TMI Blog2012 (4) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... %. Assessee is also directed to submit the other details as desired by the AO for verifying its claim of exemption u/s 11 of the Income-tax Act, 1961 - ITA Nos. 375 to 394/Ind/2011 - - - Dated:- 25-4-2012 - Joginder Singh (Judicial Member) And R. C. Sharma (Accountant Member) For the Petitioner : Prakash Jain (CA) For the Respondent : Keshave Saxena (CIT-DR) ORDER R. C. Sharma (Accountant Member) These appeals filed by the assessee arise out of order of CIT(A)-I, Bhopal, dated 28.11.2011 for the assessment years 1988 89 to 2006-07 and 2008-09 2. The following common grounds have been taken by the assessee in ITA No. 375 to 385/Ind/2011 :- 1) That impugned order passed by the Ld. Commissioner of Income Tax (Appeals) is bad in law as well as on the facts. It is based on incorrect interpretation of law and the facts have also been incorrectly 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 mand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. A.O. 3. Whereas the following common grounds have been taken by the assessee in ITA No. 386 to 394/Ind/2011 :- 1) That impugned order passed by the Ld. Commissioner of Income Tax (Appeals) is bad in law as well as on the facts. It is based on incorrect interpretation of law and the facts have also been incorrectly 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 direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books are taken by the State Government under the scheme of Sarva Siksha Abhiyan for free distribution. 3.5] That the Ld.CIT(A) failed to appreciate the fact that no part of the surplus is distributed to anyone and used for the educational purpose as per the directions of State Government without any exception. 4. Rival contentions have been heard and records perused. The Brief facts of this case are that assessee is a society originally registered in the name of M. P. State Corporation of Text Book Production and Educational Research from 07.08.1968. Since 1st October, 1974, its name was changed to Madhya Pradesh Pathya Pustak Nigam. As per the memorandum of association, objects of the assessee society are to aid and promote advancement of education in general and of primary and secondary education in particular, to produce school text books, books for teachers, work books for pupils, other educational registers useful in 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Association of the society filed by the assessee, it is found that the society has the following objects:- (1) to aid and promote advancement of education in general and of primary and secondary education in particular; (2) to produce School text books, hand-books for teachers work books of pupils and other educational ,literature useful for furtherance of teaching,learning and evaluation in educational institutions; (3) to encourage and procure expert authors having knowledge and experience of modem methods of education to write in different languages text books on various subjects suited to the requirement of the curricula and syllabi prescribed by Government or other appropriate authority in that behalf for various courses of education and so apply for and obtain the approval or sanction of Government or other appropriate authority thereto; (4) to print, publish, stock distribute and sell or enter into any arrangement for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mortgage, charge, lease exchange and transfer of dispose of all or, any property moveable or immoveable of the society; (18) to payout of the funds belonging to the society or out of any particular part of such funds all expenses of or incidental to the formation of the society including all rents rates, taxes, a outgoings and the salaries of the employees; (19) to draw make, accept, endorse and negotiate charges, hundies, promissory notes or other negotiable instruments; (20) for the purposes aforesaid, to sign execute and deliver such assurances and deeds as may be necessary : (21) to undertake on agency basis or otherwise the following functions for or on behalf of the Govt. of Madhya Pradesh or the Government of India:- (i) Stocking, utilization and accounting for the gift paper received by the Government of India or the Govt. of Madhya Pradesh. (ii) Implementing any scheme for the free supply or books; (iii) Assisting and advising the Government 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions to impart affordable education to the students. Considering the Totality of the facts and circumstances of the case, the answer of these questions comes in positive. The assessee is therefore, an educational institution solely exists for educational purposes and entitled to the claimed exemptions which the department in earlier years had been rightly granting under the similar set of facts circumstances. There may be several private publication houses which may also be publishing study material etc. helpful in study to the students in the school but when it is done with an aim and object to earn profit, these cannot be termed as existing solely for education purpose and not for purpose of profit. Earning of a limited profit for smooth running of an institution or society is not prohibited, what is to be seen is the approach of the society from its activities and conduct as to whether it is commercial or solely for educational purpose. The issue involved in ground 1 to 4 is thus decided in favour 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 education ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stituted to implement the educational policy of the state and consequently they should be treated as educational institution. Since MP, Text Book Corporation is also working on the same lines as cited in the above case, it is an educational institution existing solely for the purpose of education. However, the Assessing Officer did not accept the assessee s contention and held that the main activity of the assessee society is merely printing and sale of books on commercial basis, therefore, assessee is not eligible for claim of exemption u/s 10(22)/10(23C) of Income-tax Act, 1961. 11. In all the years under consideration starting from assessment year 1988-89 to 2006-07 the issues involved are common. Consolidated order has been passed by the Assessing Officer dated 30th December, 2010, wherein assessee s claim for exemption u/s 10(22) was declined on the plea that the assessee does not depend upon on Government grants. The Assessing Officer observed that as per annual reports for financial year 2002-03 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming teaching, learning and evaluation in the educational institution. To print, to publish, to distribute and sell or enter into any arrangement for printing, publishing, stocking, distribution and sell of text books approved, sanctioned or assigned by the M. P. Government or other appropriate authorities. 16. With regard to assessee s eligibility u/s 11, the contention of ld. Authorized Representative was as under :- The said ground relates to the denial of exemption u/s 11 of the I.T.Act even when the assessee is holding registration u/s 12AA. 1.1(i) The Ld.A.O. denied the benefit of section 11 to 13 on the two grounds which in brief are as under:- (a) The assessee has neither claimed benefit of section 11 to 13 in the return filed u/s 139 nor by filing a revised return u/s 139(5) of the I.T.Act. (b) As per the provision of section 12A(1)(b) read with rule 17B of the I.T.Rules the assessee has not filed audit report in form 10B along with the Return of Income for the assessment years 1988-89 to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic and mandatory condition of conducting of audit and obtaining the prescribed report before filing of the return was not carried out by the appellant. In these circumstances, when an essential requirement and very foundation for claim of benefit was lacking in the appellant case, the claim of the appellant for exemption u/s 11 cannot be accepted. The ground of appeal is accordingly, dismissed. 1.2 From the above it is clear that the Ld.CIT(A) dismissed the appeal merely for the reason that the audit report in Form No.10B are not available at the time of filing of return of income for respective assessment years as same is dated 10.10.2010 by referring to the judgement of Hon ble Gujarat High Court in the case of Zenith Processing Mills Vs. CIT reported in 219 ITR 721 (Guj.). In this regard we have to submit as under:- (i) That in the case of Zenith Processing Mills there is nothing that the audit report in Form No.10B should be obtained by the assessee prior to the filing of return of income. (ii) The Ld.CIT (A) failed 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/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts, held that filing the audit report is procedural and directory in nature and the same can be filed at the appellate stage. It is also worth noting that before the Tribunal, the complete details were disclosed in respect of the production in the second unit. Asregards the claim under section 80-IA(2) the statement have been found to be supported by the date and figures and the Tribunal has found that the proper books of account were maintained and were audited and the audit report in prescribed forms were filed. Ld. Counsel appearing for the appellant could not point out any error or infirmity in the aforesaid facts recorded by the Tribunal and the conclusions drawn by it. In view of the aforesaid position on facts, the Tribunal has not committed any error of law in holding that the respondent was entitled to the benefit of deduction under section 80-IA(2) of the Income- Tax Act. (b) CIT Vs. Hardeodas Agarwalla Trust (1992) 198 ITR 511 (Cal) In the instant case it was held that balance sheet and income and expenditure statement of a trust or institution would necessarily contain the particulars of the application of income and non-user of income or property and the ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars along with the return of income and so also the Tax Audit Report wherever applicable. The only deficiency was that appellant has not filed audit report in Form No.10B along with the return of income. The reason for non filing of audit report in Form 10B was that it was not known to the assessee society that it is entitled for benefit of section 11 to 13 by getting registration under section 12AA. First time in the year 2007-08 the counsel of the assessee who was dealing with its appeal before the ITAT advice the society to obtained registration under section 12AA. Accordingly the society applied for registration under section 12AA and the Ld.Commissioner of Income Tax granted registration on 23.10.2009 since the inception of the society i.e. w.e.f. 07.08.1968 as per the direction of Hon ble ITAT, therefore the assessee society could not filed audit report in prescribed Form 10B along with the return of income. This is a reasonable cause for non filing of audit report along with the return of income. (vi) It is also undisputed that during the course of remand assessment proceeding no opportunity to file audit report in Form 10B was allowed to the appellant society which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the return. Since the assessee got registration u/s 12AA only in the year 2009, therefore, all the years under consideration i.e. assessment year 1988-89 to 2006-07 and 2007-08, prescribed audit report in form 10-B was obtained by the assessee only on 10.10.2010, which is violation of statutory provisions u/s 12A(1)(b) which required getting aforesaid audit report from the auditor before filing of return. 18. Further contention of the ld. CIT DR was that the assessee is not approved by prescribed authority and, therefore, exemption u/s 10(23C)(vi) is not available to the assessee from assessment year 1999-2000 always. Further since the assessee is not fully or substantially financed by the Government, therefore, even benefit u/s 10(23C)(iiiab) is not available to the assessee. Reliance was placed on the decision of Hon'ble Supreme Court in the case of Sole Trustee Loka Shikshan Trust, 101 ITR 234, wherein education has been defined as process of training and developing the knowledge, skill, mind and the character of the students by normal schooling. He further submitted that in the later decision of the Hon'ble Supreme Court in the case of Assam State Text Book Productio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is a latest decision of the Hon'ble Supreme Court in the case of Assam State Text Book Production and Publication Corporation, 319 ITR 317 dated 20th October, 2009, which is subsequent to the date of decision of the Jurisdictional High Court in assessee s case, which was dated 21.4.2009. Since the decision of the Jurisdictional High Court in assessee s own case, was prior to decision of the Hon'ble Supreme Court in the case of Assam State Text Book (supra) in the fitness of things, the lower authorities while again deciding the issue in remand proceedings should have taken into account the verdict laid down by the Hon'ble Supreme Court in the latter decision in the case of Assam State Text Book Production and Publication Corporation (supra). Hon'ble Supreme Court, in this case, was deciding the case of Society which was engaged in similar activity to that of the assessee i.e. printing and publishing of school text books. It was also engaged in printing and publishing of text book for school students confirming to the norms prescribed by the Education Department of State. The main issue before the Hon'ble Supreme Court was whether the assessee Corporation cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was making profit on account of publishing and sale of text books and, consequently , it was not entitled to the benefit of exemption u/s 10(22) of the Act. However, the High Court noticed the letter issued by the CBDT on 19th August, 1975, in the case of Tamil Nadu Text Book Society, which, in similar circumstances, had granted exemption to the Tamil Nadu Text Book Society as an educational institution within the meaning of Section 10(22) of the Act. The judgment of the High Court further recites that under similar situation, the CBDT had also extended the benefit of exemption u/s 10(22) of the Act to the Orissa Secondary Board Education reported at 86 ITR 408. After taking into account these circulars/letters issued by the CBDT, Rajasthan High Court came to the conclusion that the assessee in that case, namely, Rajasthan State Text Book Board, was entitled to claim the benefit of exemption u/s 10(22) of the Act. The Court observed that it is not disputed before us that the aims and objects of the Tamil Nadu Text Books Society and those of the respondent-assessee are almost identical. It is also not shown to us that the surplus amount, if any, of the respondent-assessee, is used f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-08 1266746577 144196585 11.38% 02. 2005-06 738791535 545133818 7.38% 03. 2004-05 722303396 66977658 9.27% 04. 2003-04 583113633 49472558 8.48% 05. 2002-03 487091387 37037975 7.60% 06. 2001-02 496300946 12043170 2.43% 07. 2000-01 377317263 30556884 8.10% 25. The close scrutiny of the audited accounts also reveals that no part of the surplus generated by the assessee was parted by it for the purpose other than aid to Government schools for construction of building, repairing of building, furniture, scholarships to the students etc. It is also clear from the audited accounts of the Society that it has not distributed any profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Board of Governors consisting of Ministry of Education etc. and Chairman and Board of Secondary Education, M.P., Director of State, Institute of Science Education, and the objection of which was to provide text books to the students of class I to XII as prescribed by the Government of M.P. at cheaper rate and without motive to earn profit, is eligible for claim of exemption u/s 10(22) for the assessment years 1988-89 to 1998 to 1999. It is pertinent to mention here that w.e.f. 1.4.1999 Section 10(22) was substituted by Section 10(23C), Cl.(iiiab) of which stipulates that a University or other educational institution existing solely for educational purpose and not for the purpose of profit, which is wholly and substantially financed by the Government are eligible for claim of exemption. Sub clause (vi) of Section 10(23C) provides that University or other educational institution existing solely for educational purposes and not for the purpose of profit, other than those mentioned in sub clause (iiiab) or sub clause (iiiad) and which may be approved by the prescribed authority. Thus, the approval is required only in cases where the university and other educational institution i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005-06 16,10,623 2004-05 10,04,050 2003-04 10,04,050 2002-03 9,73,313 2001-02 11,30,196 1999-20 00 12,10,054 1998-99 28,37,672 1997-98 10,70,794 1996-97 7,73,362 1995-96 7,82,584 1994-95 12,65,307 30. The observation of ld. Lower authorities to the effect that the assessee society is not substantially financed by the Government of M.P. is misplaced, in view of the audited accounts placed in paper book which indicate that the State Government under the scheme of Sarva Shiksha Abhiyan advanced following amount to the appellant against supply of Nishulk Pathya Pustak Vitran Yojna :- Financial year ended on Amount of Advance 31.03.2008 60,04,17,713 31.03.2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State Government has achieved this object very successfully, which is clear from the fact that selling price of the book printed by the Society is just 1/3rd in comparison to the text books published by the private publishers. The assessee has also placed on record list containing details regarding selling price of the books published by the Society vis- -vis private publishers in part III as placed at page 931 932 of the paper book. It is also evident from the audited accounts for the assessment year 1988-89 to 2008-09 that the assessee society has not incurred any expenditure for non-educational purposes. Even both the lower authorities have not given any finding nor brought any material on record even during remand assessment proceedings, to suggest that the assessee has incurred any expenditure for non-educational purposes. Thus, we found that entire fund of the assessee society was utilized only for the educational purposes and nothing was brought on record by any of the lower authorities to indicate that the assessee society has utilized fund for purpose other than educational activities. As per object clause no. (2), the assessee is producing school text books and hand b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be restricted to only those assessees, who are running educational institution. Thus, for falling within the purview of educational institution, it is not mandatory that the assessee should carry on educational institution by itself. It will be sufficient that the assessee is existing solely for educational purposes. Even in case of Sorabji (supra) as relied on by the ld.CIT(A), Hon'ble Court has observed as under :- True it is, that it is not necessary for the institution to run education itself. The educational institution may be run by some one but the income of the institution should be utilized for imparting education . 36. In the above case, it was found that the assessee was giving scholarships or grant to the students without having any control whatsoever on such students. The Court observed that since no educational activities in the sense of normal schooling or actual imparting of knowledge or learning to the students was carried on by the Trust and the Institute was simply giving scholarships to the needy parsi students for technical education without getting any control over such students or without imparting any knowledge to the said students, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, at page 21 of the Hon'ble Supreme Court stated as under :- However, the High Court noticed the letter issued by the CBDT on August 19,1975, in the case of Tamil Nadu Text Book Society, which as stated above in the similar circumstances had granted exemption to the Tamil Nadu Text Book Society as educational institution within the meaning of Section 10(22) of the Act. The judgment of the High Court further recites that under a similar situation, the CBDT had also extended the benefit of exemption u/s 10(22) of the Act to the Orissa Secondary Board Education as reported in Secondary Board Education vs. ITO, (1972) 86 ITR 408 (Orissa), following these circulars/letters issued by the CBDT, the Rajasthan High Court came to the conclusion that the assessee in that case namely the Rajsthan High Court came to the conclusion that the assessee in that case namely The Rajasthan State Text Book was enti9tled to claim the benefit of exemption u/s 10(22) of the Act. 39. In view of the above discussion and applying the judicial pronouncements to the facts of the instant case vis- -vis aims and objects referred above, we hold that lower authorities were not justified in declining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Form No.10-B. Furthermore, since the assessee was owned by the State Government, it was a lengthy process for appointment of auditor, when the list of such auditors was given only by C AG, the assessee has to go through various formalities for appointment of auditors and fixing their remuneration, which required proper approval and sanction of various authorities. As soon as the assessee has got the registration u/s 12AA, the assessee has also started to obtain necessary approval and also the audit report in prescribed form 10B for the claim of exemption u/s 11. Thus, we found that there was reasonable cause for delay in obtaining the audit report. In the interest of justice, we condone the delay in obtaining the audit report and direct the AO to examine the assessee s claim for exemption u/s 11 on merits, after verifying the various conditions which are required to be fulfilled, more particularly the utilization of receipts for the purpose of objects of society as discussed herein above to the extent of 85 %. Assessee is also directed to submit the other details as desired by the AO for verifying its claim of exemption u/s 11 of the Income-tax Act, 1961. We direct accordingly. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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