Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI I.C.SUDHIR & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
This is the bunch of five appeals as under:- a. 2010 – 11 is filed by the assessee against the order of the Ld. CIT (Appeals), Muzaffarnagar passed in assessment order passed u/s 143 (3) by the Additional Commissioner of Income Tax, Range – 1, Ghaziabad on 28th of March 2013 wherein the assessee was denied exemption under section 11 and 12 of the income tax on surplus from Transportation and Games holding that the transportation activity, games activity and picnic are business activities and therefore their business income taxable under section 11 (4A) of the income tax act, which was also confirmed by the Ld. CIT (A). b. 2016 for AY 2011-12 against the order of CIT(A)-Ghaziabad dated 21.12.2015 in Assessment order u/s 143(3) of the Income Tax Act passed by the Additional Commissioner of Income Tax, Range-1, Ghaziabad on 28.02.2014 wherein it has been held that the assessee is engaged in the transport business and therefore, provisions of section 11(4A) of the Act are applicable and hence, surplus income of Rs. 2474260/– was chargeable to tax without having the benefit of section 11 and 12 of the income tax act and further depreciation on the assets which are allowed as application fully was decided by the Ld. CIT appeal by confirming the addition on account of transportation business and deleting the disallowance of depreciation. c. ITA No. 2500/del/2017 for assessment year 2010- 11 and ITA number 2501/Del/2017 for assessment year 2011-12 against the order of the Commissioner of income tax (Appeals), Ghaziabad dated 01/03/2017 for both the years wherein the penalty of Rs. 5170420/- & Rs. 1388394/– under section 271 (1) © of the income tax act 1961 and levied by the Ld. additional Commissioner of income tax, range – 1, Ghaziabad wide order dated 21/03/2016 confirmed.
Page 3 of 12 d. filed by the DCIT (exemption)( ld Assessing officer ) filed again the order of the Commissioner of income tax (appeals), Ghaziabad dated 21/12/2015 against deleting the disallowance on account of depreciation of Rs. 1 891 8933/– on account of application of income for charitable purposes the assets which are been hundred percent allowed as deduction. Furthermore the revenue has further challenged the deletion of disallowance of Rs. 1 232699/– on account of sports activities and expenditure amounting to Rs. 1319605/– on account of transportation activities.
The assessee has raised the following grounds in :- “1. Because, the order of learned lower authority is bad in law and against the facts and circumstances of the case and hence is unsustainable.
2. Because, the learned commissioner of income tax (appeals) grossly erred in upholding, that transportation facility/sports activity of the school provided exclusively to students is not an integral part of “education” u/s 2(15) but is a separate business activity in terms of section 11 (4A), by wrongly placing reliance on irrelevant material and case of queens Educational Society which is now reversed by Hon‟ble apex Court in 55 taxmann.com 255 and findings on the issue are perverse and against the settled law.
3. Because, above finding of the learned lower authority is against the principle of consistency in as much as that since the inception of school the said activities is considered as part of „education‟ and benefit u/s 11/12 is allowed with 100% similar facts and without any change in law about the first three limbs of section 2(15) even after 01.04.09.
4. Because, without prejudice to above but only as an alternative , the learned lower authority erred in not appreciating the alternative ground of assessee that assessee had maintained sufficient separate accounts for above activities and further failed to appreciate that even Id. AO himself calculated separate surplus in said activities on the basis of said accounts hence order upholding rejection of exemption u/s 11-12 even after invoking 11(4A) for said activities is illegal.
5. Because, the learned lower authority has further erred in upholding the disallowance of Rs. 1,04,88,959/- and of 92,25,001/- out of expenditure incurred against transportation and games/sports activity respectively and conforming the resultant addition of Rs. Rs. 1,58,79,183/- by recording a wrong finding that assessee could not controvert the findings of AO merely on surmises and conjectures.
6. Because, in addition to above , the learned lower authority has erred in upholding the above disallowances/additions even without appreciating the basic facts like accounts are accepted, example of other school is neither reliable nor confronted to assessee, there is no material against the assessee, past history and AO‟s computation is giving absurd results etc. hence order is without any application of mind .
7. Because, the learned lower authority has grossly erred in upholding disallowance expenses of Rs. 15,03,344/- being payment of interest etc. to PF without even writing a single word or giving any finding on the issue.
8. Because, without prejudice to above but only as an alternative , the learned lower authority also erred in not appreciating the fact that in any eventuality admittedly Page 4 of 12 assessee has already utilized more than 85% of its income for „charitable purposes‟ and so any surplus will also be exempt u/s 11-12.
9. Because, learned commissioner of income tax (appeals) grossly erred in confirming the disallowance of depreciation Rs. 1,51,68,229/- without properly appreciating the law on the issue and arguments put forward by the assessee including the one that where there are two views than the one which is favorable to assessee shall apply.”
The assessee has raised the following grounds in “1. Because, the order of Id. lower authority is bad in law and against the facts and circumstances of the case and hence is unsustainable.
2. Because, the Id. commissioner of income tax (appeals) grossly erred in upholding, that transportation facility/sports activity of the school provided exclusively to students is not an integral/incidental part of "education" u/s 2(15) but is a separate business activity in terms of section 11(4A), by wrongly placing reliance on irrelevant material and defeating the pronouncements of hon'ble courts hence findings on the issue are perverse.
3. Because, above finding of the Id. lower authority is against the principle of consistency in as much as that since the inception of school the said activities is considered as part of 'education' and benefit u/s 11/12 is allowed with 100% similar facts and without any change in law on the issue.
4. Because, without prejudice to above but only as an alternative , the Id. lower authority erred in not appreciating the alternative ground of assessee that assessee had maintained sufficient separate accounts for above activities and further failed to appreciate that even Id. AO himself calculated separate surplus in said activities on the basis of said accounts hence order upholding rejection of exemption u/s 11-12 even after invoking 11(4A) for said activities is illegal.
5. Because, the Id. lower authority has further erred in upholding the following additions out of total additions made by AO without any material/basis and even after accepting accounts etc. arbitrarily and without any application of mind: a) Rs. 1319605/- by estimating 92% expenses ( applying lump sum 8% rate ) on the transportation receipts b) Rs. 1255513/-, being picnic exp.
6. Because, without prejudice to above but only as an alternative , the Id. lower authority also erred in not appreciating the fact that in any eventuality admittedly assessee has already utilized more than 85% of its income for 'charitable purposes' and so any surplus will also be exempt u/s 11-12.”
4. The Revenue has raised the following grounds in ITA No. 1387/Del/2016:- “1. Ld. CIT(A) has erred in law and on facts in deleting the disallowance on account of depreciation of Rs. 1.89,18,933/- ignoring the facts that depreciation on account of application of income for charitable purposes is not allowable as the capital expenditure on acquiring fixed assets has already been allowed in respective years.
2. Ld. CIT(A) erred in law and on facts in deleting the addition of Rs. 12,32,699/- on account of sports activities ignoring the facts that the expenses have been claimed on estimated basis and assessee has tried to segregate these expenses from the combined income & expenditure account of the society without maintaining separate set of books of account as required in the law as per section I 1(4A) of the l.T. Act.
3. Ld. C1T(A) erred in law and on facts in deleting the addition of Rs. 13,19,605/- on account of transport activities ignoring the facts that the expenses have been claimed on estimated basis and assessee has tried to segregate these expenses from the Page 5 of 12 combined income & expenditure account of the society without maintaining separate set of books of account as required in the law as per section 11(4A) of the l.T. Act.” 5. The assessee has raised the following grounds in “1. That, the notice issued U/s 271 (1) (c) and order imposing penalty at Rs.51,70,422.00 under said section are illegal, bad in law, and without jurisdiction.
2. That, the Assessing Officer has erred in issuing the penalty notice and initiating the proceedings U/s 27l(l)(c) without recording the requisite satisfaction, as required by the provision of the Income Tax Act, 1961, which is illegal, bad in law and without jurisdiction and the same is erroneously uphold by the CIT(A).
3. That, the Assessing officer has erred in imposing the penalty for furnishing of inaccurate particulars at Rs.51,70,422.00 on account of disallowance of Transport activity, Game activity and Disallowance of the Depreciation on Capital Assets, without appreciating the facts and circumstances of the case. The CIT(A) erred in upholding the same
4. That, the assessing officer/ CIT(A) has failed to appreciate, that, the addition/disallowance made by the assessing officer, which have been considered for imposition the penalty U/s 271(l)(c), the said issues/claim have already been accepted by the department, in the earlier years or in the subsequent years, which itself proves, that, the addition/disallowances are in the nature of debatable issues and claimed under bonafide belief, therefore, the penalty imposed is illegal, bad in law and against the facts and circumstances of the case.
5. That, the CIT(A) erred in imposing the penalty U/s 27l(l)(c) without appreciating that the addition are in the nature of disallowances and also the issues are debatable in nature, which cannot be treated nor as concealment of Income neither as furnishing of in accurate particulars, hence the provisions of Section 271(l)(c) are not applicable to the facts and circumstances of the assessee appellant.
6. The addition/disallowances have been made merely on the basis of creating a demand of Income Tax, which are debatable issue, hence, no penalty U/s 271(l)(c) could be levied on the basis of such disallowances.
7. That, the explanation given evidence produced, material placed and available on record have not been properly considered and judicially interpreted and the same do not justify the penalty imposed U/s 271 (l)(c) at Rs.51,70,422.00.
8. That the information filed and the material available on record are not properly considered and as such the order imposing penalty u/s 271 (1) (c) is illegal and bad in law.
9. The Assessing Officer/CIT(A) has erred in not providing proper and adequate opportunity of hearing to the Appellant to place the evidence/details on record to substantiate its claim during the assessment proceedings.
10. That, the penalty proceedings have been initiated and imposed without any specific charges, hence, the same are liable to be deleted.
11. That in any case the penalty imposed is unjust, arbitrary and highly excessive
12. That, the appellant reserves its right to add, amend/modify the grounds of appeal. All of the above grounds of appeal are without prejudice and are mutually exclusive to each other.”
6. The assessee has raised the following grounds in ITA No. 2501/Del/2017:-
Page 6 of 12 “1. That, the notice issued U/s 271 (1) (c) and order imposing penalty at Rs.1388394/- under said section are illegal, bad in law, and without jurisdiction.
2. That, the Assessing Officer has erred in issuing the penalty notice and initiating the proceedings U/s 27l(l)(c) without recording the requisite satisfaction, as required by the provision of the Income Tax Act, 1961, which is illegal, bad in law and without jurisdiction and the same is erroneously uphold by the CIT(A).
3. That, the Assessing officer has erred in imposing the penalty for furnishing of inaccurate particulars at Rs.1388394/- on account of disallowance of Transport activity, Game activity and Disallowance of the Depreciation on Capital Assets, without appreciating the facts and circumstances of the case. The CIT(A) erred in upholding the same 4. That, the assessing officer/ CIT(A) has failed to appreciate, that, the addition/disallowance made by the assessing officer, which have been considered for imposition the penalty U/s 271(l)(c), the said issues/claim have already been accepted by the department, in the earlier years or in the subsequent years, which itself proves, that, the addition/disallowances are in the nature of debatable issues and claimed under bonafide belief, therefore, the penalty imposed is illegal, bad in law and against the facts and circumstances of the case.
That, the CIT(A) erred in imposing the penalty U/s 27l(l)(c) without appreciating that the addition are in the nature of disallowances and also the issues are debatable in nature, which cannot be treated nor as concealment of Income neither as furnishing of in accurate particulars, hence the provisions of Section 271(l)(c) are not applicable to the facts and circumstances of the assessee appellant.
The addition/disallowances have been made merely on the basis of creating a demand of Income Tax, which are debatable issue, hence, no penalty U/s 271(l)(c) could be levied on the basis of such disallowances.
7. That, the explanation given evidence produced, material placed and available on record have not been properly considered and judicially interpreted and the same do not justify the penalty imposed U/s 271 (l)(c) at Rs.1388394/-.
That the information filed and the material available on record are not properly considered and as such the order imposing penalty u/s 271 (1) (c) is illegal and bad in law.
9. The Assessing Officer/CIT(A) has erred in not providing proper and adequate opportunity of hearing to the Appellant to place the evidence/details on record to substantiate its claim during the assessment proceedings.
10. That, the penalty proceedings have been initiated and imposed without any specific charges, hence, the same are liable to be deleted.
That in any case the penalty imposed is unjust, arbitrary and highly excessive 12. That, the appellant reserves its right to add, amend/modify the grounds of appeal. All of the above grounds of appeal are without prejudice and are mutually exclusive to each other.”
Briefly stated the facts for assessment year 2010 – 11, that the assessee is a trust carrying on the educational activities for about 30 years. It is also registered under section 12A of the income tax act. The assessee has earned income from fees, income from games and transportation. The Ld. assessing officer enquired that games income, transportation income Page 7 of 12 and other incomes, why the provisions of section 11 (4A) of the income tax act should not be applied to that as according to him these are in the nature of business. The assessee replied to the Ld. assessing officer that these are the activities provided by the Society for the purpose of furtherance of the education activity and is not in business. These are incidental to the educational activities of the assessee. The Ld. assessing officer rejected the contention of the assessee and held that educational activity not-for-profit are now only covered under section 2 (15) of the income tax act. Therefore he held that the activities in which the surpluses generated on account of transportation and gaming or any other activity falls under the business category, which is business. Consequently he held that the provisions of section 11 (4A) of the income tax act applies to all these activities. According to him the transportation running activity cannot be stated to be incidental to educational activity. Accordingly, he held that assessee has earned transportation receipt of Rs. 1 201 6438/– and claimed expenses against that of Rs. 8 396273/– generating the surplus of Rs. 3 620165/–. He therefore held the transportation receipts chargeable to tax as business income and allowed only 50% of the expenditure against this receipt. He further separately granted deduction of insurance and interest on vehicles and then determined net surplus from transportation activity of Rs. 5 292097/– and taxed it as business income.
8. Similarly, he held that the assessee is also conducting games and charging fees for the same. During the year assessee has received Rs. 1 313 9674/– as receipt and has incurred an expenditure of Rs. 2 0706, 88/– resulting into surplus of Rs. 1 106 8986/–. Accordingly, he held that the expenditure incurred by the assessee on the game activities is also disproportionately as it has 54 teachers and other staffs of Physical education. According to ld AO expenditure incurred by the assessee on salary is excessive and therefore he disallowed a salary of Rs. 6225435 out of games activity.
A further disallowance of Rs. 649765 was also disallowed as it is pertaining to picnic expenses.
Consequently, the assessment under section 143 (3) was framed at Rs. 1 738 2527/–. Assessing officer computed the educational income of the assessee and granted relief under section 11 and 12 of the act. However, with respect to the games, transportation and picnic income was considered as business income and thereto an addition on account of interest on provident fund deposited late was also made resulting into business income of the assessee at Rs. 1738 2527/–. Further, the Ld. assessing officer was also of the view that assessee has claimed depreciation of Rs. 151682 29/-which is not allowable as the original cost of the asset has been allowed as application out of total income earlier. Therefore according to him the allowance of depreciation amounts to double deduction.
Page 8 of 12 11. Aggrieved by the same the assessee preferred an appeal before the Ld. CIT (A). The Ld. CIT (Appeal) passed an order on 24/02/2015 wherein he held that appellant has not forwarded any argument as to why separate fees is charged for transportation and sports activity. He further held that there is no dispute that merely getting admission to the course will not make a student eligible to get transport facility and huge fees charging that they most forceful which no justification has been given by the appellant. He further held that when getting of transport activities not linked to getting admission in the College it has no force in the argument of the appellant that the transportation activity should be termed as education.Therefore aggrieved by the order of the lower authorities. The assessee is in appeal before us.
The ground No. 1 is general in nature and therefore same is dismissed.
Ground No. 2 of the appeal of the assessee is against the transport facilities, sports activity of the school provided exclusively to the students was not considered as an incidental to educational activity under section 2 (15) of the society but is considered as a separate business activity in terms of section 11 (4A) by relying on the decision of the Hon‟ble Uttarakhand High Court in case of Queen‟s education society. Decision relied up on by the ld AO has been reversed by the Hon Supreme court in 372 ITR 699 (SC) where in it is held that :- “11. Thus, the law common to Section 10(23C) (iiiad) and (vi) may be summed up as follows: (1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied - the purpose of education should not be submerged by a profit making motive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on "for profit". No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons.
Based on the above principles the activities of the assessee is required to be tested. Undisputedly assessee‟s main object is „Education”. The assessee has provided the facilities of the Transportation for the students and staff of the educational activity on chargeable basis which has generated surplus. It is not the case of the revenue that Assessee provides Page 9 of 12 transportation facilities to other outsiders also by charging the fees. Admittedly such facilities is for the purposes of the students etc to whom education is imparted by the society. The claim of the assessing officer that merely because of the admission of the student in the school, he does not become entitle to avail the transport or games facility but has to pay some more fees towards them. We are of the opinion that for the students who are studying in the colleges if they want to avail such facilities then they are charged such fees, which is nothing but providing an additional facility to the students. Therefore it cannot be said that it is not incidental to the education. None of the instances were found by the ld AO or appellate Authorities where the student is not studying in the school and is providing transport or games facility. It is also not the case of the revenue that surplus generated by the assessee in transportation activity is not used for the educational activities. Further the provisions of section 11 (4A) does not apply in case the activity generating profit is incidental to the attainment of the objectives of the trust. In the present case it is not disputed that activities of the games and transportation is for the students of the society and hence both these activities are incidental to the main objects of the trust. Hence the lower authorities erroneously applied the above provisions and taxed the surplus as the separate income of the assessee denying benefit of section 11 and 12 of the act. The honourable supreme court also said in the Queens‟s Educations Case ( Supra) that If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes. Therefore in view of decision of supreme court we are of the view that transportation activities and Games activity are incidental to the educational activity of the trust and therefore surplus generated from it once used for educational purposes cannot be denied the benefit of section 11 & 12 of the act . Further disallowance of expenditure of the trust on these activities on ad hoc basis also cannot be upheld as one of the expenditure is found to have been incurred for other object of the trust. In view of this, we allow grounds no 1 to 6 of the appeal of the assessee.
Ground No. 7 of the appeal of the assessee is with respect to disallowance of Rs. 1 503344/– being payment of interest etc to provident fund authorities. The assessee has paid interest to provident fund authorities for late payment of provident fund. Before us assessee could not establish that how this expenditure is incurred for the object of the trust. In fact, this expenditure is incurred for the violation made by the assessee of the provident fund laws in not depositing the dues of the assessee as well as of the employees in time. In view of this, the above amount cannot be considered as an application of the income and therefore no infirmity is found in the order of the lower authorities. Hence, ground No. 7 of the appeal of the assessee is dismissed.
Page 10 of 12 16. Ground No. 8 of the appeal of the assessee is an alternative ground with respect to ground No. 1-6 of the appeal. As we‟ve already allowed ground No. 1 – 6 of the appeal of the assessee. We reject ground No. 8 of the appeal of the assessee.
Ground No. 9 of the appeal of the assessee is against disallowance of depreciation of Rs. 15168229/– by the Ld. assessing officer holding that depreciation cannot be allowed on the assets , cost of which is already allowed @100% as application of the income. We have carefully considered the rival contentions. Hon‟ble Delhi high court‟s decision in the case of DDIT versus Indraprastha Cancer Society in ITA number 240 /2014 dated 18/11/2014 squarely covered this issue in favour of the assessee where the Hon‟ble Delhi High Court after considering all the cases relied upon by the revenue has allowed the depreciation also . In view of this ground No. 9 of the appeal of the assessee is allowed.
In the result appeal of the assessee in 2010 – 11 is partly allowed.
Now we come to the appeal of the assessee in for assessment year 2011 – 12.
The ground No. 1 of the appeal of the assessee is general in nature and therefore dismissed.
Ground No. 2 – 5 of the appeal of the assessee is pertaining to treatment of Transportation facility, sports activity of the school provided exclusively to the students of the society which are held by the Ld. assessing officer as separate business activities and therefore applied section 11 (4A) and denied the deduction/exemption under section 11 and 12 of the income tax act. Both the parties confirmed before us that the facts and circumstances of the case in the present appeal is identical to the facts and circumstances of the case of the assessee in ITA No. 2733 del 2015 for assessment year 2010 – 11.
We have carefully considered the rival contentions and also perused the orders of lower authorities. We‟ve already held in the appeal of the assessee for assessment year 2010 – 11 in ITA No. 2733/Del/2015 wherein we have held that transportation and games activity of the assessee are incidental to the educational activities carried on by the assessee and therefore the provisions of section 11 (4A) does not apply to the surplus generated from these activities as they have been utilised for the purpose of the education. Therefore, similarly we allow ground No. 2 – 5 of the appeal of the assessee for this year too.
Ground No. 6 of the appeal of the assessee is an alternative ground to ground No. 2 – 5 of the appeal of the assessee. As we have already allowed ground No. 2 – 5 of the appeal of the assessee for this year. We dismiss ground No. 6 accordingly.
In the result appeal of the assessee is partly allowed.
Now we come to appeal of the revenue in ITA No. 1387/DES/2016 for assessment year 2011 – 12, wherein the 1st ground of appeal is with respect to the allowance of depreciation of Rs.