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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A” , HYDERABAD
Before: SHRI LALIET KUMAR, HON’BLE & SHRI G. MANJUNATHA, HON’BLE
O R D E R PER LALIET KUMAR, J.M.
This appeal is filed by the assessee, feeling aggrieved by the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 31.10.2023 for the AY 2015-16.
The assessee has raised the following grounds : “
1. That the order of the AO and the CIT (A) is bad in law and facts in the light of the fact that the transactions between a sponsoring body and its Universities have been treated as commercial activity in disregard of the fact that the sponsoring body and University have a common identity and cannot benefit out of each other. The order is based on a self- defeating argument that the assessee is making profit out of its own Universities without recording any finding to establish that the sponsoring body and its Universities are engaging in educational activity with a dominant profit motive.
2. That the order of the AO and the CIT (A) is bad in law and facts in applying section 2(15) read with section 13(8).
3. That the order of the AO and the CIT (A) is bad in law and facts in misinterpreting the principles of Res Judicata and arbitrarily rejecting the contention and judicial precedence placed by the appellant society with regard to the fact that the AO cannot deviate from the principle followed in past assessment years without change in facts and circumstances.
4. That the order of the AO and the CIT (A) is bad in law and facts in denying the assessee the right to be assessed under section 10 which was done deliberately as the corresponding proviso to section 13(8) under section 10(23C) does not cover clause (vi) i.e. educational institution. The appellant being approved as a solely educational institution should not have been treated as a GPU category institution even if commercialization is alleged.
5. That the order of the AO and the CIT(A) is bad in law and facts in arbitrarily applying the ratio of various cases including the Supreme Court ruling in the cases Ahmedabad Urban Development Authority, [2022] 143 taxmann.com 278 (SC) and New Noble Educational Society, [2022] 143 taxmann.com 276 (SC).
6. That the order of the AO and the CIT (A) is bad in law and facts in arbitrarily applying the ratio of the case The Institute of Chartered Financial Analysts of India, Hyderabad Versus CC & CE, Hyderabad-Il, in 2012(1) ECS (83) (Tri-Ban) which was set-aside by the Division Bench of CESTAT, Hyderabad in its Order dated 24.10.2017.
7. That the order of the AO and the CIT (A) is bad in law and facts in arbitrarily disallowing the application towards interest of Rs. 11.55 crore which is contrary to the law and available judicial precedence.
8. That the order of the AO and the CIT (A) is bad in law and facts in arbitrarily disallowing the application provisions on account of Gratuity and EL encashment amounting to Rs. 5.58 lakh which is contrary to the law and available judicial precedence.
9. That the order of the AO and the CIT (A) is bad in law and facts in arbitrarily making addition of Rs. 24.49 crore towards depreciation which was not charged against income.
That the order of the CIT (A) is bad in law and facts in arbitrarily rejecting the condonation of delay petition in filing Form 35 for following reason; The appeal has been already decided on merit through a speaking order. (ii) The CIT (A) rejected the condonation of delay petition after 5 years at the time of disposal of appeal thus depriving the appellant of legal remedies against such order. (iii) The CIT (A) did not dispute the actual delay caused due to section 154 petition but rejected the condonation petition holding that the 154 petition was frivolous.”
Facts of the case, in brief, are that assessee filed its return of income for the A.Y. 2015-16 on 28-09-2015, which was treated as defective. Subsequently, another return of income was filed by the assessee on 30.03.2017 admitting income at Nil- after claiming exemption u/s.11. The assessee society was registered U/s.12A of the Income Tax Act and was approved u/s 10(23C)(vi) of the Act by the CCIT, Hyderabad—I vide order dated 30.03.2009. The case was selected for scrutiny and notice u/s.143(2) of the Act was issued on 19/09/2017. In response to notices, counsel for the assessee has appeared from time to time and furnished the information as called for.
3.1. During the scrutiny assessment proceedings, the assessee society has furnished a note on its activities carried out during the A.Y. 2014-15. As per the note, the society has promoted a deemed University in Hyderabad. Apart from this, the society was promoting 10 State Universities which were enacted by the State Legislatures. Apart from the above activity, assessee was also doing the activity of publishing books/journals/periodicals. From the note on activities furnished by the assessee society, Assessing Officer observed that the assessee society was not engaged in any activity of imparting education and was only providing financial assistance to the Universities enacted by the State Legislatures. As noticed from the activities of the society and from the Income & Expenditure statement for the year ending 31- 03-2015, Assessing Officer found that the assessee society was making profits from its publication business, and was also getting back the advances/finance made to its sister concern/ other State Universities. Hence, the Assessing Officer concluded that the assessee Society was not eligible for the claim of exemption u/s.10(23C)(vi) as no claim was made in the return of income and on merits as well. Accordingly, the Assessing Officer has completed the assessment interalia making certain additions and passed assessment order u/s 143(3) of the Act, assessing the total taxable income at Rs.47,91,064/-.
Feeling aggrieved by the order passed by the Assessing Officer, assessee filed appeal before the Ld. CIT(A) / NFAC, who granted part relief to the assessee.
Feeling aggrieved with the order of ld.CIT(A), assessee is now in appeal before us.
The ld.AR for the assessee has drawn our attention to the following paragraphs of the order of ld.CIT(A), whereby the ld.CIT(A) has refused to condone the delay of 10 days for the following reasons :
“5.1. In the present case, claims u/s 10(23C)(vi) and 11 of the Act were denied by the AO after elaborate discussion encompassing various nuances of facts and law. Quite apparently. There was no mistake apparent from records. 5.2. It is to be kept in mind that the appellant society offers the Chartered Financial Analyst Course/Programme, which is in the fields of financial analysis, management and control. Further, being an exempt entity, the appellant has to file IT returns every year after getting its accounts audited. Therefore, a significant knowledge of tax structure and practices is expected from the appellant society. Given this background, it can easily be concluded that there could not have been any bonafide belief of the appellant to infer that there was a rectifiable mistake apparent from the scrutiny order. A conjoint reading of para 4 & 4.1 of this order clearly manifests that rectification petition was frivolous and worthless. Thus, it appears that filing of rectification petition was simply to disguise or camouflage or artificially extend time barring date for filing of an appeal. This inference assumes stronger legitimacy from the fact that the rectification application itself was filed 10 days after the last date for filing of an appeal before the CIT(A).
5.3 Keeping all these in mind, the case does not appear to be fit for consideration. Condonation application is, therefore, rejected.
6.1. The ld.AR has further submitted that the assessee was having the requisite permission under Section 12A and 10(23C) for various assessment years, which were duly captured and noted by the ld.CIT(A) in the following paragraphs :
“9. Another submission dated 01.03.2023 was also made by the appellant. I have carefully gone through the facts of the case, Grounds of Appeal and the case laws relied upon. Let me first take up the first and the last Grounds of Appeal. The appellant has contended that during the course of the process of approval of the society u/s 10(23C)(vi) of the Act, all stated objectives were considered and the said approval continued at the time of assessment. It also argued that the registration u/s 12A of the Act was also in force at the time of assessment. Thus, the AO was not authorised to disallow exemption. While stating so, the appellant has referred to assessment orders of various years in its own case, where exemption was allowed by the respective AOs, as claimed.
6.2 Despite noticing that the assessee is having approvals for the subsequent years and is continuing to hold the approval under Section 10(23C)(vi) of the Act, the ld.CIT(A) refused to follow the principle of consistency and had wrongly rejected the assessment order passed in the assessment years 2009-10 to 2013-14 and 2016-17. It was submitted that in the same facts of the case, the assessment orders were passed for these assessment years and no additions were made in the hands of the assessee. Despite the ld.CIT(A) noticing the above noted facts, at page 11 to 13 of his order as under :-
“……For the asst. year 2009-10 the appellant society filed its return of income on 29.09.2009 declaring total income at Nil after claiming exemption u/s.11 of the IT Act. The return was processed u/s.143(1) of the IT Act determining tax payable at Nil. Subsequently, the assessment was reopened u/s.147 of the IT Act on the ground that as per AIR information the appellant society purchased immovable property at Dewas for Rs.9,45,48,550/-. The case was taken up for scrutiny. In response to the notice the assessee society filed the required information. After taking all the Information the assessing officer finalized the scrutiny assessment proceedings vide order u/s.143(3) rws 147 of the IT Act dated 28.12.2016 computing the total income at Nil. While doing so the assessing officer observed that "on verification of the books of accounts and other details furnished by the AR of the assessee, it appears that the assessee has not violated the provisions of section .11 of the Income Tax Act." Copy of the order u/s.143(3) rws 147 of the IT Act dated 28.12.2016 is submitted for kind perusal. Asst. year 2010-11: For the asst. year 2010-11 the appellant society filed its return of income on 04.10.2010 declaring total income at Nil after claiming exemption u/s.11 of the IT Act. The case was taken up for scrutiny. The assessing officer completed the assessment vide their order u/s.143(3) of the IT Act dated 19.03.2013 accepting the return of income. While computing the total income the assessing officer stated that on the basis of books of accounts and other details produced, the assessment is completed accepting the return of income. Copy of the order u/s.143(3) of the IT Act dated 19.03.2013 is submitted for kind perusal. Assessment. year 2011-12: For the asst. year 2011-12 the appellant society filed its return of Income on 30.09.2011 declaring total income at Nil after claiming exemption u/s.11 of the IT Act. The case was taken up for scrutiny. The assessing officer completed the assessment vide their order u/s.143(3) of the IT Act dated 25.02.2014 accepting the return of income. While computing the total income the assessing officer stated that after examination of the books of accounts and other details produced, the assessment is completed accepting the return of income. Copy of the order u/s.143(3) of the IT Act dated 25.02.2014 is submitted for kind perusal.
Asst. year 2012-13: For the asst. year 2012-13 the appellant society filed its return of income on 27.09.2012 declaring total income at Nil after claiming exemption u/s.11 of the IT Act. The return was processed u/s.143(1) of the IT Act determining tax payable at Nil. Subsequently, the case was taken up for scrutiny. The assessing officer completed the assessment vide their order u/s.143(3) of the IT Act dated 12.03.2015 accepting the return of income. While computing the total income the assessing officer stated that after examination of the books of accounts and other details produced, the assessment is completed accepting the return of income. Copy of the order u/s.143(3) of the IT Act dated 25.02.2014 is submitted for kind perusal. Asst, year 2013-14: For the asst. year 2013-14 the appellant society filed its return of income on 29.09.2013 declaring total income at Nil after claiming exemption u/s.11 of the IT Act. The return was processed u/s.143(1) of the IT Act determining tax payable at Nil. Subsequently, the case was taken up for scrutiny. The assessing officer completed the assessment vide their order u/s.143(3) of the IT Act dated 04.01.2016 accepting the return of income. While computing the total income the assessing officer stated that after careful examination the information furnished by the assessee and books of accounts along with bills and vouchers, the assessment is completed accepting the return of income. Copy of the order u/s.143(3) of the IT Act dated 04.01.2016 is submitted for kind perusal. Asst. year 2016-17: For the asst. year 2016-17 the appellant society filed its return of income on 29.09.2016 declaring total income at Nil after claiming exemption u/s.11 of the IT Act. Subsequently, the case was taken up for scrutiny. The assessing officer completed the assessment vide their order u/s.143(3) of the IT Act dated 29.12.2018 accepting the return of income. While computing the total income the assessing officer stated that during the assessment proceedings, the assessee furnished information/ evidence on application of income towards the objectives of the assessee society. As per the Aims and objectives mentioned in MOA, the activities of the society are within the scope of the objectives for which the registration u/s .12,4 was granted. Copy of the order u/s.143(3) of the IT Act dated 29.12.2018 is submitted for kind perusal.”
6.3. Despite noting the above submissions, the ld.CIT(A) has wrongly held as under :
“9.2. In the present case, the AO had delved deep into the facts of the case to reach at a conclusion which was different from those decided in other years. Such a decision can never be brushed aside by siting the doctrine of res judicata. Accordingly, I am of the considered opinion that the AO was well within his jurisdiction while advocating a different view, based on the facts, regarding the claim of exemption.”
6.4. It was contended by the ld.AR that this approach of the Revenue is contrary to the judgement of the hon’ble Supreme Court in the case of Radhasoami Satsung, Saomi Bagh, Agra vs Commissioner of Income Tax reported in (1992) 60 TAXMAN 248 wherein it was held as under :
“We are aware of the fact that strictly speaking resjudicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter- and if there was not change it was in support of the assessee- we do not think the question should have been reopened and contrary to what had been decided by the Com- missioner of Income-Tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under ss. 11 and 12 of the Income Tax Act of 1961.
Counsel for the Revenue had told us that the facts of this case being very special nothinng should be said in a manner which would have general application. We are inclined to accept this submission and would like to state in clear terms that the decision is confined to the facts of the case and may not be treated as an authority on aspects which have been decided for general application.”
6.5 Furthermore, the ld.AR has submitted that the ld.CIT(A) had only noted down the paragraphs 76 in the case of New Noble Educational Society Vs. Chief Commissioner of Income Tax reported in [2022] 143 taxmann.com 276 (SC), however, he had missed the wood in the tree which is so mentioned in paragraph 62 to 63 of the order of the Hon'ble Supreme Court. In the said paragraph, it was held as under :
“62. Section 10(23C) has many provisos. The first proviso enjoins the concerned fund, trust or institution to apply to the concerned authority i.e., the Commissioner, for grant of approval and sets out the timeline for doing so. These include situations where a trust or institution was granted approval up to a particular point in time and sought extension. The second proviso by sub-clause (ii) requires the Commissioner to make such enquiries to specify about the genuineness of the activities of the fund, trust or institution and compliance of such requirements of other laws in force by such fund, trust or institution. Upon considering the materials the Commissioner or the concerned authority can pass an appropriate order granting approval for a specific period of time, or reject the application. The second proviso importantly indicates that before granting approval to any fund, trust or institution, the Commissioner or the concerned authority ‘may call for such documents’ including audited annual accounts or information from the fund, or trust or institution etc., as is deemed necessary for recording satisfaction about the genuineness of the activities. The judgment in American Hotel (supra) dealt extensively with the effect of the provisos to Section 10(23C). While doing so, the court made certain remarks with respect to the effect of these provisos characterizing a few of them as those dealing with the stage of considering applications for approval or registration and other as those dealing with application of income or receipts of the trust. In respect of the latter, this court was of the opinion that the question of application of income or profits could arise only at the stage of assessment. The court was also of the opinion that the audited books of accounts would be of little or no relevance at the stage of registration or approval.
Having regard to the plain terms of the second proviso to Section 10(23C), which refers to the procedure for approval of applications including those made by trusts and institutions imparting education, one can discern no such restrictions. From the pointed reference to ‘audited annual accounts’ as one of the heads of information which can be legitimately called or requisitioned for consideration at the stage of approval of an application, the inference is clear: the Commissioner or the concerned authority’s hands are not tied in any manner whatsoever. The observations to the contrary in American Hotel (supra) appear to have overlooked the discretion vested in the Commissioner or the relevant authority to look into past history of accounts, and to discern whether the applicant was engaged in fact, ‘solely’ in education. American Hotel (supra) excluded altogether inquiry into the accounts by stating that such accounts may not be available. Those observations in the opinion of the court assume that only newly set up societies, trusts, or institutions may apply for exemption. Whilst the statute potentially applies to newly created organizations, institutions or trusts, it equally applies to existing institutions, societies or trust, which may seek exemption at a later point. At the same time, this court is also of the opinion that the Commissioner or the concerned authority, while considering an application for approval and the further material called for (including audited statements), should confine the inquiry ordinarily to the nature of the income earned and whether it is for education or education related objects of the society (or trust). If the surplus or profits are generated in the hands of the assessee applicant in the imparting of education or related activities, disproportionate weight ought not be given to surpluses or profits, provided they are incidental. At the stage of registration or approval therefore focus is on the activity and not the proportion of income. If the income generating activity is intrinsically part of education, the Commissioner or other authority may not on that basis alone reject the application.”
The conclusions of this court are summarized as follows: a.It is held that the requirement of the charitable institution, society or trust etc., to 'solely' engage itself in education or educational activities, and not engage in any activity of profit, means that such institutions cannot have objects which are unrelated to education. In other words, all objects of the society, trust etc., must relate to imparting education or be in relation to educational activities.
…. e. The reasoning and conclusions in American Hotel (supra) and Queen's Education Society (supra) so far as they pertain to the interpretation of expression 'solely' are hereby disapproved. The judgments are accordingly overruled to that extent.”
6.6. The ld.AR further submitted that the ratio laid down by the Hon'ble Supreme Court is available in paragraphs 62 and 63 of the judgment and that was required to apply by the ld.CIT(A) / Assessing Officer. However, both the lower authorities have failed to apply their mind and have wrongly given their findings on the basis of the judgements which were referred and distinguished by the Hon'ble Supreme Court in the case of New Noble Educational Society, (supra). It was further pointed out by the ld.AR that the ld.CIT(A) had wrongly applied the principle laid down in the case of Ahmedabad Urban Development Authority case, despite the fact that the same was not relevant to the case of the assessee.
6.7 Lastly, it was submitted by the ld.AR that as the appeal of the assessee has been dismissed by the ld.CIT(A) and without condoning the delay, it would be appropriate that the matter may be remanded back to the file of Assessing Officer with a direction to examine the facts of the present case in the light of the decision of Hon'ble Supreme Court in the case of New Noble Educational Society, reported in [2022] 143 taxmann.com 276 (SC) (supra), more particularly, paras 62 and 63 of the said judgment. Further, it was submitted that the Assessing Officer may be directed to consider the assessment orders passed for A.Y.s 2009-10 to 2013- 14 and 2016-17 keeping in view the principle of consistency as laid down in the case of Radhasoami Satsung (supra).
Per contra, ld.DR relied upon the orders of lower authorities and submitted that the lower authorities have applied their mind and has given a reasonable finding on the facts of the case.
We have heard the rival submissions and perused the material on record. On perusal of the order of ld.CIT(A), we find that the ld.CIT(A) had dismissed the application for condonation of the delay as reproduced hereinabove and thereafter, as embarked upon to decide the matter on merit. Firstly, we are of the opinion that the application for condonation has to be decided in a liberal manner, more particularly, when the delay was only for 10 days. Secondly, while deciding the issue on merit, the ld.CIT(A) has referred to the decision of hon'ble Supreme Court in the case of New Noble Educational Society, reported in [2022] 143 taxmann.com 276 (SC) (supra) and also the decision in the case of Ahmedabad Urban Development Authority reported in [2022] 143 taxmann.com 278 (SC). Thereafter, the ld.CIT(A) in subsequent paragraphs have discussed the ratio of the decisions of various hon’ble High Courts, including the decision of Ahmedabad Urban Development Authority (supra) and have decided the issue against the assessee.
8.1. Undoubtedly, in Para 63 of the order passed in the case of New Noble Educational Society Vs. CCIT, the hon'ble Supreme Court held that if the surplus or profits are generated in the hands of the assessee applicant in imparting of education or related activities disproportionately, weight ought not to be given to surpluses or profits, provided they are incidental to the main activities of the assessee. Admittedly, the case of the assessee is that the assessee is having approval under section 10(23C) of the Act and for A.Ys. 2009-10 to 2013-14 and 2016-17. The assessment orders were passed by the Assessing Officer keeping the activities of the assessee society as eligible for deduction under Section 10(23C)(vi) of the Act. In the light of the above, we deem it appropriate to remand back the matter to the file of Assessing Officer with a direction to re-examine the issue denovo after affording opportunity of hearing to the assessee. Needless to say that the assessee shall furnish all the details / evidence / documents to prove that the activities of the assessee are not in commercial in nature and are interlinked with the imparting of education. The assessee shall be at liberty to file documents, if any, as required for proving its case. Needless to say the Assessing Officer shall examine those documents / evidence filed by the assessee and also the other documents available on record. After considering the documents filed by the assessee and the submissions made by the assessee, the Assessing Officer shall pass a detailed speaking order dealing with the contentions of the assessee. We have not adjudicated the other grounds on merits as we are setting aside the orders passed by the lower authorities to the file of Assessing Officer for fresh adjudication. In light of the above, the appeal of the assessee is allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Open Court on 30th July, 2024.