O.P. Jindal Charitable Trust,, Hisar v. ACIT, Hisar

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH H DELHI ] BEFORE SHRI A. D. JAIN JM AND SHRI K. D. RANJ AN AM I. T. APPEAL NO. 4003 (DEL) OF 2009 ASSESSMENT YEAR : 2006-07. VIDYA DEVI JINDAL RURAL DEVELOPMENT TRUST ASSTT . COMMISSIONER OF INCOME-TAX 16 TH K. M. STONE VS. AYAKAR BH AWAN SECTOR : 14 DELHI ROAD MAYAR [HISAR]. H I S A R. P A N / G I R NO. AAA TV 0599 H. A N D I. T. APPEAL NO. 4004 (DEL) OF 2009 ASSESSMENT YEAR : 2006-07. O. P. JINDAL CHARITABLE TRUST ASSTT. COMMISSI ONER OF INCOME-TAX JINDAL HOUSE O.P. JINDAL MARG VS. AYAKAR BHAWAN SECTOR : 14 MODEL TOWN HISAR [HARYANA]. H I S A R. P A N / G I R NO. AAA TO 0100 H. ( APPELLANTS ) ( RESPONDENTS ) ASSESSEE BY : SHRI AJAY VOHRA AD V.; SHRI ROHIT JAIN; & M S. PUNEETA KUNDRA. DEPARTMENT BY : MS. REENA S. PURI [CIT] D. R. & SHRI AMRENDER KUMAR SR. D. R.; O R D E R. PER K. D. RANJAN AM : THESE TWO APPEALS BY THE ASSESSEES FOR ASSESSMENT Y EAR 2006-07 ARISE OUT OF SEPARATE ORDERS OF THE LD. COMMISSIONER OF INCOME-T AX (APPEALS) ROHTAK. THESE WERE 2 I. T. APPEAL NO. 4003 (DEL) OF 2009 A N D I.T.A. NO. 4004 (DEL) OF 2009. HEARD TOGETHER AND ARE BEING DISPOSED OF FOR THE S AKE OF CONVENIENCE BY THIS CONSOLIDATED ORDER. 2. THE COMMON GROUNDS OF APPEAL [EXCEPT FOR THE AMO UNTS] RAISED ARE AS UNDER :- 1. THAT THE COMMISSIONER OF INCOME-TAX [CIT( A)] ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER DENYING EXEMPTION UNDER SECTION 11 OF THE INCOME-TAX ACT 1961 [THE ACT] AND BRINGING TO TAX THE INCOME OF THE APPELLANT; 2. THAT THE LD. CIT (A) ERRED ON FACTS AND I N LAW IN CONFIRMING THE FINDING OF THE ASSESSING OFFICER THAT THE APPELLANT IS NOT EXI STING FOR CHARITABLE PURPOSES; 3. THAT THE LD. CIT (A) ERRED ON FACTS AND I N LAW IN ALLEGING THAT THE ACTIVITY OF EDUCATION BEING CARRIED OUT BY THE APPELLANT IS PUR ELY ON COMMERCIAL LINES; 4. THAT THE LD. CIT (A) ERRED ON FACTS AND I N LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING CAPITAL EXPEN DITURE AMOUNTING TO RS.1 22 32 467/- / RS.4 81 89 975/- INCURRED FOR TH E ATTAINMENT OF THE OBJECTS OF THE APPELLANT TRUST AS APPLICATION OF INCOME UNDER SECTION 11 OF THE ACT. 3. THE FIRST ISSUE WHICH IS COMMON IN BOTH THE APPE ALS RELATES TO DENYING OF THE EXEMPTION UNDER SECTION 11 OF THE ACT IN RESPECT OF INCOME EA RNED BY THE ASSESSEE. IN THE CASE OF VIDYA DEVI JINDAL RURAL DEVELOPMENT TRUST THE ASSESSING OFFICER FROM THE DETAILS OF RECEIPT AND PAYMENT FOR ASSESSMENT YEARS 2004-05 2005-06 AND 2 006-07 WORKED OUT SURPLUS AND OBSERVED THAT THE ASSESSEE HAD BEEN EARNING HUGE SURPLUS FRO M EDUCATIONAL ACTIVITIES. THE ASSESSING OFFICER THEREFORE REQUIRED THE ASSESSEE TO EXPLAI N AS TO WHY THE TRUST SHOULD NOT BE DISALLOWED THE EXEMPTION UNDER SECTION 11 OF THE ACT. IT WAS SUBMITTED BY THE ASSESSEE THAT THE MANAGING COMMITTEE WAS PROVIDING FREE EDUCATION TO CHILDREN FROM WEAKER SECTIONS OF THE SOCIETY ON MERITS-CUM-MEAN BASIS. THE SCHOOL MANAGEMENT COMMI TTEE INTENDED THAT THE MERITORIOUS AND DESERVING CHILDREN OF WAR HEROES DAILY LIFE HEROES AND MARTYRS WHO DUE TO FINANCIAL CONSTRAINTS COULD NOT STUDY IN AN INSTITUTION SHOULD BE INCLUD ED IN THE SCHEME TO PROVIDE THEM FREE EDUCATION. IT WAS ALSO SUBMITTED THAT SADBHAWNA CE NTRES OF INDIAN ARMY LOCATED IN THE TROUBLED AREAS OF J&K HAD RECOMMENDED FOUR STUDENTS OF CERTA IN LOCAL PEOPLE OF J&K FOR FREE EDUCATION AT THE INSTITUTION RUN BY THE TRUST. IT WAS ALSO S UBMITTED THAT THE SCHOOL HAD UNDERTAKEN SEVERAL SOCIAL ACTIVITIES IN THE FIELD OF LITERARY CAMPAIGN TREE PLANTATION CLEANLINESS DRIVE ETC. SINCE TH E 3 I. T. APPEAL NO. 4003 (DEL) OF 2009 A N D I.T.A. NO. 4004 (DEL) OF 2009. ASSESSEE WAS ENGAGED IN CHARITABLE ACTIVITIES THE ASSESSEE WAS ENTITLED FOR EXEMPTION UNDER SECTION 11 OF THE ACT. THIS CONTENTION OF THE ASSE SSEE WAS REJECTED BY THE ASSESSING OFFICER ON THE GROUND THAT THE FEE STRUCTURE OF THE ASSESSEE W AS IN SUCH A WAY THAT THE SOCIETY WAS RUN FOR THE PURPOSE OF PROFIT. HE ALSO NOTED THAT THE LD. COMM ISSIONER OF INCOME-TAX HAS ISSUED LETTER TO THE ASSESSEE WITHDRAWING REGISTRATION UNDER SECTION 12- AA OF THE ACT. THEREFORE THE ASSESSEE WAS NOT ENTITLED TO EXEMPTION UNDER SECTION 11 OF THE A CT. HE THEREFORE DISALLOWED THE CLAIM OF THE ASSESSEE FOR EXEMPTION UNDER SECTION 11 OF THE ACT. 4. IN THE CASE OF O.P. JINDAL CHARITABLE TRUST ON IDENTICAL REASONS THE EXEMPTION UNDER SECTION 11 HAS BEEN DISALLOWED. 5. FURTHER IN BOTH THE CASES THE ASSESSING OFFICER DISALLOWED THE DEDUCTION CLAIMED ON ACCOUNT OF CAPITAL EXPENDITURE. THIS IS THE SECOND ISSUE FOR OUR CONSIDERATION IN BOTH THE APPEALS. 6. BEFORE THE LD. CIT (APPEALS) IT WAS PLEADED THAT THE INCOME OF THE ASSESSEE WAS ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT. THE OBJ ECTS OF BOTH THE TRUSTS WERE CHARITABLE IN NATURE AND THEREFORE THE ASSESSEE WAS ENTITLED FO R EXEMPTION. THE LD. CIT (APPEALS) NOTED THAT THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF YE AR-WISE DONATION RECEIVED TO WHICH IT WAS SUBMITTED THAT THE TRUST HAD NOT RECEIVED ANY VOLUN TARY CONTRIBUTIONS DURING THE LAST FIVE FINANCIAL YEARS. THE ASSESSEE TRUSTS HAVE RECEIVED DONATIONS IN THE INITIAL YEARS. THE SCHOOL WAS RUN BY THE ASSESSEE FROM THE FEES RECEIVED BY IT FROM THE STUDENTS FOR THE EDUCATION PROVIDED BY IT. HOWEVER LD. CIT(A) OBSERVED THAT THE ASSESSEE WAS NOT ONLY CHARGING FOR THE SERVICES PROVIDED BY IT BUT IT WAS ALSO GENERATING HUGE SURPLUS FROM ITS ACTIVITIES WHICH WERE RE-INVESTED IN GENERATING FURTHER WEALTH AND SO ON FOR EARNING FUR THER PROFITS. THESE CONTINUOUS AND SYSTEMATIC ACTIVITIES CARRIED ON FOR THE PURPOSE OF EARNING PR OFITS CLEARLY FELL UNDER THE HEAD BUSINESS. THEREFORE THERE WAS NO MERIT IN THE CONTENTION OF THE ASSESSEE THAT CHARGING OF HIGH FEE WAS IMMATERIAL. THE ASSESSEE WAS NOT ONLY CHARGING FEE S COMMENSURATE TO SERVICES RENDERED BY IT BUT WAS ALSO GENERATING PROFITS OUT OF IT. THE LD. CIT (APPEALS) FURTHER NOTED THAT THE ASSESSEE 4 I. T. APPEAL NO. 4003 (DEL) OF 2009 A N D I.T.A. NO. 4004 (DEL) OF 2009. WAS CATERING THE NEEDS OF ELITE CLASS OF SOCIETY AN D WAS CHARGING FOR THE SERVICES PROVIDED BY IT TO THIS CLASS ON COMMERCIAL LINES. THEREFORE THE ACT IVITIES CARRIED ON BY THE ASSESSEE WERE NOT CHARITABLE IN ANY WAY ALTHOUGH THE DEFINITION OF CHARITABLE PURPOSE GIVEN IN SECTION 2(15) OF THE ACT IS AN INCLUSIVE ONE. HE REFERRED TO THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF ENCLAVE EDUCATION SOCIETY VS. MCD AIR 1992 (SC) 145 6 WHEREIN IT HAS BEEN HELD THAT EDUCATION PER SE IS NOT CHARITABLE UNLESS ELEMENT O F PUBLIC BENEFIT AND PHILANTHROPY IS PRESENT AND THAT IF EDUCATION IS DONE ON COMMERCIAL LINES THE INSTITUTION SHOULD NOT GET EXEMPTION MERELY IT IS A SCHOOL. IN CIT VS. KANNIKA PARMESHWARI DEVASH THANAM & CHARITY 133 ITR 779 HONBLE MADRAS HIGH COURT HELD THAT THE EXPENDITURE OF IMPR OVEMENT OF PROPERTY HELD UNDER THE TRUST WOULD BY ITSELF NOT COME WITHIN THE SCOPE OF APPLIC ATION OF INCOME FOR CHARITABLE PURPOSES. THEREFORE THERE WAS NO FORCE IN THE ARGUMENTS OF T HE ASSESSEE THAT IT WAS ENTITLED FOR EXEMPTION UNDER SECTION 11 BECAUSE IT WAS CARRYING ON CHARITA BLE PURPOSE I.E. EDUCATIONAL ACTIVITIES FALLING UNDER SECTION 2(15) OF THE ACT. THE LD. CIT (APPEA LS) FURTHER NOTED THAT THE BASIC OBJECT OF THE TRUST WAS TO CARRY OUT VARIOUS PROGRAMMES FOR THE B ENEFIT OF RURAL AREAS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 35-CC AND 35-CCA OF THE ACT. IN THE CASE OF THE ASSESSEE IT WAS NOT UNDERSTANDABLE AS TO HOW THE UPLIFTMENT OF MASSES W AS BEING CARRIED OUT. THE INCOME AND EXPENDITURE ACCOUNT AND DETAILS OF EXPENDITURE SHOW ED THAT THE ASSESSEE WAS CATERING TO THE NEEDS OF ELITE CLASS OF SOCIETY AND THERE WAS NO EX PENSES RELATED TO SCHOLARSHIP / ANY OTHER SIMILAR ASPECT GIVEN TO ANY OF THE RURAL AREAS STUDENTS; EV EN NO PROOF OF ANY SUBSIDY BEING GIVEN TO POOR STUDENTS FROM RURAL BACKGROUND HAS BEEN SUBMITTED. THE LD. CIT (APPEALS) THEREFORE CAME TO THE CONCLUSION THAT THE ASSESSEE WAS NOT ENTITLED T O EXEMPTION UNDER SECTION 11 OF THE ACT EVEN THOUGH IT HAS BEEN GRANTED EXEMPTION REGISTRATION U NDER SECTION 12-AA OF THE ACT. 7. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT IN ASSESSMENT YEAR 2008-09 THE ASSESSING OFFICER HAD ALLOWED EXEMPTION UNDER SECTI ON 11 OF THE ACT IN BOTH THE CASES RELYING ON THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PINEGROVE INTERNATIONAL CHARITABLE TRUST VS. UNION OF INDIA 327 ITR 73 (P & H). HE FURTHER SUBMITTED THAT HONBLE PUNJAB & HARYANA HIGH COURT HAS NOT APPROVED THE DE CISION OF HONBLE UTTARAKHAND HIGH COURT IN THE CASE OF QUEENS EDUCATIONAL SOCIETY 319 ITR 160 (UTTARAKHAND). THE LD. AR OF THE 5 I. T. APPEAL NO. 4003 (DEL) OF 2009 A N D I.T.A. NO. 4004 (DEL) OF 2009. ASSESSEE FURTHER SUBMITTED THAT AS LONG AS THE SURP LUS EARNED ARE APPLIED FOR THE PURPOSE OF THE OBJECT OF THE TRUST THE EXEMPTION UNDER SECTION 11 OF THE ACT CANNOT BE DENIED. ON THE OTHER HAND THE LD. CIT DR SUPPORTED THE ORDER OF THE L D. CIT (APPEALS). 8. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. DURING THE COURSE OF HEARING THE LD. AR OF THE ASSE SSEE SUBMITTED THAT THE LD. COMMISSIONER OF INCOME-TAX HARYANA HAS INITIATED PROCEEDINGS TO W ITHDRAW REGISTRATION UNDER SECTION 12-A RELYING ON THE DECISION OF UTTARAKHAND HIGH COURT R ELYING ON THE CASE OF QUEENS EDUCATIONAL SOCIETY (SUPRA). HOWEVER PUNJAB & HARYANA HIGH CO URT HAS NOT APPROVED THE DECISION OF UTTARAKHAND HIGH COURT IN THE CASE OF QUEENSS CASE . IN THE CASE BEFORE US THE ASSESSING OFFICER FOLLOWING THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF PINEGROVE INTERNATIONAL CHARITABLE TRUST (SUPRA) HAS ALLOWED EXEMPTION UNDE R SECTION 11 OF THE ACT. IN THE CASE OF PINEGROVE INTERNATIONAL CHARITABLE TRUST (SUPRA) HO NBLE PUNJAB & HARYANA HIGH COURT HAS HELD THAT UNDER SECTION 10(22) OF THE INCOME-TAX ACT 19 61 WHICH WAS A PRE-CURSER TO SECTION 10(23C)(VI) THE ACTUAL EXISTENCE OF EDUCATIONAL IN STITUTION WAS A PRE-CONDITION FOR APPLICATION OF INITIAL APPROVAL UNDER SECTION 10(22). ON GRANT OF APPROVAL THE CHARGING SECTIONS 11 AND 13 WERE NOT TO APPLY. AFTER THE GRANT OF EXEMPTION UN DER SECTION 10(22) THERE WAS NO ROOM FOR ASSESSMENT NOR ANY SCOPE FOR RAISING ANY DEMAND. T HE GRANT OF APPROVAL UNDER SECTION 10(22) HAD AN AUTOMATIC EFFECT. EVEN AFTER NEW DISPENSATI ON FROM 1/04/1999 THE TEST OF THE PREDOMINANT OBJECT OF THE ACTIVITY CONTINUES TO APPLY AS UNDER SECTION 10(22) OF THE ACT. AS LONG AS AN INSTITUTION EXISTS SOLELY FOR THE EDUCATIONAL PURPO SES IT WOULD QUALIFY FOR GRANT OF EXEMPTION UNDER SECTION 10(23C)(VI) OF THE ACT. MERELY BECAU SE PROFITS HAVE RESULTED FROM THE ACTIVITY OF IMPARTING EDUCATION THAT WOULD NOT CHANGE THE CHARA CTER OF THE INSTITUTION EXISTING SOLELY FOR EDUCATIONAL PURPOSES. HONBLE PUNJAB & HARYANA HIG H COURT AS OBSERVED EARLIER HAS NOT APPROVED THE DECISION OF HONBLE UTTARAKHAND HIGH C OURT IN THE CASE OF QUEENS (SUPRA) ON THE BASIS OF WHICH THE LD. CIT HARYANA HAS INITIATED W ITHDRAWAL PROCEEDINGS OF REGISTRATION GRANTED UNDER SECTION 12-AA OF THE ACT. SINCE THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE JURISDICTIONAL HIGH COURT IN OUR CONSIDERED OPINIO N THE LD. CIT (A) WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF ASSESSEE FOR EXEMPTION UND ER SECTION 11 OF THE ACT. WE THEREFORE IN 6 I. T. APPEAL NO. 4003 (DEL) OF 2009 A N D I.T.A. NO. 4004 (DEL) OF 2009. THE CASE OF BOTH THE ASSESSEES DIRECT THE ASSESSIN G OFFICER TO ALLOW EXEMPTION UNDER SECTION 11 OF THE ACT. 9. THE NEXT ISSUE FOR CONSIDERATION WHICH IS COMMO N IN BOTH THE CASES RELATES TO THE NON- ALLOWANCE OF DEDUCTION ON ACCOUNT OF CAPITAL EXPEND ITURE INCURRED BY THE ASSESSEE. UNDER SECTION 11 THE ASSESSEE HAS TO APPLY INCOME TO THE EXTENT OF PERMISSIBLE LIMIT FOR THE OBJECTS OF THE TRUST. THE SECTION DOES NOT DISTINGUISH BETWEE N THE REVENUE AND CAPITAL EXPENDITURE. THE AMOUNT SPENT ON ACQUIRING OR CONSTRUCTING A BUILDIN G OR A CAPITAL ASSET WOULD AMOUNT TO APPLICATION OF INCOME. THEREFORE THE ASSESSEE WIL L BE ENTITLED TO INCLUDE THE CAPITAL EXPENDITURE IN THE APPLICATION OF THE INCOME. THIS ISSUE WAS A LSO BEFORE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PINEGROVE (SUPRA). IT HAS BEE N HELD THAT THE AMOUNT SPENT ON ACQUIRING / CONSTRUCTING CAPITAL ASSET WHOLLY AND EXCLUSIVELY F OR THE EDUCATIONAL PURPOSE WOULD BE ENTITLED FOR EXEMPTION UNDER SECTION 10(23C)(VI) OF THE ACT. THEREFORE IN OUR CONSIDERED OPINION THE INCOME APPLIED IN ACQUIRING CAPITAL ASSET HAS TO BE CONSIDERED AS PART OF APPLICATION OF INCOME FOR THE PURPOSE OF COMPUTING THE AMOUNT APPLIED FOR THE PURPOSE OF EXEMPTION UNDER SECTION 11 OF THE ACT. WE THEREFORE DIRECT THE ASSESSING OF FICER TO ALLOW THE CLAIM OF THE ASSESSEE IN RESPECT OF CAPITAL EXPENDITURE INCURRED TOWARDS APP LICATION OF INCOME IN BOTH THE CASES. 10. IN THE RESULT THE APPEALS FILED BY BOTH THE AS SESSEES ARE ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 18 TH FEBRUARY 2011. SD/- SD/- [ A. D. JAIN ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 18 TH FEBRUARY 2011. *MEHTA * 7 I. T. APPEAL NO. 4003 (DEL) OF 2009 A N D I.T.A. NO. 4004 (DEL) OF 2009. COPY OF THE ORDER FORWARDED TO : - 1. APPELLANTS. 2. RESPONDENTS. 3. CIT 4. CIT (APPEALS) 5. DR ITAT NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR ITAT. 8 I. T. APPEAL NO. 4003 (DEL) OF 2009 A N D I.T.A. NO. 4004 (DEL) OF 2009.