ITO, NEW DELHI vs. M/S INSTITUTE OF MARKETING & MANAGEMENT, NEW DELHI

Ld. Counsel for the assessee at the outset submitted that the issues raised in the revenue’s appeal stands covered by the decision of the Tribunal in assessee’s own case in the assessment year 2009-10 and such an order of the Tribunal has also been affirmed by the Hon’ble High Court and also by the Hon’ble Supreme Court. The assessee’s society has not only been notified u/s 10(23C)(iv) for the assessment year 2008-09 onwards but has also been granted registration u/s 12A(a). Though the exemption available to the assessee u/s 10(23C)(iv) has been withdrawn by the DGIT(E) vide order dated 28.2.2012, but still assessee continues to enjoy the benefit of section 11 in view of the registration u/s 12AA. The main object and the activities of the society is to run educational institutions in the field of management and marketing studies and to undertake research activities in these fields. Ld. AO has denied the exemption u/s 11 after invoking the provision of section 13(3). In the impugned assessment order, AO has denied the exemption u/s 11 and taxed surplus as per the profit and loss account. He has also drawn adverse inference, on account of personal use of cars by the office bearers/staff/faculty, personal use of components, training expenses, etc. on the ground that no log book or any documentary evidence for the use of cars for various specified persons has been produced. The point wise rebuttal of the assessee on the query raised by the AO has been dealt with the assessment order has been made. However, the AO has denied the exemption on the ground that there is violation of section 13(3).

Ld. CIT(A) held that, since this precise issue had come up for consideration before the Tribunal in assessment year 2009-10, wherein the Tribunal after detail discussion has allowed the exemption u/s 11 and accordingly directed the AO to allow the exemption u/s 11 (1) benefits.

Ld. DR strongly relied upon the order of the AO.

We notice that the allegations are mainly related to running some programmes, and that too, educational. Further, the allegations are related to students being admitted in excess of the norms prescribed by the AICTE. But the fact remains that these are educational activities falling within the meaning of the object of the society and also falling within the meaning of 'charitable purposes' under Section 2(15) of the Act. From the facts we notice that the AO has not appreciated the facts regarding the allegation of violation of the guidelines of AICTE. The allegation of the AO was that the number of students was in excess of the students allowed by the AICTE. The AICTE has regularized this by charging a fee for the same, which means, that the stand of the assessee stood rectified by the AICTE. The second allegation was regarding running a triple degree programme in the same campus of the Institute despite there being guidelines by AICTE that no other programme could be run on the same campus. We are of the view that this cannot be a ground for denying exemption under Section 11 read with Section 2(15) of the Act. Both the allegations are regarding educational programmes being conducted by the 5 assessee. Such activities of the society will fall within the meaning of 'charitable purpose' under Section 2(15) of the Income Tax Act. As per the provisions of Section 11, exemption is allowed in case the income has been applied for charitable purposes. 'Charitable purpose' includes education. Further, for claiming exemption, the conditions prescribed under Section 12A have to be complied with. The assessee society has duly complied with these conditions. Its activities are educational and as such, it is eligible for exemption under Section 11 of the Act. Thus, the CIT(A) was correct in holding that these allegations cannot be the basis for denying exemption under Section 11 of the Act.

The CIT(A) has dealt with the issue of governance in para 5.7, 5.8, 5.9 and 5.10 of the impugned order, as under:- "The other reasons for denying benefit of section 11 by the AO are violation of Registrar of Societies norms. In this regard the allegations of the AO are as under-

The AO has not appreciated the functioning of the society and the requirement of the law in the right perspective. The AO has observed that people who are related through blood cannot be functionaries of the society. This interpretation of the law by the AO is not correct. There is no provision, either under the Societies Registration Act, or under the Income Tax Act prohibiting persons related through blood to be functionaries of the society. Further, there is no condition, either in Section 11, or Section 12, that exemption will be granted only when the Trust is an independent democratic body having no relatives. The society is registered under the Societies Registration Act and it has its own bye-laws for managing its affairs. Accordingly, this cannot be a ground for denying exemption under Section 11 of the Act. Similarly, the allegation of the AO that the balance sheet and the cheques are being signed by two persons and hence it is not eligible for exemption, is incorrect. This being the internal procedure of the society about managing its affairs and operation of the bank account, it cannot be a ground for denying exemption under Section 11 of the Act. There is no prohibition or condition prescribed under Section 12A or under Section 11 regarding operation of the bank account. Similarly, the allegation of the AO that the AGM is not being properly held and amendment in the Memorandum of Association has not been properly carried out, is not correct. In this regard, we notice that the statement of Dr. Gaganjit Singh, Executive President of the Society, was also recorded and he has clarified the various issues involved including the issues on the question of governance of the society. Similarly, the allegation that two persons of the governing council have resigned because reimbursement of the medical expenses of an employee was denied, cannot be a ground for denial of exemption under Section 11 of the Act. These too are internal matters of the society and they cannot be grounds for denying exemption to the society, so long as its objects come within the meaning of 'charitable purpose' under Section 2 (15), and the income has been applied to such purposes. In this regard we are in agreement with the observation of the CIT(A) that exemption under Section 11 is available on compliance of the conditions as prescribed in Sections 11 and Section 12 of the Act.

As regards the allegation of the AO that the assessee has violated the provisions of Section 13 the allegation of the AO is that the office bearers of the assessee Society are related to each other and this affects the democratic working of the assessee. This issue has been dealt with by the CIT(A) in para 5.11 as under:- "5.11 The next issue is the allegation of violation of provisions of section 13(3) of the Income Tax Act. These allegations have to be read with the specific clauses of this section 13(3). In fact section 13(3) talks about only the persons who have obligation under section 13(1) and 13(2). Thus the issue is whether those specified persons have violated any of the provisions of section 13(1) or 13(2). In this regard the first allegation of the AO is that the office bearers of the society are related to each other and as such they have direct impact on the democratic working of the society. This allegation nowhere contradicts or violates the provisions of section 13."

As per the provisions of Section 13, there are certain conditions which, if violated, would lead to denial of the benefit under Section 11, if some advantage or benefit has been taken by the persons who are in the governance of the institution. However, there is no condition specified, that the persons in governance should not be relatives. The functioning of the institution cannot be considered to be undemocratic, if two relatives are occupying the position in the management. In fact, Section 13 itself provides for payment of salary, and allowance to the persons in the management, in case such payment does not exceed what may be reasonably paid for such services. Thus, we are in agreement with CIT(A) that there is no such restriction in Section 13 regarding relatives holding position in the charitable society or institution.

Further, as regards the allegation of the AO that the facilities of the society are being misused by the office bearers regarding cars, premises, etc., we notice that this issue got clarified during the course of the survey itself, where one of the employee, Mr. S. K. Dhall, in response to a specific question, stated that the vehicles were being used by the officers, staffers/faculty and also by other staff members, for liaison work of the society. This statement clearly addresses the concern of the AO. This statement being a statement recorded during the survey, it cannot be ignored, particularly when the AO has not brought any material to substantiate his allegation against the assessee. The survey report was also before the AO and in case he had any doubt about the same, he could have made further investigation, which he chose not to do. Having failed to do so, he cannot ignore the statement and draw adverse inference merely on the basis of assumptions. The CIT(A) has dealt with this issue in paras 5.11 and 5.12 as follows:- "The other allegation of the AO on this account is the office bearers are maintaining luxurious cars and the expenses related to their purchase, repair and maintenance being borne by the society. In this regard I have gone through the records and I notice that during survey a specific question was put to the employee, Mr.

Similarly, the allegation of the Assessing Officer regarding a floor of the premises of the society being occupied by its Executive President does not violate the provisions of Section 13. The CIT(A) has considered this issue in para 5.13 of the impugned order in the following manner:- "5.13 The AO further alleged that the Executive President and the Director General have been staying on the 4th and 5th floor of the building of the Institute. In this regard the society has clarified that they have been occupying this in their capacity as the Executive President of the Society. In items of provisions of Section 13(2)(c) salary allowance or otherwise can be paid to such person for services rendered by such person. The only condition is that the amount so paid should not be in excess of what may be reasonably paid for such services. Allowing occupation of the premises to Executive President cannot be considered to be unreasonable. The AO has just made the allegation and has not even bothered to examine the same in the context of section 13(2)(c) of the Act. Accordingly I found that finding of the AO is not justified"

In this regard, Section 13(2)(c) specifically provides regarding payment of salary and allowances to the persons rendering services. It is not the case of the AO, as we notice from the assessment order, that the salary or the perquisites paid to the office bearers are either unreasonable, or excessive. As such, we are in agreement with the CIT(A) that no adverse inference on this account can be drawn against the society.

Similarly, we notice that as regards the alleged payment of Rs. 12 Lacs by the assessee Society for a plot to Haryana Urban Development Authority, this payment was made under an MOU, for construction of a hostel for the society. This payment was made directly to the Haryana Urban Development Authority and not to any office bearer of HUDA. It was only on failure to get the permission from the Haryana Urban Development Authority that the amount was received back by the society. In these circumstances, the finding of the CIT(A) that the payment was for the benefit of the society, is a correct finding of fact and it cannot be said that any benefit has been passed on to any related person, so as to violate the provisions of Section 13 of the Act. 16. Likewise, the premises in Navjeevan Vihar was taken on rent by the Society, for setting up its Global Development Centre, which the society was running from Gurgaon. Thus, the adverse inference drawn by the AO in this regard is not tenable. 17. As regards the allegation of misuse of the credit card and the payments being personal in nature we are in agreement with the following finding given by the CIT(A) in para 5.23 of the order under appeal:- "5.23 The appellant-society has submitted an explanation that expenses incurred through credit card are not personal in nature. These credit cards have been used to incur expenses for and on behalf of the appellant-society. The credit card facility is a facility like bank. I have gone through the list of the expenses which has been stated in the assessment order. I notice that the total of such expenses comes to Rs.6,04,872/- only. Further the total payments made by the assessee through credit card is of Rs.16, 19,243/-. Accordingly based on this figure the AO is not correct in considering that entire training expenses of Rs.99,21,943/- is through credit card and 60% of the same is personal in nature.

The society is an educational institution. It has made payment through credit card of only Rs. 16,19,243/-. As against this, the AO has considered the entire training expenses of Rs. 99,21,943/- and disallowed 60% of the same as being personal in nature. The society had submitted details of the same before the AO and AO has not been able to point out any particular item of the expenditure which can be considered to be personal in nature. A survey was conducted. Nothing adverse to the assessee emerged during survey on this account. The assessee has given an explanation that the expenses incurred through credit card were meant for the society. It organized various seminars and conferences, through which an eminent faculty was invited. Thus, the assumption of the AO that the expenditure incurred through credit card was personal, is not correct. The CIT(A) has correctly held that the facility of the credit card is a facility like that of a bank. The credit card has been used to incur expenses for and on behalf of the assessee society.

In the course of the hearing the learned OR could not point out any error or defect in the finding given by the CIT(A). We are in agreement with the CIT(A) that the objects of the assessee Society are educational in nature and hence, they fall within the meaning of 'charitable purpose' under Section 2(15) of the Act. The assessee is a Society registered under Section 12A of the Act.

In view of the above facts, we uphold the finding of the Ld. CIT(A) that the assessee is eligible for exemption under Section 11

On the issue of depreciation also, the same has been deleted by the Ld. CIT (A) in following the order of Tribunal for A.Y. 2009-10. It has also been brought on record the revenue’s appeal against the said Tribunal order has been dismissed in vide judgment dated 14.12.2016. Thus, in view of the aforesaid binding precedence which is applicable on the facts in the present case also, we uphold the order of the Ld. CIT(A) in directing the AO to grant exemption u/s 11 (1) and consequently all the additions made by the AO stands deleted.

In the result appeal of the revenue is dismissed.