2018 (7) TMI 370 - AT - Income Tax

Denial of claim of exemption U/s.11 - Held that - Assessee was held entitled for exemption u/s.11 & 12 of the Act by the Tribunal for the assessment years 2000-2001 to 2009-2010 consistently. Further, in subsequent assessment year i.e. 2015-16, the Assessing Officer himself has held in an assessment made u/s.143(3) of the Act that the assessee is entitled for exemption u/s.11 & 12 of the Act. Assessing Officer observed in the assessment years under appeal, that certain payments were made to the relatives of founder members without rendering of any service by them in violation of provisions of section 13 of the Act. The amounts which have been paid in violation of the provisions of section 13 of the Act are to be charged to tax at maximum marginal rate. From the orders of the lower authorities, it is not clear that how much payment was made in violation of provisions of section 13 of the Act. We, therefore, for this limited purpose, restore the matter back to the file of the Assessing Officer to determine the amount which was paid by the assessee in violation to provisions of section 13 of the Act and thereafter complete the assessment afresh as per law. - Appeals filed by the assessee are allowed for statistical purposes

Issues Involved:
1. Denial of exemption under Section 11 and 12 of the Income Tax Act.
2. Alleged violation of Sections 11(4), 11(4A), and 13(1)(c) of the Income Tax Act.
3. Allegation of collecting exorbitant fees over and above the prescribed fee structure.
4. Disallowance of honorarium paid to certain individuals.
5. Disallowance of expenditure on account of belated payment of EPF.

Issue-wise Detailed Analysis:

1. Denial of Exemption under Section 11 and 12 of the Income Tax Act:
The Assessing Officer (AO) observed that the main source of income for the assessee was from student fees, and the institution was running profitably, charging exorbitant fees, and functioning as a business undertaking. The AO concluded that the restrictive provisions of Section 11(4A) were applicable, thereby denying the exemption under Section 11. The CIT(A) upheld this decision, noting that the assessee was running educational institutions like commercial ventures and violating the provisions of Section 11(4) and 11(4A). However, the Tribunal observed that on similar facts, the assessee had been granted exemption in previous assessment years (2000-2001 to 2009-2010) and in the assessment year 2015-16. The Tribunal directed the AO to allow exemption under Section 11 and 12, following the consistent decisions of the Tribunal in earlier years.

2. Alleged Violation of Sections 11(4), 11(4A), and 13(1)(c) of the Income Tax Act:
The AO noted that the assessee was not maintaining separate books of accounts for the society and educational institutions, violating Section 11(4A). Additionally, substantial payments were made to founding members, which the AO deemed a violation of Section 13(1)(c). The CIT(A) concurred, stating that the payments to Smt. Sarmista Rath, a housewife, were without rendering any service, thus violating Section 13(1)(c). The Tribunal, however, directed the AO to determine the exact amount paid in violation of Section 13 and complete the assessment afresh, allowing reasonable opportunity of hearing to the assessee.

3. Allegation of Collecting Exorbitant Fees Over and Above the Prescribed Fee Structure:
The AO found that the assessee was charging fees over and above the stipulated amount fixed by the concerned authority, indicating a profit motive. The CIT(A) upheld this observation, citing the decision of the ITAT Hyderabad in the case of Vodithala Education Society, which held that collecting money over the prescribed rate disqualified the institution from being considered charitable. The Tribunal, however, did not specifically address this issue in its final decision, focusing instead on the broader exemption under Section 11 and 12.

4. Disallowance of Honorarium Paid to Certain Individuals:
The AO disallowed the honorarium paid to Smt. Sarmista Rath, citing a lack of service rendered. The CIT(A) supported this, noting her admission of being a housewife. The Tribunal directed the AO to reassess the payments made in violation of Section 13, implying that any such payments should be taxed at the maximum marginal rate.

5. Disallowance of Expenditure on Account of Belated Payment of EPF:
For the assessment year 2011-12, the AO disallowed ?2,43,180 on account of belated payment of EPF. The Tribunal did not specifically address this issue in its final order, focusing on the broader exemption under Section 11 and 12 and the reassessment of payments violating Section 13.

Conclusion:
The Tribunal allowed the appeals filed by the assessee for statistical purposes, directing the AO to allow exemption under Section 11 and 12, and to reassess the payments made in violation of Section 13, providing the assessee a reasonable opportunity of hearing. The orders of the lower authorities were set aside on these issues.

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