Saleem Minority Educational Services Society , Kurnool V. Income Tax Officer, Exemptions, Tirupathi

ITA 780/Hyd/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7858 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 16-04-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 26-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Keywords: Maximum Marginal Rate
• Section: 6; 144; 2

Judgement Text

1 ITA NO S . 779 & 780 /HYD/2018 SALEE M MINORITY EDUCATIONAL SERVICE SOCIETY, KURNOOL IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO S . 779 & 780 /HYD/201 8 ASSESSMENT YEAR S : 2013 - 14 & 2014 - 15 SALEEM MINORITY EDUCATIONAL SERVICE SOCIETY, KURNOOL PAN AANTS0406 K VS. INCOME - TAX OFFICER (EXEMPTIONS), TIRUPATI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.C. DEVDAS REVENUE BY : SHRI YVST SAI DATE OF HEARING : 16 /0 4 /2019 DATE OF PRONOUNCEMENT : 24 - 0 4 - 201 9 O R D E R PER S. RIFAUR RAHMAN, A.M.: BOTH T H E S E APPEAL S FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF CIT(A) , TIRUPATI, BOTH DATED 21/03/2018 FOR AYS 2013 - 14 & 2014 - 15. AS IDENTICAL ISSUES ARE INVOLVED IN THESE APPEALS, THE SAME ARE CLUBBED AND HEARD TOGETHER AND, THEREFORE, PASSED A COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY THE FACTS , AS TAKEN FROM AY 2013 - 14 ARE , ASSESSEE , A SOCIETY FILED ITS RETURN OF INCOME FOR AY 2013 - 14 ON 11/10/2019 DECLARING TOTAL INCOME OF RS. NIL AFTER CLAIMING EXEMPTION U/S 10(23) OF THE INCOME - TAX ACT, 1961 ( IN SHORT THE ACT). SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143 (2) WAS ISSUED TO THE ASSESSEE ON 22/09/2014 AND 05/01/2015 AND DULY SERVED ON THE ASSESSEE. AS THERE WAS NO PROPER REPRESENTATION/COMPLIANCE FROM THE ASSESSEE, THE AO COMPLETED THE ASSESSMENT U/S 144 OF THE ACT. HE NOTICED THAT ASSESSEE HAS GROSS 2 ITA NO S . 779 & 780 /HYD/2018 SALEE M MINORITY EDUCATIONAL SERVICE SOCIETY, KURNOOL RECEIPTS OF RS. 40,52,238/ - AND ARRIVED AT TAXABLE INCOME OF RS. 17 ,56,053/ - IN THE STATEMENT OF TOTAL INCOME. ON THE ABOVE INCOME, ASSESSEE CLAIMED EXEMPTION U/S 10(23C)(III) OF THE ACT AS IT IS RUNNING EDUCATIONAL INSTITUTION AND IT S GROSS RECEIPTS WERE BELOW RS .1 CRORE. HOWEVER , AO COMPLETED THE ASSESSMENT AND TREATED INCOME OF RS. 17,56,053/ - AS TAXABLE INCOME OF THE ASSESSEE. 3. AGGRIEVED WITH THE ABOVE ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND FILED ITS SUBMISSIONS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND VERIFICATION OF THE OBJECTIVES OF THE SOCIETY, CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER: 6. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND ALSO FINDINGS OF THE AO CAREFULLY. ON PERUSAL OF THE OBJECTIVES OF THE SOCIETY, LISTED IN PARA 4.1, IT IS SEEN THAT APPELLANT IS ENGAGED IN MULTIFARIOUS ACTIVITIES ALONG WITH EDUCATION. THE OTHER ACTIVITIES INCLUDE ESTABLISHMENT OF TAILORING AND EMBROIDERY CENTRES, START PLANTATION PROGRAMMES, TO GIVE VO LUNTARY SERVICES TO THE PUBLIC HEALTH, EDUCATION, AGRICULTURE, ETC. ALL THE OBJECTIVES ARE EQUALLY IMPORTANT IN THE RUNNING OF THE SOCIETY AND NONE IS UNEQUAL IN THE ORDER OF IMPORTANCE. THE CONTENTION OF AR OF THE APPELLANT THAT, IN PRACTICE NO SUCH ACTIV ITIES WERE CONDUCTED TILL TODAY OTHER THAN THE EDUCATIONAL ACTIVITY, AND HENCE SHOULD BE MADE ELIGIBLE FOR REDUCTION U/S.1 0 (23C)(IIIAD) OF THE I. T. ACT. THE CONTENTION OF THE AR OF THE APPELLANT I S NOT ACCEPTABLE FOR THE REASON THAT THE MAIN OBJECTIVE IN THE MEMORANDUM OF ASSOCIATION ARE MULTIFARIOUS AND TILL NOW NO AMENDMENT WAS MADE TO COMPLY WITH THE CONDITIONS IN ORDER TO BE ELIGIBLE U/S.1 0 (23C)(IIIAD) OF THE I. T. ACT. SECONDLY, THE EXISTENCE O F THE MULTIFARIOUS ACTIVITIES IN THE MEMORANDUM OF ASSOCIATION IS ENOUGH FOR REJECTING THE CLAIM OF EXEMPTION U/S.10(23C)(IIIAD) OF THE I .T. ACT. THERE IS NO NEED TO GO INTO FACTUAL ASPECTS OF THE CASE WHEN THE OBJECTIVES ARE CLEAR MEMORANDUM OF ASSOCIATIO N. THE RATIO OF THE CASE LAW CITED BY THE AR OF THE APPELLANT ARE NOT APPLICABLE TO THE FACTS OF THE CASE. THE APPELLANT ALSO NOT OBTAINED EXEMPTION U/S.12AA OF THE I.T. ACT. THEREFORE, I CONFIRM THE ACTION OF THE AO IN REJECTING THE CLAIM OF EXEMPTION U/S .10(23C)(IIIAD) OF THE I.T. ACT, AND TAXING THE INCOME AT MAXIMUM MARGINAL RATE. 3 ITA NO S . 779 & 780 /HYD/2018 SALEE M MINORITY EDUCATIONAL SERVICE SOCIETY, KURNOOL 4. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE HON'BLE CIT(A) IS ERRONEOUS IN LAW A S WELL AS FACTS OF THE CASE. 2 . THE HON'BLE CIT(A) IN THE FACTS AND CIRCUMSTANCES OF THE CASE OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM U/S. 1 0(23C)(IIIAD) OF THE IT ACT 3 . THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT THE MAIN OBJE CT OF THE SOCIETY WAS IMPARTING OF EDUCATION AND OTHER OBJECTIVES MENTIONED WERE ONLY INCIDENTAL TO THE MAIN OBJECTIVE AND HENCE THE CLAIM OF THE ASSESSEE U/S.L0(23C)(IIIAD) WOULD NOT GET EFFECTED BECAUSE OF THOSE OTHER OBJECTIVES. 4 . THE HON'BLE CIT(A) O UGHT TO HAVE CONSIDERED VARIOUS CASE LAWS RELIED UPON BY THE APPELLANT AS THE SAME WERE DIRECTLY APPLICABLE TO THE CASE OF THE APPELLANT AND OUGHT TO HAVE ALLOWED THE CLAIM OF THE ASSESSEE. 5 . ANY OTHER GROUND WILL BE RAISED AT THE TIME OF HEARING. 5. BEFORE US, LD. AR OF THE ASSESSEE SUBMITTED THAT AS PER SECTION 10(23 C )(IIIAD), ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION WHICH EXIST SOLEL Y FOR THE EDUCATIONAL PURPOSES AND NOT FOR PURPOSE OF PROFIT, CAN CLAIM EXEMPTION. HE SUBMITTED THAT ANY INSTIT UTION WHICH RUNS SOLELY FOR EDUCATIONAL PURPOSE AND NOT FOR PROFIT IS THE SO UL OF THE SECTION AND THE WORD EXISTING REFERS TO THE POINT OF TIME WHICH THE INSTITUTION IS RUN SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PROFIT. IN THE GIVEN CASE, NO DOUBT, ASSESSEE HAS MULTIPLE OBJECTIVES IN ITS OBJECT S CLAUSE, BUT, ASSESSEE WA S CARRYING ON ONLY EDUCATIONAL ACTIVITIES DURING THE WHOLE OF THE RELEVANT AY. THUS, ACCORDING TO HIM, ASSESSEE WAS SOLELY EXISTING FO R EDUCATIONAL PURPOSES DURING THE RELEVANT AY. IN SUPPORT OF THIS CONTENTION, HE PLACED RELIANCE UP ON THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. GEETHA BHA VAN TRUST [1995] 213 ITR 296 (KERALA) . 6. ON THE OTHER HAND, LD. DR SUBMITTED THAT , THE FACT THAT THE ASSESSEE HAS MULTIPLE OBJECTIVES ITSELF , IS ENOUGH TO REJECT THE CLAIM OF EXEMPTION U/S 10(23) AND FURTHER SUBMITTED THAT LD. AR HAS RELIED ON THE DECISION OF 4 ITA NO S . 779 & 780 /HYD/2018 SALEE M MINORITY EDUCATIONAL SERVICE SOCIETY, KURNOOL HONBLE KERALA HIGH COURT IN THE CASE OF GEETHA BHAVAN TRUST (SUPRA), W HEREAS THE CAS E IS RELEVANT TO SECTION 10(22) . THUS, ACCORDING TO HIM, THE CASE IS NOT RELEVANT TO THE CASE OF ASSESSEE. 7. IN THE REJOINDER, THE LD. AR SUBMITTED THAT EARLIER SECTION 10(22) AND 10 ( 22A ) ARE NOW REPLACED BY SECTION 10(23), THEREFORE, THE CASE LAW RELIED UPON BY THE ASSESSEE IS VERY MUCH RELEVANT TO THE FACTS OF THE CASE. 8. CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL ON RECORD. WE NOTICE THAT ASSESSEE IS AN EDUCATIONAL SOCIETY AND IS CONSTITUTED WITH MULTIPLE OBJECTI VES TO CARRY ON ITS OPERATIONS. T HE OBJECTIVE CLAUSE OF THE SOCIETY IS AS UNDER: 'A. TO ESTABLISH PRIMARY, UPPER PRIMARY, HIGH SCHOOL AND COLLEGES. B. TO ESTABLISH TECHNICAL EDUCATIONAL INSTITUTIONS. C. TO PROMOTE ECONOMICALLY, SOCIALLY AND FOR WELL BEING OF THE MEMBERS OF THE ASSOCIATION. D. TO START ADULT EDUCATION FOR THE AGRICULTURE LABOURERS IN THE NIGHT TIMES. E. TO START BALA KARMIKULA SCHOOLS AND EDUCATE THEM. F. TO GIVE VOLUNTARY SERVICES TO THE PUBLIC HEALTH EDUCATION AGRICULTURE, ETC. G. CO - OPERATION WITH OTHER BODIES / ASSOCIATION HAVING SIMILAR OBJECTS. H. TO START TAILORING AND EMBROIDARY CENTRES FOR THE POOR WOMENS. I. TO START PLANTATION PROGRAMMES AND EDUCATE THE PEOPLE REGARDING PARYAVARYAVAHINI. ' 8.1 NO DOUBT, ASSESSEE HAS MULTIPLE OBJECTIVES BUT WHILE LOOK ING INTO THE INCOME AND EXPENDITURE SUBMITTED BY THE ASSESSEE, IT IS SEEN THAT ASSESSEE EARNED INCOME ONLY FROM EDUCATIONAL ACTIVITIES AND ALL THE EXPENSES WERE ALSO RELATING TO EDUCATIONAL ACTIVITIES ONLY. AS SUBMITTED BY LD. AR, THE DEFINITION OF SECTION 10 (23), IN FACT, INDICATES THAT ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATIONAL PURPOSE AND NOT FOR PURPOSE OF PROFIT, IS ELIGIBLE TO CLAIM EXEMPTION IF ITS 5 ITA NO S . 779 & 780 /HYD/2018 SALEE M MINORITY EDUCATIONAL SERVICE SOCIETY, KURNOOL GROSS ARE LESS THAN RS. 1 CRORE. IN THE CASE BEFORE US , WE FIND T HAT THE ASSESSEE HAS CARRIED ON ONLY EDUCATIONAL ACTIVITIES AND ITS GROSS RECEIPTS WERE LESS THAN RS. 1 CRORE DURING THIS YEAR AND PARTICULARLY ALL THE RECEIPTS ARE RELATING TO EDUCATIONAL ACTIVITIES ONLY. SIMILAR CASE HAD C O ME UP FOR CONSIDERATION BEFORE THE HONBLE KERALA HIGH COURT IN THE CASE OF GEETHA BHANU TRUST (SUPRA) WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER: 5 . WHAT SECTION 10(22) SPEAKS OF IS INCOME OF A UNIVERSITY OR OTHER EDUCATIONAL INSTITUTIONS EXISTING ONLY FOR EDUCATIONAL PURPOSES, AND NOT FOR PURPOSE OF PROFIT. HERE IS A TRUST RUNNING TWO EDUCATIONAL INSTITUTIONS. THE INCOME WHICH IS SOUGHT TO BE SUBJECTED TO ASSESSMENT IS THAT DERIVED FROM THESE EDUCATIONAL INSTITUTIONS. IT IS AN ADMITTED FACT THAT THE SURPLUS WAS USED ONLY FOR TH E PURPOSES OF THE EDUCATIONAL INSTITUTIONS. THE PROFITS OF THE TRUST ARE NOT DISTRIBUTED. IT IS NOT A PROFIT - MAKING ORGANISATION AND THE SURPLUS EARNED FROM THE SCHOOLS IS PLOUGHED BACK INTO THE SCHOOLS THEMSELVES FOR THEIR EDUCATIONAL AND DEVELOPMENTAL PU RPOSES. WHAT IS RELEVANT UNDER SECTION 10(22) IS THE SOURCE OF THE INCOME, WHETHER IT HAS BEEN DERIVED FROM AN EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATIONAL PURPOSE. THE SCHOOLS IN QUESTION ARE NOT USED FOR ANY OTHER PURPOSES. THEY THEREFORE EXIS TED SOLELY FOR EDUCATIONAL PURPOSES. EVEN THE TRUST, FOR THAT MATTER, EXISTED SOLELY FOR THAT PURPOSE DURING THE RELEVANT YEARS DESPITE THE PERMISSIVE AMPLITUDE OF ITS OBJECTS CLAUSE, SINCE IT HAD NOT EMBARKED UPON ANY OTHER ACTIVITY. 'EXIST' MEANS 'TO BE IN PRESENT FORCE, ACTIVITY OR EFFECT AT A GIVEN TIME'. IF DURING THE RELEVANT YEAR, THE TRUST IN QUESTION EXISTED SOLELY FOR EDUCATIONAL PURPOSES, WE SHOULD THINK THAT SECTION 10(22) IS ATTRACTED TO THE FACTS OF THIS CASE, WHEN THE INCOME DERIVED IS SOLELY FROM THE EDUCATIONAL INSTITUTIONS RUN BY IT, AND THE ACTIVITIES OF THE TRUST ARE NOT FOR PROFIT. 8.2 FROM THE ABOVE DECISION, IT IS CLEAR THAT EVEN THOUGH ASSESSEE MA Y BE HAVING AMPLITUDE TO ITS OBJECTIVE CLAUSES, BUT IF IT HAD NOT EMBARKED UPON ANY OTHER ACTIVITY, THE TERM EXIST MEANS TO BE PRESENT FORCE, ACTIVITY, OR EFFECT AT A GIVEN TIME . T HE ABOVE DECISION IS NO DOUBT ON SECTION 10(22), BUT, THE SA ID SECTION WAS REPLACED BY SECTION 10(23C) AND EVEN IN THE GIVEN CASE, ASSESS EE WA S RUNNING AN EDUCATION AL INSTITUTION AND CARRIED ON ONLY EDUCATIONAL ACTIVITIES DURING THIS AY AND HA D NOT VENTURED INTO ANY OTHER ACTIVITY. THEREFORE, IN OUR CONSIDERED VIEW, THE DECISION OF THE HONBLE KERALA HIGH COURT IS VERY MUCH RELEVANT FOR THI S CASE. WE FIND THAT THE CIT(A) HAS REJECTED THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS MULTIPLE OBJECTIVES OTHER THAN SOLELY 6 ITA NO S . 779 & 780 /HYD/2018 SALEE M MINORITY EDUCATIONAL SERVICE SOCIETY, KURNOOL EDUCATIONAL ACTIVITIES IN THE OBJECT CLAUSE. THE TAX AUTHORITIES SHOULD APPLY THE PROVISIONS OF THE ACT AS THE LEGISLATURE INTEND ED TO DEVELOP THE EDUCATIONAL ACTIVITIES AND PROMOTE THOSE INSTITUTIONS, WHICH HAVE FUNCTIONS SOLELY FOR EDUCATION AND NOT FOR PROFIT. IN CASE, AN ASSESSEE HAS MULTIPLE OBJECTIVES, BUT, CARRIED ON ONLY EDUCATIONAL ACTIVITIES, THEN, THE ASSESSING AUTHORITIES CAN ALLOW THE BENEFIT. IN THE GIVEN CASE, FACTS ARE VERY CLEAR THAT DURING THE RELEVANT AY, THE ASSESSEE HAS CARRIED ON ONLY EDUCATIONAL ACTIVITIES AND HAS NOT CARRIED ON ANY OTHER ACTIVITIES. U/S 10(23)(IIIAD), IT IS NOT A CASE OF REGISTRATION AND THE ALLOWABILITY OF THE CLAIM THEREAFTER WITHOUT VERIFICATION OF FACTS. EVERY YEAR, WHEN THE CLAIM IS MADE, AO IS REQUIRED TO VERIFY WHETHER FOR THAT PY, THE ASSESSEE EXISTED SOLELY FOR EDUCATIONAL ACTIVITIES. THEREFORE, IN OUR CONSIDER ED VIEW, ASSESSEE IS ELIGIBLE TO CLAIM EXEMPTION U/S 10(23)(IIIAD) FOR THE RELEVANT AY BEFORE US . ACCORDINGLY, THE ADDITION MADE BY THE AO IS HEREBY DELETED AND THE GROUNDS RAISED BY THE ASSESSEE ON THIS COUNT ARE ALLOWED. 9. AS THE FACTS AND GROUNDS AR E MATERIALLY IDENTICAL IN AY 2014 - 15 TO THAT OF AY 2013 - 14, FOLLOWING THE DECISION THEREIN, THIS APPEAL IS ALSO ALLOWED. 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 24 TH APRIL , 201 9 . SD/ - SD/ - (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 24 TH APRIL , 2019 KV 7 ITA NO S . 779 & 780 /HYD/2018 SALEE M MINORITY EDUCATIONAL SERVICE SOCIETY, KURNOOL COPY TO: - 1) SALEEM MINORITY EDUCATIONAL SERVICE SOCIETY, C/O B. NARSING RAO & CO., CAS, PLOT NO. 554, ROAD NO. 92, JUBILEE HILLS, HYDERABAD - 96 2) ITO (EXEMPTIONS) , TIRUPATI 3) CIT(A), TIRUPATI 4 ) PR. CIT (EXEMPTIONS) , HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6) GUARD FILE `