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. (i) DB INCOME TAX APPEAL NO.98/2008 The Commissioner of Income Tax, Alwar.VersusM/s. Model Public School Society, Bhiwadi. (ii) DB INCOME TAX APPEAL NO.728/2008 The Commissioner of Income Tax, Alwar.VersusM/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.In both these appeals, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeals filed by the revenue and allowed theappeals preferred by the assessee. 2.The brief facts of the case are that the assessee is aregistered society working under the name and style of ModelPublic School Society. It is running a Model Public School atBhiwadi. The assessee filed its return of income for the relevantperiod declaring income at NIL after claiming exemption u/s10(22) of the Act of Rs.16,15,090/- and Rs.9,76,030/- for theA.Y.1997-98 and 1998-99 respectively. The returns wasprocessed u/s 143(1) of the Act at NIL income. The AOsubsequently found that the assessee had not obtained an approval from the appropriate authority for claiming exemptionfrom tax u/s 10(23C)(iv)/10(22). He accordingly issued a noticeu/s 148 of the Act on 25.03.2004 after recording reasons in thisregard. The ld. CIT(A) vide para 4.3 to 8 of his order observedthat he is of the opinion that the impugned notice has beenissued on mere pretext without having found for holding anybelief that income has escaped assessment and withoutapplication of mind to the provisions of law of which violation isassumed. Formation of subjective belief in such a case cannotbe sustained. The conclusion is irresistible that initiation ofproceedings u/s 147 de-hors the provisions of Section 10(22),10(23C)(iv) and 11 of the Act which makes it ultra vires andvoid. As a result the assessee succeeds in his first ground ofappeal in both the assessment years. The AO has recorded thereasons that the assessee has claimed the exemption of incomeu/s 10(23C)(iv)/10(22) of the Act which is not allowable as theassessee has not obtained the approval of the prescribedauthority for the purpose. We concur with the finding ld.CIT(A)in this regard vide para 4.3 to 8 of his order. At the first instance,the AO before recording the reasons is not sure whether theassessee has claimed the deduction u/s10(23C)(iv) or u/s10(22) of the Act. During the impugned assessment year theprovisions of section 10(23C)(iv) were not applicable and thesaid section was inserted by the Finance (No.2) Act, 1998 w.e.f.01.04.1999 relevant for assessment year 1999-2000. Asregards section 10(22) no approval from the prescribed authority is required though the said section has been omitted by thesame Act w.e.f. 01.04.1999. therefore, the only reason forwhich the proceedings u/s 147 were initiated by the AO arewithout any material of whatsoever kind and the income of theassessee for the impugned year, therefore, cannot be said tohave escaped assessment. The words 'reason to believe' insection 147 contemplates existence of reasons on which thebelief is founded and not merely a belief in the existence of reasons. 3.This Court while admitting the appeals framed thefollowing substantial questions of law: DB INCOME TAX APPEAL NO.98/2008 “(i)Whether under the facts andcircumstances of the case and in law theorder of the Tribunal is perverse in quashingthe proceedings initiated u/s.147/148 of theAct.?” “(ii)Whether under the facts andcircumstances of the case and in law theorder of the Tribunal is perverse in not givingany finding with regard to the activities of theassessee society so as to enable theassessee to claim exemption from IncomeTax Act?” reasons. 3.This Court while admitting the appeals framed thefollowing substantial questions of law: DB INCOME TAX APPEAL NO.98/2008 “(i)Whether under the facts andcircumstances of the case and in law theorder of the Tribunal is perverse in quashingthe proceedings initiated u/s.147/148 of theAct.?” “(ii)Whether under the facts andcircumstances of the case and in law theorder of the Tribunal is perverse in not givingany finding with regard to the activities of theassessee society so as to enable theassessee to claim exemption from IncomeTax Act?” “(iii)Whether the assessee society which isderiving income from running a public schoolin the name of 'Modern Public School' can besaid to be exempt from Income Tax Act?” “(iv)Whether under the facts andcircumstances of the case and in law, theincome of the assessee cannot be said to beexempt u/S. 10(23C)(vi) when there was noprior approval but only the application forseeking prior approval has been filed by theassessee?” DB INCOME TAX APPEAL NO.728/2008 “(i)Whether under the facts andcircumstances of the case and in law theorder of the Tribunal is perverse in quashingthe proceedings initiated u/s.147/148 of theAct.?” “(ii)Whether under the facts andcircumstances of the case and in law theorder of the Tribunal is perverse in not givingany finding with regard to the activities of theassessee society so as to enable theassessee to claim exemption from IncomeTax Act?” “(iii)Whether under the facts andcircumstances of the case and in law, theincome of the assessee cannot be said to beexempt u/S. 10(22) and whether theregistration granted u/s. 12A(a) of the Act canhave any bearing on this?” 4.The counsel for the appellants contended that the Tribunalhas seriously committed an error in interpreting Section 10(22)which has came into effect from assessment year 1991 to 1999. 5.However, the Tribunal while, considering the questions,has considered the same and has given finding in paragraph 64& 65 more particularly in Para 66 and 67 which reads as under: “(64) In Ground No.5, the assessee isaggrieved that the ld. CIT (A) has erred inholding that the interest income ofRs.18,11,744/- was not exempt u/s 11 and 12of the I.T.Act and was taxable under the headIncome from other sources.”“(65) The Brief facts in the grounds are thatthe AO has taxed the building fund amountingto Rs.3,16,500/-, development fundamounting to Rs.7,79,250/- annual feesamount to Rs.10,01,500/- and interest onFDRs amounting to Rs.18,11,744/-. It hasbeen argued by the ld. AR that building fundand development funds were received by theassesseetowardsspecificobjects.Therefore, it cannot be equated with normaltuition fee. Similarly it has been argued thatthe nature of annual fees is different from tuition fees. Therefore, it cannot be taxed onsimilarly footings. It has further been arguedthat interest on FDRs was exempt under theprovisions of Section 11 of the Act. The ld.CIT(A) confirmed the action of the AO.” tuition fees. Therefore, it cannot be taxed onsimilarly footings. It has further been arguedthat interest on FDRs was exempt under theprovisions of Section 11 of the Act. The ld.CIT(A) confirmed the action of the AO.” “(66) We have perused the facts of the case.The issue relating to the exemption u/s 11 ofthe Act has already come up before us in thisappeal as well as in assessee's own appealfor the preceding years as in ITA No.168 to171/JP/2007 of even date where theassessee's income has been treated asexempt u/s 11 of the Act. In the present casethere is nothing brought on the record byeither of the authorities below that the saidfunds, the fees or the interest income havebeen used for other purpose other than theobjects of the assessee society. Theassessee enjoys the exemption u/s 11 of theAct having registration u/s12A(a) of the Act asmentioned in our various orders hereinbeforeand also the exemption u/s 10(23C)(iv) of theAct and there is nothing on record that theassessee has diverted the income to thespecified persons u/s13 of the Act andtherefore no addition can be made on theseaccounts and the order of the ld. CIT(A)confirming the action of the AO is reversed.Thus ground no.2,3,4,&5 of the assessee areallowed. “(67) The Ground No.6 of the assessee iswith regard to charging of interest u/s 234Aand 234B which is mandatory and isconsequential in nature.” 6.We are in complete agreement with the view taken by the Tribunal, and we confirm the same, therefore, all issues raisedare answered in favour of the assessee and against thedepartment. 7.The appeals stand dismissed. Copy of this order be placed in the connected file. (MAHENDRA MAHESHWARI), J. (K.S. JHAVERI), J.