M/S. DIVINE EDUCATIONAL INSTITUTE AND SOCIAL DEVELOPMENT SOCIETY,NEW DELHI vs. ITO (EXEMPTIONS), GHAZIABAD

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ITA 380/DEL/2017Status: DisposedITAT Delhi16 May 2017AY 2012-136 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the corpus fund, received for a specific purpose of meeting capital expenditure, could not be considered part of the annual receipts of the educational institution. The Tribunal noted that the assessee had explained that the corpus fund was used for capital expenditure, such as purchasing a bus and contributing to building construction. The Tribunal relied on the decisions in ITO (E) vs. Smt. Basanti Devi & Shri Chakhan Lal Garg Education Trust (Delhi Bench), ITO vs. Gaudiya Granth Anuved Trust (Agra Bench), and Shri Shankar Bhagwan Estate vs. ITO (Calcutta Bench), which held that donations made with a specific direction to form part of the corpus are capital receipts and not assessable income. The Tribunal further reasoned that if the corpus fund is excluded, the remaining aggregate annual receipts of the assessee's educational institution would be less than Rs. 1 crore, making it eligible for exemption under Section 10(23C)(iiiad). Consequently, the Tribunal set aside the orders of the authorities below and directed the AO to grant the exemption. The issue of the exact figure of donation (Rs. 22,76,539/- vs. Rs. 22,00,000/-) was implicitly resolved by treating the entire amount as corpus and excluding it from taxable receipts.

What were the facts?

The assessee, Divine Educational Institute and Social Development Society, filed a return of income declaring NIL income for Assessment Year 2012-13, claiming exemption under Section 10(23C)(iiiad) of the Income Tax Act. The assessee runs Divine Public School. The Assessing Officer (AO) noted that the assessee received corpus donations of Rs. 22,76,539/- and revenue receipts of Rs. 96,36,555/-, totaling Rs. 1,19,13,094/-. As this aggregate receipt exceeded Rs. 1 crore and the assessee lacked registration under Section 12AA or Section 10(23C)(vi), the AO disallowed the exemption claim. The AO treated the corpus donation as part of total receipts and taxed the surplus of Rs. 22,76,539/-. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the AO's action, holding that aggregate annual receipts include corpus funds. The assessee appealed to the Income Tax Appellate Tribunal (ITAT).

What were the issues?

1. Whether the corpus donation of Rs. 22,76,539/- can be treated as part of the total receipts for the purpose of determining eligibility for exemption under Section 10(23C)(iiiad) of the Income Tax Act, and consequently, whether the assessee is eligible for such exemption. (Mixed question of law and fact, turning on Section 10(23C)(iiiad)). Assessee's arguments: The corpus donation of Rs. 22 lacs (stated as Rs. 22,76,539/- by AO) was received for a specific purpose (capital expenditure), used for purchasing a bus, and the balance for building construction. Therefore, it is a capital receipt, not a revenue receipt, and should not be included in aggregate annual receipts. The assessee relied on ITAT Delhi Bench in ITO (E) vs. Smt. Basanti Devi & Shri Chakhan Lal Garg Education Trust, ITAT Agra Bench in ITO vs. Gaudiya Granth Anuved Trust, and ITAT Calcutta Bench in Shri Shankar Bhagwan Estate vs. ITO. Revenue's arguments: The AO correctly calculated the aggregate annual receipts of the assessee trust, which exceeded Rs. 1 crore. Therefore, the exemption under Section 10(23C)(iiiad) was correctly disallowed.

Which sections of the Income-tax Act were involved?

Section 12AA,Section 10(23C)(vi),Section 2(24)(iia)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH - ‘SMC’ NEW DELHI

Before: SHRI BHAVNESH SAINI

For Appellant: Shri Somil Aggarwal, Shri Deepesh Garg, Advocate
For Respondent: Ms. Bedobani, Sr.DR
Hearing: 04//05/2017

This appeal by the assesse has been directed against the order of Ld. CIT(A) Ghaziabad dated 3rd December 2015 for assessment. Year 2012-13 on the following grounds :-

“1.That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.22,76,539/- on account of corpus donation and has further erred in treating the same as part of total receipts and that too by recording incorrect facts and findings and without observing the principles of natural justice.

Divine Educational Institute and Social Development Society vs. ITO

2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in taking the figure of donation at Rs.22,76,539/- instead of Rs.22,00,000/-.

3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in holding that assessee society is not eligible for exemption u/s 10(23C)(iiiad) of the Act.”

2.

Briefly the facts of the case are that the assessee trust is registered with the Registrar of Society, Uttar Pradesh, the assessee has claimed exemption u/s 10(23C)(iiiad) of the Act. The assessee presently is running an educational institution under the name and stile “Divine Public School” at Sikandrabad, Distt. Bulandshahr. The assesses filed return of income declaring NIL income by claiming exemption u/s 10(23C)(iiiad) of the Act. On perusal of the audited accounts it was revealed that assessee has received Rs. 22,76,539/- on account of corpus fund and revenue receipts of Rs. 96,36,555/-. The Assessing Officer therefore noted that assessee has gross receipts of Rs. 1,19,13,094/- which is more than Rs. 1 crore. Therefore provision of section 10(23C)(iiiad) would not apply because assessee has not been granted registration u/s 12AA nor registered u/s 10(23C)(vi) of I.T. Act. The claim of assessee of deduction u/s 10(23C) (iiiad) was disallowed and surplus of Rs. 22,76,539/- was taxed and added to the income of the assessee.

3.

The assessee reiterated the submissions before Ld. CIT(A) and it was explained that during the year under consideration assessee received Rs. 22 lacs from Shri Chaganlal Sharma, the founder member against the corpus fund for meeting out the capital expenditure. The Assessing Officer wrongly taken donation as Rs. 22,76,539/-.

The Assessing Officer added the corpus fund amount to gross revenue receipt. Since corpus fund was received with specific purpose and used for purchase of a bus for Page 2 of 6

Divine Educational Institute and Social Development Society vs. ITO school and balance amount has been used against building construction in next year.

Therefore order of the Assessing Officer is not justified. The assessee relied upon the order of ITAT Agra Bench in the case of ITO vs. Gaudiya Granth Anuved Trust 28 ITR 161 in which it was held that donation against corpus fund are capital receipt and are not liable to be taxed even if trust has not been granted exemption u/s 12A of I.T. Act.

Ld. CIT(A) however did not accept contention of the assessee and noted the aggregate annual receipt would not only include the revenue receipt but also the corpus fund .

The appeal of assessee was accordingly dismissed.

4.

Ld. Counsel for assessee reiterated the submissions made before authorities below and relied upon order of ITAT Delhi G Bench in the case of ITO (E) vs. Smt.

Basanti Devi & Shri Chakhan Lal Garg Education Trust in dated 19th January, 2011 in which para 10 to 13 held as under :-

“10. We have heard both the parties and have perused the material on record. The Tribunal, in the assesee’s own case for assessment year 2003-04. vide its order dated 30.1.2009 (supra), held that the amount received by the assessee trust from its settler, towards infrastructure fund, was not taxable in the hands of the assessee, despite the fact that the assessee trust was not registered u/s 12A of the Act in that year.

11.

The Hon'ble Delhi High Court, vide its order dated 23.9.2009, in (supra), have dismissed the Department’s appeal against the aforesaid Tribunal order, by observing as follows :-

“The respondent/assessee is admittedly a Charitable Organization which is a trust registered under the Indian Trust Act which has also been granted registration under the Income Tax Act w.e.f. 1.4.2003. The assessee received certain donations towards its corpus which had been deposited in the bank and the money was admittedly spent for acquiring land for construction of a college. In these circumstances, we are of the opinion that the CIT(A) as well as ITAT rightly concluded that the donations received towards corpus of the trust would be capital receipt and not revenue receipt chargeable to tax.

No question of law arises. Dismissed.” Page 3 of 6

Divine Educational Institute and Social Development Society vs. ITO

12.

The Department contends that the aforesaid High Court order is under challenge before the Hon'ble Supreme Court by way of a SLP filed by the Department. This, however, is not premise enough to allow the Department’s appeal, particularly when the High Court order has not been shown to have been stayed.

13.

In view of the above, respectfully following the High Court decision (supra) in the assessee’s own case for assessment year 2003-04, the grievance of the Department is rejected.”

5.

He has also relied upon order of ITAT Agra Bench in the case of ITO vs. Gaudiya Granth Anuved Trust 28 ITR(Tr) 161 (Agra) in which it was held as under :-

“Charitable trusts – Income of trust or institutions from contributions – assessee- trust had shown donation of Rs. 68,50,000/- from BBT, Mumbai-Assessing Officer computed assessment on total income of Rs. 68,70,000/- rejecting assessee’s contention that donations were received towards corpus of trust- CIT(A) deleted addition of Rs. 68,50,000/- out of addition of Rs. 68,70,000/- made by Assessing Officer- Held, facts of case under consideration are identical to facts of case decided by ITAT Delhi Bench in case of Smt. Basanti Devi & Shri Chakhan Lal Garg Education Trust and other orders of ITAT – Therefore, to maintain consistency, orders of ITAT are followed – Order of CIT(A) is confirmed –Appeal dismissed Held :

Facts of case under consideration are identical to facts of case decided by ITAT Delhi Bench in case of Smt. Basanti Devi & Shri Chakhan Lal Garg Education Trust and other orders of ITAT. Therefore, to maintain consistency, orders of ITAT are followed. Order of CIT(A) is confirmed. Appeal dismissed.”

6.

He has also relied upon order of ITAT Calcutta C Bench in the case of Shri Shankar Bhagwan Estate vs. ITO 61/ITD/196 in which it was held :-

“Donations made with a specific direction that they shall form part of the corpus of the religious trust are not income assessable, under s.2(24) (iia).”

7.

On the other hand Ld. DR relied upon orders of the authorities below and submitted that Assessing Officer has correctly taken aggregate annual receipts of the Divine Educational Institute and Social Development Society vs. ITO assessee trust which is more than Rs. 1 crore. Therefore exemption u/s 10(23C) (iiiad) has been correctly disallowed.

8.

I have considered rival submissions and material on record. It is not in dispute that assessee is an educational institution existing solely for education purposes. The assessee has revenue receipts of Rs. 96,36,555/- from running of educational institution. Assessee explained the Rs. 22 lacs have been received as corpus fund for meeting out capital expenditure from founder member. This fact is not disputed by the authorities below. Therefore the question is whether the corpus fund would be part of aggregate annual receipt of educational institution. In the case of ITO (E) vs. Smt.

Basanti Devi & Shri Chakhan Lal Garg Education Trust (Supra), It was held that the amount received by the assessee trust from its settler towards infrastructure fund was not liable to be taxed in the hands of the assessee, despite assessee trust is not registered u/s 12AA of I.T. Act. The order of Tribunal is confirmed by the High court.

The same order is followed by ITAT Agra Bench in the case of ITO vs. Gaudiya Granth Anuved Trust (supra). The same is the view of Calcutta Bench of the Tribunal in the case of Shri Shankar Bhagwan Estate vs. ITO (supra). The assessee therefore has been able to prove that corpus fund was received for meeting out capital expenditure which accordingly to explanation of assessee have been used actually to meet the capital expenditure. Further assessee society is different from education institution whose aggregate annual receipts are less than Rs. 1 crore. Therefore following the above orders of various benches of the Tribunal, I am of the view that corpus fund which is meant for specific purpose to meet out capital expenditure could not be part of annual receipts of educational institution, even if no registration u/s 12AA have been granted. If the corpus fund is excluded, the balance aggregate annual receipt of the Page 5 of 6

Divine Educational Institute and Social Development Society vs. ITO assessee’s educational institution would be less than Rs. 1 crore. Therefore assessee would be entitled for exemption u/s 10(23C)(iiid). In this view of the matter I set aside the orders of authorities below and direct the Assessing Officer to grant exemption to assessee u/s 10(23C)(iiid) of I.T. Act.

9.

In the result appeal of assessee is allowed.

Pronounced in the Open Court.

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