Nsm College Of Education,, Jammu vs Department Of Income Tax

Income Tax Officer, vs. M/s. NSM College of Education, Ward 2(2), Jammu. Patta Bohri, Jammu. (Appellant) (Respondent)

Appellant by:Sh.V.K.Singh, DR Respondent by:Sh.Joginder Singh, CA

Date of hearing:19/02/2015 Date of pronouncement:26/02/2015

ORDER

PER B.P.JAIN,AM:

This appeal of the Revenue arises from the order of the CIT(A),

Jammu dated 03.07.2014 for the assessment year 2009-10. The Revenue has

raised the following grounds of appeal:

"1. Whether the CIT(A) Jammu was right in law in deleting the addition made on account of surplus income over expenditure as the trust had generated surplus profit out of total receipts and it has not spent all its receipts on main aims and objects of the trust.

2 ITA No.578(Asr)/2014 2. Whether the CIT(A) Jammu was right in law in deleting the addition made on account of surplus income over expenditure when the assessee is not registered u/s 12AA of the Act and the conditions u/s 11 and 13 as referred in section 12(1) have also not been fulfilled by the assessee.

3. Whether the CIT(A) Jammu was right in law in deleting the addition made on account of surplus income over expenditure by not considering the decision of the Hon'ble ITAT, Jaipur Bench in the case of Jhunjhunu Academy Sammittee vs. ITO (2006) reported in 103 TTJ 260."

2. The brief facts of the case are that the assessee has declared aggregate

annual receipts of Rs.83,26,256/- and has claimed deduction under section

10(23C) (iiiad) of the Income Tax Act, 1961 ( In short, 'the Act'), of excess

of income over expenditure amounting to Rs.15,78,920/-. The assessee has

declared fixed assets as at 31.03.2009 amounting to Rs.17,25,450/-. It was

observed by the AO that the income over expenditure is in excess of 15% in

contravention to the provisions of section 11(1)(b) of the Act. The assessee

submitted the explanation , which did not find favour to the AO and

accordingly, the AO treated the said surplus of Rs.15,78,920/- and Rs.

3,29,719/- over and above 15% of the receipts as income of the assessee but

the same was restricted to surplus of Rs.15,78,920/-.

3. The Ld. CIT(A) vide para 4 of his order reversed the order of the AO

and allowed the exemption as claimed by the assessee.

4. The Ld. DR relied upon the order of the A.O. 3 ITA No.578(Asr)/2014

5. The Ld. Counsel for the assessee, on the other hand, relied upon the

submissions made before the AO and the ld. CIT(A) and the order of the

Ld. CIT(A).

6. We have heard the rival contentions and perused the facts of the case.

The undisputed facts in the present case are that the assessee is not registered

u/s 12AA of the Act. The assessee's receipts during the year are less than 1

crore i.e. at Rs.83,26,256/- and the assessee has declared a surplus of

Rs.15,78,920/-. The AO in the present case has observed that there is

contravention of section 11(1)(b) of the Act. At the outset, we are of the

view that the assessee has not been registered u/s 12AA of the Act then the

provisions of sections 11 to 13 cannot be made applicable. Therefore,

application of section 11(1)(b) referred to in AO's order in para 2.2 and

addition of Rs.3,29,719/- thereto in para 6.3 outrightly cannot be made.

Moreover, the assessee has claimed the institution as an educational

institution, existing solely for educational purposes and not for the purpose

of profit, where aggregate receipts of such institution did not exceed Rs.1

crore as per Rule 2BC of the I.T. Rules, 1962. The question arises whether

the institution exists solely for the purpose of education and not for the

purpose of profit and aggregate annual receipts of such institution does not

exceed Rs.1 crore as per Rule 2BC of the I.T. Rules, 1962. There is nothing 4 ITA No.578(Asr)/2014

on record brought out by the AO that the assessee's institution does not exist

solely for the educational purposes or for purposes of profit or annual

receipts exceed Rs. 1 crore. Therefore, ground No.2 raised by the revenue is

mis-conceived and therefore, the same is dismissed.

7. As regards ground No.3 with regard to the decision of the ITAT,

Jaipur Bench in the case of Jhunjhunu Academy Sammittee vs. ITO (2006)

reported in 103 TTJ 260, the same also with reference to the exemption u/s

11 and accordingly is not applicable in the present facts and circumstances

of the case and our findings hereinabove. Therefore, outrightly, ground no.3

raised by the revenue is mis-conceived and is dismissed.

8. As regards ground No.1 raised by the Revenue that the assessee had

generated surplus profit and has not spent all its receipts on main aims and

objects of the trust. The assessee has relied upon the decision of the Hon'ble

Punjab & Haryana High Court in the case of Pinegrove International

Charitable trust vs. Union of India reported in 327 ITR 73, where the

Hon'ble High Court, distinguishing the decision in the case of CIT vs.

Queens Educational Society (2009) 177 Taxman 326 has held as under:

"Merely because there are surpluses in the hands of the educational institution would not ipso facto lead to an inevitable conclusion that 5 ITA No.578(Asr)/2014

such an educational institution is existing for making profits and not solely for educational purposes. Therefore, the interpretation put forth by the Chief Commission that there has to be a reasonable profit only and then only an institution can be said to be not reasonable profit only and then only an institution can be said to be not existing solely for the purposes of profit, is totally a misconception of law. There is a definite purpose behind the allowing of setting up educational institutions at the hands of private entrepreneurs including Trusts/Societies by the Govt. Various other educational colleges like Engineering and Pharmacy etc. could not have been established for want of funds. The Govt. with a definite idea and object purportedly opened this area of education for the private sector. The Government, who is lacking funds, appears to have thought that private sector could do this job very well. Once the very intention of the Government, is to promote education in the private sector such an action like that of the Chief Commissioner would seriously discourage those activities and the avowed object could never be achieved."

9. The Ld. CIT(A) has relied upon the decision of the Hon'ble Supreme

Court, in the case of TMA Pai Foundation vs. State of Karnataka (2002) 8

SCC 481, where the 11 Judge constitution Bench has held as under:

"the private educational institutions are bound to generate funds for betterment and growth of the institutions and for which there may be a surpluses for furtherance of education. Therefore, it is not only permissible but an important requirement to run the institutions of such strength. Further, an Aditanar educational institution (supra). Hon'ble Sup0reme Court has observed that when surplus is utilized for educational purposes i.e. for infrastructure development, it cannot be said that the institution was having the object to make profit. Hon'ble Supreme Court has rightly observed time and again that surpluses used for management and betterment of the institutions could not be termed as profit. If the stand of the department/revenue is accepted to be correct, especially in the wake of the methodology adopted by the Chief Commissioner in ascertaining profits, then no educational institution like the petitioner society could be said to be existing solely for educational purposes as in every case of an educational institution there is bound to be a profit. The provision of 6 ITA No.578(Asr)/2014 section 10(23C)(vi) would be rendered otiose if the interpretation adopted by the Chief Commissioner is accepted and the manner in which exemption validly granted to the petitioner-society has been withdrawn. The approach of the Chief Commissioner is wholly erroneous being contrary to the express provisions of the third proviso to section 10(23C)(vi) for the following reasons- (i) Unlike the provisions of sections 37 and 36(xii), the incurring of capital expenditure is not expressly excluded in the third proviso; and (ii) Had it been the intention of the legislature to exclude capital expenditure while applying the income of the Trust as per the third proviso to section 10(23C)(vi) then the said proviso would have contained an express embargo against such exclusion."

We have not able to persuade ourselves to accept the view expressed by the Division Bench of the Uttrakhand High Court in the case of M/s. Queens Educational Society (Supra)".

10. In the facts and circumstances of the present case and decisions of the

Hon'ble Punjab & Haryana High Court, in the case of Pinegrove

International Charitable Trust vs UOI ( supra) and Hon'ble Supreme Court,

in the case of TMA Pai Foundation vs. State of Karnataka (supra), in the

absence of any non-charitable purpose or non - profit motive on record and

annual receipts being less than Rs.1 crore as per Rule 2BC of the I.T. Rules,

1962, we find no infirmity in the order of the ld. CIT(A), who has rightly

deleted the addition, made by the AO. Thus, ground no.1 of the Revenue is

dismissed.

11. In the result, the appeal filed by the Revenue in ITA

No.578(Asr)/2014 is dismissed.

7 ITA No.578(Asr)/2014

Order pronounced in the open court on 26th February, 2015.

Sd/- Sd/- (A.D.JAIN) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 26th February, 2015 /SKR/ Copy of the order forwarded to:

1. The Assessee:M/s. NSM College of Education, Patta Bohri, Jammu

2. The ITO Ward 2(2), Jammu

3. The CIT(A), Jammu

4. The CIT, Jammu.

5. The SR DR, ITAT, Amritsar.

True copy By order

(Assistant Registrar) Income Tax Appellate Tribunal, Amritsar Bench: Amritsar.