THE DCIT-2(1), BHOPAL vs. M/S. JAI NARAIN SHIKSHA SAMITI, BHOPAL

These eights (8) appeals by Revenue of four assessees (respondent) are directed against the four separate orders (two in each case) of Commissioner of Income Tax(Appeal), for Assessment Year 2012-13 & 2013-14. These four set of two appeals of the four connected assessees involve common issue and arising from identical facts therefore, all these appeals are clubbed together for the purpose of hearing and disposed of by this consolidated order.

“1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding status of assessee as AOP for A.Y. 2012- 13 and 2013-14 by relying upon appellate orders of Hon'ble ITAT, Indore Bench, Indore in assessee's own case. & other /Ind/2017 H.K. Kalchuri Education Trust & others Page 3 of 11 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that the activities of the assessee are charitable in nature and the deficit shown in the income and expenditure account be computed after allowing deduction u/s 11 by granting exemption u/s 11, 12 and 13 of the IT Act, 1961, by relying upon appellate orders of Hon'ble ITAT, Indore Bench, Indore in assessee's own case.

4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the property/income of the assessee trust were not used for the benefit of interested persons as stipulated u/s 13(3) and, therefore, the assessee was entitled for exemption w/s 11 of the I.T. Act.

5. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that the societies/ trusts/entities to whom loans/advances were given by the assessee did not attract the provisions of section 13(1)(c)(ii) r.w.s. 13(2)(a)/13(2)(h) of the IT Act and, hence the assessee was eligible for benefits contemplated u/s 11 and 12 of the IT Act.

6. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that vehicles were not used for personal purposes by trustees and, therefore, the assessee was eligible for exemption u/s 11 & 12 of the IT Act.

7. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in giving exemption u/s 11 and 12 of the IT Act, 1961 though the vehicles were used by the members for the personal purpose. 8.On the facts and circumstances of the case and in law, the Id. CIT(A) erred in allowing donation of Rs. 11,87,857/- for A.Y. 2012-13, 9. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing deduction as application of income acquisition of fixed assets.

10. On the facts and circumstances of the case and in law, the ld. IT(A) erred in allowing of set off of deficit of earlier year against the income of current year. & other /Ind/2017 H.K. Kalchuri Education Trust & others Page 4 of 11 3. The only effective and common issue arises in these appeals of the revenue is whether in the facts and circumstances of the case the Ld. CIT(A) is justified in holding that the activities of the assesses are charitable in nature and the income of the assesse are to be computed after allowing the exemption u/s 11 and 12 of the Act and thereby deleted the additions made by the AO by treating the activities of the assessee as in the nature of business. Earlier the assessees have filed a declaration in form- 8 and claimed that the question of law arises in all these 8 appeals of revenue for A.Ys.2012-13 & 2013-14 in respect of these four assessees is identical with question of law arising in these assessees own cases i.e. appeal filed by the revenue u/s 260A of the Act before the Hon’ble High Court and assessees agree to apply the final decision of the Hon’ble High Court in the appeals filed by the revenue in respect of four assessees for assessment year 2011-12 in ITANos.77 to 80 of 2017. The Tribunal directed the AO to file his comments on the declaration of the assesse in form 8 as to whether the claim of the assesse that the question of law arising from the appeals pending before the Tribunal is identical to the question of law in the appeals filed by the revenue before the Hon’ble High Court for the assessment year 2011-12 is correct or not. The AO vide order dated 12th July 2013 has not disputed the correctness of the claim of the assessee and annexed the question of law approved by the Pr. CIT for filing the appeals.

4. Ongoing through the question of law as approved by the Pr. CIT in each case we find that the same is identical to the question of law involved in these appeals as well as the question of law formulated by the Hon’ble High Court in the appeals in ITANo.77 to 80 of 2017 for A.Y.2011-12. For sake of completeness we reproduced the question of law formulated by the Hon’ble High Court at the time of admitting the appeals by the revenue for A.Y.2011-12 as under:

“Appeal is admitted for final hearing on the following substantial question of law: & other /Ind/2017 H.K. Kalchuri Education Trust & others Page 5 of 11 "Whether in the facts and circumstances of the case, was the learned ITAT justified in holding that all the activities of the assessee was charitable activities and accordingly, it directed that the A.O. has recalculated the surplus/deficit of all these years in question granting exemption under Sections 11, 12 and 13 of the Income Tax Act?"

5. It is pertinent to note that this issue was considered and decided by this Tribunal in assessees own case of assessment year 2011-12 vide order dated 17.01.2017 in ITANo. 455 to 458 of 2016 as under:

“5. We have considered the rival submissions of both the parties and gone through the material available on the file. We find that in the present appeals, the AO has practically repeated all the observations of his earlier orders u/s 153A/153C without bringing any evidence or corroboration against the assessee, treated the assessee as business organisation and disallowed the claim of the assessee u/s 11 and assessed the total income as business income. We find that the Id. CIT(A), in all the four appellate orders in present appeals, has simply reproduced the earlier findings and decisions of his predecessor delivered against the search assessment orders u/s 153A/153C which have been subsequently reversed by the ITAT, Indore in two orders, as stated earlier. While doing so, the CIT(A) has also not brought on record any evidence or corroboration against the assessee in support of the impugned agreements having been implemented and for treating the assessee as business organisation and for disallowing the claim of the assessee u/s 11 on various grounds. In our view, such findings of CIT(A) cannot be accepted and are rejected in view of our earlier above decisions in search cases and in view of our decision in the subsequent paragraphs of this order. 5.1 We find that the facts of present appeal in hand for A.Y. 2011-12 are exactly similar to the facts of the search assessment orders for all above four assessees, without any change in the circumstances of the case. We find that the AO during the subject year also has not brought on record any evidence or corroboration against the assessee in support of the impugned agreements having been implemented and for treating the assessee as business organisation, which was inescapable. Hence, in our considered view, we find ourselves in agreement with the contentions of the Id. AR that all the issues are squarely covered in favour of assessee by the above two orders of ITAT vide appeal no. ITA 389/Ind/2014 dt. 17.5.2016 of 12AA and vide appeal no. 'IT(SS)A 273,274 & 275/Ind/2013 dt. 17.5.2016 of quantum order, as the AO has simply repeated all the observations of his earlier order, without proving anything against the assessee to support his case. Copies of the aforesaid two orders of Indore Bench have been filed before us. Before proceeding further, we hold that since no such impugned agreements ) were found in case of Jai Narain Shiksha Samiti and Hai Hay Kshatriya Education Society, hence no adverse view or analogy could be drawn in case of the assessee of these agreements as held by Indore Bench of Tribunal at pg. 83 on last para of 12AA order, as done by AO and CIT(A) the present case. We also find that similar observations and findings have Page 5 of 11 & other /Ind/2017 H.K. Kalchuri Education Trust & others Page 6 of 11 been given by the AO in all the above four assessment orders. HK Kalchuri Education Trust being the leading case, we have taken facts from HK Kalchdri Education Trust. Hence, consolidated order is passed by us covering all the issues and our issue-wise decision shall apply to all the four assesses, as above. The issue-wise additions made by AO and our decision, as also covered by our above two earlier orders, are tabulated below.

Observations and findings of AO Our findings Assessee society runs the Allegation that the educational institutions are run educational institutions as by the assessee as partnership firms for sole business entity for the purpose of purpose of earning and sharing profit is found earning and sharing profits and wrong, baseless, unproved and without any not as charitable organization. corroborative evidence. Agreements for sharing profits 2. Receipts/surplus have been utilized wholly and were found during search on exclusively towards objects of the institution and 23.7.2009 were Implemented and nothing adverse was found by AO. it supports above view) Rights in the societies/trust running 3. Sharing or siphoning of the receipts/ surplus educational institutions are being Imoney of ascesseo-trust /society by office bearers/ purchased and sold. Hence, trustees was only possible by inflating, that too assessee is not eligible for exorbitantly, the capital as well as revenue exemption u/s 11/12 of the Act. expenditure. But no such evidence was brought by AO and no such allegation was made by him.

6. No evidence of profit sharing by trustees/members was found in search or brought on record by AO in subject year.

7. No corroborative evidence of implementation of agreement was found in search or brought out by AO in subject year.

Advances have been given to There is no bar in advancing interest free advances various other societies/entities to such charitable trust/societies registered u/s 12A under the same management. It is as per the decision of Hon'ble MP High Court in the violation of sec. 13 case of CIT vis RKDF Education Society in dated 01/08/2013.

Assessee is generating huge The issue of generation of surplus vis-à- vis surplus from its educational charitable has been set at rest by Hon'ble Supreme activities, every year. This proves Court in the case of Queens Educational Society vs that the assessee Society is CIT [2015] 372 ITR 699 (SC) holding that where a operating like a business venture surplus was made by educational institution which and carrying out commercial was ploughed back for educational purposes, said activities in the guise of charitable institutions was held to be existed solely for activities so as to claim benefit of educational purposes and not for purpose of profit. exemption under the Income Tax Act. The assessee society is thus running only with the motive of earning profits and not for charitable purposes and hence its activities can not be said to be for objects of Society and can not said to be genuine as well. Hence assessee is not eligible for deduction/exemption u/s 10 or 11/12 of IT Act. Hence surplus in the income and expenditure account is treated as business income Donation is debited in the income Since we have treated the assessee as charitable Page 8 of 11 & other /Ind/2017 H.K. Kalchuri Education Trust & others Page 9 of 11 and expenditure account. The organisation eligible exemption u/s 11, hence in our said expenditure is gratuitous in view addition made by AO in AY. 2007-08 to 2010- nature. It is not for purpose of 11 are not correct because donation has been given business of assessee and hence towards charitable purposes only not allowed as deduction Vehicles being property fincome of Colleges of the societies are situated almost 10-12 the Society have been used for the Kms from the main city area in far flung areas benefit of interested person as regular connectivity with them is possible only with provided u/s 13(3) of the LT. Act the help of various vehicles. Maintenance of log book 1961and therefore the assessee is not practicable for use of vehicles of the assessee has not produced log book of society. CIT(A) has not commented on the above vehicles. Society is not entitled for justification given by the assessee. He rather rested any deduction u/s 11 of the LT. his conclusion on the basis that no vehicle is owned Act 1961. by Chouksey family and they are man of repute requiring use of vehicle. We agree with the contentions of the assessee that the Trustees/office bearers were expected to commute on day-to-day basis to various Govt agencies, banks and other places scattered all over the vast city of Bhopal and assessee is expected to extend such minimum facilities to its trustees Therefore, in our view this can not be said that the trustees have been provided with excessive amenities violating provisions of sec. 13.

In view of above, we hold that our findings and observations given in above two decisions of Bench in Appeal no. ITA 389/Ind/2014 and others dt. 17.5.2016 (12A order) and Appeal no. IT(SS)A 273,274 & 275/Ind/2013 and others dt. 17.5.2016 (Quantum order) squarely apply in favour of assessee and the present four appeals are fully covered by the above decisions of Indore Bench of Tribunal, more particularly set out in the above table. The AO and Id. CIT(A) are also not found justified in their findings that the property/income of the trust have been used for the benefit of interested persons as provided u/s 13(3). No violation of sec. 13 is found from the facts of the cases, as stated above in all four cases. Therefore, ail the above four assessees are treated as charitable organisation and not business organisation and are eligible for exemptions/benefits u/s 11, 12 and 13 of the Income Tax Act. The AO is directed to allow the exemptions/benefits u/s 11, 12 and 13 to all the four assessees and re- compute accordingly.

6. A ground was also taken for allowing investment in capital assets as application of income for computing exemption u/s 11. Since we have held that assessee is a charitable organisation eligible for exemption u/s 11, the AO is directed to allow investment in capital assets as application of income.

7. Another ground raised by the assessee regarding set off of deficit of earlier year against income of the current year as application of income, is also allowed in view of the decision of Honble jurisdictional MP High Court & other /Ind/2017 H.K. Kalchuri Education Trust & others Page 10 of 11 in the case of CIT vs. Gujrati Samaj (2012) 349 ITR 559(MP). AO is directed to allow the same accordingly.”

The Order is pronounced in the open court on 21.07.2023.