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Income Tax Appellate Tribunal, [ DELHI BENCH “F”: NEW DELHI ]
Before: SHRI KUL BHARAT & SHRI PRASHANT MAHARISHI
INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH “F”: NEW DELHI ] BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER (Through Video Conferencing) ITA. Nos. 165 TO 168/Del/2018 AND ITA. No. 6051/Del/2017 (Assessment Years: 2007-08, 2009-10) AND (Assessment Years: 2011-12 TO 2013-14) M/s. Vocational Education ACIT, Foundation, Through Vs. Exemptions, Shri RasikMakkar, C. A.; Ghaziabad. N–59, Greater Kailash–I, New Delhi – 110 048. PAN: AAATV0779R (Appellant) (Respondent)
Assessee by : Shri Ved Jain, C. A.;& Shri Ashish Goel, C. A.; Department by: Shri Govind Singhal, Sr. D.R.; Date of Hearing : 04/08/2021 Date of pronouncement : 06/10/2021 O R D E R PER PRASHANT MAHARISHI, A. M.
These five appeals are filed by the assessee for assessment years 2007-08, 2009-10 and 2011-12 to 2013-14 passed by the ld. Commissioner of Income Tax (Appeals)–I, Noida, dated 30th March, 2017 wherein the ld. CIT (Appeals) enhanced the income of the assessee under Section 251(1A) of the Income Tax Act, 1961 (the Act) and also confirmed the assessment orders. 2. Common grounds of appeals (except in ITA. No. 6051/Del/2017) raised in these four appeals are as under:- ITA. Nos. 165 TO 168/Del/2018: “ 1. That on thefactsand circumstancesof the case the Combined Appeal Order dated 30.03,2017 passed by Sh. S.K. Srivastava, the CIT (A)-l, Noida, for four Asstt. years is bad in law, facts and equity. Page | 1
That on thefacts and circumstances of the case the Ld. CIT (A), Noida, has erred in law, facts & equity in passing the Appeal Order dated 30.3.2017, when the admitted and alleged final date of hearing was 31.3.2017 as stated in the Appeal Order. 3. That on the facts and circumstances of the case the Ld. CIT (A), Noida, has erred in passing said the Appellate Order dated 30.3.2017 on such factswhich are contrary to the facts of the Appellant, (para 17 to 19 72, 86, 90, 121 and 122). 4. That on the fact and circumstances of the case the Ld. CIT (A), Noida, had erred in issuing a show cause notice dated 09.09.2015 u/s 251(2) of the act proposing to increase the income of appellant by making various new disallowances/incomes which were not the subject matter of the Assessment Order. 5. That on the facts and circumstances of the case the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in directing the learned Assessing Officer to bring to tax the entire gross receipts including the corpus donations, without considering and allowing the exemption u/s 11 and 12 of the Act on the following grounds: a) Although the additions to income were neither the subject matter of assessment nor the appellant has raised any ground to that effect, as such, it was beyond the jurisdiction of the learned CIT (A) to introduce a new source of income. b) As the A.O had not considered this aspect in his order of assessment, power of learned CIT(A) is confined to those items of income which were the subject-matter of original assessment in an appeal filed by the Appellant. c) Neither the A.O had considered this aspect in his order of assessment nor had subjected to tax such head of income while framing the Asstt. Order. d) The Learned CIT(A) is in disregard of the judgment of the Full Bench of the Delhi High Court in the case of Sardari Lai & Sons and thus the appellate order suffers from the lack of jurisdiction, in respect of addition which has been directed to be made in the impugned appellate order. e) The Ld. CIT (A), Noida, had erred in assuming the jurisdiction u/s 251(1) of the act on the presumption that the Ld. A.O. did not apply the provision of law while framing the assessment. 6. That without prejudice to the above, that on the fact and circumstances of the case the Ld. CIT (A), Noida, had erred in not allowing the benefit of exemption u/s 11 and 12 on the following grounds; a) Income of educational institute and universities are covered u/s 10 (23C) (iv) and (vi) and not u/s 11 and 12 and thus no exemption can be claimed u/s 11 and 12 by such Appellant, (para 44 to 49 and 59 to 62). b) That the Appellant could not charge/ recover any fee from the students in case the Appellant is to carry out a charitable activity u/s 2(15) of the Act of providing education to students, (para 51 to 54). c) That the learned CIT (A) has wrongly interpreted the judgment of Five judge Bench of the Hon'ble Supreme Court in the case of Isamic Academy of Education &Anr Vs. State of Karnataka &Ors and interpreted that no Charitable Society can charge fee from its students in the course of providing education. (73 to 75 and 84 to 85). Page | 2
d) That the Appellant is running a college and thus doing a charity in providing education and thus cannot charge/recover any fee from students to be set off against the cost of doing charity by imparting education, (para 76 to 77). e) The income of the Appellant by way of collection of fee from students is not an income derived from property held under Trust, (para 78 to 83 and 87, 88). f) The Corpus donations received by the Appellant from persons other than students/parents and shown in the Balance sheet of the Appellant, had been wrongly conceived by the said CIT (A) as voluntary donation, without any basis or information on hand, (para 89 to 93). g) That the Appellant has made a violation of section 13 of the Act and thus the entire benefit of section 11 has been withdrawn whereas no such violation was incurred (para 121 and 122). 7. Without prejudice to above and on the facts and circumstances of the case the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in considering the gross receipts of the Appellant as income from other sources u/s 56 and not allowing any deduction u/s 57 of the Act. (para 108 to 113). 8. That on the facts and circumstances of the case the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in not allowing any expenditure incurred by the Appellant to be set off against any income of the Appellant on the ground that the expenditure is not the cost of the income but the application of income and there is no nexus between the income and expenditure of the Appellant, (para 115 to 116 and 118 to 120). 9. That on the facts and circumstances of the case the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in not allowing the benefit of section 11 and 12 to the bank interest income of the Appellant due to violation of section 13(1 )(d) whereas no such violation has been done by the Appellant, (para 121 to 122). 10. That on the facts and circumstances of the case the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in disregarding the past history of the Appellant who has been running the educational colleges since the year 2000 and has been getting the benefit of section 11 and 12 of the Act under regular scrutiny asstt. every year. 11. That on the facts and circumstances of the case the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in not taking the correct figures of gross income of the Appellant and in not allowing the benefit of section 164(2) of the Act available to all charitable Appellants. 12. That without prejudice to the above grounds, disallowances and additions to the returned income is highly excessive and much beyond the requirements of the case. 13. That the appellant reserves its right to alter, add & vary any ground(s).“
ITA. No. 6051/Del/2017 : “ 1. That on the facts and circumstances of the case the Appeal Order dated 30.06.2017 passed by Smt. Renuka Jain Gupta C.I.T. (A)- Ghaziabad, is bad in law, facts & equity. 2. That on the facts and circumstances of the case the Ld. CIT (A), has erred in law, facts & equity in not allowing the relief to the Appellant against the heavy additions on account of disallowing the claim of depreciation made to the returned Income by the A.O. without cogent reasons & basis.
That on the facts and circumstances of the case the Ld. CIT (A) erred in making a disallowance of entire Depreciation of Rs. 6,84,73,391/- without any basis treating it as double deduction in view of section 11(6) of the IT Act, 1961 inserted w.e.f 01.04.2015. 4. That on the facts and circumstances of the case the Ld. CIT (A), New Delhi, has erred in law, facts & equity in not allowing the relief to the Appellant by giving reasons that the said amendment in Section 11(6) of the Income Tax Act, 1961 made w.e.f. from 01.04.2015 is retrospective in nature and not prospective. 5. That on the facts and circumstances of the case the Ld. CIT (A) erred in making a disallowance of Depreciation specially when the same had been allowed to us by the CIT (A) and ITAT in earlier years in Appellant’s own case since A.Y. 2000- 01 to A.Y. 2010-11, and also by the Hon'ble Allahabad High Court in A.Y. 2001 - 02, 2002-03, 2004-05 and 2005-06 in Appellant’s own case. 6. That on the facts and circumstances of the case, the said Officer erred in not allowing the excess application of income of earlier and current year(s) to be carried forward and to be set off against the future income of the Appellant, without any basis and without providing any opportunity to the Appellant and without considering that the same had been allowed to the Appellant in A. Y. 2008-09 by the CIT(A) and ITAT. 7. That without prejudice to the above grounds, disallowances and additions to the returned income is highly excessive and much beyond the requirements of thecase. 8. That without prejudice to the above grounds, disallowances and additions to the returned income is highly excessive and much beyond the requirements of thecase. 9. That the appellant reserves its right to alter, add & vary any ground(s). It is, therefore, prayed that the additions made to the returned income be deleted and /or any other relief as may be deemed may be allowed. “
Briefly stated the facts of assessment year 2007-08 shows that assessee is a society and also registered under Section 12AA of the Act, engaged in running of educational institute. On 31st December 2007 the return of income was filed at ‘NIL’ income and assessment under Section 143(3) of the Act was passed on 18.12.2009 at ‘NIL’ income. Subsequently the notice under Section 148 of the Act was issued on 29th March 2014 for the reason that assessee has claimed depreciation on the assets and has also claimed the entire expenses on the acquisition of the assets as application of income and, therefore, there is a double deduction. After considering the explanation of the assessee the ld. Assessing Officer disallowed depreciation of Rs.2,63,24,271/- for assessment year 2007-08 and identically the disallowances were made in all three subsequent assessment years.
The assessee preferred an appeal before the ld. CIT (Appeals). The ld. CIT (Appeals) came to the conclusion that assessee is wrongly claiming deduction of exemption under Section 11 and 12 of the Act. He held that to claim exemption under Section 11 and 12 of the Act the assessee must cross over thresh-hold under Section 2(15) of the Act. Therefore, he issued notice under Section 2(15) of the Act holding that assessee is charging fees from students studying in its school over and above different charges , loan and sports and sundry income. It has also received corpus donation. He also referred that the Assessing Officer in the assessment orders for assessment years 2009-10, 2010-11 and 2013-14 has already held that in the light of the activities carried out by it, it cannot be doing any charitable activity, but its activities are tainted with profit motive. Accordingly, he denied exemption under Section 11 and 12 of the Act and enhanced the income of the assessee by Rs.19.69 crores for assessment year 2007-08 by Rs.55.19 crores, for assessment year 2009-10 by Rs.62.37 crores for assessment year 2011-12 and by Rs.69.19 crores for assessment year 2012- 13. He held that as assessee is not entitled to the benefit of Section 11 and 12 of the act and the income of the assessee is required to be assessed under the head “Income from other sources” under Section 56 of the Act and no deduction under Section 57 of the Act is allowable to the assessee. He further held that the donation received by the assessee is also chargeable to tax. He passed a combined order for all these years assessee is aggrieved with that and has preferred these appeals. 5. The learned authorised representative submitted that identical decision has been passed by the learned CIT – A in case of another trust namely Adarsh Public School versus joint Commissioner of income tax. This decision has reached to the coordinate bench and it has been decided as per order dated 31/1/2018. He further referred to the order of the learned CIT – A in that assessee’s case, which is placed at, page number 30 – 70 of the paper book. He submitted that there is no difference in the facts of this case with the case decided by the coordinate bench on the identical order passed by the learned CIT – A. Therefore, the issue is squarely covered in favour of the assessee. He extensively read the decision of the coordinate bench in case of Adarsh public School. He further stated that relying upon the decision of
coordinate bench in case of Adarsh public School another case of Rama Devi memo real society versus joint Commissioner of income tax has also been decided wherein also the similar order of the learned CIT – A was passed with the same set of allegation as in the present case and the coordinate bench has decided in favour of the assessee. With respect to the charging of the fees, he submitted that it could not be a ground for holding that the school is not for charitable purposes. For this proposition he relied upon the decision of the honourable Supreme Court in case of Queens educational Society versus CIT (2015) 8 SCC 47. He submitted that in the present case the surplus earned by the assessee is also ploughed back for educational purposes and is it exists only and solely for educational purposes and not for the purposes of profit. He further relied upon the decision of the honourable Supreme Court in case of Visveesvaraya technological University versus Asst Commissioner of income tax wherein the honourable Supreme Court relying on the decision of the Queens educational Society allowed the exemption u/s 10 (23C) (iiiab) to that society. With respect to the issue of depreciation claimed by the assessee and disallowed by the learned assessing officer invoking the provisions of Section 11 (6) of the act, he submitted that the above amendment has come into effect from 1/4/2015 and therefore it do not apply to the impugned assessment years. He submitted that such an amendment is prospective in nature. He submitted that the issue is that the assessee has claimed application of income when fixed assets were purchased and further claimed depreciation thereon on commercial principle however, the revenue authorities thought that this amounts to double deduction. He submitted that this issue is squarely covered in favour of the assessee by the decision of the honourable Supreme Court in case of CIT versus Rajasthan and Gujarat the charitable foundation (89 taxmann.com 127) wherein it is held that the amendment to Section 11 (6) is prospective in nature and applies with effect from 1 April 2015. He therefore submitted that all the issues involved in this appeal are covered in favour of the assessee. 6. With respect to the enhancement made by the learned CIT – A, he submitted that there is no notice issued by the learned CIT – A u/s 251 of the income tax act which is a mandatory requirement.
The learned departmental representative vehemently supported the order of the learned assessing officer as well as the learned CIT – A. 8. We have carefully considered the rival contentions and perused the orders of the lower authorities. The facts clearly shows that for all these years the learned assessing officer has disallowed the depreciation claimed by the assessee stating that there is a double deduction once at the time of claiming entire amount of acquisition is an application of income and then once again at the time of claiming of the depreciation. We find that this issue is covered squarely in favour of the assessee by the decision of the honourable Supreme Court in case of CIT versus Rajasthan and Gujarat the charitable foundation (supra) wherein it has been held as Under:- “1. These are the petitions and appeals filed by the Income Tax Department against the orders passed by various High Courts granting benefit of depreciation on the assets acquired by the respondents-assessees. It is a matter of record that all the assessees are charitable institutions registered under Section 12A of the Income Tax Act (hereinafter referred to as 'Act'). For this reason, in the previous year to the year with which we are concerned and in which year the depreciation was claimed, the entire expenditure incurred for acquisition of capital assets was treated as application of income for charitable purposes under Section 11(1)(a) of the Act. The view taken by the Assessing Officer in disallowing the depreciation which was claimed under Section 32 of the Act was that once the capital expenditure is treated as application of income for charitable purposes, the assessees had virtually enjoyed a 100 per cent write off of the cost of assets and, therefore, the grant of depreciation would amount to giving double benefit to the assessee. Though it appears that in most of these cases, the CIT (Appeals) had affirmed the view, but the ITAT reversed the same and the High Courts have accepted the decision of the ITAT thereby dismissing the appeals of the Income Tax Department. From the judgments of the High Courts, it can be discerned that the High Courts have primarily followed the judgment of the Bombay High Court in 'CIT v. Institute of Banking Personnel Selection (IBPS)'[2003] 131 Taxman 386. In the said judgment, the contention of the Department predicated on double benefit was turned down in the following manner: "3. As stated above, the first question which requires consideration by this Court is: whether depreciation was allowable on the assets, the cost of which has been fully allowed as application of income under section 11 in the past years? In the case of CIT v. Munisuvrat Jain 1994 Tax Law Reporter, 1084 the facts were as follows. The assessee was a Charitable Trust. It was registered as a Public Charitable Trust. It was also registered with the Commissioner of Income Tax, Pune. The assessee derived income from the temple property which was a Trust property. During the course of assessment proceedings for assessment years 1977-78, 1978-79 and 1979-80, the assessee claimed depreciation on the value of the building @ 2½% and they also claimed depreciation on furniture @ 5%. The question which arose before the Court for determination was : whether depreciation could be denied to the assessee, as expenditure on acquisition of the assets had been treated as Page | 7
application of income in the year of acquisition? It was held by the Bombay High Court that section 11 of the Income-tax Act makes provision in respect of computation of income of the Trust from the property held for charitable or religious purposes and it also provides for application and accumulation of income. On the other hand, section 28 of the Income-tax Act deals with chargeability of income from profits and gains of business and section 29 provides that income from profits and gains of business shall be computed in accordance with section 30 to section 43C. That, section 32(1) of the Act provides for depreciation in respect of building, plant and machinery owned by the assessee and used for business purposes. It further provides for deduction subject to section 34. In that matter also, a similar argument, as in the present case, was advanced on behalf of the revenue, namely, that depreciation can be allowed as deduction only under section 32 of the Income- tax Act and not under general principles. The Court rejected this argument. It was held that normal depreciation can be considered as a legitimate deduction in computing the real income of the assessee on general principles or under section 11(1)(a) of the Income-tax Act. The Court rejected the argument on behalf of the revenue that section 32 of the Income-tax Act was the only section granting benefit of deduction on account of depreciation. It was held that income of a Charitable Trust derived from building, plant and machinery and furniture was liable to be computed in normal commercial manner although the Trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, section 32 of the Income-tax Act providing for depreciation for computation of income derived from business or profession is not applicable. However, the income of the Trust is required to be computed under section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the Trust. In view of the aforesatated judgment of the Bombay High Court, we answer question No. 1 in the affirmative i.e., in favour of the assessee and against the Department. 4. Question No. 2 herein is identical to the question which was raised before the Bombay High Court in the case of Director of Income-tax (Exemption) v. Framjee Cawasjee Institute [1993] 109 CTR 463. In that case, the facts were as follows: The assessee was the Trust. It derived its income from depreciable assets. The assessee took into account depreciation on those assets in computing the income of the Trust. The ITO held that depreciation could not be taken into account because, full capital expenditure had been allowed in the year of acquisition of the assets. The assessee went in appeal before the Assistant Appellate Commissioner. The Appeal was rejected. The Tribunal, however, took the view that when the ITO stated that full expenditure had been allowed in the year of acquisition of the assets, what he really meant was that the amount spent on acquiring those assets had been treated as 'application of income' of the Trust in the year in which the income was spent in acquiring those assets. This did not mean that in computing income from those assets in subsequent years, depreciation in respect of those assets cannot be taken into account. This view of the Tribunal has been confirmed by the Bombay High Court in the above judgment. Hence, Question No. 2 is covered by the decision of the Bombay High Court in the above Judgment. Consequently, Question No. 2 is answered in the Affirmative i.e., in favour of the assessee and against the Department."
After hearing learned counsel for the parties, we are of the opinion that the aforesaid view taken by the Bombay High Court correctly states the principles of law and there is no need to interfere with the same. 3. It may be mentioned that most of the High Courts have taken the aforesaid view with only exception thereto by the High Court of Kerala which has taken a contrary view in 'Lissie Medical Institutions v. CIT [2012] 24 taxmann.com 9/209 Taxman 19 (Mag.)/348 ITR 344'. 4. It may also be mentioned at this stage that the legislature, realising that there was no specific provision in this behalf in the Income-tax Act, has made amendment in Section 11(6) of the Act vide Finance Act No. 2/2014 which became effective from the Assessment Year 2015-2016. The Delhi High Court has taken the view and rightly so, that the said amendment is prospective in nature. 5. It also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well. 6. For the aforesaid reasons, we affirm the view taken by the High Courts in these cases and dismiss these matters.”
In view of this, we do not find any reason to uphold the disallowance of the depreciation. Consequently the learned assessing officer is directed to allow the depreciation of Rs 2 63,24,271 four assessment year 2007 – 08, 3,42,75,837, for assessment year 2009 – 10, ₹ 49,442,411 for assessment year 2011 – 12 and Rs 1 14,00,586 for assessment year 2012 – 13. 10. With respect to the applicability of the provisions of Section 11 and 12 of the income tax act to the assessee trust, we find that an identical order has been passed by the learned CIT – A in other cases, which has reached before the coordinate bench and the coordinate bench, has decided the issue in favour of the assessee. Therefore, such order binds us. The learned departmental representative could not show any facts or circumstances of the case, which is different from the case decided by the coordinate bench, and the case of the assessee except the amount involved. Such a decision has reached the coordinate bench in case of Adarsh public school versus joint Commissioner of income tax 2018 (2) TMI 1692 - ITAT DELHI No.- I.T.A. No.3782/DEL/2017 Dated.- January 31, 2018 wherein the coordinate bench has taken following view on identical facts and circumstances:-
‘11. We have heard the rival submissions and perused the relevant finding given in the impugned order as well as the material referred to before us. We have already discussed in brief various facets of the observations made by the ld. CIT(A) while exercising his power of enhancement u/s.251(2) and Page | 9
taxing the entire receipts of ₹ 1,04,85,689/- as income from other sources. It is an admitted fact that assessee society has been formed and registered under the ‘Registration of Societies Act, 1860’, with the sole object of providing education and in pursuance of such an object it has set up an infrastructure in the form of school which is named as ‘Adarsh Public School’, from where it is providing education upto Senior Secondary level. Looking to its object which is for ‘charitable purpose’ in terms of section 2(15) and is solely for imparting education, it has been granted registration u/s.12A by the competent authority, i.e., Ld. CIT Ghaziabad. Once registration u/s.12A is granted, then it is fait accompli and accordingly, all its receipts / income are subject to computation and benefit u/s.11 to 12 and restrictions provided u/s 13. Such a registration u/s 12A has neither been withdrawn nor has any action been taken by the competent authority to withdraw such certificate of exemption granted u/s.12A. That is the reason why the assessments have completed u/s. 143(3) for the subsequent assessment year, wherein the assessee has been given the benefit of Section 11. Here in the impugned assessment year the case of the Assessing Officer was that the audit report in Form 10B was not filed along with return of income and the one which was filed during the course of the assessment proceeding was back dated. This allegation of the Assessing Officer has been negated by the ld. CIT(A) who has found that audit report in Form 10B was proper. Thus, the ground and the finding of the Assessing Officer to deny the claim of benefit of section 11 has been overruled by the first appellate authority, which finding has now attained finality as revenue is not in appeal or in cross objection. The Assessing Officer has only taxed the surplus over income and expenditure account, however the ld. CIT(A) has proceeded to tax the entire receipt albeit on different grounds. 12. Now we shall deal in brief the various observations and findings of the ld. CIT(A) by which he has denied exemption/benefit of Section 11 to the assessee. Coming to his first objection that assessee is not entitled for benefit/exemption u/s.11, because there is a separate provision under the Act u/s. 10(23C)(iv), (v) and (vi) where it could have or can claim the exemption and since assessee has not availed the exemption u/s.10(23C), therefore, it is debarred from claiming exemption u/s.11. At the outset, such an observation is against the principle laid down by the Hon'ble Supreme Court in the case of CIT vs. Bar Council of Maharashtra (supra), wherein the their Lordships have observed and held as under:- 6. At the outset it may be stated that we were not inclined to permit counsel for the revenue to urge his first contention as in our view the revenue must be deemed to have given up the same. We may point out that precisely this very contention was raised by the revenue before the Tribunal and was negative by it. The Tribunal on a detailed analysis of the concerned provisions took the view that the two provisions were not mutually exclusive but operated under different circumstances, that section 11 was relatively wider in its scope and ambit, that while section 10(23A) granted absolute exemption in respect of particular types of income, section 11 imposed certain conditions for the exemption but such exemption was available for all sources, and that there was nothing inherently improbable or inconceivable about the two provisions operating simultaneously and as such the claim for exemption under section 11 was available to the assessee-Council provided Page | 10
it satisfied 11 the requirements of that provision. We may point out that there are other allied provisions like for instance clause (23C) in section 10 which clearly indicate that the Legislature did not intend to rule out section 11 when exemption was claimable under such specific provisions of section 10. It was after negativing the contention in this manner that the Tribunal went on to consider the claim for exemption made by the assessee-Council under section 11 but on merits found that there was no material or evidence on record to show whether or not the securities were held by the assessee- Council for any of the charitable purposes and, therefore, it remanded the case. The remand order was never challenged by the revenue by seeking a reference on the ground that a remand was unnecessary because section 11 was ruled out by reason of exemption having been obtained by the assessee- Council under section 10(23A) nor was any such contention raised when reference was sought by the assessee- Council nor when the matter was being argued in the High Court. In these circumstances, it is clear to us that the revenue acquiesced in the view taken by the Tribunal that the claim for exemption under section 11 could not be said to be ruled out by reason of the provisions of section 10(23A). We, therefore, proceed to deal with the second contention which was principally argued before us in these appeals. 13. Thus, the aforesaid observation of the Hon'ble Apex Court, makes it very clear that there is no bar or disharmony between Section 10(23C) and Section 11; and exemption of Section 11 cannot be denied even when there is a specific provision of Section 10(23C). This principle has been reiterated by the Hon'ble Jurisdictional High Court in the case of CIT vs. Indian Institute of Engineering Society, reported in 218 Taxman 151 (All), wherein Their Lordships had observed as under:- 6. Shri Awasthi, learned counsel, submitted that as the assessee claimed exemption, being an educational institution as such it was required to obtain exemption from the prescribed authority under Section 10(23C) of the Act, which is mandatory. Since no exemption from the prescribed authority under Section 10(23C) of the Act has been obtained as such the assessee was not entitled to claim benefits under Section 11 of the Act. The submission is wholly misconceived. Admittedly, the assessee is an educational institution and was established for charitable purposes for running educational institutions and imparting education. Section 10 of the Act deals with the income not liable to be included in total income of the assessee while Section 11 deals with the income from property held for charitable or religious purposes. Both Section 10(23C) and Section 11 of the Act are independent sections. The assessee was registered under Section 12A of the Act. As such the assessee was rightly granted benefits under Section 11 of the Act.” 14. This judgment of Hon’ble jurisdictional High Court clearly negates the theory of ld. CIT (A). Further Hon'ble Punjab and Haryana High Court in the case of CIT vs. Mahasabha Gurukul Vidhyapeeth (2010) 2 Taxmann.com 283 (P & H) too have upheld the same proposition that once all the requisite conditions for exemption u/s.11 have been met and even if condition u/s. 10(23C) have not been complied with, then there should be no bar to seek exemption u/s.11. In view of the aforesaid binding judicial Page | 11
precedents, we reject the observation and finding of the ld. CIT (A) that assessee cannot claim exemption/benefit of Section 11 or is not entitled for benefit u/s 11 as assessee was eligible for such an exemption u/s. 10(23C). 15. Ld. CIT(A) while denying the exemption of Section 11 to assessee society has held that, since imparting of education is a matter of pure charity, therefore, the educational institution is not permitted to receive or recover the cost of charity from its beneficiary by way of fees, i.e., charging of fees itself would amount uncharitable activity. We are unable to subscribe to this proposition at all, because if fees is not charged from the students then how the activity of imparting education can be carried out. Fees collected from the students itself feeds the charity, unless some other considerations are received for profiteering and personal gains of trustees or members of the society. Strong reliance has been placed by the ld. CIT (A) upon the judgment of Hon'ble Apex Court in the case of ACIT vs. Surat Art Silk Cloth Manufactures Association (supra). In our humble understanding of the said judgment and the principle laid down by the Constitutional Bench of Hon'ble Apex Court, nowhere the Hon'ble Apex court has held that the charging of fees or some profit for carrying out charitable activity would be reckoned as not charitable. The Hon'ble Apex Court held that if primary or dominant purpose of a trust or institution is charitable, then any other object which by itself is not charitable and is mere ancillary to the dominant purpose then also it is held to be valid charity. The primary test which is to be applied is, whether the main or primary object of the trust is charitable or not. It is an undeniable that under the Income Tax Act, educational activity has been specifically treated as charitable purpose and if the entire activities of the assessee is purely for carrying out education then the test of dominant and main purpose stands fulfilled as laid down by the Hon'ble Apex court. Hon'ble Apex Court has further held that if any activity for profit is carried out in the course of actual carrying out its purpose, then the activity for profit must be intertwined or wrapped up with or implied in the purpose of the institution or trust, in other words it must be an integral part of such purpose. What is to be looked into whether the activity is propelled by a dominant profit motive and whether the dominant object of the activity is profit making or carrying out a charitable purpose, if it is former then the purpose would not be charitable, but, if it is latter the charitable character of the purpose would not be lost. Thus, in no way the principle laid down by the Hon'ble Apex Court can be interpreted or understood in the manner that if certain receipt or income is generated out of an activity which is charitable and such a receipt or income is wholly applied for carrying out charitable purpose, then it cannot be reckoned for non charitable purpose. Here in this case, the charging of fees is a part of receipt during the course of carrying out educational activity which has been completely applied for that activity alone, therefore such a receipt by way of fees has to be seen as an application of income for charitable purpose. As regards another constitutional bench judgment of Hon'ble Apex Court in the case of TMA Pai Foundation and others (supra), it is seen that the Hon'ble Apex Court in the context of ‘capitation fee’ and profiteering, itself culled out the exception in the following manner:- 66. In such professional unaided institutions, the Management will have the right to select teachers as per the qualifications and eligibility conditions laid Page | 12
down by the State/University subject to adoption of a rational procedure of selection. A rational fee structure should be adopted by the Management, which would not be entitled to charge a capitation fee. Appropriate machinery can be devised by the state or university to ensure that no capitation fee is charged and that there is no profiteering, though a reasonable surplus for the furtherance of education is permissible. Conditions granting recognition or affiliation can broadly cover academic and educational matters including the welfare of students and teachers.” [Emphasis added is ours] 16. Thus, the Hon'ble Apex Court held that in principle there should be no ‘capitation fee’ or profiteering, but reasonable surplus to meet the cause of education and augmentation of facility does not amount to profiteering. Nowhere the Hon'ble Apex Court has held that educational institution is debarred from taking any kind of fees from the students albeit they have expressed caution in a limited way on a capitation fee for the purpose of profiteering. Similarly in the other judgment relied upon by the ld. CIT (A), that is, in the case of Islamic Academy of Education & Ors vs. State of Karnataka (supra), the Hon'ble Apex Court again following the principle of the constitutional Bench in the case of TMA Pai Foundation & Others (supra) and observed as under:- 212. So far as the first question is concerned, in our view the majority judgment is very clear. There can be no fixing of a rigid fee structure by the government. Each institute must have the freedom to fix its own fee structure taking into consideration the need to generate funds to run the institution and to provide facilities necessary for the benefit of the students. They must also be able to generate surplus which must be used for the betterment and growth of that educational institution. In paragraph 56 of the judgment it has been categorically laid down that the decision on the fees to be charged must necessarily be left to the private educational institutions that do not seek and which are not dependent upon any funds from the Government. Each institute will be entitled to have its own fee structure. The fee structure for each institute must be fixed keeping in mind the infrastructure and facilities available, the investments made, salaries paid to the teachers and staff, future plans for expansion and/or betterment of the institution etc. Of course there can be no profiteering and capitation fees cannot be charged. It thus needs to be emphasized that as per the majority judgment imparting of education is essentially charitable in nature. Thus the surplus/profit that can be generated must be only for the benefit/use of that educational institution. Profits/surplus” cannot be diverted for any other use or purpose and cannot be used for personal gain or for any other business or enterprisers.” [Emphasis added is ours] 17. The aforesaid judgment clearly clinches the issue and completely negates the view of the Ld. CIT (A). Thus, none of the judgments as referred to by the ld. CIT(A) have been analysed in proper prospective rather his interpretation of the principles laid down by the Apex Court are Page | 13
incorrect and out of context. Before us the learned counsel had submitted the total fees charged from various students during the year the details and bifurcation of which is as under:-
[ This table is not reproduced for sake of simplicity ] 18. From the above details, it is quite evident that the assessee school has been charging fees only from its students and there is no capitation fee at all. Such fees have been charged from the students for the running of the school and has been applied for its dominant purpose/object of carrying out educational activity. If we apply the principle and ratio laid down by the Hon'ble Apex Court in the aforesaid cases, then the fees charged by the assessee is neither for profiteering nor for carrying any activity beyond its dominant object. Thus, allegation of the ld. CIT (A) on this score also is hereby rejected. 19. Now coming to the observation that assessee’s income by way of fees cannot be held to be derived from property held under the trust, because students cannot be treated as property. If such a proposition or view of ld. CIT (A) is upheld, then probably no education institution in the country would ever be eligible/entitled for exemption u/s.11 and perhaps will defeat the entire purpose of legislature and the definition of ‘charitable purpose’ of education as defined in Section 2(15). Section 12 of the Act clearly provides that any voluntary contribution received by a trust wholly for charitable or religious purpose, then for the purpose of Section 11 it is deemed to be income derived from the property held under the trust. Such a deeming provision of revenue contribution is held as income derived from the trust which is subject to computation and conditions laid down in Section 11 to 13. If the assessee is carrying out any obligation for educational activity, then it has to be treated as the ‘trust’ under the provision of Section 11; and this proposition has been clearly held by the Hon'ble Supreme Court in the case of CIT vs. Gujarat Maritime Board (Supra), that if the assessee is under legal obligation to apply the income then it is entitled to be registered as charitable trust. In the case before the Hon’ble Supreme Court, the authority Gujarat Maritime Board was carrying out the development of minor port which was in the realm of ‘carrying out objects of general public utility’. The Hon'ble Apex Court held that such an authority is to be reckoned as charitable trust for the purpose of Section 11. In this case one of the main objection raised on behalf of the department was that said Board was not entitled for the benefit of Section 11 as it was not a trust under the ‘Public Trust Act’ and therefore, it was not entitled to claim registration u/s. 12A. Since it was not held under the trust therefore, it is not entitled for exemption u/s. 11(1)(a). The relevant contention of the Revenue as well as the finding of the Hon'ble Apex Court reads as under:- 12. One of the objections raised on behalf of the Department was that Gujarat Maritime Board is not entitled to the benefit of section 11 of the 1961 Act as the said Board was not a trust under Public Trust Act and, therefore, it was not entitled to claim registration under section 12A of the 1961 Act. The Department's case was that the Maritime Board was a Page | 14
statutory authority. It was not a trust. Its business was not held under a trust. Its property was not held under trust. Therefore, the Board was not entitled to be registered as a Charitable Institution. It was the case of the Department that the Board was performing statutory functions. Development of minor ports in the State of Gujarat cannot be termed as the work undertaking for charitable purposes and in the circumstances the Commissioner rejected the Board's application under section 12A of the 1961 Act in the light of the above case of the Department, we are required to consider the expression 'any other object of general public utility' in section 2(15) of the 1961 Act. 13. ……....... 14. We have perused number of decisions of this Court which have interpreted the words, in section 2(15), namely, 'any other object of generally public utility'. From the said decisions it emerges that the said expression is of the widest connotation. The word 'general' in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose-CIT v. Ahmedabad Rana Caste Association [1983] 140 ITR 1 (SC). The said expression would prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote or protect the interest of a particular trade or industry that object becomes an object of public utility, but not so, if it seeks to promote the interest of those who conduct the said trade or industry-CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC). If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity-Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1 (SC). 15. The present case in our view is squarely covered by the judgment of this Court in the case of CIT v. Andhra Pradesh State Road Transport Corpn. [1986] 159 ITR 1 in which it has been held that since the Corporation was established for the purpose of providing efficient transport system, having no profit motive, though it earns income in the process, it is not liable to income-tax. 16. Applying the ratio of the said judgment in the case of Andhra Pradesh State Road Transport Corpn. (supra), we find that, in the present case, Gujarat Maritime Board is established for the predominant purpose of development of minor ports within the State of Gujarat, the management and control of the Board is essentially with the State Government and there is no profit motive, as indicated by the provisions of sections 73, 74 and 75 of the 1981 Act. The income earned by the Board is deployed for the development of minor ports in India. In the circumstances, in our view the judgment of this Court in Andhra Pradesh State Road Transport Corpn.'s case (supra) squarely applies to the facts of the present case. Page | 15
Before concluding we may mention that under the scheme of section 11(1) of the 1961 Act, the source of income must be held under trust or under other legal obligation. Applying the said test it is clear, that Gujarat Maritime Board is under legal obligation to apply the income which arises directly and substantially from the business held under trust for the development of minor port in the State of Gujarat. Therefore, they are entitled to be registered as 'Charitable Trust' under section 12A of the 1961 Act.” 20. This principle has been reiterated by the Hon'ble Delhi High Court in the case of Institute of Chartered Accountants of India-v-DGIT, 358 ITR 91 (Del). Thus, the assessee society which has been registered under ‘Registration of Societies Act, 1860’ with the sole object of providing education and has a legal obligation for applying its income for such charitable purpose, then for the purpose of Section 11 it has to be treated as trust and income derived from carrying out such obligation has to be reckoned as income derived from property under the trust and therefore, on the ground also as raked by the ld. CIT (A), exemption u/s.11 cannot be denied. Accordingly, in view of the finding given above and various legal principle as discussed above, we hold that none of the observations and the finding of the ld. CIT(A) are sustainable and the grounds taken and the reasoning given by him to deny the benefit/exemption u/s.11 to the assessee cannot be upheld either in law or on facts. 21. Accordingly, in view of our finding given above, the entire receipts which has been taxed under the head ‘income from other sources’ is set aside and we direct the Assessing Officer to grant exemption u/s.11 as per the income and expenditure account submitted by the assessee.”
Further there is no allegation that the surplus and by the assessee has not been utilized by the assessee for the purpose of charitable activities. Therefore, it remains an uncontroverted fact that the surplus is ploughed back for educational purposes and the assessee exists solely for educational purposes and not for the purposes of the profit. 12. In view of the above facts, respectfully following the decision of the coordinate bench and also the principles laid down by the honourable Supreme Court in case of allowability of depreciation and acquisition of assets as on application of income also, we hold that:- i. depreciation disallowed by the learned assessing officer on the assets are allowable to the assessee trust, therefore the disallowance made for assessment year 2007 – 08 to 2012 – 13 is deleted.
ii. Assessee is entitled to deduction u/s 11 and Section 12 of the income tax act as assessee exists for educational purposes covered as charitable purposes under the provisions of Section 2 (15) of the act. 13. In the result, all the four appeals filed by the assessee for assessment year 2007 – 08, 2009 – 10, 2011 – 12 and 2012 – 13 in ITA number 165 – 168/del/2018 are allowed. 14. ITA number 6051/Del/2017 is filed by assessee for assessment year 2013 – 14 where the solitary issue involved is with respect to the double deduction of acquisition of asset by the assessee, firstly by claiming the application of income at the time of acquisition of the asset and subsequently by way of depreciation on year to year basis. As we have already held that this issue is squarely covered in favour of the assessee by the decision of the honourable Supreme Court in case of CIT versus Rajasthan Gujarati charitable trust, we direct the learned assessing officer to delete the disallowance of depreciation as this year is prior to assessment year 2015 – 16. 15. In the result ITA number 6051/Del/2017 for assessment year 13 – 14 is also allowed. 16. In the result appeal filed by the assessee for all these five assessment years are allowed.
Order pronounced in the open court on : 06/10/2021.
Sd/- Sd/- ( KUL BHARAT ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 06/10/2021. *MEHTA* Copy forwarded to 1. Appellant; 2. Respondent 3. CIT 4. CIT (Appeals)
DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi
Date of dictation 6.10.2021 Date on which the typed draft is placed before the 6.10.2021 dictating member Date on which the typed draft is placed before the other 6.10.2021 member Date on which the approved draft comes to the Sr. PS/ 6.10.2021 PS Date on which the fair order is placed before the 6.10.2021 dictating member for pronouncement Date on which the fair order comes back to the Sr. PS/ 6.10.2021 PS Date on which the final order is uploaded on the website 6.10.2021 of ITAT date on which the file goes to the Bench Clerk 6.10.2021 Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the order