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Income Tax Appellate Tribunal, DELHI BENCH “G”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI PRASHANT MAHARISHI
ORDER PER H.S. SIDHU, JM
The Assessee has filed this appeal against the impugned order dated 07/11/2016 passed by the Ld. Commissioner of Income Tax(Appeals-2), Gurgaon relevant to assessment year 2012-13.
2. The grounds raised in the Appeal read as under:-
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. 53,91,212/-, inter-alia on account of running educational institution allegedly for profit motives.
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 not allowing the exemption u/s. 10(23C)(iiiad) and has further erred in observing that there is inter-alia a profit motive of the society and impugned order has been passed by recording incorrect facts and findings and without providing adequate opportunity of hearing.
3. That the assessee craves the leave to add, alter or amend the grounds of appeal at any stage and all the grounds are without prejudice to each other.
The brief facts of the case are that assessee filed its return of income on 31.3.2013 declaring NIL income and the same was processed as such. The case of the assessee was selected for scrutiny and statutory notices u/s. 143(2) of the I.T. Act, 1961 was issued on 24.9.2013. In response to the same the Assessee’s AR attended the proceedings.
Thereafter the case was transferred to other Assessing Officer due to change of jurisdiction w.e.f. 15.11.2014. Accordingly, notices u/s. 142(1)/129 of the I.T. Act, 1961 alognwith detailed questionnaire were issued on 5.12.2014, but nobody attended the case on the fixed date.
Thereafter, the case was again fixed by the AO by issuing notices u/s. 142(1) of the I.T. Act, 1961. In response thereto, the A.R. of the assessee attended the proceedings from time to time and furnished some details/ information. The Assessing Officer examined the information as furnished by the assessee and income of the Trust was assessed as AOP and denied exemption u/s. 10(23C)(iii)(ad) of the Act and the addition of Rs. 53,91,212/- i.e. surplus of profit shown by the assessee was made to the income of the assessee and exemption claimed u/s. 10(23C)(iiid) was denied and income of the assessee was assessed at Rs. 53,91,210/- vide order dated 04.3.2015 passed u/s. 143(3) of the I.T. Act, 1961.
4. Against the aforesaid assessment order dated 04.03.2015, assessee appealed before the Ld. CIT(A)-2, Gurgaon, who vide his impugned order dated 07.11.2016 has dismissed the Appeal of the Assessee by holding that the assessee organization is an educational institution being run for profit and thus ineligible for the exemption as claimed.
5. Aggrieved with the order of the Ld. First Appellate Authority, assesse is in appeal before the Tribunal.
Ld. Counsel of the assessee has submitted that Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs. 53,91,212/-, inter-alia on account of running educational institution allegedly for profit motives. He further stated that Ld. CIT(A) also erred in law and on facts in confirming the action of Ld. AO in not allowing the exemption u/s. 10(23C)(iiiad) and has further erred in observing that there is inter-alia a profit motive of the society and impugned order has been passed by recording incorrect facts and findings and without providing adequate opportunity of hearing. In view of the above, he requested that the orders of the revenue authorities may be quashed and the appeal of the assessee may be allowed. To support his contention, he filed the copy of the Synopsis which reproduced as under.
“The only effective issue in the present appeal is against the denial of exemption u/s 10(23C)(iiiad), on the ground that appellant society has made substantial profits and therefore cannot be said to exist for educational purpose which was the requirement of that section.
It is respectfully submitted that appellant society is running a school since 2000 and current strength of the students in the year under appeal is 621 number of students. It is duly recognized (Permanent Recognition) with the Directorate of School Education, Haryana since 2009 and is subject to control of various regulatory bodies in the field of education.
Appellant society has been filing returns of income since
2001. Copies of its returns of income for earlier years and subsequent years are enclosed in the paper book together with copies of assessment orders including assessment order passed u/s 143(3) in which exemption u/s 10(23C)(iiiad) has been allowed by the department.
It is submitted that appellant's society runs educational institutions and surplus is not distributed and cannot be distributed to anybody and is used for the purpose of expansion. Funds are strictly kept and utilized as per the objectives of the society and in the modes prescribed u/s 11
(5) of the Act. Capital investments are made keeping in view the objectives of the society and therefore, merely because there is surplus, it cannot be said that society exists for the purpose of profit. In fact after utilization towards the capital expenditure, there is no surplus as is evident from the plain reading of the assessment order itself. Any surplus by disregarding the capital expenditure cannot be said to be valid and justified as held in the following judicial decision:-
• Pine Grove International Charitable Trust Vs. UOI, 327 ITR
73 (P&H).
Therefore, case of the assessee is covered by the decision of Hon'ble Supreme Court in the case of Queens Educational
Society vs. CIT, 372 ITR 0699 and following other judicial decisions are as under.-
• CCIT vs. St. Peter's educational society, (2016) 385 ITR)l066, Supreme Court of India, wherein it is held that: • Gagan Education Society vs. Addl. CIT, (2012) 145 TTJ 0230, ITAT Agra Bench, wherein it is held that: Exemption under s. 10(23C) (iiiad)-Educational institution-
Profit motive-Assessee was running two schools and was thus engaged in the educational activities which fall under charitable purpose-Assessee is not required to get approval from any prescribed authority since the total receipt is less than Rs. 1 crore, limit prescribed in r. 2BC-Merely because surplus has arisen to the assessee during the course of carrying on the educational activity it does not mean that the assessee is not existing for education purpose-Assessee was therefore entitled to exemption under s. 10(23 C) (iiiad).
Ld. A.O. has made following adverse which are met as under:-
1. Ld. A.O. has mentioned that assessee society is earning
profit and creating asset from the profits and percentage of profit is increasing every year.
In reply, it is submitted enclosed is the chart in the paper book enclosed at PB 1-14 which shows that given the capital assets created in various years i.e. from AY
2009-10 to AY 2012-13, there was no significant surplus. Therefore, this objection of Ld. AO is misplaced.
2. Ld. A.O. has mentioned that appellant is creating assets
outside the school premises and not for the purpose of school and appellant trust has purchased land for Rs.
48.80 Lacs in district Palwal, which is at a distance from the school and no evidence of opening school have been filed.
In reply, it is submitted that opening or preparing for opening new school away from the existing school premises is not prohibited much less under the Income Tax Act. Schools are not set up over night and it is not the case of Ld. A.O. that land has been purchased in Palwal for some personal purpose.
Therefore, this objection of Ld. A.O. is neither here nor there.
3. Ld. A.O. has mentioned that assessee has purchased
FDR and earned interest on FDR and is having bank balances.
In reply, it is submitted that funds have to be kept in scheduled nationalized bank, which is one of the recognized modes prescribed u/s 11(5) under the Income Tax Act, 1961.
Therefore there cannot be any objection on this score.
Moreover, funds have to be kept so that when the need for capital investment arises, it can be used. If there are interest incomes, there cannot be any grievance on that score.
4. Ld. A.O. has mentioned that trustees of the trust are from one family.
In reply, it submitted that appellant is a trust and there is no prohibition that the trustees cannot be from one family.
Therefore all the objections of Ld. A.O. are misplaced and are not, recognized under the Income Tax Act.
Observations of Ld. CIT(A) are met as under:-
1. Ld. CIT(A) has mentioned that appellant has charged an aggregate amount of Rs. 3,43,702/- as medical fund from the students and also in the earlier year against which the expenses on medical are negligible and thus according to Ld.
CIT(A), appellant is interested in profit.
In reply, it submitted that medical funds on 621 nos. of students is quite reasonable and if there are not expenditure on that score, how can it be said that profit is being earned when such amounts are kept in the recognized bank so that any contingency that may arise may be met.
2. Ld. CIT(A) has mentioned that assessee is charging
transportation fee but expenses on transportation are less than the fee.
In reply, it is respectfully submitted that transportation requires investment and therefore, disregarding the concept of depreciation and saying that transportation fee is being charged, is not justified.
3. Similar observations has been made in respect of computer fee and tuitions fee but Ld. CIT(A) has also ignored
the investment in capital assets for the purpose of education.
It is not the case of Ld.CIT(A) that any funds have been used by the trustees or in an unauthorized manner.”
On the other hand, Ld. DR relied upon the order of the Ld. CIT(A) and stated that he has passed a well reasoned order which does not need any interference on our part. Hence, he requested that appeal of the assessee may be dismissed.
We have heard both the parties and perused the records. We find that during the year under consideration, the assessee Trust neither registered u/s. 12AA nor approved u/s.10(23C)(vi) of I.T. Act, 1961. The total receipts of the Trust is shown at Rs. 99,79,740/- out of which a total expenses of Rs. 45,88,528/- has been claimed and surplus (net profit) of Rs. 53,91,211.59 has been shown and claimed exempted u/s. 10(23C)(iii)(ad) of I.T. Act, 1961 being Education Trust as total receipts of the Society are below Rs. 1 Crore. We find that according to Section 10(23C)(iii)(ad) of the I.T. Act, it is held that “Any university or other Educational Institution existing solely for educational purpose and not for purpose of profit, if the aggregate receipt of such University or Educational Institution does not exceeding Rs. 1 Crore.”
8.1 But we find that in this case, the Trust is not fulfilling the above conditions and it is clear that the Trust is not existing for educational purpose but also for earning profit and creating assets from the profit earned and his profit receipt and percentage of profit is increasing every year. It is clear from the chart of surplus or profit of last 4 year which is as under:-
A.Yr. Profit Receipts Percentage 2012-13 Rs. 53,91,212/- Rs.99,79,740/- 54.02% 2011-12 Rs. 36,34,141/- Rs.74,93,067/- 48.50% 2010-11 Rs. 14,22,549/- Rs. 55,56,294/- 25.60% 2009-10 Rs. 4,55,852/-- Rs.39,96,019/- 11.40% 8.2 From the above, it is clear that the receipts and Profit percentage of the Trust is increasing every year and Trust is creating assets outside the school premises run by the Trust and not for purpose of the school run by the Trust. The Trust has purchased land for Rs. 48.80 lacs in Distt. Palwal during the year under consideration and also purchased land in next year as per sale deed filed by the assessee, detail is given below:-
Date of Sale deed Land Measurement Amount of Sale deed 01.02.2012 6 kanal 11 marla Rs. 28,65,700/- 01.02.2012 1 kanal 15 marla Rs. 7,65,700/- 14.06.2012 6 kanal Rs. 25,00,000/- 12.03.2014 1 kanal 18 marla Rs. 8,00,000/- 8.3. We note that the Trust is running a school in Sector - 5, Gurgaon, whereas the land has been purchased in Distt. Palwal which is on far distance from this school. The purpose of the purchase of land was asked from the assessee and he simply told that the purpose of land is to open new school, but no evidence was filed in this regard.
8.4 Besides the above land, the Trust has also purchased the following FDRs from Bank:-
Syndicate Bank 3 lac 23.04.2008 2. Syndicate Bank 5 lac 19.03.2011 3. Syndicate Bank 10 lac 28.05.2011 4. Karnatka Bank 4 lac 30.03.2011 5. Karnatka Bank 4 lac 19.03.2011 8.5 We further note that the Trust has also earned Rs. 11,45,330/- interest on these FDRs, beside these, he has also earned interest of Rs. 79,374/- on S.B. Alc. During the year ,under consideration. Bank Balance on S.B. A/c as on 31.03.2012 was as under:-
Sr. No. Name of Bank Interest Amount
1. OBC Bank, Sec-5, Gurgaon. Rs. 25,858.23
Syndicate Bank, Delhi. Rs. 22,56,063.39
3. Karnatka Bank Rs. 74,510.19
Allahabad Bank Rs. 1,38,642.00
OBC Bank, Kanahi, Gurgaon. Rs. 25,858.23 8.6 On going through the above details, we are of the considered view that all the Trustee of the Trust are also from one family of Sh.
Balwant Rai Satija and it is seems to be a family Trust and address of all these trustee are shown as under: - Sr.No Name of Family Member Address
1. Late Smt. Usha Satija 54, Satya Niketan, Moti Bagh-II, New Delhi. W/o Sh. Balwant Rai Satija 2. Sh. Balwant Rai Satija -do- 3. Ms. Aprajita -do- D/o. Sh. Balwant Rai Satija 4. Dr. Sarvesh Satija -do- S/o. Sh. Balwant Rai Satija 5. Dr. Bajinder Singh 73, Satya Niketan, Moti Bagh-II, New Delh 8.7 From the above, it is clear that all the Trustee are belonging to the family of Sh. Balwant Rai Satija and the motto of the Trust is to run the Educational school and to earn profit and creating a assets. Therefore, the Trust has not fulfilled the conditions of section 10(23C)(iii)(ad) of I.T. Act and therefore, the Trust is not eligible for exemption u/s 10(23C)(iii)(ad) of the I.T. Act and the same was rightly denied. We further note that the case laws cited by the Ld. Counsel of the assessee are not applicable because the assessee is earning profit year by year and purchasing the property, making FDRs and also earning interest thereon and most importantly, the Assessee is a family Trust and earning profit/benefits and net achieving the objects of the Trust. Accordingly the income of the Trust was assessed as AOP and exemption u/s. 10(23C)(iii)(ad) was rightly not allowed and the addition of Rs. 53,91,212/- i.e. surplus of profit shown by the assessee was made to the income of the assessee and exemption u/s. 10(23C)(iii)(ad) which was rightly been confirmed by the Ld. CIT(A), by holding that assessee organization is an educational institution being run for profit and thus ineligible for the exemption as claimed, which does not need any interference on our part, hence, we uphold the order of the Ld. CIT(A) and dismiss the appeal of the assessee.
In the result, the Assessee’s Appeal stands dismissed.
Order pronounced in the Open Court on 12/05/2017.