9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2010 (7) TMI 1060 - AT - Income TaxClaimed exemption u/s 10(23C)( iiiad) - notices u/s 148 issued for 3yrs - Assessee filed returns for the respective assessment years on 17-8-2004 declaring nil income - assessee is running two Schools in the name of Gagan Public School one at Agra Road and other at Exhibition Road. Proceedings u/s 147 were initiated in all these three years as in the assessment year 2003-04 vide order dated 31-12-2004 the AO held that the Society is running the School for profit and not for charitable purposes. Income-tax Rules 2BC prescribes the limit of 1 crore. It means that if the turnover is 1 crore or less then the educational institution has not to be approved by prescribed authority. Otherwise educational institution has to get approved by the prescribed authority. In the case of the assessee in each of the assessment year the annual receipts as detailed above is less than 1 crore. Therefore in our opinion the assessee is not required to get approved by any prescribed authority. It is not the case of the Revenue that the assessee has defaulted the proviso to section 10(23C). Merely this surplus has arisen to the assessee during the course of carrying on the education activity does not mean that the assessee is not existing for education purpose. Even no such evidence or material was brought on record which may prove that the assessee was engaged in any of the activities other than the education activities so that the assessee may be disentitled for the exemption under section 10(23C)(iiiad) rather the AO has accepted by allowing exemption to the assessee u/s 11 during the assessment year 2007-08 that the assessee is a genuine educational institution and the activities of the assessee are genuine and has been carried on as per the objects of the assessee. We accordingly set aside the order of the AO and allow the exemption to the assessee u/s 10(23C)(iiiad). The aforesaid view is supported by the decision of the Allahabad High Court in the case of City Montessory School v. Union of India 2009 (5) TMI 41 - ALLAHABAD HIGH COURT and that of Ewing Christian College Society v. Chief CIT 2009 (5) TMI 103 - ALLAHABAD HIGH COURT and American Hotel Lodging Association Educational Institute v. CBDT 2008 (5) TMI 17 - SUPREME COURT . In the result all the three appeals are allowed. Exemption u/s 11 12 - Granted registration u/s 12AA - HELD THAT - By allowing the exemption to the assessee u/s 11 during the assessment year 2007-08 the AO has himself accepted that the assessee is a genuine education institution and the activities of the assessee are genuine and has been carried out as per the objects of the assessee. If the main object of the assessee is imparting of the education and during the course of imparting of the education if some surplus has arisen to the assessee it cannot be said that the assessees institution is not engaged for charitable purpose as defined under section 2(15). The Hon ble Supreme Court in the case of Asstt. CIT v. Surat City Gymkhana 2008 (4) TMI 16 - SUPREME COURT has held that once the trust is registered u/s 12A it is a fait accompli and the AO cannot thereafter make a further probe into the objects of the trust. We accordingly set aside the order of the CIT(A) on this issue and hold that the assessee institution is engaged for charitable purpose. Once the assessee is engaged and is duly registered u/s 12AA unless and until the assessee violates the terms and conditions as stipulated u/s 12 to 13 in our opinion the assessee cannot be denied exemption u/s 11. Issue relates to the donation - The assessee has donated a sum of 15, 73, 600 out of the current year income to Gagan Academic Society. The Society is also engaged in imparting education and is registered u/s 12A as pointed out by the ld. A.R. The donation so paid was not treated as an application of the income by the AO and confirmed by the CIT(A). HELD THAT - We have gone through the provisions of explanation to section 11(2). This explanation has been inserted by the Finance Act 2002 by amending section 11(2). This explanation provides that the amount accumulated cannot be credited or paid to any other trust or institution registered under section 12AA or to any fund or institution or trust or any University or any other educational institution or any hospital or other medical institution referred to in section 10(23C) as any such credit or payment shall not be treated as application of income for charitable or religious purpose either during the period of accumulation or thereafter. Any such credit or payment by the donor trust to another trust or institution shall be deemed to be the income of the donor trust in such year of credit or payment. Since the 15 per cent accumulation u/s 11(1) is unconditional and need not be spent at all by the trust the question of treating the same as income in case it is credited or paid to another trust (in the subsequent year) does not arise in any case section 11(3) which beings with the words income referred to in sub-section (2) makes it explicitly clear that the restriction imposed by section 11(3)(d) applies only to income accumulated u/s11(2) and not to the current year s income or to the accumulation u/s 11(1). Therefore we set aside the order of CIT(A) on this issue and direct the AO to allow deduction to the assessee in respect of donation paid to Gagan Academic Society provided that the society is duly registered u/s 12AA as a charitable institution. Interest income earned - loan advanced - We therefore set aside the order of CIT(A) and restore this issue to the AO with the direction that the AO shall verify from record of the concerned assessment year whether the assessee has received interest at the rate of 15 per cent from Smt. Urvashi Sharma or not. He is also further directed to verify whether the loan advanced by the assessee to Smt. Urvashi Sharma during the year do not exceed 5 per cent of the capital of Smt. Urvashi Sharma. In case amount invested by the assessee by way of loan to Smt. Urvashi Sharma do not exceed 5 per cent of the capital of Smt. Urvashi Sharma the AO is directed to allow exemption to the assessee u/s 11. Capital expenditure as an application of the income u/s 11 - We therefore restore this issue to the file of the AO with the direction that the AO should verify the quantum of the capital expenditure from the audited balance sheet and allow the application to the assessee u/s 11 to the extent the assessee has incurred the capital expenditure. The assessee is free in case he so chooses to submit consolidated balance sheet of both the educational institutions run by the assessee for the purpose of verification of the figures of the capital expenditure incurred by the assessee before the AO. No other issue was argued or raised by either of the side before us rather the ld. A.R. contended that even if the disallowance of the expenses of 5, 63, 189 is confirmed but the assessee is allowed statutory accumulation u/s 11 and the application u/s 11 in respect of the capital expenditure the income of the assessee will be nil and accordingly the claim of the assessee in respect of 14, 08, 804 will merely be academic and the assessee therefore did not press the claim before us and accordingly we dismiss this claim of the assessee. In the result appeal of the assessee is partly allowed for statistical purposes. Whether the assessee is running an institution for charitable purposes whether the assessee is entitled for statutory accumulation u/s 11(1)(a) whether the assessee is entitled for claim of application u/s 11 in respect of the capital expenditure or not - HELD THAT - We have already held during the assessment year 2003-04 that the assessee is a charitable institution. We have already allowed deduction to the assessee at the rate of 15 per cent u/s 11(1)(a). We have also allowed capital expenditure as an application of the income u/s 11 but restored the issue relating to the capital expenditure for the purpose of verifying the figures as claimed by the assessee to the AO. We have confirmed the disallowance of the expenses in the assessment year 2003-04 and restored the issue so far the advance to Smt. Urvashi Sharma is concerned to the file of the AO. Accordingly we restore this issue for the assessment years 2004-05 2005-06 and 2006-07 relating to the verification of the capital expenditure incurred by the assessee to the file of the AO with the direction that the AO shall allow exemption to the assessee u/s 11 in respect of the capital expenditure to the extent it is found that the assessee has incurred the capital expenditure. In the result the appeals filed by the assessee for assessment years 2000-01 2001-02 2002-03 are allowed while the appeals for the assessment years 2003-04 to 2006-07 are partly allowed for statistical purposes.
Issues Involved:
1. Exemption under Section 10(23C)(iiiad) of the Income-tax Act, 1961. 2. Exemption under Sections 11 and 12 of the Income-tax Act, 1961. 3. Denial of exemption based on profit motive and benefit to society members. 4. Application of income for charitable purposes. 5. Capital expenditure as an application of income. 6. Loans to specified persons under Section 13(3) of the Act. 7. Donations to other charitable institutions. Detailed Analysis: 1. Exemption under Section 10(23C)(iiiad): The assessee filed returns for AY 2000-01, 2001-02, and 2002-03, claiming exemption under Section 10(23C)(iiiad) for running two schools. The Assessing Officer (AO) denied the exemption, asserting the society was run for profit, not charitable purposes. The CIT(A) upheld this, citing instances from AY 2003-04 where the society's secretary surrendered Rs. 50,00,000, indicating profits siphoned from the society. The Tribunal found that the society's annual receipts were below Rs. 1 crore, fulfilling Section 10(23C)(iiiad) requirements. The Tribunal set aside the AO's order, granting the exemption, referencing the Allahabad High Court and Supreme Court rulings supporting educational institutions' charitable status. 2. Exemption under Sections 11 and 12: For AY 2003-04 to 2006-07, the AO denied exemptions under Sections 11 and 12, alleging the schools were run for profit. The CIT(A) upheld this, noting the secretary's surrender of Rs. 50,00,000 and benefits to society members. The Tribunal disagreed, emphasizing the society's registration under Section 12AA and the AO's acceptance of the society's charitable status in AY 2007-08. The Tribunal concluded that surplus from educational activities does not negate the charitable purpose, setting aside the CIT(A)'s order and granting exemptions under Sections 11 and 12. 3. Denial of Exemption Based on Profit Motive: The AO and CIT(A) argued that the society was run for profit, citing the secretary's surrendered income and benefits to society members. The Tribunal found no evidence of activities beyond education and noted the society's compliance with Section 12AA. It ruled that surplus alone does not imply a profit motive, especially when the AO accepted the society's charitable status in AY 2007-08. 4. Application of Income for Charitable Purposes: The AO disallowed certain expenses, questioning their charitable nature. The Tribunal emphasized that expenses for educational activities qualify as charitable application. It restored the issue to the AO for verifying the capital expenditure from the audited balance sheet, allowing deductions for genuine educational expenses. 5. Capital Expenditure as Application of Income: The Tribunal recognized capital expenditure for educational purposes as a valid application of income under Section 11. It directed the AO to verify the capital expenditure and allow deductions accordingly, noting that such expenditures contribute to the society's charitable objectives. 6. Loans to Specified Persons under Section 13(3): The AO denied exemption due to a loan advanced to Smt. Urvashi Gaur, a specified person under Section 13(3). The Tribunal found the loan was repaid with interest exceeding bank rates, aligning with Section 13(4). It restored the issue to the AO to verify compliance with the 5% capital limit and allow exemption if conditions were met. 7. Donations to Other Charitable Institutions: The AO disallowed a donation to Gagan Academic Society, arguing it was not an application of income. The Tribunal clarified that donations from current year's income to another registered charitable institution are permissible. It directed the AO to allow the deduction, provided the recipient society was registered under Section 12AA. Conclusion: The Tribunal allowed the appeals for AY 2000-01, 2001-02, and 2002-03, granting exemption under Section 10(23C)(iiiad). For AY 2003-04 to 2006-07, it partly allowed the appeals, directing the AO to verify capital expenditures and compliance with Section 13(4) for loans, and to allow exemptions under Sections 11 and 12 accordingly.
|
