Case Law Details
DCIT (Exemptions) Vs Mahindra International School Academy (ITAT Pune)
No denial of exemption u/s 10(23C) if AO failed to intimate prescribed authority about contravention of same
Conclusion: Where AO did not act as per the foregoing statutory stipulation intimating the prescribed authority about the contravention of the registration/ approval u/sec.10(23C); no assessment order regarding total income or loss; as the case may be could be made. Therefore, assessee-educational institution was eligible to claim exemption under section 10(23C)(vi).
Held: Assessee had claimed a tax exemption under Section 10(23C)(vi) which allowed tax exemptions for educational institutions provided certain conditions prescribed by the Chief Commissioner of Income Tax (CCIT) were met. AO disallowed the exemption, arguing that the school had not complied with these prescribed conditions, particularly regarding merit-based admissions and running the school without commercial intent. Upon appeal by assessee, CIT(A) ruled in favor of the assessee, which led the Revenue to file an appeal before the Pune Bench of ITAT. Revenue argued that the school violated the CCIT’s conditions, specifically non-discriminatory admission policies based on merit, and also pointed out that the school charged high fees and hired a marketing manager, indicating commercial operations, which contradicted the purpose of a charitable educational institution. It was held that till the time an AO did not act as per the foregoing statutory stipulation intimating the prescribed authority about the contravention of the registration/ approval u/sec.10(23C); no assessment order regarding total income or loss; as the case may be could be made. There was also no indication in the Revenue’s instant appeal about the foregoing compliance of sec.143(3) 1st proviso (i) and (ii) by AO. Therefore, Tribunal dismissed revenue’s appeal and upheld CIT(A)’s decision in favor of assessee.
FULL TEXT OF THE ORDER OF ITAT PUNE
This Revenue’s appeal for assessment year 20132014, arises against the National Faceless Appeal Centre [in short the “NFAC”] Delhi, Delhi’s Din and Order No. ITBA/ NFAC/S/250/2023-24/1054407445(1) dated 17.07.2023, in proceedings u/s.143(3) of the Income Tax Act, 1961 (in short “the Act”).
Heard both the parties. Case files perused.
2. The Revenue pleads the following substantive grounds in the instant appeal :
1. On facts and circumstance of the case, the Ld. Commissioner of Income Tax(Appeals) [hereinafter Ld.CIT(A) in short] erred in interpreting Section 10(23C)(vi) of the Income Tax Act, 1961, and the conditions stipulated by the Chief Commissioner of Income Tax in such a manner as to allow the appellant’s exemption without proper scrutiny of its adherence to the conditions particularly related to non-discriminatory admission based on merit, thereby conflicting with the principle of “Ignorantia Juris Non Excusat”.
2. On facts and circumstance of the case, the Ld. CIT(A) erred in law by failing to appropriately consider the AO’s observations relating to the indicators of commercial operations by the appellant, including the hiring of a Manager (Marketing and Admissions), contrary to the spirit of educational institutions under Section 10(23C)(vi), thus conflicting the maxim of “Lex Specialis Derogat Legi Generali”.
3. On facts and circumstance of the case, the Ld. CIT(A) misconstrued the implications of the remittance documentation and the nature of expenses claimed, and in particular, the Medical Insurance Premium for the Director, and whether such an interpretation is inconsistent with the intent and purpose of the exemption provision, given that the nexus to the educational function of the institution was not established.
4. On facts and circumstance of the case, the Ld. CIT(A) erred in allowance of the appellant’s depreciation claim, notwithstanding the concerns of double deductions raised by the AO, undermines the statutory amendment made to the statute from A.Y. 2015-16, and whether the application of the authoritative ruling from the Bombay High Court was correctly interpreted and applied.
5. On facts and circumstance of the case, the Ld. CIT(A) erred in determining that the appellant was deprived of an adequate opportunity to present its case, and that the mandatory issuance of a show-cause notice was not complied with. Furthermore, was the admission of additional and fresh evidence at the appellate stage confined to the principles of natural justice, but incongruous with the doctrine of “Stare Decisis” and the procedure prescribed under Rule 46A of the Income Tax Rules, 1962.
6. The appellant craves leave to add, alter, amend or omit any or all the grounds of appeal.”
3. Both the learned representatives next invited our attention to the CIT(A)’s detailed discussion accepting the assessee’s lower appeal as under :
4.1. Ground Nos.1 to 5:-
All these ground are interrelated and pertain to disallowance of claim of exemption u/s 10(23C) (vi) and an addition of Rs.17,42,65,930/- as income of the appellant by the Ld. Assessing officer. The assessing officer in his assessment order has highlighted that the assessee has not fulfilled the conditions prescribed by Ld. Chief Commissioner of Income Tax, Pune. This mainly included non-following of condition of admission being open to members of public on the basis of merit without any protectionism.
The appellant has contended that he was not given proper opportunity to put forth his submission and no show-cause notice was given to him to this effect. The grievance of the assessee is hereby redressed since all the contentions are being considered herewith and he has been given enough opportunities to contest the impugned additions.
It is pertinent to mention that the Ld. AO has not adduced any evidence to buttress his contention that the appellant did not fulfill the seven conditions laid by Ld. CCIT by granting it the exemption certificate u/s 10(23C)(vi). It is my considered view that all the seven conditions as highlighted on page no.2 &3 of the Ld. AO’s order have not been controverted by the AO by any evidence to this effect. The AO has only made terse and general observations in his assessment order.
The AO has contented the appellant has appointed a Manager (Marketing and Admissions) to run the institution on commercial lines while charging huge fees as also no fees remission has been given to any student. These observations are also not in consonance with any of the prescribed condition of Ld CCIT The school is not a registered charitable organisation but a pi registered education society which is to be run by taking fees from the students and as also marketing the excellence of the school in respect of its results etc
In view of these observations the AO was not correct in rescinding the exemption is 10(23C)(vi) granting to the assessee. The addition of Rs.17,42,65,830- is hereby deleted. Consequently, these grounds of appeal no. 1 to 5 are hereby allowed.
4.2. Ground No.6 :-
This ground pertains to disallowance to Rs.8,59,452/- by the Ld. Assessing Officer w.r.t. medical insurance for the medical director of the school.
At the outset, the appellant has contended that he was not given proper opportunity to put forth his submission and no show-cause notice was given to him to this effect. The grievance of the assessee is redressed since all the contentions are being considered herewith and he d he is being provided an opportunity to contest the impugned additions.
From the submission of the appellant, I am convinced that the said payment of medical insurance is a part of the salary of the employee as per the service contract. Further, I agree the same has been treated as a perquisite in the hands of the employee and offered to tax by him. Hence, the same cannot be held to be disallowed by the Ld. AO. In view of the above the addition made by the Ld. AO is deleted and the ground no.6 is hereby allowed.
4.3. Ground No.7 to 9 :-
The issues in these grounds of appeal pertain to disallowance of Rs.1,62,09,861/- as depreciation claim on assets in earlier years and depreciation claim of Rs.54,79,223/- for the current year. Since, the matter pertains to A.Y. 2013-14, the assessee was entitled to get the depreciation of fixed assets which cannot be termed as application of income, the prospective amendment in this regard is applicable from A.Y.2016-17 only. This matter has been deliberated upon by the jurisdictional Bombay High Court in favour of the appellant. In view of the fact and circumstance as narrated above the above Stated additions of Rs.1,62,09,861/- and Rs.54,78,223 are deleted. These grounds of appeals are hereby allowed with direction to the Ld. Assessing Officer to calculate and allow correct claim of depreciation to the appellant thereof
5. In the result, the appeal is allowed.”
4. Learned CIT-DR vehemently argued during the course of hearing that the Assessing Officer’s sec.143(3) assessment dated 28.03.2016 had rightly held the assessee to have been carrying out commercial activity(ies) u/sec.2(15) 1st proviso of the Act under the last lines of “general public utility” and therefore, not entitled for the impugned exemption. He inter alia, takes us to the impugned assessment discussion disallowing/adding assessee’s application, medical insurance and depreciation claim(s) to this effect in very terms.
5. Patel accordingly submits in light of the Revenue’s fifth substantive ground at this stage that the CIT(A)’s above extracted findings under challenge had in fact admitted assessee’s additional/fresh evidence without affording any opportunity; much less an adequate one; to the Assessing Officer’s and therefore, the matters requires to be restored back to the assessing authority. He also quotes New Global Education Society vs., CIT [2022] 143 taxmann.com 276 (SC) that the assessee herein has been found to have violated the terms and conditions of it’s sec.10(23) registration and therefore, it is not entitled for sec.11 exemption for the purpose of application of the gross receipts in carrying out alleged charitable activity(ies) to the extent of the specified rate of 85% in very terms.
6. It is at this stage that Mr. Phadke has invited our attention to the paper book pages 18 onwards that the assessee has always been treated as duly eligible for the impugned exemption; be it u/sec.10(23)(c)(vi) or sec.11 of the Act. He has compiled all the relevant details to this effect in pages 96 to 97 right from assessment year 2002-2003 onwards. It emerges that the assessment year before us i.e., A.Y. 2013-2014 is the only instance when a dispute has been arisen regarding the assessee’s entitlement to exemption relief forming subject matter of adjudication before us.
6.1. Mr. Phadke further highlights the fact that this assessee undisputedly enjoys sec.10(23C)(vi) approval granted by the prescribed authority i.e., CCIT, Pune w.e.f. 28.11.2008 onwards till date. His case accordingly is that sec.143(3) 1st proviso read with clauses (i) and (ii) thereof as well as 2nd and 3rd proviso(s) making it clear that “no order making an assessment ……………… shall be made by the Assessing Officer ….unless….”. He thus pleads very much a valid fundamental point that till the time an Assessing Officer does not act as per the foregoing statutory stipulation intimating the prescribed authority about the contravention of the registration/ approval u/sec.10(23C); no assessment order regarding total income or loss; as the case may be could be made. He cites case law [2014] 42 taxmann.com 353 (Kar.) CIT vs. People’s Education Society deciding the very issue against the department to this effect as under :
“7. From the aforesaid facts, it is not in dispute that the assessee is a charitable society running an educational institution. The DIT (Exemption) registered the assessee-society under Section 12AA of the Act on 5.5.2003. By an order dated 12.5.2004, the Central Board of Direct Taxes accorded approval to the assessee-society for the purpose of Section 10(23C)(vi) of the Act, subject to certain conditions to be fulfilled by the assessee- society. The assessee had filed its return on 21.9.1993 before grant of such approval and exemption. The proceedings under Section 147 was initiated on 10.4.2003 and notice under Section 148 was issued on 11.9.2003 and the reassessment order is passed on 28.3.2005, holding that the assessee has not complied with the conditions imposed by C.B.D.T. and therefore, he is not entitled to the exemption.
8. The proviso to Section 143(3) was inserted by way of Finance Act, 2002 w.e.f. 1.4.2003. The said provision reads as under:
“Provided that in the case of a –
(a) to (d) *** *** ***
(e) fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or medical institution referred to in sub-clause (vii) of clause (23C) of Section 10,which is required to furnish the return of income under sub-section 4(C) of section 139, no order making an assessment of the total income or loss of such scientific research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or any other medical institution, shall be made by the Assessing Officer, without giving effect to the provisions of Section 10 unless-
(i) the Assessing Officer has intimated the Central Government or the prescribed authority the contravention of the provisions of clause (21) or clause (228) or clause (234) or clause (238) or sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) or clause (23C) of section 10 as the case may be, by such scientific research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, where in his view such contravention has taken place, and
(ii) the approval granted to such scientific research association or other association or institution or university or other educational institution or hospital or other medical institution has been withdrawn or notification issued in respect of such news agency or fund or trust or institution has been rescinded)”.
The aforesaid provision makes it clear that no order making an assessment shall be made by the Assessing Officer without giving effect to the provisions of Section 10 unless the Assessing Officer has intimated the Central Government or the prescribed authority, the contravention of the provisions of clause (23C) of Section 10. Only after such approval granted has been withdrawn, he can proceed to pass an order, denying the benefit of exemption on the ground of contravention. Having regard to the language employed, the said provision is mandatory. Without complying with the requirement of the said provision, the Assessing Authority gets no jurisdiction to re-open the assessment made. That is what the Tribunal has held and therefore, the said finding is in accordance with law and do not suffer from any legal infirmity, which calls for interference.”
7. Faced with this situation, learned CIT-DR’s case is that we could not entertain such a legal question for the first time. We find no merit in Revenue’s instant technical objection going by Rule 27 of Appellate Tribunal Rules, 1963 that this tribunal could indeed decide such a fundamental question on an issue which is decided against a respondent; followed by the main lower appellate order going in it’s favour; subject to a limitation that the maximum relief in such an instance is that of rejection of appeal only as per B.R. Bamasi vs. CIT [1972] 83 ITR 223 (Bom.). There is also no indication in the Revenue’s instant appeal about the foregoing compliance of sec.143(3) 1st proviso (i) and (ii) by the Assessing Officer (supra). We thus accept the assessee’s foregoing legal arguments in principle and reject the Revenue’s instant appeal in very terms. Ordered accordingly.
All other Revenue’s substantive grounds stand rendered academic.
9. This Revenue’s appeal is dismissed in above terms.
Order pronounced in the open Court on 11.09.2024.
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