Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. Shri Mahaveer Digambar Jain Shiksha Parishad, Mahaveer Marg,C-Scheme, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 249 / 2009 Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus Shri Mahaveer Digambar Jain Shiksha Parishad, Mahaveer Marg,C-Scheme, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. Mathur with Mr. K.D. Mathur For Respondent(s) : Mr. K.J. Mehta _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE DR. JUSTICE VIRENDRA KUMAR MATHUR Judgment Per Hon’ble Jhaveri, J. 25/05/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasallowed the cross objection preferred by the assessee anddismissed the appeal of the department. 2.This Court while admitting the appeal on 4.11.2009 hasframed the following substantial questions of law: “(i)Whether,inthefactsandcircumstances of the case the Tribunal wasjustified in law in holding that the case of theassessee, respondent is covered u/s 11(1)(a) and not u/s 11(4A) of the Act?(ii)Whether,inthefactsandcircumstances of the case the Tribunal wasjustified in law in not deciding the issueraised by the department including the issueof disallowance of the claim of section 11(2) of the IT Act?” 3.Counsel for the appellant has contended that the Tribunalhas seriously committed an error in allowing the cross objection ofthe assessee and dismissing the appeal of the revenue in as muchas the income which has been derived by the trust was excessincome and was contrary to the object for which the trust wasregistered. 4.Counsel for the appellant has taken us to the order of theAssessing Officer and contended that the Assessing Officer whileconsidering the income has granted all benefits under Section11(1)(a) and also granted benefits under section 11(2) of theIncome Tax Act and taking into account the net surplus income hehas assessed his net income of Rs.66,20,645/- for the purpose oftotal income of the trust. However, the CIT(A) while consideringthe matter has allowed the appeal and has observed as under: “Since the surplus of Rs.37,33,463/- wasset apart out of which Rs.35,16,168 wasactually spent as per the information givenin the computation sheet filed alongwith thereturn of income, I do not have doubt onthe bonafide intention to carry out themandate given by the Board of Governors.Hence in fact there is no surplus availableto the society which could be treated astaxable. 15% surplus which was set apartby the society is as per provisions of theIncome tax act. This provision is providedto provide a question to the charitableInstitutions so that they can plan activitiesof development and take up new projectsout of the surplus generated every year tothe extent of 15% of the gross receipts ofeach year. Hence, in view of the above discussion Ifind that the Ld. AO is not justified in denying the benefit of Section 11 to theappellant society. He is also not justified ingiving different statement of theaccumulated funds ignoring the specificresolution passed by the Board of Governor.As a result I do not find the surpluscomputed by the Ld. AO of Rs.66,20,641/-as taxable income of the society. Thesociety has been granted exemption u/s 11of the Act and the same shall be enjoyedthis year as there is no violation of anyprovisions contained in Sections 11 or 13 ofthe act. Hence the taxable income has tobe treated as nil.” 5.Against the said order, the department and the assessee both preferred appeal and the cross objections before the Tribunaland the Tribunal in para 7 & 8 has observed as under: denying the benefit of Section 11 to theappellant society. He is also not justified ingiving different statement of theaccumulated funds ignoring the specificresolution passed by the Board of Governor.As a result I do not find the surpluscomputed by the Ld. AO of Rs.66,20,641/-as taxable income of the society. Thesociety has been granted exemption u/s 11of the Act and the same shall be enjoyedthis year as there is no violation of anyprovisions contained in Sections 11 or 13 ofthe act. Hence the taxable income has tobe treated as nil.” 5.Against the said order, the department and the assessee both preferred appeal and the cross objections before the Tribunaland the Tribunal in para 7 & 8 has observed as under: “7. We have perused the facts of the case.The main objection of the AO was that theobjects of the society to run the school isbusiness or profession and should be treatedas incidental to the objects of the societyunder the meaning of Section 11(4A) of theAct. The AO distinguished the concept ofincome from schools and that of the receiptby the society. The ld. AR Shri SatishAjmera, Chartered Accountant had arguedthat the society had two separate units ofschools with the aim that the aided branchof the school should catter the needs of thegeneral and middle class people to make thesociety viable to funtion, the public schoolactivities were generating surpluses andthese surpluses were never utilized for anyother activity other than the expansion ofeducation. We are convinced with thearguments of Shri Satish Ajmera, CharteredAccountant that the AO has not brought onrecord that any surplus has been used forany purpose other than the objects of thesociety. Moreover, the socirty and the schoolcannot be treated as separate entity asobserved by the ld. CIT (A) and the AOunder the wrong understanding of the factsof the case and the law has come to theconclusion that the society cannot be allowed the exemption u/s 11 of the Act.Our views find support by the decision ofHon’ble Supreme Court of India in the caseof Aitanar Educational Institution vs. Addl.CIT, 224 ITR 310 where the Hon’bleSupreme Court of India held that it would beunreal and hypothetical to hold that theassessee society was only a financing bodyand would not come within the scope of“other educational institution” as specified inSection 10(22) of the Act. The objects of thesociety was to establish, run, manage orassist colleges or schools or othereducationalinstitutionssolelyforeducational purposes and in that regard toraise or collect funds, donation, gifts etc.Colleges and schools were the mediathrough which the assessee impartededucation and effectuated its objects. Insubstance and reality, the sole purpose forwhich the assessee had come into existencewas to impart education at the levels ofcolleges and schools and so such aneducational society should be regarded asan ‘educational institution’ coming withSection 10(22) of the Act. An educationalsociety or a trust or other similar bodyrunning an educational institution solely foreducational purposes and not for thepurpose of profit could be regarded as ‘othereducational institution’ coming withinSection 10(22) of the Act. Language ofSection 10(22) is plain and clear andavailability of exemption should beevaluated each year to find out whether theinstitution existed during the relevant yearsolely for educational purposes and not forpurpose of profit. After meeting theexpenditure, if any, surplus resultsincidentally from the activity lawfully carriedon by the educational institution, it will notcease to be one existing, solely for theeducational purposes, since the object is notone to make profit. The decisive or acid testis whether, on an overall view of the matter,the object is to make profit. In evaluating orapproving the above, one should also bearin mind the distinction/difference betweenthe corpus, the objects and powers of theconcerned entity. Therefore, in the presentcase, the AO is not justified in denying theexemption u/s 11 of the Act. 8. As regards the filing of Form No. 10 underRule 17, the ld Counsel for the assessee ShriSatish Ajmera, Chartered Accountant arguedthat the said form no. 10 was attached withreturn of income and the same however, maynot be available within the return of incomebut the said form was given to the AO duringthe assessment proceedings and is availableon assessment record which can be verifiedby the ld. DR or the Tribunal. The ld. DR didnot press the verification of the said formduring the course of hearing. The relevantfacts for accumulation of funds and settingapart of the funds alongwith the Resolutionof the Board were on record is not underdispute. Therefore, the ld. CIT (A) has rightlyobserved that the assessee has actuallystartedutilizingtheunspentandaccumulated funds from the impugned yearitself and the said funds were actuallyutilized in the following years as perinformation on record and as per Board’sresolution. Therefore, it has rightly beentreated deemed utilization of funds andcannot be taxed as income of the assessee.The ld. Counsel for the assessee Shri SatishAjmera, Chartered Accountant further arguedthat the assessee is getting the exemptionsince the inception of the society and also inthe following years and this is the only yearwhere the AO has denied the exemption onthe misconception of facts and wrongunderstanding of the law. We appreciate thearguments of Shri Satish Ajmera, CharteredAccountant and are of the view that the AOis not justified in denying the benefit ofSection 11 to the society and further notjustified in giving the different observationsto the accumulated funds and the surplus ofRs. 66,20,641/- cannot be treated as incomeof the society and the society shall continueto enjoy the exemption u/s 11 of the Actsince the assessee has not violated anyProvisions of Section 11 and 13 of the Actand the ld. CIT(A) has rightly accepted thereturned Nil income. Thus the Ground NO.1of the Revenue and the Additional GroundNo. (i) and (ii) of the Revenue are dismissed.The C.O. of the assessee is allowed. 6.Mr. Mathur has placed reliance on the decision of SupremeCourt in the case of Queen’s Educational Society vs.Commissioner of Income Tax [2015] 372 ITR 699 wherein inpara 24 to 26 the Supreme Court has observed as under: “24. The view of the Punjab and HaryanaHigh Court has been followed by the DelhiHigh Court in St. Lawrence EducationalSociety (Regd.) v. Commissioner of IncomeTax and Anr. (2011) 53 DTR (Del) 130. Alsoin Tolani Education Society v. DeputyDirector of Income Tax (Exemption) and Ors.(2013) 351 ITR 184, the Bombay High Courthas expressed a view in line with the Punjaband Haryana High Court view, following thejudgments of this Court in the Surat Art SilkManufacturers Association Case andAditanar Educational Institution case asfollows: 6.Mr. Mathur has placed reliance on the decision of SupremeCourt in the case of Queen’s Educational Society vs.Commissioner of Income Tax [2015] 372 ITR 699 wherein inpara 24 to 26 the Supreme Court has observed as under: “24. The view of the Punjab and HaryanaHigh Court has been followed by the DelhiHigh Court in St. Lawrence EducationalSociety (Regd.) v. Commissioner of IncomeTax and Anr. (2011) 53 DTR (Del) 130. Alsoin Tolani Education Society v. DeputyDirector of Income Tax (Exemption) and Ors.(2013) 351 ITR 184, the Bombay High Courthas expressed a view in line with the Punjaband Haryana High Court view, following thejudgments of this Court in the Surat Art SilkManufacturers Association Case andAditanar Educational Institution case asfollows: ...The fact that the Petitioner has a surplusof income over expenditure for the threeyears in question, cannot by any stretch oflogical reasoning lead to the conclusion thatthe Petitioner does not exist solely foreducational purposes or, as that ChiefCommissioner held that the Petitioner existsfor profit. The test to be applied is as towhether the predominant nature of theactivity is educational. In the present case,the sole and dominant nature of the activityis education and the Petitioner exists solelyfor the purposes of imparting education. Anincidental surplus which is generated, andwhich has resulted in additions to the fixedassets is utilized as the balance-sheet wouldindicate towards upgrading the facilities ofthe college including for the purchase oflibrary books and the improvement ofinfrastructure. With the advancement oftechnology, no college or institution canafford to remain stagnant. The Income-taxAct 1961 does not condition the grant of anexemption Under Section 10(23C) on therequirement that a college must maintainthe status-quo, as it were, in regard to itsknowledge based infrastructure. Nor for thatmatter is an educational institutionprohibited from upgrading its infrastructure on educational facilities save on the pain oflosing the benefit of the exemption UnderSection 10(23C). Imposing such a conditionwhich is not contained in the statute wouldlead to a perversion of the basic purpose forwhich such exemptions have been grantedto educational institutions. Knowledge incontemporary times is technology driven.Educational institutions have to modernise,upgrade and respond to the changing ethosofeducation. on educational facilities save on the pain oflosing the benefit of the exemption UnderSection 10(23C). Imposing such a conditionwhich is not contained in the statute wouldlead to a perversion of the basic purpose forwhich such exemptions have been grantedto educational institutions. Knowledge incontemporary times is technology driven.Educational institutions have to modernise,upgrade and respond to the changing ethosofeducation. Education has to be responsive to a rapidlyevolving society. The provisions of Section10(23C) cannot be interpreted regressivelyto deny exemptions. So long as theinstitution exists solely for educationalpurposes and not for profit, the test is met.25. We approve the judgments of the Punjaband Haryana, Delhi and Bombay HighCourts. Since we have set aside thejudgment of the Uttarakhand High Court andsince the Chief CIT's orders cancellingexemption which were set aside by thePunjab and Haryana High Court were passedalmost solely upon the law declared by theUttarakhand High Court, it is clear thatthese orders cannot stand. Consequently,Revenue's appeals from the Punjab andHaryana High Court's judgment dated29.1.2010 and the judgments following itare dismissed. We reiterate that the correcttests which have been culled out in the threeSupreme Court judgments stated above,namely, Surat Art Silk Cloth, Aditanar, andAmerican Hotel and Lodging, would all applyto determine whether an educationalinstitution exists solely for educationalpurposes and not for purposes of profit. Inaddition, we hasten to add that the 13thproviso to Section 10(23C) is of greatimportance in that assessing authoritiesmust continuously monitor from assessmentyear to assessment year whether suchinstitutions continue to apply their incomeand invest or deposit their funds inaccordance with the law laid down. Further,it is of great importance that the activities ofsuch institutions be looked at carefully. Ifthey are not genuine, or are not beingcarried out in accordance with all or any ofthe conditions subject to which approval hasbeen given, such approval and exemption must forthwith be withdrawn. All these casesare disposed of making it clear that revenueis at liberty to pass fresh orders if suchnecessity is felt after taking intoconsideration the various provisions of lawcontained in Section 10(23C) read withSection 11 of the Income Tax Act.26. We now come to Civil Appeal No. 8962of 2010. Vide a judgment dated 29thJanuary, 2010, the Punjab and Haryana HighCourt dismissed CWP No. 7268 of 2009 inthefollowingterms:8. It is conceded position that the Assessee-Petitioner has filed the application on23.9.2008 seeking exemption Under Section10(23C)(vi) in respect of assessment year2008-09, which could have been filed duringthe financial year 2007-08 i.e. on or before31.3.2008. It is, thus, evident that theapplication by the Assessee Petitioner hasbeen filed after the prescribed period andthe Chief Commissioner of Income Tax hasrightly rejected the same being notmaintainable. 9. As a sequel to the above discussion, wefind no ground to interfere with theimpugned order passed by the ChiefCommissioner of Income Tax. There is nomerit in the instant petition warranting itsadmission. Accordingly, the writ petition failsand the same is dismissed.” 7.Therefore, he contended that the matter is required to beremitted back to the Assessing Officer for calculation. 8.Counsel for the respondent Mr. Mehta has contended that thepoint which was weighed with the Assessing Officer was not filingform No.10 with the return by the assessee which was concededby the DR before the Tribunal. In view of the observations madeby the Tribunal in para 8, taking into account the fact that once hecontended that the trust has registered under Section 11(1)(a)the income of the school or the Educational institutions which are 7.Therefore, he contended that the matter is required to beremitted back to the Assessing Officer for calculation. 8.Counsel for the respondent Mr. Mehta has contended that thepoint which was weighed with the Assessing Officer was not filingform No.10 with the return by the assessee which was concededby the DR before the Tribunal. In view of the observations madeby the Tribunal in para 8, taking into account the fact that once hecontended that the trust has registered under Section 11(1)(a)the income of the school or the Educational institutions which are the part of the society cannot be taken into account as surplus. 9.We have heard counsel for both the sides. 10.In view of the Supreme Court decision in the case of Queen’s Educational Society vs. Commissioner of Income Tax (supra) and the observations made by the Tribunal and theAssessing Officer, the issue No.(i) is required to be answered infavour of the assessee and against the department. 11.Therefore, the institution will be covered under Section 11(1)(a) of the Act and disallowance of the claim of section 11(2) of theIT Act. 12.In our considered opinion, the Tribunal has not committedany error in treating the income of educational institution as itsnet income and it cannot be treated as surplus. 13.In that view of the matter, the issue No.(ii) is required to beanswered in favour of the assessee and against the department. 14.The appeal stands dismissed. (VIRENDRA KUMAR MATHUR),J. (K.S. JHAVERI),J. Asheesh Kr. Yadav/99