TMI Blog2014 (9) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... purview of Section 10(22)/10(23C)(vi). - there is nothing in the Income Tax Act to support the proposition that educational institution cannot generate any surplus. Entire fund has been invested by the State Government either in the form of initial contribution or through accumulation of surplus, therefore, the assessee was not required to be approved by prescribed authority for the purpose of claim of exemption u/s 10(23-C) - as the object of the assessee society vis-à-vis, its constitution remains the same for the AY 1999-2000 and onwards, the claim of deduction on account of assessee being other educational institution is to be allowed u/s 10(23C)(iiiab). The assessee society was established only for the purpose of advancement of education by printing and publishing of text books as prescribed by the Government - all institutions working in all other States of India were held to be eligible for claim of exemption u/s 10(22) - there was no justification on the part of lower authorities for decline of claim of exemption u/s 10(22)/10(23C) – also in Commissioner Of Income-Tax, Karnataka I Versus Academy Of General Education, Manipal [1983 (8) TMI 18 - KARNATAKA High Court] - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me filed on 30.9.2009. The appellant also furnished the audit report in form No.10B dated 5.11.2009. It is seen that the Assessing Officer has rejected the claim of exemption u/s 11 for the reasons mentioned by his predecessor in respect of assessment proceedings of previous year. I am of the considered opinion that the facts in the present case are different from the facts in the last year as it emerges from the assessment order and the order of my predecessor inasmuch as the appellant did not claim exemption u/s 11 in the return of income and also furnished the special audit report in form no. 10B. It is seen that Assessing Officer has not pointed out any mistake in the computation of utilisation of gross receipts for the objects of the appellant society. The audit report in form no. 10B revealed that there is no unspent surplus in excess of 15% of gross receipts so as to call for levy of tax on the surplus income. The facts being different in the year under consideration, I hold that the appellant is entitled for exemption of income u/s 11. Hence, the addition made by the Assessing Officer after rejecting the claim of exemption is deleted. 3.1 If the observations made in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly construed. 2.1) That on the facts and in the circumstances of the case of the Ld. CIT(A) erred in not allowing the benefit of section 11 to 13 by stating the fact that the audit report in Form 10B was not file during the course of assessment proceedings before the A.O. and filing of the audit report is mandatory and not directory in nature. 2.2] That on the facts and in the circumstances of the case the Ld. CIT(A) erred in stating the fact that audit report in form 10B is dated 10.10.2010 and as such same is not available with the appellant at the time of filing of return. As a matter of fact the audit report is dated 10.12.2010 and ready at the time of assessment proceedings. 2.3] That on the facts and in the circumstances of the case the Ld. CIT(A) and Ld. A.O. erred in not following the direction of Hon'ble I.T.A.T. where in it was directed to consider the assessee s claim for benefit of registration u/s 12AA at the time of completing the set-aside/remand assessment proceedings. 3.1] That on the facts and the circumstances of the case of the Ld. A.O. and Ld.CIT(A) erred in denying the exemption u/s 10(22) without following the direction given by the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. As a matter of fact the audit report is dated 10.12.2010 and ready at the time of assessment proceedings. 2.3] That on the facts and in the circumstances of the case the Ld. CIT(A) and Ld. A.O. erred in not following the direction of Hon'ble I.T.A.T. where in it was directed to consider the assessee s claim for benefit of registration u/s 12AA at the time of completing the set-aside/remand assessment proceedings. 3.1] That on the facts and the circumstances of the case of the Ld. A.O. and Ld.CIT(A) erred in denying the exemption u/s 10(23C)(iiiab)/ 10(23C) (iv) without following the direction given by the Hon'ble High Court of Madhya Pradesh while remanding the case. 3.2] That on the facts and the circumstances of the case the Ld. CIT(A) erred in confirming the A.O. s action of unauthorisedly attempt to find fault with the letter dated August 19, 1975 in the case of Tamil Nadu Text Book Society which have relied by the Hon'ble Supreme Court in the case of Assam Text Book Production and Publication Corporation Vs. CIT 319 ITR 317. 3.3] On the facts and in the circumstances of the case the Ld. CIT(A) erred in holding that the appellant is not an educational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... performing teaching, learning and evaluation in the educational institutions, to print, publish, stock, distribute to sell or enter into any arrangement for printing, publishing, stocking, distribution and sale of text books approved, sanctioned or assigned by the Govt. or other appropriate authority. 5. Further, the assessee society is controlled by the Govt. of Madhya Pradesh and Board of Governors consist of Minister of Education, Madhya Pradesh, Minister of State/Deputy Minister of Education, Madhya Pradesh, Secretary of Education Department, Secretary to Finance Department, Director of Public Instructions, Madhya Pradesh, Chairman of Board of Secondary Education, Madhya Pradesh, Director of S.C.E.R.T., Bhopal, Director of State Institute of Science Education, Controller of Printing and Stationary ,Madhya Pradesh, two experts in the field of School Education, who are interested in school education, nominated by the Government from amongst the members of the corporation, Managing Director who is appointed by the State Government out of Senior IAS Officer. 6. Original assessments under appeal were completed by the Assessing Officer and the claim of deduction u/s 10(22)/10( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r printing, publishing, stocking, distribution and sale of text books approved, sanctioned or assigned by Government or other appropriate authority and any other publications which the corporation may decide to publish with a view to making the same available at a fair and reasonable price ; (5) to undertake research for the improvement in curricula and syllabi for primary and secondary education or any other branch of education; (6) to undertake research in text book production, evaluation techniques, and ancillary aids and educational literature concerning the various methods of education and aids for education and otherwise directed toward securing improvement in the general educational standard; (7) to regulate and fix prices of the publications of the society consistent with its objects; (8) to frame, develop and recommend to the government and other appropriate authorities curricula and syllabi for the purpose of improvement in the general educational standard; (9) to advise Government and other appropriate authorities in all matters concerning syllabi curricula valuation examination reform and production of text books and ancillary aids and educational literat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Madhya Pradesh Board of Secondary Education, the Director of Public Instruction or other appropriate authority in sanctioning school text books for standards I to XII submitted by private authors, or publishers; (iv) and generally to do and execute all such lawful acts, deeds, matters and things as are conducive or incidental to on for the attainment of the above objects or any of them. Thereafter, Assessing Officer commented that the object no. 1 above namely to aid and promote advancement of education in general and of primary and secondary education in particular though speaks of aiding promoting advancement of education, it is very general in nature. It does not specifically speak of imparting of education through opening running of schools /colleges /Institutions. The Assessing Officer further stated that the objects of the assessee-society have not been classified into main ancillary objects but from a plain reading it appears that the objects at S.Nos. 1 to 2 21 above are the main objects and the objects at S.Nos. (13) to (20) above are ancillary to or incidental to attainment of the main Objects. The remaining objects [ (2) to(12) 21] of the society thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee with the direction to the AO to allow the claimed exemption to the assessee. Therefore the assessee is an educational institution existing solely for educational purpose and not for profit. The Similar institutions engaged in printing and publishing of prescribed text books approved by respective State Govt. are also in existence in other states like Rajasthan Orissa Delhi etc. The Hon'ble High Court of Rajasthan in C1T vs. Rajasthan State Text Book Board (f2000) 113 Taxman 204), and Hon'ble High Court of Orissa ill Secondary Education Board vs. ITO [1972] 86 ITR 408 ) and the Delhi Bench of the Tribunal in ITO vs Delhi Bureau of Text Books ([1980) 10 TTJ 481)have upheld the institutions as other educational institution eligible for exemption u/s 10(22) of the Act under similar facts and circumstances as of the present case. Also C.B.D.T. has granted exemption to the Tamilnadu Text-books Society which also undertakes a similar activity of printing and publishing of text Lbooks as per the letter dated 19-08-1975 and file No. 184/26/75. In that case the C.B.D.T. held Tamilnadu Textbooks Society was an educational institution existing solely for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-03 to, 2005-06, initially the society started its operation by taking a loan of ₹ 10 lakhs from the State Government and ₹ 4.75 lakhs from the M.P. Board of Secondary Education. The Assessing Officer further observed that work of society was carried out from its own financial sources and it did not get any financial aid from the Central or State Government. Therefore, the assessee society is not wholly or substantially financed by the Government and does not qualify for exemption u/s 10(23C)(iiiab ). 12. The assessee s eligibility for claim of deduction u/s 10(23C) (vi) for assessment year 1999-2000 and subsequent year was declined on the plea that application filed by the assessee in form no. 56D for grant of approval u/s 10(23C)(vi) for assessment year 2000-01 to 2007-08 stands rejected by the CCIT, Bhopal, vide order dated 10.3.2008. Thus, the assessee society was held to be not eligible for any exemption u/s 10(23C)(vi) of the Income-tax Act, 1961. 13. The assessee s claim for exemption u/s 11 12 was also declined on the plea that in none of the return of income filed u/s 139 for the assessment year 1988-89 to 2006-07, the assessee had made such claim. By ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006-07. 1.1(ii) The Ld.CIT (A) confirmed the denial of exemption by holding as under:- Page 10 of the CIT(A) order:- It may be noticed that section 12A(I)(b) of IT Act stipulated specific condition that provisions of section 11 12 shall not apply unless in a case where total income of the trust or institution as computed under this act exceeds the maximum amount which is not chargeable to tax and the trust or the institution gets its accounts audited as defined in explanation below sub-section (2) of the section 88 and such prescribed audit report is also filed with the return of income .Further , as per Rule 17B of IT Rules the prescribed audit report is to be furnished in Form No. 17B. Two essential requirement for claim of benefit u/s 11 12 of IT Act are, prescribed audit of books of account and furnishing of prescribed audit report in form no. 10B alongwith return , It has been laid down in various decisions of the Hon ble Courts that such audit report can be filed even during the assessment proceedings/ appellate proceedings. But very crucial issue which is also laid down is that such audit in prescribed form should be completed within the stipulated period i.e. be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to appreciate the fact that the reason for not obtaining and enclosing audit report along with the return of income was that the registration u/s 12AA(1) (b) (i) of the IT Act was granted by the Ld.CIT (A) in compliance to the direction given by the Hon ble ITAT vide ITA No. 300/Ind/2009 order dated 23/09/2009.with retrospective effect from 07.08.1968 vide order dated 23.10.2009 and after receipt of the order the appellant got audited its Books of Accounts for 20 years i.e. from the assessment years 1988-89 to 2008-09. (iii) It is not easy for a society owned by the State Government to get its accounts audited for last 20 years particularly when the list of the auditors are given by the C AG. Moreover, in the Government Organization there are various formalities for appointment of Auditor and fix their remuneration, it require approval and sanction of various authorities. (iv) The above reasons are reasonable cause for delay in obtaining the audit report in Form No.10B. The said practical difficulty in obtaining delay audit report is also realized by the CBDT and therefore vide instruction number 1/1148 [F .No.2687/482/77-IT (Part)] dated 09.02.1978 issued following dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r institution would necessarily contain the particulars of the application of income and non-user of income or property and the certificate of the auditor only affirms the same. The Assessing Officer can rely on the certificate for allowing the benefit of exemption. This is a procedural matter for the purpose of enabling the Assessing Officer to complete the assessment on the basis of the certificate of the auditor without even asking the assessee to furnish supporting documents in support of the claims and contentions made in the return. It was further observed that, the requirement under section 12A (b) of filing audit report alongwith the return of income, being a procedural nature, is not mandatory so as to disentitle the trust from claiming exemption under section 11 and section 12 in case of omission to furnish such report in the prescribed form alongwith the return. However, if an assessee fails to obtain the audit report in the prescribed form before the assessment is competed , he may not ordinarily be entitled to get the benefit of exemption. But where the assessee is not given an opportunity to file the audit report in the prescribed form which is available with the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remand assessment proceeding no opportunity to file audit report in Form 10B was allowed to the appellant society which is clear from the remand assessment order itself. When a particular provision of the IT Act is directory in that case the Ld.A.O. should allow an opportunity to cure the defect. If the Ld.A.O. could have bring this fact in the notice of the assessee during the course of remand assessment proceedings same could have filed before him as same was ready to file. (vii) It is further submitted that appellant society during the course of remand assessment proceedings requested the Ld.A.O.that audit report in Form NO. 10B is ready and be accepted, but the Ld.A.O. was heisted to accept the same due the reason that same were not filed along with the return of income of respective years. However the audit report in Form 10B along with application under Rule 46A being additional evidence is filed before the Ld.CIT (A) which was accepted by the Ld. CIT (A) after giving due opportunity to the Ld.A.O. refer page 4 para 4.3 of the CIT (A) s order. (viii) It is to be noted that the requirement of the Assessing Officer for filing of report in Form 10B for the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that in the later decision of the Hon'ble Supreme Court in the case of Assam State Text Book Production and Publicity Corporation Limited, 319 ITR 317, the printing and publication of text books for students by Government Controlling Company was held as educational institution, neither meaning of word EDUCATION U/S 2(15) of the Act was examined nor decision of Loka Shikshan Trust, 101 ITR 234 was considered. 19. In view of the above submissions, he contended that since the assessee was not imparting education to the students through normal schooling, therefore, as per decision of Lok Shikshan Trust (supra), exemption is not available to the assessee. He further contended that there was huge profits to the assessee every year, therefore, such educational institution cannot be said to be not for the purpose of profit. 20. He further submitted that the case cited by the assessee of Bihar State Text Books publishing 56 ITR 178, goes against the assessee, because in that case Government extended cash incentive to the assessee for printing and selling of text books at low rate to reach the children of deprived section of the Society to carry out the directives princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Department of State. The main issue before the Hon'ble Supreme Court was whether the assessee Corporation could be termed as Educational Institution in terms of Section 10(22) of the Income-tax Act, 1961. The Assessing Officer held that since the assessee had income exclusively from publication and selling of text books to the students, exemption u/s 10(22) was not admissible and the Assessing Officer held that the assessee did not exist solely for educational purposes. The Assessing Officer also stated that in view of the clause 21 of the Memorandum of Association, which provides for distribution of dividends, hence, its income was not exempt u/s 10(22) of the Act. This decision of the Assessing Officer was upheld by the ld.CIT(A). In a further appeal, by the assessee, it was held by the Tribunal that the Corporation was an educational institution and consequently entitled to the benefit of exemption u/s 10(22) of the Act. However, in an appeal filed by the Department against the order of Tribunal the Hon'ble High Court held that the assessee did not exist solely for educational purposes and that its income was only from publishing and selling of text books, which consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... almost identical. It is also not shown to us that the surplus amount, if any, of the respondent-assessee, is used for any other purpose or distributed to other members. The CIT(A) as well as the Tribunal have noticed that even if some amount remains surplus, the same was utilized only for the purposes of education. 23. By considering the above judgments and CBDT letter, the Hon'ble Supreme Court set-aside the order of the High Court and matter was remanded to the Assessing Officer to consider it de novo in the light of the judgment of Rajasthan High Court and Orissa High Court, particularly, with reference to the letter of CBDT dated 19th August, 1975, referred to in the judgment of Rajasthan High Court in the case of Rajasthan State Text Book Board reported at 244 ITR 667, as also the letter of Central Government dated July 9, 1973. However, in the assessee s case, after verification of audited accounts, we found that in none of the period of seven years i.e. 2000-01 to 2007-08, surplus of assessee exceeded 15 % of the gross receipts. As per the object clause an activity actually undertaken by the assessee, we found that the assessee society is printing, publishing and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cretaries of various Departments of M.P. Government and there is no provision for distribution of profit, in the registration of the society itself. Furthermore, as per the judicial pronouncements in the case of Haryana State Counselling Society, 223 CTR 402, Maa Saraswati Education Trust, 234 CTGR 400 and Vanita Vishram Trust, 327 ITR 121, merely because an educational institution accumulates income, it does not go out of the purview of Section 10(22)/10(23C)(vi). Furthermore, there is nothing in the Income Tax Act to support the proposition that educational institution cannot generate any surplus. Generating surplus, which is incidental to the carrying on activity of education and not with the motive to earn profit, will not disqualify an institution from the benefit of Section 10(23C). 26. The operative part of the Rajasthan High Court s judgment reads as under (page 669 of 244 ITR) : It is not disputed before us that the aims and objects of the Tamil Nadu Text Books Society and those of the respondentassessee are almost identical. It is also not shown to us that the surplus amount, if any, of the respondent-assessee, is used for any other purpose or distributed to other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was not required to be approved by prescribed authority for the purpose of claim of exemption u/s 10(23-C). Assessee s case is falling within sub clause (iiiab), which reads as under :- any university or educational institution existing solely for educational purposes and not for purposes of profit and which is wholly or substantially financed by the Government/ Thus, from assessment year 1999-2000 to 2008-09, the assessee is entitled for claim of exemption u/s 10(23C)(iiiab). 28. As the object of the assessee society vis- -vis, its constitution remains the same for the assessment year 1999-2000 and onwards, the claim of deduction on account of assessee being other educational institution is to be allowed u/s 10(23C)(iiiab) of the Income-tax Act, 1961. 29. As per the audited accounts of the assessee, we found that out of its surplus, the assessee has paid royalty to the Board of Secondary Education, Government of M.P. and many authors of the books. The assessee had contributed for construction of school building and had also distributed free books to the deserving students. The assessee publishes only text books, so that students get books at a cheaper price. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings, both the lower authorities have not considered the main object of the society which is to Printing and Publishing of Text Books to the students of Class I to XII at cheaper rate to comply with the statutory requirement of Article 21-A and 41 of the Constitution of India, which make the right of education as fundamental rights of children, which reads as under :- 21-A- Right to education The state shall provide Free and compulsory education to all children of the age of 6 to, 14 years in such manner as the state may by law determine. Article 41 : The State shall within the limits of its economic capacity and development make effective provision for security the right to work, to education and to public assistance in case of unemployment, old age sickness disabilities and in other cases of undeserved want. Providing of school text books and incidental publication at cheaper rates is definitely to aid kind promote advancement of education to the children. 32. To comply with the statutory requirement on article 21A and 41, the assessee society is following syllabus prescribed by the M. P. Government and printing and publishing books for the use of student ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors to write text books on various subjects as per the syllabus prescribed by the Government for various courses of education. As per Object No.(14), printing, publishing and sale of books., is approved by Government and page (5) and (6) prescribed for undertaking research for education. 33. It is pertinent to mention here that like assessee society which is engaged in printing and publishing of text books as prescribed by the State of M.P., similar type of institution is also working in other states like Tamil Nadu, Rajasthan, Delhi, Orissa, Bihar. In case of similar institutions exemptions have been allowed by the Tribunal and High Court. Hon'ble Rajasthan High Court has dealt with in detail the activity of Rajasthan State Text Book Code, 224 ITR 668 and allowed exemption u/s 10(22) of Income-tax Act, 1961. Hon'ble High Court has observed at page 668 that the facts in the case of Tamil Nadu Text Book Society are similar. In the case of Tamil Nadu Text Book Society, the C.B.D.T. itself has taken the view vide its letter dated 19.8.1975 that Tamil Nadu Text Book Society is entitled for exemption u/s 10(22) of the Income-tax Act. The said letter reads as under :- On c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held that such printing and publication of news paper was not education within the meaning of sec 2(15). However, the facts of instant case are quite distinguishable where assessee was printing and publishing text books for students of Class I to XII without any profit motive. Thus, it will not help the Revenue for holding that present assessee was not falling within the definition of Other educational institution . However, in the instant case before us, undisputedly, the assessee society was established only for the purpose of advancement of education by printing and publishing of text books as prescribed by the Government. As discussed above, all such institutions working in all other States of India were held to be eligible for claim of exemption u/s 10(22). Thus, there was no justification on the part of lower authorities for decline of claim of exemption u/s 10(22)/10(23C). Even in the case of Academy of General Education, 150 ITR 135, it was observed that the assessee itself need not impart education to the students and it need not be necessarily school or college for the claim of benefit. It was found that in its account even though the assessee has not included incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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