Income Tax Appellate Tribunal - Chandigarh
M/S Raghu Nath Rai Memorial Eduational & ... vs Cit (Exemption), Chandigarh on 1 May, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH 'B', CHANDIGARH
BEFORE MS.DIVA SINGH, JUDICIAL MEMBER
AND MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No.929/Chd/2017
(Under Section (5)(vi) of the Act)
Raghu Nath Rai Memorial Vs. The CIT(Exemption),
Educational & Charitable Trust, Chandigarh.
H.No.2350, Sector 71, Mohali.
PAN: AAATR6500J
(Appellant) (Respondent)
Appellant by : Shri B.K. Nohria & Vijay Jindal, CAs
Respondent by : Shri Ashis Abrol, CITDR
Date of hearing : 31.01.2018
Date of Pronouncement : 01.05.2018
ORDER
PER ANNAPURNA GUPTA, A.M.:
Th i s a p p e a l h a s b e e n p r e f er r e d by t h e a s s es s e e ag a i n st t h e o r d er o f L d . C o m m i s si o n e r of I n c o m e Ta x ( E xe m p t i o n s ) , C h a n d i g a rh ( h e re i n a f t e r r ef e r r e d t o a s ( ' L d . CI T( E ) ' d a t ed 2 8 . 3 . 2 0 1 7 r e j e c ti n g t h e a s s e s s ee' s a p p l i c a t i o n f or a p p r o v a l u / s 8 0 G of t h e In c o m e Ta x A c t , 19 6 1 ( i n sh o r t 't he A c t ' ) .
2. B r i e f l y st a t e d , an a p p l i c a ti o n i n F o r m N o . 1 0G h as b e e n f i l e d b y t h e a s ses s e e s o c i e t y o n 2 6 . 9 . 2 0 1 6 f or a pp r o v a l u / s 8 0 G o f t h e Ac t , t o s ee k d o na t i o n s e l i gi b l e f o r d e d u c t i o n u n d e r t h e s a i d se c t i o n . Th e a s s es s e e s o c i e t y w a s r e g i s t e r ed u n d e r t he S o ci e ti e s R e gi s t r a ti o n A c t X XI o n 29 . 9 .2 0 0 3 a n d was also r e g i s te r e d u/s 12AA of the Act vide C I T-I I , C h a n d i g a rh ' s o rd e r dated 1 9 . 5 .2 0 0 4 and had also been g r a n t e d a p pr o v a l u / s 1 0 ( 2 3 C ( vi ) o f t h e A c t v i de or d e r d a t e d 2 1 . 8 . 2 0 0 7.
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3. D u r i n g t h e c ou rs e o f h e a r i n g bef o r e t h e L d . CI T( E ) i n t h e p r e s e n t p r oc e e d i n g s , d u e op p o r t u n i t y o f h e a r i n g w as g r a n t e d t o t h e as s e s s e e , c a l l i ng f o r i n f o rm a t i o n b y i s s u i n g s h o w c a us e l et t er t o i t . D ue r e pl y w a s f i l e d b y t he a s s e s se e i n r e s p o n s e t o th e s a i d l e t t e r , af t e r c o n s i d er i n g w h i c h t h e L d . CI T( E ) r e j ec t ed t h e ap p l i c at i o n h o l d i n g t h a t t h e a s s e s s ee h a d a t i t s d i s p os a l i n v e s ti b l e s ur p l u s e s a nd t h e r a t i o n a l e f o r s e e ki n g do na t i o n s w a s n ot b r o u g h t o u t i n th e p r e s en t case and f u r t he r that the act i v i t i e s and c l ai m of th e assessee s o c i et y of i m p a r t i ng e d u c a ti o n was not c o r r o b o r at e d b y i t s e m p h as i s o n a s s e t s cr e a t i o n a n d o t h er i n v e s t m e nt s t i l l d a t e . Th e r e l e v a n t f i n d i n g s o f t he L d . CI T( E ) a t p a r a s 4 t o 7 of i t s o rd e r a re a s u n d e r :
"4. The applicant society has submitted its financial statements for last four years. The Gross receipt, Net surplus, FDRs as per balance sheet and additions made under the head "building" are as under:-
F.Y. Gross Receipt Net Surplus (%) FDR Addition Building 2012-13 Rs.30,09,27,726/- Rs 9,12,69,146/- 30.3%) Rs.2,99,77,427/- Rs. 4,16,88,261/- 2013-14 Rs.33,85,46,586/- Rs.11,11,68,723/- 32.8%) Rs.2,66,77,629/- Rs.11,28,73,309/- 2014-15 Rs.33,44,94,935/- Rs.12,04,18,733/- (36%) Rs.2,06,23,518/- Rs.15,37,91,480/- 2015-16 Rs.33,14,77,197/- Rs.7,13,89,359/- 21.5%) Rs.1,87,53,971/- Rs. 3,91,76,566/-
The applicant vide its reply dated 15.03.2017 submitted that the FDRs of Rs. 1,87,53,971/- reflected in the balance sheet for F.Y. 2015-16 are made as a security for the different Universities. It has also been observed that the net current asset at the end of financial year 2012-13, 2013-14, 2014-15 & 2015-16 are Rs. 2,91,41,935/-, Rs. 4,82,40,914/-, 6,93,09,522/- and Rs. 8,84,90,760 /- respectively. This shows that apart from a constant growth in the fixed asset of the applicant society, also there is an increase in the net current asset (As reflected in the table below) by 65.5%, 43.7% and 27.7% through the financial years 2012-13 to F.Y. 2015-16. The figures in the table and the reply of the applicant are a clear indicator that the applicant society's main focus is on acquiring assets and not the propagation of education as claimed. It has accumulated huge assets in the form of fixed assets and FDRs. On the basis of copy of financial statements the following figures correctly reflect the exact financial position of the applicant society:
F.Y. Fixed Asset (Gross Block) Net Current asset 2012-13 Rs. 1,10,40,06,902/- Rs. 2,91,41,935/- 3 2013-14 Rs. 1,30,83,12,390/- Rs. 4,82,40,914/- 2014-15 Rs. 1,51,29,86,569/- Rs. 6,93,09,522/- 2015-16 Rs. 1,67,35,78,224/- Rs. 8,84,90,760/- The above clearly shows that the society has had, in the past, large investible surpluses that have primarily been invested to acquire fixed assets. The society is having huge cash balances which could otherwise be utilized for so claimed expansion of education. There is no rationale for seeking donations using them to acquire assets when the society has been receiving a huge sum in the form of various types of fees.
5. The analysis of both the objects & activities of the applicant exemplify that the applicant is running educational institutions by charging fee and have also accumulated funds. It continued to add assets and kept claiming depreciation down the years to accumulate large surpluses. The purpose of legislature to include this section in the Act is to promote and encourage people for making donations to the societies/ trust which otherwise lacks funds for performing charitable activities. On the contrary, the applicant trust has accumulated large funds in the form of FDR and Cash that they are not willing to utilize for expansion. There is no previous history of donations in the applicant's case either. The applicant hasn't shown any history of donations till now. The actions by applicant so far clearly lead to the conclusion that the applicant has sufficient funds which are required to propagate its object and also to finance future expansion which remains unelaborated. No specific reason for applying under this section has been given by the applicant.
6. Further the applicant has not elaborated on (a) the target group from whom the donation would be sought/received, (b) the exact contours of the expansion in education they wish to undertake and the quantum of finances that would be necessary, (c) how the expansion would prove beneficial to the general public at large, and (d) the list of people who have shown the inclination to donate to the society. The Apex Court in the most recent judgment holding capitation fee as illegal( 2016) in the case of Civil Appeal No. 4060 of 2009 (and others) in the case of Modern Dental College and Research Centre and Ors. Versus State of Madhya Pradesh has held that educational institutes should not just focus on making profits but run on no-profit-no-loss basis. The five judge constitution Bench held that commercializing of educational sector is not permissible.
7. All of above clearly leads one to conclude that the entity has at its disposal investible surpluses and the rationale for seeking donations is not brought out in the case. Moreover, allowing donations to educational institutions would be contrarian to the thumbs down given to the practice of donations. No evidence has been provided by the applicant that could project safeguards that may have been built into the administrative and financial practices being followed by the society and the institutions being run under its aegis. Moreover, no purpose has been projected for donations although there is no history of any receipt of donations either. The activities and claim of the applicant society is not corroborated by its emphasis on assets creation and other investments till now. The application for approval u/s 80G is accordingly rejected."
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4. A g g r i e v e d b y t h e s a m e , t h e as s e ss e e s o c i e t y ha s c o m e u p i n a p pe a l b y ra i s i n g f ol l o w i n g g r o u n d s :
"1. That the learned CIT (Exemption) Chandigarh has not denied the compliance of any of the five basic condition stated in sub section (i) to (v) of Section 80G(5) of the Income Tax Act, 1961 read with Rule 11AA of the Income Tax Rules, 1962 for grant of registration u/s 80G of the Act.
2. That the learned CIT (Exemption) Chandigarh has wrongly denied the exemption on the basis that the appellant has not received any donation in the past which is not a condition for grant of registration u/s 80G of the Act.
3. That the learned CIT (Exemption) Chandigarh has wrongly denied the registration u/s 80G of the Act as the appellant has failed to elaborate on target group, exact contours of expansion in education, how expansion would prove beneficiaJ to general public at large and list of people who have inclination to donate to the appellant as per para 6 of the order which are not the requirements of the Section 80G(5) of the Act.
4. That the learned CIT(Exemption) Chandigarh has passed wrong order by assuming that the appellant is commercialising the education sector whereas his office has granting registration u/s 12AA of the Income Tax Act, 1961 vide order dated 19.05.2014. The said registration is valid till date. Hence the assumption of the learned CIT(Exemption) is wrong and the appellant deserves to be granted approval u/s 80G of the Act.
5. That the learned CIT (Exemption) Chandigarh has wrongly denied the registration u/s 80G of the Act by involving himself into the administrative matter of the appellant inspite of the fact that the learned CIT(Exemption) is not the member of the appellant society but an authority under Income tax to decide the application under Form 10G on merit."
5. D u r i n g t h e co u r se o f he a r i n g b e f or e u s t h e Ld . c ou n s el f o r a s s es s e e p o i n t e d o u t t h e f a ct t h a t t h e as s e ss e e s o c i e t y i s r e g i s te r e d a s a c h a r i t ab l e s o ci e t y b y t he R e v en u e i t s e lf u / s 1 2 A A o f t he A c t a n d h a s a l s o b e e n a pp r ov e d b y t he R e v e n u e f o r cl a i m i n g e x e m p ti o n u / s 1 0 ( 2 3 C ) ( v i ) o f t h e A c t 5 a s a n i n st i t u t i o n/ u n i v e r s i t y e x i s ti n g s o l e l y f o r t he p u r p o s e of i m p a r ti n g e du c a t i o n . Th e Ld. c o u n s el for assessee, t h e r e f o r e, c o n t e nd e d t h a t i t s c h a ri t a b l e c h a r ac t e r b y w a y o f imparting e d u ca t i o n had be en granted th e stamp of approval by the Department i ts e l f . Th e L d . counsel for assessee f u r t h er pointed out that it had b ee n e a r l i er g r a n t e d a p pr o v al u / s 8 0 G ( 5 ) ( v i ) o f t h e A c t f o r t h e p e r i o d 1 . 4 . 2 0 0 6 t o 3 1.3 . 2 0 0 9 re l e v a nt t o a s s e ss m e n t ye a r s 2 0 07 - 0 8 t o 2 0 0 9 -1 0 vi d e o r d e r of t h e C I T-I I , Ch a n d i ga r h d a t ed 2 6 . 9 . 2 0 0 6. C o p y o f t h e s a i d o r de r w a s p l a c e d b e f o r e us . Th e L d . c o u ns e l f o r a s s e s se e , th e r e f o r e , c o nt e nd e d t h at i n the a b o ve b a ckd r o p t h er e w as no r ea s o n to deny the a p p r o v a l n o w spe c i a l l y w i th o u t po i n t i n g t h e n on f u l f i l l me n t o f a n y o f t he co n d i t i o n s p r e sc ri b e d u / s 8 0 G ( 5 ) r e a d w i t h R u l e 1 1 AA o f t h e I n c o m e Ta x R u l e s , 1 9 6 2 i n t hi s re g a r d . At t h i s j u n c t ur e , ou r a t t e n t i on w a s d r a w n t o t h e p ro v i s i o n s o f s e c t i o n 80 G ( 5 ) an d R u l e 11 A A , wh i c h r e a d a s u nde r :
"80G. (1) In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section. ............................
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(5) This section applies to donations to any institution or fund referred to in sub-clause (iv) of clause (a) of sub-section (2), only if it is established in India for a charitable purpose and if it fulfils the following conditions.
(i) where the institution or fund derives any income, such income would not be liable to inclusion in its total income under the provisions of sections 11 and 12 or clause (23)] or clause (23AA)] or clause (23C)] of section 10:6
Provided that where an institution or fund derives any income, being profits and gains of business, the condition that such income would not be liable to inclusion in its total income under the provisions of section 11 shall not apply in relation to such income, if,-
(a) the institution or fund maintains separate books of account in respect of such business;
(b) the donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of such business; and
(c) the institution or fund issues to a person making the donation a certificate to the effect that it maintains separate books of account in respect of such business and that the donations received by it will not be used, directly or indirectly, for the purposes of such business;]]
(ii) the instrument under which the institution or fund is constituted- does not, or the rules governing the institution or fund do not, contain any provision for the transfer of application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose;
(iii) the institution or fund is not expressed to be for the benefit of any particular religious community or caste;
(iv) the institution or fund maintains regular accounts of its receipts and expenditure;
(v) the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1860 (21 of 1860 ), or under any law corresponding to that Act in force in any part of India or under section 25 of the Companies Act, 1956 (1 of 1956 ), or is a university established by law, or is any other educational institution recognised by the Government or by a university established by law, or affiliated to any university established by law, or is an institution financed wholly or in part by the Government or a local authority;
(vi) in relation to donations made after the 31st day of March, 1992, the institution or fund is for the time being approved by the Commissioner in accordance with the rules made in this behalf."
Rule 11AA . (1) The application for approval of any institution or fund under clause (vi) of sub-section (5) of section 80G shall be in Form No. 10G and shall be made in triplicate. 7
(2) The application shall be accompanied by the following documents, namely :--
(i) Copy of registration granted under section 12A or copy of notification issued under section 10(23) or 10(23C);
(ii) Notes on activities of institution or fund since its inception or during the last three years, whichever is less ;
(iii) Copies of accounts of the institution or fund since its inception or during the last three years, whichever is less.
(3) The Commissioner may call for such further documents or information from the institution or fund or cause such inquiries to be made as he may deem necessary in order to satisfy himself about the genuineness of the activities of such institution or fund.
(4) Where the Commissioner is satisfied that all the conditions laid down in clauses (i) to (v) of sub-section (5) of section 80G are fulfilled by the institution or fund, he shall record such satisfaction in writing and grant approval to the institution or fund specifying the assessment year or years for which the approval is valid (5) Where the Commissioner is satisfied that one or more of the conditions laid down in clauses (i) to (v) of sub-section (5) of section 80G are not fulfilled, he shall reject the application for approval, after recording the reasons for such rejection in writing :
Provided that no order of rejection of an application shall be passed without giving the institution or fund an opportunity of being heard (6) The time limit within which the Commissioner shall pass an order either granting the approval or rejecting the application shall not exceed six months from the [end of the month in] which such application was made :
Provided that in computing the period of six months, any time taken by the applicant in not complying with the directions of the Commissioner under sub-rule (3) shall be excluded.]"
6. Th e L d . c o u n s e l f o r a s s e s s e e p o i n t e d o u t t h at t h e L d . CI T( E ) h a d d en i e d t h e ap p r o v al s o l e l y fo r t h e re a s o n t h a t i t h a d at i t s d i s po s a l s u rp l u s e s an d , t h e re f o r e , t he r e w a s n o r e a s o n f o r i t t o se e k d o n a t i on s a nd f u r t h e r t h a t the p u r p o s e f o r s e e k i n g d on at i o n w a s n o t b r ou g h t o u t b y t h e a s s e s s e e . 8 Th e L d . c o u n s e l f o r a s s e s s ee p oi n t e d o u t t ha t th e s e w e r e i r r e l e v a nt c on s i d e r a t i o n s for th e p u r po s e of grant of a p p r o v a l u / s 8 0G ( 5 ) ( v i ) o f t he A c t a s i s e v i d e n t f r o m t he s e c t i o n a nd R u l e i t s e l f , t he o n l y r e q u i r e m en t a s p e r w h i c h , for being el i g i bl e for a p p ro v a l , was that it sh o u l d be engaged in c h ar i t a b l e ac t i v i ti es which a re no t for the benefit of p a rti c u l a r co m m u n i t y . Th e Ld. c ou n s e l for a s s e s s e e , t h e r ef or e , p l e a de d t h at t h e o r d e r o f t he L d . CI T( E ) b e s e t a si d e .
7. Th e L d . D R , o n t h e o t h e r h a n d , r e l i e d u p o n t h e o r d e r o f t h e L d . CI T( E ) p o i n t e d l y r e f e rri n g t o t h e d a t a r e p r o d u c ed t h e r e i n sh o w i n g a v a i l a b i l i t y o f su f f i c i e nt f u n d s i n v e s t e d i n f i x e d as s e t s a nd c u r r en t a ss e ts w h i c h s h o we d t h a t t h e a s s e s s e e h ad s uf f i c i e n t fu n d s a t i t s d i s p o s al a nd d i d n o t r e q u i r e f un d i n g b y w a y o f d o na t i o n a t a l l . Mo r e o ve r , t h e L d . D R s t a t e d t ha t th e a s s e s s e e h a d a l s o n o t s h o w n r e a s o n f o r s e e k i n g d o n at i on s . R e l y i n g h eav i l y u p o n t h e or d e r o f t h e L d . CI T( E ) t h e L d . D R s t a t e d t h a t t h e a s s e s s e e ' s a p p l i c a t i o n for grant of a pp r o v a l had b e en rightly r e j e cte d by the L d . CI T( E ) .
8. W e h a v e c a r e f u l l y c o n s i d e r e d t h e c o n t e n t i o n s r a ise d b y b o t h t h e p a r ti e s, g o n e t h r o u gh t h e o r d er o f t h e L d . CI T( E ) a n d a l s o t he d o cu m e n t s p l ac e d be f o r e u s . Th e i s su e b e f o re u s r e l a t es t o gr an t o f a p pr o v a l u /s 8 0 G ( 5 ) ( v i ) of t he A c t .
9. W e d o n o t fi n d th e r e j e c ti o n o f ap p l i c a t i on f o r gra n t o f a p p r o v a l u / s 80 G i n t h e p r e se n t c a s e b y t h e L d . C I T( E ) , s o l e l y f or t h e r eas o n t h a t t he a s se s s e e s o c i e t y h a s s u f f i c i en t 9 d i s p o s a b l e f un d s a v a i l ab l e w i t h i t a n d n o r e a s on w a s g i ve n for s e e k i n g f u nd s b y w a y o f d o n a t i o n , a s a p p rop r i a t e . Th e p r o v i s i o ns o f s e ct i o n 8 0 G ( 5 ) o f the A c t a s r e p r o d uc e d a b o v e are very c l e a r, setting out c on d i t i o n s which are to be c o m p l i e d w i t h f or t h e p u r po s e o f b e i n g e l i g i b l e for a p p r o v a l u / s 8 0 G o f t h e A c t . Th e s u f f i c i en c y o f f u n d s av ai l a b l e w i th a n i n s t i t u t i o n s ee k i n g t h e a p p r ov a l i s n o w h e r e m e n t i o n e d a s c o n d i t i on t o b e l o o k e d i n to be f o r e g r a n ti n g ap p r o v a l . I n fact as rightly pointed out by the L d . C o u n se l for the a s s e s s e e t h e p r i m a r y c o nd i t i o ns t o b e f u l f i l l e d a r e t h at i t s h o u l d be e s ta b l i s h e d f or c h ar i ta b l e p u rp o s e , c ar r y i n g ou t o n l y c h ar i t a b l e ac t i v i t y a n d s ho u l d n o t b e f o r t h e b e n e f i t o f a n y c a s te o r r e l i g i o n . Th e f a ct s e m e r g i n g f ro m th e o r d er of t h e L d . CI T( E ) i t se l f i s t ha t t h e a ss e s s e e s oc i e t y is r e g i s t e re d u / s 1 2 A A o f t h e A c t a s a c h a r i t a bl e s o c i e t y e n ti t l ed t o c l a i m e x e m p t i o n u / s 1 1 o f t he A c t an d h a s a l s o b ee n g r a n t ed a p p r o v a l u / s 10( 2 3 C ) ( v i ) o f t h e A c t m a k i n g i t e l i g i b l e t o claim e x e m pt i o n under th e said s e ct i o n as u n i v e r s i t y / i n s ti tu t i o n e s ta b l i s hed w h o l l y f o r t he p u r p o s e of i m p a r t i n g e d u c at i o n a n d no t f o r t h e p u r p os e o f g e n e r a t i ng p r o f i t s . Th e L d .C I T( E ) h a s n o t gi v e n a ny c o g n i za n c e t o t h e a b o v e f a c ts a n d h a s i n f a c t n o t e x a m i n e d th e e l i g i b i l i t y o f t h e a s s e s se e t o gr a n t o f a p pr o v a l v i s a v i s t he c o nd i t i o n s s et out in se c t i o n 80G(5) of the Act,at al l . W e, t h e r e f or e , c o n s i d e r i t f i t t o r e s t o re t h e i s sue b a c k t o t h e Ld. CI T( E ) t o r e c o n s i d er t h e ap p l i c a t i on f or g ra n t o f a p p r ov a l s t r i c t l y i n t h e l i g h t of t h e c o n d i t i o ns s e t ou t i n s e c t i o n 8 0G ( 5 ) o f t h e A c t a n d t h e r e af te r p a s s a n o rd e r i n a c c o rd a n c e w i t h l a w . W e 10 m a y a d d th a t th e a s s e s se e b e g i v e n d ue o p po r t u n i t y of h e a r i n g i n t h i s re g a r d .
10. I n t h e re s u l t , t he a p p e a l o f t he a s s e s s e e i s , th e re f o r e , a l l o w e d f o r s ta t i s t i c a l p ur p o s e s.
O r d e r p r on o u n c ed i n t h e O p e n Cou r t .
Sd/- Sd/-
(DIVA SINGH) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 1 s t May, 2018
*Rati*
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT
5. The DR
Assistant Registrar,
ITAT, Chandigarh