TMI Blog2006 (2) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... ice issued under section 147/148. At the time of hearing this ground was not challenged. Therefore, the same is rejected being not pressed. 3.3 Ground Nos. 2 and 5 for assessment year 1995-96 and ground Nos. 3 and 6 in all other appeals are against not allowing exemption to the assessee under section 10(22) of the Income-tax Act, 1961. 3.4 Ground No. 3 in assessment year 1995-96 and ground No. 4 taken in all other appeals challenge the addition of income made in the hands of the assessee after disallowing the claim of exemption under section 10(22). 3.5 Ground No. 4 in assessment year 1995-96 and ground No. 5 in all other appeals challenge the order of learned CIT(A) in assessing bank deposits as the income of the assessee, ignoring the order of Settlement Commission in the case of Shri S.S. Khanna. 3.6 Ground No. 6 in assessment year 1995-96 and ground No. 8 in all other appeals relates to initiation of penalty proceedings under section 271(1)( c ). 3.7 All other grounds taken in these appeals are general in nature and require no specific adjudication. 4. In view of the above set of grounds we proceed to dispose of the issue taken in ground No. 1 relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with affidavit of Sri Suraj Bhan, Notice Server of Income-tax Department dated 30-12-2005 have also been filed. 8. The learned Sr. D.R. has also filed written submissions on the issue relating to service of notice under section 143(2). In these submissions, he has raised some preliminary objections. 9. As the learned D.R. has raised preliminary objections regarding the admissibility of ground No. 1 taken by the assessee in these appeals, we deem it proper to consider the same first. 10. It has been averred that the ground as taken by the assessee regarding service of notice under section 143(2) is liable to be dismissed because the assessee did not take this ground either before the Assessing Officer or before the learned CIT(A). It has further been submitted that the ground as taken by the assessee is not a purely legal ground and hence the same cannot be taken for the first time before the Tribunal. In this regard, the reference has also been made to the decision of the Hon ble Supreme Court in the matter of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 and the decision of the I.T.A.T., Delhi Bench C in the case of Sat Narain v. ITO [2005] 94 TTJ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue. 13. On behalf of the revenue assessment record was produced on 10-1-2005. On that date, the A.R. of the assessee denied the service of notice upon the assessee. The Bench directed the learned D.R. to supply photo-copies of the notices etc. This has been done with a view to properly adjudicate the ground referred to above. Again no objection was raised at this time also. 14. In view of the above since the entire relevant material for adjudication of ground No. 1 is available on record, it cannot be said that the adjudication of this ground will require any investigation into facts or scrutiny of record, which are not before the Tribunal. 15. The contention of the learned counsel for the assessee was that in view of the decision of Special Bench of I.T.A.T., Delhi Bench "B" in the case of Raj Kumar Chawla v. ITO [2005] 94 ITD 1, the ground relating to issuance of and service of notice is purely a legal ground. It was further contended by him that notice issued under section 143(2) is a statutory notice which is required to be served before the expiry of twelve months from the end of the month in which the return was filed and therefore, the issue involved in gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee has filed following table to show the details of filing of return, issuance of notice and service of notice on unauthorized person : S. No. A.Y. Return filed Purported date of issuance of notice Purported date of service on unauthorized person Date of service as per asst. order 1. 1991-92 30-3-1998 30-11-1999 9-12-1999 7-12-1999 2. 1992-93 4-12-1996 8-1-1997 14-1-1997 19-1-1999 S. No. A.Y. Return filed Purported date of issuance of notice Purported date of service on unauthorized person Date of service as per asst. order 3. 1993-94 4-12-1996 9-1-1997 14-1-1997 19-1-1999 4. 1994-95 4-12-1996 8-1-1997 14-1-1997 19-1-1999 5. 1995-96 29-3-1996 8-1-1997 14-1-1997 24-3-1998 6. 1996-97 29-11-1996 8-1-1997 14-1-1997 19-1-1999 7. 1997 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to this issue stands settled. 22. At the time of hearing of the appeals, the learned D.R. appearing for the Revenue, has not disputed the legal position clarified in view of the Special Bench decision in the case of Raj Kumar Chawla ( supra ). 23. In view of the above settled and undisputed legal position regarding the mandatory compliance of the statutory provisions contained under section 143(2), it has to be seen as to whether the notices issued under section 143(2) were issued and served within 12 months from the end of the month in which the return was filed and as to whether the service of such notices was effected upon proper person. It has to be pointed out that the assessee has taken the stand that the notices were not served within the period of 12 months from the end of the month in which the returns were filed upon or upon any representative authorized or empowered by it. Hence, we have to examine the issue in the light of the relevant legal provisions as well as the relevant facts for deciding the issue. The legal provisions are examined below. 24. Section 282 of the Income-tax Act lays down the mode of service of notices. The provisions of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt or postal article containing the summons is received back by the Court with an endorsement purporting to have been made by a postal employee or by any person authorized by the courier service to the effect that the defendant or his agent had refused to take delivery of the postal article containing the summons or had refused to accept the summons by any other means specified in sub-rule (3) when tendered or transmitted to him, the Court issuing the summons shall declare that the summons had been duly served on the defendant. Rule 10. Mode of service. Service of the summons shall be made by delivering or tendering a copy thereof signed by the Judge or such officer as he appoints in this behalf, and sealed with the seal of the Court. Rule 11. Service on several defendants. Save as otherwise prescribed, where there are more defendants than one, service of the summons shall be made on each defendant. Rule 12. Service to be on defendant in person when practicable, or on his agent. Wherever it is practicable, service shall be made on the defendant in person, unless he has an agent empowered to accept service, in which case service on such agent shall be sufficient. Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, which has been reproduced above, the return for this year was filed on 30-3-1998. As per provisions of section 143(2), therefore, the service of notice should have been effected by 30-3-1999. According to the assessee, the notice was issued on 30-11-1999 itself i.e. after the expiry of the period of one year from the end of the month in which the return was filed. As per the table of the assessee as well as that filed with the letter of D.R. dated 12-12-2005, the date of issuance of notice is shown to be 30-11-1999. However, in the table a further date of 30-3-1998 after 30-11-1999 has been written in ink and attempt is made to show that the notice was served on 30-3-1998 upon the assessee for assessment year 1991-92. In support of this, photocopy of notice has also been filed which is on page 5 of the Paper Book. This argument of the Department has been seriously challenged by the learned counsel for the assessee before us. It is submitted that as per relevant order sheet for assessment year 1991-92 available at page 2, the first date is 30-11-1999, which clearly shows that the notice under section 143(2) was issued on 30-11-1999 and not prior to it. We find force in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done and conducted in pursuance of invalid and illegal notice, which has been issued after the expiry of prescribed period of 12 months from the end of the month in which the return was filed, cannot be legally sustained. The assessment order is liable to be quashed on this ground itself. Hence, in view of the above, ground No. 1 as taken in this assessment year stands allowed in favour of the assessee. Consequently, the assessment order is quashed on this ground itself. I.T.A. No. 3416 (Delhi)/2005 - A.Y. 1997-98 29. Facts of this year are similar to the facts of assessment year 1991-92. As per the table filed by the assessee, the return was filed for this assessment year on 26-3-1998. As per the table filed by the assessee, the notice was issued on 30-11-1999. Similar is the position of the table filed with the letter of D.R. dated 12-12-2005. Although in the letter of the department, the date of notice is shown as 30-11-1999, however, by ink another date i.e. 14-7-1998 has also been indicated showing service of notice. In support of this added entry, photocopy of notice dated 14-7-1998 has been filed, which is available at page 5 of the Paper Book. The submission of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-94, 1994-95, 1995-96 and 1996-97 33. So far as the aforesaid assessment years are concerned, the department has filed affidavit of Sri Suraj Bhan, Process Server, who has served the notices for these assessment years. The contents of this affidavit are as under : "I, Suraj Bhan, son of late Shri Jai Ram, working in the Income Tax Department as Notice Server solemnly affirm and declare ( i ) that on 14-1-1997, I had served upon notices dated 8-1-1997 under section 143(2) of the Income-tax Act for the assessment years 1992-93, 1993-94, 1994-95, 1995-96 and 1996-97 issued to Adarsh Education Society (Regd.) c/o Adarsh Sr. Secondary School, Arya Nagar, Rohtak upon Shri Sanjiv Kumar, who was working as clerk in the school at that time. Dated 20th December, 2005 Sd. Suraj Bhan Deponent." 34. The department has also filed the photocopies of the notices for these assessment years which are available in the Paper Book. The assessee has not filed any counter affidavit and thus the contents of the affidavit remain uncontroverted. Hence, the affidavit has to be accepted as creditworthy. Thus, on the basis of the affidavit and the photocopy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aryana on 12th January, 1984 vide Certificate No. 679 of 1983-84. As per Item-3 of the Memorandum of Association, the aims and objects of the Society included the setting up of schools for providing education to all children irrespective of caste and creed. No portion of the income was to be distributed by way of dividend, bonus or otherwise. The surplus, if any, was to be utilized in promoting its objects. Upon dissolution, the property of the Society was to be given or transferred to some other educational institution having objects similar to the objects of the society. These stipulations are contained in items ( a ) to ( d ) of the Memorandum and are reproduced below : "( a ) The income and property of the Society shall be applied solely towards the promotion of the objects of society as set forth in the Memorandum of Society, and no portion thereof shall be paid or transferred, directly on undirectly, by way of dividend, bonus, or otherwise by way of profit, to the members of the society provided that nothing herein shall prevent the payment of remuneration of its office bearers, staff servants and others in return for any services rendered by them to the Society. ( b ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the floods. Later in response to summons under section 131, issued on 12-3-1998 to all the members of the Society to produce the account books, they confirmed that the account books were maintained and kept at school premises and President of the Society should be contacted for the purpose. 39.7 Since Shri Malhotra had admitted that the account books were maintained, he was asked to produce them for the later period from 1st April, 1996. They were duly produced for the financial years 1996-97 and 1997-98 and were impounded. The list of such account books and other registers appeared on pp. 14-15 of the assessment order for the year 1995-96 and consists among others, the cash books, ledgers, attendance registers and salary registers. According to the appellant, the impounded books are still in the custody of the Income-tax Department though they have not been examined and no reasons have been given as to why the figure of surplus/deficit shown for the financial year 1996-97 for which complete contemporaneous records were available, could not be accepted. 39.8 The Assessing Officer (AO) worked out the gross receipt from school fees on the basis of the number of students as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dual income of Shri Khanna. He, therefore, assessed the income of the appellant Society on a protective basis and added the same on substantive basis to the other income of Shri Khanna and assessed him substantively. This is what the ld. Assessing Officer stated in paras 38 to 40 of his assessment order for the year 1995-96 : "38. It was, however, further noticed that Adarsh Senior Secondary School run by the assessee society i.e., Adarsh Education Society had been managed by Shri S.S. Khanna, the Principal/Manager. It was contended that the school had been recognized by the Education Department of Haryana and also registered with the Registrar of the Society. However, its recognition by Education Department of Haryana Government and its status as registered society has no relevancy from the Income-tax point of view. The said society is neither a recognized trust nor it has the sole purpose of education. Thus it cannot avail of the privilege of exemption under section 10(22) of the Income-tax Act, 1961 due to the following reasons : I.The school is not a registered/recognized trust. II.The school through its Manager Shri S.S. Khanna had applied in Form No. 10A for registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, it was reported that he is, at present, living in Delhi. Shri K.L. Arora, Member was reported to have died 10 years ago. Similarly Shri Ram Prakash, Member was reported to have died on 21-10-1996. Further Shri Prem Chand Dhir, Member in his reply furnished on 18-3-1998 mentioned that he is an Honorary Member of the Society and he has never attended any meeting of the Society and also has never put signatures on the minutes book. From the above it was clear that the formation of society was a mere formality. The society was being carried on with the office bearers/members who had died long ago. 39. The School building is owned by Shri Khanna who is charging a nominal rent of Rs. 2,000 per month for a big building located in the thickly populated area. Shri Khanna is the Principal as well as the Manager of the Adarsh Education Society and as per statement recorded of Shri Kundan Lal Malhotra, President of the Society, the Manager of the School is over-all incharge of the School and is authorized to appoint the school staff and the President and other members of the society are only consulted when need be. Shri Khanna also admitted in the statement recorded during the course of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust. It has been held so by various courts that and the conditions stipulated in sections 11 and 13 of the Act are not relevant. The entity claiming exemption under section 10(22) is not required to comply with the requirements of audit, filing of return etc. This submission is further buttressed by the fact that section 10(23C) substituted for section 10(22) in assessment year 1999-2000 does not require the appellant seeking exemption to undergo the procedure prescribed under sections 11 and 13 of the Act. The subsequent legislation is an important aid to interpretation, which leads to the conclusion that the erstwhile section 10(22) of the Act also did not require the assessee to either file the return of income or to maintain accounts in the prescribed manner and to have them audited. Therefore, the only requirement under section 10(22) as it then existed was that the purpose of the institution should be dissemination of education and the underlying motive must not be to make profit. ( b )That the Assessing Officer has laid unnecessary emphasis on two facts namely (1) that the affairs of the school are mainly managed or conducted by its Principal Shri S.S. Khanna, and (2) tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara 35 of his order has candidly admitted that the school building owned by Shri Khanna has been given on rent to the school for a nominal amount of Rs. 2,000 per month. This further goes on to prove that the only purpose to run the society was education and all attempts were made to minimize the cost so that the receipts by way of school fees etc. would meet the expenditure on maintenance of the school. 46. Among others, the appellant submitted before the Settlement Commission that the society and Shri Khanna were two different assessees and the society was exempt under section 10(22) of the Act. It was further submitted that right from 1984, the society maintained accounts which was audited by Haryana State Education Department which suggested that the society existed at the material time. The audit and inspection reports of the Haryana State Education Department were furnished before the Commission for the period from May, 1995 to March, 2003. They were furnished before the CIT(A) also and before us during the course of hearing of the appeal. 47. The Settlement Commission, after examination of the evidence including the assessment order of Shri S.S. Khanna, Principal/Man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposits and investments made by him. It may be mentioned that the additions made, apart from including the income of the school in the hands of the applicant, relate to the investment in the bank accounts of the applicant and his family members, and investment in purchase of land etc. Total additions made on account of deposits in bank accounts are of Rs. 41 lakhs approximately. The ld. AR has pointed out that all the credits in the bank accounts have been added without adjusting the withdrawals made by the applicant. We have found this claim to be correct and have accordingly held that the year-wise peak of deposits in various bank accounts is to be worked and additional for each year offered accordingly." 49. The order of the Settlement Commission has become final and the Department has failed to show that another appeal thereagainst has been filed. 50. The CIT(A) vide the consolidated order dated 8-6-2005 dismissed the appeals and upheld the orders of the Assessing Officer for each of the seven years by largely agreeing with the reasons given by the Assessing Officer. However, he converted the protective assessments in the hands of the society into substantive assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignored and not even a single member of the staff has been examined with reference to the evidences filed. He stated that most of the teachers have been drawing a monthly salary of Rs. 1,500 to Rs. 2,000 per month and the clerical staff and peon still less. The Department has disallowed 50 per cent of such salary. In the assessment year 1996-97, as per accounts, the salaries claimed were Rs. 20,23,574 while the Assessing Officer allowed deduction of only Rs. 10 lakhs. In this way, he has estimated the figure of income on purely surmises and conjectures. 53. Shri Ajay Wadhwa stated that the society has been maintaining its account, as is evident from the audit, ever since it was set up. Unfortunately they got destroyed due to flood in Rohtak for which he relied upon the certificate dated 25-6-1998 from the Dy. Commissioner of Rohtak to show that Arya Nagar locality of Rohtak City (where the school was situated) was under flood from 4th September, 1995 to 25th September, 1995. 54. Shri Ajay Wadhwa further stated that from the financial year 1996-97 onwards, complete books of account and supporting records are available and duly audited every year. Since in respect of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... current finding given by the Assessing Officer and the CIT(A) that the assessee was not existing solely for the purpose of education and this is proved by the existence of huge cash assets of the Principal Shri S.S. Khanna who has been held to be controlling the society like a fiefdom and as a proprietary concern. 59. On the issue of claim of exemption under section 10(22), it was finally submitted that the funds of the society have been applied for non-education purposes and siphoned off as is evident from the computation of income of the Manager Shri S.S. Khanna as determined by the Settlement Commission in its order under section 245D(4). 60. As regards the claim of the appellant that it was the society duly registered, the ld. DR took us through the Memorandum of Association of the Society to bring home the point that Shri S.S. Khanna was the permanent appointee of the Society and that no other person enjoyed similar powers as him. He stressed the point that Shri S.S. Khanna was running the school de facto as his proprietary concern. 61. It was also argued that the profit in an educational society is fatal to the claim under section 10(22). 62. As regards the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . u That the ld. DR has essentially repeated whatever has been stated in the assessment order and the Counsel has already responded to them in the submissions made before the Tribunal. 66. In his re-reply, Shri Ajay Wadhwa stated that the Settlement Commission could not give the findings about the status of the society because it was not an applicant before the Commission. But the very fact that they have deleted the entire addition within the hands of Shri Khanna and that Shri Khanna had his own sources of his income duly accepted by the Commission would knock out the very basis of treating the society as existed for profit and not for education. 67. Moreover, the burden of proof lay with the Department to show that any income on the scale estimated was actually earned by the society and if so, it was this income which went as deposits in bank account of Shri Khanna. This the Department has failed to do. For this proposition, he relied upon the judgment of the Supreme Court in CIT v. Daulatram Rawatmull [1973] 87 ITR 349 (SC). Shri Wadhwa further stated that assuming without admitting that some funds of the school were taken advantage of by Shri Khanna even then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank was only of the amount required for making payment of salary to the staff of the school and by the assessee-society. In this regard we find that revenue could not bring any positive material to show that deposits in above stated various bank accounts of Shri Khanna and his family members actually were out of the money of the assessee-society. Further as stated above the Settlement Commission in the case of Shri S.S. Khanna vide its order dated 17-11-2004 at para No. 22 has categorically held that Shri Khanna cannot be held to be a benamidar of the assessee society and the assessee-society is separate and distinct from Shri Khanna and income of assessee-society cannot be held to be the income of Shri Khanna. Thereafter, the Settlement Commission determined the income of Shri Khanna on the basis of various deposits made in his bank accounts. From this also the view of the Revenue that the deposit in those bank accounts came from the income of the assessee-society is not found to be correct. 70. Further simply because all the fee collected by the assessee-society has not been deposited in its bank account cannot mean that the funds of the assessee-society was utilized fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized only for spread of education, still it is entitled to exemption under section 10(22) on the Act. This view was affirmed by the Hon ble Delhi High Court. In deciding the matter the Hon ble Court also laid down following conditions : "( a )The educational institution must actually exist for application of the said provision and mere taking of steps would not be sufficient to attract the exemption. ( b )The educational institution need not be affiliated to any university or Board; in fact a society need not itself be imparting education and it is enough if it runs some schools or colleges; ( c )The educational institution must exist solely for educational purposes and not for purposes of profit. But, merely because there is a surplus, that is to say a surplus of receipts over expenditure it cannot be said that the educational institution exists for profit; ( d )An entity may be having income from different sources, but if a particular income is from an educational institution which exists solely for educational purposes and not for purposes of profit, then that income would be entitled to exemption and further the income should be directly relatable to educational activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne existing solely for educational purposes since the object is not to make profit. Reliance was also placed by the Tribunal on the decision of Hon ble Rajsthan High Court in the case of Cosmopolitan Educational Society ( supra ), wherein it was held that if there was any mis-utilization or mismanagement, action could be taken against the members of the society, but certainly it cannot be a ground for denying exemption under section 10(22) of the I.T. Act. In view of the above decision and authorities cited therein, in the instant case also there is no justification for denying exemption under section 10(22). 73. On the basis of the entire material on record, after considering all the arguments advanced before us by the learned representatives of the parties and in view of our discussion made in the order, we dispose of the issues raised, as above, in the following manner : A. The assessee-society was existing solely for educational purposes and not for the purpose of profit and, therefore, the departmental authorities were not justified in drawing a contrary conclusion. Thus, in our considered opinion, the society is entitled for exemption under section 10(22) of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
