ACIT, Bhubaneswar V. M/s Neelachal Education & Management Trust, Bhubaneswar

ITSSA 64/CTK/2012

• Counselvise Citation: [2012] 121 COUNSELVISE.COM (IT) 8524 (ITAT-CUTTACK)
• Duration Of Justice: 3 month(s) 26 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 30-10-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 04-07-2012
• Court: TRIBUNAL
• Department Lawyers: G NAIK S K SARANGI ARS
• Assessee Lawyers: PRAMAITA TRIPATHY
• Keywords: Gift; Charitable institution; Maximum Marginal Rate; Assessment record; Capital expenditure
• Section: 12AA; 37; 12; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , S HRI K.S.S.PRAS AD RAO, JUDICIAL MEMBER / I.T.A.NO. 64,65 AND 66/CTK/2012 / ASSESSMENT YEARS 2006 - 07, 2007 - 08 AND 2008 - 09 ACIT, CIRCLE 1(2), BHUBANESWAR. - - - VERSUS - M/S.NEELACHAL EDUCATION & MANAGEMENT TRUST, A/16, ASHO K NAGAR, BHUBANESWAR. PAN:AAATN 7948 L ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI G.NAIK/S.K.SARANGI, ARS / FOR THE RESPONDENT: / S MT. PRAMAITA TRIPATHY, CIT - DR / DATE OF HEARING: 26.09.2012 / DATE OF PRONOUNCEMENT: 30.10.2012 / ORDER . . . , SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER . THESE APPEALS ARE PREFERRED BY THE REVENUE HAVING BEEN AGGRIEVED BY THE ORD ERS OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) DT.23.4.2012 FOR THE ASSESSMENT YEARS 2006 - 07, 2007 - 08 AND 2008 - 09 RAISING THE FOLLOWING COMMON ISSUES. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN HOLDIN G THAT THERE WAS NO PROFIT MOTIVE BY THE ASS ESSEE FOR WHICH EXEMPTION U/ S.10 (23C)(IIIAD) OF THE ACT COULD BE DENIED TO THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN HOLDING THAT THE FUNDS OF THE TRU ST WERE NOT UTILIZED IN VIOLATION OF PROVISIONS OF SEC.13(3) OF THE ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN HOLDING THAT THE AO WAS NOT CORRECT IN DENYING EXEMPTION U/S,11 OF THE ACT TO THE ASSESSEE. 2 2. BOTH THE PARTIES WERE HEARD REGARDING THE ISSUES RAISED BY THE ASSESSEE AND THEIR LEGAL IMPLICATIONS. 3. ON CAREFUL CONSIDERATION OF THE MATERIAL MADE AVAILABLE TO THE TRIBUNAL AND ANALYZING THE SAME IN THE LIGHT OF THE SUBMISSIONS OF BOTH THE PARTIE S, THE UNDISPUTED FACTS RELATING TO THE ISSUES ARE THAT THE ASSESSEE - TRUST IS REGISTERED U/S.12AA W.E.F. 1.4.2005 AND ALSO GRANTED WITH REGISTRATION U/S.80G FOR THE AYS UNDER CONSIDERATION. IT HAD FILED INCOME - TAX RETURNS DECLARING NIL INCOME AFTER CLAIMIN G EXEMPTION U/S.11 OF THE INCOME - TAX ACT,1961 FOR EACH OF THE ASSESSMENT YEAR S UNDER CONSIDERATION. A SEARCH & SEIZURE OPERATION IN THE CASE OF SRI SHUHASH CHANDRA NAYAK WAS CARRIED OUT BY THE DEPARTMENT ON 15.11.2007 WHEREFROM BOOKS OF ACCOUNTS RELATING T O ASSESSEE TRU ST WERE FOUND AND SEIZED. A SURVEY WAS ALSO CONDUCTED IN THE CASE OF THE ASSESSEE TRUST IN THE OFFICE PREMISES AT A/16, ASHOK NAGAR, BHUBANESWAR ON THE SAME DAY. ACCORDINGLY, THE ASSESSING OFFICER INITIATED PROCEEDINGS U/S.153C R.W.S. 153 A AN D ISSUED NOTICE S TO THE ASSESSEE TRUST TO FILE ITS RETURN, IN RESPONSE TO WHICH THE ASSESSEE FILED RETURNS OF INCOME FOR THE ASSESSMENT YEARS UNDER CONSIDERATION SHOWING NIL INCOME CLAIMING EXEMPTION U/S.10(23C)(IIIAD). AFTER HEARING THE ASSESSEE AND CONSI DERING THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE LIGHT OF SEIZED MATERIAL, THE ASSESSING OFFICER DENIED THE EXEMPTION U/S.10(23C)(IIIAD) AS CLAIMED BY THE ASSESSEE FURTHER HOLDING THAT THE ASSESSEE IS ALSO NOT ELIGIBLE TO BENEFITS U/SS.11 AND 12 HAVIN G NOT SATISFIED THE PROVISIONS OF SECTION 11(4A) OF THE I.T.ACT. THE OBSERVATION OF THE ASSESSING OFFICER IN THIS REGARD AS QUOTED BY THE LEARNED CIT(A) IN THE APPELLATE ORDER IN PARAGRAPH 4.1 READS AS UNDER : 4.1 THE AO S OBSERVATIONS ARE THAT; WHILE T HE MAIN SOURCE OF THE ASSESSEE TRUST IS VOLUNTARY CONTRIBUTIONS FROM PUBLIC, THE TRUST ALSO GENERATES SURPLUS FUND 3 BY RUNNING EDUCATIONAL INSTITUTIONS OUT OF RECEIPTS OF ADMISSION FEES, COURSE FEES, ETC. FROM STUDENTS OF THE INSTITUTE. THE TRUST HAS BEEN R ECOGNIZED FOR CHARITABLE PURPOSES U/S.12AA BY THE CIT. BHUBANESWAR (FOR THE AYS 2006 - 07 TO 2008 - 09). THE ASSESSEE TRUST IS RUNNING AT AN INCREASING SURPLUS FROM YEAR TO YEAR AND THE EXCESS FUND IS USED MAINLY IN ACQUISITION OF FIXED ASSETS. THE APPELLANT I S RECEIVING COURSE FEES IN EXCESS OF RATE PRESCRIBED THOUGH THERE IS NO BAR IN MAKING A PROFIT/SURPLUS OF FEES OVER EXPENDITURE FROM YEAR TO YEAR. THE INSTITUTION HAS ALL THE INGREDIENTS OF A BUSINESS UNDERTAKING. THE EDUCATIONAL INSTITUTION IS RUNNING PRO FITABLY AND THERE IS PROFIT MOTIVE IN VIEW OF DECISION IN THE CASE OF CIT V. NATIONAL INSTITUTE OF AERONAUTIC ENGINEERING EDUCATIONAL SOCIETY (2009) 226 CTR (UTTARAKHAND) 582. THE ASSESSEE CLAIMED EXEMPTION U/S.11 IN THE ORIGINAL RETURN FILED U/S 139(4A) B UT LATER DEVIATED FROM ITS STAND AND MADE EXEMPTION CLAIM U/S. 10(23C)(IIIAD). THOUGH SEPARATE INCOME & EXPENDITURE ACCOUNTS OF THE TRUST AND THE EDUCATIONAL INSTITUTIONS RUN BY IT WERE FILED, THE SURPLUS IS CLAIMED AS EXEMPT. THOUGH THE ASSESSEE HAS MADE AVAILABLE TO THE DEPARTMENT ADDRESSES OF ALL THE DONORS NO DONATION REGISTER WAS FOUND BY THE DEPARTMENT DURING THE COURSE OF SEARCH & SEIZURE OPERATION. THE FUND OF THE TRUST AS REPRESENTED BY DONATIONS HAVE BEEN USED FOR THE BENEFIT OF PROHIBITED PERSON S MENTIONED IN SECTION 13(3) FOR WHICH THE AMOUNTS ARE BEING APPLIED FOR THE PURPOSES OTHER THAN CHARITABLE PURPOSES. THE INSTITUTION HAS TO BE CONSIDERED AS BUSINESS UNDERTAKING IN VIEW OF RESTRICTIVE PROVISIONS O F SECTION S 11(4) AND 11(4A). THE EDUCATION AL INSTITUTION IS RUN FOR PROFIT MOTIVE, THOUGH IN CONFORMITY TO THE OBJECTIVES OF EDUCATION AS PER THE TRUST DEED. THE BUSINESS OF RUNNING EDUCATIONAL INSTITUTION IS NOT CONSIDERED AS FOR CHARITABLE PURPOSES. EVEN IF RUNNING OF THE EDUCATIONAL INSTITUTION IS CONSIDERED TO BE FOR CHARITABLE PURPOSE AS DEFINED U/S 2(15) OF THE ACT, THE ASSESSEE IS NOT CHARITABLE INSTITUTION AS IT IS A CLEAR CASE OF SALE OF EDUCATION AND HAVING COLLECTED MONEY OVER AND ABOVE PRESCRIBED BY CONCERNED AUTHORITY FOLLOWING DECISI ON IN THE CASE OF V ODITHALA EDUCATION SOCIETY V. AC IT(EXEMPTION), (2008) 20 SOT 353 (HYD). THE ASSESSEE IS ALSO NOT ELIGIBLE TO BENEFITS U/S . 11 AND 12 AS IT WOULD BE HIT BY RESTRICTIONS MENTIONED IN SECTION 11(4). THE PROVISIONS OF SECTION 11(4A) IS NOT S ATISFIED SINCE SEPARATE BOOKS OF ACCOUNTS ARE NOT FOUND TO BE MAINTAINED EVEN THOUGH THE ASSESSEE HAS FURNISHED SEPARATE INCOME & EXPENDITURE ACCOUNTS OF THE TRUST AND EDUCATIONAL INSTITUTIONS. 4 4. AGGRIEVED WITH THE SAID ORDER OF ASSESSMENT PASSED BY THE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEAL S BEFORE CIT(A). THE LEARNED CIT(A) CONSIDERING THE MATERIAL MADE AVAILABLE IN THE ASSESSMENT RECORDS AND SUBMISSIONS MADE BY THE ASSESSING OFFICER AS WELL AS THE ASSESSEE AND EXAMINING THE ASSESSMENT ORDERS PASSED BY THE ASSESSING OFFICER ON EACH ISSUE DISTINGUISH ED THE CASE LAWS CITED BY THE ASSESSING OFFICER AND THEREBY ALLOWED THE APPEALS OF THE ASSESSEE. THE RELEVANT PARAGRAPHS 6 TO 6.11 IN THE ORDER OF THE LEARNED CIT(A) FOR THE ASSESSMENT YEAR 2006 - 07, WHICH IS ALMOST COMMON IN THE REST TWO AYS UNDER CONSIDERATION, ARE REPRODUCED AS UNDER : 6. I HAVE CAREFULLY CONSIDERED THE RELEVANT MA TERIALS, THE FINDINGS OF THE AO, SUBMISSIONS OF THE APPELLANT AND VARIOUS RELEVANT COURT DECISIONS ON THE SUBJECT. THE SURPLUS OR DEFICIT AS WORKED OUT BY THE APPELLANT AS PER AUDITED ACCOUNTS, COPIES OF WHICH ARE FILED DURING THE COURSE OF APPEAL HEARING IN ITS CASE FOR ASSESSMENT YEARS 2002 - 03 TO 2008 - 09 ARE AS UNDER: AS PER ABOVE AND AFTER CONSIDERING CAPITAL EXPENDI TURE AS APPLIED FOR CHARITABLE PURPOSES THERE IS NET DEFICIT FOR AYS 2002 - 03 TO 2004 - 05, AND 2007 - 08 AND SURPLUS ARISES ONLY FOR AYS 2005 - 06, 2006 - 07 AND 2008 - 09. THE HONBLE SUPREME COURT IN THE CASE OF S.RM.M. CT. M. TIRUPPANI TRUST V. CIT (1998) 230 ITR 636 HELD THAT EXPENDITURE TOWARDS PURCHASE AND CONSTRUCTION OF BUILDING WAS A VALID EXPENDITURE FOR CHARITABLE PURPOSES. IN CIT VS. ST. GEORGE FORANA CHURCH [1998] 170 ITR 62 (KER) CAPITAL EXPENDITURE WERE CONSIDERED AS APPLICATION. IN THIS CASE THE COURT HELD THAT THE SCOPE OF THE TERM APPLICATION WAS WIDER THAN THE TERM EXPENDITURE, THEREFORE, EXPENDITURES ON PROPERTIES, THE INCOME FROM WHICH WAS APPLIED FOR CHARITABLE PURPOSES, WAS ALSO A PART OF APPLICATION FOR THE PURPOSES OF SECTION 11. THE ALLAH ABAD HIGH COURT IN CIT VS. MOOL CHAND SHARBATI 5 DEVI HOSPITAL TRUST [2010] 190 TAXMAN 338, [2010] 197 CTR 234 (ALL.) HAS DEARLY STATED THAT EXPENDITURE INCURRED ON CREATION OF INFRASTRUCTURE AND BUILDING ARE PERMISSIBLE EXPENDITURE UNDER SECTION 11(1)(A). I N PINEGROVE I NTERNATIONAL CHARITAB4E TRUST V. UOI ( P & H HIGH COURT) (2010) 327 ITR 73 (P & H), IT WAS CLEARLY HELD, THE CAPITAL EXPENDITURE HAD TO BE DEDUCTED FROM THE GROSS TOTAL INCOME OF THE EDUCATIONAL INSTITUTE LIKE THE ASSESSEE SOCIETY AND THE CC IT HAD COMMITTED A GRAVE ERROR, IN LAW, BY REFUS ING TO DO SO. THE VIEW OF THE CI T WAS CONTRARY TO THE THIRD PROVISO TO SECTION .1 O(23C). [PARA 8.1]. IN PARA 8.13 OF THE SAID JUDGMENT, IT IS ALSO VERY CLEARLY LAID DOWN; FROM THE AFORESAID DISCUSSION, T HE FOLLOWING PRINCIPLE OF LAW CAN BE SUMMED UP: [3] THE CAPITAL EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE OBJECTS OF EDUCATION IS ENTITLED TO EXEMPTION AND WOULD NOT CONSTITUTE PART OF THE TOTAL INCOME; .. HENCE CAPITAL EXPENDITURE FOR EDUCATION PUR POSES HAS TO BE TREATED AS INCOME APPLIED FOR CHARITABLE PURPOSES. AFTER DOING THAT, IN THE INSTANT CASE, IT CANNOT BE SAID THAT THE APPELLANT IS GENERATING SURPLUS CONSISTENTLY OR THAT THE EDUCATIONAL INSTITUTION IS RUN WITH A PROFIT MOTIVE. 6.1 . THE OB JECTS OF THE TRUST ARE AS PER THE TRUST DEED REGISTERED ON 4.9.2000 ARE AS UNDER: 2. OBJECTIVES/MISSION OF TRUST : TO ESTABLISH EDUCATIONAL INSTITUTION, PROVIDE TRAINING IN THE FIELD OF INFORMATION TECHNOLOGY, BUSINESS MANAGEMENT, COMPUTER EDUCATION, EDUC ATION FOR HUMANITIES DEVELOPMENT, SCIENCE AND TECHNOLOGY, ENGINEERING & INDUSTRIAL TRAINING, TO UNDERTAKE RESEARCH ON SOCIAL SCIENCES ON DEVELOPMENT OF HUMAN CULTURE & RELIGION, LITERACY FOR WOMEN & MEN, EMANCIPATION OF DEPRESSED CLASSES, SPREAD OF EDUCATI ON AND INDIAN CULTURE, - PROMOTION OF COTTAGE AND SMALL INDUSTRY AND UPLIFTMENT OF RURAL ECONOMY AND THEREBY TO REHABILITATE RURAL PEOPLE IN THEIR SOCIO - ECONOMIC LIFE AS A CHARITABLE TRUST. 3. OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE ABOVE M ENTIONED MAIN OBJECTS WILL BE AS UNDER: (I ) TO CONDUCT RESEARCH AND TAKE UP STUDIES ON SOCIO - ECONOMIC DEVELOPMENT ON RURAL RECONSTRUCTION & INDIAN ECONOMY. 6 (II ) TO PROMOTE, ORGANIZE AND UNDERTAKE SOCIO - ECONOMIC & CULTURAL ACTIVITIES WITH SPECIAL EMPHASIS O N DISCRIMINATED ACTIONS OF THE SOCIETY INCLUDING WOMEN & CHILDREN, MEMBERS OF SC/ST AND BACKWARD CLASSES, DISABLED AND THE POOR ORPHANS. (III) TO IMPART EDUCATION AND TRAINING RELATED TO SOCIAL SCIENCE AND RURAL RECONSTRUCTION. (IV) TO ESTABLISH AND PROMOT E EDUCATIONAL AND TRAINING CENTRES IN FURTHERANCE OF THE OBJECT OF THE TRUST. (V) TO TAKE UP RURAL DEVELOPMENT PROJECTS EITHER - BY ITSELF OR IN COLLABORATION WITH OTHER ORGANIZATIONS. (VI) TO CREATE AWARENESS ON CONSERVATION OF ECOLOGY AND ENVIRONMENT AND T O PROMOTE ECOLOGICAL FRIENDLY PRODUCTS. (VII) TO PROMOTE FUNCTIONAL LITERACY THROUGH FORMAL AND NON - FORMAL EDUCATION PATTERNS. (VIII) TO PROMOTE AND DISSEMINATE APPROPRIATE TECHNOLOGY FOR RURAL AREAS. (IX) TO ESTABLISH AND MANAGE CHARITABLE MEDICAL CENTRE WITH ALL FACILITIES AND INFRASTRUCTURE FOR PROVIDING AYURVEDIC, NATUROPATHIC AND ESSENTIAL MEDICAL CARE FOR ALL IRRESPECTIVE OF CLASS, CREAD AND SOCIAL STATUS. (X) TO ACCEPT AND HAVE GRANTS, GIFTS, DONATIONS AND SUBSCRIPTIONS AND OF IMMOVABLE AND MOVABLE P ROPERTIES IN FURTHERANCE OF THE OBJECTS OF THE ASSOCIATION. (XI) TO PUBLISH NEWSPAPERS, JOURNALS, RESEARCH PAPERS, PAMPHLETS, REPORTS AND BOOKS, PRODUCE PROMOTIONAL FILMS AND TO MAINTAIN A LIBRARY IN FURTHERANCE OF THE OBJECTS OF THE TRUST. (XII) TO UNDERT AKE ALL SUCH OTHERS LAWFUL ACTIVITIES AS ARE CONDUCTIVE OR INCIDENTAL TO THE ATTAINMENTS OF THE OBJECTIVE OF THE INSTITUTE, INCLUDING MANAGE, EXCHANGE MORTGAGE AND TRANSFER OF ALL S ORTS OF PROPERTIES OF THE TRUST 6.2 . A PERUSAL OF THE TRUST DEED CLEARLY SHOWS THAT THE MAIN OBJECT OF THE TRUST IS EDUCATION AND OTHER OBJECTS ARE INCIDENTAL OR ANCILLARY TO THE MAIN OBJECTS OF EDUCATION. IN PURSUANCE OF ITS OBJECTS, THE ASSESSEE HAS ESTABLISHED EDUCATIONAL INSTITUTIONS. THE MEDIUM THROUGH WHICH THE ASSESSEE COULD EFFECTUATE ITS OBJECTS IS THE COLLEGE AND BY EMPLOYING THIS MEDIUM, THE ASSESSEE IMPARTS EDUCATION. IT CANNOT BE SAID TO EXIST FOR THE PURPOSES OF PROFIT ONLY BECAUSE IT HAD EARNED SOME PROFIT. HONBLE DELHI HIGH COURT IN THE CASE OF ST LAWRENENCE ED UCATIONAL SOCIETY V CIT [(2010) 197 TAXMAN 504 (DELHI)], HAS HELD THAT THE OPINION EXPRESSED IN THE CASE OF CIT V. QUEENS EDUCATIONAL SOCIETY (2009)177 TAXMAN 326 (UTTARAKHAND) FOR THE PROPOSITION THAT THE EDUCATIONAL INSTITUTIONS SEEKING EXEMPTION SHOULD NOT GENERATE ANY QUANTITATIVE SURPLUS IS LEGALLY UNTENABLE AND INCORRECT. IN THE CASE OF VANITA ASHRAM TRUST V CCIT [(2010) 327 ITR 7 121], IT WAS HELD THAT WHERE RECORD DEMONSTRATED THAT ASSESSEE - TRUST CONDUCTED EDUCATIONAL INSTITUTIONS AND NO OTHER ACTIVIT Y WAS CARRIED ON, IT MUST BE REGARDED AS EXISTING SOLELY FOR THE PURPOSE OF EDUCATION, IRRESPECTIVE OF FACT THAT MEMORANDUM OF ASSOCIATION OF TRUST CONTAINED VARIED OBJECTS. IT WAS FURTHER OBSERVED THAT THE COMPETENT AUTHORITIES SHOULD NOT HAVE READ THE JU DGMENT OF UTTARAKHAND HIGH COURT IN THE CASE OF QUEENS EDUCATIONAL SOCIETY (SUPRA) LIKE A STATUTE. IT WAS ALSO OBSERVED THAT IN THE LIGHT OF JUDICIAL PRONOUNCEMENTS ON THE SUBJECT THE ACTIVITIES OF THE TRUST CANNOT BE TAINTED WITH COMMERCIALITY MERELY BECA USE IT GENERATED SURPLUS, APPLIED THE SAME TOWARDS CAPITAL EXPENDITURE. 6.3 . THE AO HAS DENIED THE CLAIM U/S.10(23C)(IIIAD) RELYING ON THE DECISION RENDERED BY THE HONBLE HIGH COURT OF UTTARAKHAND IN THE CASE OF CIT V. NATIONAL INSTITUTE OF AERONAUTICAL ENGINEERING EDUCATIONAL SOCIETY (2009) 315 ITR 428 / (2009) 226 CTR (UTTARAKHAND) 582. IN THIS CASE, THE HONBLE HIGH COURT HELD THAT EVERY KIND OF PURE COMMERCI AL ACTIVITY IN THE NAME OF EDUCATION CANNOT BE A CHARITABLE ONE FOR THE PURPOSE OF REGISTR ATIO N U/S. 12AA. IT HAS BEEN HELD THAT MERE IMPARTING EDUCATION FOR PRIMARY PURPOSE OF EARNING PROFITS CANNOT BE SAID TO BE A CHARITABLE ACTIVITY. THIS DECISION IS NOT APPLICABLE TO THE CASE OF THE APPELLANT AND DISTINGUISHABLE ON FACTS. IN THAT CASE, THE ISSUE WAS GRANTING REGISTRATION U/S. 12AA BY THE CIT WHEN THE APPLICANT WAS GENERATING HUGE SURPLUSES AND THE MOTIVE WAS EARNING OF PROFIT. THE HONBLE HIGH COURT HAS BEEN SWAYED BY THE FINDING OF THE FACT IN THAT CASE AS APPARENT FROM THE OBSERVATIONS, 10 . .. CIT HAS CONSIDERED THE RELEVANT PAPERS BEFORE HIM, WHICH INCLUDED THE INCOME AND EXPENDITURE ACCOUNTS OF THE PREVIOUS YEARS AFTER THE SOCIETY GOT REGISTERED WITH THE ASSTT. REGISTRAR FIRMS, SOCIETIES AND CHITS. THE CIT, AFTER CONSIDERING THE RECORD BEF ORE HIM, HAS OBSERVED THAT THE SOCIETY (PRESENT RESPONDENT) IS CHARGING SUBSTANTIAL FEES FROM T HE STUDENTS AND MAKING HUGE PROFITS. IN THE INSTANT CASE, THE CLAIM IS U/S.10(23C)(IIIAD) AND NOT FOR REGISTRATION AND THE PRIMARY MOTIVE IS EDUCATION AND NOT FOR MAKING PROFIT. AS SEEN IN PARA 6 THE APPELLANT HAS NOT BEEN MAKING SUBSTANTIAL PROFIT OR MAKING PROFIT CONSISTENTLY AND THE TOTAL INCOME OVER EXPENDITURE IS NEGATIVE IN MANY OF THE YEARS. ACCORDINGLY, IT CANNOT BE SAID THAT THE APPELLANT TRUST IS RUNNI NG THE EDUCATIONAL INSTITUTIONS FOR THE PRIMARY PURPOSE OF MAKING COMMERCIAL PROFIT. 6.4 . SECTION 2(15) OF THE ACT DEFINES THE TERM CHARITABLE PURPOSE AND IT, INTER ALIA, INCLUDES EDUCATION. SECTION 11 PROVIDES FOR 8 EXEMPTION OF INCOME OF A CHARITABLE I NSTITUTION. THESE ARE GENERAL PROVISIONS APPLICABLE TO EVERY CHARITABLE INSTITUTION, INCLUDING AN EDUCATIONAL INSTITUTION. CONDITIONS PROVIDED FOR EXEMPTION UNDER SECTION 11 ARE THAT 85 PER CENT OF RECEIPT SHOULD BE SPENT FOR CHARITABLE PURPOSES, ACCUMULAT ION IN EXCESS OF 15 PER CENT HAS TO BE MADE FOR THE PURPOSE OF THE INSTITUTION FOR A PERIOD OF FIVE YEARS, INVESTMENT HAS TO BE MADE IN THE MODES PRESCRIBED IN SECTION 11(5); AND ACCOUNTS HAVE TO BE AUDITED AND REPORT HAS TO BE SUBMITTED IN THE PRESCRIBED FORM. SECTION 13 FURTHER PROVIDES THAT EXEMPTION UNDER SECTION 11 WILL NOT BE AVAILABLE IN CASE ANY PART OF INCOME HAS BEEN USED FOR THE PERSONAL PURPOSE OR BENEFIT OF A PERSON HAVING INTEREST IN THE ACTIVITIES OF THE CHARITABLE SOCIETY INCLUDING ITS FOUND ER, SUBSTANTIAL CONTRIBUTOR, TRUSTEES, ETC. AFTER AMENDMENT OF SECTION 10(23C), BY AND LARGE, CONDITIONS PRESCRIBED FOR AN EDUCATIONAL! INSTITUTION REFERRED TO IN SUB - CLAUSE (VI) OF ABOVE SECTION ARE THE SAME AS ARE APPLICABLE TO A CHARITABLE INSTITUTION I N A NORMAL COURSE. SIMILAR CONDITIONS ARE ALSO IN RESPECT OF EDUCATIONAL INSTITUTION REFERRED TO IN SUB - CLAUSE (IIIAD) OF SECTION 10(23C) BUT TOTAL RECEIPTS SHOULD NOT EXCEED RS 1 CRORE. CONDITIONS PROVIDED UNDER SECTION 13, HOWEVER, ARE STILL NOT SPECIFIC A LL Y APPLICABLE TO AN EDUCATIONAL INSTITUTION, IF COVERED UNDER THE ABOVE SUB - CLAUSES. SINCE THE APPELLANT HAD CLAIMED EXEMPTION UNDER SECTION 10(23C)(IIIAD), PROVIS IONS OF SECTIONS 11 AND 12 ARE NOT RELEVANT IN THE CASE OF THE APPELLANT. IF A SOCIETY IS ELIGIBLE FOR EXEMPTION UNDER SECTION 10 (23C) THEN THE PROVISIONS OF SECTION 11, L2AND 13 DO NOT APPL Y. THIS WILL MEAN REGISTRATION WITH THE COMMISSIONER OF INCOME TAX U/S.12A IS NOT NECESSARY, AS IS REQUIRED IN THE CASE OF A PUBLIC TRUST CLAIMING EXEMPTIO N UNDER SECTION 11. CBDT CIRCULAR NO.712 DATED 25.7.1995 CATEGORICALLY MENTION THAT IF AN INSTITUTION IS EXEMPT U/S 10(22) THE SECTIONS 11, 12 DONT APPLY. THE HIGH COURTS HAVE CONSISTENTLY TAKEN THE VIEW THAT A TRUST WHICH RUNS AN EDUCATIONAL INSTITUTION CAN ITSELF BE TREATED AS AN EDUCATIONAL INSTITUTION WITHIN THE MEANING OF SECTION 10(23C) WITH THE RESULT THAT IT HAD IMMUNITY FROM TAXATION WITHOUT BEING BOUND BY THE REQUIREMENTS OF PROVISIONS OF SECTIONS 11 TO 13. AS POINTED OUT BY THE APPELLANT, IF EX EMPTION WAS CLAIMED U/S 10(23C), THE APPLICABILITY OF SECTION IS NOT RULED OUT. IN CIT V. BAR COUNCIL OF MAHARASHTRA, [1981) 130 ITR 28 (SC) IT WAS OBSERVED, WE MAY POINT OUT THAT THERE ARE OTHER ALLIED PROVISIONS LIKE, FOR INSTANCE, SUB - SECTION (23C) IN SECTION 10 WHICH CLEARLY INDICATE THAT THE LEGISLATURE DID NOT INTEND TO RULE 9 OUT SECTION 11 WHEN EXEMPTION WAS CLAIMABLE UNDER SUCH SPECIFIC PROVISIONS OF SECTION 10. IF SUCH AN INSTITUTION HAS ANNUAL RECEIPT NOT EXCEEDING THE AMOUNT OF RS. 1 CRORE AS PRESCRIBED BY RULE 2BC THEN IT WOULD ALSO BE ELIGIBLE FOR EXEMPTION IRRESPECTIVE OF THE FACT WHETHER IT IS WHOLLY OR SUBSTANTIALLY FINANCED BY THE GOVERNMENT AS HAS BEEN LAID DOWN IN SECTION 10(23C)(IIIAD). 6.5 . THE TERM NOT FOR THE PURPOSE OF PROFIT H AS ALSO BEEN CONSIDERED BY THE COURTS IN CERTAIN CASES. IT HAS BEEN OBSERVED THAT OVERALL FACTS AND CIRCUMSTANCES OF EACH CASE HAVE TO BE CONSIDERED IN ORDER TO DECIDE WHETHER INSTITUTION IS FOR THE PURPOSE OF PROFIT OR NOT. IT HAS BEEN HELD BY THE ANDHRA PRADESH HIGH COURT IN THE CASE OF GOVERNING BODY OF RANGARAYA MEDICAL COLLEGE V. ITO [1979] 117 ITR 284, 287 THAT WHERE NO FINDING WAS RECORDED THAT ANY SURPLUS ARISING FROM THE OPERATIONS OF THE INSTITUTION WAS DISTRIBUTED BY WAY OF PROFIT TO ANY INDIVIDU ALS, THE ASSESSEE - TRUST, THE SOLE OBJECT OF WHICH WAS MANAGING AND MAINTAINING THE MEDICAL COLLEGE, WAS AN EDUCATIONAL INSTITUTION WITHOUT ANY MOTIVE OF PRIVATE OR PERSONAL PROF IT. IT WAS ALSO OBSERVED THAT . MERELY BECAUSE CERTAIN SURPLUS ARISES FROM I TS OPERATIONS, IT CANNOT BE HELD THAT THE INSTITUTION IS BEING RUN FOR THE PURPOSE OF PROFIT SO LONG AS NO PERSON OR INDIVIDUAL IS ENTITLED TO ANY PORTION OF THE SAID PROFIT AND THE SAID PROFIT IS USED FOR THE PURPOSES AND FOR THE PROMOTION OF THE OBJECTS OF THE INSTITUTION . IT WAS FURTHER HELD IN THE ABOVE CASE THAT MERELY BECAUSE IMMOVABLE PROPERTIES HAD NOT BEEN FORMALLY VESTED IN THE SOCIETY, IT WOULD NOT BE IN ANY MANNER, DEPRIVED OF ITS CHARACTER OF AN EDUCATIONAL INSTITUTION EXISTING SOLELY FOR THE PURPOSE OF EDUCATIONA L PURPOSE. THE HONBLE APEX COURT IN THE CASE OF ADITANAR EDUCATIO NAL INSTITUTION ETC. VS. ADDL . CIT (1997) 139 CTR (SC) 7 : (1997) 224 ITR 310 (SC) HAS HE L D THAT THE AVAI LABILITY OF EXEMPTION MUST BE EVALUATED BY FIN DING OUT WHETHER THE EDUCATIONAL INSTITUTION EXISTED DURING THE RELEVANT YEAR SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT. THE APEX COURT OBSERVED AS UNDER: 8 AFTER MEETING THE EXPENDITURE, IF ANY SURPLUS RESULTS INCIDENTALLY FROM THE ACTIVITY LAWFULLY CARRIED ON BY THE EDUCATIONAL INSTITUTION, IT WI/I NOT CEASE TO BE ONE EXISTING SOLELY FOR EDUCATIONAL PURPOSES SINCE THE OBJECT IS NOT ONE TO MAKE PROFIT. THE DECISIVE OR ACID TEST IS WHETHER ON AN OVERALL VIEW OF THE MATTER, THE OBJECT IS TO MAKE PROFIT . IN EVALUATING OR APPRAISING THE ABOVE, ONE SHOULD ALSO BEAR IN MIND THE DISTINCTION DIFFERENCE BETWEEN THE CORPUS, THE OBJECTS AND POWERS OF THE CONCERNED ENTITY. IF ONE 10 LOOKS AT THE OBJECTS CLAUSE, THERE ARE OTHER NOBLE AND PIOUS OBJECTS BUT ASSESSEE SO CIETY HAS DONE NOTHING TO ACHIEVE THE OTHER OBJECTS EXCEPT PERUSING MAIN OBJECT OF PROVIDING EDUCATION AND EARNING PROFIT. FURTHER, WITH PROFIT EARNED THE SOCIETY HAS STRENGTHENED OR ENHANCED ITS CAPACITY TO EARN MORE RATHER THAN TO UNDERTAKE ANY OTHER ACT IVITIES TO FULFILL OTHER NOBLE OBJECTS FOR THE CAUSE OF POOR AND NEEDY PEOPLE OR ADVANCEMENT OF RELIGIOUS PURPOSE. IN AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE VS. CBDT (2008) 301 ITR 86 (SC), THEIR LORDSHIPS HAVE LAID DOWN THE PRINCIP AL ON FOLLOWING TERMS: IN ADD!. CIT V. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION REPORTED IN [1980] 121 1TR 1, IT HAS BEEN HELD BY THIS COURT THAT THE TEST OF PREDOMINANT OBJECT OF THE ACTIVITY IS TO BE SEEN WHETHER IT EXISTS SOLELY FOR EDUCATION AN D NOT TO EARN PROFIT. HOWEVER, THE PURPOSE WOULD NOT LOSE ITS CHARACTER MERELY BECAUSE SOME PROFIT ARISES FROM THE ACTIVITY. THAT, IT IS NOT POSSIBLE TO CARRY ON EDUCATIONAL ACTIVITY IN SUCH A WAY THAT THE EXPENDITURE EXACTLY BALANCES THE INCOME AND THERE IS NO RESULTANT PROFIT, FOR, TO ACHIEVE THIS, WOULD NOT ONLY BE DIFFICULT OF PRACTICAL REALIZATION BUT WOULD REFLECT UNSOUND PRINCIPLES OF MANAGEMENT. IN ORDER TO ASCERTAIN WHETHER THE INSTITUTE IS CARRIED ON WITH THE OBJECT OF MAKING PROFIT OR NOT IT IS D UTY OF THE PRESCRIBED AUTHORITY TO ASCERTAIN WHETHER THE BALANCE OF INCOME IS APPLIED WHOLLY AND EXCLUSIVELY TO THE OBJECTS FOR WHICH THE APPLICANT IS ESTABLISHED. ANOTHER IMPORTANT DECISION HAS BEEN RENDERED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN PINEGROVE INTERNATIONAL CHARITABLE TRUST V. UOI (P & H HIGH COURT) (2010) 327 ITR 73 (P & H). IN THIS CASE M/S PINEGROVE INTERNATIONAL CHARITABLE TRUST WAS RUNNING A SCHOOL SOLELY FOR EDUCATIONAL PURPO SES AND CLAIMED EXEMPTION U/S.10 (23C)(VI). THE EXEMPTI ON WAS DENIED/ WITHDRAWN ON THE GROUND THAT AS THE ASSESSEE HAD EARNED SUBSTANTIAL PROFITS YEAR AFTER YEAR AND HAD NOT MADE EFFORTS TO LOWER ITS FEES AND THE PROFITS YEAR AFTER YEAR AND HAD NOT MADE EFFORTS TO LOWER ITS FEES AND THE PROFITS WERE NOT INCIDE NTAL AND THE ASSESSEE EXISTED FOR PROFITS IN THIS CASE IT WAS HELD THAT, (I) TO DECIDE WHETHER AN INSTITUTION EXISTS SOLELY FOR EDUCATION AND NOT TO EARN PROFIT TH E PREDOMINANT OBJECT OF THE ACTIVITY HAS TO BE SEEN. THE MERE FACT THAT AN 11 EDUCATIONAL INSTI TUTION GENERATES SURPLUS AFTER MEETING THE EXPENDITURE OVER A PERIOD OF TIME DOES NOT MEAN THAT IT CEASES TO EXIST SOLELY FOR EDUCATIONAL. THE TEST TO BE APPLIED IS WHETHER THE PREDOMINANT OBJECT OF THE ACTIVITY IS TO SUB - SERVE THE EDUCATIONAL PURPOSE OR TO EARN PROFIT. IT SHOULD BE SEEN WHETHER PROFIT - MAKING IS THE PREDOMINANT OBJECT OF THE ACTIVITY OR WHETHER PROFIT IS INCIDENTAL TO THE CARRYING OF THE ACTIVITY. THERE IS NO REQUIREMENT THAT THE ACTIVITY MUST BE CARRIED ON IN SUCH A MANNER THAT IT DOES N OT RESULT IN ANY PROFIT. IT WOULD INDEED BE DIFFICULT FOR PERSONS IN CHARGE OF A TRUST OR INSTITUTION TO SO CARRY ON THE ACTIVITY THAT THE EXPENDITURE BALANCES THE INCOME AND THERE IS NO RESULTING PROFIT THAT WOULD NOT ONLY BE DIFFICULT OF PRACTICAL REALIZ ATION BUT WOULD ALSO REFLECT UNSOUND PRINCIPLE OF MANAGEMENT (SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION 121 ITR 1 (SC) AND ADITANAR EDUCATIONAL I NSTITUTION 224 ITR 310 (SC) APPLI ED), (II) IN COMPUTING THE TOTAL INCOME, CAPITAL EXPENDITURE INCURRED FO R THE ATTAINMENT OF THE OBJECTS OF THE SOCIETY HAS TO BE DEDUCTED UNDER THE THIRD PROVISO TO SECTION 10(23C). THERE IS NO BAR TO DOING SO UNLIKE THE PROVISIONS OF SECTIONS 37 AND 36 (1)(XII). THIS IS ALSO SUPPORTED BY CLAUSE 11 OF FORM 56D WHICH HAS TO BE FILED AS PER RULE 2CA AND THE CASE LAW ON SECTION 11 WHICH PROVIDE THAT CAPITAL EXPENDITURE CONSTITUTES APPLICATION OF INCOME; 6.6 . THE AO CONSIDERED THAT SECTION 11 IS REQUIRED TO BE APPLIED TO THE CASE OF THE ASSESSEE AND PROVISIONS OF SECTION 11 ARE NOT SATISFIED SINCE ASSESSEE IS NOT A CHARITABLE ORGANIZATION AS DEFINED U/S 2(15) OF THE ACT AS THE ASSESSEE HAD COLLECTED FEES IN EXCESS OF THE FEES PRESCRIBED BY THE GOVERNMENT AUTHORITY IN VIEW OF THE RATIO OF THE DECISION IN THE CASE OF VODITHALA EDU CATION SOCIETY VS. ADIT (EXEMPTION) - II, HYDERABAD [2008)] 20 SOT 353 (HYD). IN THAT CASE THE HONBLE ITAT, HYDERABAD BENCH GAVE THE DECISION IN FAVOUR OF THE REVENUE WITHIN THE SCHEME OF SECTION 11 TO 13 OF THE ACT. THE VODITHALA CASE (SUPRA) WAS IN THE CO NTEXT OF AN INSTITUTION WHICH WAS CHARGING FEES OVER AND ABOVE THE PRESCRIBED FEES AND THE PROMOTERS WERE TAKING AWAY THE EXCESS FEES. NO SUCH CASE HAS BEEN MADE OUT AGAINST THE APPELLANT. THE APPELLANT HAS BEEN CHARGING THE FEES WHICH ARE QUITE REASONABLE WHEN COMPARED TO THE FEES CHARGED BY SIMILAR ORGANIZATIONS. THE APPELLANT HAS FILED A COURSE FEE STRUCTURE AS ANNEXURE 5 TO THE WRITTEN SUBMISSION DATED 14.5.2010 WHICH IS AS UNDER; 12 THE ABOVE TABLE CLEARLY SHOWS THAT THE FEES CHARGED ARE IN NO WAY EXCE SSIVE. MORE EVER, THERE IS NOTHING ON RECORD TO SUGGEST THAT THE APPELLANT IS COLLECTING ANYTHING OVER AND ABOVE THE PRESCRIBED FEES. THE AD HAS ALSO HEAVILY RELIED ON THE DECISION OF VODITHALA EDUCATION SOCIETY (SUPRA) TO DENY THE CHARITABLE STATUS AT THE THRESHOLD I.E. U/S.2(15) OF THE ACT WITH SWEEPING REMARKS THAT THE ASSESSEE IS A CLEAR CASE OF SALE OF EDUCATION AND COLLECTS FEES IN EXCESS OF PRESCRIBED FEES. THIS IS NOT PERMISSIBLE AS EDUCATION IS CHARITY U/S.2(15) OF THE ACT AND THE CHARITABLE STAT US CAN BE DENIED U/S.11 TO 13 AND NOT UNDER 2(15) AS IS DONE BY THE AO . CHARITABLE PURPOSE INCLUDES EDUCATION. THE APPELLANT TRUSTS EDUCATIONAL ACTIVITY HAS BEEN APPROVED AND THEREFORE IT CANNOT BE SAID THAT THE APPELLANTS ACTIVITY IS ANYTHING OTHER THAN EDUCATION. EVIDENCE NEED TO BE BROUGHT ON RECORD THAT THE ACTIVITIES OF THE APPELLANT ARE NOT EDUCATION. THE AO HAS NOT PROVIDED ANY SUCH EVIDENCE. IN THE CASE OF VODITHALA EDUCATION SOCIETY (SUPRA), THE INSTITUTION WAS CHARGING EXTRA FEES WHICH WERE SIPH ONED OFF BY THE TRUSTEES, NO SUCH CASE HAS BEEN MADE OUT AGAINST THE APPELLANT. SO VODITHALA EDUCATION SOCIETY (SUPRA) CASE IS NOT APPLICABLE TO THE APPELLANT. 6.7 . THE AO HAS ALSO APPLIED THE RESTRICTIVE PROVISIONS OF SECTION 11(4) AND 11(4A) TO DENY BE NEFITS OF SECTION 11 TO THE APPELLANT. THE AO OBSERVES THAT THE EDUCATIONAL INSTITUTION MUST BE CONSIDERED AS A BUSINESS UNDERTAKING AS CONTEMPLATED U/S 11(4) AND AS PER PROVISIONS OF SECTION 11(4A) SEPARATE BOOKS OF ACCOUNTS MUST BE MAINTAINED FOR SUCH BU SINESS UNDERTAKING. ACCORDINGLY, THE AO OBSERVES THAT THE ACCOUNTS OF THE TRUST AND EDUCATIONAL INSTITUTIONS MUST BE SEPARATED BY MAINTAINING SEPARATE BOOKS OF ACCOUNTS. THE AO FURTHER SAYS THAT THOUGH SEPARATE INCOME AND EXPENDITURE ACCOUNTS WERE SUBMITTE D SINCE SEPARATE BOOKS OF ACCOUNTS WERE NOT FOUND DURING COURSE OF SURVEY THE ASSESSEE IS NOT SATISFYING THE CONDITION OF SECTION 11(4A), HENCE INELIGIBLE FOR BENEFITS OF SECTION 11. SECTIONS 11(4) AND 11(4A) READ AS UNDER; 11. .. (4) FOR THE PURPOSES OF THIS SECTION PROPERTY HELD UNDER TRUST INCLUDES A BUSINESS UNDERTAKING SO HELD, AND 13 WHERE A CLAIM IS MADE THAT THE INCOME OF ANY SUCH UNDERTAKING SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PERSONS IN RECEIPT THEREOF; THE ASSESSING OFFICER SHALL HAVE POWER TO DETERMINE THE INCOME OF SUCH UNDERTAKING IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT RELATING TO ASSESSMENT; AND WHERE ANY INCOME SO DETERMINED IS IN EXCESS OF THE INCOME AS SHOWN IN THE ACCOUNTS OF THE UNDERTAKING, SUCH EXCESS SHALL BE DEE MED TO BE APPLIED TO PURPOSES OTHER THAN CHARITABLE OR RELIGIOUS PURPOSES. (4A) SUB - SECTION (1) OR SUB - SECTION (2) OR SUB - SECTION (3) OR SUB - SECTION (3A) SHALL NOT APPLY IN RELATION TO ANY INCOME OF A TRUST OR AN INSTITUTION, BEING PROFITS AND GAINS OF BUSINESS, UNLESS THE BUSINESS IS INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF THE TRUST OR, AS THE CASE MAY BE, INSTITUTION, AND SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED BY SUCH TRUST OR INSTITUTION IN RESPECT OF SUCH BUSINESS . THUS IT IS CLEAR THAT THE AO HAS COMPLETELY MISREAD THE PROVISIONS OF SECTIONS 11(4) AND 11(4A) OF THE ACT. THE PROVISIONS ARE IN THE CONTEXT OF TRUST RUNNING A BUSINESS ENTITY FOR THE PURPOSE OF FULFILLING THE OBJECTS OF THE TRUST. IN THE CASE OF THE APPELLANT, NO BUSINESS EN TITY EXISTS EXCEPT THE EDUCATIONAL INSTITUTIONS. IN ANY CASE, THE APPELLANT HAS ALSO MAINTAINED SEPARATE BOOKS OF ACCOUNTS WHICH WERE PRODUCED BEFORE TH E A O AS EVIDENT FROM THE ASSESSE ES REPLY DATED 24 - 12 - 2009, ADDRESSED TO THE A O AND ACKNOWLEDGED ON THE SAME DAY, COPY OF WHICH HAS BEEN FILED, IS EXTRACTED AS UNDER; 11.THE CASH BOOKS, LEDGER ACCOUNTS, FOR THE FINANCIAL YEAR 2001 - 02 TO 2004 - 05, 2006 - 07 AND 2007 - 08 ARE PRODUCED HEREWITH FOR VERIFICATION AND FOR FINANCIAL YEAR 2005 - 06 THE BOOKS OF ACCOUNTS SEIZED IN COURSE OF SEARCH MAY KINDLY BE VERIFIED. THE APPELLANT HAS ALSO FILED SEPARATE INCOME AND EXPENDITURE STATEMENT FOR THE TRUST AS WELL AS THE EDUCATIONAL INSTITUTIONS WHICH IS NOT POSSIBLE WITHOUT SEPARATE BOOKS OF ACCOUNTS. IT IS NOT THE CASE O F THE A O THAT SUCH INCOME AND EXPENDITURE STATEMENTS ARE NOT BASED ON SEPARATE BOOKS OF ACCOUNTS BUT DISAGGREGATED FROM A COMMON SET OF BOOKS OF ACCOUNTS. IF BOOKS OF ACCOUNTS WERE NOT FOUND IN THE SURVEY PREMISES WOULD NOT AUTOMATICALLY MEAN THAT NO BOOKS OF ACCOUNTS ARE MAINTAINED. ACCORDINGLY, THE A O S OBSERVATIONS THAT PROVISIONS OF SECTIONS 11(4) AND 11(4A) ARE VIOLATED IS NOT CORRECT. 6.8 . THE AO HAS FOUND THAT SALARY OF RS.1,50,000/ - , @ RS.15,000/ - P.M., HAS BEEN PAID TO SMT. SMRUTI SUDHA NAYAK WIF E OF SRI SUBHASH 14 CHANDRA NAYAK (MANAGING TRUSTEE) WHO WORKED AS DIRECTOR FINANCE. THE AC HAS OBSERVED THAT SMT. NAYAK HAS NOT RENDERED ANY SERVICE TO THE INSTITUTION. ACCORDING TO THE AO , THE INCOME OF THE TRUST OR THE PROPERTY OF THE INSTITUTION HAS BEEN APPLIED DIRECTLY FOR THE BENEFIT OF SMT. NAYAK WHO IS A PROHIBITED PERSON REFERRED TO IN SECTION 13(3) BEING WIFE OF THE MANAGING TRUSTEE. 6.8.1 . AS PER THE DETAILS AVAILABLE INCLUDING SUBMISSION OF THE APPELLANT, IT IS FOUND THAT SMT. SMRUTI SUDHA NAYAK JOINED AS DIRECTOR OF FINANCE OF THE ASSESSEE TRUST ON 15.10.2000 FOR A REMUNERATION OF RS.15,000J - OR LESS P.M. AND SHE RESIGNED FROM HER JOB W.E.F. 20.6.2006. SHE HAS DRAWN REMUNERATION AS UNDER: THE AO HAS NOT TAKEN ANY ADVERSE VIEW IN RESPECT OF SAL ARY PAID RELATING TO AYS 2002 - 03 TO 2005 - 06. FOR THE AY 2006 - 07, THE AU HAS TAKEN THE VIEW THAT PAYMENT OF REMUNERATION TO SMT. SMRUTI SUDHA NAYAK, WHO IS A PROHIBITED PERSON REFERRED IN SECTION 13(3), DISENTITLES THE ASSESSEE TO EXEMPTION U/S.11. THUS, TH E AD HAS NOT TAKEN A CONSISTENT VIEW IN DIFFERENT YEARS. PAYMENT OF SALARY OF RS.15,000/ - P.M. IN A CITY LIKE BHUBANESWAR MAY NOT BE ORDINARILY TERMED AS EXCESSIVE OR UNREASONABLE UNLESS A SPECIFIC FINDING IS MADE. THE AD HAS CONCLUDED THAT THE PAYMENT OF REMUNERATION ITSELF IS NOT PERMISSIBLE WITHOUT EXAMINING THE REASONABLENESS. SUCH CONCLUSION IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 13(2)(C) OF THE ACT WHICH IS AS UNDER: IF ANY AMOUNT IS PAID BY WAY OF SALARY, ALLOWANCES, OR OTHERWISE DURIN G THE PREVIOUS YEAR TO ANY PERSON REFERRED TO IN SUB SECTION (3) OUT OF THE RESOURCES OF THE TRUST OR INSTITUTION FOR SERVICES RENDERED BY THAT PERSON TO SUCH TRUST OR INSTITUTION AND THE AMOUNTS SO PAID IS IN EXCESS OF WHAT MAY BE REASONABLY PAID FOR SUCH SERVICES. THE ACT PROVIDES THAT UNREASONABLE PAYMENT TO PERSONS REFERRED TO IN SUB SECTION (3) WILL BE DEEMED TO HAVE BEEN USED OR APPLIED FOR BENEFIT OF THE PERSON. THE CRUX OF THE MATTER IS REASONABLENESS OF THE PAYMENT AND NOT THE PAYMENT PER S E. WIT HOUT EXAMINING THE REASONABLENESS OF SUCH REMUNERATION, ADS ACTION IN CONCLUDING THAT THE PAYMENT OF REMUNERATION IS NOT PERMISSIBLE IS NOT IN ORDER. SUCH 15 CONCLUSION IS NOT PERMISSIBLE UNDER 13(2)(C) OF THE ACT SINCE THE PAYMENT IS NOT EXCESSIVE O R UNREAS ONABLE. MOREOVER, THE AO HAS NOT PROVIDED ANY OPPORTUNITY TO THE APPELLANT OF BEING HEARD IN THE MATTER OF FORFEITURE OF EXEMPTION U/S.13(1)(C) AND NO SO - CAUSE NOTICE WAS ISSUED IN THIS REGARD. IN VIEW OF THE ABOVE AND IN VIEW OF THE FACT THAT THE REMUNERA TION TO SMT SMRUTI SUDHA NAYAK , W/O S SUBHASH CHANDRA NAYAK (MANAGING TRUSTEE) IS JUST AND PROPER THE ADS ACTION IN TREATING THE SAID PAYMENT AS INADMISSIBLE AS APPLICATION OF INCOME IS NOT PROPER. THE ASSESSING OFFICER HAS NOT QUESTIONED THE REASONABLENE SS OF THE PAYMENT. MOREOVER, AS DISCUSSED ABOVE THE PAYMENT APPEARS REASONABLE AND AS SUCH NO ADVERSE INFERENCE SHOULD HAVE BEEN DRAWN. IN THE CASE OF ARVIND BHARATIYA VIDYALAYA SAMITI VS. ACIT [2008] 173 TAXMAN 119, (JAIPUR) THE HONBLE ITAT IN SIMILAR C IRCUMSTANCES HELD THAT CHARGING REASONABLE REMUNERATION COULD NOT BE CONSIDERED AS BENEFIT PASSED TO THE INTERESTED PERSONS. THE WORDS OF THE HONBLE ITAT ARE, THE REVENUE COULD NOT DENY THOSE FACTS. THEREFORE, THE SALARY AND RENT PAID TO THE PERSONS REFE RRED TO IN SECTION 13(3) WAS NOT EXCESSIVE AND IT COULD NOT BE SAID TO BE A DEEMED APPLICATION FOR THE BENEFIT OF SUCH PERSONS . BENEFIT TO INTERESTED PERSONS WOULD DENOTE PROVIDING SOMETHING WHICH IS NOT DUE TO THEM . THEREFORE, ANY REASONABLE COMPENSATION AGAINST ANY SERVICE SHALL NOT BE CONSIDERED AS BENEFIT. REASONABLENESS WOULD BE THE TOUCH STONE. IT HAS BEEN HELD THAT EVEN IF THERE IS SOME TRANSACTION INVOLVING THE INTERESTED PERSON, IT IS NOT SUFFICIENT TO ATTRACT SECTION 13, UNLESS SOME BENEFIT IS PR OVED BY THE REVENUE; CIT VS. KAMALA TOWN TRUST [2005] 279 ITR 89 (ALL.). IN DIT (EXEMPTION) VS. PARIVAR SEVA SANSTHAN [2002] 254 ITR 268 (DELHI), IT WAS HELD THAT REVENUE CANNOT INFER BENEFIT BASED ON CERTAIN TRANSACTIONS RELATING TO FUNCTIONARIES AND REA SONABLE COMPENSATION WAS NO BENEFIT. IN THIS CASE, THE ISSUE OF REMUNERATION PAID TO THE TRUSTEE WAS ALSO DELIBERATED AND IT WAS HELD THAT REASONABLE COMPENSATION COULD NOT BE CONSIDERED AS BENEFIT U/S. 13(1)(C). THE CASES OF DIT (EXEMPTION) VS. WARDHA CH ARITABLE TRUST [2002] 120 TAXMAN 665 (DELHI) AND DIT VS. SIKAR CHARITABLE TRUST [2002] 120 TAXMAN 886 (DELHI) ARE ALSO RELEVANT. UNREASONABLE PAYMENT OR UNDUE BENEFIT NEEDS TO BE ESTABLISHED. NO SUCH MATERIAL IS AVAILABLE IN THE CASE OF THE APPELLANT. 6.9 . THE AO HAS OBSERVED THAT AN AMOUNT OF RS.5 LACS HAS BEEN PAID BY NIIS TO MIS. SAMBIT RESORTS PVT. LTD., WHERE SRI SUBHASH CHANDRA NAYAK, THE MANAGING TRUSTEE OF THE ASSESSEE TRUST, IS THE MANAGING 16 DIRECTOR. ACCORDINGLY, THE TRUST HAS VIOLATED THE PROVIS IONS OF SECTION 13(1)(C)(II) READ WITH SECTION 13(2)(H) AND SECTION 13(3) OF THE ACT. 6.9.1 . IN SO FAR AS PAYMENT OF RS.5 LACS TO M/S. SAMBIT RESORTS PVT. LTD. IS CONCERNED, IT WAS EXPLAINED BEFORE THE AC THAT THE AMOUNT PAID WAS AN ADVANCE FOR PURCHASE O F LAND FOR THE TRUST THROUGH M/S. SAMBIT RESORTS PVT. LTD. SINCE THE DEAL COULD NOT BE MATERIALIZED THE AMOUNT WAS RETURNED IMMEDIATELY BY CHEQUE ON DT.7.10.2005. I.E. WITHIN 6 WORKING DAYS. THE AMOUNT WAS PAID BY CHEQUE ON DT.1.10.2005 AND RETURNED BACK B Y CHEQUE ON DT.7.10.2005 SINCE THE DEAL FAILED THROUGH. THE AO HAS NOT FOUND OUT WHETHER THE MONEY WAS MISUSED DURING THE SIX DAY PERIOD AND THE TRANSACTION WAS NOT GENUINE. THE APPELLANT WAS REQUIRED TO ACQUIRE ITS OWN INFRASTRUCTURE IN THE FORM OF BUILDI NG FOR WHICH IT WAS LOOKING FOR AND. FOR SOME REASON OR OTHER, THE LAND COULD NOT BE PURCHASED THROUGH M /S. SAMBIT RESORTS PVT. LTD. AND MONEY WAS RETURNED IMMEDIATELY AND THERE IS NO IOTA OF ALLEGATION THAT THE MONEY WAS MISUSED. SECTION 13(2)(H) IS APPLI CABLE WHERE THE FUNDS OF THE TRUST OR INSTITUTION CONTINUE TO REMAIN INVESTED IN A PROHIBITED PERSON REFERRED TO IN SECTION 13(3) WHICH IS NOT THE CASE HERE SINCE THE FUND WAS GIVEN FOR A PARTICULAR TRANSACTION AND RETURNED BACK IN 6 DAYS TIME. SECTION 13( 1)(C)(II) IS APPLICABLE WHEN INCOME OF THE TRUST IS USED OR APPLIED FOR THE BENEFIT OF PERSONS REFERRED TO IN SECTION 13(3). NO FINDING HAS BEEN GIVEN AS TO HOW THE FUND I.E. THE AMOUNT OF RS.5 LACS HAS BEEN USED TO BENEFIT M/S. SAMBIT RESORTS PVT. LTD. AN D IT WAS NOT A GENUINE TRANSACTION. ACCORDINGLY, THE TRANSACTION IS CONSIDERED GENUINE AND NO VIOLATION OF SECTION 13(1)(C)(II) HAS BEEN ESTABLISHED. 6.10 . THE AO HAS DENIED EXEMPTION U/S.11 ALSO FOR THE REASONS THAT THE FUNDS OF THE TRUST HAS BEEN USED OR APPLIED FOR THE BENEFIT OF PROHIBITED PERSONS AS REFERRED IN SECTION 13(3) OF THE ACT I.E. FOR THE REASON S THAT RS.5 LACS WAS GIVEN TO M/ S. SAMBIT RESORTS PVT. LTD. WHICH WAS RETURNED BACK AND SALARY WAS PAID TO SMT. SMRUTI SUDHA NAYAK. THE APPELLANT HA S REFERRED TO THE DECISION OF ITO V. VIRENDRA SINGH MEMORIAL SHIKSHA SAMIT (2009) 18 DTR (LUCKNOW) (TRIB) 502 WHEREIN IT HAS BEEN HELD THAT IF SOME BENEFITS HAVE BEEN GIVEN TO A PERSON OF PROHIBITORY CATEGORY SAME CANNOT BE BASIS FOR DENYING EXEMPTION. IN SUCH CASES, TAX HAS TO BE LEVIED AT THE MAXIMUM MARGINAL RATE ON SUCH INCOME WHICH HAS BEEN APPLIED TO THE BENEFIT OF THE PROHIBITED PERSONS AS DECIDED IN THE CASE OF DIT(EXEMPTION) V. SHETH MAFATLAL GAGALBHAI FOUNDATION TRUST, (2001) 249 ITR 533 (BORN)! 1 68 CTR (BORN) 501, AS UNDER: 7. ... IT IS, INTER ALIA, LAID DOWN THAT WHERE THE WHOLE OR PART OF THE RELEVANT INCOME IS NOT EXEMPT BY VIRTUE OF SECTION 13(1)(D), TAX SHALL BE CHARGED ON THE RELEVANT 17 INCOME OR PART OF THE RELEVANT INCOME AT THE MAXIMUM MA RGINAL RATE, THE PHRASE RELEVANT INCOME OR PART OF THE RELEVANT INCOME IS REQUIRED TO BE READ IN CONTRADISTINCTION TO THE PHRASE WHOLE INCOME UNDER SECTION 161(1A) THE LEGISLATURE HAS CLEARLY INDICATED ITS MIND IN THE PROVISO TO SECTION 164(2) WHEN IT CATEGORICALLY REFERS TO FORFEITURE OF EXEMPTION FOR BREACH OF SECTION 13(1)(D), RESULTING IN LEVY OF MAXIMUM MARGINAL RATE OF TAX ONLY TO THAT PART OF THE INCOME WHICH HAS FORFEITED EXEMPTION. IT DOES NOT REFER TO THE ENTIRE INCOME BEING SUBJECTED TO MAXIM UM MARGINAL RATE OF TAX. THIS INTERPRETATION OF OURS IS ALSO SUPPORTED BY CIRCULAR NO. 387, DATED JULY 6, 1984 (SEE [1985] 152 ITR (ST.) .1). VIDE THE SAID CIRCULAR, IT HAS BEEN LAID DOWN IN PARA. 28.6 THAT, WHERE A TRUST CONTRAVENES SECTION 13(1)(D) OF TH E ACT, THE MAXIMUM MARGINAL RATE OF INCOME - TAX WILL APPLY ONLY TO THAT PART OF THE INCOME WHICH HAS FORFEITED EXEMPTION UNDER THE SAID PROVISION AND NOT TO THE ENTIRE INCOME. WE MAY ALSO ADD THAT IN LAW, THERE IS A VITAL DIFFERENCE BETWEEN ELIGIBILITY FOR EXEMPTION AND WITHDRAWAL OF EXEMPTION/FORFEITURE OF EXEMPTION FOR CONTRAVENTION OF THE PROVISIONS OF LAW. THESE TWO CONCEPTS ARE DIFFERENT. ... SINCE IT HAS BEEN HELD THAT NO BENEFIT HAS BEEN PASSED TO THE PROHIBITED PERSO NS REFERRED TO IN SECTION 13(3), NO CONTRAVENTION OF PROVISIONS OF SECTION 13(1)(C)(I) OR SEC TI ON 13(2)(H) HAVE TAKEN PLACE. 6 . 11 . TO SUM UP THE DISCUSSION THE AO S OBSERVATION THAT THE ASSESSEE S GENERATING INCREASING SURPLUS FROM YEAR TO YEAR IS NOT CORRECT, IN ANY CASE THAT DOES NOT PROVE PROFIT MOTIVE. ACQUISITION OF FIXED ASSET IS APPLICATION OF INCOME AND DOES NOT DISENTITLE THE ASSESSEE FROM CLAIMING EXEMPTION. SIMPLY BECAUSE THERE IS SURPLUS DOES NOT AUTOMATICALL Y LEADS TO PROFIT MOTIVE. THE AO S OBSERVATION THAT TRUST FUND HAS BEEN USED FOR BENEFIT OF THE PROHIBITED PERSONS AS MENTIONED IN SECTION 13(3) IS NOT BASED ON ANY DETAILS OR EVIDENCES. THE AOS CONCLUSION THAT THE APPELLANT TRUST IS RUN FOR PROFIT MOTIVE ON THE BASIS OF SURPLUSES IN SOME OF THE YEARS IS NOT CORRECT. THE AO S CONCLUSION THAT RUNNING OF EDUCATIONAL INSTITUTION IS NOT TO BE CONSIDERED AS FOR CHARITABLE PURPOSES IS CONTRARY TO PROVISIONS OF SECTION 2(15) OF THE ACT. THE AO S CONCLUSIONS THAT SEPARATE BOOKS OF ACCOUNTS FOR THE TRUST AND EDUCATIONAL INSTITUTIO NS ARE NOT BEING MAINTAINED IS NOT CORRECT AS SEPARATE INCOME AND EXPENDITURE STATEMENTS H AVE BEEN SUBMITTED BEFORE THE AO. THE AO S OBSERVATIONS THAT APPELLANT IS NOT ELIGIBLE FOR BENEFITS OF SECTION 11 IN VIEW OF 18 MISCHIEF OF SECTION 13(1)(C) READ WITH SE CTION 13(3) IS NOT LEGALLY AND FACTUALLY SUSTAINABLE. KEEPING IN VIEW THE ABOVE DISCUSSION, IT IS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DE NYING EXEMPTION UNDER SECTION 10 (23C)(IIIAD) TO THE APPELLANT. THE DENIAL OF EXEMPTION U/S 11 AND 12 D OES NOT ARISE IN THE CASE OF THE APPELLANT EVEN THOUGH APPELLANT IS ALSO ELIGIBLE FOR BENEFITS OF SECTION 11 IN VIEW OF AFORESAID DISCUSSIONS. 5. AGGRIEVED WITH THE ABOVE ORDER OF THE LEARNED CIT(A) THE REVENUE IS IN APPEAL RAISING THE ISSUES AS MENTIONE D IN THE FIRST PARAGRAPH OF THIS ORDER. 6. DURING THE COURSE OF HEARING OF THE APPEAL, BOTH THE PARTIES RELIED THE ARGUMENTS ADDRESSED BY THEM RESPECTIVELY BEFORE THE LOWER AUTHORITIES CONTENDING INTER ALIA THAT THE LEARNED CIT(A) HAS CONSIDERED THE FACTS AND CIRCUMSTANCES WITH REFERENCE TO THE VARIOUS JUDICIAL PRONOUNCEMENTS THAT WERE CONCERNED IN THE IMPUGNED ORDER IN SUPPORT OF THE DECISION FOR COMING TO THE SAID CONCLUSION. APART FROM THAT THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT IN THE ORDER DT.29 .7.2011 IN THE CASE OF ITO V. M/S.HUMAN RESOURCE DEVELOPMENT & MANAGEMENT TRUST IN ITA NO.127/CTK/2011 & C.O.NO.14/CTK/2011 THIS BENCH OF THE TRIBUNAL HAS EXTENSIVELY CONSIDERED ALL THE LEGAL ASPECTS CONCERNED WITH THE ISSUES IN QUESTION IN THE SAID APPEAL AS WELL AS IN THE PRESENT APPEAL. AS THE CASE OF THE DEPARTMENT IS SIMILAR TO THAT OF THE CASE OF THE DEPARTMENT IN THE SAID CASE OF M/S.HUMAN RESOURCE DEVELOPMENT & MANAGEMENT TRUST HE CONTENDED THAT THE CONCLUSION REACHED BY THE LEARNED CIT(A) IN THE CA SE ON HAND HAS NOT ALL INFIRMED IN ANY WAY REQUIRING ANY INTERFERENCE. HENCE, THE LEARNED AR OF THE ASSESSEE SOUGHT FOR UPHOLDING THE IMPUGNED ORDER OF THE LEARNED CIT(A) AND DISMISS THE APPEALS OF THE DEPARTMENT. 7. CONTRARY TO THIS, THE LEARNED DR HAS VE HEMENTLY ARGUED SUPPORTING THE ORDERS PASSED BY THE ASSESSING OFFICER AND ASSAILING THE IMPUGNED 19 ORDERS OF THE LEARNED CIT(A) AND SOUGHT FOR SETTING ASIDE THE ORDERS OF THE LEARNED CIT(A) BY ALLOWING THE APPEALS OF THE DEPARTMENT. 8. ON CAREFUL ANALYSIS OF THE IMPUGNED ORDERS PASSED BY THE AUTHORITIES BELOW, IT IS FOUND THAT THERE IS NO FINDING IN THE ASSESSMENT ORDERS THAT THE ASSESSEE IS USING THE FUNDS COLLECTED OR THE AMOUNTS COLLECTED FROM THE STUDENTS FOR ANY OTHER PURPOSES THAN FOR WHICH THE TRUST WA S INCORPORATED. AS CAN BE SEEN FROM THE TENOR OF THE ASSESSMENT ORDERS, IT IS NOTICED THAT THE ASSESSING OFFICER IS FINDING FAULT OF THE ASSESSEE IN PAYMENT OF SALARY TO THE WIFE OF THE FOUNDER OF THE TRUST BUT IT IS NOT MADE OUT BY THE ASSESSING OFFICER T HAT THE SALARY PAID TO HER IS UNREASONABLE OR IN EXCESS REGARDING SERVICES RENDERED BY HER IN TEACHING THE STUDENTS. THEREFORE THAT CANNOT BE A GROUND FOR DENYING THE BENEFITS AVAILABLE TO THE ASSESSEE UNDER THE PROVISIONS OF LAW. ON CAREFUL CONSIDERATION OF THE FACTS IN THE PRESENT CASE IN HAND AND THE FACTS IN THE CASE OF M/S.HUMAN RESOURCE DEVELOPMENT & MANAGEMENT TRUST (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE REASONS SHOWN BY THE ASSESSING OFFICER FOR DENYING THE BENEFITS TO THE ASSESSEE ARE NOT SUSTAINABLE FOR LEGAL SCRUTINY. THAT IS WHY THE LEARNED CIT(A)S ORDER IN DISAGREEING WITH THE ASSESSMENT ORDERS IS WELL REASONED ONE AND IT IS BASED ON FACTS AND LEGAL PRONOUNCEMENTS ON THE ASPECTS IN QUESTION AND HENCE, THE SAID ORDER OF THE LEARNED CIT( A) IS NOT AT ALL INFIRMED IN ANY WAY REQUIRING INTERFERENCE. THEREFORE, THE SAME IS HEREBY UPHELD BY FINDING THE ISSUES RAISED BY THE DEPARTMENT IN THESE APPEALS AS DEVOID OF MERITS. 9. IN THE RESULT, ALL THE APPEALS OF THE DEPARTMENT ARE DISMISSED. SD/ - SD/ - ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( ) DATE: 30.10.2012 ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY. 20 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : 2 / THE RESPONDENT: 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FIL E . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 27.10.2012 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 29.10.2012 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30.10.2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER ..