Shree Ahmedabad Lohana Vidyarthi Bhavan, Ahmedabad V. The Income Tax Officer (Exemption), Ward-2, Ahmedabad

ITA 993/AHD/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7929 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 25-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Charitable institution; Capital expenditure
• Section: 12AA; 12; 28; 11

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO. 993/AHD/2017 / ASSESSMENT YEAR: 2013-14 SHREE AHMEDABAD LOHANA VIDYARTHI BHAVAN OPP: CHHADAVAD POLICE STATION AMBAWADI, ELLISBRIDGE AHMEDABAD 380015. PAN : AABTS 1045 G VS ITO (EXEMPTION) WARD-2, NATURE VIEW BLDG. AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI S.N. SOPARKAR, AR REVENUE BY : SHRI V.K. SINGH, SR.DR / DATE OF HEARING : 04/07/2018 /DATE OF PRONOUNCEMENT : 12/07/2018 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST ORDER OF THE LD.CIT(A)- 9 DATED 17.2.2017 PASSED FOR THE ASSESSMENT YEAR 2013-14. 2. THE ASSESSEE HAS TAKEN EIGHT GROUNDS OF APPEAL, WHICH ARE NOT IN CONSONANCE WITH THE RULE 8 OF THE INCOME TAX (APPEL LATE TRIBUNAL) RULES, 1963 - THEY ARE DESCRIPTIVE AND ARGUMENTATIV E IN NATURE. IN BRIEF, GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE AO THAT ACTIVITIES OF THE ASSESSEE TR UST ARE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, HENCE COVERED UNDER PROVISO TO SECTION ITA NO.993/AHD/2017 - 2 - 2(15) OF THE INCOME TAX ACT, 1961. THE LD.CIT(A) H AS FURTHER ERRED IN CONFIRMING THE TAXABILITY OF SURPLUS OVER EXPENDITU RE AMOUNTING TO RS.13,82,059/-. SIMILARLY, THE LD.CIT(A) HAS ERRED IN DENYING DEDUCTION OF RS.14,18,305/- AS APPLICATION OF INCOME. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-TR UST WAS CREATED IN THE YEAR 1947. IT HAS BEEN ENJOYING REGISTRATION UNDER SECTION 12AA OF THE INCOME TAX ACT. IT IS ALSO ENJOYING BENEFIT OF SEC TION 80G(5) OF THE ACT. IT HAS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT Y EAR 2012-13 ON 21.11.2013 DECLARING TOTAL INCOME OF RS.17,556/-. THE ASSESSEE HAS FILED AUDITED REPORTS UNDER SECTION 12A(B) OF THE ACT IN FORM NO.10B. THE ASSESSEE IS HAVING A BHAVAN OF THE LOHANA COMMUNI TY IN WHICH IT IS RUNNING A HOSTEL AND IS PROVIDING LODGING FACILITY TO THE STUDENTS. IT IS CHARGING FEES FROM THE STUDENTS. THE AO HARBOURED A BELIEF THAT RUNNING A HOSTEL DOES NOT FALL WITHIN THE AMBIT OF CHARITABLE PURPOSE AS CONTEMPLATED IN SECTION 2(15) OF THE ACT. ACCOR DING TO THE AO THE CASE OF THE ASSESSEE IS HIT BY PROVISO APPENDED TO SECTION 2(15) AND ITS ACTIVITIES WOULD FALL WITHIN THE CONCEPT OF ADVANC EMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. SINCE THRESHOLD LIMIT OF GROSS RECEIPT FROM AN ACTIVITY OF ADVANCEMENT OF ANY OTHER OBJEC T OF GENERAL PUBLIC UTILITY INVOLVING CARRYING OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS HAS EXCEEDED, AND THEREFORE IN COME OF THE ASSESSEE IS TO BE DETERMINED UNDER SECTIONS 28 TO 4 4 OF THE INCOME TAX ACT. THE LD.AO TOOK INTO CONSIDERATION GROSS RECEI PTS FOR FOUR ASSESSMENT YEARS STARTING FROM THE ASSTT.YEARS 2010 -11 TO 2013-14. IN THIS YEAR, THE ASSESSEE HAS DISCLOSED GROSS RECEIPT S AT RS.45,41,660/-. IT HAS SPENT RS.31,59,601/- AND SHOWN SURPLUS AT RS.13 ,82,059/-. SIMILARLY, THE AO FOUND THAT ASSESSEE HAS SPENT A SUM OF RS.19 ,71,648/- ON ITA NO.993/AHD/2017 - 3 - CONSTRUCTION OF BUILDING. HE DENIED EXEMPTION UNDE R SECTIONS 11 AND 12 OF THIS CLAIM. CONCLUDING PARAGRAPHS OF THE ASSESS MENT ORDER READS AS UNDER: 8. IN VIEW OF THE ABOVE STATED FACTS AND CONSIDERI NG THE ASSESSEES RECEIPTS AS BUSINESS RECEIPTS, AFTER ALLOWING THE E XPENSES AS CLAIMED IN ITS INCOME AND EXPENDITURE A/C THE SURPLUS OF INCOME OV ER EXPENDITURE AMOUNTING TO RS.13,82,059/- (PROFIT) IS TREATED AS I NCOME IN THE HANDS OF THE ASSESSEE TRUST. 8.1 AS DISCUSSED ABOVE THE CLAIM OF EXEMPTION U/S.1 1 AND 12 OF THE ACT IS DISALLOWED/DENIED. DURING THE YEAR UNDER CONSID ERATION THE ASSESSEE HAS INCURRED CAPITAL EXPENDITURE OF RS.19,71,648/- (CONSTRUCTION OF BUILDING) AND HAS ALSO CLAIMED IT AN APPLICATION OF FUND, AS THE ACTIVITY OF THE TRUST IS TREATED/CONSIDERED AS BUSINESS IN THE NATURE OF TRADE AND COMMERCE CAPITAL EXPENDITURE IS NOT ALLOWED. 8.1.1 IN VIEW OF THE ABOVE DISCUSSION, THE CAPITAL EXPENDITURE OF RS.19,71,648/- IS DISALLOWED AND IS ADDED BACK TO T HE TOTAL INCOME OF THE ASSESSEE TRUST. PENALTY PROCEEDINGS U/S.271(1)(C) A RE SEPARATELY INITIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 10. SUBJECT TO THE ABOVE REMARK, THE TOTAL INCOME O F THE ASSESSEE TRUST IS COMPUTED AS UNDER: NET PROFIT (AS DISCUSSED ABOVE) RS.13,82,059/ - ADD: EXEMPTION CLAIMED U/S.11 AND 12, CAPITAL EXPENDITURE (AS DISCUSSED ABOVE) RS.19,71,648/ - TOTAL INCOME RS.33,53,707/ - ASSESSED INCOME RS.33,53,710/ - 4. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 5. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. BEFORE WE EMBARK UPO N AN INQUIRY ON THE FACTS OF THE PRESENT CASE, WE DEEM IT APPROPRIATE T O TAKE NOTE OF SECTION 2(15) OF THE INCOME TAX ACT, WHICH READS AS UNDER: SECTION 2(15) CHARITABLE PURPOSE' INCLUDES RELIEF OF THE POOR, EDUCATION, [YOGA,] MEDICAL ITA NO.993/AHD/2017 - 4 - RELIEF, [PRESERVATION OF ENVIRONMENT (INCLUDING WATERSHEDS, FORESTS AND WILDLIFE) AND PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTEREST,] AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY: [PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES T HE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COM MERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIV E OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY, UNLESS (I) SUCH ACTIVITY IS UNDERTAKEN IN THE COURSE OF ACTUAL CARRYING OUT OF SUCH ADVANCEMENT OF ANY OTHER OBJECT OF GENE RAL PUBLIC UTILITY; AND (II) THE AGGREGATE RECEIPTS FROM SUCH ACTIVITY OR ACTIVI TIES DURING THE PREVIOUS YEAR, DO NOT EXCEED TWENTY PER CENT OF THE TOTAL RECEIPTS, OF THE TRUST OR INSTITUTION UNDERTAKING S UCH ACTIVITY OR ACTIVITIES, OF THAT PREVIOUS YEAR;]] 6. SHORT QUESTION REQUIRED TO BE ADJUDICATED BY THE TRIBUNAL IS, WHETHER PROVIDING HOSTEL FACILITY TO THE STUDENTS B Y APPELLANT-TRUST IS TO BE CONSIDERED AS IMPARTING EDUCATION WITHIN THE MEA NING OF SECTION 2(15) OF THE ACT OR IT WOULD FALL WITHIN THE CLAUSE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY PROVIDED IN THE PROVISO APPENDED TO SECTION 2(15) OF THE ACT. THE AO WAS OF THE OPI NION THAT PROVIDING HOSTEL FACILITY IS NOT AN ACTIVITY AKIN TO EDUCATIO N. HENCE, THE ACTIVITY PERFORMED BY THE ASSESSEE WOULD NOT FALL WITHIN THE MEANING OF CLAUSE 2(15) GIVING MEANING OF EXPRESSION CHARITABLE PURP OSE. HE CONSTRUED ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY FALLING WITHIN THE AMBIT OF PROVISO APPENDED TO SECTION 2(1 5). FOR HARBOURING THIS PLEA, BASICALLY THE LD.AO HAS NOT ASSIGNED ANY REASON, RATHER SIMPLY OBSERVED THAT HOSTEL FACILITY CANNOT BE CONSTRUED A S IMPARTING EDUCATION. BEFORE CONSIDERING REASONS ASSIGNED BY THE REVENUE AUTHORITIES BELOW, ITA NO.993/AHD/2017 - 5 - WE DEEM IT APPROPRIATE TO UNDERSTAND THE MEANING AN D OBJECTS OF THIS FACILITY. IT IS PERTINENT TO NOTE THAT HUMAN PERSON ALITY IS SHAPED BY THE EXPERIENCES OF LIFE. WHEN A CHILD IS BORN, FAMILY P ROVIDES A PROTECTIVE ENVIRONMENT FOR THE CHILD. AT THE BEGINNING, INTER ACTIONS ARE LIMITED LATTER SOCIAL INTERACTIONS INCREASE, AND THE PROCES S OF SOCIALIZATION STARTS. EDUCATION IS A PART OF CHILD DEVELOPMENT. THOUGH I T STARTED WITH THE BIRTH AND LASTED TILL THE TIME OF DEATH, BUT FORMAL EDUCATION OF LANGUAGE AND OTHERS ARE BEING IMPARTED IN THE SCHOOL AND COL LEGES. HOSTEL IS AN ESSENTIAL INSTITUTION FOR THE STUDENTS TO STAY IN B IG CITIES AND HOSTEL PLAYS AN IMPORTANT ROLE IN EDUCATION AND TRAINING OF THES E STUDENTS. THEY PROVIDE RESIDENTIAL OPPORTUNITIES FOR THE STUDENTS TO CONTINUE THE PROCESS OF EDUCATION. IT IS A PLACE WHERE STUDENTS STAY FOR PURSUING FORMAL EDUCATION AWAY FROM THEIR HOMES. THE CONCEPT OF HOSTEL IS NOT ONLY LIMITED TO PLACE OF RESIDENCE, RATHER IT IS A HUMAN PRACTICAL LABORATORY FOR DEVELOPMENT OF STUDENTS. IT IS A CEN TER OF EDUCATION. STUDENTS LEARN AS MUCH AS FROM THEIR TEACHERS AS WE LL AS FELLOWS DURING HOSTEL STAY. IT ENRICHES UNDERSTANDING OF THE CURRI CULUM THROUGH ANALYTICAL DISCUSSION AMONGST THE STUDENTS LIVING I N THE HOSTELS, AND MAY CONTRIBUTE TO CHARACTER BUILDING AS WELL. STUDENTS IN HOSTEL NOT ONLY LEARN THE THEORETICAL MATERIAL, THEY ALSO LEARN HOW TO EN HANCE THEIR PERSONAL ABILITIES AND LEARN TO LIVE INDEPENDENTLY. HOSTEL LIFE HAS AN IMPACT UPON THE BEHAVIORAL AS WELL AS PERSONALITY DEVELOPMENT O F STUDENTS. IT IS ONE OF THE ESSENTIAL COMPONENTS OF AN EDUCATIONAL INSTI TUTION. SOME OF THE INSTITUTIONS LIKE IITS, MEDICAL COLLEGES PROVIDE CO MPULSORY STAY IN THE HOSTEL. THUS, HOW THE AO CAN SEGREGATE THIS COMPON ENT FROM THE CONCEPT OF EDUCATION PROVIDED IN THE MAIN PROVISION OF SECTION 2(15) ? IF IT IS ACCEPTED THAT HOSTEL IS JUST AN ESSENTIAL PAR T OF EDUCATIONAL ITA NO.993/AHD/2017 - 6 - INSTITUTION, THEN ALL THAT DISCUSSIONS MADE BY THE AO WOULD BE IRRELEVANT. THE SIMPLE REASON IS THAT ASSESSEE-TR UST CAME INTO EXISTENCE IN THE YEAR 1947. IT HAS BEEN PROVIDING HOSTEL FAC ILITIES FOR MORE THAN 60 YEARS. IT HAS ALWAYS BEEN TREATED AS A CHARITABLE INSTITUTION. IN THE ASSESSMENT YEAR 2010-11 A SCRUTINY ASSESSMENT WAS M ADE. ITS STATUS OF CHARITABLE INSTITUTION WAS ACCEPTED EVEN AFTER IN TRODUCTION OF SECTION 2(15) IN THE STATUTE BOOK. NOT ONLY IT HAS BEEN TR EATED AS CHARITABLE INSTITUTION BY GIVING REGISTRATION UNDER SECTION 1 2AA OF THE ACT, BUT UNDER SECTION 80G(5) IT HAS AGAIN BEEN RECOGNIZED A S CHARITABLE INSTITUTION. 7. LET US TAKE NOTE OF REASONS ASSIGNED BY THE AO. WHEN THE ASSESSEE HAS POINTED OUT THAT IT HAS BEEN GRANTED REGISTRATI ON UNDER SECTION 12AA AND 80G(5) OF THE ACT, THEN THE AO HAS OBSERVED THA T SUCH REGISTRATION WAS GRANTED AFTER LOOKING INTO THE OBJECTS OF THE T RUST. THE AO OBSERVED THAT THE ASSESSEE FAILED TO SUBMIT ANY EVIDENCE SHO WING THAT IT IS ACTUALLY IMPARTING EDUCATION BY CONDUCTING CLASSES. THE LD. AO FAILED TO NOTE THAT THE STAND OF THE ASSESSEE WAS ALWAYS TO THE EF FECT THAT, TO RUN HOSTEL PARTICULARLY FOR THE STUDENTS IS AN ACTIVITY ACCORD ING TO THE OBJECT OF THE TRUST, AND IT IS AN AID FOR ATTAINING EDUCATIONAL O BJECTS. THE AO THEREAFTER MADE AN ANALYSIS OF ALLEGED PROFIT EARNE D BY THE ASSESSEE. HE LOOKED INTO GROSS RECEIPTS MINUS EXPENDITURE, AND S URPLUS GENERATED DURING THE YEAR. IT IS PERTINENT TO NOTE THAT SURP LUS IN THE ASSESSMENT YEAR 2013-14 IS RS.13.82 CRORES. OTHERWISE, IN AL L OTHER YEARS, IT IS IN BETWEEN RS.2 TO 4 LAKHS. THE ASSESSEE HAS TO MAINT AIN BUILDING. IT HAS TO INCUR EXPENDITURE IN CAPITAL FIELD. IF A SMALL PER CENTAGE OF SURPLUS IS BEING GENERATED THEN HOW ALL OF A SUDDEN THE CHARI TABLE ACTIVITY WOULD BECOME TRADE, COMMERCE OR BUSINESS ? IF TH E MAIN ACTIVITY OF ITA NO.993/AHD/2017 - 7 - THE ASSESSEE I.E. PROVIDING HOSTEL FACILITIES TO TH E STUDENTS FALL WITHIN THE AMBIT OF EXPRESSION EDUCATION EMPLOYED IN THE MAI N PROVISION OF SECTION 2(15) THEN GENERATION OF SURPLUS WOULD BE I MMATERIAL BECAUSE ULTIMATELY IS TO BE ASCERTAINED WHETHER SURPLUS IS BEING USED FOR THE PURPOSE OF FULFILLING ALL THE OBJECTS OF THE TRUST OR NOT. IF THE SURPLUS IS BEING APPLIED ON THE OBJECTS OF THE TRUST OR BEING ACCUMULATED AS PROVIDED IN THE SCHEME, THEN NOTHING IS TO BE TAXAB LE. ON DUE ANALYSIS OF RECORD, WE ARE OF THE VIEW THAT THE AO HAS UNNEC ESSARILY CREATED AN ARTIFICIAL DISTINCTION. THE ASSESSEE IS NOT ADMITT ING OTHER PERSONS IN THE BUILDING. IT IS PROVIDING FACILITY ONLY TO THE STU DENTS, AND THERE ARE LOTS OF RULES AND REGULATIONS, BYE-LAWS FOR ADMITTING ST UDENTS, ACCORDING TO THEIR MERITS IN EDUCATION. THUS, TAKING INTO ACCOU NT OVERALL FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED FOR BENEFIT OF SECTIONS 11 AND 12 OF THE INCOME TAX ACT. IF TH E ASSESSEE IS ENTITLED FOR BENEFIT OF SECTIONS 11 AND 12, THEN THE AMOUNT SPEN T FROM THE CORPUS FUND FOR CONSTRUCTION OF BUILDING IS ALSO TO BE LOO KED INTO WITH THAT ANGLE. WE SET ASIDE BOTH THE ORDERS OF THE REVENUE AUTHORITIES AND RESTORE THIS ISSUE TO THE FILE OF THE AO. THE LD.A O SHALL RE-DETERMINE TAXABLE INCOME OF THE ASSESSEE AND AFTER PROVIDING BENEFIT UNDER SECTIONS 11 AND 12. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 12 TH JULY, 2018. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED, 12/07/2018