2019 (9) TMI 901 - AT - Income Tax

Tribunal rules in favor of appellant on tax classification & exemptions.

B.P. Marine Academy Versus Dy. Commissioner of Income Tax (E) -1 (1), Mumbai

B.P. Marine Academy Versus Dy. Commissioner of Income Tax (E) -1 (1), Mumbai - TMI Issues Involved:1. Classification of the appellant as an educational society.2. Treatment of advance fees received from students.3. Disallowance of rent payment under section 13(3) of the Income Tax Act.4. Denial of exemption under section 11 due to advances given to related parties.5. Denial of exemption under section 11 in respect of donations and contributions.6. Disallowance of cost of acquisition of fixed assets as application of income under section 11(1).7. Non-consideration of statutory allowance under section 11(1).8. Initiation of penalty and charging of interest under sections 234A, 234B, 234C, and 234D.Detailed Analysis:1. Classification as an Educational Society:The Tribunal upheld the CIT(A)'s decision that the appellant's activities satisfy the requirements of the term 'education' under section 2(15) of the Income Tax Act. The CIT(A) relied on several judicial precedents, including Samudra Institute of Maritime Studies Trust [369 ITR 645(Bom)(2014)], Lokshikshan Trust [101 ITR 234(SC)], and Queens Education Society [372 ITR 699(SC)], which supported the appellant's claim. The Tribunal found that the appellant's activities were akin to those in the cited cases and were conducted with the approval of DG Shipping. Consequently, the Tribunal concluded that the appellant's activities qualify as 'education,' and the ground was allowed in favor of the appellant.2. Treatment of Advance Fees:The Tribunal found merit in the appellant's contention that the advance fees received from students, amounting to Rs. 2,49,55,712/-, should not be treated as revenue income. The Tribunal noted that the appellant consistently followed this accounting method, which was accepted by the department in other years. Citing the principle of consistency and tax neutrality, the Tribunal directed the Assessing Officer to accept the appellant's method of accounting and deleted the erroneous observations of the CIT(A). This ground was allowed in favor of the appellant.3. Disallowance of Rent Payment:The Tribunal observed that the CIT(A) had already discussed and held the issue of disallowance of rent in favor of the appellant in para 7.4.1 of the appellate order. The Tribunal found no merit in the Assessing Officer's disallowance of Rs. 87,45,207/- for rent payment under section 13(3) and directed the deletion of the CIT(A)'s observations in para 7.4.4. Consequently, this ground was allowed in favor of the appellant.4. Denial of Exemption for Advances to Related Parties:The Tribunal examined the break-up of the alleged amount of Rs. 11,57,000/- and found that it did not constitute loans and advances to related parties. The Tribunal noted that the amounts pertained to another trust registered with DG Shipping and a Section 25 company, which are charitable and not hit by section 13(3). The Tribunal directed the Assessing Officer to allow exemption under sections 11 and 12 and deleted the condition imposed by the CIT(A) in ground nos. 1, 2, and 3. This ground was allowed in favor of the appellant.5. Denial of Exemption for Donations and Contributions:The Tribunal found that the denial of exemption under section 11 for donations and contributions amounting to Rs. 1,43,000/- was consequential to the denial of exemption in ground no. 4. Since ground no. 4 was allowed, the Tribunal directed the Assessing Officer to allow the exemption under section 11 instead of section 80G. This ground was allowed in favor of the appellant.6. Disallowance of Cost of Acquisition of Fixed Assets:The Tribunal noted that the disallowance of Rs. 1,68,48,487/- for the cost of acquisition of fixed assets was also consequential to the denial of exemption under section 11. Since the exemption was allowed in ground nos. 1, 2, 3, and 4, the Tribunal directed the Assessing Officer to allow the cost of acquisition as application of income under section 11. This ground was allowed in favor of the appellant.7. Non-Consideration of Statutory Allowance:The Tribunal found that the disallowance of statutory allowance of Rs. 70,18,331/- under section 11(1) was consequential to the denial of exemption under section 11. Since the exemption was allowed in ground nos. 1, 2, 3, and 4, this ground was deemed infructuous and did not require adjudication.8. Initiation of Penalty and Charging of Interest:The Tribunal found that the issue of initiation of penalty and charging of interest under sections 234A, 234B, 234C, and 234D was premature and did not require adjudication. This ground was dismissed.Conclusion:The appeal filed by the appellant was partly allowed, with grounds 1 to 6 allowed in favor of the appellant, ground 7 deemed infructuous, and ground 8 dismissed. The stay application filed by the appellant was also dismissed as infructuous.