Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. M/S Mahima Shiksha Samiti, A

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 271 / 2011 Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/S Mahima Shiksha Samiti, A-18, Santi Path, Tilak Marg, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. MathurFor Respondent(s) : Mr. Sanjay Jhanwar _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGHOrder 01/08/2017 1.By way of this appeal, the appellant has assailed thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal preferred by the department. 2.This court while admitting the matter framed the followingquestion of law:- “Whether on the facts and circumstances of thecase, the ITAT was justified in holding that theprovisions of Section 60 of Income Tax Act, 1961cannot be invoked in the present case despite thefact that the referred society, i.e. Ankur UdhodhakSamiti was not filing returns of income and wasnot registered under Section 12A of the Act.” 3.Counsel for the respondent contended that the issue nowsquarely covered by the decision of this Court in Tax Appeal No.708/2008 between the same parties passed on 23[rd] May, 2017which reads as under:- “Counsel for the respondent has relied upon theobservations made by the Tribunal in para 10, 17, and19 which reads as under: 10. The ld A/R submitted that the legislature is notaverse to earning of income by charitable institutionsbu desires that if the income is earned throughpursuing charitable objects, such income should bere-applied into the charitable objects and forcharitable purpose so that the society and the nationcan enjoy the larger benefits from such charitableinstitutions. The logic behind devising such scheme isthat even after collection of taxes the Governmentapplies the same towards public charitable purposestherefore why to at all collect tax from suchinstitutions which are themselves utilizing theirincomes for charitable purposes. Therefore to allthose charitable institutions, which plough back theirearnings for charitable purposes, the fiscal incentiveof exemption under section 11 is allowed and no tax isbeing charged. 17. The ld. A/R pointed out that the appellant societywas granted registration under section 12A, as acharitable institution, by ld. Commissioner of IncomeTax after considering and examining the objects andactivities of the society. This registration under section12A/12AA is in force even as on date. Therefore, ld.AO is not entitled to raise questions in relation to“charitable purpose” which the appellant is persuadingconsistently for past several years. There is no denialto the fact that the AO is entitled to examine theapplication of income for “charitable purpose” and canalso examine the breach of any condition/falling intoany disqualification criteria under section 13 but hecannot be allowed to go into the existence of the trustfor “charitable purpose”. This is for the reason thatelse it would imply that the subordinate authority has“set at naught” the judgment of a superior authority.This is against the principles of Administrative law aswell as jurisprudence. The “charitable Purpose” can bequestioned only by the Commissioner and he hasbeen granted the statutory powers even to cancel theregistration if a doubt arises about the “charitablepurpose” subsequent to granting of registration. 19. Without prejudice to above, reliance is placed onthe decision of Hon’ble Rajasthan High Court in caseof Deputy Commissioner Income-Tax v. CosmopolitanEducation Society 244 ITR 494 where the appeal ofthe department was rejected by affirming the findingof ld. Income Tax Appellate Tribunal and ld.Commissioner of Income-Tax Appeals that in casethere was any misutilisation of the funds of the 19. Without prejudice to above, reliance is placed onthe decision of Hon’ble Rajasthan High Court in caseof Deputy Commissioner Income-Tax v. CosmopolitanEducation Society 244 ITR 494 where the appeal ofthe department was rejected by affirming the findingof ld. Income Tax Appellate Tribunal and ld.Commissioner of Income-Tax Appeals that in casethere was any misutilisation of the funds of the society or mismanagement of the activities of thesociety, the action could be taken against themembers of the society as per the provisions ofvarious statues governing the society. However, evensuch misutilisation or mismanagement by themembers could not be the basis of rejection of theclaim of exemption ot the assessee educationalsociety. The Special Leave Petition against thisjudgment also stood dismissed vide 241 ITR (St) 132.Therefore, these grounds of disallowance ofexemption are not sustainable in law.” 6.1 He also relied upon the following decisions:- 3.3(i) In Queen’s Education Society vs. CITreported in (2015) 372 ITR 699 (SC), the SupremeCourt held as under:- 19. It is clear, therefore, that the Uttarakhand HighCourt has erred by quoting a non existent passagefrom an applicable judgment, namely, Aditanar andquoting a portion of a property tax judgment whichexpressly stated that rulings arising out of theIncome Tax Act would not be applicable. Quiteapart from this, it also went on to further quotefrom a portion of the said property tax judgmentwhich was rendered in the context of whether aneducational society is supported wholly or in partby voluntary contributions, something which iscompletely foreign to Section 10(23C) (iiiad). Thefinal conclusion that if a surplus is made by aneducational society and ploughed back to constructits own premises would fall foul ofSection10(23C)is to ignore the language of theSection and to ignore the tests laid down inthe Surat Art Silk Cloth case, Aditanar case andthe American Hotel and Lodging case. It is clearthat when a surplus is ploughed back foreducational purposes, the educational institutionexists solely for educational purposes and not forpurposes of profit. In fact, in S.RM.M.CT.M.Tiruppani Trust v. Commissioner of IncomeTaxMANU/SC/0107/1998: (1998) 2 SCC 584, thisCourt in the context of benefit claimed UnderSection11of the Act held: 9. In the present case, the Assessee is not claimingany benefit Under Section 11(2)as it cannot;because in respect of this assessment year, theAssessee has not complied with the conditions laiddown in Section11(2). The Assessee, however, isentitled to claim the benefit of Section 11(1)(a). Inthe present case, the Assessee has applied Rs. 8 lakhs for charitable purposes in India by purchasinga building which is to be utilised as a hospital. Thisincome, therefore, is entitled to an exemptionUnder Section11(1). In addition, UnderSection11(1)(a), the Assessee can accumulate25% of its total income pertaining to the relevantassessment year and claim exemption in respectthereof.Section 11(1)(a)doesnotrequireinvestment of this limited accumulation ingovernment securities. The balance income of Rs.1,64,210.03 constitutes less than 25% of theincome for Assessment Year 1970-71. Therefore,the Assessee is entitled to accumulate this incomeand claim exemption from income tax UnderSection11(1)(a). We set aside the judgment of the Uttarakhand HighCourt dated 24th September, 2007. The reasoningof the ITAT (set aside by the High Court) is more inconsonance with the law laid down by this Court,and we approve its decision. (ii)In Chief Commissioner of Income Tax,Chandigarh vs. St. Peter’s Education Society(2016) 385 ITR 66 (SC), the Supreme Courtobserved as under:- We set aside the judgment of the Uttarakhand HighCourt dated 24th September, 2007. The reasoningof the ITAT (set aside by the High Court) is more inconsonance with the law laid down by this Court,and we approve its decision. (ii)In Chief Commissioner of Income Tax,Chandigarh vs. St. Peter’s Education Society(2016) 385 ITR 66 (SC), the Supreme Courtobserved as under:- We may record at this stage that there was adifference of opinion among various High Courtson the aforesaid issue. While summarizing thelaw, this Court approved the judgments of Punjaband Haryana High Court, Delhi and Bombay HighCourts and reversed the view taken by theUttarakhand High Court. In so far as thejudgment of the Punjab and Haryana High Courtis concerned, it was given in the case of PinegroveInternational Charitable Trust v. Union ofIndia MANU/PH/0146/2010: [2010] 327 ITR 73(P&H). The relevant para in this behalf which alsostates as to how such cases are to be dealt withreads as under: "25. We approve the judgments of the Punjab andHaryana, Delhi and Bombay High Courts. Sincewe have set aside the judgment of theUttarakhand High Court and since the ChiefCommissioner of Income-tax's orders cancellingexemption which were set aside by the Punjaband Haryana High Court were passed almostsolely upon the law declared by the UttarakhandHigh Court, it is clear that these orders cannotstand. Consequently, the Revenue's appeals fromthe Punjab and Haryana High Court's judgment dated January 29, 2010, and the judgmentsfollowing it are dismissed. We reiterate that thecorrect tests which have been culled out in thethree Supreme Court judgments stated above,namely, Surat Art Silk Cloth, Aditanar andAmerican Hotel and Lodging, would all apply todetermine whether an educational institutionexists solely for educational purposes and not forpurposes of profit. In addition, we hasten to addthat the 13th proviso to Section10(23C)is ofgreat importance in that assessing authoritiesmust continuously monitor from assessment yearto assessment year whether such institutionscontinue to apply their income and invest ordeposit their funds in accordance with the law laiddown. Further, it is of great importance that theactivities of such institutions be looked atcarefully. If they are not genuine, or are not beingcarried out in accordance with all or any of theconditions subject to which approval has beengiven, such approval and exemption mustforthwith be withdrawn. All these cases aredisposed of making it clear that the Revenue is atliberty to pass fresh orders if such necessity is feltafter taking into consideration the variousprovisionsoflawcontainedinSection 10(23C)read with Section 11of theIncome-tax Act." In all those appeals which have come from theHigh Court of Punjab and Haryana and filed by theDepartment of Income-tax except one from theGujarat High Court, the High Court has followedits aforesaid judgment in Pinegrove InternationalCharitable Trust. Since this view stands approved,all these appeals are dismissed. We, however, make it clear that observationsmade in para. 25, reproduced above, shall applyin these cases. One appeal is from the Gujarat High Court whichhas also followed the view taken by the Punjaband Haryana High Court in PinegroveInternational Charitable Trust, which also standsdismissed. We also make it clear that the observations madein para. 25 in Queen's Educational Society v.CITMANU/SC/0287/2015: [2015] 8 SCC 47 :[2015] 372 ITR 699, 729 (SC) shall be followed. 6.2.He strongly relied on decision of this Court inthe case of Jhunjhunu Academy Sammittee Vs.Income Tax Officer Jhunjhunu, D.B. Income TaxAppeal No. 123/2006, decided on 8[th] February,2017, this Court while considering the identical question observed as under: We, however, make it clear that observationsmade in para. 25, reproduced above, shall applyin these cases. One appeal is from the Gujarat High Court whichhas also followed the view taken by the Punjaband Haryana High Court in PinegroveInternational Charitable Trust, which also standsdismissed. We also make it clear that the observations madein para. 25 in Queen's Educational Society v.CITMANU/SC/0287/2015: [2015] 8 SCC 47 :[2015] 372 ITR 699, 729 (SC) shall be followed. 6.2.He strongly relied on decision of this Court inthe case of Jhunjhunu Academy Sammittee Vs.Income Tax Officer Jhunjhunu, D.B. Income TaxAppeal No. 123/2006, decided on 8[th] February,2017, this Court while considering the identical question observed as under: “15. Before coming to the basic contentions, it isnot in dispute that the appellant is as by nameitself suggests that it is an academic Samiticarrying on activities of educational purpose forestablishing any educational institution. There isneed of infrastructure and expansion of everyactivity whether it is a residential accommodationor physical or competitive requirement or otherrequirement and also the maintenance of theinstitution is a mandatory for which one has tocollect the funds. 16. From the record it seems that an endeavour ismade that during the relevant year they have asurplus fund which is prescribed or described bythe authority as a profit and compared to theexpenses or the other income which has beenreceived as 34,91,251/-. Thus, it has been statedthat there is profit of 33 per cent. 17. In our view, any educational institution whichis required to be run they have to have a surplusfund for educational activity to sustain theconsistency in the efficiency and very purpose ofcollecting donation is to sustain activity ofinstitution. Merely, because surplus fund it cannotbe envisaged as profit, the institution has notcrossed one crore limit and they are well withintheir prescribed limit.The income was received bythe trust which is reflected in the books ofaccounts. 18. In our view, the view taken by the authority isrequired to be reversed and it is required to belooked into the foundation of the ratio laid downby the Supreme Court in the case of Queen’sEducation Society (supra) where funds which hasbeen surplus is within a corpus fund and it hasbeen kept as reserve fund which is not in disputeand they have not crossed the limit of one crore. 19. Taking into consideration the aforesaid, we areof the opinion that the contention raised by Mr.Jhanwar is required to accepted. 20. Therefore, the first question, we answering infavour of the assessee that it is an income entitledfor exemption under Section 23C(iiiad) of the Act.” 7.Thus, in view of the above, all the issues arerequired to be answered in favour of assessee andagainst the Department. 4.Thus, in view of the above, the issue is required to be answered in favour of the assessee and against the department. 5.The appeal stands dismissed. (INDERJEET SINGH)J. (K.S.JHAVERI)J. A.Sharma/116