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2020 (9) TMI 861 - AT - Income TaxAllowability of exemption u/s 10(23C)(vi) - As alleged assessee Society has continued to divert its funds towards non-educational activities by way of huge advances to RNMCS - assessee is a society and running an educational institution in the name of M/s Seth Ramji Das Modi Vidya Niketan society as registered u/s 12AA of the Act w.e.f. 3rd July 1986 and thereafter the assessee was approved u/s 10(23C) by the CCIT, Udaipur for A.Y.2009-10 and onwards - scheme of demerger - CIT-DR has contended that the trust deed was not amended as it contains clause relating to hospital or if amended there is no evidence of filling thereof to the Registrar Societies and/or his approval and so on - non-charging of interest on the advances given HELD THAT - Non-charging of interest on the advances given allegation is not relevant in the context of S. 10 (23C) (vi) in as much as there appears no such specific clause/ provision in 15th Proviso or anywhere in S. 10 (23C)(vi) empowering the CIT, or as may be the case u/s 12AA (3) r/w S. 13 (1)(c). Such a basis being otherwise contrary to the pre-dominant test theory propounded by the Supreme Court, is completely irrelevant and has to be ignored. No such provision can be read if it is missing as per the doctrine of Casus Omissus. Secondly, there was no condition of charging interest on such loan between the parties and it was only as a financial help necessitated as a result of demerger. Thirdly, it is wrong to say the Society had claimed the interest of ₹ 56,71,990/- Lacs in as much as the society had already applied its income at 91.02% that is more than 85% as required by law. Therefore, the fact of interest bearing loan taken, the alleged diversion thereof and the allegation of non-charging of interest, are completely irrelevant. In the context of various allegations levelled by the ld. CIT(Exemptions), we observe that there is no gain to the revenue for the simple reason that even assuming had the assessee charged interest of ₹ 56.72 Lacs (approx.) from RNMSCS, revenue was not going to get any tax there upon because the assessee had admittedly fulfilled the condition of applying its income more than 85% on one hand. Similarly, on the other hand, RNMSCS also being a charitable society running a hospital enjoying exemption under S. 12A, (paying of interest or not paying) to the assessee was not going to make any difference because, either way entire income of RNMSCS was also exempt. Further, the group members having charged interest had already declared in their ROI and paid taxes thereon and thus, the group as a whole rather paid taxes. Notably, assessee is registered u/s 12AA hence not been withdrawn so far. We found that even the ld CIT (E) himself did not rescind the notification on this ground. He raised a query and the assessee submitted a copy of a resolution letter dt. 01-04.2016 pr. 2 amending the object removing the clause i.r.t. hospital and he felt satisfied therefore he has not raised this issue in final order. The Assessee society has also informed the Registrar vide letter dated 28.04.2016 bearing the acknowledgement by the registrar office. Hence allegation is factually wrong. No approval for amendment is required and if so the ld. CIT-DR merely alleged but did not show the relevant provision. Demerger took place in 2014 on the insistence of Department but even after a lapse of more than six years the registration granted u/s 12A/ 12AA still continues applying that implying that the Revenue by their own conduct accepted the state of affair i.e. even without amendment of the trust deed, the assessee is imparting education. Moreover, the ld. CIT-DR did not allege that the clause relating to hospital was ever acted upon. Therefore, reliance on Desales 2018 (6) TMI 62 - ITAT VISAKHAPATNAM is not relevant. CIT-DR reliance on the case of Desales Education Society vs. PCIT (E) (Supra) and B.S. Abdur Rahman Institute of Science Technology V. CCIT 2016 (3) TMI 760 - MADRAS HIGH COURT are not relevant in the above admitted factual context and moreover they are also related to registration matter and not related to withdrawal / rescinding under 15th proviso to 10(23C)(vi). Hence not applicable. We also observe that the ld. CIT-DR himself agreed that the RNMCS could have taken loan directly from the members as contained by the assessee also that there was no motive and it was only the after effects of the demerger. Facts and circumstances of the case and the legal position, the order passed by the ld. CIT(exemptions) u/s 10(23C)(vi) of the Act is not sustainable. - Decided in favour of assessee.
Issues Involved:
1. Legality of the rescinding of approval under Section 10(23C)(vi) of the Income Tax Act, 1961. 2. Allegation of non-application of income as per the provisions of the Act. 3. Allegation of improper investment of funds. 4. Diversion of funds towards non-educational activities. 5. Non-charging of interest on advances to another charitable society. Issue-wise Detailed Analysis: 1. Legality of the Rescinding of Approval under Section 10(23C)(vi): The appellant challenged the order dated 27/01/2020 by the CIT(Exemptions), Jaipur, which rescinded the approval under Section 10(23C)(vi) of the Income Tax Act. The Tribunal noted that the society’s primary objective was imparting education, and it existed solely for educational purposes, not for profit. The society was registered under the Rajasthan Societies Registration Act and had been promoting educational excellence. The Tribunal emphasized that the revenue must establish that the institution was not existing solely for education and was engaged in profit-making to deny the exemption. The CIT(Exemptions) failed to establish that the society existed for profit. 2. Allegation of Non-application of Income: The CIT(Exemptions) alleged that the society did not apply its income as per the provisions of the Act. The Tribunal observed that the society applied more than 85% of its income towards educational purposes, as evidenced by the audit report and financial statements. The society’s income and funds were used exclusively for educational purposes, and there was no evidence to suggest otherwise. 3. Allegation of Improper Investment of Funds: The CIT(Exemptions) claimed that the society invested its funds in modes not specified under Section 11(5) of the Act. The Tribunal noted that the law requires the investment of the institution’s own funds, not borrowed funds. The society’s investments were made from its own funds and not from borrowed money. The Tribunal found no violation of the prescribed investment norms. 4. Diversion of Funds towards Non-educational Activities: The CIT(Exemptions) observed that the society advanced funds to Dr. R.N. Modi Hospital, a unit of another charitable society, RNMCS, which was against the educational purpose. The Tribunal acknowledged that the advances were made due to peculiar circumstances following the demerger of RNMCS from the society. The advances were financial help to RNMCS due to its weak financial position and were not made with a profit motive. The Tribunal found that these transactions did not affect the society’s primary educational objective. 5. Non-charging of Interest on Advances: The CIT(Exemptions) noted that no interest was charged on the advances to RNMCS, except for a small amount in the financial year 2017-18. The Tribunal found this allegation irrelevant in the context of Section 10(23C)(vi), as there was no provision requiring the charging of interest on such advances. The society had applied its income as required by law, and the non-charging of interest did not imply a profit motive. Conclusion: The Tribunal concluded that the order passed by the CIT(Exemptions) rescinding the approval under Section 10(23C)(vi) was not sustainable. The society existed solely for educational purposes and not for profit. The appeal of the assessee was allowed, and the order of the CIT(Exemptions) was quashed. The Tribunal emphasized that the revenue could not deny the exemption without establishing that the institution was engaged in profit-making activities. The society’s financial transactions with RNMCS were due to peculiar circumstances and did not affect its educational objectives. The Tribunal relied on various judicial pronouncements to support its findings and allowed the appeal in favor of the assessee.
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