2018 (7) TMI 1613 - AT - Income Tax

Claim of exemption u/s 11(1)(a) - educational activity - Held that - Respectfully following the decision of the Division Bench of the Tribunal in the case of Aadarsh Public School 2018 (2) TMI 1692 - ITAT DELHI , it is held that the findings of CIT(A) are not in accordance with law and his action of denial of benefit of section 11 and 12 is reversed and it is further held that educational activity has been specifically treated as charitable purpose u/s 2(15) and I do not uphold the finding of Ld. CIT(A) that charging of fee would amount to uncharitable activity. It is further held that judgments referred by Ld. CIT(A) have not been interpreted correctly and have been interpreted out of context. Fee charged from the students has been applied for the purpose of carrying out charitable activity. Reverse the finding of Ld. CIT(A) that income by way of fee cannot be held to be derived from property held under trust. I also do not approve the order of Ld. CIT(A) that the entire receipts are liable to be taxed under the head income from other source in this case and this finding given by CIT(A) is set aside and it is directed that the Ld. A.O. should grant exemption u/s 11 and section 12 to the appellant as per the income & expenditure account submitted by the assessee. CIT(A) passed in this case for the above stated reasons is reversed and thus, enhancement of income made by him at ₹ 2,61,15,153/- is hereby set aside and addition made by him is hereby deleted. Accordingly, all these grounds stand allowed.

Issues Involved:
1. Charitable status relevance for exemption under Section 11(1)(a).
2. Ignoring provisions of Sections 11, 12, and 13.
3. Concept of 'pure charity' vs. 'charitable purpose'.
4. Issuance of enhancement notice based on arbitrary propositions.
5. Exemption claim for educational institutions under Section 10(23C) vs. Section 11.
6. Fee collection by educational trusts rendering them uncharitable.
7. Principle of application of income under Section 11(1)(a) for exemption.
8. Income from fees and other receipts assessable under 'other sources'.
9. Deciding an appeal on arbitrary and imaginary ideas.
10. Business undertaking held under trust and its income exemption.
11. School buildings and other assets as property held under trust.
12. Legislative intent behind Sections 10(23C) and 11.
13. Lease charges paid to NOIDA Authority.
14. Treatment of depreciation disallowed as donation.

Detailed Analysis:

1. Charitable Status Relevance for Exemption:
The Tribunal held that the charitable status of the appellant society is relevant for claiming exemption under Section 11(1)(a) of the Income Tax Act. The Ld. CIT(A)'s view that the nature and source of income are material was found incorrect.

2. Ignoring Provisions of Sections 11, 12, and 13:
The Tribunal noted that the provisions of Sections 11, 12, and 13 are essential for determining the exemption of income for charitable institutions. The Ld. CIT(A) ignored these provisions, which was not justified.

3. Concept of 'Pure Charity' vs. 'Charitable Purpose':
The Tribunal rejected the Ld. CIT(A)'s importation of the concept of 'pure charity' in place of 'charitable purpose'. It was held that charging fees does not render the educational activities uncharitable if the primary purpose remains charitable.

4. Issuance of Enhancement Notice Based on Arbitrary Propositions:
The issuance of enhancement notice by the Ld. CIT(A) was based on arbitrary and imaginary propositions, ignoring the actual provisions of the Income Tax Statute relating to charitable institutions/trusts. This was not upheld by the Tribunal.

5. Exemption Claim for Educational Institutions:
The Tribunal held that educational institutions can claim exemption under Section 11 of the Act and are not restricted to Sections 10(23C)(iv) and 10(23C)(vi). The Ld. CIT(A)'s view was incorrect.

6. Fee Collection by Educational Trusts:
The Tribunal found that educational trusts or institutions can collect fees from students, and such collection does not render their objects uncharitable. The Ld. CIT(A)'s contrary view was not upheld.

7. Principle of Application of Income:
The Tribunal held that the principle of application of income under Section 11(1)(a) for claiming exemption was ignored by the Ld. CIT(A). The expenditure incurred on imparting education should be set off against the fee and other income of the appellant.

8. Income from Fees Assessable under 'Other Sources':
The Tribunal did not approve the Ld. CIT(A)'s finding that the income from fees and other receipts is assessable under the head 'income from other sources' without any deduction for expenditure incurred by the appellant.

9. Deciding an Appeal on Arbitrary and Imaginary Ideas:
The Tribunal emphasized that deciding an appeal based on arbitrary and imaginary ideas is not within the four corners of the law.

10. Business Undertaking Held Under Trust:
The Tribunal held that the business undertaking held under trust should be considered for exemption of income derived from such business. The Ld. CIT(A)'s contrary view was not upheld.

11. School Buildings and Other Assets as Property Held Under Trust:
The Tribunal found that school buildings and other assets should be considered as property held under trust. The Ld. CIT(A)'s arbitrary and imaginary ideas relating to the term "property" were rejected.

12. Legislative Intent Behind Sections 10(23C) and 11:
The Tribunal held that the existence of Section 10(23C) does not preclude the applicability of Section 11 for exemption of income. The Ld. CIT(A)'s interpretation was incorrect.

13. Lease Charges Paid to NOIDA Authority:
The Tribunal set aside the issue of lease charges paid to NOIDA Authority to the file of the A.O. for a denovo decision, as no opportunity was provided to the assessee.

14. Treatment of Depreciation Disallowed as Donation:
The Tribunal set aside the issue of treating disallowed depreciation as a donation to the file of the A.O. for a denovo decision, as no opportunity was provided to the assessee.

Conclusion:
The Tribunal reversed the findings of the Ld. CIT(A) and directed the A.O. to grant exemption under Section 11 and Section 12 to the appellant as per the income and expenditure account submitted. The enhancement of income by the Ld. CIT(A) was set aside, and the addition was deleted. The appeal of the assessee was allowed for statistical purposes.

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