Income Tax Appellate Tribunal - Delhi
The Scientific Educational ... vs Assessee on 24 September, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : "H" NEW DELHI
BEFORE SHRI I.C.SUDHIR, J.M. AND
SHRI J.SUDHAKAR REDDY, A.M.
ITA no. 1742/Del/2012
Assessment Year : 2007-08
The Scientific Educational Advancement vs. ACIT, Range i
Society Faridabad
Rakesh Raj & Associates, C.A.
D 28, South Ex. Part I
New Delhi
PAN:AABTT0890L
ITA no. 1880/Del/2012
Assessment Year : 2007-08
ACIT, Circle 2, Gurgaeon vs. The Scientific and Educational Advancement
Society, H.No.5, Sector 4, Gurgaon
(Appellant) (Respondent)
Assessee by:- Dr.Rakesh Guptha, Adv.
Department by:- Sh.Sameer Sharma, , Sr.D.R.
ORDER
PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
These are Cross Appeals directed against the order of Ld.CIT(Appeals) dated 18.01.2010 pertaining to the Assessment Year 2007-08.
2. Facts: The brief facts of the case are that the return of income declaring NIL income was filed by the assessee on 31.10.2007, which was processed u/s 143(1) of the Act. The case was selected for compulsory scrutiny as per CBDT's guidelines contained in Action Plan for the year 2008-09 and a notice u/s 143(2) ITA No. 1742/Del/2013 and ITA 1880/Del/2012 Assessment Year 2007-08 The Scientific and Educational Advacement Society, Gurgaon of the Act was issued on 26.8.2008. The assessee society ('SEAS' in short) is registered u/s 12AA of the Act as per the certificate dated 23.9.2003 granted by the Ld.CIT, Faridabad. The society is engaged in activity of imparting education by running a school in the name of Colonel's Central Academy"" ('CCA' in short). During the course of assessment proceedings, the Assessing Officer observed that the gross receipts of the society were to the tune of Rs.11,28,45,095/- out of which the receipts in the name of society were Rs.8,50,20,248/- and the receipts in the name of CCA School was Rs. 2,78,24,819/-. Against the aforesaid gross receipts, the application of funds was only to the extent of Rs.2,20,36,589/- and the income not applied for the purpose of education was Rs.7,38,81,711/-. In the return of income, the assessee claimed exemption of income u/s 10(23C)(vi) of the Act. However, the assessee's approval u/s 10(23C)(vi) was rejected by the CCIT, Panchkula for Assessment Year 2007-08 vide order dt. 29.9.2008. Hence, the assessee was not eligible for exemption u/s 10(23C) of the Act. The Assessing Officer proposed to add the unspent amount of Rs.7,38,81,711/- to the income of the assessee. The assessee alternatively claimed exemption u/s 11(1) of the Act. The Assessing Officer rejected the claim since the required report in Form no.10B was not furnished along with the return of income. The gross receipts of SEAS included profit of Rs.8,44,78,458/- on sale of land at Village Dhorka, Gurgaon. On the issue of taxability of the above profit, the assessee raised the contention that the amount was set apart for utilization in future for specified purpose and a report in Form no.10 was filed along with the return of income. However, since the purpose of Page 2 of 13 ITA No. 1742/Del/2013 and ITA 1880/Del/2012 Assessment Year 2007-08 The Scientific and Educational Advacement Society, Gurgaon utilization was not mentioned in Form no.10, the Assessing Officer has considered the entire profit for taxation by denying the benefit of section 11(1A) of the Act. After allowing deduction for indexed cost of acquisition of Rs.99,19,673/- from the sale consideration of Rs.9,11,97,187/-, the long term capital gain of Rs.8,12,77,514/- has been added to the income. The Assessing Officer has denied the benefit of exemption u/s 11 of the Act on the ground that the assessee society was not engaged in charitable activity and computed the income under chapter IV of the Act by treating the surplus of receipts of Rs.1,51,703/- from SEAS and Rs.88,11,015/- from CCA as income. Aggrieved the assessee carried the matter in appeal before the First Apepllate Authority. The First Appellate Authority granted part relief. On the issues decided in favour of the assessee, the Revenue is in appeal and the assessee is in appeal on the issue decided against it by the Ld.CIT(A).
3. We have heard Dr.Rakesh Gupta, the Ld.Counsel for the assessee and Mr.Sameer Sharma, the Ld.D.R. on behalf of the Revenue.
4. We first take up the Revenue's appeal. The grounds read as under.
"1. On the facts and in the circumstances of the case, the Ld.CIT(A) has erred on facts and in law in directing the AO to accept the status of the assessee as that of a charitable society and allow its claim of exemption u/s 11(1) of the Act. By allowing the claim of exemption u/s 11(1) of the Act, the Ld. CIT(A) has overlooked the decision of Hon'ble Apex Court in the case of Gangabai Charities vs CIT (1992) (197 ITR 416) where the Hon'ble Supreme Court has held that "the crux of the statutory exemption under section 11(l)(a) of the Act is not the income earned from property held under trust but the actual application of the said income for religious and charitable purposes.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in accepting a defective Form No. 10 not containing vital, substantive and mandatorily required details of amount of income Page 3 of 13 ITA No. 1742/Del/2013 and ITA 1880/Del/2012 Assessment Year 2007-08 The Scientific and Educational Advacement Society, Gurgaon accumulated or set apart or the period of accumulation of setting apart of such income, as a valid compliance of Rule 17 of Income Tax Rules and the Form No.l0.
3. that the Ld. CIT(A) has acted in violation of Rule 46A of the Income Tax Rules by accepting the Form No. lOB at the appellate stage without giving due opportunity of being heard to the Assessinq Officer.
4. On the facts and in the circumstances of the case, the Ld. C!T(A) has erred on facts and in law in holding that the filing of Form No. 10BB is substantive compliance of Rule 17B and filing of Form No. lOB, principally when the requirement of giving particulars under Rule 17B and giving particulars in From No. lOB are entirely different from that of Form No. 10BB & corresponding Rule.
5. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in treating the land held by Society at Dhorka (Gurgaon) as a property held wholly for charitable purposes within the meaning of section l1(lA)(a) of the Act and thereby treating the sale consideration thereof as income received for charitable purposes and eligible for accumulation u/s 11(2), ignoring the fact that the said land was neither ever used for any charitable activities/purposes nor was ever any intention of the society to use such land for charitable purposes particularly because the said land was an industrial land which was subsequently sold on hefty profit of RS.8,44 Crore and during holding of land no effort such as change of land use (CLU), permission to open school or educational institute was made by society to use the property for educational purposes.
6. That the order of the Ld. CIT(A) in treating the property at Dhorka (Gurgaon) as a eligible property for the purposes of section 11 (1A) and section 11(2) of the Act is a perverse order in so far a~; on one hand Ld. CIT(A) has himself mentioned in his order that the finding of Ld. CCIT, Panchkula that the said land was not used solely for educational or charitable purposes by the assessee, and on the other hand without controverting such finding of Ld. CCIT, the Ld. CIT(A) has treated the sale consideration of such property as an income eligible for accumulation u/s 11(2) of the Income Tax Act.
7. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in holding that the Assessing Officer has not brought on record any such finding so as to hold that assessee was not eligible for exemption u/s 11(1) ignoring the fact that the onus to show that the property at Dhorka was used for charitable purpose was on assessee which was never discharged by it and therefore, onus never shifted on Assessing Officer.Page 4 of 13 ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08 The Scientific and Educational Advacement Society, Gurgaon
8. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in including the sale consideration of Dhorka property as part of gross income of the society and thereby determining the amount of exemption available u/s 11(1) at a higher figure of Rs.l0,16,29,226/- as against maximum admissible at Rs.2,41,l1,617/- being 85% of gross receipts of Rs.2,78,24,819/- from CCA School and Rs.5,41,790/- from Scientific Educational Advancement Society.
9. That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal."
5. Ground no.1 is against the Ld.CIT(Appeals)'s holding that the status of the assessee is that of a Charitable Society and that it is eligible for exemption u/s 11(1) of the Act. The grounds on which the Assessing Officer held that the assessee will not be eligible for exemption u/s 11 and 12 of the Act are:
(a) benefit has been extended to a person referred to in S.13(3) of the Act the assessee is not eligible for exemption u/s 11 of the Act;
(b) the assessee has not applied its income to the extent of 85% for charitable purposes;
(c ) the assessee is not entitled to exemption u/s 11(1A) of the Act, in respect of investments in purchase of another land on transfer of the land. 5.1. The Ld.CIT(Appeals) granted relief to the assessee by holding that:
(a) there is no dispute that the assessee Society is registered u/s 12AA of the Income Tax Act by the order of the Ld.CIT, Faridabad dt. 13.3.2003. Hence it is a charitable society;Page 5 of 13 ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08 The Scientific and Educational Advacement Society, Gurgaon
(b) the assessee society also enjoyed exemption u/s 10 (23)(C)(vi) of the Act as per approval granted by the Chief Commissioner of Income Tax, Haryana Region, Panchkula vide order dt. 26.2.2007 for the Assessment Year 2002-03, 2004-05. This exemption was extended for the Assessment Year 2005-06. The assessee's application for extension of the exemption for the Assessment Year 2006-07, 2007-08 was rejected by the CCIT, Panchkula. The assessee approached the Hon'ble High Court of Punjab & Haryana. The Hon'ble High Court vide order dt. 10.2.2009 upheld the order of CCIT on the ground that there was a delay in filing of the applications before the CCIT and such delay was rightly not condoned.
The CCIT in his rejection order recorded that there is non utilization of land solely for the purpose of education.
(c ). As the Assessing Officer denied exemption u/s 10(23 C)(vi), the assessee claimed exemption u/s 11(1) of the Act. Such claim is legally tenable.
(d). The assessee purchased the land on 10.01.2001 and 21.11.2003. This land was sold by the assessee for consideration of Rs.9,11,97,187/- resulting in a profit of Rs.8,44,78,458/-. This is claimed as exempt u/s 11(a). The sale proceeds of the land were utilized for purchase of another land in the subsequent Assessment Year.
(e). The assessee is not eligible for exemption u/s 10(23C)(vi) as it has no registration but as the registration granted u/s 12AA remains in force, the provisions of S.11, 12 and 13 apply to the assessee.
Page 6 of 13 ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08 The Scientific and Educational Advacement Society, Gurgaon
(f) The assessee society paid salaries to Mrs.Nirmal Yadav and Mrs.Shanthi Yadav who are persons specified u/s 13(3) of the Act. Mrs.Nirmal Yadav is being paid basic salary ranging from Rs.10,000/- p.m. in April,1999 to Rs.27,750/- p.m. in March,2007. The increase in salary being annual increment and dearness allowance. Mrs.Shanthi Yadav is paid basic salary ranging from Rs.5,500/- in April,1999 and Rs.9,825/- in March,2007. The increase of salary in this case also was on account of annual increment and dearness allowance. These salary payments were also incurred when the assessee enjoyed exemption u/s 10(23C)(vi) up to the Assessment Year 2005-06. In the assessment orders passed u/s 143(3) for the Assessment Year 2002-03 to 2004- 05 there was no adverse inference on this issue and only a reference has been made to these salary payments. There is no allegation of unreasonable benefit having been given to persons referred to in S.13(3) by the Assessing Officer. Hence there is no violation which can lead to denial of exemption u/s 11.
(g) Defects in filing of an audit report are curable and hence exemption cannot be denied on this ground.
Hence it was held by the Ld.CIT(A) that the assessee is eligible for deduction u/s 11 of the Act.
5.2. We find no infirmity in these findings of the Ld.CIT(Appeals). The assessee is definitely entitled to claim deduction u/s 11 of the Act as registration u/s 12AA is in force.
6. Ground no.2 is on the issue of filing a defective form no.10. There was a typographical error and the Ld.CIT(Appeals) held that, when form no.10 is read Page 7 of 13 ITA No. 1742/Del/2013 and ITA 1880/Del/2012 Assessment Year 2007-08 The Scientific and Educational Advacement Society, Gurgaon with the accompanied resolution, the question of anti dating does not arise. We agree with the Ld.Commissioner of Income Tax (Appeals) that this error in Form No.10 is a typographical error and that substance over form has to be the basis of decision. Hence we uphold these findings of the Ld.CIT(A) and dismiss this ground. In the result ground no.2 is dismissed.
7. Ground nos. 3 and 4 are on the issue of Ld.CIT(Appeals) accepting audit report in Form no.10B. Admittedly audit report in Form 10B was filed before the Ld.CIT(Appeals). The assessee had, instead of filing Form No.10B, filed an audit report in form no.10BB, before the Assessing Officer. The audited accounts along with the statements annexed giving necessary particulars were filed along with the audit report in Form no.10BB, before the Assessing Officer. The Ld.CIT(Appeals) relying on the decisions in the case of CIT vs. Rai Bahadur Bissesswarlal Motilal Malwasie Trust, reported in 195 ITR 825(Cal.) and CIT vs. Devradhan Madhavlal Genda Trust, reported in 230 ITR 714 (MP), CIT vs. Trehan Enterprises reported in 248 ITR 333 (J&K) held that the requirement in question was merely directory and not mandatory. In any event all the details and audit report in some other form were already before the AO. We uphold this finding of the Ld.Commissioner of Income Tax (Appeals) that he has the power to admit audit report in form no.10B as in this case the Ld.AO has failed to bring to the notice of the assessee that there was a difficulty in the audit report filed in Form 10BB before him. In coming to this conclusion we draw strength from the following case laws.
Page 8 of 13 ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08 The Scientific and Educational Advacement Society, Gurgaon
(a)Mrs. Manju Kapoor Dalmia ITA 154/Del/2011 Delhi Ë" Bench order dt.21.4.2011;
(b)Director of Income Tax (Exemption) vs. Spic Educational Foudnation (2002) 257 ITR 46 (Madras) In view of the above discussions, these grounds of revenue are hereby dismissed.
8. Ground nos. 5, 6, 7 and 8 of the Revenue appeal will be taken up along with the grounds of the assessee's appeal, as they pertain to the same issue.
9. Ground no. 9 is general in nature.
10. We now take up the assessee's appeal in ITA no.1742/Del/2012. The grounds in assessee's appeal are as follows.
"1. That having regard to the facts and circumstances of the case, Ld.CIT(Appeals) has erred in upholding the action of the Ld.AO in computing the taxable income of the appellant to the extent of Rs.50,26,102/-.
2. That having regard to the facts and circumstances of the case, Ld.CIT(Appeals) has erred in holding that the gross receipts/income of the appellant society is Rs.11,95,63,796/- by including therein the sale consideration of the land sold being Rs.9,11,97,187/-, as against the gross receipts/income calculated by the appellant at Rs11,28,45,067/- by including only the net profit earned on the land sold being Rs.8,44,78,458/-. Thus the mandatory application of income to the extent of 85% of the income for the purpose of total exemption of income from tax has been incorrectly worked out at Rs.10,16,29,226/- as against Rs.9,59,18,307/- calculated by the appellant and duly applied during the year.
3. In any view of the matter and in any case the order under appeal is bad in law and against the facts and circumstances of the case.
4. That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing and all the above grounds are without prejudice to each other."Page 9 of 13 ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08 The Scientific and Educational Advacement Society, Gurgaon The grounds raised in the assessee's appeal are taken up along with ground nos. 5, 6, 7 and 8 of the Revenue appeal.
10. The facts are as follows. The assessee purchased land at Dhorka on 10-1-2001 and on 21-11-03. This land was sold on 23-01-2007. In the minutes of the meeting held on 11-11-2006 the society recorded that this land at Dhorka is likely to be acquired as it was in the Industrial Zone, in view of the Gurgoan Master Plan and hence it should be disposed off at the earliest and the money received should be re-invested in purchase of another land which is suitable for education al institution and a vocational institute, within the vicinity of Gurgaon after obtaining necessary CLU. The profit on the sale of land was Rs. 8,44,78,458-00.
11. The issue that is before us is the computation of exempt income U/s 11(1).
11.1. The Hon'ble Calcutta High court in the case of CIT Vs Eastern Charitable Trust reported in 206 ITR 152 held as follows.
"The Definition of income contained in Sec.2 (24) includes capital gains. Hence the option exercisable by a charitable trust with regard to income under the provisions of Sec.11(1) can also be exercised in respect of capital gains provided it is exercised in writing before the expiry of the time allowed u/s 139(1) for furnishing the return. By reason of the exercise of the option the assesses would be entitled to the benefit of sec11(1 A).
In our view, by reason of the option exercised under the Explanation to section 11(1), the assessee is entitled to the benefit u/s 11(1A) inasmuch as the definition of income as contained in section 2(24) of the Act includes capital gains as one of the species of income. That being so, the option as exercisable with regard to income should also avail to capital gains provided such option is exercised in writing before the expiry of the time allowed under sub section (1) of section 139 for furnishing the return. Therefore, the amount of Rs.7 lakhs Page 10 of 13 ITA No. 1742/Del/2013 and ITA 1880/Del/2012 Assessment Year 2007-08 The Scientific and Educational Advacement Society, Gurgaon utilized in acquiring fixed deposits with the Bharat Petroleum Corporation Ltd. and the Bharact Electronics Ltd. should also be allowed exemption under the said provision for the Assessment Year 1982-83."
Thus in our view, the learned CIT (A) is right in holding that the society is entitled to exemption u/s 11(1) in respect of the capital gains arising from the sale of Dhorka land. In fact this land was purchased for educational activities. This is evident from the various evidences filed by the assessee in the form of a paper book. Hence the submissions of the revenue that this land was not held for educational purposes is factually incorrect. It was due to certain circumstances that the land was sold and the sale proceeds invested in another piece of land, with the sole purpose of using it for educational purposes. 11.1. On the computation of exemption u/s11 we uphold the contentions of the assesses that only capital gain on sale of land, which is income, has to be taken for the purpose of calculating the application of income as per the provisions of Sec.11(1)(A). We do not find any infirmity in the following computation given by the assessee:
Sale Consideration of land - Rs.9,11,97,187/-
Receipts of SEAS - Rs. 5,41,790/-
Receipts of CCA - Rs. 2,78,24,819/-
--------------------------
Rs. 11,95,63,796/-
Exemption available u/s 11(1) i.e. 85% of Rs.10,16,29,226/- Application of Funds:
Amount set apart u/s 11(1A) Rs. 7,22,67,210/- Expenditure of SEAS Rs. 3,90,087/- Expenditure of CCA Rs. 1,90,13,768/- ----------------------- Total application: Rs. 9,16,71,065/- Short application : Rs. 99,58,161/-. Page 11 of 13 ITA No. 1742/Del/2013 and ITA 1880/Del/2012 Assessment Year 2007-08
The Scientific and Educational Advacement Society, Gurgaon 11.2. There is no short fall in the application of 85% of the income as required by the provisions of Sec.11. In any case the assesses has utilized the entire sale consideration arising out of sale of land, for the purchase of lands in another area as noted by the ld.CIT (A) in his order.
11.3. In the result the grounds of the assessee are allowed and ground nos. 5, 6, 7 and 8 of the Revenue are dismissed.
12. For all these reasons the appeal of the Revenue is dismissed and the appeal of the assessee is allowed.
Order pronounced in the Open Court on 24th September, 2014.
Sd/- Sd/- (I.C. SUDHIR) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: the 24th September, 2014 *manga Page 12 of 13 ITA No. 1742/Del/2013 and ITA 1880/Del/2012 Assessment Year 2007-08
The Scientific and Educational Advacement Society, Gurgaon Copy of the Order forwarded to:
1. Appellant;
2.Respondent;
3.CIT;
4.CIT(A);
5.DR;
6.Guard File By Order Asst. Registrar Page 13 of 13