2003 (9) TMI 333 - AT - Income Tax

Exemptions - Educational institutions, Charitable trusts, Revision - Of orders prejudicial to interests of revenue,

Issues Involved:
1. Eligibility for exemption under Section 10(22) of the Income Tax Act, 1961.
2. Examination of deposits and their genuineness.
3. Jurisdiction of the Assessing Officer (AO) following directions under Section 263 of the Act.
4. Entitlement to exemption under Section 11 of the Act due to registration under Section 12A.

Detailed Analysis:

1. Eligibility for Exemption under Section 10(22) of the Income Tax Act, 1961:
The primary issue was whether the assessee-Society, running "Sherwood Academy," qualified for exemption under Section 10(22) of the Income Tax Act, 1961. The section stipulates that any income of a university or other educational institution existing solely for educational purposes and not for profit shall not be included in the total income.

The Tribunal noted that the Society was registered and had been running the school since 1989. The school was affiliated with the Council for the Indian School Certificate Examination and had about 1,200 students. The assessee's contention that it was not pursuing any other objects except running the school was unchallenged by the Department. The Tribunal referred to the decision of the Hon'ble Supreme Court in Aditanar Educational Institution vs. Asstt. CIT and other relevant case laws, concluding that the Society was entitled to the exemption as it existed solely for educational purposes and not for profit.

2. Examination of Deposits and Their Genuineness:
The CIT had noted that several persons made deposits totaling Rs. 57,65,193, some of which were disputed by the depositors. The AO was directed to examine the genuineness of these deposits. Upon reassessment, the AO made an addition of Rs. 70,000 for unexplained deposits, which was later deleted by the CIT(A) as the assessee proved their genuineness.

3. Jurisdiction of the Assessing Officer (AO) Following Directions under Section 263 of the Act:
The Tribunal emphasized that the AO could not travel beyond the directions issued by the CIT under Section 263 of the Act. The CIT's directions were specific to examining the eligibility for exemption under Section 10(22) and the genuineness of deposits. The AO, however, made additional disallowances and additions, including disallowance of depreciation, addition of development charges, and excessive interest claims, which were not within the scope of the CIT's directions. The Tribunal cited case laws, including Cawnpore Chemicals Works (P) Ltd. vs. CIT, to assert that the AO's actions beyond the CIT's directions were unjustified.

4. Entitlement to Exemption under Section 11 of the Act due to Registration under Section 12A:
The assessee-Society was also registered under Section 12A of the Act, which generally entitles it to exemption under Section 11. The Tribunal noted that once registration under Section 12A is granted, the Department is bound to give effect to it unless it is canceled. The Tribunal referred to the decision of the Hon'ble Madhya Pradesh High Court in Madhya Pradesh Madhyam vs. CIT & Anr., reinforcing that the Department could not deny the benefit of exemption under Section 11 as long as the registration under Section 12A was valid.

Conclusion:
The Tribunal concluded that the assessee-Society was entitled to exemption under Section 10(22) of the Act as it existed solely for educational purposes and not for profit. The AO's additional disallowances and additions were beyond the jurisdiction provided by the CIT's directions under Section 263. Furthermore, the Society's registration under Section 12A entitled it to exemption under Section 11. The Tribunal set aside the orders of the AO and CIT(A), directing the AO to extend the benefit of Section 10(22) to the assessee. The appeal was allowed accordingly.

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