TMI Blog2017 (3) TMI 578X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided to Jaipur National University (JNU) - Held that:- It is only now that the Finance Bill 2017 has proposed w.e.f 1 April 2018 that where such donations are made with specific directions to form part of corpus of the recipient entity, it will not be considered as application of income in the hands of the donor entity. However, the donations with no specific directions to the recipient entity continue to be eligible as application of income. - In the instant case, Jaipur National University is registered under section 12AA as a charitable entity undertaking educational activity and thus qualify as an eligible entity for receiving contributions from the assessee society. - the contribution so made is not made out of past accumulated profits. Nature of contribution to JNU - Held that:- it is clear that amount advanced by the assessee society to Jaipur National University is in accordance with its objectives of setting up of educational institutions and managing and operating them for promotion of education and spreading of systematic education to students. The contribution so made is also in consonance with the Jaipur University Act which require the assessee society to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue : Shri Anil Kumar (CIT) ORDER PER SHRI VIKRAM SINGH YADAV, A.M. These are cross appeals filed by the Revenue and the assessee society against two separate orders of ld CIT(A) dated 17.11.2015 in respect of assessment year 2010-11 and 2011-12 respectively. Since these appeals carry identical facts and common grounds of appeals, the same were taken up for hearing together and are being disposed off by this consolidated order. 2. For the sake of discussion, we will take up the appeals for AY 2010-11 first wherein the Revenue and the assessee society have taken up following grounds of appeal: In ITA No. 105/JP/16 (Revenue): On the facts and in the circumstances of the case and in law, the ld CIT(A) has erred in: (1) allowing assessee s claim of exemption u/s 11 even though provisions of section 13 are attracted. (2) allowing the benefit of section 11(1) of the IT Act without considering the huge surpluses being earned by the society and expenses were incurred for the benefit of persons covered u/s13(3) of the IT Act. (3) allowing salary expenses to the extent of the following amounts ₹ 90,450/- (Mrs. Mohini Bakshi), ₹ 24,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 11, are contained in section 2(15), 11, 12 ,12A, 12AA read with section 13 of the Act. 5. Section 2(15) defines charitable purpose to include relief of the poor, education, medical relief and the advancement of any other object of general public utility. The Hon ble Supreme Court in case of Sole trustee, Lok Sikshana Trust V. CIT reported in 101 ITR 234, 241 (SC) has held that What Education connotes in section 2(15) is the process of training and developing the knowledge, skill, mind and character of students by normal schooling. It is the systematic instruction, schooling or training given to the young in preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received. Further, it is noted that the proviso to section 2(15) doesnt apply to first three limbs which includes relief of the poor, education and medical relief and is limited is the last limb the advancement of any other object of general public utility. 6. The objectives of the assessee society, on perusal of its Bye-laws, are as follows:- 7. On perusal of the above objectives of the assessee society, it is clear that the main objects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside India, and (ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income; [(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.] [Explanation.-For the purposes of clauses (a) and (b),- (1) in computing the fifteen per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income; (2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of eighty-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount- (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then - (a) in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied to charitable or religious purposes to the extent specified hereunder, namely:- (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of the appropriate fraction of such capital gain; (ii) in any other case, so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transferred asset. Explanation.-In this subsection,- (i) appropriate fraction means the fraction which represents the extent to which the income derived from the capital asset transferred was immediately before such transfer applicable to charitable or religious purposes; (ii) cost of the transferred asset means the aggregate of the cost of acquisition (as ascertained for the purposes of sections 48 and 49) of the capital asset which is the subject of the transfer and the cost of any improvement thereto within the meaning assigned to that expression in sub-clause (b) of clause (1) of section 55; (iii) net consideration means the full value of the consideration received or accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. [Explanation.-Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter. (3) Any income referred to in sub-section (2) which- (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or (b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes. (4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business. (5) The forms and modes of investing or depositing the money referred to in clause (b) of sub-section (2) shall be the following, namely :- (i) investment in savings certificates as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 (46 of 1959), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government; (ii) deposit in any account with the Post Office Savings Bank; (iii) deposit in any account with a sched ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia for residential purposes and which is eligible for deduction under clause (viii) of sub-section (1) of section 36; (ixa) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for urban infrastructure in India. Explanation.-For the purposes of this clause,- (a) long-term finance means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years; (b) public company shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956); (c) urban infrastructure means a project for providing potable water supply, sanitation and sewerage, drainage, solid waste management, roads, bridges and flyovers or urban transport;] (x) investment in immovable property. Explanation.- Immovable property does not include any machinery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or ceases to remain invested for deposited in any of forms or modes specified in sub-section (5) or is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof or is credited or paid to any trust or institution registered under section 12A or any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause 23C of Section 10, shall be deemed to be the income of such person of the previous year in which it is so applied for ceases to be accumulated or set apart or ceases to remain so invested or deposited or credited or paid or as the case may be, of the previous year immediately following the expiry of the aforesaid period. 10. The scheme of granting fiscal incentive by way of exemption u/s 11 of the Income Tax Act, 1961 to the charitable insti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 10. Members liable to be sued as strangers:- (1) Any Member of a society registered under this act, who may be in arrear of the subscription which, according to the rules and registrations of the society, he is bound to pay or who shall possess himself of or detain any property of the society in manner or for a time contrary to such rules and regulations or shall injure or destroy any property of the society, may be sued for such arrear or for the damage accruing from such possession, detention, injury or destruction of the property in the manner here in before provided. (2) If in any suit or proceeding brought under sub section (1) at the instance of the society the defendant shall be successful and shall be adjudged to recover his costs, he may elect to proceed to recover the same from the officer n whose name the suit or other proceeding shall be brought or from the society , and in the latter case, shall have process against the property of the said society in the manner above described. Section 14. Upon dissolution no member to receive surplus property:- If upon dissolution of any society registered under this Act there shall remain after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonal use in the same manner as any other person would have been liable. In light of above, it was submitted that the assessee society fulfills all the three conditions specified in section 11(1)(a) of the Act for claiming the exemption as explained below: a. assessee society is a society which is holding all the properties including educational institutions in trustee capacity or in trust . The property is held for the benefit of the beneficiaries and no individual is the owner of the property. b. The property held by the assessee society is held wholly for charitable purposes within the meaning of section 2(15) of the Income Tax Act, 1961 since all the objects of the society qualify as charitable purpose within the statutory meaning; c. Income of assessee society is applied for charitable purpose and the exemption is also being claimed u/s 11 on the basis of, and to the extent of the income so applied only. 13. It was further submitted that all the objectives of the society relate to the promotion of education and activities incidental thereto and fall within the ambit of the term charitable purpose as defined under section 2(15) of the Income Tax Act, 1961. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether an educational institution exists solely for educational purposes and not for profit. In that case, the provisions of section 10(23C)(iiiad) of the Act were under consideration of Hon ble Supreme Court . The Revenue therein has argued that the legislature and the language employed in the statute doesn t contemplate making of large profits and if an educational institution, in fact, makes large profits, then even though it may plough such profits back into the purchase of assets for education, yet such institution cannot be said to be existing solely for educational purposes and it would really be for profit. The Hon ble Supreme Court negated the said line of arguments put forward by Revenue and referred to its earlier decisions rendered in case of Surat Art Silk Cloth Manufacturing (121 ITR 1), Aditanar Educational Institution (224 ITR 310) and American Hotel lodging Assn. Educational Institute (301 ITR 86) and laid down the following principles in law as set out in paragraph 11 of its decision which reads as under: 11..the law common to section 10(23C)(iiadi) and (vi) may be summed up as follows: (1) Where an educational institution carries on the activity of educ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he test of predominant object of the activity has to be applied by posing the question whetherit exists solely for education and not to earn profit [see5 Judges constitution Bench Judgement in the case of Surat Art Silk Cloth Manufactures association (supra)]. It has to be borne in mind that merely because profits have resulted from the activity of imparting education would not result in change of character of the institution that it exists solely for educational purpose. A workable solution has been provided by Hon ble Supreme Court in para 33 of its judgement in American Hotel and Lodging Association s case (supra). Thus on an application made by an institution, the prescribed authority can grant approval subject to such terms and conditions as it may deems fit provided that they are not in conflict with the provisions of the Act . The parameters of earning profit beyond 15% and its investment wholly for educational purposes may be expressly stipulated as per the statutory requirement. Thereafter the Assessing Authority may ensure compliance of those conditions. The cases where exemption has been granted earlier and the assessment are complete with the finding that there is no co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructure. With the advancement of technology, no college or institution can afford to remain stagnant. The Income-tax Act 1961 does not condition the grant of an exemption under Section 10(23C) on the requirement that a college must maintain the status-quo, as 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. Educational institutions have to modernise, upgrade and respond to the changing ethos of education. Education has to be responsive to a rapidly evolving society. The provisions of Section 10(23C) cannot be interpreted regressively to deny exemptions. So long as the institution exists solely for educational purposes and not for profit, the test is met. (Emphasis supplied) 18. Though the above referred decision of the Hon ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that one further test as laid down in CIT vs. Surat Art Silk Cloth Manufacturer s Association and culled out in American Hotel Lodging Association Educational Institute vs. Central Board of Direct Taxes and Others may be added which is as follows: In order to ascertain whether the institute is carried on with the object of making profit or not it is the duty of the prescribed authority to ascertain whether the balance of income is applied wholly and exclusively to the objects for which the applicant is established . In the said decision, it further states that the above principle has been specifically reiterated in paragraph 19 of the decision in Queen s Educational Society (supra) in the following terms: The final conclusion that if a surplus is made by an educational society and ploughed back to construct its own premises would fall out of Section 10(23C) is to ignore the language of the section and to ignore the tests laid down in Surat Art Silk Cloth case (CIT vs. Surat Art Silk Cloth Manufacturer s Association (1980) 2 SCC 31) Aditanar case (Aditanar Educational Institution vs. CIT (1997) 3 SCC 346) and American Hotel Lodging Association, Educational Institute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the years starting AY 1999-00 to AY 2011-12 and to what extent the same has been utilised over the years: Assessment Year Surplus as per Audited balance sheet (Rs) Application of Funds in Fixed Assets as per Audited balance sheet (Rs) 1999-00 1,62,46,018.00 1,50,20,208.00 2000-01 2,36,72,347.34 1,30,51,311.00 2001-02 2,84,80,341.36 2,40,39,164.00 2002-03 2,53,17,807.95 5,14,73,987.00 2003-04 2,83,71,052.55 9,65,26,288.00 2004-05 2,80,82,530.20 7,27,88,255.00 2005-06 4,18,59,223.00 4,75,03,260.00 2006-07 5,96,81,354.00 5,12,75,041.00 2007-08 6,77,92,066.00 11,25,15,384.00 2008-09 12,44,29,983.15 9,87,57,585.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hows that while examining that an educational institute exists solely for educational purpose or for the purpose of the profit, mere generation of surplus from year to year cannot be basis to hold that it exists for the purpose of the profit as sufficient safeguards have been provided whereby accumulation of income is permissible subject to the manner prescribed therein provided such accumulation is to be applied wholly and exclusively to the objects for which it is established. In our view, the view of the CBDT is in consonance with the express wordings provided and intended by the legislature in 10(23C)(vi) and in comfirmity with the law laid down by the Hon ble Supreme Court in case of Queens Education Society where it is provided that where the surplus is ploughed back for education purposes, the educational institution exists solely for educational purposes and not for purposes of profit. The same will apply with equal force in context of section 11 as similar safeguards have been provided in terms of accumulation and utilisation of surplus so generated for the purposes of charitable purposes in terms of section 11(2) of the Act. 23. It is further noted that similar issue h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to ₹ 3,86,84,912 as to whether it qualifies as application of income under section 11 of the Act in the hands of the assessee society. Alternatively, whether the financial assistance provided to JNU is in the violation of byelaws of the society as well as the violation of provision of Sections 13(1)(c) and 13(2)(a) of the Income Tax Act. 27. The Assessing officer held that the bye-laws of the assessee society authorises the society to run different educational institutions including institutes for engineering and higher education but the bye-laws don t provide that the assessee society will provide financial assistance to other educational institutes. The Assessing officer referred to the Jaipur National University Act, 2008 and acknowledged the fact that assessee society will provide a sum of ₹ 2 crores in establishment of an endowment fund for the benefit of the University but at the same time, held that it doesn t flow from the said Act that providing contribution/lending money to University was one of the objectives of the assessee society. It was therefore held by the Assessing officer that the act of providing loans/assistance/contribution, by whatever nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an institution incorporated vide legislative enactment and as per the provisions of such enactment, no individual or a person is entitled to any profits from such University and thus, the University cannot be treated to be specified person. This is evident from the definition of substantial interest given in Explanation 3 in section 13 of the Act reproduced herein:- Explanation 3- For the purposes of this section, a person shall be deemed to have a substantial interest in a concern:- (i) in a case where the concern is a company, if its shares(not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than twenty per cent of the voting power are, at any time during the previous year, owned beneficially by such person or partly by such person ad partly by one or more of the other persons referred to in sub-section (3); (ii) in the case of any other concern, if such person is entitled or such person and one or more of the other persons referred to in sub-section (3) are entitled in the aggregate, at any time during the previous year, to not less than twenty per cent of the profits of such concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the funds needed by the University for educational purposes. This was done pursuant to the following objectives of the Society:- - To establish primary, middle, secondary and higher secondary schools, colleges, higher education institutions, Universities, higher training institutions, research institutions and to manage and control them(clause 3 of the objectives). - To establish various technical engineering, management, scientific educational institutions, tourism, film technology, teachers training institutions, colleges and to manage and control them and to establish research centers, colleges and universities relating to all these faculties and to manage and control them(clause 7 of the objectives). 32. It was further submitted that as per the provisions of section 2(u) of JNU Act read with section 3 and preamble of the said Act, the assessee society was the sponsoring body of JNU. Further, as per section 43 of the said Act, the assessee society being the sponsoring body has the right to dissolve the university by giving prescribed notice and upon the dissolution, all the assets and liabilities of the university shall vest in the assessee society being the sponsoring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granting of scholarship loans as only one of the activities carried on for the fulfillment of the objectives of the trust, granting of loans even interest bearing will amount to the application of income for charitable purposes. 37. Reliance is further placed on the following judicial pronouncements:- Indian National Theatre Trust v. ITO (1985) 13 ITD 588 (Delhi Trib.) The assessee trust, constituted with an object to promote cultural activities, had lent certain amount to another charitable trust whose object was not only to promote cultural activities but also to maintain library room and reading room. The said loan was held amounting to application of income and lower authorities were held not justified in rejecting the assessee s claim on the ground that the objects of the done trust were not similar. CIT vs. JK Charitable Trust (1992) ITR 31, 42 (All) A charitable purpose may be served in more than one way. One is to directly contribute for the promotion of that cause; the other is to contribute money to another charitable organization, which advances that cause. The amount contributed to other charitable institutions amounts to application of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) The author of the trust or the founder of the institution, JNU is neither the author nor the founder of the assessee society, therefore, cannot fall under 13(3)(a). (b) Any person who has made a substantial contribution to the trust or institution, that is to say any person whose total contribution upto the end of the relevant previous year exceeds fifty thousand rupees, JNU has not made any contribution to the assessee society, therefore, cannot fall under 13(3)(b). * (c) Where such author, founder or person is a Hindu Undivided Family, a member of the family The author and founder of the assessee society is not any HUF, hence, section 13(3)(c) is not applicable, therefore, cannot fall under 13(3)(c). (cc) any trustee of the trust or manager(by whatever name called) of the institution, JNU is neither trustee nor manager of the assessee society, therefore, cannot fall under 13(3)(cc). (d) Any relative of any such author, founder, person, member, trustee or manager as aforesaid, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crystal clear that JNU is not specified person covered under the provisions of section 13(3) r.w.s. 13(2) as much as assessee society is concern. 41. It was further submitted that it has been held in various judicial pronouncements that donation to the other institutions which qualifies for exemption u/s 11 of the Act is eligible for exemption being application u/s 11(1)(a) of the Act. The reliance for this purpose is placed on the following judicial pronouncements:- (i) CIT vs. Thanthi Trust (1999) 239 ITR 502 (SC) (ii) CIT vs. Sri Ram Memorial Foundation (2004) 269 ITR 35 (Del.) (iii) CIT vs. Hindustan Charity Trust (1983) 139 ITR 913 (Cal.) (iv) CIT vs. Arbindo Memorial Fund Society (2001) 247 ITR 93 (Mad.) (v) St. Thomas Education Society v. Asst. DIT (2007) 11 SOT 340 (Mum.) 42. In view of the above submissions and case laws, it was submitted that the contribution made to JNU by the assessee society deserves to be allowed as application of income and the contribution to JNU cannot be the basis for invoking the provisions of section 13(3) of the Act against the assessee society. 43. In order to appreciate the issue under consideration, it would be relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part, by any amount- (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then - (a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income such option to be exercised in writing before the expiry of the time allowed under subsection (1) of section 139 for furnishing the return of income be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the period of accumulation or thereafter. (3) Any income referred to in sub-section (2) which- (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or (b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof, (d) is credited or paid to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or subclause (via) of clause (23C) of section 10, shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or credited or paid or, as the case may be, of the previous year immediately following the expiry of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer shall not allow application of accumulated income by way of payment or credit made for the purposes referred to in the proposed clause (d) of sub-section (3) of section 11. This takes away the discretion of the Assessing Officer provided in sub-section (3A) to allow the trusts to apply the accumulated income for payment or credit to other charitable or religious trusts and institutions. These amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years. 45. It would also be relevant to refer to the recent Finance Bill, 2017 wherein it has been proposed an insertion of a new explanation 2 to in subsection (1) of section 11 with effect from the 1st day of April, 2018, namely:- Explanation 2.-Any amount credited or paid, out of income referred to in clause (a) or clause (b) read with Explanation 1, to any other trust or institution registered under section 12AA, being contribution with a specific direction that they shall form part of the corpus of the trust or institution, shall not be treated as application of income for charitable or religious purposes. . 46. Explai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cept those made out of accumulated income, is considered as application of income for the purposes of its objects. Even where such donation is given by a exempt entity to another exempt entity, with specific direction that it shall form part of corpus of the recipient entity, it is considered as application of income in the hands of donor entity for the period under consideration. In other words, where any donations are made by one exempt entity to another exempt entity and irrespective of directions by the donor entity as to whether such contribution should form part of the corpus of the recipient exempt entity or may be used for incurrence of expenditure towards achievement of its charitable purpose by the recipient exempt entity, such contribution is treated as application of income in the hands of the donor exempt entity. It is only now that the Finance Bill 2017 has proposed w.e.f 1 April 2018 that where such donations are made with specific directions to form part of corpus of the recipient entity, it will not be considered as application of income in the hands of the donor entity. However, the donations with no specific directions to the recipient entity continue to be eligi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the world. And whereas, rapid advancement in knowledge and changing requirements of human resources makes it essential that a resourceful and quick and responsive system of educational research and development be created which can work with entrepreneurial zeal under the essential regulatory setup and such a system can be created by allowing the private institutions engaged in higher education having sufficient resources and experience to establish universities and by incorporating such universities with such regulatory provisions as ensure efficient working of such institutions. And whereas the Mahima Shiksha Samiti, Jaipur, a society registered under the Rajasthan Societies Registration Act, , 1958 having its registered office at A-18, Shanti Path Tilak Nagar, Jaipur is engaged in the field of education for last several years and is running a number of educational institutions under the name of Seedling Institutions which are imparting education in various disciplines. And whereas, the said Mahima Shiksha Samiti has set up educational infrastructures , both physical and academic, as specified in Schedule-1, at Jagatpura Tehsil Sanganer, Jaipur in the State of Raj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal Deposit Account of the Sponsoring Body in the Government Treasury. (5) In case of investment in long term security, the certificates of the securities shall be kept in the safe custody of the State Government and in case of deposit in the interest bearing Personal Deposit Account in Government Treasury, the deposit shall be made with the condition that the amount shall not be withdrawn without the permission of the State Government. (9) General Fund: The University shall establish a fund, which shall be called the General Fund to which following shall be credited namely; (a) fees and other charges received by the University, (b) any contributions made by the Sponsoring Body (c) any income received from consultancy and other work undertaken by the University in pursuance of its objectives; (d) trust, bequests, donations , endowments and any other grants, and (e) all the sums received by the University. 52 It light of above discussions, it is clear that amount advanced by the assessee society to Jaipur National University is in accordance with its objectives of setting up of educational institutions and managing and operating them for promotion of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing officer is not backed by any documentary evidence. And in view of the commercial expediency and following the judgments of the Coordinate Bench on the issue for the AY 2003-04 to AY 2008-09, it was held that the Assessing officer was not justified in disallowing the claim of salary expenditure. 58. At the outset, the ld AR submitted that the issued is covered in favour of the assessee society by the orders of Hon ble ITAT, Jaipur Bench, for assessment years starting A.Y. 2001-02 to A.Y 2008-09. Similar disallowance was made in immediate previous A.Y. 2009-10 which was decided in favour of the assessee society by the ld CIT(A) and no appeal has been filed by Department. Under these facts, the subject issue attained finality and ground is covered. 59. It was further submitted that the A.O. made such disallowances holding that the Government allows upgradation of salary of its employees and officers by 3% every year, whereas, in the case of assessee, the increase in salary ranges from 5.26% to 9.09%. In this regard, it is pertinent to note here that, the comparison made is wrong and arbitrary due to (i) increment in salary cross the sectors, localities, industries, servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined from the point of view of a businessman and not of the revenue. 62. To support the above said contentions, the ld AR placed reliance on the following judicial pronouncements:- - D. N. Sinha (P.) Ltd. v. CIT. (1976) 102 ITR 491, 498 (Cal.) Whether another employee would have been available at a less salary or whether the assessee could have managed to produce the same trading results by a cheaper expenditure or not is not the true test about the reasonableness of the expenditure. - J.K. Woollen Manufacturers v. CIT (1969) 72 ITR 612 (SC) Tribunal cannot determine remuneration which in their view should be paid to an employee. assessee societyis entitled to determine the remuneration which in their view should be paid to an employee. From the above judgments, it is clear that the Revenue or the Court cannot justifiably claim toput itself in the armchair of a businessman or in the position of the Board of Directors and assume the role of ascertaining how much is a reasonable expenditure having regard to the circumstances of the case. 63. The issue under consideration relates to remuneration paid to members of the Bakshi family during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determining the reasonableness of the salary paid to a person what is essential to examine is the relevant qualification and experience which that person holds, and whether the same is commensurate with the work responsibilities he/she has been assigned and for which he/she is responsible for. Further, the reasonableness has to be seen vis-a-vis legitimate needs of the assessee society and benefit derived or accruing to the assessee society as well as fair market value of such services. 67. In the present case, Mrs. Mohini Bakshi who holds the position of Secretary in the assessee Society is a qualified post graduate and holds B.Ed. degree and has under gone Montessary training from London and her area of work responsibilities are as under : 1. Ensuring that the institutions run by the group are progressing towards the objectives laid down by the Mahima Shiksha Samiti. 2. Coordinating and Chairing Executive Committee Meetings, AGMS and School Management Committee Meetings- Monitoring and coordinating of academic functions. 3. Monitoring and Co-ordination of academic functioning of the institutions i.e. of Seedling Public School, Seedling Modern High School and Jaipur N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and expansion of the group and collaborating with foreign universities for globalization of education. Travelling extensively within and outside the country for selection of faculty and implementing the latest programs and technology in the institutions of the group. 3. Monitoring and co-ordination of academic functioning of the institutions i.e. schools colleges run by the group. a. Coordinating with principals and Directors for finalization of syllabi, books curricular and extra curricular activities ( Annual Function, Sports Day, University Cultural Festival, Technical Festival, Convocation etc.). Monitoring their implementation by the members of staff. b. Interacting with the parents in order to satisfy their queries and seeing that their wards are progressing satisfactorily. c. Co-ordinating with and delegating work to the principal and other office bearers on day to day basis to make sure that work progressing with maximum efficiency. d. Evaluating the results of students and suggesting changes in the direction of improving performance. e. Facilitating opportunities to expose staff members to the latest educational technologies and providing opportunitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinating with principals and Directors for finalization of syllabi, books curricular and extra curricular activities ( Annual Function, Sports Day, University Cultural Festival, Technical Festival, convocation etc.), Monitoring their implementation to the members of staff. Coordinating with the Directors and Staff members required. c. Interacting with the parents in order to satisfy their queries and seeing that their wards are progressing satisfactorily. d. Co-ordinating with delegating work to the principal and other office bearers on a day to day basis to make sure that work is progressing with maximum efficiency. e. Evaluating the results of the students and suggesting the changes in the direction of improving performance. f. Traveling extensively within the country and to other countries to select and expose the staff members to the latest educational technologies and to provide the best opportunities for in service training. To collaborate with universities and schools abroad for academic and cultural exchange programmes to provide global exposure to students. 4. Interacting with the staff members and the human and social level to solve their problems and enhan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D Mr. Preeti Bakshi 450,000 412,500 450,000 72. On perusal of the salary it is noticed that Mrs. Mohini Bakshi was paid total remuneration of ₹ 16.20 lacs in F.Y. 2009-10as compared to 14.85 lacs in F.Y. 2008-09 wherein the salary has increased by 9.09%. In case of Mr. M.S. Bakshi he has drawn salary of ₹ 7.2 lacs as against ₹ 6.75 lacs last year with an increase of 6.62%. In case of Mr. Sandeep Bakshi who has been paid salary of ₹ 13.5 lacs the increment has been 5.26% vis-a-vis last year and here it is a relevant to note that his salary in F.Y. 2008-09 has in fact gone down vis-a-vis F.Y. 2007-08. In case of Mrs. Preeti Bakshi she has drawn salary of ₹ 4.5 lacs which is the same as the salary which she has drawn in F.Y. 2007-08 and in fact salary in F.Y. 2008-09 has come down to ₹ 4.12 lacs. 73. In our view, given the qualification and the experience of these persons and the fact that these persons have managed the affairs of the society since its inception and they are closely and actively involve in management and day to affairs of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or accruing to the assessee society. In the result, we do not see any violation in terms of section 13 and the disallowance made by the A.O. which has been deleted by the ld. CIT(A) is upheld.In the result, ground No.3 of the Revenue is dismissed. 74. We now refer to Revenue s ground no. 4 where the Revenue has challenged the action of ld CIT(A) in deleting the addition made on account of foreign travelling expenses despite the facts that the assessee society failed to prove that these expenses were incurred for the objects of the society and one of the reasons for denial of exemption under section 11 of the Act. 75. The Assessing officer noted that expenses of ₹ 5,60,911/- was incurred by Mrs. Mohini Bakshi and M.S. Bakshi for their Germany tour and expenses of ₹ 4,45,042/- was incurred by Smt. Preeti Bakshi towards her China visit. After going through the tour reports submitted by the assessee society, the Assessing officer hold that expenses to the extent of visit to Germany are for the purpose of tour which is incidental to the objectives of the assessee society but expenses incurred on China tour which was undertaken by Smt. Preeti Bakshi were personal in na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred on foreign travel by Mrs. Preeti Bakshi, considering that she has carried out one foreign trip as against the fact that she has carried out two foreign trips, while the expenditure incurred by Mrs. Mohini Bakshi and Mr. M.S. Bakshi was in respect of one trip. 81. Under the facts, no such adhoc disallowance can be made by alleging that expenditure is not subject to verification. Further, different judicial authorities are consistently taking the view that adhoc disallowances are not permissible. In this regard, we placed our reliance on following case laws:- (a) Delta Construction Vs ITO, ITA No. 817/Kol/2012 (b) Asstt. CIT v. Arthur Anderson Co. [2005] 94 TTJ (Mum.) 736 (c) Syntex (India) Ltd. v. CIT [1996] 130 Taxation 101 (Jp-Trib.) (d) ACIT V/s B.R. Oil Mills reported at 27 TW 43 (e) ACIT, Circle 1, Faridabad v. TALBROS Engineering Limited (f) Friends Clearing Agency (P) Ltd. Vs CIT (2011) 332 ITR 0269 (Delhi) (g) DCIT Vs M/s Janki Corp Limited, ITA No. 601/Jodh/2013, ITAT Jodhpur (h) T T Motors Limited Vs ACIT, ITA No. 3161/del/2013, ITAT Delhi (i) ACIT Vs.Ganpati Enterprises Ltd. ITA No. 6112, ITAT Delhi 82. It was submitted that so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standards of different classes of people, requirement of different kind of human resources, employment of environment protection measures etc. Such knowledge and information on the one hand makes them a very experienced mentor and counselor for the students but also the teachers of these educational institutions, which in turn, is reflected in imparting better education to the students. Need not be emphasized that a person who is widely travelled, gained first hand all round knowledge of various countries/geographies, is well versed with variety of cultures and encountered several kind of people becomes very enlightened and confident resource person. - The educational institutions these days, as a part of their curriculum, not only have the lessons and chapters having direct nexus with the Indian context but also the subjects and chapters relating to cultures of various countries, geography of various places, history of various regions, cross country lifestyles, various religions practiced in different parts of the world, global recent affairs and events, international level of art and different streams of science, wildlife, sports, special fields such as space mission centers e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society and benefitted the Samiti, therefore, in such circumstances, expenditure on foreign visit cannot be disallowed and Ld. CIT(A), recognizing the purpose and necessity has rightly allowed the expenditure. 88. It was further submitted that in no case, Section13(3) or 13(1)(c) of the Act can be invoked on account of disallowance of foreign travel expenses because even if such travel is considered to be perquisites to the persons at the helm of applicant societies affairs, the same commensurate with the fair value of the services provided by them to the assessee society particularly, keeping into consideration that their dedicated services have led to significant growth and popularity of the educational institutions run by the assessee societysociety.Under the above narrated facts and circumstances, the Ld. CIT(A) has rightly deleted the disallowance. 89. We have gone through rival contentions and perused the material on record. The assessee society has incurred an amount of ₹ 5,60,911/- towards foreign travel to Germany by Mrs. Mohini Bakshi and Mr M.S. Bakshi and an amount of ₹ 4,45,042/- towards foreign travelling to China and Hongkong by Smt. Preeti Bakshi. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken from time to time, the assesses society has been able to put in place a regular and systematic student/teacher exchange programme with schools based overseas wherein there are regular visits by students along with their teachers based in India have visited overseas schools and similarly, students from overseas schools along with their teachers have visited India. The visits therefore have helped strengthened and contributed in the growth and development of students and in turn is in consonance with the overall objectives of the assessee society. Further, it is noted that on similar lines the Co-ordinate Bench in its order dated 31.01.2008 in ITA No. 7932/JP/2006 has allowed the claim of the foreign travelling expenses and the said view has been followed by subsequent Bench in its order dated 11.03.2014 for A.Y. 12009-10 which has been followed by the ld. CIT(A) while deleting the subject disallowance. In the entirety of facts and circumstances of the case, we do not see any infirmity in the order of the ld. CIT(A). Hence, the ground no. 4 of the Revenue is dismissed. ITA No. 30/JP/16 93. Now coming to assessee society s appeal, the only ground taken by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on following case laws:- A) In the case of DIT vs. Indrprastha Cancer Society vide order dated 18.11.2014 wherein the Hon ble Delhi High Court has observed that the newly enacted sub-section (6) to section 11, would change the legal position after 01.04.2015, not for the year prior to this. B) Hon ble Jaipur ITAT in the case of Santokbha Trust Vs ITO vide order dated 13.03.2015 in ITA No. 241 242/JP/2014 held that as under:- 2.8 Apropos Revenue's appeals also, we find merit in the arguments of the ld. Counsel for the assessee that the change in law has been specifically brought with prospective effect from 01-04-2015 and is not retrospective. Thus the old position settled by judgment cited (supra) in this behalf i.e. depreciation remains intact. In view thereof, we find no infirmity in the order of the ld. CIT(A) on this issue allowing depreciation. Hence, the appeals of the Revenue are dismissed. C) Hon ble Karnataka High Court in the case of DIT Vs. Al- Ameen Charitable Fund Trust, IT Appeal No. 62 and 414 of 2010 vide order dated 22.02.2016 has held as under:- 21. Section 11(6) inserted with effect from 1.4.2015 by Finance Act No.2/2014, reads as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, apply in relation to the assessment year 2015-16 and subsequent years . The Memo explaining the provisions in Finance (No.2) Bill, 2014 reads thus: The second issue which has arisen is that the existing scheme of section 11 as well as section 10(23C) provides exemption in respect of income when it is applied to acquire a capital asset. Subsequently, while computing the income for purposes of these sections, notional deduction by way of depreciation etc. is claimed and such amount of notional deduction remains to be applied for charitable purpose. Therefore, double benefit is claimed by the trusts and institutions under the existing law. The provisions need to be rationalized to ensure that double benefit is not claimed and such notional amount does not excluded from the condition of application of income for charitable purpose . 23. Paragraphs 7.5, 7.5.1, 7.6 of Central Board of Direct Taxes Circular reported in 371 ITR 22 makes it clear that the said amendment shall take effect from 1.4.2015 and will accordingly apply in relation to the assessment year 2015-16 and subsequent assessment years. 24. The Constitution Bench of the Apex Court in Vatika Township (P.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s appended, the Finance Bill and the understanding of the Central Board of Direct Taxes in this regard. The Apex Court has also taken cognizance of the fact that the legislature is fully aware of 3 concepts insofar as amendments made to a statute: (i) prospective amendments with effect from a fixed date; (ii) retrospective amendments with effect from a fixed anterior date; and (iii) clarificatory amendments which are prospective in nature. Keeping in view, the aforesaid principles enunciated by the Apex Court, in Vatika Township (P.) Ltd. s case (supra), it would be safely held that Section 11(6) of the Act is prospective in nature and operates with effect from 01.04.2015. This is further clarified when compared with certain other provisions which have been made retrospectively in the same Finance Act. 99. The subject issue is no more res integra. As per Hon ble Karnataka High Court, the plain language of the amendment by way of insertion of subsection 6 to section 11 establishes the intent of the legislature in denying the depreciation deduction in computing the income of Charitable Trust prospectively with effective from 1.4.2015. This view is further supported by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Supreme Court. 102. Respectfully following the decision of Hon ble Karnataka High Court wherein the amendment to section 11 (6) has been held prospective in nature with effect from 01-04-2015 and the Hon ble Rajasthan High Court decision (supra), the depreciation is held admissible to the assessee society under the provisions of section 32 of the Act in respect of assets on which exemption has been allowed under section 11 of the Act. The ground taken by the assessee society is thus allowed. 103. In light of above discussions and in the entirety of facts and circumstances of the case, taking into consideration the rival contentions advanced by both the parties, Hon ble Supreme Court decision in case of Queens s educational society and others, various other High Courts decisions referred supra as well as orders passed by the Coordinate Benches in earlier years, the assessee society is held eligible for exemption under section 11 read with section 12 and 13 of the Act. The payment of salary to persons specified in section 13(3), incurrence of foreign travel expenditure, contribution to Jaipur National University and additions to fixed assets during the year qualify for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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