Confrere Education Society, Noida v. Addl. CIT, Noida

ITA 118/DEL/2009 | 2004-2005
Pronouncement Date: 28-01-2011 | Result: Allowed

Appeal Details

RSA Number 11820114 RSA 2009
Bench Delhi
Appeal Number ITA 118/DEL/2009
Duration Of Justice 2 year(s) 15 day(s)
Appellant Confrere Education Society, Noida
Respondent Addl. CIT, Noida
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 28-01-2011
Date Of Final Hearing 11-01-2011
Next Hearing Date 11-01-2011
Assessment Year 2004-2005
Appeal Filed On 12-01-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO.95(DEL)/2009 ASSESSMENT YEAR: 2004-05 ASSISTANT COMMISSIONER OF CO NFRERE EDUCATION SOCIETY INCOME-TAX NOIDA RANGE NOIDA. VS. C-56A/28 SECTOR-62 NOIDA GAUTAM BUDH NAGAR (UP)- 201301. ITA NO.118(DEL)/2009 ASSESSMENT YEAR: 2004-05 CONFRERE EDUCATION SOCIETY AS SISTANT COMMISSIONER OF C56A/28 SECTOR-62 VS. INCOME-TAX NOIDA. NOIDA. (APPELLANT) (RESPONDENT) DEPARTMENT BY : MS. MONA MOHANTY SR. DR ASSESSEE BY : SHRI RANJAN CHOPRA C.A. ORDER PER K.G. BANSAL : AM THE FACTS OF THE CASE ARE THAT THE ASSESSEE-S OCIETY FILED ITS RETURN ON 1.11.2004 DECLARING TOTAL INCOME AT NIL. TH E RETURN WAS ACCOMPANIED BY THE AUDIT REPORT U/S 12A(B) OF THE INCOME-TAX ACT 1961. THE ACCOUNTS SHOWED SURPLUS OF RS. 2 83 400/-. THIS AMOUNT WAS CLAIMED TO BE NOT INCLUDIBLE IN THE TOTAL INCOME UNDER THE PROVISION S OF SECTION 10(23C)(IIIAD) OF THE ACT. THE RETURN WAS PROC ESSED U/S 143(1) ON ITA118 & 95(DEL)/2009 2 28.3.2005. SUBSEQUENTLY THE RETURN WAS PICKED UP FOR SCRUTINY BY ISSUING AND SERVING ON THE ASSESSEE A NOTICE U/S 143 (2) DATED 10.5.2005. 1.1 IN THE COURSE OF HEARING IT WAS FOUND THAT THE SOCIETY IS MANAGED BY THREE PERSONS TWO OF THEM ARE GRADUATES FROM II T ROORKEE. THE THIRD PERSON HOLDS THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION. THEY SET UP THE SOCIETY FOR PROVIDING FACILITIES FOR EDUCATION AND RESEARCH IN THE FIELDS OF BIO-INFORMATICS AND ALLIED AREAS. THE EDUCATION IS BEING PROVIDED THROUGH DISTANCE LEARNING EDUCATION SCHE ME (DLES FOR SHORT) UNDER WHICH THE STUDENTS ARE PROVIDED KNOWLEDGE THROUGH ON- LINE SERVICE. THE ASSESSEE IS ALSO RUNNING A CENTRE IMPARTING SIMILAR EDUCATION IN ITS PREMISES TO A FEW STUDENTS. I T HAS SHOWN RECEIPT BY WAY OF FEES AMOUNTING TO RS. 95 10 500/-. THE SURPLUS O F INCOME OVER EXPENDITURE IS RS. 4 77 035/-. THE AMOUNTS DEBITE D TO THE INCOME AND EXPENDITURE ACCOUNT INTER-ALIA CONTAIN TWO IT EMS OF IMPORTANCE TO US: (I) COURSE MATERIAL COLLECTION AND DEVELOPMENT CH ARGES AT RS. 19 63 780/- AND (II) DEPRECIATION OF RS. 2 25 982/-. THE MAIN QUESTION RAISED BY THE AO IN THIS CASE IS-WHETHER EDUCATION AND INFORMATI ON PROVIDED THROUGH THE DLES QUALIFIES THE ASSESSEE TO BE TERMED AS AN EDUCATIONAL INSTITUTION? THE SECOND QUESTION IS REGARDING ADMISSIBILITY O F THE EXPENDITURE SHOWN ITA118 & 95(DEL)/2009 3 IN THE ACCOUNTS AS COURSE MATERIAL COLLECTION AN D DEVELOPMENT CHARGES. THEN THERE IS ALSO A QUESTION WHETHER THE PR OVISIONS CONTAINED IN SECTION 11 OR SECTION 10(23C)(IIIAD) ARE APPLIC ABLE ON THE FACTS OF THE CASE. THE FINDINGS OF THE AO ARE THAT THE ASS ESSEE IS NOT AN EDUCATIONAL INSTITUTION BECAUSE THERE IS NO TEACHER AND STU DENT RELATIONSHIP AS THE EDUCATION IS PROVIDED THROUGH DLES. IN REGARD T O THE SECOND QUESTION IT IS MENTIONED THAT THE PAYMENT FOR DEVELOPMENT OF COURSE MATERIAL ETC. HAS BEEN MADE TO IT BREAK.COM PRIVATE LTD. AMOUNTING TO RS. 18 13 780/-. THIS MONEY HAS BEEN INTER-ALIA UTILIZED BY THAT C OMPANY FOR THE PURPOSE OF PAYMENT OF SALARIES TO THE MEMBERS OF THE ASSESS EE-SOCIETY. IN VIEW THEREOF IT HAS BEEN HELD THAT THE PROVISIONS C ONTAINED IN SECTION 13(1)(C)(II) READ WITH SECTION 13(3) ARE APPLI CABLE TO THE FACTS OF THE CASE. AS THE ASSESSEE HAS APPLIED THE SUM OF RS. 18 13 780/- INDIRECTLY FOR PAYMENT OF SALARY AND OTHER BENEFITS TO THE MEMBERS OF THE ASSESSEE- SOCIETY THIS AMOUNT CANNOT BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE U/S 11. IN REGARD TO THIRD QUESTION I T IS MENTIONED THAT THE ASSESSEE HAS BEEN REGISTERED U/S 12A AND THEREF ORE THE PROVISIONS CONTAINED IN SECTIONS 11 TO 13 ARE APPLICABLE TO THE FACTS OF THE CASE. IN VIEW THEREOF THE DEDUCTION OF RS. 2 25 982/- C LAIMED AS DEPRECIATION HAS NOT BEEN ALLOWED AS THERE IS NO APPLICAT ION OF THIS INCOME U/S 11. ITA118 & 95(DEL)/2009 4 THE INCOME OF THE ASSESSEE HAS BEEN ASSESSED AT RS. 18 13 780/- AND TAX RATE APPLICABLE TO AN ASSOCIATION OF PERSONS (AOP ) HAS BEEN APPLIED. 2. AGGRIEVED BY THIS ORDER THE ASSESSEE MOVED A N APPEAL BEFORE THE CIT(APPEALS) GHAZIABAD WHO DISPOSED IT OFF ON 18.09.2008 IN APPEAL NO. 95.2006-07/NOIDA. IT WAS SUBMITTED BEFORE H IM THAT THE ASSESSEE CONDUCTS EXAMINATIONS ALL OVER THE COUNTRY AND DECLARES THE RESULTS. STUDENTS WHO PASS THE EXAMINATION ARE AWARDED DIPLOMAS OR DEGREES. THE ASSESSEE ALSO CONDUCTS WORKSHOPS FROM TIME T O TIME FOR IMPARTING CORPORATE TRAINING. ITS QUARTERLY JOURNAL BIO- INFORMATICS PUBLISHES THE TRENDS IN THE FIELD AND IT IS ONE OF ITS OWN KI ND IN INDIA. THE ASSESSEE ALSO OFFERS TRAINING SOLUTIONS SPECIFICALLY DESIG NED TO MEET THE NEEDS OF CORPORATE CLIENTS. THE INSTITUTION RUN BY THE ASSESSEE HAS BEEN RECOGNIZED BY THE GOVERNMENT OF INDIA MINISTRY OF INFORMATION TECHNOLOGY IN LETTER DATED 7.7.2005. THE ASSESSEE HAS MADE A MEMORAN DUM OF UNDERSTANDING WITH JAMIA HAMDARD UNIVERSITY ON 13.08.2004 AND IT HAS BEEN AFFILIATED WITH UNIVERSITY SARDAR SHAHR DISTRICT CHURU FRO M 03.11.2003. THE ASSESSEE HAS FURNISHED THE EXAMPLE OF INDIRA GA NDHI NATIONAL OPEN UNIVERSITY (IGNOU) INSTITUTE OF MANAGEMENT TEC HNOLOGY GHAZIABAD (IMT) SYMBOISES PUNE AND ANNAMALAI UNIVERSITY MADURAI. THESE ITA118 & 95(DEL)/2009 5 INSTITUTIONS ARE IMPARTING EDUCATION IN THE SAME MANNER THE ASSESSEE IS IMPARTING THE EDUCATION. THEREFORE IT IS CLAIME D THAT THE ASSESSEE-SOCIETY IS SOLELY ENGAGED IN THE OBJECT OF PROVIDING EDU CATION. SINCE ITS RECEIPTS IN THIS YEAR ARE NOT MORE THAN RS. 1.00 CRORE THE PROVISIONS CONTAINED IN SECTION 10(23C)(IIIAD) ARE APPLICABLE. 2.1 COMING TO THE PAYMENT OF RS. 18 13 780/- MAD E TO IT BREAK.COM PRIVATE LTD. IT HAS BEEN SUBMITTED THAT THE AMOU NT CANNOT BE SAID TO BE THE SALARIES PAID TO DIRECTORS OF ASSESSEE-COMPANY. T HIS COMPANY HAS RECEIVED AMOUNT OF RS. 9 26 700/- FROM OTHER WORK APART FROM RS. 18 13 780/- FROM THE ASSESSEE. THE COMPANY WAS FORMED ON 22.1 .2001 WHILE THE INSTITUTION OF THE ASSESSEE STARTED FUNCTIONING ON 11.6.2002. THE PAYMENT HAS BEEN MADE BY THE ASSESSEE FOR THE SER VICES RENDERED IN CONNECTION WITH PREPARATION OF COURSE MATERIAL ETC . FOR WHICH THE ASSESSEE DOES NOT HAVE ANY REQUISITE INFRASTRUCTURE. IT HAS NOWHERE BEEN PROVED THAT THE PAYMENT IS NOT MADE AT ARMS LENGTH. THEREFORE THE PROVISIONS CONTAINED IN SECTION 13(3) READ WITH SECTION 13(1 )(C)(II) ARE NOT APPLICABLE. THE WHOLE OF THE AMOUNT HAS NOT BEEN PAID BY THAT COMPANY TO THE DIRECTORS WHO HAVE BEEN PAID A SUM OF RS. 12 80 700/- ONLY OUT OF TOTAL RECEIPTS OF RS. 27 40 480/-. LOOKING TO THE QUA LIFICATION OF THE DIRECTORS ITA118 & 95(DEL)/2009 6 SALARIES PAID TO THEM ARE REASONABLE. THUS THE COMPANY CANNOT BE SAID TO BE A CONDUIT TO TRANSFER BENEFIT FROM THE ASSESSE E TO ITS MEMBERS. 2.2 IT HAS ALSO BEEN AGITATED THAT THE ASSESSEE I S ENTITLED TO DEDUCTION OF DEPRECIATION IN COMPUTING THE INCOME OF THE EDUCAT IONAL INSTITUTION. 2.3 THE LD. CIT(APPEALS) CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE HIM. HIS CONCLUSION IS THA T MERE PROVIDING COURSE MATERIAL ON-LINE DOES NOT MAKE THE INS TITUTION AS EDUCATIONAL INSTITUTION BECAUSE THE RELATIONSHIP OF TEACHER A ND TAUGHT WHICH IS AN ESSENTIAL INGREDIENT IS MISSING. THEREFORE IT HAS BEEN HELD THAT THE PROVISION CONTAINED IN SECTION 10(23C)(IIIAD) IS N OT APPLICABLE TO THE FACTS OF THE CASE. COMING TO THE ISSUE REGARDING PAYME NT MADE TO IT BREAK.COM PRIVATE LTD. IT IS MENTIONED THAT THE AVERAGE SALARY OF THE DIRECTORS IS ABOUT RS. 4.27 LAKH P.A. THIS SALARY IS COMM ENSURATE WITH THEIR QUALIFICATION. THE TOTAL RECEIPTS OF THAT COMPAN Y ARE RS. 27 40 480/- OUT OF WHICH RS. 18 13 780/- HAS BEEN RECEIVED FROM THE ASSESSEE-SOCIETY. HE ALSO CONSIDERED THE INCOME AND EXPENDITURE ACCOU NT OF THAT COMPANY FOR THE PURPOSE OF ALLOCATING A REASONABLE AMOUNT FRO M OTHER INCOME. THUS HE ALLOWED DEDUCTION OF RS. 13 24 211/- IN RESP ECT OF SALARIES AND OTHER ITA118 & 95(DEL)/2009 7 EXPENSES U/S 11 OF THE ACT. HE ALSO ALLOWED DE DUCTION OF DEPRECIATION IN COMPUTING THE INCOME. 3. BOTH THE ASSESSEE AND THE REVENUE ARE AGGRIE VED BY THIS ORDER. THE GRIEVANCE OF THE ASSESSEE IS ON ACCOUNT OF HI S FINDINGS THAT THE ASSESSEE IS-(I) NOT ENTITLED TO THE BENEFIT OF S ECTION 10(23C)(IIIAD); AND (II) IS ENTITLED TO PART ALLOWANCE OF THE EXPENSES RE PRESENTING PAYMENTS OF RS. 18 13 780/- MADE TO IT BREAK.COM PRIVATE LTD. ON THE OTHER HAND THE GRIEVANCES OF THE REVENUE ARISE ON ACCOUNT OF PA RT-ALLOWANCE OF SALARY AND OTHER EXPENSES AS AGAINST DISALLOWANCE OF RS . 18 13 780/- PAID TO IT BREAK.COM PRIVATE LTD. FOR WHICH PURPOSE TWO SEP ARATE GROUNDS HAVE BEEN TAKEN REGARDING THE SALARY AND OTHER EXPE NSES. 3.1 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ASSESSEE IS AN EDUCATIONAL INSTITUTION PROVIDIN G EDUCATION THROUGH DLES. ITS RECEIPTS ARE NOT MORE THAN RS. 1.00 CRORE IN THIS YEAR. IN THIS CONNECTION A REFERENCE HAS BEEN MADE TO THE OBJEC TS OF THE ASSESSEE-SOCIETY AND IN PARTICULAR TO OBJECT NO. (N) REGARDING PROVIDING EDUCATION IN THE FIELD OF BIO-INFORMATICS CHEMINOFORMATIC MEDICAL DIAGNOSTICS APPLIED BIO-TECHNOLOGY AND RELATED SCIENCES ON FULL-TIME BASIS (CLASS ROOM BASED) ITA118 & 95(DEL)/2009 8 AS WELL AS PART-TIME BASIS AND IN CORRESPONDENCE FROM EITHER INDEPENDENTLY OR IN ASSOCIATION WITH OTHER BODY. IT IS FURTHER SUBMITTED THAT ONLY THIS OBJECT HAS BEEN PURSUED IN THIS YEAR . IT IS HIS CONTENTION THAT THIS IS PURELY AN EDUCATIONAL OBJECT AND THEREFO RE THE ASSESSEE IS AN EDUCATIONAL INSTITUTION. IN THIS CONNECTION OUR ATTENTION HAS BEEN DRAWN TO THE PROVISION CONTAINED IN SECTION 2(15). FOR THE YEAR UNDER CONSIDERATION THE WORDS CHARITABLE PURPOSE HAVE BEEN DEFINED TO INCLUDE RELIEF OF THE POOR EDUCATION MEDICAL RELIEF AN D ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. THE CASE OF THE ASSESSEE FALLS UNDER EDUCATIONAL PURPOSE. THEREFORE THE ASSESSEE IS ENTITLED TO THE BENEFIT OF THE PROVISION CONTAINED IN SECTION 10(23C)(IIIAD ). IN ORDER TO SUPPORT THIS CONTENTION RELIANCE HAS BEEN PLACED ON THE DECI SION IN THE CASE OF ADITNAR EDUCATION INSTITUTION VS. ADDITIONAL CIT ETC. ( 1997) 224 ITR 310 (SC); CIT VS. LUCKNOW DIOCESAN TRUST ASSOCIATION (1980 ) 123 ITR 38 (ALL.); DIT(EXEMPTIONS) VS. PARIVAR SEWA SANSTHAN (2002) 254 ITR 268; AND SURAT CITY GYMKHANA VS. DEPUTY CIT (2002) 254 ITR 733. 3.2 THE CASE OF THE LD. DR IS BASED UPON THE ORD ERS OF THE LOWER AUTHORITIES. IT IS SUBMITTED THAT THE ASSESSEE- SOCIETY IS NOT A UNIVERSITY AND THERE IS NO EVIDENCE ON RECORD THAT IT HAS BEEN RECOGNIZED AS AN ITA118 & 95(DEL)/2009 9 EDUCATIONAL INSTITUTION BY ANY UNIVERSITY. THE R ELATIONSHIP OF TEACHER AND TAUGHT IS MISSING IN THIS CASE BECAUSE OF DLES. THEREFORE IT IS ARGUED THAT THE ASSESSEE IS NOT CARRYING OUT EDUCATION AL PURPOSE. FURTHER AS BENEFIT HAS BEEN PASSED TO THE MEMBERS OF THE SO CIETY THROUGH IT BREAK.COM PVT. LTD. THE LD. CIT(APPEALS) ERRED IN PARTLY ALLOWING THE EXPENSES AS AGAINST THE FULL DISALLOWANCE OF THE PAYMENT MADE BY THE ASSESSEE TO IT. 4. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE MAIN QUESTION IN THIS CASE IS RE GARDING THE APPLICABILITY OF THE PROVISION CONTAINED IN SEC. 10(23C)(IIIAD). TH E PROVISION CONTAINED IN SECTION 10(23C)(IIIAD) EXCLUDES FROM THE TOTAL IN COME OF A PERSON THE INCOME RECEIVED ON BEHALF OF ANY UNIVERSITY OR O THER EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATIONAL PURPO SES AND NOT FOR PURPOSES OF PROFIT IF THE AGGREGATE ANNUAL RECEIPTS OF SUC H UNIVERSITY OR EDUCATIONAL INSTITUTION DO NOT EXCEED THE AMOUNT OF ANNUA L RECEIPTS AS MAY BE PRESCRIBED. THE PRESCRIBED AMOUNT IS RS. ONE CRO RE. 4.1 ON BARE PERUSAL OF THE PROVISION WILL SHO W THAT NOT ONLY INCOME OF A UNIVERSITY BUT ALSO THE INCOME OF ANY OTHE R EDUCATIONAL INSTITUTION IS ITA118 & 95(DEL)/2009 10 EXCLUDED. THE CONDITIONS ATTACHED TO THE EXCL USION ARE THAT IT SHOULD BE EXISTING SOLELY FOR EDUCATIONAL PURPOSES AND NO T FOR THE PURPOSE OF PROFIT; AND AGGREGATE ANNUAL RECEIPTS DO NOT EXCEED THE PRESCRIBED SUM OF RS.1.00 CRORE. THE ONLY OBJECTION TAKEN BY THE LOWER AUTHORITY IS THAT THE RELATIONSHIP OF TEACHER AND TAUGHT IS NON-E XISTENT AS THE SYSTEM OF IMPARTING EDUCATION IS DLES. IN THIS CONNECTI ON IT IS SEEN THAT THE WORDS EDUCATIONAL PURPOSE ALSO FINDS IN SECTION 2(15) REGARDING THE DEFINITION OF CHARITABLE PURPOSE WHICH INCLUDES RELIEF OF THE POOR EDUCATION MEDICAL RELIEF AND THE ADVANCEMENT O F ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. ON THE BASIS OF THIS D EFINITION IT CAN BE INFERRED THAT THE WORDS EDUCATIONAL PURPOSE MENTIONED I N SECTION 10(23C)(IIIAD) HAVE THE SAME MEANING AS ASSIGNED TO THEM IN THE DEFINITION OF THE TERM CHARITABLE PURPOSE. THE HONBLE SUPREME COURT HAD AN OCCASION TO EXAMINE THE MEANING OF THIS TERM IN THE CASE OF ADITNAR EDUCATIONAL INSTITUTION (SUPRA). IT WILL BE OF CONSIDERABLE U SE TO EXAMINE THE DISCUSSION AT PAGE NO. 317 OF THE REPORT IN CONNECTION WITH THE PROVISION CONTAINED IN SECTION 10(22) OF THE ACT (NOW OMITTED). IT IS MENTIONED THAT THE OBJECT OF THE SOCIETY IS TO ESTABLISH RUN MANAGE OR ASSIST COLLEGES OR SCHOOLS OR OTHER EDUCATIONAL INSTITUTIONS SOLELY FOR EDUCA TIONAL PURPOSES AND IN THAT REGARD TO RAISE OR COLLECT FUNDS DONATIONS GIFT S ETC.. COLLEGES AND ITA118 & 95(DEL)/2009 11 SCHOOLS ARE THE MEDIA THROUGH WHICH THE ASSESS EE IMPARTS EDUCATION AND EFFECTUATES ITS OBJECTS (EMPHASIS SUPPLIED). IN SUBSTANCE AND REALITY THE SOLE PURPOSE FOR WHICH THE ASSESSEE HAS COM E INTO EXISTENCE IS TO IMPART EDUCATION AT THE LEVELS OF COLLEGES AND SCHOOLS AND SO SUCH EDUCATIONAL SOCIETY SHOULD BE REGARDED AS AN EDU CATIONAL INSTITUTION COMING WITHIN THE MEANING OF SECTION 10(22) OF TH E ACT. THUS IT CAN BE SEEN FROM THE JUDGMENT THAT THERE COULD BE A NU MBER OF MEDIA THROUGH WHICH EDUCATION IS IMPARTED. IT MAY BE THROUG H COLLEGES AND SCHOOLS OR THROUGH DLES. THE MEDIA USED FOR IMPARTING EDUCATION IS NOT THE CRUX OF THE MATTER. THE REAL QUESTION TO BE SEEN IS W HETHER ANY MEDIA IS USED FOR IMPARTING EDUCATION. THEREFORE IF EDUCATI ON IS IMPARTED THROUGH DLES IT CANNOT BE SAID THAT EDUCATION IS NOT IMPARTED. IF ULTIMATELY EDUCATION IS IMPARTED THE MEDIUM WILL NOT REMAI N THE CONSIDERATION FOR APPLICABILITY OF SECTION 10(22) OR SECTION 10( 23C)(IIIAD) AS IN THIS CASE. FOR READY REFERENCE THE RELEVANT PARAGRAPH OF THE JUDGMENT IS REPRODUCED BELOW:- COUNSEL FOR THE REVENUE MAINLY STRESSED THE PLEA THAT THE EXEMPTION UNDER SECTION 10(22) OF THE ACT WOULD APPLY ONLY TO EDUCATIONAL INSTITUTION AS SUCH. ACCORDING TO HIM IN THIS CASE THE ASSESSEE MIGHT BE FINANCING FOR RUNN ING AN EDUCATIONAL INSTITUTION BUT IT IS NOT ITSELF AN EDUCATIONAL INSTITUTION. AS NOTED EARLIER THE TRIBUNAL HEL D THAT THE ASSESSEE WAS AN INSTITUTION EXISTING FOR EDUCA TIONAL PURPOSES AND NOT FOR THE PURPOSES OF EARNING ANY PROFIT AND THE ASSESSEE ITA118 & 95(DEL)/2009 12 ITSELF COULD BE TERMED AS AN EDUCATIONAL INSTI TUTION COMING WITHIN SECTION 10(22) OF THE ACT. THE HIGH COURT HAS CONCURRED WITH THIS VIEW. THE HIGH COURT HAS FU RTHER HELD THAT THE MEDIUM THROUGH WHICH THE ASSESSEE COU LD EFFECTUATE ITS OBJECTS IS THE COLLEGE AND BY EM PLOYING THIS MEDIUM THE ASSESSEE IMPARTS EDUCATION AND IT C ANNOT BE STATED THAT THE ASSESSEE IS ONLY A FINANCING BODY AND DOES NOT ON THE FACTS COME WITHIN THE SCOPE OF O THER EDUCATIONAL INSTITUTION OCCURRING IN SECTION 1 0(22) OF THE ACT. RELIANCE WAS PLACED ON THE DECISION OF TH E ALLAHABAD HIGH COURT IN KATRA EDUCATION SOCIETY VS. ITO [ 1978] 111 ITR 420 TO HOLD THAT AN EDUCATIONAL SOCIETY COU LD BE REGARDED AS AN EDUCATIONAL INSTITUTION IF THE S OCIETY WAS RUNNING AN EDUCATIONAL INSTITUTION. WE ARE OF THE VIEW THAT AN EDUCATIONAL SOCIETY OR A TRUST OR OTHER SIMIL AR BODY RUNNING AN EDUCATIONAL INSTITUTION SOLELY FOR E DUCATIONAL PURPOSES AND NOT FOR THE PURPOSE OF PROFIT COULD BE REGARDED AS OTHER EDUCATIONAL INSTITUTION COMING WITHIN SECTION 10(22) OF THE ACT. (SEE CIT V. DOON FOUNDATION [1 985] 154 ITR 208 (CAL) AND AGARWAL SHIKSHA SAMITI TRUST V. CIT [1987] 168 ITR 751 (RAJ.). IT WILL BE RATHER UNREAL AND HYPER-TECHNICAL TO HOLD THAT THE ASSESSEE-SOCI ETY IS ONLY A FINANCING BODY AND WILL NOT COME WITHIN THE SC OPE OF OTHER EDUCATIONAL INSTITUTION AS SPECIFIED IN SECTIO N 10(22) OF THE ACT. THE OBJECT OF THE SOCIETY IS TO ESTABLISH R UN MANAGE OR ASSIST COLLEGES OR SCHOOLS OR OTHER EDUCATIONAL I NSTITUTIONS SOLELY FOR EDUCATIONAL PURPOSES AND IN THAT RE GARD TO RAISE OR COLLECT FUNDS DONATIONS GIFTS ETC. COLLEGES A ND SCHOOLS ARE THE MEDIA THROUGH WHICH THE ASSESSEE IMPARTS EDU CATION AND EFFECTUATES ITS OBJECTS. IN SUBSTANCE AND REAL ITY THE SOLE PURPOSE FOR WHICH THE ASSESSEE HAS COME INTO EXIS TENCE 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) OF THE ACT. WE HOLD ACCORDINGLY. IN OUR VIEW THE JUDG MENT OF THE HIGH COURT DOES NOT MERIT INTERFERENCE. THE PLE A OF THE REVENUE TO THE CONTRARY IS UNTENABLE AND WE RE PEL THE SAME. ALL THE APPEALS FILED BY THE REVENUE SHALL STAND DISMISSED BUT THERE SHOULD BE NO ORDER AS TO COST S. ITA118 & 95(DEL)/2009 13 4.2 IT CAN ALSO BE SEEN THAT THE CASE DEALT W ITH A SOCIETY. THE ASSESSEE IS ALSO A SOCIETY. ACCORDINGLY IT IS HE LD THAT THE ASSESSEE IS AN EDUCATIONAL INSTITUTION WHICH IMPARTS EDUCATION THROUGH RUNNING A CLASS IN ITS PREMISES AND THROUGH DLES. ACCORDINGLY IT IS HELD THAT THE ASSESSEE IS ENTITLED TO THE BENEFIT OF THE PROVI SION CONTAINED IN SECTION 10(23C)(IIIAD). THE ASSESSEE HAS ALSO BEEN REGISTERED U/S 12A(A). THEREFORE IT HAS AN OPTION TO AVAIL THE BENEFI TS CONTAINED IN SECTIONS 11 TO 13 OR SECTION 10(23C)(IIIAD). THE ASSESSEE HAS SPECIFICALLY CHOSEN TO AVAIL OF THE BENEFIT OF THE LATTER PROVISION. IT IS ENTITLED TO DO SO AND THEREFORE IT IS HELD ACCORDINGLY. 5. THE SECOND QUESTION IS WHETHER THE ASSESSEE IS ENTITLED TO FULLY DEDUCT THE AMOUNT OF RS. 18 13 780/- PAID TO IT BVREAK.COM PVT. LTD. FOR DEVELOPING ITS COURSE STUDY MATERIAL WHICH IS U SED FOR THE PURPOSE OF IMPARTING EDUCATION. THE AO HAS DISALLOWED THI S AMOUNT BY INVOKING THE PROVISION CONTAINED IN SECTION 13(1)(C)(II) BY HOLDING THAT A PART OF INCOME OR PROPERTY OF THE INSTITUTION HAS BEEN U SED OR APPLIED IN THIS YEAR DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF THE PERS ONS REFERRED TO IN SECTION 13(3). IN THE CASE OF LUCKNOW DIOCESAN TRUST AS SOCIATION (SUPRA) THE QUESTION BEFORE THE HONBLE ALLAHABAD HIGH COURT WAS-WHETHER ON THE ITA118 & 95(DEL)/2009 14 FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS CORRECT IN ALLOWING THE PAYMENT OF RS.10 000/- MADE BY THE T RUST TO ITS TRUSTEES AS AN ADMISSIBLE DEDUCTION? THE TRIBUNAL HAD GIVEN A FINDING OF FACT THAT THE TRUST WAS GOVERNED BY CHARITABLE AND RELIGIO US TRUSTS ACT 1922 AND NOT BY THE INDIAN TRUSTS ACT 1882. IT COULD NOT BE SHOWN THAT THERE IS ANY RESTRICTION PLACED IN THE CHARITABLE AND RELIG IOUS TRUSTS ACT 1922 IN THE MATTER OF PAYMENT OF REMUNERATION BY THE TRU ST TO THE TRUSTEES. IT WAS HELD THAT ON THESE FACTS THE TRIBUNAL WAS RIGHT I N HOLDING THAT THE AMOUNT OF RS.10 000/- WAS AN ADMISSIBLE DEDUCTION. H AVING CONSIDERED THIS CASE WE ARE OF THE VIEW THAT ISSUE INVOLVED IN OUR CASE IS SOMEWHAT DIFFERENT NAMELY AS TO WHETHER ANY BENEFIT HA S BEEN PASSED TO THE MEMBERS OF THE SOCIETY INDIRECTLY SO AS TO ATTRAC T THE PROVISION CONTAINED IN SECTION 13(1)(C)(II) READ WITH SECTION 13(2 ) OF THE INCOME-TAX ACT 1961. HOWEVER THIS DECISION DOES LEAD TO THE INFERENCE THAT REMUNERATION PAID TO DIRECTORS MAY BE ADMISSIB LE. THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELOW:- AS NOTED ABOVE THE FACTS FOUND BY THE TRIBUN AL WERE THAT THE ASSESSEE IS A CHARITABLE AND RELIGIOUS T RUST AND IS GOVERNED BY THE CHARITABLE AND RELIGIOUS TRUST AC T 1922 AND NOT BY THE INDIAN TRUSTS ACT 1882. IT COULD NOT BE SHOWN TO US THAT THERE IS ANY RESTRICTION PLACED IN T HE CHARITABLE AND RELIGIOUS TRUSTS ACT 1922 IN THE MATTER OF PAYMEN T OF REMUNERATION BY THE TRUST TO THE TRUSTEES. IT WAS FURTHER FOUND AND IT IS NOT DISPUTED THAT THE LUCKNOW DIOCESAN ITA118 & 95(DEL)/2009 15 TRUST ASSOCIATION MANAGES THE AFFAIRS OF THE AS SESSEE AND THIS PAYMENT WAS MADE TO THEM FOR THE SERVICES RENDER ED AND THAT IT WAS CLEARLY FOR THE PURPOSE OF THE TRUS T. ON THESE FACTS THE TRIBUNAL WAS RIGHT IN HOLDING THAT TH IS AMOUNT OF RS. 10 000/- WAS AN ADMISSIBLE DEDUCTION. 5.1 IN THE CASE OF PARIWAR SEWA SANSTHAN (SUPRA) THE QUESTION BEFORE THE HONBLE DELHI HIGH COURT WAS-WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE TRIBUNA L WAS CORRECT IN ALLOWING THE BENEFIT U/S 11 OF THE INCOME-TAX ACT 1961 WITHOUT APPRECIATING THAT THE ASSESSEE HAD VIOLATED THE PROVISIONS OF SECTI ONS 13(1)(C) AND 13(1)(D) OF THE ACT? THE HONBLE COURT MENTIONED THAT T YAGI FOUNDATION WAS A SEPARATE REGISTERED SOCIETY ENGAGED IN SIMILAR C HARITABLE ACTIVITIES AND THE ALLEGATION OF THE AO ABOUT THIS SOCIETY BEING CON TROLLED BY MRS. SUDHA TEWARI WAS WRONG AND IRRELEVANT. NO MATERIAL WAS BROUGHT TO SHOW THAT TYAGI FOUNDATION WAS NOT A GENUINE REGISTE RED SOCIETY ENGAGED IN SIMILAR CHARITABLE ACTIVITIES. THE LOAN WAS GIVE N BY THE ASSESSEE TO TYAGI FOUNDATION IN PURSUANCE OF ITS OBJECTS TO PROMOT E CHARITABLE ACTIVITIES. IT WAS NOT THE CASE THAT TYAGI FOUNDATION HAS MI SUSED THE AMOUNT OF LOAN AND UTILIZED IT FOR NON-CHARITABLE PURPOSES. THE LOAN WAS FULLY SECURED BY MORTGAGE DEED AND IN SUBSEQUENT YEAR ON NON-PAYMENT OF THE LOAN THE PROPERTY REVERTED TO THE ASSESSEE-SOCIETY. THEREFORE IT WAS HELD THAT THE LD. CIT(A) WAS JUSTIFIED IN REJECTING THE CASE OF THE AO. WE FIND THAT ITA118 & 95(DEL)/2009 16 THE FACTS OF THIS CASE ARE SOMEWHAT DIFFERENT . THE CASE DEALT WITH A LOAN OF TYAGI FOUNDATION SECURED BY MORTGAGE. ON NON-PAYMENT OF THE LOAN THE PROPERTY REVERTED TO THE ASSESSEE-SANSTH AN. IN THE CASE AT HAND THE ASSESSEE HAD PAID CERTAIN AMOUNTS TO IT BR EAK.COM PVT. LTD. IT IS NOT A LOAN. FURTHER THERE IS NOTHING ON RECO RD TO SHOW THAT IT BREAK.COM PVT. LTD. IS AN EDUCATIONAL INSTITUTIO N. THEREFORE THE RATIO OF THIS CASE IS NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. HOWEVER FOR READY REFERENCE THE RELEVANT PARAG RAPH FROM THE JUDGMENT IS REPRODUCED BELOW:- AGAIN WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE ASSESSING OFFICER AND THE LD. COMMISSIONER OF IN COME-TAX (APPEALS) FOR THE ASSESSMENT YEARS 1995-96 AND 1996-97 ON THE ISSUE OF LOAN TO TYAGI FOUNDATION AND CONSI DERED THE SUBMISSIONS AND CONTENTIONS MADE BY THE LEARNED AUTHORISED REPRESENTATIVES OF BOTH THE SIDES. WE ARE OF THE VIEW THAT THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) WAS JUS TIFIED IN HOLDING THAT THERE WAS NO VIOLATION OF THE P ROVISIONS OF SECTION 13(5) IN GIVING THE LOAN TO TYAGI FOUNDATI ON. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) FOUND THAT T YAGI FOUNDATION WAS A SEPARATE REGISTERED SOCIETY E NGAGED IN SIMILAR CHARITABLE ACTIVITIES AND THE ALLEGATIO N OF THE ASSESSING OFFICER OF THIS SOCIETY BEING CONTROLLED BY MRS. SUDHA TEWARI AND OTHERS WAS WRONG AND IRRELEVA NT. NO MATERIAL WAS BROUGHT TO SHOW THAT TYAGI FOUNDATI ON WAS NOT A GENUINE REGISTERED SOCIETY ENGAGED IN SIMILAR CHARITABLE ACTIVITIES. THE LOAN GIVEN BY THE ASSESSEE TO TYAGI FOUNDATION WAS OUT OF THE OBJECT OF THE ASSESS EE-SOCIETY TO PROMOTE ITS CHARITABLE ACTIVITIES. IT WAS NOT A CASE THAT TYAGI FOUNDATION HAD MISUSED THE AMOUNT OF LOAN AND ITA118 & 95(DEL)/2009 17 UTILIZED IT FOR NON-CHARITABLE PURPOSES. NO MA TERIAL WAS PLACED TO SHOW THAT THE PURCHASE OF THE PROPERTY AN D UTILIZATION OF THE PROPERTY BY TYAGI FOUNDATION WAS FOR PURPOSES OTHER THAN ITS CHARITABLE PURPOSES. MOREOVER THE LOAN GIVEN WAS FULLY SECURED BY MORTGAGE DEED AND IN F ACT IN THE SUBSEQUENT YEAR ON NON-PAYMENT OF THE LOAN THE P ROPERTY WAS REVERTED TO THE ASSESSEE-SOCIETY. NO MATERIAL WAS PLACED TO SHOW THAT THERE WAS ANY NON-CHARITABLE ACTI VITIES CONNECTED WITH THE PROPERTY IN QUESTION. ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE THEREFORE WE HOLD THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WAS JUSTIFIED IN REJECTING THIS GROUND AS WELL AS FOR THE RE JECTION OF THE CLAIM OF EXEMPTION UNDER SECTION 11 OF THE ACT B Y THE ASSESSING OFFICER. 5.2 IN THE CASE OF SURAT CITY GYMKHANA (SUPRA) THE QUESTION BEFORE HONBLE GUJARAT HIGH COURT WAS REGARDING THE ONUS FOR INVOKING THE PROVISION CONTAINED IN SECTION 13(1)(C). IT IS ME NTIONED THAT THE REVENUE MAKES AVERMENT ABOUT THE APPLICABILITY OF THIS P ROVISION AND HENCE THE ONUS IS ON IT TO ESTABLISH THE FAILURE IF A NY. THE RELEVANT PORTION OF THE JUDGMENT AT PAGE NO. 743 OF THE REPORT READS AS UNDER:- EVEN OTHERWISE THE PROVISIONS OF SECTION 13 O PEN WITH A NON OBSTANTE CLAUSE AND HENCE BY VIRTUE OF THE S AID PROVISIONS EXCEPTION TO THE EXEMPTION PROVIDED BY SECTION 11 IS CARVED OUT AND AN ASSESSEE IS DENIED THE EXEMPTION UNDER SECTION 11 OF THE ACT IN A CASE WHERE THE INCOME OR PROPERTY OF THE TRUST IS USED OR APPLIED OR E NURES FOR THE BENEFIT OFF ANY PERSON REFERRED TO IN SECTION 13 (3) OF THE ACT. IN THE PRESENT CASE IT IS THE RESPONDENT WHO AVE RS APPLICABILITY OF PROVISION OF SECTION 13(1)(C) A ND HENCE THE ONUS IS ON HIM TO ESTABLISH THE FAILURE IF ANY. FROM THE ITA118 & 95(DEL)/2009 18 REASONS RECORDED IT IS APPARENT THAT HE IS OF T HE OPINION THAT THE TRIBUNAL HAS SPECIFICALLY DIRECTED THE RESP ONDENT TO INITIATE ACTION AS THERE IS FAILURE OF THE PRES CRIBED CONDITION OR THAT SOME PORTION OF THE PROPERTY OR INCOME OF THE PETITIONER-TRUST ENURES FOR THE BENEFIT OF THE PR OHIBITED CATEGORY OF PERSONS OR SOME PORTION OF THE PROPERT Y OR INCOME IS APPLIED OR USED FOR THE BENEFIT OF THE PROHIB ITED CATEGORY OF PERSONS SPECIFIED IN SECTION 13(3) OF THE ACT. THE LAW IS WELL SETTLED A PERSON WHO MAKES A POSITIVE AVERME NT IS REQUIRED TO ESTABLISH THE SAME. IT IS NOT FOR THE PER SON AGAINST WHOM THE AVERMENT IS MADE TO ESTABLISH NEGATIVELY T HAT THE STATE OF AFFAIRS AVERRED BY THE OTHER PERSON DOES NOT EXIST. FURTHERMORE THE TRIBUNAL NOWHERE STATES THAT THE PROVISIONS OF SECTION 13 OF THE ACT ARE APPLICA BLE. ALL THAT IS STATED IS TO GRANT EXEMPTION UNDER SECTION 11 OF THE ACT SUBJECT TO THE OTHER CONDITIONS BEING FULFILLE D. 5.3 IT IS SEEN THAT THE PAYMENT HAS BEEN MADE IN RE SPECT OF DEVELOPMENT OF STUDY MATERIAL WHICH IS USED BY THE ASSESSEE -SOCIETY FOR IMPARTING EDUCATION. THEREFORE THERE IS A QUID PRO QUO IN THE PAYMENT AND IT IS NOT A GRATIS PAYMENT. IN OTHER WORDS THE PA YMENT HAS BEEN MADE FOR THE WORK DONE BY THAT COMPANY FOR THE ASSESSEE- SOCIETY. NO COMPARABLE INSTANCE HAS BEEN BROUGHT ON RECORD TO SHOW THAT T HE PAYMENT HAS NOT BEEN MADE AT ARMS LENGTH OR ANY EXCESSIVE PAYMENT H AS BEEN MADE. WHILE THE AO HAS ADDED THE WHOLE AMOUNT THE LD. C IT(APPEALS) HAS DONE SOME HYPOTHETICAL CALCULATION FOR MAKING DISALLO WANCE. THE DECISION IN THE CASE OF SURAT CITY GYMKHANA (SUPRA) IS TO TH E EFFECT THAT THE PROVISION CONTAINED IN SECTION 13(1)(C) CAN BE A PPLIED WHEN THE INCOME ITA118 & 95(DEL)/2009 19 OR PROPERTY OF THE TRUST IS USED OR APPLIED OR ENURES FOR THE BENEFIT OF ANY PERSON REFERRED TO IN SECTION 13(3). A PAYM ENT MADE FOR THE WORK DONE CANNOT BE EQUATED WITH USE OR APPLICATION OF FUNDS FOR THE BENEFIT OF THE PAYEE. FURTHER THERE IS NO OBJECTIVE EVIDE NCE ON RECORD BY WAY OF COMPARABLE CASES THAT THE PAYMENT IS MORE THA N ARMS LENGTH PAYMENT. THEREFORE WE ARE OF THE VIEW THAT THE LD. CIT( APPEALS) ERRED IN PARTLY DISALLOWING A SUM OF RS. 4 76 583/- FROM THE OV ERALL PAYMENT OF RS. 18 13 780/- TO IT BREAK.COM PVT. LTD. FOR DEVEL OPMENT OF COURSE STUDY MATERIAL. IN THIS VIEW OF THE MATTER THERE COUL D HAVE ALSO BEEN NO QUESTION REGARDING DISALLOWANCE OF THE WHOLE OF THE AMOUNT OF RS. 18 13 780/-. 6. THE QUESTION REGARDING DEPRECIATION HAS NOT BEE N RAISED BEFORE US BY ANY OF THE CONTENDING PARTIES. 7. THE RESULT OF THE AFORESAID DISCUSSION IS THAT THE APPEAL OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28 JANUARY 2011. SD/- SD/- (RAJPAL YADAV) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 28TH JANUARY 2011. SP SATIA ITA118 & 95(DEL)/2009 20 COPY OF THE ORDER FORWARDED TO:- CONFRERE EDUCATION SOCIETY NOIDA. ACIT NOIDA. CIT(A) CIT THE DR ITAT NEW DELHI. ASSISTANT REGISTRAR.