TMI Blog2010 (7) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, the assessee is not required to get approved by any prescribed authority. It is not the case of the Revenue that the assessee has defaulted the proviso to section 10(23C). Merely this surplus has arisen to the assessee during the course of carrying on the education activity does not mean that the assessee is not existing for education purpose. Even no such evidence or material was brought on record which may prove that the assessee was engaged in any of the activities other than the education activities so that the assessee may be disentitled for the exemption under section 10(23C)(iiiad), rather the AO has accepted by allowing exemption to the assessee u/s 11 during the assessment year 2007-08 that the assessee is a genuine educational institution and the activities of the assessee are genuine and has been carried on as per the objects of the assessee. We accordingly set aside the order of the AO and allow the exemption to the assessee u/s 10(23C)(iiiad). The aforesaid view is supported by the decision of the Allahabad High Court in the case of City Montessory School v. Union of India [ 2009 (5) TMI 41 - ALLAHABAD HIGH COURT] and that of Ewing Christian College Society v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aritable or religious purpose, either during the period of accumulation or thereafter. Any such credit or payment by the donor trust to another trust or institution shall be deemed to be the income of the donor trust in such year of credit or payment. Since the 15 per cent accumulation u/s 11(1) is unconditional and need not be spent at all by the trust, the question of treating the same as income in case it is credited or paid to another trust (in the subsequent year) does not arise in any case, section 11(3) which beings with the words income referred to in sub-section (2) , makes it explicitly clear that the restriction imposed by section 11(3)(d) applies only to income accumulated u/s11(2) and not to the current year's income or to the accumulation u/s 11(1). Therefore, we set aside the order of CIT(A) on this issue and direct the AO to allow deduction to the assessee in respect of donation paid to Gagan Academic Society provided that the society is duly registered u/s 12AA as a charitable institution. Interest income earned - loan advanced - We, therefore, set aside the order of CIT(A) and restore this issue to the AO with the direction that the AO shall verify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose of verifying the figures as claimed by the assessee to the AO. We have confirmed the disallowance of the expenses in the assessment year 2003-04 and restored the issue so far the advance to Smt. Urvashi Sharma is concerned to the file of the AO. Accordingly, we restore this issue for the assessment years 2004-05, 2005-06 and 2006-07 relating to the verification of the capital expenditure incurred by the assessee to the file of the AO with the direction that the AO shall allow exemption to the assessee u/s 11 in respect of the capital expenditure to the extent it is found that the assessee has incurred the capital expenditure. In the result, the appeals filed by the assessee for assessment years 2000-01, 2001-02, 2002-03, are allowed while the appeals for the assessment years 2003-04 to 2006-07 are partly allowed for statistical purposes. - R.K. GUPTA, JUDICIAL MEMBER AND P.K. BANSAL, ACCOUNTANT MEMBER Pankaj Gargh for the Appellant. Ashok Mishra for the Respondent. ORDER P.K. Bansal, Accountant Member. - All these appeals have been filed by the assessee against the orders of the CIT(A). The ITA Nos. 116, 115 114 relating to assessment years (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return on 27-11-2003 showing Nil income for assessment year 2003-04. Society has filed application for registration under section 12A on 8-3-2003 and got registration under section from financial year 2003-04 (assessment year 2004-05), prior to that no registration was allowed. As per audited accounts for assessment years 2000-01, 2001-02 and 2002-03 filed by the society of the society with application for registration under section 12A following amounts were surplus excess of income over expenditure. Assessment Year Surplus Amount 2000-01 ₹ 19,43,228 2001-02 ₹ 19,21,168 2002-03 ₹ 19,73,898 As per assessment under section 143(3) completed on 31-3-2006 on total income of ₹ 53,53,840 the society is not working for educational/charitable purpose and has got no registration under section 12A, also posses taxable income. It is also being run for private profit. And income not exempt from tax. Therefore, I have reason to believe that following income have certainly escaped assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sharma, Secretary of the Society, has surrendered an amount of ₹ 50,00,000. The A.O brought on record that Smt. Shashi Bala Sharma in her return filed for assessment year 2003-04 declared an income at ₹ 4577 from interest and ₹ 17,482 of LIC and drawings of ₹ 24,000 which facts clearly prove that Smt. Shashi Bala Sharma is not having any other source of income than declared in the return filed by her and that the surrender amount of ₹ 50,00,000 represents the amount earned/siphoned from M/s Gagan Education Society. This is material evidence, which shows that for all practical purposes, profit is being earned from the educational activity on a regular basis for which Smt. Shashi Bala Sharma has made the surrender in assessment year 2003-04. Besides the above, the Assessing Officer also brought on record that there is benefit to the president or the secretary of the society, in whose name the school building or the land exists, benefited by way of construction. As regards the contention that the founder of the society has unequivocally transferred the title of the land at Agra Road (on which the school building of the society has been constructed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer in the assessment year 2007-08 has given a clear cut finding that the assessee Society is running education institution for only charitable purpose to fulfil all the conditions laid down under sections 11 12 of the Act. Copy of the assessment order for assessment year 2007-08 was put up at pages 65 to 66 of the Paper Book. 8. The ld. D.R., on the other hand, relied on the orders of the authorities below. 9. We have carefully considered the rival submissions and perused the material on record alongwith the orders of the Tax Authorities below. Sub-section (15) of section 2 of the I.T. Act as were in existence during the year under consideration reads as under :- Charitable purpose includes relief of the poor, education, medical relief and the advancement of any other object of general public utility. 10. Thus, carrying on the education is a charitable purpose. The sense in which the word education has been used in sub-section (15) of section 2 of the Act is the systematic instruction, schooling or training given to the young in preparation for the work of life. Similarly extending financial assistance/scholarship, etc., to students for their educational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r than the education activities so that the assessee may be disentitled for the exemption under section 10(23C)(iiiad) of the Act, rather the Assessing Officer has accepted by allowing exemption to the assessee under section 11 during the assessment year 2007-08 that the assessee is a genuine educational institution and the activities of the assessee are genuine and has been carried on as per the objects of the assessee. We accordingly set aside the order of the Assessing Officer and allow the exemption to the assessee under section 10(23C)(iiiad) of the Act. The aforesaid view is supported by the decision of the Allahabad High Court in the case of City Montessory School v. Union of India [2009] 315 ITR 48/[2010] 191 Taxman 208 (All.) and that of Ewing Christian College Society v. Chief CIT [2009] 318 ITR 160 (All.) and American Hotel Lodging Association, Educational Institute v. CBDT [2008] 301 ITR 86 / 170 Taxman 306 (SC). 12. In the result, all the three appeals are allowed. ITA Nos. 113, 147, 148 150 13. In all these four years, since the issue involved is common, therefore, all these appeals are disposed of by this common order. 14. The first issue involved in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s conducted. The Addl. Commissioner, vide letter dated 6-1-2004 pointed out that registration under section 12A in his opinion, will not have any adverse effect on the assessment of income and determining of tax liabilities for the F.Y. in which the survey was conducted as income has been surrendered by the Directress Smt. Shashi Bala Sharma in her individual capacity amounting to ₹ 50,00,000 and due tax has already been paid by her. She has duly disclosed and surrendered income in her income-tax return. After pointing out the defects in the audit report and the minutes book etc. the Assessing Officer took the view that the assessee is not eligible for exemption under section 10(23C)(vi) as the receipts were in excess of ₹ 1 crore during the year under consideration. He ultimately by denying exemption to the assessee under section 11 determined the total income of the assessee at ₹ 53,53,840 by making various additions/disallowances which were challenged before the CIT(A). The CIT(A) dismissed the appeal of the assessee by observing as under :- ''This issue under appeal has been examined. The main issue involved in this appeal is against the action of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the status of the case of the appellant in the year under consideration. The Assessing Officer has also brought on record that the construction material purchased in the name of the society were used in the construction of house of Smt. Shashi Bala Sharma, Secretary of the Society. All the above facts clearly establish that the society runs the schools for the purposes of profit and not for the charitable purposes. Considering the entire facts and circumstances of the case, it is held that the Assessing Officer has rightly held that the Schools are being run by the appellant society for the purpose of profit and not for the charitable purposes. Therefore, the Assessing Officer has also rightly denied exemption under section 10(23C)(iiiad) to the appellant. The action of the Assessing Officer on this score is accordingly confirmed. The case laws relied upon by the learned AR is clearly distinguishable and hence the same do not help the appellant's case. 17. The ld. A.R. before us contended that the income of both the Schools were ₹ 1,20,31,000 and after adding thereon the interest derived by the assessee amounting to ₹ 24,015 the total receipts were ₹ 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to cancel the registration of the trust. The continuation of the registration to the trust or institution itself proves that the trust is engaged genuinely in charitable activities. Referring to the donation made amounting to ₹ 15,73,600 to Gagan Academic Society, it was pointed out that this section is not applicable for making the donation to the charitable trust out of current year's income. The assessee has rightly claimed the statutory accumulation under section 11(1)(a) at the rate of 15 per cent of the gross income. The Assessing Officer was not justified in adding back the surplus ₹ 14,08,804 as it represents income set apart by the assessee application for charitable purpose as specified under section 11(2). The assessee has passed necessary resolution and submitted the form (intimated the Assessing Officer along with the return in the prescribed form). The resolution was passed by Circular doesn't mean that no resolution was passed in this regard. Merely the assessee derived the profit during the year does not mean that the assessee is not engaged in charitable activities. Section 250 defines the charitable purpose. Imparting of education is one of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand, relied on the orders of the authorities below. 18. We have carefully considered the rival submissions along with the orders of the tax authorities below and the case laws relied on before us and perused the material on record. We noted that the first contention of the Revenue for the denying exemption to the assessee under sections 11 12 was that the schools were run by the assessee society for the purpose of profit and not for charitable purpose. This contention of the authorities below cannot be sustained in view of the fact that the department has duly accepted during the assessment year 2007-08 that the Institution has been established only for charitable purpose and accordingly allowed the exemption to the assessee under sections 11 12. We also noted that the society is registered under section 12AA by the CIT and the registration of the Society has not been cancelled by it by invoking section 12AA(3). The department has all the power to cancel the registration in case they find that the assessee is not engaged in charitable activities, as has been held by us earlier. Imparting of the education is a charitable purpose in view of the provision of section 2(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ospital or other medical institution referred to in section 10(23C), as any such credit or payment shall not be treated as application of income for charitable or religious purpose, either during the period of accumulation or thereafter. Any such credit or payment by the donor trust to another trust or institution shall be deemed to be the income of the donor trust in such year of credit or payment. 19. The amendment in our opinion is applicable only to the payment made to other trusts/institutions out of amount accumulated under section 11(2) and not to payment out of current year's income, which will continue to be treated as application of income. Similarly, payment made to another trust/institution out of the 15 per cent accumulation permissible under section 11(1)(a) will not be hit by the above amendment. Though the explanation to section 11(2) refers to amount credited or paid to another trust out of income referred to in section 11(1)(a), the reference clearly is to only that part of the income which is accumulated under section 11(2). This is because the explanation states that any amount credited or paid to other trusts/institutions shall not be treated as applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in clause (c ) of sub-section (1) but without prejudice to the provisions contained in clause (d) of that sub-section in a case where the aggregate of the funds of the trust or institution invested in concern in which any person referred to in sub-section (3) has a substantial interest, does not exceed five per cent of the capital of that concern, the exemption under section 11 or section 12 shall not be denied in relation to any income other than the income arising to the trust or the institution from such investment, by reason only that the funds of the trust or the institution have been invested in a concern in which such person has a substantial interest. 22. From a plain reading of this section, it is apparent that where the aggregate of the funds of the trust or institution invested in concern in which any person referred to in sub-section (3) of section 13 has a substantial interest, does not exceed 5 per cent of the capital of that concern, the exemption under section 11 or 12 shall not be denied in relation to any income other than the income arising to the trust or the institution from such investment. The said income from the investment shall be charged to tax in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the assessee has not filed any consolidated balance sheet before us so that the incurring of the capital expenditure as claimed by the assessee be verified. There is distinction of expenditure incurred for the purpose of earning the income which are deductible in computing the income for the purpose of section 11 and the expenditure incurred for carrying out the purpose of the trust which must be considered as application of income for charitable purpose. Under section 11(1)(a) 15 per cent accumulation is permissible and that accumulation has to be calculated with reference to the income of the trust first in commercial sense and according to its account after deducting a 15 per cent statutory accumulation 85 per cent of the income has to be applied for charitable or religious purposes. The 85 per cent should be of the commercial income and not of the income as determined under section 2(45) of the Act. The income includes voluntary contribution. In case the assessee could not apply 85 per cent of the income during the relevant accounting year, the Explanation 2 of section 11(1) provides that no tax will be levied on unspent portion if the condition stipulated therein are compli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation under section 11(1)(a), whether the assessee is entitled for claim of application under section 11 in respect of the capital expenditure or not. According to the ld. A.R., if the statutory accumulation and application of the capital expenditure is allowed, even if the disallowance of the expenditure is sustained, the income of the assessee will be nil. For this, he submitted the computation before us in respect of each of the assessment year detailed as under :- A.Y. 2004-05 Receipt Expenditure including capital expenditure Revenue expenditure ₹ 9796617 1. By Fees received ₹ 11,436,225 Capital expenditure ₹ 16,48,911 2. By Interest on Bank FDR ₹ 96,250 ₹ 14,45,529 3. By Saving Bank Interest ₹ 9,299 Total : ₹ 11,541,774 A.Y. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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