9911796707
TMI Blog2010 (7) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to get approved by any prescribed authority. It is not the case of the Revenue that the assessee has defaulted the proviso to section 10(23C). Merely this surplus has arisen to the assessee during the course of carrying on the education activity does not mean that the assessee is not existing for education purpose. Even no such evidence or material was brought on record which may prove that the assessee was engaged in any of the activities other than the education activities so that the assessee may be disentitled for the exemption under section 10(23C)(iiiad), rather the AO has accepted by allowing exemption to the assessee u/s 11 during the assessment year 2007-08 that the assessee is a genuine educational institution and the activities of the assessee are genuine and has been carried on as per the objects of the assessee. We accordingly set aside the order of the AO and allow the exemption to the assessee u/s 10(23C)(iiiad). The aforesaid view is supported by the decision of the Allahabad High Court in the case of City Montessory School v. Union of India [ 2009 (5) TMI 41 - ALLAHABAD HIGH COURT] and that of Ewing Christian College Society v. Chief CIT [ 2009 (5) TMI 103 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation or thereafter. Any such credit or payment by the donor trust to another trust or institution shall be deemed to be the income of the donor trust in such year of credit or payment. Since the 15 per cent accumulation u/s 11(1) is unconditional and need not be spent at all by the trust, the question of treating the same as income in case it is credited or paid to another trust (in the subsequent year) does not arise in any case, section 11(3) which beings with the words income referred to in sub-section (2) , makes it explicitly clear that the restriction imposed by section 11(3)(d) applies only to income accumulated u/s11(2) and not to the current year s income or to the accumulation u/s 11(1). Therefore, we set aside the order of CIT(A) on this issue and direct the AO to allow deduction to the assessee in respect of donation paid to Gagan Academic Society provided that the society is duly registered u/s 12AA as a charitable institution. Interest income earned - loan advanced - We, therefore, set aside the order of CIT(A) and restore this issue to the AO with the direction that the AO shall verify from record of the concerned assessment year whether the assessee has received in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses in the assessment year 2003-04 and restored the issue so far the advance to Smt. Urvashi Sharma is concerned to the file of the AO. Accordingly, we restore this issue for the assessment years 2004-05, 2005-06 and 2006-07 relating to the verification of the capital expenditure incurred by the assessee to the file of the AO with the direction that the AO shall allow exemption to the assessee u/s 11 in respect of the capital expenditure to the extent it is found that the assessee has incurred the capital expenditure. In the result, the appeals filed by the assessee for assessment years 2000-01, 2001-02, 2002-03, are allowed while the appeals for the assessment years 2003-04 to 2006-07 are partly allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... society of the society with application for registration under section 12A following amounts were surplus excess of income over expenditure. Assessment Year Surplus Amount 2000-01 ₹ 19,43,228 2001-02 ₹ 19,21,168 2002-03 ₹ 19,73,898 As per assessment under section 143(3) completed on 31-3-2006 on total income of ₹ 53,53,840 the society is not working for educational/charitable purpose and has got no registration under section 12A, also posses taxable income. It is also being run for private profit. And income not exempt from tax. Therefore, I have reason to believe that following income have certainly escaped assessment. Assessment Year Surplus Amount 2000-01 ₹ 19,43,228 2001-02 ₹ 19,21,168 2002-03 ₹ 19,73,898 Shri S.C. Sharma and Smt. Shashi Bala Sharma are holding important portfolios of the society. The Income-tax return is signed and verified by Shri S.C. Sharma." 5. Copies of the notices as well as the reasons issued on 9-6-2006 were served on the assessee on 16-6-2006 and the assessee was required to explain vide notice dated 7-8-2006 why income over expenditure may not he taxed as neither the Society is regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r basis for which Smt. Shashi Bala Sharma has made the surrender in assessment year 2003-04. Besides the above, the Assessing Officer also brought on record that there is benefit to the president or the secretary of the society, in whose name the school building or the land exists, benefited by way of construction. As regards the contention that the founder of the society has unequivocally transferred the title of the land at Agra Road (on which the school building of the society has been constructed by the society) and land at exhibition road, in favour of the society by a registered sale deed dated 18-6-2008 and an agreement top sell dated 10-7-2008, respectively, these are post facto events and hence the same has no material bearing on the status of the case of the appellant in the year under consideration. The Assessing Officer has also brought on record that the construction material purchased in the name of the society were used in the construction of house of Smt. Shashi Bala Sharma, Secretary of the Society. All the above facts clearly establish that the society runs the schools for the purposes of profit and not for the charitable purposes. Considering the entire facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility." 10. Thus, carrying on the education is a charitable purpose. The sense in which the word education has been used in sub-section (15) of section 2 of the Act is the systematic instruction, schooling or training given to the young in preparation for the work of life. Similarly extending financial assistance/scholarship, etc., to students for their educational purpose would squarely fall within the connotation of "education" as per the ratio laid down in the case of CIT v. Saraswath Poor Students Fund [1984] 150 ITR 142/[1985] 20 Taxman 211 (Kar.). The assessee was running two Schools. Thus, it is not correct to say that the assessee was not engaged in the education activities which fall under charitable purpose. This fact is also clear from the assessment order for the assessment year 2007-08, copy of which was placed before us from Paper Book pages 65 to 66 mentioning that the assessee was engaged for charitable purpose where the exemption was available to educational institution under section 10(22) of the Act whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty Montessory School v. Union of India [2009] 315 ITR 48/[2010] 191 Taxman 208 (All.) and that of Ewing Christian College Society v. Chief CIT [2009] 318 ITR 160 (All.) and American Hotel & Lodging Association, Educational Institute v. CBDT [2008] 301 ITR 86 / 170 Taxman 306 (SC). 12. In the result, all the three appeals are allowed. ITA Nos. 113, 147, 148 & 150 13. In all these four years, since the issue involved is common, therefore, all these appeals are disposed of by this common order. 14. The first issue involved in all these appeals relate to not allowing exemption under sections 11 & 12 of the Act. The lead case relates to the assessment year 2003-04 and both the Counsels pointed out that in the assessment years 2004-05, 2005-06 & 2006-07 exemption has been denied mainly on the basis of assessment year 2003-04. 15. The brief facts of the case relating to assessment year 2003-04 are that the assessee was granted registration under section 12AA vide letter dated 21-1-2004 with effect from 1-4-2002 at Registration No. CIT/Alg./PRO/12AA/36/2003-04. The assessee submitted Income-tax return on 27-11-2003 in Form No. 3A while the due date for filing the return was extended t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;This issue under appeal has been examined. The main issue involved in this appeal is against the action of the Assessing Officer in denying exemption under section 10(23C)(iiiad) of I.T. Act to the appellant. The Assessing Officer has held that the Schools be being run by the appellant for fit and not for charitable purposes and hence the assessee is not entitled for exemption under section 10(23C)(iiiad). During appellate proceedings, it has been argued on behalf of the appellant that the society is not running the school for profit but is engaged in imparting education, which is a charitable purpose. The main reason on the basis of which the Assessing Officer has held that the society is running the schools for profit and not for charitable purposes is on the basis of instances noticed in assessment year 2003-04. The most crucial aspect which has been brought on record by the Assessing Officer for holding that the society is running the schools for profit and not for charitable purposes is that assessment year 2003-04, Smt. Shashi Bala Sharma, Secretary of the Society, has surrendered an amount of ₹ 50,00,000. The Assessing Officer brought on record that Smt. Shashi Bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing thereon the interest derived by the assessee amounting to ₹ 24,015 the total receipts were ₹ 1,20,55,015. The assessee claimed statutory accumulation under section 11(1)(a) at the rate of 15 per cent amounting to ₹ 18,08,252. The assessee has incurred revenue expenditure during the year at ₹ 88,37,958 out of which ₹ 5,63,179 was disallowed by the Assessing Officer on one pretext or the other. This revenue expenditure also includes the donation of ₹ 15,73,600 given by the assessee to the another charitable organization out of the income of the year under consideration to Gagan Academic Society. The assessee has incurred capital expenditure to the extent of ₹ 28,57,957. The capital expenditure had been allowed in part in assessment years 2004-05, 2005-06 & 2006-07 and in the assessment year 2007-08. The Assessing Officer allowed all the capital expenditure. The assessee has set apart a sum of ₹ 14,08,804 to be utilized for the purpose of the Society in the succeeding year. The registration under section 12A is granted from the financial year 2002-03 i.e. assessment year 2003-04. In the reasons recorded, it was wrongly mentioned that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngaged in charitable activities. Section 250 defines the charitable purpose. Imparting of education is one of the charitable purpose. Referring to the advance made to Smt. Urvashi Sharma amounting to ₹ 1,55,000 it was pointed out that the assessee has earned the interest at the rate of 15 per cent. The loan was given at an interest more than bank rate and adequate security in the form of guarantee bond was taken from her. The loan was repaid by her with interest in the financial year 2004-05. Attention was drawn to section 13(4) and it was pointed out that 5 per cent of the fund of the institution could be invested in the concerned concern, only income earned there only is not eligible for availing of exemption under section 11 or 12 of the Act. So far the rest of the income, the assessee is entitled for exemption. The main objection of not allowing the capital expenditure was that the land has not been registered in the name of the assessee in this regard, it was pointed out that ultimately the conveyance deed was registered on 18-6-2008 in favour of the assessee by the President and Secretary of the Society. The Assessing Officer has accepted this fact and accordingly the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld by us earlier. Imparting of the education is a charitable purpose in view of the provision of section 2(15). We have to see whether the educational institution is existing solely for education purpose or not. By allowing the exemption to the assessee under section 11 during the assessment year 2007-08, the Assessing Officer has himself accepted that the assessee is a genuine education institution and the activities of the assessee are genuine and has been carried out as per the objects of the assessee. We accordingly do not agree with the finding of the CIT(A) that the assessee is not engaged in charitable activities. We have to see what the main object of the assessee is. If the main object of the assessee is imparting of the education and during the course of imparting of the education, if some surplus has arisen to the assessee, it cannot be said that the assessees institution is not engaged for charitable purpose as defined under section 2(15) of the Act. The Hon'ble Supreme Court in the case of Asstt. CIT v. Surat City Gymkhana [2008] 300 ITR 214/ 170 Taxman 612 has held that once the trust is registered under section 12A, it is a fait accompli and the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion states that any amount credited or paid to other trusts/institutions shall not be treated as application of income of the donor trust either during the period of accumulation or thereafter. So for as amounts accumulated under section 11(1)(a) are concerned, there is no need to treat any donation made out of such accumulation as an application of income towards charitable or religious purposes, as there is no obligation to spend such accumulation within a specified period, nor is there any provision of taxing such accumulation if it is not spent for charitable or religious purposes. Even if the explanation were to apply, there would accordingly be no consequence. Since the 15 per cent accumulation under section 11(1) is unconditional and need not be spent at all by the trust, the question of not treating the same as application of income in case it is credited or paid to another trust (in the subsequent year) does not arise. Thus the explanation covers only payments made from amounts accumulated for a specified period under section 11(2) and not from unconditional accumulation contemplated in section 11(1). Since the 15 per cent accumulation under section 11(1) is unconditional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the trust or the institution from such investment. The said income from the investment shall be charged to tax in the hands of the trust or institution, in accordance with the provisions of section 164(2) or 164(3), as the case may be, as if the relevant income, not so exempt, were the income of an "association of persons". Neither the Assessing Officer nor the parties has looked into the provisions of section 13(4) and its applicability in the case of the assessee. Thus, we are of the opinion that the exemption under section 11 cannot be totally denied to the assessee on the basis of the interest income earned by the assessee on the loan advanced to Smt. Urvashi Sharma. The contention of the assessee is that the interest has been taken as income in the year when the loan has been repaid by Smt. Urvashi Sharma. The balance sheet of Smt. Urvashi Sharma has not been brought to record so as to ascertain what was the total capital of Smt. Urvashi Sharma. Whether the money let out to her amounting to ₹ 1,55,000 is within 5 per cent of her total capital or not. We, therefore, set aside the order of CIT(A) and restore this issue to the Assessing Officer with the direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 2 of section 11(1) provides that no tax will be levied on unspent portion if the condition stipulated therein are complied with. Application of the income for charitable purposes should not be distinguished on the basis of application for revenue purposes and application for capital purposes. Even if the expenditure has been incurred for acquiring capital asset to be used for the object of the trust, in our opinion, the assessee will be entitled for the exemption as this will tantamount to application of the income for charitable purposes. In the case before us we noted from the audited balance sheet that the assessee has incurred the capital expenditure for running the educational institution. This capital expenditure, in our opinion, will be an application of the income for charitable purpose and the assessee will be entitled for deduction under section 11 of the Act. This, in our opinion, is a legal plea and the claim of the assessee cannot be denied. We, therefore, restore this issue to the file of the Assessing Officer with the direction that the Assessing Officer should verify the quantum of the capital expenditure from the audited balance sheet and allow the applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,46,430 Taxable Income NIL NIL" 26. We have already held during the assessment year 2003-04 that the assessee is a charitable institution. We have already allowed deduction to the assessee at the rate of 15 per cent under section 11(1)(a) of the Act. We have also allowed capital expenditure as an application of the income under section 11 of the Act but restored the issue relating to the capital expenditure for the purpose of verifying the figures as claimed by the assessee to the Assessing Officer. We have confirmed the disallowance of the expenses in the assessment year 2003-04 and restored the issue so far the advance to Smt. Urvashi Sharma is concerned to the file of the Assessing Officer. Accordingly, we restore this issue for the assessment years 2004-05, 2005-06 and 2006-07 relating to the verification of the capital expenditure incurred by the assessee to the file of the Assessing Officer with the direction that the Assessing Officer shall allow exemption to the assessee under section 11 in respect of the capital expenditure to the extent it is found that the assessee has incurred the capital expenditure. The issue relating to the disallowance of the expense though ..... X X X X Extracts X X X X X X X X Extracts X X X X
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