Sh Nangli Educational Society Gurdaspur v. The Commissioner Of Income Tax Exemption Chandigarh

In The Income Tax Appellate Tribunal Amritsar Bench Amritsar Before Sh T S Kapoor Accountant Member And Sh Ravish Sood Judicial Member I T A No 624 Asr 2016 Assessment Year Pan Aaeas 2209 J M S Sh Nangali Educational Society Bsf Road Gurdaspur Vs Commissioner Of Income Tax Exemptions Chandigarh Appellant Respondent Appellant By Sh P N Arora Adv Respondent By Sh S S Kanwal D R Date Of Hearing 15 11 2017 Date Of Pronouncement 05 12 201 7 Order Per T S Kapoor Am This Is An Appeal Filed By Assessee Against The Ord Er Of Ld Cit E Chandigarh Dated 28 10 2016 Passed U S 10 23 C Vi Of The Act 2 At The Outset The Ld Ar Submitted That Complet E Documents Were Filed Before The Ld Cit E For Registration U S 10 23 C Vi But The Ld Cit E Has Dismissed The Application Of Assessee By Observing Irrelevant Objections It Was Submitted That The First Objecti On Of Ld Cit E Is That The Assessee Had Earned Income Of Rs 30 43 110 In The Form Of Transportation Fee During Financial Year 2015 16 An D Had Also Earned Income By Way Of Sale Of Bags Dresses Books Etc And Which Do Not Support The Charitable Intent Of The Applicant For The Cause Of Promoting Education In This Respect The Ld Ar Submitted Tha T A Reply Was Filed Ita No 624 Asr 2016 Assessment Year 2 Before Ld Cit E Vide Letter Dated 25 10 2016 A C Opy Of Which Was Placed At P B Page 6 The Ld Ar Submitted That As Sessee Was Imparting Education And Was Not Running The Society For The P Rofit Motive He Submitted That The School Was Affiliated With Cbse And The Assessee Has To Run The School Within Certain Norms And If There Is Any Surplus Receipt From Sale Of Bags And Transportation Fee It Does No T Prove The Profit Element The Ld Ar Submitted That The Assessee Is Running School In The District Of Gurdaspur And Students Come From Variou S Villages And To Get The Students Into School The Buses Were Provided A Nd The Only Motive For Buses Was To Carry The Students From Their Homes To School And Vise Versa And The Buses Were Not Run On Commercial Buse S And Were Only Utilized For The Purpose Of Society As Regards The Second Objection Of Ld Cit E The Ld Ar Submitted That Ld Cit E Objected That There Was No Mention Of Running Any School In The Memorandum Of Association In This Connectio N It Was Submitted That The Main Objects Of The Society Are To Impart Education And The Objects Of The Society Are Very Clear And As A Cons Equence Thereof The Society Started This School And As A Result Of This They Have Got The Permission To Run The School From Cbse And It Was N Ot Necessary To Mention The Name Of The School In The Memorandum Of Association As Only Broad Objects Has To Be Mentioned In The Memor Andum Of Association Ita No 624 Asr 2016 Assessment Year 3 As Regards The Other Objection Of Ld Cit E That The Receipts During The Financial Year 2013 14 To 2015 16 Exceeded The Limit Of Rs 1 Crore And Therefore Assessee Had Been Wrongly Claiming Ex Emption U S 10 23 C It Was Submitted That This Objection Of Ld Cit E Is Without Any Reasons And Basis And Society Was Running School On Ly For Education Purpose And Not For Profit And Exemption Has Been C Laimed As Prescribed Under The Law It Was Submitted That While Granting Exemption Claimed U S 10 23 C Vi The Ld Cit E Has To See Only Two Things That Is As To Whether The Objects Are Charitable In Nature And Wh Ether The Activities Of Society Are Genuine And In This Respect Relied On A N Order Of Honble Itat Amritsar Bench In The Case Of Arya High School Man Sa Placed At P B Page 17 To 24 Narrating The Facts Regarding Other Objections Of Ld Cit E The Ld Ar Submitted That Ld Cit E Has Held That The Aims And Objects In The Memorandum Of Association Included Help And Provisi On Of Financial Assistance To Poor And Needy Girls For Their Marria Ges And To Raise Homes For Destitute Women And There Were Several Others A Ims And Claim Of The Society That It Existed Only For Education Was Wron G In This Respect The Ld Ar Submitted That The Assessee Had Filed Revise D Amended Copy Of Memorandum And Articles Of Association And In This Respect Our Attention Was Invited To P B Page 12 To 30 Where A Copy Of The Amended Moa Was Placed The Ld Ar Submitted That The Ld C It E Himself Has Noted For Para 2 That Appellant Had Submitted An Am Ended Copy Of Ita No 624 Asr 2016 Assessment Year 4 Memorandum Of Association However He Misguided Him Self And Included The Objects Of The Original Memorandum Of Association Also And Therefore The Findings Of Ld Cit Are Not Sustainab Le The Ld Ar Submitted That At The Time Of Granting Approval U S 10 23 C Vi The Ld Cit E Needs To Satisfy Himself Only About Two Thin Gs That The Society Exists Solely For Education Purpose And Not For The Purpose Of Profit And Reliance In This Respect Was Placed On The Followin G Case Laws 1 Decision Of Punjab Haryana High Court In The Case Of Cit Exemptions Chandigarh Vs Shri Shirdi Sai Darb Ar Charitable Trust Dharamshala Barnala In Ita No 38 Of 2017 Order Dated 27 03 2017 2 Decision Of P H High Court In The Case Of Cit V S B K K Memorial Trust Reported In 29 Taxmann Com 286 3 Decision Of P H High Court In The Case Of Cit V S Surya Educational Charitable Trust Reported In 15 Taxmann Com 123 4 Decision Of Itat Amritsar Bench In The Case Of Divine Health Services Vs Cit Ii Amritsar In Ita No 417 Asr 2010 Orde R Dated 07 06 2012 Relating To Ay 2010 11 5 Decision Of Itat Amritsar Bench In The Case Of D N Memorial Trust Vs Cit In Ita No 617 Asr 2011 Order Dated 11 07 201 2 6 Decision Of Itat Amritsar Bench In The Case Of Dream Land Educational Trust Vs Cit Reported In 109 Ttj 850 7 Decision Of Itat Amritsar Bench Amritsar In T He Case Of The Managing Committee Arya High School Mansa Vs Cit E Chandi Garh In Ita No 469 Asr 2016 Order Dated 11 08 2017 Relating To A Y 2015 16 8 Decision Of Itat Amritsar Bench Amritsar In The Case Of Sant Ishwar Shiksha Samiti Vs Cit E Chandigarh In Ita No 670 Asr 2015 Order Dated 30 08 2017 Relating Ay 2015 16 9 Decision Of Punjab Haryana High Court In The Case Of Pinegrove International Charitable Trust And Ors Vs Union Of India And Ors Reported In 327 Itr 73 10 Decision Of Punjab Haryana High Court In The Case Of Cit E Chandigarh Vs Shree Mahavir Jain Society Regd I N Appeal No 231 Of 2016 Order Dated 11 09 2017 Ita No 624 Asr 2016 Assessment Year 5 3 The Ld Dr On The Other Hand Submitted That The Provisions Of Section 10 23 C Vi Are Very Clear And Unambiguous Which Say That The Society Should Solely Be For Education Purposes And Not For Purpose Of Profit And Since In This Case The Assessee Has Bee N Running The Buses And Had Made Sales Of Bags Dresses Books Etc The Motive Of Which Is Clearly To Earn Income Therefore The Ld Cit E Has Rightly Rejected The Application Of The Assessee 4 The Ld Dr Heavily Places His Reliance On The Or Der Of Ld Cit E As Regards The Case Laws Relied On By Ld Ar The Ld Dr Submitted That The Case Laws Relied On Ld Ar Are Not Applicable T O The Facts And Circumstances Of The Case As The Case Laws Relied On By Ld Ar Relates To Exemption U S 12 Aa Of The Act 5 The Ld Ar In His Rejoinder Submitted That Thoug H Some Of The Cases Relied On By Him Relate To Section 12 Aa Howe Ver Before Grant Of Registration U S 12 Aa Or Section 10 23 C Vi The R Equirement To Be Examined By Ld Cit E Remain Same The Ld Ar Furt Her Submitted That The Itat Amritsar Bench Decision In The Case Of Ary A High School Mansa In Ita No 469 Asr 2016 Placed At P B Page 17 To 2 4 Relates To Exemption U S 10 23 C Vi And This Directly Is Appl Icable To The Assessee The Ld Ar Further Submitted That The Decision Of T He Honble Punjab Haryana High Court In The Case Of Pinegrove Interna Tional Charitable Trust And Ors Reported In 327 Itr 73 Is Also Direct Ly Applicable To The Ita No 624 Asr 2016 Assessment Year 6 Facts And Circumstances Of The Assessee As The Hon Ble Punjab Haryana High Court Has Also Dealt With The Exemptio N U S 10 23 C Vi Of The Act 6 We Have Heard The Rival Parties And Have Gone Th Ough The Material Placed On Record We Find That The Objections Raise D By Ld Cit E For Rejecting The Application Of The Assessee Are Not S Ustainable In Law As At The Time Of Registration The Ld Cit E Has To Exa Mine The Objects Of The Society And Also Has To Examine The Genuineness Of Activities With Respect To The Object Clause In The Present Case It Is Co Rrect That In The Earlier Memorandum Of Association Filed By Assessee There Were Various Objects Out Of Which Some Of Them Were Not Charitable In Na Ture However The Assessee Had Filed Amended Memorandum Of Associatio N Which Ld Cit E Has Taken Note Of In His Order At Para 2 But He Mixed Up The Object Clause Of Both Memorandum Of Associations T He Amended Memorandum Of Association Is Placed At P B Page 12 To 24 And Objects Stated In The Moa Are Reproduced As Under I To Establish Take Over And Manage Educational Technical And Medical Institutions Ii To Organize Educational Activities Iii To Start And Conduct Educational Publications Issue Periodicals Or Literature Pertaining To This Specific Field Iv To Develop Mind As Well As Physique Of The Chi Ldren Through Games And Extra Curricular Activities And Create Personal Ity And Leadership Traits In The Children V To Start And Run Primary And Secondary Schools Kinder Garden And Montessori Or Other Kinds Of Schools Training Scho Ol For Teachers Institutions For Higher Education And Educational T Raining Schools Ita No 624 Asr 2016 Assessment Year 7 Vi To Affiliate With Or Amalgamate With Educatio Nal Institutions Or Societies With Similar Objects Vii To Devise Ways And Means For The Advancement Of The Youth In General Sports And Other Cultural Activities In Ord Er To Develop Their Personalities And Outlook Of Life Viii To Provide Medical Aid And Facilities To Stu Dents Of The Institution For Keeping Them Fit For Sports And Other Co Curricular Activities And Cultural Activities From The Examination Of These Objects It Is Appare Nt That The Assessees Main Objects Are To Provide Education To Children And Which As Per The Provisions Of Section 2 15 Of The Act A Re Charitable In Nature Therefore This Finding Of Ld Cit E Is Not Correct As Far As The Objection Of Ld Cit E Regarding Earning Of Income From Buse S And From Sale Of Books And Dresses We Find That These Buses Were Be Ing Utilized For The Purpose Of Carrying Students From Their Homes To Sc Hool And Vise Versa And There Is No Material Available With The Departm Ent To Hold That The Buses Were Being Utilized For Commercial Purposes O Ther Than For Carrying The Students As Regards The Objection Of Ld Cit E That The Na Me Of School In The Moa Is Not Mentioned We Find That This Objecti On Of Ld Cit E Is Absurd As Memorandum Of Association Is A Document W Herein Main Objects Of Society Are Mentioned And To Carry Out T Hese Objects The Assessee Started School To Fulfill The Main Objects We Further Find That At The Time Of Registration U S 10 23 C Vi The Ld C It E Has To Examine The Objects And The Genuineness Of Activities The Hon Ble Punjab Haryana High Court In The Case Of Pinegrove International C Haritable Trust And Ita No 624 Asr 2016 Assessment Year 8 Ors Reported In 327 Itr 73 Vide Its Judgment Dated 29 Jan 2010 Has Held As Under Exemption Under S 10 23 C Vi Educational Institu Tionprofit Motiveat The Initial Stage When The Application For Exemptio N Is Filed By An Educational Institution The Scope Of Inquiry Is Res Tricted Only To Ascertain The Genuineness Of The Activities Of Such Instituti Ononce Approval Is Granted For Exemption The Monitoring Provisions Co Me Into Play And The Ao Has To Examine Whether The Conditions On Which T He Approval Has Been Given Are Fulfilled Or Notfact That An Institution Has Earned Profit Would Not Be Deciding Factor To Conclude That The Educati Onal Institution Exists For Profiteven If There Remains A Surplus At The Hands Of The Educational Institution It Would Be Entitled To Exemption Unde R S 10 23 C Vi Provided The Educational Institution Solely Exists For Educa Tional Purposescapital Expenditure Has To Be Deducted From The Gross Incom E Of The Educational Institution In Determining Whether 85 Per Cent Of T He Income Has Been Applied For Its Objectswords Not For The Purposes Of Profit Accompanying The Words Existing Solely For Educational Purposes Have To Be Read And Interpreted In View Of The Third Proviso To S 10 2 3 C Vi Which Prescribes The Methodology For The Utilization And Accumulatio N Of Income At The Hands Of The Educational Institutionseven Otherwis E Unlike The Provisions Of Ss 36 L Xii And 37 The Words Not Being In The Nature Of Capital Expenditure Do Not Find Place In The Third Proviso To S 10 23 C Vi Preceding The Words Wholly And Exclusively Which Clearly Demonstrates That The Capital Expenditure Is To Be Deducted When Ever The Institution Applies Its Income For The Achievement Of Its Objec Tthis View Is Further Fortified By Cl 11 Of Form No 56 D Which Specifies That The Amount Of Income Of An University Or Other Educational Instit Ution Which Is To Be Deemed To Be Utilized Wholly And Exclusively For It S Objects Shall Have The Meaning Assigned To It In Sub Ss 1 And 1 A Of S 11 In Every Case Of An Educational Institution There Is Bound To Be A Prof Itprovision Of S 10 23 C Vi Would Be Rendered Otiose If The Interpr Etation Adopted By The Chief Cit Is Acceptedadmittedly In The Instant Ca Se The Application Of Income Is More Than 100 Per Cent For The Attainment And Achievement Of The Objects Of The Petitioner Society In The Last T Hree Yearsthus It Could Not Be Held To Be An Educational Institution Existi Ng For The Purpose Of Making Profit So As To Be Disentitled To Exemption Under S 10 23 C Vi For The Reason That It Is Earning Substantial Profits Y Ear After Yearfurther The Contention Of The Revenue That The Petitioners Being Societies Registered Under The Societies Registration Act 1860 Do Not Fall Within The Ambit Of The Expression Other Educational Institutions And Therefore Exemption Under S 10 23 C Vi Has Been Rightly Withdrawn Can Not Be Accepted As The Chief Cit Did Not Make The Aforesaid Ground As The Basis For Withdrawal Of Exemption After The Petitioners Filed Reply To T He Notice Asserting That Such A Ground Was Not Tenabletherefore The Impugn Ed Orders Passed By The Chief Cit Withdrawing The Exemption Granted Under S 10 23 C Vi Are Quashed Ita No 624 Asr 2016 Assessment Year 9 We Further Find That Amritsar Bench In The Case Of Arya High School Under Similar Facts And Circumstances Has Al Lowed Registration U S 10 23 C Vi By Holding As Under 6 We Have Gone Through With The Facts And Circu Mstances Of The Case Specially The Documents Filed And From The Details Of Assets As On 31 St March 2013 It Shows That The Assessee Has Incurred Expenses On The Purchase Of Land Which Goes To Show That The Assess Ee Was Earlier Utilized The Fund For The Development Of Institution And Of Its Extension Further According To The Judgment Passed B Y The Honble Apex Court In The Case Of Chief Commissioner Vs St Peters E Ducational Society 385 Itr 66 Sc As Relied Upon By The Assessee Society Whereby It Was Held That The Institution Makes Profit Does Not Necessar Ily Mean It Exists For Profit And An Overall View In Year In Question Obje Ct Was To Make Profit As Opposed To Educating Persons To Be Seen Further The Honble Apex Court In The Case Of Visvesvaraya Technological University Vs Acit 384 Itr 37 Sc Whereby It Was Held That There Could Be No Manner Of Doubt That The Sur Plus Accumulated Over The Years Had Been Ploughed Back For Educational Pu Rposes And In The Said Case The Honble Apex Court Reminded The Condi Tions Of Principle Laid Down In Queens Education Society Vs Cit 2015 3 72 Itr 699 Sc Which For The Sake Of Brevity And Convenience Are Reprodu Ced Herein Below 11 Thus The Law Common To Section 10 23 C Iiiad And Vi May Be Summed Up As Follows 1 Where An Educational Institution Carries On The Act Ivity Of Education Primarily For Educating Persons The F Act That It Makes A Surplus Does Not Lead To The Conclusion Tha T It Ceases To Exist Solely For Educational Purposes And Becomes An Institution For The Purpose Of Making Profit 2 The Predominant Object Test Must Be Appliedthe Purpose Of Education Should Not Be Submerged By A P Rofit Making Motive 3 A Distinction Must Be Drawn Between The Making Of A Surplus And An Institution Being Carried On For Pr Ofit No Inference Arises That Merely Because Imparting Ed Ucation Results In Making Profit It Becomes An Activity Fo R Profit 4 If After Meeting The Expenditure A Surplus Arises Incidentally From The Activity Carried Only The Edu Cational Institution It Will Not Cease To Be One Existing Solely For Educational Purposes Ita No 624 Asr 2016 Assessment Year 10 5 The Ultimate Test Is Whether On An Overall View Of The Matter In The Concerned Assessment Year The Object Is To Make Profit As Opposed To Educating Persons The Observation Of The Cit E Is Not Correct To The Extent That The Assessee Is A Society And Not University Or Other E Ducational Institution And To That Extent Not Covered By The Provisions Of Sec 10 23 C Iv Because The Itat A Bench Chennai In The Case Of Senguth At Matriculation Higher Secondary School Vs Cit In Ita No 2008 Mads 2015 Dealt With The Same Issue By Observing As Under The Primary Condition U S 10 23 C Vi The Assesse E Shall Exist Solely For Educational Purposes And Not For Purpose S Of Profit The Chief Commissioner Of Income Tax Without Observing That The Assessee Not Solely Existing For Educational Purpos E He Went On Proposition That The Assessee Is Not Having Memoran Dum Of Association Or Trust Deed So As To Carry On The Fun Ction Of The Assessee But The Fact Brought On Record Suggests T Hat The Assessee Is An Aop Managed By Sengunther Education Board Which Is A Registered Body Under The Society Registration Act In The Year 1946 Vide Registration No S 8 1946 The Above Education Board Is Managing The Assessee School With The Committee Mem Bers Of The Said Education Board And Constituted The Office Bea Rers Of The Institution And Duly Filing The Return Of Income I T Is To Be Observed That There Is No Expressed Definition For Institut Ion Under The Income Tax Act Hence We Have To Consider The Gene Ral Meaning Defined In The Websters New Dictionary The Word Institution Means An Established Or Organized Society Or Corpor Ation An Establishment Especially One Of Public Character Or One Effecting A Community A Foundation Further This Tribunal De Lhi Bench G Bench In I T A No 3360 Del Of 2008 Dated 30 04 20 10 In Deciding The Appeal In The Case St Thomas Girls Senior Secon Dary School New Delhi Vs Director Of Income Tax Exemption Ne W Delhi Have Held That The Word Institution Is Wide Enough To In Clude A School Which Has Been Established For Imparting Education Merely Because The Assessee School Does Not Have Power To Purchase Acquire Or Sell The Property Does Not Mean That T He School Will Cease To Exist As An Institution Thus The Status Of The Assessee Could Be A O P In The Absence Of Any Memorandum Of Association Or Trust Deed Considering The Above Decision Of Th E I T A T Delhi Bench In The Present Case Also The Above Matricula Tion School Which Is Managed By Education Board And Granted Per Mission By The Director Of School Education As Early As 07 10 1997 Is An Institution Qualifying For Exemption U S 10 23 C Vi Of The I T Act Hence The Exemption Sough For The Above Instituti On Is To Be Granted Accordingly We Direct The Ccit To Grant E Xemption U S 10 23 C Vi Of The Act Now Coming To The Instant Case As It Reflects Fro M The Details Of Four Assessment Years I E Of 2012 13 2013 14 2014 15 2015 16 That The Ita No 624 Asr 2016 Assessment Year 11 Amount Of Receipt Has Been Exceeded More Than 1 Cro Re Therefore The Assessee Preferred The Registration U S 10 23 C Iv And In The Previous Year As It Reflects From The Balance Sheet The Assessee Ut Ilized The Amount For The Purchase Of Land For Further Extension Of The Schoo L Building Etc That Certainly Goes To Prove That The Same Is Being Utilized For T He Educational Purposes Only Because The Ld Cit E Failed To Bring On Record An Y Contrary Material To The Fact Further As Discussed Above The Assessee Is A Lso Covered Within The Provisions Of Sec 10 23 C Vi Of The Act For Grant Of Registration Because In The Act The Institution Has Not Been Categorized And I T Has To Be Given A General Meaning As Specified In The Dictionary As Observed By The Itat Bench At Madsras Supra In Overall Consideration Of The Fa Cts And Material And Judgments Relied Upon By The Parties We Also Found Support By The Judgments Passed By The Honble Jurisdictional High Court As Relied Upon By The Ld Dr Because Excess Accumulation In The Instant Case Has Certainly Applied For The Objects Of The Society Itself Therefore We Do Not Find Any Hesitation To Allow The Registration To The Assessee Society U S 10 23 C Vi Of The Act Hence We Direct The Ld Cit E To Grant Exempti On U S 10 23 C Vi Of The Act From The Date Of Application In View Of The Above Facts And Circumstances And I N View Of The Judicial Precedents We Direct The Ld Cit E To Gr Ant Registration To The Society U S 10 23 C Vi Of The Act 7 In Nutshell The Appeal Filed By Assessee Is All Owed Order Pronounced In The Open Court On 05 12 2017 Sd Sd Ravish Sood T S Kapoor Judicial Member Accountant Member Dated 05 12 2017 Gp Sr Ps Copy Of The Order Forwarded To 1 The Assessee 2 The 3 The Cit A 4 The Cit 5 The Sr Dr I T A T True Copy By Order