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Income Tax Appellate Tribunal, “B” BENCH, CHENNAI
Before: SHRI DUVVURU RL REDDY & SHRI S. JAYARAMAN
आदेश/ O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee as well as the Revenue filed these appeals against
the orders of the Commissioner of Income Tax (Appeals)- 17 ,Chennai, in
ITA Nos. 134& 153/15-16 /CIT(A)- 17 dated 30.03.2016 for the AYs
2011-12 & 2012-13, respectively.
M/s. The Indian Institute of Engineering and Technology , the assessee ,
runs two colleges, namely, Meenakshi Sundararajan Engineering College,
which is affiliated to Anna University and Meenakshi Sundararajan School of
Management, which is affiliated to Madras University.
While making the assessments for ays 2011-12 & 2012-13, the AO
denied the claim of exemptions u/s 10(23) ( C ) (vi) , refused to allow the
assessee’s depreciation claim on the capital expenditure holding that when
the entire costs of assets have already been claimed as application of
income towards objects of the Trust, the claim of depreciation on the cost of
the very same assets results in double deduction, assessed the accumulated
income in ay 2006-07 as it was not- applied in ay 2011-12, denied the
benefits of exemption u/s 11 invoking the provisions of sections 13(1) (c)
for ay 2011-11 & under sections 13(1) (c) & 13 (1) (d) for ay 2012-13 etc.
:-3-: ITA Nos.2092, 2093, 2244 & 2245/Chny/2016
Aggrieved, the assessee filed appeals before the Ld. CIT(A) pleading,
inter alia, that that the AO refused exemption without making any discussion
on denial of exemption u/s 10(23) (c) for ay 2011-12 etc. The Ld. CIT (A)
after considering all the pleas of the assessee , the assessment orders etc ,
relying on this tribunal order in the assessee’s case in earlier year allowed
the appeals on the issue of the disallowance of honorarium payments made
to specified person , viz Ms. Meenakshi Sundararajan, u/s 13(3) for both
the ays and confirmed the denial of exemptions on certain other issues
for both the ays. Aggrieved , on the issues of denial of exemptions, the
Assessee filed appeals for both the ays. Aggrieved , on the deletions made
u/s13(3), the Revenue filed appeals for both the ays . They are dealt as
under :
On the denial of exemption u/s 10(23C)(vi): The relevant portion of the
order of the AO is extracted as under :
“Denial of exemption u/s 10(23C)(vi): At the outset it may be mentioned that though the assessee society filed the application for grant of exemption u/s 10(23C)(vi) for the assessment year 2012-13 and subsequently for assessment year 2013-14 before the prescribed authority being Chief Commissioner of Income Tax-III, Chennai the same had been denied to the assessee organization. In the order C.No.CCIT- III /10(23C)(vi)1201 3-1414 dated 29.09.2014 for A.Y.2013-14, the learned CCIT- III in page 5 had held that the assessee’s having a substantial percentage of surplus ranging from around 30% to 42% which would prima fade point to the assessee running a profitable venture.
:-4-: ITA Nos.2092, 2093, 2244 & 2245/Chny/2016
Year ended Total receipts (Rs.) Surplus (Rs.) Surplus wrt receipts 31.03.2011 8,21,17,598 2,87,39,451 35% 31.03.2012 11,75,96,825 4,88,55,229 41.5% 31.03.2013 11,68,84,064 3,37,58,156 28.88%
The CCIT further cited Karnataka High Court’s decision in the case of “Viswesvarayya Technological University v. ACIT (2014) 42 Taxmann.com 237” has laid down that institutions generating surplus of over 15-20% cannot be said to exist “not for profit” purpose. This was in the case of a government institution. In the case presented here, when the surplus is as high about 42% obviously the ratio of the decision of Karnataka High Court in the case of Viswesvarayya Technological University (supra) shall be applicable”.
5.1 The relevant portion of the order of the Ld.CIT(A) is extracted as
under :
“I am not in agreement with the aforesaid contentions of the A.R praying for allowing exemption u/s 1O(23C)(vi) for the simple reason that for the instant years in appeal, the CCIT has not granted approval to the appellent’s application for exemption u/s 10(23C)(vi) and just as no deemed registration can be granted u/s 12AA(2) as held in Anjuman-eKhyrkhah-e-Aam 200 Taxmann 27 there is no provision for deemed registration u/s 10(23C) either, in the absence of express approval by the CCIT as it is in this case, which would mean that the appellant did not enjoy the exemption u/s 10(23C)(vi) due to lack of registration granted to it by the CCIT for both the Asst. Years 2011-12 & 2012-13 and therefore, the A.O’s action in denying exemption for the aforesaid reason is held to be valid and therefore confirmed. This ground is therefore dismissed for both the Asst. Years in appeal, e. 2011-12 & 2012-13”.
Before us, the Ld. A R submitted that the order of the
Commissioner of Income Tax (Appeals) is contrary to law, facts and
circumstances of the case.The Commissioner of Income Tax (Appeals) ought
:-5-: ITA Nos.2092, 2093, 2244 & 2245/Chny/2016
to have appreciated that Hon’ble Apex Court in the case of M/s. Queens
Educational Society Vs CIT in Civil Appeal No.5167 of 2008dated 16.03.2015
has categorically stated that realization of surplus in the course of operation
of educational institution cannot mean that they are not for the purpose of
profit, particularly when the entire income has been utilized for the purposes
of education. The Commissioner of Income Tax (Appeals) ought to have
appreciated that there has been no finding that the surplus has not been
utilized for the purpose of education, he erred in confirming the denial of
exemption u/s.10(23C)(vi) and hence his orders may be quashed and
exemption u/s.10(23C)(vi) may be restored. Per contra, the Ld. DR submitted
that the assessee sought grant of exemptions u/s 10(23C)(vi) before the
prescribed authority being Chief Commissioner of Income Tax-Ill, Chennai
which had been denied , inter alia, for the reason that the assessee is
having a substantial percentage of surplus ranging from around 30% to 42%
which would prima facie points to the fact that the assessee is running a
profitable venture. Thereafter, the AO denied exemptions relying on the same
order and its ratio. The assessee challenged the same before the Ld. CIT (A)
who confirmed the disallowances. The assessee has not placed any material
to show that the order passed by the prescribed authority ie., the Chief
Commissioner of Income Tax-III, Chennai is no more a good order, the orders
of the Lower authorities are contrary to the facts and law on which they relied
and passed those orders. Therefore, their orders may be sustained.
:-6-: ITA Nos.2092, 2093, 2244 & 2245/Chny/2016
We heard the rival submissions and gone through relevant material.
It is clear that the assessee has sought grant of exemptions u/s 10(23C)(vi)
before the prescribed authority , viz the Chief Commissioner of Income Tax-
III, Chennai , which had been denied , inter alia, for the reason that the
assessee is having a substantial percentage of surplus ranging from
around 30% to 42% which prima facie points to the fact that the assessee
is running a profitable venture. Thereafter, the A O denied exemptions relying
on the same order and its ratio. The assessee challenged the same before the
Ld. CIT(A) who confirmed denial of exemptions u/s 10(23C) (vi) , inter alia,
for the reason that the assessee does not enjoy exemption for u/s 10(23C)
(vi) for lack of registration . The assessee has not placed any material to
say that the order passed by the prescribed authority ie the Chief
Commissioner of Income Tax-III, Chennai is no more a good order and the
orders of the Lower authorities are contrary to the facts and law on which
they relied on their orders. Therefore, the corresponding grounds of the
assessee are dismissed for both the ays. The Hon’ble SC in the cases of
Aditanar Educational Institution vs Additional Commissioner Of Income-Tax
and others in224 ITR 310 (SC) heldinter alia, that “the availability of the
exemption should be evaluated each year to find out whether the institution
existed during the relevant year solely for educational purposes and not for
purposes of profit”. A five member bench of the Hon’ble SC in the case of
Islamic Academy of Education and another vs. State of Karnataka and others
:-7-: ITA Nos.2092, 2093, 2244 & 2245/Chny/2016
decided on 14 August, 2003 in the context of the determination of the
reasonable fees to be charged by private educational bodies held , inter alia ,
that a surplus of 6 to 15 % could be held as reasonable or permissible limit.
The Jurisdictional High Court in the case of Madras Hotels Association vs
Commissioner Of Income-Tax, Madras in 111 ITR 241, held , inter alia,
thatthe best evidence to find out whether the purpose of the activity is to
earn income or profit, is the very accounts of the association ie the person. In
the light of these ratios and in the absence of any material to the contrary
from the assessee , on the above facts ie when the assessee makes huge
profits year after year, the findings recorded by the lower authorities that
the assessee is running a profitable venture ,during the impugned years, is
justified and hence the corresponding grounds of the assessee are
dismissed for both the ays.
Onthe amount parked with sister concern :
8.1 From the account copy furnished by the assessee , the AO found that
the assessee had received Rs. 3,82,84,422/-, between 24.02.2003 &
30.3.2004 from Ganapathy Educational Trust. Against such receipts , the
assessee paid Rs. 4,53,10,202/- between 19.9.2003 to 13.02.2007. Thus, it
has paid Rs. 70,25,780/-, in excess of the advance receipt, which was not
received until 26.03.2012. The AO after considering the assessee’s
submissions etc held that though the transaction pertained to earlier period,
:-8-: ITA Nos.2092, 2093, 2244 & 2245/Chny/2016
the excess advance was held by the sister concern all along without adequate
consideration. Further, it was also not in the nature of an investment as per
the prescribed modes specified in section 11(5) and hence there is a clear
violation u/s. 11(1)(c)/11(1)(d) rw.s.11(5). Therefore, the provisions of
Section 11 become in-operative and the surplus gained by the Trust for the
year therefore needed to be brought to taxation and accordingly assessed the
assessee’s income.
8.2 Before the Ld. CIT(A), the assessee submitted that the appellant had
paid an excess amount of Rs.70,25,780/-, which was recoverable from
Meenakshi College for Women as it was given to the other charitable
institution for educational purpose to enable them to construct building as
part of the college and therefore, cannot be considered as an investment and
therefore, the provisions of Section 11, 12 & 13 were not violated. Further,
Meenakshi College for Women cannot be considered as related person for the
purpose of Section 11(1)(c) and 11(1)(d) rws 13(3). The loan given to
another charitable Trusthavingsimilar objects for carrying out objects of such
Trust could not be considered to have violated the provisions of Section
11(1)(c) and 11(1)(d) r.w.s 11(5), as contended by the A.O. The relevant
portion of the order of the Ld. CIT (A) is extracted as under :
“10.2. I have gone through the submissions made by the appellant on this issue along with the case laws relied on both by the A.O and by A.R and I find no substance in the submissions made by the A.R. It is quite clear that / the amount received as advance was repaid back by a higher amount
:-9-: ITA Nos.2092, 2093, 2244 & 2245/Chny/2016
ofRs.4,53,10,202/-, indicating that the differential excess amount of Rs.70,25,780/- was loaned to the sister trust, Ganapathy Educational Trust without adequate security or adequate interest or both and therefore, it had clearly violated the provisions of Section 13(1)(c) r.w.s.11(5) and [13(2)(a)] and therefore, the action of the A.O in making the addition of the difference between the amount received and paid back to the sister concern is upheld and the addition confirmed. This ground is, therefore, dismissed.”
8.3 Before us, the Ld. AR submitted that the same submissions made
before the Ld. CIT(A) and relied on certain case laws. Per contra, the Ld. DR
supported the orders of the lower authorities.
We heard the rival submissions and gone through relevant material.
The impugned transactions have happened long before. The assessee has
received the excess amount after a long gap. Though, the rationale is
questioned at assessment stage itself, it has not laid any contemporaneous
materialin support of its contentions, viz Minutes book, the facts and
circumstances on which the alleged transactions happened, who and when
took the alleged decisions etc , before the lower authorities and hence they
have rejected assessee’s claim of exemption. Before us also, the assessee
has not laid any material to assail the findings recorded by them. Therefore,
the corresponding grounds of the assessee are dismissed for this ay.
We have considered all other claims of the assessee. The A O has
denied the claim of exemption in ay 2012-13 , observing as under :
“7.2 The taxation of income is not confined to the income derived from the units which operate like a business entity. Section 13(8) prohibits applicability
:-10-: ITA Nos.2092, 2093, 2244 & 2245/Chny/2016
of section 11 & 12 in respect of any income of the Trust and is not restricted to the business activity of the Trust. Therefore, the surplus derived by the Trust is entirely brought to taxation.”
In view of the findings recorded , supra, that the assessee is carrying its
activities as a profitable venture , the A O held that the assessee is not
undertaking any charitable activity within the scope of section 2(15) of the
Act . Therefore, he denied the assessee’s exemption claim u/s 11, supra.
It appears that this finding is not challenged by the assessee
before the Ld. CIT (A). When the assessee’s activities or the purposes are
considered as existing for purposes of profit , its claim u/s 11 that it is
existing for “charitable purposes” within the scope of section 2 (15) of the
Act also fails both the ays . Thus, when the assessee is not entitled for
the benefit u/s 11, all its other claims u/s 11 are not allowable and hence
they become academic and hence not dealt with .
I.T.A. Nos. 2244 & 2245/Chny/2016 Assessment Years : 2011-12 & 2012-13
Now, Let us examine the Revenue’s appeals :
The Revenue filed these appeals with a delay of 3 days and sought
condonation of delay. We heard the rival parties and on due consideration of
the petition, condone the delay.
The Common grounds of the Revenue is extracted as under :
“1. The order of the learned CIT (A) is contrary to the law and facts of the case.
:-11-: ITA Nos.2092, 2093, 2244 & 2245/Chny/2016
2.1 The Id. CIT (A) erred in holding that there is no violation u/s. 13 (1) (c) of the l.T.Act. 2.2 The Id. CIT (A) failed to appreciate that as per Clause 40 of the Memorandum of Association only the outstanding amount payable to the Founder Trustee could have been paid to his wife Ms. Meenakshi Sundararajan. 2.3 The Id. CIT (A) failed to note that the payment made is not in consonance with any of the mandatory term of the trust. 2.4 The Id. CIT (A) failed to appreciate that the amount of Rs.1 ,1190OI- paid to Ms. Meenakshi Sundararajan is in violation of Section 13 (1)(c). 2.5 The Id. CIT (A) ought to have appreciated that the amount was paid by way of honorarium without any services having been rendered. 2.6 The Id. CIT (A) ought to have appreciated that the Department has not accepted the relied on decision of the Hon’ble ITAT in ITA No.318/MDS/2014 dated 27.5.2014.”
While making the assessments, the AO found that payment of
Rs.1,08,600 & Rs1,11,900/- was made to Ms. Meenakshi Sundararajan, the
wife of the founder of the trust, in a ys 2011-12 & 2012-13, respectively , and
after considering assessee’s submissions etc disallowed them u/ss 13(1)(c),
13(2) and 13(3). Aggrieved , the assessee filed appeals before the Ld.
CIT(A) , who relying on this tribunal decision, on the identical issue in the
assessee’s case in ITA No.318/Mds/2014 dated 27.5.14 for the asst. year
2010-11, allowed the appeals. Aggrieved the Revenue filed the above appeals.
The Ld DR presented on the lines of the grounds of appeal and the
orders of the AO . Per contra, the Ld AR relied on the orders of this tribunal
and the Ld. CIT(A).
:-12-: ITA Nos.2092, 2093, 2244 & 2245/Chny/2016
We heard the rival submissions and gone through relevant material.
The relevant portion of this Tribunal order, supra, is extracted as under:
“7. First, let us consider, whether the assessee is eligible for deduction under sec.11 or not, in view of payment of Rs.,13,400/- made to Ms. Meenakshi Sunclararajan. 8. It is the case of the assessee that the lower authorities have erred in holding that sec.13(1)(c),13(2)and 13(3) are attracted in respect of honorarium, ex- gratia and medical expenses of Rs.1,13,400/- paid to Ms.Meenakshi Sundararajan, who is the wife of the founder of the trust. It is the case of the assessee that the lower authorities have overlooked the first proviso to sec. 13(1)(c)(ii), which provides that the provisions of sub-clause(ii) shall not apply, to a trust or institution created or established before the commencement of this Act, to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub- sec. (3), if such use or appilcation is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution. 9. In the present case, the assessee trust has been created on 1.2.1961. This is before the commencement of the Income-tax Act, 1961. As per Clauses 36 to 41 of the Memorandum of Association of the assessee trust, Ms.Meenakshi Sundararajan is entitled for honorarium in rendering services to the benefits of the assessee society. Therefore, as rightly argued by the learned counsel, the payment made to Ms.Meenakshi Sundararajan is covered by the said exemption. Therefore, we hold that the lower authorities have grossly erred in holding that theassesse is not entitled for exemption under sec. 11 of the Act.”
15.1 The facts being almost identical and recurring for these assessment
years too, following the ratio of the above ruling, payment of honorarium ex-
gratia and medical expenses to the wife of the founder of the Trust, Smt.
Meenakshi Sundararajan is held to be allowable . However, a question arises
as to whether this expenditure is allowable when the exemption is denied u/s
:-13-: ITA Nos.2092, 2093, 2244 & 2245/Chny/2016
We have considered. On denial of exemption, the income has to be
assessed u/s 14 of the Act and when the purpose for which the assessee is
existing is held as for purposes of profit, the impugned claim is allowable u/s
On this ground also, the Revenue’s grounds fail and hence its appeals are
dismissed.
In the result, the assessee’s appeals in ITA nos2092& 2093/Chny/2016
are dismissed . The Revenue’s appeals in I.T.A. Nos. 2244 & 2245/Chny/2016
are also dismissed.
Order pronounced on Friday, the 22nd day of June, 2018 at Chennai.
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