TaxTMI 
TaxTMI 
2012 (4) TMI 611
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....ndatory and not directory in nature. 2.2] That on the facts and in the circumstances of the case the Ld. CIT(A) erred in stating the fact that audit report in form 10B is dated 10.10.2010 and as such same is not available with the appellant at the time of filing of return. As a matter of fact the audit report is dated 10.12.2010 and ready at the time of assessment proceedings. 2.3] That on the facts and in the circumstances of the case the Ld. CIT(A) and Ld. A.O. erred in not following the direction of Hon'ble I.T.A.T. where in it was directed to consider the assessee's claim for benefit of registration u/s 12AA at the time of completing the setaside/ remand assessment proceedings. 3.1] That on the facts and the circumstances of the case of the Ld. A.O. and Ld.CIT(A) erred in denying the exemption u/s 10(22) without following the direction given by the Hon'ble High Court of Madhya Pradesh while remanding the case. 3.2] That on the facts and the circumstances of the case the Ld. CIT(A) erred in confirming the A.O.'s action of un-authorisedly attempted to find fault with the letter dated August 19, 1975 in the case of Tamil Nadu Text Book Society which have relied by ....
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.... of registration u/s 12AA at the time of completing the setaside/ remand assessment proceedings. 3.1] That on the facts and the circumstances of the case of the Ld. A.O. and Ld.CIT(A) erred in denying the exemption u/s 10(23C)(iiiab)/ 10(23C) (iv) without following the direction given by the Hon'ble High Court of Madhya Pradesh while remanding the case. 3.2] That on the facts and the circumstances of the case the Ld. CIT(A) erred in confirming the A.O.'s action of unauthorisedly attempt to find fault with the letter dated August 19, 1975 in the case of Tamil Nadu Text Book Society which have relied by the Hon'ble Supreme Court in the case of Assam Text Book Production and Publication Corporation Vs. CIT 319 ITR 317. 3.3] On the facts and in the circumstances of the case the Ld. CIT(A) erred in holding that the appellant is not an educational institution within the meaning of section 10(23C)(iiiab/ 10(23C)(iv) by unauthorisedly distinguishing the ratio of following decisions:- (i) Secondary Board of Education Vs. ITO, 86 ITR 408 (Orissa). (ii) CIT Vs. Rajasthan State Text Book Board, 244 ITR 667 (Raj.) (iii) Assam State Text Book Production and Publication Corpor....
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....is controlled by the Govt. of Madhya Pradesh and Board of Governors consist of Minister of Education, Madhya Pradesh, Minister of State/Deputy Minister of Education, Madhya Pradesh, Secretary of Education Department, Secretary to Finance Department, Director of Public Instructions, Madhya Pradesh, Chairman of Board of Secondary Education, Madhya Pradesh, Director of S.C.E.R.T., Bhopal, Director of State Institute of Science Education, Controller of Printing and Stationary ,Madhya Pradesh, two experts in the field of School Education, who are interested in school education, nominated by the Government from amongst the members of the corporation, Managing Director who is appointed by the State Government out of Senior IAS Officer. 6. Original assessments under appeal were completed by the Assessing Officer and the claim of deduction u/s 10(22)/10(23C) was rejected by the Assessing Officer. However, in the subsequent appeals before the Hon'ble I.T.A.T. such claim was allowed to the appellant society. In further departmental appeal before the Hon'ble High Court of Madhya Pradesh, Jabalpur, the issue of claim of deduction u/s 10(22)/10(23C) was remanded back to the file of the ....
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....ula and syllabi for primary and secondary education or any other branch of education; (6) to undertake research in text book production, evaluation techniques, and ancillary aids and educational literature concerning the various methods of education and aids for education and otherwise directed toward securing improvement in the general educational standard; (7) to regulate and fix prices of the publications of the society consistent with its objects; (8) to frame, develop and recommend to the government and other appropriate authorities curricula and syllabi for the purpose of improvement in the general educational standard; (9) to advise Government and other appropriate authorities in all matters concerning syllabi curricula evaluation examination reform and production of text books and ancillary aids and educational literature; (10) to assess utility of text books, teachers hand books and other educational aids and other educational literature whether produced by the corporation or not; (11) to undertake printing sale and distribution of books and literature useful or necessary for advancement of education in all its branches; (12) to establish and maintain librari....
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.... objects or any of them." Thereafter, Assessing Officer commented that the object no. 1 above namely "to aid and promote advancement of education in general and of primary and secondary education in particular" though speaks of aiding & promoting advancement of education, it is very general in nature. It does not specifically speak of imparting of education through opening & running of schools /colleges /Institutions. The Assessing Officer further stated that the objects of the assessee-society have not been classified into main & ancillary objects but from a plain reading it appears that the objects at S.Nos. 1 to 2 & 21 above are the main objects and the objects at S.Nos. (13) to (20) above are ancillary to or incidental to attainment of the main Objects. The remaining objects [ (2) to(12) & 21] of the society though refer to education related activities, they cannot be said to be pertaining to education in the narrow sense of giving systematic Instruction In a formal environment or to the process of training and developing the knowledge, skill, mind and character of students by normal schooling. On the other hand some of these objects pertain to undertaking of commercial act....
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....ike Rajasthan Orissa Delhi etc. The Hon'ble High Court of Rajasthan in C1T vs. Rajasthan State Text Book Board (f2000) 113 Taxman 204), and Hon'ble High Court of Orissa ill Secondary Education Board vs. ITO [1972] 86 ITR 408 ) and the Delhi Bench of the Tribunal in ITO vs Delhi Bureau of Text Books ([1980) 10 TTJ 481)have upheld the institutions as other educational institution eligible for exemption u/s 10(22) of the Act under similar facts and circumstances as of the present case. Also C.B.D.T. has granted exemption to the Tamilnadu Text-books Society which also undertakes a similar activity of printing and publishing of text Lbooks as per the letter dated 19-08- 1975 and file No. 184/26/75. In that case the C.B.D.T. held Tamilnadu Textbooks Society was an educational institution existing solely for the purpose of education within the meaning of section 10(22) of the Act. In the Secondary Board of Education vs ITO (1972) 86ITR 408, Orissa the petition Board constituted under the Orissa Education Act, 1953, derived income from compilation, publication, printing and sale of textbooks and the entire surplus was directed towards the development and expansion of educationa....
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....ssessee society is not wholly or substantially financed by the Government and does not qualify for exemption u/s 10(23C)(iiiab ). 12. The assessee's eligibility for claim of deduction u/s 10(23C) (vi) for assessment year 1999-2000 and subsequent year was declined on the plea that application filed by the assessee in form no. 56D for grant of approval u/s 10(23C)(vi) for assessment year 2000-01 to 2007-08 stands rejected by the CCIT, Bhopal, vide order dated 10.3.2008. Thus, the assessee society was held to be not eligible for any exemption u/s 10(23C)(vi) of the Income-tax Act, 1961. 13. The assessee's claim for exemption u/s 11 & 12 was also declined on the plea that in none of the return of income filed u/s 139 for the assessment year 1988-89 to 2006-07, the assessee had made such claim. By relying on the verdict of the Hon'ble Supreme Court in the case of Goetze (India) Limited, 204 ITR 182, the Assessing Officer observed that no claim for deduction other than by way of filing a revised return can be accepted by the Assessing Officer. The Assessing Officer also observed that as per provisions of Section 12-A(1)(b),read with Rule 17-B, the assessee was required to get its a....
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....ax and the trust or the institution gets its accounts audited as defined in explanation below sub-section (2) of the section 88 and such prescribed audit report is also filed with the return of income. Further , as per Rule 17B of IT Rules the prescribed audit report is to be furnished in Form No. 17B. Two essential requirement for claim of benefit u/s 11 & 12 of IT Act are, prescribed audit of books of account and furnishing of prescribed audit report in form no. 10B alongwith return , It has been laid down in various decisions of the Hon'ble Courts that such audit report can be filed even during the assessment proceedings/ appellate proceedings. But very crucial issue which is also laid down is that such audit in prescribed form should be completed within the stipulated period i.e. before filing of return. However, in the case of appellant it is noticed that the prescribed audit report in Form No.10B as per Rule 17B is dated 10.10.2010 and prime facie it shows that when the original returns for the relevant assessment years were filed, the prescribed audit reports in Form No.10B were not available with the appellant. Therefore , it is a case, where, even prescribed audit in For....
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....order the appellant got audited its Books of Accounts for 20 years i.e. from the assessment years 1988-89 to 2008-09. (iii) It is not easy for a society owned by the State Government to get its accounts audited for last 20 years particularly when the list of the auditors are given by the C & AG. Moreover, in the Government Organization there are various formalities for appointment of Auditor and fix their remuneration, it require approval and sanction of various authorities. (iv) The above reasons are reasonable cause for delay in obtaining the audit report in Form No.10B. The said practical difficulty in obtaining delay audit report is also realized by the CBDT and therefore vide instruction number 1/1148 [F .No.2687/482/77-IT (Part)] dated 09.02.1978 issued following directions:- "The Board have considered whether the requirement under s.12A(b) of filing audit report along with the return of income is mandatory so as to disentitle the trust from claiming exemption under ss. 11 and 12case of omission to furnish such report in the prescribed form along with the return. Normally, it should be possible for a charitable or religious trust or institution to file the auditor's rep....
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....ithout even asking the assessee to furnish supporting documents in support of the claims and contentions made in the return. It was further observed that, the requirement under section 12A (b) of filing audit report alongwith the return of income, being a procedural nature, is not mandatory so as to disentitle the trust from claiming exemption under section 11 and section 12 in case of omission to furnish such report in the prescribed form alongwith the return. However, if an assessee fails to obtain the audit report in the prescribed form before the assessment is competed , he may not ordinarily be entitled to get the benefit of exemption. But where the assessee is not given an opportunity to file the audit report in the prescribed form which is available with the assessee before the assessment is completed, then before the appellate authority such audit report can be filed validly so as to comply with the requirement of section 12A. In such a case, the appeal being a continuation of the original proceedings, the appellate authority has the power to accept the audit report and direct the Assessing Officer to redo the assessment. (c) Similar views are expressed by the jurisdictio....
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....ame could have filed before him as same was ready to file. (vii) It is further submitted that appellant society during the course of remand assessment proceedings requested the Ld.A.O.that audit report in Form NO. 10B is ready and be accepted, but the Ld.A.O. was heisted to accept the same due the reason that same were not filed along with the return of income of respective years. However the audit report in Form 10B along with application under Rule 46A being additional evidence is filed before the Ld.CIT (A) which was accepted by the Ld. CIT (A) after giving due opportunity to the Ld.A.O. refer page 4 para 4.3 of the CIT (A) 's order. (viii) It is to be noted that the requirement of the Assessing Officer for filing of report in Form 10B for the assessment years 2007-08 and onwards is unwarranted in view of Board Circular No.3 of 2007 ,dated 25th May ,2007 wherein it is clarified that no enclosure should be enclosed alongwith the return of income. In view of above facts, case laws and Board Circulars referred herein above it is clear that the appellant society is entitle for exemption u/s 11 & 12 of the IT Act, you are therefore requested to allow the same." 17. On the othe....
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....19. In view of the above submissions, he contended that since the assessee was not imparting education to the students through normal schooling, therefore, as per decision of Lok Shikshan Trust (supra), exemption is not available to the assessee. He further contended that there was huge profits to the assessee every year, therefore, such educational institution cannot be said to be not for the purpose of profit. 20. He further submitted that the case cited by the assessee of Bihar State Text Books publishing 56 ITR 178, goes against the assessee, because in that case Government extended cash incentive to the assessee for printing and selling of text books at low rate to reach the children of deprived section of the Society to carry out the directives principles of Chapter IV of the Constitution, but in the present case, the assessee did not get any government subsidy nor it has supplied text books to the children of deprived section at cheaper rate. Hence, case laws apply against the assessee, who failed to fulfil conditions laid down u/s 10(23C)(iiiab) of the Income-tax Act, 1961. 21. We have gone through the orders of the authorities below as well as order of the Co-ordinate Be....
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....d not exist solely for educational purposes. The Assessing Officer also stated that in view of the clause 21 of the Memorandum of Association, which provides for distribution of dividends, hence, its income was not exempt u/s 10(22) of the Act. This decision of the Assessing Officer was upheld by the ld.CIT(A). In a further appeal, by the assessee, it was held by the Tribunal that the Corporation was an educational institution and consequently entitled to the benefit of exemption u/s 10(22) of the Act. However, in an appeal filed by the Department against the order of Tribunal the Hon'ble High Court held that the assessee did not exist solely for educational purposes and that its income was only from publishing and selling of text books, which constituted a profit earning activity, therefore, the assessee was not entitled for exemption u/s 10(22) of the Act. In further appeal filed by the assessee against the order of Hon'ble High Court, the Hon'ble Supreme Court set aside the order of High Court and observed that the High Court has not taken into account the prior history of the case, the aim of the said Corporation to implement the state's policy on education. Hon'....
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....Court and matter was remanded to the Assessing Officer to consider it de novo in the light of the judgment of Rajasthan High Court and Orissa High Court, particularly, with reference to the letter of CBDT dated 19th August, 1975, referred to in the judgment of Rajasthan High Court in the case of Rajasthan State Text Book Board reported at 244 ITR 667, as also the letter of Central Government dated July 9, 1973. However, in the assessee's case, after verification of audited accounts, we found that in none of the period of seven years i.e. 2000-01 to 2007-08, surplus of assessee exceeded 15 % of the gross receipts. As per the object clause an activity actually undertaken by the assessee, we found that the assessee society is printing, publishing and providing text books to the students of clause I to XII as prescribed by the Government of Madhya Pradesh at cheaper rate. The price of the text book is fixed at 70:30 formula that is to say out of selling price of text book 70% is the cost of paper and printing and 15%. Commission of the book seller/vendor and balance of 15 % is retained by the assessee on account of establishment expenses. After meeting out establishment expenses, if th....
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....rn profit, will not disqualify an institution from the benefit of Section 10(23C). 26. The operative part of the Rajasthan High Court's judgment reads as under (page 669 of 244 ITR) : "It is not disputed before us that the aims and objects of the Tamil Nadu Text Books Society and those of the respondent-assessee are almost identical. It is also not shown to us that the surplus amount, if any, of the respondent-assessee, is used for any other purpose or distributed to other members. The CIT(A) as well as the Tribunal have noticed that even if some amount remains surplus, that is utilized only for the purposes of education. Thus , having regard to the concurrent findings of fact recorded by the CIT(A) and the Tribunal and also taking note of the letter of the CBDT itself, it is not possible for us to say that the order of the Tribunal is erroneous in any way. In this way, no question of law arises for consideration much less a substantial question of law." 27. Applying the proposition of law as discussed by Hon'ble Supreme Court vis-à-vis decision of Rajasthan High Court in the case of Rajasthan State Text Book Board (supra) and the Orissa High Court in the case of Ori....
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....on is to be allowed u/s 10(23C)(iiiab) of the Income-tax Act, 1961. 29. As per the audited accounts of the assessee, we found that out of its surplus, the assessee has paid royalty to the Board of Secondary Education, Government of M.P. and many authors of the books. The assessee had contributed for construction of school building and had also distributed free books to the deserving students. The assessee publishes only text books, so that students get books at a cheaper price. The assessee cannot be compared with general/private publishers and book sellers. Thus, the observation of the Assessing Officer to the effect that activity of the assessee society is merely printing and sale of books as a commercial venture is contrary to the material placed on record. We found that M.P. State Council for Educational Research and Training is working with the assessee society which is an academic council. As per the audited accounts, we found that the assessee has paid substantial amount of royalty to the authors and MPBSE. Observations of the lower authorities to the effect that royalty is only paid to MPBSE is not correct. It is clear from the following year-wise chart indicating payment ....
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....ctly and indirectly fulfilling the objective laid down under article 21A and 41 of the Constitution of India, which provides that it is the primary duty of State to secure the right to education and to establish educational institution, admission of students etc. Furthermore, the education is subject matter of concurrent list under Schedule VII "111 of the Constitution of India and to achieve this date, the State Government framed a policy and to implement it effectively it has constituted bodies like the assessee society. It is also evident from record that the assessee society is constituted by the State Government with the object to provide text books to the students of Class I to XII at a cheaper rate and the State Government has achieved this object very successfully, which is clear from the fact that selling price of the book printed by the Society is just 1/3rd in comparison to the text books published by the private publishers. The assessee has also placed on record list containing details regarding selling price of the books published by the Society vis-à-vis private publishers in part III as placed at page 931 & 932 of the paper book. It is also evident from the au....
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....tion 10(22) of the Income-tax Act. " 34. It is clear from the above letter that CBDT itself has recognized the right of exemption u/s 10(22), to such institution engaged in printing and publishing of books for students. 35. Now coming to the decision relied on by the Assessing Officer in the case of Sorabji, 201 ITR 939, wherein observation of the Hon'ble Supreme Court in the case of Loka Shikshana Trust, 101 ITR 234, was referred. The same is restricted to Section 2(15) of the Act, which is applicable for charitable purposes. However, the expression in Section 10(22) with regard to educational institution is wider and includes activities of educational purposes. Thus, the claim of exemption u/s 10(22) cannot be restricted to only those assessees, who are running educational institution. Thus, for falling within the purview of educational institution, it is not mandatory that the assessee should carry on educational institution by itself. It will be sufficient that the assessee is existing solely for educational purposes. Even in case of Sorabji (supra) as relied on by the ld.CIT(A), Hon'ble Court has observed as under :- "True it is, that it is not necessary for the in....
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....7. In letter F.No.184/26/75-Income-tax Act, 1961,-1 dated the 19th August, 1975, of the CBDT, it was observed by the CBDT that "On careful consideration of facts involved, the Board is of the opinion that the Tamil Nadu Text Book Society would be an educational institution exiting solely for the purpose of education within the meaning of Section 10(22) of the Income-tax Act." 38. Applying the facts of the assessee to the facts discussed by the CBDT, we have no hesitation to hold that assessee is entitled for claim of exemption u/s 10(22). As a matter of fact, recently Hon'ble Supreme Court in the case of Assam State Text Books Production Publication (supra), has made a reference to the said letter, at page 21 of the Hon'ble Supreme Court stated as under :- "However, the High Court noticed the letter issued by the CBDT on August 19,1975, in the case of Tamil Nadu Text Book Society, which as stated above in the similar 'circumstances had granted exemption to the Tamil Nadu Text Book Society as educational institution within the meaning of Section 10(22) of the Act. The judgment of the High Court further recites that under a similar situation, the CBDT had also extended the....
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....pective assessment years as the same was dated 10.10.2010. 42. We have considered the rival contentions and found from the record that in the original returns, the assessee has only claimed only u/s 10(22)/10(23C). However, when the CIT has granted registration u/s 12AA with retrospective effect from 7.8.1968 in compliance to the directions given by the ITAT in its order dated 23.9.2009, that the assessee has obtained the prescribed report in form 10-B as per Rule 17-B of the Income-tax Rules. Even though alongwith returns of all the years the assessee had filed audited accounts which were duly audited for tax purposes as well as per requirements of the C & AG but no audit report was obtained in Form No.10-B. Furthermore, since the assessee was owned by the State Government, it was a lengthy process for appointment of auditor, when the list of such auditors was given only by C & AG, the assessee has to go through various formalities for appointment of auditors and fixing their remuneration, which required proper approval and sanction of various authorities. As soon as the assessee has got the registration u/s 12AA, the assessee has also started to obtain necessary approval and als....