The ACIT, Circle-1(1)., Vijayawada v. M/s Diocesan Educational Society,, Vijayawada

ITA 386/VIZ/2008 | 2005-2006
Pronouncement Date: 30-04-2010 | Result: Dismissed

Appeal Details

RSA Number 38625314 RSA 2008
Bench Visakhapatnam
Appeal Number ITA 386/VIZ/2008
Duration Of Justice 1 year(s) 8 month(s) 26 day(s)
Appellant The ACIT, Circle-1(1)., Vijayawada
Respondent M/s Diocesan Educational Society,, Vijayawada
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 30-04-2010
Date Of Final Hearing 01-03-2010
Next Hearing Date 01-03-2010
Assessment Year 2005-2006
Appeal Filed On 04-08-2008
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SRI B.R. BASKARAN ACCOUNTANT MEMBER I.T.A. NO 386/VIZAG/2008 & ITA 325/V/09 ASSESSMENT YEARS: 2005-06 & 2006-07 ACIT CIRCLE-1(1) VIJAYAWADA VS. DIOCESAN EDUCATIONAL SOCIETY VIJAYAWADA (APPELLANT) (RESPONDENT) PAN NO.AAATD 6107 F APPELLANT BY : SHRI SUBRATA SARKAR CIT(DR) RESPONDENT BY : SHRI K. BALAJI NAGARAJ CA & SHRI CHENNUBOTLU CA O R D E R PER B.R. BASKARAN ACCOUNTANT MEMBER : THESE TWO APPEALS FILED AT THE INSTANCE OF THE REVENUE ARE DIRECTED AGAINST THE ORDER PASSED BY THE LD CIT(A) IN THE HANDS OF T HE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 AND 2006-07. THESE TWO APP EALS WERE HEARD TOGETHER SINCE THE ISSUES AGITATED IN THESE TWO APPEALS ARE IDENTICAL IN NATURE AND HENCE WE ARE DISPOSING OF THEM BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE INCOME ASSESSED BY THE AO IN BOTH THE YE ARS BY INVOKING THE PROVISIONS OF SECTION 13(1)(B) AND 13(1)(C) HAVING BEEN DELET ED BY THE LD CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 3. THE FACTS RELATING TO THE CASE AND ISSUES AR E STATED IN BRIEF. THE ASSESSEE HEREIN IS A PUBLIC CHARITABLE TRUST REGISTERED U/S 12AA OF THE ACT. ON VERIFICATION OF THE DETAILS OF AMOUNT APPLIED/SPENT FOR CHARITAB LE PURPOSES THE AO NOTICED THAT THE ASSESSEE HAD SPENT FOLLOWING AMOUNTS IN TH E RESPECTIVE YEARS TOWARDS CONSTRUCTION/RUNNING OF SCHOOLS/COLLEGES/HOSTELS. ASST. YEAR 2005 06 1 03 36 770 ASST. YEAR 2006 07 1 01 39 551 2 IT WAS NOTICED THAT THE ASSESSEE HAD CONSTRUCTED TH ESE BUILDINGS ON THE LAND BELONGING TO ANOTHER CHARITABLE SOCIETY NAMED THE ROMAN CATHOLIC DIOCESE OF HYDERABAD DECCAN SOCIETY BISHOP HOUSE VIJAYAWADA . (HEREINAFTER RCDHDS). THE AO VERIFIED THE BYE LAWS OF THE RCDHDS AND CAME TO THE CONCLUSION THAT THE SAID SOCIETY HAS COMPOSITE OBJECTS OF BOTH RELI GIOUS AND CHARITABLE NATURE. IT IS PERTINENT TO NOTE THAT THE AO HAS ALSO OBSERVED THAT THE SAID SOCIETY ALSO ENJOYS EXEMPTION U/S 11 OF THE ACT. THE AO ALSO NO TICED THAT THE FOUNDER PRESIDENT OF THE ASSESSEE SOCIETY MOST REV. BISHOP MORAMPUDI JOJI IS ONE OF THE COMMITTEE MEMBERS OF RCD HDS AND ALSO THE GENERAL MANAGER OF RCM SCHOOLS BESIDES THAT THERE WERE THREE MORE COMMON COMMITTEE MEMBERS IN BOTH THE SOCIETIES. 3.1 SINCE THE OBJECTS OF RCDHDS INCLUDED OBJE CTS OF RELIGIOUS NATURE THE AO FELT THAT THE CONSTRUCTION BUILDING BY THE ASSESSEE ON THE LAND BELONGING TO RCDHDS SHOULD ATTRACT THE PROVISIONS OF SECTION 13(1)(B). 3.2 THE ASSESSEE SOCIETY INITIALLY WRITTEN OFF T HE COST OF CONSTRUCTION TO THE INCOME AND EXPENDITURE ACCOUNT BUT LATER ON REVI SED ITS FINANCIAL STATEMENTS BY BRINGING THE COST OF BUILDINGS TO THE BALANCE SH EET DISCLOSING THEM AS ITS ASSETS. HENCE IT IS NOT IN DISPUTE THAT THE IMPUGN ED BUILDINGS BELONG TO THE ASSESSEE SOCIETY. AS STATED EARLIER THE SAID BUIL DINGS WERE CONSTRUCTED ON THE LAND BELONGING TO RCDHDS. THE ASSESSEE SOCIETY AL LOWED THE RCDHDS TO USE THE IMPUGNED BUILDINGS FOR RUNNING THE SCHOOLS AND HOSTELS WHICH ARE MANAGED BY THE RCDHDS. THE ASSESSEE SOCIETY DID NOT CHARGE ANY RENT FOR THE USE OF BUILDING BY THE RCD HDS AND THE RCDHDS ALSO DID NOT CHARGE ANY RENT FROM THE ASSESSEE SOCIETY FOR THE LAND USED FOR THE CONSTRUC TION OF BUILDINGS. BESIDES THE ABOVE BOTH THE SOCIETIES HAD COMMON COMMITTEE MEMB ERS. HENCE THE AO FELT THAT THE PROVISIONS OF SECTION 13(1)(C) IS ALSO ATT RACTED IN THE HANDS OF THE ASSESSEE SOCIETY AS THE NON-CHARGING OF RENT WOULD VIOLATE THE PROVISIONS OF SECTION 13(2)(A); 13(2)(B); 13(2)(D); 13(2)(G) AND 13(2)(H). 3.3 IN VIEW OF THE ABOVE THE AO FELT THAT THE A MOUNT SPENT FOR CONSTRUCTION OF BUILDINGS STATED ABOVE CAN NOT ENJOY EXEMPTION U/S 11. ACCORDINGLY THE AO 3 DENIED EXEMPTION ON THE COST OF CONSTRUCTION OF BUI LDING AND BROUGHT TO TAX THE SAID AMOUNTS IN THE RESPECTIVE ASSESSMENT YEARS. H OWEVER LD CIT(A) HELD THAT BOTH SECTION 13(1)(B) AND 13(1)(C) ARE NOT ATTRACTE D IN THE CASE OF THE ASSESSEE AND ACCORDINGLY CANCELLED THE SAID ASSESSMENT IN BO TH THE YEARS. HENCE THE REVENUE IS IN APPEAL BEFORE US IN BOTH THE YEARS AS SAILING THE DECISION OF LD CIT(A). 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO CAREFULLY PERUSED THE RECORD. IN OUR VIEW THE GROUNDS RAISED BY THE REVENUE GIVE RISE TO THE ISSUE THAT WHETHER THE PROVISIONS OF SECTION 13(1)(B) AND 13(1 )(C) SHALL APPLY TO THE FACTS OF THE CASE. 5. FOR THE SAKE OF CONVENIENCE WE EXTRACT BELO W THE SECTION 13(1)(B) AND 13(1)(C) OF THE ACT.: 13.(1) . NOTHING CONTAINED IN SECTION 11 OR SECTION 12 SHA LL OPERATE SO AS TO EXCLUDE FROM THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT THEREOF (A) (B) IN THE CASE OF A TRUST FOR CHARITABLE P URPOSES OR A CHARITABLE INSTITUTION CREATED OR ESTABLISHED AFTER THE COMMEN CEMENT OF THIS ACT ANY INCOME THEREOF IF THE TRUST OR INSTITUTION IS C REATED OR ESTABLISHED FOR THE BENEFIT OF ANY PARTICULAR RELIGIOUS COMMUNITY O R CASTE. (C) IN THE CASE OF A TRUST FOR CHARITABLE OR RELIGIOUS PURPOSES OR A CHARITABLE OR RELIGIOUS INSTITUTION ANY INCOME THE REOF--- (I) IF SUCH TRUST OR INSTITUTION HA S BEEN CREATED OR ESTABLISHED AFTER THE COMMENCEMENT OF THIS ACT AND UNDER THE TE RMS OF THE TRUST OR THE RULES GOVERNING THE INSTITUTION ANY PART OF SU CH INCOME ENDURES OR (II) IF ANY PART OF SUCH INCOME OR A NY PROPERTY OF THE TRUST OR THE INSTITUTION (WHENEVER CREATED OR ESTABLISHED) I S DURING THE PREVIOUS YEAR USED OR APPLIED DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF ANY PERSO N REFERRED TO IN SUB SECTION (3). 4 5.1 THE SPECIFIED PERSONS ARE LISTED OUT IN SE CTION 13(3). THE SAID SECTION READS AS UNDER:- 13 (3): THE PERSONS REFERRED TO IN CLAUSE (C) OF SUB-SECTI ON (1) AND SUB- SECTION (2) ARE THE FOLLOWING NAMELY:- (A) THE AUTHOR OF THE TRUST OR THE FOUNDER OF TH E INSTITUTION (B) ANY PERSON WHO HAS MADE A SUBSTANTIAL CONTRI BUTION TO THE TRUST OR INSTITUTION THAT IS TO SAY ANY PERSON WH OSE TOTAL CONTRIBUTION UP TO THE END OF THE RELEVANT PREVIOUS YEAR EXCEEDS FI FTY THOUSAND RUPEES. (C) WHERE SUCH AUTHOR FOUNDER OR A PERSON IS A HINDU UNDIVIDED FAMILY A MEMBER OF THE FAMILY. (CC) ANY TRUSTEE OF THE TRUST OR MANAGER (BY WHAT EVER NAME CALLED) OF THE INSTITUTION. (D) ANY RELATIVE OF ANY SUCH AUTHOR FOUNDER PER SON MEMBER TRUSTEE OR MANAGER AS AFORESAID (E) ANY CONCERN IN WHICH ANY OF THE PERSONS REFER RED TO IN CLAUSES (A) (B) (C) (CC) AND (D) HAS A SUBSTANTIAL INTEREST . 5.2 UNDER EXPLANATION 3 A PERSON SHALL BE DEEMED T O HAVE A SUBSTANTIAL INTEREST IN A CONCERN (A) IF THE CONCERN IS A COMPANY IF S UCH PERSON CONTROLS VOTING RIGHTS OF NOT LESS THAN 20% (B) IN CASE OF ANY OTHER CONCERN IF SUCH PERSON IS ENTITLED TO NOT LESS THAN 20% OF THE PROF ITS OF THAT CONCERN. THERE IS NO QUESTION OF SHARING OF PROFIT OR CONTROLLING INTERE ST IN A CHARITABLE TRUST/INSTITUTION. HENCE THE TERM CONCERN SHOULD MEAN ONLY A COMM ERCIAL CONCERN. 6. NOW LET US TURN TO THE FACTS OF THE CASE. TH E RCDHDS SOCIETY HAS ALLOWED THE ASSESSEE SOCIETY TO CONSTRUCT BUILDINGS ON THE LAND OWNED BY IT. THE SAID BUILDINGS WERE USED BY THE SCHOOLS BELONGING TO THE RCDHDS. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE SAID SCHOO LS HAVE BEEN RECOGNIZED BY THE STATE GOVERNMENT AND ALSO AIDED BY THE GOVERNMENT. THE RCDHDS HAS PASSED RESOLUTION AUTHORIZING THE HANDING OVER OF LAND TO THE ASSESSEE SOCIETY FOR THE CONSTRUCTION OF SCHOOL AND HOSTEL BUILDINGS. SIMIL ARLY THE ASSESSEE SOCIETY HAS ALSO PASSED RESOLUTION AUTHORISING THE USE OF THE B UILDINGS FOR RUNNING HOSTELS AND AIDED SCHOOLS. THE LD CIT(A) IN PAGE NO.10 OF HIS ORDER RELATING TO THE 5 ASSESSMENT YEAR 2005-06 HAS EXTRACTED THE RELEVANT OBJECTS FROM THE BYE LAWS OF BOTH THE SOCIETIES WHICH ARE RELATED TO THE PROM OTION OF EDUCATION. THUS IT IS CLARIFIED THAT BOTH THE SOCIETIES HAVE OBJECTS OF PROMOTION OF EDUCATION . THUS ALLOWING THE USAGE OF THE BUILDINGS FOR RUNNING A G OVERNMENT AIDED SCHOOLS AND HOSTELS WILL ALSO FALL IN LINE WITH THE OBJECT OF P ROMOTION OF EDUCATION. 7. NOW WE SHALL DISCUSS ABOUT THE APPLICABILITY OF SECTION 13(1)(B) TO THE FACTS OF THE CASE. IN THIS REGARD WE NOTICE THAT THE LD CIT(A) HAS ANALYSED THE ISSUE IN PROPER PERSPECTIVE AND HENCE WE EXTRACT HIS OBSE RVATIONS BELOW:- THE ASSESSEE SOCIETY IS A WHOLLY CHARITABLE TRUST AND COMMISSIONER OF INCOME TAX VIJAYAWADA HAS GRANTED A CERTIFICATE IN THIS REGARD VIDE NO. HQRS.NO.1/88/VJA/03-04 DT. 29/7/2004. THE INCOME OF THE APPELLANT SOCIETY HAS BEEN UTILIZED FOR CONSTRUCTIN G SCHOOL AND HOSTEL BUILDINGS. THESE BUILDINGS HAVE BEEN UTILIZED FOR RUNNING SCHOOLS & HOSTELS BY ROMAN CATHOLIC DIOCESE OF HYDERABAD DECC AN SOCIETY. NO RELIGIOUS ACTIVITIES WHATSOEVER HAVE BEEN CARRIE D OUT IN THESE BUILDINGS EITHER BY THE ROMAN CATHOLIC DIOCES E OF HYDERABAD DECCAN SOCIETY OR BY APPELLANT SOCIETY. THESE BUILDINGS HAVE BEEN PURELY UTILIZED FOR IMPARTING E DUCATION WHICH IS ONE OF THE OBJECTS OF THE ASSESSEE SOCIETY . THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE ORDER NO.332/V/CIT(A)/V/06-07 DT: 16/8/2007 IN CASE OF TH E ROMAN CATHOLIC DIOCESE OF HYDERABAD DECCAN SOCIETY FOR A. Y. 2001-02 HAS HELD THAT THIS TRUST I.E. THE ROMAN CATHOLIC DIOCES E OF HYDERABAD DECCAN SOCIETY IS A CHARITABLE SOCIETY. THE APPE LLANT SOCIETY HAS CONSTRUCTED HOSTEL AND SCHOOL BUILDINGS ON A LAND B ELONGING TO RCDHDS. THE APPELLANT SOCIETY HAS GRANTED PERMISSI ON TO THE RCDHDS TO RUN SCHOOLS IN THESE BUILDINGS. THE USE OF THESE BUILDINGS DOES NOT MEAN THE INCOME OF THE APPELLANT SOCIETY HAS BEEN DIVERTED FOR THE BENEFIT OF A RELIGIOUS CO MMUNITY OR CASTE. THE AUDITED PROFIT AND LOSS A/C AND BALANCE SHEET F ILED 6 DURING ASSESSMENT PROCEEDINGS CLEARLY INDICA TES THAT THESE SCHOOL AND HOSTEL BUILDINGS BELONG TO THE ASSESSEE SOCIETY . THE MINUTES OF MEETING OF THE GOVERNING BODY OF THE APPELLANT SOCI ETY ALSO CONFIRM THAT THE OWNERSHIP OVER THESE BUILDINGS REMAINS WIT H THE APPELLANT SOCIETY ONLY. IT HAS ALLOWED THEM TO BE USED BY TH E RCDHDS FOR RUNNING SCHOOLS. THE RCDHDS IN ITS CERTIFICATE DAT ED 3/2/2008 HAS ALSO CONFIRMED ABOUT RUNNING SCHOOLS & HOSTELS IN T HESE BUILDINGS. THUS THE INCOME OF THE ASSESSEE SOCIETY HAS NOT BEE N UTILIZED FOR THE BENEFIT OF ANY RELIGIOUS COMMUNITY OR CASTE AND THEREFORE THE QUESTION OF INVOKING THE PROVISIONS OF SEC. 13(1)(B ) DOES NOT ARISE. 7.1 THUS THE LD CIT(A) HAS GIVEN A CLEAR CUT FI NDING THAT THE BUILDING IS OWNED BY THE ASSESSEE SOCIETY AND IT HAS ONLY PERMITTED T HE RCDHDS TO RUN SCHOOLS WHICH ARE AIDED AND APPROVED BY THE STATE GOVERNMEN T IN THOSE BUILDINGS. THE SAID ACTIVITIES ARE IN ACCORDANCE WITH THE OBJECTS OF THE ASSESSEE SOCIETY. THE LD CIT(A) HAS ALSO MADE IT VERY CLEAR THAT NO RELIGIOUS ACTIVITIES ARE CARRIED OUT IN THESE BUILDINGS. IN THE ABSENCE OF ANY RELIGIOUS ACTIVITY THE QUES TION OF APPLICATION OF SECTION 13(1)(B) SHALL NOT ARISE AT ALL. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A). 8. NOW WE SHALL DISCUSS ABOUT THE APPLICABILITY OF SECTION 13(1)(C) IN THE CASE OF THE ASSESSEE IN THESE TWO YEARS. THE SAID SECTI ON APPLIES ONLY IF ANY PART OF INCOME OF THE TRUST IS USED OR APPLIED DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF ANY PERSON REFERRED IN SECTION 13(3). THE AO HAS OPINE D THAT THE RCDHDS WOULD FALL IN THE CATEGORY OF ANY OTHER CONCERN. BUT AS STA TED EARLIER THE TERM CONCERN REFERRED IN SECTION 13(3) WOULD MEAN A COMMERCIAL C ONCERN ONLY. THERE CANNOT BE ANY DISPUTE THAT THE RCDHDS IS NOT A COMMERCIAL CONCERN. CONSTRUCTION OF BUILDING FOR RUNNING SCHOOLS AND HOSTELS CANNOT ALS O RESULT IN ANY PERSONAL BENEFIT 7 OF ANY OF THE TRUSTEES ETC. HENCE THE QUESTION OF APPLICATION OF SECTION 13(1)(C) ALSO DOES NOT ARISE IN THESE TWO YEARS IN THE HANDS OF THE ASSESSEE. ACCORDINGLY WE UPHOLD THE ORDER OF LD CIT(A) ON THIS ISSUE ALSO . 8. IN THE RESULT BOTH THE APPEALS OF THE REVEN UES ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 30-4-2010. SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 30THAPRIL 2010 A COPY OF THIS ORDER IS FORWARDED TO : 01 THE ACIT CIRCLE-1(1) VIJAYAWADA 02 M/S DIOCESAN EDUCATIONAL SOCIETY D.NO.12-12-84 TARAPET OPP.RAILWAY GOODS SHED VIJAYAWADA 520001 03 THE CIT (A) VIJAYAWADA 04 THE CIT VIJAYAWADA 05 THE DR ITAT VISAKHAPAATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT VISAKHAPATNAM BENCH