Income Tax Appellate Tribunal - Bangalore
Amrith Education & Cultural Society vs Dy. Cit on 4 March, 2005
Equivalent citations: [2006]5SOT325(BANG)
ORDER
Deepak R. Shah, A.M. The appeal by the assessee is arising out of the order of the learned Commissioner (Appeals)-IV, Bangalore, dated 28-2-2002 pertaining to assessment year 1998-99.
2. The only issue in appeal is regarding denial of exemption under section 10(22) of the Income Tax Act (here in after referred to as the Act) to the assessee trust. The assessee is a society registered with the Registrar of Societies, Karnataka and is running Educational Institutions Like Dental College, Nursing Schools, Hotel Management College, etc. The assessing officer noted that amount was given to the Managing Trustees of the society viz., Shri R. Venkatesh and his wife Smt. Geetha Devi. The assessing officer considered this as violation of provisions of section 13(1) of the Act. He also noted that a further sum of Rs. 4.20 lakhs was advanced to Shri R. Venkatesh, Secretary and the same was outstanding during the relevant financial year. This was also considered as violation of provisions of section 11 by application of section 13(2)(a) of the Income Tax Act. Thus such institution is held not eligible for exemption under sections 11 and 12 of the Income Tax Act. The assessing officer, therefore, concluded that the institution is run in a manner to benefit own family members and cannot be said to run not for profit'. He accordingly denied exemption under section 10(22).
2.1 Learned Commissioner (Appeals) held that in respect of amount advanced to Shri R. Venkatesh the same was for purchase of agricultural land. The land, though registered in the name of the trustees, is appearing in the balance sheet of the society on which the educational institutions are set up and accordingly the said land belongs to the assessee trust. He accordingly held that the advance for acquisition of agricultural land is not hit by the provision contained in section 13(2)(a). However as regards the amount of Rs. 4.20 lakhs advanced to Shri R. Venkatesh, the amount remained with him between 22-11-1995 (the day of advance) till July/August 2000 (when the amount was refunded finally). Learned Commissioner (Appeals) concluded thereafter that the amount remained with Shri R. Venkatesh fully for period of 4 years and 4 months and thereafter partly for another 1.1/2 years. He also held that the amount was advanced without security or receipt of any interest thereon. He accordingly concluded that it amounts to misuse of fund in terms of section 13(2)(a) and read with section 13(3)(a) and 13(3)(c) of the Act. Learned Commissioner (Appeals) concluded that if there is violation of section 13(1), the assessee loses the benefit of section 11. He thereafter concluded that when there is misuse of fund of assessee trust benefiting the promoter, the assessee trust cannot be considered as existing 'solely for educational purposes'. Hence exemption under section 10(22) is not available. The assessee is in further appeal before us.
3. Learned counsel for assessee Shri Krishnaswamy submitted that if there is violation of section 13(1), the assessee may lose exemption under sections 11 and 12 of the Act. However section 10(22) is on a different footing. For claiming exemption under section 10(22) what is to be seen is whether the assessee is an educational institution existing solely for educational purposes and not for purpose of profit. Since the assessee trust is fulfilling the condition of section 10(22) and not claiming exemption under sections 11 and 12 of the Act, the violation of section 13(i)(a) will not disentitle the assessee to exemption under section 10(22) of the Act. For this purpose, he relied upon the circular of CBDT No. 712, dated 25-7-1999 extracted herein :
"The Board have received representations from various institutions which fulfil the conditions laid down under section 10(22) of the Act, but are denied exemption because their funds are not invested in accordance with the provisions of section 11(5) of the Act. It is hereby clarified that since section 10(22) does not impose any restriction regarding mode of investment of funds, such institutions are not required to invest their funds in the modes specified under section 11(5) of the income-tax Act. This clarification will not apply to the institutions seeking exemption under section 11 of the Act. (Circular No. 712, dated 25-7-1995)."
He relied upon the decision of Hon'ble Delhi High Court in the case of CIT v. Lagan Kala Upvan (2003) 259 ITR 489. The head note in the said case is extracted hereunder :
"The language of section 10(22) of the Income Tax Act, 1961, is plain and clear and the availability of the exemption should be evaluated each year and it should be found 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 from 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 the context of exemption under section 10(22), the conditions as stipulated in either section 11 or 13 of the Act are irrelevant.
Strictly speaking, res judicata does not apply to Income-tax proceedings. Against, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not at all be appropriate to allow the position to be changed in a subsequent year.
The assessee was running a school. The assessing officer noticed that the assessee had given interest-free loans to : (i) its secretary and principal, L, of the school in the assessment years 1987-88, 1991-92 and 1992-93; (ii) its vice principal, and (iii) another school in which the principal, L, was also one of the trustees. Besides, the assessee had also paid rent for the use of the building, belonging to one of the trustees, for running the school. He, thus, felt that by giving these loans and paying the rent, the assessee had violated the provisions of section 13(1)(c) read with section 13(3) of the Act. He observed that since the assessee had earned some income in the running of the schools, there was a profit motive in its activities and that since the society had claimed depreciation, it had an element of business in its operations. Accordingly, he denied exemption to the assessee under section 10(22) for the assessment year 1993-94. The Commissioner (Appeals) held that the assessee was entitled to exemption and this was upheld by the Tribunal. On further appeal to the High Court :
Held, dismissing the appeal, that the Commissioner (Appeals) had recorded a categorical finding that the assessee had been running educational institutions for the past 25 years without any profit motive. When the loans in question were given in the earlier years, exemption under section 10(22) was still not denied to the assessee in respect of those assessment years. The claim to depreciation in respect of certain assets of the assessee did not per se show the business/profit motive of the assessee, disentitling it to exemption under section 10(22). The assessing officer was not justified in taking a different view only in respect of the assessment year 1993-94 when from the assessment year 1970-71, exemption under the said provision was being allowed to the assessee consistently. The assessee was entitled to exemption under section 10(22) in the assessment year 1993-94."
He, also submitted that the amount was given to the secretary for acquiring certain land. Since the deal was not forthcoming, the amount advanced was refunded by the trustee thereafter. The assessee is found to be existing solely for educational purposes. There is no finding that the assessee is existing for the purpose of profit. He accordingly submitted that the assessee be granted exemption under section 10(22).
4. Learned Departmental Representative Shri K.N. Shyamsunder strongly supported the order of learned Commissioner (Appeals). He submitted that the assessee without ascertaining whether any land is to be acquired or not gave an advance to the trustee. If the trustee had identified any land and thereafter drawn the advance, the contention of the assessee is perhaps acceptable. However, before identifying any land, the advance was taken. The only corollary was that the amount was utilized by the trustee for his personal benefit. To this extent, it can be said that the assessee is not existing solely for educational purposes. Accordingly, exemption under section 10(22) is not allowable.
5. We have carefully considered rival submissions, relevant facts of the case and the decisions cited. In the present case, the assessee institution is held violating the provisions of section 13(1). If section 13(1) and section 13(2) are violated the consequence is that the trust loses exemption provided in sections 11 and 12 of the Act. However, that is not the criteria to deny the exemption under section 10(22) of the Act. The question to be addressed is whether advancing of sum to the trustee can be considered as 'not existing solely for educational purposes', so as to deny the assessee exemption under section 10(22). In our opinion, the answer is no. The assessee trust is existing and running various educational institutions, the fact of which is not denied. As per section 10(22) any income of the educational institution is exempt from tax if (i) it is existing solely for educational purposes and (ii) it is not existing for the purpose of profit. No conditions are attached as to how funds of the institution should be invested. By advancing the sum to the trustee, the object of educational purpose is not defeated. The assessee trust was treated as eligible for exemption under section 10(22) even in earlier years. Thus, by advancing the sum to the trustees it cannot be said that the trust is not existing solely for educational purposes. The Circular of CBDT No. 712, dated 25-7-1995 makes this issue very clear. The decision of Hon'ble Delhi High Court relied by learned counsel for assessee also supports our above view. Since advancing of the sum is the only ground to deny exemption under section 10(22), we hold that the same is not in accordance with law and hence the assessee is eligible for exemption under section 10(22) in respect of income earned by the institution.
In the result, the appeal is allowed.