SHRI SHAMJIBHAI HARJIBHAI TALAVIA CHARITABLE TRUST,RAJKOT vs. THE PR. CIT(EXEMPTION), AHMEDABAD, AHMEDABAD

The assessee has raised following grounds challenging the validity of revisionary jurisdiction exercised by the ld. CIT (Exemptions) in the present case:- “1. The grounds of appeal mentioned hereunder are without prejudice to one another.

2. The order passed by Pr. Commissioner of Income-tax (Exemption), Ahmedabad [hereinafter referred as to the “Pr. CIT”] is bad and illegal and requires to be quashed.

As transpires from the order of ld. CIT(Exemptions), the error noted by him in the assessment framed in the present case under Section 143(3) of the Act was allowing exemption to income of an institution of the assessee- trust u/s 10(23C)(vi) of the Act, which institution had not been granted approval for the said purpose. The ld. CIT(Exemptions) noted that in the certificate granting approval to the assessee-trust u/s 10(23C)(vi) of the Act, the Institute of School of Science run by the assessee-trust was not included; but, the assessee had claimed exemption of the income earned by the said institution u/s 10(23C)(vi) of the Act and was allowed by the Assessing Officer also. Accordingly, a show-cause notice was issued to the assessee u/s 263 of the Act asking as to why the assessment order was not erroneous for not subjecting the income of this Institute of School of Science to tax in the absence of any approval granted to it u/s 10(23C)(vi) of the Act. The contents of the notice so issued by the ld. CIT(Exemptions) are reproduced at paragraph No.3 of the order as under:-

The assessee responded to the said notice by contending that the Trust had been granted approval vide order dated 17.04.2012 in respect of various institutions working under the said Trust and in view of the Board’s Circular No.7/2010 dated 27.10.2010 no further the approval was required as it was a one-time approval as per prevailing law. The School of Science, i.e. the specific institution referred to by the ld. CIT(Exemptions), it was pointed out, became part of the trust from AY 2014-15 and in lieu of the continuation of the approval granted to the assessee-trust u/s. 10(23C)(vi) of the Act, the said approval, it was contended by the assessee, applied to the School of Science also which was included in the assessee-trust subsequent to the grant of approval in 2012. It was also contended that ,without prejudice to the same, since the assessee was registered as a charitable trust u/s 12A of the Act, it was entitled to claim its income as exempt u/s 11 of the Act; and, therefore, since the assessee had applied its entire income to charitable purposes and there was deficit of income, it was entitled to claim its entire income exempt u/s 11 of the Act.

The ld. CIT(Exemptions), however, rejected both the contentions of the assessee holding that the new institution added post approval granted u/s. 10(23C)(vi) of the Act cannot be automatically said to be approved by virtue of the approval granted originally. That continuation of approval granted by CBDT vide its Circular No.7/2010 did not imply that even new institutions included or added subsequently would be suo moto entitled to exemption u/s. 10(23C)(vi) of the Act. As for the contention of the assessee

Before us, ld. Counsel for the assessee contended that neither of the twin conditions required to be fulfilled for invoking Section 263 of the Act, that is of the assessment order being erroneous and causing prejudice to the Revenue, were fulfilled.

His contention regarding the assessment order not being erroneous briefly put was:-

His contention with regard to no prejudice being caused to the Revenue was that since the assessee was registered as a charitable trust u/s 12A of the Act, its income was entitled to exemption u/s 11 of the Act, and since the financial statements of the assessee-trust for the impugned year revealed that it had applied its entire income earned in the School of Science for running the said institute, the entire income of School of Science was entitled to exemption u/s 11 of the Act; and, therefore, even if the said institute was not entitled to exemption u/s. 10(23C)(vi) of the Act its income was exempt u/s 11 of the Act thus causing no prejudice to the Revenue on account of the order granting exemption to the said institute u/s. 10(23C)(vi) of the Act.

The ld. DR, however, vehemently objected to the above contentions of the ld. Counsel for the assessee. His contention against the argument of the ld. Counsel for the assessee of there being no error in the assessment order was that the approval u/s. 10(23C)(vi) of the Act is required to be institute specific and it cannot be treated as applicable to the Trust as a whole. He relied on the decision of the Hon’ble Apex Court for the said proposition in the case of New Noble Educational Society Vs. CIT, reported in [2022] 143 taxmann.com 276 (SC) and on the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Children’s Education Society, reported in [2013] 358 ITR 373 (Karnataka). He contended that the Assessing Officer had appreciated incorrect fact in the present case and, therefore, committed a mistake of law by granting exemption to an institute which had not been granted approval u/s. 10(23C)(vi) of the Act. The Assessing Officer’s finding was, he contended, therefore an incorrect finding of fact in law and thus the order was erroneous causing prejudice to the Revenue.

As for the contention of the assessee that there was no prejudice caused to the Revenue since it was even otherwise entitled to exemption u/s 11 of the Act, the ld. DR countered by stating that by virtue of CBDT Circular No.1/2015 dated 21.01.2015, the assessee is disentitled to alternatively claim exemption u/s. 10(23C)(vi) and Section 11 of the Act, that if it has claimed exemption u/s. 10(23C)(vi) of the Act it is debarred from claiming exemption of the same income u/s 11 of the Act. Ld. DR contended that an order does not become erroneous merely because there is anything wrong with the order if all facts stated therein are assumed to be correct. He contended that it becomes erroneous also on account of failure to make an inquiry which ought to have been made in the circumstance. For the said proposition, he relied on the order of the ITAT Ahmedabad Benches in the case of Babulal S. Solanki Vs. ITO in dated 04.03.2019.

In the light of these facts, the argument of the ld. Counsel for the assessee that the approval originally granted is to be presumed to apply to this institute also considering the prevailing position of law that only one- time approval was required to be taken u/s. 10(23C)(vi) of the Act, we find and hold, has been correctly rejected by the ld. CIT(Exemptions). His finding that this relaxation provided by the legislature of seeking only one time approval does not imply that new institutions can be added by the assessee and the approval will suo moto will apply to the said institute, we hold is correct. We do not find any infirmity in the same. For the sake of clarity, his findings in this regard at paragraph no.5 of the order are reproduced hereunder:-

We are in complete agreement with the ld. CIT(Exemptions) that the approval granted to the assessee-trust in the year 2012 cannot apply to a new institution added to the trust subsequently. Therefore, the argument of the ld. Counsel for the assessee that the approval u/s. 10(23C)(vi) of the Act would apply to the new institute also and hence there was no error in the order granting exemption to the income of the new institute is dismissed. The findings of the ld. CIT(Exemptions) in this regard are confirmed by us.

The contention of the ld. Counsel for the assessee before us that the approval is granted to a trust and not a specific institute is also rejected since the certificate granting approval specifically mentions each institute which was being run by the assessee-trust at the relevant point of time. The approval obviously is specifically granted to the institutes mentioned .The CIT is required to grant approval after examining the genuineness of activities carried out and therefore specifically having examined the activities of the then existing institutes the approval letter mentions each institute of the assessee trust found by him eligible to exemption u/s 10(23C) (vi) of the Act. This institute, i.e. School of Science added to the trust subsequent to grant of approval its activities needed to be examined and the assessee ought to have applied afresh for grant of approval to this specific institute. We agree with the ld. CIT(Exemptions) that the approval could not have extended to the new institute added subsequently.

With regard to the contention of the ld. Counsel for the assessee that there was no prejudice caused to the Revenue since it is otherwise entitled to exemption of income u/s 11 of the Act, the ld. CIT(Exemptions), we have noted, has rejected this contention of the assessee also stating that the Shri Shamjibhai Harjibhai Talavia Charitable Trust Vs. PCIT(E) AY : 2015-16 assessee had never made any such claim in its return of income and, therefore, the claim needed to be verified and required scrutiny. His finding recorded in this regard at paragraph no. 6 of his order is as under:-

We see no reason to disagree with the ld. CIT(Exemptions). Undoubtedly, the assessee had not claimed its income exempt u/s 11 of the Act and merely because it has been granted registration u/s 12A of the Act, exemption u/s 11 of the Act is not automatic and the same needs verification. The ld. Counsel for the assessee cannot contend that since it has been granted registration u/s 12A of the Act, its entire income is exempt by virtue of Section 11 of the Act and no prejudice therefore is caused to the Revenue. We agree with the ld. CIT(Exemptions) that this claim of the assessee, that it was not liable to pay any tax on account of its income being exempt u/s 11 of the Act, needed to be verified and in the absence of the same, it cannot be said that there was no prejudice caused to the Revenue. On this account, we agree with the ld. CIT(Exemptions)’s rejection of this contention of the ld. Counsel for the assessee.

At the same time, we may add that the argument made by the ld. DR before us that this contention of the assessee is not acceptable since the CBDT vide its Circular No.1/2015 dated 21.01.2015 has debarred assessees from making alternative claim of exemption u/s. 10(23C)(vi) and Section 11 of the Act, we hold, is not correct. We have gone through the relevant CBDT circular and we find that what has been debarred by virtue of the said circular, which is explanatory notes to the provisions of the Finance Act,

In view of the above, we hold that the ld. CIT(Exemptions) has rightly found the assessment order to be erroneous in granting exemption u/s. 10(23C)(vi) of the Act to the income of an institute run by assessee-trust which was not granted approval for the said purpose and finding that as a consequence prejudice has been caused to the Revenue. The order of the ld. CIT(Exemptions) accordingly is upheld, and the appeal of the assessee is dismissed.

In effect, the appeal of the assessee is dismissed.