Shri Jagannath Educational Institute , Kolkata V. I.T.O.(Exemption), Kolkata

ITA 852/KOL/2019

AI Insights

The case revolves around the appeal by Shri Jagannath Educational Institute against the order of the Learned Commissioner of Income, Kolkata, which set aside the assessment order for the Assessment Year 2015-16 under section 263 of the Income Tax Act, 1961. The primary issue was the eligibility of the trust to claim exemption under section 10(23C)(iiiad) of the Act, despite not having direct receipts from educational activities but rather income from investments. The Tribunal examined whether the Commissioner was correct in his belief that the assessment order was erroneous and prejudicial to the interest of the revenue, leading to the setting aside of the original assessment.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 136131 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 02-01-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 21-04-2019
• Other Referred Cases: Swasthya Sewa Sanstha vs. Commissioner of Income Tax (Exemption), Kolkata
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Charitable institution
• Section: 263; 12A; 10(23C)

Judgement Text

। आयकर अपीलीय अिधकरण ᭠यायपीठ, कोलकाता । IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA BEFORE SHRI RAJPAL YADAV, HON’BLE VICE PRESIDENT AND SHRI RAJESH KUMAR, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 852/Kol/2019 Assessment Year: 2016-17 Shri Jagannath Educational Institute 78, Syed Amir Ali Avenue Kolkata - 700019 PAN : AACTS0300H Vs I.T.O., Exemption Ward – 1 (3), Kolkata सुनवाई कᳱ तारीख/Date of Hearing : 03/01/2023 घोषणा कᳱ तारीख /Date of Pronouncement: 04/01/2023 आदेश/O R D E R PER SHRI RAJPAL YADAV, VICE PRESIDENT: The present appeal is directed at the instance of the assessee against the order of the Learned Commissioner of Income, Kolkata (hereinafter the “ld. CIT”) dt. 05/03/2019, passed u/s 263 of the Income Tax Act, 1961 (“the Act’), for Assessment Year 2015-16. 2. Though the assessee has taken five (5) grounds of appeal but its grievance revolves around a single issue, namely, ld. CIT has erred in invoking powers u/s 263 of the Act and thereby setting aside the assessment order for passing a fresh order. 3. Brief facts of the case are that the assessee filed its return of income on 07/06/2016 declaring total income at ‘Nil’. The assessee is a charitable trust engaged in educational activities. The trust is registered u/s 12A of the Act अपीलाथᱮ/ (Appellant) ᮧ᭜ यथᱮ/ (Respondent) Assessee by : Shri Akkal Dudhewala Revenue by : Shri Amal Kamat, CIT, D/R I.T.A. No. 852/Kol/2019 Assessment Year: 2016-17 Shri Jagannath Educational Institute 2 vide No. S-88/WB-VII of 1983-84, dt. 29/07/1983. It has claimed exemption u/s 10(23C)(iiiad) of the Act. The Assessing Officer had selected the case for scrutiny assessment and verified the accounts. He found that income as per the income and expenditure account is Rs.84,41,466/- and accordingly, he allowed exemption u/s 10(23C)(iiiad) of the Act. 3.1. On perusal of the records, the ld. CIT harboured a belief that assessment order is erroneous as well as prejudicial to the interest of the revenue. According to the ld. CIT, the assessee has incurred an amount of Rs. 4,59,787/- on running of schools and claimed as miscellaneous application. On the other hand, it has declared a surplus of Rs. 79,66,087/-. He further found that there is no receipt from any school and it has claimed surplus as exempt u/s 10(23C)(iiiad) of the Act. The ld. CIT was of the view that since there is no receipt from any educational institution, the allowability of the exemption u/s 10(23C) is prima facie erroneous and prejudicial to the interest of the revenue. In his second fold of reasoning, he observed that surplus of income or expenditure is far in excess of 15% of the total receipt. The ld. CIT issued a showcause notice u/s 263 of the Act. According to the finding in the impugned order, the assessee contended that jurisdiction u/s 263 of the Act on the ground that there is no receipt from any school, ought not to be invoked. It was also submitted that Section 10(23C) of the Act, does not state that only income from educational institution is exempt but allows an entity to invest these funds in certain prescribed investments. I.T.A. No. 852/Kol/2019 Assessment Year: 2016-17 Shri Jagannath Educational Institute 3 4. While impugning the order of the ld. CIT, the ld. Counsel for the assessee took us through the details i.e., copy of the memorandum of association, audited accounts, details of schools and teachers, photographs evidencing existence of schools, copy of certificate issued by local municipal authorities, copies of attendance reports of the teachers and students and allowances paid to the school teachers i.e., monthly pay sheets. While taking us through the accounts, the ld. Counsel for the assessee submitted that it is a society to whom corporate entities of Birla Group had donated the shares and out of the dividend income from that investment, the society is earning the income. It is purely a charitable organization which has been formed by different business organization. In order to strengthen its financial health for perpetuity, they have given certain investment and this was given long back since 1983-84. The value of those shares have increased manifold, accordingly the dividend income. The schools are being run at the level of very low strata, where income cannot be earned from educational activities. In other words, these are the activities carried out in slum areas. It is not a case of any manipulation or earning of income from donations. He pointed out that the society will build its own building for fulfilling its objects of education but meanwhile it is taking care of educational needs of slum areas. Nothing has been paid to any of the managing members on the management Board or no amount has been utilized for any other parties. Thus, it is purely educational trust. The view point of the ld. CIT that for deciding the admissibility of claim of exemption u/s 10(23C) of the Act, there should be educational receipts or there should be an expenditure on educational activities of more than 15% is an erroneous approach. He I.T.A. No. 852/Kol/2019 Assessment Year: 2016-17 Shri Jagannath Educational Institute 4 submitted that identical issue came up before the Tribunal in the case of Swasthya Sewa Sanstha vs. Commissioner of Income Tax (Exemption), Kolkata in ITA No. 363/Kol/2020, order dt. 09/02/2022, wherein the Hon’ble Tribunal has quashed a 263 order. He placed on record a copy of the Tribunal order. On the other hand, the ld. CIT D/R, relied on the order of the ld. CIT. 5. We have duly considered the rival contention and gone through the record carefully. The sole issue for our consideration is, whether exemption u/s 10(23C)(iiiad) of the Act can be granted to any trust, educational institution or university, if the source of income in such a trust is out of educational activity. To our mind, the ld. CIT misconstrued the provision. The source of income can have many springs whereas for eligibility of exemption, the institution should be involved in education only. We find that this aspect has been considered by the ITAT in the case of Swasthya Sewa Sanstha (supra) relied upon by the ld. Counsel for the assessee. In this case, the assessee claimed exemption u/s 10(23C)(iiiae) of the Act i.e., for running a hospital and other medical institution. Action u/s 263 of the Act was taken by the ld. Commissioner on the ground that there was no nexus between the income and the expenditure and assessee has not shown receipt from the dispensary. The Tribunal while dealing with this aspect, recorded the following finding:- “4. We have heard the rival contentions of both the parties and gone through the record. Before proceeding further, it will be appropriate to firstly reproduce the relevant provisions of Section 10(23C)(iiiae) of the Act, which reads as under: I.T.A. No. 852/Kol/2019 Assessment Year: 2016-17 Shri Jagannath Educational Institute 5 “[10. Incomes not included in total income.—In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included— (23C) any income received by any person on behalf of— (iiiae) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, if the aggregate annual receipts of such hospital or institution do not exceed the amount of annual receipts as may be prescribed.]” 4.1. A perusal of the above relevant provision of the Act would show that there is no requirement under the aforesaid provision that the income/receipt of the Trust/Society should come from the charitable/philanthropic activity itself. The only requirement is that the hospital/institution should exist solely for philanthropic purposes and not for purposes of profit and the aggregate annual receipt of such hospital/institution should not exceed the amount of annual receipt as may be prescribed, which is Rs. 1 crore for the relevant assessment year under consideration. Admittedly, the income of the institution for the assessment year under consideration was less than Rs. 1 crore. There was no allegation that the institution/appellant Trust exist for any other purposes. There is no allegation that the institution/appellant Trust is existing for any purpose of profit, or is doing any activity for the purpose of profit. As per the facts on the file, the appellant Trust is running a dispensary wherein the doctors from both Allopathy and Homoeopathy discipline of medicine visit the dispensary and the treatment is free of charge and even medicines are also given free of cost to patients. There is no denial of the fact that the appellant Trust is running the dispensary purely on philanthropic purposes. Since, the aforesaid medical treatment is given free of charge, hence there is no question of earning of any income from such activity. As observed above, there is no requirement of provision Section 10(23C)(iiiae) of the Act that the income should be earned from such philanthropic activity, rather it is otherwise that the institution/Trust has done such an activity purely for charitable/philanthropic purposes and under such circumstances expectation of income from such activity will be against the spirit of the aforesaid statutory provision. There is no allegation that the institution is doing any activity other than the aforesaid medical dispensary. I.T.A. No. 852/Kol/2019 Assessment Year: 2016-17 Shri Jagannath Educational Institute 6 The annual income of the appellant Trust is out of the interest income from the investment has been made of surplus lying with it. However, there is no allegation that such surplus is applied for any purpose other than the charitable activity. Now, the only allegation is that the appellant Trust has applied only 12% of its receipts and accumulated 88%. We find that under the provision of Section 10(23C)(iiiae) of the Act, there is no limit prescribed for application of receipts and accumulation of receipts. Therefore, the appellant Trust is within its rights to accumulate the receipts as per its requirement. It had been explained by the assessee Trust to the ld. CIT(E) that the surplus of investment was being accumulated for spending in future years for the objects and purposes of the Trust like building of hospital, nursing home or any other similar medical institution. 5. In our view, all the conditions as prescribed u/s 10(23C)(iiiae) of the Act, have been fulfilled by the appellant Trust and there is no allegation that the appellant Trust is involved in any other activity for profit or does not exist for philanthropic purposes. Even in this case, all the facts are on the file, therefore there was no need for any further investigation by the AO as alleged by the ld. CIT(E). 6. In view of the above discussion, the action of the ld. CIT in directing the AO to disallow the exemption granted u/s 10(23C)(iiiae) of the Act was not justified. The impugned order of the ld. CIT(E) is, therefore quashed. 7. In the result, the appeal of the appellant Trust stands allowed. Order is pronounced in the open court on 09.02.2022. Sd/- Sd/- [Rajesh Kumar] [Sanjay Garg] Accountant Member Judicial Member 6. If, in the light of the above, we examine the facts of the present appeal, then it would reveal that the only distinction in the issue involved is that in the case of Swasthya Sewa Sanstha (supra) the assessee had claimed deduction u/s 10(23C)(iiiae) of the Act which is meant for any hospital or I.T.A. No. 852/Kol/2019 Assessment Year: 2016-17 Shri Jagannath Educational Institute 7 other institution for treatment of persons suffering from illness or mental defectiveness whereas in the present case, the exemption has been claimed u/s 10(23C)(iiiad) of the Act i.e., where an assessee is engaged in education activities. The reasoning and thought process at the end of the ld. Commissioner in taking action u/s 263 is identical. Therefore, the facts of this case are fully applicable upon the assessee and following the order of the ITAT in which one of us i.e., (AM) was a party, we allow the appeal of the assessee and quash the impugned order. 7. In the result, appeal of the assessee is allowed. Order pronounced in the Court on 4 th January, 2023 at Kolkata. Sd/- Sd/- (RAJESH KUMAR) (RAJPAL YADAV) ACCOUNTANT MEMBER VICE-PRESIDENT Kolkata, Dated 04/01/2023 *SC SrPs आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant 2. ᮧ᭜यथᱮ / The Respondent 3. संबंिधत आयकर आयुᲦ / Concerned Pr. CIT 4. आयकर आयुᲦ)अपील (/ The CIT(A)- 5. िवभागीय ᮧितिनिध ,आयकर अपीलीय अिधकरण, कोलकाता/DR,ITAT, Kolkata, 6. गाडᭅ फाईल /Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Kolkata