9911796707
TMI Blog2018 (10) TMI 1305X X X X Extracts X X X X X X X X Extracts X X X X ..... ributions - Rs. 27,700. Against these gross receipts, the petitioner had debited total amount of Rs. 15,85,422/- spent under various heads for running of the school. Added to this, the amount of Rs. 2,95,383/- spent in prior years was considered towards expenditure of current year. The entire amounts spent on running the school was considered as applied for charitable objects and claimed as exempt under Section 11 of the Act. This return was processed under Section 143(1) and by intimation dated 28.2.16, the CPC, Bangalore determined the taxable income at Rs. 18,80,804/- and a tax liability of Rs. 8,17,675/- was computed towards tax and interest. Later, on 06.05.16, a revised return was filed revising the income to Rs. 20,22,000/-. This included the income originally returned and Rs. 1,41,196/- received as donations in the Trust account. The petitioner filed two letters before the second respondent on 27.06.16 and 05.07.16 stating that there was mistake in the order of the CPC, Bangalore by taxing the amount that has been spent towards the charitable objects of the Trust and sought to rectify the same under Section 154 of the Act. Even otherwise, it was submitted that the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus grant exemption on rest of the amounts which had duly been spent towards the educational objects of the petitioner. However, the first respondent passed the impugned order under Section 264 dated 28.03.2018, wherein he rejected the petition filed by the petitioner. 3.The respondents filed a counter affidavit, wherein it is stated as follows: For the assessment year 2014-15, the petitioner Trust filed the original return belatedly on 11.01.2016. It was processed by the CPC, Bangalore on 28.02.2016, raising tax liability of Rs. 8,17,675/-. Subsequently, the assessee filed revised return on 06.05.2016, revising the income of Rs. 20,22,000/-. The assessee had stated that during the year, it had incurred revenue expenditure of Rs. 16,57,221/- and capital expenses of Rs. 12,86,851/- resulting in a loss of Rs. 9,22,072/- and thus, not taxable. The return itself is invalid in law, as it was filed belatedly. Even otherwise, the expenses shown as revenue expenditure of Rs. 16,57,221/- and capital expenses of Rs. 12,86,851/- cannot be allowed. As they are liable as application for charitable purposes only if the assessee in the first place is entitled for exemption under Section 11 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner from seeking exemption under Section 10(23C) (iiiad), as the above charitable activity of the petitioner does not fall within the purview of "solely for educational purposes". Even if the education is predominant object, "solely" cannot mean to include both predominant as well the other objects. Therefore, the petitioner is not entitled to any relief. 4. Learned counsel appearing for the petitioner submitted as follows: The petitioner Trust, a Public Charitable Trust, having been granted registration under Section 12AA of the said Act with effect from 01.04.2015, is entitled to get the benefit of such registration extended even for the subject matter Assessment Year 2016-17, by applying the first proviso to Section 12A(2). Even otherwise, if the benefit of registration is not extended retrospectively, alternatively, the exemption is to be granted to the petitioner by extending the benefit under Section 10(23C)(iiiad) of the said Act. The petitioner Trust is solely existing for educational purposes and therefore, a meagre sum spent on distributing sarees to mothers and grandmothers to children, that too for the purpose of inducing them to send their wards to the school r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had stated that during the year it had incurred revenue expenditure of Rs. 16,57,221/- and capital expenses of Rs. 12,86,551/- resulting a loss of Rs. 9,22,072/- and thus not taxable. The Assessing Officer did not agree. Thus, the petitioner aggrieved by the intimation issued under Section 143(1) dated 28.02.2016, determining a sum of Rs. 18,80,804/- as taxable income and Rs. 8,17,675/- as the liability towards tax and interest, filed rectification petition under Section 154 of the Income Tax Act, 1961 before the Income Tax Officer (Exemptions). The said petition was rejected on the reason that the petitioner trust was established with several objects which include running of the educational institution providing medical relief to the poor, conduct medical camps like eye camp, blood camp, diabetic camp and such other medical camps and other charitable activities in public utility and thus the exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961 is not available to the petitioner as it is not existing solely for educational purposes. The other reasons stated for rejection is that the registration under Section 12AA was not in existence during the period of the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the date of the registration and that the object and activity of the trust should also remain the same for such preceding assessment year. Thus it is very clear that intent of legislation is that the any stage of pendency of the assessment proceedings before any authority would not attract benefit of extension of registration and on the other hand, it should be particularly pending before the Assessing Officer. In other words, the assessment should not have been completed at the relevant point of time. In this case, admittedly, the assessment order was already passed on 28.02.2016 and therefore, on the date of such registration under Section 12AA, admittedly, no assessment proceedings was pending before the Assessing Officer. Therefore I do not think that the petitioner is entitled to seek shelter under first proviso to Section 12(A)2 to get the benefit of registration retrospectively. 13. This leads me to consider the next alternative plea raised by the petitioner as follows. 14. According to the petitioner, if the exemption is not allowed with retrospective application of the registration as contemplated under Section 12A(2), the petitioner should have been granted the benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough by doing such activity, the petitioner trust is not existing solely for educational purposes. In this case, the objection of the revenue relates to a sum of Rs. 54,300/- spent by the petitioner for providing sarees to mothers and grandmothers of the children studying in the school. This free distribution of clothes to the mothers and grandmothers of the children is considered by the revenue as the one not related to educational purposes. 18. On the other hand, it is contended by the petitioner that such distribution was made only to encourage those mothers and grandmothers to send their ward to the school without discontinuation. This purpose is not doubted by the Revenue. Nor any contra material is available before the Assessing Officer to draw adverse inference. Therefore, the main object behind the distribution of the sarees to those persons is evidently for ensuring the continuance of study at the petitioner School and not solely for providing clothes to needy persons totally unconnected with the school. 19. At this juncture, it is better to understand the scope of Section 10(23C) (iiiad). The term "any university or educational institution existing solely for educatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad). 23. Further, strictly speaking, Section 10(23C) contemplates and excludes any income "received by" and not "the spending" of such money received under Section 10(23C). At the same time, if the spending is totally on a deviated object or an object, which is totally opposite or opposed to the main object for which the trust is created, certainly such spending cannot have any protection under Section 10(23C)(iiiad). Thus, the sole purpose of existence is to be gathered, derived and construed based on overall predominant activity and not from certain isolated activity, especially when such activity also happens to be charitable in nature, more particularly, when a meagre sum is spent on such activity. At the same time, proportionality of the money spent on such activity, other than the predominant activity, also plays a major role in deciding the nature of existence of the institution. If major portions of the money received by the Trust is spent on certain objects other than the predominant object, certainly the sole purpose of the Trust for which it was created, can be doubted. On the other hand, if such spending is meagre and does not shake the conscience of the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 10(23C)(iiiad) and 10(23C)(vi) are having similar effect, while the former deals with the institution without approval by the prescribed authority, whereas the latter deals with the institution with approval by the prescribed authority. The said application was rejected by the Chief Commissioner on the reason that the objects from the trust therein apart from running schools also permitted construction of Ashrams for Gujarati Hindu Women and hence, the trust existed for the objects other than the education. The Bombay High Court considered the said objection in detail and rejected the same by observing at paragraph Nos.10 and 11 as follows: "10. Now, it is not in dispute before the Court that the Petitioner has been conducting primary and secondary schools and colleges for Arts, Science, Commerce and Technical courses in Mumbai since 1929 and in Surat since 1940. Nor is there any dispute before the Court that save and except for conducting these educational institutions, the Petitioner has not carried on any other activities right since 1929. In this background, it would be necessary to advert to the objects set out in the Memorandum of Association. Clause III(b) spells out as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also conducts a college for girls with the sole intent of imparting education. The record of these proceedings also contains a judgment of a Division Bench of this Court dated 29 June 2005 in a Reference under Section 256(1) to which the Petitioner was the applicant. The issue before the Court in the Reference was whether the assessee was entitled to exemption under Section 10(22) on interest earned on surplus funds of the school run by the Trust for Assessment Years 1979-80 and 1980-81. The Division Bench observed that merely because a certain surplus arose from the operations of the Trust, it could not be held that the institution was run for the purpose of profit, so long as no person or individual was entitled to any portion of the profit and the profit was utilized for the purpose of promoting the objects of the institution. The income of the Trust was, therefore, held to be exempt under Section 10(22). The Division Bench followed the decision of the Supreme Court in A ditanar E ducational Institution vs. Additional CIT , 1 and noted as a principle of law that if after meeting the expenditure, a surplus results incidentally from an activity lawfully carried on by the educa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal purpose and not for any other purpose. Therefore, the application made by the petitioner Trust was found not eligible for granting approval under Section 10(23C)(vi) of the IT Act and hence the application was rejected. Challenging the same, this writ petition has been filed. ...6. I am of the considered view that the impugned order is an outcome of narrow and pedantic approach on the part of the first respondent, namely the Chief Commissioner of Income Tax. Though the first respondent in the impugned order has referred to the objects Trust, it lost sight of the fact that objects of Trust cannot be read in a truncated fashion. The first respondent was carried away by one of the objects of the Trust, namely to work for the integrated development of children. Unfortunately, the first respondent did not take note of the documents, which were called for from the petitioner and furnished by the petitioner along with a letter dated 04.02.2011, after which there was personal hearing which was fixed and further documents were given and the petitioner has submitted a representation styled as response to the notice dated 08.03.2011, wherein they have given a detailed write up on as t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
