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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI A.T. VARKEY, JM &DR. A.L.SAINI, AM
IN THE INCOME TAX APPELLATE TRIBUNAL “B”, BENCH KOLKATA
BEFORE SHRI A.T. VARKEY, JM &DR. A.L.SAINI, AM आयकरअपीलसं./ITA No.2002/Kol/2017 (िनधा�रणवष� / Assessment Year: 2012-13) DCIT(Exemption), Circle- Vs. Maa Saraswati Gyan Mandir 1(1), Kolkata Education Society
P-1, Hide lane, Kolkata-700073 �थायीलेखासं./जीआइआरसं./PAN/GIR No. :AABTM 0777 H (Appellant) .. (Respondent)
Appellant by :Shri Radhey Shyam, CIT Respondent by : Shri S. M. Surana, Advocate
सुनवाईकीतारीख/ Date of Hearing : 17/10/2019 घोषणाकीतारीख/Date of Pronouncement : 10/01/2020 आदेश / O R D E R Per Dr. A. L. Saini, AM:
The captioned appeal filed by the revenue, pertaining to assessment year 2012-13, is directed against the order passed by the Commissioner of Income Tax (Appeal)-25, Kolkata, in appeal no. Ld. CIT(A), Kolkata-25/10121/2015-16, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short the ‘Act’) dated 27/03/2015.
The grounds of appeal raised by the revenue are as follows:
That on the facts and circumstances of the case as well as law, the Ld. CIT(A) has erred in granting relief to the assessee on account of Depreciation amounting to Rs. 2,84,67,351/-.
2 Maa Saraswati Gyan Mandir Education Society ITA No.2002/Kol/2017 Assessment Year:2012-13 2. That on the facts and circumstances of the case as well as law, claim of depreciation onassets for which the acquisition cost to the assessee is nil, allows the assessee to enjoy double deduction.
That on the facts and circumstances of the case, the Ld. CIT(A) has erred in considering capital gain of Rs. 8,40,000/- on sale of cars to be qualified for exemption u/s. 11(1 A) of the Income Tax Act, 1961 ignoring that the sale proceeds was not utilized to acquire new assets as required in the provision, instead sale proceed was deducted from the block of fixed assets in a case where cost of acquisition of ail fixed assets is considered as nil after Exemption u/s. 11(1)(d) of the Income Tax Act, 1961.
That on the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing administrative and establishment expenses" of Rs. 3,54,12,977/- in computation for determination of quantum of accumulation u/s. 11(1)(a) of the I. T. Act, 1961.
That on the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing to set off of earlier loss of Rs. 6,04,16,031/- against the principles that loss is negative profit and when profit is exempted, loss is also exempted.
That on the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing loss of Rs. 1,14,75,323/- from the business of running school bus and loss of Rs. 20,56,394/- from running of hostel qualified for exemption u/s. 11(4A) of the Income Tax Act, 1961 ignoring that no separate account was submitted along with the return of income as required in the provision.
That the appellant craves for leave to amend, alter, modify, substitute, add or abridge and/or rescind any or all of the grounds of appeal during any stage of appeal.
Ground nos. 1 and 2 raised by the revenue relates to grant of relief to the assessee on account of depreciation amounting to Rs. 2,84,67,351/-.
Brief facts qua the issue are that during the assessment proceedings, the AO noticed that assessee trust, in the course of its activities, acquired different assets, which were purchased with the surplus funds available. 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, in the respective years in which such assets were procured.
3 Maa Saraswati Gyan Mandir Education Society ITA No.2002/Kol/2017 Assessment Year:2012-13 In addition to this, assessee trust in its computation of income and expenditure account had claimed depreciation amounting to Rs.2,84,67,351/- as application of income. Therefore, the AO was of the view that the practice so followed by the assessee has resulted into double deduction. That is, when acquisition of assets is treated as application of income for charitable purposes, the value of assets stands fully written off, and over and above, if depreciation is allowed, the same will result in double deduction of capital expenditure leading to violation of the provisions of section 11(1) of the Act, therefore, AO disallowed the depreciation claim of Rs.2,84,67,351/-.
On appeal, ld CIT(A) deleted the addition. Aggrieved, by the order of the ld. CIT(A), the revenue is in appeal before us.
We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. Learned DR for the Revenue submitted before the Bench written submissions, the same is not being reproduced in this order for the sake of brevity. The sum and substance of the written submissions filed by ld DR is that the ld CIT(A) has erred in granting relief to the assessee on account of Depreciation amounting to Rs. 2,84,67,351/-, as the claim of depreciation on assets for which the acquisition cost to the assessee is nil, allows the assessee to enjoy double deduction, which is not permitted under the Act. The ld DR further submitted that section 11(6) of the Act, inserted in this finance Act, put the debate to rest. Section 11(6) of the Act clearly stated that claim of depreciation would not be allowed if the cost of the asset is taken as application, therefore, the addition made by the AO should be sustained. On the other hand, ld Counsel for the assessee defended the order passed by the ld CIT(A).
4 Maa Saraswati Gyan Mandir Education Society ITA No.2002/Kol/2017 Assessment Year:2012-13 We note that sub-section (6) to section 11 was inserted by the Finance (no. 2) Act, 2014, w.e.f. 01.04.2015, which states that if acquisition of assets had been claimed as application, then depreciation is not allowable. We note that the said sub-section(6) of section 11 is applicable w.e.f. 01.04.2015 but in assessee`s case under consideration the assessment year is 2012-13, therefore amended section 11(6) does not apply to the assessee. Hence, the decision of the jurisdictional High Court of Calcutta in CIT vs. Siliguri Regulated Market Committee (2014) 366 ITR 51,will hold good, wherein it was held that the claim of depreciation is to be allowed even if the cost of the asset is treated as application. Findings of the Hon`ble Court is given below:
“Section 11, read with section 32, of the Income-tax Act, 1961 - Charitable or religious trust - Income from property held under (Depreciation allowance) - Whether object of section 11 is to feed public charity and by permitting computation of income in a commercial manner, object of feeding public charity is achieved - Held, yes - Whether a building used for purpose of charity diminishes in value over time like any other building and, therefore, allowing depreciation for such diminitation of value would keep corpus of trust intact otherwise corpus of trust itself in course of time may get dissipated - Held, yes - Whether therefore, depreciation is to be allowed on assets cost of which had already been treated as application of income for charitable purpose - Held, yes [Paras 11 and 12] [In favour of assessee]”
As regards whether the inserted sub-section (6) could have retrospective application, judicial decisions have held that it cannot be interpreted so. This section is not retrospective in effect which is evident from the amendment itself. The insertion is prospective w.e.f. 01.04.2015 as held by the Hon`ble Delhi High Court in the case of Indraprastha Cancer Society (ITA No. 240 of 2014) 18.11.2014 ( Delhi High court), and similar view were also upheld by the Hon`ble Karnataka High Court in the case of DIT (Exemption) vs. Al Ameen Charitable Fund Trust (2016) 67 Taxmann.com 160 (Karnataka High Court). Considering the judicial precedents available on the subject we are of the view that there is no infirmity in the order of ld CIT(A).That being so, we decline to interfere with the order of Id. C.I T.(A) in deleting the aforesaid additions. His
5 Maa Saraswati Gyan Mandir Education Society ITA No.2002/Kol/2017 Assessment Year:2012-13 order on this addition is, therefore, upheld and the grounds of appeal of the Revenue is dismissed.
Ground No. 3 raised by the Revenue reads as follows: “3. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in considering capital gain of Rs. 8,40,000/- on sale of cars to be qualified for exemption u/s. 11(1A) of the Income Tax Act, 1961 ignoring that the sale proceeds was not utilized to acquire new assets as required in the provision, instead sale proceed was deducted from the block of fixed assets in a case where cost of acquisition of all fixed assets is considered as nil after Exemption u/s. 11(1)(d) of the Income Tax Act, 1961.”
8.Brief facts qua the issue are that during the assessment proceedings the AO noticed that assessee trust had sold capital assets for Rs. 8,40,000/-. The AO noted that in case of entities registered u/s 12AA of the Act, entire expenditure incurred for acquisition of capital assets are treated as application of income for charitable purposes u/s 11 (l)(a) of the Act, in the respective years in which such assets are procured. When capital expenditure is treated as application of income for charitable purposes, the assessee virtually enjoys a 100% write off of the cost of assets, therefore when the trust sales the said capital assets then net sale consideration is taxable as capital gain. That is, the AO was of the view that when acquisition of assets is treated as application of income for charitable purposes, the value of assets stands fully written off, and over and above, if it is again allowed to determine the capital gains, then the same will result in double deduction of capital expenditure leading to violation of the provisions of Section 11(1) which requires availability of actual income for charitable purposes. Therefore, AO made addition of 8,40,000/- under the head capital gain on sale of old assets.
Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved, the Revenue is in further appeal before us.
6 Maa Saraswati Gyan Mandir Education Society ITA No.2002/Kol/2017 Assessment Year:2012-13
We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. Learned DR reiterated the stand taken by the assessing officer. We note that assessee trust, during the year, sold three cars being capital asset for Rs. 8,40,000/-. The Assessing Officer has treated the entire sale consideration as capital gain on sale of asset. The ld. Counsel submitted before us that as per the rules of depreciation, the consideration received on sale of assets is to be reduced from WDV of the block of assets, the assessee reduced the same from WDV and on the reduced WDV depreciation was claimed. It has been held in a number of cases that for the purpose of computation of total income of charitable trust normal provisions of the I.T. Act should apply. In fact, the issue is elaborately discussed by us while adjudicating ground No. 1 and 2 raised by the assessee. The consideration received was deducted from block of assets which is apparent from the details of depreciation as per Tax Audit Report which depreciation was claimed on the reduced value after deducting Rs. 8,40,000/-. Needless to repeat, sale consideration of a depreciable asset is to be reduced from the block of asset which is part of the process of the computation of depreciation. The assessee duly reduced the said sale consideration from the block of assets which is not in dispute. In view of the above the amount of Rs. 8,40,000/- separately added as income has rightly been deleted by ld CIT(A). We have already adjudicated the ground No. 1 and 2 raised by the Revenue, in para No.6 of this order, wherein we have held that the claim of depreciation is to be allowed even if the cost of the asset is treated as application. We note that section 11 (1A) is on the utilization of the net consideration, therefore the capital gains qualify for exemption u/s 11 (1A) of the Act.
Ground No. 4 raised by the Revenue reads as follows:
7 Maa Saraswati Gyan Mandir Education Society ITA No.2002/Kol/2017 Assessment Year:2012-13 4. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing administrative and establishment expenses" of Rs. 3,54,12,977/- in computation for determination of quantum of accumulation u/s. 11(1)(a) of the I. T. Act, 1961.
Brief facts qua the issue are that during the assessment proceedings the AO noticed that assessee had claimed administrative & establishment expenses of Rs.3,54,12,977/- which were neither directly nor proximately related to charitable purpose. These expenditures were not directly related to achieve the objectives of charity. It is the net income, after deducting these expenses, is available in the hands of the assessee trust for charitable activity. These are expenses attributable to earning income and not application of income u/s 11 of the Act. Thus AO was of the view that “All applications are undoubtedly expenses but all expenses are not application of income”. The AO noted that income available for application u/s 11 is to be computed in normal commercial manner. The administrative and establishment expenses which are allowable under normal commercial principle but cannot be a part of application of income u/s 11 as these are not directly and proximately related to the proclaimed objective of the trust. The AO was of the view that, administrative & establishment expenses being attributable to earning income are deductible from gross receipt to determine the net income available for application for charitable purposes for the purpose of calculation of allowable accumulation of 15% under section 11(l)(a) of the Act. Therefore, AO held that following expenses were neither directly or proximately connected with the charitable activities and therefore is taken as administrative and establishment expenses, the particulars of these expenses are given below: Sl. No. Particulars Amount (Rs.) 1. Advertisement 3,28,034 2. Audit Fees 82,725 3. Conveyance 29,01,707 4. Other Expenses 6,18,663 5. License Fee 6,34,225
8 Maa Saraswati Gyan Mandir Education Society ITA No.2002/Kol/2017 Assessment Year:2012-13 6. Professional Charges 12,21,945 7. Expenses of the society 2,96,25,678 Total 3,54,12,977
The entire expenses of the society were to be treated as administrative and establishment expenses, as they were not directly and proximately connected with education. Such expenses were Rs. 5,55,15,965/-. However, as some of the expenses are separately booked in the income and expenditure account the same is taken out to avoid double treatment of the same amount. This is done by AO as follows:
Sl. Particulars Amount(Rs.) Amount(Rs.) 1 Expenses of the society 5,55,15,965 2 Less: Advertisement 80,220 Auditor’s remuneration 82,725 Professional Charges 1,24,000 Depreciation 2,56,03,342 2,58,90,287 Expenses of the society(1-2) 2,96,25,678 3
Therefore, Rs. 3,54,12,977/- was treated as administrative and establishment expenses but not as application.
Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved by the order of the ld. CIT(A) the revenue is in appeal before us .
We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws
9 Maa Saraswati Gyan Mandir Education Society ITA No.2002/Kol/2017 Assessment Year:2012-13 relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. We note that ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity and on the other hand the ld. Counsel for the assessee relied on the order of the ld CIT(A). We note that ld CIT(A) deleted the addition made by AO observing the following:
“So here too- it is presumption, so choose and pick. Advertisement: It is normal and expected for a school to advertise. How else would be general public know about it. Audit fees: Audit is statutory; so the fess necessary. Conveyance: Unless conveyance is incurred, how will the teachers / staff, administration arrive / commute to the school. Other expenses: Are incidental expenses. License Fees: Necessary fees for the school to function. Professional charges: incurred as considered necessary by the school. Expenses of the society: Are expenses incurred for the society, so that the school is running and functioning. So, even on facts, it is but presumption and surmises. A moot point that requires to be considered, over and above these debates, is that in the case of assessment u/s 11, there can be only 2 situations where there could be taxable income- either that the registration is cancelled u/s 12AA(3), or that there has been contravention of provisions in the charging section 13. Everything else- is but mere discourse and debate only. Thus, the disputed exclusion from the gross receipts and as not being application of income – is hereby Deleted – on law, as also on facts.”
We have gone through the order of ld CIT(A) and noticed that advertisement expenses claimed by assessee is normal and expected for a school to advertise about its features so that general public may know about it. Payment of audit fees is statutory obligation. Conveyance expenses is incurred, for teachers / staff, and
10 Maa Saraswati Gyan Mandir Education Society ITA No.2002/Kol/2017 Assessment Year:2012-13 administrative workers. Other expenses are incidental expenses. License Fees is necessary for the school to function. Professional charges are incurred as considered necessary by the school. Expenses of the society are incurred so that the school may run and function properly. These expenses are necessary to achieve the objective of the assessee trust. That being so, we decline to interfere with the order of Id. C.I T.(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue is dismissed.
Ground No. 5 raised by the Revenue reads as follows:
That on the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing to set off of earlier loss of Rs. 6,04,16,031/- against the principles that loss is negative profit and when profit is exempted, loss is also exempted.
Brief facts qua the issue are that during the scrutiny proceedings the AO noticed that assessee claimed set off of earlier years’ excess of expenditure over income with the income of this year. The claim of such set off is Rs.6,04,16,031/. However, in the computation of income filed along with the return of income no such claim of set off of earlier year’s deficit was made. The claim was made during the proceeding u/s 143(3) of the Act. Therefore, AO was of the view that the assessee cannot make any fresh claim which was not in the return of income other than filing a revised return of income. The Hon’ble Supreme court has been specific on this issue in the case of Goetz (India) Ltd. vs. CIT on 24thMarch, 2006 reported in [2006] 284 ITR 323 (SC). Further the assessee cannot base a fresh claim of this year by digging out facts from earlier years, proceeding of which has long been barred by limitation of time. In those years the returned and assessed income was Nil and not at loss. In view of all the above, the claim of the assessee in respect of set off of earlier years’ excess of expenditure over income with the income of this year was not allowed by assessing officer.
11 Maa Saraswati Gyan Mandir Education Society ITA No.2002/Kol/2017 Assessment Year:2012-13 17. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has stated in his order that he had allowed substantive grounds therefore issue raised by the assessee became non est in the eye of law, as the revised total income is at Rs. Nil. However, ld CIT(A) also made it clear that such claim for set off is allowable as per judicial decisions of the said issue.
Aggrieved by the order of the ld. CIT(A), the revenue is in appeal before us.
We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. The ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity and on the other hand the ld. Counsel for the assessee relied on the orders of the Ld CIT(A). We note that ground raised by the Revenue relates to the disallowance of set off of the deficit of earlier year amounting to Rs. 6,04,16,031/- against the total income computed for assessment year in question. We note that the said set off is allowable under the provisions of Act in view of the judgment of Hon’ble Bombay High Court in the case of Institute of Banking reported in 264 ITR.110. The said issue was also discussed by Hon`ble Madras High Court in the case of Govindu Naicker Estate Vs CIT reported in 248 ITR 368. The said judgment was also followed by the Chennai Bench of 1TAT in the case of Mariamman Educational Health and Charitable Trust in ITA No. 142, 143/Mad/20l0. We note that Ld. AO has referred to the Judgment of the Allahabad High Court in the case of Ramjilal Rais for the proposition that the loss of earlier year cannot be set off against the income of the subsequent year. Similar issue came up for consideration by Gujarat High court reported in 242 ITR 20. We note that AO has not correctly appreciated the principles laid down by the aforesaid judgments which relates to the set off of loss against the income
12 Maa Saraswati Gyan Mandir Education Society ITA No.2002/Kol/2017 Assessment Year:2012-13 of a subsequent year. In the case of Trust it is not the case of the assessee to set off the loss but excess amount was utilized in the earlier year in anticipation of generation of the income in the subsequent year. Therefore the assessee trust is entitled to set off the carry forward application of income. We note that Hon`ble High court of Madras in the case of Matriseva Trust[2003] 128 Taxman 261 (Madras) held as follows:
“5. With regard to the second question, the Tribunal has held that the trust is entitled to set off the amount of excess application of the last year against the deficiency of Rs. 82,516 of the present assessment year. When similar questions came up before the Rajasthan High Court and the Gujarat High Court in the cases of CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439 and CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal [1995] 211 ITR 239, respectively, both the Rajasthan High Court and the Gujarat High Court have answered the questions in favour of the assessee and against the revenue. 6. Following the aforesaid decisions of the Rajasthan and the Gujarat High Courts, we answer the second question referred to us in favour of the assessee and against the revenue.”
The findings of ld CIT(A), in brief is given below:
“11.3.1 I was wondering, was bemused- that when this issue has been raised in the beginning part of the impugned assessment order [and the quantum involved also being the highest, at Rs. 6,04,16,031/-] – the opening overture to the impugned assessment order; then why did the appellant /A.R put this issue only towards the end of the Grounds of Appeal? And the A.R’s submissions too- snappy? Upon considering the entire Appeal, and the preceding Grounds of Appeal above – then it is seen as to why the appellant / A.R. had aptly put this issue towards this end of the Grounds of Appeal – because it is only a residuary / alternate issue. Residuary because- the preceding quantum grounds of appeal were the determinant grounds. As stated in the impugned assessment order that no such claim was made in the return of income, but that the claim was made only in the course of the assessment proceedings – it is obvious so, because of the DCIT Assessing Officer’s intended disallowances [preceding grounds of appeal above]. The
13 Maa Saraswati Gyan Mandir Education Society ITA No.2002/Kol/2017 Assessment Year:2012-13 DCIT A.O would have assessed at taxable income; and so the assessee/ A.R. put forth this alternate contention for set-off of earlier years deficit. So- this issue has aptly been put to the tail part; not the beginning. 11.3.2. So, now, that I have allowed the above preceding quantum Grounds of Appeal (Nos. 2,3,4 and 5) this issue for set off will not arise; for the revised assessed income upon giving effect to this appeal order- will be as per the return of income furnished by the appellant, i.e. at Rs. Nil. 11.3.3 Any way, for academic discussion sake, briefly: • When in normal assessment of taxable total income [under chapter IV of the Act] there are provisions for carry forward of losses to be set off against future income; then so must be the logic in Chapter-III, rather even justifiably more so- when chapter III exempts certain incomes- income which do not form part of total income. • Why there is no such specific provision- is simply because chapter III is on exempted incomes. If there were provision , then it would tantamount to interfering with the exempted incomes. It would be out of place. • Various judicial decisions directly on this issue – recent decisions, extracts therefrom:”
We note that ld CIT(A) did not direct the AO to allow setoff. As per ld CIT(A) the issue for set off will not arise; for the revised assessed income upon giving effect to his appeal order, because as per the return of income furnished by the appellant, the income was to the tune of Rs. Nil.
However, after going through the judicial precedents, as noted above, it clear that such claim for set off is allowable to the assessee trust, therefore, we direct the AO to allow the set off benefit to the assessee trust.
Ground no. 6 raised by the Revenue is as follows:
“6. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing loss of Rs. 1,14,75,323/- from the business of running school bus and loss of Rs. 20,56,394/- from running of hostel qualified for exemption u/s. 11(4A) of the Income Tax Act, 1961 ignoring that no separate account was submitted along with the return of income as required in the provision.”
14 Maa Saraswati Gyan Mandir Education Society ITA No.2002/Kol/2017 Assessment Year:2012-13
Brief facts qua the issue are that during the scrutiny proceedings the AO noticed that assessee trust is providing school bus service to the students and also providing hostel facility for students on payment basis which is against the objective of the trust. The AO was of the view that these are pure business activities but pertaining to attainment of the objective of the trust. The total receipt from these services amounting to Rs. 7,79,57,500/- and Rs. 64,50,000/- on account of school bus and hostel fees respectively were booked in the income side of the Income & Expenditure account and the respective expenses amounting to Rs. 8,94,32,823/- and Rs. 85,06,304/- were booked on the expenses side. The AO was of the view that assessee trust is doing business by providing bus services and hostel services, hence assessee trust needs to maintain separate books of accounts. Therefore, AO disallowed the loss on account of school bus service at Rs. 1,14,75,323/-( Rs.7,79,57,500-Rs.8,94,32,823) and income of Rs.20,56,304/-( Rs.85,06,304 -Rs.64,50,000) on account of hostel service.
Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer.
We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. Aggrieved by the order of the ld. CIT(A), the revenue is in appeal before us. Ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity and on the other hand the ld. Counsel for the assessee relied on the order of ld CIT(A).
We note that assessee trust is providing school bus service to the students and also providing hostel facility for students on payment basis. The main objective
15 Maa Saraswati Gyan Mandir Education Society ITA No.2002/Kol/2017 Assessment Year:2012-13 of the school is to impart education. However, AO was of the view that activity of running school bus and providing hostel facility is not directly and proximately connected with the objective of imparting education. These services are provided against fees therefore AO noted that nature of such incidental activity is business, therefore he made addition to the total income of the assessee trust.
We note that assessing officer has himself stated in his order that “these are pure business activities but pertaining to attainment of the objective of the trust.” Hence, it is abundantly clear from the order of the AO that school bus service and hostel service is pertaining to attainment of the objective of the trust.
We note that the school bus service is only used to drop and pick up the students. Similarly, hostel facility is provided to the needy students. These services are part and parcel of the school and cannot be termed as business and hence the provision of section 11(4)/ (4A) of the Act is not attracted in this instant case. The main objective of the school is to impart education. The activity of running school bus and providing hostel facility is directly and proximately connected with the objective of imparting education. These are incidental activities for attainment of the objective of the assessee trust.
Theld CIT(A) has rightly deleted the addition observing the followings:
“8.2.3 Discussion and appellate decision: The appellant is running an educational institution - the Delhi Public School, Mega City, Kolkata. The School bus, and, the Hostel activities - are but necessary, and are incidental to the attainment of the objectives of the trust. Separate books of accounts are maintained. Thus these activities are squarely covered by the exemption u/s 11 (4A). Further, from the figures of the receipts and expenses itself, stated in the discussion in the impugned assessment order, it is clearly evident that in these activities the appellant had incurred loss. So where is the issue of being “business undertaking’ u/s 11(4), or, ‘business’ u/s 11 (4A). Section 11(4) does not arise at all - as the school bus, as also the hostel are not business undertaking’. As already stated in preceding sub-para above - these are covered by the exemption u/s 11(4A). In this regards, for academic discussion sake, the DCIT AO for his views states that the income/loss need to be booked in the computation of income as per section 11(4) read with 11(4A). This cannot be so.
16 Maa Saraswati Gyan Mandir Education Society ITA No.2002/Kol/2017 Assessment Year:2012-13 Section 11(4) and 11(4A) are separate and exclusive - section 11(4) is when there is “business undertaking’ and that the AO may determine the excess over as shown in the accounts; whereas section 11(4A) is for exemption of “business’ provided that the business is incidental to the attainment of the objectives of the trust, and separate books of accounts are maintained. The appellant’s case is squarely covered by the exemption u/s 11(4A).
As to the DCIT AO’s reasoning: “6.2 The main objective of the school is to impart education. The activity of running school bus and providing hostel facility is not directly and proximately connected with the objective of imparting education. These are incidental activities for attainment of the objective of the assessee. The service is provided against fees which clearly show that the nature of such incidental activity is business. Therefore, the argument of the ld. A.R is not accepted.”
Every alternate sentence is self-contradictory to the preceding sentence. The DCIT AO, at the 3rd sentence, agrees that the activities are incidental for attainment of the objectives of the assessee. This is the main deciding point. The issue on School Bus, and, Hostel, is thus Allowed - as being covered by the exemption u/s 11(4A); and in any case, loss had been incurred.”
We note that school bus and hostel activities are incidental to the attainment of objectives of the trust, hence, we do not find any infirmity in the order of ld CIT(A), his order on this issue is hereby accepted and grounds of appeal raised by the Revenue is dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the Court on 10.01.2020
Sd/- Sd/- (A.T. VARKEY) (A.L.SAINI) �या�यकसद�य / JUDICIAL MEMBER लेखासद�य / ACCOUNTANT MEMBER �दनांक/ Date: 10 /01/2020 (SB, Sr.PS)
17 Maa Saraswati Gyan Mandir Education Society ITA No.2002/Kol/2017 Assessment Year:2012-13 Copy of the order forwarded to: 1. DCIT(E), Circle-1(1), Kolkata 2. Maa Saraswati Gyan Mandir Education Society. 3. C.I.T(A)- 4. C.I.T.- Kolkata. 5. CIT(DR), KolkataBenches, Kolkata. 6. Guard File.