TMI Blog2020 (9) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... asis being otherwise contrary to the pre-dominant test theory propounded by the Supreme Court, is completely irrelevant and has to be ignored. No such provision can be read if it is missing as per the doctrine of Casus Omissus. Secondly, there was no condition of charging interest on such loan between the parties and it was only as a financial help necessitated as a result of demerger. Thirdly, it is wrong to say the Society had claimed the interest of ₹ 56,71,990/- Lacs in as much as the society had already applied its income at 91.02% that is more than 85% as required by law. Therefore, the fact of interest bearing loan taken, the alleged diversion thereof and the allegation of non-charging of interest, are completely irrelevant. In the context of various allegations levelled by the ld. CIT(Exemptions), we observe that there is no gain to the revenue for the simple reason that even assuming had the assessee charged interest of ₹ 56.72 Lacs (approx.) from RNMSCS, revenue was not going to get any tax there upon because the assessee had admittedly fulfilled the condition of applying its income more than 85% on one hand. Similarly, on the other hand, RNMSCS also bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. - ITA No. 197/JP/2020 - - - Dated:- 11-9-2020 - Shri Ramesh C Sharma, AM And Shri Sandeep Gosain, JM For the Assessee : Shri Mahendra Gargieya (Adv) And Ms. Manisha Bindal (CA) For the Revenue : Shri B.K. Gupta (CIT-DR) ORDER PER: SANDEEP GOSAIN, J.M. This is an appeal filed by the assessee against the order of ld. CIT(Exemptions), Jaipur dated 27/01/2020 rescinding notification U/s 10(23C)(vi) of the Income Tax Act, 1961 (in short, the Act). Following grounds have been taken by the assessee: 1. The impugned order dated 27/01/2020 passed under to 15th proviso to S. 10(23C)(vi) of the Act, is bad in law and on facts of the case, being beyond the scope of the said provision and for various other reasons and hence, the impugned order kindly be quashed. 2. The ld. CIT(Exemptions), Jaipur erred in law as well as on the facts of the case in rescinding the approval already granted u/s 10(23C)(VI) vide notification CCIT/Udr/ITO(Tech)/2008-09/2071 dated 13/10/1981, by invoking the 15th proviso of Sec. 10(23C)(VI) of the Act. The rescinding the approval by the ld.CIT(Exemption), Kota is bad in law and on facts of the case and hence, the appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such advances, whereas the Assessee Society was paying huge interest amounting to ₹ 56,71,990/- on its market borrowings mostly from the trustees. The RNMCS was earlier a part of the Assessee Society, but was demerged from the Assessee Society on 02.10.2014 due to adverse view taken by the department in respect of allowability of exemption u/s 10(23C)(vi) since hospital cannot be run by a society approved u/s 10(23C)(vi). Even after demerger of RNMCS, the Assessee Society has not amended its constitution in which one of the objects is to run medical college and hospitals, which is against the spirit of approval granted u/s 10(23C)(vi). Consequently, a show-cause notice dated 03.12.19 was issued by the ld. CIT(E) to the Assessee Society proposing to rescind the notification u/s 10(23C)(vi) of the Act. 3. The Assessee Society filed detailed reply is dated 26.12.2019 stating that society exists solely for educational purpose and not for the purposes of profit. There apart, the Assessee Society applied more than 85% of its income for the objects of the trust in accordance with the law and also similarly invested or deposited its own fund in accordance with the prescribed mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not possible to establish a one to one co-relation between the borrowed funds and the diverted funds. It is, therefore, clear that the Appellant Society has diverted its funds for non- educational purposes. 7. That the activities for which diversion of funds has taken place are not incidental or ancillary activities to education but are involving funding of hospital, which goes against the requirement of S.10(23C)(vi) viz., solely for educational purposes. Finally, he withdrew the approval granted to the vide notification CCIT/Udr/ITO(Tech.)/2008-09/2071 dated 13.10.08 vide impugned order dt. 27.01.2020 5. Against this order of the ld. CIT(Exemptions), the assessee is in further appeal before the ITAT. 6. We have considered the rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by the ld. CIT(Exemptions) in his order as well as cited by the ld. AR and ld. DR during the course of hearing before us in the context of factual matrix of the case. From the record, we found that the main object and the purpose of the society was nothing but imparting education. The society exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Assessee Society was engaged in some money lending activity or that the funding to RNMCS/other party was with a profit motive or that it was a separate venture of the Assessee Society. It was ignored that only because of some peculiar circumstances which compelled the assesse to support the other charitable society (which was earlier a part of the Assessee Society only before the demerger) involved in charitable activities. To repeat, the Assessee Society continued imparting education exclusively and continued existing solely for education and not for any purpose other than this. No case is made out that similar financial transactions were entered with other third parties also with a profit motive, thus CIT(E) failed to establish that the Assessee Society existed for profit motive. There is otherwise no evidence to suggest anything contrary to this contention. Surprisingly, the ld. CIT (E) is completely silent on this factual contention made before him. There is no dispute on the fact that whatever surplus was earned was ploughed back for education purposes only and therefore the assessee has to be held existing solely for educational purposes not for profit as repeatedly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to RNMCS as and when they needed. Assesse s own fund were not utilized nor it is so alleged by the ld. CIT (E). On the contrary he himself admitted the fact the assesse s own fund were separate and there were borrowed funds however in his view, both the funds taken together found a kitty and therefore should be treated as Assessee Society s own fund. We do not find any merit in the observation of the ld. CIT(Exemptions)that the Assessee Society s own fund and borrowed fund both were deposited in the same bank account and were shown in the balance sheet and hence they should be treated as the Assessee Society s own fund for the purposes of applying 3rd proviso and 13th proviso of S. 10(23C)(vi) of the Act. In this regard we observe that the borrowing shall always remained borrowing and can never become the property of the borrower (here the Assessee Society). Had it been so, why should the Assessee Society have shown in the audited annual statement of accounts as the borrowed funds taken under the head loans advances. As per CIT (E) borrowed fund has become the Assessee Society s own money which is not at all legally possible and that is the reason admittedly RNMCS paid back t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit, no inference arises that it has become an activity for profit-Ultimate test is whether on an overall view of the matter in the relevant assessment year the object is to make profit as opposed to educating persons-When a surplus is ploughed back for educational purposes, the educational institution exists solely for educational purposes and not for purposes of profit-13th proviso to s. 10(23C) is of great importance in that assessing authorities must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down. 15. The Hon ble Delhi High Court in the case of DIT (E) v/s All India Personality Enhancement Cultural Centre for Scholars Society (2015) 379 ITR 464 (Delhi), it was opined that An educational institution existing solely for educational purposes would not cease to be so only for the reason that some of its activities have yielded surpluses; fact that certain advances have been made to chairman and some of his family members who were involved in running the school cannot be construed as diluting the predominant object of the Assessee Soci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e. capital expenditure of ₹ 1.78 Cr.) made by the Assessee-Society were out of its own funds/ surplus of the year but not out of the borrowed fund. 19. We further observe that there was a reasonable cause and there were peculiar circumstances behind the ssessee entering into such financial transactions with RNMCS. It is necessary to understand the background. The Assessee Society was granted approval on 13.10.2008 u/s 10 (23C). The other entity RNMCS Society was merged with the Assessee Society on 04.06.2008 and thereafter, was demerged from the Assessee Society on 02.10.2014 on the insistence of the department (due to adverse view taken that a hospital cannot be run by an educational society). Copies of Certificates of merger and demerger were submitted on 31.10.2019. Thus, both the Societies remained merged for a long period of 6 years and has been popularly known as R. N. Modi Vidya Niketan (i.e. assessee). 20. Moreover, after demerger, the financial position of RNMCS was weak and the fact that after demerger RNMCS has become a separate entity (detached from assessee Modi Vidya Niketan) was not so became known to the outer world/ third parties were still continued c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more than 85% as required by law. Therefore, the fact of interest bearing loan taken, the alleged diversion thereof and the allegation of non-charging of interest, are completely irrelevant. 23. With regard to allegation of ld. CIT(Exemptions) that the Assessee Society started reducing the advances (as per CIT (E) reached to ₹ 6.49 Cr. as on 06.08.2018) just before the issuance of notice u/s 143(2) dt 09.08.2018 prompted the Assessee Society to gradually reduce such advances, is nothing but a mere suspicion. Firstly, how a person could foresee that some notice would be issued in future so as to plan its affair and save itself. Secondly, the RNMCS itself started paying back the amounts so taken in a normal course from date 19.7.2018 in A.Y 2019-20 and admittedly by 15.05.2019 (A.Y 2020-21), the entire amount taken from the Assessee Society stood paid back and account of RNMCS in Assessee Society s books stood squared up. Even otherwise alternatively, if the Assessee Society started taking back the loans after 09.08.2018 / the RNMCS started paying back the loans after the date of scrutiny notice, how it is going to make it any difference because the ld. CIT(E) passed the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clear from the above that the restriction in accumulating surpluses generated by a university or an educational institution and investing the funds in a manner provided under Section 11(5) of the Act were introduced for the first time w.e.f. 1st April, 1999 and such conditions were not applicable for claiming exemption under Section 10(22) of the Act. 66. In view of the above, the exemption available under Section 10(22) and 10(23C) could not be denied to the Assessee on the ground that it had invested its funds contrary to Section 11(5) of the Act, as the said condition was introduced by the fifth proviso to Section 10(23C) only w.e.f. 1st April, 1999. More importantly, the Assessees who had made their investments which did not conform to Section 11(5) of the Act, were by virtue of the proviso to Section 10(23C) afforded time till 30th March, 2001 - a period of three years - to transfer their investments to permissible securities as specified under Section 11(5) of the Act. Thus, it could be seen from the above that these findings are in favour of revenue only. The ld. AR has relied on the case of CIT Surya Educational Charitable Trust[2011] 1S taxmann.com 123 (Punja ..... X X X X Extracts X X X X X X X X Extracts X X X X
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