Income Tax Appellate Tribunal - Chandigarh
M/S Markandeshwar Educational ... vs Cit (Exemptions), Chandigarh on 15 November, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH 'B' CHANDIGARH
BEFORE MS. DIVA SINGH, JUDICIAL MEMBER
AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No. 1015/CHD/2016
( Under Section 12AA )
M/s Markandeshwar Educational Society, Vs. The CIT (Exemptions),
C/o Spring Dale Public School, Chandigarh.
VPO : Ismailabad, Distt.Kurukshetra.
PAN No. : AABTM5217G
(Appellant) (Respondent)
Appellant By : Shri Tej Mohan Singh
Respondent By : Shri Ravi Sarangal,CIT-DR
Date of hearing : 01.11.2017
Date of Pronouncement : 15.11.2017
ORDER
PER DIVA SINGH,JM The present appeal has been filed by the assessee assailing the correctness of the order dated 31.08.2016 of ld. CIT(Exemptions) Chandigarh u/s 12A of the Income Tax Act,1961 on the following grounds :
1. Thai the Ld. Commissioner of Income Tax has erred in law as well as on facts in rejecting registration under section 12AA of the Act which is arbitrary & unjustified.
2. That the registration has been refused only on the basis of suspicion, conjectures and surmises as is evident from the various unfounded findings as enumerated in the body of the order which is not permitted under the Law and as such the order refusing registration is illegal, arbitrary and unjustified.
2. The ld. AR carrying through the impugned order submitted that the assessee has been denied registration u/s 12A ignoring the facts available on record and the position of law thereon. It was submitted that the assessee had filed an application in form No. 10A seeking Registration where admittedly assessee was an ongoing entity and has been in operation since 13.03.2003. Referring to the impugned order itself, it was submitted that the assessee society has been engaged in charitable activity by way of running a school in the rural area to educate the children of surrounding villages and Kurukshetra and other nearby places. The said activity is in compliance to the stated aims and objects of ITA 1015/CHD/2016 Page 2 of 11 the society to educate the rural children with the latest and modern techniques of educational practices, to prepare the coming generation as good and worthy citizens of the country. The society also aims to make an all-round development of the personalities of rural children. The society further aims to bring the children of the poor and weaker section of the society at par with the children of the upper strata of the society with the aim to open a good school which has been done in the rural and also urban areas meant for children from all strata and make available all possible facilities and made a model school. This factual background, it was submitted, has been duly noted in the order. Despite this, our attention was invited to copy of Memorandum of Association at page 6 of the Paper Book and the Aims and Objects of the Society enumerated in detail were referred to. It was his submission that CIT (Exemptions) issued a Show Cause Notice requiring details on the activities, bank accounts, salary, fee structure, donations etc. enumerated in para 5 from S.No. (i) to (xvi) of his order. All these details, it was submitted, were made available. However, relief is denied to the assessee, it was submitted, on pure prejudices and biases questioning the sudden need of the assessee society to seek exemption u/s 12A and not 10(23C)(vi) when till date society had been found to be claiming exemption u/s 10(23C)(iiad). Specific attention was invited to the fact that the CIT (Exemptions) was aware that judicial precedent was available in support of the claim. However, the ld. CIT (Exemptions), it was submitted, questions the need for shifting from one provision to another and to consider that exemption u/s 10(23C)(iiiad) and 10(23C)(vi) is available only to a University or Educational Institution and not to a Society or Trust and holds that a Society or Trust cannot claim to be either a University or an educational institution and thereafter not satisfied with the said observations, the CIT (Exemptions) further goes on to examine and holds that even if such a claim is accepted, the assessee had wrongly been claiming exemption u/s 10(23C(iiiad) till date. The following observations and conclusions drawn were assailed :
7.4 Furthermore, even if the logic was accepted in the instant case it is very evident from the financial statements attached with the application that income from running of the school running under the aegis of the applicant society is being received by the school itself and not the society. Further, this is evident from the 8. Notwithstanding the same the claims for registration u/s 12A were examined. The Audited accounts reveals that over the period of time the emphasis of the society is mainly on creation of assets rather than on ITA 1015/CHD/2016 Page 3 of 11 redeployment of funds towards education. The Income & Expenditure statements and Balance Sheets further indicate that during the F.Ys 2014-15 and 2015-16 the emphasis of the society has been mainly on adding to their fleet of vehicles. The present emphasis on this aspect and thereby generation of another source of income doesn't fit into the definition of education as laid down by the Apex Court in the case of Sole Trustee Lok Sikshan Trust. Moreover from the object clause it is evident that undertaking transportation doesn't feature as one of the objects of the society.
9. Moreover, the Salary and Fee structure of the society is not in sync with the instruction issued by the CBSE while providing affiliation. The salary structure is pitiably low. In response to the query whether the salary paid has been guided by the TDS provisions it has been stated that the amount of salary is below the taxable limits. It clearly leads one to conclude that society is not following the instruction issued by the CBSE at the time giving affiliation certificate compromising thereby with the quality of education. Legislative intent behind granting exemption to entities in education has been to improve the quality and not merely to impart education with no emphasis on quality. 10 It is seen that no evidence has been provided vis-à-vis land owned by the society except a reference made to the balance sheet. Since no papers w.r.t. land has been furnished the fact of possession of land with society remains unverifiable.
11. In light of the above it is clear that the society has undertaken several activities that are pointers towards a greater emphasis on generating surplus rather than on improving & imparting quality education. The emphasis during the year is on adding to the number of vehicles even though transportation has never been stated as an object. In light of the above as also the finding that the applicant society is not covered within the mandate of section lO(23c)(vi) of I.T. Act, 1961. I have no option but to proceed on merits and deny the registration to the applicant u/s 12AA of Income Tax Act, 1961.
2.1. Addressing the said reasoning, it was his submission referring to pages 121 to 123 of the Paper Book that the fee structure of the school, Spring Dale Public School, Ismailabad under Markandeshwar Educational Society was very reasonable. It was his submission that in 2012-13 Academic Session, the fee ranged from Rs. 450/- for Class-I to Rs. 700/-
in Class-X and in the next academic year, Rs. 500/- to Rs. 850/- and in 2014-15 Academic Year from Rs. 600/- to Rs. 950/- in class-X and Rs. 1200/- for Class-XI. The said fee structure considering the facilities made available, it was submitted, was very reasonable.
2.2 Referring to the material available on record, it was submitted, that it is not the case of the Revenue that the assessee has been purchasing Mercedes or BMWs. The assessee society has merely purchased buses in order to transport students from their villages etc. to school and back to their homes as public transport in these areas is not easily and safely available. Addressing the copy of Income & Expenditure Account for the period 31.03.2013, 31.03.2014 and 31.03.2015 at Paper Book pages 24, 31 and 38 it was submitted, it would show excess of income over ITA 1015/CHD/2016 Page 4 of 11 expenditure over the years from Rs. 11,42,501/- and Rs. 11,31,324/- has come down to Rs. 2,89,288/- out of the total receipts of Rs. 89,59,337/-, Rs. 91,12,205/- and Rs. 94,99,143/- respectively. Thus, it was his submission that it cannot be the case of the Revenue that the assessee is sitting over huge piles of money. The assessee is systematically utilizing the same for the one and only aim of the educational society i.e. the running of a school in the rural area.
2.3. Inviting attention to the respective schedule of assets at pages 26,33 and 39, it was his submission that the expenditure has exclusively been on building, furniture, electric fittings, computers, lab equipments, musical instruments, sports equipment, Smart Class Board, generator, library books etc. and also vehicles consisting of school busses and not high end luxury cars. So the assessee can by no standards be said to be carrying out educational activity as a casual exercise. Inviting attention to Paper Book pages 118 to 120 which was a list of staff in the respective three years, it was submitted it can be seen that apart from employing Librarian and Assistant Librarian and Principal, the assessee has a staff of about 35 to 37 TGT( Trained Graduate Teachers) and PRT. Apart from that, there are three clerks, four bus drivers, two peons, watchman and gateman etc. Thus, the presumptions of the Department that the assessee was only interested in the creation of assets and not on re-deployment of funds towards education, it was submitted, is completely misconceived and prejudicial de horse fact. The objections that there is no evidence of land owned, it was submitted is also contrary to record. The land has been valued at Rs. 1 lac on which a school of about Rs. 60 lacs stands and since the existence of land demonstrated on the balance sheet was never questioned as no specific query was raised in regard thereto, the occasion of furnishing any papers in support of the said claim never arose. Thus, it was his submission that the assessee has addressed all the points as there is no surplus. In fact, the assessee is constantly endeavoring to ensure that the best possible education is available to the children. Accordingly, it was his prayer that registration u/s 12A may kindly be directed to be granted as it has been denied to the assessee on an incorrect appreciation of facts and law. Addressing the legal position, it was submitted, that the decision of the jurisdictional High Court in case of Pinegrove International Charitable Trust Vs. Union of India 327 ITR 73 (P&H) had an occasion to consider near identical facts. In the facts of the ITA 1015/CHD/2016 Page 5 of 11 said case also, the assessee was a society running a school solely for educational purposes. Identical arguments on behalf of the Revenue were considered in the said decision. Paras 5.1 to 5.3 of the said decision were referred to. Reliance on behalf of the Revenue had been placed upon the decision of the Uttarakhand High Court in the case of Queens Educational Society. Attention was invited to Paper Book page No. 5 and 14. Inviting attention to para 6.5 at page 19 of the said decision as per copy filed, it was submitted that the following substantial question of law amongst others was framed for consideration :
(C)Whether an institution registered as a Society under the Societies Registration Act, 1860, lose its character as an educational institution, eligible to apply for exemption under section 10(23Q( vi) of the Act?
2.4 Inviting attention to the Paper Book page 22, it was submitted, that the question was answered in favour of the assessee in para 8.1 by their Lordships and has been elaborated in para 8.7. The relevant extract is reproduced hereunder :
8.7 The contention of the revenue for sustaining the validity of the impugned Order on the ground that the petitioner(s) being societies registered under the 1860 Act do not fall within the ambit of the expression 'other educational institutions' and, therefore, exemption has been rightly withdrawn under section 10(23C)(iv) of the Act, cannot be accepted because after the notice was issued for withdrawing the exemption on the said ground, reply was filed by the petitioner(s) asserting that in view of the law laid n by various High Courts and Hon'ble the Supreme Court such a ground was not tenable. The Chief Commissioner thereafter did not issue any notice to the assessee making the aforesaid ground as the basis for withdrawal of exemption nor there is any finding recorded in the impugned orders. Thus, the said ground on which there is no finding in the impugned Order is not sustainable in view of the law laid down by Hon'ble the Supreme Court in the case of Mohinder Singh Gill v. Chief Election Commissioner AIR 1978 SC 851 (para 8). Secondly, such a plea in any case would not sustain the impugned order, in as much as, in the case of Aditanar Educational Institution (supra) it has been held that :--
" . . . We are of the view that an educational society or a trust or other similar body running an education institution solely for educational purposes and not for the purpose of profit could be regarded as "other educational institution" coming within section 10(22)
- See CIT v. Doon Foundation [1985] 154 ITR 208 and Aggarwal Shiksha Samiti Trust[l987] 168 1TR 751 (Raj.). It will be rather unreal and hyper technical to hold that the assessee-society is only a financing body and will not come within the scope of "other educational institution" as specified in section 10(22). The object of the society is to establish, run, manage or assist colleges or schools or other educational institutions solely for educational purposes and in that regard to raise or collect funds, donations, gifts etc. Colleges and schools are media through which the assessee imparts education and effectuates its objects. In substance and reality, the sole purpose for which the assessee has come into existence is to impart education at the levels of colleges and schools and so, such an educational society should be regarded as an "educational institution" coming within section 10(22). We hold accordingly." [Emphasis supplied] ITA 1015/CHD/2016 Page 6 of 11 2.5 Specific attention was also invited to para 8.14 of the said decision of the Hon'ble High Court. Relevant extract of the said para relied upon is also reproduced hereunder :
"8.14 When the facts of the lead case are examined in the light of above discussion, it is evident that capital' assets acquired/constructed by the educational institutions have been treated as income in a blanket manner without recording any finding whether the capital assets have been applied and utilised to advance the purpose of education. It is obligatory on the part of the prescribed authority while exercising power under un- numbered thirteenth proviso to consider whether expenditure incurred as capital investment is on the object of education or not. Therefore, the orders impugned in these petitions passed by the prescribed authority are liable to be quashed. It is appropriate to mention that in these cases the impugned orders passed by the Chief Commissioner of Income-tax, Chandigarh and those of by the Chief Commissioner of Income-tax, Ludhiana, are similar in substance and appear to have been inspired by the view taken by the Uttrakhand High Court in the case of Queens Educational Society (supra), which we have not accepted."
2.6 Inviting further attention to Paper Book page 28 to 43, it was his submission that the said decision was approved by the Hon'ble Supreme Court in the case of Queens Educational Society Vs CIT 372 ITR 699 (S.C.). Reliance was placed upon the following head-note :
Thus, the law common to section lQ(23C)(iiiad) and (vi) may be summed up as follows:
(1) Where an educational institution carries on the activity of education primarily for educating] persons, the fact that it makes incidental surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit.
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2.7 Referring to the said decision, it was submitted, that the decision of the Uttrakhand High Court in the case of Queens Educational Society has been reversed and of the Hon'ble Punjab & Haryana High Court in the case of Pinegrove International Charitable Trust (supra) has been approved.
2.8 Reliance was also placed upon the order dated 18.01.2017 in the case of Labana Sikh Educational Society Vs CIT(Exemptions) Chandigarh 163 ITD 87 (Chandigarh -Trib.), copy placed at pages 44-49 which is again in the context of assessee society running educational institution. Reference was also placed upon decision of the Pune Bench in the case of Bharati Vidyapeeeth Medical Foundation Vs ACIT 144 ITD 510 (Pune-Trib) dated 31.12.2012, copy placed at pages 61 to 76. Attention was invited to the fact that in the facts of the said case, exemption u/s 11 was denied on the ground that depreciation claimed is exempt u/s 10(23C). Attention was also invited to CIT, Faridabad Vs IILM Foundation Academy (2016) 389 ITR 140 (P&H) where registration u/s 12A had been denied on ITA 1015/CHD/2016 Page 7 of 11 reading its ancillary object which has not been approved by the Hon'ble Court.
2.9 Thus, it was his submission that the law as it stands is that at the stage of Registration u/s 12A, it is only the Aims and Objects which need to be seen. In the facts of the present case, not only the Aims and Objects but even the active functioning of the school, the society has demonstrated that it is engaged solely in a charitable activity. While considering the application for grant of Registration u/s 12A, the CIT (Exemptions) at the threshold level was required to address only the aims and objects of the society. Since these have been addressed and found to be charitable in nature, the CIT (Exemptions) without addressing the facts has proceeded to hold that the assessee is adding to its fleet of vehicles and that its emphasis is only on creation of assets rather than on re- deployment of funds towards education is incorrect on facts and law. Similarly, the biased observation that the salaries paid were very low and thus, impacting quality of education, it was submitted, is again a prejudiced observation. It was submitted, that had higher salaries been paid, the question could easily have been asked why in out of the way rural area, high salary is paid. It was submitted that there can be no end to suspicions. The fee structure considering the facilities made available, it was submitted, was very reasonable.
3. The ld. CIT-DR carrying us through the aforesaid order of the CIT (Exemptions) placed heavy reliance thereon. It was his submission that the assessee is mainly interested in the creation of asset and has not redeployed the funds towards education. In fact, it was his submission that the aim and intention of the assessee is to earn profits and imparting education is only an incidental fall out. Accordingly, for the reasons set out in the order, registration u/s 12A it has been argued has correctly been denied to the assessee. Reliance was placed upon the decision of the Mumbai High Court in the case of Yash Society Vs CCIT, Mumbai (2015) 375 ITR 152 (Mum). Inviting specific attention to para 27 of the said decision wherein reliance had been placed upon the decision of the Apex Court in the case of S.H. Medical Centre Hospital V State of Kerala (2014) 11 SCC 381. It was submitted that the following para of the said decision of the Bombay High Court, has been extracted where on heavy reliance ITA 1015/CHD/2016 Page 8 of 11 has been placed upon by the Revenue :
"17. Now, we will examine the question of what "charitable purpose" means. The Oxford English Dictionary defines "charitable "as of or relating to the assistance of those in need". In the present case, it can be argued that all medical services relate to the assistance of those in need. This is a valid interpretation but cannot be accepted for the purposes of tax. If these medical services in the present case were being offered free to a majority of the patients rather than a minority of patients, then the conclusion could have been reached that the buildings are principally used for charitable purpose. Further, an amount of approximately Rs.26,00,000 of the expenses are towards "social work and / charities" as per the income and expenditure accounts provided, whereas "free medical aid" is around Rs.60,00,000 for the year 2004-2005. It is not clearly mentioned that "social work and charities" is. Furthermore, an exemption is provided for that area in which free medical aid is provided by the appellant Hospital. The appellant has not produced cogent material evidence before the competent authority or the State Government or before the High Court to show that the entire building has been used for charitable purpose by rendering free medical aid to the needy poor people of society. The fact is that the details furnished in the documents produced would go to show that the appellant Hospital is earning money by charging from patients and therefore the claim of the appellant that the entire area taxed is used for charitable purpose is not reflected in the documents produced. Hence, we are not inclined to interfere with the impugned orders. The High Court has correctly interpreted the "Explanation" clause to section 3 (1) of the Act to hold that "charitable purpose" means "relief of the poor and free medical relief. (Emphasis supplied) In the petitioner's case it may be that the memorandum of association shows that it is established for philanthropic purpose but as to whether such philanthropic activities are reflected from the actual conduct of the institution is a fact which is required to be seen by the appropriate authority by appreciating the evidence in that regard in considering the application under section 10 (23C) (via). Such examination is an independent examination and it is only on the basis of the material as submitted by the petitioner, the respondent no. l has taken a decision to reject the application of the petitioner."
3.1. Inviting specific attention to page 117 of the Paper Book which is Schedule of Assets, it was submitted that the assessee has made addition of Rs. 13,60,000/- in its fleet of vehicles. Apart from that, the other major expense has been deployed towards building amounting to Rs. 10,87,410/- and for furniture only Rs. 1,21,573/- and lab equipments Rs. 1,77,477/- and other minor expenses have been added upto 30.09.2014 and after 30.09.2014. The addition on account of vehicles has again increased disproportionately compared to the other expenses. In these peculiar facts and circumstances, it was his submission that the assessee society exists solely for making profit in the garb of charity activity and therefore, registration has correctly been denied.
4. The ld. AR in reply stated that he would not want to repeat the facts. The assessee, it was submitted, runs only one school for education in a village area where public transport is not available and it's a means to carry the students to and fro from their villages to school and vice versa and is a necessity. The decision of the Bombay High Court relied upon by ITA 1015/CHD/2016 Page 9 of 11 the CIT-DR, it was submitted, is not of any relevance as it pertains to a hospital and in the facts where charitable activity could not be demonstrated by that assessee. It was again reiterated that the conclusions drawn by the CIT(Exemption) are contrary to facts and based on suspicions and surmises as there is no excess of income as the assessee has retained a meager amount of Rs. 2 lacs odd after deploying the funds for improving the infrastructure and ensuring that the children can come to school and be dropped back to their homes from the school. Teachers have been employed and infrastructure has been made available. None of these facts, it was submitted, have been negatively commented upon.
5. We have heard the submissions and perused the material available on record. We find that in the peculiar facts and circumstances of the case, registration u/s 12A of the Income Tax Act has wrongly been denied to the assessee. The assessee society is stated to be in a village area and has been running for the last few years. We note from the fee structure of the classes that from class-X the assessee society has also added another class XI to its school and as per the list made available to the tax authorities, the assessee society has adequate staff by way of qualified teachers and despite the fact that complete details which we proceed to enumerate from para 5, have been made available, nothing adverse or contrary except the relevant portions extracted in the earlier part of this order have been referred to by the CIT(Exemptions). As per the show cause notice, assessee was required to make the following details/clarifications available :
(i) Details of property vested in the society, as envisaged, u/s 11 of the I.T.Act/ income from which was sought to be exempted.
(ii) Details of voluntary contributions received by the society as envisaged u/s , 12 of I.T.Act and whether any specific direction had been received by the persons making voluntary contributions.
(iii) Originals of MO A/ Trust Deed/ Bye Laws of the society along with the certificate of Registration,
(iv) Elaboration about the charitable intent of the society when till today the same was operating on commercial principals along with explanation as regards to sudden need for seeking exemption,
(v) Copies of Bank statements through which activities were being propagated and highlighting the receipts and different items of expenditures,
(vi) Details of Salary Paid and whether the same were guided by the TDS provisions corroboration of the same from the Bank account.
ITA 1015/CHD/2016 Page 10 of 11
(vii) Details of the Fees structure of the school & school receipts and how the same was shown in bank accounts along with comparative fee structure including that of government school .
(viii) Details of Donations received or intended to be received along with the documentary evidence
(ix) Copies of I.T. Returns for last three Asst.Years
(x) Details whether the application has been filed for first time and the fate of earlier application along with the copy of the order.
(xi) Details of donations received under FCRA along with the copies of Return of FCRA and the specified bank account.
(xii) Note on Right to Education Act and how the same was being implemented in institute.
(xiii) Details of corpus fund and whether the same were -with any specific written directions.
(xiv) Details regarding charitable activities being conducted by the society. Along with clarification as regards which specific limb under section 2(15) of the I,T. Act was being pursued,
(xv) Copy of Receipts and payment accounts of the entity for the last three years along with corroboration through bank entries.
(xvi) Explanation as regards to sudden need for seeking exemption u/s 12A and not 10(23c)(vi) when till date society have been claiming exemption u/s 10(23c)(iiiad) which entails that the entity solely for educational purposes and not for profit till now.
5.1. It is not the case of the Revenue that those details were not made available. We have taken into consideration the relevant pages of the Paper Book to which our attention has been invited by the parties. We have also taken note of the judicial precedent relied upon before us by the parties and we note that apart from the decision of the Bombay High Court in the case of a Society running a medical hospital relied upon by the ld. DR, the decisions relied upon by the ld. AR have not been upset by the Revenue. On our consideration of the entire factual matrix and legal position thereon, we find that the conclusion drawn in para 7.4, 8, 9, 10 & 11 by the CIT(Exemptions) are incorrect and not supported by any evidence on record. The suspicions raised where the criticism is posed on the grounds that the assessee is "adding to the fleet of vehicles" when considered in the factual matrix that the fleet of vehicles are actually school buses to carry the children to and fro in the village where public transport for the said exercise is not easily available demonstrated that its claim has been rejected purely on biases and prejudices. The fact that it results in creating an asset is neither here nor there. The re-deployment of funds is found as per record purely for the purpose of education. The mere fact that the assessee is paying lesser salary to trained teachers does not necessarily demonstrate that the quality of the education necessarily ITA 1015/CHD/2016 Page 11 of 11 suffers as it would depend upon the ratio of available teachers looking for jobs and the institutions looking for such people at the relevant point of time i.e. the availability of qualified teachers looking for jobs. Similarly the suspicions that the assessee was not imparting quality education, it is seen is also not borne out from the record. The decision of the Hon'ble Bombay High Court in the case of Yash Society operates as argued by the ld. AR entirely on different set of facts and circumstances and in the facts of the present case, has no role whatsoever. On consideration of the facts, circumstances and position of law as considered in detail herein above, we find no good reason why the benefit of registration u/s 12A has been denied to the assessee. On a consideration of the facts, circumstances and position of law, we direct that the registration u/s 12A be granted to the assessee.
6. In the result, appeal of the assessee is allowed.
Order pronounced in the Open Court on 15th November2017.
Sd/- Sd/-
(ANNAPURNA GUPTA) (DIVA SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
' P o on am '
C o py t o:
1. Th e A p p ell ant
2. Th e R e s p on d ent
3. Th e CI T
4. Th e CI T( A)
5. Th e DR
Asstt. Registrar
ITAT,Chandigarh.