M/S. HERO'S EDUCATION AND WELFARE SOCIETY,BHOPAL vs. THE ACIT 3(1), BHOPAL

आदेश /O R D E R

PER O.P. MEENA, ACCOUTANT MEMEBR. This appeal is filed by the assessee against the order of

ld. Commissioner of Income-tax (Appeals)-II, Bhopal

[hereinafter referred to as the CIT(A)] dated 06.01.2015 and

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pertains to assessment year 2010-11 as against appeal

decided in assessment order passed u/s 143(3) of the Act

dated 28.03.2013 of ACIT, 3(1), Bhopal [hereinafter referred to

as the AO].

assessee society is an educational institution registered under

the M.P. Society Registrikaran Adhiniyam, 1973. It is also

registered u/s 12A of the Income-tax Act, 1961, vide CIT

Bhopal order dated 31.12.2003 w.e.f. 21.01.2003. As per

return filed on 29.09.2011, excess of income over expenditure

has been declared at Rs. 9,41,272/- which has been claimed

as exempt u/s 11 of the Income-tax Act, 1961. Alternatively, it

has also claimed exemption u/s 10(23C)(iiiad) during

assessment proceedings as its gross receipts are less than Rs.

1 crore during the year under consideration . Vide order dated

28.03.2013 passed u/s 143(3) of the Act, its income has been

assessed at Rs. 1,30,71,470 by denying its claim of exemption

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of Rs. 9,41,272/- and making further additions of Rs.

58,63,000/- for STCG on sale of land and of Rs. 62,67,200/-

for unexplained cash credits u/s 68 received mainly from

society members. The assessee society has been denied

claimed exemption u/s 11 and u/s 10(23C)(iiiad) as claimed

during assessment proceedings.

the ld. CIT(A).

has submitted that the assessee society was entitled to

exemption u/s 10(23C)(iiiad) as its gross receipts are less than

Rs. 1 crore. It has further stated that a copy of the

Memorandum of the Society was provided to the AO. The very

first three objects mentioned in the memorandum are

dedicated to the providing of education through establishment

of schools, there are other objects also mentioned in the

memorandum, which are all charitable in nature as spelt out

in Section 2(15) of the Income-tax Act, 1961. But these objects

are not pursued at all by the assessee. However, in the

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opinion of the assessee, merely on the basis of there being

other objects mentioned in the memorandum of which only

educational objects are being pursued, it cannot be said that it

did not exist solely for the purposes of education. The ld.

CIT(A) upheld the finding of the AO on the ground that the

emphasis in Section 10(23C) is on the word ‘solely’. ‘Solely’

means exclusively and not primarily. Also, the word ‘education

has not been used in that wide and extended sense, according

to which every acquisition of further knowledge constitutes

education. The Society has also been regularly earning

surplus/profits year after year.

before us.

assessee institution is running only educational institution. No

activity has been undertaken except educational activities. It

had never been doubted that the assessee was doing

educational activities only. The Ld. Counsel for the assessee

submitted that merely if the object provided for other

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charitable activities, but no activities, in fact, are carried, the

assessee cannot disentitle for exemption. It was contended

that the society has been existing solely for educational

purposes and this is well established from the fact that the

assessee has not done any activity other than educational

during the year under consideration or in any other years in

the past. This can be verified from the balance sheet filed

alongwith return. Section 10(23C)(iiiad) of the Act provides

exemption to any University or other educational institutions

existing solely for educational purposes and not for purpose of

profit. If the aggregate annual receipt does not exceed the

prescribed limit, the Section contemplates that objects should

be exclusively and solely for the purpose of education, the

words used “Institution existing solely for educational

purposes”. Thus, Section 10(23C)(iiiad) of the Act

contemplates that the activity should be solely for the

purposes of education. In support of this proposition, the Ld.

Counsel for the assessee has placed reliance on the decision of

Hon'ble Supreme Court in the case of Surat Art Silk Mfg.

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Association, 121 ITR 1 ( S.C.) and Federation of Indian

Chambers and Commerce Industries, 130 ITR 186 ( S.C.) in

which it was held “if the dominant or primary purpose of the

association is charitable, the subsidiary object would not

mitigate against the charitable character. The ld. Authorized

Representative of the assessee further placed reliance in the

case of Harf Charitable Trust, 63 taxmann.com 53 (P&H),

wherein it was held that merely because one of the clauses of

the trust deed of the assessee trust provide that the trust

could carry on other business as decided by the trustees, it

would not per se dis-entitle trust from being considered for

registration u/s 10(23C)(vi). In the case of ITO vs. Shri Balaji

Prem Asharam, 64 taxmann.com 112 (Chd), where assessee-

trust was carrying out activity of education during relevant

year and its receipt from said activity was less than Rs. One

crore, assessee’s claim for exemption u/s 10(23C)(iiiad) of the

Act could not be rejected on ground that it had mentioned

other objects also in trust deed. The ld. Authorized

Representative of the assessee further relied in the case of

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Allahabad Young Men’s Christian Association, 371 ITR 23 (

All), wherein it was held that merely because there are other

objects of society does not mean that educational institution is

not existing solely for educational purpose. Same view was

also held in the case of Neeraj Janhitkari Gramin Sewa

Sansthan v. Chief Commissioner of Income-tax, (2014) 49

taxmann.com 535 (Alld.) and C.P. Vidya Niketan Vidya

Shikshan Sansthan, 359 ITR 322 (Alld). The ld. Authorized

Representative of the assessee further contended that the

exemption u/s 10(23C)(iiiad) of the Act is available to

institution and not to assessee. The society running a hospital

and also medical college would be applicable u/s 10(23C)(iiiad)

as well as u/s 10(23C)(iiiae) of the Act as each institution is to

be seen separately. In the present case, the assessee is

running two institutions one college and another was school.

Both the institutions were having educational purposes. There

may be various other purposes in the objects, but the specific

purpose for which these institutions are only “educational

purposes”. The Ld. Authorized Representative of the assessee

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further cited a decision in the case of CIT vs. Children’s

Educational Society, (2013) 34 taxman.com 285 (Karnataka),

wherein it was held that if an assessee is running several

educational institutions and if any of them is wholly or

substantially financed by the Government, then the income

from such educational institution received by the assessee is

not included while computing its total income. Similarly,

income from each educational institution if they are not

receiving any aid from the Government wholly or substantially

in respect of which the aggregate annual receipt does not

exceed Rs. 1 crore is also not included while computing

annual total income of the assessee.(para 23). The Ld.

Authorized Representative of the assessee further supported

his view by placing reliance in the case of Jat Education

Society vs. Dy. CIT, (2011) 47 SOT 35 (Del), CIT vs. Children’s

Education Society,(2013) 358 ITR 373 (Karnataka), U.P. Forest

Corpn. Vs. Dy. CIT, (2008) 297 ITR 1 ( S.C.), Birla Vidya Vihar

Trust, 135 ITR 144. The Ld. Authorized Representative of the

assessee further submitted that the use of the phrase “solely”

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qualifies the words not for the purpose of profit. As per

Section, the Institution shall be for educational purposes and

not for the purpose of profit. Using the words “not for the

purpose of profit” is an important phrase. It was further

explained that when any society is created, the bye-laws are

always provided in the widest sense. The reason is that the

institution wants to assure that all the intended activities are

carried on, which may promote the base objective.

further submitted that case laws relied upon by the ld. CIT(A)

are distinguishable on facts. The Ld. Authorized

Representative of the assessee submitted that in the case of

Delhi Stock Exchange Association, 225 ITR 235 ( S. C.), the

assessee was running a stock exchange and did not had a

clause that the profits shall be used for charitable purposes.

But the profits could be distributed to shareholders. In that

background, it was held that there must be an obligation to

spend the money exclusively and essentially on charity. In the

present case, there was no such obligation, more so, profit

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could be distributed by way of dividends. Distribution of

profits, is a very different thing from having other charitable

objects. In the case of Dharmaposhanam Co., 114 ITR 463 ( S.

C.), the Trust was partly a charitable trust and partly for profit

purposes. It was doing certain business like manufacturing of

kuris and money lending as a commercial activities. It was,

therefore, held that such objects are not charitable purposes

but for the purpose of profit. In the present case, the other

objects are also charitable and it cannot be said that the

objects are for profit making. In the case of Sole Trustee, Lok

Shikshana Trust, 101 ITR 234 ( S. C.), the word “education”

has been discussed. It is stated that every advancement of

knowledge is not education, whereas the assessee is running a

school and a college. Running an educational institution of

this sort, definitely prepares people for the work of life.

orders of AO as well as ld. CIT(A) and submitted that the

objects of the society were multifarious. Hence, the same

cannot be treated as solely objective for the purpose of

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education. Therefore, the ld. CIT(A) was right in upholding the

findings of the AO.

perused the material available on record. The undisputed fact

of the case are that the assessee society does not possess

registration u/s 12A of the Act for the year under

consideration . However, it can claim exemption u/s

10(23C)(iiiad) of the Act, if the condition enumerated therein

are satisfied. We find that aggregate annual receipt of the

society does not exceed the amount of Rs. 1 crore for both the

assessment years under consideration. Therefore, the only

issue remains to be analyzed whether the assessee is existing

solely for educational purposes and not for the purpose of

profit. From the perusal of the balance sheet and income and

expenditure account placed in the paper book, it is noticed

that the only activity carried out by the assessee during the

year is relating to education only. It is also not the case of the

AO that the assessee has carried out any other activity other

than educational during the year under consideration. The

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assessee may be having many other objects in Trust Deed, but

during the year under consideration, the assessee has not

carried out any other activities other than education. There is

no allegation by the AO that the assessee has deviated from its

objects and the assessee is carrying on other activities other

than education. The perusal of the assessment order shows

that imparting of educational nature of activities carried on by

the assessee has not been doubted by the AO. The provisions

of Section 10(23C)(iiiad) of the Act reads as under :-

“(iiiad) any university or other educational institution

existing solely for educational purposes and not for

purposes of profit if the aggregate annual receipts of

such university or educational institution do not

exceed the amount of annual receipts as may be

prescribed; or……

exemption u/s 10(23C)(iiiad) of the Act is available to an

institution, which is solely exists for educational purposes.

Therefore, the phrase used as “solely” means that not for the

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purposes of profit. Therefore, plain reading of the said Section

means that an educational institution, which is engaged solely

for the purpose of imparting education is solely for the

purpose of imparting education is qualifies for the exemption

u/s 10(23C)(iiiad). The “solely” words used therein means that

the assessee institution is not carrying out other activities of

earning of profit. We have gone through the case laws relied

upon by the ld. Authorized Representative of the assessee. We

find that in the case of CIT vs. Children’s Educational Society,

(2013) 34 taxman.com 285 (Karnataka), wherein it was held

that if an assessee is running several educational institutions

and if any of them is wholly or substantially financed by the

Government, then the income from such educational

institution received by the assessee is not included while

computing its total income. Similarly, income from each

educational institution if they are not receiving any aid from

the Government wholly or substantially in respect of which the

aggregate annual receipt does not exceed Rs. 1 crore is also

not included while computing annual total income of the

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assessee. Similarly, in the case of Neeraj Janhitkari Gramin

Sewa Sansthan, (2014) 49 taxmnn.com 535 (All), it was held

that mere presence of objects in memorandum providing for

other charitable activities would not disentitle a society to

claim approval u/s 10(23C)(vi), where it is established that

institution is, in fact, carrying on only educational activities.

Similarly, in the case of Harf Charitable Trust, 63

taxmann.com 53 (P&H), wherein it was held that merely

because one of the clauses of the trust deed of the assessee

trust provide that the trust could carry on other business

activity as decided by the trustees, it would not per se dis-

entitle trust from being considered for registration u/s

10(23C)(vi) of the Act. Similarly, Hon'ble Supreme Court in the

cases of Surat Art Silk Mfg. Association, 121 ITR 1 ( S.C.) and

Federation of Indian Chambers and Commerce Industries, 130

ITR 186 ( S.C.) in which it was held “if the domain or primary

purpose of the association is charitable, the subsidiary object

would not mitigate against the charitable character. Thus, we

are of the opinion that the society has not carried out any

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other activities other than education during the year under

consideration , then it is eligible for exemption under section

10(23C)(iiiad) of the Act. In the case of the assessee, we find

that the assessee society has not carried out any other activity

other than education, therefore, the assessee is eligible for

deduction u/s 10(23C)(iiiad) of the Act. Similarly, in Geetanjali

Education Society vs. Assistant Director of Income-tax

(Exemption), (2014) 101 DTR 337 (Kar), Hon'ble Karnataka

High Court has held as under :-

(Head Note)

“Exemptions – Incomes of certain trusts of national

importance, universities, educational institutions,

hospitals, etc. – Allowability – Assessee Society filed its

return of income declaring it ‘Nil’, claiming exemption u/s

10(23C)(iiiad) – AO in reopening proceedings determined

total income of Society at Rs. 23,90,710 for assessment

year 2006-07 and Rs. 37,72,420/- for assessment year

2007-08 declaring their income excess over expenditure

holding that Society was not existing solely for educational

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purpose, since it included certain objects in its

Memorandum not connected with education and was,

therefore, not entitled for exemption u/s 10(23C)(iiiad) –

Assessee filed appeal before Commissioner (Appeals) who

allowed appeal for both assessment years holding that

Society had not carried on any activity other than

educational activity and granted exemption –Revenue filed

appeal before tribunal – Tribunal allowed appeal holding

that Society included certain objects, not connected with

education in its memorandum of objects and, therefore, it

cannot be regarded as existing solely for purposes of

education – Held, in absence of any allegation or material

against society showing that they are involved in any

other activities than educational activities, it cannot be

denied exemption u/s 10(23C(iiiad) – View taken by

Tribunal is not correct.”

of Rampyari Devi Charitable Trust vs. DGIT, (Del) in

W.P.No.4725/2012 and C.M. No. 9795/2012 dated 24th

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September, 2015, wherein the Hon'ble Supreme Court has

held as under :-

“We find that it is an admitted fact in the present

case that the only activity of the petitioner is that of

running of a school and that the petitioner is not

indulging in any activity for the purposes of profit

and these are the only requirements for grant of

approval and, therefore, in the same manner in the

case of Digambar Jain Society, we issue a writ of

mandamus directing the respondents to grant

approval to the petitioner under Section 10(23C)(vi) of

the Act for the assessment year 2011-12 onwards.”

Similarly, in para 10 & 11 of the said decision, the

Hon'ble High Court held as under :-

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present case are squarely covered by the above decision.

Therefore, we are of the considered opinion that the lower

authorities were not justified in not allowing the deduction to

the assessee u/s 10(23C)(iiiad) of the Income-tax Act, 1961.

Accordingly, the AO is directed to treat the Society as covered

by Section 10(23C)(iiiad) of the Act and allow the relief

accordingly. Accordingly, ground no.1 is allowed.

rejection of registration u/s 12AA of Income-tax Act, 1961,

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and consequently upholding the addition of Rs. 9,41,272/-

based on wrongful rejection of registration u/s 12AA of the

Act.

are that the assessee society is registered u/s 12A of the IT Act

vide CIT Bhopal order No. 58/2003-04 dated 31.12.2003 w.e.f.

21.01.2003 and accordingly the society has claimed exemption

of income over expenditure during the year under

consideration. However, the AO noted that the registration

u/s 12AA was granted to the assessee society with the

following conditions :-

“The return shall be regularly filed by the Society within

the prescribed time as per sub-section 4A read with

Explanation -2 below sub-section (1) of Section 139. The

certificate shall cease to have effect in case of non-

compliance of this requirement.”

consideration has filed its return of income on 29.09.2011.

Hence, the return is delayed by almost one year, therefore, the

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AO held that the certificate granting registration u/s 12A is

ceased to exist. Consequently, the AO held that the assessee is

not entitled for exemption u/s 11 of the Act.

before the ld. CIT(A), who echoed the assessment order of the

AO.

assessee has filed its return of income u/s 139(4A), hence, the

registration granted by the CIT, Bhopal, has not ceased to be

exist as the return so filed is as per the conditions prescribed

by granting the registration to the Society.

order of the A.O.

assessee has failed to file return of income u/s 139(4A) read

with section 121 to Section 139(1). In our considered view, for

making eligible to exemption u/s 11 in accordance with the

certificate granted u/s 12A by the CIT, Bhopal, the assessee

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should have filed its return of income within the due date as

prescribed u/s 139(1) of the Act read with Explanation 2 to

Section 139(1) of the Act and in accordance with the

provisions of Section 139(4) of the Income-tax Act, 1961. Since

the assessee has failed to furnish the return as per the terms

and conditions laid down while granting the registration to the

Society, the AO has correctly rejected and held that the

assessee is not eligible to exemption u/s 11 as its registration

has been ceased to exist for the assessment year under

consideration for non-compliance of the terms and conditions

stipulated while granting certificate u/s 12AA by the

Commissioner of Income-tax, Bhopal. Accordingly, ground no.

2 & 3 of the appeals are dismissed.

58,63,000/- as surplus on sale of land as short term capital

gain.

assessee has shown Rs. 58,63,000/- as surplus on sale of

land under the head “General Fund”. Since the assessee did

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not provide any details whatsoever regarding value of sale

consideration, indexed cost of acquisition, cost of improvement

if any etc. In view of rejection of 12A to the assessee, the profit

earned on this transaction, was held as short term capital gain

and added back as chargeable to tax.

found to be entitled for exemption u/s 11. The submissions

made by the assessee were found to be devoid of merits.

Further, the only evidence furnished by the assessee was a

photocopy of described the property in question one acre land

situated at Village Khajurikhurd, which has been transferred

in the land records in the name of the assessee through its

President Shri Isam Singh Morye since 22.11.2003 and as

being sold to M/s. Essarjee Construction (P) Limited through

its Managing Director, Shri Sunil Kumar Gupta for Rs.

62,50,000/-. The assessee has paid Rs. 18,50,000/- in cash

on 08.07.2009 whereas Rs. 11,00,000/- has been paid

through cheque on various dates. Since the assessee was

found to be liable and the land transferred in the name of the

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assessee w.e.f. 12.11.2003, the ld. CIT(A) has held that the

assessee has to pay long term capital gain on sale of this land.

Accordingly, the AO was directed to compute long term capital

gain on such transaction.

before us.

assessee has purchased the land for Rs. 3,87,000/- and same

was sold for Rs. 62.50 lakhs during the year under

consideration. Accordingly, the assessee has earned a sum of

Rs. 58.63 lakhs as surplus. Since the assessee has been

granted exemption u/s 11A and the assessee has having

invested a sum of Rs. 2,76,33,075/- on account of

purchase/construction of land and building for school. Thus,

the assessee has spent much more than the sale value of the

property sold and eligible for exemption u/s

10(23C)(iiiad)/11(1A) of the Act. Hence, no addition on this

account is required to be made.

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orders of the lower authorities.

assessee is found to be eligible for exemption u/s

10(23C)(iiiad) of the Act, hence surplus earned on account of

sale of land at Rs. 58.68 lakhs has been applied for purchase

of construction of land amounting to Rs. 276 lakhs. Hence,

the surplus earned on this transaction by the Society not

taxable, as the income of the society is held as exempt in our

finding as given in ground no.1 above. This ground is,

therefore, allowed.

unsecured loan amounting to Rs. 62,67,200/-, the identity of

creditor, capacity to pay and the genuineness of the

transaction was proved beyond doubt before the CIT(A)-II.

has made addition of Rs. 62,67,200/- on account of

unsecured loan raised by the assessee. The AO noted that the

assessee did not provide any details nor submitted any

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documents in support of creditworthiness and genuineness of

the loaners and the only documents provided by the assessee

is an agreement of loan regarding Rs. 20 lakhs. Another Rs. 20

lakhs and a sum of Rs. 10 lakhs borrowed by Shri Morye. The

AO noticed that the sale deed was entered on 29.03.2010 with

the Society through Shri I. S. Morye, who happens to be the

President of the Society between Mr. Anand Chaturvedi, Shri

Sushil Chaturvedi, Shri Sumant Chaturvedi for sale of land

and building pertained to village Hathikheda for sale

consideration of Rs. 2.50 crores. The sale deed specified that

an amount of Rs. 80 lakhs was out of total sale consideration

was paid by cheque as well as by cash. Thus, the AO

concluded that this is a syphoning of funds of the society for

personal interest of Shri I. S. Morya through the above

channels, hence the AO made addition of Rs. 62,67,200/-.

found to have shown unsecured loan from its members, who

in turn, have received the same from parties, who have

entered into agreement for sale of immovable property with the

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President of the Society for Rs. 2.50 lakhs and payment for

which have been made out of funds of the assessee society.

Thus, there has been diversion of assessee society fund for

personal benefit of specified person in violation of provisions of

Section 13 of the Income-tax Act, 1961. Since the income of

the assessee found assessable as per normal provisions of

Income-tax Act from business income, provisions of Section 68

are found applicable, hence, the ld. CIT(A) upheld the action of

the AO.

before us.

assessee has filed confirmation of the creditors, who were the

office bearer and have brought the money as loan to the

society for the purchase of the building of the society. The

Bank statements have been furnished and the source of

source is also established for the purpose of registration

within the stipulated period, the office bearers raised the loans

and have given the loan to the society. The Court cases are

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going on for the recovery of this amount from the respective

creditors. The Ld. Authorized Representative of the assessee

also filed the copies of the same as a corroborative evidence.

Therefore, it was submitted that all the creditors are income

tax assessees and have confirmed the transactions and have

also explained the source of source. Therefore, under no

circumstances, the addition can be made in view of the

judgement of Hon'ble M.P. High Court in the case of Metachem

Industries, 245 ITR 160 and Pithampur Coetza, 240 ITR 442

(M.P.). The Ld. Authorized Representative of the assessee

further submitted that even otherwise if the claim u/s

10(23C)(iiiad) or Section 11 is considered, all the income would

be exempt, since it has been applied for the object of the

society. The Ld. Authorized Representative of the assessee

further submitted that observation of the AO that funds of the

assessee society have been syphoned off for the personal

interest of Shri I. S. Morya, President of the Society is also

without any merits as the Office bearers have advanced loans

to the Society and in turn, Society have purchased land for its

I.T.A.No. 232/Ind/2015-A.Y.2010-11 M/S.HERO’S EDUCATION & WELFARE SOCIETY, BHOPAL. Page 28 of 29

use. Therefore, it is not understood as to how the personal

interest of the office bearer is involved.

orders of the lower authorities.

We find that the Society is eligible for exemption u/s

10(23C)(iiiad) as held in ground no.1 above. Further, the

assessee has filed the confirmations of the creditors explaining

the source of source, who in turn, obtained loans from the

persons, who are also facing Court cases for non return of

such loans. Further, the amount has been invested by the

Society in land and building. Hence, the borrowed funds have

been utilized for the benefit of the Society. Therefore, the

finding of the lower authorities are without any basis and not

in accordance with law. Therefore, the addition made on

account of unexplained cash credit is deleted.

I.T.A.No. 232/Ind/2015-A.Y.2010-11 M/S.HERO’S EDUCATION & WELFARE SOCIETY, BHOPAL. Page 29 of 29

10th January, 2017.

Sd/- Sd/- (डी.ट�.गरा�सया) (ओ.पी.मीना) �या�यक सद�य लेखा सद�य (D.T.GARASIA) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER

�दनांक /Dated : 10th January, 2017.

CPU*