ITO, WARD (E), CHANDIGARH vs. SANT BABA SUNDER SINGH, BARNALA

The present appeal has been filed by the revenue assailing the correctness of the order dated 31/03/2017 of CIT(A) Patiala pertaining to 2008–09 assessment year on the following grounds :

i. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in granting u/s 10(23C)(iiiad) in the case even when the receipt admittedly have been in excess of Rs. l Crore and therefore the assessee’s coverage under the section was precluded by the statutory provisions entailing approval u/s 10(23C)(vi) in such cases which the applicant did not have. ii. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in holding that the provisions of sub section (iiiad) and sub section (vi) of the section 10(23C) are separately applicable to each institute and the receipt of the different institute of the same assessee cannot be claimed while arriving at the figure of annual receipt of the institute. iii. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in not following the judgment of the Hon'ble Supreme Court in the case of M/s Goezte India Ltd Vs CIT( 284 ITR 323 SC) wherein the Hon'ble Apex Court has held that any new claim or any change in the original return of income can only be made by filing a revised return and not by making a claim during the assessment proceeding by filing revised computation/simple letter. iv. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law & facts of the case by allowing exemption u/s 11 & 12A of the Act as an alternate remedy which was claimed by the assessee during the assessment proceedings in lieu of exemption u/s 10(23C)(iiiad)/ 10(23C)(vi) of the Act claimed in the original return of income. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 4,16,784/- even when the assessee failed to prove the genuineness of the transaction.

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He failed to appreciate that the provisions of approval by prescribed authority apply to section 10(23C)(vi) and not to section 10(23C)(iiiad). Further the Ld. AO wrongly concluded that the provisions of section 10(23C)(iiiad) apply assessee wise. Whereas in actual the provisions of 10(23C)(iiiad) apply institute wise and not the assessee wise that means if an assessee is running more than one educational institution then the limit of one crore is to be considered separately and the total receipts of all the institutes can't be clubbed together for the purpose of such calculation. Section 10(23C)(iiiad) reads as under : "In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included.... (iiiad) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed;"

From the above definition it is clear that what is referred to is the "educational institution "and not "the person "further reliance is placed upon a) THE KARNATAKA HIGH COURT has upheld the decision of INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'B', BANGALORE In the case of CHILDREN EDUCATION SOCIETY, ITA Nos.140 & 141/Bang/2010 held that For the various arguments advanced above it is also submitted that the notification u/s. 10(23C)(vi) would be required only in respect of such of those educational institutions whose aggregate annual receipts exceeds the sum of Rs. One Crore specified in Rule 2'BC. Consequently the assessee claim for exemption u/s. 10(23C)(iiiad) is valid, notwithstanding the fact that the assessee is not notified u/s. 10(23C)(vi) of the Act. Accordingly the second of the reasons adduced by the learned CIT(A) for denial of exemption is clearly erroneous and the claim of the assessee requires to be allowed for the advancement of substantial cause of Justice. Further, in respect of the 3 educational institutions viz., The Oxford Kannada Nursery, Kannada Primary arid Kannada High School, which are in receipt of grant to meet the salary of teachers, the CIT(A) failed to appreciate that the subtle distinction between the assessee Society and the 3 educational institutions run by the assessee Society is reinforced by the fact that even -the Government has granted aid only to these educational institution and not to the "assessee society". Further more the said grant is with reference to the salary expenditure of the said education Institution and not with reference to the assessee Society expenditure at all. In any case the observations by the learned CIT(A) that the 3 educational institutions are not substantially aided by the Government is erroneous. Here again the CTT(A) did not consider the fact that the exemption for being substantially financed by the Government is contained under a different clause viz., Section 10(23C)(iiiab) which again goes to show that legislature considered for exemption the income of the educational institutions in the hands of the assessee on different parameters. Therefore, the parameters are clearly attached to the educational institution itself and not the assessee claiming the exemption." 3.2 I have considered the submissions put forth by the appellant and the fact of the case. I am of the considered opinion that the plain reading of the provisions of section 10(23C)(iiiad) makes it very-much clear that these are applicable institution wise and not assessee wise. The same is also upheld by the Hon'ble KARNATAKA HIGH COURT in the case of CHILDREN EDUCATION SOCIETY. Respectfully following this judgement the appeal of the appellant on the issue of Sec. 10(23C)(iiiad) is allowed.

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3.2 Considering the facts and the decision relied upon, I find no infirmity in the conclusion arrived at. In the absence of any rebuttal on facts or law, the order is upheld. 4. On the 2nd issue agitated by the Revenue, the issue also had come up before the Co-ordinate Bench who was pleased to remand the same to the CIT(A) with the following observations : "16. We find that it is an undisputed fact that the assessee is registered under section 12A of the Income Tax Act. It is also not in dispute that the assessee had not claimed exemption under section 11 in its return of income but at the same time it is also undisputed that the claim had been made by the assessee before the AO during assessment proceedings vide its letter dt. 01/11/2010 which is mentioned in the assessment order at para 1.3 wherein the AO has stated "further deduction under section 11/12A as contested in the reply dt. 01/11/2010 is also not admissible as discussed above ". In view of the above the issue to be adjudicated upon is whether the assessee was entitled to deduction under section 11 of the Act, even if the same had not claimed in the return of income but was claimed during assessment proceeding. We are of the considered view that the claim of the assessee ought to have been entertained. In view of the fact that the assessee had been granted registration under section 12A of the act it cannot be denied that the assessee was entitled to claim exemption under section 11 & 12 of the Act subject to fulfillment of the conditions stated therein. Since the assessee was of the belief that its income was exempt from tax by virtue of the provision of section 10(23C)(iiiad)f which it claimed in its return of income, it logically did not claim exemption u/s 11 of the Act. It was only during assessment proceedings when exemption u/s 10(23C)(iiiad) was proposed to be denied that the assessee alternatively claimed exemption u/s 11 of the Act Denying this exemption for the reason that it was not claimed in the return is an absurd reasoning since as stated above there was no occasion for the assessee to claim alternate exemption under section 11 when it had already claimed exemption u/s 10(23C)(iiiad) of the Act. Therefore we hold that the denial of exemption u/s 11 of the Act for the reason that it was not/ claimed in the return of income is correct. The assessee was legally entitled to claim the same and had rightly done so when its initial claim of exemption u/s 10(23C)(iiiad) had been proposed to be denied. There is no provision in the Income Tax Act which requires to assessee to compulsory claim benefit under all section of the Act alternatively available. Moreover even the CBDT Circular No. 14(XL-35) dt. 11/04/1955 mandates Assessing Officer to assist tax payees in every reasonable way, particularly in the matter of claiming and securing reliefs and further directs Assessing Officer to take the initiative in guiding tax payees in this regard.

In view of the same we hold that the Ld. CIT(A) had erred in rejecting the claim of the assessee for grant of exemption under section 11 merely for the reason that the claim had not been made in the return of income. We therefore hold that in view of the registration granted under section 12A the assessee was entitled to claim exemption under section 11 and since the same has not been examined by the Ld. C]T(A), the issue of claim of exemption under section 11 is being restored back to file of Ld. CIT(A) to be dealt with in accordance with law after giving due opportunity of hearing to the assessee."

4.1 The CIT(A), it is seen considering the submissions advanced which have been set out in para 4.3 of the impugned order, granted relief in para 4.4 of his order which is under challenge in the present

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proceedings. For ready reference para 4.3 and 4.4 of the impugned order are reproduced hereunder :

4.3 As directed by the Honorable ITAT the opportunity was provided to the appellant and in response the appellant submitted the following on the issue : "a) Ld AO has summarily dismissed the claim of Assessee U/s 12A by stating that the same was not claimed by the assessee. The Ld AO are wrong in stating that the exemption U/s 12A is not claimed by the assessee. Even though the same was not claimed in the return of income the same was duly and properly claimed by the assessee during the assessment proceedings. The Ld. AO has discussed the merits of the claim of assessee U/s 12A in the last lines of page 4 and in detail on page 5 of the assessment order. b) The Ld. AO erred in concluding that 85% was not applied during the year and calculated the surplus at Rs 32,69,558/- as against the actual NET DEFICIT of (Rs 11,64,272). The Ld. AO failed to apply the provisions of Section 12A in true spirit as he didn't allowed the benefit of capital expenditure during the year. DETAILED CHART OF UTILISATION Gross Receipts 1,13,17,682/- Gross Expenses 92,59,436/- As per receipt and Payment Account SURPLUS (As per Receipt & Payment A/c) 20,58,246/- ADD: Depreciation as per books 31,64,909/- 52,23,155/- LESS: Depreciation as per Income Tax 19,53,597/- SURPLUS (As per AO) 32,69,558/- LESS: CAPITAL EXPENSES 44,33,830/- NET SURPLUS /(DEFICIT) (11,64,272/-)

From the above chart it is clear that the Ld. AO failed to consider the expenditure in the capital assets despite the fact that the same was evident from the Fixed Assets and depreciation charts attached to the balance sheet on record and further the details were submitted to him during the assessment proceedings. Investment in capital assets is to be treated as utilisation of funds, reliance is placed upon

(i) Hon'ble Jurisdictional Punjab & Haryana High Court (327 TTR 73) has held that Capital Expenditure is entitled to Exemption and would not constitute part of the Total Income (Page 120 of 327ITR) (ii) In S.R.M.M. C. T.M. Thiruppani Trust v. C.I. T. (1998) 230ITR 636 (SC) the Supreme Court held that the amount utilised by the assessee in purchasing a building to be used as a hospital was nothing but application of income for charitable purposes under section ll(l)(a) of the Act. (iii) Further The Hon'ble Madras High Court in C.I.T. v. Rao Bahadur Calavala Cunnan Chetty Charities (1982) 135 ITR 485 (Mad) held that so long as the expenditure has to be incurred out of the income earned by the trust, even if such expenditure is for capital purposes on the objects of the trust, the income would be exempt. c) Further the contention of Ld AO that Form No. 10 not filed is wrong as the same is required to be filed when the application of income during falls short of 85% whereas in the case of assessee the application of income was more than 100% and as such it was not required to file the Form No 10 during the year." 4.4 The Honorable ITAT on this issue has opined that in view of the registration granted u/s 12A the appellant was entitled to claim exemption u/s 11.

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Now going by the facts of the case and in the light of legal pronouncements supra, I am of the considered opinion that the capital expenditure is an allowable expenditure while arriving at the figure of surplus for the year. As a result the appeal of the appellant the issue of section 12(A) is allowed. 4.2 The impugned order having been passed in the light of the directions of the Co-ordinate Bench which admittedly has become final and in the absence of any infirmity having been pointed out, the conclusion arrived at is upheld. 5. The 3rd issue agitated by the Revenue in the present appeal also came up for consideration before the Co-ordinate Bench. The said issue was also remanded by the ITAT. The facts relatable to the issue are that addition by way of a disallowance was made of Rs. 4,16,784/- under section 68 by the assessing officer. The assessee before the CIT(A) in the first round reiterated that the trust is running two educational institutions viz. Sant Baba Sunder Singh Ji Akal Academy & Barrakat Girls College of Education & in addition to huge credit balances in these account at Rs. 59,65,380/- & Rs. 9,53,116/- and fresh advances of Rs. 3,37,000/- & Rs. 79,784/- respectively were received in these accounts. No summons were issued for compelling attendance of witnesses. The explanation offered by the appellant was straight away rejected by the Assessing Officer. However, the CIT(A) upheld the said action. The issue was challenged before the Co-ordinate Bench and remanded to the CIT(A) with the following observations :

"23. We find that the issue arising in this ground being addition made u/s 68 of the Act, is effected by the eligibility of the assesses to exempt/on under section 11 of the Act Since the issue of claim of the assessee of exemption u/s 11 of the Act has been restored back to the file of the Ld. CIT(A) in para 16 of our order, we restore this issue also back to the file of the Ld. CIT(A) to be adjudicated upon in accordance with law after giving the assessee due opportunity of hearing. This ground of appeal is allowed for statistical purposes."

5.1 In the remand proceedings the submissions advanced on behalf the assessee have been set out in para 5.2 considering which the addition was deleted in para 5.3 which is challenged by the Revenue in the present proceedings. For ready reference relevant extract is reproduced hereunder: “5.2 As directed by the Honorable ITAT the opportunity was provided to the appellant and in response the appellant submitted the following on the issue:

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"23. We find that the issue arising in this ground being addition made u/s 68 of the Act, is effected by the eligibility of the assesses to exempt/on under section 11 of the Act Since the issue of claim of the assessee of exemption u/s 11 of the Act has been restored back to the file of the Ld. CIT(A) in para 16 of our order, we restore this issue also back to the file of the Ld. CIT(A) to be adjudicated upon in accordance with law after giving the assessee due opportunity of hearing. This ground of appeal is allowed for statistical purposes." "a) The Ld AO wrongly made the addition U/s 68 of Rs 4,16,784/-. The amount was received from one of the trustees who is also a Mohant of the Gurdwara Sahib Sant Baba Sunder Singh Ji Canadian Village Tallewall. The confirmed copy of account was filled at the time of assessment (Page 6, Para 2, of Asstt Order) and it was explained to him that the amounts are the Golak receipts of the Gurdwara Sahib. Further there is no reason why the assessee whose income is exempt will record cash in the name of an outsider.

b) Without conceding even if the addition U/s 68 amounting to Rs 4,16,784/- is presumed to be income even then it will be exempt because the utilisation is for educational purpose only and total utilisation exceeded 85% Reliance is placed on Karnataka High Court in the case of 336ITR Page 694 in the case of SRI Belimatha Mahasamsthana Socio Cultural & Educational Trust where corpus donations were treated as income but relief granted U/s ll(l)(d) was held to be Valid." 5.3 I have considered the submissions put forth by the appellant and the facts of the case. In my view, the onus lies on the appellant to prove the genuineness of the transactions. All the loans are in cash and the contention that amounts are advanced out of the Golak doesn't absolve the appellant of the onus cast upon him to prove the genuineness of the transactions, the identity of the creditor and their creditworthiness. None of these conditions are fulfilled in this case. Thus, the addition has been rightly made. However, it has not been disputed that this amount would still be exempt u/s 11 in the hands of the Trust since the utilization of funds by it is for educational purpose only and the utilization exceeded 85%. In this regard reliance is placed on the decision of Hon'ble Karnataka High Court in the case of DIT(E) v. Sri Belimatha Mahasamsthana Socio Cultural and Educational Trust [2012] 336 ITR 694 (Karnataka). Since, the amounts, in question, have come from third parties the same would have to be treated as income. However, if the said amount is utilized or expended for charitable purpose, then said amount would be eligible for exemption u/s ll(l)(d) of the Act. But for the statistical purposes this ground of appeal is allowed.”

5.2. Considering the aforementioned peculiar facts and circumstances of the case which have not been assailed in the present proceedings I find no infirmity in the impugned order accordingly in view of the above the specific findings of the CITA in the facts as they stand, the departmental ground fails.

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Order pronounced in the Open Court on 1st March,2018.

Sd/- (DIVA SINGH) JUDICIAL MEMBER ‘Poonam’ Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR

Asstt. Registrar ITAT,Chandigarh.