Income Tax Appellate Tribunal - Delhi
Dy. Dit vs Raunaq Education Foundation on 30 May, 2005
Equivalent citations: [2005]4SOT97(DELHI)
ORDER
G.S. Pannu, A.M. This is an appeal by the revenue against the order of the CIT(A) dated 17-1-2000. The only grievance of the revenue is with regard to the decision of the CIT(A) in granting exemption under section 10(22) of the Act to the assessee.
2. In brief, the facts and the background giving rise to the impugned dispute can be summarised as follows :
3. The assessee is a society registered under the Societies Registration Act, 1860 established solely for educational purposes. It was also registered under section 12A(a) of the Income Tax Act, 1961.
4. In its return of income filed for the year under consideration, the assessee declared total income at nil, having claimed exemption under section 10(22) of the Income Tax Act, 1961. The assessing officer noted that the assessee had shown investments of Rs. 43,72,188 (at cost), in the shares of various companies, viz., BST Manufacturing Ltd., Apollo Tyres/Tubes Ltd., Apollo Tubes Ltd., etc. The assessing officer further noted that Mr. Raunaq Singh, Chairman of the assessee society, was also Chairman of Apollo Tyres Ltd., and his son, Mr. O.S. Kanwar, a member of the respondent society was also Vice-Chairman and Managing Director of Apollo Tyres Ltd. In view of the above facts, the assessing officer held that the society's funds were invested in companies in which the chairman and the members of the society or their relatives had personal interest.
The assessing officer further noted that the assessee-society had earned income from dividend of Rs. 7,49,430, interest of Rs. 10,01,360, Misc. receipt of Rs. 2,34,431 and receipt against Raunaq Loan Scholarship Scheme of Rs. 41,800, totalling to Rs. 20,27,021, which approximately constituted 50 per cent of total receipts of the society. In view of the above, the assessing officer. concluded that income from dividend, interest and other receipts do not qualify for exemption as these are not incidental to running of educational school, hence, exemption under section 10(22) was denied. According to the assessing officer, the society did not exist solely for educational purpose but for making profit by way of investments in the companies in which its members are interested and on this basis also denied the exemption under section 10(22). Aggrieved by the aforesaid action of the assessing officer, the assessee carried the matter in appeal before the CIT(A).
5. Before the CIT(A), the assessee contended that the assessee-society existed solely for educational purposes and assailed the action of the assessing officer in denying the claim for exemption under section 10(22) of the Act. The assessee further contended that it was wrong on the part of the assessing officer to deduce that law required that income on which exemption was allowed to an educational institution under section 10(22) should arise only from carrying on of educational activities. The assessee also submitted that the assessing officer erred in assuming that an educational institution forsecuring exemption under section 10(22) of the Act has to comply with any statutory modes of investment. The assessee further submitted that the exemption under section 10(22) has been allowed to the assessee for past two decades and there was no change in the facts this year leading to the claim of exemption. All this was canvassed by the assessee by way of detailed written submissions, which were sent to the assessing officer for comment by the CIT(A). The CIT(A), after considering the pleas of the assessee and the remand report of the assessing officer, has since upheld the claim for exemption under section 10(22) in the following manner :
"I have carefully considered the pros and cons relating to the issue at hand. I have perused the assessment record and it does appear therefrom that the assessing officer never gave any opportunity to the appellant in respect of his intention to deny exemption under section 10(22) for its income earned from dividends, interest and misc. receipts, etc., as mentioned in Para 4 of Statement of Facts submitted with the appeal papers by the appellant. The learned Authorised Representative has vehemently protested before me that the appellant-society had been given benefit of section 10(22) of the income Tax Act, 1961 for the past two decades, since its inception and that never in the past, the benefit of section 10(22) was denied to the appellant.
It has also been stressed before me that the facts and circumstances of the case in the instant assessment year 1996-97 were the same as in the past, when benefit of section 10(22) was allowed to the appellant. Whereas, admittedly, there is no res judicata in income-tax proceedings, but I find merit in the learned Authorised Representative assertion that to vary the decisions taken by his predecessor in the past two decades, the assessing officer had to bring on record fresh or new facts, which has not been done by the assessing officer in the instant case. It is to be noted that the appellant's income has not been proved to have been used for purposes other than for educational purposes. In view of these case laws cited by the learned Authorised Representative, there seems to be merit in the submissions of the learned Authorised Representative quoted extensively as above.
Further, a copy of Board's Circular No. 712 dated 25-7-1995 filed by the Authorised Representative on the subject, reads as under :
"14. The above circular throws adequate light in which the assessing officer had to view the facts and circumstances of the instant case. In view of the submissions made by the learned Authorised Representatives, the facts and circumstances of the case discussed as above, the fact that in spite of similar circumstances in the past the appellant had been given the benefit of section 10(22) in the last two decades as contended by the learned Authorised Representative as also in view of the fact that the assessing officer never gave opportunity to the appellant before declining exemption under section 10(22) as also since the assessing officer has brought on record no material to show that the appellant society did not exist solely for educational purposes and existed for purposes of profit, as also keeping in view the case laws cited by the learned Authorised Representative which buttress the appellant's case squarely, it is felt that the appellant deserves exemption under section 10(22). As such, the assessing officer is directed to grant exemption to the appellant under section 10(22) of the Income Tax Act, 1961 as claimed by the appellant.'"
6. Aggrieved with the above, the revenue is presently in appeal before us.
7. We have heard the Learned Departmental Representative who has assailed the orders of the first appellate authority and has defended the orders of the assessing authority. We have also heard learned Counsel for the assessee. At the outset, we may state that we are unable to accept the contentions of Learned Departmental Representative to the effect that the assessee does not qualify for exemption under section 10(22) of the Act for the reasons discussed hereinafter. We may note that the assessee is a society and in terms of its Memorandum of Association, its objects are as under :
"Objects :3. (A) The society is established solely for educational purposes.
Educational purposes will include
(i)(a) Establishment, maintenance and management of schools, colleges, Universities and other educational institutions for imparting pre-school, elementary, secondary and university education, teacher education, technical and vocational education, social, moral and physical education;
(b) Libraries, laboratories and workshops for studies, experiments, research and work experience.
(ii) providing aid to other institutions existing solely for educational purposes.
(iii) Grant of loans, stipends and scholarships for educational including travel for foreign education. Provided that in furtherance of its objects the society will not undertake any activity for profit.
(B) Towards the achievement of the objects set out in clause (A) above, the society shall have authority to establish, maintain and manage hostels, boarding houses, staff quarters, hospitals, dispensaries and other conveniences for the benefit of the students, staff and other employees of the society and other associations or institutions established and/or managed by the society."
8. A perusal of the aforesaid would reveal that the objects of the society is solely for advancement of educational activities. It is, therefore, not clear why the claim of exemption under section 10(22) has been denied to the assessee for the first time in this year. It is undeniable that the exemption has been allowed to the assessee since inception for almost two decades. The Learned Departmental Representative submitted that the assessee has made investments in the manner noted by us in the earlier part of our order and that the surplus was from non-student related activities. It is vehemently canvassed by the learned Departmental Representative that almost 50 per cent of the receipts have been earned by the assessee from non-school related activity and, thus, such income is not exempt under section 10(22). On this issue, we do not find any force in the stand of the revenue inasmuch as it is abundantly clear from the reading of section 10(22) itself that the exemption is available with respect to 'any income' of the institution which exists solely for educational purposes and not for the purposes of profit. An income from any other source would also be exempt provided it is expended in the course of imparting educational activity. If an institution exists solely for the purposes of education and derives income from other sources and if such income is used only for the purposes of education, then the institution shall qualify for exemption under section 10(22).
9. In this regard, we may mention that the section itself exempts 'any' income of an educational institution and there is no ground to read into the section a condition that for the entitlement of exemption, that the income should be derived from educational activity alone. The Legislature has not imposed any qualification in the section to support interpretation made by the revenue in this regard. At this stage, it would be also relevant to refer to the following observations of the Supreme Court in the case of Orissa State Warehousing Corpn. v. CIT (1999) 237 ITR 589 :
"Needless to say that the word 'any income' as appearing in the body of the statute is restrictive in its application by reason of the user of the expressions 'derived from'. In the event the intent of the Legislature was otherwise, there was no embargo or restraint to sue and express in clear and unequivocal language, as has been so expressed in section 10(20A) or 10(21) or 10(22B) or 10(22BB) (sic) or 10(27). These statutory provisions go to show that wherever as a matter of fact the Legislature wanted an unrestrictive exemption, the same has used 'any income' without any restriction so as to make it explicit that the entire income of the assessee would be exempt."
10. After perusing the provisions of sub-section (22) of section 10 and considering the parity of reasoning enunciated by the Apex Court in the case of Orissa State Warehousing Corpn. (supra) as extracted above, we do not find any reason to interpret that the words 'any income' appearing in the said section are to be applied restrictively so as to refer only to the incomes derived from educational activity. In view of the aforesaid discussion, we do not find that the objection of the revenue that the exemption be denied in relation to the non-student related income of the assessee is fallacious.
11. The plea of the assessee is that it has been granted exemption under section 10(22) in the past and there is no change in the facts leading to the claim of exemption in this year. We find ample force in the above plea of the assessee that there is no change in the facts in the year under consideration which is also apparent from balance sheet and profit & loss account, which is placed on record. In fact, the investments which have been frowned upon by the assessing officer have indeed been made in the earlier assessment years. The only new investment made during the year is a sum of Rs. 5 lakhs in the bonds of ICICI. The investment stands at Rs. 97,72,188 as at the closing of the previous year relevant to the assessment year under consideration and it stood at Rs. 88,72,188 at the beginning of the year. It is noteworthy that the investment in the bonds of ICICI Ltd. has not been frowned upon by the assessing officer. There is also no change in the activities relating to the running of school. Ostensibly, the assessee continues to run during the year consideration a secondary school at Ganaur, Haryana which is affiliated to CBSE, New Delhi. Thus, insofar as the activities of the assessee are concerned during the year, the same are on similar lines as in the earlier years. Although we do not dispute the fact that the assessing officer is competent to verify the activities of each year as each assessment year is an independent unit, yet, it is of fundamental importance that a basic issue going to the root of the matter once having been decided in one year in a particular manner cannot be lightly brushed aside in the subsequent year merely because of change in the incumbent officer. It is well understood that res judicata does not apply to the income-tax proceedings. But at the same time, consistency is also equally required, especially on a fundamental issue, which permeates through different assessment years. In the instant, the aspect of the activities of the assessee as being consistent with the requirement of section 10(22) has been accepted by the revenue in the past. Thus, unless there are exceptional circumstances and a strong factual or legal ground to depart from the earlier approach, no contrary approach is permissible. As we have noted earlier in the instant year, there is no different fact or change in legal position that has been brought out by the assessing officer before embarking to deny the claim of exemption under section 10(22). The aforesaid proposition is in line with the decision of the Apex Court in the case of Radhasoami Satsang v. CIT (1992) 193 ITR 321.
12. Much has been argued by the Learned Departmental Representative that the assessee is existing solely for earning profits and not for educational purposes. This is argued on the basis that the assessee has been earning surpluses each year. We do not find any force in the pleas of the department either on facts or in law. It is difficult to appreciate as to how can the assessee manage its affairs that it just breaks even with no surplus or deficit. The said task is not only impractical but is not required by law. The assessee has earned incomes by way of fee from students, Dividend and interest from investments, misc. and scholarship receipts, etc., which have been spent on educational activity and the surplus remaining has been carried to the balance sheet under "Capital Fund". The said "Capital Fund" is further ploughed back to the educational activities by way of accretions to the capital work in progress - Building under Construction. Factually, the aforesaid is evident from the balance sheet and Income & Expenditure account of the assessee for the year under consideration, which is placed at pages 16 to 20 of the paper book. The arising of surplus is not important, what is important is to find out where such surplus is being used - whether the same is being used in the furtherance of the objects of the society or not? In the instant case, it can be factually deduced that the surplus available in the balance sheet is being used in the furtherance of the objects of the society and there is no element of private gain. In any case, we find that the surplus or the assets of the society cannot be paid or distributed amongst the members of the society but can be solely applied towards the promotion of its objects. Clauses 16 and 17 of the Memorandum of Association of the society placed at pages 6-13 of the paper book are relevant in this regard.
13. In view of the aforesaid discussion and also noticing that the CIT(A) has, in an apt manner, met the objections raised by the assessing officer, we are of the view that the assessee-society satisfies all the conditions for the claim of exemption under section 10(22) and, accordingly, we affirm the decision of the CIT(A) on this issue. Before we part, we may also refer to the observations of the assessing officer that in view of the decision of the Apex Court in the case of Aditanar Educational Institution v. Addl. CIT (1997) 224 ITR 310, the assessing officer is entitled to evaluate each year to find out whether the institution continues to qualify for exemption under section 10(22). On this proposition, we do not have any quarrel. However, the evaluation of the assessing officer has to be based on facts so as to judge whether the institution existed during the year solely for educational purpose and not for profit. In making such evaluation, the issues which are settled and for which there is no departure from facts found in the earlier years, the assessing officer cannot take a different view than that taken in the earlier years. In other words, what is of importance is that the exemption under section 10(22) for a particular year cannot be denied unless there is no new fact or legal position which has been noticed. In the instant case, as we have discussed in the earlier paragraphs, no such position has been made out by the revenue and, thus, the reference made by the assessing officer to the decision of the Apex Court in the case of Aditanar Educational Institution (supra) is misconceived.
14. In the result, the appeal of the revenue is dismissed.