TaxTMI 
TaxTMI 
2001 (10) TMI 248
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....- "1. The CIT(A) has erred in law and on facts of the case in directing the Assessing Officer to allow exemption under section 10(22) of Income-tax Act, 1961 merely placing reliance on the appellate order of assessment year 1985-86 which is subjudice before ITAT. 2. The CIT(A) has erred in law and on facts in arriving to the conclusion that as interest amounting to Rs. 2,46,016 has been charged on debit balances of Mr. Bakhat the assessee was entitled to exemption under section 10(22), ignoring the discussions in the assessment order that the landlords are getting enriched by paying nothing and just merely book entries were passed in the a/c books of the school." 4. The assessee had furnished various Paper Books one of which was filed on 18-7-2001 and contains 120 pages. At the time of hearing of the appeal the counsel for the assessee--Sh. S.K. Garg specifically submitted that the Paper Book furnished on 16-7-2001 alone should be considered and all other Paper Books or Letters should be taken as withdrawn and be ignored. Consequently, the Paper Book furnished on 18-7-2001 and other details asked for the Bench after 18-7-2001 are being taken into account. 5. We have heard the L....
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....r to reject the admission of persons as the member of the society which employee that the secretary has the absolute control over the society. The remaining members of the Executive Committee stayed outside Allahabad which also means by implication that the said Shri Bakhat who stayed at Allahabad can manage the affairs of the society in a manner he deems proper. According to the Assessing Officer, the building in which the school is being run is owned of the secretary and his mother Smt. Ruquia Begum but additions to the said building are being made by withdrawing from the funds of the school whereby the landlords are becoming richer day by day by making additions to the building. A sum of Rs. 1,89,300 was incurred on repairs and maintenance of the building which includes residential portion in which Shri Bakhat is residing. The Assessing Officer on going through the management of the institution was of the opinion that the society has not been established solely for the purpose of education. The society went on debiting, the account of the landlord resulting into debit balance but no interest was charged from the landlords. There were other objections as detailed in the assessmen....
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....empt under section 10(22). However, for the assessment year 1985-86 vide order dated 30-1-1989 for the assessment year 1986-87 vide order of the same date such exemption was not allowed by the Assessing Officer but for the assessment year 1987-88 again such exemption was allowed vide order of later date i.e., 28-2-1989. Again for the assessment year 1988-89 vide order dated 28-2-1989 the exemption was denied. I have before me the benefit of the appellate orders for the assessment years 1985-86, 1986-87 and 1988-89 bearing Appeal Nos. 106/ACIT/CIR. I/All./88-89, dated 30-5-1990, 105/ACIT/Cir, I/All./88-89 dated 30-5-1990 and 96/ACIT/Cir-I, All./1988-89, dated 30-5-1990 respectively according to which the exemption under section 10(22) has been directed to be allowed. In Para 2.2 of the appellate order for the assessment year 1985-86 my predecessor in office has discussed in detail the reasons as to why the exemption was denied. After discussing in detail the arguments and after giving reasons, the CIT(A) in Para 2.22 held as under: '2.22 For the reasons aforesaid, the denial of exemption to the appellant-society under section 10(22) of the Act for the assessment years 1985-86, 1986....
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....diture account it is revealed that the assessee has been having surplus/profit to the extent as detailed below--year after year: --------------------------------------------------------------------------------- Receipts on account of Fee charged from the Sl. Period Students Surplus/Profit No. (in Rupees) &nb....
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....bsp; 36,36,248 5,92,434 10. F.Y. 1997-98 53,44,251 15,92,414 11. F.Y. 1998-99 61,90,282 10,79,809 12. F.Y. 1999-2000 1,09,20,829 33,27,603 --------------------------------------------------------------------------------- The surplus/profit for the assessment years 1987-88 and 1988-89 was Rs. 5,49,423 and Rs. 6,80,953 respectively. (vii) The assessee has incurred expenditure on account of repairs to the building owned....
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....p; 2,85,835 4,29,835 6. F.Y. 1993-94 1,44,000 5,55,522 6,99,522 7. F.Y. 1994-95 1,44,000 2,21,016 3,61,016 8. F.Y. 1995-96 1,44,000 5,19,276 6,63,276 9. F.Y. 1996-97 1,44,000 2,52,516 3,96,576 10. F.Y. 1997-98 &....
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....; Period (in Rupees) --------------------------------------------------------------------------------- 1. 1-7-1987 to 31-3-1989 10,75,976 2. F.Y. 1989-90 17,07,706 3. F.Y. 1990-91 18,36,457 4. ....
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....bsp; Nil --------------------------------------------------------------------------------- In financial years 1998-99 and 1999-2000 the assessee seems to have adopted a mischievous terminology and instead of showing the amounts due from the Landlords has shown the amounts of Rs. 26,04,656 and of Rs. 32,15,548 under the "head" Security deposit. Since the assessee has not explained as for what purpose and with whom the amount in question were as security and the fact that the assessee under normal circumstances was not supposed to deposit any security with any Government Department it is nothing but the amount with the Landlords. (ix) The assessee is having a Car but has not explained as to for what purpose the Car was maintained. It is also not the assessee's case that the car was provided to any Teacher. Under these circumstances the fact is that the Car maintained by the assessee was used by the Secretary or his family members. (x) Two Residential properties--one at Bombay and one at Lucknow, have been purchased in the personal name of Mr. H.R.A. Bakhat. (xi) Personal legal expenses....
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....r of the Society, as is evident from order-sheet entry dated 28-1-1993. When the assessee was called upon to file the amended Memorandum and Rules, the Assessee filed the list of Executive Committee Members for the years 1987-88 and 1988-89 but did not file the amended Memorandum and Rules. The assessee's failure leads to conclusion that what Mr. Vijay Aggarwal, C.A. had admitted on 28-1-1993 was correct. The assessee has not furnished any evidence to counter this admission. (xv) From Pages 14 and 17 of the Paper Book being Balance-sheets as at 31-3-1995 and 31-3-1996 respectively it is revealed that the closing balance under the Fund account as on 31-3-1995 was Rs. 76,75,548.63 whereas, the opening balance as on 1-4-1995 has been taken at Rs. 71,61,687 which has resulted in misappropriation of assessee's funds to the extent of Rs. 5,13,861. (xvi) From the Schedule A of fixed assets annexed to the balance-sheet as at 31-3-1996, it is revealed that building worth Rs. 17,89,000 had been sold as against total worth of building as on 1-4-1995 at Rs. 10,62,704 and building worth Rs. 2,73,704 has been shown balance as on 31-3-1996. In this way the assessee had earned a gain of Rs. 9,0....
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....se under Maharashtra's Laws a society could not purchased a residential property for running his School. It was further submitted that ultimately both these properties were sold out in the year 1995. The counsel further submitted that all these issues were involved for considerations of various authorities in assessment years 1985-86 to 1988-89 and except assessment year 1987-88 where the exemption under section 10(22) was allowed by the Assessing Officer himself, the assessee's claim of exemption under section 10(22) was refused by the Assessing Officer. On appeal by the assessee, the CIT(A) had allowed the assessee's claim for these three years also and the order of the CIT(A) were upheld by the ITAT, Allahabad. In view of these facts Mr. Garg submitted that since the facts and circumstances of the case and grounds for rejecting assessee's claim of exemption under section 10(22) of the Act by the Assessing Officer are same as were for assessment years therefore, in the interest of Justice and Consistency the present bench should follow the order of the Tribunal in assessee's own case and sustain the order of the CIT(A) which is in favour of the assessee. It was further submitted ....
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....rest do not survives. Concluding his submissions the Ld. Counsel relied on another decision of Supreme Court Aditanar Educational institution v. Addl. CIT [1997] 224 ITR 310, order of ITAT, Allahabad in case of City Montessory School [IT Appeal No. 1680 (All.) of 1994 dated 31-1-1996] and of Hon'ble Supreme Court reported as 217 ITR Page 4. 8. We have considered the rival submissions, facts and circumstances of the case, provisions of section 10(22) of the Act and the various decisions relied upon the parties with utmost care and are of the opinion that to decide this appeal it is desirable to consider the provisions of section 10(22) of the Act, which are in the following terms: "10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included.... (22) any income of a University or other Educational Institution, existing solely for educational. purpose and not for purposes of profit" 9.1 After careful analyses of the provisions of section 10(22) and the context as well as the intention of the Legislature while enacting separate provisions for Educational Institutions then the provisions for Charita....
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....onal activities but can't be called as "an Institution for Education". Similarly, if the quantum of fee charged is not commensurate to the quality of the education and the expenditure to be incurred for running the institution, the institution cannot be said to be for the purpose of 'education' and it is so because the activity of imparting the Education as envisaged in the provisions of section 10(22) of the Act is, in a sense, in the nature of "a charitable or a religious" activity and not a commercial one. The section itself speaks of this aspect when it says that for income of an institution to be exempt it should be for education but not for the purpose of profit. The only exception to the above requirement being that educational institution may not be wholly charitable or religious and can charge the fee commensurate to the expenditure likely to be incurred for such services subject however, to occasional or casual surplus/profit. The Hon'ble Supreme Court in case Miss Mohini Jain v. State of Karnataka AIR 1992 SC 1858, while considering the justification of State Government Notification permitting the Medical Colleges of the State to charge CAPITATION FEE from the Student ....
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....tizen's right to education under the Constitution." Para 18 "Indian civilization recognizes education as one of the pious obligations of the human society. To establish and administer educational institutions is considered a religious and charitable object. Education in India has never been a commodity for sale. Looking at the economic front, even forty-five years after achieving independence, thirty per cent of the population is living below poverty-line and the bulk of the remaining population is struggling for existence under poverty conditions. The preamble of Constitution promises and the directive principles are a mandate to the State to eradicate poverty so that the poor of this country can enjoy the right to life guaranteed under the Constitution. The State action or inaction which defeats the constitutional mandate is per se arbitrary and cannot be sustained. Capitation fee makes the availability of education beyond the reach of the poor. The State action in permitting capitation fee to be charged by State-recognized educational institutions is wholly arbitrary and as such violative of Art. 14." Para 19 "The capitation fee brings to the fore a clear class bias. It enab....
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....nglish Schools charging abnormal high fee divide the society (Students) categories--one having capacity to pay abnormal high fee and other having no capacity to pay abnormal high fee. Such an Institution, therefore, cannot claim itself to be solely for the purpose of Education as intended by the Legislature and the provisions of section 10(22) of the Act. (ii) If we consider the facts and circumstances of the present case, such as the charging abnormal high fee year after year which is not commensurate to the Education imparted/services rendered as well as the expenditure incurred the excess fee charged over the expenditure (except the rent paid to Mr. Bakhat and his mother and repairs) for the years 1987-88 to 2000-2001 which as per details filed by the assessee is Rs. 1,12,34,628 and apply the aforesaid tests it gets clearly confirmed that the assessee is imparting Education not to achieve the objects required to be achieved by the provisions of section 10(22) of the Act and also as intended by the Legislature, rather is carrying on the commercial activities solely for the benefit of Mr. Bakhat and his family members. Simply because an Institution or a person is imparting Educa....
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.... concerned the various dictionaries define the word "profit" as under: "(i) In Black's Law Dictionary, Sixth Edition--reprint 1997 the meaning of the word "PROFIT" has been given as under: --Most commonly, the gross proceeds of business transaction less the costs of the transaction, i.e., net proceeds. --Excess of revenues over expenses for the transaction. --Some times used synonymously with net income for the period. --Gain realized from business or investment over and above expenditure. --Profit means accession of goods, valuable results, useful consequences, avail, gain, as an office of profit, excess of returns over expenditure or excess of income over expenditure. U.S. v. Minizes, D.C.Md. 304 F. Supp. 1305, 1312, --The benefit, advantage, or pecuniary gain occurring to the owner or the occupant of land from its actual use; as in the familiar phrase "rents, issues and profits" or in the expression "mesne profits". (ii) In another publication styled as "Complete Word Finder" published by Reader's Digest--Oxford the word 'profit' has been defined as under: (a) n.--an advantage or benefit --Financial gains; excess of returns over outlay v.--(Profited, profiting) --be....
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....r the extent of services rendered by such person(s), the Institution has to be held to be for the purpose of "profit". (vii) If we see the scheme of exemption allowed to a charitable Institution under section 11 of the Act and to an Educational Institution under section 10(22) of the Act, the only difference, in our opinion, is that the charity is done without any consideration whereas Education is to be imported though of-course as charity but, subject, however to the exception that the Institution may or may not charge fee from the students but, this freedom/exception in such cases is only to the extent of charging of the fees commensurate to the quality of the Education and the expenditure thereon. If it is not the case then the individuals or the Institutions, who are giving tuition or coaching and are meeting their livelihood from the fee/charges so charged, will also qualify for the exemption under section 10(22) of the Act -- a situation or a concept, which is neither the import of the provisions nor the intention of the Legislature. For the income of an Institution to be exempt under section 10(22) of the Act another requirement is that the surplus/profit should not be us....
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.... during the course of hearing of the Appeal the assessee was specifically asked to explain the basis and quantum of fees charged from the students but Ld. Counsel for the assessee, after consulting Mr. Bakhat, alleged Secretary of the Society who was present during the hearing, avoided the details by pleading that the Society has destroyed all its books of account and other relevant documents prior to six previous year i.e. prior to previous year 1994-95. (iii) Since the Assessing Officer has mentioned in the body of the assessment order the Secretary of the Assessee's society had absolute powers to deny the membership of the Society to anybody he likes, the assessee was asked to furnished a copy of society's Rules & Regulations, in response to which the assessee furnished a certified copy of the same (in Hindi) alongwith two lists in English showing the names of the member of the society during the year 1987-88 and 1988-89. Since the Hindi version the Rules and regulations was found silent with regard to the absolute powers of the Secretary, the Ld. DR was directed to produced the relevant Assessment records and assessee was directed to produced the amended by laws etc. if any. ....
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....on of the same by them for there personal benefit either by way of purchasing immovable properties in their names or accumulating wealth of their own. Here it is important to mention that the assessee has pleaded that the immovable properties purchased in the individual name of the Secretary having been shown in its balance sheet it cannot be said that the profits had gone to the Secretary. Similarly, the society has pleaded that the loans given to the Secretary or the Landlady also appear in the balance-sheet as receivable and the society has charged the interest for all the years i.e. 1983-84 to 1989-90 in the year 1995. (d) The surplus/profit of the society has been enjoyed by the Secretary by drawing a monthly amount of Rs.35,000 under the garb of Salary. 11. In view of the totality of the above facts and circumstances, we are of the opinion that so called society, its activities and the surplus/profits derived by it are for the sole enjoyment of Mr. Bakhat and his family members and consequently, in view of this conclusion and for the reasons stated hereinafter, we are of the opinion that the activity of the alleged society are for the purpose of profit and therefore, its ....
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....nment for a term which may extend to three years or with fine or with both. (4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (Act No. 2 of 1974), an offence under this section shall be non-cognizable and bailable. 4. Prohibition of the right to recover property held benami--(1) No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property. (2) No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property. (3) Nothing in this section shall apply,-- (a) Where the person in whose name the property is held is a coparcener in a Hindu undivided family and the property is held for the benefit of the coparceners in the family; or (b) Where the person in whose name the property is held is a trustee or other person standing in a fiduciary capacity, ....
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....ohibited for securing exemption under section 10(22) of the Act. (ii) The part of the surplus of the profit had been passed on to the landlady and Mr. Bakhat in the garb of rent paid to a partnership. As already held the said modus operandi adopted by Mr. Bakhat and the Landlady is nothing but to enjoy the surplus/profit which is enjoyed any individual by giving tuition or Coaching. (iii) A part of the surplus/profit has been used for the personal use of Mr. Bakhat and his mother by way of meeting personal litigation expenses and repairs to the residential portion of the property owned by the Bakhat's mother and use of resident for both. (iv) A part of the surplus/profit has been used for making construction in the residential portion of the building owned by Mr. Bakhat and his mother and used for residence by them. (v) An amount of Rs.32,15,548, shown as Security deposit has been given to Mr. Bakhat for his personal use. The fact that the amount has been shown in the Assessee's balance sheet for the financial years 1999-2000 and 2000-2001 as Security deposit do not disprove the over all intention and factual position that the amount in question has gone to the Secretary an....
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....he same, because, in those appeals the Hon'ble Bench had not considered the issue relating to profit motive, from the angle we have considered. For example the issue of salary drawn by the Secretary has been considered from the angle of justification of quantum with reference to the nature of services rendered and not from the angle that such person cannot derive any benefit irrespective of rendering of any kind of service. Similarly the issue relating to the Immovable Properties, which were in the name of Sccretary as individual and not in the fiduciary capacity had been considered only in the light of assessee's claim that the investment is such properties was appearing in the assessee's balance sheet and the section 14 of the Registration of Societies Act, but not in the light of Prohibition of Benami (Properties) Act or the Transfer of Property Act. Similarly the expenditure incurred by way of repairs to residential portion of the building, addition to the residential portion of the building owned by Secretary's mother and enjoyed by both, meeting the personal litigation and other expenses of the Secretary and his mother, allowing the Secretary to take away the surplus of the p....
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....iving effect to the order of the CIT(A) dated 12-11-1993 which has been separately underappeal before the Tribunal, The ground taken by the revenue in this appeal reads as under: "That the CIT(A) erred in law and on facts in holding that the income of the assessee is exempt under section 10(22) of the Act, following the CIT(A)'s order for the Assessment year 1989-90 which has not been accepted by the Department and is still subjudice before ITAT." 2. We have heard that ld. DR as well as the counsel for the assessee. 3. Since the order of the CIT(A) dated 12-11-1993, which has given rise to the present appeal has been set-aside and the issue relating to the exemption under section 10(22) of the Act has been decided in favour of the revenue and against the assessee as per our order of the even date in revenue's ITA No. 68/All/94, the order of the CIT(A) no more survive and consequently, the same is set aside, and order of Assessing Officer is restored and confirmed. 4. In the result the revenue's appeal is allowed. CO No. 2/All/2001 Through this cross objection, which is time barred by 2452 days, the assessee has sought the permission for condonation of delay in furnishing ....