C.I.T.UDAIPUR vs. M/S GEETANJALI EDU.SOC.

By way of these appeals, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeals of the department and affirmed the order of CIT (Appeal).

While admitting the appeals, this Court framed following substantial questions of law :- D.B. Income Tax Appeal No. 71 / 2011 “(i) Whether in the facts and in the present circumstances of the case as well as in the law, the Tribunal is justified confirming the order of the learned CIT (A) in directing the AO not to charge the entire amount at maximum marginal rate? (ii) Whether in the facts and in the present circumstances of the case as well as in the law, the Tribunal is justified confirming the order of the learned CIT (A) in directing the AO to exclude corpus donation of Rs. 2,62,70,001/- from the computation of the income of the assessee society? (iii) Whether in the facts and in the present circumstancesof thecase as well as in the law, the Tribunal is justified in upholding the order of CIT (A) in directing the AO to consider the additions to fixed assets as application of income of the socity u/s 11 of the I.T. Act?” D.B. Income Tax Appeal No. 46 / 2009 1. “Whether in the facts and in the present circumstances of the case as well as in the law, the Tribunal was justified confirming the order of the CIT(A) in allowing the exemption claimed under Section 11 of I.T. Act and in deleting the additions made by the Ao?

Whether in the facts and in the present circumstances of the case as well as in the law, the Tribunal was justified confirming the order of the CIT(A) in directing the AO not to charge the entire amount at maximum marginal rate?

Whether in the facts and in the present circumstances of the case as well as in the law, the Tribunal was justified confirming the order of the CIT(A) in directing the AO to exclude corpus donation of Rs. 2,81,40,000/- from the computation of the income of the assessee society?

Whether in the facts and in the present circumstances of the case as well as in the law, the Tribunal was justified confirming the order of the CIT(A) in directing the AO to consider the donation of Rs. 73,50,000/- given to M/s. Mangalam Educational Society as application of income under Section 11 of the Act?

Whether in the facts and in the present circumstances of the caseaswell as in the law, the Tribunal was justified confirming the order of the CIT(A) in directing the AO to compute and allow exact depreciation on the assets owned and utilized for the objectives of the assessee society? D.B. Income Tax Appeal No. 177 / 2011 “1. Whether in the facts and in the present circumstances of the case as well as in the law, the Tribunal was justified confirming the order of the CIT(A) in allowing the exemption claimed under Section 11 of I.T. Act and in deleting the additions made by the Ao?

Whether in the facts and in the present circumstances of the case as well as in the law, the Tribunal was justified confirming the order of the CIT(A) in directing the AO not to charge the entire amount at maximum marginal rate?

Whether in the facts and in the present circumstances of the case as well as in the law, the Tribunal was justified confirming the order of the CIT(A) in directing the AO to exclude corpus donation of Rs. 84,12,400/- from the computation of the income of the assessee society?

Whether in the facts and in the present circumstances of the case as well as in the law, the Tribunal was justified confirming the order of the CIT(A) in directing the AO to consider the donation of Rs. 42,00,000/- given to M/s. Vijay Shanti Trust as application of income under Section 11 of the Act?” D.B. Income Tax Appeal No. 106 / 2013 1. “Whether on the facts and in the present circumstances of the case as well as in the law, the ID. Tribunal is justified in confirming the order of the CIT(A) directing the Assessing Officer to allow exemption u/s 11 of the I.T. Act. to the assessee society ignoring the fact that the assessee society

Shiksha Samiti (D.B. Income Tax Appeal No.262/2017) decided on 3.10.2017 wherein, it has been held as under :- "

On first issue, the case is covered by the reasoning of this court in the case of same assessee in ITA No.708/2008 wherein it has been held as under:-

Counsel for the appellant contended that the issue is required to be viewed seriously inasmuch as the tours and other expenditure which are made are not in consonance with the object of the Trust.

Counsel for the respondent has relied upon the observations made by the Tribunal in para 10, 17, and 19 which reads as under:

The ld A/R submitted that the legislature is not averse to earning of income by charitable institutions bu desires that if the income is earned through pursuing charitable objects, such income should be re-

The ld. A/R pointed out that the appellant society was granted registration under section 12A, as a charitable institution, by ld. Commissioner of Income Tax after considering and examining the objects and activities of the society. This registration under section 12A/12AA is in force even as on date. Therefore, ld. AO is not entitled to raise questions in relation to “charitable purpose” which the appellant is persuading consistently for past several years. There is no denial to the fact that the AO is entitled to examine the application of income for “charitable purpose” and can also examine the breach of any condition/falling into any disqualification criteria under section 13 but he cannot be allowed to go into the existence of the trust for “charitable purpose”. This is for the reason that else it would imply that the subordinate authority has “set at naught” the judgment of a superior authority. This is against the principles of Administrative law as well as jurisprudence. The “charitable Purpose” can be questioned only by the Commissioner and he has been granted the statutory powers even to cancel the registration if a doubt arises about the “charitable purpose” subsequent to granting of registration.

Without prejudice to above, reliance is placed on the decision of Hon’ble Rajasthan High Court in case of Deputy Commissioner Income-Tax v. Cosmopolitan Education Society 244 ITR 494 where the appeal of the department was rejected by affirming the finding of ld. Income Tax Appellate Tribunal and ld. Commissioner of Income-Tax Appeals that in case there was any misutilisation of the funds of the society or mismanagement of the activities of the society, the action could be taken against the members of the society as per the provisions of various statues governing the society. However, even such misutilisation or mismanagement by the members could not be the basis of rejection of the claim of exemption ot the assessee educational society. The Special Leave Petition against this judgment also stood

1 He also relied upon the following decisions:- 3.3(i) In Queen’s Education Society vs. CIT reported in (2015) 372 ITR 699 (SC), the Supreme Court held as under:-

It is clear, therefore, that the Uttarakhand High Court has erred by quoting a non existent passage from an applicable judgment, namely, Aditanar and quoting a portion of a property tax judgment which expressly stated that rulings arising out of the Income Tax Act would not be applicable. Quite apart from this, it also went on to further quote from a portion of the said property tax judgment which was rendered in the context of whether an educational society is supported wholly or in part by voluntary contributions, something which is completely foreign to Section 10(23C) (iiiad). The final conclusion that if a surplus is made by an educational society and ploughed back to construct its own premises would fall foul of Section 10(23C) is to ignore the language of the Section and to ignore the tests laid down in the Surat Art Silk Cloth case, Aditanar case and the American Hotel and Lodging case. It is clear that when a surplus is ploughed back for educational purposes, the educational institution exists solely for educational purposes and not for purposes of profit. In fact, in S.RM.M.CT.M. Tiruppani Trust

In the present case, the Assessee is not claiming any benefit Under Section 11(2) as it cannot; because in respect of this assessment year, the Assessee has not complied with the conditions laid down in Section 11(2). The Assessee, however, is entitled to claim the benefit of Section 11(1)(a). In the present case, the Assessee has applied Rs. 8 lakhs for charitable purposes in India by purchasing a building which is to be utilised as a hospital. This income, therefore, is entitled to an exemption Under Section 11(1). In addition, Under Section 11(1)(a), the Assessee can accumulate 25% of its total income pertaining to the relevant assessment year and claim exemption in respect thereof. Section 11(1)(a) does not require investment of this limited accumulation in government securities. The balance income of Rs. 1,64,210.03 constitutes less than 25% of the income for Assessment Year 1970-71. Therefore, the Assessee is entitled to accumulate this income and claim exemption

We approve the judgments of the Punjab and Haryana, Delhi and Bombay High Courts. Since we have set aside the judgment of the Uttarakhand High Court and since the Chief Commissioner of Incometax's orders cancelling exemption which were set aside by the Punjab and Haryana High Court were passed almost solely upon the law declared by the Uttarakhand High Court, it is clear that these orders cannot stand. Consequently, the Revenue's appeals from the Punjab and Haryana High Court's judgment dated January 29, 2010, and the judgments following it are dismissed. We reiterate that the correct tests which have been culled out in the three Supreme Court judgments stated above, namely, Surat Art Silk Cloth, Aditanar and American Hotel and Lodging, would all apply to determine whether an educational institution exists solely for educational purposes and not for purposes of profit. In addition, we hasten to add that the 13th proviso to Section 10(23C) is of great importance in that assessing authorities must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down. Further, it is of great importance that the activities of such institutions be looked at carefully. If they are not genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn. All these cases are disposed of making it clear that the Revenue

Thus, in view of the above, all the issues are required to be answered in favour of assessee and against the Department.

On depreciation he has relied upon the judgment in Commissioner of Income Tax-II, Jodhpur vs. Krishi Upaj Mandi Samiti (2016) 388 ITR 605 wherein it has been held as under:- “4. The assessee is a charitable institution registered under Section 12-A of the Act of 1961 and 100% capital expenditure was availed by it against the asset concerned i.e. a building. Section 32(1) of the Act of 1961 provides for depreciation in respect of building, plant and machinery owned by the assessee and used for business purposes. Income of a charitable trust like the present assessee derived from the depreciable heads is also liable to be computed on commercial basis, however, while doing so it is to be kept in mind that ultimately assessee is a charitable institution and its income for tax purposes is required to be determined by taking into consideration provisions of Section 11 of the Act of 1961 after extending normal depreciation and deductions from its gross income. In computing the income of a charitable institution/trust depreciation of assets owned by such institution is a necessary deduction on commercial principles, hence, the amount of depreciation has to be deducted to arrive at the income available.

In view of the discussions made above, we find ourselves in agreement with the view taken by Bombay High Court in Director of Income Tax v. Framjee Cawasjee Institute (supra) and in CIT v. Institute of Banking Personnel (supra). The substantial question framed in the instant matter, thus, is answered in the (10 of 15)

1 Decision of Punjab and Haryana High Court in (2011) 330 ITR 16 wherein it has been held as under:-

The Karnataka High Court in Commissioner of Income Tax, Karnataka v. Society of the Sisters of St. Anne. MANU/KA/0045/1983MANU/KA/0045/1983 : [1984] 146 ITR 28 drawing support from Madras High Court in Rao Bahadur Calavala Cunnan Chetty Charities (supra) had recorded that if depreciation is not allowed as a necessary deduction for computing the income of a charitable institution then the corpus of the trust for deriving the income cannot be preserved and that the amount of depreciation debited to the account of a charitable institution is to be deducted to arrive at the income available for application to charitable and religious purposes. This decision was followed by Madhya Pradesh High Court in CIT v. Raipur Pallottine Society MANU/MP/0335/1989MANU/MP/0335/1989 : [1989] 180 ITR 579. Similar view was taken by Gujarat High Court in CIT v. Seth Manilal Ranchhoddas Vishram Bhawan

In all fairness to the learned Counsel for the Revenue, reference is made to the judgment of the Hon'ble Apex Court in Escort Limited's case (supra), on which reliance has been placed by the learned Counsel for the Revenue. The Hon'ble Supreme Court in that case was dealing with a case relating to two deductions both under Sections 10(2)(vi) and 10(2)(xiv) of the 1922 Act or both under Sections 32(1)(ii) and 35(1)(iv) of the Act. The assessee therein had incurred expenditure of a capital nature on scientific research relating to the business which resulted into acquisition of an asset. The assessee had sought to claim a specified percentage of the written down value of the asset as depreciation and at the same time claimed deduction, in five consecutive years of the expenditure incurred on the acquisition of the asset. The apex Court observed: Where a capital asset used for scientific research related to the business of the assessee is also ipso

In the present case, the assessee is not claiming double deduction on account of depreciation as has been suggested by learned Counsel for the Revenue. The income of the assessee being exempt, the assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the trust. There is no double deduction claimed by the assessee as canvassed by the Revenue. Judgment of the Hon'ble Supreme Court in Escorts Ltd. Taxman.com 463 wherein it has been held as under:-

The aforesaid paragraph refers to the decision in the case of Vishwa Jagriti Mission (supra) but ratio was distinguished on the ground that in the said case the Court was concerned with computation of income of a charitable trust/institution on commercial principles and if so whether depreciation on fixed assets used for charitable purposes should be allowed as a deduction. The consensus of judicial opinion on the said aspect was referred to. It is noticeable that in Charanjiv Charitable Trust (supra) it stands observed that the Tribunal overlooked the fact that the cost of asset had been allowed as a "deduction" and thereafter depreciation was being claimed. The said case, therefore, appears to be a peculiar one wherein deduction as expenditure and depreciation was being

By Finance (No. 2) Act of 2014, subsection (6) to Section 11 stands inserted with effect from 1st April, 2015 to the effect that where any income is required to be applied, accumulated or set apart for application, then for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of an asset, the acquisition of which has been claimed as application of income under this Section in the same or any other previous year. The legal position, therefore, would undergo a change in terms of Section 11(6) , which has been inserted and applicable with effect from 1st April, 2015 and not to the assessment years in question. The newly enacted sub- section relates to application of income.

3 Decision of Punjab & Haryana High Court in (2011) 330 ITR 21 wherein it has been held as under:-

The matter was discussed in our recent judgment dated July 5, 2010 in I. T. A. No. 535 of 2009 CIT v. Market Committee, Pipli [2011] 330 ITR 16 (P and H). After referring to the judgments in CIT v. Sheth Manilal Ranchhoddas Vishram Bhavan Trust [1992]198 ITR 598 (Guj) and CIT v. Institute of Banking Personnel Selection (IBPS) [2003] 264 ITR 110 (Bom) : [2003] 131 Taxman 386 (Bom), CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982]135 ITR 485 (Mad), CIT v. Society of the Sisters of St. Anne [1984] 146 ITR 28 (Kar)and CIT v. Raipur Pallottine Society [1989]180 ITR 579 (MP), the judgment of the hon'ble Supreme Court in Escorts Ltd. [1993]199 ITR 43, was held not to be applicable to the situation where depreciation was (13 of 15)

In the present case, the Assessee is not claiming double deduction on account of depreciation as has been suggested by learned Counsel for the Revenue. The income of the Assessee being exempt, the Assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the trust. There is no double deduction claimed by the Assessee as canvassed by the Revenue. The judgment of the hon'ble Supreme Court in Escorts Ltd. [1993]199 ITR 43 is distinguishable for the above reasons. It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purposes of Section 11. The questions proposed have, thus, to be answered against the Revenue and in favour of the Assessee.

On the other issue, whether the expenses which are granted or which has been considered by the authority, he relied upon the judgment of this court in Commissioner of Income Tax, Jaipur-II vs. Consulting Engineering Group Ltd. (2014) 365 ITR 284 wherein it has been held as under:-

In view of what we have discussed hereinabove, on all the three issues, the Tribunal, after appreciation of evidence, has come to the conclusion that the disallowance out of job work charges, soil testing and surveying charges and directors' remuneration is not been held as under:-

Learned counsel for the assessee Mr. Jhanwar submits that the amount of salary claimed on account of payment to the sons i.e., Anoop and Alock was reasonable, as both are looking after the business and assessee has got paralytic attack in the year 1983, therefore, the payment of salary to these persons at the rate of Rs. 6,000 and Rs. 5,000 per month,

The facts on record reveal that both are graduates and Anoop, to whom assessee has paid Rs. 6,000 p.m. in the year under consideration was getting only Rs. 1,000 p.m. just in the preceding year. So far paralytic attack to the assessee is concerned, it happened in the year 1983. The assessee has carried on the business even after paralytic attack without the help of these two sons.

We also notice that in the preceding year i.e., 1991, assessee has disclosed income of Rs, 70,000. This year he has disclosed only income of Rs. 45,673. On these facts, there is no justification of paying such heavy salary to the sons of the assessee, who are employed by the assessee for the purpose of his business.

It is also pertinent to note that what should be the reasonable salary is basically a question of fact and Tribunal is a fact-finding final body in this regard. Finding of the Tribunal cannot be said to be perverse on these facts. No interference is called for in the order of Tribunal. In the result, we answer the question in affirmative i.e., in favour of the Revenue and against the assessee.

On the first issue as stated above, the same is required to be answered in favour of the assessee that u/s 11 & 13, the expenses which are transferred to the private university while holding Sec.13 definition and explanation and substantial controlled or substantial transferred are not in their name. It may be private institution which is a creation of statue having controlled by the same trustee and will not indirectly covered u/s 13 merely because the trustees of the beneficiaries of the trust or any person controlling the trust which is part of another institution. The object is to see where even transfer for educational purpose or not that has been done. In that view of the matter, the contention that the university will be covered u/s 13, in our considered opinion merely because same trustees or the directors or the persons are there, Sec.13 except with the explanation is required to be considered and the tribunal has rightly considered that the trustees will not be covered u/s 13. 21. Regarding depreciation in view of the amendment Sec.11(6) it will be prospective and in view of jurisdictional high court judgment binding on us and we are following the same.

In that view of the matter, depreciation is rightly allowed. On the question of foreign trip after taking into consideration the student exchange programme the tribunal has come to the conclusion that it is covered under the purpose of the trust object and are done for the educational

In view of the above, we are in complete agreement with the view taken by the tribunal. All the issues are answered in favour of the assessee and against the department."

The view taken in the aforesaid judgment has been affirmed by the Hon'ble Supreme Court in (2018) 89 taxmann.com 127 (SC) (Commissioner of Income Tax-III, Pune vs. Rajasthan & Gujarati Charitable Foundation Poona) wherein in para 5, it has been observed as under :- "

It also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well."

Taking into consideration the aforesaid decisions, all the issues are answered in favour of the assessee and against the department.

Accordingly, the instant appeals are dismissed.