Income Tax Appellate Tribunal - Kolkata
Sarada Vidyapith, Kolkata vs Cit (Exemption) Kolkata, Kolkata on 4 September, 2019
आयकर अपील य अधीकरण, यायपीठ - "B" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH: KOLKATA
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[Before Shri P.M. Jagtap, Vice President (KZ) & Shri A. T. Varkey, JM]
I.T.A. No. 1177/Kol/2017
Assessment Years: 2016-17
Sarada Vidyapith Vs. CIT (Exemptions), Kolkata
PAN: AAALS 1808 C
Appellant Respondent
Date of Hearing 09.07.2019
Date of Pronouncement 04.09.2019
For the Appellant Shri P.K. Ray, AR
For the Respondent Shri Radhey Shyam, CIT, DR
ORDER
Per Shri A.T.Varkey, JM
This is an appeal preferred by the Assessee against the order of CIT(Exemptions), Kolkata dated 24.03.2017 by which he did not grant approval u/s 10(23C)(vi) of the Income Tax Act, 1961 (herein after referred to as the 'Act').
2. Brief facts of the case are that the appellant trust originally created on 12.09.2002 and thereafter by a Deed of Trust date 22.09.2014 it set-up a school under the name 'Sarada Vidyapith' at Sonarpur, South 24 Parganas, West Bengal with the sole object of providing comprehensive second day level education for young boys and girls in nearby villages. The appellant Trust is also affiliated with WB Board of Secondary Education and WB Board of Higher Secondary Education. The appellant Trust also holds valid registration under Section 12A and 80G, dated 24.09.2014. It is noted that the appellant trust had also applied for registration u/s 10(23)(vi) vide application dated 29.03.2016 which was however rejected by the Ld. CIT(Exemptions). Being aggrieved by the rejection order of the Ld. CIT(E), the appellant Trust is now in appeal before us.
3. We have heard the rival submissions of both the parties and perused the material on record. Before we proceed to examine the correctness of the Ld. CIT(E)'s order, it shall first be relevant to take note of the primary conditions set out in Section 10(23)(vi) for grant of approval to an institution under the proviso which are as under:
2 ITA No.1177/Kol/2017SARADA VIDYAPITH AY 2016-17
(i) the institution is existing solely for educational purposes, and
(ii) not for the purpose of profit.
4. It emerges from the order of the Ld. CIT(E) that, according to him the second condition laid down in the above Section was not fulfilled by the appellant. The Ld. CIT(E) noted that the trust had actually derived substantial profits over the years and that such income was not correctly routed through the Income & Expenditure Account thereby giving an incorrect picture that the institution did not exist for the purpose of profit. After conducting a detailed analysis, the Ld. CIT(E) came to the following conclusion in respect of the surplus derived by the appellant Trust in the earlier three assessment years Asst Year As per Assessee As per Ld. CIT(E) 2013-14 8,36,835/- 27,37,410/-
2014-15 6,14,603/- 21,65,994/-
2015-16 7,95,329/- 30,58,402/-
5. When confronted with the above analysis, the appellant explained that the entire nature of receipts and pointed out that certain receipts were collected for specified purposes such as creation of new assets in the school, prizes, maintenance of library etc. and therefore not routed through the I&E A/c. It was further explained that all the receipts, irrespective whether they were routed through I&E or not, were utilized exclusively for the benefit and purposes of the school and its students and therefore it could not be said that the trust existed for the purposes of making profit. At the time of hearing, the Ld. AR appearing on behalf of the appellant took us through the nature of each receipt of the appellant and contended that the accounts were prepared in a proper and fair manner. He submitted that receipts collected by way of development fee, sevabhandar, laboratory fund was meant for specified purposes i.e. the development of infrastructure and creation/acquisition of new assets for the school and therefore the purpose being specific andin the capital field was rightly not treated as a revenue receipt in the books of the trust. He further pointed out that 3 ITA No.1177/Kol/2017 SARADA VIDYAPITH AY 2016-17 the receipts towards the prize fund, SSOBF was also meant for specific purposes and hence wrongly classified by the Ld. CIT(E) as revenue income. Referring to the assessments framed u/s 143(3) in appellant's own case for AYs 2013-14 & 2014-15, the ld. AR submitted that the nature of receipts as discussed in the foregoing and also the accounts of the appellant trust had been accepted by the AOs. He thus contended that the Ld. CIT(E)'s allegation that the appellant trust had profit motive and that it had incorrectly presented its books of accounts, was factually unjustified. The ld. AR also relied on the decision of the Hon'ble Madras High Court in the case of Malco Vidyalaya Matriculation Higher Secondary School (103 taxmann.com 104) to contend that generation of substantial surplus cannot be viewed adversely for the purposes of granting registration u/s 10(23)(vi) as long as it was applied towards the objects of the trust. He also relied on the decision of the Hon'ble Delhi High Court in the case of Anand Education Society Vs DGIT(E) [205 Taxman 408] and contended that the ratio which emanates from this judgment is that the only pre-requisite condition for grant of recognition u/s 10(23)(vi) is the existence of educational institution. Other conditions such as accumulation of surplus, its application etc. was a matter of assessment of income of the trust and it is only when in the income-tax assessment the assessee is found to be in violation of these further stipulations and conditions that the registration can be cancelled. Per contra, the Ld. CIT, DR appearing on behalf of the Revenue relied on the order of the Ld. CIT(E) and argued that the Ld. CIT(E) had sufficiently proved that the appellant trust existed with a profit motive and hence he was right in law to reject the application u/s 10(23)(vi) of the Act.
6. After giving our thoughtful consideration to the facts of the case and the material available on record, it is noted that though the Ld. CIT(E) acknowledges the fact that the appellant's trust objective fall under the ambit of sec. 2(15) of the Act and it runs an educational institution, he did not accord registration u/s 10(23)(vi) since according to him the appellant trust furnished distorted accounts. In his opinion the surplus of the Trust was higher than what was reported in the audited accounts. This emanated from his observation that the receipts towards development fee, library fund, laboratory fund, sardasevabhandar, prize fund, SSOBF, EW Fund etc. were actually in the nature of revenue receipts which were not routed through the I&E A/c resulting in incorrect depiction of accounts. We however find that these observations of the Ld. CIT(E) are factually unsustainable in as 4 ITA No.1177/Kol/2017 SARADA VIDYAPITH AY 2016-17 much as the appellant trust had substantiated that the receipts collected by way of development fee, library fund, laboratory fund were meant for specified purposes i.e. the development of infrastructure and creation/acquisition of new assets i.e. library, laboratory etc. for the school. Therefore the purpose of receipt being specific & capital in nature appears to have been rightly credited in the balance sheet rather than revenue receipt in the books of the trust. It is further noted that the receipts towards the prize fund, SSOBF etc were towards specific objective such as awarding meritorious students etc. Hence, in our considered view the accounting of such the receipts towards these funds set apart for specific purposes directly through the balance sheet cannot be faulted with.
7. On perusal of the assessment orders passed u/s 143(3) for the AYs 2013-14 & 2014- 15, it is noted that even the AO of the appellant accepted the method of accounting followed and no fault was found. Accordingly the appellant's claim for exemption was allowed. It is particularly noted that in the income-tax assessment for AY 2014-15, the AO separately added these balance sheet items of receipts while computing the aggregate receipts during the year and thereafter separately deducted the payouts made out of such funds to arrive at the net surplus available for application towards charitable purposes. In view of these facts we are therefore of the considered view that the Ld. CIT(E)'s finding that the accounting methodology followed by the appellant Trust was incorrect and that the surplus reported in the books were distorted, is completely untenable on facts and in law.
8. Apart from the above, we also find merit in the Ld. AR's contention that mere earning of surplus cannot lead to an ipso facto conclusion that the appellant Trust existed with a view to earn profit. The object of the appellant trust makes it amply clear that it exists solely for educational purposes. From the accounts of the appellant it is also noted that the surplus earned by the appellant Trust is either spent towards the objects of the trust or accumulated for future application in the educational field. The Ld. CIT(E) has not brought on record any specific material whatsoever to show that the surplus generated was utilized otherwise than for the benefit of the school or for that matter towards any extraneous activities. In this regard, we find support from the judgment of the Hon'ble Madras High Court in the case of Malco Vidyalaya Matriculation Higher Secondary School (supra) wherein on similar facts and circumstances the Hon'ble High Court held that merely 5 ITA No.1177/Kol/2017 SARADA VIDYAPITH AY 2016-17 because the assessee institution had derived surplus beyond a certain percentage in a year, it would not mean that the assessee institution would not come under the category of "not for profit institution" provided there has not been diversion of the surplus of the institution. The relevant extracts of the judgment is as follows:
9. The respondent also erred in going by the decision of the Hon'ble Karnataka High Court Visvesvaraya Technological University (supra). Merely because there has been a surplus generation beyond a percentage in a year, that would not mean that the petitioner institution would not come under the category of "not for profit institution". The petitioner has stated that whatever surplus is generated would go only towards the development of the school. The petitioner cannot be faulted for parking the surplus in an interest bearing account. In fact, the petitioner must be complimented for managing their finances in a prudent manner. Only if it can be shown that there has been diversion of the surplus generated by the institution, the authority would be justified in rejecting the application or withdrawing the exemption granted. This power of the authority is always available upon discovery of materials that are adverse to the petitioner. But, no such material has been indicated in the impugned order.
10. This Court therefore has to necessarily hold that the approach of the respondent suffers from misdirection in law. The respondent assumed that the writ petitioner must produce a written memorandum setting out their objects. In the statutory provision, there is no such requirement. The respondent has needlessly assumed that the writ petitioner is withholding some material. The petitioner is a school and necessarily its activities will have to be only for educational purposes. The petitioner cannot have any other activity. In any event, the respondent has not indicated the extraneous activities of the petitioner. The petitioner cannot be called upon to prove the negative. Likewise, the petitioner has been unfairly characterized as a profiteering institution. The petitioner has categorically stated that the surplus generated by the institution is being utilized only for the development of the school.
9. In the light of the aforesaid discussion, we are therefore inclined to set aside the order of Ld. CIT(E) and remand the matter back to his file to re-consider the application for registration of the appellant trust in the light of the aforesaid observations. The question as to whether any item of receipt is capital or revenue in nature is the lookout of the AO of the appellant and is not the issue before Ld.CIT(E). At the cost of repetition, we state the Ld. CIT(E) while considering the application of a trust for registration u/s. 10(23)(vi) has to verify the objects of the Institution/Trust/society and look into whether it exists for educational purposes. Further, even if the appellant is found to have generated surplus but if 6 ITA No.1177/Kol/2017 SARADA VIDYAPITH AY 2016-17 the same is being ultimately utilized for the objects of the appellant trust then it cannot be said to exist with a profit motive. It has to be remembered that if the appellant trust has surplus or any income has escaped assessment there are sufficient power vested with the department to tax the appellant trust as per law and in accordance with law. With the aforesaid observation, we are inclined to set aside the order of the Ld. CIT(E) and remand the matter back to his file for fresh adjudication of the application for registration u/s. 10(23)(vi) of the Act.
10. In the result, the appeal of assessee is allowed for statistical purpose.
Order is pronounced in the open court on 4th September, 2019
Sd/- Sd/-
(P.M. Jagtap) (Aby. T. Varkey)
Vice-President Judicial Member
Dated : 4th September, 2019
Biswajit (Sr. P.S.)
Copy of the order forwarded to:
1. Appellant - Sarada Vidyapith, Sri Ramkrishna Pally, Sonarpur, Kolkata -
700 150.
2 Respondent - CIT (Exemptions), Kolkata.
3. The CIT(A) -, Kolkata.
4. CIT Kolkata
5. DR, ITAT, Kolkata.
/True Copy, By order, Assistant Registrar/H.O.O. ITAT, Kolkata