Sree Educational Society, Hyderabad V. DCIT, (Central), Hyderabad

ITA 805/HYD/2014

• Counselvise Citation: 80522514 RSA 2014
• Duration Of Justice: 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-12-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 02-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA RAO
• Assessee Lawyers: AJAY GANDHI
• Keywords: Charitable institution; Capital receipt
• Section: 263; 132; 12; 11; 143(3); 153A; 12A; 12AA

Judgement Text

ITA NO.805 OF 2014 SREE EDUCATIONAL SOCIETY HYDERAB AD PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD ABENCH, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.805/HYD/2014 (ASSESSMENT YEAR: 2010-11) SREE EDUCATIONAL SOCIETY 1-2-288/23/1 DOMALGUDA, HYDERABAD 500029 PAN: AAATS 7411 B VS. DY. COMMISSIONER OF INCOME TAX ( CENTRAL ) 7 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 500001 (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI AJAY GANDHI, CA DEPARTMENT BY: SMT. APARNA RAO, C IT (DR) DATE OF HEARING: 22/12/2014 DATE OF PRONOUNCEMENT: 31/12/2014 O R D E R PER ASHA VIJAYARAGHAVAN, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE CIT (CENTRAL) HYDERABAD 26.03.2014 REL ATING TO A.Y 2010-11. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A REGISTERED SOCIETY AND IT HAS BEEN GRANTED REGISTRATION U/S 12 A OF THE I.T. ACT VIDE CIT-I, HYDERABAD DATED 2.4.1998. THE ACIT , CENTRAL CIRCLE-1 HYDERABAD HAS COMPLETED ASSESSMENT IN THE CASE OF SREE EDUCATIONAL SOCIETY FOR THE A.Y 2010-11 U/S 14 3(3) R.W.S. 153A ON 30.12.2011 DETERMINING THE TOTAL INCOME AT RS.7,04,33,683/-. A SEARCH & SEIZURE ACTION U/S 132 OF THE I.T. ACT WAS CONDUCTED AT THE ASSESSEES PREMISES AND AT THE ITA NO.805 OF 2014 SREE EDUCATIONAL SOCIETY HYDERAB AD PAGE 2 OF 8 RESIDENCES OF THE MAIN TRUSTEES SHRI K.T. MAHI AND SMT. K.SARITA MAHI. THE CIT STATED WHILE INITIATING PROCEEDINGS U/S 263 AS FOLLOWS: 2. ON VERIFICATION FROM THE RECORDS IT IS OBSERVED FROM THE CONSOLIDATED BALANCE SHEET AS ON 31.03.2010, THE ASSESSEE RECEIVED RS.2,62,45,200/- AS GRANTS WHICH WERE CREDITED TO RESERVES AND SURPLUS. THE AO DISALLOWED THE CLAIM OF EXEMPTION U/S 10(23C)(VI)/11 BY DOING SO THE AO SHOULD HAVE BROUGHT TO TAX OF THESE RECEIPTS. AS TH E AO HAS NOT DONE, THE ORDER PASSED BY THE AO FOR THE A.Y 2010-11 IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. FURTHER, IT IS SEEN FROM THE CONSOLIDATED BALANCE SHEETS AS AT 31.03.2010 AND 31.03.2009 THAT PROVISION GRATUITY WAS RS.1,56,44,796/- AND RS.1,11,44,796/- RESPECTIVELY. IT IS THUS EVIDENT THAT GRATUITY EXPENDITURE OF RS.45,00,000/- DEBITED TO INCOME AND EXPENDITURE ACCOUNT FOR A.Y 2009-10 WAS UNPAID AND IS THEREFORE, REQUIRED TO BE DISALLOWED U/S 40A(7) OF THE I.T. ACT. 3. ACCORDINGLY A SHOW CAUSE LETTER DATED 11.03.2014 WAS ISSUED AND SERVED ON THE ASSESSEE PROPOSING TO REVISE THE ORDER DATED 30.12.2011 FORE THE A.Y 2010-11 U/S 263 OF THE I.T. ACT. 3. IN RESPONSE TO THE NOTICE ISSUED, THE ASSESSEE F ILED WRITTEN SUBMISSION AS FOLLOWS: EXEMPTION U/S 10(23C)(VI) WHILE COMPLETING THE ASSESSMENT THE AO HAS NOT GRANTED EXEMPTION CLAIMED U/S 10(23C)(VI) STATING THAT REGISTRATION GRANTED IS WITHDRAWN BY THE DGIT, VIDE HIS ORDERS DATED 16.12.2011. THE SOCIETY IS CONTESTING THE DRAWAL BY FILING A WRIT PETITION BEF ORE THE HON'BLE HIGH COURT OF ANDHRA PRADESH. THE WRIT PETITION FILED BY THE SOCIETY IS ADMITTED AND PENDI NG FOR DISPOSAL. IN VIEW OF THIS FACT THE WITHDRAWAL O F ITA NO.805 OF 2014 SREE EDUCATIONAL SOCIETY HYDERAB AD PAGE 3 OF 8 REGISTRATION AND THE DENIAL OF EXEMPTION IS SUB JUDICE. EXEMPTION U/S 11 WHILE COMPLETING THE ASSESSMENT THE AO HAS NOT GRANTED EXEMPTION CLAIMED U/S 11 STATING THAT REGISTRATION GRANTED U/S 12A IS WITHDRAWN BY CIT (CENTRAL) VIDE HIS ORDERS DATED 29.03.2012. THE SOCIETY HAS CONTESTED THE WITHDRAWAL BY FILING AN APPEAL BEFORE THE HON'BLE ITAT OF ANDHRA PRADESH AND THE HON'BLE ITAT RESTORED THE REGISTRATION. COP Y OF THE SAID ORDER IS ENCLOSED FOR YOUR RECORD. IN V IEW OF THE APPELLATE ORDER, THE DENIAL OF EXEMPTION U/S 11 FOR THE A.Y 2007-08 BY THE AO IS ERRONEOUS. THE ASSESSEE REMAINS ELIGIBLE TO THE EXEMPTION OF INCOM E AS A CHARITABLE ORGANIZATION. FURTHER IT IS APPARENT BOTH FROM THE ASSESSMENT ORDER AND YOUR NOTICE U/S 263 THAT NO IRREGULARITIE S OR DISCREPANCIES WERE NOTICED WITH RESPECT TO ANY GRANT RECEIVED BY THE SOCIETY. IN VIEW OF THIS FACT , THE ASSESSMENT ORDER NEITHER SUFFER FROM ANY ERROR NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE FOR EXERCISING YOUR POWERS U/S 263. GRANT AT THIS JUNCTURE WE WISH TO BRING TO YOUR KIND NOTI CE THAT THE SOCIETY UNDER AN MOU DATED 24 TH FEBRUARY, 2005 WITH THE GOVT. OF ANDHRA PRADESH HAS AGREED TO IMPLEMENT REFORMS UNDER THE TECHNICAL EDUCATION QUALITY IMPROVEMENT PROGRAMME (TEQUIP). THE SOCIETY RECEIVED THE GRANT AND UTILIZED IT TO ACQUIRE ASSETS AND THE INFRASTRUCTURE TO RUN THE PROGRAMME. THE NATURE OF THE GRANT IS A CAPITAL RECEIPT AND DOES NOT HAVE INCOME CHARACTER. IT CANNOT BE BROUGHT TO TAX IN ANY MANNER. THE ENTIRE GRANT WAS USED TO ACQUIRE ASSETS AS IS EVIDENT FROM THE FINAL ACCOUNTS FILED WITH THE RETU RN OF INCOME AND DURING ASSESSMENT PROCEEDINGS. COPIES ARE ATTACHED. IN VIEW OF THIS, THE INCOME, I F ANY, SHOULD BE CONSIDERED TO HAVE BEEN UTILIZED DURING THE YEAR FOR THE OBJECTS OF THE SOCIETY. NO INCOME CAN BE SAID TO REMAIN UNTAXED. ITA NO.805 OF 2014 SREE EDUCATIONAL SOCIETY HYDERAB AD PAGE 4 OF 8 FROM THE FOREGOING IT MAY KINDLY BE SEEN THAT THE GRANT RECEIVED IS A CAPITAL RECEIPT AND WAS UTILIZE D DURING THE YEAR FOR ACHIEVING THE OBJECTS OF THE SOCIETY. IT IS FURTHER SUBMITTED THAT THE GRANT IS CAPITAL RECEIPT IRRESPECTIVE OF THE ELIGIBILITY OF EXEMPTIO N U/S 11. THUS, NO INCOME CAN BE SAID TO REMAIN UNTAXED. FURTHER IN VIEW OF THE RESTORATION OF THE SOCIETYS REGISTRATION U/S 12A, ASSESSING THE SOCIETY AS AN AOP IS ERRONEOUS. ALSO IT IS NEITHER THE AOS NOR Y OUR CONTENTION THAT THE SOCIETY HAS CONTRAVENED ANY OF THE PROVISIONS OF LAW, IN ACCEPTING AND UTILIZING T HE GRANT, MAKING THE SOCIETY INELIGIBLE FOR CLAIMING EXEMPTION U/S 11. IN VIEW OF THIS FACTUAL POSITION, THE PROPOSED ADDITION IS ERRONEOUS. THUS, ON ACCOUNT OF THIS SETTLED LEGAL POSITION AND WITH RESPECT TO THE GRAN T RECEIVED BY THE SOCIETY, NEITHER THE ORDER OF THE A O SUFFER FROM ANY INFIRMITY NOR IS THE ORDER OF THE A O PREJUDICIAL TO THE INTEREST OF REVENUE. 4. THE CIT HELD THAT IT IS A FACT ON RECORD THAT TH E AO DISALLOWED THE CLAIM OF EXEMPTION U/S 10(23C)(VI) A ND STATUS OF ASSESSEE WAS TREATED AS AOP. THE CIT FURTHER OBSERV ED THAT UNDER THE CIRCUMSTANCES, THE AO OUGHT TO HAVE VERIF IED THE RECEIPTS/GRANTS FROM WORLD BANK SO AS TO BRING THE SAME TO TAX NET. THUS, NON-EXEMPTION OF THE ABOVE ISSUES DEFINI TELY MAKES THE ORDER PASSED BY THE AO AS ERRONEOUS AND PREJUDI CIAL TO THE INTEREST OF REVENUE. 5. THE CIT FURTHER HELD THAT THE ORDER PASSED BY TH E AO U/S 143(3) R.W.S. 153A OF I.T. ACT FOR THE A.Y 2010-11 IS SET ASIDE WITH A DIRECTION TO EXAMINE ALL THE ISSUES AS ABOVE , IN DETAIL AND RE-DO THE ASSESSMENT ORDERS AFTER MAKING DETAIL ENQ UIRIES AND ITA NO.805 OF 2014 SREE EDUCATIONAL SOCIETY HYDERAB AD PAGE 5 OF 8 INVESTIGATION AND EXAMINING THE TAXABILITY OF THE R ECEIPTS OF GRANTS FROM WORLD BANK. 6. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE TRIBUNAL. THE LD COUNSEL FOR THE ASSESSEE SHRI AJAY GANDHI STATED THAT THE ITAT HAS IN ITA NO.563/HYD/2012 IN ASSESSEES OWN CASE HELD AS FOLLOWS: 16. IN THE PRESENT CASE NO MATERIAL HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE ASSESSEE SOLELY EXISTS FOR PROFIT MOTIVE. THE DEPARTMENT HAS NOT BE EN ABLE TO DISCHARGE ITS ONUS OF SHOWING AS TO HOW THE CONDITIONS FOR GRANT OF REGISTRATION HAVE BEEN BREACHED BY THE ASSESSEE. THE REGISTRATION HAS BEEN GRANTED TO THE SOCIETY FOR MANY YEARS IN THE PAST UNDER THE SAME FACTS AND THERE IS NO CHANGE IN THE FACTS OR IN THE ACTIVITIES OF THE SOCIETY IN THE PR ESENT YEAR. IT HAS ALSO NOT BEEN DEMONSTRATED BY THE DEPARTMENT AS TO HOW THE OBJECT OF THE ASSESSEE HAS TURNED INTO A COMMERCIAL ONE. THE PREDOMINANT OBJECT OF THE ASSESSEE IS AND ITA NO. 564/H/12 SREE EDUCATIONAL SOCIETY REMAINS TO CARRY OUT CHARITABLE PURPOSE OF ADVANCEMENT OF EDUCATION AND NOT TO EARN PROFIT. IN FACT NO PROFIT HAS BEEN ESTABLISHED TO H AVE BEEN EARNED BY THE ASSESSEE. THE DIT HAS FAILED TO SPECIFY AS TO HOW PROFIT EARNING IS THE PREDOMINANT ACTIVITY OF THE ASSESSEE AND THE SOCIETY HAS BEEN PURSUING ITS OBJECT OF IMPARTING EDUCATION TO STUDENTS. THEREFORE, THE ASSESSEE SOCIETY CANNOT BE DEPRIVED OFF OF THE BENEFIT OF REGISTRATION GRANTED BY THE DIT(E) U/S 11 OF THE ACT. BEING SO, IN OUR OPIN ION, REGISTRATION GRANTED U/S 12AA OF THE ACT CANNOT BE CANCELLED. HOWEVER, THE AFORESAID FINDINGS GIVEN BY US ARE NOTHING TO DO WITH THE ALLOWABILITY OF EXEMPTION U/S 11 OF THE ACT. IN CASE ANY DISCREPANC Y OR IRREGULARITY WITH REGARD TO THE ALLOWABILITY OF EXEMPTION U/S 11 IS NOTICED BY THE AO, HE CAN MAKE AN INDEPENDENT ENQUIRY/EXAMINATION AT THE TIME OF ASSESSMENT FOR EACH ASSESSMENT YEAR AND DECIDE IN ACCORDANCE WITH LAW. ITA NO.805 OF 2014 SREE EDUCATIONAL SOCIETY HYDERAB AD PAGE 6 OF 8 THEREFORE, IT WAS SUBMITTED THAT THE DENIAL OF EXEM PTION U/S 11 FOR THE A.Y 2007-08 BY THE AO IS ERRONEOUS. 7. THE LD COUNSEL FOR THE ASSESSEE ALSO SUBMITTED T HAT THE SOCIETY RECEIVED GRANT AND UTILIZED IT TO ACQUIRE A SSETS AND INFRASTRUCTURE TO RUN ITS PROGRAMME. THE NATURE OF THE GRANT IS A CAPITAL RECEIPT AND DOES NOT HAVE INCOME CHARACTER. HE ALSO POINTED OUT THE LETTER DATED 09.09.2011 WHEREIN INF ORMATION HAS BEEN SUBMITTED WITH RESPECT TO A.Y 2004-05 TO A.Y 2 010-11 AND ITEM NO.8 IS WITH RESPECT TO DETAILS OF ADDITIONS T O CORPUS FUND/BUILDING FUND ETC., AS APPEARING IN THE BALANC E SHEET OF THE RESPECTIVE YEARS WHICH THE ASSESSEE HAS ENCLOSED. H E ALSO BROUGHT TO OUR NOTICE THE MEMORANDUM OF UNDERSTANDI NG BETWEEN THE GOVT. OF ANDHRA PRADESH AND TEQUIP INST ITUTIONS AT PAGE 15 OF THE PAPER BOOK. IT WAS CLARIFIED THAT UN DER THE MOU DATED 24.02.2005 WITH THE SOCIETY THE GOVT. OF A.P. HAS AGREED TO IMPLEMENT REFORMS UNDER TECHNICAL EDUCATION QUALITY IMPROVEMENT PROGRAMME ( TEQUIP) PROGRAMME. IT WAS POINTED OUT THAT THE GRANTS RECEIVED WERE UTILIZED DURING T HE YEAR FOR ACHIEVING THE OBJECTS OF THE SOCIETY AND THE ENTIRE GRANT WAS USED TO ACQUIRE ASSETS. IT WAS ALSO SUBMITTED THAT THE G RANT IS A CAPITAL RECEIPT IRRESPECTIVE OF ELIGIBILITY OF EXEM PTION U/S 11 AND HENCE THE ORDER OF THE AO IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 8. THE LD DR ON THE OTHER HAND SUBMITTED THAT THERE HAS BEEN NO DISCUSSION ABOUT THE GRANTS IN THE ASSESSMENT OR DER. ITA NO.805 OF 2014 SREE EDUCATIONAL SOCIETY HYDERAB AD PAGE 7 OF 8 9. WE HAVE HEARD BOTH THE PARTIES. WE HAVE GONE THR OUGH THE RECORD AND FIND THAT THE ASSESSEE HAS GIVEN ALL THE DETAILS OF ADDITIONS TO CORPUS FUNDS/BUILDING FUND AND THE UTI LIZATION OF THE AMOUNT OF THE GRANT IS EVIDENT FROM THE ACCOUNT S STATEMENT FILED WITH THE RETURN OF INCOME AND GIVEN THE ASSES SMENT PROCEEDINGS. WE ALSO NOTE THAT THE ITAT VIDE ITS OR DER DATED 31 ST JULY, 2013 (SUPRA) IN ASSESSEES OWN CASE HAS HELD THAT THE ASSESSEE IS ELIGIBLE TO EXEMPTION OF INCOME AS THE CHARITABLE ORGANIZATION ENJOYING THE BENEFIT OF SECTION 11 OF THE ACT. FURTHER THE GRANT IS A CAPITAL RECEIPT AND NOT A REVENUE RE CEIPT AND HENCE A NON TAXABLE RECEIPT. THE HON'BLE ANDHRA PRADESH H IGH COURT IN THE CASE OF CIT VS. CHITRAKALPA, REPORTED IN 177 IT R 5640 HELD THAT THE SUBSIDY GIVEN BY THE GOVT. TO THE ASSESSEE WAS NOT A REVENUE RECEIPT. WE ALSO SEE FROM THE NOTES AND ACC OUNTS AT PAGE 76 THAT THE CAPITAL GRANT RECEIVED ARE ADJUSTED FRO M THE COST OF FIXED ASSETS. HENCE WE ARE OF THE OPINION THAT THE GRANT RECEIVED IS OF CAPITAL IN NATURE AND DOES NOT HAVE THE INCOM E CHARACTER AND THE ASSESSEE HAS TREATED IT RIGHTLY AS A CORPUS DONATION. FURTHER, THE AO HAS BEEN DIRECTED TO GRANT THE ASSE SSEE EXEMPTION U/S 11 OF THE ACT BY THE HON'BLE TRIBUNAL BY ORDER DATED 31 ST JULY, 2013 IN ITA NO.563/HYD/2012. IN THESE CIRCUMSTANCES, THE ORDER U/S 263 BY THE CIT STATING THAT THE ASSESSEE IS NOT ELIGIBLE FOR CLAIMING EXEMPTION U/S 11 AND U/S 10(23C(VI) IS INCORRECT. FURTHER THE CIT HAS ALSO H ELD THAT THE AO OUGHT TO HAVE VERIFIED THE RECEIPTS/GRANTS FROM THE WORLD BANK, SO AS TO BRING THE SAME TO THE TAX NET WHICH IS ALS O INCORRECT IN AS MUCH AS THE GRANT RECEIVED IS A CAPITAL RECEIPT AND TOWARDS CORPUS OF THE INSTITUTION/TRUST. HENCE THE ORDER PA SSED BY THE ITA NO.805 OF 2014 SREE EDUCATIONAL SOCIETY HYDERAB AD PAGE 8 OF 8 AO IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTE RESTS OF THE REVENUE FOR ASSUMPTION U/S 263. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DECEMBER, 2014. S D/ - S D/ - (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 31 ST DECEMBER, 2014. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER