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2018 (10) TMI 1221 - AT - Income TaxExemption u/s 11 - Charitable activity - earlier, the approval u/s 10(23C)(vi) was rejected - allegation that investment in purchase of farm houses and land not used for the purpose of education - Held that - It may be noted here that the issue involved in this appeal is benefit of Sections 11 and 12 of the I.T. Act to the assessee-society and not under section 10(23)(vi) of the I.T. Act. In A.Ys. 2006-2007, 2009-2010, 2010-2011, 2011-2012 and 2012-2013, the A.O. passed the scrutiny assessments and claim of the assessee-society under sections 11 and 12 have been allowed and these Orders have been passed by the A.O. after Judgment of Hon ble Punjab & Haryana High Court under section 10(23C)(vi) of the I.T. Act, 1961. It may also be noted that the land purchased at Dhokra was in earlier year for which no adverse inference has been drawn in earlier years. Therefore, nothing could be attributable against the assessee-society, if assessee-society violated conditions of Section 11. Considering the totality of the facts and circumstances of the case and history of the assessee-society, in the light of Order of the Tribunal for A.Y. 2007-2008 dated 24.09.2014 (supra), we do not find any justification to interfere with the Order of the Ld. CIT(A) in granting exemption under section 11 of the I.T. Act. The Order of the CIT(A) is confirmed and Departmental Appeal stands dismissed. Denying exemption for investments in properties - Held that - The findings of the Ld. CIT(A) that Section 11(3) is applicable is also not correct because income accumulated under section 11(2) was applied for educational purposes. Considering the totality of the facts and circumstances of the case noted above in the light of finding of fact recorded by the Ld. CIT(A) and Tribunal in A.Y. 2007-2008, it is clear that no addition could be made against the assessee-society of such nature. The order of the Ld. CIT(A), therefore, cannot be sustained in law for enhancing the income of assessee-society of ₹ 6,77,16,875/- and that too by invoking Section 11(1B) and Section 11(3) of the I.T. Act, which are not applicable to the case of the assesseesociety. The decisions relied upon by the Ld. D.R. are not applicable to the facts of the case. In view of the above discussion, we set aside the Order of the Ld. CIT(A) and delete the addition of ₹ 6,77,16,875/-. Accordingly, appeal of the assessee-society is allowed.
Issues Involved:
1. Denial of exemption under section 11(1) of the Income Tax Act. 2. Treatment of surplus income as taxable income. 3. Application of section 11(1A) regarding capital gains and reinvestment in capital assets. 4. Invoking provisions of section 11(1B) and section 11(3) of the Income Tax Act. 5. Enhancement of income by the CIT(A) by denying exemption for investments in properties. Issue-wise Detailed Analysis: 1. Denial of Exemption under Section 11(1): The AO denied the exemption under section 11(1) of the IT Act, asserting that the assessee-society was not engaged in providing education but in earning profits. The AO referenced substantial profits, rejection of approval under section 10(23C)(vi), and investments in non-educational properties. The CIT(A) overturned this, referencing the Supreme Court judgment in Aditanar Educational Institution vs. CIT, which held that surplus from educational operations does not negate the charitable purpose if profits are used to promote the institution's objectives. The CIT(A) noted that the assessee-society provided concessional education and allowed depreciation, thereby qualifying for section 11 benefits. 2. Treatment of Surplus Income as Taxable Income: The AO treated the surplus income of ?1,11,10,330/- as taxable, arguing that the society was profit-oriented. The CIT(A) disagreed, stating that the society’s surplus was within permissible limits and used for educational purposes, thus qualifying for exemption under sections 11 and 12. The CIT(A) also noted that the society had met the 85% expenditure requirement for charitable activities. 3. Application of Section 11(1A) Regarding Capital Gains: The AO argued that the society did not qualify for section 11(1A) benefits because investments in land were not used for educational purposes. The CIT(A) found that the society had reinvested the capital gains from the sale of Dhorka land into new properties intended for educational use, satisfying section 11(1A) requirements. The CIT(A) referenced judgments supporting the reinvestment in capital assets for charitable purposes. 4. Invoking Provisions of Section 11(1B) and Section 11(3): The CIT(A) invoked section 11(1B), arguing that the society did not use the properties for educational purposes within the stipulated time. The society contended that section 11(1B) was inapplicable as it had not exercised the option under clause 2 of the Explanation to section 11(1). The society argued that it had applied its income under section 11(1A) and section 11(2), with Form-10 filed for accumulation. The Tribunal agreed with the society, noting that section 11(1B) was not applicable, and the properties were acquired for educational purposes. 5. Enhancement of Income by CIT(A): The CIT(A) enhanced the taxable income by ?6,77,16,875/-, claiming that investments in properties were not used for educational purposes. The society argued that the properties were intended for educational expansion, and non-use did not equate to non-charitable use. The Tribunal found that the society’s investments in properties were for educational purposes and that section 11(5) allowed investment in immovable properties. The Tribunal concluded that the CIT(A) wrongly applied sections 11(1B) and 11(3), and the enhancement of income was unjustified. Conclusion: The Tribunal upheld the CIT(A)'s decision to grant exemption under section 11(1) and dismissed the Revenue's appeal. Conversely, it set aside the CIT(A)'s enhancement of income by ?6,77,16,875/- and allowed the assessee-society's appeal, concluding that the investments were for educational purposes and sections 11(1B) and 11(3) were not applicable. The Tribunal confirmed that the society met the requirements for exemption under sections 11 and 12 of the IT Act.
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