Income Tax Appellate Tribunal - Indore
Vichar Bharti Education Society,, ... vs Assessee on 19 December, 2011
1
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
AND
SHRI R.C. SHARMA, ACCOUNTANT MEMBER
ITA Nos. 15 and 16/Ind/2011
A.Ys. 2002-03 and 2005-06
Asstt. Commissioner of Income Tax
3(1)
Bhopal ... Appellant
Vs
Vichar Bharti Education Society
Bhopal
PAN - AAAAV-0976F ... Respondent
CO No. 9/Ind/2011
Arising out of ITA No. 15/Ind/2011
Vichar Bharti Education Society
Bhopal ... Objector
Vs
Asstt. Commissioner of Income Tax
3(1)
Bhopal ... Respondent
Revenue by : Shri Keshav Saxena
Assessee by : Shri R.N. Gupta
Date of Hearing : 19.12.2011
Date of Pronouncement : 22.12.2011
2
O R D E R
PER JOGINDER SING The revenue is aggrieved by different orders of learned Commissioner of Income Tax (Appeals) dated 11.11.2010 for the assessment years 2002-03 and 2005-06 and the assessee has preferred cross objection for the assessment year 2002-03 (arising out of ITA No. 15/Ind/2011). Following identical grounds have been raised by the revenue :-
"That on the facts and in the circumstances of the case, the ld. first appellate authority erred in :-
(i) Holding that the assessee is eligible for the benefits u/s 11 and 12 of the Act and the provisions of section 30 is not applicable to the case of the assessee
(ii) holding that the provisions of section 13(2)(h) and 13(2)(a) have no application in the case of the assessee without appreciating the fact narrated in the assessment order and thus not treating the 3 funds diverted to its sister society M/s Devi Shakuntala Charitable Foundation in violation of section 13(2)(h) of the Act.
(iii) holding that the assessee is entitled for depreciation amounting to Rs. 53,04,429/-
(A.Y. 2002-03) and Rs. 1,33,29,272/- (A.Y. 2005-06) as an application of income u/s 11 without appreciating the facts narrated in the assessment order.
(iv) Deleting the addition of Rs.34,05,546/-
(A.Y.2002-03) and Rs. 1,46,62,229/- (A.Y. 2005-06) on account of advance tuition fee which was the income during the above assessment years
(v) Deleting the addition of Rs. 8,75,459/-
(A.Y. 2002-03) and Rs. 8,75,459/- (A.Y. 2005-06) made by the Assessing Officer on account of refundable deposits.
(vi) holding that the assessee is fully eligible for the deduction claimed at Rs. 3,63,73,250/-
(A.Y. 2002-03) and Rs.2,33,89,836/-
(A.Y. 2005-06) as an application of income 4 u/s 11 and 12 for the acquisition of fixed assets, without appreciating the facts narrated in the assessment order
(vii) holding that the assessee is eligible for the deduction u/s 11(1)(a) of the I.T. Act, 1961"
2. During hearing of these appeals, the learned CIT DR, Shri Keshav Saxena, supported the assessment order whereas the learned counsel for the assessee, Shri R.N. Gupta, defended the impugned orders by further asserting that the impugned issues are covered in favour of the assessee by the order dated 13th July, 2010 of the Tribunal in ITA Nos.
504 to 542/Ind/2007, 317 and 318/Ind/2006 and ITA No. 256/Ind/2007 for different assessment years. This factual matrix was not controverted by the revenue, therefore, we proceed to dispose of the impugned grounds.
3. So far as ground nos. 1 and 2 are concerned, we find that the Tribunal has discussed the issue in paras 15 to19 of the said order as under :-
15. The AO, thereafter re-worked out the income derived from property held by the society and made adjustments for various additions/claims rejected by him and found that the assessee had applied only a sum of Rs. 4.57 crores as against 5 required amount of Rs. 7.85 crores, hence, not applied 85 % of its receipt and therefore, the assessee was not entitled for exemption u/s 11. Thereafter, the AO re-casted the income and expenditure account and worked out the total income at Rs. 3,86,39,632/-. Aggrieved by this, the assessee preferred an appeal before the ld. CIT(A), wherein it was contended that the society was registered u/s 12A of the Income-tax Act,1961, and was running Engineering College at Bhopal, which was registered with AICTE. The ld. counsel further submitted that in assessment year 2001-02 and 2002-03, it had been held that the AO was not justified in denying benefit of sections 11 & 12 of the Act, as the assessee had not violated the provisions of Section 11 of the Act. The assessee further submitted that even if the surplus was generated, the exemption could not be denied, if the surplus so generated was used for advancement of education, being the purpose of assessee society. The assessee, in this regard, relied on the following judicial decisions :-
(a) ARR Trust vs. ACIT, 97 ITD 203 (Chennai)
(b) CIT vs. Rajathan Text Book Board, 244 ITR 667 (Raj)
(c) Aryan Educational Society vs. CIT, (2006) 8 (11) (ITCL)454 (Del)
(d) Dy. CIT vs. St.Paul Secondary School, 9 SOT 702 (Del)
(e) CIT vs. Pulikkal Medical Foundation, 210 ITR 299 (Ker).
16. It was also contended that expenditure incurred on acquisition of fixed assets was also a case of application of income and, therefore, amount spent on acquisition of fixed assets was liable to be considered as application of income. In this regard, the assessee relied on following judicial decisions :-
(A) Gujarat High Court in the case of Satya Vijay Patel Hindu Dharamsala Trust vs. CIT, 86 ITR 683 (Guj). (B) S.RM. M. CT.M.TIRUPPANI TRUST vs. CIT, 230 ITR 636 (S. C.) (C) CIT vs. Janmabhumi Press Trust, 242 ITR 703. (D) CIT vs. Institute of Banking, 264 ITR 110 (Mum)
17. It was also submitted that in this year there was a deficit. Hence, no income was accumulated and set apart and, therefore, there was no question of violation of proviso to sub Section (2) of Section 11 of the Act. It was also contended that in such a case, there was no requirement of accumulation and setting apart of income of 15 % u/s 11(1)(a) of the Income-tax 6 Act,1961. For this proposition, the assessee relied on the decision of the Jaipur Bench of the Tribunal in the case of Jaipur Stock Exchange vs. ITO, as reported in 6 SOT 11. The ld.CIT(A) held that the appellant was registered u/s 12A and the ld.CIT(A)-I, Bhopal in assessment year 2001-01 and 2002- 03 had also held that object of the assessee institution were charitable within the meaning of provisions of Section 2(15) of the Act and the ld.CIT(A) concurred with this finding of the ld.CIT(A)-I. Thus, after considering this position as well as judicial decisions cited by the assessee, directed the AO to compute the appellant's income in accordance with the provisions of Section 11 & 12 of the Act and also to treat the investment in fixed assets as application of the income.
18. As regard to alleged violation of Section 13(2)(h) and Section 13(2)(a), the assessee submitted that Devi Shakuntala Charitable Foundation was also educational institution duly registered u/s 12 of the Act and the funds were advanced to such foundation to meet the requirement to construct the building and since this institution was also engaged in charitable cause, no interest was charged. It was also contended that none of the persons of the assessee society were having substantial interest in Devi Shakuntala Charitable Foundation nor such institution was a person falling under sub Section (3) of Section 13. It was also submitted that both charitable institutions were distinct and separate and they had separate set of members and office bearers and, therefore, the findings of the AO with regard to applicability of Section 13(2)(h) and 13(2)(a) were wholly incorrect. The assessee also submitted documentary evidence to support such claims. The ld.CIT(A) accepted these claims of the assessee and the relevant findings of the ld.CIT(A) are as under :-
" I have considered the submissions of the counsel, and the case laws relied upon by him. The reasoning of the AO is also seen. Explanation (3) to sub-section (13) defines the substantial interest in a concern. The AO has not proved as to how Devi Shakuntala Charitable Foundation falls within the two sub-
clauses, because sub-clause (i) applies to companies, 7 which have share capital. The sub-clause becomes applicable in a situation where the persons referred to in clauses (a), (b),(c), (cc) and (d) have share- holding of 20 % and above in the said company, which is not a case here. Sub-clause (ii) is also not applicable, because it applies to concern in which the persons referred to in clauses (a), (b), (c), (cc) and (d) having interest of 20 % or more in the profits of such concern, which is also not a case here. Further, the appellant institution has also not lent the income or the property of the institution to any person referred to in sub-Section (3). Therefore, I am of the view that the provisions of Section 13(2)(h) and 13(2)(a) have no application in the case of the appellant. I therefore decide the ground nos. 9 & 10 in favour of the assessee."
19. As regard to the AO's view that the assessee had violated provisions of Section 13(1)(d)(i) read with Section 11(5) of the Income-tax Act,1961, the assessee submitted that investments made were not in violation of Section 11(5) of the Act. It was also submitted that the owner of the land was assessee society, which was duly reflected in the balance sheet of the society and the name of the society as owner of the land was also mentioned in Government records. Thus, merely, because the name of Shri K.L. Thakral was mentioned in the registration documents, which was also in the capacity as the President of the Society, the AO wrongly inferred that the said lands were the property of Shri K.L. Thakral in his individual capacity. The ld.CIT(A) accepted this claim of the assessee by holding as under :-
"I have considered the submissions of the assessee. I find that the details of such land-holdings are given by the Assessing Officer in para 9 of his order. The lands in question were not purchased in this year, but they were purchased in the year 1993 & 1998. In the said para the name of the vendee has also been mentioned, and from reading of such name it 8 is clear that K.L.Thakral in the capacity of president has acted as the signatory to the document. The AO has not disputed the fact that all the lands are in the possession of the society. The building has also been constructed on the land at Bhopal and the college is being run from the said building. The document placed before me in the paper book also shows that the ownership of the lands is with the appellant institution. Thus, I hold that the provisions of Section 13(1)(d)(i) read with Section 11(5) have no application in this case. Therefore, I decide the ground no.11 in favour of the assessee."
4. The Tribunal ultimately in para 34 of the aforesaid order held as under :-
"34. As regard to issues raised in ground nos. 2 & 3, we find that none of the persons of the assessee society are having substantial interest in M/s. Devi Shakuntala Thakaral and Charitable Foundation and the land is also registered in the name of the assessee society. Hence, in our opinion, the provisions of Section 13(2)(h) read with Section 13(2)(a) and 13(1)(d)(1) are also not applicable. This view is based upon the documentary evidences brought on record by the assessee in regard to these issues. Thus, both these grounds are also dismissed."
5. If the conclusion drawn in the order of the Tribunal and the facts of the appeal under consideration are kept in juxtaposition and analysed, we find that the grievance of the revenue is that Devi Shakuntala Thakral Charitable Foundation is a concern in which the persons referred to in clauses (a), (b), (c), (cc) and (d) has substantial interest. 9 However, if Explanation (3) to section 13 of the Income Tax Act is analysed, we find that the assessee society is registered under the Societies Registration Act, 1973 and the Registrar of Societies has granted a certificate of registration. Under the provisions of the Societies Act, no member of the society is permitted to share the profits of the society. The contention of the assessee is that so far as section 11(5) of the Act is concerned, it prescribes the forms and modes of investing or depositing the money referred to in clause (b) of sub-section (2) of section 11. Section 11(2) talks about application of 85% of the income for the purposes/charitable purposes as per the objects of the society and the remaining 15% can be accumulated and set apart and at the same time, the assessee is to notify such accumulation to the Assessing Officer. Another contention was also raised by the assessee that the assessee did not accumulate or set apart the reserve, therefore, there is no question of attracting the provision. We further find that Devi Shakuntala Thakral Charitable Foundation is not a person falling u/s 13(3) of the Act as there is no substantial interest of any person. No material has been brought on record by the Assessing Officer that Devi Shakuntala Thakral Charitable Foundation falls within the clauses of section 13. The sub-clauses become applicable in a situation where the persons referred to in various clauses of section 13 have share holding of 20% and above in a said company which is not the case here. As 10 mentioned earlier, the Tribunal vide order dated 13.7.2010 has decided the issue in favour of the assessee against which neither contrary facts or contrary decision has been brought to our notice by either side and specifically by the revenue, therefore, we find no infirmity in the stand of learned Commissioner of Income Tax (Appeals). It is affirmed.
6. So far as entitled for claim of depreciation and application of income u/ss 11 and 12 is concerned, we find that the Tribunal in the aforesaid order dated 13th July, 2010 has discussed the issue and ultimately in para 31 has decided the issue as under :
"31. As regard to allowability of depreciation on assets, whose cost has been treated as an application of income, we find that now it has become settled position that both these aspects are different and the assets utilized for the attainment of objects of the assessee society, then the assessee can claim depreciation thereon. This view is dully supported by the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. Raipur Pallotine Society as reported in 50 Taxman 233 ( M.P.). Thus, this ground of the Revenue is also dismissed."
7. If the totality of facts is analysed, The crux of arguments on behalf of the revenue is that in the absence of specific provisions in the Act, depreciation cannot allowed on the asset whose cost has already been allowed for the purposes of application for claiming exemption u/s 11 read with sections 12 and 13 of the Act whereas the claim of the 11 assessee is that identically the depreciation has been allowed by the Tribunal in the case of Madhya Pradesh Madhyam and also by the Hon'ble jurisdictional High Court in the case of CIT v. Raipur Pallotine Society (50 Taxman 233) (MP). It is seen that the Tribunal in the order dated 13.7.2010 by following the aforesaid order from the Hon'ble jurisdictional High Court decided the issue in favour of the assessee, therefore, respectfully following the decision from the Hon'ble High Court, we find no infirmity in the order of the learned Commissioner of Income Tax (Appeals). It is affirmed.
8. The next ground pertains to deleting the addition on account of advance tuition fee. The learned CIT DR supported the assessment order whereas the learned counsel for the assessee defended the impugned order. We find that this ground relates to addition of Rs.34,05,546/- (A.Y. 2002-03) and Rs.1,46,62,229/- (A.Y. 2005-06). The learned Assessing Officer has deliberated upon this issue in paras 5.6 and 5.7. The stand of the revenue is that the income by way of advance fee received during these years is liable to be accounted as such and of income should be made out of these incomes. If the chart reproduced at page 14 of the impugned order is analysed, there is a specific finding that the closing balances appearing in the accounts for the month of April, 2002 to June, 2002 which relates to assessment year 2003-04 has 12 already been taxed and if the contention of the revenue is considered, it will amount to double taxation. The remand report from the Assessing Officer and the rejoinder to the remand report has already been discussed and examined by the learned Commissioner of Income Tax (Appeals). Admittedly, the income from advance fee was shown by the assessee during the relevant assessment year for full 12 months and the same method of accounting has been regularly employed by the assessee in earlier years also. Since no contrary facts were brought to our notice, therefore, we find no infirmity in the stand of the learned Commissioner of Income Tax (Appeals). It is affirmed.
9. So far as refundable deposits are concerned, the stand of the revenue is that the balance-sheet of the society shows certain deposits which have not been reflected in the income and expenditure account and the same has been directly taken to liability side of the balance- sheet. Based on these findings, the incremental difference i.e. difference between closing and opening balances was added to the income of the assessee. The stand of the assessee is that these amounts reflect liabilities i.e. caution money, etc. which are refundable to the students on leaving the college. It was also contended that some of the amounts are deposits of contractors as earnest money who are engaged in construction work and these are also refundable. The 13 remand report from the Assessing Officer and the rejoinder from the assessee were examined by the learned Commissioner of Income Tax (Appeals). Identically, the Tribunal has decided the issue in favour of the assessee. In the absence of any contrary facts or decision from Hon'ble higher forum, the stand of the learned Commissioner of Income Tax (Appeals) is affirmed.
10. So far as eligibility for deduction as an application of income u/s 11 for acquisition of fixed assets is concerned, we find that acquisition of fixed assets is a necessary requirement for imparting education and any application of money for acquiring these assets are for the fulfilment of the objects of the society. In the absence of fixed assets like buildings, furniture, etc., the objects of the society cannot be achieved, therefore, it is rightly an application of income, consequently, we find no infirmity in the impugned order and confirm the same.
11. The last ground pertains to eligibility for deduction u/s 11(1)(a) of the Act. We find that it is a statutory deduction and has to be allowed. The grievance of the Assessing Officer is that the society has violated the provisions of section 13, therefore, this deduction is not allowable, whereas the stand of the assessee is that deficit i.e. excess of expenditure over income, has been shown by the assessee and in the absence of any income, the deduction u/s 11(1)(a) i.e. 15% of income 14 was not claimed. There is a finding in the impugned order that there was deficit of Rs.1,64,73,040/- (assessment year 2002-03) and Rs.1,37,02,912/- for the assessment year 2005-06. In view of this uncontroverted finding, we are of the considered opinion that there is no violation of the provisions of section 13 of the Act, therefore, the assessee is entitled to deduction u/s 11(1)(a) of the Act, consequently, we find no infirmity in the impugned order and confirm the same.
In the result, both these appeals of the revenue are dismissed.
12. So far as the cross objection of the assessee is concerned, the assessee is aggrieved by the impugned order regarding approving the validity of reopening u/s 148 of the Act is concerned, we find that the main grievance of the assessee is that pursuant to scrutiny assessment, the assessment was framed u/s 143(3) of the Act, therefore, it is a reappraisal of same facts which are already on record, consequently, it is a change of opinion. There is a clear finding that the reassessment proceedings were initiated after issue of notice u/s 148(2) and the reassessment was finalised after affording due opportunity to the assessee. There is also an uncontroverted finding that the reasons recorded, prior to issuance of notice u/s 148 of the Act, were supplied to the assessee. There is another uncontroverted finding that no evidence or material was adduced by the assessee showing that all the facts were 15 considered during original assessment stage, consequently, we find no infirmity in the stand of the learned Commissioner of Income Tax (Appeals) and affirm the same, therefore, the cross objection of the assessee is having no merit.
Finally, the appeals of the revenue as well as the cross objection of the assessee are dismissed.
Order was pronounced in the open in the presence of learned representatives from both the sides at the conclusion of the hearing.
SD SD (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 22.12.2011
Copy to: Appellant, Respondent, CIT, CIT(A), DR, Guard File Dn/-