Income Tax Appellate Tribunal - Hyderabad
Sree Educational Society,, Hyderabad vs Assessee on 31 December, 2014
ITA No.805 of 2014 Sree Educational Society Hyderabad
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad 'A'Bench, Hyderabad
Before Shri P.M. Jagtap, Accountant Member
And Smt.Asha Vijayaraghavan, Judicial Member
ITA No.805/Hyd/2014
(Assessment year: 2010-11)
Sree Educational Society Vs. Dy. Commissioner of
1-2-288/23/1 Domalguda, Income Tax ( Central )
Hyderabad 500029 7th Floor, Aayakar Bhavan,
PAN: AAATS 7411 B Basheerbagh,
Hyderabad 500001
(Appellant) (Respondent)
Assessee by: Shri Ajay Gandhi, CA
Department by: Smt. Aparna Rao, CIT (DR)
Date of Hearing: 22/12/2014
Date of Pronouncement: 31/12/2014
ORDER
Per Asha Vijayaraghavan, J.M.
This is an appeal filed by the assessee directed against the order of the CIT (Central) Hyderabad 26.03.2014 relating to A.Y 2010-11.
2. Brief facts of the case are that the assessee is a registered society and it has been granted registration u/s 12A of the I.T. Act vide CIT-I, Hyderabad dated 2.4.1998. The ACIT, Central Circle-1 Hyderabad has completed assessment in the case of Sree Educational Society for the A.Y 2010-11 u/s 143(3) r.w.s. 153A on 30.12.2011 determining the total income at Rs.7,04,33,683/-. A search & seizure action u/s 132 of the I.T. Act was conducted at the assessee's premises and at the Page 1 of 8 ITA No.805 of 2014 Sree Educational Society Hyderabad residences of the main trustees Shri K.T. Mahi and Smt. K.Sarita Mahi. The CIT stated while initiating proceedings u/s 263 as follows:
"2. On verification from the records it is observed from the consolidated Balance Sheet as on 31.03.2010, the assessee received Rs.2,62,45,200/- as grants which were credited to Reserves and Surplus. The AO disallowed the claim of exemption u/s 10(23C)(vi)/11 by doing so the AO should have brought to tax of these receipts. As the AO has not done, the order passed by the AO for the A.Y 2010-11 is erroneous and prejudicial to the interest of revenue. Further, it is seen from the consolidated balance sheets as at 31.03.2010 and 31.03.2009 that provision gratuity was Rs.1,56,44,796/- and Rs.1,11,44,796/- respectively. It is thus evident that gratuity expenditure of Rs.45,00,000/- debited to income and expenditure account for A.Y 2009-10 was unpaid and is therefore, required to be disallowed u/s 40A(7) of the I.T. Act.
3. Accordingly a show cause letter dated 11.03.2014 was issued and served on the assessee proposing to revise the order dated 30.12.2011 fore the A.Y 2010-11 u/s 263 of the I.T. Act".
3. In response to the notice issued, the assessee filed written submission as follows:
"Exemption u/s 10(23C)(vi) While completing the assessment the AO has not granted exemption claimed u/s 10(23C)(vi) stating that registration granted is withdrawn by the DGIT, vide his orders dated 16.12.2011. The Society is contesting the drawal by filing a writ petition before the Hon'ble High Court of Andhra Pradesh. The writ petition filed by the Society is admitted and pending for disposal. In view of this fact the withdrawal of Page 2 of 8 ITA No.805 of 2014 Sree Educational Society Hyderabad registration and the denial of exemption is sub judice.
Exemption u/s 11 While completing the assessment the AO has not granted exemption claimed u/s 11 stating that registration granted u/s 12A is withdrawn by CIT (Central) vide his orders dated 29.03.2012. The Society has contested the withdrawal by filing an appeal before the Hon'ble ITAT of Andhra Pradesh and the Hon'ble ITAT restored the registration. Copy of the said order is enclosed for your record. In view of the appellate order, the denial of exemption u/s 11 for the A.Y 2007-08 by the AO is erroneous. The assessee remains eligible to the exemption of income as a charitable organization.
Further it is apparent both from the assessment order and your notice u/s 263 that no irregularities or discrepancies were noticed with respect to any grant received by the Society. In view of this fact, the assessment order neither suffer from any error nor prejudicial to the interest of the Revenue for exercising your powers u/s 263.
Grant At this juncture we wish to bring to your kind notice that the society under an MOU dated 24th February, 2005 with the Govt. of Andhra Pradesh has agreed to implement reforms under the Technical Education Quality Improvement Programme (TEQUIP). The society received the grant and utilized it to acquire assets and the infrastructure to run the programme. The nature of the grant is a capital receipt and does not have income character. It cannot be brought to tax in any manner. The entire grant was used to acquire assets as is evident from the final accounts filed with the return of income and during assessment proceedings. Copies are attached. In view of this, the income, if any, should be considered to have been utilized during the year for the objects of the society. No income can be said to remain untaxed.Page 3 of 8
ITA No.805 of 2014 Sree Educational Society Hyderabad From the foregoing it may kindly be seen that the grant received is a capital receipt and was utilized during the year for achieving the objects of the society.
It is further submitted that the grant is capital receipt irrespective of the eligibility of exemption u/s
11. Thus, no income can be said to remain untaxed. Further in view of the restoration of the society's registration u/s 12A, assessing the society as an AOP is erroneous. Also it is neither the AO's nor your contention that the society has contravened any of the provisions of law, in accepting and utilizing the grant, making the society ineligible for claiming exemption u/s 11.
In view of this factual position, the proposed addition is erroneous. Thus, on account of this settled legal position and with respect to the grant received by the society, neither the order of the AO suffer from any infirmity nor is the order of the AO prejudicial to the interest of revenue".
4. The CIT held that it is a fact on record that the AO disallowed the claim of exemption u/s 10(23C)(vi) and status of assessee was treated as AOP. The CIT further observed that under the circumstances, the AO ought to have verified the receipts/grants from World Bank so as to bring the same to tax net. Thus, non-exemption of the above issues definitely makes the order passed by the AO as erroneous and prejudicial to the interest of Revenue.
5. The CIT further held that the order passed by the AO u/s 143(3) r.w.s. 153A of I.T. Act for the A.Y 2010-11 is set aside with a direction to examine all the issues as above, in detail and re-do the assessment orders after making detail enquiries and Page 4 of 8 ITA No.805 of 2014 Sree Educational Society Hyderabad investigation and examining the taxability of the receipts of grants from World Bank.
6. Aggrieved, the assessee preferred appeal before the Tribunal. The ld Counsel for the assessee Shri Ajay Gandhi stated that the ITAT has in ITA No.563/Hyd/2012 in assessee's own case held as follows:
"16. In the present case no material has been brought on record to show that the assessee solely exists for profit motive. The department has not been able to discharge its onus of showing as to how the conditions for grant of registration have been breached by the assessee. The registration has been granted to the society for many years in the past under the same facts and there is no change in the facts or in the activities of the society in the present year. It has also not been demonstrated by the Department as to how the object of the assessee has turned into a commercial one. The predominant object of the assessee is and ITA No. 564/H/12 Sree Educational Society remains to carry out charitable purpose of advancement of education and not to earn profit. In fact no profit has been established to have been earned by the assessee. The DIT has failed to specify as to how profit earning is the predominant activity of the assessee and the society has been pursuing its object of imparting education to students. Therefore, the assessee society cannot be deprived off of the benefit of registration granted by the DIT(E) u/s 11 of the Act. Being so, in our opinion, registration granted u/s 12AA of the Act cannot be cancelled. However, the aforesaid findings given by us are nothing to do with the allowability of exemption u/s 11 of the Act. In case any discrepancy or irregularity with regard to the allowability of exemption u/s 11 is noticed by the AO, he can make an independent enquiry/examination at the time of assessment for each assessment year and decide in accordance with law.Page 5 of 8
ITA No.805 of 2014 Sree Educational Society Hyderabad Therefore, it was submitted that the denial of exemption u/s 11 for the A.Y 2007-08 by the AO is erroneous.
7. The ld Counsel for the assessee also submitted that the Society received grant and utilized it to acquire assets and infrastructure to run its programme. The nature of the grant is a capital receipt and does not have income character. He also pointed out the letter dated 09.09.2011 wherein information has been submitted with respect to A.Y 2004-05 to A.Y 2010-11 and item No.8 is with respect to details of additions to corpus fund/building fund etc., as appearing in the balance sheet of the respective years which the assessee has enclosed. He also brought to our notice the memorandum of understanding between the Govt. of Andhra Pradesh and TEQUIP institutions at page 15 of the paper book. It was clarified that under the MoU dated 24.02.2005 with the society the Govt. of A.P. has agreed to implement reforms under Technical Education Quality Improvement Programme (TEQUIP) programme. It was pointed out that the grants received were utilized during the year for achieving the objects of the society and the entire grant was used to acquire assets. It was also submitted that the grant is a capital receipt irrespective of eligibility of exemption u/s 11 and hence the order of the AO is neither erroneous nor prejudicial to the interests of the Revenue.
8. The ld DR on the other hand submitted that there has been no discussion about the grants in the assessment order.
Page 6 of 8ITA No.805 of 2014 Sree Educational Society Hyderabad
9. We have heard both the parties. We have gone through the record and find that the assessee has given all the details of additions to corpus funds/building fund and the utilization of the amount of the grant is evident from the accounts statement filed with the return of income and given the assessment proceedings. We also note that the ITAT vide its order dated 31st July, 2013 (Supra) in assessee's own case has held that the assessee is eligible to exemption of income as the charitable organization enjoying the benefit of section 11 of the Act. Further the grant is a capital receipt and not a revenue receipt and hence a non taxable receipt. The Hon'ble Andhra Pradesh High Court in the case of CIT vs. Chitrakalpa, reported in 177 ITR 5640 held that the subsidy given by the govt. to the assessee was not a revenue receipt. We also see from the notes and accounts at page 76 that the capital grant received are adjusted from the cost of fixed assets. Hence we are of the opinion that the grant received is of capital in nature and does not have the income character and the assessee has treated it rightly as a corpus donation. Further, the AO has been directed to grant the assessee exemption u/s 11 of the Act by the Hon'ble Tribunal by order dated 31st July, 2013 in ITA No.563/Hyd/2012. In these circumstances, the order u/s 263 by the CIT stating that the assessee is not eligible for claiming exemption u/s 11 and u/s 10(23C(vi) is incorrect. Further the CIT has also held that the AO ought to have verified the receipts/grants from the World Bank, so as to bring the same to the tax net which is also incorrect in as much as the grant received is a capital receipt and towards corpus of the Institution/Trust. Hence the order passed by the Page 7 of 8 ITA No.805 of 2014 Sree Educational Society Hyderabad AO is neither erroneous nor prejudicial to the interests of the Revenue for assumption u/s 263.
10. In the result, appeal filed by the assessee is allowed.
Order pronounced in the Open Court on 31st December, 2014.
Sd/- Sd/-
(P.M. Jagtap) (Asha Vijayaraghavan)
Accountant Member Judicial Member
Hyderabad, dated 31st December, 2014.
Vnodan/sps
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, ITAT, Hyderabad
6. Guard File
By Order
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