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TMI Blog2024 (1) TMI 847X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income Tax (Appeals) erred on facts and law in upholding the order of the Assessing Officer treating tied up grants received from the government as income of the appellant. 4. That the Commissioner of Income Tax (Appeals) erred on facts & in law in upholding the order of the Assessing Officer disallowing depreciation as application of income disregarding/overlooking the fact that the appellant had not claimed cost of the fixed assets as application in the preceding years. 3. The facts as per record are that the appellant/assessee is a Society registered under the Societies Registration Act (XXI of I860). It has been established by the Government of Punjab to impart education both under degree and certificate level courses. It is a charitable institution whose sole objective is to impart education without any profit motive and it functions under the control of Government of Punjab; that the appellant is 100 percent financed by the Government of Punjab in terms of infrastructure, i.e., land and buildings, machinery and equipment, furniture and fixtures, library books, vehicles and other assets; that the return of income for the F.Y. 1415 was e-filed by the appellant on dt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Income Tax (Appeals) also wrongly upheld the disallowance of the claim of depreciation towards application of income, disregarding/ overlooking the fact that the appellant had not claimed cost of the fixed assets as application of income. 4. The ld. Counsel for the assessee has contended that the order passed by the Commissioner of Income Tax (Appeals) is illegal, arbitrary, bad in law and against the facts of the case; that the Commissioner of Income Tax (Appeals) erred on facts and law in upholding the addition (amounting to Rs 2,47,58,982/-) made by the Assessing Officer by invoking the provisions of section 11 & 12 in case of appellant being an educational institution approved u/s 10(23C)(vi) of the Income Tax Act, 1961; that the Commissioner of Income Tax (Appeals) erred on facts and law in upholding the order of the Assessing Officer treating tied up grants received from the government as income of the appellant; that the Commissioner of Income Tax (Appeals) erred on facts & in law in upholding the order of the Assessing Officer disallowing depreciation as application of income disregarding/ overlooking the fact that the appellant had not claimed cost of the fixed asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the nature of Grain-in-Aid and it belongs to the consolidated fund of the State and that the assessee cannot incur any expenditure without the express approval of the State Government and the University; that he was relying on the said decision of the CIT(A), to that extent as judicial discipline. It was held that the assessee Society collects Development Fund, Hostel Fund, Student Activity Fund and other similar funds from the students, as per the express Notification of the State Government; that as per the Rules and the Notifications/Circulars of the State Government, these funds can be spent only on the specific approval of the State Government and till such time, they are in the nature of Grant-in-Aid, which would be in consonance with the findings of the ld. CIT(A) in the earlier years; that the fact that these payments are charged separately from the annual fees is also a matter of record and not in dispute; that however, the fact that the donations are voluntary, is not established; that the CIT(A)'s order that in case the surplus left under these funds belongs to the consolidated funds of the State and can be spent for specified purposes as per the approval of the Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the substance and merits in the order, that that this mistake may be considered u/s 292B of the Act. The DCIT has also stated in his comments that after the assessment, the CIT (Exemption) Chandigarh passed order dated 20.03.2021 u/s 263 of the Income Tax Act, setting aside the assessment order passed u/s 143(3) read with Section 263 read with Section 144B of the Act, at an assessed income of Rs. 4,14,42,640/-. A copy of the said comments dated 10.05.2023, of the DCIT, Circle-I (Exemptions), Chandigarh have been enclosed with the Department's written submissions before us. Further, copies of the aforesaid order dated 20.03.2021 passed u/s 263 of the Act by the CIT (Exemption), Chandigarh and a copy of the aforesaid assessment order dated 20.03.2022, passed u/s 143(3) read with Section 263 read with Section 144B of the Act, by the DCIT, Circle-I, Chandigarh, have also been enclosed. 11. It has been contended on behalf of the Department that in view of the above developments, i.e., after the issuance of the order dated 20.03.2021 u/s 263 of the Act and the consequential assessment order dated 30.03.2022, u/s 143(3) read with Section 263 and Section 144B of the Act, the original a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of the ld. CIT(A), which is under appeal at the hands of the assessee before this Tribunal. Reliance in this regard has been placed on the decision of the Hon'ble Supreme Court in the case of "Kunhayammed & others Vs State of Kerala & another" [2000] 245 ITR 360 (S.C). Reliance has also been placed on the decision of the Hon'ble Bombay High Court in the case of "CIT Vs Tejaji Farasram Kharawa" [1953] 23 ITR 412 (Bom). Reliance has further been placed on the decision of the Supreme Court in the case of "CIT Vs Amrit Lal Bhogilal & Co", [1958] 34 ITR 130 (S.C.) Reliance has also been placed on the decision of the Hon'ble Supreme Court in the case of "Gojer Bros (P) Ltd. Vs Ratan Lal Singh" [1974] AIR 1938 (copy placed at ACL PB-II, paged 43-53 alongwith copies of the aforesaid decisions). 13. It has been stated that in the present case, the issue of receipts/surplus, i.e., grants received from the Government, not being income of the assessee and, consequently, the provisions in respect of application of income not being attracted to such receipts/surplus was challenged by the assessee before the ld. CIT(A); that similarly, the action of the AO in disallowing depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade out, that the reference to Sections 11 and 12 of the Act was inadvertently made in the assessment order, which may be treated as a typing mistake. Such methodology, in our considered opinion, is unheard of. Firstly, the flow of the assessment order itself makes it amply clear and apparent that the AO was fully aware and conscious of invocation of the provisions of Sections 11 and 12 of the Act. This would be evident from a perusal of the second sub para of para 7.0 of the assessment order, where the AO states that "...........as per the provisions of Section 11 and 12, all the receipts collected from the students in whatever form are to be considered as income of the Trust/Society. The funds so collected should be included in the receipts as per Income Tax Act. The assessee has failed to consider the Development and Student Activity Fund so received in the receipts of the year under consideration and claimed the expenses for its activities which is not allowable. Therefore, the amount received under these funds during the year is added back to the income of the assessee and taxable income is computed as under.............." It has further been observed that ".........Thus an am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. CIT(A), which rules the roost and which alone is operative, and not the original assessment order, which stands merged in the said order passed by the CIT(A). 16.2 Likewise, in the case of "Kunhayammed & others" (supra), the Hon'ble Supreme Court has held, inter-alia that where the appeal or revision is provided against the order passed by a Court, Tribunal or any other authority before the superior forum and, such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the Sub-ordinate Forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law; that the doctrine of merger is not a doctrine of universal or unlimited application; that it will depend on the nature of jurisdiction exercise by the superior forum and the contents or subject matter of challenge laid or capable of being laid would be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it. 16.3 In the present case, indubitably, the superior jurisdiction of the ld. CIT(A) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inadvertent error that the provision was mentioned as Section 10(23C)(iiiab). The exemption claimed u/s 10(23C)(vi) was pursuant to the approval granted by the Chief Commissioner of Income Tax, Ludhiana, granted vide order No. CCIT/LDH/JB/10(23C)(11/2015-16/2729 dated 18.09.2015. This remains undisputed and it finds mention in para 3 of the assessment order wherein the reply of the assessee, to notices u/s 143(2) and 142(1) of the Act has been reproduced, wherein, it has been specifically mentioned that "............But while filing the Income Tax Return, the Section under which exemption was claimed as inadvertently been written as "Section 10(23C)(iiiab) instead of 10(23C)(vi)". 21. It remains undisputed, as cannot be disputed, that since the assessee stands approved under the provisions of Section 10(23C)(vi) of the Act, no disallowance could have been made by applying the provisions of Section 11 and 12 of the Income Tax Act. In this regard, reliance has correctly been placed on behalf of the assessee, on CBDT Circular No. 14 of 2015, dated 17.08.2015, which recognizes that Section 10(23C)(vi) of the Act prescribes that income of any University or other educational Institution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs to the consolidated fund of the State and the assessee cannot incur any expenditure without the express approval of the State Government and the University; and that in the interest of judicial discipline and consistency, he was relying on the decision of his predecessor to the said extent. The ld. CIT(A) observed that the assessee Society collects Development Fund, Hostel Fund, Student Activity Fund and other similar funds from the students as per express Notifications of the State Government, which is a matter of record and not in dispute. He observed that as per the Rules and Notifications/Circulars of the State Government, these funds can be spent only on the specific approval of the State Government and till such time, they are in the nature of grant-in-aid and would be in consonance with the findings of the ld. CIT(A) in the earlier years; that in such order, the ld. CIT(A) has held that in case surplus is left under these funds, it belongs to the consolidated fund of the State and can be spent for specified purpose as per the approval of the State Government. It was observed that this finding relates to the utilization of the funds and not to their treatment, either as re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other hand, has placed strong reliance on the impugned order, contending that the ld. CIT(A) has rightly upheld the treatment of the grants received by the assessee from the Government, as income of the assessee; that as rightly held by the ld. CIT(A), to be corpus donation, in the first instance, the receipt should be a donation and voluntary contribution; that in the present case, the funds are charged indiscriminately from all the students and are in the nature of fees; their utilization being controlled by the State Government notwithstanding; and that they are required to form part of the Receipt & Expenditure Account of the assessee. 27. We find that it is undisputed that the funds/surplus of receipts over expenditure were in the nature of grant-in-aid, which facts stand expressly accepted by the ld. CIT(A) himself. As such, this grant-in-aid cannot be considered as income of the assessee under the Act, either for ascertaining the amount to be expended or for ascertaining the amount to be accumulated. The grants-in-aid made available to the assessee by the Government of Punjab, being not the income of the assessee, are exempt from tax. 28. Accordingly, finding the grieva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of Rs. 51,69,258/- was added back. 31. The ld. CIT(A) observed, while confirming the AO's order that with the insertion of sub-section (6) to Section 11 of the Act, no depreciation is allowable on any item of income, regardless of whether it is applied, accumulated or set apart for application; that thus, it is irrelevant whether the purchase was considered towards application in the earlier years. 32. In this regard, it is the case of the assessee that in the years prior to the year in question, it had claimed exemption u/s 10(23C)(iiiab), which fact is not in dispute; that this being so, no question arises of the assessee having claimed cost incurred on acquisition of fixed assets as application of income; that even otherwise, the assessee has not claimed expenditure incurred on acquisition of fixed assets as revenue expenditure in its Receipt & Expenditure Account in any preceding year; and that this being the factual position, the ld. CIT(A) has clearly erred in upholding the disallowance of depreciation as application of income. 33. The ld. DR on the other hand has placed reliance on the CIT(A)'s order in this regard also. 34. As noted above, while dealing with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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