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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
Per Chandra Poojari, Accountant Member This appeal by the assessee is directed against the order u/s. 10(23C)(vi) of the Income-tax Act, 1961 [the Act] for the assessment year 2017-18.
The assessee has raised the following grounds of appeal:-
“1. The orders of the authorities below in so far as they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
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The order passed u/s 10(23C)(vi) of the Act, dated 04/05/2020, withdrawing the exemption granted is bad in law and void ab-initio in as much as the learned CCIT, Panaji who has passed the impugned order is not the prescribed authority in terms of Rule 2CA of the I.T. Rules and thus, the impugned order passed being without jurisdiction, deserves to be quashed. 3. Without prejudice to the above, the learned CCIT- Panaji failed to appreciate that the appellant had not claimed the payments made to the extent of Rs. 3,57,83,690/- as an application of income during the assessment year 2017-18 and thus there was no violation of the conditions prescribed under Clause (a) of the unnumbered 3rd proviso and thus, Sub Clause A of Clause (i) of unnumbered 15th proviso to Section 10(23C) of the Act, was not attracted under the facts and in the circumstances of the appellant’s case. 4. The learned CCIT, Panaji erred in holding that the appellant had violated Condition 1 of the order granting approval for exemption u/s 10(23C)(vi) of the Act, based purely on an expenditure which did not even form a part of application claimed during the assessment year 2017-18 and hence, there was no case to hold that the appellant had violated Sub Clause B of Clause (ii) of unnumbered 15th proviso to Section 10(23C) of the Act, under the facts and in the circumstances of the appellant’s case. 5. The learned CCIT, Panaji ought to have appreciated that the appellant is running several educational institutions which exist solely for educational purposes and not for the purposes of profit and no case was made out that the activities of the appellant trust were not genuine in order to withdraw the approval granted especially when the appellant had not earned a surplus in several years and hence during these years there was no occasion to claim exemption u/s 10(23C)(vi) of the Act, which it was rightfully entitled to. 6. The learned CCIT-Panaji ought to have appreciated that there was no statutory requirement for the appellant to deduct TDS on expenditure incurred for the assessment year 2017-18, which requirement came into effect only from 01/04/2019.
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For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.” 3. The brief facts of the case are that the assessee trust was constituted under the Deed of declaration of Trust dated 30/04/1988 with the charitable object of supporting and promoting education and the advancement of educational activities in all its branches for the linguistic minority “Tulu” community. The appellant trust is presently running the following educational institutions under its umbrella:
Sl.No Name of the Institution 1 Srinivas College of Hotel Management Trust 2 Srinivas College of Physiotherapy & Research Centre 3 Srinivas College of P G Management Trust 4 Srinivas College of Education 5 Srinivas Institute of Medical Science & Research Centre 6 Srinivas Institute of Technology 7 Srinivas Institute of Health Science Trust 8 Srinivas Institute of Dental Science 9 Srinivas School of Engineering
The appellant was granted registration u/s 12A vide No. Accts/718/10A/Vol/B II/ S-290 dated 14/06/1988 by the then Commissioner of Income tax -III, Bangalore. This approval granted u/s. 12A of the Act continues to remain in force.
With a view to expand and specifically set out the objects of the appellant trust in the field of education, the appellant trust, with the previous approval of the then Commissioner of Income tax, Mangalore, had amended the objects of the trust on 29/09/2009 to include specific activities
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of education besides, changing some of the powers of the trustees. The approval for the amendment was granted by the then CIT-Mangalore vide order dated 31/12/2008 in No. S-37/Amendment/CIT/MNG/08.09. The objects of the appellant trust as per the amended deed dated 29/09/2009 are as follows:-
[i] To setup a college of Dental Sciences with all its specialty and super-speciality branches, Hospitals including research. [ii] To setup a Medical College with all its branches or speciality and super-speciality courses, hospitals including research. [iii] To setup a college of Agricultural Science, college or Forests, Botanical Science, Veterinary Science all with all its branches of speciality and super-speciality, research facility. [iv] To setup college of Arts, Fine Arts, dramatics cinematography, film shooting, cine-acting, music including instrumental music, yakshagana, Folk and all types of Indian dances and cultural activities, Entertainments, Para-medical science, Engineering, Bio- Technology, Nano-Technology, Sports, Gymnastics with research facilities. [v] To setup college of studies on Vedas, Vedantha, Philosophy, Astrology, Sanskrit, Agama Shastra, Paurohithya and any other similar branches of knowledge wherever youth can be trained and educated. [vi] To setup a college of Engineering with all speciality and super-speciality branches both in Under Graduate, Post Graduate, research and diploma levels. [vii] To start technical institutions conducting courses, programmes in the field of technical education, training and research in engineering and technology including MCA, MBA, architecture, town planning management,
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pharmacy, Hotel Management and Catering technology, applied arts and crafts, PG diploma in business management/administration and such other programmes and area at under graduate, post graduate, polytechnic, diploma and post diploma levels. [viii] To start educational institution in any technical, non- technical, Science, Arts and research streams. [ix] To “start” and “setup” an educational institutions wherever it is referred in this Deed shall also mean and includes “taking over running and/or maintaining” an educational institutions. 6. Pursuant the aforesaid amendment of the objects clause and since the appellant trust was running several educational institutions, which exist solely for educational purposes and not for the purposes of profit, the appellant trust made an application for recognition u/s 10(23C)(vi) before the then prescribed authority i.e., the CCIT, Panaji. The prescribed authority granted the approval, which has since been renewed vide order no. F. No. CCIT/PNJ/136(10)/2010-11 dated 15/04/2010. The approval granted u/s 10(23C)(vi) was subject to the appellant abiding by the conditions set out below:-
[1] the assessee applies its income, or accumulates its income for the application, wholly and exclusively, for the objects for which it is established and application of its income must be in accordance with Third Proviso to Section 10[23][vi]; [2] the assessee will not invest or deposit its funds [other than voluntary contributions received and maintained in the form of jewellery, furniture, etc] for any period during the previous years relevant to the assessment years mentioned above otherwise than in any one or more of the forms or modes specified in sub-section [5] of Section 11 of the I T Act, 1961;
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[3] this approval will not apply in relation to any income being profits and gains of business, unless the business is incidental to the attainment of the objectives of the Society and separate books of accounts are maintained in respect of such business. [4] the assessee will regularly file its return of income before the Income-tax authority in accordance with the provisions of the Income-tax Act, 1961; [5] that in the event of its dissolution, its surplus and assets will be given to an organization which exists solely for charitable purposes and not for purposes of profit and no part of the same will go directly or indirectly to any of the beneficiaries of the society or anybody specified in section 13[3] of the Income-tax Act, 1961; [6] the approval granted shall be subject to the provision of proviso to section 143[3]; [7] the approval shall be void if it is subsequently found that it has been obtained fraud or misappropriation of fact; [8] the above approval is given only for the purpose of sec. 10[23][vi] of the Income-tax Act, 1961 and not for any other purpose/s.
It is submitted that the aforesaid approval granted to the appellant trust by the order dated 15/04/2010 continued to remain in force and thus, the appellant was entitled to claim exemption u/s. 10(23C)(vi) of the Act. However, since the appellant was having only excess of application over income for several years, there was no occasion for the appellant to claim any exemption u/s. 10(23C)(vi) of the Act for any of the previous assessment years, including the assessment year 2017-18.
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For the AY 2017-18, the appellant trust had filed its return of income on for the assessment year 2017-18 on 29/10/2017 reporting an excess application over income of Rs. 26,38,94,595/-. While arriving at the said excess application, the appellant trust had excluded claiming application in respect of 2 items viz., [a] Depreciation debited to Income & Expenditure Account of Rs. 13,47,71,387/-; and [b] Donation & Charity debited to Income & Expenditure Account of Rs. 12,24,78,046/-.
In course of the assessment proceedings, the AO sought for various details and particulars, which were furnished. It was noticed by the AO that the appellant had made a payment of Rs. 3,57,83,690/- to several persons that formed part of the sum of Rs. 12,24,78,046/- [donations & charity], which was not claimed as application. On further enquiry, the AO also noted that the appellant had made these payments both by way of cash as well as cheque and that the appellant had submitted that it did not have the original vouchers in support of these payments. According to the AO, the aforesaid payments made by the appellant amounted to the violation of the conditions for grant of approval u/s. 10(23C)(vi) of the Act and hence, in terms of the proviso to section 143(3) of the Act, the AO made a reference to the prescribed authority for withdrawal of the approval granted since he could not pass any order of assessment denying the exemption claimed without withdrawal of the approval by the prescribed authority.
The ld. AR submitted that the A.O. took the view that the prescribed authority was the learned CCIT, Panaji, who had initially granted the approval u/s 10(23C)(vi) of the Act. It has been stated by the learned CCIT, Panaji in the impugned order that the A.O. had concluded as under:-
[i] That, the appellant could not establish that the payments made were towards the purpose of augmenting the objects of the appellant trust and that the appellant was not able to
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identify the beneficiaries and prove the relevance of such payments to the objects of the appellant trust. [ii] That merely because the objects of the trust are benevolent and charitable, the trust does not get registration/ approval if its activities are otherwise. [iii] That, in this situation, where money was paid out of books for unrelated activities could only be inferred as misuse of funds and that the act of not claiming the expenditure as application would not absolve the appellant. That, it appears that the management had siphoned funds and the benefits were passed on to persons u/s 13(3) of the Act. 11. Upon reference by the A.O., the learned CCIT, Panaji was of the view that the unnumbered 15th proviso to Section 10(23C)(vi) was prima facie attracted to the appellant’s case and hence, he issued a show cause notice on the appellant dated 18/02/2020 calling upon to state as to why the approval granted should not be withdrawn. In the show cause notice dated 18/02/2020, the CCIT, Panaji, identified the following issues that are purportedly in contravention to the regulations under the relevant provisions of the Act and sought explanations regarding the same:-
[i] That, despite specific request, the appellant could not provide purpose for payment to several individuals and explain its relevance to the objects of the trust and had failed to furnish original vouchers. [ii] That the appellant had paid sums of money in cash towards “Sundry Petty Advances” amounting to Rs. 1.50 Crores and was not in possession of original vouchers for the same and only photocopies of vouchers for a part of the amounts paid were produced. [iii] That the donations to the tune of Rs. 1,00,63,000/- was without any correlating vouchers and only a ledger account was produced.
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[iv] That the payments made towards “Brokerage, advance and other religious charity paid” as mentioned above had not been subjected to TDS.
The CCIT, Panaji further observed that once a trust is registered u/s 10(23C)(vi) of the Act, its activities should be for educational purpose only and that the income generated by the appellant has not been applied for the purpose of education in accordance with provisions contained in clause (a) of the 3rd proviso and thus, he gave an opportunity to show as to why the approval u/s 10(23C)(vi) should not be cancelled/withdrawn.
It is submitted that the appellant availed the aforesaid opportunity provided by the CCIT, Panaji and had filed written submissions contending that there was no violation of the unnumbered 15th Proviso to Section 10(23C) and that all the educational institutions were being genuinely run, wherein every year the application exceeded the gross receipts earned, resulting in the appellant incurring a deficiency of funds. The appellant also contended that the sum of Rs. 3,57,83,690/- based on which the A.O. had opined that the withdrawal of the approval was required, was less than 10% of the gross receipts earned during the assessment year 2017-18. It was also contended that the aforesaid sum was not claimed as application of income in the computation of total income at all and hence, there was no justification to withdraw the approval granted earlier as these payments alone cannot be the basis to determine the nature of activities carried on.
However, the CCIT, Panaji did not accept the aforesaid contentions or explanation of the appellant. While rejecting the contentions raised, the CCIT took the view that the appellant trust had violated the provisions of section 10[23C][vi] of the Act and hence, he passed the impugned order u/s
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10(23C)(vi) of the Act dated 04/05/2020, withdrawing the exemption earlier granted vide order dated 15/04/2010. He held that :-
[i] That the appellant had not applied its income in accordance with the stipulations of clause (a) of the third proviso/ that the activities are not being carried out in accordance with the conditions subject to which the approval was granted. [ii] That the fact that the appellant did not possess original receipts as payments were made through middle men was proof enough that the amount of Rs. 3,57,83,690/- was not applied to the objects of the trust, thus attracting Sub Clause A of Clause (i) of unnumbered 15th proviso to Section 10(23C) of the Act. [iii] That there was a violation of Condition 1 of the renewal granted which states that “the assessee applies its income, or accumulates its income for the application, wholly and exclusively, for the objects for which it is established and application of its income must be in accordance with Third Proviso to Section 10[23][vi]” and this violation would bring Sub Clause B of Clause (ii) of unnumbered 15th proviso to Section 10(23C) of the Act into play. [iv] That the aforesaid payments made by the appellant trust appear to be for the renewal of the recognition granted by MCI as the appellant had claimed that the recognition was withdrawn and later granted and it appeared that these payments made were opposed to public policy. [v] That the act of adding back the entire amount of Rs 3,57,83,690/- and not claiming the same as an application of income for the assessment year 2017-18 does not absolve the appellant from following the statutory provisions of the Act. 15. For the above reasons, the CCIT withdrew the recognition granted u/s. 10[23C][vi] of the Act by the impugned order dated 04/05/2020 and hence, the appellant is now in appeal before us.
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The first contention of the ld. AR is that the impugned order dated 04/05/2020 passed by the CCIT is bad in law and without requisite jurisdiction in as much as the CCIT, Panaji is not the prescribed authority and hence, the order passed is void-ab-initio and the same requires to be quashed.
It is submitted that as per the provisions of Section 10(23C)(vi) of the Act, read with Rule 2CA of the I.T. Rules, 1962, [as it stood at the relevant point of time], the prescribed authority is the Principal Commissioner or Commissioner of Income tax, who alone is competent to pass the order withdrawing exemption granted under Section 10(23C)(vi) of the Act. The prescribed authority at the time of granting approval was in no doubt the learned CCIT, Panaji in the year 2010, however thereafter, the Rules were amended from time to time. The prescribed authority referred to in the Act in section 10[23C][vi] or for that matter, in the proviso to section 143[3] of the Act, has to be examined in light of the prescribed authority that is specified under the Rules. Rule 2CA of the I.T.Rules [as it was at the relevant point of time] provides that on and with effect from 15/11/2014, the Principal Commissioner or Commissioner is the prescribed authority.
It is submitted that the A.O. in terms of the proviso to Section 143(3) is required to make a reference to the “prescribed authority” in case of contravention of the provisions of Section 10(23C)(vi). The term “prescribed authority” under the Act has to be interpreted based on the authority who is vested with the power to act and grant approval at the relevant point of time. It cannot be understood to mean that the prescribed authority is the authority who had granted approval u/s 10(23C)(vi) of the Act simply because such authority does not have any power under the Act to take cognizance of the matter.
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In view of the above, it is submitted that the CCIT, Panaji had no authority to pass the order withdrawing exemption granted, and thus the impugned order passed dated 04/05/2020 is without the requisite jurisdiction and is bad in law and deserves to be quashed. It is prayed accordingly.
On the other hand, the ld. DR submitted that in the Ground of Appeal No. 2, the appellant has challenged the assumption of jurisdiction by the CCIT, Panaji and the same is reproduced below for immediate reference:-
"2. The order passed u/s 10(23C)(vi) of the Act, dated: 04/05/2020, withdrawing the exemption granted is bad in law and void ab-inito in as much as the learned CC_TT, Panaji who has passed the impugned order is not the prescribed authority in terms 2CA of the .T. T. Rules and thus, the impugned order passed being without jurisdiction, deserved to be quashed." 21. In this regard, she submitted that copy of the report was called from the CIT (Exemptions), Bangalore and the relevant part of the report is reproduced herewith :-
"The contention of the assessee is that the Chief Commissioner of Income Tax is not the authority to withdraw the recognition u/s 10(23C)(vi) by relying on the proviso to sub rule (1) of Rule 2CA wherein it is prescribed that the Principal Commissioner or the commissioner shall be the prescribed authority for the purpose of recognition u/s 10(23C)(vi) on or after the specified date i.e., 15/11/2014. 22. The ld. DR further submitted that the contention of the assessee that the CCIT, Panaji had no jurisdiction to decide on the withdrawal of recognition u/s 10(23C)(vi) is not acceptable for the following reasons:-
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• The trust was given recognition u/s 10(23C)(vi) by the Chief Commissioner of Income Tax, Panaji vide order No. F. No. CCIT/PNJ/136(10)/2010-11 dated 15/04/2010.
• As per the judicial propriety only the authority granting the exemption has the authority to withdraw the recognition granted.
• In the instant case the recognition u/s 10(23C)(vi) by the Chief Commissioner of Income Tax, Panaji.
• Hence the Chief Commissioner of Income Tax, Panaji rightly assumed jurisdiction to withdraw recognition u/s 10(23C)(vi) which was granted by him.
• Judicial propriety also desires that when the order of granting recognition u/s 10(23C)(vi) is passed by an authority of rank of Chief Commissioner of Income Tax the decision on withdrawing the recognition u/s 10(23C)(vi) cannot be taken by an authority lower than the rank of Chief Commissioner of Income Tax.
• Hence the contention of the assessee that the Chief Commissioner of Income Tax was not the competent authority to decide on the issue of withdrawal of recognition u/s 10(23C)(vi) is without merit.
• Moreover as evident from the proceedings before the Chief Commissioner of Income Tax, Panaji the assessee has appeared before the Chief Commissioner of Income Tax and furnished the details called for.
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• It is also evident from the order of the Chief Commissioner of Income Tax, Panaji that the assessee never objected to the jurisdiction of the Chief Commissioner of Income Tax, Panaji in holding the proceedings to withdraw recognition u/s 10(23C)(vi).
• As per un-numbered 15th proviso to Sec. 10(23C), if an institution is approved by an prescribed authority and "that prescribed authority" is satisfied that the conditions in sub clause (i), (ii) and (iii) of said proviso are attracted then "that prescribed authority" shall withdraw the recognition after giving reasonable opportunity.
• It is pertinent to note that the word "that prescribed authority" is used in the legislation to specifically refer to "that prescribed authority" which originally granted the registration and not the prescribed authority as on the date of withdrawal proceedings.
• In the instant case the recognition u/s 10(23C)(vi) was granted by the Chief Commissioner of Income Tax, Panaji on 15/04/2010 and hence he is "that prescribed authority" who is vested with the power to withdraw the recognition u/s 10(23C)(vi) granted by him as per the provisions of the Act discussed above.
We have heard the rival submissions. The legal objection of the assessee is that the CCIT who has withdrawn the approval granted to the assessee u/s. 10(23C)(vi) of the Act is having no jurisdiction since he is not the prescribed authority as per provisions of this section. The power and jurisdiction to withdraw the approval granted u/s. 10(23C)(vi) of the Act is provided under 13th proviso to the said section which reads as under:-
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“Provided also that where the fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) is notified by the Central Government [or is approved by the prescribed authority, as the case may be, or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), is approved by the prescribed authority and subsequently that Government or the prescribed authority is satisfied that— (i) such fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not— (A) applied its income in accordance with the provisions contained in ca (a) of the third proviso; or (B) invested or deposited its funds in accordance with the provisions contained in clause (b) of the third proviso; or (ii) the activities of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution— (A) are not genuine; or (B) are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved, it may, at any time after giving a reasonable opportunity of showing cause against the proposed action to the concerned fund or institution or trust or any university or other educational institution or any hospital or other medical institution, rescind the notification or, by order, withdraw the approval, as the case may be, and forward a copy of the order rescinding the notification or withdrawing the approval to such fund or institution or trust or any university or other educational institution or any hospital or other medical institution and to the Assessing Officer". 24. The 13th proviso to section 10(23C)(vi) confers the power/jurisdiction to withdraw the approval to the Government or the prescribed authority. It further postulates that the prescribed authority, if
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satisfied that such fund or institution has not com-plied with the conditions as provided thereunder, can withdraw the approval. For initiation of proceedings to withdraw the approval the mandatory pre-condition is the satisfaction of the prescribed authority.
The original Notification on this issue was issued on 30.5.2007 which reads as follows:-
“SECTION 10(23C)(vi)/(via) OF THE INCOME-TAX ACT, 1961 - EXEMPTION - UNIVERSITY/EDUCATIONAL INSTITUTIONS/HOSPITALS - PRESCRIBED AUTHORITY NOTIFICATION NO. SO 852(E) [F.NO. 153/41/2007-TPL], DATED 30-5-2007 [SUPERSEDED BY NOTIFICATION NO. 76/2014 (F.NO. 196/26/2014-ITA.I), DATED 1-12-2014] In pursuance of the provisions contained in sub-clauses (vi) and (via) of clause (23C) of section 10 of the Income-tax Act, 1961 (43 of 1961) read with sub-rule (3) of rule 2CA of the Income-tax Rules, 1962, the Central Board of Direct Taxes hereby authorises the following Chief Commissioners or Directors General to act as 'prescribed authority' for the purposes of sub-clause (vi) and sub- clause (via) of clause (23C) of section 10 in relation to any university or other educational institution or any hospital or other medical institution with effect from the 1st day of June, 2007 namely,— (i) for cases falling in the jurisdiction of Director of Income-tax (Exemption), Ahmedabad, the prescribed authority shall be Chief Commissioner of Income-tax, Ahmedabad-IV, Ahmedabad; (ii) for cases falling in the jurisdiction of Director of Income-tax (Exemptions), Bangalore, the prescribed authority shall be Chief Commissioner of Income-tax, Bangalore-I, Bangalore;
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(iii) for cases falling in the jurisdiction of Director of Income-tax (Exemptions), Chennai, the prescribed authority shall be Chief Commissioner of Income-tax, Chennai-III, Chennai; (iv) for cases falling in the jurisdiction of Director of Income-tax (Exemptions), Hyderabad, the prescribed authority shall be Chief Commissioner of Income-tax, Hyderabad-I, Hyderabad; (v) for cases falling in the jurisdiction of Director of Income-tax (Exemptions), Kolkata, the prescribed authority shall be Chief Commissioner of Income-tax, Kolkata-III, Kolkata; (vi) for cases falling in the jurisdiction of Director of Income-tax (Exemptions), Mumbai, the prescribed authority shall be Chief Commissioner of Income-tax, Mumbai-I, Mumbai; (vii) for cases falling in the jurisdiction of Director of Income-tax (Exemptions), Delhi, the prescribed authority shall be Director General of Income-tax (Exemptions), Delhi; (viii) for cases other than those mentioned at (i) to (vii) above, the Chief Commissioner or Director General to whom the Assessing Officer having jurisdiction to assess the university or other educational institution or any hospital or other medical institution referred to in sub-clause (vi) and sub-clause (via) of clause (23C) of section 10 of the Act is subordinate.” The above Notification was withdrawn by Notification dated 15.11.2014 by the CBDT which reads as follows:-
“SECTION 10(23C)(vi)/(via) OF THE INCOME-TAX ACT, 1961 - EXEMPTIONS - UNIVERSITY/EDUCATIONAL INSTITUTIONS/HOSPITALS - PRESCRIBED AUTHORITY - SUPERSESSION OF NOTIFICATION NO. SO 852(E) [F.NO. 153/41/2007-TPL], DATED 30-5-2007 NOTIFICATION NO. 76/2014 (F.NO. 196/26/2014-ITA.I), DATED 1-12-2014
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SUPERSEDED BY NOTIFICATION NO. 20/2015 [F.NO. 196/26/2014-ITA.I]/SO 676(E), DATED 5-3-2015] In pursuance of the provisions contained in sub-clauses (vi) and (via) of clause (23C) of section 10 of the Income-tax Act, 1961 (43 of 1961) read with rule 2CA of the Income-tax Rules, 1962, and in supersession of the notification of the Government of India in the Ministry of Finance, Department of Revenue, Central Board of Direct Taxes dated the dated 30th May, 2007 except as respects things done or omitted to be done before such supersession, the Central Board of Direct Taxes hereby authorizes the Commissioners of Income-tax (Exemptions), to act as ‘prescribed authority’ for the purposes of sub-clause (vi) and sub-clause (via) of clause (23C) of section 10 with effect from the ‘specified date’. 2. The ‘specified date’ for the purpose of the aforesaid rule 2CA shall be the 15th day of November, 2014.” 26. Thus it is clear that as per Rule 2CA of the Income-tax Rules w.e.f. 15.11.2014, the Principal Commissioner or Commissioner is the prescribed authority and it is not the Chief Commissioner of Income Tax [CCIT]. In the present case, the withdrawal u/s. 10(23C)(vi) of the Act dated 4.5.2020 was passed by the CCIT, Panaji, Goa and not by Principal Commissioner or Commissioner. Being so, the order passed by the said authority is not valid as it is without jurisdiction. Hence, we are of the considered opinion that it is passed by inappropriate authority and has no legs to stand. The same is accordingly annulled.
Without prejudice to the above legal issue raised on merits, the second contention of the ld. AR is that there is no case for holding that the appellant trust has committed any violation of the statutory provisions of the Act in order to withdraw the approval granted u/s. 10[23C][vi] of the Act. At this juncture, it would be relevant to reproduce the provisions of Section 10(23C)(vi) of the Act along with unnumbered 3rd Proviso and the unnumbered 15th Proviso to Section 10(23C) of the Act that have been
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invoked by the learned CCIT, Panaji to withdraw the approval granted to the appellant trust as under:-
9.1 Section 10(23C)(vi) of the Act provides that income of the following educational institutions shall be exempt: “Any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the prescribed authority;” Unnumbered 3rd proviso to Section 10(23C) of the Act sets out 28. certain conditions that are required to be followed by the educational institutions granted approval as follows:-
“Provided also that the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via)— (a) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established and in a case where more than fifteen per cent of its income is accumulated on or after the 1st day of April, 2002, the period of the accumulation of the amount exceeding fifteen per cent of its income shall in no case exceed five years; and (b) does not invest or deposit its funds, other than— (i) any assets held by the fund, trust or institution or any university or other educational institution or any hospital or other medical institution where such assets form part of the corpus of the fund, trust or institution or any university or other educational institution or any hospital or other medical institution as on the 1st day of June, 1973; (ia) any asset, being equity shares of a public company, held by any university or other educational institution or any hospital or other medical institution where such assets form part of the corpus of any university or other educational institution or any
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hospital or other medical institution as on the 1st day of June, 1998; (ii) any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the fund, trust or institution or any university or other educational institution or any hospital or other medical institution before the 1st day of March, 1983; (iii) any accretion to the shares, forming part of the corpus mentioned in sub-clause (i) and sub-clause (ia), by way of bonus shares allotted to the fund, trust or institution or any university or other educational institution or any hospital or other medical institution ; (iv) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify, for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11.” Finally, the unnumbered 15th proviso to Section 10(23C) provides 29. withdrawal of the approval granted in certain situations and the same reads as under:-
“Provided also that where the fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) is notified by the Central Government or is approved by the prescribed authority, as the case may be, or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), is approved by the prescribed authority and subsequently that Government or the prescribed authority is satisfied that— (i) such fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not— (A) applied its income in accordance with the provisions contained in clause (a) of the third proviso; or
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(B) invested or deposited its funds in accordance with the provisions contained in clause (b) of the third proviso; or [(ii) the activities of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution— (A) are not genuine; or (B) are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved; or (iii) such fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not complied with the requirement of any other law for the time being in force, and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality,] it may, at any time after giving a reasonable opportunity of showing cause against the proposed action to the concerned fund or institution or trust or any university or other educational institution or any hospital or other medical institution, rescind the notification or, by order, withdraw the approval, as the case may be, and forward a copy of the order rescinding the notification or withdrawing the approval to such fund or institution or trust or any university or other educational institution or any hospital or other medical institution and to the Assessing Officer”
The ld. AR firstly submitted that the appellant is running several 30. educational institutions which exist solely for educational purposes and not for the purposes of profit and there is no dispute on this aspect of the matter. During the relevant financial year, there is no change in the nature of activities undertaken by the appellant and the genuineness of the educational activities carried on by the appellant trust cannot be called into question. In fact, the appellant has not earned a surplus from running of educational institutions and this has been the position from many years
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now. Hence, by no stretch of imagination can it be alleged that the activities of the appellant trust are not genuine. At any rate, the learned CCIT, Panaji also has not doubted the genuineness of the activities carried on by the appellant and no adverse view has been taken on this score for withdrawal of the recognition granted.
Secondly, it was pointed out here that the allegation of the learned CCIT, Panaji is that the appellant trust has violated Sub-Clause [A] of clause [i] of the unnumbered 15th proviso, which is that the appellant trust has not applied its income in accordance with the provisions contained in clause [a] of the third proviso. Furthermore, the learned CCIT, Panaji has alleged that the appellant has violated Sub-Clause [B] of clause [ii] of the unnumbered 15th proviso, which is that the activities are not being carried out in accordance with all or any of the conditions subject to which the appellant was granted approval.
Thus, it is only on these 2 counts that the approval granted earlier stands withdrawn by the learned CCIT, Panaji, in the impugned order.
The entire basis for arriving at the aforesaid conclusions are on account of the payments made to the extent of Rs. 3,57,83,690/- that was reported by the learned A.O. as set out in the earlier part of these submissions. The break-up of these payments are summarized as under:-
Particulars Amount in Rs. Remarks Dental Camp Expenses 3,20,690/- No adverse comments except that no vouchers produced although A.O held that these amounts were petty expenses that can be related to the
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objects Amounts given to broker 1,04,00,000/- Amounts paid through towards expenses to be account payee cheques incurred for completing to various persons for necessary formalities which payee details are not available and only photocopy of vouchers provided. Sundry petty advances 1,50,00,000/- Amount paid in cash and written off written off and vouchers produced only for a part of the payment. Other religious and 1,00,63,000/- All payments made in charitable donations cash and only a statement was given.
With regard to the aforesaid observations in respect to the payment of Rs. 3,57,83,690/-, it is submitted as under:-
[a] That, the sum of Rs. 3,20,690/- paid by the appellant was towards dental camp expenses and that the appellant is running a dental college. Hence, the payment was incurred for the purposes of education and a statement of expenses in this regard had also been furnished during the course of proceedings and these payments are not seriously doubted. [b] That, with regard to the payment of brokerage, the appellant had paid the entire brokerage amount vide account payee cheques and that the details of the payments made were also produced before the learned A.O. for the purpose of verification. The payments were made for the compliance of the requirements to the consultant brokers
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to meet the technical requirements of the MCI regulations thereby again for the purposes of education. However, since the appellant did not have the original vouchers, it chose not to claim any application of income on this score and the appellant had also produced copies of the vouchers and bank statements in respect of the brokerage paid. [c] That, the petty advances also represented amounts paid in cash and the appellant had furnished a ledger of the petty advances written off and had also produced Xerox copies of vouchers for some of the advances written off and the purpose of payment of the same could not be doubted only on the basis that payments were in cash. Here again, the same was not claimed as application of income. [d] That the appellant had produced a ledger copy of the religious and charitable donations paid aggregating Rs. 1,00,63,000/-, which were donations were made to temples, sports clubs, Ayyappa devotees and Dasara Sponsorships as well as marriage gifts made to employees and staff, which were all connected with the running of the educational institutions run by the appellant. [e] That, though the appellant was not in possession of the original vouchers, the appellant strived to produce the copies of the vouchers wherever possible. [f] That, there was no requirement for deduction of TDS at the time and the liability for deducting tax was brought in by the unnumbered 13th proviso w.e.f 01/04/2019 only. Hence, there was no violation on the part of the appellant regarding deduction of TDS as there was no statutory requirement existing for the same at that time.
The ld. AR submitted, under the aforesaid factual matrix, that there is no violation of the statutory provisions on the appellant’s part as held by the learned CCIT, Panaji on both the counts mentioned in the impugned order.
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A close examination of Clause (a) of the unnumbered 3rd proviso 36. shows that the onus cast upon the appellant is to apply its income, or accumulate it for application, wholly and exclusively to the objects for which it is established. In the case of the appellant, as mentioned above, the impugned payments to the extent of Rs. 3,57,83,690/- was never claimed as an application of income in order to hold that the appellant has violated the conditions imposed under the said proviso. Now coming to the failure of the appellant to produce original receipts for the aforesaid payments, which have not even been claimed as application for the assessment year 2017- 18, it is submitted that the mere failure to give the original receipts does not prove that the income of the trust has been applied for other purposes, which is not connected to educational purposes. In fact certain payments were made by account payee cheque, which had also been produced for the purposes of verification. In other words, there is neither a case made out that the appellant has applied the income for other purposes nor is there any claim for application of income at all in the first place.
Sub Clause A of Clause (i) of unnumbered 15th proviso allows for 37. withdrawal of approval u/s 10(23C) when the trust has not applied its income in accordance with the provisions contained in clause (a) of the third proviso. As established above, there was no violation of the third proviso as the payment of Rs. 3,57,83,690/- had not been claimed as an application of income at any point. Hence, the withdrawal of the approval on this ground is unjustified and the same deserves to be vacated.
That apart, it is submitted that the appellant has not violated any of the conditions on the basis of which renewal was granted as application of income has only been claimed on expenditure incurred for the purposes of education as held by the learned CCIT, Panaji in the impugned order in order to invoke Sub-Clause B of Clause [ii] of unnumbered 15th proviso. It
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is submitted that the learned CCIT, has concluded that the appellant had violated Condition 1 of the renewal granted which states that “the assessee applies its income, or accumulates its income for the application, wholly and exclusively, for the objects for which it is established and application of its income must be in accordance with Third Proviso to Section 10[23][vi]”. The learned CCIT, Panaji alleged that the appellant had not applied its income wholly and exclusively for the objects for which it was established in accordance with the third proviso and this violation would bring Sub Clause B of Clause (ii) of unnumbered 15th proviso to Section 10(23C) of the Act into play. In so far as this allegation is concerned, it is submitted that the appellant has established that the aforesaid payments made were never claimed as application of income at all and that thus the conditions imposed in the order of approval are not violated. Furthermore, the appellant had not earned a surplus in several years (since AY 2005-06) and the net deficiency for the year was Rs. 26,38,94,595/- after disallowing the payment of Rs. 3,57,83,690/-. Hence, there was a deficiency of income in the appellant trust and it cannot be said that any income of the appellant has been applied for non-educational purposes.
Hence, it is submitted that the activities of the trust are being carried out in accordance with all of the conditions subject to which it was approved. Thus, sub clause B of clause (ii) of the unnumbered 15th Proviso to Section 10(23C) of the Act is also not attracted. The appellant is running its educational institutions with the sole purpose of imparting education and there is no change in the nature of activities of the appellant trust. The withdrawal of the approval on this score is totally unjustified and unwarranted and it is prayed that the same may kindly be vacated.
In light of the above, it is submitted that there is no case to hold that the conditions specified in the unnumbered 15th proviso are attracted to the
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appellant’s case and hence, there is no valid case made out for withdrawal of the exemption granted u/s 10(23C)(vi) of the Act, which the appellant is rightfully entitled. It is submitted that the order of withdrawal of exemption u/s 10(23C)(vi) of the Act is opposed to law and it is prayed that the same be quashed.
Regarding ground Nos. 3 to 6, the ld. DR submitted that the CCIT, Panaji in his order dated 04/05/2020 has passed a detailed order while deciding on the issue of withdrawal of recognition u/s 10(23C)(vi). All the documents relied upon by him is part of the order and all the vouchers, ledger extracts submitted by the assessee are already part of the paper book submitted by the assessee before the ITAT.
She further submitted that the contention of the assessee in ground No. 4 was raised before the CCIT during the withdrawal proceedings and the same has been adjudicated by the CCIT in Para 6.4 at page No. 13 and 14 of the order dated 04/05/2020. All the contentions of the assessee trust has been adjudicated by the CCIT in para 6 to 6.6 of the order dated 04/05/2020 and same to be confirmed.
We have heard both the parties on merits and considered the rival submissions. The reason for withdrawal of approval issued u/s. 10(23C)(vi) of the Act was that the trust has not applied its income in accordance with the provisions contained in clause [a] of the third proviso. Furthermore, it violated Sub-Clause [B] of clause [ii] of the unnumbered 15th proviso, which is that the activities are not being carried out in accordance with all or any of the conditions subject to which the appellant was granted approval.
It was explained before us by the ld. AR that even the amount of Rs.3,57,83,690 was never claimed as application of income so as to hold that assessee has violated the condition imposed under Sub-Clause [B] of
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clause [ii] of the unnumbered 15th proviso of s. 10(23C)(vi) of the Act. The allegation of the CCIT is that the assessee failed to give original receipt of proof and that income has been applied for other purpose which is not connected to the education purpose.
It is an admitted fact that the assessee has not claimed the above expenditure as application of income while claiming exemption u/s. 10(23C)(vi) of the Act and hence withdrawal of approval granted u/s. 10(23C)(vi) of the Act on this count is not possible. Under the 15th proviso to s. 10(23C)(vi) of the Act, the prescribed authority has to satisfy himself about the existence of default/violation committed by the assessee as contemplated under sub-clause (d) of clause (ii) of un-numbered 15th proviso which is that the activities are not being carried out in accordance with any of the conditions subject to which assessee was granted approval. In the present case, the assessee was solely existing to support and promote advancement of educational in all its branches as follows:-
“(a) To support and.to promote the advancement of educational activities in all its branches and aspects such as kindergarden primary and high schools and colleges, leading up to the teaching degree, post-graduate and doctorate course in arts, commerce, medicine, pharmacy, nursing, management. including hotel management and catering technology, Hospital, management and fine arts, architectures, vocational courses;. physical education, sports and such other subjects as the trustees may deem fit for the benefit of the students speaking and/or knowing Tulu language and students of all castes, colour, creed and community both of India and from other countries. (b) to promote the Tulu language and the knowledge of tulu speaking people in general and that of students speaking tulu in the aforesaid institutions in particular. (c) to establish new or by take over provide, endow, equip, furnish, maintain, develop, control, manage and conduct
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all educational institutions of the kind described in clause (a) above. (d) to establish new or by take over, provide, endow, furnish, maintain, develop, control, manage and conduct hospitals, laboratories, research centres in all or any of their departments and sections for providing medical, surgical and nursing care or treatment, for indoor and outdoor patients and such other institutions as the board of trustees may deem necessary or convenient for any of its purposes which are charitable and not an activity for profit. (e) to bring out, encourage and develop the intuitive and research faculties of the pupils and doctors and to afford for research work in all sciences. (f) to institute scholarships and award for persons who have achieved outstanding excellence in the field of learning, education, science or social work or any other similar field. (g) to accept, hold or administer any gift, donation or contribution in kind or money that are given upon trust or not and to make, undertake and execute any trust which may be deemed conducive to any of the objects of the trust. (h) to make, enact, order, maintain, reframe, re-enact and enforce rules and regulations from time to time in the management and conduct of the work, business and in respect of the activities of institutions run by it, to conduct functions, duties, remunerations, and privileges of its officers and staff, personnel, students, visitors and other connected with the trust or in its work, activities or functions. (i) to take such steps by personal or written appeals or by advertisement or otherwise as may be deemed expedient for the purpose of establishing the functions and activities of the trust or to secure contribution to the funds of the trust in the shape of donations, subscriptions or otherwise.
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(j) to negotiate and enter into any agreement with any government or its department, university, municipality or any other public or private authorities which may be conducive to financing any of the objects of the trust or to be intended to enhance, improve or research for efficiency or superior work or activity of the trust. (k) to purchase, taken on lease or exchange or otherwise secure any movable or immovable property which may deem necessary or expedient or desirable for any of the objects of the trust. (l) to borrow money or receive money on deposit and assets upon such terms, conditions as the Board of Trustees shall deem necessary or expedient in the best interest of the trust. (m) to enter into and carry out arrangements to join, co-operate or amalgamate this trust with any other association, society, institution or trust of allied objects upon such terms and conditions as the trustees may think fit.” 46. Further it was amended on 29.09.2009 wherein further objects were as follows:-
“4(o) (i) To setup a college of Engineering with all speciality and super-speciality branches both in Under Graduate, Post Graduate, research and diploma levels. (ii) To start technical institutions conducting courses, programmes in the field of technical education, training and research in engineering and technology including MCA, MBA, architecture, town planning management, pharmacy, Hotel Management and Catering technology, applied arts and crafts, PG diploma in business management/administration and such other programmes and area at under graduate, post graduate, polytechnic, diploma and post diploma levels. (4(p) To start educational institution in any technical, non- technical, Science, Arts and research streams.
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[iii] To “start” and “setup” an educational institutions wherever it is referred in this Deed shall also mean and includes “taking over running and/or maintaining” an educational institutions.” 47. Being so, the assessee wholly and exclusively carried out its objects for which it was established and even if there is a violation as suggested by CCIT, it was not claimed for the purpose of application of income. Further, there is no allegation by the CCIT that assessee has not carried out the objects for which it was established and examination of the accounts of the assessee shows that assessee duly carried out its activities so as to attain its objects mentioned in the trust deed. There was no activities carried out in violation of its object clause so as to deny exemption u/s. 10(23C)(vi) of the Act. Accordingly, this ground of appeal of the assessee is also allowed.
In the result, the appeal by the assessee is allowed.
Pronounced in the open court on this 23rd day of July, 2021.
Sd/- Sd/- ( BEENA PILLAI ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER
Bangalore, Dated, the 23rd July, 2021. /Desai S Murthy /
Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order
Assistant Registrar ITAT, Bangalore.