Case Law Details
IN THE ITAT DELHI BENCH ‘F’
Param Hans Swami Uma Bharti Mission
Versus
Assistant Commissioner of Income-tax
IT APPEAL NO. 4154 (DELHI) OF 2011
[ASSESSMENT YEAR 2006-07]
AUGUST 31, 2012
ORDER
T.S. Kapoor, Accountant Member
This is an appeal filed by the assessee against the order of Ld. CIT(A) dated 7.7.2011. The grounds of appeal raised by the assessee are as under:-
1. That the lower authorities had erred in denying the exemption in respect of the annual income of the school of the Charitable Trust for the assessment year 2006-07 on their view to the effect that the interest on fixed deposits formed part of the annual income of the school and the aggregate of the annual income of the school and the interest on fixed deposits having exceeded rupees one crore, the exemption was not eligible according to the provisions of section 10(23C)(iiiad) of the Income Tax Act, 1961.
2. That the lower authorities had erred in not appreciating that the annual incomes of the school were recurring, regular and progressive whereas the interest on fixed deposits fluctuated widely from year to year and as such the interest income did not form part of the annual income of the school.
3. (i) The lower authorities had erred in not appreciating that the annual income of the school has not been defined in section 10(23C)(iiiad) and as such it could not be made out that the interest income from the fixed deposits would be the part of the annual income of the school.
(ii) The lower authorities had erred in not appreciating that there being difference of opinion as to the meaning of the annual income of the school of the appellant and the lower authorities, the view of the appellant should prevail according to the judgment of the Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192.
4. The lower authorities had erred in not appreciating that the appellant Trust had bona fide belief that the income of the school did not include the interest income on fixed deposits and as such the income of the school exclusive of interest on fixed deposits being Rs. 97,22,559/- and being less than Rs. one crore, the exemption was admissible to the appellant for this year.
5. (i) The lower authorities had erred in not appreciating that the annual income of the school exclusive of interest on fixed deposits being above Rs. one crore, the appellant applied to the Chief Commissioner of Income tax, Haryana Region, Panchkulla and the income of the school was granted exemption by the CCIT for the assessment year 2007-08 and the exemption has been continued for the subsequent assessment years as per Circular No.7/2010(F.No.197/21/2010-Income Tax Act, 1961 -II) dated 27.10.2010.
(ii) The lower authorities had erred in not appreciating that the annual income of the school has been held to be exempt in the entire history of the school except for the assessment year 2006-07.
The orders of the lower authorities being arbitrary, erroneous, and illegal, it deserves to be modified. The same may kindly be modified.
2. The brief facts of the case are that the appellant society is running a school whose activities are supervised by a Receiver appointed by the Hon’ble High Court. The appellant filed nil income return on 11.9.2006 claiming whole of the income over the expenditure amounting to Rs. 45,58,427/- as exempt u/s 10(23C)(iiiad) of the Income Tax Act, 1961 . The case of the assessee was reopened by the Assessing Officer on perusal of P&L A/c wherein annual receipts of the assessee amounted to Rs. 1,12,96,651/- and Assessing Officer noted that it exceeded the limit fixed by section 10(23C)(iiad). The Assessing Officer further noted that the assessee had not obtained prior approval of CCIT, Panchkulla which was required u/s 10(23C)(vi) of the Act in case of assessee’s having annual receipts of more than Rs. one crore. In response to the notice u/s 148, the assessee filed written reply on 25.3.2010 stating therein that the original return filed on 11.9.2006 may be treated as return filed in response to notice u/s 148 of the Act., Copy of reasons recorded was supplied to the counsel of assessee on 31.5.2010. The assessee vide written reply dated 30.11.2010 submitted that annual receipts of the trust for financial year 2005-06 relevant to assessment year 2006-07 were Rs. 97,22,559/- excluding FDR interest of Rs. 15,47,092/- and as the annual receipts of school do not exceed Rs. one crore as alleged in the reasons recorded. Therefore, exemption claimed u/s 10(23C)(iiiad) is in order and may be allowed. The Assessing Officer was not satisfied with the reply filed by the assessee and held that since the annual receipts of the assessee including interest exceeded Rs. one crore, the assessee was not entitled to deduction u/s 10(23C)(iiiad) and since the assessee had not obtained prior approval of CCIT, Panchkulla exemption u/s 10(23C)(vi) can also not be given to the assessee. In view of the above, the Assessing Officer held that whole of the amount was taxable.
3. Aggrieved, the assessee filed appeal before Ld. CIT(A) and submitted that all receipts do not constitute aggregate annual receipts and it is only those receipts which pertain to providing of education and which have an element of recurrence and regularities can be regarded as annual receipts. Other receipts such as donation, grant, receipt of capital nature, interest and rent etc. cannot be treated as annual receipts. The assessee relied upon the meaning of the term gross receipts used in section 44AB given in the guidance notes issued by ICAI and tried to distinguish it by the word annual receipts. The Ld AR submitted that in the section 10(23C)(iiiad) the word annual has been written instead of gross receipts. The Ld AR further submitted that American dictionary defines annual as recurring, done or performed every year. In view of the above, the assessee submitted that interest on FDRs does not form part of, annual receipts and therefore the appellant was eligible for exemption u/s 10(23C)(iiiad) of the Act.
4. The Ld. CIT(A), however, did not agree with the contentions of the assessee and upheld the order of Assessing Officer. The relevant portion of Ld. CIT(A)’s order is reproduced below:-
“I have considered the issue and the submissions made by the AR. The term “Annual Receipts” has not been defined in section 10(23C)(iiiad). Section 44AB (a) mentions total sales, turnover or gross receipts as the case may be, in business in respect of mandatory tax audit report. Gross receipts in business means receipts generated from business. This distinction has not been made in the Act for section 10(23C). Thus, the difference between annual receipts and gross receipts has been made by the Act itself. Further interest received on FDRs is a recurring receipt on the surplus funds invested by the appellant trust. The argument of the appellant that receipts such as donations, grants etc. can not be regarded as annual receipts u/s 10(23C) is devoid of any merit as these are to be taken as annual receipts for the purpose of arriving at surplus/deficit. In view of the above, it is held that interest on FDRs forms part of the annual receipts and therefore the action of the Assessing Officer is upheld and the ground of appeal is dismissed.”
5. Aggrieved the assessee filed appeal before this Tribunal.
6. At the outset, Ld. AR argued that assessee was required to take approval only once and it was not required to obtain approval again and again unless it is rejected. In this respect he took us to page 3 of order of CCIT relating to assessment year 2007-08 wherein it was provided that on or after 1.12.2006, the approval u/s 10(23C) (vi) of section 10(23C) would be one time approval which would be valid till it is withdrawn. Therefore, he argued that approval was valid for 2006-07 also. The Ld AR also relied upon written synopsis already filed which read as under:-
“That annual receipts of school were less than Rs. One crore and it exceeded Rs. one crore only with the interest on FDR amounting to Rs. 15,47,092/- and that interest on FDR was not in the nature of annual receipts of school and as such the annual receipts worked out to Rs. 97,22,559/- which were less than Rs. One crore. It was the bona fide belief of the assessee that annual receipts excluding interest on FDR was to be considered and in this respect he stated that during next year ending on 31.3.2007 where the annual receipts excluding interest on FDR exceeded Rs. One crore the assessee had duly obtained the permission from CCIT, Panchkulla. He further submitted that in case the assessee believed that annual receipts exceeded Rs. One crore for the assessment year 2006-07, the appellant would have sought the exemption from CCIT and the same would have been allowed. In this respect reliance was placed on the judgment of Hon’ble Supreme Court in the case of CIT v. Vegetable Products Ltd. 88 ITR 192 (SC) wherein the Hon’ble Supreme Court observed that if the Court finds that language of a taxing provision is ambiguous or capable of more meanings then the Court has to adopt that interpretation which favors the assessee.”
Reliance was placed on the judgment in the case of CWT v. O.P. Tandon [1992] 195 ITR 688 (Delhi).
7. On the other hand, Ld. DR argued that during the year under consideration, the gross receipts were more than Rs. one crore and the assessee was required to take prior approval of CCIT for being eligible u/s 10(23C)(vi). He further argued that the order obtained by the assessee and as referred to by the Ld AR relate to assessment year 2007-08 and it is not retrospective order and it is not applicable for assessment year 2006-07. Ld DR further relied upon the order of Assessing Officer and Ld CIT(A).
8. We have heard the rival submissions of both the parties and have gone through the material available on record including detailed synopsis. We find that society is running the school under the management of receiver appointed by Hon’ble High Court. For the entire years the income of the school was exempt and for the assessment year 2007-08, the assessee had obtained prior approval of CCIT, Panchkulla for exemption u/s 10(23)(vi). The receipts of the assessee during assessment year 2006-07 including interest on FDRs exceeded Rs. one crore but the assessee under bona fide belief that interest on FDR was not to be considered for arriving at annual receipts did not apply for prior approval and continued to claim exemption u/s 10(23C)(iiiad). The belief of the assessee cannot be suspected because in the next year when annual receipts excluding interest on FDR exceeded Rs. one crore, the prior approval of CCIT, Panchkulla was obtained. To decide the case of the assessee let us first understand the provisions of section 10(23C)(iiiad). The said section reads as under:-
“Any university or other educational institute existing solely for educational purposes and not for purposes of profit, if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed.”
The prescribed limit of annual receipts is Rs. One crore.
From the plain reading of section 10(23C) (iiiad), it emerges that legislature had in its mind annual receipts of school or university as the case may be for consideration of exemption limit and not that of total income of society running that school or university.
The present case is of a society running a school. The society besides income from running of a school is having other sources of income also. In the present case, the income from interest on FDRs is an additional income of society and it cannot be considered to be part of annual receipts of the school. Therefore, in our considered opinion assessee was eligible for exemption u/s 10(23)(iiiad) as annual school receipts did not exceed Rs. One crore.
9. In view of the above, the appeal filed by the assessee is allowed.
