Income Tax Appellate Tribunal - Amritsar
M/S. New Punjab Educational Society, ... vs Commissioner Of Income Tax ... on 21 June, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH, AMRITSAR
BEFORE SH. N.S.SAINI, ACCOUNTANT MEMBER AND
SH. N.K.CHOUDHRY, JUDICIAL MEMBER
ITA No.583(Asr)/2018
Assessment Year: 2018-19
M/s. New Punjab Educational Vs. The CIT (Exemptions),
Society, Agwar Lopon Chandigarh.
Jagraon, Ludhiana
[PAN:AACAN 2849P]
(Appellant) (Respondent)
Appellant by: Sh. Ashwani Kumar (Ld.CA)
Respondent by: Dr. Devender Singh (Ld. CIT-DR)
Date of hearing: 21.05.2019
Date of pronouncement: 21.06.2019
ORDER
PER N.K.CHOUDHRY, JM:
This appeal has been preferred by the Appellant Society against the order dated 28/09/2018 impugned herein, passed by the Ld. CIT(Exemptions), Chandigarh u/s 10(23C)(vi) of the Income Tax Act, 1961 (hereinafter called as 'the Act') whereby the Ld. CIT(E) rejected the application of the assessee's society.
2. The brief facts of the case are that the assessee society has been created on 09-07-2001 and applied for registration u/s 10(23C) (vi) of the Act before the Ld. CIT(E), Chandigarh on 18/09/2017, which was taken into consideration, while fixing the date of hearing on 6/12/2017 and certain queries/clarifications as mentioned in para No.5 of the order, have been sought for. The assessee society vide its letter dated 18/12/2018 submitted 2 ITA No.583/Asr/2018 (A.Y.2018- 19) M/s New Punjab Educational Society vs. CIT(E) the reply, thereafter through e-mail, additional query was raised on dated 21/09/2018 which was also replied by the assessee society vide letter dated 24/09/2018. Thereafter, considering the replies and documents, the Ld. CIT(E) declined the registration by rejecting the application filed by the assessee society.
3. Aggrieved against the order impugned herein, the assessee preferred the instant appeal.
4. Having heard the parties and perused the material available on record. Let us to peruse the relevant provisions of law , which deals with the consideration of application for registration u/s 12A of the Act.
Section 12AA (1) The Chief Commissioner or Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) [or clause (aa) of sub-section (1)] of section 12A, shall--
(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and
(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he -
(i) shall pass an order in writing registering the trust or institution;
(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant :
3 ITA No.583/Asr/2018 (A.Y.2018- 19)M/s New Punjab Educational Society vs. CIT(E) Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.
From the provisions, it is clear that before deciding the application u/s 12A of the Act, the commissioner is at liberty to call for such documents or information from the society or institution as he thinks necessary in order to satisfy himself about the genuineness of the activities of the society or institution and may also made such enquiries as he may deem necessary in this behalf. Further before passing an order, the Ld. CIT(E) is empowered to satisfy himself about the aims and objects of the society or institution and the genuineness of its activities.
4.1 While coming to the instant case, first objection for rejection is that the salaries paid to the teachers are very low and are not in sync with the guidelines of the regulatory authorities. Further it is observed by the Ld. CIT(E) that there are instances, where the emoluments are not even what is prescribed under the Minimum Wages Act. We observe that the Ld. CIT(E) has not pointed out any specific instance and if there would be any violation of the Minimum Wages Act then certainly the society shall face the appropriate consequences/actions as per the Minimum Wages Act. In our considered view, the Ld. CIT(E) instead or rejecting the application on this ground, could have made the condition(s) and would have subjected the registration, to follow the Minimum Wages act and other ancillary acts which are enacted for the welfare of the employees 4 ITA No.583/Asr/2018 (A.Y.2018- 19) M/s New Punjab Educational Society vs. CIT(E) including teaching and non-teaching etc. by the Assesse society and therefore this ground of rejection is not sustainable.
4.2 The Ld. CIT(E) also considered the financial statement of the school for F.Y.2014-15, 2015-16 & 2016-17 and observed that the surplus of income over expenditure without considering depreciation are between 25 to 45 % of the gross receipts during the last three years. It was further observed that it needs to be flagged that educational institutions have been allowed to generate reasonable surplus but the same needs to be redeployed into the stated objects of the entity at the time it was established. Finally the Ld. CIT(E) observed that the assessee society fails to be an entity in the category of "not for the purposes of profit" which is a pre-condition for grant of approval u/s 10(23C)(vi) of the I.T. Act. Both the issues inter alia go on to confirm that the applicant society does not qualify for the tag "existing" not for profits.
We note that while considering application for registration u/s 12A of the Act, the Ld. CIT(E) is not supposed to act like Assessing Officer. If the assessee has not been following the prescribed norms as prescribed under Sec.11 of the Act then certainly the Assessing Officer is empowered to take appropriate action for declining the benefit to the assessee.
With regard to the objection of the Ld. CIT(E) to the effect that it reflects from financial statements of F.Y. 2014-15, 2015-16 and 2016-17, it was observed that the surpluses of income over expenditure without 5 ITA No.583/Asr/2018 (A.Y.2018- 19) M/s New Punjab Educational Society vs. CIT(E) considering depreciation are between 25 to 45% of the gross receipt and the appellant society has net surplus @ 27, 42.18 and 34.21 during the said financial years and the accumulated surpluses have not evidenced to have been deployed into education. The Apex Court in Queen's Education Society vs. CIT [2015] 372 ITR 699 (SC) laid down the following principles to deal with accumulated surplus, which for the sake of ready reference and brevity, are reproduced herein below.
"11. Thus, the law common to section 10(23C)(iiiad) and
(vi) may be summed up as follows.
(1)Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit.
(2)The predominant object test must be applied--the purpose of education should not be submerged by a profit making motive.
(3)A distinction must be drawn between the making of a surplus | and an institution being carried on 'for profit'. No inference arises ' that merely because imparting education results in making profit, it becomes an activity for profit.
(4)If after meeting the expenditure, a surplus arises incidentally from the activity carried only the educational institution, it will not; cease, to be one existing solely for educational purposes.
(5)The ultimate test is whether on an overall view of the matter in the concerned assessment year the 6 ITA No.583/Asr/2018 (A.Y.2018- 19) M/s New Punjab Educational Society vs. CIT(E) object is to make profit as opposed to educating persons."
4.3 In the instant case, the assessee society in the financial year 2015-16 has made the addition to the school building, computers, furniture and water cooler by incurring/deploying the amounts of Rs. 2321088/-, 75,750, 57,721 and 43000/- respectively. Further in the financial year 2017-18 as on 31st March, 2018, the assessee society has incurred the expenses of Rs.15,45,000/- qua buses and Rs.1,12,228/- qua CCTV Cameras therefore, it cannot be said that the assessee has not redeployed surplus funds into the stated aims and objects of the society. Further even otherwise as it reflects from the Financial Statement for the Asst. Year:
2014-15 and 2016-17, the assessee had losses whereas for the F.Y.2015-16 there are net surplus of 13.30% with respect to gross receipts. As it is well settled by Apex Court in the case of Queens Education Society (supra) that a distinction must be drawn between the making of a surplus and an institution being carried on for profit. Further if after meeting the expenditure, a surplus arises incidentally from the activity carried by the educational institution, it will not ceased to be one existing solely for education purposes. Further the ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons. Hence, in view of the dictum of Queen's Education Society (supra) it can-not be construed that the assessee is involved in making the profit and thus opposed to the educating persons.7 ITA No.583/Asr/2018 (A.Y.2018- 19)
M/s New Punjab Educational Society vs. CIT(E) Further the inference also cannot be drawn that the assessee society incidentally accumulated large scale cash, therefore, the society is running school for non- charitable purposes and/or for commercial purposes. The appellant society is running a school in the name and style of ' New Punjab Senior Secondary Public School', Agwarh Lapon, Jagraon (Ludhiana) and having affiliation of Punjab School Education Board vide school code no.0021797 Serial No.1320 dated 08/05/2015 and the Ld. CIT(E) has not raised any doubt qua aims and objects of the society and there is no other base and reason for sustaining the order under challenge and for declining the registration therefore on the aforesaid analyzations and observations, we are inclined to grant the registration to the society and hence direct the CIT(E) to grant the registration to the society.
5. In the result, the appeal filed by the assesse society stands allowed.
Order pronounced in the open Court on 21.06.2019.
Sd/- Sd/-
(N.S.SAINI) (N.K.CHOUDHRY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated:21.06.2019
/PK/ Ps.
Copy of the order forwarded to:
(1) M/s. New Punjab Educational Sciety,
Agwar Lopon Jagraon, Ludhiana.
(2) The CIT(Exemptions), Chandigarh.
(3) The SR DR, I.T.A.T., Amritsar
True copy
By order