C I TEXEMPTIONS JAIPUR vs. M/S BABERWAD SHIKSHA SAMITI

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 111 / 2016 Commissioner of Income Tax (Exemptions 3rd Floor, Kailash Heights, Lal Kothi, Tonk Road, Jaipur ----Appellant Versus M/s Baberwad Shiksha Samiti, Mandawar Road, Mahwa, Dausa ----Respondent _____________________________________________________ For Appellant(s) : Mr. Daksh Pareek for Mr. Sameer Jain For Respondent(s) : Mr. Sandeep Taneja _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 31/10/2017 1. By way of this appeal the appellant has assailed the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal of the assessee and reversed the order of the CIT(A) where the order was passed under Section 263. 2. This Court while admitting the matter framed the following substantial questions of law:- “a) Whether the ld. ITAT was justified in the facts of the case as well as in law in holding the Assessment Order or AO as neither erroneous nor prejudicial to the interest of revenue, thereby setting aside the revision order of appellant authority passed u/s 263? b) Whether ld. ITAT was justified in the facts of the case as well as in law in holding the amount of scholarships received by assessee as not forming part of the Aggregate Annual Receipts u/s 10(23C)(iiiad) of the Act? c) Whether the ld. ITAT was justified in the facts

(2 of 8) [ITA-111/2016] of the case as well as in law in allowing to assessee the exemption u/s 11 and section 10(23C)(iiiad) of the Act?” 3. The facts of the case are that the assessee society is an educational institution running its activities at Mahwa (Dausa) and are carrying different functions. The assessee society is running educational institutions like Mahatma Gandhi PG Mahavidhyala, Mahtama Gandhi Teachers’ Training College and Mahatma Gandhi ITI College to impart education to students of every caste, religion, etc. they are already registered under section 12AA of the Income Tax Act and the society is functioning as per rules and regulations. 4. While considering the case for the assessment year 2010-11, the assessing officer has issued a question on 17th October, 2012 and issued notice under 143(2) as well as 142(1) and after examining the books of accounts and requisite details and information which was submitted by the representative of the assessee, the assessing officer has accepted the same. However, the CIT(A), Jaipur has taken into consideration provisions of Section 263 on mainly two grounds of turnover and receipts. The receipts of the institution has exceeded 1 crore inasmuch as the total receipts by the institution according to CIT(A) is more than 1 crore, break up of which is that there are consideration of Rs. 93,70,735/- which is the total receipts in the account of the society and Rs. 51,05,380/- is receipts of scholarship from the government for disbursement to the eligible students studying in the various colleges run by the assessee society. 5. Counsel for the appellant has taken us to section 10(23C)

(3 of 8) [ITA-111/2016] (iiiad) of the Act which reads as under:- “Section 10. Incomes not included in total income In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included. (23C) any income received by any person on behalf of- (iiiad) any university or other educational institution existing solely for educational purposes and not for purpose of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed.” 6. He contended that the word used ‘receipts’ include receipt of the scholarship. He further contended that the depreciation which has been claimed is total depreciation and was not referred by the assessing officer. In that view of the matter, the view taken by the Tribunal is required to be reversed and the order passed under Section 263 is required to be maintained. 8. Counsel for the appellant has strongly relied upon the decision of Supreme Court in case of M/s Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, Kerala reported in 2000(243) ITR 83 wherein it has been held as under:- “7. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the assessing officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.” 9. He contended that the power exercised by the CIT(A) is just and proper and non-mentioning of depreciation is not consideration which is prejudicial to the interest of the

(4 of 8) [ITA-111/2016] institution. He has repeatedly contended that Rs. 51,05,380/- is the receipts within the meaning of word used in Section 10(23C) (iiiad). 10. He contended that the Tribunal while considering the submissions of the assessee has considered the same in para 3 referred hereinabove and after analyzing all the evidence has specifically gave a finding that the assessing officer has issued detail question on 17th October, 2012 and after going through the same furnished requisite details, information and books of accounts before him. He has rightly been assessed and taking into consideration the aggregate annual receipts of the society during the year, the finding was given for Rs. 93,70,735/- and specifically held that the receipts of the scholarship which is with condition of distribution amongst the students and surplus is required to be refunded to the State Government. 11. Counsel for the respondent Mr. Sandeep Taneja has taken us to the order of the Tribunal and has strongly relied upon the decision in case of Commissioner of Income Tax vs. Madrasa E- Bakhiyath-Us-Salihath Arabic College reported in (2015) 278 CTR (Mad) 374 wherein it has been held as under:- “3. Before adverting to the merits of the case, it is apposite to refer to Section 10(23C)(iiiad) of the Act, which reads as under: "10. Incomes not included in total income.-- In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-- **

** (23C) any income received by any person on behalf

of--

(5 of 8) [ITA-111/2016] (i)

(iiiac)..... (iiiad) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed". We find that in the abovesaid provision the key emphasis is on the words "annual receipts". The sale proceeds of land and bonds cannot be equated to annual receipts as stated under Section 10(23C) of the Act. The sale in the case on hand is in the nature of conversion of a capital asset from one form to another. Therefore, the denial of the benefit of Section 10(23C) of the Act to the assessee by the Assessing Officer was rightly interfered with by the Commissioner of Income-tax (Appeals) and confirmed by the Tribunal.” 12. In that view of the matter, by any stretch of imagination it could not be taken into account for the purpose of non- mentioning of the depreciation. Counsel for the respondent has relied upon another decision in case of Commissioner of Income Tax vs. Anil Kumar Sharma reported in [2011] 335 ITR 83 (Delhi) wherein it has been held as under:- “5. The Tribunal after examining the facts of the case observed that although it is not discernible from the assessment order whether the assessing officer had applied his mind or not, but it was the prerogative of the assessing officer to draft his order, and if he failed to record certain findings, the assessee could not be penalized therefor. The Tribunal further observed that what has to be ascertained is whether the assessing officer had investigated the issue and applied his mind to the whole record. In this behalf it noted that the assessing officer had asked the assessee to submit the purchase deed in respect of the purchase of land at village Tughlakabad and that the assessee in response thereto had supplied requisite details and submitted a copy of the High Courts decision in relation to the award of compensation etc. The

(6 of 8) [ITA-111/2016] Tribunal, therefore, came to the conclusion that the complete details were filed before the assessing officer and that he applied his mind to the relevant material and facts, although such application of mind is not discernible from the assessment order. The Tribunal held that the CIT in proceedings under Section 263 also had all these details and material available before it, but had not been able to point out defects conclusively in the said material, for arriving at a conclusion that particular income had escaped assessment on account of non-application of mind by the assessing officer. The Tribunal, therefore, allowed the appeal of the assessee and quashed the order of the CIT passed under Section 263 of the said Act. 7. In view of the above discussion, it is apparent that the Tribunal arrived at a conclusive finding that, though the assessment order does not patently indicate that the issue in question had been considered by the assessing officer, the record showed that the assessing officer had applied his mind. Once such application of mind is discernible from the record, the proceedings under Section 263 would fall into the area of the CIT having a different opinion. We are of the view that the findings of facts arrived at by the Tribunal do not warrant interference of this Court. That being the position, the present case would not be one of "lack of inquiry" and, even if the inquiry was termed as inadequate, following the decision in Sunbeam Auto Ltd. (supra), "that would not by itself give occasion to the CIT to pass orders under Section 263 of the said Act, merely because he has a different opinion in the matter." No substantial question of law arises for our consideration. Consequently, the appeal is dismissed.” 13. We have heard counsel for both the sides. 14. On the issue of receipts, in our considered opinion, the Tribunal and the assessing officer have not committed any error in considering the scholarship of Rs. 51,05,380/- as a receipts of the society only for the purpose of distribution. It is to be retained for distribution to the particular student for particular year and it is to be distributed for years and ultimately if it has

(7 of 8) [ITA-111/2016] not been distributed, it is to be refunded back therefore, mainly it is an activity falling under trust. 15. In that view of the matter, the finding of the CIT(A) is without proper application of mind as by any stretch of imagination receipts of scholarship is not the income of society inasmuch as the CIT(A) lost sight of the fact that the scholarship is given to the students and not to the society. 16. In that view of the matter, even on plain reading of words scholarship give the meaning that it has to be given to the students and not to the society. Therefore, in our considered opinion, scholarship by any stretch of imagination cannot be included in the income of the society. Coming to the point of non-mentioning of depreciation for earlier year, the same assessing officer has allowed that has been referred by the Tribunal and while considering the issue of depreciation in para 5, the Tribunal has discussed the same observing as under:- “5. We have heard the rival contentions of both the parties and perused the material available on the record. In this case, the scrutiny assessment has been completed by the Assessing Officer on 31/12/2012. The ld Assessing Officer issued detailed questionnaire on 17/10/2012, the assessee

furnished

requisite details/information/books of account etc. before him. The ld Assessing Officer held that the registration w.e.f. 23/08/2011 U/s 12AA have been granted by the ld CIT, Alwar. The society was working as per its byelaws and carried out charitable activity. All the income of the society was applied for fulfillment of the object of the society. The educational institutions are existing solely for educational purposes and not for the purpose of profit. The aggregate annual receipts of the society during the year under consideration was Rs. 93,70,725/-, which is below Rs. 1 crore. All the annual receipts of the samiti is exempted U/s 10(23C)(iiiad) of the Act. The ld Assessing

(8 of 8) [ITA-111/2016] Officer accepted the assessee’s returned income by order dated 31/12/2012. The ld Assessing Officer issued query letter on 17/10/2012 on both the issues in item No. 3,4 and 8, which was replied by the assessee vide letter dated 19/11/2012 at item No. 3 and 8. Thus, the Assessing Officer made detailed enquiry on both the issues and no adverse inference had been drawn by him. Further both the issues i.e. aggregate annual receipts and depreciation are also covered in favour of the assessee as various ITATs as well as Hon'ble High Courts have held that other receipts, which are not directly related with the receipts of the institution/trust, are not part of aggregate annual receipts. On depreciation also, various ITATs and Hon'ble High Courts have held that the income of the Trust is to be calculated as per Act. The depreciation is allowable even the assessee had applied its receipts against the assets which seems to be double deduction to the Assessing Officer but various courts has decided that the depreciation on assets is allowable. Now the law has been amended on this issue but which is operative prospectively. The case laws relied by the assessee are squarely applicable. We find that the Assessing Officer has formed one of the view but the ld CIT(Exemption) has formed another view on same facts and circumstances, therefore, change of opinion is not permissible under the law. Accordingly, we set aside the order of the ld CIT(Exemption) passed U/s 263 of the Act.” 17. 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. 18. The appeal stands dismissed. (VIJAY KUMAR VYAS)J. (K.S. JHAVERI)J. A.Sharma/36