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2017 (2) TMI 547 - ITAT DELHI

2017 (2) TMI 547 - ITAT DELHI - TMI - Eligibility for exemption under Section 10(23C)(iiiad) - Held that:- The assessee is running a college of pharmacy and as such engaged in the educational activities. The assessee has received fee of ₹ 74,24,840/- as mentioned in the income and expenditure account for the year ending 31st March, 2004. From the aforesaid facts, it is clear that the assessee is an educational institution which is duly recognized and registered, it has applied his income f .....

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the ratio laid down by the Hon’ble Apex Court in the aforesaid referred to case of Queens Educational Society Vs CIT (2015 (3) TMI 619 - SUPREME COURT ) are of the view that the ld. CIT was not justified in confirming the action of the AO for denying the exemption u/s 10(23C)(iiiad) of the Act to the assessee. Accordingly, the impugned order is set aside and the AO is directed to allow the claim of the assessee for exemption u/s 10(23C)(iiiad) of the Act.- Decided in favour of assessee - ITA No .....

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nd on facts. 2(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of A.O. in holding that the assesses is not eligible for exemption under Section 10(23C)(iiiad) of the Act. (ii) That the above said action has been confirmed despite the assessee complying all the conditions for being eligible to claim exemption under Section 10(23C) (iiiad) of the Act. 3. On the facts and circumstances of the case, the learned CIT(A) has .....

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ct, 1961 (hereinafter referred to as the Act). 4. Facts of the case in brief are that the assessee filed the return of income on 28.10.2004 declaring taxable income at Nil on the ground that the income derived from the educational institution was exempt u/s 10(23C)(iiiad) of the Act. In the year under consideration, the assessee had declared excess income over expenditure at ₹ 18,93,376/-, against the gross receipt of ₹ 81,11,289/-. The AO framed the assessment u/s 143(3) of the Act .....

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rust deed was filed unsigned, unwitnessed and unregistered. 5. In response, the assessee filed the written submission which had been reproduced verbatim by the AO in para 4 of the assessment order dated 06.08.2009 and read as under: a) That during the assessment proceedings for AY 2004-05, records, books of accounts requisitioned by the Ld. A.O. from time to time was produced, test checked and found correct and after completing the inquiries the Id. A.O. has not found the assessee violating any .....

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s to be satisfied:- a) the assessee must be a University or other educational institution existing solely for educational purposes; b) not for purposes of profits. c) Aggregate annual receipts of such university or educational not exceed the amount of annual receipts as prescribed under rule 2BC(1) which is ₹ 1.00 Crores. In the case of assessee the aggregate annual receipts during the F.Y. 2004-05 was ₹ 81,11,290.00 which is within the limits prescribed. There is no allegation in th .....

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see must be a university or other educational institution existing solely for educational purposes. The assessee is an institution imparting two year diploma course of pharmacy & medical lab technology, it is recognized by All India Council for Technical Education, New Delhi and Pharmacy Council of Haryana. Regular classes is being held and relationship of teacher & taught is present. The institution came into existence since 1986. It is pertinent to mention here that during the assessme .....

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organization, or association, instituted for the promotion of some objects, specially one of public or general utility, religious, charitable, educational, etc". Lord Machaghten in Mayor & Co. of Machester V. Mc Adam (1896) AC 300: (1896) 3TC 491, 497 (HL) reproduced in CIT Vs. Radha Swami Satsang Sabha (1954) 25 ITR 472 (ALL) " It means, I suppose, an undertaking formed to promote some defined purpose, having in view, generally the institution of education of the public. It is the .....

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previously. c) Hon'ble Supreme Court in Aditanar Educational Institution etc. Add CIT (1997) 224 ITR 310(SC) has held that "The language of Section 10(22) is plain and clear and the availability of exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for the purposes of profits. "After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by t .....

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980) 121 ITR 1(SC) held as under:- "When the purpose of a trust or institution is advancement of an object of general public utility, it is that object itself and not its accomplishment or carrying out which must not involve the carrying of any activity for profits." Merely there is an increase in assets & fees or there is profit cannot be held as reason for disallowing claim for exemption U/S 10(23C)(iiiad) of the Act. d) That your good self assessment order dated 27.12.2006 for A .....

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a Vs. ITO (2007) 108 TTJ (Del) 301 iv) Triveni Engineering Ltd. Vs. DCIT (2004) 87 TTJ (Del.) 93 v) Aquel Charities (Aquel Sewa Sang) Vs. ITO (1988) 31 TTJ (Del) 160. vi) Birla Vidhya Vihar Trust Vs. CIT (1982) 136 ITR 445 Cal. vii) ACIT Vs. Rajasthan State Text Book Board (2000) 244 ITR 667 (Raj) viii) CIT Vs. Lagan Kala Upvan (2003) 259 ITR 489 (Del) ix) CIT Vs. Vidya Vikas Vihar (2004) 265 ITR 489 (Bom) x) Gujarat State Co.Op. Union Vs. CIT (1992) 195 ITR 279 (Guj.) f) That under the Act, the .....

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on assessee above was also got registered on 22.01.2007 as charitable trust with all corpus fund and assets accumulated as on that date (copy enclosed). As per trust deed "none of the objects of the trust shall' at any time involve carrying on of any activity for profits; income or the assets of the Trust fund shall not be applied or transferred in whole or in part for any purpose other than charitable and or educational purposes; the income or assets of the trust shall not be applied o .....

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rement of a registered body under a statute, on which much impetus was given by the then Ld. AO and Ld. CIT(A) in proceedings relating to AY 2003-04, though not necessary. It is also pertinent to mention here that the Income Tax Act has no where provided that for claim of exemption under section 10(23C)(iiiad) the educational institution has to be a registered body under Societies . Registration Act or Indian Trust Act under any act. In view of above it is requested that, no addition is called f .....

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he assessment order dated 06.08.2009, for the cost of repetition, the same is not reproduced herein. He further observed that appeal of the assessee filed against the order dated 24.04.2008 of the ld. CIT, Karnal was dismissed by the ITAT vide order dated 12.06.2009 in ITA No. 2185/Del/2008. The AO also observed that during the course of assessment proceedings for the assessment year 2003-04, the assessee vide its reply dated 22.12.2006 admitted that no trust deed was executed, however, it ran u .....

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. Satya Sain Farming Matroli and that a sum of ₹ 1.25 lakh was saved from the farming venture between 1972 and 1980 which was distributed as charity, stipend and scholarship. Later on, it was resolved by the trustees, on 03.03.1983 to start an institution for imparting education, both technical and vocational with the name of Sh. Satya Sain Educational and Vocational Trust-Matroli (Karnal), but the founder of the trustees did not set apart any money for the purpose of trust. Therefore, in .....

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did not contain any clause as to how the assets would be disposed off in case of dissolution of the trust. He, therefore, held that the trust did not exist for charitable purposes. Accordingly, the AO did not accept the contention of the assessee and rejected the reply by observing as under: 7(ii) As regards para (b) of reply, the provisions of section 10(23C)(iiiad) prohibits exemption to educational institution existing solely for the purpose of profit. In the case of the assessee, out of gros .....

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. Dharam Vati 600000/- Shamsher Singh 200000/- Lalit Mann 200000/- The above figures of profit proves beyond doubt that the assessee is earning sustained profits and diverting the funds of the trust for personal benefits of the trustees. The definition of institution defined in the judgement relied upon by the assessee merely defines the word institution. There is nothing in the alleged trust deed, preventing the application of profits or assets of the trust for the benefits of founder or anyone .....

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eligible for exemption u/s 10(23C)(iiiad) of I.T. Act. 7(iii) In para (c) of the reply, the assessee has relied upon the judgement of Hon'ble Supreme Court in the case of Aditanar Educational Institution etc. Vs Add CIT (1997) 224 ITR 310(SC). Firstly this judgement was rendered on the provisions of section 10(22) whereas the case of the assessee falls u/s 10(23C)(iiiad). Secondly, the Hon'ble Apex Court has held that exemption has to be evaluated each- year. In the year under considerat .....

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004-05 ceases to exit. Thus, the assessee cannot rely upon any findings given in the asstt. order for 2004-05. 7(v) The case laws relied upon by the assessee in para (e) of reply were rendered on the provisions of sec, 10(22) of I.T. Act, whereas the assessee is claiming exemption u/s 10(23C(iiiad). Section 10(22) of I.T. Act did not limit the gross receipts as prescribed under I.T. Rules for being eligible for exemption under sec. 10(23C)(iiiad) the assessee has to be established that the insti .....

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n regard to contentions mentioned in para (g) of reply, registration of trust on 22.01.2007 cannot correct the happenings earlier to that date. Hence, this ground is also not of any help to the assessee. 7. The AO also mentioned that in the case of M/s Queens Education Society Vs CIT, the Hon ble Uttaranchal High Court has held that the institution existing for the purpose of profit was not eligible for exemption u/s 10(23C)(iiiad) of the Act. He, therefore, by following the ratio laid down in t .....

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as per order sheet entry dated 25.10.2011 as under: "Relied on the submissions already filed. The facts stated to be that exemption claimed u/s 10(23C)(iiiad) was disallowed by the A.O. in the A.Y. 2003-04, which was confirmed by the CIT(A). The exemption was, however, allowed by the AO in the A.Y. 2004-05, which was later on cancelled by the CIT u/s 263 of the Act. The order of the CIT(A) in the A.Y. 2003-04 and u/s 263 in the A.Y. 2004-05 was challenged before the ITAT. The ITAT in its c .....

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and taxing the income as per Sections 28 to 43 of the Act was confirmed. 10. Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee is running a college of pharmacy which is duly approved by the Pharmacy Council of India as per Notification dated 24.05.2002. A reference was made to page nos. 34 to 40 of the assessee s paper book. It was further stated that All India Council for Technical .....

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ining regular books of accounts and had received fee of ₹ 74,24,840/- for the year under consideration, there was excess of income over expenditure of ₹ 7,00,876/- and the assessee being eligible for exemption u/s 10(23C)(iiiad) of the Act claimed exemption and that the assessment was completed by the AO u/s 143(3) of the Act vide order dated 27.12.2006. Thereafter, the said order was revised by the ld. CIT on the ground that the AO had not carried out necessary inquiry before granti .....

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would be exempt u/s 10(23C)(iiiad) of the Act. However, the AO did not grant exemption inter alia by relying on the judgment of Hon ble Uttarakhand High Court in the case of Queens Educational Society Vs CIT and thereafter the ld. CIT(A) instead of examining the issue as directed by the ITAT in a summarily manner dismissed the appeal of the assessee by holding that the exemption u/s 10(23C)(iiiad) of the Act was not available, in spite of the fact that the assessee had clarified each of the issu .....

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lakh and on the said basis, the registration had been granted later on u/s 12AA of the Act. It was pointed out that for creation of trust there need not be a formal trust deed and even the trust can be oral and that the intention of the author is sufficient to create a trust. A reliance was placed on the decisions of the Hon ble Allahabad High Court in the case of CIT Vs Sant Baba Mohan Singh reported at 118 ITR 1015 and the Hon ble Bombay High Court in the case of CIT Vs Trustees of Shri Cutch .....

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sessee was doing any activity for the purpose of profit. The reliance was placed on the decision of the ITAT Amritsar Bench in the case of ITO Vs Model Institute of Education & Research (2001) 77 ITD 375. The ld. Counsel for the assessee further submitted that the AO as well as the ld. CIT(A) had over looked the income and expenditure account for the preceding years starting from assessment years 1999-2000 to 2003-04 wherein it was evident that all along the activities have been education an .....

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uipment. 12. As regards to the application of income, it was stated that the AO and the ld. CIT(A) ignored the explanation supported by the judgment of Hon ble Supreme Court in the case of Aditanar Educational Institution Vs Addl. CIT reported at 224 ITR 310. It was submitted that the judgment relied by the AO in the case of Queens Educational Society Vs CIT had been overruled by the Hon ble Supreme Court vide order dated 16.03.2015 reported at 275 CTR 449 (copy of the order was furnished which .....

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s 10(23C)(iiiad) of the Act and that it is optional to get the registration u/s 12AA of the Act in case of an educational institution having annual receipts of less than ₹ 1 crore. It was contended that it was optional to claim exemption u/s 10(23C)(iiiad) of the Act or Section 11 of the Act as the assessee is an educational institution. Therefore, the exemption claimed u/s 10(23C)(iiiad) of the Act needs to be allowed. It was also pointed out that when the receipts exceeded ₹ 1 Cror .....

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any trust deed and even it was not registered u/s 12AA of the Act and a trust to be eligible for exemption is required the registration u/s 12AA of the Act, which the assessee did not have, moreover, the assessee charged the fee and during the year under consideration there was increase in the fee charged from students and the assessee was making profit, it was run for the purpose of profit making. Therefore, the exemption u/s 10(23), 11, 12 of the Act was not available to the assessee and the .....

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Sant Baba Mohan Singh (supra) held that a charitable trust may be created by words sufficient to show the intention, so long as there is a clear manifestation of intention to create a charitable or religious trust and there is a formal vesting of ownership of the property. A similar view has been taken by the Hon ble Bombay High Court in the case of Trustees of Shri Cutchi Lohana Panchtade Mahajan Trust reported at (1975) 98 ITR 448 (supra) wherein it has been held that a charitable trust need .....

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benefit of exemption cannot be denied to the assessee. In the present case, while denying the exemption u/s 10(23C)(iiiad) of the Act to the assessee, the AO relied on the decision of the Hon ble Uttarakhand High Court in the case of Queens Educational Society Vs CIT. The said judgment has been overruled by the Hon ble Supreme Court vide order dated 16.03.2015 reported at 275 CTR 449. In the instant case, it is not in dispute that the assessee is running a college of pharmacy which is duly appr .....

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said list. Therefore, it is clear that the assessee is running a college of pharmacy and as such engaged in the educational activities. The assessee has received fee of ₹ 74,24,840/- as mentioned in the income and expenditure account for the year ending 31st March, 2004 (copy of which is placed at page no. 4 of the assessee s paper book). From the aforesaid facts, it is clear that the assessee is an educational institution which is duly recognized and registered, it has applied his income .....

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stance case, as we have pointed out earlier that the AO while disallowing the claim of the assessee heavily relied on the decision of the Hon ble Uttarakhand High Court in the case Queens Educational Society Vs CIT which has been overruled by the Hob ble Apex Court vide order dated 26.03.2015 reported at 275 CTR 449 wherein their lordships in paras 24 & 25 held as under: 24. The view of the Punjab and Haryana High Court has been followed by the Delhi High Court in St. Lawrence Educational So .....

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ars in question, cannot by any stretch of logical reasoning lead to the conclusion that the Petitioner does not exist solely for educational purposes or, as that Chief Commissioner held that the Petitioner exists for profit. The test to be applied is as to whether the predominant nature of the activity is educational. In the present case, the sole and dominant nature of the activity is education and the Petitioner exists solely for the purposes of imparting education. An incidental surplus which .....

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it were, in regard to its knowledge based infrastructure. Nor for that matter is an educational institution prohibited from upgrading its infrastructure on educational facilities save on the pain of losing the benefit of the exemption under Section 10(23C). Imposing such a condition which is not contained in the statute would lead to a perversion of the basic purpose for which such exemptions have been granted to educational institutions. Knowledge in contemporary times is technology driven. Ed .....

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High Court and since the Chief CIT's orders cancelling exemption which were set aside by the Punjab and Haryana High Court were passed almost solely upon the law declared by the Uttarakhand High Court, it is clear that these orders cannot stand. Consequently, Revenue's appeals from the Punjab and Haryana High Court's judgment dated 29.1.2010 and the judgments following it are dismissed. We reiterate that the correct tests which have been culled out in the three Supreme Court judgment .....

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