Income Tax Appellate Tribunal - Hyderabad
Moonray Educational Society, ... vs Department Of Income Tax on 29 June, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No.1405/Hyd/2012
(Assessment Year 2009-10)
Astt. Director of Income- V/s M/s. Moonray Educational Society,
tax(Exemption)-II, Hyderabad Hyderabad.
(PAN - AABAM 3391 E )
(Appellant) (Respondent)
Appellant by : Shri M.H.Naik
Respondent by : Shri P.Venkatayya
Date of Hearing 2.1.2013
Date of Pronouncement 09/01/2013
ORDER
Per Smt. Asha Vijayaraghavan, Judicial Member:
This appeal by the Revenue for the assessment year 2009-10 is directed against the order of the Commissioner of Income-tax(Appeals)
-IV, Hyderabad, dated 29.6.2012.
2. Revenue is aggrieved against the order of the Commissioner of Income-tax(Appeals) on account of the relief granted by the CIT(A) to the assessee, when the assessee failed to obtain the approval under S.10(23)(c)(via) of the Act, which, according to the Revenue, is mandatory. Effective grounds taken by the Revenue in this behalf read as follows-
(1) ...
(2) The learned CIT(A) erred in directing the Assessing Officer to
consider the assessee as eligible for exemption under section 10(23)(V) though the society was not held by him solely for the purpose of education.
2 ITA No.1405/Hyd/12M/s. Moonray Educational Society, Hyderabad.
(3) The learned CIT(A) ought to have appreciated the fact that the objects of the society includes non-educational purposes which will bar the assessee from claiming the exemption u/s. 10(23C)(iiiad) of the Act.
(4) The learned CIT(A) failed to see that the assessee has likelihood and the capacity to engage in different activities other than solely for the purpose of education as empowered by the Aims and Objectives.
(5) ..." 3. At the very outset, the learned counsel for the assessee
mentioned that the issue involved in this appeal has to be set aside to the file of the assessing officer in tune with the consistent view taken by the Tribunal in similar matters, as in Asst. Director of Income tax(Exemption), Hyderabad V/s. Agarwal Siksha Samithi, Hyderabad(ITA No.279/Hyd/2007), vide order dated 7.3.2012, wherein the coordinate benches of this Tribunal have been setting aside the issue in dispute to the file of the assessing officer with certain directions, relying on the still earlier order of the Tribunal dated 29.1.2009 in the case of Vasavi Academy of Education in ITA No.1120/Hyd/2009, a copy of which has been filed before us by the learned counsel for the assessee. Learned counsel for the assessee has filed elaborate written submissions before us in support of assessee's case, which are as follows:
"It is a fact that the appellant society has multiple objectives for fulfilment. But it may be seen that the first and the primary object of the appellant society is to serve in the field of education. This activity is further strengthened by the fifth objective of the appellant society as given above. The educational activity without profit motive is a charitable activity as laid down under section 2(15) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The other objectives at item Nos. 2 to 4 are only ancillary or incidental to the primary and dominant object which is charitable. It is on an application of this test the Honourable Supreme Court in CIT Vs Andhra Chamber of Commerce (1965) 55 ITR 722 (SC) held that the Andhra Chamber of Commerce is a valid charity entitled to exemption from tax. In this case the Honourable Supreme Court has noticed that the first and foremost object of the Chamber of Commerce as mentioned at item No. (a) of the Memorandum of Association is "to promote and-protect trade, commerce and industries of India, in the province of Madras and in particular in the Andhra Country"
is the primary or the dominant object of the assessee. It was further held 3 ITA No.1405/Hyd/12 M/s. Moonray Educational Society, Hyderabad.
that if the dominant or primary purpose of the assessee was charitable the subsidiary objects enlisted in the Memorandum would not militate against its charitable character and purposes of the assessee would not be any less charitable.
Similarly there were multiple objectives set up for fulfillment in the case of Additional CIT Vs Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC). In this case the Honourable Supreme Court has noticed that the first and foremost object of the assessee is "to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth". This has been noticed as the dominant or primary purpose of the assessee which is considered as charitable purpose. It is further held that what is necessary to be considered is whether having regard to all the facts and circumstances of the case, the dominant object of the activity is profit making or carrying out a charitable purpose. If it is the former the purpose would not be charitable purpose but if it is the latter the charitable character of the purpose could not be lost. If we apply this test in the present case it is clear that the activity of obtaining licences for import of foreign yarn and quotas for the purpose of indigenous yarn which was carried out by the assessee was not an activity for profit. The pre-dominant object of this activity was promotion of commerce and trade in art silk, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth which was clearly was an object of general public utility and profit was merely a by-product which resulted incidentally in the process of carrying 'out the charitable purpose. After discussing several legal .. aspects connected to this case the Honourable Supreme Court has held that purpose for which the assessee was established was a charitable purpose within the meaning of section 2 clause (15) of the Act and the income of the assessee was exempt from tax.
In the case of CIT Vs Federation of Indian Chamber of Commerce & Industry 130 ITR 186 (SC) the Honourable Supreme Court has again noticed the first objective of the assessee as mentioned in clause 3 of the Memorandum of Association which is as follows:
3 (a): To promote Indian business in matters of Inland and foreign trade, transport, industry and manufactures, finance and all other economic subjects and to encourage Indian Banking, shipping and Insurance, In this case also the Honourable Supreme Court has held that the said above object as primary and dominant purpose of the Society. It was further held that if the primary or dominant purpose of a trust or institution is charitable any other object which is merely ancillary or incidental to' the primary or dominant purpose would not prevent the trust or institution from being a valid charity.
A close scrutiny of the aforementioned three cases which have been decided by the Honourable Supreme Court, it is evident that the first mentioned objective in all the three cases for which the said institutions were formed has been accepted by the Honourable Supreme Court as the primary or dominant purpose of the trust or institution. It was further held that if the primary or dominant purpose of the trust or institution is 4 ITA No.1405/Hyd/12 M/s. Moonray Educational Society, Hyderabad.
charitable, other objectives may not be charitable but which are merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity. It was also held that the theory of dominant or primary object of the trust has, therefore, been treated to be the determining factor, even in regard to the fourth head of charity viz., the advancement of any other object of general public utility. so as to make the carrying on of the business activity merely ancillary or incidental to the main object. It is also submitted that the decision of the Honourable Supreme Court in the said three cases referred to above has been rendered in connection with the fourth leg of Sec 2(15) of the Act dealing with "advancement of any other object of general public utility". However it may be seen that the norms laid down in the said three cases also hold good in respect of other three activities of charity i.e relief of the poor, education and medical relief.
In the light of the rulings of the Hon'ble Supreme Court in the above three cases if the objects of the appellant are scrutinized, it is evident that the first and foremost objective of the appellant was to serve in the field of education which is strengthened by the fifth objective. This objective of the appellant has to be treated as the primary or dominant purpose for which' the appellant was formed. It is to effectuate this objective the appellant has set up a pharmaceutical college after obtaining the necessary approvals from the concerned Government Departments. In the year of account under appeal the appellant has admitted the students selected by the Government for undergoing Pharmacy course. This is a four year course after which the students are allowed to take examination conducted by the Government for awarding a degree as a Pharmacist to the successful students. For conducting this course on regular basis, the appellant has set up necessary infrastructure by way of class rooms, laboratories alongwith teaching and non-teaching staff. In doing so the appellant has fully complied with the norms laid down by the Honourable Supreme Court with regard to the sense in which the word "education" has been used in section 2(15) of the Act in the case of Sole Trustee Loka Shikshana Trust Vs CIT (1975) 101 ITR 234 (SC). Under the circumstances it may be seen that the appellant is an educational institution has existed solely for educational purposes.
Rulings on the similar lines were found in the case of CIT Vs Vidya Vikas Vihar (2004) 265 ITR 489 (BOM), where the institution was a Co- operative Society imparting technical education but at the same time was also meant for providinq housing {or poor people so that the former object qualifies for deduction under section 10(22) (now section 10(23C)) while all the objects together qualify for exemption under section 11. The Honourable High Court found that the actual activity during the year was running an educational institution so that there would be no objection to the assessee availing exemption under section 10(22) (now section 10(23C)). In coming to this conclusion the Honourable High Court pointed out that right to Exemption will have to be evaluated with reference to the activity on year to year basis as was decided by the Honourable Supreme Court in Aditanar Educational Institution Vs Additional CIT (1997) 224 ITR 310 (SC). In this case the Honourable Supreme Court has held that "The availability of the exemption should be evaluated each year to 5 ITA No.1405/Hyd/12 M/s. Moonray Educational Society, Hyderabad.
find out whether the institution existed during the relevant year solely for educational purposes and not for purposes of profit. After meeting the expenditure, if any surplus results incidentally form the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes since the object is not one to make profit".
In this connection it is also relevant to note the decision of Honourable Kerala High Court in the case of CIT Vs Geetha Bhavan Trust (1995) 213 ITR 296 (Ker) where in the trust had number of objectives. It was accepted as an educational institution eligible for relief under section 10(22) because the assessee's activity during the year was only of running an educational institution.
In the light of above discussion it is submitted that the multiple objects of the appellant society shall not stand in the way of its being an educational institution.
The Assessing Officer held that the objectives of the appellant society are not solely for educational purposes. As submitted earlier the appellant has no doubt has multiple objectives but the first and foremost objective is to serve in the filed of education. As ruled out by the Honourable Supreme Court in the aforesaid three cases the primary or the dominant objective of the appellant society is to carry on the educational activities. To carryout this object the appellant has set up a pharmaceutical college, acquired necessary infrastructure, admitted the students selected by the Government for admission into pharmaceutical course, conducted regular classes and laboratory experiments over a period of four years. In this manner the appellant has prepared the students for taking the examination conducted by the Government and get a degree as pharmacist. Apart from this the appellant has not done any other work in the year of account. In this connection reliance is placed on the decision of Honourable Supreme Court in the case of Aditanar Educational 'Institution Vs Additional CIT (1997) 224 ITR 310 (SC) (Supra) wherein it was held that the availability of exemption should be evaluated each year to find out whether institution existed during the relevant year solely for educational purposes and not for the purpose of profit.
Thus the activities of the appellant in the year of account are fully in conformity of the decision of Honourable Supreme Court referred to above. In this connection the Assessing Officer has relied on the decision of Honourable Rajasthan High Court in the case of CIT Vs Maharaja Sawai Mansinghji Museum Trust 169 ITR 379 (Rajasthan) to hold that solely means "exclusively" and not "primarily". But it may be pointed out that the facts in this case are totally different from the facts obtained in the appellant's case because in that case the assessee was I a . museum and it was contended that the assessee is maintaining the museum and the museum is an educational institution because the people visiting the museum will acquire new knowledge. In this connection their Lordships of Rajasthan High Court have referred to the decision of Honourable Supreme Court in the case of Sole Trustee Loka Sikshana Trust Vs CIT (1975) 101 ITR 234 (SC) and held that the word "education" connotes the process of training and developing the knowledge, skill, mind and 6 ITA No.1405/Hyd/12 M/s. Moonray Educational Society, Hyderabad.
character of students by normal schooling and has not been used in the wide and extensive sense according to which every acquisition of further knowledge constitutes education. Kindly refer to the annexure 4.
In the light of this decision it was held that the museum is not an educational institution as such the Assessing Officer's contention that the appellant has not exclusively and primarily existed for educational purposes has no basis.
Ground No. 4: The Learned CIT(A) failed to see that the assessee has likelihood and the capacity to engage in different activities other than solely of the purpose of education as empowered by the Aims and Objectives.
On the basis of the decision of Madras High Court in the case of Reliance Motor Company Private Limited Vs CIT 213 ITR 733 (Mad), it was held that it is not the actual user that the likelihood and capacity of the trust to spend the funds of the assessee for other objectives which are not educational.
At the outset it is submitted that in this case the Honourable Madras High Court was dealing with the matter pertaining to the claim of benefit under section 80G of the Act by the assessee and the facts of that case are totally different from the facts available in the appellant's case. With regard to the likelihood and the capacity of the trustees for spending the monies of the trust to other objectives which are not solely education in nature, it is submitted that in the. year of account the appellant has carried out the educational activities and utilized its funds for educational purposes exclusively. The surplus left out at the end of the accounting year was utilized for the acquisition of further infrastructure for the development of educational activities. Kindly refer to the annexure 5.
Under circumstances the conclusion of the Assessing Officer with regard to the utilization of the funds of the appellant has no basis.
For the reasons given above, the appellant may kindly be granted exemption."
4. On the other hand, the Learned Departmental Representative, relied on the order of the assessing officer.
5. We heard both the parties and perused the material on record. We find that the issue in dispute is covered by the decision of the this Tribunal in the case of Vasavi Academy of Education (supra) wherein the coordinate Bench of this Tribunal vide tis order dated 29.1.2009, has held as follows:-
7 ITA No.1405/Hyd/12M/s. Moonray Educational Society, Hyderabad.
"3. We have heard both the parties and perused the material on record. The learned Authorized Representative for the assessee submitted that this issue covered in favour of the assessee by the order of the Hyderabad Bench 'A' of the Tribunal dated 15.4.2009 in assessee's own cases in ITA No.1133/Hyd/2006 for the assessment year 2003-04 and order dated 17.4.2009 in ITA No.1206/Hyd/2007 for the assessment year 2004-05. However, we find that the constitutional Bench of Apex Court in the case of T.M.A.Pai Foundation and others Vs. State of Karnataka & Others (2002 ) 8 SCC 481 examined the issue of collection of capitation fees for the admission of students over and above fees prescribed by the private institutions and held that the institution which ware collecting capitation fees for admission of students over and above the fees prescribed cannot be construed as charitable/educational institution. Ape Court further observed that the fees collected over and above the prescribed fee for admission of the student has to be construed as capitation fee. The Apex Court further observed that the concerned university and regulated body has to take action for withdrawal of the recognition in case it is found that the educational institution received any money over and above the fees prescribed for the courses. Same view was taken by Apex Court in the case of Islamic Academy of Education and another Vs. State of Karnataka & Another (2003) 6 SCC 697. If the donations were received compulsorily for admission of students, the assessee is not entitled for exemption either u/s. 10(23C) or u/s. 11 of the IT Act. Since the lower authorities were not examined the collection of capitation fees in this case, in our opinion, the matter requires to be examined by the assessing officer whether the assessee is collecting the capitation fees from students or not and it is necessary for bringing the actual facts on record for deciding the issue effectively. Similar view was taken by us in the case of M/s. Jamia Nizamia in ITA No.763/Hyd/2007 dated 30.6.2008, in the case of International Educational Academy, Hyderabad in ITA No.494/Hyd/2007 and 518/Hyd/29008 for the assessment years 2002-03 and 2004-05 and Sri Sai Sudhir Educational society, Hyderabad in ITA No.999/Hyd/2006 for the assessment year 2003-04. Therefore, we set aside the orders of the lower authorities and remit back the matter to the file of assessing officer with a direction to assessing officer that he shall reconsider the entire issue in the light of judgment of Supreme Court in the case of M/s. Islamic Academy of Education & Another V/s. State of Karnataka and Another ((supra), and in the cased of T.M.A.Pai Foundation and Others V/s. State of Karnataka and Others (supra), and find out whether the assessee has received any money over and above the fees prescribed and thereafter decide the issue afresh in accordance with law after giving reasonable opportunity of hearing to the assessee. We make it clear that the assessee is not entitled for exemption either u/s. 11 or u/s.
10(23C) in case it collected any money by whatever name it is called i.e. donation, building fund, auditorium fund etc. etc., over and above the prescribed fee for admission of students.
8 ITA No.1405/Hyd/12M/s. Moonray Educational Society, Hyderabad.
4. In the result, Revenue's appeal is allowed for statistical purposes."
Considering the view taken in the above matter, and the consistent view taken by the Tribunal in similar cases, we are of the opinion that the issue involved in the present appeal should also be set aside to the file of the assessing officer with identical directions. We do so accordingly, and setting aside the impugned order of the CIT(A), restore the matter to the file of the assessing officer, to re-decide the matter afresh in accordance with law, keeping in view the directions of this Tribunal in the case of Vasavi Academy of Education (supra) extracted above, and after giving reasonable opportunity of hearing to the assessee.
6. In the result, Revenue's appeal is allowed for statistical purposes.
Order pronounced in the court on 9th January, 2013.
Sd/- Sd/-
(Chandra Poojari) (Asha Vijayaraghavan)
Accountant Member. Judicial Member.
Dt/- 9th January, 2013
Copy forwarded to:
1. M/s. Moonray Educational Society, D.No.16-2-751/E/8, Venkatadri Nagar, Asmangad, Malakpet, Hyderabad.
2. Asst. Director of Income-tax(Exemption)-II Hyderabad
3. Commissioner of Income-tax(Appeals)IV Hyderabad
4. Commissioner of Income-tax III, Hyderabad
5. The Departmental Representative, ITAT Hyderabad B.V.S. 9 ITA No.1405/Hyd/12 M/s. Moonray Educational Society, Hyderabad.
1. Date of Dictation on to the computer 3.1..2013
2. Date on which the typed draft is placed before the Dictating Member
3. Date on which the approved draft comes to the Senior P.S.
4. Date on which the fair order is placed before the dictating 3.1.2013 Member And other member
5. Date on which the fair order goes to the Sr. P.S.
6. Date on which the file goes to the Bench Clerk.
7. Date on which the file goes to the Head Clerk
8. Date on which the file goes to the Assistant Registrar
9. Date of the despatch of the Tribunal Order