Income Tax Appellate Tribunal - Indore
M.P.Rajya Pathya Pustak Nigam, Bhopal vs Assessee on 23 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH,JM & SHRI R.C. SHARMA,AM
ITA Nos.375 to 394/Ind/2011
A.Ys. 1988-89 to 2006-07 and 2008-09
M.P.Rajya Pathya Pustak Nigam,
Pustak Bhawan, Behind Central
School, Arera Hills,
Bhopal
PAN- AAAAM0318C ... Appellant
Vs.
Dy. Commissioner of Income Tax
1(1), Bhopal ... Respondent
Department by : Shri Keshave Saxena, CIT(DR)
Assessee by : Shri Prakash Jain, CA
Date of Hearing : 23.03.2012
Date of Pronouncement : 25.04.2012
ORDER
PER R.C.SHARMA, A.M.
These appeals filed by the assessee arise out of order of CIT(A)-I, Bhopal, dated 28.11.2011 for the assessment years 1988 89 to 2006-07 and 2008-09
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2. The following common grounds have been taken by the assessee in ITA No. 375 to 385/Ind/2011 :-
"1) That impugned order passed by the Ld. Commissioner of Income Tax (Appeals) is bad in law as well as on the facts. It is based on incorrect interpretation of law and the facts have also been incorrectly construed.
2.1) That on the facts and in the circumstances of the case of the Ld. CIT(A) erred in not allowing the benefit of section 11 to 13 by stating the fact that the audit report in Form 10B was not file during the course of assessment proceedings before the A.O. and filing of the audit report is mandatory and not directory in nature.
2.2] That on the facts and in the circumstances of the case the Ld. CIT(A) erred in stating the fact that audit report in form 10B is dated 10.10.2010 and as such same is not available with the appellant at the time of filing of return. As a matter of fact the audit report is dated 2
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10.12.2010 and ready at the time of assessment proceedings.
2.3] That on the facts and in the circumstances of the case the Ld. CIT(A) and Ld. A.O. erred in not following the direction of Hon'ble I.T.A.T. where in it was directed to consider the assessee's claim for benefit of registration u/s 12AA at the time of completing the set-
aside/remand assessment proceedings. 3.1] That on the facts and the circumstances of the case of the Ld. A.O. and Ld.CIT(A) erred in denying the exemption u/s 10(22) without following the direction given by the Hon'ble High Court of Madhya Pradesh while remanding the case.
3.2] That on the facts and the circumstances of the case the Ld. CIT(A) erred in confirming the A.O.'s action of un-authorisedly attempted to find fault with the letter dated August 19, 1975 in the case of Tamil Nadu Text Book Society 3
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which have relied by the Hon'ble Supreme Court in the case of Assam Text Book Production and Publication Corporation Vs. CIT 319 ITR 317. 3.3] On the facts and in the circumstances of the case the Ld. CIT(A) erred in holding that the appellant is not an educational institution within the meaning of section 10(22) by unauthorisedly distinguishing the ratio of following decisions:-
(i) Secondary Board of Education Vs. ITO, 86 ITR 408 (Orissa).
(ii) CIT Vs. Rajasthan State Text Book Board, 244 ITR 667 (Raj.)
(iii) Assam State Text Book Production and Publication Corporation Ltd. Vs. CIT, 319 ITR 317 (Sc.)
(iv) Tamil Nadu Text Book Society to who CBDT had issued letter dated August 19,1975 F.No. 184/296 of1975, referred in the decision of Rajasthan State Book Board and Assam State Text Book Production and Publication Corporation Ltd.(Supra).
(v) ITO Vs.Delhi Bureau of Text Books (1980) 10 TTJ 481(I.T.A.T., Delhi).
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(vi) Bihar State Text Book Publishing Corporation Vs. CIT (2011) 241 CTR (Pat) 403.
As a matter of fact the activities of above appellant / respondents are identical to the assessee therefore above decisions are binding on the Ld. CIT(A) and Ld. A.O."
3. Whereas the following common grounds have been taken by the assessee in ITA No. 386 to 394/Ind/2011 :-
"1) That impugned order passed by the Ld. Commissioner of Income Tax (Appeals) is bad in law as well as on the facts. It is based on incorrect interpretation of law and the facts have also been incorrectly construed.
2.1) That on the facts and in the circumstances of the case of the Ld. CIT(A) erred in not allowing the benefit of section 11 to 13 by stating the fact that the audit report in Form 10B was not file during the course of assessment proceedings before the A.O. and filing of the audit 5
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report is mandatory and not directory in nature.
2.2] That on the facts and in the circumstances of the case the Ld. CIT(A) erred in stating the fact that audit report in form 10B is dated 10.10.2010 and as such same is not available with the appellant at the time of filing of return.
As a matter of fact the audit report is
dated 10.12.2010 and ready at the time
of assessment proceedings.
2.3] That on the facts and in the circumstances of the case the Ld. CIT(A) and Ld. A.O. erred in not following the direction of Hon'ble I.T.A.T. where in it was directed to consider the assessee's claim for benefit of registration u/s 12AA at the time of completing the set-
aside/remand assessment proceedings. 6
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3.1] That on the facts and the circumstances of the case of the Ld. A.O. and Ld.CIT(A) erred in denying the exemption u/s 10(23C)(iiiab)/ 10(23C) (iv) without following the direction given by the Hon'ble High Court of Madhya Pradesh while remanding the case.
3.2] That on the facts and the circumstances of the case the Ld. CIT(A) erred in confirming the A.O.'s action of unauthorisedly attempt to find fault with the letter dated August 19, 1975 in the case of Tamil Nadu Text Book Society which have relied by the Hon'ble Supreme Court in the case of Assam Text Book Production and Publication Corporation Vs. CIT 319 ITR 317.
3.3] On the facts and in the circumstances of the case the Ld. CIT(A) erred in holding 7
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that the appellant is not an educational institution within the meaning of section 10(23C)(iiiab/ 10(23C)(iv) by unauthorisedly distinguishing the ratio of following decisions:- (i) Secondary Board of Education Vs. ITO, 86 ITR 408 (Orissa). (ii) CIT Vs. Rajasthan State Text Book Board, 244 ITR 667 (Raj.)
(iii) Assam State Text Book Production and Publication Corporation Ltd. Vs. CIT, 319 ITR 317 (SC.)
(iv) Tamil Nadu Text Book Society to who CBDT had issued letter dated August 19, 1975 F.no. 184/296 of 1975, referred in the decision of Rajasthan State Book Board and Assam State Text Book Production and Publication Corporation Limited (Supra).
(v) ITO Vs.Delhi Bureau of Text Books
(1980) 10 TTJ 481(I.T.A.T., Delhi).
(vi) Bihar State Text Book Publishing
Corporation Vs. CIT (2011) 241 CTR
(Pat) 403.
As a matter of fact the activities of above appellant / respondents are identical to the 8
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assessee therefore above decisions are binding on the Ld. CIT(A) and Ld. A.O."
3.4] That on the fact in the circumstances of the case of Ld.CIT(A) erred in the holding that the appellant society is not substantially financed by the State Government without appreciating the fact that the assessee society is fully owned and controlled by the State Government which is evident from the Regulation of the Society and is as much as that its president is Minister of Education and its Managing Director is appointed by the Government who is generally senior IAS. Moreover 90% of the books are taken by the State Government under the scheme of "Sarva Siksha Abhiyan" for free distribution. 3.5] That the Ld.CIT(A) failed to appreciate the fact that no part of the surplus is distributed to anyone and used for the educational purpose as per the directions of State Government without any exception."
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4. Rival contentions have been heard and records perused.
The Brief facts of this case are that assessee is a society originally registered in the name of M. P. State Corporation of Text Book Production and Educational Research from 07.08.1968. Since 1st October, 1974, its name was changed to Madhya Pradesh Pathya Pustak Nigam. As per the memorandum of association, objects of the assessee society are to aid and promote advancement of education in general and of primary and secondary education in particular, to produce school text books, books for teachers, work books for pupils, other educational registers useful in performing teaching, learning and evaluation in the educational institutions, to print, publish, stock, distribute to sell or enter into any arrangement for printing, publishing, stocking, distribution and sale of text books approved, sanctioned or assigned by the Govt. or other appropriate authority.
5. Further, the assessee society is controlled by the Govt. of Madhya Pradesh and Board of Governors consist of Minister of Education, Madhya Pradesh, Minister of State/Deputy Minister of Education, Madhya Pradesh, Secretary of 10
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Education Department, Secretary to Finance Department, Director of Public Instructions, Madhya Pradesh, Chairman of Board of Secondary Education, Madhya Pradesh, Director of S.C.E.R.T., Bhopal, Director of State Institute of Science Education, Controller of Printing and Stationary ,Madhya Pradesh, two experts in the field of School Education, who are interested in school education, nominated by the Government from amongst the members of the corporation, Managing Director who is appointed by the State Government out of Senior IAS Officer.
6. Original assessments under appeal were completed by the Assessing Officer and the claim of deduction u/s 10(22)/10(23C) was rejected by the Assessing Officer. However, in the subsequent appeals before the Hon'ble I.T.A.T. such claim was allowed to the appellant society. In further departmental appeal before the Hon'ble High Court of Madhya Pradesh, Jabalpur, the issue of claim of deduction u/s 10(22)/10(23C) was remanded back to the file of the Assessing Officer vide order dated 2.4.2009.
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7. The Assessee society during the original assessment proceedings did not claim any exemption u/s 11 of IT Act. In fact, no such claim was made in the return of income. However, later on the appellant society applied for grant of registration u/s 12AA of I.T Act. Such application was initially rejected by ld. CIT, Bhopal however, Hon'ble IT AT directed to grant the registration u/s 12AA and accordingly, such registration was granted retrospectively w.e.f .07.08.1968. On being granted such registration, the assessee society also claimed benefit of section 11 to 13 during the appellate proceedings and before Hon'ble ITAT.
8. The assessee society has also filed an application for grant of exemption u/s 10(23C)(vi) of IT Act for assessment years 2000-01 to 2007-08 before ld.CCIT, Bhopal. However, the appellant society was not granted exemption u/s 10(23C)(vi) of IT Act and its application was rejected vide order dated 10.03.2008.
9. The Assessing Officer, in the set-aside proceedings observed that on an examination of the Memorandum of Association of the society filed by the assessee, it is found that 12
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the society has the following objects:-
(1) to aid and promote advancement of education in general and of primary and secondary education in particular;
(2) to produce School text books, hand-books for teachers work books of pupils and other educational ,literature useful for furtherance of teaching,learning and evaluation in educational institutions;
(3) to encourage and procure expert authors having knowledge and experience of modem methods of education to write in different languages text books on various subjects suited to the requirement of the curricula and syllabi prescribed by Government or other appropriate authority in that behalf for various courses of education and so apply for and obtain the approval or sanction of Government or other appropriate authority thereto; (4) to print, publish, stock distribute and sell or enter into any 13
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arrangement for printing, publishing, stocking, distribution and sale of text books approved, sanctioned or assigned by Government or other appropriate authority and any other publications which the corporation may decide to publish with a view to making the same available at a fair and reasonable price ;
(5) to undertake research for the improvement in curricula and syllabi for primary and secondary education or any other branch of education; (6) to undertake research in text book production, evaluation techniques, and ancillary aids and educational literature concerning the various methods of education and aids for education and otherwise directed toward securing improvement in the general educational standard; (7) to regulate and fix prices of the publications of the society consistent with its objects;
(8) to frame, develop and recommend to the 14
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government and other appropriate authorities curricula and syllabi for the purpose of improvement in the general educational standard; (9) to advise Government and other appropriate authorities in all matters concerning syllabi curricula evaluation examination reform and production of text books and ancillary aids and educational literature;
(lO) to assess utility of text books, teachers hand books and other educational aids and other educational literature whether produced by the corporation or not;
(l l) to undertake printing sale and distribution of books and literature useful or necessary for advancement of education in all its branches;
(12) to establish and maintain libraries to facilitate research in general and in curricula, syllabi, evaluation and text book production in particular; (13) to invest and deal with the funds of the society; (14) to acquire by gift, purchase, exchange, lease, hire or 15
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otherwise howsoever any lands, building, easements rights III common and any property moveable or immovable including a printing press or any estate or interest for the furtherance of all or any of the objects of the Society ;
(15) to construct, maintain, repair, extend, alter, improve or develop any buildings or works necessary or convenient for the purpose or the society; (16) to borrow and raise money on the security or a mortgage, charge, hypothecation or pledge over all or any of the immoveable or moveable properties belonging to the society or in any other manner whatsoever;
(16) to borrow and raise money on the security or a mortgage, charge, hypothecation or pledge over all or any of the immovable or movable properties belonging to the society or in any other manner whatsoever;
(17) to sell, mortgage, charge, lease exchange and transfer of dispose of all or, any property moveable 16
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or immoveable of the society;
(18) to payout of the funds belonging to the society or out of any particular part of such funds all expenses of or incidental to the formation of the society including all rents rates, taxes, a outgoings and the salaries of the employees;
(19) to draw make, accept, endorse and negotiate charges, hundies, promissory notes or other negotiable instruments;
(20) for the purposes aforesaid, to sign execute and deliver such assurances and deeds as may be necessary :
(21) to undertake on agency basis or otherwise the following functions for or on behalf of the Govt. of Madhya Pradesh or the Government of India:-
(i) Stocking, utilization and accounting for the gift paper received by the Government of India or the Govt. of Madhya Pradesh.
(ii) Implementing any scheme for the free supply or 17
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books;
(iii) Assisting and advising the Government of Madhya Pradesh Board of Secondary Education, the Director of Public Instruction or other appropriate authority in sanctioning school text books for standards I to XII submitted by private authors, or publishers;
(iv) and generally to do and execute all such lawful acts, deeds, matters and things as are conducive or incidental to on for the attainment of the above objects or any of them."
Thereafter, Assessing Officer commented that the object no. 1 above namely "to aid and promote advancement of education in general and of primary and secondary education in particular" though speaks of aiding & promoting advancement of education, it is very general in nature. It does not specifically speak of imparting of education through opening & running of schools /colleges /Institutions.
The Assessing Officer further stated that the objects of the assessee-society have not been classified into main & ancillary 18
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objects but from a plain reading it appears that the objects at S.Nos. 1 to 2 & 21 above are the main objects and the objects at S.Nos. (13) to (20) above are ancillary to or incidental to attainment of the main Objects. The remaining objects [ (2) to(12) & 21] of the society though refer to education related activities, they cannot be said to be pertaining to education in the narrow sense of giving systematic Instruction In a formal environment or to the process of training and developing the knowledge, skill, mind and character of students by normal schooling. On the other hand some of these objects pertain to undertaking of commercial activities of printing & sale of text books. The object nos. 1 to 12 & 21 above are distributive i.e., they are independent of each other. There is nothing in the constitution of the society to prevent the governing body from applying entire income to the non educational objects & activities.
10. The Assessing Officer further observed that on this issue, the assessee in its written reply dated 6.12.2010 has stated that :-
"The assessee institution exists solely for the purpose of education. As the Hon'ble ITAT, Indore in the AY 1995-96 19
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gave the following finding in the assessee's case: "The test for granting exemption u/s 10(22) of the Act, in our view is as to whether the assessee is playing a role in imparting education, in the absence of which educational institution of the kind cannot be run or in other words as to whether by prescribing syllabus and supplying the study material based on it, extending financial aid, the assessee is making it possible to run those educational institutions to impart affordable education to the students. Considering the Totality of the facts and circumstances of the case, the answer of these questions comes in positive. The assessee is therefore, an educational institution solely exists for educational purposes and entitled to the claimed exemptions which the department in earlier years had been rightly granting under the similar set of facts & circumstances. There may be several private publication houses which may also be publishing study material etc. helpful in study to the students in the school but when it is done with an aim and object to earn 20
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profit, these cannot be termed as existing solely for education purpose and not for purpose of profit. Earning of a limited profit for smooth running of an institution or society is not prohibited, what is to be seen is the approach of the society from its activities and conduct as to whether it is commercial or solely for educational purpose. The issue involved in ground 1 to 4 is thus decided in favour of the assessee with the direction to the AO to allow the claimed exemption to the assessee. "
Therefore the assessee is an educational institution existing solely for educational purpose and not for profit. The Similar institutions engaged in printing and publishing of prescribed text books approved by respective State Govt. are also in existence in other states like Rajasthan Orissa Delhi etc. The Hon'ble High Court of Rajasthan in C1T vs. Rajasthan State Text Book Board (f2000) 113 Taxman 204), and Hon'ble High Court of Orissa ill 21
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Secondary Education Board vs. ITO [1972] 86 ITR 408 ) and the Delhi Bench of the Tribunal in ITO vs Delhi Bureau of Text Books ([1980) 10 TTJ 481)have upheld the institutions as other educational institution eligible for exemption u/s 10(22) of the Act under similar facts and circumstances as of the present case. Also C.B.D.T. has granted exemption to the Tamilnadu Text-books Society which also undertakes a similar activity of printing and publishing of text ·books as per the letter dated 19-08- 1975 and file No. 184/26/75. In that case the C.B.D.T. held Tamilnadu Textbooks Society was an educational institution existing solely for the purpose of education within the meaning of section 10(22) of the Act. In the Secondary Board of Education vs ITO (1972) 86ITR 408, Orissa the petition Board constituted under the Orissa Education Act, 1953, derived income from compilation, publication, printing and sale of textbooks and the entire surplus was directed towards the development and expansion of educational purpose only and was wanted exemption u/s 10(22) of the Act. 22
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Also the Judgment of Hon'ble Gauhati High Court in the case of CIT vs Assam State Book Production & publication Corporation Ltd., 288 ITR 352 (Gau), has been set aside and remanded back to the file of AD by the Hon'ble Supreme Court of India in the case of Assam State Book Production & publication Corporation Ltd. Vs CIT, [2009J 319 ITR 317 (SC). The Hon'ble Supreme Court of India has held as under :-
"Held, reversing the decision of the High Court, that the assessee was entitled to exemption U/S 10(22). The assessee was a Government company and ,it was controlled by the State of Assam, the Central Board of Direct Taxes had granted similar exemption by letter dated August 19, 1975 to the Tamil Nadu Text Book Society which performed activities to those of the assessee and the Central Government had by letter dated July 9, 1973', stated that all state controlled education committee / boards have been constituted to implement the educational policy of the state and 23
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consequently they should be treated as educational institution."
Since MP, Text Book Corporation is also working on the same lines as cited in the above case, it is an educational institution existing solely for the purpose of education. "
10. However, the Assessing Officer did not accept the assessee's contention and held that the main activity of the assessee society is merely printing and sale of books on commercial basis, therefore, assessee is not eligible for claim of exemption u/s 10(22)/10(23C) of Income-tax Act, 1961.
11. In all the years under consideration starting from assessment year 1988-89 to 2006-07 the issues involved are common. Consolidated order has been passed by the Assessing Officer dated 30th December, 2010, wherein assessee's claim for exemption u/s 10(22) was declined on the plea that the assessee does not depend upon on Government grants. The Assessing Officer observed that as per annual reports for financial year 2002-03 to, 2005-06, initially the society started its operation by taking a loan of Rs. 10 lakhs from the State Government and Rs. 4.75 lakhs from the M.P. 24
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Board of Secondary Education. The Assessing Officer further observed that work of society was carried out from its own financial sources and it did not get any financial aid from the Central or State Government. Therefore, the assessee society is not wholly or substantially financed by the Government and does not qualify for exemption u/s 10(23C)(iiiab ).
12. The assessee's eligibility for claim of deduction u/s 10(23C) (vi) for assessment year 1999-2000 and subsequent year was declined on the plea that application filed by the assessee in form no. 56D for grant of approval u/s 10(23C)(vi) for assessment year 2000-01 to 2007-08 stands rejected by the CCIT, Bhopal, vide order dated 10.3.2008. Thus, the assessee society was held to be not eligible for any exemption u/s 10(23C)(vi) of the Income-tax Act, 1961.
13. The assessee's claim for exemption u/s 11 & 12 was also declined on the plea that in none of the return of income filed u/s 139 for the assessment year 1988-89 to 2006-07, the assessee had made such claim. By relying on the verdict of the Hon'ble Supreme Court in the case of Goetze (India) Limited, 204 ITR 182, the Assessing Officer observed that no claim for 25
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deduction other than by way of filing a revised return can be accepted by the Assessing Officer. The Assessing Officer also observed that as per provisions of Section 12-A(1)(b),read with Rule 17-B, the assessee was required to get its accounts audited and submit the report of audit in form no.10-B alongwith return of income, which has not been done in the instant case.
14. By the impugned order, the ld. CIT(A) confirmed the action of the Assessing Officer by observing that not only claim u/s 11 was not made in the return but also the essential condition of statutory audit in form no.10-B was not conducted before filing of return. The ld. CIT(A) also observed that the assessee's claim for deduction u/s 10(22)/10(23C) cannot be accepted in view of the fact that the assessee was neither imparting any formal education nor doing any original work of printing of text books.
15. Contention of ld. Authorized Representative was that objects of the assessee society are to aid and promote advancement of education in general and primary or secondary education, and to produce school text books and 26
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books for teachers and work books for Bhopal and Other Educational Institutions, which is useful in performing teaching, learning and evaluation in the educational institution. To print, to publish, to distribute and sell or enter into any arrangement for printing, publishing, stocking, distribution and sell of text books approved, sanctioned or assigned by the M. P. Government or other appropriate authorities.
16. With regard to assessee's eligibility u/s 11, the contention of ld. Authorized Representative was as under :-
"The said ground relates to the denial of exemption u/s 11 of the I.T.Act even when the assessee is holding registration u/s 12AA.
1.1(i) The Ld.A.O. denied the benefit of section 11 to 13 on the two grounds which in brief are as under:-
(a) The assessee has neither claimed benefit of section
11 to 13 in the return filed u/s 139 nor by filing a revised return u/s 139(5) of the I.T.Act. 27
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(b) As per the provision of section 12A(1)(b) read with rule 17B of the I.T.Rules the assessee has not filed audit report in form 10B along with the Return of Income for the assessment years 1988-89 to 2006-07.
1.1(ii) The Ld.CIT (A) confirmed the denial of exemption by holding as under:-
Page 10 of the CIT(A) order:-
"It may be noticed that section 12A(I)(b) of IT Act stipulated specific condition that provisions of section 11 & 12 shall not apply unless in a case where total income of the trust or institution as computed under this act exceeds the maximum amount which is not chargeable to tax and the trust or the institution gets its accounts audited as defined in explanation below sub-section (2) of the section 88 and such prescribed audit report is also filed with the return of income .Further , as per Rule 17B of IT Rules the prescribed 28
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audit report is to be furnished in Form No. 17B. Two essential requirement for claim of benefit u/s 11 & 12 of IT Act are, prescribed audit of books of account and furnishing of prescribed audit report in form no. 10B alongwith return , It has been laid down in various decisions of the Hon'ble Courts that such audit report can be filed even during the assessment proceedings/ appellate proceedings. But very crucial issue which is also laid down is that such audit in prescribed form should be completed within the stipulated period i.e. before filing of return. However, in the case of appellant it is noticed that the prescribed audit report in Form No.10B as per Rule 17B is dated 10.10.2010 and prime facie it shows that when the original returns for the relevant assessment years were filed, the prescribed audit reports 29
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in Form No.10B were not available with the appellant.
Therefore , it is a case, where, even prescribed audit in Form No.10B was no conducted/completed before filing of return. In these circumstances , in the appellant's case, not only the claim u/s 11 was not made in the returns but also that essential condition of statutory audit in Form No.10B was not conducted before filing of return. The audit of the accounts as per the provision laid down in the Act and obtaining the prescribed certificate is the requirement which furnishes substantial foundation for claiming an allowance and such requirement is of mandatory nature whereas furnishing of audit report with the return of income is of directory nature. This position of law has been clearly laid down in various judgements including in the case of Zenith Processing Mills Vs. CIT 30
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reported in 219 ITR 721 (Guj.) Admittedly, the prescribed audit report in Form NO.10B was not available when the original returns were filed in as much as all such audit reports are dated 10.10.2010. It indicate that the basic and mandatory condition of conducting of audit and obtaining the prescribed report before filing of the return was not carried out by the appellant. In these circumstances, when an essential requirement and very foundation for claim of benefit was lacking in the appellant case, the claim of the appellant for exemption u/s 11 cannot be accepted.
The ground of appeal is accordingly, dismissed. 1.2 From the above it is clear that the Ld.CIT(A) dismissed the appeal merely for the reason that the audit report in Form No.10B are not available at the time of filing of return of income for respective assessment years as same is dated 10.10.2010 by referring to the judgement of Hon'ble Gujarat High 31
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Court in the case of Zenith Processing Mills Vs. CIT reported in 219 ITR 721 (Guj.). In this regard we have to submit as under:-
(i) That in the case of Zenith Processing Mills there is nothing that the audit report in Form No.10B should be obtained by the assessee prior to the filing of return of income.
(ii) The Ld.CIT (A) failed to appreciate the fact that the reason for not obtaining and enclosing audit report along with the return of income was that the registration u/s 12AA(1) (b) (i) of the IT Act was granted by the Ld.CIT (A) in compliance to the direction given by the Hon'ble ITAT vide ITA No. 300/Ind/2009 order dated 23/09/2009.with retrospective effect from 07.08.1968 vide order dated 23.10.2009 and after receipt of the order the appellant got audited its Books of Accounts for 20 years i.e. from the assessment years 1988-89 to 2008-09.
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(iii) It is not easy for a society owned by the State Government to get its accounts audited for last 20 years particularly when the list of the auditors are given by the C & AG. Moreover, in the Government Organization there are various formalities for appointment of Auditor and fix their remuneration, it require approval and sanction of various authorities.
(iv) The above reasons are reasonable cause for delay in obtaining the audit report in Form No.10B. The said practical difficulty in obtaining delay audit report is also realized by the CBDT and therefore vide instruction number 1/1148 [F .No.2687/482/77-IT (Part)] dated 09.02.1978 issued following directions:-
"The Board have considered whether the requirement under s.12A(b) of filing audit report along with the return of income is mandatory so as to disentitle the trust from claiming exemption under ss. 11 and 12case 33
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of omission to furnish such report in the prescribed form along with the return. Normally, it should be possible for a charitable or religious trust or institution to file the auditor's report along with the return of total income, where such trust or institution claims exemption under ss, 11 and 12, However , in cases where for reasons beyond the control of the assessee some delay has occurred in filing the said report the exemption as available to such trust under ss. 11 and 12 may not be denied merely on account of delay in furnishing the auditor's report and the ITO should record reasons for accepting a belated audit report.
(iv) There are plethora's of case laws including jurisdictional High Court where in it was held that filing of audit report along with the return of income is not mandatory some of which are as under:- 34
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(a) In the case of CIT Vs. Medicaps Ltd (2010) 323 ITR 554 (M.P.) the Hon'ble Jurisdictional High Court held as under:-
Page 557 Para 10 " On the issue of filing the audit report at the appellate stage, the Tribunal by placing reliance upon the various judgments, held that filing the audit report is procedural and directory in nature and the same can be filed at the appellate stage. It is also worth noting that before the Tribunal, the complete details were disclosed in respect of the production in the second unit. Asregards the claim under section 80-IA(2) the statement have been found to be supported by the date and figures and the Tribunal has found that the proper books of account were 35
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maintained and were audited and the audit report in prescribed forms were filed. Ld. Counsel appearing for the appellant could not point out any error or infirmity in the aforesaid facts recorded by the Tribunal and the conclusions drawn by it. In view of the aforesaid position on facts, the Tribunal has not committed any error of law in holding that the respondent was entitled to the benefit of deduction under section 80-IA(2) of the Income-
Tax Act.
(b) CIT Vs. Hardeodas Agarwalla Trust (1992) 198 ITR 511 (Cal) "In the instant case it was held that balance sheet and income and expenditure statement of a trust or institution would necessarily contain 36
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the particulars of the application of income and non-user of income or property and the certificate of the auditor only affirms the same. The Assessing Officer can rely on the certificate for allowing the benefit of exemption. This is a procedural matter for the purpose of enabling the Assessing Officer to complete the assessment on the basis of the certificate of the auditor without even asking the assessee to furnish supporting documents in support of the claims and contentions made in the return. It was further observed that, the requirement under section 12A (b) of filing audit report alongwith the return of income, being a procedural nature, is not mandatory so as to disentitle the trust from claiming 37
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exemption under section 11 and section 12 in case of omission to furnish such report in the prescribed form alongwith the return. However, if an assessee fails to obtain the audit report in the prescribed form before the assessment is competed , he may not ordinarily be entitled to get the benefit of exemption. But where the assessee is not given an opportunity to file the audit report in the prescribed form which is available with the assessee before the assessment is completed, then before the appellate authority such audit report can be filed validly so as to comply with the requirement of section 12A. In such a case, the appeal being a continuation of the original proceedings, the appellate authority has the power to accept the audit 38
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report and direct the Assessing Officer to redo the assessment.
(c) Similar views are expressed by the jurisdictional High Court as well as other High Court in the case of CIT Vs. Devradhan Madhavlal Genda Trust (1998) 230 ITR 714 (M.P.),CIT Vs. Andhra Pradesh State Road Corporation (2006) 285 ITR 147 (A.P.) , CIT Vs. Raibahadur Bissesswarlal Motilal Malwasie Trust (1992) 195 ITR 825 (Cal), CIT Vs. Shahzadanand Charity Trust (1998) 145 CTR 492 (P&H) ,CIT Vs. Dr.L.M.Singhvi (2007) 207 CTR (Raj) 452: (2007) 289 ITR 425 (Raj) and applying the ratio of decision in CIT Vs. Gujrat Oil and Allied Industries (1993) 109 CTR (Guj) 272: (1993) 201 ITR 325 (Guj) and CIT Vs. Berger Paints ( India) Ltd (2002) 174 CTR (Cal) 269: (2002) 254 ITR 503 (Cal) , the Allahabad High Court in CIT Vs. Lucknow Public Educational Society (2009) 318 ITR 223 (All) 39
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held filing of audit report in Form No.10B is directory and not mandatory.
(v) It is undisputed fact that the appellant society has filed audited accounts for all the years along with the return of income and so also the Tax Audit Report wherever applicable. The only deficiency was that appellant has not filed audit report in Form No.10B along with the return of income. The reason for non filing of audit report in Form 10B was that it was not known to the assessee society that it is entitled for benefit of section 11 to 13 by getting registration under section 12AA. First time in the year 2007-08 the counsel of the assessee who was dealing with its appeal before the ITAT advice the society to obtained registration under section 12AA.
Accordingly the society applied for registration under section 12AA and the Ld.Commissioner of Income Tax granted registration on 23.10.2009 since the inception of the society i.e. w.e.f. 07.08.1968 as per 40
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the direction of Hon'ble ITAT, therefore the assessee society could not filed audit report in prescribed Form 10B along with the return of income. This is a reasonable cause for non filing of audit report along with the return of income.
(vi) It is also undisputed that during the course of remand assessment proceeding no opportunity to file audit report in Form 10B was allowed to the appellant society which is clear from the remand assessment order itself. When a particular provision of the IT Act is directory in that case the Ld.A.O. should allow an opportunity to cure the defect. If the Ld.A.O. could have bring this fact in the notice of the assessee during the course of remand assessment proceedings same could have filed before him as same was ready to file.
(vii) It is further submitted that appellant society during the course of remand assessment proceedings requested the Ld.A.O.that audit report in Form NO. 41
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10B is ready and be accepted, but the Ld.A.O. was heisted to accept the same due the reason that same were not filed along with the return of income of respective years. However the audit report in Form 10B along with application under Rule 46A being additional evidence is filed before the Ld.CIT (A) which was accepted by the Ld. CIT (A) after giving due opportunity to the Ld.A.O. refer page 4 para 4.3 of the CIT (A) 's order.
(viii) It is to be noted that the requirement of the Assessing Officer for filing of report in Form 10B for the assessment years 2007-08 and onwards is unwarranted in view of Board Circular No.3 of 2007 ,dated 25th May ,2007 wherein it is clarified that no enclosure should be enclosed alongwith the return of income.
In view of above facts, case laws and Board Circulars referred herein above it is clear that the 42
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appellant society is entitle for exemption u/s 11 & 12 of the IT Act, you are therefore requested to allow the same."
17. On the other hand, contentions of the ld. CIT DR was that the assessee was only producing school text books fixed for teachers and was not carrying on any educational institution. Under these circumstances, Hon'ble M.P. High Court has not approved assessee's claim for deduction u/s 10(22)/10(23C) and the order of Tribunal was set-aside by remanding the case to the Assessing Officer. He further submitted that the assessee has never claimed any exemption u/s 11, 12 & 13 and this claim was made for the first time in the second round, only after Tribunal has granted registration u/s 12AA in the year 2009 with retrospective effect from the date of establishment of the assessee i.e. 1968. As per the ld.
CIT DR u/s 11, 12 & 13, it is not only mandatory to get the accounts audited but the report of such audit in the prescribed form 10-B duly signed and verified by C. A. should be filed with the return. Since the assessee got registration 43
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u/s 12AA only in the year 2009, therefore, all the years under consideration i.e. assessment year 1988-89 to 2006-07 and 2007-08, prescribed audit report in form 10-B was obtained by the assessee only on 10.10.2010, which is violation of statutory provisions u/s 12A(1)(b) which required getting aforesaid audit report from the auditor before filing of return.
18. Further contention of the ld. CIT DR was that the assessee is not approved by prescribed authority and, therefore, exemption u/s 10(23C)(vi) is not available to the assessee from assessment year 1999-2000 always. Further since the assessee is not fully or substantially financed by the Government, therefore, even benefit u/s 10(23C)(iiiab) is not available to the assessee. Reliance was placed on the decision of Hon'ble Supreme Court in the case of Sole Trustee Loka Shikshan Trust, 101 ITR 234, wherein education has been defined as process of training and developing the knowledge, skill, mind and the character of the students by normal schooling. He further submitted that in the later decision of the Hon'ble Supreme Court in the case of Assam State Text Book Production and Publicity Corporation Limited, 319 ITR 44
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317, the printing and publication of text books for students by Government Controlling Company was held as educational institution, neither meaning of word "EDUCATION" U/S 2(15) of the Act was examined nor decision of Loka Shikshan Trust, 101 ITR 234 was considered.
19. In view of the above submissions, he contended that since the assessee was not imparting education to the students through normal schooling, therefore, as per decision of Lok Shikshan Trust (supra), exemption is not available to the assessee. He further contended that there was huge profits to the assessee every year, therefore, such educational institution cannot be said to be not for the purpose of profit.
20. He further submitted that the case cited by the assessee of Bihar State Text Books publishing 56 ITR 178, goes against the assessee, because in that case Government extended cash incentive to the assessee for printing and selling of text books at low rate to reach the children of deprived section of the Society to carry out the directives principles of Chapter IV of the Constitution, but in the present case, the assessee did not get any government subsidy nor it has supplied text books to 45
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the children of deprived section at cheaper rate. Hence, case laws apply against the assessee, who failed to fulfil conditions laid down u/s 10(23C)(iiiab) of the Income-tax Act, 1961.
21. We have gone through the orders of the authorities below as well as order of the Co-ordinate Bench as well as decision of the Jurisdictional High Court as referred above. We have also deliberated upon the judicial pronouncements referred by respective A.R. and D.R. during the course of hearing before us as well as decisions referred by lower authorities in their respective orders, in the context of factual matrix of the case.
From the record, we found that the assessee's claim for exemption u/s 10(22)/10(23C), was declined by lower authorities on the plea that the assessee society is earning profit year to year and that printing and publishing of prescribed text book and providing to the students at a cheaper rate is not an educational activity.
22. First we deal with the observation of the lower authorities to the effect that printing and publishing of prescribed text book and providing the same to the students is not educational activity. In this regard, there is a latest decision of 46
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the Hon'ble Supreme Court in the case of Assam State Text Book Production and Publication Corporation, 319 ITR 317 dated 20th October, 2009, which is subsequent to the date of decision of the Jurisdictional High Court in assessee's case, which was dated 21.4.2009. Since the decision of the Jurisdictional High Court in assessee's own case, was prior to decision of the Hon'ble Supreme Court in the case of Assam State Text Book (supra) in the fitness of things, the lower authorities while again deciding the issue in remand proceedings should have taken into account the verdict laid down by the Hon'ble Supreme Court in the latter decision in the case of Assam State Text Book Production and Publication Corporation (supra). Hon'ble Supreme Court, in this case, was deciding the case of Society which was engaged in similar activity to that of the assessee i.e. printing and publishing of school text books. It was also engaged in printing and publishing of text book for school students confirming to the norms prescribed by the Education Department of State. The main issue before the Hon'ble Supreme Court was whether the assessee Corporation could be termed as Educational 47
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Institution in terms of Section 10(22) of the Income-tax Act, 1961. The Assessing Officer held that since the assessee had income exclusively from publication and selling of text books to the students, exemption u/s 10(22) was not admissible and the Assessing Officer held that the assessee did not exist solely for educational purposes. The Assessing Officer also stated that in view of the clause 21 of the Memorandum of Association, which provides for distribution of dividends, hence, its income was not exempt u/s 10(22) of the Act. This decision of the Assessing Officer was upheld by the ld.CIT(A). In a further appeal, by the assessee, it was held by the Tribunal that the Corporation was an educational institution and consequently entitled to the benefit of exemption u/s 10(22) of the Act. However, in an appeal filed by the Department against the order of Tribunal the Hon'ble High Court held that the assessee did not exist solely for educational purposes and that its income was only from publishing and selling of text books, which constituted a profit earning activity, therefore, the assessee was not entitled for exemption u/s 10(22) of the Act. In further appeal filed by the 48
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assessee against the order of Hon'ble High Court, the Hon'ble Supreme Court set aside the order of High Court and observed that the High Court has not taken into account the prior history of the case, the aim of the said Corporation to implement the state's policy on education. Hon'ble Supreme Court observed that in the year 1975, in a similar situation, the Central Board of Direct Taxes ( C.B.D.T.) had granted exemption u/s 10(22) of the Act vide letter dated 19th August, 1975, to the Tamil Nadu Text Book Society, which performed activities similar to those of the assessee. Hon'ble Supreme Court further observed that Hon'ble Rajasthan High Court in the case of CIT vs. Rajasthan State Text Book Board, 244 ITR 667, has referred the letter dated 19th August, 1975, while allowing assessee's claim for exemption u/s 10(22). The Hon'ble Supreme Court observed that before the Rajasthan High Court similar question arose as to whether Rajasthan State Text Book Board was entitled to exemption u/s 10(22) of the Income-tax Act, 1961. In this case also before the Rajasthan High Court, the argument on behalf of the Revenue was that the assessee was making profit on account of 49
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publishing and sale of text books and, consequently , it was not entitled to the benefit of exemption u/s 10(22) of the Act. However, the High Court noticed the letter issued by the CBDT on 19th August, 1975, in the case of Tamil Nadu Text Book Society, which, in similar circumstances, had granted exemption to the Tamil Nadu Text Book Society as an educational institution within the meaning of Section 10(22) of the Act. The judgment of the High Court further recites that under similar situation, the CBDT had also extended the benefit of exemption u/s 10(22) of the Act to the Orissa Secondary Board Education reported at 86 ITR 408. After taking into account these circulars/letters issued by the CBDT, Rajasthan High Court came to the conclusion that the assessee in that case, namely, Rajasthan State Text Book Board, was entitled to claim the benefit of exemption u/s 10(22) of the Act. The Court observed that it is not disputed before us that the aims and objects of the Tamil Nadu Text Books Society and those of the respondent-assessee are almost identical. It is also not shown to us that the surplus amount, if any, of the respondent-assessee, is used for any 50
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other purpose or distributed to other members. The CIT(A) as well as the Tribunal have noticed that even if some amount remains surplus, the same was utilized only for the purposes of education.
23. By considering the above judgments and CBDT letter, the Hon'ble Supreme Court set-aside the order of the High Court and matter was remanded to the Assessing Officer to consider it de novo in the light of the judgment of Rajasthan High Court and Orissa High Court, particularly, with reference to the letter of CBDT dated 19th August, 1975, referred to in the judgment of Rajasthan High Court in the case of Rajasthan State Text Book Board reported at 244 ITR 667, as also the letter of Central Government dated July 9, 1973. However, in the assessee's case, after verification of audited accounts, we found that in none of the period of seven years i.e. 2000-01 to 2007-08, surplus of assessee exceeded 15 % of the gross receipts. As per the object clause an activity actually undertaken by the assessee, we found that the assessee society is printing, publishing and providing text books to the students of clause I to XII as prescribed by the Government of 51
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Madhya Pradesh at cheaper rate. The price of the text book is fixed at 70:30 formula that is to say out of selling price of text book 70% is the cost of paper and printing and 15%. Commission of the book seller/vendor and balance of 15 % is retained by the assessee on account of establishment expenses. After meeting out establishment expenses, if the surplus arises, the same is incidental and which is also utilized as grant/aid to the Government school for the construction of building, repair and renovation etc. and also for giving scholarship to the students of weaker sections and merit holder as per the directions of the Government of M.P. through District Collector, which is clear from the audited accounts of the society for the financial year 1987-88 to 2007- 08, as placed in the record.
24. After careful analysis of the gross receipts and expenditure as per the audited accounts, we found that year- wise excess of income over expenditure and percentage thereof, works out to be as under :-
S.No. F.Y. Gross receipts Excess of Percentage Income over of Income expenditure over 52
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receipt
01. 2007-08 1266746577 144196585 11.38%
02. 2005-06 738791535 545133818 7.38 %
03. 2004-05 722303396 66977658 9.27%
04. 2003-04 583113633 49472558 8.48 %
05. 2002-03 487091387 37037975 7.60 %
06. 2001-02 496300946 12043170 2.43 %
07. 2000-01 377317263 30556884 8.10 %
25. The close scrutiny of the audited accounts also reveals that no part of the surplus generated by the assessee was parted by it for the purpose other than aid to Government schools for construction of building, repairing of building, furniture, scholarships to the students etc. It is also clear from the audited accounts of the Society that it has not distributed any profit to anybody in any of the assessment years under consideration. Our this observation is further fortified by the fact that all the shares of the society is with the Government of M.P. and Board of Governors of the Society, his ministers and Secretaries of various Departments of M.P. Government and there is no provision for distribution of profit, in the registration of the society itself. Furthermore, as per the judicial pronouncements in the case of Haryana State Counselling Society, 223 CTR 402, Maa Saraswati Education 53
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Trust, 234 CTGR 400 and Vanita Vishram Trust, 327 ITR 121, merely because an educational institution accumulates income, it does not go out of the purview of Section 10(22)/10(23C)(vi). Furthermore, there is nothing in the Income Tax Act to support the proposition that educational institution cannot generate any surplus. Generating surplus, which is incidental to the carrying on activity of education and not with the motive to earn profit, will not disqualify an institution from the benefit of Section 10(23C).
26. The operative part of the Rajasthan High Court's judgment reads as under (page 669 of 244 ITR) :
"It is not disputed before us that the aims and objects of the Tamil Nadu Text Books Society and those of the respondent-assessee are almost identical. It is also not shown to us that the surplus amount, if any, of the respondent-assessee, is used for any other purpose or distributed to other members. The CIT(A) as well as the Tribunal have noticed that even if some amount remains surplus, that is utilized only for the purposes 54
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of education. Thus , having regard to the concurrent findings of fact recorded by the CIT(A) and the Tribunal and also taking note of the letter of the CBDT itself, it is not possible for us to say that the order of the Tribunal is erroneous in any way. In this way, no question of law arises for consideration much less a substantial question of law."
27. Applying the proposition of law as discussed by Hon'ble Supreme Court vis-à-vis decision of Rajasthan High Court in the case of Rajasthan State Text Book Board (supra) and the Orissa High Court in the case of Orissa Secondary Board Education (supra), and also letter of CBDT dated 19th August, 1975, and letter of Central Government dated 9th July, 1973, we can safely conclude that since the present assessee which is wholly owned by Government of M.P. and Board of Governors consisting of Ministry of Education etc. and Chairman and Board of Secondary Education, M.P., Director of State, Institute of Science & Education, and the objection of which was to provide text books to the students of class I to 55
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XII as prescribed by the Government of M.P. at cheaper rate and without motive to earn profit, is eligible for claim of exemption u/s 10(22) for the assessment years 1988-89 to 1998 to 1999. It is pertinent to mention here that w.e.f. 1.4.1999 Section 10(22) was substituted by Section 10(23C), Cl.(iiiab) of which stipulates that a University or other educational institution existing solely for educational purpose and not for the purpose of profit, which is wholly and substantially financed by the Government are eligible for claim of exemption. Sub clause (vi) of Section 10(23C) provides that University or other educational institution existing solely for educational purposes and not for the purpose of profit, other than those mentioned in sub clause (iiiab) or sub clause (iiiad) and which may be approved by the prescribed authority. Thus, the approval is required only in cases where the university and other educational institution is not wholly or substantially financed by the Government. In the instant case, we found that entire fund has been invested by the State Government either in the form of initial contribution or through accumulation of surplus, therefore, the assessee was not 56
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required to be approved by prescribed authority for the purpose of claim of exemption u/s 10(23-C). Assessee's case is falling within sub clause (iiiab), which reads as under :-
"any university or educational institution existing solely for educational purposes and not for purposes of profit and which is wholly or substantially financed by the Government/"
Thus, from assessment year 1999-2000 to 2008-09, the assessee is entitled for claim of exemption u/s 10(23C)(iiiab).
28. As the object of the assessee society vis-à-vis, its constitution remains the same for the assessment year 1999- 2000 and onwards, the claim of deduction on account of assessee being other educational institution is to be allowed u/s 10(23C)(iiiab) of the Income-tax Act, 1961.
29. As per the audited accounts of the assessee, we found that out of its surplus, the assessee has paid royalty to the Board of Secondary Education, Government of M.P. and many authors of the books. The assessee had contributed for construction of school building and had also distributed free books to the deserving students. The assessee publishes only 57
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text books, so that students get books at a cheaper price. The assessee cannot be compared with general/private publishers and book sellers. Thus, the observation of the Assessing Officer to the effect that activity of the assessee society is merely printing and sale of books as a commercial venture is contrary to the material placed on record. We found that M.P. State Council for Educational Research and Training is working with the assessee society which is an academic council. As per the audited accounts, we found that the assessee has paid substantial amount of royalty to the authors and MPBSE. Observations of the lower authorities to the effect that royalty is only paid to MPBSE is not correct. It is clear from the following year-wise chart indicating payment of royalty by the assessee.
Financial Year Amount of
Royalty paid
(In Rs.)
2007-08 48,09,507
2006-07 16,00,000
2005-06 16,10,623
2004-05 10,04,050
2003-04 10,04,050
2002-03 9,73,313
2001-02 11,30,196
1999-2000 12,10,054
58
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1998-99 28,37,672
1997-98 10,70,794
1996-97 7,73,362
1995-96 7,82,584
1994-95 12,65,307
30. The observation of ld. Lower authorities to the effect that the assessee society is not substantially financed by the Government of M.P. is misplaced, in view of the audited accounts placed in paper book which indicate that the State Government under the scheme of "Sarva Shiksha Abhiyan"
advanced following amount to the appellant against supply of "Nishulk Pathya Pustak Vitran Yojna" :-
Financial year Amount of Advance
ended on
31.03.2008 60,04,17,713
31.03.2007 35,96,23,390
31.03.2006 52,45,85,713
31.03.2005 40,43,93,518
31. We found that even after direction of the Hon'ble High Court and I.T.A.T. in the remand proceedings, both the lower 59
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authorities have not considered the main object of the society which is to Printing and Publishing of Text Books to the students of Class I to XII at cheaper rate to comply with the statutory requirement of Article 21-A and 41 of the Constitution of India, which make the right of education as fundamental rights of children, which reads as under :-
"21-A- Right to education - The state shall provide Free and compulsory education to all children of the age of 6 to, 14 years in such manner as the state may by law determine.
Article 41 :
" The State shall within the limits of its economic capacity and development make effective provision for security the right to work, to education and to public assistance in case of unemployment, old age sickness disabilities and in other cases of undeserved want."
Providing of school text books and incidental publication at cheaper rates is definitely to aid kind promote advancement of education to the children."
32. To comply with the statutory requirement on article 21A 60
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and 41, the assessee society is following syllabus prescribed by the M. P. Government and printing and publishing books for the use of students of Class I to XII of the State of M. P. The assessee society is doing this job under the policy of the Government in the absence of which, an institution of that type cannot be run. Thus, the assessee is directly and indirectly fulfilling the objective laid down under article 21A and 41 of the Constitution of India, which provides that it is the primary duty of State to secure the right to education and to establish educational institution, admission of students etc. Furthermore, the education is subject matter of concurrent list under Schedule VII "111 of the Constitution of India and to achieve this date, the State Government framed a policy and to implement it effectively it has constituted bodies like the assessee society. It is also evident from record that the assessee society is constituted by the State Government with the object to provide text books to the students of Class I to XII at a cheaper rate and the State Government has achieved this object very successfully, which is clear from the fact that selling price of the book printed by the Society is just 1/3rd in 61
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comparison to the text books published by the private publishers. The assessee has also placed on record list containing details regarding selling price of the books published by the Society vis-à-vis private publishers in part III as placed at page 931 & 932 of the paper book. It is also evident from the audited accounts for the assessment year 1988-89 to 2008-09 that the assessee society has not incurred any expenditure for non-educational purposes. Even both the lower authorities have not given any finding nor brought any material on record even during remand assessment proceedings, to suggest that the assessee has incurred any expenditure for non-educational purposes. Thus, we found that entire fund of the assessee society was utilized only for the educational purposes and nothing was brought on record by any of the lower authorities to indicate that the assessee society has utilized fund for purpose other than educational activities. As per object clause no. (2), the assessee is producing school text books and hand books for teaches, work books for pupils and other educational literature, which is useful for furtherance of teaching, learning and for evaluation 62
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any educational institution. In addition to printing of text books, the assessee also encourages and procures experts authors to write text books on various subjects as per the syllabus prescribed by the Government for various courses of education. As per Object No.(14), printing, publishing and sale of books., is approved by Government and page (5) and (6) prescribed for undertaking research for education.
33. It is pertinent to mention here that like assessee society which is engaged in printing and publishing of text books as prescribed by the State of M.P., similar type of institution is also working in other states like Tamil Nadu, Rajasthan, Delhi, Orissa, Bihar. In case of similar institutions exemptions have been allowed by the Tribunal and High Court. Hon'ble Rajasthan High Court has dealt with in detail the activity of Rajasthan State Text Book Code, 224 ITR 668 and allowed exemption u/s 10(22) of Income-tax Act, 1961. Hon'ble High Court has observed at page 668 that the facts in the case of Tamil Nadu Text Book Society are similar. In the case of Tamil Nadu Text Book Society, the C.B.D.T. itself has taken the view vide its letter dated 19.8.1975 that Tamil Nadu Text Book 63
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Society is entitled for exemption u/s 10(22) of the Income-tax Act. The said letter reads as under :-
"On careful consideration of facts involved the Board is of opinion that the Tamilnadu Text Book Society would be an educational institution existing solely for the purpose of education within the meaning of Section 10(22) of the Income-tax Act. "
34. It is clear from the above letter that CBDT itself has recognized the right of exemption u/s 10(22), to such institution engaged in printing and publishing of books for students.
35. Now coming to the decision relied on by the Assessing Officer in the case of Sorabji, 201 ITR 939, wherein observation of the Hon'ble Supreme Court in the case of Loka Shikshana Trust, 101 ITR 234, was referred. The same is restricted to Section 2(15) of the Act, which is applicable for charitable purposes. However, the expression in Section 10(22) with regard to educational institution is wider and includes activities of educational purposes. Thus, the claim of exemption u/s 10(22) cannot be restricted to only those 64
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assessees, who are running educational institution. Thus, for falling within the purview of educational institution, it is not mandatory that the assessee should carry on educational institution by itself. It will be sufficient that the assessee is existing solely for educational purposes. Even in case of Sorabji (supra) as relied on by the ld.CIT(A), Hon'ble Court has observed as under :-
"True it is, that it is not necessary for the institution to run education itself. The educational institution may be run by some one but the income of the institution should be utilized for imparting education".
36. In the above case, it was found that the assessee was giving scholarships or grant to the students without having any control whatsoever on such students. The Court observed that since no educational activities in the sense of normal schooling or actual imparting of knowledge or learning to the students was carried on by the Trust and the Institute was simply giving scholarships to the needy parsi students for technical education without getting any control over such students or without imparting any knowledge to the said 65
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students, the assessee was held to be not entitled for exemption u/s 10(22). In the case of Sole Trustee, Lok Shikshan Trust (supra), the issue before SC was claim of exemption u/s 11, where the assessee trust was doing printing, publishing, news papers and journals for earning profit, it was held that such printing and publication of news paper was not education within the meaning of sec 2(15). However, the facts of instant case are quite distinguishable where assessee was printing and publishing text books for students of Class I to XII without any profit motive. Thus, it will not help the Revenue for holding that present assessee was not falling within the definition of "Other educational institution". However, in the instant case before us, undisputedly, the assessee society was established only for the purpose of advancement of education by printing and publishing of text books as prescribed by the Government. As discussed above, all such institutions working in all other States of India were held to be eligible for claim of exemption u/s 10(22). Thus, there was no justification on the part of lower authorities for decline of claim of exemption u/s 66
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10(22)/10(23C). Even in the case of Academy of General Education, 150 ITR 135, it was observed that the assessee itself need not impart education to the students and it need not be necessarily school or college for the claim of benefit. It was found that in its account even though the assessee has not included income of Colleges, established under separate trust. However, it was found that the assessee has given grants to some of those schools, it was held that the assessee was entitled for claim of exemption u/s. 10(22).
37. In letter F.No.184/26/75-Income-tax Act, 1961,-1 dated the 19th August, 1975, of the CBDT, it was observed by the CBDT that "On careful consideration of facts involved, the Board is of the opinion that the Tamil Nadu Text Book Society would be an educational institution exiting solely for the purpose of education within the meaning of Section 10(22) of the Income-tax Act."
38. Applying the facts of the assessee to the facts discussed by the CBDT, we have no hesitation to hold that assessee is entitled for claim of exemption u/s 10(22). As a matter of fact, recently Hon'ble Supreme Court in the case of Assam State 67
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Text Books Production Publication (supra), has made a reference to the said letter, at page 21 of the Hon'ble Supreme Court stated as under :-
"However, the High Court noticed the letter issued by the CBDT on August 19,1975, in the case of Tamil Nadu Text Book Society, which as stated above in the similar ` circumstances had granted exemption to the Tamil Nadu Text Book Society as educational institution within the meaning of Section 10(22) of the Act. The judgment of the High Court further recites that under a similar situation, the CBDT had also extended the benefit of exemption u/s 10(22) of the Act to the Orissa Secondary Board Education as reported in Secondary Board Education vs. ITO, (1972) 86 ITR 408 (Orissa), following these circulars/letters issued by the CBDT, the Rajasthan High Court came to the conclusion that the assessee in that case namely the Rajsthan High Court came to the conclusion that the assessee in that case namely The Rajasthan State Text Book was enti9tled to claim the benefit of exemption u/s 10(22) of the Act."
39. In view of the above discussion and applying the judicial pronouncements to the facts of the instant case vis-à-vis aims and objects referred above, we hold that lower authorities were not justified in declining claim of exemption to the assessee 68
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society u/s 10(22)/10(23C) of the Income-tax Act, 1961, in respect of all the years under consideration, for the detailed reasons discussed hereinabove.
40. Now coming to the alternate claim of the assessee u/s 11 of the Income-tax Act, 1961, contention of the assessee was that registration u/s 12AA(1)(b)(i) was granted by CIT in compliance to the direction given by the Hon'ble ITAT vide order dated 23.9.2009 with retrospective effect from 7.8.1968 vide order dated 23.10.20090, and after receipt of the order, the assessee got its account audited for last 20 years i.e. from A.Y. 1988-89 to 2008-09. However, the AO has declined assessee's claim by observing that the assessee has not claimed any benefit u/s 11 & 13 in the return filed u/s 139 nor by filing a revised return u/s 139(5). As per AO, the assessee should have filed the audited report in form 10B alongwith the return of income for the A.Ys. 1988-89 to 2006- 07, which the assessee failed, accordingly, exemption u/s 11 cannot be considered even though the assessee has obtained registration u/s 12AA w.e.f. 7.8.1968. The CIT(A) further confirmed the order of AO by observing that the prescribed 69
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audit report in Form 10B as per Rule 17B is dated 10.10.2010, which, prima facie, shows that original returns for the relevant assessment years were filed without the prescribed audit report in form no.10-B which was not available with the assessee.
41. Thus, it is clear from the order of the lower authorities that assessee's claim u/s 11 was not considered on merits merely for the reason that audit report in Form 10B were not available at the time of filing of returns for the respective assessment years as the same was dated 10.10.2010.
42. We have considered the rival contentions and found from the record that in the original returns, the assessee has only claimed only u/s 10(22)/10(23C). However, when the CIT has granted registration u/s 12AA with retrospective effect from 7.8.1968 in compliance to the directions given by the ITAT in its order dated 23.9.2009, that the assessee has obtained the prescribed report in form 10-B as per Rule 17-B of the Income-tax Rules. Even though alongwith returns of all the years the assessee had filed audited accounts which were duly audited for tax purposes as well as per requirements of 70
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the C & AG but no audit report was obtained in Form No.10-B. Furthermore, since the assessee was owned by the State Government, it was a lengthy process for appointment of auditor, when the list of such auditors was given only by C & AG, the assessee has to go through various formalities for appointment of auditors and fixing their remuneration, which required proper approval and sanction of various authorities. As soon as the assessee has got the registration u/s 12AA, the assessee has also started to obtain necessary approval and also the audit report in prescribed form 10B for the claim of exemption u/s 11. Thus, we found that there was reasonable cause for delay in obtaining the audit report. In the interest of justice, we condone the delay in obtaining the audit report and direct the AO to examine the assessee's claim for exemption u/s 11 on merits, after verifying the various conditions which are required to be fulfilled, more particularly the utilization of receipts for the purpose of objects of society as discussed herein above to the extent of 85 %. Assessee is also directed to submit the other details as desired by the AO for verifying its claim of exemption u/s 11 of the Income-tax Act, 1961. We 71
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direct accordingly.
43. It is pertinent to mention here that the assessee is eligible for exemption u/s 11 only for the assessment years 1999-2000, 2003-04, 2004-05 and 2006-07, which was restored by the Tribunal to the AO vide order dated 4.11.2009 with precise direction to this effect and also for the A.Y./ 2001-02, which was restored to the AO vide order of Tribunal dated 22nd April, 2010. In respect of other years, the assessee is not entitled to agitate the claim of exemption u/s 11 in the set-aside proceedings. We direct accordingly.
44. In the result, the appeal of the assessee is allowed in part in terms indicated hereinabove.
This order has been pronounced in the open court on 25th April, 2012.
(JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 25th April, 2012. CPU* 920 72