Tribunal grants exemption under Income-tax Act to donation for education and social activities

The appeal was allowed by the Tribunal, directing the Assessing Officer to grant exemption under sections 11 and 12 of the Income-tax Act, 1961. The Tribunal also instructed the AO to consider the donation of Rs. 8.02 crores to Pacific Society for Education and Social Activities (PSESA) as a valid application of income. The decision was pronounced on 18.06.2018 in favor of the assessee.

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Issues Involved:
1. Denial of exemption under sections 11 and 12 of the Income-tax Act, 1961.
2. Denial of application of income in respect of donation given to Pacific Society for Education and Social Activities (PSESA).

Issue-wise Detailed Analysis:

1. Denial of Exemption under Sections 11 and 12:

The primary grievance of the assessee was the denial of exemption under sections 11 and 12 of the Income-tax Act, 1961. The assessee, a registered society under the Society Registration Act, 1860, and notified under section 80G, had entered into an agreement with Delhi Public School Society (DPSS) to set up a school. The land for the school was acquired by Nirbhay Realtors (P) Ltd (NRPL) and leased to the assessee for 30 years, extendable by another 30 years, against an interest-free refundable security deposit equivalent to the cost of the land.

The Revenue contended that the Rs. 5.53 crores paid by the assessee to NRPL as an interest-free deposit passed on a benefit to a related concern, violating section 13 of the Act. The AO believed that the provisions of section 13(1)(c) were violated, and thus denied the benefits of sections 11 and 12, assessing the income under normal provisions. The AO also noted that the assessee had incurred substantial capital expenses for constructing the building on the land owned by NRPL, which would benefit NRPL at the time of land sale.

The Tribunal found that the AO had not drawn any adverse inference for the same transaction in the preceding assessment year (A.Y 2013-14), where the exemption under sections 11 and 12 was granted. The Tribunal noted that the assessee had entered into a legitimate lease agreement with NRPL and paid a nominal lease rent of Rs. 2000 per month. The interest-free deposit was akin to a security deposit, and the provisions of section 13(2) allowed transactions with specified persons if at arm's length.

The Tribunal concluded that no benefit was passed on to NRPL by the assessee-society. The decision in the case of Chiranjiv Charitable Trust was distinguished as the facts were different. The Tribunal directed the AO to allow the exemption under sections 11 and 12, setting aside the CIT(A)'s findings.

2. Denial of Application of Income for Donation to PSESA:

The second issue was the denial of application of income for a donation of Rs. 8.02 crores to PSESA, which was not registered under section 12A during the year under consideration. The AO denied the deduction, noting that members of the assessee society were also members of PSESA, making it a specified person under section 13(3).

The Tribunal observed that PSESA was an educational institution and a like-minded society engaged in imparting education. Although PSESA was not registered under section 12A during the year in question, it was registered from A.Y 2015-16. The Tribunal referred to CBDT Circulars and Instructions, which clarified that donations from one charitable trust to another for charitable purposes are a proper application of income.

The Tribunal held that the donation to PSESA, a like-minded society, should be allowed as an application of income. The Tribunal directed the AO to allow the corpus donation of Rs. 8.02 crores as an application of income.

Conclusion:

The appeal of the assessee was allowed. The Tribunal directed the AO to allow the exemption under sections 11/12 and the corpus donation of Rs. 8.02 crores as an application of income. The order was pronounced in the open court on 18.06.2018.

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