IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : "H" NEW DELHI
BEFORE SHRI I.C.SUDHIR, J.M. AND
SHRI J.SUDHAKAR REDDY, A.M.
ITA no. 1742/Del/2012
Assessment Year : 2007-08
The Scientific Educational Advancement vs. ACIT, Range i
Society Faridabad
Rakesh Raj & Associates, C.A.
D 28, South Ex. Part I
New Delhi
PAN:AABTT0890L
ITA no. 1880/Del/2012
Assessment Year : 2007-08
ACIT, Circle 2, Gurgaeon vs. The Scientific and Educational Advancement
Society, H.No.5, Sector 4, Gurgaon
(Appellant) (Respondent)
Assessee by:- Dr.Rakesh Guptha, Adv.
Department by:- Sh.Sameer Sharma, , Sr.D.R.
ORDER
PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
These are Cross Appeals directed against the order of Ld.CIT(Appeals)
dated 18.01.2010 pertaining to the Assessment Year 2007-08.
2. Facts: The brief facts of the case are that the return of income declaring
NIL income was filed by the assessee on 31.10.2007, which was processed u/s
143(1) of the Act. The case was selected for compulsory scrutiny as per CBDT's
guidelines contained in Action Plan for the year 2008-09 and a notice u/s 143(2)
ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08
The Scientific and Educational Advacement Society, Gurgaon
of the Act was issued on 26.8.2008. The assessee society (`SEAS' in short) is
registered u/s 12AA of the Act as per the certificate dated 23.9.2003 granted by
the Ld.CIT, Faridabad. The society is engaged in activity of imparting education
by running a school in the name of Colonel's Central Academy"" (`CCA' in short).
During the course of assessment proceedings, the Assessing Officer observed
that the gross receipts of the society were to the tune of Rs.11,28,45,095/- out
of which the receipts in the name of society were Rs.8,50,20,248/- and the
receipts in the name of CCA School was Rs. 2,78,24,819/-. Against the
aforesaid gross receipts, the application of funds was only to the extent of
Rs.2,20,36,589/- and the income not applied for the purpose of education was
Rs.7,38,81,711/-. In the return of income, the assessee claimed exemption of
income u/s 10(23C)(vi) of the Act. However, the assessee's approval u/s
10(23C)(vi) was rejected by the CCIT, Panchkula for Assessment Year 2007-08
vide order dt. 29.9.2008. Hence, the assessee was not eligible for exemption
u/s 10(23C) of the Act. The Assessing Officer proposed to add the unspent
amount of Rs.7,38,81,711/- to the income of the assessee. The assessee
alternatively claimed exemption u/s 11(1) of the Act. The Assessing Officer
rejected the claim since the required report in Form no.10B was not furnished
along with the return of income. The gross receipts of SEAS included profit of
Rs.8,44,78,458/- on sale of land at Village Dhorka, Gurgaon. On the issue of
taxability of the above profit, the assessee raised the contention that the amount
was set apart for utilization in future for specified purpose and a report in Form
no.10 was filed along with the return of income. However, since the purpose of
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ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08
The Scientific and Educational Advacement Society, Gurgaon
utilization was not mentioned in Form no.10, the Assessing Officer has
considered the entire profit for taxation by denying the benefit of section 11(1A)
of the Act. After allowing deduction for indexed cost of acquisition of
Rs.99,19,673/- from the sale consideration of Rs.9,11,97,187/-, the long term
capital gain of Rs.8,12,77,514/- has been added to the income. The Assessing
Officer has denied the benefit of exemption u/s 11 of the Act on the ground that
the assessee society was not engaged in charitable activity and computed the
income under chapter IV of the Act by treating the surplus of receipts of
Rs.1,51,703/- from SEAS and Rs.88,11,015/- from CCA as income.
Aggrieved the assessee carried the matter in appeal before the First Apepllate
Authority. The First Appellate Authority granted part relief. On the issues
decided in favour of the assessee, the Revenue is in appeal and the assessee is
in appeal on the issue decided against it by the Ld.CIT(A).
3. We have heard Dr.Rakesh Gupta, the Ld.Counsel for the assessee and
Mr.Sameer Sharma, the Ld.D.R. on behalf of the Revenue.
4. We first take up the Revenue's appeal. The grounds read as under.
"1. On the facts and in the circumstances of the case, the Ld.CIT(A) has
erred on facts and in law in directing the AO to accept the status of the assessee
as that of a charitable society and allow its claim of exemption u/s 11(1) of the
Act. By allowing the claim of exemption u/s 11(1) of the Act, the Ld. CIT(A) has
overlooked the decision of Hon'ble Apex Court in the case of Gangabai Charities
vs CIT (1992) (197 ITR 416) where the Hon'ble Supreme Court has held that
"the crux of the statutory exemption under section 11(l)(a) of the Act is not the
income earned from property held under trust but the actual application of the
said income for religious and charitable purposes.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has
erred on facts and in law in accepting a defective Form No. 10 not containing
vital, substantive and mandatorily required details of amount of income
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ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08
The Scientific and Educational Advacement Society, Gurgaon
accumulated or set apart or the period of accumulation of setting apart of such
income, as a valid compliance of Rule 17 of Income Tax Rules and the Form
No.l0.
3. that the Ld. CIT(A) has acted in violation of Rule 46A of the Income Tax
Rules by accepting the Form No. lOB at the appellate stage without giving due
opportunity of being heard to the Assessinq Officer.
4. On the facts and in the circumstances of the case, the Ld. C!T(A) has
erred on facts and in law in holding that the filing of Form No. 10BB is
substantive compliance of Rule 17B and filing of Form No. lOB, principally when
the requirement of giving particulars under Rule 17B and giving particulars in
From No. lOB are entirely different from that of Form No. 10BB & corresponding
Rule.
5. On the facts and in the circumstances of the case, the Ld. CIT(A) has
erred on facts and in law in treating the land held by Society at Dhorka
(Gurgaon) as a property held wholly for charitable purposes within the meaning
of section l1(lA)(a) of the Act and thereby treating the sale consideration thereof
as income received for charitable purposes and eligible for accumulation u/s
11(2), ignoring the fact that the said land was neither ever used for any
charitable activities/purposes nor was ever any intention of the society to use
such land for charitable purposes particularly because the said land was an
industrial land which was subsequently sold on hefty profit of RS.8,44 Crore and
during holding of land no effort such as change of land use (CLU), permission to
open school or educational institute was made by society to use the property for
educational purposes.
6. That the order of the Ld. CIT(A) in treating the property at Dhorka
(Gurgaon) as a eligible property for the purposes of section 11 (1A) and section
11(2) of the Act is a perverse order in so far a~; on one hand Ld. CIT(A) has
himself mentioned in his order that the finding of Ld. CCIT, Panchkula that the
said land was not used solely for educational or charitable purposes by the
assessee, and on the other hand without controverting such finding of Ld. CCIT,
the Ld. CIT(A) has treated the sale consideration of such property as an income
eligible for accumulation u/s 11(2) of the Income Tax Act.
7. On the facts and in the circumstances of the case, the Ld. CIT(A) has
erred on facts and in law in holding that the Assessing Officer has not brought
on record any such finding so as to hold that assessee was not eligible for
exemption u/s 11(1) ignoring the fact that the onus to show that the property at
Dhorka was used for charitable purpose was on assessee which was never
discharged by it and therefore, onus never shifted on Assessing Officer.
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ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08
The Scientific and Educational Advacement Society, Gurgaon
8. On the facts and in the circumstances of the case, the Ld. CIT(A) has
erred on facts and in law in including the sale consideration of Dhorka property
as part of gross income of the society and thereby determining the amount of
exemption available u/s 11(1) at a higher figure of Rs.l0,16,29,226/- as against
maximum admissible at Rs.2,41,l1,617/- being 85% of gross receipts of
Rs.2,78,24,819/- from CCA School and Rs.5,41,790/- from Scientific Educational
Advancement
Society.
9. That the appellant craves for the permission to add, delete or amend the
grounds of appeal before or at the time of hearing of appeal."
5. Ground no.1 is against the Ld.CIT(Appeals)'s holding that the status of
the assessee is that of a Charitable Society and that it is eligible for exemption
u/s 11(1) of the Act. The grounds on which the Assessing Officer held that the
assessee will not be eligible for exemption u/s 11 and 12 of the Act are:
(a) benefit has been extended to a person referred to in S.13(3) of the Act the
assessee is not eligible for exemption u/s 11 of the Act;
(b) the assessee has not applied its income to the extent of 85% for charitable
purposes;
(c ) the assessee is not entitled to exemption u/s 11(1A) of the Act, in respect of
investments in purchase of another land on transfer of the land.
5.1. The Ld.CIT(Appeals) granted relief to the assessee by holding that:
(a) there is no dispute that the assessee Society is registered u/s 12AA of the
Income Tax Act by the order of the Ld.CIT, Faridabad dt. 13.3.2003. Hence it is
a charitable society;
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ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08
The Scientific and Educational Advacement Society, Gurgaon
(b) the assessee society also enjoyed exemption u/s 10 (23)(C)(vi) of the Act as
per approval granted by the Chief Commissioner of Income Tax, Haryana
Region, Panchkula vide order dt. 26.2.2007 for the Assessment Year 2002-03,
2004-05. This exemption was extended for the Assessment Year 2005-06. The
assessee's application for extension of the exemption for the Assessment Year
2006-07, 2007-08 was rejected by the CCIT, Panchkula. The assessee
approached the Hon'ble High Court of Punjab & Haryana. The Hon'ble High
Court vide order dt. 10.2.2009 upheld the order of CCIT on the ground that
there was a delay in filing of the applications before the CCIT and such delay
was rightly not condoned.
The CCIT in his rejection order recorded that there is non utilization of land
solely for the purpose of education.
(c ). As the Assessing Officer denied exemption u/s 10(23 C)(vi), the assessee
claimed exemption u/s 11(1) of the Act. Such claim is legally tenable.
(d). The assessee purchased the land on 10.01.2001 and 21.11.2003. This
land was sold by the assessee for consideration of Rs.9,11,97,187/- resulting in
a profit of Rs.8,44,78,458/-. This is claimed as exempt u/s 11(a). The sale
proceeds of the land were utilized for purchase of another land in the
subsequent Assessment Year.
(e). The assessee is not eligible for exemption u/s 10(23C)(vi) as it has no
registration but as the registration granted u/s 12AA remains in force, the
provisions of S.11, 12 and 13 apply to the assessee.
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ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08
The Scientific and Educational Advacement Society, Gurgaon
(f) The assessee society paid salaries to Mrs.Nirmal Yadav and Mrs.Shanthi
Yadav who are persons specified u/s 13(3) of the Act. Mrs.Nirmal Yadav is
being paid basic salary ranging from Rs.10,000/- p.m. in April,1999 to
Rs.27,750/- p.m. in March,2007. The increase in salary being annual increment
and dearness allowance. Mrs.Shanthi Yadav is paid basic salary ranging from
Rs.5,500/- in April,1999 and Rs.9,825/- in March,2007. The increase of salary in
this case also was on account of annual increment and dearness allowance.
These salary payments were also incurred when the assessee enjoyed
exemption u/s 10(23C)(vi) up to the Assessment Year 2005-06. In the
assessment orders passed u/s 143(3) for the Assessment Year 2002-03 to 2004-
05 there was no adverse inference on this issue and only a reference has been
made to these salary payments. There is no allegation of unreasonable benefit
having been given to persons referred to in S.13(3) by the Assessing Officer.
Hence there is no violation which can lead to denial of exemption u/s 11.
(g) Defects in filing of an audit report are curable and hence exemption cannot
be denied on this ground.
Hence it was held by the Ld.CIT(A) that the assessee is eligible for deduction u/s
11 of the Act.
5.2. We find no infirmity in these findings of the Ld.CIT(Appeals). The
assessee is definitely entitled to claim deduction u/s 11 of the Act as registration
u/s 12AA is in force.
6. Ground no.2 is on the issue of filing a defective form no.10. There was a
typographical error and the Ld.CIT(Appeals) held that, when form no.10 is read
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ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08
The Scientific and Educational Advacement Society, Gurgaon
with the accompanied resolution, the question of anti dating does not arise.
We agree with the Ld.Commissioner of Income Tax (Appeals) that this error in
Form No.10 is a typographical error and that substance over form has to be the
basis of decision. Hence we uphold these findings of the Ld.CIT(A) and dismiss
this ground. In the result ground no.2 is dismissed.
7. Ground nos. 3 and 4 are on the issue of Ld.CIT(Appeals) accepting audit
report in Form no.10B. Admittedly audit report in Form 10B was filed before the
Ld.CIT(Appeals). The assessee had, instead of filing Form No.10B, filed an audit
report in form no.10BB, before the Assessing Officer. The audited accounts
along with the statements annexed giving necessary particulars were filed along
with the audit report in Form no.10BB, before the Assessing Officer. The
Ld.CIT(Appeals) relying on the decisions in the case of CIT vs. Rai Bahadur
Bissesswarlal Motilal Malwasie Trust, reported in 195 ITR 825(Cal.) and CIT vs.
Devradhan Madhavlal Genda Trust, reported in 230 ITR 714 (MP), CIT vs.
Trehan Enterprises reported in 248 ITR 333 (J&K) held that the requirement in
question was merely directory and not mandatory. In any event all the details
and audit report in some other form were already before the AO. We uphold
this finding of the Ld.Commissioner of Income Tax (Appeals) that he has the
power to admit audit report in form no.10B as in this case the Ld.AO has failed
to bring to the notice of the assessee that there was a difficulty in the audit
report filed in Form 10BB before him. In coming to this conclusion we draw
strength from the following case laws.
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ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08
The Scientific and Educational Advacement Society, Gurgaon
(a)Mrs. Manju Kapoor Dalmia ITA 154/Del/2011 Delhi Ë" Bench order
dt.21.4.2011;
(b)Director of Income Tax (Exemption) vs. Spic Educational Foudnation (2002)
257 ITR 46 (Madras)
In view of the above discussions, these grounds of revenue are hereby
dismissed.
8. Ground nos. 5, 6, 7 and 8 of the Revenue appeal will be taken up along
with the grounds of the assessee's appeal, as they pertain to the same issue.
9. Ground no. 9 is general in nature.
10. We now take up the assessee's appeal in ITA no.1742/Del/2012.
The grounds in assessee's appeal are as follows.
"1. That having regard to the facts and circumstances of the case,
Ld.CIT(Appeals) has erred in upholding the action of the Ld.AO in
computing the taxable income of the appellant to the extent of
Rs.50,26,102/-.
2. That having regard to the facts and circumstances of the case,
Ld.CIT(Appeals) has erred in holding that the gross receipts/income of the
appellant society is Rs.11,95,63,796/- by including therein the sale
consideration of the land sold being Rs.9,11,97,187/-, as against the
gross receipts/income calculated by the appellant at Rs11,28,45,067/-
by including only the net profit earned on the land sold being
Rs.8,44,78,458/-. Thus the mandatory application of income to the extent
of 85% of the income for the purpose of total exemption of income from tax
has been incorrectly worked out at Rs.10,16,29,226/- as against
Rs.9,59,18,307/- calculated by the appellant and duly applied during the
year.
3. In any view of the matter and in any case the order under appeal is
bad in law and against the facts and circumstances of the case.
4. That the appellant craves for the permission to add, delete or amend the
grounds of appeal before or at the time of hearing and all the above
grounds are without prejudice to each other."
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ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08
The Scientific and Educational Advacement Society, Gurgaon
The grounds raised in the assessee's appeal are taken up along with ground nos.
5, 6, 7 and 8 of the Revenue appeal.
10. The facts are as follows. The assessee purchased land at Dhorka on
10-1-2001 and on 21-11-03. This land was sold on 23-01-2007. In the minutes
of the meeting held on 11-11-2006 the society recorded that this land at Dhorka
is likely to be acquired as it was in the Industrial Zone, in view of the Gurgoan
Master Plan and hence it should be disposed off at the earliest and the money
received should be re-invested in purchase of another land which is suitable
for education al institution and a vocational institute, within the vicinity of
Gurgaon after obtaining necessary CLU. The profit on the sale of land was Rs.
8,44,78,458-00.
11. The issue that is before us is the computation of exempt income U/s
11(1).
11.1. The Hon'ble Calcutta High court in the case of CIT Vs Eastern Charitable
Trust reported in 206 ITR 152 held as follows.
"The Definition of income contained in Sec.2 (24) includes capital gains. Hence
the option exercisable by a charitable trust with regard to income under the
provisions of Sec.11(1) can also be exercised in respect of capital gains provided
it is exercised in writing before the expiry of the time allowed u/s 139(1) for
furnishing the return. By reason of the exercise of the option the assesses would
be entitled to the benefit of sec11(1 A).
In our view, by reason of the option exercised under the Explanation to section
11(1), the assessee is entitled to the benefit u/s 11(1A) inasmuch as the
definition of income as contained in section 2(24) of the Act includes capital
gains as one of the species of income. That being so, the option as exercisable
with regard to income should also avail to capital gains provided such option is
exercised in writing before the expiry of the time allowed under sub section (1)
of section 139 for furnishing the return. Therefore, the amount of Rs.7 lakhs
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ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08
The Scientific and Educational Advacement Society, Gurgaon
utilized in acquiring fixed deposits with the Bharat Petroleum Corporation Ltd.
and the Bharact Electronics Ltd. should also be allowed exemption under the
said provision for the Assessment Year 1982-83."
Thus in our view, the learned CIT (A) is right in holding that the society is
entitled to exemption u/s 11(1) in respect of the capital gains arising from the
sale of Dhorka land. In fact this land was purchased for educational activities.
This is evident from the various evidences filed by the assessee in the form of a
paper book. Hence the submissions of the revenue that this land was not held
for educational purposes is factually incorrect. It was due to certain
circumstances that the land was sold and the sale proceeds invested in another
piece of land, with the sole purpose of using it for educational purposes.
11.1. On the computation of exemption u/s11 we uphold the
contentions of the assesses that only capital gain on sale of land, which is
income, has to be taken for the purpose of calculating the application of
income as per the provisions of Sec.11(1)(A). We do not find any infirmity in the
following computation given by the assessee:
Sale Consideration of land Rs.9,11,97,187/-
Receipts of SEAS - Rs. 5,41,790/-
Receipts of CCA - Rs. 2,78,24,819/-
--------------------------
Rs. 11,95,63,796/-
Exemption available u/s 11(1) i.e. 85% of Rs.10,16,29,226/-
Application of Funds:
Amount set apart u/s 11(1A) Rs. 7,22,67,210/-
Expenditure of SEAS Rs. 3,90,087/-
Expenditure of CCA Rs. 1,90,13,768/-
-----------------------
Total application: Rs. 9,16,71,065/-
Short application : Rs. 99,58,161/-.
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ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08
The Scientific and Educational Advacement Society, Gurgaon
11.2. There is no short fall in the application of 85% of the income as required
by the provisions of Sec.11. In any case the assesses has utilized the entire sale
consideration arising out of sale of land, for the purchase of lands in another
area as noted by the ld.CIT (A) in his order.
11.3. In the result the grounds of the assessee are allowed and ground nos. 5,
6, 7 and 8 of the Revenue are dismissed.
12. For all these reasons the appeal of the Revenue is dismissed and the
appeal of the assessee is allowed.
Order pronounced in the Open Court on 24th September, 2014.
Sd/- Sd/-
(I.C. SUDHIR) (J. SUDHAKAR REDDY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: the 24th September, 2014
*manga
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ITA No. 1742/Del/2013 and ITA 1880/Del/2012
Assessment Year 2007-08
The Scientific and Educational Advacement Society, Gurgaon
Copy of the Order forwarded to:
1. Appellant;
2.Respondent;
3.CIT;
4.CIT(A);
5.DR;
6.Guard File
By Order
Asst. Registrar
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