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TMI Blog2010 (7) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... wo Schools in the name of Gagan Public School, one at Agra Road and other at Exhibition Road. In the return filed, the assessee has shown the receipts from these two schools as follows :- Asst. Year Agra Road Exhibition Road 2000-01 20,36,479 36,66,170 2001-02 39,79,577 37,93,126 2002-03 53,94,939 40,20,333 4. Proceedings under section 147 were initiated in all these three years as in the assessment year 2003-04 vide order dated 31-12-2004 the Assessing Officer held that the Society is running the School for profit and not for charitable purposes. Copy of the reasons as recorded at page 2 of the Assessment Order reads as under :- "As per renewal Certificate of society dated 5-6-1999 filed by the Secretary with application for registration section 12A of the Income-tax Act, 1961, the society was established on 29-4-1989. Since than a society in the name of Gagan Public School is being run by the society. According to Bye Laws of Society its aims and objects were educational/charitable. But as per assessment order under section 143(3) passed by the Additional Commissioner of Income-tax, Range-1, Aligarh. Society is not working wholly and exclusively for educati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee went in appeal before the CIT(A) in each of the assessment year. The CIT(A) also 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 the Assessing Officer in denying exemption under section 10(23C)(iiiad) of IT Act to the appellant. The Assessing Officer has held that the Schools he being run by the appellant for fit and not for charitable purposes and hence the assessee is not entitled for exemption under section 10(23C)(iiiad). During appellate proceedings, it has been argued on behalf of the appellant that the society is not running the school for profit but is engaged in imparting education, which is a charitable purpose. The main reason on the basis of which the Assessing Officer has held that the society is running the schools for profit and not for charitable purposes is on the basis of instances noticed in assessment year 2003-04. The most crucial aspect which has been brought on record by the Assessing Officer for holding that the society is running the schools for profit and not for charitable purposes is that assessment year 2003-04, Smt. Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 6. Similar findings were given in each of these assessment years. 7. The ld. A.R. before us contended that the provisions of section 10(23C)(iiiad) are applicable in the case of the assessee. It is not denied that the assessee is not running the education institution. The Assessing Officer has accepted the receipt and expenditure account and also all the assets and liabilities as per the Balance Sheet and Profit & Loss account. Referring to the provisions of the section 10(23C)(iiiad), it was pointed out that the aggregate annual receipts in the case of the assessee from education institution in each of the assessment year is less than Rs. 1 crore. The Society is existing solely for education purpose and not for any other purpose. Thus, the assessee is entitled for exemption under section 10(23C)(iiiad). The provisions of section 10(23C)(iiiad) are different as compared to the exemption available under sections 11 & 13 of the Act. It was also pointed out that the Society is registered under section 12AA subsequently vide CIT Aligarh letter No. F.No. C.I.T.(PRO)/Alg./12A/2003-04/2666, dated 21-1-2004 at Registration No. CIT/Alg./PRO/12AA/36/2003-04. The Assessing Officer in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed." 11. Income-tax Rules 2BC prescribes the limit of Rs. 1 crore. It means that if the turnover is Rs. 1 crore or less, then the educational institution has not to be approved by prescribed authority. Otherwise, educational institution has to get approved by the prescribed authority. In the case of the assessee, in each of the assessment year the annual receipts as detailed above is less than Rs. 1 crore. Therefore, in our opinion, 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) of the Act. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the resolution was not enclosed therewith. The assessee was running two schools namely Gagan Public School, one at Jail Road and other at Agra Road. A survey under section 133A of the Act was conducted on 8-8-2002. During the course of survey, statement of Smt Shashi Bala Sharma, Secretary of the Society was recorded. Smt. Shashi Bala Sharma surrendered an income amounting to Rs. 50,00,000 as income from other sources in her individual capacity. A notice under section 142(1) for the said assessment year was issued on 18-11-2003. The CIT(A) vide letter dated 23-12-2003 asked the Addl. Commissioner of Income-tax. Range-I, Aligarh whether the survey will have any adverse effect on the assessment of the income and determining of the tax in which survey was 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 Rs. 50,00,000 and due tax has already been paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 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 the society) and land at exhibition road, in favour of the society by a registered sale deed dated 18-6-2008 and an agreement top sell dated 10-7-2008. Respectively, these are post facto events and hence the same has no material bearing on 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment under section 143(3) assessed the assessee at nil and allowed the exemption to the assessee under section 11 by accepting the returned income of the assessee. Once the Revenue has accepted that the assessee is running the school for charitable purpose, the finding given by the authorities below that the school is not running for charitable purpose is not correct. The registration granted to the assessee under section 12AA was not rejected. Referring to section 12AA(3), it was contended that the CIT(A) specifically empowered if the activities of the trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, 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 Rs. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred for the personal benefit of the office bearers. Even otherwise also it was pointed out that if the disallowance so made in the assessment year 2003-04 amounting to Rs. 5,63,179 is concerned, the 15 per cent statutory accumulation allowable under section 11(1)(a ) will also correspondingly increase. Even otherwise also it was contended that the application of the income including the statutory accumulation under section 11(1)(a) was much more than the expenditure so disallowed. Thus, it was vehemently contended that in view of the finding given in the assessment year 2007-08, the assessee should be allowed exemption under section 11 of the Act. Ld. D.R., on the 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 susta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Society is also engaged in imparting education and is registered under section 12A of the Act as pointed out by the ld. A.R. The donation so paid was not treated as an application of the income by the Assessing Officer and confirmed by the CIT(A). We have gone through the provisions of explanation to section 11(2) of the Act. This explanation has been inserted by the Finance Act, 2002 by amending section 11(2). This explanation provides that the amount accumulated cannot be credited or paid to any other trust or institution registered under section 12AA or to any fund or institution or trust or any University or any other educational institution or any hospital 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of donation paid to Gagan Academic Society provided that the society is duly registered under section 12AA as a charitable institution. 21. The other issue relates to the loan amounting to Rs. 1,55,000 advanced to Smt. Urvashi Gaur on 10-6-2002 at the rate of 15 per cent per annum. This loan has been repaid by her along with interest in the financial year 2004-05. Smt. Urvashi Gaur is a person specified under section 13(3). Interest has been charged from her more than the bank interest which, in our opinion, is adequate interest. Section 13(4) in this regard is relevant. This section states as under :- "Notwithstanding anything contained 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in respect of capital expenditure on the basis of the audited balance sheet filed before us, the assessee claimed that he has incurred Rs. 28,57,957 as capital expenditure during the year and if the said capital expenditure is allowed as an application, the income of the assessee will be nil. We noted from the copy of the balance sheet as audited and filed before us in the Paper Book in respect of Gagan Public School at Exhibition Road and Agra Road that the assessee has incurred capital expenditure during the year under consideration. Though the assessee has incurred capital expenditure during the year under consideration but 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income of the assessee will be nil and accordingly the claim of the assessee in respect of Rs. 14,08,804 will merely be academic and the assessee therefore did not press the claim before us and accordingly we dismiss this claim of the assessee. 24. In the result, appeal of the assessee is partly allowed for statistical purposes. 25. In respect of the appeal relating to the assessment years 2004-05, 2005-06 and 2006-07, both the ld. A.R. and ld. D.R. agreed that the issues involved are common. Whether the assessee is running an institution for charitable purposes, whether the assessee is entitled for statutory accumulation 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 expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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