Income Tax Appellate Tribunal - Hyderabad
G.Pulla Reddy Charitable Trust, ... vs Assessee on 16 January, 2013
IN THE INCOME TAX APPELLATE TRIBUNA L
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
and
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No. 433/Hyd/2008 - A.Y. 1999-2000
ITA No. 434/Hyd/2008 - A.Y. 2000-2001
ITA No. 1718/Hyd/2008 - A.Y. 2002-2003
ITA No. 1582/Hyd/2011 - A.Y. 2003-2004
ITA No. 437/Hyd/2008 - A.Y. 2004-2005
M/s. G. Pullareddy vs. The DDIT (Exemptions)-II
Charitable Trust Hyderabad
Hyderabad
PAN: AAATG2792F
Appellant Respondent
Appellant by: Sri K.C. Devadas
Respondent by: Sri M.H.Naik
Date of hearing: 16.01.2013
Date of pronouncement: 05.04.2013
O R D E R
PER CHANDRA POOJARI, AM:
These appeals by the assessee are directed against different orders of the CIT(A)-IV, Hyderabad for A.Ys. 1999-2000, 2000-01, 2002-03, 2003-04 and 2004-05.
2. The first common issue in the first four appeals in ITA Nos. 433/Hyd/2008, 434/Hyd/2008, 1718/Hyd/2008 and 1582/Hyd/2011 is with regard to reopening of assessment. The assessee is a trust having its registered office at 11-5-432, Red Hills, Hyderabad, runs education institutions at various places in Hyderabad. In these four years, assessment was reopened after survey conducted u/s. 133A of Income-tax Act, 1961 on 15.10.2004 at G. Pullareddy Engineering College (GPEC), Kurnool. During 2 ITA No. 433/Hyd/2008 & Ors M/s. G. Pullareddy Charitable Trust ========================== the course of survey it came to the knowledge of the Department that the assessee has not filed returns of income for A.Y. 1997-98 and onwards. However, on record it was observed that the assessee filed returns of income as follows:
A.Y. 1999-2000 - On 06.10.2004
A.Y. 2000-2001 - On 11.10.2004
A.Y. 2002-2003 - On 11.10.2004
A.Y. 2003-2004 - On 14.10.2004
3. Subsequently, notice was issued u/s. 148 for A.Ys. 1998-99 to 2002-03 on 9.12.2004, served on the assessee on 9.12.2004 by ACIT, Kurnool. In pursuance of the said notice, the assessee filed letter dated 17.12.2004 to treat the returns of income filed on earlier occasion, as stated above, as filed in response to the notice u/s. 148. However, another notice u/s. 148 was issued for A.Ys. 1999-2000 and 2000-01 on 21.3.2006 and for A.Ys. 2002- 03 and 2003-04 on 27.3.2007. This Notice u/s. 148 was issued by the DDIT (Exemptions)-II after recording that income received on behalf of the G. Pulla Reddy Engineering College, Kurnool and G. Narayanamma Institute of Science & Technology, Hyderabad which is chargeable to tax in the absence of mandatory approval u/s. 10(23C)(vi), has escaped assessment as its gross receipts exceeded Rs. 1 crore. On reopening of the assessment, the Assessing Officer brought to tax development fee collected by the assessee by denying exemption u/s. 10(23C)(vi).
4. Before us, the learned AR submitted that firstly there was a notice u/s. 148 of the Act issued by the ACIT, Kurnool for A.Y. 1998-99 to 2002-03 on 9.12.2004. Assessments were terminated on 31.3.2006 and the DDIT (Exemptions)-II, 3 ITA No. 433/Hyd/2008 & Ors M/s. G. Pullareddy Charitable Trust ========================== Hyderabad has no jurisdiction to issue further notice u/s. 148 of the Act. Further he submitted that there was penalty proceedings against the assessee by JCIT, Kurnool u/s. 272A(2)(e) of the Act for A.Ys. 1997-98, 1998-99, 1999-2000, 2000-01 and 2001-02. Against this penalty order the assessee went in appeal before the Tribunal in ITA Nos. 1 to 5/Hyd/2007. The Tribunal vide its order dated 11th February, 2010 confirmed levy of penalty by Joint CIT, Kurnool for filing belated returns and given categorical finding that the Addl. CIT, Kurnool has the jurisdiction over the assessee. Being so, jurisdiction of Kurnool Range is upheld by the Tribunal.
5. The learned DR submitted that registered office of the assessee is situated at Hyderabad. Being so, the Department is having jurisdiction over the assessee. The assessee has filed voluntary returns before the JCIT, Kurnool Range for A.Ys. 1997-98 to 2003-04 at Kurnool. The returns are belatedly filed. As such it was treated as non-est returns. The penalty was attracted for filing belated returns at Kurnool from the assessee's side. The proceedings initiated by the Kurnool Range u/s. 148 dated 9.12.2004 were also closed as not applicable and no order in pursuance of the reopening was passed. Being so, the Department cannot find fault for reopening the assessee's case by the DDIT (Exemptions)-II, Hyderabad.
6. We have heard both the parties and perused the material on record. We have carefully gone through the earlier order of the Tribunal in ITA Nos. 1 to 5/Hyd/2007 dated 11th February, 2010 wherein the Tribunal confirmed levy of penalty u/s. 272A(2)(e) of the Act. For clarity, we will reproduce the relevant paras of that order herein below:
4 ITA No. 433/Hyd/2008 & OrsM/s. G. Pullareddy Charitable Trust ========================== "6. We have heard both the parties and perused the material on record. We have also carefully gone through relevant case-law cited by both the parties.
In these cases, the assessee had not filed any return from assessment year 1997-98 to assessment years 2003-04. The assessee runs an engineering college, viz. G. Pulla Reddy Engineering College at Kurnool. During the course of TDS inspection dated 30-9-2004 on the above college, it came to light that the assessee did not file return of income from assessment years 1997-98 onwards.
6.1 The assessee filed return of income voluntarily on 15.10.2004 for assessment years 1997-98 to 2003-
04. There was no issue of any notice by the assessing officer calling for returns even 15 days after the date of TDS inspection. The assessee has voluntarily filed returns of income. It is factually incorrect on the part of the assessee to say that the returns were filed at the behest of the department. There is no evidence to show that the department insisted upon the assessee to file returns of income.
6.2 The assessee after voluntarily filing returns at Kurnool in October 2004 never raised the question of jurisdiction up to 6.1.2005 i.e., after completion of penalty proceedings vide order dated 4.1.2005. The issue of jurisdiction was raised for the first time during assessment proceedings for the assessment years 2003-04 vide letter dated 6.1.2005.
6.3. After the filing of returns on 15.10.2004, the following proceedings were initiated by the department during which no objection was raised by assessee up to 6.1.2005.
a) Penalty proceedings u/s 272(A) initiated on 28.10.2004
b) 148 issued on 9.12.2004
c) 143(2) issued on 13.12.2004 for assessment years 2003-04
d) Summons issued on 13.12.2004 to appear on 20.12.2004.
e) On 20.12.2004, the AR appeared but did not raise the issue of jurisdiction.
6.4. The assessee voluntarily filed return of Income in Form 3A at Kurnool and the assessing officer had 5 ITA No. 433/Hyd/2008 & Ors M/s. G. Pullareddy Charitable Trust ========================== the jurisdiction over the assessee as per section 124(5) which reads as follows:
"Notwithstanding anything contained in this section or in any direction or order issued u/s 120 every assessing officer shall have all the powers conferred by or under this act on an assessing officer in respect of the income accruing or arising or received within the area, if any, over which he has been vested with jurisdiction by virtue of the directions or orders issued under sub section (1) or sub section (2) of section 120."
6.5. The main trustee resides at Kurnool, there is an engineering college at Kurnool run by the Trust and all the material accounts relating to the activities of the trust were found at the office in Kurnool. The assessee despite several opportunities given during penalty proceedings did not raise any objection regarding jurisdiction. In view of the above, JCIT, Kurnool held that the assessee is assessable at Kurnool in view of section 124(5) and he had jurisdiction over the assessee. Thus the exercise of jurisdictional authority over the assessee by JCIT Kurnool is justified.
6.6. Under pre 1988 sec. 124(5) a person was entitled to call a question and dispute the jurisdiction of ITO.
a) In cases where he had furnished a return u/s 139(1) or his assessment had been completed within one month from the date of furnishing of return or completion of assessment whichever is earlier.
b) In case where he had not made a return u/s 139(1) nor his assessment was completed, and he had been served with a notice for furnishing of return under the then section 139(2) or 148 then within the time allowed under such notice. 6.7. Under Post s. 124 of the IT Act 1961:
a) where he has made a return under sub section (1) of section 115WD or under sub section (1) of section 139, after the expiry of one month from the date on which he was served with a notice under sub section (1) of section 142 or sub section 6 ITA No. 433/Hyd/2008 & Ors M/s. G. Pullareddy Charitable Trust ========================== (2) of section 115WE sub section (2) of section 143 or after the completion of the assessment whichever is earlier.
b) When he has made no such return, after the expiry of the time allowed by the notice under sub section (2) of section 115WD or sub section 1 of section 142 or under sub section 1 of section 115WH or under section 148 for the making of the return or by the notice under first proviso to section 115WF or under the first proviso to section 144 to show cause why the assessment should not be completed to the best of the judgement of the assessing officer whichever is earlier.
6.8. A careful reading of section 124(3) and comparison with the earlier provision 'clearly shows that the emphasis is on the time allowed u/s 148 or 139(2) or 142(1). The section clearly divides the assessee into two categories (i) a person who has made return of income u/s 139(1) i.e. who has filed regular return within due date is covered under sub section (a). (ii) The above sub section (b) starts with where he has made no such return, meaning no return as envisaged under clause (a) regular return. In case the assessee does not file regular return, the assessee's case is covered by notice u/s 142(1) or
148. The clause clearly states that the time limit is expiry of time allowed u/s 142(1) or 148 for making return or under first proviso to section 144 whichever is earlier.
7. In the instant case, the assessee did not file regular return if u/s 139(1) of IT Act or 139(4A) applicable for trusts. He filed returns on various dates from 6.10.2004 to 11.10.2004 for the years under consideration. Notice u/s 148 was issued on 9.12.2004 for assessment years under appeal. The assessee replied vide letter 17.12.2004 to treat the return of income already filed as filed in response to notice u/s 148. The assessee did not file regular return in time and no such return as envisaged in clause (a) are filed. As per clause (b) he should have raised objection within the time allowed by notice dated 9.12.2004 u/s 148 i.e. before 19.12.2004 which the assessee did not do.
7.1 Section 124(3) is clear in its emphasis on time allowed as per notice u/s 148 or 142(1) are under first proviso to section 144 whichever is earlier.
7 ITA No. 433/Hyd/2008 & OrsM/s. G. Pullareddy Charitable Trust ========================== 7.2. It can be seen that clause (a) lays emphasis on one month of service of notice or completion of assessment, clause (b) is categorical on the time allowed under notice u/s 142(1) or 148 or 144. It may further be noted that there is no mention of notice u/s 143 (2) under clause (b). It clearly indicates that there is a possibility that the assessment proceedings may not continue and the assessing officer is entitled to close assessment proceedings by dropping the same and hence the mention of completion of assessment is not there in clause (b) as against its mention in clause (a).
The comma used after the words 'Where he has made no such return' is crucial as it emphasizes only on the time allowed under any of the notices mentioned thereafter, once it is clear that the assessee has not made returns as mentioned in clause (a) of the sub section.
7.3. In our opinion, the assessee is squarely covered under clause (b) of 124(3) as he had not filed return within time allowed u/s 139(1) as per provisions of section 139(4A). That sub section (2) of section 124, the question of jurisdiction shall be determined by DGIT/CCIT/CIT or CBDT as the case may be. The assessee did not approach any of the above authorities to resolve his problem of jurisdiction."
7. Being so, the jurisdiction of the assessee is vested with the JCIT, Kurnool during the relevant assessment years. It is also on record that the issue of notice u/s. 148 was by the ACIT, Kurnool Range for A.Ys. 1999-2000, 2000-01, 2001-02, 2002-03, 2003-04 and 2004-05. The assessee also filed a letter before that authority to treat the returns already filed with Kurnool Range as the returns filed in response to the notice u/s. 148 of the Act. On that basis, the belated returns are validated and also for filing the returns belatedly for these assessment years there was levy of penalty u/s. 272A(2)(e) of the Act. This levy of penalty was also confirmed by the Tribunal. Once the jurisdiction is vested with the Kurnool Range, there cannot be framing of assessment or issue of notice 8 ITA No. 433/Hyd/2008 & Ors M/s. G. Pullareddy Charitable Trust ========================== u/s. 148 or framing assessment by any other authority than the Kurnool Range. The argument made before us by the Department is devoid of merit. There cannot be one authority for levying of penalty on assessment at Kurnool and another authority for framing assessment. Being so, issue of notice u/s. 148 by the Hyderabad Range of the Department is not correct. As the issue of notice itself is bad in law by the Hyderabad Range of the Department, consequent framing of assessment is bad in law. Being so, we quash the reopening of assessment for all the above four assessment years. Even otherwise, the notice u/s. 148 was issued on the reason recorded that approval under provisions of section 10(23C)(vi) was mandatory and it was not obtained by the assessee though the gross receipts exceeded Rs. 1 crore and, therefore, income escaped assessment. However, we are of the opinion that the assessee could claim alternate deduction/exemption u/s. 11 of the Act and non-obtaining of approval u/s. 10(23C)(vi) is not fatal in view of the decision of co-ordinate Bench in the case of St. Theresa Convent Society in ITA No. 844/Hyd/2008 and also in the case of ADIT (Exemptions) vs. Rajasthani Siksha Samithi (23 SOT 124) (Hyd) wherein held that institutions falling u/s. 10(23C)(vi) are eligible for exemption u/s. 11 also. Merely because section 10(23C)(vi) of the Act provides for exemption of the income of an educational institution it does not follow that such institution cannot avail exemption u/s. 11 subject to fulfilment of the conditions laid down. Being so, when the reasons recorded do not survive reopening of assessment is bad in law. For this purpose we place reliance on the judgement Supreme Court in Ganga Saran and Sons (P) Ltd. vs. ITO & Ors. (130 ITR 1), CIT v. Jet Airways (331 ITR 236)(Bom), Ranbaxy Laboratories vs. CIT (336 ITR 136) (Del) and CIT vs. ICICI Bank 9 ITA No. 433/Hyd/2008 & Ors M/s. G. Pullareddy Charitable Trust ========================== Ltd., Bombay (349 ITR 482) (Bom). Accordingly, we quash the reopening of assessment.
8. As we have cancelled the re-assessments order itself, we refrain ourselves from going into the other grounds of appeal raised by the assessee which are infructuous.
9. In the result, ITA Nos. 433/Hyd/2008, 434/Hyd/2008, 1718/Hyd/2011 and 1582/Hyd/2011 are partly allowed.
10. Now coming to ITA No. 437/Hyd/2008 which is a regular appeal for A.Y. 2004-05. In this case the assessee challenged assessment of income by treating the development fee receipt as capitation fee thereby denying exemption u/s. 11 of the Act.
11. Brief facts of the issue are that the assessee claimed exemption u/s. 11 of the Income-tax Act on its income. According to the assessee it is a trust duly registered u/s. 12 of the Act. On the other hand, the Assessing Officer was of the opinion that the assessee's gross receipts exceeded Rs. 1 crore and there is mandatory requirement of approval us. 10(23C)(v) of the Act which is not obtained by the assessee. Accordingly, the Assessing Officer brought total income to tax. Further, the Assessing Officer also brought on record that there was a diversion of the trust fund of Rs. 4 lakhs which was paid to Sri G. Pulla Reddy and it attracted provisions of section 13(1)(c) of the Act. On further appeal, the CIT(A) was of the opinion that the assessee is not entitled for exemption u/s. 10(23C)(vi) as there was no mandatory approval. Even otherwise, the assessee is not entitled for exemption u/s. 11 as it collected fees over and above the regular fees for various studies. Against this the assessee is in appeal before us.
10 ITA No. 433/Hyd/2008 & OrsM/s. G. Pullareddy Charitable Trust ==========================
12. The learned AR submitted that there is no violation in collection of development funds at the time of admission of the students to the institution of assessee's trust. As there was keen competition for admission, students come forward voluntarily for payment of development fund fee to get management quota seats. As there was only 10% seats are available to management, to get these seats people come forward voluntarily to pay development fund fee. Only management quota seats are left to the assessee's trust to get them filled and majority seats are going to the government allottees. Whatever the development fund fee is collected, it was used for the object of the assessee's trust, i.e., for imparting education and the Rs. 4 lakhs is kept with the founder trustee is not with the intention of diversion for the benefit of the founder trustee. It was kept in safe custody.
13. According to the AR, the assessee is subject to inspection by state Government authorities. There is no adverse remark against the assessee and the sole object of the assessee is to impart education. The voluntary contribution went for achievement of the object of the assessee's trust. He relied on the following judgements:
(a) Shri Belimatha Mahasamsthana Socio Cultural & Educational Trust (46 DTR 290) (Karn.)
(b) DCIT vs. Vellore Institute of Technology (46 SOT 224)
(c) CIT vs. Bijili Cotton Mills (P) Ltd. (116 ITR 60)
(d) Chairman, AP Welfare Fund v. CIT (143 ITR 82)
(e) Governing Body, Rangaraya Medical College vs. ITO (117 ITR 284) (AP)
(f) CIT vs. Surat Art Silk Cloth Manufacturers' Association (121 ITR 1) (SC)
(g) DIT vs. Moti Bagh Mutual Aid Education (298 ITR 190) (Delhi) 11 ITA No. 433/Hyd/2008 & Ors M/s. G. Pullareddy Charitable Trust ==========================
(h) DDIT vs. Shanti Devi Progressive Education Society (340 ITR 32) (Delhi)
14. The AR relied on the judgement in the case of Action Committee, Unaided Private Schools and Others vs. Director of Education decided on 7.8.2009 wherein the Supreme Court analysed all these decisions. The Supreme Court referred to P.A. Inamdar's case and at para 29 held as follows:
"29 I, in view of the statement of law laid down in P.A. Inamdar (supra), am of the opinion that the authorities of all the schools, particularly, unaided schools may lay down its own fee criteria. Imposition of regulation, however, only is permissible for the purpose of exercising of control over profiteering and not earning of a profit which would include reasonable return of the investment made. I say so because in TMA Pai Foundation (supra), this Court itself held:
The right to establish and administer broadly comprises of the following rights:
a) ****
b) to set up a reasonable fee structure ....
54. "The right to establish an educational institution can be regulated; but such regulatory measures must, in general, be to ensure the maintenance of proper academic standards, atmosphere and infrastructure (including qualified staff) and the prevention of mal-administration by those in-charge of management. The fixing of a rigid fee structure, dictating the formation and composition of a government body, compulsory nomination of teachers and staff for appointment or nominating students for admissions would be unacceptable restrictions.
"56. The decision on the fee to be charged must necessarily be left to the private educational institution that does not seek or is not dependent upon any funds from the government.
"57 There can, however, be a reasonable revenue surplus, which may be generated by the educational 12 ITA No. 433/Hyd/2008 & Ors M/s. G. Pullareddy Charitable Trust ========================== institution for the purpose of development of education and expansion of the institution."
The above passage clearly brings out the competence of private un-aided educational institution not dependent upon any funds from the government to decide on the fee to be charged.
15. The AR also relied on the order of the Tribunal, Pune Bench in the case of Maharashtra Academy of Engineering & Educational Research (MAEER) vs. CIT dated 8.9.2009 in ITA No. 1669/PN/007 wherein observed as follows:
"3.1. The main allegation of the Investigation Wing of the IT Department after the search and survey was that the trust was taking the donation and capitation fees for admission though prohibited under Maharashtra Educational Institutions (Prohibition of Capitation Fees) Act, 1987 (hereinafter referred as 'Prohibition of Capitation Fees Act)"
Dealing on the said issue at 11.13 the Tribunal held as under:
11.13 "The aspect of morality as touched by the learned CIT is applicable. Every vigilant and law abiding citizen has to be fair in his conduct and should refrain from immoral activities. But existing blue laws are derived from the numerous extremely rigorous laws designed to regulate morals and conduct. These laws are enacted in such a fashion that if implemented correctly and efficiently then there is no scapegoat for an offender. We are tempted to write an idiomatic language due to the sensitivity of the issue, that a CIT cannot be allowed to hold a baton of morality in his hand to hit an immoral; but the statute has given him a flexible stick for inflicting tax on defaulter, that includes a trust or educational institution. The gist is that if the CIT had an information of some wrongful means of earning fees in the form of a donation or the information tells about excessive charging of fee;
then the CIT in his rights can pass on the information to the concerned office bearers working under the Maharashtra Capitation Fees (Prohibition) Act. These authorities have enough power to deal with such nature of default, side by side the CIT is to limit his 13 ITA No. 433/Hyd/2008 & Ors M/s. G. Pullareddy Charitable Trust ========================== jurisdiction within the ambits of provisions of the Act and expected to give a finding on facts that either the objects are not for general public utility or not achieved as prescribed under law.
Again at para 11.14 the Tribunal held as under:
11.14" Second aspect is, that though the donations received are meant to fulfil the objects but together with fees have infringed Anti Capitation Prohibition Act; then comes within the clutches of that Act but definitely not under s. 12AA(3) provisions. "
The Tribunal therefore held that the institution continues to be educational institution and registration cannot be revoked.
(i) He also relied on the judgement of Supreme Court in the case of Dr. T.A. Quereshi vs. CIT (287 ITR 547)
16. The AR relied on the judgement in the case of DIT (Exemptions), Ahmedabad vs. N.H. Kapadia Education Trust (136 ITD 111) (Ahd.) wherein the Tribunal held that the assessee Trust, engaged in field of education, collected from students at time of admission different amounts comprised of different funds in respect of building, education research, education infrastructure, library, sports, staff welfare and students welfare - Parents/Students made contribution towards the corpus funds which were required to be utilized for objects of the trust and therefore were exempt u/s 12 of the IT Act 1961.
(j) He relied on Memorandum explaining provisions reported in 298 ITR St. 200 and CBDT circular dated 19th December, 2008 reported in 308 ITR at page 5.
17. According to him if the assessee carried on commercial activity then only the assessee is not entitled for exemption u/s. 11 of the Act. He submitted that the order of the Tribunal in the case of Vodithala Education Society (20 SOT 353) is not applicable on the facts of the case. The finding in the order of 14 ITA No. 433/Hyd/2008 & Ors M/s. G. Pullareddy Charitable Trust ========================== the Vodithala Education Society is that if any amount is collected over and above the prescribed fees, it must be construed as capitation fees or price for selling education. Under the Constitution, sale of education is not permitted and the concerned university has to initiate steps to withdraw the approval/recognition for such educational institutions. The finding of the Tribunal in that case is erroneous. The various decisions relating to the educational institutions of the Apex Court have been summarized by the Hon'ble Supreme Court itself in a later decision in Action Committee Unaided Private Schools & Others vs. Director of Education, Delhi & Others reported In 2009 (11) SCALE Page 77). According to AR the said judgment run counter to the opinion expressed by the Tribunal. The appellant is a private unaided educational institution. It does not depend on any funds from the Government. The Hon'ble Supreme Court categorically held that the decision of the fees to be charged is left to the private educational institutions and there can always be reasonable surplus. The decision of the Tribunal in Vodithala Education Society case runs contrary to the judgment of the Hon'ble Supreme Court. While rendering the decision in Vodithala Education Society's case, the following cases have not been considered.
a) Addl. CIT vs. Surat Art Silk Cloth Manufacturers' Association, 121 ITR 1 @ 27 (SC)
b) Governing Body of Rangaraya Medical College vs. ITO, 117 ITR 284 (AP)
c) DIT vs. Moti Bagh Mutual Aid Education, 298 ITR 190 (Delhi)
d) Dr. T.A. Qureshi vs. CIT, 287 ITR 547 (SC)
e) CIT Vs. Bijli Cotton Mills Pvt. Ltd., 116 ITR 60 @ 73 & 74(SC)
f) Chairman, AP Welfare Fund vs. CIT, 143 ITR 83 @ 85 (AP)
g) DCIT vs. Santa Devi Progressive Education Society, 340 ITR 320 @ 330(Delhi) 15 ITA No. 433/Hyd/2008 & Ors M/s. G. Pullareddy Charitable Trust ==========================
h) Matrusri Educational Society vs. ITO, 48 ITD 583 ITAT, Hyderabad Bench
i) Director of Income tax (E) & Another Vs. Shri Melimatha Maha Samsthan Society, 46 DTR 290, ITAT Karnataka Bench
j) Maharashtra Academy of Engineering & Educational Research vs. CIT, 133 TTJ 706 @ 724, 731 & 732 - ITAT, Pune Bench
k) Karandhai Tamil Sangham, Thanjavur vs. CIY (Copy of judgment separately furnished), ITA No. 960 (Mds.)/2011 dt. 9-8-2011 - ITAT, Chennai
l) DCIT Vs. Vellore Institute of Technology, 46 SOT 224 ITAT, Chennai Bench
18. He submitted that the omission to consider the above cases which also includes the decision of the jurisdictional High Court is fatal to the decision arrived at in Vodithala's case. The above decisions are direct, germane and relevant for consideration while attempting any answer on the issue relating to:
a) under what circumstances a contribution can be said to be voluntary;
b) even if any amount is charged in excess of the fees, can it be said that the receipt of such amount vitiates the charitable character;
c) whether the receipt is voluntary or not, is only for the limited purpose of treating it as income or not and not for denying the exemption u/s 11 itself;
d) whether the test of charitable nature of the institution depends upon the actual application of income for educational purposes;
18.1 The cases which have not been cited and which have not been dealt with in the order in Vodithala's case relate to the above mentioned aspects. Therefore the decision of Vodithala Education Society's case can be restricted to the facts in that particular: case only, and cannot have universal application;
16 ITA No. 433/Hyd/2008 & OrsM/s. G. Pullareddy Charitable Trust ========================== 18.2 In the subsequent MA order in Vodithala Education Society's case in Miscellaneous Application No.43/Hyd./2008 dt. 30-1-2009 arising out of the same appellate order, the Tribunal itself clarified that its order has been passed denying the exemption because there was violation of the provisions of section 13 (l)( c) of the LT Act and not for other reasons.
19. He submitted that in the said order, the learned Vice President (one of the members who decided the appeal) has himself held that Vodithala Education Society's case was decided against the assessee because the excess money collected was given to the Managing Committee contravening section 13(l)(c) of the IT Act and that it is not proper for the Tribunal to give its label of capitation fees to the excess money collected for denying the exemption. The relevant passage is extracted below:
" It is also not the case of the Assessing Officer that the excess money collected by the assessee is in the form of capitation fee. In the preceding paragraphs I have already discussed that any fee collected in excess of the fee prescribed by the government is not necessarily capitation fees. Therefore, it is not proper for the Tribunal to give its own label of capitation fee to the excess money collected. "
20. He submitted that In view of the clarification subsequently given by the very same members in the very same case who decided the appeal, the ratio of Vodithala Education Society's case should be confined to its facts only. It cannot be made applicable to the appellant's case which stands totally on a different footing. It is also appropriate to refer to the decision of the Madras High Court in CIT Vs. Hi Tech Arai Ltd. reported in 321 ITR 477. The Court held that simply because a coordinate bench of the Tribunal had earlier taken a different 17 ITA No. 433/Hyd/2008 & Ors M/s. G. Pullareddy Charitable Trust ========================== view the Tribunal on several occasions, it should follow the same. The relevant extract from the judgment of the Madras High Court is given below for ready reference:
'" it cannot be held that simply because a coordinate bench of the Tribunal had earlier taken a different view, the Tribunal on this occasion also ought to have followed the same. When we find that the Tribunal has applied the law correctly in the impugned order, there is no gain saying that there was an earlier order by the coordinate Bench and therefore, for that reason, this time also the Tribunal should have blindly followed its own earlier decision even if such earlier decision did not reflect the correct position of the law.'"
21. The AR Commended to the acceptance of the Hon'ble tribunal the order passed in MA by the Accountant Member wherein the aspects of capitation fee etc is discussed. It is therefore the submission of the appellant that the decision of the Vodithala Education Society's case is firstly inapplicable on facts and even otherwise erroneous in law because of the above stated reasons. This aspect becomes all the more relevant/when the country held that mere receipt of donation cannot be taken to be capitation fees and even if the amounts are received, yet it does not vitiate the character of educational institution as a charitable institution. Therefore, he submitted that the Tribunal may consider the issue on the factual position existing in the appellant's case and the case law cited in support its claim for exemption. A Compilation of precedents on the subject has been separately filed in a paper Book by AR. He submitted that where two views or two judgments is available on the subject, that judgment which favours the subject is to be adopted. He relied on the Supreme Court Judgement in CIT vs. Vegetable products 88 ITR page 192.
18 ITA No. 433/Hyd/2008 & OrsM/s. G. Pullareddy Charitable Trust ==========================
22. Further he submitted that the amount kept with Sri G. Pulla Reddy over safe custody for that reason cannot be said that section 13(1)(c) is attracted. He submitted that the amount was returned to the assessee in the A.Y. 2006-07 and credited in the books of account of the assessee. Now, Sri G. Pulla Reddy is very old person, aged about 80 years and he is not aware of the intricacies of the issue. He is not a person of using Rs. 4 lakhs for his personal benefit. He has thrived his whole life for the betterment of the institution and it cannot be by any stretch of imagination one can say that he is going to use Rs. 4 lakhs for his personal or for his family benefit. He submitted that Rs. 4 lakhs is less than 5% of total development fund collected which is at Rs. 1,18,75,135 for the assessment year under consideration. He relied on the judgement of Rajasthan High Court in the case of DCIT vs. Cosmopolitan Education Society (244 ITR 494) (Raj.) wherein held that if there are minor deviations exemption cannot be denied. He also drew our attention to section 164(2) of the Act which says only the relevant income will be taxed at maximum rate. According to the AR Rs. 4 lakhs has to be taxed at maximum rate. He also relied on the judgement of Bombay High Court in the case of Seth Mafatlal Gagalbhai Foundation Trust (249 ITR 533). Further he strongly objected the direction of the CIT(A) to look into the other educational institutions of the trust. According to him this direction is not necessary for the disposal of the appeal before the CIT(A). He relied on the judgement of Supreme Court in the case of Rajindernath vs. CIT (120 ITR 14). Even otherwise, the direction of the CIT(A) is in violation of principles of natural justice as the CIT(A) has not given opportunity to the assessee before giving such direction. He also relied on the judgement of AP High Court in the case of SA Raheem vs. CIT (33 ITR 379) wherein their Lordships held that the Department 19 ITA No. 433/Hyd/2008 & Ors M/s. G. Pullareddy Charitable Trust ========================== authorities or the Tribunal cannot travel outside the grounds of appeal. Finally he objected to the levy of interest u/s. 234A and B of the Act.
23. The learned DR strongly relied on the order of the CIT(A) and on the order of co-ordinate Bench in the case of Vodithal Educational Society vs. ADIT (Exemptions) (20 SOT 353) (Hyd).
24. We have heard both the parties and perused the material on record. Regarding diversion of Rs. 4 lakhs which was kept with Sri G. Pulla Reddy, the CIT(A) was of the opinion that there is violation of section 13(1)(c) of the Act. Admittedly, the money kept with Sri G. Pulla Reddy who is at present aged about 80 years. He is associated with these institutions since long time and he has devoted his whole life in developing this massive institution which is carrying on Engineering College, High School, Junior College, Degree College, Pharmacy College and separate Engineering College for women at Hyderabad. The whole set of these institutions are functioning on account of unbiased and devotional effort put by Sri G. Pulla Reddy. In these circumstances, we cannot hold that a person of such calibre taken off a meagre amount of Rs. 4 lakhs for his personal benefit. The circumstances stated by the AR show that the money was kept with Sri G. Pulla Reddy for safe custody. Considering the circumstances under which it was kept with Sri G. Pulla Reddy, we are not in a position to hold that there is diversion of fund for the personal benefit of Sri G. Pulla Reddy. Accordingly, we cannot hold that provisions of section 13(1)(c) are attracted in the peculiar circumstances.
25. Regarding benefit of exemption u/s. 11 for collection of fee in case of prescribed limit by the State Government, we find similar issue was considered by this Tribunal in the case of 20 ITA No. 433/Hyd/2008 & Ors M/s. G. Pullareddy Charitable Trust ========================== Vasavi Academy of Education, Hyderabad in ITA No. 1794/Hyd/ 2008 dated 4th February, 2010 which applies squarely to the facts of the present case wherein the Tribunal in paras 3 and 4 observed as follows:
"3. After hearing both the parties, we are of the opinion that this issue has already been decided by the tribunal vide its order dated 29.1.2009 in assessee's own case for the assessment year 2005-06 in ITA No. 1120/Hyd/2009 by holding as follows:
"We have heard both the parties and perused the material on record. The learned Authorized Representative for the assessee submitted that this issue covered in favour of the assessee by the order of the Hyderabad Bench 'A' of the Tribunal dated 15.4.2009 in assessee's own cases in ITA No. 1133/Hyd/2006 for the assessment years 2003-04 and order dated 17.4.2009 in ITA No. 1206/Hyd/2007 for the assessment year 2004-05. However, we find that the Constitutional Bench of Apex Court in the case of T.M.A. Pai Foundations and others Vs. State of Karnataka & Others (2002) 8 SCC 481 examined the issue of collection of capitation fees for the admission of students over and above fees prescribed by the private institution and held that the institution which are collecting capitation fees for admission of students over and above the fees prescribed cannot be construed as charitable/education institution. Apex Court further observed that the fees collected over and above the prescribed fee for admission of the student has to be constructed as capitation fee. The Apex Court, further observed that the concerned university and regulated body has to take action for withdrawal of the recognition in case it is found that the educational institution received any money over and above the fees prescribed for the courses. Same view was taken by Apex Court in the case of Islamic Academy of Education and another Vs. State of Karnataka & another (2003) 6 SCC 697. If the donations were received compulsorily for admission of students, the assessee is not entitled for exemption either u/s 10(23C) or u/s 11 of the IT Act. Since the lower authorities were not examined the collection of capitation fees in this case, in our opinion, the matter requires to be examined by the assessing officer whether the assessee is collecting the capitation fees from students or not and it is necessary for bringing the actual facts on record for deciding the issue effectively. Similar view was taken by us in the case of M/s. Jamia Nizamia in ITA No.763/Hyd/2007 dated 30.6.2008, in the case of International Educational Academy, Hyderabad in ITA No.494/Hyd/2007 and 518/Hyd/2008 for the assessment 21 ITA No. 433/Hyd/2008 & Ors M/s. G. Pullareddy Charitable Trust ========================== years 2002- 2003 and 2004-05 and Sri Sai Sudhir Educational Society, Hyderabad in ITA No.999/Hyd/20-06 for the assessment year 2003-04. Therefore, we set aside the orders of the lower authorities and remit back the matter to the file of assessing officer with a direction to assessing officer that he shall reconsider the entire issue in the light of judgement of Supreme Court in the case of M/s Islamic Academy of Education & Another Vs. State of Karnataka and Another (supra), and in the cased of T.M.A. Pai Foundation and Others Vs. State of Karnataka and Others (Supra), and find out whether the assessee has received any money over and above the fees prescribed and thereafter decide the issue afresh in accordance with law after giving reasonable opportunity of hearing to the assessee . We make it clear that the assessee is not entitled for exemption either u/s 11 or u/s 10(23C) in case it collected any money by whatever name it is called i.e., donation, building fund, auditorium fund etc. etc., over and above the prescribed fee for admission of students.
4. Respectfully following the ratio laid down by the Tribunal in the above order, we set aside the issue in dispute to the file of Assessing Officer on similar directions for fresh consideration."
26. It is worthwhile to note that the order of the Tribunal dated 29.1.2009 in the case of Vasavi Academy of Education, Hyderabad for assessment year 2005-06 in ITA No. 1120/Hyd/ 2009, which has been relied upon by the Tribunal in its order dated 4.2.2010, in ITA No. 1794/Hyd/2008, has been recalled, while deciding upon on the Miscellaneous Applications of both the parties in ITA No. 1120/Hyd/2009 and 1794/Hyd/2008, vide consolidated order of this Tribunal dated 20.10.2011 in MA No. 130/Hyd/2011. However, as in its order dated 4.2.2010 in ITA No. 1794/Hyd/2008, since the Tribunal has not merely followed the reasoning given in its order dated 29.1.2009 in ITA No. 1120/Hyd/2009, but adopted the same, as may be seen from para 4 of the order dated 4.2.2010 extracted above, the said reasoning forms part and becomes the reasoning for the decision rendered in ITA No. 1794/Hyd/2008 in its order dated 4.2.2010. In that view of the matter recall of the order in ITA No. 22 ITA No. 433/Hyd/2008 & Ors M/s. G. Pullareddy Charitable Trust ========================== 1120/Hyd/2009 does not invalidate either the reasoning or the directions given by the Tribunal in the order dated 4.2.2010 in ITA No. 1794/yd/2008.
27. In view of the above discussion, we are inclined to remit the issue to the file of the Assessing Officer. He shall consider the entire issue afresh and verify the records whether the assessee collected capitation fees from students for the purpose of giving admission. If so, the assessee is not entitled for deduction u/s. 11 of the Act.
28. In the result, appeal in ITA No. 437/Hyd/2008 is allowed for statistical purposes.
Order pronounced in open court on 5 th April, 2013.
Sd/- Sd/-
(ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 5 th April, 2013
tprao
Copy forwarded to:
1. M/s. G. Pullareddy Charitable Trust, c/o. M/s. Sekhar & Co., Chartered Accountants, 133/4, R.P. Road, Secunderabad.
2. The Deputy Director of Income-tax (Exemptions)-II, Hyderabad.
3. The CIT(A)-IV, Hyderabad
4. The DIT (Exemptions), Hyderabad
5. The DR - A Bench, ITAT, Hyderabad.