The Commissioner Of Income Tax, Alwar v. M/S. Model Public School, Society, Bhiwadi

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR. DB INCOME TAX APPEAL NO.613/2008 The Commissioner of Income Tax, Alwar. Versus M/s. Model Public School, Society, Bhiwadi. DATE OF ORDER ::: 22.11.2016. HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE MAHENDRA MAHESHWARI Ms. Parinitoo Jain, for the appellant. Mr. Anant Kasliwal, for the respondent. 1.By way of this appeal, the department has challenged thejudgment and order of the Tribunal whereby the Tribunal whileconsidering the appeal of the assessee has allowed the appealand reversed the finding of the CIT (Appeal) and has granted allbenefits available under Section12 AA(3). 2.The brief facts of the case are that the Society wasregistered u/s 12A (a) of the I.T. Act, 1961 by the Commissionerof Income Tax, Jaipur vide order dated 19.7.1998. Later on ithas come to the notice that: “2.1. The institution is collecting fees undervarious head from the students in excess ofactual expenditure. 2.2. The fees are being charged by theinstitution in commercialized manner with amotto of earning profits. 2.3. According to object, the society was toundertake help to poor children by way of freeeducation and also providing hostel facilitiesto them. But no such help/assistance is beingprovided to poor children. 2.4. The institution is generating surplusamount year after year as reflected in thebooks of account.” 3.In view of the above, the institution is not carrying out itsactivities according to the aims and objects of the society.Accordingly a show cause notice vide this officeNo.CIT/Alw/2005-06/1881 dated 25.01.2005 was issued fixingthe date for 07.11.2005. The assessee submitted theexplanation on 26.12.2005 which is reproduced at pages 1 to 5of ld. CIT's order. The ld. CIT(A did not find the explanation ofthe assessee convincing mainly for two reason i.e in eachassessment year, starting from 1999-2000 to 2004-2005, theassessee under the five heads i.e. boarding and lodging,computer fees, laboratory fees, news letter fees and vehiclefees, had the surplus being receipts more than the expenditure.The second reason for which the ld. CIT was not satisfied thatas per the objects of the society, the society was required toprovide the books and educational material free and financialaid to the poor students and the hostel and medical aid to thepoor students and the society has not been able to provewhether such facilities has been provided to the poor studentsand the society has failed to act accordingly to its objects. Theld. CIT on the findings given as mentioned hereinbeforeobserved that the society is not carrying out its activitiesaccording to its objects and therefore, registration granted to the society u/s 12A(a) of the Act was cancelled u/s 12AA(3) of the Act. 4.This Court while admitting the appeal on 11.12.2008 framed the following questions of law: “(i) Whether under the facts and in thecircumstances of the case and in law, theorder of the Tribunal is perverse in reversingthe order of CIT passed u/s.12AA(3) of theIncome Tax Act?” “(ii)Whether under the facts and in thecircumstances of the case, the ld. Tribunal isjustified in holding that the object andpurpose of assessee Samiti are charitablefalling u/s.2 (15) of the IT Act and furtherdirecting the CIT to allow registration u/s.12Aof the Income Tax Act?” 5.Counsel for the appellant contended that the assessee hasnot fulfilled the criteria which are required under Section 12AAand therefore, contended that the order passed by the Tribunalis contrary to law and required to be quashed and set aside. 6.We have heard counsel for the parties. 7.In view of the observation which are made by the Tribunal in detail which reads as under: “(ii)Whether under the facts and in thecircumstances of the case, the ld. Tribunal isjustified in holding that the object andpurpose of assessee Samiti are charitablefalling u/s.2 (15) of the IT Act and furtherdirecting the CIT to allow registration u/s.12Aof the Income Tax Act?” 5.Counsel for the appellant contended that the assessee hasnot fulfilled the criteria which are required under Section 12AAand therefore, contended that the order passed by the Tribunalis contrary to law and required to be quashed and set aside. 6.We have heard counsel for the parties. 7.In view of the observation which are made by the Tribunal in detail which reads as under: “We have perused the facts of the case. Thesociety was registered by the Registrar ofSocieties, Alwar vide registration certificateon 15-04-1986 (PB 10). The society wasgranted registration u/s 12A(a) of the I.T. Act,1961 by the ld. CIT, Jaipur, vide order dated19-07-1988 (PB 11). The ld. CIT in his orderat page 1 has pointed out that the institutionis collecting the fees in excess of actualexpenditure and the fees is being charged ina commercial manner with a motto of earningprofits and the institution therefore, isgenerating surplus year after year. The ld. ARShri Kranti Mehta, Chartered Accountant has pointed out at PB 1 to 9 that the society hadthe objects to provide education in thebackward industrial area of Bhiwadi and toachieve this object to open schools, libraries,to provide books, educational material,financial aid, hostel facilities and medical aidto the poor. On perusal of the objects of thesociety, it is found that the society has beenregistered mainly for providing education byopening the schools and libraries. The objectof the society was also to provide books,educational material financial, hostel facilitiesand medical aid to the poor. The ld. ARfurther pointed out that the assesseesubmitted an application with Central Boardof Direct Taxes in Form 56-d on 3.12.99 fortaking exemption under the newly insertedProvision u/s 10(23)(c)(vi) of the Act whichwas granted the exemption vide the order ofthe CBDT dated 23.03.2007 for theassessment year 1999-2000 and onwards(PB 39). Now the question arises whether theassessee has achieved the objects for whichthe society has been registered under theRegistrar of Societies Act. One of the objectof the society is to open school and librarieswhich has been done is, not under dispute.As regards the objection of the ld. CIT thatthe assessee is having the surplus. Now thequestion arises, if the assessee society has asurplus, can an exemption already givensince 19-7-88 as withdrawn. The ld. CIT hasnot whispered even a word in his orderwhether the assessee society has its objectsfor earning a profit, during the course ofrunning the activities since its registration withDepartment, whether there is any motive forearning profit, whether any business hasbeen carried on by the assessee society,whether the society has misutilised ormismanaged the funds for the purpose ofbusiness or for the benefit of any of thetrustee or any of the member of the society.There is no findings of the ld. CIT in thisregard and no material has been brought onrecord in this regard. As regards the chargingof the fees under different heads, the ld. ARpointed out that the assessee society isregistered with Board of SecondaryEducation and holding a certificate in thisregard and the fees charged under different heads is an per the regulations and bye-lawsas prescribed by the said Board and noobjection has been raised by the said Boardin this regard and the assessee society isholding the certificate from the said EducationBoard. We are convinced with the argumentsof Shri Kranti Mehta, Chartered Accountantthat while holding the valid certificate fromBoard of Secondary Education and there isno objection from the said Board regardingthe charging of fees under any heads of thefees and in the absence of any material onrecord, the ld. CIT is not justified in coming tothe conclusion that the assessee society ishaving the surplus and therefore, it is notcarrying out its activities accordingly to itsobjects. As regards the expenditure, the ld.AR has pointed out that the diagrammaticpresentation of fixed assets and number ofstudents, income and expenditure, auditedbalance sheet and audit report for thefinancial year 1998-99 to financial year 2005-06. The strength of the students at 876during the F.Y. 1998-99 has risen to 1504 inthe F.Y. 2005-06, fixed assets have risenfrom Rs.31.53 lacs from F.Y. 1998-99 toRs.165.29 lacs in the F.Y.2005-06. Thesurplus arising each year have been usedfrom the development of the school inincurring the capital expenditure as per fixedassets schedule for different years on record.The surplus as reflected in the F.Y.1998-99 atRs.20.95 lacs remained at minus Rs.15.63lacs in the F.Y.2005-06. The position of thesurplus as per PB 16 is as under:- The capital expenditure as per fixed assetsschedule of the society and that of school fordifferent years (PB 16-37) is as under:- 6 On perusal of the material on record, we findthat the assessee has utilized the surplusfunds in acquiring the capital/fixed assets forthe school and for making the fixed depositsin the bank and income arising from the saidfixed deposits has been included in thereceipts in each year for utilizing the same forincurring the expenditure for thesociety/school and /or for acquiring thecapital/ fixed assets as is evident from thematerial on record as per PB 12 to 37. Asregards providing of fee educational materialand books, financial aid, hostel and medicalaid to the poor students, the assessee hassubmitted the explanation at page 4 of ld. CITorder that 50% fees exemption has been granted to few students. Therefore, in thecircumstances and facts of the case, theassessee society is running its activity for thepurposes for which it was registered. Theobjections raised by the ld. CIT are withoutany basis and material on record andtherefore, the registration cancelled by him isnot justified.” 8.We are of the opinion that the finding of the Tribunal which is fact finding authority is just and proper and decisions reliedon page No.51 are as under: “1.Dharamadeepti Vs. CIT, 114 ITR 454(SC).2.Sole Trustee Loka Shri Kishan KumarTrust Vs. CIT, 101 ITR 234 (SC).(SC).2.Sole Trustee Loka Shri Kishan KumarTrust Vs. CIT, 101 ITR 234 (SC).3.Aditanar Educational Institution Vs.Addl. CIT,224 ITR 310 (SC).Addl. CIT,224 ITR 310 (SC). 4.DCIT Vs. Cosmopolitan EducationSociety, 224 ITR 494 (Raj). 5.CIT Vs. Rajasthan State Text BookBoard,244 ITR 667 (Raj).6.CIT Vs. Lagan Kala Upvan, 259 ITR 489(Del.).” 9.The decision taken by the Tribunal is just and proper, weconfirm the same, therefore, the objection and issues areanswered in favour of the assessee and against thedepartment . 10.This appeal stands dismissed. (MAHENDRA MAHESHWARI), J. (K.S. JHAVERI), J. Asheesh Kr. Yadav 106