Commissioner Of Income Tax Chennai-600 034 v. Seethakathi Trust 688, Anna Salai, Chennai-600 002

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 04.12.2006 CORAM THE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.(A).Nos.2608 and 2609 of 2006 Commissioner of Income TaxChennai-600 034. ..Appellant inboth T.Cs.Vs. Seethakathi Trust688, Anna Salai,Chennai-600 002. ..Respondent inboth T.Cs. Appeals under Section 260A of the Income Tax Act, 1961against the order of the Income Tax Appellate Tribunal, Madras'B' Bench dated 8.3.2006 in ITA Nos.1188 and 1189/Mds/2004 forthe assessment year 1996-97 and 1997-98. -----For Appellant :Mr.N.Murali Kumaran-----J U D G M E N T The above tax case appeals are directed against the commonorder of the Income-tax Appellate Tribunal in ITA Nos.1188 and1189/Mds/2004 dated 8.3.2006, raising the followingsubstantial questions of law: "1. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that theassessee is entitled for exemption under section 10(22) of the Income Tax Act ? https://hcservices.ecourts.gov.in/hcservices/ 2. When the assessee has utilised the funds of theTrust for purposes that are not in consonance withthe objects of the Trust, is not the assessingofficer right in denying exemption to the assesseeunder section 10(22) of the Income Tax Act ?3. Even if the assessee violates the conditions ofexemption, would the assessee still be entitled forexemption under section 10(22) of the Income TaxAct ? 2. The Revenue is the appellant. The relevant assessmentyears are 1996-97 and 1997-98. The assessee is a publiccharitable trust, which runs three educational institutionsand a medical centre. They claimed exemption under Section 10(22) of the Income Tax Act for three assessment years, viz.,1995-96, 1996-97 and 1997-98. For the assessment year 1996-97, the assessee filed a return on 5.2.97 declaring excess ofexpenditure over income of Rs.1,05,25,645/-. Since thesimilar expenditure was disallowed for the assessment year1995-96, the assessing officer denied the exemption for theassessment year 1996-97 also by order dated 31.3.2003. Theassessing officer was of the opinion that the assessee hasviolated the provisions of Section 11(5) read with 13(1)(d)of the Act and accordingly, denied the benefits of Sections 11and 12 of the Act, consequent to which, the assessing officercomputed the income of the assessee at Rs.73,25,645/-.Similarly, for the assessment year 1997-98, the assessee fileda return on 15.4.98 declaring excess of expenditure overincome of Rs.80,50,210/- and for the same reason that weighedthe assessing officer with regard to the rejection ofexemption under Section 10(22) of the Act for the assessmentyear 1996-97, the assessing officer denied the exemption underSection 10(22) of the Act and also denied the benefits ofSections 11 and 12 of the Act holding that the assesseeviolated the provisions of Section 11(5) read with 13(1)(d) ofthe Act for the assessment year 1997-98 also, by the sameorder dated 31.3.2003. 3. Aggrieved by the said order of the assessing officerdated 31.3.2003, the assessee preferred appeals before theCommissioner of Income-tax (Appeals), who, by order dated12.2.2004, held that the assessee is entitled to exemptionunder Section 10(22) of the Act since educational institutionsare entitled for the benefit under Sections 10(22), 10(22A) 3. Aggrieved by the said order of the assessing officerdated 31.3.2003, the assessee preferred appeals before theCommissioner of Income-tax (Appeals), who, by order dated12.2.2004, held that the assessee is entitled to exemptionunder Section 10(22) of the Act since educational institutionsare entitled for the benefit under Sections 10(22), 10(22A) and 10(23C) of the Act and for the said purpose, it is notnecessary to consider the assessee's claim for deduction underSection 11 of the Act. Against the said order of theCommissioner, the Revenue went on appeal and the Tribunal, byorder dated 8.3.2006, confirmed the order of the Commissionertaking note of its earlier order dated 5.1.2004 in theassessee's own case for the assessment year 1998-99, whereinit was held that since the assessee trust had been maintainingseparate statement of accounts for educational and charitableactivities and were not mingled with both activities and assuch, the assessee trust being carrying on the activity ofeducational purposes, it is entitled for exemption underSections 10(22), 10(22A) and 10(23C) of the Act and in whichcase, it is not necessary to pass an order in respect of thealternative plea of the assessee trust in regard to thededuction under Section 11 of the Act. 4. That part, the Central Board of Direct Taxes,themselves, issued a circular bearing No.712 dated 25.7.1995to the effect that the educational institutions are entitledfor exemption under Section 10(22) of the Act andconsequently, the benefit conferred under Section 10(22)cannot be denied on the ground of violation of Section 11(5)of the Act. The said circular reads as follows:- Circular No.712, dated 25[th] July, 1995.Subject:Investment of funds by educationalinstitutions covered under section 10(22) ofthe Income-tax Act – Clarificationregarding. Under section 10(22) of the Income-tax Act, anyincome of a University or other educationalinstitution, existing solely for educational purposesand not for purposes of profit, is exempt from tax. 2. The Board have received representations fromvarious institutions which fulfil the conditions laiddown under section 10(22) of the Act, but are deniedexemption because their funds are not invested inaccordance with the provisions of section 11(5) of theAct. It is hereby clarified that since section 10(22)does not impose any restriction regarding mode ofinvestment of funds, such institutions are not https://hcservices.ecourts.gov.in/hcservices/ required to invest their funds in the modes specifiedunder section 11(5) of the Income-tax Act. Thisclarification will not apply to the institutionsseeking exemption under section 11 of the Act." (sd.) 5. Since the substantial questions of law raised in theseappeals are centrifuged on the point whether the assessee isentitled for the benefit of Section 10(22) of the Act in viewof the alleged violation of Section 11(5) read with 13(1)(d)of the Act, in view of the above circular of the C.B.D.T.dated 25.7.1995, we do not see any substantial question of lawthat arises for our consideration. Accordingly, finding no substantial question of law arises for consideration, the appeals stand dismissed. sraSd/Asst. Registrar/true copy/Sub Asst.RegistrarTo 1.The Assistant Registrar Income Tax Appellate Tribunal, Rajaji Bhavan, III Floor, Besant Nagar, Chennai - 600 090. 2.The Assistant Registrar,Income Tax Appellate TribunalBench "B", Chennai.Income Tax Appellate TribunalBench "B", Chennai. 3.The Commissioner of Income Tax (Appeals), Chennai.(Appeals), Chennai. 4.The Commissioner of Income Tax, Chennai - 600 034. Chennai - 600 034. 5.The Assistant Director of Income-tax, (Exemptions)-I,Chennai.of Income-tax, (Exemptions)-I,Chennai. TWO CC TO MR.N. MURALIKUMARAN, ADVOCATE SR NOS 59898, 59899 T.C.(A).Nos.2608 and 2609 of 2006MS(CO)BP/2.1