The order of the Bench was delivered by
VIVEK VARMA, JM:-The appeal is filed by the assessee against the order of CIT(A) 1, Mumbai, dated 29.03.2012, wherein the following grounds have been raised:
“1. The grounds of appeal that follow are all independent and without prejudice to each other,
2. Re: Exemption under Section 11:
2.1 That, on the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in upholding the Assessing Officer's action in rejecting the appellant's claim for exemption under Section 11 on the ground that that the appellant's primary activities were not for the benefit of the public at large and were also not of charitable nature.
3. Re: Deduction of Expenses:
3.1 That, on the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in upholding the action of the Assessing Officer in not reducing the expenses incurred by the appellant by way of amortization of premium on investments and purchase of fixed assets.
4. Re: Other Statutory Deductions:
4.1 That, on the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in upholding the action of the Assessing Officer in not granting the statutory deductions on account of amount set aside by appellant for future requirements to the extent of Rs. 34,573,450 (150/c of Income) and on account of and on account of the sum of Rs. 23,599,690 accumulated by the appellant for specified purposes in conformity with the provisions of Section 11(2).
5. Your appellants crave leave to add, alter, amend, vary, omit or substitute the aforesaid grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised”.
2. The facts are, the assessee is an Indian Company incorporated u/s 26 of the Indian Companies Act, 1913 on 30.04.1928. Initially, the company was an Association called the Indian Institute of Bankers and subsequently the assessee's name was changed to Indian Institute of Banking and Finance. The principle objects of the assessee as per the Memorandum of Association are:
(i) To encourage the study of the theory of banking and for that purpose to institute a scheme of examinations and to give certificates, scholarships and prizes.
(ii) To promote information on banking and kindred subjects by lectures, discussions, books, correspondence with public bodies and individuals or otherwise
(iii) To collect and circulate statistics and other information relating to the business of banking in India.
(iv) To acquire by purchase, donation or otherwise and to maintain extend and improve a library consisting of works on banking, commerce, finance, political economy and kindred subjects.
3. We find that in assessment years 1996-97, 1997-98 and 1998-99, the Institute has claimed Exemption u/s 10(22) as income of a University or other Educational Institution existing solely for educational purposes and not for purposes of profit. The then AO, however, concluded that the institute was set up to encourage the study of the theory of banking and for that purpose it instituted a scheme of examination which is clearly by itself not an educational activity. The assessee company is not imparting any formal education but conducting exams to members for various Diplomas and Certificates. The benefits of passing the examinations are that the banks and financial institutions in the country give additional increment/cash/weightage for promotion to their employees on passing various examinations of the institute. Thus, the assessee in no way promotes any charitable activities for public at large.
3. Accordingly, the then AO disallowed the claim u/s 10(22) for the above assessment years.
4. The Institute was treated as company providing service/professional services and income was therefore taxed as business income. This issue reached the ITAT and the coordinate Bench of the ITAT at Mumbai decided the matter in favour of the assessee. Against this order of the ITAT, Department has preferred appeals u/s 260A before the Hon'ble Bombay High Court. These appeals, though admitted are still lying pending. We find that in the subsequent period, i.e. assessment years 1999-2000 to 2001-02, the assessee has applied to the Central Board of Direct Taxes for approval of Notification u/s 10(23C)(vi). It was informed that no communication has been received from the Board. However, drawing inferences from the letter addressed by the D.G. (Exemption), Calcutta dated 28.05.2002 to the assessee, wherein the D.G. has remarked as under: "As the activities of your organization are not solely for educational purposes and does not serve the of interest of public at large. Your case is reported to be unfit for Notification u/s. 10(23C)(vi) of the Income Tax Act, 1961”. To arriving at above conclusion, the following observations have been made:
(i) The Institute has generated huge surplus;
(ii) The Institute is not open to public at large;
5. Meanwhile, the assessee has now made an application for Exemption u/s 10(23C)(vi) of the Income Tax Act, 1961 for further period beyond assessment year 2001-02 which is pending before the CCIT, Mumbai. This application of the assessee has not yet been decided by the CCIT, Mumbai till date.
6. While deciding the appeal for assessment year 2001-02, the coordinate Bench of the ITAT had Directed AO to write to the Central Board of Direct Taxes requesting to dispose of the application of assessee and then finalize the assessment for assessment year 2001-02. The powers for granting exemption u/s 10(23C)(vi) in respect of the pending applications are now vested with the respective CCITs.
7. Aggrieved, the assessee approached the CIT(A), who sustained the decision of the AO and rejected the claim of the assessee.
8. Against this order of the CIT(A), the assessee is now before the ITAT.
9. Before us, the AR fairly submitted that in so far as claim of exemption u/s 10(23C)(vi) is concerned, it has been rejected by the CCIT, Mumbai. But the claim of section 11 is still alive and has been denied because of amortization of premium on investment and purchase of fixed assets and in not allowing statutory deductions for future requirements set apart as per section 11(2). The AR submitted that i ts claim for exemption under section 11 of the Act has been denied for the following three reasons i.e. the assessee is not pursuing an educational activity, it has generated huge surplus and it is not for the public at large.
10. The assessee made its submissions with respect to each of the aforesaid issues.
11. With respect to the reasoning given by the AO that the assessee is not pursuing an educational activity, the assessee placed reliance upon the decision of the coordinate Bench of the ITAT in its own case in assessment years 1996-97 to 1998-99 (APB 205 to 219), allowing the appeal filed by the assessee against withdrawal of registration under section 12A (APB 231 to 236). In these decisions the Tribunal after considering the facts pertaining to its objects as per its Memorandum of Association, the courses conducted by it and its manner of functioning, concluded that the assessee was pursuing educational activities. The AR therefore, submitted that, in so far the issue pertaining to conduct of educational activities is concerned, the same is covered and concluded in its favour by the ITAT.
12. With respect to the above, the AR drew our attention to the detailed submissions filed by it before the CIT(A), wherein specific reference were made in paragraphs (APB 22 to 29). The AR also placed reliance on the following decisions: City Montessori School vs UOI, reported in 315 ITR 48 (All); DIT (E) vs Ahmedabad Management Association, Order dated 13.06.2014, by the Hon’ble Gujarat High Court, ITA No. 707 of 2013; DIT vs Samudra Institute of Meritime Studies Trust, reported in (2014) 49 Taxman.com 510 (Bom) (Copies enclosed), wherein the ration has been laid that the associations had been running educational institutions and having educational activity.
13. The primary reason for denial of exemption u/s 11 are, that the Institute has generated huge surplus and the Institute is not open to public at large.
14. The Memorandum of Association when read out, we find that the Institute had been brought up only for the purpose of development of baking personnel for/in the banking industry. The institute imparts education to the candidates who are connected with the banking industry. It has library facility, organizes lectures, seminars and undertake examinations for promoting bank officers.
15. In so far as its investments are concerned it was explained, the surplus, if any, arising out of the activities of the Institute is not distributed by way of dividend, bonus or by way of profits to the Members of the Institute. This is evident from Clause 4 of the MOA, which is reproduced herein below for your Honor's ready perusal.
16. The income and property of the Institute, whensoever derived, shall be applied solely towards the promotion of the objects of the Institute as set forth in this Memorandum of Association; and no portion thereof shall be paid or transferred, directly or indirectly, by way of dividend, bonus or otherwise howsoever by way of profit, to the members of the Institute. Provided that nothing herein shall prevent the payment, in good faith, of remuneration to any officer or servant of the Institute, or to any member of the Institute or other person, in return for any services actually rendered to the Institute.
17. That the Members are also not entitled to any share in the surplus that may arise on winding up or dissolution of the Institute. Such surplus, if any, has to be handed over to other institutions having similar objects and if this is not feasible appropriated, shall be advanced for some charitable objects. This is evident from Clause 8 of the Memorandum, which is reproduced below:
If upon the winding up or dissolution of the Institute there remains, after the satisfaction of all its debts and liabilities, any property whatsoever, the same shall not be paid to or distributed among the members of the Institute, but shall be given or transferred to some other institution or institutions having objects similar to the objects of this Institute, and which shall prohibit the distribution of its part of their income and property among its or their members to an extent at least as great as is imposed on the Institute or by virtue of Clause 4 thereof, such institution or institution to be determined by the members of the Institute at or before the time of dissolution, and in default thereof by such Judge of the High Court of Judicature at Bombay or other Judge as may have or acquire jurisdiction, the matter, and if and so far as effect cannot be given to the aforesaid provision then to some charitable object. Held following examination :
(a) Associate Examination (CAIIB);
(b) Diploma in International Banking;
(c) Diploma in Financial Services;
(d) Diploma in Bank Management;
(e) Certificate in banking Oriented paper in Hindi;
(f) Certificate Examination for the employees of Unit Trust of India.
15. A detailed list of the assessee’s activities is found in the records, which was placed before the revenue authorities as well as us.
16. For advancement in banking industry, the number of students enrolling for various courses offered by the Institute increased steadily over the years, thereby reflecting the growing popularity of the Institute’s courses in the banking arena. The list of the various courses offered by the Institute is on record.
17. Reverting our attention to the reasoning given by the revenue authorities, that the assessee was generating huge surplus, it was submitted that as per section 11 of the Act the assessee could spend 85% of its income towards charitable objects. It was submitted that if there was a surplus, it could be legally accumulated under section 11(2) of the Act. The AR submitted that the assessee has always complied with the said requirement in each of the years. The accumulation of the corpus, if any, has been spent in accordance with the provisions of section 11(2) of the Act. Accept for this fact, the AR submitted, the revenue authorities, did not have any argument, which could render the benefit of section 11 unavailable to the assessee.
18. The AR further submitted that looking from the point of view of disposal of its funds, i.e. the entire expenses incurred towards the educational activity has been done out of the educational receipts only, which resulted in a deficit in financial years 1999-2000 to 2007-08 (APB 72). Any interest and/or write back has been excluded from the gross receipt, meaning that receipts as shown are pure, out of the educational activity.
19. Since the assessee has also provided details of the courses being run by it, along with the fee structure in respect of each of the courses, this fees, by no stretch of imagination, could be regarded on the higher side. Hence the argument of the revenue authorities that the assessee had accumulated huge funds, also stands demolished.
20. On the issue of “educational institution”, we are also benefitted by the decision of Hon’ble Gujarat High Court, besides the decisions referred to by us earlier in the order, to come to a fair conclusion that the assessee was an educational association. The decisions as referred earlier were not agitated against by the DR, which are City Montessori School vs UOI (supra), DIT(E) vs Ahmedabad Management Association (supra) and DIT vs Samudra Institute of Meritime Studies Trust (supra). Also placing reliance on the decision of Ahmedabad Rana Caste Association vs CIT, reported in 82 ITR 704, wherein it was held, “It is well-settled that an object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose it is not necessary that the object should be to benefit the whole of mankind or all persons in a country or State. It is sufficient if the intention to benefit a section of the public as distinguished from a specified individual is present. The section of the community sought to be benefitted must be sufficiently definite and identifiable by some common quality of a public or impersonal nature”. The AR submitted that since the assessee was giving benefit to persons perusing banking industry, is not only education but by not making any profit, it was charitable in nature.
21. Since the Institute does not undertake any other activities other than what is stated above. The activities as seen are educational in nature, which leaves no apprehensions. In our view the activities would squarely be covered by the definition of “charitable purpose”, as defined in Section 2(15) of the Act, as these activities are meant for general public utility, i.e. whoever wants to advance his/her qualifications in the banking industry. From the above details and description, we are of the opinion that the assessee is a charitable organization and eligible for deduction u/s 11 of the Act.
22. Ground no. 2.1 is therefore allowed.
23. Grounds 3 & 4 are connected to ground no. 2.1 and covered in our observation as made in the pre para, and therefore, are also allowed.
24. Ground no. 5 is general.
25. The assessee has also raised Additional grounds of appeal vide letter dated 15.04.2014, which read as follows:
“1. The ground of appeal is independent and without prejudice to other grounds of appeal filed earlier pending disposal.
2. Re: Claim for Exemption under Section 10(23C)(vi): That, on the facts and in the circumstances of the case and in law, the Appellant ought to be granted exemption under Section 10(23C)(vi) of the Income Tax Act, 1961 as an educational institution in respect of surplus of income over expenditure.
3. Your appellants crave leave to add, alter, amend, vary, omit or substitute the aforesaid ground of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised”.
26. At the time of hearing, the AR submitted that the additional grounds as raised are not pressed. Since the grounds are not pressed, the same are rejected.
27. In the result, the appeal as filed by the assessee is treated as partly allowed.
The order pronounced in the open court on 11th February, 2015.