING SOLELY FOR THE PURPOSES OF EDUCATION NOR NOT FOR THE PURPOSES OF PROFIT OF THE SAID PROVISION STAND SATISFIED, EVEN AS NON-FULFILLMENT OF EITHER WOULD MAKE THE AS SESSEE INELIGIBLE FOR APPROVAL U/S.10(23C)(VI). THE SAME BEING DECIDED THUS, THE A SSESSEE IS IN APPEAL. ITA NO.676 (ASR)/2017 SUTLEJ EDUCATIONAL C HARITABLE TRUST V. CIT(E) 3 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 SECTION 10(23C)(VI) READS AS UNDER: INCOMES NOT INCLUDED IN TOTAL INCOME. 10. IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR OF ANY PERSON, ANY INCOME FALLING WITHIN ANY OF THE FOLLOWING CLAUSES SHALL NOT BE IN CLUDED (23C) ANY INCOME RECEIVED BY ANY PERSON ON BEHALF O F (VI) ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTIO N EXISTING SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT, OTHER THAN THOSE ME NTIONED IN SUB-CLAUSE ( IIIAB ) OR SUB-CLAUSE ( IIIAD ) AND WHICH MAY BE APPROVED BY THE PRESCRIBED AUTHO RITY; OR THE PROVISION IS FOLLOWED BY SEVERAL PROVISOS , (BELOW SEC. 10(23C)(VIA)) WHICH, INTER ALIA, PROVIDE FOR THE VARIOUS MONITORING CONDITIONS SUBJ ECT TO FULFILLMENT OF WHICH ONLY THE EXEMPTION CAN BE AVAI LED. THE SAME WOULD THUS STAND TO BE VERIFIED BY THE ASSESSING AUTHORITY AT THE TI ME OF ASSESSMENT. SOME PROVISOS PROVIDE THE PROCEDURE TO BE FOLLOWED FOR SEEKING TH E APPROVAL. 4.2 BEFORE US, WHILE THE REVENUE RELIED ON THE IMPU GNED ORDER, THE ASSESSEES CASE, AS ADVANCED, WAS THAT, TRUE, THE ASSESSEE HAD SEVERAL OBJECTS, IT WAS YET ENGAGED ONLY IN EDUCATIONAL ACTIVITY BY WAY OF RUNN ING A SCHOOL AT VILLAGE HAWAS, LUDHIANA, PUNJAB. THE EXISTENCE OF VARIOUS OBJECTS MUST NOT THEREFORE BE CONSTRUED TO IMPLY THAT THE ASSESSEE DOES NOT EXIST SOLELY FO R EDUCATION. ON BEING ENQUIRED DURING HEARING BY THE BENCH, ALLUDING TO THE DECISI ON IN DELHI STOCK EXCHANGE ASSOCIATION LTD. V. CIT [1997] 225 ITR 235 (SC), AS TO WHAT WOULD PREVENT THE ASSESSEE-TRUST TO PURSUE ANY OTHER ACTIVITY, I.E., OTHER THAN EDUCATION, LISTED IN THE OBJECT CLAUSE (CLAUSE 3) OF ITS TRUST-DEED (AT PB P GS. 15-20), OR TO USE THE SURPLUS FUNDS GENERATED FROM THE EDUCATIONAL ACTIVITY FOR A CHIEVING OR PURSUING ANY OTHER ITA NO.676 (ASR)/2017 SUTLEJ EDUCATIONAL C HARITABLE TRUST V. CIT(E) 4 (NON-EDUCATIONAL) OBJECT WHICH ARE SEVERAL IN NUM BER, HE HAD NO ANSWER, BUT WOULD REITERATE THAT THE TRUST DOES NOT INTEND TO ENGAGE IN ANY OTHER ACTIVITY. AS REGARDS THE VESTING OF THE POWER OF MANAGEMENT IN T HE MEMBERS OF ONE FAMILY, SO THAT IT LOOSES ITS PUBLIC CHARACTER, HE WOULD REFER TO CIRCULAR NO. 14/2015, DATED 17.08.2015, BY THE CBDT (COPY ON RECORD). AT PARA 5 THEREOF, IT STANDS CLARIFIED THAT THOUGH THE ANSWER TO SUCH A SITUATION WOULD NO RMALLY DEPEND ON THE FACTUAL IMPLICATION OF SUCH AN ARRANGEMENT, THE SAME SHOULD GENERALLY NOT BE A GROUND FOR DENYING EXEMPTION, I.E., UNLESS THE NATURE OF THE A CTIVITIES OF THE TRUST/INSTITUTION GET CHANGED OR MODIFIED OR NO LONGER REMAIN AS EXIS TING SOLELY FOR THE PURPOSES OF EDUCATION AND NOT FOR THE PURPOSES OF PROFIT. NO SUCH FINDING, T HE ASSESSEES COUNSEL, SH. GOYAL, WOULD ARGUE, STANDS ISSUED BY T HE LD. CIT(E), SO THAT HIS INFERENCE THAT THE SAID RESTRICTIVE CLAUSES IN THE TRUST DEED IMPINGE ADVERSELY ON THE CONDITION OF NOT FOR PROFIT IS NOT VALID. 4.3 WE SHALL EXAMINE EACH OF THE TWO OBJECTIONS RAI SED PER THE IMPUGNED ORDER, I.E., IN LIGHT OF THE REQUIREMENT OF LAW, COUPLED W ITH THE FACTS OF THE CASE. EXEMPTION U/S. 10(23C)(VI) IS AVAILABLE TO ANY PERS ON IN RESPECT OF ANY INCOME ARISING TO OR RECEIVED BY IT ON BEHALF OF ANY EDUCA TIONAL INSTITUTION OR UNIVERSITY. THE TWO CONDITIONS OF EXISTING SOLELY FOR PURPOSES OF EDUCATION AND NOT FOR THE PURPOSES OF PROFIT, ATTACH TO OR ARE INCIDENT ON, NOT THE SAID PERSON RECEIVING SUCH INCOME (AS UNDERSTOOD BY THE LD. CIT(E)), BUT TO TH E EDUCATIONAL INSTITUTION/ UNIVERSITY, WHOSE INCOME IS BEING RECEIVED BY SUCH PERSON. IN THE PRESENT CASE, IT IS THE APPELLANT-TRUST WHICH RECEIVES THE INCOME OF TH E SUTLEJ PUBLIC SENIOR SECONDARY SCHOOL (SPSSS) THE EDUCATIONAL INSTITUTION. THE A PPLICATION U/S. 10(23C)(VI) IS TO BE OR CAN HOWEVER ONLY BE BY THE TRUST (SUCH PERSON ), WHILE THE APPROVAL IN CASE OF A POSITIVE SATISFACTION OF THE SAID CONDITIONS, GRANTED TO THE SAID SCHOOL THE EDUCATIONAL INSTITUTION, IN-AS-MUCH AS IT IS THE IN COME OF THE SAID INSTITUTION TO BE ITA NO.676 (ASR)/2017 SUTLEJ EDUCATIONAL C HARITABLE TRUST V. CIT(E) 5 RECEIVED BY THE PERSON OWNING IT, THAT WOULD BE EXE MPT UNDER SECTION 10(23C)(VI). HOW DOES IT MATTER, THEN, THAT THE NAME OF THE SAID INSTITUTION IS NOT MENTIONED IN THE TRUST DEED, THE CONSTITUTING DOCUMENT; IT BEING UNDISPUTED THAT THE SAID SCHOOL IS OWNED AND MANAGED BY THE ASSESSEE TRUST. 4.4 CONTINUING FURTHER, WITHOUT DOUBT, SPSSS EXISTS SOLELY FOR THE PURPOSE OF EDUCATION, HAVING 585 STUDENTS (FROM CLASS LKG TO X II) ON ITS ROLLS (FOR THE ACADEMIC SESSION 2017-18), UNDERGOING SCHOLASTIC TR AINING, UNDER AFFILIATION TO CBSE, WHICH ALSO PRESCRIBES THE SYLLABI, THE COURSE CURRICULUM, INCLUDING FACILITIES, VIZ. FOR SPORTS, SCIENCE LABS, MUSIC, E TC. TO BE PROVIDED TO ITS STUDENTS. IT, AS IT APPEARS, UNDER ITS GUIDELINES (OR THE RIGHT TO EDUCATION ACT), IS EXTENDING CONCESSION IN FEE TO THE ECONOMICALLY BACKWARD STUD ENTS, ETC. (PB PG. 34). HOW COULD, THEN, ONE MAY ASK, IT BE SAID OR REGARDED AS NOT EXISTING SOLELY FOR EDUCATION? WHY, THE MOTTO OF THE TRUST ITSELF SO SU GGESTS (CL. 2 OF THE TRUST DEED). 4.5 THE NEXT OBJECTION IS QUA THE CONDITION OF NOT FOR THE PURPOSES OF PROFIT. WE, AGAIN, FIND NO CORRESPONDENCE BETWEEN THE RESTR ICTIVE CLAUSES OF THE DEED, CONFINING THE MANAGEMENT OF THE TRUST/SCHOOL EFFECT IVELY TO THE MEMBERS OF THE SETTLER OR HIS IMMEDIATE FAMILY, INCLUDING THEIR DE SCENDANTS (CLAUSES 4 TO 9). CLAUSE 18 STATES THAT THE TRUST IS IRREVOCABLE. CLAUSE 17 STATES THAT ON DISSOLUTION THE ASSETS OF THE TRUST SHALL BE TRANSFERRED TO ANOTHER TRUST WITH SIMILAR OBJECTS, AND IN NO CIRCUMSTANCE WOULD BE DISTRIBUTED AMONG THE TRUSTEE S/MEMBERS OF THE MANAGING COMMITTEE. CLAUSE 19 STIPULATES THAT THE FUNDS OR I NCOME OF THE TRUST SHALL BE UTILIZED SOLELY FOR ACHIEVING ITS OBJECTS, AND NO P ART THEREOF UTILIZED FOR THE BENEFIT OF THE TRUSTEES/MEMBERS. THE ONLY ISSUE THAT MAY AR ISE IS ABOUT THE CHARACTER OF THE TRUST PUBLIC OR PRIVATE, I.E., IN VIEW OF THE RES TRICTIVE CLAUSES QUA THE POWER TO CONSTITUTE THE BOARD VESTING IN THE MEMBERS OF ONE FAMILY. WE REGARD THE SAME AS NOT RELEVANT AS THE MEMBERS OF THE SAID FAMILY ARE NOT TO BE THE BENEFICIARIES OF THE ITA NO.676 (ASR)/2017 SUTLEJ EDUCATIONAL C HARITABLE TRUST V. CIT(E) 6 TRUST, WHICH IS TO EXTEND TO ALL PERSONS, IRRESPECT IVE OF THEIR CASTE, CREED OR RELIGION. RATHER, WE OBSERVE THE MEMBERS OF THE SETTLERS FAM ILY TO HAVE ADVANCED INTEREST- FREE FUNDS TO THE SCHOOL. FURTHER, THE LAND ON WHIC H THE SCHOOL IS SITUATE IS ALSO, AS IT APPEARS, GIFTED/DONATED TO THE TRUST BY THEM. TH E OPERATING STATEMENTS OF THE TRUST (FOR FYS. 2014-15 TO 2016-17) HAVE ALSO BEEN PERUSE D BY US TO FIND THE PROFIT RATE, AS A PERCENTAGE OF THE GROSS RECEIPT, AS REASONABLE . THERE IS THUS LITTLE MERIT IN THE REVENUES OBJECTION OF THE SAID RESTRICTIVE CLAUSES IMPINGING ADVERSELY ON THE CONDITION AS TO EXISTING NOT FOR THE PURPOSE OF PR OFIT IN SECTION 10(23C)(VI). 4.6 THE ONLY ISSUE, THUS, THAT SURVIVES IS THAT THE FUNDS (OR INCOME) OF THE EDUCATIONAL INSTITUTION ARE (OR, IS) NOT TO BE UTIL IZED BY THE ASSESSEE-TRUST, OWNING AND MANAGING IT, FOR ANY OTHER (NON-EDUCATIONAL) OB JECT/PURPOSE, WHICH, AS AFORE- NOTED, THERE ARE SEVERAL (ALSO REFER PARA 2 OF THE IMPUGNED ORDER/CL. 3 OF THE TRUST DEED). THAT IS AS WHERE THE FUNDS OF AN EDUCATIONAL INSTITUTION ARE USED BY THE PERSON IN RECEIPT THEREOF FOR ANY OTHER PURPOSE, EV EN IF CHARITABLE, IT CANNOT BE SAID THAT THE SAID EDUCATIONAL INSTITUTION EXISTS SOLELY FOR (THE PURPOSE OF) EDUCATION. THE SAME ALSO CONTRAVENES THE THIRD PROVISO TO SECTION 10(23C)(VI). WE HAVE PERUSED THE BALANCE-SHEETS AS AT 31.3.2015 TO 31.03.2017 (A T PB PAGES 21 33), TO FIND NO SUCH DIVERSION. THE SAME BEING IN THE NATURE OF A C ONTINUING CONDITION COULD BE STIPULATED BY THE COMPETENT AUTHORITY WHILE GRANTIN G THE APPROVAL. SUBJECT TO THIS, WE FIND NO VALID REASON NOT TO GRANT APPROVAL TO TH E ASSESSEE TRUST QUA THE SUTLEJ PUBLIC SENIOR SECONDARY SCHOOL AT VILLAGE HAWAS, DI STRICT LUDHIANA. 5. IN VIEW OF THE FOREGOING, WE, VACATING THE FINDI NGS BY THE LD. CIT(E), DIRECT THE GRANT OF APPROVAL UNDER SECTION 10(23C)(VI) TO THE ASSESSEE TRUST QUA SPSSS, AN EDUCATIONAL INSTITUTION EXISTING SOLELY FOR THE PUR POSES OF EDUCATION AND NOT FOR THE PURPOSES OF PROFIT. THIS, OF COURSE, WOULD BE SUBJE CT TO THE CAPITAL/FUNDS OF THE SCHOOL BEING NOT USED FOR ANY OTHER (NON-EDUCATIONA L) ACTIVITY (OBJECT) BY THE ITA NO.676 (ASR)/2017 SUTLEJ EDUCATIONAL C HARITABLE TRUST V. CIT(E) 7 ASSESSEE-TRUST, OR ANY OTHER CONDITION DEEMED FIT A ND PROPER, VIZ. AS TO MAINTENANCE AND AUDIT OF SCHOOL ACCOUNTS SEPARATELY, ETC., IN A CCORDANCE WITH AND AS CONTEMPLATED BY LAW, THAT THE COMPETENT AUTHORITY M AY IMPOSE WHILE GRANTING THE SAID APPROVAL. WE DECIDE ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED ON THE AFORESAID TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON MAY 09, 2018 SD/- SD/- (N. K. CHOUDHRY) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 09.05.2018 /GP/SR. PS. COPY OF THE ORDER FORWARDED TO: (1) THE APPELLANT: SUTLEJ EDUCATIONAL CHARITABL E TRUST, LUDHIANA. (2) THE RESPONDENT: COMMISSIONER OF INCOME TAX (EXEMPTIONS), CHANDIGARH. (3) THE PR. CIT, CHANDIGARH. (4) THE CIT-DR, I.T.A.T. TRUE COPY BY ORDER