I-T - Exemption benefit cannot be denied to educational trust simply because it had generated surpluses, if distribution of surpluses was prohibited among members even upon dissolution
By TIOL News Service
NEW DELHI, MAY 29, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether exemption benefit can be denied to an educational institution solely for the reason that it had been generating surpluses, when the distribution of surpluses was prohibited among the members of society even upon dissolution. NO is the answer.
Facts of the case:
The assessee is a society running Col. Satsangi Memorial School, Satbari, Mehrauli, New Delhi and two other educational institutions at Nawarangpur and Bhiwadi. There was a search and seizure operation u/s 132, consequent to which the cases of the group were centralized with the then DCIT Central Circle-11, New Delhi. The regular assessment for A.Y 1999-2000 was made on a total income of Rs.1,57,48,783/-. In this assessment, the claim of the assessee for exemption u/s 10(23C)(vi) was denied. During the pendency of appeals aainst AO's order before ITAT, the cases of the group were decentralized and assessee's case was transferred to DDIT(Exemption), Investigation Circle-I, Delhi. The ITAT restored the assessment to the file of AO for fresh adjudication after ascertaining the position about the assessee's application for approval u/s 10(23C)(vi). The ITAT further directed that the assessee was to submit necessary details about its application having been filed for approval u/s 10(23C)(vi) so that the AO may forward the same to the competent authority prescribed for the purpose. Subsequently, during assessment proceedings, notice u/s 143(2) was issued and in compliance thereto, the assessee filed a copy of the application for approval u/s 10 (23C) (vi) along with the relevant enclosures which was filed by the assessee with the Office of the DIT(Exemption), who disposed of the assessee's application for exemption 10(23C)(vi) rejecting the same. During the set aside assessment proceedings, the assessee was denied the benefit of exemption u/s 11 and 12 as the assessee was not registered u/s 12A and in view of the assessee's application for approval u/s 10(23C)(vi) having been rejected, the income of the assessee was assessed at a gross total income of Rs. 1,57,48,783/-.
On appeal, the ITAT held that,
++ on perusal of the order of Delhi High Court in assessee's own case in Director of Income Tax (Exemption) vs All India Personality Enhancement & Cultural Centre for Scholars - 2015-TIOL-2349-HC-DEL-IT, we find that the High Court has observed that the objects of the assessee society were solely for the purposes of education and not for the purposes of profit. The High Court has further observed that the distribution of surpluses was prohibited and further, in the event of dissolution of the assessee society, its assets would have to be transferred to another institution, carrying on similar activities and the same cannot be distributed to its members. The High Court further observed that the assessee has been running three schools that are affiliated to CBSE and admittedly, this would not have been permissible in case the assessee did not exist solely for educational purposes and/or if the assessee was found to be pursuing the profit motive. The High Court also observed that the surpluses generated by the assessee were necessarily to be applied towards its charitable objects and, therefore, in view of the aforesaid, exemption cannot be denied to the assessee only for the reason that it had been generating surpluses. The Delhi High Court has further observed that the fact that certain advances had been made to Col. Satsangi and some of his family members who were also involved in running the school cannot be construed as diluting the predominant object of the assessee which was managing schools and the substratal purposes of its activities was education. Therefore, respectfully applying the ratio of the judgment of the High Court, we deem it fit to restore the assessment to the file of the AO for re-examination and fresh assessment after duly considering the status of the assessee's application for approval u/s 10 (23C) (vi) before the DGIT(E) and after giving proper opportunity to the assessee to present its case.
(See 2017-TIOL-733-ITAT-DEL)
