Case Law Details
Seth Ramjidas Modi Vidhya Niketan Society Vs CIT (Exemptions) (ITAT Jaipur)
The issue under consideration is whether CIT(exemption) is correct in rejecting the claim of the assessee u/s 10(23C) who is mainly engaged in education facilities?
In the instant case, AO observed that the Assessee Society is not existing solely for educational purposes. The society advanced huge amounts of funds from year to year to Dr. R.N. Modi Hospital which is a unit of Ram Niwas Modi Charitable Society (“RNMCS” for short). During the year no interest was charged on such advances, whereas the Assessee Society was paying huge interest on its market borrowings mostly from the trustees. The RNMCS was earlier a part of the Assessee Society, but was demerged from the Assessee Society on 02.10.2014 due to adverse view taken by the department in respect of allowability of exemption u/s 10(23C)(vi) since hospital cannot be run by a society approved u/s 10(23C)(vi). Even after demerger of RNMCS, the Assessee Society has not amended its constitution in which one of the objects is to run medical college and hospitals, which is against the spirit of approval granted u/s 10(23C)(vi). Consequently, a show-cause notice dated 03.12.19 was issued by the ld. CIT(E) to the Assessee Society proposing to rescind the notification u/s 10(23C)(vi) of the Act.
ITAT states that the main object and the purpose of the society was nothing but imparting education. The society exists solely for educational purposes and not for the purposes of profit and not towards any other object. The society was registered under Rajasthan Societies Registration Act 1948 (Rajasthan Act No. 28, 1958). Since its inception, the society has been promoting and establishing institution of excellence with main focus on building capabilities of the students with holistic development of their personality so that the students passing out of the portals of “Modi Group of Educational Institutions” shall contribute in building a strong nation. ITAT had also carefully gone through the audited annual statement of the account of the assessee and found that the major receipts are only from the fees from students and the expenditures are also aimed and meant for Education. There is absolutely no other source of income except the school fees / i.r.t imparting of education. After demerger the object was duly annexed excluding the part relating to hospital. The law requires an educational institution to exist solely for educational purposes and not for profit but that does not mean that ancillary activities, which helps the institution attaining the main object, should also not be carried out. With a view to disentitle an Institution from the exemption u/s 10 (23C) (vi), the revenue has to establish that firstly, the institution was not existing for solely for education and Secondly & cumulatively, the revenue must also establish that such institution was found engaged/ was existing for the purposes of profit. Unless these twin conditions are fulfilled and established, the revenue cannot deny/ withdraw exemption (where already granted). In the present case, however, the ld. CIT (E) has alleged that the Society did not exist solely for educational purposes but at the same time utterly failed to establish that the Assessee Society existed for the purposes of Profit (but not for education purposes). The repeated allegation that the society borrowed interest bearing funds and diverted to other charitable society RNMCS, is grossly insufficient to establish that the Assessee Society existed for profit only and not for education. Further, it was not the case of the CIT (E) that the Assessee Society was engaged in some money lending activity or that the funding to RNMCS/other party was with a profit motive or that it was a separate venture of the Assessee Society. It was ignored that only because of some peculiar circumstances which compelled the assesse to support the other charitable society (which was earlier a part of the Assessee Society only before the demerger) involved in charitable activities. No case is made out that similar financial transactions were entered with other third parties also with a profit motive, thus CIT(E) failed to establish that the Assessee Society existed for profit motive. There is otherwise no evidence to suggest anything contrary to this contention. Surprisingly, the ld. CIT (E) is completely silent on this factual contention made before him. ITAT also observe that the ld. CIT(E) himself agreed that the RNMCS could have taken loan directly from the members as contained by the assessee also that there was no motive and it was only the after effects of the demerger. In view of the above discussion, facts and circumstances of the case and the legal position, the order passed by the ld. CIT(exemptions) U/s 10(23C)(vi) of the Act is not sustainable. In the result, appeal of the assessee is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
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