TaxTMI 
TaxTMI 
2013 (9) TMI 402
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....Act and at any rate, the impugned order as passed being wholly illegal, deserves to be cancelled. Various observations made by the Ld. Director of Income Tax (Exemptions) in the impugned order are factually incorrect and illegal. He is wrong in holding that though the objects of the Society are charitable in nature but the activities are not so and that the Assessee is not entitled to exemption u/s 11/12 of the Income-tax Act coupled with the fact that the Appellant Society stood registered u/s 12A of I.T. Act since the year 1998." 2. The relevant facts as appearing in the impugned order are that the assessee was granted registration under sec. 12A vide order No.496 dated 19-11-1998 keeping in view the aims and objects of the society. The society, as per record, was formed mainly to establish progressive schools or other educational institutions in Delhi or outside Delhi open to children of officers of All India and Central Services. The society at the relevant point of time was running a school by the name "The Sanskriti School". 2.1 On 24-12-2010 a show cause notice u/s 12AA(3) was issued for cancellation of registration u/s 12A on the ground that the school....
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....." 2.3 It was further stated vide reply dated 15.12.2011 that the Sanskriti School has the highest number of economically weaker students (EWS) in the Zone and the society has not violated any provisions of the Income-tax Act and continues to carry on activities of running of a school, which is genuine in nature and in accordance with its objects. 2.4 Considering the reply of the assessee the DIT(E) was of the opinion that it was pertinent to see the utilization of receipts by the school and also of the various reserve funds collected. On perusal of the same it was noticed that the assessee school has been accumulating reserve funds and other funds year after years as under:- i) Asstt. Year 2009-10 - Reserve fund and other funds. Rs.28,88,94,138/- ii) Asstt. Year 2010-11 - Reserve fund and other fund. Rs.32,32,31,050/- iii) Asstt. Year 2011-12 - Reserve Fund Rs.33,99,44,068/- 2.5 As a result it was concluded that prima facie it appears that the assessee had made a huge generation of surplus year after year which was primarily being invested in building an elitist educational institution and was not to support the cause of education among the wea....
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.... being reproduced hereunder from Pages 8, 9 & 10 of the impugned order:- "The inclusive definition of charitable purpose states among other things, relief of the poor education, medical relief, etc. as in the nature of charitable purpose. The definition clearly shows that carrying on education activities by itself is not a charitable purpose. The concept of charitable purpose may be manifested in different forms life relief of the poor, education, medical relief, etc., but a charitable purpose should always take care of the welfare and interest of the public and especially the poor section of the public. Running Schools by collecting huge amounts of fees with five star facilities cannot be treated as charitable activity only on the ground that the business carried on by such institutions is the business of education.............. It is to be seen that running educational institution or delivering medical services are not themselves the models of charitable activities. Those activities should also be in the nature of relief to the poor................... The charitable purpose defined and manifested as including relief of the poor, education, medical relief, etc. is ....
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.... to 20 of the paper book, attention was invited to the reply given by the assessee dated 18.1.2011 which has been reproduced in the impugned order. The contents of the same it was submitted are not shown to be wrong and instead the DIT(E) observed that the school has generated surplus year after year which has primarily been invested in building up an elitist educational institution and not to support education among the weaker sections of the Society. Inviting further attention to the impugned order it was submitted that the DIT(E) erred on facts in relying upon the finding in M/s Sir Rajah Annamalai Chettiar Foundation Vs. DIT (E) in ITA No.1817/Mds./2010 (Wrongly mentioned as 2927/Mds/2010) and has cancelled the Registration. 3.2 Inviting further attention to the impugned order it was submitted that the DIT(E) observed that the objects of the society are charitable but the activities are not so. In order to come to the said conclusion he took cognizance of the fact that the terms and conditions of land allotment by the Government in so far as not having the requisite number of students of EWS were not included as such they constituted violation of public policy consequently t....
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....rring to the position in 2007-08 to 2009-10, assessment years it was submitted that the exemption u/s 11/12 of the I.T. Act had been allowed thereby computing the net loss/deficit with the observation that the same will not be allowed to be carried forward for set off in subsequent years as specifically mentioned in the assessment order for 2007-08. 3.7 In the above factual position, it was contended the DIT (E) was not justified in withdrawing registration u/s 12AA (3) w.e.f. 2008-09, assessment year onwards. It was also submitted that the assessee had moved an application u/s 154 on 19.3.2012 and as per the provisions of Section 154 (8) it was submitted it should have been decided within six months which time expired on 30th Sep. 2012. Accordingly it was contended that since the said application was not disposed off nor rejected within the time granted by the legislature as such the said application deserves to be treated to have been accepted by the department and consequently the impugned order deserves to be quashed. 3.8 Even on merits, it was contended that the said authority has not considered the facts the figures and the arguments which have been placed on record, na....
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.... children in which such students follow a structured syllabus where they also learn computers and have classes in theatre, pottery and music, as was specifically pointed out to the ld. DIT (E). The expenditure incurred on such Umang project is reflected in the balance sheet of the appellant society and details of the same were duly submitted before the AO during the course of assessment proceedings for assessment year 2008-09m copy placed as Annexure V. Moreover, as per the requirements of a recognized school, prior to commencement of each academic session, Sanskriti School has been filing before the Department of Education, Govt. of Delhi, a full statement of the fees to be levied by it from all its students during the ensuing academic session and so far no adverse view has been taken against the Sanskriti School by such Department of Education or Ministry of Urban Development, Govt. of India, which had allotted the land to the society for the School. Based on the facts as stated above, the AO after detailed examination of society's case had duly granted the exemption as claimed vide orders passed u/s 143(3) of the I. T. Act dated 24/12/2010 and 17/11/2011 for the assessment years....
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....d upon before the DIT(E) also it was submitted that the same would show that as per the requirements of law and under the Rules applicable by the Directorate of Education, the assessee, as per the said communication with the Dy Director of Education, (evident from Pages 38 to 41), had the highest no. of ESW students for 2009-10 & 2010-11 which it could be seen was totaling 168 students as would be evident from the said document titled as "Text Books and Uniform subsidy to the students admitted at the freeship quota private recognized Schools during the 2010- 11" dated 16.11.2010, when compared with various other so called elite schools similarly situated in the same area namely, St. Columbus School, Convent of Jesus & Mary School, Jain Happy School, Bhartiya Vidya Bhawan, Mater Dei School, Sardar Patel Vidyalaya, Carmel Convent School, who in the period under reference had only 95, 27, 14, 98, 67, 56 and 30 students in EWS category respectively. Referring to the facts it was submitted that Sanskriti School is in the Diplomatic Enclave, as such it was very difficult to find the children from the EWS background as such there is no instance of any refusal on the part of the assessee. ....
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.... 25.10.2012, attention was invited to the allotment letter dated 1.5.1995 addressed by the Ministry of Urban Development of Govt. of India in regard to the land, on which the said school was built attached as Annexure-1 to this synopsis which sets out the terms and conditions for the allotment of land measuring 7.697 acres in favour of the assessee. For ready reference the same is reproduced hereunder:- "2. The allotment is subject to the terms and conditions as given in the Memorandum of Agreement and perpetual Lease, which shall also include the following:- i) The society shall be required to pay for the land measuring 7.697 acres token premium of Rs.1/- plus Rs.1/- thereof as annual ground rent. ii) The Society shall be required to pay the "charges as incurred for eviction of the squatters from the allotted site, if any. iii) Land shall be utilized by the Society for the Construction of the composite school building and for no other purposes. (both a primary and a higher secondary school) with two hostels for the children. &....
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.... ground rent for the year shall be paid and possession of land handed over to the society. The date of allotment of land will thus be date of handing over the possession of land. xiii) In the event of dissolution of the society the land allotted and the assets created thereon will be transferred to any institution having the similar aims and objects with the prior approval of the Govt. and failing that to Government. xiv) The institution shall not increase the rate of tuition fee without the prior sanction of the Competent Authority and shall follow the provisions of Delhi School Education Act/Rules, 1973 and other instructions issued from time to time. xv) The Committee will not refuse admission to the residents of the locality. xvi) The percentage of freeship from the tuition fee shall be overruled by the rules laid down by the Directorate of Education and Culture from time to time. They will ensure admission of the students belongings to weaker sections to the student of 25% and grant of freeship to them. &....
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.... (a) xx xx xx xx (b) xx xx xx xx (c) xx xx xx xx (d) xx xx xx xx (e) xx xx xx xx (f) xx xx xx xx 3. Free seats for student belonging to economically weaker section. - (1) Notwithstanding anything contained in the terms and conditions of the lease deed pertaining to the land allotted to it for such school. The management shall provide free seats not less than twenty percent of total seats, in each class to the child belonging to economically weaker section. (2) No separate or exclusive class or shift shall be arranged for imparting education to the students admitted against free seats mentioned in subparagraph (1). (3) No tuition fee or any ....
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.... (1) The management shall display the number of total seats and the free seats available in each class, on the notice board in the school and shall also notify the same to the concerned Deputy Director of Education by the 31st December for entry level classes, and by the 15th March for other classes, for each academic session. (2) The management shall also notify the date of submission of applications for admissions against free seat in entry level or other classes and the last date of admissions. (3) The information mentioned in subparagraph (1) and (2) shall also be made available on the website of the concerned school and website of the Education Department, Government of National Capital Territory of Delhi. (4) The management shall acknowledge the application for admission against free seats and shall assign each application a registration number. The acknowledgment receipt shall also indicate the dates of display of admission list on the notice board and the date of admission. &n....
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....; (4) On the request of management, the freeship cell may forward further applications for admission against free seats. (5) The freeship cell shall entertain the complaints of aggrieved persons with regard to free seats, in a time bound manner. (6) The concerned Deputy Director may inspect any school for ensuring the compliance of this Order as per sub-section (2) of section 24 of the Act. And in case any default is noticed, the matter be reported to the Director. (7) On receipt of report under sub- paragraph (5), the Director may, after giving a reasonable opportunity of being heard, take action under subsection (4) of section 24 of the Act and / or inform the concerned Government agency, which has allotted the land on concessional rates for taking action against the management for violation of terms and conditions of the lease, as the case may be." As per Synopsis, the following documents were also produced:- "1. Allotment letter dated 01/05/1995 by which Mini....
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....nbsp; "6(6) The concerned Deputy Director may inspect any school for ensuring the compliance of this Order as per sub-section (2) of section 24 of the Act and in case any default is noticed, the matter be reported to the Director." "6(7) On receipt of report under sub-paragraph (5), the Director may, after giving a reasonable opportunity of being heard, take action under subsection (4) of section 24 of the Act and /or inform the concerned Government agency, which has allotted the land on concessional rates for taking action against the management for violation of terms and conditions of the lease, as the case may be." 3.19 These facts it was submitted had been ignored and not appreciated by the DIT (E) which was placed before the said authority vide letter dated 18.1.2011, 7.2.2011 and 15.1.2011 & 24.1.2012. Referring to the last letter it was submitted that the said letter was accompanied by a letter sent to the Department of Education displaying the facts in the Notice Board. In regard to the vacancy in EWS category these facts and figure, it was submitted have duly been provided necessarily as per Rules to the Educatio....
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.... any denial of admission to any students belonging to the EWS category. 6. We have heard the rival submissions and perused the material available on record. In the facts of the present case, admittedly the DIT(E) has categorically concluded that the objects of the society are charitable. On the said issue the learned AR has also addressed in the course of his arguments at length that consistently over the years till the time of passing the present order, the assessments of the assessee have been concluded under section 143(3) proceedings and this finding consistently remains accepted by the Department. The DIT(E) in the impugned order has in his order under sec. 12AA(3) withdrawn the registration on the ground that on account of activities of the assessee it has (a) violated the conditions imposed by the Government; & (b) promoted the high cost education institution excluding the students from the EWS category. In order to come to the said conclusion he has observed that the assessee has not fulfilled the requirements of the Directorate of Education as per which the assessee was required to admit 25% students belonging to the EWS category which the assessee institute had not don....
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....ted. In the context of the said argument, we are in agreement with the ld. CIT DR on the limited aspect that locational aspect of the assessee school and St.Columbus, Matel Die etc. cannot be taken to be the same. However, the fact remains that in regard to the admission in the EWS category students the school has a higher admission as compared to the named schools. In the course of hearing the learned AR has also addressed at length that there is no evidence on record to prove that any admission has been denied to any EWS category student which has not been disputed by the department. Accordingly, the plea has been advanced that on account of the peculiar situation of the assessee school in the diplomatic area adequate numbers of EWS category students do not approach the school, the school cannot be faulted with. There is no argument or evidence available on record to rebut the stand, the Department has attempted to contend that had the school made attempts in the nearby colonies of Sarojini Nagar, Netaji Nagar etc. it is just not possible that in the colonies where the houses are allotted to class-IV employees, students pertaining to EWS category would not have been found. The sa....
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....n, the free-ship cell entertains complaints of denial of admission, the right to inspection of the school and powers to take action against the said school under sub-section 7) of section 24 has been granted wherein the Deputy Director of Education after following the due process of law can either de-recognise the school and/or inform this fact to the allotting authority to take action against the said school for violating the terms and conditions of the lease. As we have reproduced in the earlier part of this order the land allotting authority can as per clause (ix), reproduced at page 19 of this order can act against the said school. For ready reference, the same is reproduced again for ready reference:- ix) In the event of derecognisation of the school by any competent authority, the lessees shall be required to pay premium for the land allotted at the market rate prevailing on the date of de-recognisation failing which the land with the superstructures, fixtures, fittings etc. shall revert to the Govt. on payment of compensation as may be decided by the Government. In the facts of the present case, there is no evidence on record that the Directorate of Educat....
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....ng on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business56, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity: [Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is [twenty-five lakh rupees] or less in the previous year;]" 6.3 There is sufficient evidence available on record which is uncontested that the objects of the society are charitable in nature and a finding to the said effect has been given in the impugned order itself. Regarding the shortfall in the requisite no. of students belonging to the EWS category students in the facts as they stand no evidence of non-compliance has been brought to our notice either in the arguments or in the impugned order. The reasons consistently advanced for the situation in regard to locational aspect in the face of the evidence to the contrary have to be accepted as where there is no alleged violation of any of the requirements either of the Urban Minis....