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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’ NEW DELHI
Before: SHRI S.V. MEHROTRA & SHRI SUDHANSHU SRIVASTAVA
ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: This appeal has been preferred by the assessee against the order of ld. CIT(A)-XXI, New Delhi dated 29.07.2011 and pertains to assessment year 1999-00.
The facts in brief are that the return was filed declaring nil income. The assessee is a society running Col. Satsangi Memorial 1 Assessment Year 1999-2000 School, Satbari, Mehrauli, New Delhi and two other educational institutions at Nawarangpur and Bhiwadi. There was a search and seizure operation u/s 132 of the Income Tax, 1961 on 15.01.1999 in the above case. Consequent to the search, the cases of the group were centralized with the then DCIT Central Circle-11, New Delhi.
The regular assessment for assessment year 1999-2000 was made on 27.03.2002 on a total income of Rs.1,57,48,783/-. In this assessment, the claim of the assessee for exemption u/s 10(23C)(vi) was denied. Against the assessment order, the assessee went in appeal and the CIT(A)-1 in Appeal No. 113/02-03, vide his order dated 10.07.2003, partially allowed the assessee's appeal. Against the order of the CIT(A), both the assessee and department filed appeals before the ITAT. Subsequently, the cases of the group were decentralized and the case of the above assessee was transferred to DDIT(Exemption), Investigation Circle-I, Delhi. The ITAT restored the assessment to the file of the Assessing Officer for fresh adjudication after ascertaining the position about the assessee’s application for approval u/s 10(23C)(vi) of the Act. The ITAT further directed that the assessee was to submit necessary details about its application having been filed for approval u/s 10 (23C) (vi) of the 2 Assessment Year 1999-2000 Act so that the Assessing Officer may forward the same to the competent authority prescribed for the purpose.
Subsequently, during assessment proceedings, notice u/s 143(2) was issued and in compliance thereto, the assessee filed a copy of the application for approval u/s 10 (23C) (vi) along with the relevant enclosures which was filed by the assessee with the Office of the Director of Income Tax (Exemption) on 30.3.1999. The DDIT(E) Delhi disposed of the assessee’s application for exemption 10 (23C) (vi) vide order dated 29.10.2012 rejecting the same.
During the set aside assessment proceedings, the assessee was denied the benefit of exemption u/s 11 and 12 as the assessee was not registered u/s 12A of the Act and in view of the assessee’s application for approval u/s 10 (23C) (vi) having been rejected, the income of the assessee was assessed at a gross total income of Rs. 1,57,48,783/-.
Aggrieved, the assessee preferred an appeal before the ld. CIT(A) who partly allowed the assessee’s appeal but upheld the denial of benefit u/s 11 and 12 of the Act and the consequent action of the Assessing Officer in bringing to tax the related income. 3 Assessment Year 1999-2000 Now, the assessee has approached the ITAT and has raised the following grounds of appeal:-
“ 1. That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the assessment order dated 31.12.2010, passed by the assessing officer under section 143(3) of the Act, without appreciating that the same having been passed without affording adequate opportunity of being heard to the appellant, is violative of the principles of natural justice and is, therefore, illegal and bad in law.
2. That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the action of the assessing officer, holding that the appellant is not eligible for exemption under section 10(23C)(vi) of the Act on the basis of rejection order dated 29.12.2010 passed by the DGIT (Exemption).
2.1 That the Commissioner of Income Tax (Appeals) erred on facts and in law in proceeding to dispose of the appeal of the appellant without waiting for the decision of the High Court in the Writ Petition filed by the appellant against the order of the DGIT (Exemption) was duly mentioned by the appellant.
3. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not setting aside the allegation of the assessing officer that the appellant had violated the aims and objects as provided in the Memorandum of Association.
4. That the CIT(A) erred on facts and law in confirming the disallowance of capital expenditure of Rs.1,44,09,078/- debited to the Income and Expenditure account, while computing income under section 10(23C)(vi) of the Act.
Assessment Year 1999-2000 5. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in charging interest under section 220(2) in the demand notice dated 31.12.2010 issued under section 156 of the Act on the ground that the same is not appealable under section 246 of the Act.
5.1 That the Commissioner of Income Tax (Appeals) erred on facts and in law in charging interest under section 220(2) on the ground that the same is not appealable under section 246 of the Act, that too, without affording opportunity of being heard to the appellant.
6. That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the action of the assessing officer in levying interests under sections 234A and 234B of the Act.
The appellant craves leave to add, alter, amend or vary from the aforesaid grounds of appeal before or at the time of hearing.”
At the outset, the ld. AR submitted that the Hon’ble Delhi High Court in a writ petition filed by the assessee in Director of Income Tax (Exemption) vs All India Personality Enhancement & Cultural Centre for Scholars (AIPECSS) 379 ITR 464 (Del) has set aside the order dated 29th December 2010 passed by the DGIT(E) dismissing the assessee’s application for approval u/s 10 (23C) (vi) and has restored the same to the file of the DGIT(E) for considering the Assessment Year 1999-2000 application afresh in light of the observations contained in the aforesaid order. It was submitted by the ld. AR that in view of the detailed observations of the Hon’ble Delhi High Court and the fact that the issue of approval u/s 10 (23C) (vi) having been restored to the file of the DGIT(E), the assessment should also be restored to the file of the Assessing Officer for fresh adjudication.
Ld. DR agreed to the assessee’s plea.
We have gone through the relevant record and have also heard both the parties at length. On perusal of the order of the Hon’ble Delhi High Court in the assessee’s own case as referred to above, we find that the Hon’ble High Court has observed in para 58 that the objects of the assessee society were solely for the purposes of education and not for the purposes of profit. The Hon’ble High Court has further observed that the distribution of surpluses was prohibited and further, in the event of dissolution of the assessee society, its assets would have to be transferred to another institution, carrying on similar activities and the same cannot be distributed to its members. The Hon'ble High Court further observed that the assessee has been running three schools that are Assessment Year 1999-2000 affiliated to CBSE and admittedly, this would not have been permissible in case the assessee did not exist solely for educational purposes and/or if the assessee was found to be pursuing the profit motive. The Hon'ble High Court also observed that the surpluses generated by the assessee were necessarily to be applied towards its charitable objects and, therefore, in view of the aforesaid, exemption cannot be denied by the assessee only for the reason that it had been generating surpluses. In para 73, the Hon'ble Delhi High Court has further observed that the activities of the assessee must be viewed in the overall perspective of its nature and its principal object and it was not disputed that the surpluses generated by the assessee could not be distributed to its members and there was also no allegation that funds of the assessee had been so distributed.
The Hon'ble High Court further observed that the fact that certain advances had been made to Col. Satsangi and some of his family members who were also involved in running the school cannot be construed as diluting the predominant object of the assessee which was managing schools and the substratal purposes of its activities was education. The Hon'ble High Court held that the assessee would quality for exemption u/s 10(22)10(23C) of the Act. 7 Assessment Year 1999-2000 9. Therefore, respectfully applying the ratio of the judgment of the Hon'ble High Court, we deem it fit to restore the assessment to the file of the Assessing Officer for re-examination and fresh assessment after duly considering the status of the assessee’s application for approval u/s 10 (23C) (vi) before the DGIT(E) and after giving proper opportunity to the assessee to present its case.
In the result, the assessee’s appeal stands allowed for statistical purposes.
Order pronounced in the open court on 11th May, 2017.