DCIT(E), CIRCLE-1, AHMEDABAD, AHMEDABAD vs. GUJARAT STATE BOARD OF SCHOOL TEXT BOOK, GANDHINAGAR

The DCIT (Emption), Gujarat State Board of Circle-1, School Text Book, Ahmedabad Vs “Vidhyayan”, Sector 10A, Gandhinagar-382010, Gujarat, India PAN: AAATG4671P (Appellant) (Respondent) Assessee by: Shri M.K. Patel, A.R. Revenue by: Shri Prithviraj Meena, CIT-D.R. Date of hearing : 19-09-2024 Date of pronouncement : 30-09-2024 आदेश/ORDER PER: T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- These four appeals are filed by the Revenue as against separate appellate orders dated 09-11-2023, 11-12-2023 and 28-11-2023 passed by National Faceless Appeal Centre, Delhi arising out of separate assessment orders passed u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) relating to assessment year 2016-17 to 2018-19 and 2021-22.

Since common issues are involved in all the above appeals, the same are disposed of by this common order. relating to A.Y. 2016-17 is taken as the lead case. Brief facts of the case, the assessee is a Trust incorporated on 09-10-1969 and registered with Charity Commissioner under the provisions of Bombay Trust Act, 1950. The object of the Trust is to prepare text books from standard 1 to 12 in Gujarati, English and other languages. The assessee Trust is registered u/s. 12A(a) of the Act vide order dated 23-03- 2006. For the assessment year 2016-17, the Assessee Trust filed its return of income on 16-10-2016 declaring total income nil.

2.1 During the assessment proceedings, the AO has invoked the provisions of section 11(4) of the Act, as per the section, the AO shall have power to determine the income of such undertaking, in accordance with the provisions of this Act relating to assessment and where any income so determined is in excess of income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes. Accordingly, the AO disallowed the exemption claimed by the Assessee Trust.

2.2 Thus Ld. A.O. framed the Assessment Order under section 143(3) of the Act on 17/12/2018 assessing total income of the assessee at Rs.16,37,29,790/- invoking section 11(4) of the Act and allowed 15% of net income instead of gross income as per provision of section 11(1)(a) of the Act. The AO Ld. has made addition, even though ITAT, Ahmedabad Bench has given relief to assessee in its case relating to the earlier A.Y. 2006-07, since Revenue is in appeal before Gujarat High Court.

“I have gone through the submission made by the appellant. In this case, the AO has invoked the provision of sec 11(4) of the Act. For the sake of clarity the sec 11(4) of the Act is reproduced below "As per section 11 (4) of the Act For the purposes of this section "property held under trust" includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the [Assessing] Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment, and where any income so determined is in excess of the income shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes” On plain reading of the section it is very clear that whenever it was held that Property held under the trust includes a business undertaking so held, and a claim is made that the income of any such undertaking shall not be included in total income of the person in receipt thereof, the assessing Officer shall have power to determine the income of such undertaking is in excess of the income as shown in the accounts of the undertaking, in accordance with the provisions of this Act relating to assessment and where any income so determined is in excess of income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes. From the above it is clear that even if AO intends to invoke the provisions of section 11 (4) to recast the accounts of the undertaking first of all the AO should have worked out the quantum of such income that is in excess of income shown in the accounts of the undertaking However, in the present case the AO has not done such exercise and reproduced the provisions of said section only and re- casted the expenditure account. The relevant part of the assessment order is reproduced below 4. After going through the reply furnished by the assessee, the assessment proceedings are being completed as under: 4.1. It is pertinent to mention that the assessee referred the judgment of ITAT in assessee's own case for AY 2006-07. however it is to be placed on record that the Department has filed appeal before the Hon'ble High Court against the order of ITAT.

Respectfully following the order of the Hon'ble ITAT, Ahmedabad, in the appellant's own case on the similar issue, the ground raised by the appellant is hereby allowed.”

“1. Whether, on the facts and circumstances of the case, Ld CIT(A) has erred in deleting the addition made by the AO by invoking the provisions of section 11(4) of the Income Tax Act 1961 (hereinafter referred to as "Act") in the assessment order without appreciating the fact that the assessee has earned Income from Profit and Gains of business or professional well as Income from other sources which together constitute "two properties the trust and the total Income thereof has not been arrived separately by the assessee computation of income? 2. Whether, on the facts and circumstances of the case, Ld CIT(A) has erred in deleting the addition made by the AO by invoking the provisions of section 11(4) of the Act in the assessment order without appreciating the fact since assessee has not bifurcated its income under the head "Profit and Gains of business or profession" and "Income from other sources", the entire business income computed by the Assessing Officer should be taken excess income as per section 11(4) of Income Tax Act.

3. Whether Ld. CIT(A) has erred in not appreciating the fact that the assessee has erred income from Profit and Gains of business or profession as well as Income from other sources which together constitute "two properties" held under the trust and the total moon thereof has been arrived at in the manner as held by ITAT Mumbai in the ne Prayagdham Trust Vs. CIT(E), Mumbai in 2016 for A. 2011 pronounced on 07.08.2017 reported in [2017) 86 Taxmann.com 42(Mum).

4. Whether Ld. CIT(A) has erred in placing reliance on the decision of Hon'ble ITAT assessee's own case in AY 2006-07 and 2008-09 in MA no. 198 & 199/Ahd/2016 in ITA 796/Ahd/2010 & 1022/Ahd/ 2012, as decision of Hon'ble Supreme Court of India in the case of CIT vs. Programme for Community Organization in Civil Appeal No. 2655 of 1998 pronounced on 28.11.2000 is distinguishable on facts

and department has filed an appeal before Hon High Court of Gujarat in these cases ? 5. Whether on the facts and in the circumstances of the case, Ld. CITIA) has erred in law deleting additions, made by the Assessing Officer under section 11(1)(a) of Income Tax Act, 1961.”

5. Ld. CIT-DR, Mr. Prithviraj Meena appearing for the Revenue in support of its grounds relied upon the Supreme Court judgment in the case of CIT vs. Programme for Community Organisation (2001) 116 taxmann.com 608 (SC) and Mumbai Special Bench decision in the case of Bai Sonabai Harji Agiary Trust vs. ITO thus pleaded the CIT(A) is not correct in deleting the disallowance made u/s.11[4] of the Act and allowing the appeal in favour of the assessee.

6.1 Thus, ld. counsel submitted that this issue being settled, there is no question of making addition by the Assessing Officer u/s. 11[4] of the Act and also he drawn our attention to the scrutiny assessment order passed u/s.143(3) in assessee’s own case by the Assessing Officer for the assessment year 2022-23 vide order dated 22-03-2024 wherein the Assessing Officer himself has not made addition u/s.11(4) of the Act and made nil assessment considering later developments in assessee’s own case. Thus, Ld Counsel pleaded that the appeal filed by the Revenue has no legs to stand and liable to be dismissed.

7.1. Hon’ble Supreme Court in the case of New Noble Education Society vs Ccit [cited supra] he held that an institution facilitated learning of its pupils by sourcing and providing text books, such activity would be incidental to education by observing as follows:

12. What then is ‘Incidental’ business activity in relation to education? Importing education through schools, colleges and other such institutions would be perse charity. Apart from that there could be activities incidental to providing education. One example is of textbooks. This court in a previous ruling in Assam State Text Books Production and Publication Corporation Limited vs CIT 2009 185 taxman 58 has held that dealing in textbooks is part of a larger educational activity. The court was concerned with state established institutions that published and sold textbooks. It was held that if an institution facilitated learning of its pupils by sourcing and providing text books, such activity would be incidental to education. Similarly, if a School or other educational institutions ran its own buses and provided bus facilities to transport children that would be an activity incidental to education. There can be similar instances such as providing summer camps for pupils, special education courses such as related to computers, etc. which may benefit its pupils in their pursuit of learning.

7.2. Further Hon’ble Gujarat High Court in assessee’s own case considered elaborately the issue [though in the context of reopening of assessment] wherein it is held as follows:-

“13. In yet another decision which has been brought to the notice of us by the counsel for the petitioner in case of Birla Education Trust (supra) the education trust which is dealing with the provision of section 11(4) which observations are worth to be noted and therefore relevant paras are hereby stated hereafter: It appears to us that Sub-section (4) was intended for a different contingency. It was meant to cover a different situation. It was not intended to apply to application of income. Under Sub-section (4) the ITO can determine the income and compare it with the income appearing in the accounts. The income spoken of in Sub- section (4) appears to us to be the gross income and not the net income of the business undertaking. The net income is computed after granting the admissible deductions. The deductions admissible from income of a business undertaking are not always the same as application of income wholly for charitable or religious purposes. They may or may not be admissible deduction from business income under the provisions relating to assessment of income Yet they are entitled to exclusion under Sub-section (1) of Section 11 because they represent application of income wholly for charitable or religious purposes. Here, the ITO has to scrutinise the accounts and see if there is suppression of income or manipulation of accounts with a view to conceal income. He could see whether there are items which are deemed to be income under some provision of the IT Act and which have not been accounted for in the books of the undertaking, or there may be some receipts which are really in the nature of income and which have not been reflected in the accounts. This interpretation of Sub-section (4) of Section 11 is in consonance with the legislative intent as disclosed by the Finance Minister who spoke in Parliament while this provision was under consideration. "Thus, Sub-section (4) was intended to uncover tax evasion by manipulation of the account books. It was not intended to apply to application or expenditure of income by the business undertaking. As already seen, the non-application of income for purposes of the trust was dealt with by Sub-section (3) of Section 11.”

7.3. Further Co-ordinate Bench of this Tribunal in assessee’s own case for the asst years 2006-07 to 2008-09 in Ahd/2010 & 1022/Ahd/2012 dated 21-09-2016 held as follows:-

“… 6. We heard both the parties and the perused relevant material the record carefully. We find that the assessee is a trust registered under section 12AA of the Act by the Commissioner of income tax Gandhinagar vide order dated 23rd of March-2006 with effect from June 01.04.1998. The assessee was duly registered under section 12AA of the Act and claimed deduction under section 11 of the Income tax Act. We noticed that in the assessment year 2008-09 the identical issue has been decided in the favor of the assessed by the learned CIT(A). We also observed that identical issue was also considered in detail in the case of Gujarat industrial development Corporation by the Hon'ble ITAT Ahmedabad

Bench C dated 03/12/2010 in for assessment your 2006- 07. Some of the important observation and conclusion of the Hon'ble ITAT in the above cited decision of Gujarat industrial development Corporation are reproduced as under- "5.1 The first issue on similar facts was considered in detail in the case of Gujarat Industrial Development Corporation by the Hon'ble ITAT Ahmedabad Bench "C" dated 03/12/2010 in for A.Y.2006-07 Here, it would be worthwhile to reproduce come of the important observations and conclusions of the Hon'ble ITAT: "71. It was argued that the assessee had challenged the order of Learned CIT(Appeals) wherein it was held that the income of the assessee is assessable as business income by invoking the provisions of section 11(4) of the Act. It was further clarified that if the ma succeeds on this main ground that the provisions of section 11(4) were inapplicable, then there would be no necessity to compute the income and, consequently, the reliance placed by Learned CIT(Appeals) on Board's Circular becomes redundant. However considering the legality of the issue raised by the assessee, the Tribunal has admitted the additional grounds The discussion made while accepting the additional ground has also revealed that the computation of income as per the CBDT Circular would only be relevant if a finding is given that the provisions of section 11 (4) should be applicable on the facts of the case Therefore, considering the overall situation and the arguments of both the sides, we deem it proper to first decide the applicability of the provisions of section 11(4) of the Act and in this manner we shall also adjudicate ground No 1 of the assessee. 8.11 The crux of the decision is that even if a business undertaking is a property of the trust but if the business carried on is not meant to fulfill the objects of the trust, then also such a business income is out of the exemption clause We think this is the purpose of the enactment of the section that out of the several properties of a trust, if there is a property held by the trust carrying on business which is found to be not for the purposes of the charitable objects, then by invoking section 11(4) that income can be taxed. 8.12. From the above discussion, it evolves that the income derived from a business undertaking held by a trust is not to be granted exemption absolutely and without condition. This section, thus prohibits the exclusion of the business income though there may be difference of opinion about the computation of such a business income between the Trust and the Assessing Officer. For example, an item of expenditure genuinely incurred may be held by the Assessing Officer as excessive or capital in nature and hence, liable to be disallowed. Such an amount can therefore be chargeable to tax in the year of income for which the computation was made. On account of this fact, this is merely a machinery section through which a computation respect of the income which is excessive and earned from business activity and not meant for the purposes of the trust and on the basis of such a finding the same can be deemed to be a taxable income.

the primary activity of this organization can be said to be a business activity (emphasis supplied) but merely by holding that the undertaking is a "business undertaking" whether the profit arising there from can be subjected to tax by invoking section 11(4) of the IT Act? This section says that in respect of such an undertaking where a claim is made that the income arising there from not to be included in the total income, then this section must not be applied This section can be applied where the Assessing Officer invokes the power m determine the income of such an undertaking and thereupon determined an income which is in excess of the income as shown in the accounts of the undertaking, then such excess income shall be deemed to be the income not applied for the purposes of the trust What this term "excess" connotes is also to be examined. In our opinion, if on examination of income and expenditure account, it is found that some part of the receipts are not utilized or the expended towards the object of the trust, then only that part can be held as an excess income and naturally subject to tax It means that the Assessing Officer has to examine the nature of receipts and the nature of expenditure and if on the basis of that examination, it is found that a part of them are not meant for the purposes of the charity or not utilized for the object of general public utility, then such an excessive income ought to be held taxable and, therefore such an excess shall be deemed to be applied to purposes other than charitable purposes. In respect of such an income the undertaking cannot claim that the same should also not be included in the exempted total income Applying this test on the present set of facts of the case, it is evident that though the Assessing Officer has computed the profits on transfer of land or plots but it was not the case that the profits so generated were not within the main provisions of section 11 of the IT Act, (emphasis supplied) Even the assessee has earned premium price on lease of plot and land for sale but if the entire expenditure and the profit earned there from was exclusively used for the laid down objects then to be covered by the main Sec 11 In the present case the undisputed fact was that the same was utilized for the purposes of the object of the trust. Rather, u is also worth to note that the surplus, if any, remained with the assessee has to be unvested as per the guidelines and the norms set out under GID Act. Therefore, we are of the conscientious view that even if this undertaking may come within the purview of "business undertaking" but being no excess income was found-utilized other than for the purposes of the object of the trust, hence, out of the ambits of the provision of section 11(4) of the IT Act (emphasis supplied)" 6.1 It is also noticed that during the assessment year 2008-2009 the learned CIT(A) relied on the case of Gujarat industrial development Corporation decided by the ITAT Ahmedabad Bench and allowed the claim of the assessee on the identical issue. 6.2. After considering the above facts and legal findings we find that the profits of the business undertaking earned by assessee is utilized towards the laid down objective of the trust covered within the main provision of section 11 of the income tax act 1961. The undertaking by a virtue of its activities comes in purview of the business undertaking but being no excess income was found utilized other than for the purposes of the object of the trust, hence it is out of the ambits of the provisions of section 11(4) of the of the IT Act. We observed that the case of the assessee is covered by identical issue decided in the case of Gujarat industrial development Corporation by the coordinate Bench of Hon'ble ITAT Ahmedabad Therefore, we are of the view that even this undertaking may come within the purview of business undertaking but no excess income was found utilized other than for the purpose of the object of the trust, hence, out of the ambits of the provision of section 11(4) of the IT Act.”

7.4. Further in the MA Nos. 198-199/Ahd/2016 filed by the assessee, Co-ordinate Bench of this Tribunal vide order dated 28-02-2017 held as follows:-

“4. We have heard both the sides and perused the material on record. The finding of the ITAT on this issue at para 6.6 of the order is reproduced as under- 6.6. We find that the words used in section 11(1)(a) is income and not gross receipts. The above cited decision of the (TAT is on the identical issue in which it had been decided that income under section 11(1)(a) it is to be computed on a commercial principles and not on gross receipts. Similarly, in the case of the assessee in the assessment years 2008-09 the Ld. CIT(A) decided the identical matter according to the decision of ITAT Bangalore that accumulation of income as mandated by section 11(1)(a) is with reference to net income from properties held under trust. In view of the above facts and legal findings the ground of appeal of the assessee that accumulation of income at the rate of 15% u/s 11(1)(a) allowable on gross income and not on net income is rejected."

5. In this connection, the judgments cited by the assessee are discussed as under:- i. 248 ITR 1 (SC) Programme for community Organization – This judgement of the Hon'ble apex court was made on 28 Nov 2000. The Hon'ble Supreme court has held that exemption u/s.11(1)(a) is to be computed not with reference to the income left after application but on income before application and nowhere it was held that exemption is to be computed with reference to gross receipt ii 272 ITR (AT) 67 (Mum-Spl Bench) Bai Sonabhai Hinji Agiary Trust - The decision made on 22 September 2004 In this case, it was held that merit of the issue was clearly covered by the decision of the Supreme Court in the case of CIT vs. Programme for Community Organization (2001) 248 ITR 1. In this judgment, it was stated that any expenditure which is in the shape of application of income is not to be taken into account. It was also held that having regard to the clear pronouncement of their lordship of the Supreme Court difficult to accept that outgoing which are in the nature of application of income are to be excluded. iii 163 ITR 832 (MP) Parsi Zorastrian Anjuman Trust- This judgment was delivered on 28 July, 1986. I was held that the reference in sub-section (1)(a) of section 11 is to income not to "total income as defined in section 2(45) of the act. iv 131 ITD 335 (Lucknow) Krishi Utpadan Mandal Samil The judgment was delivered on 7 June, 2010. In this judgment also the principle laid down by the apex court in the case of Programme for Community Organization was followed. v Public Education Society order dt. 25.08.15 The case was decided in SMC Bench in which it was stated that identical issue was considered by the Apex court which was also applied by the Special Bench of the ITAT Mumbai holding that the expression such income means gross income and not the net income after deducting the administrative expenditure.

6. After perusal of the judicial pronouncements (supra) in this order, we find that the principles laid down by the apex court in the case of Programme for Community Organization was followed. The Special Bench ITAT Mumbai in the case of Bai Sonalbhai Hirji Agiary Trust has also followed the decision of the Supreme Court in the case of CIT vs. Programme for Community Organization. We find that the Hon'ble Supreme Court has held that exemption under section 11(1)(a) is to be computed before application and nowhere it was held that exemption with reference to gross receipt In view of this, we allow the MA of the assessee to the extent to allow the exemption according to the principle laid down by the Hon'ble Apex Court and the Special Bench of Mumbai ITAT before application of income.

7. The reference to ground no. 3 in the MA pertaining to assessment year 2006-07 regarding the alternative claim u/s. 11(2) of the act has become infructuous as the ground of the MA has been considered and decided according to the principles laid down by the Apex court and the Special Bench of Mumbai as supra in this order. 8. In the result, both the M.As. of the assessee are partly allowed.”

7.5. Respectfully following the above judicial precedents which has elaborately considered the above judgements, we do not find any merits in the grounds raised by the Revenue and also devoid of merits, therefore the same are liable to be dismissed.