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Income Tax Appellate Tribunal, DIVISION BENCH ‘B’, CHANDIGARH
Before: SHRI SANJAY GARG & DR. B.R.R. KUMAR
PER DR.B.R.R.KUMAR, A.M. :
The present appeal has been filed by the Assessee against the order of Ld. CIT(E), Chandigarh, dated 29/04/2017.
Assessee has raised the following grounds :
1.The Ld. CIT(E) has wrongly and arbitrarily rejected the application for approval u/s 10(23C)(vi) without any basis and material on record.
The ld. CIT has wrongly held that the appellant was wrongly claiming exemption u/s 10(23C)(iiiab)although it was on record that the University was substantially financed by the State Government and as such was not required to file the returns. Further the same is irrelevant for approval u/s 10(23C)(vi).
The Ld. CIT(E) wrongly worked out the surplus / profit although there were huge losses.
The Ld. CIT(E) wrongly presumed that the objects and activities of the University are not genuine and cannot be examined in the absence of income tax returns. This presumption is totally against the facts on records.
That the rejection of the application is only on presumption and against all the actual facts. As such the CIT(E) be directed to grant approval under section 10(23C)(vi).
The order of the ld. CIT(E) is against the well settled law by the Honorable Punjab and Haryana High Court in the case of “Pine Grove International Charitable Trust and Others Vs. Union of India-327 ITR Page No. 73” and confirmed by the Honorable Supreme Court in the case of “Queen’s educational Society vs.
CIT-372 ITR Page No. 699”.
The applicant society had filed an application in form No.56D on 22.4.2016 seeking approval u/s 10(23C)(vi) of the Act. The same was rejected by the Ld.CIT(Exemptions) for the reason that the assessee had never in the past filed its return of income, claiming to be exempt u/s 10(23C)(iiiab), of the Act, which was incorrect. Further, the Ld.CIT(Exemptions) stated that the assessee has been receiving grants from Punjab Government on an intermittent basis only. Subsequently the amendment in provisions of section 10(23C)(iiiab) w.e.f 01/04/2015 only if the grant is more than 50%, the assessee is to be treated as substantially financed by the Government.
The Ld.CIT(E) stated that in the absence of return of income and other relevant documents, it was difficult to appraise the activities of the institution during the past several years and, therefore, there was no way the genuineness of the activities of the applicant society could be corroborated with its stated aims and objects.
4.1 Ld.CIT(E) further took note of the fact that the applicant society did not have PAN while denying approval to the applicant/ assessee The Ld. CIT(A) observed that the University is substantially financed (as claimed) by the Government but has never filed its income tax return till date. The applicant has further claimed that the University has been established solely for providing the education in the area by the Government of Punjab and was not required to file the Income Tax return being out rightly exempt under section 10(23C)(iiiab). The financial statements and the written reply of the applicant also confirms that the grants received from the Punjab Government fall in the bracket of 17 to 20 % of the total gross receipt for all the preceding years. Therefore, it is important to mention here the clarification of the term 'substantially financed' as explained in Rule 2BBB of the Income Tax Rule, 1962 inserted by the IT Rules, 2014, as under:
"For the purposes of sub-clauses (iiiab) and (nine) of clause (23C) of section 10, any university or other educational institution, hospital or other institution referred therein, shall be considered as being substantially financed by the Government for any previous year, if the Government grant to such university or other educational institution, hospital or oilier institution exceeds fifty percent of the total receipts including any voluntary contributions, of such university or other educational institution, hospital or other institution, as the case may be during the relevant previous year."
Ld.CIT(E) observed that the claim of the applicant that it falls under the 4.2 definition of section 10(23C)(iiiab) does not hold any ground in view of the Rule mentioned above. Further, the position taken by the University that it was not required to file returns if it claimed to be covered under section 10(23C)(iiiab) is patently misplaced. It is a well established principle that to avail the benefits of the clauses beneficial to the assessees claims have to be made which in Income Tax proceedings that can be done by no other means but filing returns. In the instant case there is a violation of provisions of section 139(4C)(e) of the Income Tax Act, 1961 which makes it mandatory to furnish a return in the prescribed form if the income of such University or educational institution referred to in sub-clause (iiiab) of section 10(23C) exceeds the maximum amount not chargeable to tax. The applicant may possibly take the plea that it had not been mandated in the Act. The recently incorporated provision however clarifies the legislative intent. Further in the absence of returns of income in the past the activities and the genuineness thereof cannot be examined.
4.3 Holding this the Ld. CIT(A) rejected the application for approval under section 10(23C)(vi) of the Income Tax Act.
During the course of hearing before us the Ld. AR stated that all the allegations leveled on the applicant society were incorrect and irrelevant for the grant of approval u/s 10(23C)(vi) of the Act. The Ld. AR stated that the only twin conditions to be examined by the Ld.CIT(E) while granting approval was the genuineness of the objects and of the activities of the applicant society. The Ld. AR stated that whether the applicant society had filed return in the past or not or that it had PAN or not or the fact that it should have claimed the benefit u/s 10(23C)(iiiad) or u/s 10(23C)(vi) were not relevant for the purpose of grant of approval and the Ld.CIT(E) being guided by these factors alone had, therefore, erred in refusing grant of approval. The Ld. AR further relied on the Circular No. 351 [F.No. 142(32)/82-TPL], dt. 26/11/1982 regarding the filing of the returns. He further submitted that the assessee has been received grants in the range of 25% to 33% in the earlier years as against the observation of Ld. CIT(E) which was 17% to 20%.
The Ld. DR, on the other hand, relied upon the order of the Ld.CIT(E).
We have heard the contentions of both the parties. We are aware of the order passed by the Coordinate Bench in the case of the assessee pertaining to denying of registration under section 12A in ITA No. 1460/CHD/2016 for the A.Y. 2016-17 wherein the matter has been restored back to the file of Ld. CIT(E) for reconsideration of the application for grant of registration. Since the provisions of Section 10(23C)(vi) are more stringent and specific in nature, we hereby restore the matter back to the file of the Ld. CIT(E) to reconsider the facts mentioned thereon while determining the issue of allowing the application under section 10(23C)(vi).
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court.
Sd/- Sd/- (SANJAY GARG) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 09/07/2018 AG Copy to: 1.The Appellant, 2. The Respondent, 3. The CIT(A), 4. The CIT, 5. The DR