2018 (8) TMI 57 - AT - Income Tax

Entitlement to benefit of section 11(1)(a) & 1l(l)(d) and u/s 12 - addition on ground that the assessee is pursuing its object of imparting and spreading education with profit motive and not that of charity purpose - Held that - Since in the instant case the registration granted under Section 12A is still in force and since the object of the assessee society has not under gone any change therefore considering the totality of the facts of the case we deem it proper to restore the issue to the file of the Assessing officer with the direction to adjudicate the issue a fresh in light of the decision of Adarsh Public School cited (2018 (2) TMI 1692 - ITAT DELHI)wherein held that the assessee s income by way of fees cannot be held to be derived from property held under the trust because students cannot be treated as property - decided in favour of assessee for statistical purpose.

Issues Involved:

1. Entitlement to benefits under sections 11(1)(a), 11(1)(d), and 12 of the Income Tax Act.
2. Classification of income under "income from other sources" and denial of deductions for expenses.
3. Alleged violations of section 13(1)(d) read with section 11(5).
4. Enhancement of assessment and taxation of gross receipts without deductions.
5. Computation of income in the status of AOP instead of a charitable society.
6. Addition of interest on unsecured loans and interest earned on advances.
7. Charging of interest under sections 234A, 234B, and 234C.

Detailed Analysis:

1. Entitlement to Benefits Under Sections 11(1)(a), 11(1)(d), and 12:

The CIT(A) held that the appellant is not entitled to the benefits of sections 11(1)(a), 11(1)(d), and 12 of the Income Tax Act, 1961, because the income was not derived from property held under trust. The CIT(A) observed that the donations received were not voluntary contributions and lacked specific directions to form part of the corpus of the society. The CIT(A) concluded that the income from running educational institutions was not for charitable purposes but had a profit motive.

2. Classification of Income Under "Income from Other Sources":

The CIT(A) classified the income of the appellant as "income from other sources" under section 56(1) of the Income Tax Act, 1961. The CIT(A) reasoned that the income was not derived from property held under trust and thus did not qualify for exemption under sections 11 and 12. The CIT(A) also denied deductions under section 57, arguing that the expenses incurred were for doing charity and not for earning income.

3. Alleged Violations of Section 13(1)(d) Read with Section 11(5):

The CIT(A) noted violations of section 13(1)(d) read with section 11(5), as the appellant advanced loans without charging interest to an entity not permitted by law to receive such investments. Additionally, the CIT(A) observed that life members of the society derived benefits by nominating their successors, which is prohibited by law.

4. Enhancement of Assessment and Taxation of Gross Receipts:

The CIT(A) enhanced the assessed income for the assessment years 2009-10, 2010-11, and 2013-14, determining the taxable income at ?1,59,84,559/-, ?2,37,66,767/-, and ?3,96,46,053/-, respectively. The CIT(A) ordered the entire gross receipts to be taxed under section 56 without any deductions due to the violations of section 13.

5. Computation of Income in the Status of AOP:

The CIT(A) upheld the Assessing Officer's (AO) action of computing the income of the assessee in the status of an Association of Persons (AOP) instead of a charitable society. The CIT(A) applied the maximum marginal rate of tax, rejecting the assessee's claim of being a charitable society.

6. Addition of Interest on Unsecured Loans and Interest Earned on Advances:

The AO disallowed interest claimed on unsecured loans and interest earned on advances, totaling ?2,00,215/- and ?64,000/-, respectively, for the assessment year 2009-10. Similar disallowances were made for the other assessment years.

7. Charging of Interest Under Sections 234A, 234B, and 234C:

The CIT(A) did not reverse the AO's action of charging interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961.

Tribunal's Decision:

The Tribunal found that the case was covered by the decision in Adarsh Public School, where it was held that educational institutions are entitled to exemption under section 11. The Tribunal noted that the registration under section 12A was still in force and the object of the society had not changed. The Tribunal restored the issue to the AO for fresh adjudication in light of the Adarsh Public School decision, ensuring the assessee is given an opportunity of hearing.

Conclusion:

The appeals were partly allowed for statistical purposes, directing the AO to re-adjudicate the issues following the principles of natural justice and in accordance with the Tribunal's guidance.

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