2019 (9) TMI 901 - AT - Income Tax

Exemption u/s 11 - charitable activity u/s 2(15) - HELD THAT - The activities of the Assessee are covered by last limb of Section 2(15) and are akin to the activities to Samudra Institute of Maritime Studies Trust 2014 (9) TMI 575 - BOMBAY HIGH COURT . Not only that the notice for Cancellation u/s 12AA was dropped by the DIT(E) himself. We are therefore, of the opinion that the Ld. CIT(A) has correctly appreciated the facts and allowed this ground of appeal. We therefore, accordingly, uphold that activities undertaken by the Assessee satisfy the requirements of the term education . Advance fee received from the students - HELD THAT - On an overall consideration of this decision coupled with the contentions of consistency and tax neutrality, we find that the ld. CITA) rightly accepted the accounting method followed by the Assessee. However, due to revised calculation there was unspent amount. There was no requirement of filing the prescribed form as per the computation and consistent method. Therefore, we find that this observation of the ld. CIT(A) at para no 5.4.9 of the impugned Appellate Order is erroneous and deserved to be deleted. As regards ground no 4 we have separately decided the issue in the subsequent paragraphs. Accordingly, ground no 2 is allowed in favour of the Assessee and the Assessing Officer is directed to accept the method of accounting regularly adopted by the Assessee. Denial of exemption under section 11 by holding that advance given to the director for petty cash expenses was hit by the restrictions u/s 13(3) - HELD THAT - Findings of the Assessing Officer and the ld. CIT(A) are not correct because the break up of the alleged amount of ₹ 11,57,000/- is as given above and does not partake the character of loans and advances to related parties. The first two amounts (₹ 20,000 ₹ 10,22,000) pertained to another trust which is also registered with the DG Shipping and is a section 25 company and therefore, charitable and not hit by section 13(3) of the Act. The last amount of ₹ 1,15,000/- represented reimbursement to be recovered from the students towards counseling fees. None of the students are related to the Assessee under appeal. We therefore, find merits in the argument of the ld AR that the consequential exemption u/s 11 and 12 is erroneously rejected by the Assessing Officer and wrongly confirmed by the ld. CIT(A). We therefore, direct the Assessing Officer to allow exemption u/s 11 and 12 of the Act. Denial of exemption u/s 11 - donation and contribution - not deciding deduction u/s 80G - HELD THAT - As carefully considered the rival submissions and perused the materials on records and find that since ground no 4 is already allowed with ground nos 1, 2 and 3, this ground of appeal is only consequential and therefore, allowed in the favour of Assessee. The Assessing Officer is directed to allow the exemption u/s 11 instead of deduction u/s 80G in respect of contribution Allow the cost of acquisition towards fixed assets u/s 11 as per law instead of only depreciation

Issues Involved:

1. Classification of the appellant as an educational society.
2. Treatment of advance fees received from students.
3. Disallowance of rent payment under section 13(3) of the Income Tax Act.
4. Denial of exemption under section 11 due to advances given to related parties.
5. Denial of exemption under section 11 in respect of donations and contributions.
6. Disallowance of cost of acquisition of fixed assets as application of income under section 11(1).
7. Non-consideration of statutory allowance under section 11(1).
8. Initiation of penalty and charging of interest under sections 234A, 234B, 234C, and 234D.

Detailed Analysis:

1. Classification as an Educational Society:
The Tribunal upheld the CIT(A)'s decision that the appellant's activities satisfy the requirements of the term "education" under section 2(15) of the Income Tax Act. The CIT(A) relied on several judicial precedents, including Samudra Institute of Maritime Studies Trust [369 ITR 645(Bom)(2014)], Lokshikshan Trust [101 ITR 234(SC)], and Queens Education Society [372 ITR 699(SC)], which supported the appellant's claim. The Tribunal found that the appellant's activities were akin to those in the cited cases and were conducted with the approval of DG Shipping. Consequently, the Tribunal concluded that the appellant's activities qualify as "education," and the ground was allowed in favor of the appellant.

2. Treatment of Advance Fees:
The Tribunal found merit in the appellant's contention that the advance fees received from students, amounting to ?2,49,55,712/-, should not be treated as revenue income. The Tribunal noted that the appellant consistently followed this accounting method, which was accepted by the department in other years. Citing the principle of consistency and tax neutrality, the Tribunal directed the Assessing Officer to accept the appellant's method of accounting and deleted the erroneous observations of the CIT(A). This ground was allowed in favor of the appellant.

3. Disallowance of Rent Payment:
The Tribunal observed that the CIT(A) had already discussed and held the issue of disallowance of rent in favor of the appellant in para 7.4.1 of the appellate order. The Tribunal found no merit in the Assessing Officer's disallowance of ?87,45,207/- for rent payment under section 13(3) and directed the deletion of the CIT(A)'s observations in para 7.4.4. Consequently, this ground was allowed in favor of the appellant.

4. Denial of Exemption for Advances to Related Parties:
The Tribunal examined the break-up of the alleged amount of ?11,57,000/- and found that it did not constitute loans and advances to related parties. The Tribunal noted that the amounts pertained to another trust registered with DG Shipping and a Section 25 company, which are charitable and not hit by section 13(3). The Tribunal directed the Assessing Officer to allow exemption under sections 11 and 12 and deleted the condition imposed by the CIT(A) in ground nos. 1, 2, and 3. This ground was allowed in favor of the appellant.

5. Denial of Exemption for Donations and Contributions:
The Tribunal found that the denial of exemption under section 11 for donations and contributions amounting to ?1,43,000/- was consequential to the denial of exemption in ground no. 4. Since ground no. 4 was allowed, the Tribunal directed the Assessing Officer to allow the exemption under section 11 instead of section 80G. This ground was allowed in favor of the appellant.

6. Disallowance of Cost of Acquisition of Fixed Assets:
The Tribunal noted that the disallowance of ?1,68,48,487/- for the cost of acquisition of fixed assets was also consequential to the denial of exemption under section 11. Since the exemption was allowed in ground nos. 1, 2, 3, and 4, the Tribunal directed the Assessing Officer to allow the cost of acquisition as application of income under section 11. This ground was allowed in favor of the appellant.

7. Non-Consideration of Statutory Allowance:
The Tribunal found that the disallowance of statutory allowance of ?70,18,331/- under section 11(1) was consequential to the denial of exemption under section 11. Since the exemption was allowed in ground nos. 1, 2, 3, and 4, this ground was deemed infructuous and did not require adjudication.

8. Initiation of Penalty and Charging of Interest:
The Tribunal found that the issue of initiation of penalty and charging of interest under sections 234A, 234B, 234C, and 234D was premature and did not require adjudication. This ground was dismissed.

Conclusion:
The appeal filed by the appellant was partly allowed, with grounds 1 to 6 allowed in favor of the appellant, ground 7 deemed infructuous, and ground 8 dismissed. The stay application filed by the appellant was also dismissed as infructuous.

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