IT APPEAL NO. 350 (ASR.) OF 2012
[ASSESSMENT YEAR 2009-10]

H.S. SIDHU, JUDICIAL MEMBER AND B.P. JAIN, ACCOUNTANT MEMBER

Mahavir Singh for the Appellant. 
P.N. Arora for the Respondent.

ORDER

PER BENCH - 1. The assessee has filed the present appeal against the order dated 21.06.2012 passed by learned CIT(A), Bathinda, for the assessment year 2009-10 on the following grounds:

2. Facts narrated by the Revenue Authority are that the assessee filed its return of income on 10.09.2009 declaring income at Rs. Nil which was processed by the Assessing Officer under Section 143(1) of the Income Tax Act, 1961 (in short "the Act") on the same figure. The case of the assessee was selected for compulsory scrutiny and notice under Section 143(2) of the Act was issued on 24.09.2010 which was duly served upon the assessee. Subsequently, notices under Sections 143(2) and 142(1) of the Act along with questionnaire were issued and duly served on the assessee. In response to the same, the Authorized Representative of the assessee appeared from time to time and filed written submissions/details and also produced books of account, which was examined by the Assessing Officer.

3. The assessee derives income from running an educational institute in the name and style of Malout Institute of Management & Information Technology at Malout and it is established by Government of Punjab as per memorandum of association and the rules relating thereto. The institute is registered under the Societies Registration Act, 1860 and as amended by Punjab Amendment Act, 1957, vide No. 643 of 1998-99 dated 11.08.1998.

4. Keeping in view the statement of income filed by the assessee with the return of income, the Assessing Officer found that the assessee has claimed its income as applied towards charitable purpose and hence, it has deducted 15% of its receipts deeming the same as to have been applied as per section 11(1)(a) of the Act. At the same time the assessee has claimed its balance income i.e. Rs. 2,54,79,295.53 as exempt under Section 10(23C)(iiiab) of the Act. After perusing the statement of income filed along with return of income, the Assessing Officer asked the assessee to justify the exemption claimed by the assessee. In response to the same, the assessee filed its reply, which is reproduced as under:

"That the copy of Gazette of Punjab Govt. in which the institute is approved as the 100% Govt. Autonomous Body (copy of letter attached).

That the Government have not financed any paisa to the institute in last 5 years because the institute is already having a good amount lying in Fixed Deposits with Banks. At time the institute is required any amount, then the institute will be substantially financed by the Govt. whenever it is needed. Further, it is stated that the institute is meeting the expenses from the receipts/fees fixed by the Govt. its own. The Govt. is responsible to finance the institute in case it is not meeting the expenses and is running in deficit budget or in losses."

5. The Assessing Officer considered the reply filed by the assessee and found that the assessee-society is neither registered under Section 12AA of the Act nor has been granted exemption under Section 10(23C)(vi) of the Act. Therefore, the contention of the assessee that it is an institute approved by the Punjab Government and is 100% funded Govt. Autonomous Body is not correct in toto.

6. The Assessing Officer was of the view that the institute got registered under the Societies Registration Act, 1860 on 11.08.1998 which clearly indicates that the assessee institute is not Government Body for the purpose of exemption under Section 10(23C)(iiiab) of the Act at all because any educational institution which is established for educational purpose and not for purpose of profit can be considered for exemption under that section, but the condition for such exemption is that the institution must be wholly or substantially financed by the Government. In the instant case, it is clear that the Government of Punjab has established the assessee-institute and further allowed to get registered under the Societies Registration Act, 1860 only, but did not finance the institute during the year under consideration or even in last 5 years at all, as admitted by the assessee-institute in its reply. The Assessing Officer was also of the view that the assessee has shown receipt of Rs. 6,71,72,043/- against which it has claimed various expenses as per income and expenditure account for the year ending 31.03.2009 and thereby has declared net income of Rs. 2,27,57,756/- and has also claimed major expenses, which the Assessing Officer has mentioned at page nos. 5 and 6 of the assessment order. The Assessing Officer also mentioned the fee structures for MBA, B.Tech and B. Pharma as furnished by the assessee at page no. 6 of the assessment order. After examining these expenses and fee structure, he was of the view that the assessee is charging fee per annum about more than 50,000/- from each student which is not meager amount, therefore it is crystal clear that the assessee neither imparted education free of cost nor the Government of Punjab financed the assessee-institute for imparting education to the students/public at large. Therefore, the act of the assessee cannot be considered as charitable at any stretch of imagination inasmuch as the assessee collects fees from the students and provides services to them in lieu thereof.

7. After considering all the documentary evidences, the Assessing Officer was also of the view that the assessee has incurred all the expenses including salaries to the teaching staff and other employees, out of the collection made during the year from the students. Even then, the assessee has got excess of income over expenditure as stated earlier. Resultantly, the assessee has been accumulating funds year after year, which are parked with the banks in the form of FDRs, as is evident from its balance sheet audited as on 31.03.2009, total FDRs with bank are of Rs. 11,27,93,116/- which is an apparently a huge amount. Similarly, FDRs as on 31.03.2008 were shown by the assessee with banks to the tune of Rs. 8,85,53,194/- besides accrued interest of Rs. 35,46,306/-. This shows that the assessee is deriving income/surplus profit from running of educational institution year after year and the same is being invested in the form of FDRs without incurring expenditure towards the aims and objects of the institute.

8. The Assessing Officer also found that during the course of assessment proceedings, the assessee submitted that the funds will be utilized for extension of hostel buildings in subsequent years for which necessary approval of the Government of Punjab has been sought. He was of the view that this is not a case of registration under Section 12AA of the Act in which funds are accumulated/set apart for future expenditure as per provisions of Section 11(2) of the Act by giving notice to the Assessing Officer.

9. Keeping in view the aforesaid instance explained above, the Assessing Officer has held that the assessee failed to substantiate or justify its claim for exemption under Section 10(23C)(iiiab) of the Act, therefore, the assessee is not entitled for the exemption under Section 10(23C)(iiiab) of the Act for the following reasons, which the Assessing Officer has mentioned at page nos. 7 and 8 of the assessment order and the same are reproduced as under:

10. During the course of assessment proceeding, the Assessing Officer also noticed that advances were made to one Sh. Prem Singh on certain intervals who submitted bills of petrol and repairs to vehicle. On being asked, the assessee stated that these amounts were given as advance to Sh. Prem Singh for fuel etc. of car when the car was sent to Deputy Commissioner-cum-District Magistrate, Muktsar on his requisition or used by the Principal of Institute. After perusing the log book maintained by the assessee in respect of running of car, it was found that the car was used on VVIP duties as requisitioned by the DC, Muktsar, who is also a member of the Board of Governors of the Society as appointed by the State Government. On asking from the assessee for the purpose of utilization of car, the assessee failed to explain the purpose of utilization of the car, which was said to be used on the duties of VVIPs. Keeping in view the facts and circumstances as well as the explanation given by the assessee, the Assessing Officer was of the view that the car was utilized for the purpose of Institute towards its aims and objects and he disallowed 1/3rd of total expenses claimed on this vehicle(car) i.e. Rs. 2,98,130/- and its depreciation i.e. Rs. 28,474/-, aggregating to Rs. 3,26,604/-, which comes to Rs. 1,08,868/- and the same is added back to the income of the assessee.

11. During the course of assessment proceeding, the assessing Officer also noticed that the assessee has filed a copy of audit report separately in respect of Development Fund of the Institute, as per which it has received a sum of Rs. 1,18,09,000/- during the year on this account besides accrued interest on FDRs of Rs. 20,71,559/- under this head. As per balance of this fund, the assessee has made fixed deposits of Rs. 4,84,61,296/- apart from the main account. The assessee was asked to explain the reasons for non-inclusion of receipts received under this head whereas the same is not part of Students Funds. In response to the same, the assessee has filed its reply and stated that the Development Fund is collected from the students as per norms of the Punjab Technical University, Jalandhar as approved by the Govt. of Punjab and utilized for the utilized for the Development of the campus for the students, if any. Rest of the Funds are kept in Bank(s) separate from other receipts. After considering the reply filed by the assessee, the Assessing Officer was of the view that the assessee cannot show this fund separately for the purpose of total receipts received by it during the year and this fund is not controlled by the students like Student Funds, and the statement of the assessee is misleading one because every development is meant to impart education to the students which is main object of the Institute. The assessee cannot show this fund separately for the purpose of total receipts received during the year. Therefore, the total receipt of Rs. 1,18,09,000/- under the head Development Fund received during the year is added to the receipts of the assessee and similarly the amount of accrued interest of Rs. 20,71,559/- on FDRs for the year under consideration, which he also added to the income of assessee and finally he completed the assessment under Section 143(3) of the Act on the total income of Rs. 3,67,47,183/- by passing the impugned order on 29.07.2011.

12. Aggrieved with the assessment order, the assessee filed an appeal before the learned First Appellate Authority, who vide impugned order dated 21.06.2012, allowed the appeal of the assessee and deleted the addition made by the Assessing Officer in the assessment order. Now, being aggrieved with the impugned order, the Revenue filed the present appeal.

13. Learned DR relied upon the order passed by the Assessing Officer and stated that learned First Appellate Authority has passed the impugned order on the basis of order of Worthy CIT, Bathinda's dropping the proceeding under Section 263 of the Act, which is contrary to the law and facts on the file. He further stated that learned CIT(A) has not given any clear findings as to under which section the assessee's case is covered i.e. whether section 10(23C)(iiiab) or Section 10(23C)(vi) of the Act and without giving any categorical finding as such, how could the learned CIT(A) allow the appeal of the assessee. He further submitted that the assessee did not fulfill the conditions of the provisions of Section 10(23C)(iiiab) nor Section 10(23C)(vi) of the Act. Thus, Section 10(23C)(iiiab) is not applicable in the case of the assessee as the assessee is not wholly or substantially financed by the Government. He further stated that the Assessing Officer has passed a well reasoned order on the basis of records, which deserves to be upheld and the impugned order deserves to be cancelled because the assessee has neither sought nor was granted any registration under Section 12AA of the Act for which the assessee is claiming the exemption in dispute.

14. On the contrary, learned counsel for the assessee controverted the arguments advanced by learned DR and relied upon the order passed by learned First Appellate Authority. In support of his argument, he has also filed two small paper books and in the 1st paper-book containing pages from 1 to 10, he has attached the Copy of Written Submission filed before learned Commissioner of Income Tax(Appeals), Bathinda; Copy of Notice dated 31.10.2011 issued by the Commissioner of Income Tax, Bathinda, u/s 263(1) of the IT Act, 1961, relating to assessment year 2007-08; Copy of reply filed before the Commissioner of Income Tax, Bathinda, in response to notice issued u/s 263(1) relating to assessment year 2007-08; and Copy of order u/s 263 dated 23/03/2012 passed by Commissioner of Income Tax, Bathinda relating to assessment year 2007-08. In the 2nd paper book, containing pages from 11 to 23, he has attached Copy of Notice dated 16.10.2012 issued by the Commissioner of Income Tax, Bathinda, under Section 263(1) of the IT Act, 1961, relating to assessment year 2008-09; Copy of reply filed before the Commissioner of Income Tax, Bathinda in response to notice issued u/s 263(1) relating to assessment year 2008-09; Copy of order u/s 263 dated 15/11/2012 passed by Commissioner of Income Tax, Bathinda relating to assessment year 2008-09, Copy of assessment order u/s 143(3) dated 15.03.2013 passed by the ACIT, Circle-I, Bathinda in the case of the assessee relating to assessment year 2010-11; and Copy of Decision of Supreme Court of India in the case of CIT v. Excel Industries Ltd. [2013] 358 ITR 295/219 Taxman 379/38 taxmann.com 100. He further stated that the documents contained in the paper books have already been filed before learned CIT(A) and learned CIT(A) has passed a well reasoned order, therefore, he requested that the impugned order may be upheld by dismissing the appeal filed by the Revenue.

15. We have heard both the parties and perused the relevant records available with us, especially the order passed by the Revenue Authority and the relevant documents filed by the parties and we are of the view that it is a matter of fact and record that the assessee derives income from running an educational institute in the name and style of the Malout Institute of Management and Information Technology at Malout which was established by Government of Punjab as per Memorandum of Association and Rules and under the Societies Registration Act, 1860 as amended by Punjab Amendment Act, 1947, vide No. 643 of 1998-99 dated 11.08.1998. As per clause -2 of the Memorandum, the objects and the functions of the society institute are as under:

16. The assessee has also filed statement of income with the return of income and it is very much necessary to reproduce the computation of income of the assessee, which the Assessing Officer has mentioned at page nos. 3 & 4, for the sake of convenience the same are reproduced as under:

17. After examining the aforesaid computation of income, it is apparent that the assessee has claimed its income as applied towards charitable purpose as per Section 11(1)(a) of the Act. At the same time, the assessee has claimed its balance income of Rs. 2,54,79,295.53 as exempt under Section 10(23C)(iiiab) of the Act. It is obvious that a question had arisen in the mind of the Assessing Officer that how the assessee is claiming under two provisions of the Act i.e. Section 11(1)(a) and Section 10(23C)(iiiab) of the Act. The Assessing Officer asked the assessee to justify its claim and in response to the same, the assessee stated that its institute is approved as 100% Govt. Autonomous Body and the Government has not financed any paisa to the institute in last 5 years because the institute is already having a good amount lying in Fixed Deposits with Banks. This very reply of the assessee is against the assessee which is contrary to the provisions of Section 10(23C)(iiiab) of the Act. According to the provision of Section 10(23C)(iiiab) one can only get exemption, if it fulfills the conditions of this Section. For the sake of convenience, the provisions of Section 10(23C)(iiiab) of the Act, which the Assessing Officer has reproduced at page 5, is reproduced as under:

"10. In computing the total income of previous year of any person, any income falling with in any of the following clauses shall not be included—

(23C) any income received by any person on behalf of-

(iiiab) any university or other educational institution existing solely for educational purpose and not for purpose of profit, and which is wholly or substantially financed by the Government or

18. Keeping in view the provisions of Section 10(23C)(iiiab) of the Act as well as the reply filed by the assessee, we are of the view that the Assessing Officer has rightly held that any educational institute which is established for educational purpose and not for purpose of profit can be considered for exemption under that section, but the condition for such exemption is that the institution must be wholly or substantially financed by the Government. In the instant case, it is clear that the Government of Punjab has established the assessee-institute and further allowed to get registered under Societies Registration Act, 1860 only, but did not finance the institute during the year under consideration or even in last 5 years at all as admitted by the assessee-institute in its reply, mentioned above. But the learned First Appellate Authority has wrongly allowed this exemption to the assessee on the basis of previous year as well as on the basis of order passed by CIT, Bathinda, under Section 268 of the Act, dated 23.03.2012. In our considered view, the learned First Appellate Authority has passed the impugned order by allowing the exemption under Section 10(23C) (iiiab) of the Act on the basis of previous year as well as the order passed under Section 263 of the Act, dated 23.03.2012 passed by learned CIT, Bathinda, wherein he has dropped the proceedings initiated under Section 263 of the Act for the year 2007-08.

19. It is very much necessary for the assessee to fulfill all the conditions for exemption under Section 10(23C)(iiiab) of the Act. In our considered view the assessee did not fulfill the required conditions as mentioned under Section 10(23C)(iiiab) of the Act and the learned First Appellate Authority has wrongly deleted the additions in dispute without any basis as well without going through the relevant provisions of law.

20. After thoroughly going through the reply filed by the assessee along with the orders passed by the Revenue Authority, we are of the view that no doubt the assessee-institute is an educational institute but the main motto of the assessee institution is profit as established on the perusal of computation of income reproduced above. It is also a matter of record that the assessee itself admitted before the Assessing Officer in its reply which we have reproduced above that the institute is approved as the 100% Govt. Autonomous Body and the Government has not financed any paisa to the institute in the last 5 years because the institute is already having a good amount lying in Fixed Deposits with Banks. We are of the view that the assessee is also not fulfilling the conditions regarding the Institute must be wholly or substantially financed by the Government.

21. Learned counsel for the assessee has filed the written submission which he has filed before the learned First Appellate Authority along with the notice issued by learned CIT, Bathinda, reply of the assessee, and the order of learned CIT, Bathinda, passed under Section 263 of the Act dated 23.03.2012. These documentary evidences are not helpful to the assessee because notice under Section 263 of the Act and its reply thereto, and the order dated 23.03.2012 have no relevance with the exemption claimed by the assessee.

22. Learned First Appellate Authority has deleted the addition in dispute by passing an unreasonable order only on the basis of the order dated 23.03.2012 passed by learned CIT, Bathinda. The relevant portion of the impugned order at pages 6 & 7, are reproduced as under:

"I had carefully examined the assessment order passed by the A.O., grounds of the appeal and written submission filed by the assessee. As per assessment order and grounds of appeal, I find that issue involved in this case is only whether the institution is covered by the provisions of section 10(23C)(iiiab) or covered by the provisions of section 10(23C)(vi) or section 11, section 12 of the Act. As per submissions, I found that the institution has come into existence in 1998 and till assessment year 2008-09 the exemption to the institution is being granted under section 10(23C)(iiiab) of the Act. In the assessment year 2009-10 the Assessing Officer is of the view that the institution has not received any grant from the government during the last 5-6 years. Hence, it is not treated to be financed by the government. During the appellate proceedings the learned counsel of the appellant brought to my notice that for the assessment year 2007-08 the notice u/s 263 has been given on the similar ground on which exemption was disallowed by the A.O. for the assessment year 2009-10 that since the institution has not been financed by the State Government during the year under consideration as well as during the preceding years, the institution is not wholly or substantially financed by the State Government, hence institution is not entitled to claim its income as exempt u/s 10(23)(iiiab) of the Income Tax Act. In response to the proceedings u/s 263, the appellant has filed the submissions before the learned CIT along with necessary paper book and case law to prove that the case of the assessee appellant is duly covered by exemption u/s 10(23C)(iiiab) of the Act. After considering the explanation of the assessee appellant the learned Commissioner of Income Tax passed order u/s 263 of the Income Tax Act, 1961 vide order F. No. IT/BTI/SG/2011-12/3746 dated 23.03.2012 reproduced below:—

"After due perusal of the assessment records and the careful examination of the replies filed by the AR, Shri P.K. Singla, Advocate on behalf of the assessee dated 03.02.2012 and 23.03.2012 alongwith documentary evidences brought on record by him, all the facts and evidences on record do not warrant any action u/s 263 of the IT Act, 1961 and therefore, the case being unfit for such action, the proceedings initiated under that section are dropped."

Therefore, the issue whether the institution is covered by the provisions of section 10(23C)(iiiab) of the Act or 10(23C)(vi) of the Act has already been settled by the Commissioner of Income Tax, Bathinda. As such, disallowances made by the Assessing Officer that the institution is not covered by the provisions of Section 10(23C)(iiiab) is not correct. Therefore, addition made at Rs. 3,67,47,180/- is unjustified. The same is deleted."

23. After going through the aforesaid order passed by the learned First Appellate Authority, which is challenged before us, learned First Appellate Authority has allowed the exemption on the basis that till the assessment year 2008-09, the exemption to the institute is being granted under Section 10(23C)(iiiab) of the Act and on the basis of order passed under Section 263 of the Act dated 23.03.2012 wherein learned CIT, Bathinda, has dropped the proceedings initiated under Section 263 of the Act. In our considered view, the learned First Appellate Authority has deleted the addition in dispute contrary to the law and facts and on the file and without going through the provisions of law as well as documentary evidence establishing that the assessee is entitled for the exemption claimed under Section 12(23C)(iiiab) or Section 11 and 12 of the Act.

23.1 As regards to the deletion of addition in dispute on the basis that the same exemption has been allowed by the Revenue Authority in the earlier year and the learned First Appellate Authority has granted the same in the year in dispute also, we are of the view that every assessment year is an independent assessment year. In the income tax proceeding, there can be no question of res-judicata. The decision given by one Assessing Officer for one assessment year cannot affect or bind his decision for another year. This view is supported by various judgments rendered by Hon'ble Supreme Court of India, which includes in the case of New Jehangir Vakil Mills Co. Ltd. v. CIT [1963] 49 ITR 137 (SC); CIT v. Brij Lal Lohia & Mahabir Prasad Khemka [1972] 84 ITR 273 (SC); and Radhasoami Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248 (SC).

24. It is a matter of record that the assessee has not produced any documentary evidence before the Assessing Officer, learned CIT(A) and even before us, proving that the assessee has got approval from the prescribed authority for the exemption under Section 10(23C)(iiiab) of the Act. Secondly, as regards to the exemption claimed by the assessee under Section 11(1)(a) of the Act, as mentioned in the computation of income regarding, its income applied towards charitable purpose and hence deducted 15% of its receipts deeming the same as to have been applied as per Sections 11(1)(a) of the Act. For claiming the exemption, under Section 11(1)(a) of the Act, the assessee required registration under Section 12AA of the Act. The same has also not been produced by the assessee before any authorities below and even not before us. Therefore, the assessee is not entitled for any exemption under Section 11(1)(a) of the Act.

25. Keeping in view the income and expenditure account as well as the fee structure of the assessee, we are of the view that the assessee is not charitable institution and it is doing business for profit and the assessee-institute has been accumulating funds year after year, which are parked with the banks in the form of FDRs, as is evident from its balance sheet as on 31.03.2009, total FDRs with the bank are of Rs. 11,27,93,116/-. Therefore, the assessee has not received any penny from the Government for the last 5 years as admitted by the assessee.

26. Keeping in view the aforesaid discussion, we are of the view that learned First Appellate Authority has wrongly allowed the exemption to the assessee without applying its mind to the relevant provision of law as well as lack of documentary evidence, which are required for granting exemption in dispute. Therefore, the impugned order passed learned CIT(A), Bathinda, deserves to be cancelled and accordingly we cancel the impugned order dated 21.06.2012 and uphold the assessment order dated 29.07.2011 passed under Section 143(3) of the Act and allow the appeal filed by the Revenue.

27. In the result, the appeal filed Revenue is allowed.