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Before: Shri H.S. Sidhu
These appeals are filed by the assessee against the separate orders both dated 29.8.2017 passed by Ld. CIT(A), Dehradun for Assessment Years 2014-15 & 2015-16 respectively. Since the issues involved in these appeals are common and identical, hence, the appeals were heard together and are being disposed of by this common order for the sake of convenience, by dealing with ITA No. 6954/Del/2017 (AY 2014-15).
The grounds raised in both the appeals are common, hence, we are only reproducing the grounds raised in ITA No. 6954/Del/2017 (AY 2014-15) as under:- 1. That in the facts and the circumstances of the case and in law the impugned order passed under section 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals), Dehradun is based on conjectures, surmises, assuming incorrect facts and incorrect application of Law. 2. That the Ld. Commissioner of Income Tax (Appeals), Dehradun has erred in law and on facts in cancelling the approval u/s 10(23C)(vi) by making the following observations:
a. That there "is No Element of Charity and the activities are purely commercial in character.
b. That the main aim of the assessee seems to be to earn huge surplus every year and invest it in the form of addition to school building and other infrastructure. 3. That in any case and in any view of the matter, action of Ld.CCIT is cancelling the approval U/S 10(23C)(vi) is bad in law and against the facts and circumstances of the case and is contrary to the principles of natural justice as the impinged order has been passed without granting adequate opportunity of hearing, by recording incorrect facts and findings and without providing the opportunity of cross examination and appellant ought to have been granted benefit of approval under the law. 4. That the appellant craves for right to amend /modify/drop or add to the above grounds of appeal. 5. The above grounds of appeal are independent of each other. 6. Detailed statement of facts shall be filed at the time of hearing of the appeal.
The brief facts of the case are that AO treated the assesse as an AOP following denial of exemption u/s. 10(23C)(vi) and also on account of the fact that no registration u/s. 12A of the Act had been granted to the assessee by the Ld. CIT, Dehradun. During the course of assessment proceedings, the AO has taxed the surplus of income over expenditure of Rs. 5,84,869/-. He has also disallowed the expenses for health camp and blanket distribution amounting in total to Rs. 1,73,635/-. Thus, a total amount brought to tax by the AO was Rs. 7,58,504/- against the declared taxable income of Rs. NIL vide his order dated 25.7.2016 passed u/s. 143(3) of the Act. Against the assessment order, the Assessee appealed before the Ld. CIT(A), who vide his impugned order dated 29.8.2017 has partly allowed the appeal of the assessee by deleting the addition of Rs. 1,73,635/- and upheld the action of the AO in treating the assessee as an AOP and not bringing the surplus to tax and confirmed the addition of Rs. 5,84,869/-.
Being aggrieved by the same, the assessee is before the Tribunal.
At the time of hearing, Ld. Counsel of the assessee submitted that the issue relating to grant of approval u/s. 10(23C)(vi) of the Act in both the appeals is squarely covered by the Coordinate Bench-C, ITAT, New Delhi in assessee’s own 2
case decided on 30.1.2018 title Bhartiya Gram Sewa Niketan Udyog Mandal vs. CCIT, Dehradun passed in ITA No. 3708/Del/2015 (AY 2013-14) wherein the Tribunal has granted the approval u/s. 10(23C)(vi) of the Act and allowed the appeal of the assessee. In view of above, he requested to follow the same ratio in the both the present appeals and appeals of the assessee may be allowed.
On the contrary, Ld. DR relied upon the orders of the authorities below and reiterated on the the findings of the authorities below.
I have heard both the parties and perused the records, especially the impugned order as well as the decision of the Coordinate Bench-C, ITAT, New Delhi in assessee’s own case decided on 30.1.2018 title Bhartiya Gram Sewa Niketan Udyog Mandal vs. CCIT, Dehradun passed in ITA No. 3708/Del/2015 (AY 2013-14) wherein the Tribunal has held as under:-
“7. We have heard both the parties and perused all the records placed before us. The Hon’ble Uttarakhand High Court decision in case of CIT vs. Queens’ Education Society was overruled by the Hon’ble Supreme Court wherein it is held that: 23. The Punjab and Haryana High Court, by the impugned 29th judgment dated January, 2010 expressed its dissatisfaction with the view taken by the Uttarakhand High Court in the case of Queen’s Educational Society as follows:
“8.8 We have not been able to persuade ourselves to accept the view expressed by the Division Bench of the Uttrakhand High Court in the case of Queens Educational Society (supra). There are variety of reasons to support our opinion. Firstly, the scope of the third proviso was not under consideration, inasmuch as, the case before the Uttrakhand High Court pertained to Section 10(23C)(iiiad) of the Act. The third proviso to Section 10(23C)(vi) is not applicable to the cases falling within the purview of Section 10(23C)(iiiad). Secondly, the judgment rendered by the Uttarkhand High Court runs contrary to the provisions of Section 10(23C)(vi) of the Act including the provisos thereunder. Section 10(23C)(vi) of the Act is equivalent to the provisions of Section 10(22) existing earlier, which were introduced with 3
effect from 1st April, 1999 and it ignores the speech of the Finance Minister made before the introduction of the said provisions, namely. Section 10(23C) of the Act [See observations in American Hotel and Lodging Association Educational Institute's case (supra)]. Thirdly, the Uttrakhand High Court has not appreciated correctly the ratio of the judgment rendered by Hon'ble the Supreme Court in the case of Aditanar Educational Institution (supra) and while applying the said judgment including the judgment which had been rendered by Hon'ble the Supreme Court in the case of Children Book Trust (supra), it lost sight of the amendment which had been carried out with effect from 1st April, 1999 leading to the introduction of the provisions of Section 10(23C) of the Act. Lastly, that view is not consistent with the law laid down by Hon'ble the Supreme Court in American Hotel and Lodging Association Educational Institute (surpa).” It then summed up its conclusions as follows:
“8.13 From the aforesaid discussion, the following principles of law can be summed up:— (1) It is obligatory on the part of the Chief Commissioner of Income Tax or the Director, which are the prescribed authorities, to comply with proviso thirteen (un-numbered). Accordingly, it has to be ascertained whether the educational institution has been applying its profit wholly and exclusively to the object for which the institution is established. Merely because an institution has earned profit would not be deciding factor to conclude that the educational institution exists for profit. (2) The provisions of Section 10(23C)(vi) of the Act are analogous to the erstwhile Section 10(22) of the Act, as has been laid down by Hon'ble the Supreme Court in the case of American Hotel and Lodging Association (supra). To decide the entitlement of an institution for exemption under Section 10(23C)(vi) of the Act, the test of predominant object of the activity has to be applied by posing the question whether it exists solely for education and not to earn profit [See 5-Judges Constitution Bench judgment in the case of Surat Art Silk Cloth Manufacturers Association (supra)]. It has to be borne in mind that merely 4
because profits have resulted from the activity of imparting education would not result in change of character of the institution that it exists solely for educational purpose. A workable solution has been provided by Hon'ble the Supreme Court in para 33 of its judgment in American Hotel and Lodging Association's case (supra). Thus, on an application made by an institution, the prescribed authority can grant approval subject to such terms and conditions as it may deems fit provided that they are not in conflict with the provisions of the Act. The parameters of earning profit beyond 15% and its investment wholly for educational purposes may be expressly stipulated as per the statutory requirement. Thereafter the Assessing Authority may ensure compliance of those conditions. The cases where exemption has been granted earlier and the assessments are complete with the finding that there is no contravention of the statutory provisions, need not be reopened. However, alter grant of approval if it comes to the notice of the prescribed authority that the conditions on which approval was given, have been violated or the circumstances mentioned in 13th proviso exists, then by following the procedure envisaged in 13th proviso, the prescribed authority can withdraw the approval. (3) The capital expenditure wholly and exclusively to the objects of education is entitled to exemption and would not constitute part of the total income. (4) The educational institutions, which are registered as a Society, would continue to retain their character as such and would be eligible to apply for exemption under Section 10(23C)(vi) of the Act. [See para 8.7 of the judgment-Aditanar Educational Institution case (supra)] (5) Where more than 15% of income of an educational institution is accumulated on or after 1st April, 2002, the period of accumulation of the amount exceeding 15% is not permissible beyond five years, provided the excess income has been applied or accumulated for application wholly and exclusively for the purpose of education. 6) The judgment of Uttrakhand High Court rendered in the case of Queens Educational Society (supra) and the connected matters, is not applicable to cases fali within the provision of Section 10(23C)(vi) of the Act. 5
There are various reasons, which have been discussed in para 8.8 of the judgment, and the judgment of Allahabad High Court rendered in the case of City Montessori School (supra) lays down the correct law." And finally held:
“8.15 As a sequel to the aforesaid discussion, these petitions are allowed and the impugned orders passed by the Chief Commissioner of Income Tax withdrawing the exemption granted under Section 10(23C)(iv) of the Act are hereby quashed. However, the revenue is at liberty to pass any fresh orders, if such a necessity is felt after taking into consideration the various propositions of law culled out by us in para 8.13 and various other paras. 8.16 The writ petitions stand disposed of in the above terms.”
The view of the Punjab and Haryana High Court has been followed by the Delhi High Court in St. Lawrence Educational Society (Regd.) v. Commissioner of Income Tax & Anr., (2011) 53 DTR (Del) 130. Also in Tolani Education Society v. Deputy Director of Income Tax (Exemption) & Ors., (2013) 351 ITR 184, the Bombay High Court has expressed a view in line with the Punjab and Haryana High Court view, following the judgments of this Court in the Surat Art Silk Manufacturers Association Case and Aditanar Educational Institution case as follows:
“ …………………..The fact that the Petitioner has a surplus of income over expenditure for the three years in question, cannot by any stretch of logical reasoning lead to the conclusion that the Petitioner does not exist solely for educational purposes or, as that Chief Commissioner held that the Petitioner exists for profit. The test to be applied is as to whether the predominant nature of the activity is educational. In the present case, the sole and dominant nature of the activity is education and the Petitioner exists solely for the purposes of imparting education. An incidental surplus which is generated, and which has resulted in additions to the fixed assets is utilized as the balance-sheet would indicate towards upgrading the facilities of the college including for the purchase of library books and the improvement of infrastructure. With the advancement of technology, no college or institution can afford to remain stagnant. The 6
Income-tax Act 1961 does not condition the grant of an exemption under Section 10(23C)on the requirement that a college must maintain the status-quo, as it were, in regard to its knowledge based infrastructure. Nor for that matter is an educational institution prohibited from upgrading its infrastructure on educational facilities save on the pain of losing the benefit of the exemption under Section 10(23C). Imposing such a condition which is not contained in the statute would lead to a perversion of the basic purpose for which such exemptions have been granted to educational institutions. Knowledge in contemporary times is technology driven. Educational institutions have to modernise, upgrade and respond to the changing ethos of education. Education has to be responsive to a rapidly evolving society. The provisions of Section 10(23C) cannot be interpreted regressively to deny exemptions. So long as the institution exists solely for educational purposes and not for profit, the test is met.”
We approve the judgments of the Punjab and
Haryana, Delhi and Bombay High Courts. Since we have
set aside the judgment of the Uttarakhand High Court and
since the Chief CIT’s orders cancelling exemption which
were set aside by the Punjab and Haryana High Court
were passed almost solely upon the law declared by the
Uttarakhand High Court, it is clear that these orders
cannot stand. Consequently, Revenue’s appeals from the
Punjab and Haryana High Court’s judgment dated
29.1.2010 and the judgments following it are dismissed.
We reiterate that the correct tests which have been culled
out in the three Supreme Court judgments stated above,
namely, Surat Art Silk Cloth, Aditanar, and American
Hotel and Lodging, would all apply to determine whether
an educational institution exists solely for educational
purposes and not for purposes of profit. In addition, we hasten to add that the 13th proviso to Section 10(23C) is
of great importance in that assessing authorities must
continuously monitor from assessment year to
assessment year whether such institutions continue to
apply their income and invest or deposit their funds in
accordance with the law laid down. Further, it is of great
importance that the activities of such institutions be
looked at carefully. If they are not genuine, or are not
being carried out in accordance with all or any of the
conditions subject to which approval has been given, such
approval and exemption must forthwith be withdrawn. All
these cases are disposed of making it clear that revenue
is at liberty to pass fresh orders if such necessity is felt
after taking into consideration the various provisions of
law contained in Section 10(23C) read with Section 11 of
the Income Tax Act.”
It is pertinent to note that the main objects of the trust
are to encourage backward and discarded people towards
education and social development works, helping children by
providing education and livelihood to them etc. The same was at
no point amended by the assessee. Also the trust runs a college
that helps in enhancing the future of students by providing the
education and making available the diploma courses in 8
Polytechnic and Engineering which are duly approved by AICTE.
Hence all objects are in consideration for granting the approval
u/s 10(23C)(vi) of the Act. Therefore, the issue in the present
case is squarely covered by the decision of the Hon’ble Apex
Court. The appeal of the assessee is allowed.”
7.1 After perusing the aforesaid finding, I am of the considered view that the
facts and circumstances and the objects of the assessee in the present case
remain similar to the previous year case i.e. AY 2013-14, hence, respectfully
following the aforesaid Coordinate Bench decision Coordinate Bench-C, ITAT, New
Delhi in assessee’s own case decided on 30.1.2018 title Bhartiya Gram Sewa
Niketan Udyog Mandal vs. CCIT, Dehradun passed in ITA No. 3708/Del/2015 (AY
2013-14), the approval u/s. 10(23C)(vi) of the Act is hereby granted and
accordingly the appeals of the assessee for both the assessment years i.e. 2014-15
& 2015-16 are allowed.
In result, both the appeals of the assessee are allowed.
Order pronounced on 01-06.2018. Sd/-
(H.S. Sidhu) Judicial Member
Dated: 01-06-2018
*SR BHATNAGAR* Copy of order forwarded to:
(1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order
Assistant Registrar 9