Income Tax Appellate Tribunal - Delhi
Sushila Devi Chhabil Dass Charitable ... vs Addl. Cit, Ghaziabad on 11 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES "SMC": NEW DELHI
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
ITA.No.5261/Del./2015
Assessment Year 2010-2011
Sushila Devi Chhabil Dass
Charitable Trust, 15, G.T. vs. Addl. CIT, Range-1
Road, Ghaziabad Ghaziabad.
PAN AABTS1759D
(Appellant) (Respondent)
For Assessee : Shri Ajay Wadhwa, Advocate &
Ms. Bharti Sharma, C.A.
For Revenue : Shri T. Vasanthan, Sr. D.R.
Date of Hearing : 12.07.2017
Date of Pronouncement : 11.08.2017
ORDER
This appeal by assessee has been directed against the order of the Ld. CIT(A), Ghaziabad dated 4th May, 2015 for A.Y. 2010- 2011. Earlier, the appeal was dismissed for default. However, by allowing Miscellaneous Application of the assessee the appeal was re- fixed for hearing on merits. The assessee has raised the following grounds in its appeal.
1. "That the order of the Hon'ble Commissioner of Income Tax (Appeals), Ghaziabad, dated 0405.2015 is bad in law and on facts and has erred in not appreciating the fact that the transport facilities provided to the students by the appellant society is an activity incidental to the attainment of the main objective of the society.
2. That the Hon'ble Commissioner of Income Tax (Appeal), Ghaziabad has erred in law and on facts in upholding the action of the Assessing Officer to assess the surplus of Rs.9,89,000/- worked out in the transport facilities provided to 2 ITA.No.5261/Del./2015 Smt. Sushila Devi Chhabil Dass Charitable Trust, Ghaziabad.
the students as business income in the hands of the appellant society.
3. That the Hon'ble Commissioner of Income Tax (Appeal), Ghaziabad has erred in law and on facts in treating the transport facility provided to the students of institution as a business undertaking and thus upholding the action of the assessing officer as to the requirement of maintenance of separate books of accounts in view of the provisions contained under section 11 (4A) of the Income Tax Act, 1961.
4. That the Hon'ble Commissioner of Income Tax (Appeal), Ghaziabad has erred in law and on facts in upholding the action of Assessing Officer to disallow depreciation claimed by the appellant society at Rs.83,17,641/- by debiting the same in Income & Expenditure Account.
5. That the Hon'ble Commissioner of Income Tax (Appeal), Ghaziabad has erred in law and on facts in upholding the action of the Assessing Officer that the appellant society has availed 100% application of the value of the capital expenditure in the year of purchase of fixed assets out of gross receipts and consequently disallowed the claim of depreciation.
6. The appellant craves leave to add, alter, amend, substitute, delete and modify any or all grounds of appeal, which are without prejudice to one another, before or at the time of hearing of the appeal."
2. Briefly, the facts of the case are that assessee-society has been registered under the Societies Registration Act vide Registration dated 5th December, 1973 and renewed from time to time. As per the Memorandum of Society, the society was established with the aim of imparting education and other charitable activities covered under section 2(15) of the I.T. Act. The CIT, Kanpur has granted registration under section 12AA of the Act to the assessee-society vide order dated 16th April, 1974 and also granted exemption under section 80G of the I.T. Act. The assessee-society runs various schools and hospitals as noted in the assessment order.
3ITA.No.5261/Del./2015 Smt. Sushila Devi Chhabil Dass Charitable Trust, Ghaziabad.
2.1. The assessee society is providing transportation facilities to the students admitted to educational institutions. The A.O. has observed that the assessee-society provided transport facilities to the students and charging a regular amount of transportation fee along with school fee and other charges as scheduled. During the year under consideration assessee-society has charged a sum of Rs.1,02,28,000 as transportation charges and expenses incurred on transportation was Rs.92,39,000 thus a net surplus of Rs.9,89,000 has arrived. The figures of transportation charges and expenses thereon have been shown by the assessee-society in its composite income and expenditure account. The assessee-society has not maintained any separate set of books of account as required under section 11(4A) of the I.T. Act. The A.O. therefore, held that transportation activity is an independent business activity and is not covered by Section 2(15) of the I.T. Act. Further, no separate books of account have been maintained. The assessee has claimed that activity of running vehicles for school is not business activity because it is utilised for charitable purposes. The A.O. however, did not accept the contention of assessee and held that transport activity is in the nature of business and accordingly, made addition of Rs.9,89,000 by denying the benefit under sections 11 and 12 of the I.T. Act, 1961.
2.2. The A.O. has also noted that assessee has claimed depreciation amounting to Rs.83,17,641 in its income/expenditure account. A specific query was raised to the assessee as to why depreciation should not be disallowed in view of the fact that 100% application of value of capital expenditure had already been availed by the assessee-society in the year of investment and on the same value assessee claimed depreciation. The A.O. after considering the explanations of the assessee-society held that allowance of 4 ITA.No.5261/Del./2015 Smt. Sushila Devi Chhabil Dass Charitable Trust, Ghaziabad.
depreciation on an amount which was treated as application of income in the year in which capital asset was acquired is not permissible. Hence, the contention of the assessee was not accepted and depreciation claimed was disallowed.
2.3. The assessee-society reiterated its submissions before the Ld. CIT(A) and also submitted that it is wrong to observe that surplus is generated from the transport every year. The composite income and expenditure account filed by the assessee contained only receipt of transport charges from children and made payment to contractors for hiring buses. The school does not own any buses and thus, they are hiring from the market where payment is made after deducting tax at source. The A.O. ignored the realities and failed to appreciate the risk and responsibility attached in providing transport facility to the students. The assessee-society has provided tough security and staff to accompany the children on the way from house to the school and back for proper handingover of the children to the parents. It is thus, stated that apart from making payments to the contractor for hiring buses, assessee-society incurred other connected expenditure such as providing attendants and teachers in the buses for safety of the students, deputing dedicated staff at the school gate to receive the students and mark their presence in the specially maintained records and similarly mark the boarding of the students in the evening and also to maintain record when the buses came back. All such expenses are merged with the expenses debited under different heads and they have not been considered by the A.O. It was explained that assessee- society did not earn any profit and no business activity have been conducted by the assessee. The Ld. CIT(A) however, on the same reasoning as was given by the A.O. held that running of transport for students is neither education per se nor it is an integral part. Further, 5 ITA.No.5261/Del./2015 Smt. Sushila Devi Chhabil Dass Charitable Trust, Ghaziabad.
no separate books of account were maintained for transportation. Therefore, the order of the A.O. was confirmed by holding that principle of res-judicata did not apply to the income tax proceedings.
3. The Ld. CIT(A) as regards the claim of depreciation also disallowed the claim of assessee by following the decision of the Hon'ble Supreme Court in the case of Escorts Ltd., vs. Union of India AIR 1993 SC 1325. The Ld. CIT(A) also noted that as per scheme of the Act in the case of charitable institutions, if other conditions of Sections 11 and 13 are fulfilled, what is taxable is the income accumulated for set apart in excess of 15%. In the present case, the A.O. has given a finding that without considering depreciation as application of income, assessee has fulfilled the criteria of application of 85% of the income. In such a case, even if depreciation is not treated to be application of income, this will not result into any taxable income. Therefore, while legal issue whether depreciation is to be allowed as application of asset is decided against the assessee, at the same time, it is also noteworthy that even if depreciation is disallowed as application of income, it is not resulted into any addition to return of income as the assessee meets the criteria of application of 85% of income excluding depreciation also. This ground was therefore, rejected on merit considering it to be academic issue.
4. I have heard the learned representatives of both the parties and perused the material on record. Learned Counsel for the Assessee reiterated the submissions made before the authorities below and also relied upon various orders of the ITAT, Agra Bench and ITAT, Delhi Bench and submitted that in subsequent years, on transportation charges, A.O. passed the orders under section 143(3) but no addition have been made, thus, A.O. accepted that transportation was integral 6 ITA.No.5261/Del./2015 Smt. Sushila Devi Chhabil Dass Charitable Trust, Ghaziabad.
part of educational activity of the assessee. Therefore, following the rule of consistency, A.O. should not have disallowed the excess of transport charges. He has also submitted that the incidental surplus have been used by the assessee for educational purposes only.
4.1. As regards the depreciation, the Learned Counsel for the Assessee has submitted that the issue is covered by the decisions of Delhi High Court in the case of DIT (Exemptions) vs. Indraprastha Cancer Society (2015) 53 taxmann.com 463 (Del.), and Order of ITAT, Delhi Bench in the case of Laksh Educational Society, Ghaziabad vs. Addl. CIT, Range-1, Ghaziabad ITA.No.3549/Del./2015 dated 27.03.2017. Copies of the orders are placed on record. He has therefore, submitted that assessee is entitled for depreciation.
5. The Ld. D.R. relied upon the orders of the authorities below and submitted that principle of res-judicata do not apply to the income tax proceedings.
6. I have considered the rival submissions. It is an admitted fact that assessee-society has been registered under the Societies Registration Act. As per the Memorandum, the assessee-society was established with the aim to impart education and other charitable activities covered under section 2(15) of the I.T. Act. It is also an admitted fact that assessee has been granted registration under section 12AA of the I.T. Act. It is also an admitted fact that assessee- society is running various schools and hospitals. Learned Counsel for the Assessee relied upon the order of the ITAT, Agra Bench in the case of Society for Advance Health Education vs. CIT (2013) 38 taxman.com. 280 (Agra. Trib.) in which it was held as follows :
"Where assessee-institution imparting education in field of nursing, claimed registration under section 12AA, in view of fact 7 ITA.No.5261/Del./2015 Smt. Sushila Devi Chhabil Dass Charitable Trust, Ghaziabad.
that assessee was charging nominal fee from students and, moreover, hostel facility run by it for students was only incidental to its main objective, it was to be concluded that assessee's activities were charitable in nature and, thus, its claim for registration was to be "allowed.
6.1. The Learned Counsel for the Assessee also relied upon the order of ITAT, Delhi Bench in the case of Dr. K.N. Modi Institute of Pharmaceuticals Educational & Research Trust, Ghaziabad vs. JCIT in ITA.No.4232/Del./2015 dated 26.04.2017 (supra) wherein it has been held in paras 8 to 10 as under :
"8. We have considered rival submissions. It is not in dispute that assessee trust is running educational institutions in various names. It is also not in dispute that as per memorandum of association of assessee trust, the main objectives are to establish and maintain educational institution to: provide and. promote Pharmaceutical Education and Research. It is also not in dispute that assessee has been granted registration u/s' 12AA by learned CIT, Meerut vide order dated 4th May, 2000. Learned counsel for the assessee referred to PB 97 which is assessment order for preceding year 2009-10 u/s 143 (3) dated 25th March, 201] in which on identical' facts, no addition has been made on account of receipts/income received on account of hostel and transportation, PB 87 is copy of the assessment order u/s 143(3). dated' 23rd January, 2014 for subsequent assessment year 2011-12 in which AO did not make the addition on account of same income earned from hostel and transportation. P.B. 82 is assessment order for assessment year 2012-13 u/s.143(3) dated 23rd December, 2014 in which also on the same facts AO did not make any addition on account of income earned on account of hostel and transportation. It is thus established on record that on identical facts in preceding and subsequent assessment years, in the case of assessee the authorities below have accepted that income earned on account of hostel and transportation is charitable in nature and is part and. parcel of educational activities of the assessee. Learned DR submitted that the rule of res-judicata does not apply to the income tax proceedings and also submitted that principle of consistency is not absolute. However, the facts noted above clearly established that in earlier as well as in subsequent years, the Assessing Officer taken a conscious decision and has 8 ITA.No.5261/Del./2015 Smt. Sushila Devi Chhabil Dass Charitable Trust, Ghaziabad.
accepted that hostel and transportation activities are incidental to the aims and objects of the trust i.e., education. Therefore, unless new facts have been have been brought on record, the Income Tax Authorities should follow rule of consistency. Hon'ble Delhi High Court in the case of A.R.J. Securities Printers, 264 ITR i76 held that "for sake of consistency and finality of litigation" earlier decisions on same question should not be reopened unless new facts came to the knowledge." It is well settled law that rule of consistency should be- adopted by the Income Tax Authorities. We rely upon decision of Delhi High Court in the case of Escorts Limited 338 ITR 435, decision of M.P. High Court in the case of Godavari Corporation Limited, 156I1TR 835, decision of Punjab and Haryana High Court in the case of Vikas Chemi Gum India, 276 ITR 32 and decision of the Hon'ble Supreme Court in the case of Radhasoami Satsang vs. CIT 193 ITR 321. The Board Circular relied upon by learned counsel for the assessee also support the case of the assessee that the entity whose-object is education would- continue to be eligible for exemption as charitable institutions, even if they incidentally carry on commercial activity. The provision for hostel and transportation facility to the students admitted to the educational institution of the assessee was only incidental to the aims and objects of the assessee and there was no material on record showing that assessee was running hostel and transportation for business purpose. Thus the assessee did not carry out any business activity 'while providing hostel and transportation facility to its students therefore assessee need not to maintain separate books of accounts u/s. 11(4A) of the Income Tax Act. Learned Counsel for the Assessee also contended that the A.O. has relied upon decision in the case of Municipal Corporation of Delhi vs. Children Bank Trust which is connected with house tax matter only. Learned Counsel for the Assessee also filed the norms and standard to be maintained by educational institutions as per guideline of ACITE in which the educational institutions shall have to provide hostel facility as per standard prescribed by them. Learned counsel for the assessee therefore rightly contended that the hostel .and transportation activities were carried on 'by assessee which were part and parcel of educational activities and is incidental to the attainment of objectives of the assessee trust i.e., education.
9. Considering the above discussions and in the light of above decisions and history of the assessee it is clear that no business activities have been carried out of the assessee while carrying out activities of hostel and transport for its students for educational purposes therefore there were no need for assessee to maintain to separate books of accounts. The assessee has been able to prove that it 9 ITA.No.5261/Del./2015 Smt. Sushila Devi Chhabil Dass Charitable Trust, Ghaziabad.
provides education only which is charitable in nature itself. In the absence of any specific material on record against the assessee as against the history of the assessee considered in earlier and subsequent years, the authorities below should not have taken a different view in assessment year under appeal and should have followed the rule of consistency in the matter. The approach of the authorities below in denying deduction/exemption u/s.11 of the Income Tax Act is wholly unjustified. The orders of authorities below cannot be sustained in law. We, accordingly, set aside the orders of authorities below and delete the addition of Rs.3,76,21,720/-.
10. In the result, appeal of the assessee is allowed."
6.2. The assessee explained before the authorities below that composite income and expenditure account was filed which contain only the receipts of the transport charges from the students and payments made to the contractors for hiring buses. The assessee did not own any buses. The assessee explained that it was the responsibility of the assessee educational institution to provide transport facility to the students for attending the school and for sending back the children to their respective homes with proper security and attachments. It is not a denying fact that now-a-days the educational institutions are providing transport facilities to the students for their safety and proper attendance in educational institutions. Therefore, the explanation of assessee clearly shows that whatever transport charges were received by the assessee were for providing transport facilities by hiring of business through the contractors. The assessee also explained that whatever surplus is left is also used for educational purposes. The contention of the assessee have not been disputed by the authorities below. These facts therefore, clearly prove that transport facility provided for the students was only incidental to the main activities of the assessee for providing education to the students. The assessee thus, would not be doing any transportation business in this regard. The assessee filed details before the A.O. as per their reply copy of which is filed at page-32 of the paper book to show that in assessment year under appeal the net surplus out of 10 ITA.No.5261/Del./2015 Smt. Sushila Devi Chhabil Dass Charitable Trust, Ghaziabad.
transport fees has come to Rs.9,89,000 and in subsequent A.Ys. 2011-2012 and 2012-2013 it is Rs.1.93 lakhs and (-) Rs.8.72 lakhs respectively. Thus, percentage of the net surplus in the transport fees has come to 9.6% in A.Y. under appeal i.e., 2010-2011 and in subsequent A.Ys. 2011-2012 and 2012- 2013 it is 1.7% (-) 7.6%. It is, therefore, clear that it is not always that assessee was getting huge surplus after charging transportation fees. The Learned Counsel for the Assessee also filed copies of the financial statements for subsequent years in the paper book to show the same position of some time getting surplus out of transportation fees. The Learned Counsel for the Assessee also referred to the assessment orders passed under section 143(3) for A.Ys. 2012-2013, 2013-2014 and 2014-2015 (Paper Book page Nos.49 to 57) in which years the assessee provided the same transportation facility to the students but the A.O. did not take any adverse view against the assessee of doing any business activity. The A.O. accepted in subsequent years in scrutiny assessments that transportation facility was integral part of the educational activity of the assessee for providing and imparting education to the students. These facts therefore, proved that the provision for transportation facilities to the students admitted to the educational institution of the assessee-society was only incidental to the aims and objects of the assessee-society and there were no material on record showing that assessee-society was running transportation for business purposes. Thus the assessee-society did not carry out any business activity while providing transport facility to its students. Therefore, assessee need not to maintain separate books of account under section 11(4A) of the I.T. Act. An identical issue has been considered by the Division Bench of ITAT, Delhi Bench in the case of Dr. K.N. Modi Institute of Pharmaceuticals Educational & Research Trust, Ghaziabad vs. JCIT, Range-2, Ghaziabad (supra) in which the appeal of the assessee has been allowed granting exemption under section 11 of the I.T. Act. It is also well settled Law that though the principle of res-judicata do not 11 ITA.No.5261/Del./2015 Smt. Sushila Devi Chhabil Dass Charitable Trust, Ghaziabad.
apply to the income tax proceedings but Rule of Consistency do apply to the income tax proceedings. Various case laws have also been considered in the above decisions of Dr. K.N. Modi Institute of Pharmaceuticals Educational & research Trust, Ghaziabad vs. JCIT, Range-2, Ghaziabad (supra). These facts clearly proved that addition was wholly unjustified and assessee is entitled for exemption of income on account of transportation fees under sections 11 and 12 of the Income Tax Act. I, accordingly, set aside the orders of the authorities below and delete the addition of Rs.9,89,000. This ground of appeal is allowed.
7. As regards the depreciation is concerned, the issue is covered in favour of the assessee by the judgment of the Hon'ble Delhi High Court in the case of DIT (Exemptions) vs. Indraprastha Cancer Society (2015) 53 taxmann.com 463 (Del.)in which it was held as follows :
"Where a charitable institution has purchased a capital asset and treated amount spent on said asset as application of income, is entitled to claim depreciation on said asset utilised for business."
8. The ITAT, Delhi SMC Bench in the case of Laksh Educational Society, Ghaziabad vs. Addl. CIT, Range-1, Ghaziabad (supra), held that assessee is entitled to claim depreciation on the same capital asset which is treated as application of income. Following the above decisions, I set aside the orders of the authorities below and direct the A.O. to grant depreciation to the assessee. This ground of appeal of assessee is allowed.
9. In the result, appeal of assessee is allowed.
Order pronounced in the open Court.
Sd/-
(BHAVNESH SAINI) JUDICIAL MEMBER Delhi, Dated 11th August, 2017 VBP/-
12ITA.No.5261/Del./2015 Smt. Sushila Devi Chhabil Dass Charitable Trust, Ghaziabad.
Copy to
1. The appellant
2. The respondent
3. CIT(A) concerned
4. CIT concerned
5. D.R. ITAT "SMC" Bench
6. Guard File // BY ORDER // ASST. REGISTRAR ITAT, DELHI BENCHES DELHI.