2013 (5) TMI 305 - AT - Income Tax

Exemption u/s. 10(23C)(vi) - denial of claim - Reopening of assessment - also for filing the returns belatedly for these assessment years there was levy of penalty u/s. 272A(2)(e) - Held that - There cannot be one authority for levying of penalty on assessment at Kurnool and another authority for framing assessment. Being so, issue of notice u/s. 148 by the Hyderabad Range of the Department is not correct. As the issue of notice itself is bad in law by the Hyderabad Range of the Department, consequent framing of assessment is bad in law. Being so, the reopening of assessment for all the above four assessment years quashed. Even otherwise, the notice u/s. 148 was issued on the reason recorded that approval under provisions of section 10(23C)(vi) was mandatory and it was not obtained by the assessee though the gross receipts exceeded Rs. 1 crore and, therefore, income escaped assessment. However, the assessee could claim alternate deduction/exemption u/s. 11 and non-obtaining of approval u/s. 10(23C)(vi) is not fatal in view of the decision ADIT (Exemptions) vs. Rajasthani Siksha Samithi (2008 (3) TMI 501 - ITAT HYDERABAD) wherein held that institutions falling u/s. 10(23C)(vi) are eligible for exemption u/s. 11 also. Merely because section 10(23C)(vi) provides for exemption of the income of an educational institution it does not follow that such institution cannot avail exemption u/s. 11 subject to fulfilment of the conditions laid down. Being so, when the reasons recorded do not survive reopening of assessment is bad in law as decided in Ganga Saran and Sons (P) Ltd. vs. ITO & Ors. (1981 (4) TMI 5 - SUPREME Court), CIT v. Jet Airways (2010 (4) TMI 431 - HIGH COURT OF BOMBAY), Ranbaxy Laboratories vs. CIT (2011 (6) TMI 4 - DELHI HIGH COURT ) and CIT vs. ICICI Bank Ltd., Bombay (2012 (7) TMI 521 - BOMBAY HIGH COURT) . Accordingly the reopening of assessment quashed. Assessment of income by treating the development fee receipt as capitation fee thereby denying exemption u/s. 11 - Held that - As decided in Vasavi Academy of Education case 2010 (2) TMI 970 - ITAT HYDERABAD the assessee is not entitled for exemption either u/s 11 or u/s 10(23C) in case it collected any money by whatever name it is called i.e., donation, building fund, auditorium fund etc. etc., over and above the prescribed fee for admission of students, thus remit the issue to the file of the AO to consider the entire issue afresh and verify the records whether the assessee collected capitation fees from students for the purpose of giving admission. If so, the assessee is not entitled for deduction u/s. 11 of the Act. In favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Reopening of assessment.
2. Jurisdiction of the assessing authority.
3. Denial of exemption under section 11 of the Income-tax Act.
4. Alleged violation of section 13(1)(c) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Reopening of Assessment:
The appeals concern the reopening of assessments for A.Ys. 1999-2000, 2000-01, 2002-03, 2003-04, and 2004-05. The assessments were reopened following a survey under section 133A at G. Pullareddy Engineering College, Kurnool, revealing that the assessee had not filed returns for A.Y. 1997-98 onwards. Notices under section 148 were issued, and the assessee subsequently filed returns for the relevant years. The reopening was based on the observation that income chargeable to tax had escaped assessment due to the absence of mandatory approval under section 10(23C)(vi).

2. Jurisdiction of the Assessing Authority:
The assessee argued that the DDIT (Exemptions)-II, Hyderabad, lacked jurisdiction to issue notices under section 148, as jurisdiction was vested with the JCIT, Kurnool, confirmed by the Tribunal in earlier penalty proceedings. The Department contended that the registered office being in Hyderabad granted jurisdiction to the Hyderabad authorities. The Tribunal held that jurisdiction was correctly vested with the Kurnool Range during the relevant assessment years, and any notice issued by the Hyderabad Range was invalid. Consequently, the reopening of assessments by the Hyderabad Range was quashed as bad in law.

3. Denial of Exemption under Section 11:
The assessee claimed exemption under section 11, being a trust registered under section 12. The Assessing Officer denied this, arguing that the gross receipts exceeded Rs. 1 crore without mandatory approval under section 10(23C)(vi). The Tribunal noted that non-obtaining of approval under section 10(23C)(vi) was not fatal, as the assessee could claim alternate exemption under section 11. Citing decisions from co-ordinate benches, the Tribunal held that institutions eligible under section 10(23C)(vi) could also claim exemption under section 11. The Tribunal quashed the reopening of assessments on this basis as well.

4. Alleged Violation of Section 13(1)(c):
The Assessing Officer also denied exemption under section 11, citing a diversion of Rs. 4 lakhs to Sri G. Pulla Reddy, allegedly attracting section 13(1)(c). The Tribunal found that Sri G. Pulla Reddy, aged about 80, had devoted his life to the institution and the money was kept with him for safe custody, not for personal benefit. Thus, the Tribunal held that section 13(1)(c) was not attracted.

Separate Judgments Delivered:
The Tribunal delivered a separate judgment for ITA No. 437/Hyd/2008 concerning A.Y. 2004-05, where the issue was the treatment of development fee receipts as capitation fees, denying exemption under section 11. The Tribunal remitted the issue back to the Assessing Officer to verify if capitation fees were collected, directing that exemption under section 11 should be denied if such fees were collected.

Conclusion:
The Tribunal quashed the reopening of assessments for A.Ys. 1999-2000, 2000-01, 2002-03, and 2003-04 by the Hyderabad Range, upheld the jurisdiction of the Kurnool Range, and remitted the issue of capitation fees for A.Y. 2004-05 back to the Assessing Officer for fresh consideration. The appeals were partly allowed, with detailed directions for further proceedings.