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TMI Blog2018 (8) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... MS SUCHITRA KAMBLE, JUDICIAL MEMBER For The Appellant : Sh. Rakesh Gupta, Adv For The Respondent : Sh. Arun Kumar Yadav, Sr. DR ORDER PER SUCHITRA KAMBLE, JM These appeals are filed by the assessee against the order dated 30/03/2017 passed by CIT(A)-1, Noida. 2. The grounds of appeal are as under:- I.T.A .No. 3923/DEL/2017 1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in holding that the appellant is not entitled to benefit of section 11(1 )(a) & 1 l(l)(d) and u/s 12 and that too without observing the principles of natural justice and without giving show cause. 2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in holding the income of the appellant chargeable to tax under the head 'income from other sources' and has further erred in bringing to tax a sum of ₹ 1,59,84,559/- and that too without giving any deduction with regard to expenses. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in holding that there was violations of section 13(l)(d) r.w.s. 11(5). 4. That in any case and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to benefit of section 11(1 )(a) & 1 l(l)(d) and u/s 12 and that too without observing the principles of natural justice and without giving show cause. 2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in holding the income of the appellant chargeable to tax under the head 'income from other sources' and has further erred in bringing to tax a sum of ₹ 2,37,66,767/- and that too without giving any deduction with regard to expenses. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in holding that there was violations of section 13(l)(d) r.w.s. 11(5). 4. That in any case and in any view of the matter, action of Ld. CIT(A) in enhancing the assessment and bringing to tax the gross receipts as taxable income of the appellant and that too without giving any deduction and denying the benefit of section 11 & 12 is bad in law and against the facts and circumstances of the case. 5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in computing the income of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and on facts in holding the income of the appellant chargeable to tax under the head 'income from other sources' and has further erred in bringing to tax a sum of ₹ 3,39,78,053/- and that too without giving any deduction with regard to expenses. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in holding that there was violations of section 13(l)(d) r.w.s. 11(5). 4. That in any case and in any view of the matter, action of Ld. CIT(A) in enhancing the assessment and bringing to tax the gross receipts as taxable income of the appellant and that too without giving any deduction and denying the benefit of section 11 & 12 is bad in law and against the facts and circumstances of the case. 5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in computing the income of assessee in the status of 'AOP' instead of 'charitable society' as claimed by the appellant and further erred in applying the maximum marginal rate of tax. 6. That in any case and in any view of the matter, action of Ld. CIT(A) in not reversing the action of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Kids Education for being appointed for conducting the Franchisee Business of importing high quality pre-school education and training and other related activities. According to prescribed syllabus and method of training devise and develop as a franchisor under the mark for Noida/Ghaziabad Territory or any other location as may be agreed by the franchiser. The Assessing Officer observed that from the perusal of the Franchise Agreement that the assessee is pursuing object of imparting and spreading of education with profit motive and not as object of charity. Therefore, the Assessing Officer made an addition of ₹ 2,00,215/- being interest claimed on unsecured loans at 12% on amount of ₹ 26,30,111/-. The Assessing Officer held that in the schedule of fixed assets the assessee has shown building under construction at ₹ 33,36,914/- and no amount of interest was capitalized. Considering the above facts interest at 12% per annum on average cost of construction of ₹ 16,68,457/- which works out to ₹ 2,00,215/-was disallowed by the Assessing Officer. The Assessing Officer further disallowed amount of ₹ 64,000/- in respect of ₹ 16 lacs which was adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e light of the above, requirements of law under section ll(l)(d) & also under section 12 of I.T. Act, 1961 is not met either substantially or procedurally as neither the donations are voluntary contributions nor are given with specific directions that that shall form part of the corpus of the appellant society. 91. In view of the above, the appellant society is not eligible for the benefit of exemption from the incidence to tax under the provisions of section ll(l)(d) of I.T. Act, 1961. It is also not eligible for the benefit of exemption from incidence to tax under the provisions of section 12 of I.T. Act, 1961 for the reason that the money collected from students & their guardians, etc., is not the voluntary contribution but the contractual levies & payments. 92. Therefore, the appellant is neither entitled to the benefit of exemption from incidence to tax u/s ll(l)(a) of I.T. Act, 1961 nor u/s ll(l)(d) nor u/s 12 of I.T. Act, 1961 in any manner. 93. The I.T. Act, 1961 conceives u/s 11 of I.T. Act, 1961 another possible situation where a running business is received by the charitable institution by way of the donation or otherwise & has provided that in that case the cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect in the balance sheet of the appellant and there being no such asset in the balance sheet of the appellant the claim of the appellant is nothing but an afterthought to cover up its failure to comply correctly rejected by the Id. A.Os. in the facts and circumstances of the case. 98. The next question being the natural corollary of the above conclusion is what is the status of the income received by the appellant society in terms of the provisions of section 14 and consequentially what deductions are admissible to the appellant society against its income which has accrued to it in the business of doing charity & imparting education as the charitable activity. 99. The income of the appellant from the business of doing charity & imparting education as the charitable activity being the involuntary levies recoveries from the students & their guardians as contractual reciprocities is not to be considered as salary for obvious reasons. It is also not the income from the house property. As the appellant is a charitable institution, it is in normal course not permitted to indulge in any business or professional activity but as an exception to the generality of the rule it is permitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it & gains of the business & professions. This is also clear from the blanket ban on profiteering in the field of education by the Hon'ble Supreme Court, though the Hon'ble Supreme Court was considerate to allow reasonable surplus over the cost or imparting the education subject in certain conditions in the field of running the educational institution as occupation and not as charitable institution. It is trite that where an educational institution is being run by a person it has to run as "pure charity" and not as commercial enterprise as the Hon'ble Supreme Court has very categorically prohibited any profiteering in the field of education and there cannot be any occasion to recover the cost of charity from the beneficiaries of the charity as is being claimed by the appellant. 104. Income of the appellant by the appellant & has been offered by the appellant as its income all through its existence since inception & has been claimed exempt from the incidence of tax under the provisions of section 11 of I.T. Act, 1961 as its income and being subject to the provisions of the I.T. Act, 1961. Therefore, there is no dispute on the fact that the income of the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot apply to the facts of the case of the appellant. 111. Therefore, the appellant in the present assessments is not entitled to any deduction against its income under the provisions of section 57(i), 57(ia), 57(ii), 57(iia) & 57(iv) of I.T. Act, 1961. 112. The provisions of section 57(iii) provides that any other expenditure not being in the nature of capital expenditure laid out or expended wholly or exclusively for the purposes making or earning such income is to be allowe as deduction against incoem chargeable to the incoem tax u/s 56 of I.T Act, 1961. 113. The appellant society is a charitable institution set up to do the charity and not to earn income in manner whatsoever from the claimed charitable activities that too commercially. The founding members of the society or the authors & the trustees of the charitable trust or members of the society are responsible & obligated under the idea of charity to arrange the finances for the charity to be done & as claimed to have been done by the claimant provide that in the act of doing charity the person that in the act of doing charity should recover the cost of doing the charity in terms of money that too from the mom the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtained for the simple reason that wherever the I.T. Act, 1961 does not provide for any such set off of the cost of income as in the case of the salary the same is not to be provided. The Hon'ble Supreme Court has clearly laid down the basic law in this regard in the case of "Add!. Commissioner of Income Tax Vs. Surat Art & Silk Cloth Manufacturers Association, Surat" (1980) AIR 387 SC that in a taxing Act one has merely to look at what is clearly said by the Legislature. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used in law. That being the law, the appellant cannot be permitted to raise the issue of meeting the cost of its activities from those activities itself for the simple reason that neither the cost of charity can be extracted from the beneficiaries of the charity nor the expenditure on charity can be allowed to construed as the expenditure laid out or expended wholly for the purposes of making or earning an income as earning of income is not the charitable activity though in an exceptional situation it can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Admittedly, the appellant has advanced loans without charging any interest to an entity which is not permitted by the law to receive any investment or deposit from the appellant. Further, the appellant has also violated the conditions of appellant society had been gainfully employed by the appellant society besides the life members of the appellant society have appropriated for themselves to nominate in their place either during their lifetime or after their death either their eldest son or the eldest daughter thus deriving a benefit to themselves which is prohibited in the law. 121. Because of the violations of the overriding conditions of section 13 by the appellant society the appellant is not entitled for the benefit of exemption from the incidence of tax under the provisions of section 11 and 12 of I.T. Act, 1961 on any part of its income including that which is eligible otherwise fro the benefit of exemption from the incidence of tax apart from the fact that the appellant is not entitled for the benefit of exemption from the incidence of tax on its specified income under the provisions of section 11 & 12 of I.T. Act, 1961. Conversely, the entire gross receipts of the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed income. The CIT(A) has totally ignored the benefit of Section 11 & 12 to the assessee which is under operation till date. The CIT(A) erred in not reversing the action of Assessing Officer in computing the income of the assessee in the status of AOP instead of charitable society and further erred in applying the maximum marginal rate of tax. The Ld. AR relied upon the decision of the Tribunal in case of Rama Devi Memorial Society Vs. JCIT ITA No. 4434/Del/2017 order dated 5/7/2018 wherein it is categorically held that denial of benefit of Section 11 & 12 is not as per the law. Educational activity has been specifically treated as charitable purpose u/s 2(15) and enhancement of income made by the CIT(A) is not just and proper. The Ld. AR also relied upon the decision of the Adarsh Public School wherein the Tribunal 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. 6. The Ld. DR relied upon the order of the Assessing Officer and order of CIT(A). 7. We have heard both the parties and perused the material available on record. We find that the Assessing Officer made certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not held under the trust therefore, it is not entitled for exemption u/s. 11(1)(a). The relevant contention of the Revenue as well as the finding of the Hon'ble Apex Court reads as under:- 12. One of the objections raised on behalf of the Department was that Gujarat Maritime Board is not entitled to the benefit of section 11 of the 1961 Act as the said Board was not a trust under Public Trust Act and, therefore, it was not entitled to claim registration under section 12A of the 1961 Act. The Department's case was that the Maritime Board was a statutory authority. It was not a trust. Its business was not held under a trust. Its property was not held under trust. Therefore, the Board was not entitled to be registered as a Charitable Institution. It was the case of the Department that the Board was performing statutory functions. Development of minor ports in the State of Gujarat cannot be termed as the work undertaking for charitable purposes and in the circumstances the Commissioner rejected the Board's application under section 12A of the 1961 Act in the light of the above case of the Department, we are required to consider the expression 'any other object o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment and there is no profit motive, as indicated by the provisions of sections 73, 74 and 75 of the 1981 Act. The income earned by the Board is deployed for the development of minor ports in India. In the circumstances, in our view the judgment of this Court in Andhra Pradesh State Road Transport Corpn.'s case (supra) squarely applies to the facts of the present case. 17. Before concluding we may mention that under the scheme of section 11(1) of the 1961 Act, the source of income must be held under trust or under other legal obligation. Applying the said test it is clear, that Gujarat Maritime Board is under legal obligation to apply the income which arises directly and substantially from the business held under trust for the development of minor port in the State of Gujarat. Therefore, they are entitled to be registered as 'Charitable Trust' under section 12A of the 1961 Act." 20. This principle has been reiterated by the Hon'ble Delhi High Court in the case of Institute of Chartered Accountants of India-v-DGIT, 358 ITR 91 (Del). Thus, the assessee society which has been registered under 'Registration of Societies Act, 1860' with the sole object of providing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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