DCIT Vs American School of Bombay Education Trust (ITAT Mumbai)
Conclusion: Assessee-American School of Bombay Education Trust was eligible for income tax exemption u/s. 10(22) as assessee had reasonable cause and justified the expenses claimed in the Income and Expenditure statement filed along with the return of income.
Held: AO noted that assessee-American School of Bombay Education Trust had not produced the books of account or documents to prove its claim of exemption made u/s. 10(22) that assessee-trust solely existed for educational purposes. He stated that even the Directorate of Enforcement made enquiries and pointed out certain inconsistencies. Even CBDT had rejected the application made by assessee u/s. 10(23C)(vi) and in absence of registration u/s. 12A of the Act, assessee was not entitled for exemption u/s. 11. Therefore, AO had rightly denied the claim of exemption to assessee u/s. 10(22). It was noted infamous flood hit occurred in Mumbai caused damages to the documents as well as various records, articles and goods lying in assessee’s premises which could be considered as a reasonable cause. Moreover, from the heads of expenses claimed in the Income and Expenditure statements, it was evident that these were the expenses which were necessarily required to have incurred for the purposes of running the school. Without incurring these expenses, it was not possible to run a school. Therefore, AO was not justified in disallowing the entire expenses claimed in the Income and Expenditure statement filed along with the return of income, merely on the ground that assessee could not furnish the details and supporting evidence.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the Revenue and Cross Objection by assessee are arising out of the order of Commissioner of Income Tax (Appeals)-I, Mumbai, in appeal No. CIT(A)-I/IT-E2(88)/2013-14 vide dated 27-06-2014. The Assessment was framed by the Asst. Director of Income Tax(Exemption)-II(2), Mumbai for the AY 1998-99 vide order dated 28-03-2013 under section 143(3) read with section 253 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The only issue in this appeal of Revenue is against the order of CIT(A) granting exemption u/s. 10(22) of the Act by treating the assessee as educational institute, existed purely for education. For this, Revenue has raised the following four effective grounds:
1. “Whether on the facts and circumstances of the case, and in law, the CTT(A) was justified in directing the AO to grant exemption u/s. 10(22) of the I.T. Act, 1961 inspite of the fact that the assesses cannot be treated as educational institution for exemption as the activities of the assessee are business in nature”
2. “Whether on the facts and circumstances of the case, and in law, the CIT(A) was justified in directing the AO to grant exemption u/s. 10(22) of the I.T. Act, 1961 inspite of the fact that the assessee trust is a beneficiary trust whose beneficiaries are foreigners.”
3. “Whether on the facts and circumstances of the case, and in law, the CIT(A) was justified in directing the AO to grant exemption u/s. 10(22) or the I,T. Act, 1961 inspite of the fact that the assessee way receiving part fees from students in India and part of fees was collected in foreign exchange abroad by an arrangement with an organization SAIESF (South Asia International Education Service Foundation), Princeton, New Jersey, USA) which is out of purview of audit in India and how the funds are utilized by the said organization cannot be ascertained.
4. “Whether on the facts and circumstances of the case, and in law, the CIT(A) was justified in directing the AO to grant exemption u/s. 10(22) of the I.T. Act, 1961 inspite of the direction given by CBDT in F.No.l94/16/77-IT(AI) dated 29/10/1977 – CBDT Bulletin Tech XXIII/330 wherein it has been clearly stated that where, if surplus can be used for non-educational purposes, it cannot be said, that the institution is existing solely for educational purposes and such institution will not be liable for exemption under section 10(22]”.
3. Briefly stated facts are that original assessment was framed by the AO u/s. 143(3) read with section 147 vide order dated 27-02-2006, denying exemption u/s. 10(22) of the Act by proceeding on the basis that assessee has claimed exemption u/s. 10(23C) of the Act, which was rejected by CBDT. The Tribunal restored the matter to the file of AO in ITA No. 2582/Mum/2008, vide order dated 31-03-2011, directing the AO for Denovo adjudication the issue with reference to Section 10(22) of the Act. The Tribunal categorically noted and ordered in the following manner:
“2. At the outset, learned Counsel for the assessee submitted that as far as assessment year 1998-99 is concerned, the entire proceedings proceeded on the premise that the assessee had claimed exemption under section 10(23C)(vi), whereas, the assessee was entitled to exemption under section 10(22). He, therefore, submitted that the matter needs to be restored back to the file of Assessing Officer for examining assessee trust’s income in the light of the provisions contained under section 10(22) of the Act as the same has not been considered by the Assessing Officer.
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5. We have heard rival contentions and gone through the facts and circumstances of the case. the rival submissions, perused the orders of the lower authorities and the materials available on record. In view of the submissions noted above, we set aside the impugned order of the learned CIT(A) for assessment year 1998-99 and restore the matter back to the file of Assessing Officer for deciding the issue denovo with reference to section 10(22) in accordance with law”.
3.1. The AO framed assessment u/s. 143(3) read with section 253 of the Act vide order dated 28-03-2013, just repeating the earlier assessment order dated 27-02-2006. The assessee carried the mater before the CIT(A) and CIT(A) passed order u/s. 251 of the Act, after considering the submissions of assessee vide order dated 27-06-2014, allowed the claim of exemption u/s. 10(22) of the Act vide paras 7 to 7.5 as under:
“7. I have considered the facts and circumstances of the case, submissions of the appellant and the assessment order. It is noticed that the assessment proceedings were restored back to the A.O. for deciding the issue of taxability and computation of income in reference to section 10(22) of the I.T. Act, 1961. It has been noted by A.O. on page 3 of the assessment order as also reproduced above that “the assessee was engaged in imparting education but was carrying out business activity for the purpose of earning profit as per findings given in the original assessment order passed on 27.02.2006‘. The A.O. has further concluded that “on the facts and circumstance of the case, the Assessing Officer has assessed the income of the assessee at ₹ 17,50,02,804/-under various receipts. In view of the above, the assessee is not entitled for exemption u/s. 10(22) for the income assessed in the original assessment order’. (para 4 of the assessment order). The specific direction under the order of Hon’ble Tribunal dated 31.03.2011 for deciding the issue of exemption u/s.10(22) has not been addressed by the A.O. The A.O. has relied on the assessment order which has been rejected/ restored back to A.O. by the Hon’ble Tribunal on the issue of exemption u/s. 10(22) of the I.T. Act. Therefore reliance placed by the A.O. on the said earlier assessment order and re-endorsing the same without considering the issues in reference to section 10(22) of the I.T. Act is erroneous and void because the Hon’ble Tribunal in ITA No. 2582, 2583, 2584, 2585/Mum/2008 dated 31.03.2011, has categorically noted and ordered in the following manner-
“2. At the outset, learned Counsel for the assessee submitted that as far as assessment year 1998-99 is concerned, the entire proceedings proceeded on the premise that the assessee had claimed exemption under section 10(23C)(vi), whereas, the assessee was entitled to exemption under section 10(22). He, therefore, submitted that the matter needs to be restored back to the file of Assessing Officer for examining assessee trust’s income in the light of the provisions contained under section 10(22) of the Act as the same has not been considered by the Assessing Officer.
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5. We have heard rival contentions and gone through the facts and circumstances of the case. the rival submissions, perused the orders of the lower authorities and the materials available on record. In view of the submissions noted above, we set aside the impugned order of the learned CIT(A) for assessment year 1998-99 and restore the matter back to the file of Assessing Officer for deciding the issue denovo with reference to section 10(22) in accordance with law’.
7.1 It has been reiterated and submitted by the appellant that the relevant provision under which exemption has been claimed by the appellant for the current assessment year (1998-99) is section 10(22) of the I.T. Act. It has further been submitted that the only condition for exemption u/s. 10(22) is existence of institution for educational purposes and not for the purpose of profit. The appellant has submitted details of recognition and affiliation of various courses taught by the appellant, and the ambit of its activities confined to the educational purposes, as summarily reproduced by way of relevant submissions of the appellant above. There is no discussion and material bringing out business activity for the purpose of earning profit so as to deny exemption u/s. 10(22) of the I.T.Act as claimed by the appellant in the assessment order under appeal. The observations contained in the assessment order relating to various additions are mainly connected to tuition fees-Rs.2,02,46,320/- + Rs. 2,02,46,320/-, donations-Rs.5,73,69,137/-, interest income -Rs-1,53,897/- and other income Rs.85,739/- (page 1 of the assessment order) which prima facie do not reflect or denote any activity and income for the earning profit so as to debar the appellant under section. 10(22) of the I.T. Act, 1961.
7.2 Section 10(22) of the I.T. Act, was omitted by Finance (No.2) Act, 1998 w.e.f. 1-4-1998 i.e. was applicable for assessment year 1998-99 (F.Y, ending March,1998) which is the current year under Appeal. Therefore, the reason given by A.O. for denial of exemption u/s 10(22) of the IT Act ‘in absentia’, without taking into account the existence and applicability of section 10(22) is prima facie invalid and contrary to law. In this context, the A.O. has noted on-page 3 of the assessment order that –
“Moreover, it is pertinent to mention here that the predecessor Assessing Officer has passed the assessment order on 27.2.2006, and at that time the said Section 10(22) is not there in the statute book. But on the facts and circumstances of the case, the Assessing Officer-had assessed income of the assesses at Rs.17,50,02,804/- under various receipts. In view of the above, the sssessee is not entitled for exemption u/s.10(22) for the income assessed in the original assessment order.”
7.3 The appellant in its submission has explained that the rejection of exemption u/s. 10(23C) by the CBDT for the appellant, which has later been, granted vide order F.No.CClT/MUM/10(23C)(vi)/152/2007-08 dated 31.03.2008, filed by the appellant during the appellate proceeding, placed on record, w.e.f. A.Y.2007-08 onwards and irregularities in respect of tuition fees collection which also been condoned by the RBI vide its letter No.FE.CO/NRFAD/796/22.18 /2005-06 dated July 12, 2006 para 3 by stating that “In view of the circumstances explained by you, It has been decided to condone the lapse”, as such have no bearing to the exemption u/s.10(22) of the I.T. Act for this particular assessment year. As per the legal provisions of section 10(22) under the Income Tax Act,196l, applicable for A.Y.1998-99, the requirements for exemption are clearly laid down. The condition precedent for claiming exemption u/s.10(22) was that ‘the_educational institution_must_exist solely for educational purposes and not for profit and once this condition was fulfilled the fact that the recipient of income was a person other than the educational institution would not affect the position’. I.T.O. vs. Shri Bhuvanendra College Trust [1983] 4 ITD (Bang.) It was also laid down in Shanti Devi Progressive Educational Society vs. Asst. Director (1999) 68 ITD (Del.) that – Exemption u/s.10(22) not to be denied_since Revenue could not point out any case where any part of profit/income being diverted for purpose other than for educational purpose. The facts and circumstances of the case of the appellant for claim of exemption u/s.10(22) of the I.T. Act find support and are endorsed by these judicial decisions.
7.4 The legal position viz. section 10(22) of the I,T. Act, 1961 in respect of facts and circumstances of the case of the appellant is well settled in the following decisions of the Hon’ble higher Judicial authorities – .
1. Exemption cannot tie denied merely because there is a surplus
– After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes, since the object is not one to make profit. The decisive or acid test is whether on an overall! view of the matter the object is to make profit. In evaluating or appraising the above, one should also bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity – Aditanar Educational Institution v Addl. CIT [1997] 90 Taxman 528/224 ITR 310 (SC)
2. Income from any other source will also be exempt, if that income is used for educational purposes – If an institution exists solely for the purpose of education and it derives income from any other source and if that income is used only for the purpose of education, then it will come under section 10(22) – Brahmin Educational Society v. Asstt, CIT [1996] 89 Taxman 434 (Ker.).
7.5. In view of the above settled positions for applicability of section 10(22) of the I.T. Act, 1961, it is found that me appellant had carried out educational activities -during the year which is not under question either in the assessment order or else and also there are no facts and reasons pointed out by A.O. showing that the appellant has carried out business activities for earning profit. Under the circumstances, it is held that the appellant Is entitled for exemption under section.10(22) of the I.T.Act, 1961 for the year under this appeal i.e, A.Y. 1998-99.
In view of above and for the reasons therein, Ground Nos.9 to 20 of appeal are allowed”.
Aggrieved, Revenue is in second appeal before the Tribunal.
4. Before us, Ld.CIT-Departmental Representative Shri Anadi Varma, first of all took us through the assessment order and stated that the assessee has not produced the books of account or documents to prove its claim of exemption made u/s. 10(22) of the Act that the assessee-trust solely existed for educational purposes. He stated that even the Directorate of Enforcement made enquiries and pointed out certain inconsistencies. Even the CBDT has rejected the application made by assessee u/s. 10(23C)(vi) of the Act and in absence of registration u/s. 12A of the Act, the assessee was not entitled for exemption u/s. 11 of the Act. Therefore, he argued that the AO has rightly denied the claim of exemption to assessee u/s. 10(22) of the Act. It was the finding of AO that the assessee is unable to produce any evidence relating to correctness of its accounts of South Asia International Education Service Foundation (SAIESF). AO observed that the expenditure claimed by assessee incurred by SAIESF on behalf of assessee is not allowable as the accounts of SAIESF were not audited by CPA in USA or by any Chartered Accountant in India. According to him, the completeness and authenticity of the accounts could not be proved with regard to the claim made by assessee. Accordingly, Ld. CIT-Departmental Representative supported the assessment order and urged to restore the order of Assessing Officer.
5. On the other hand, Ld. Counsel for the assessee Shri Porus Kaka argued that the assessee is eligible for exemption u/s. 10(22) of the Act considering that it fulfills the requirement that it is an institution existing solely for educational purposes and not for the purpose of profit. It was contended that assessee is following international curriculum. The International Baccalaureate (IB) program was established at ASB in 1998.
ASB has been authorised by the International Baccalaureate, an international educational foundation headquartered in Geneva, Switzerland to offer the IB Primary Years Program (PYP) and the IB Diploma Program, and is thus, recognized as an ‘IB World School’. The IB Diploma, is recognized by universities across the world. It has also been recognized in India since 1983 by the Association of Indian Universities (AIU) an organization responsible for determining equivalency of foreign degrees/certificates in India, as an entry qualification to Indian universities. It equates the IB Diploma Program with grade 12 (10+2) of an India Board Assessment.
5.1. Ld. Counsel for the assessee drew our attention through assessee’s Paper Book, wherein the following documents are enclosed:
