TaxTMI 
TaxTMI 
2018 (8) TMI 57
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....ther sources' and has further erred in bringing to tax a sum of Rs. 1,59,84,559/- and that too without giving any deduction with regard to expenses. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in holding that there was violations of section 13(l)(d) r.w.s. 11(5). 4. That in any case and in any view of the matter, action of Ld. CIT(A) in enhancing the assessment and bringing to tax the gross receipts as taxable income of the appellant and that too without giving any deduction and denying the benefit of section 11 & 12 is bad in law and against the facts and circumstances of the case. 5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in computing the income of assessee in the status of 'AOP' instead of 'charitable society' as claimed by the appellant and further erred in applying the maximum marginal rate of tax. 6. That in any case and in any view of the matter, action of Ld. CIT(A) in not reversing the action of Ld. AO in computing the income of assessee in the status of AOP is bad law and a....
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....ing the assessment and bringing to tax the gross receipts as taxable income of the appellant and that too without giving any deduction and denying the benefit of section 11 & 12 is bad in law and against the facts and circumstances of the case. 5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in computing the income of assessee in the status of 'AOP' instead of 'charitable society' as claimed by the appellant and further erred in applying the maximum marginal rate of tax. 6. That in any case and in any view of the matter, action of Ld. CIT(A) in not reversing the action of Ld. AO in computing the income of assessee in the status of AOP is bad law and against the facts and circumstances of the case. 7. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred law and on facts in not reversing the action of Ld. AO in making addition Rs. 9,54,275/- on account of interest paid on unsecured loans relating to building under construction and that too by recording incorrect facts and findings and without observing the principle of natural just....
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....inst the facts and circumstances of the case. 5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in computing the income of assessee in the status of 'AOP' instead of 'charitable society' as claimed by the appellant and further erred in applying the maximum marginal rate of tax. 6. That in any case and in any view of the matter, action of Ld. CIT(A) in not reversing the action of Ld. AO in computing the income of assessee in the status of AOP is bad law and against the facts and circumstances of the case. 7. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred law and on facts in not reversing the action of Ld. AO in making addition Rs. 56,68,000/- on account of interest paid on unsecured loans relating to building under construction and that too by recording incorrect facts and findings and without observing the principle of natural justice. 8. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred law and on facts in passing the impugned order and that too without giving opportunity of hearing....
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....nt of Rs. 26,30,111/-. The Assessing Officer held that in the schedule of fixed assets the assessee has shown building under construction at Rs. 33,36,914/- and no amount of interest was capitalized. Considering the above facts interest at 12% per annum on average cost of construction of Rs. 16,68,457/- which works out to Rs. 2,00,215/-was disallowed by the Assessing Officer. The Assessing Officer further disallowed amount of Rs. 64,000/- in respect of Rs. 16 lacs which was advanced to M/s Progressive Tools and Components Pvt. Ltd. for a period of four months by observing that as per income and expenditure account no interest income was credited. 4. Being aggrieved by the Assessment Order the assessee filed appeal before the CIT(A). The CIT(A) not only dismissed the appeal of the assessee but enhance the income . The CIT(A) held as under: 86. In view of that it is clear that running of the educational institutions by the appellant is an activity aimed at actualizations of the objects of the appellant society of doing charity & is not the property which is a precondition for claiming & availing the benefit of exemption on incidence of tax u/s 11 of I.T. Act, 1961. ....
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....their guardians, etc., is not the voluntary contribution but the contractual levies & payments. 92. Therefore, the appellant is neither entitled to the benefit of exemption from incidence to tax u/s ll(l)(a) of I.T. Act, 1961 nor u/s ll(l)(d) nor u/s 12 of I.T. Act, 1961 in any manner. 93. The I.T. Act, 1961 conceives u/s 11 of I.T. Act, 1961 another possible situation where a running business is received by the charitable institution by way of the donation or otherwise & has provided that in that case the charitable institution may continue with the business though by following the prescribed manner of accounting of its financial affairs. However, in the present case this is not the case as appellant has not received any existing business as donation or in some other manner & has set up its various schools as almost a business entities run purely on commercial lines. Therefore, appellant is not entitled to the benefit of exemption from the incidence of tax in such a situation as well as the conditions precedent is not satisfied by it. though with no success that the business of the appellant which though Freudian slip but nonetheless an indication of its....
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....cation as the charitable activity. 99. The income of the appellant from the business of doing charity & imparting education as the charitable activity being the involuntary levies recoveries from the students & their guardians as contractual reciprocities is not to be considered as salary for obvious reasons. It is also not the income from the house property. As the appellant is a charitable institution, it is in normal course not permitted to indulge in any business or professional activity but as an exception to the generality of the rule it is permitted to run & maintain certain activities commercially if, the running and maintenance of such activities is necessary for the actualization of the objects of the appellant society. The provisions of section 11(4) & section 11(4A) of I.T. Act, 1961 provide for such exception in the cases of a charitable institutions or a religious institution if the running of the commercial activity is incidental to the actualization of the objects of the charitable entity & is subject to the conditions imposed therein & thereunder. Whether the appellant comes under the purview of the section 11(4) & the section 11(4A) of I.T. Act, 1961 will....
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....teering in the field of education and there cannot be any occasion to recover the cost of charity from the beneficiaries of the charity as is being claimed by the appellant. 104. Income of the appellant by the appellant & has been offered by the appellant as its income all through its existence since inception & has been claimed exempt from the incidence of tax under the provisions of section 11 of I.T. Act, 1961 as its income and being subject to the provisions of the I.T. Act, 1961. Therefore, there is no dispute on the fact that the income of the appellant is the income of the appellant in terms of section 2(24) of I.T. Act, 1961. 105. Even otherwise, the ingredients of the income as provided u/s 2(24) of I.T. Act, 1961 are inclusive & not the exhaustive. Therefore, the receipts of :ne appellant on revenue account is the income of the appellant and such -'come of the appellant has to be treated as the income & as it does not quality to be the salaries, the income from house property, profit & gains from business & profession or the capital gains, it has to be considered as income of the appellant from the "other sources" & has to be dealt with under the pro....
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....itable institution set up to do the charity and not to earn income in manner whatsoever from the claimed charitable activities that too commercially. The founding members of the society or the authors & the trustees of the charitable trust or members of the society are responsible & obligated under the idea of charity to arrange the finances for the charity to be done & as claimed to have been done by the claimant provide that in the act of doing charity the person that in the act of doing charity should recover the cost of doing the charity in terms of money that too from the mom the beneficiary of the alleged charity. The idea of charity is different, distinct & almost contradictory to the idea of doing business or earning the income in any manner. 114. The expenses incurred by the appellant society is not the expenses incurred to earn the income but for doing the charity. It is not the cost of the income but the application of income. The expenses incurred by a charitable institution is not the expenditure incurred either wholly or even otherwise for the purpose of making or earning an income as the very concept of charity is completely anathema to the concept of making....
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....thing is to be read in, nothing is to be implied. One can only look fairly at the language used in law. That being the law, the appellant cannot be permitted to raise the issue of meeting the cost of its activities from those activities itself for the simple reason that neither the cost of charity can be extracted from the beneficiaries of the charity nor the expenditure on charity can be allowed to construed as the expenditure laid out or expended wholly for the purposes of making or earning an income as earning of income is not the charitable activity though in an exceptional situation it can be an incidental outcome of the same under the provisions of section 11(4) and section 11(4A) of I.T. Act, 1961 which is not the case in the case of the appellant. 117. As there is no possibility of recovering the cost of charity from the recipient of the charity, there can be no nexus between the expenditure incurred by the appellant society and the income earned by the appellant society. The expenditure incurred by the appellant society is for the actualization of objects of appellant & is by way of charity while the income appellant society. There is no linkage much les nexus amo....
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.... 121. Because of the violations of the overriding conditions of section 13 by the appellant society the appellant is not entitled for the benefit of exemption from the incidence of tax under the provisions of section 11 and 12 of I.T. Act, 1961 on any part of its income including that which is eligible otherwise fro the benefit of exemption from the incidence of tax apart from the fact that the appellant is not entitled for the benefit of exemption from the incidence of tax on its specified income under the provisions of section 11 & 12 of I.T. Act, 1961. Conversely, the entire gross receipts of the appellant in all the three appeals, i.e., the A.Ys. 2009-10, 2011-12 and 2013-14 is the income of the appellant and is liable to be taxed under the provisions of the I.T. Act, 1961. 122. As in the impugned assessment orders for the A.Ys. 2009-10, 2011- 12 and 2013-14 the Id. A.Os. have not correctly computed the taxable income of the appellant and have infact incorrectly computed the taxable income of the appellant at far lesser amount, I am assuming jurisdiction under the provisions of section 251(l)(a) r.w. section 251(2) of I.T. Act, 1961 and enhance the assessed inco....
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....tional activity has been specifically treated as charitable purpose u/s 2(15) and enhancement of income made by the CIT(A) is not just and proper. The Ld. AR also relied upon the decision of the Adarsh Public School wherein the Tribunal held that the assessee's income by way of fees cannot be held to be derived from property held under the trust because students cannot be treated as property. 6. The Ld. DR relied upon the order of the Assessing Officer and order of CIT(A). 7. We have heard both the parties and perused the material available on record. We find that the Assessing Officer made certain addition on ground that the assessee is pursuing its object of imparting and spreading education with profit motive and not that of charity purpose. We find that CIT(A) not only confirmed the Assessment Order but also enhanced the income of the Assessee which is reproduced in the preceding para. It is the submission of the Ld. AR that the case of the assessee is squarely covered by the decision of the Tribunal in case of Adarsh Public School (supra) where in the Tribunal held as under:- "19. Now coming to the observation that assessee's income by way of fees cannot be held....
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....authority. It was not a trust. Its business was not held under a trust. Its property was not held under trust. Therefore, the Board was not entitled to be registered as a Charitable Institution. It was the case of the Department that the Board was performing statutory functions. Development of minor ports in the State of Gujarat cannot be termed as the work undertaking for charitable purposes and in the circumstances the Commissioner rejected the Board's application under section 12A of the 1961 Act in the light of the above case of the Department, we are required to consider the expression 'any other object of general public utility' in section 2(15) of the 1961 Act. 13. ............. 14. We have perused number of decisions of this Court which have interpreted the words, in section 2(15), namely, 'any other object of generally public utility'. From the said decisions it emerges that the said expression is of the widest connotation. The word 'general' in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an indiv....
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....ying the said test it is clear, that Gujarat Maritime Board is under legal obligation to apply the income which arises directly and substantially from the business held under trust for the development of minor port in the State of Gujarat. Therefore, they are entitled to be registered as 'Charitable Trust' under section 12A of the 1961 Act." 20. This principle has been reiterated by the Hon'ble Delhi High Court in the case of Institute of Chartered Accountants of India-v-DGIT, 358 ITR 91 (Del). Thus, the assessee society which has been registered under 'Registration of Societies Act, 1860' with the sole object of providing education and has a legal obligation for applying its income for such charitable purpose, then for the purpose of Section 11 it has to be treated as trust and income derived from carrying out such obligation has to be reckoned as income derived from property under the trust and therefore, on the ground also as raked by the ld. CIT (A), exemption u/s.11 cannot be denied. Accordingly, in view of the finding given above and various legal principle as discussed above, we hold that none of the observations and the finding of the ld. CIT(A) are sus....