2017 (6) TMI 10 - AT - Income Tax

Denial of benefit u/s 11 and 12 - proof of charitable purposes - Held that - On perusal of the order of the Hon ble Delhi High Court in the assessee s own case 2015 (10) TMI 600 - DELHI HIGH COURT observed that the objects of the assessee society were solely for the purposes of education and not for the purposes of profit. Also that the distribution of surpluses was prohibited and further, in the event of dissolution of the assessee society, its assets would have to be transferred to another institution, carrying on similar activities and the same cannot be distributed to its members. The assessee has been running three schools that are affiliated to CBSE and admittedly, this would not have been permissible in case the assessee did not exist solely for educational purposes and/or if the assessee was found to be pursuing the profit motive. The surpluses generated by the assessee were necessarily to be applied towards its charitable objects and, therefore, in view of the aforesaid, exemption cannot be denied by the assessee only for the reason that it had been generating surpluses. The fact that certain advances had been made to Col. Satsangi and some of his family members who were also involved in running the school cannot be construed as diluting the predominant object of the assessee which was managing schools and the substratal purposes of its activities was education. The Hon ble High Court held that the assessee would quality for exemption u/s 10(22)/10(23C) of the Act. Therefore, respectfully applying the ratio of the judgment of the Hon ble High Court, we deem it fit to restore the assessment to the file of the Assessing Officer for re-examination and fresh assessment after duly considering the status of the assessee s application for approval u/s 10 (23C) (vi) before the DGIT(E) and after giving proper opportunity to the assessee to present its case.Assessee s appeal stands allowed for statistical purposes.

Summary

Issues:
1. Denial of exemption u/s 10(23C)(vi)
2. Denial of benefit u/s 11 and 12
3. Disallowance of capital expenditure
4. Charging of interest under sections 220(2), 234A, and 234B

Denial of exemption u/s 10(23C)(vi):
The appeal was filed by the assessee against the denial of exemption u/s 10(23C)(vi) in the assessment year 1999-00. Initially, the claim for exemption was denied in the regular assessment, leading to appeals before the CIT(A) and subsequently the ITAT. The ITAT directed the case to be sent back to the Assessing Officer for fresh adjudication regarding the application for approval u/s 10(23C)(vi). The DGIT(E) later rejected the application for exemption, resulting in the denial of benefits u/s 10(23C)(vi) and assessment of income at a gross total income of ?1,57,48,783. The assessee challenged this denial before the CIT(A), who partly allowed the appeal but upheld the denial of benefits u/s 11 and 12. The ITAT, considering the High Court's observations, restored the assessment to the Assessing Officer for re-examination and fresh assessment after duly considering the status of the application for approval u/s 10(23C)(vi) and providing the assessee with a proper opportunity to present its case.

Denial of benefit u/s 11 and 12:
The denial of benefits u/s 11 and 12 was based on the assessee not being registered u/s 12A of the Act and the rejection of the application for approval u/s 10(23C)(vi). This led to the assessment of income at ?1,57,48,783. The CIT(A) upheld this denial, which was partly challenged by the assessee in the appeal before the ITAT. The ITAT, following the High Court's judgment, decided to restore the assessment to the Assessing Officer for re-examination, considering the observations made regarding the nature and objectives of the assessee society.

Disallowance of capital expenditure:
The disallowance of capital expenditure amounting to ?1,44,09,078 debited to the Income and Expenditure account was confirmed during the assessment proceedings under section 10(23C)(vi) of the Act. This disallowance was challenged by the assessee before the CIT(A), who upheld the decision. However, the ITAT did not specifically address this issue in its judgment, as the focus was primarily on the denial of exemptions u/s 10(23C)(vi) and u/s 11 and 12.

Charging of interest under sections 220(2), 234A, and 234B:
The charging of interest under sections 220(2), 234A, and 234B was contested by the assessee before the CIT(A) on the grounds of being non-appealable under section 246 of the Act and without affording the opportunity of being heard. The CIT(A) upheld the action of the Assessing Officer in levying interests under these sections. However, the ITAT did not delve into this issue in detail in its judgment, as the primary focus was on the restoration of the assessment for re-examination regarding the denial of exemptions u/s 10(23C)(vi) and u/s 11 and 12.

In conclusion, the ITAT, following the High Court's observations, allowed the assessee's appeal for statistical purposes and directed the restoration of the assessment to the Assessing Officer for re-examination and fresh assessment, emphasizing the importance of considering the status of the application for approval u/s 10(23C)(vi) and providing the assessee with a fair opportunity to present its case.