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TMI Blog2014 (3) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 itself provides for payment of salary, and allowance to the persons in the management, in case such payment does not exceed what may be reasonably paid for such services - there is no such restriction in Section 13 regarding relatives holding position in the charitable society or institution. Misuse of facilities of society – Held that:- The vehicles are being used for the purposes of the society - during the course of the survey nothing adverse on this account has been found - In the absence of any evidence the allegation of the AO cannot be sustained - Floor of the premises of the society being occupied by its Executive President does not violate the provisions of Section 13 – Allowing occupation of the premises to Executive President cannot be considered to be unreasonable - The AO has just made the allegation and has not even bothered to examine the same in the context of section 13(2)(c) of the Act - Revenue could not point out any error or defect in the finding given by the CIT(A) – the findings of the CIT(A) is upheld that the objects of the assessee Society are educational in nature and hence, they fall within the meaning of 'charitable purpose' under Section 2(15) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had submitted complete details during the course of the assessment proceedings – there is no reason to interfere in the findings of the CIT(A) – Decided against Revenue. - ITA No.4182/Del/2013 - - - Dated:- 21-2-2014 - Shri A. D. Jain And Shri B. C. Meena,JJ. For the Petitioner : Shri Ved Jain, Advocate For the Respondent : Shri Satpal Singh, Sr. DR ORDER Per A. D. Jain, Judicial Member: This is an appeal filed by the revenue for assessment Year 2009-10 against the order passed by the CIT(A)-XXI, New Delhi. 2. The facts, as available from the relevant orders and other documents on record are that the assessee is a society registered under the Societies Registration Act as well as under Section 12A with the Income Tax Department by order dated 4th April, 1975 being No. DIE/C/I-429. The society is also notified under section 80G(5)(vi) vide order dated 20th May, 2009. The main object of the society is to run educational institution which is being run in the name and style of Institute of Marketing and Management. The programme of the Institute is recognized by the AICTE, Ministry of HRD, Government of India. The return for the assessment year 2009-10 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he head Training Expenses . 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the assessee as an educational society which was functioning against the norms set up by the AICTE, the governing authority with regards to Educational Institution. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding claims of the assessee as a charitable institution after being denied exemption u/s 11 of the Act due to violation of Section 13(3) of the Income-tax Act, 1961. 7. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in is allowing the expenditure claimed by the assessee using bogus bills for purchasing 260 laptops on account of non-verification. 8. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the exemption u/s 11 as the exemption claimed is based on forged documents and bogus seal. 9. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the expenditure of Rs.36,32,518/- given to certain companies which are paper firm operated by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the AO has not appreciated the facts regarding the allegation of violation of the guidelines of AICTE. The allegation of the AO was that the number of students was in excess of the students allowed by the AICTE. The AICTE has regularized this by charging a fee for the same, which means, that the stand of the assessee stood rectified by the AICTE. The second allegation was regarding running a triple degree programme in the same campus of the Institute despite there being guidelines by AICTE that no other programme could be run on the same campus. We are of the view that this cannot be a ground for denying exemption under Section 11 read with Section 2(15) of the Act. Both the allegations are regarding educational programmes being conducted by the assessee. Such activities of the society will fall within the meaning of 'charitable purpose' under Section 2(15) of the Income Tax Act. As per the provisions of Section 11, exemption is allowed in case the income has been applied for charitable purposes. 'Charitable purpose' includes education. Further, for claiming exemption, the conditions prescribed under Section 12A have to be complied with. The assessee society h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erning council in the AGM, it has been clarified that last AGM was conducted in October, 2009. He has further clarified that the secretarial record has been stolen by the disgruntled employees and all the documents including the list of governing council members starting from 1969 till 2007 has been filed with the Registrar of Societies. Further in response to the another question he has submitted copies of Memorandum of Association, rules and regulations as amended upto 21st Aug. 2004 and September, 2009. The AO has not controverted the facts in the assessment order. 9. The AO has not appreciated the functioning of the society and the requirement of the law in the right perspective. The AO has observed that people who are related through blood cannot be functionaries of the society. This interpretation of the law by the AO is not correct. There is no provision, either under the Societies Registration Act, or under the Income Tax Act prohibiting persons related through blood to be functionaries of the society. Further, there is no condition, either in Section 11, or Section 12, that exemption will be granted only when the Trust is an independent democratic body having no relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) and 13(2). Thus the issue is whether those specified persons have violated any of the provisions of section 13(1) or 13(2). In this regard the first allegation of the AO is that the office bearers of the society are related to each other and as such they have direct impact on the democratic working of the society. This allegation nowhere contradicts or violates the provisions of section 13. 11. As per the provisions of Section 13, there are certain conditions which, if violated, would lead to denial of the benefit under Section 11, if some advantage or benefit has been taken by the persons who are in the governance of the institution. However, there is no condition specified, that the persons in governance should not be relatives. The functioning of the institution cannot be considered to be undemocratic, if two relatives are occupying the position in the management. In fact, Section 13 itself provides for payment of salary, and allowance to the persons in the management, in case such payment does not exceed what may be reasonably paid for such services. Thus, we are in agreement with CIT(A) that there is no such restriction in Section 13 regarding relatives holding position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Similarly, the allegation of the Assessing Officer regarding a floor of the premises of the society being occupied by its Executive President does not violate the provisions of Section 13. The CIT(A) has considered this issue in para 5.13 of the impugned order in the following manner:- 5.13 The AO further alleged that the Executive President and the Director General have been staying on the 4th and 5th floor of the building of the Institute. In this regard the society has clarified that they have been occupying this in their capacity as the Executive President of the Society. In items of provisions of Section 13(2)(c) salary allowance or otherwise can be paid to such person for services rendered by such person. The only condition is that the amount so paid should not be in excess of what may be reasonably paid for such services. Allowing occupation of the premises to Executive President cannot be considered to be unreasonable. The AO has just made the allegation and has not even bothered to examine the same in the context of section 13(2)(c) of the Act. Accordingly I found that finding of the AO is not justified 14. In this regard, Section 13(2)(c) specifically provides re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be incurred. The explanation of the assessee that these have been incurred for the seminars/conferences being organized by it for the various course being run by it whereby it is required to make presentation to the honorary faculty. The AO however could not bring any material that these expenses are personal. He has gone by the nomenclature of the expense assuming that the governing council members have bought these items for their personal use. In the absence of any evidence particularly keeping in view the fact that the survey was carried out and nothing incriminating on this aspect was found during the survey I am of the view that the allegation of the AO do not have any merit. 18. The society is an educational institution. It has made payment through credit card of only Rs. 16,19,243/-. As against this, the AO has considered the entire training expenses of Rs. 99,21,943/- and disallowed 60% of the same as being personal in nature. The society had submitted details of the same before the AO and AO has not been able to point out any particular item of the expenditure which can be considered to be personal in nature. A survey was conducted. Nothing adverse to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed assets used for carrying out such activities. As such, depreciation is allowed while computing income of the year under consideration. It cannot be said that the fixed assets acquired had already been claimed as deduction. Depreciation is a normal expenditure incurred in the course of the activities and hence, the same need to be deducted while computing the income. This issue has been dealt with by the jurisdictional High Court in the case of 'Director of Income Tax vs. Vishwa Jagriti Mission', ITA No. 140/2012, vide order dated 29th March, 2012, while making a distinction with the judgment of the Supreme Court in 'Escorts Ltd. vs. Union of India', as under:- 13. The judgment of the Supreme Court in Escorts Limited vs. Union of India (supra) has been rightly held to be inapplicable to the present case. There are two reasons as to why the judgment cannot be applied to the present case. Firstly, the Supreme Court was not concerned with the case of a charitable trust/institution involving the question as to whether its income should be computed on commercial principles in order to determine the amount of income available for application to charitable purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case the laptops are to be recovered back from the person to whom it has been given the same will be fixed assets of the appellant-society and eligible for depreciation. Thus it does not make any difference so far provisions of section 13 read with section 11 are concerned. The finding of the AO is found to be without any merit on this account. 25. The issue before the AO and the CIT(A) was, as to whether the amount spent on laptops should be considered as expenditure, or as fixed assets. The CIT(A) has clearly held that in case it is to be considered as expenditure, it will be an application of income, and if, the same is to be considered as fixed assets, it will still be an application of income and either way, the society is eligible to claim the amount as application of its income. In the course of the hearing, we asked the ld. DR to respond to the allegation that the assessee has used bogus bills, and the ground of appeal in the absence of any finding by the Assessing Officer in this regard. The learned DR, however, could not substantiate this allegation. As such, we are in agreement with the finding of the CIT(A) that no adverse inference needs to be drawn on this issue, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servation in para 3 of the assessment order the activities of the society are in accordance with its stated objects i.e. educational and it is charitable which is second limb of section 2(15) of the Act. Grounds No. 3 5 of the appeal are allowed. 27. The ld. DR could not successfully contradict the above findings of the CIT(A). The assessee has actually purchased these items, or has in fact taken services from these suppliers/service providers. The payments have been made by account payee cheques. There is no material or evidence brought by the Assessing Officer that the payments have been made to any related parties or that the assessee has any link, directly, or indirectly, with any of these enterprises. Further, nothing adverse was found during the course of the survey. We also note that these expenses are routine expenditure for repair and maintenance. A sum of Rs.1,11,755/- has been paid to the painting contractor, Mr. Mohd. Iqbal. A sum of Rs. 64,425/- has been paid for the furniture work to Shah Furniture. From the paper book, we notice that the assessee had submitted complete details during the course of the assessment proceedings. The Assessing Officer verified these ..... X X X X Extracts X X X X X X X X Extracts X X X X
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