TMI Blog2001 (10) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... "1. The CIT(A) has erred in law and on facts of the case in directing the Assessing Officer to allow exemption under section 10(22) of Income-tax Act, 1961 merely placing reliance on the appellate order of assessment year 1985-86 which is subjudice before ITAT. 2. The CIT(A) has erred in law and on facts in arriving to the conclusion that as interest amounting to Rs. 2,46,016 has been charged on debit balances of Mr. Bakhat the assessee was entitled to exemption under section 10(22), ignoring the discussions in the assessment order that the landlords are getting enriched by paying nothing and just merely book entries were passed in the a/c books of the school." 4. The assessee had furnished various Paper Books one of which was filed on 18-7-2001 and contains 120 pages. At the time of hearing of the appeal the counsel for the assessee--Sh. S.K. Garg specifically submitted that the Paper Book furnished on 16-7-2001 alone should be considered and all other Paper Books or Letters should be taken as withdrawn and be ignored. Consequently, the Paper Book furnished on 18-7-2001 and other details asked for the Bench after 18-7-2001 are being taken into account. 5. We have heard the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e power to reject the admission of persons as the member of the society which employee that the secretary has the absolute control over the society. The remaining members of the Executive Committee stayed outside Allahabad which also means by implication that the said Shri Bakhat who stayed at Allahabad can manage the affairs of the society in a manner he deems proper. According to the Assessing Officer, the building in which the school is being run is owned of the secretary and his mother Smt. Ruquia Begum but additions to the said building are being made by withdrawing from the funds of the school whereby the landlords are becoming richer day by day by making additions to the building. A sum of Rs. 1,89,300 was incurred on repairs and maintenance of the building which includes residential portion in which Shri Bakhat is residing. The Assessing Officer on going through the management of the institution was of the opinion that the society has not been established solely for the purpose of education. The society went on debiting, the account of the landlord resulting into debit balance but no interest was charged from the landlords. There were other objections as detailed in the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld to be exempt under section 10(22). However, for the assessment year 1985-86 vide order dated 30-1-1989 for the assessment year 1986-87 vide order of the same date such exemption was not allowed by the Assessing Officer but for the assessment year 1987-88 again such exemption was allowed vide order of later date i.e., 28-2-1989. Again for the assessment year 1988-89 vide order dated 28-2-1989 the exemption was denied. I have before me the benefit of the appellate orders for the assessment years 1985-86, 1986-87 and 1988-89 bearing Appeal Nos. 106/ACIT/CIR. I/All./88-89, dated 30-5-1990, 105/ACIT/Cir, I/All./88-89 dated 30-5-1990 and 96/ACIT/Cir-I, All./1988-89, dated 30-5-1990 respectively according to which the exemption under section 10(22) has been directed to be allowed. In Para 2.2 of the appellate order for the assessment year 1985-86 my predecessor in office has discussed in detail the reasons as to why the exemption was denied. After discussing in detail the arguments and after giving reasons, the CIT(A) in Para 2.22 held as under: '2.22 For the reasons aforesaid, the denial of exemption to the appellant-society under section 10(22) of the Act for the assessment years 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of Income Expenditure account it is revealed that the assessee has been having surplus/profit to the extent as detailed below--year after year: --------------------------------------------------------------------------------- Receipts on account of Fee charged from the Sl. Period Students Surplus/Profit No. (in Rupees) (in Rupees) --------------------------------------------------------------------------------- 1. 1-7-1987 to 31-3-1989 36,36,668 12,46,061 2. F.Y. 1989-90 12,53,821 7,60,724 3. F.Y. 1990-91 15,40,843 3,11,623 4. F.Y. 1991-92 17,77,509 1,83,069 5. F.Y. 1992-93 21,41,666 2,57,069 6. F.Y. 1993-94 27,84,976 3,23,973 7. F.Y. 1994-95 16,73,440 7,16,943 8. F.Y. 1995-96 34,10,015 7,65,911 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduce the Lease Deed the assessee expressed its inability to produce the same on the plea that there was no Lease Deed. In view of this facts it has to be taken that the expenditure incurred by the Assessee on account of repairs to the building was without any liability to do so and in a sense was a benefit extended to the Landlords one of whom happens to be the Secretary of the assessee. (viii) It is also revealed from the Balance sheet that the huge amounts were taken away by the Landlords from the assessee and there was no agreement as to when it was to be repaid. The yearwise balance out-standing against the Landlords is as under: --------------------------------------------------------------------------------- Amount outstanding Sl. Against the Landlords No. Period (in Rupees) --------------------------------------------------------------------------------- 1. 1-7-1987 to 31-3-1989 10,75,976 2. F.Y. 1989-90 17,07,706 3. F.Y. 1990-91 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Mr. Bakhat, Case No. 711/88 and 261/88 against trespassers and by the trespassers relates to property No. 13, Writ No. 7812 of 88 was against order of DM freezing the Bank account of the assessee as well as Mr. Bakhat and Writ No. 12767/88 was against the order of City Magistrate under section 144 of CrPC against the assessee as well as Mr. Bakhat. Similarly, Writ No. 23043/88 and 23783 of 88 were by the trespassers to Property No. 13, and Criminal Revision Petition by trespassers was also against Property No. 13. (xii) From copies of Smirtipatra and Niymawali (Memorandum of Association and Rules), which have been claimed to be basis of seeking Registration with the Registrar of Co-operative Society Uttar Pradesh dated 14-6-1983 it is revealed that though there is a provision in the Memorandum or the Rules as to what will happen to the Assets belonging to the assessee, if any, upon the Dissolution of the assessee (alleged Society) or upon closure of its activities, but the assessee having not filed the amended copy of Memorandum and by-laws executed in the year 1988 and 1989 inspite of directions of the Bench given at the time of hearing on 6-9-2001, the observations of the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l high rent was paid for the building owned by Sh. H.R.A. Bakhat and his mother Mrs. Requiya, Mr. H.R.A. Bakhat was drawing a Salary from the assessee and was using the assessee's car, the personal expenses of the Landlords i.e., Mr. Bakhat and his mother were being met by the assessee, additions and repairs were made by the assessee to the building owned by Mr. Bakhat and his mother, there being no provision for recovery of amounts due from Landlords, recovery of buildings in the name of Mr. H.R.A. Bakhat and there being no provision as to what will happen to the assets owned by the assessee in case of its Dissolution or closure, it is crystal clear that the assessee was not a "Institution for Education" as envisaged by the provision of section 10(22) of the Act, rather was in the nature of a personal commercial concern control by Mr. Bakhat and his family members for earning profit and to earn their livelihoods. He therefore, strongly pleaded that assessee was not entitled to exemption under section 10(22) of the Act and pleaded that the order of the CIT(A) may be set aside and Assessment Order be restored. 7. The Counsel for the assessee Sh. S.K. Garg, after referring to the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 1989-90, the counsel submitted that by the time notice under section 148 was issued for this assessment year i.e., by 19-7-1990 the CIT(A) had already decided the assessee's appeal for the assessment years 1985-86, 1986-87 and 1988-89 (13-5-1990) and therefore, notice under section 148 was issued on the same basis as was for earlier assessment years and consequently, the issues involved for the assessment year 1989-90 are same as were in the earlier years. The counsel therefore, submitted that the Tribunal having allowed the assessee's claim of exemption for earlier years it should be allowed for the assessment year 1989-90 also. In support of these submissions reliance was placed on the decision of the Hon'ble Supreme Court in case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 and of Allahabad High Court in case of K.M. Bansal v. CIT [1992] 195 ITR 247. It was further submitted that in view of above facts and circumstances to the Assessing Officer not go beyond the subject-matter of reasons recorded for issuing notice under section 148 and consequently, his order is liable to be set aside. Reliance was placed on the decision in case CIT v. Kunju Reported in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Education purpose, and (ii) The Educational activities are not for the purpose of profit ie., do not result in profit except as an exception or by incident, and (iii) The profit/surplus, if any, arising even by incident, as a result of such Educational or incidental activities is not for the purpose of use by any of the person having any interest in the Institution. 9.2 To find as to whether an Institution is only for Education purpose or not one has to go to the actual working of the Institution and the intention of the founders and the persons as well as their relatives or friends having any kind of interest--whether directly or indirectly; and the consideration charged thereof for imparting the education. All these three tests are to be satisfied simultaneously i.e., all these three tests are commulative and failure to meet or satisfy any one or more of these tests is sufficient to hold an institution "as not for education" and/or "for profit' as intended by Legislature while providing exemption under section 10(22) of the Act. (Ai) So far as first test is concerned, one has to dive deep into the actual affairs of the institution because applicability of this test canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a constitutional mandate to create conditions in which the fundamental rights guaranteed to the individuals under Part III could be enjoyed by all. Without making "right to education" under Art. 41 of the Constitution a reality the fundamental rights under Chapter II shall remain beyond the reach of large majority which is illiterate. The fundamental rights guaranteed under Part III of the Constitution of India including the rights to freedom of speech and expression and other rights under Art. 19 cannot be appreciated and fully enjoyed unless a citizen is educated and is conscious of his individualistic dignity. The 'right to education', therefore, is concomitant to the fundamental rights enshrined under Part III of the Constitution. The State is under a constitutional-mandate to provide educational institutions at all levels for the benefit of the citizens. The educational institutions must function to the best advantage of the citizens. Opportunity to acquire education cannot be confined to the richer section of the society." Para 17 "Every citizen has a 'right to education' under the Constitution. The State is under an obligation to establish educational institutions to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes by charging capitation fee as a consideration. This practice strikes at the very root of the constitutional scheme and our educational system. Restricting admission to non-meritorious candidates belonging to the richer section of society and denying the same to poor meritorious is wholly arbitrary against the constitutional scheme and as such cannot be legally permitted. Capitation fee in any form cannot be sustained in the eye of law. The only method of admission to the medical colleges in consonance with fair play an equity is by way of merit and merit alone. Therefore charging of capitation fee by the private educational institutions as a consideration for admission is wholly illegal." D.P. Joshi v. State of Madhya Bharat AIR 1955 SC 334, Distinguished. If the observations of the Hon'ble Apex Court, which of course are with respect to the charging of CAPITATION FEE, are considered keeping in view the concept and the underlining Principle, one will come to the conclusion that charging of abnormal high fee which, in a sense, if not capitation fee in the strict term but, at least, is akin to the CAPITATION FEE (being not commensurate to nature of Educational imparted/services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 10(22) of the Act cannot be denied simply because there is surplus but there is also no dispute that if the surplus is as a regular feature and as a result of intentional charging of abnormal high fee, other than donations for corpus, not commensurate to the expenditure there is no question of granting of the exemption. If any surplus results incidentaly it will not cease to be the one existing solely for Education purpose, since in such eventuality the object could not be for making profit [Please see 'Aditanar Educational Institittion's case]. Conversely, if the surplus is not incidental but a regular feature then the Institution shall definitely be out of the ambit of the definition of "Educational Institution" as envisaged in the provisions of section 10(22) of the Act. (iii) In view of above facts and circumstances we are of the opinion that the assessee's activities do not fall within the concept of "solely for Education" and therefore, the assessee is not an Educational Institute as envisaged in the provisions of section 10(22) of the Act. (Bi) For an Institute to satisfy tests at Sr. No, (ii) above, we are of the opinion that first of all it is desirable to conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be an income. It is however, true that wherever there is an income there has to be profit. [Rani Amrit Kunwar v. CIT [1946] 14 ITR 561 (All.)]. (iva) The term "not for profit" in our opinion does not mean that there should not be any surplus i.e., does not mean that the receipts of an Educational Institution should match the expenditure incurred during the year but at the same time it also does not mean that the receipts of the Educational Institution can be abnormally more than the yearly expenditure. The Surplus should be an exception and not as a matter of rule. In other words the surplus should be in exceptional circumstances or by incident and not as a rule. (ivb) Secondly the surplus should be used for the purpose of Educational activities. (ivc) Thirdly such surplus should never and by no means be used for the personal purpose of any person having control or interest in control over the running of the Institution. (v) From the aforesaid concept composed by us what comes out is that if there is an abnormal surplus year after year or as a matter of rule and such surplus is enjoyed by any of the person having control of the Institution or interest in the control o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or manual or mental; or in whatever capacity such as Chairman or President or Secretary or Principle or Teacher or in other capacity; will certainly bring the Institution in the category of Institutions existing for 'profit'. Consequently, for an Institution carrying on the Educational Activities not for the purpose of Profit, the aforesaid tests have to be strictly adhered to. 10. So far as the present Institution styled as M/s Bal Bharti Nursery School, is concerned, the admitted facts, which the assessee has not been able to dispute are; (i) Under the section 14 of the U.P. Societies Act the assets of a Society on its dissolution or on closure of the Activities have to be transferred to another society register under the U.P. Societies Act. So far the present assessee is concerned, though the assessee has been registered as Society under the U.P. Societies Act but having not filed the amended Memorandum of Association and the rules framed thereunder the Assessing Officer's findings that Mr. H.R.A. Bakhat had absolute powers to refuse admission of any person as member of the assessee and there were no checks and balances for the recovery of amounts due from Landlord, has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of such powers to the Secretary, but has not produced any evidence in this respect. (iv) The surplus i.e. the profit earned by the alleged society has been, year after year used for and by Mr. Bakhat and his family members who happens to be the sole beneficiary of the society. To be precise the utilization of surplus/profit is by and for the benefit of Mr. H.R.A. Bakhat his mother and other family members, who have the sold control over the affairs as well as the finance of the assessee. (a) By way of payment of abnormally high rent for a portion of the premises to Mr. Bakhat and his mother. Here it is impor tant to mention that the owners of the property, who are the sole beneficiary of the Institution and have absolute control over it, have tried to evade this aspect of the matter under the garb of tax planning by first forming a partnership between the mother (owner of the property) and the son for showing the letting out the part of the property -- since used by the society; on a nominal rent to the said partnership firm and then allowing that firm to let out the same property at an abnormal high rent to the society. If this modus operandi of the Landlady and her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This concept propounded bv us is not only a hypothesis but is theoretical and in fact is a reality as is evident from the fact that: (a) Immovable properties having been purchased in the name of Mr. H.R.A. Bakhat in his personal name and not in fiduciary capacity, nobody on this earth and under any law of the land could recover the properties from him. The assessee's plea that the investment in properties is appearing in the Balance-sheet is of no use because at the relevant time. The Benami transactions (Prohibition) Act, 1988 was in force which prohibited the investments in Benami names. Making of Investments in Benami names was not only a criminal offence but the property itself was liable to be taken over by the Govt. The Transfer of Immovable Properties Act also makes a person, in whose name the property is registered, the owner of the property for all intent and purposes. The relevant provisions of Benami Transactions (Prohibition) Act, 1988 reads as under:-- "1 .......... 2. Definitions.--In this Act, unless the context otherwise requires,-- (a) "benami transaction" means any transaction in which property is transfer to a person for a consideration paid or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions (Prohibition) Act, 1988 it is quite clear that once a property is purchased in the name of a person other than the wife or unmarried daughter or in the fiduciary capacity of someone else, the person making the investment ceases to have any legal right to recover the same. Consequently, the fact that the Memorandum and the bylaws governing the assessee's activities provide for compliance to section 14 of the Registration of Societies Act and the assessee's claim that the investment in Immovable properties at Bombay and Lucknow purchased in the personal name of Mr. Bakhat (not in a fiduciary capacity) have been shown as assets in its balance sheet or the fact that property at Lucknow was being used for running a School cannot legally entitle the assessee either to claim the ownership of the same or to recover the same under any law of the land. That being the ease the question of recovery or compliance to provisions of section 14 of Registration of Society Act do not arise at all -- is a farce, only to befool the authorities and evade lawful tax liabilities. Similarly, the assessee's claim that the properties were subsequently sold in 1995 (as per balance sheet the properti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny safe guard such as pronote agreement or undertaking etc., do not support the assessee's claim. For all intents and purposes the properties as well as the cash were in the complete possession of Mr. Bakhat and assessee could not recover the same. (vi) The assessee has not produced the books of account and the relevant documents and also the details regarding the basis for charging fees from the students. (vii) As stated in the Para No. 5.6(xv) above, the assessee's Funds to extent of Rs.5,13,861 and Rs.9,00,000 have been misappropriated during the years ending 31-3-1996. 12. In view of totality of the facts and circumstances and the discussion, we are of the opinion that the assessee, though is imparting Education, is existing solely for the purpose of commercial consideration and not solely 'for education' as envisaged in the provisions of section 10(22) of tile Act. We are, further of the opinion, that the institution is existing for making commercial profits for the personal enjoyment of Mr. Bakhat and his family members and consequently, not entitled to the exemption under section 10(22) of the Act. The order of the CIT(A) is set aside and that of Assessing Officer is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... With regard to the assessee's plea that facts and circumstances for the year under appeal are the same and therefore the present appeal is covered in asscssee's favour and against the revenue by the order of the Tribunal, we are of the opinion that a decisions not comprised only of the fact and circumstances. It is comprised of facts, pleadings, consideration of various decisions and the provisions of law -- in the contexts of legislative intent; and the application of the judicious mind of the Bench or the Court, as the case may be; and that is the reason that, on the similar facts and on the same issue, there have been and are conflicting decisions up to all levels of the judiciary. In view of this concept we are of the opinion that a Bench or a Court can deviate from its own previous order/decision or the decision of other bench, though of-course within the parameter of the concept relating to "Judicial Property" and "Binding nature", if a strong distinguishable case has been made out. So far as the present case is concerned, we, in view of our earlier observations and the fact that the decision of the Hon'ble bench is distinguishable, are not in a position to follow the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the CIT(A) but had not pressed the same when the appeal was heard. According to him this do not bar the assessee from taking the same ground before the Tribunal either in appeal or by way of cross objection. Mr. S.K. Garg further submitted that in view of the provisions of section 253 of the Act, rule 47 of Income-tax Tribunal's Rules and the decisions of Hon'ble Supreme Court in case of Union of India v. A. Sanyasi Rao [1993] 202 ITR 584 the Tribunal has got inherent powers to condone the delay and admit the same in the interest of Justice. Coming to the reasons for delay Mr. Garg submitted that the delay was caused due to the fact that the assessee had not been advised of its rights to file a cross objection. It was further submitted that the Maxim. that "Ignorance of Law is not an excuse", as has been held by the Hon'ble Supreme Court, is not known to Fiscal Laws and therefore, the delay be condone. 4. The Ld. DR on the other hand left the matter to be decided on merits in accordance with law by the Tribunal saying that there is no provision for condonation of delay in furnishing cross objection and the reasons for delay stated by the assessee are not sufficient an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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