IT APPEAL NO. 397 (BANG.) OF 2009
[ASSESSMENT YEAR 2009-10]

N.V. VASUDEVAN, JUDICIAL MEMBER AND JASON P. BOAZ, ACCOUNTANT MEMBER

S. Venkatesan for the Appellant. 
L.V. Bhaskara Reddy for the Respondent.

ORDER

N.V. Vasudevan, Judicial Member - This is an appeal by the assessee against the order dated. 10.02.2009 of Commissioner of Income-tax (Appeals)-V, Bangalore relating to assessment year 2004-05.

2. The assessee is a Trust and is an educational and charitable institution. According to the assessee, during the previous year, education was provided to various members of the society, irrespective of caste, creed and religion under the banner "A. S. Kupparaju & Brothers Vidyaniketan"(ASKBV) for students pursuing classes from nursery to X standard and under the banner, "Atria Institute of Technology"(AIT), for students pursuing studies in engineering subjects. The assessee for the assessment year 2004-05 had filed return of income on 30.10.2004 claiming exemption u/s.10(23C)(iiiad) in respect of income of Rs.2,45,241/- accruing from "A. S. Kupparaju & Brothers Vidyaniketan" and u/s,10(23C)(vi) in respect of income of Rs.69,30,024/- accruing from "Atria Institute Of Technology". The assessee has also furnished along with the return of income the statement of affairs of "A. S. K. Atria Park Co."(APC), a division of the assessee formed somewhere during 1995 or 1996 with the object of raising liquid resources, for putting up necessary infrastructure, for imparting higher education in fields of medicine and engineering by selling a portion of land earmarked for the said purpose. Except for few bank transactions there were no other transactions under the said banner. Further since inception, no land was sold by the assessee till date.

3. The division A. S. K. Atria Park Co., during the financial years 1996-97, 1997-98 and 1998-99 was in receipt of Rs. 1,85,00,000/- from Winfield Enterprises P. Ltd as earnest money deposit in terms of agreement made and executed on 19th day of January 1998 towards sale of portion of land belonging to the trust. Later, there were no further developments whereby A. S. K. Atria Park Co., neither sold the land nor repaid the advance and similarly Winfield Enterprises P. Ltd., neither paid the balance of consideration nor claimed refund of advance made. A. S. K. Atria Park Co., out of the receipt of the above EMD during the financial years 1996-97 and 1997-98 had invested Rs.1.57 crores, as share application money in Atria Holdings P. Ltd., a group concern in which the members of Board of Trustees of the assessee were also the members of board of directors of the said company.

4. The assessee during financial year 1999-2000 established an engineering college under the banner Atria Institute of Technology at its campus. The assessee at that point of time felt the need to provide housing accommodation in a nearby locality to the senior members of its faculty so as to attract talented and experienced lecturers/professors and consequent to such need entered into a sale agreement on 18.07.2000 with Atria Holdings P. Ltd., the developers of integrated apartment building named as Atria Villa, at Dattatreya Temple Street (earlier Palace Guttahalli Main Road), Malleswaram, Bangalore city for purchase of 7 apartments for a total consideration of Rs. 1,74,37,500/-. A sum of Rs. 1,57,00,000/- which was given as share application money was also to be considered as part payment of consideration towards purchase of above apartments (reference clause 1(a) of page 4 of sale agreement dated. 18.07.2000). Therefore on 18.07.2000 the share application money of Rs. 1,57,00,000/- got converted into "advance for purchase of flats".

5. According to the assessee, on account of severe crunch of funds, the assessee was in the process of building necessary infrastructure from year to year, could not find necessary resources to complete the payment of balance of Rs. 17,37,500/- to Atria Holdings P. Ltd., towards purchase of residential apartments in terms of sale agreement dated. 18.07.2000 and further, none of the senior faculty members had expressed their inclination to accept the offer of the assessee to take up residential accommodation and therefore for the above two reasons the above agreement was nullified by deed of cancellation made and executed on 01.04.2003. The assessee further entered into sale agreement on 01.04.2003 scaling down the number of apartments to be purchased from 7 to 4 and the consideration was reagreed at Rs. 1,07,24,500/-. The assessee requested Atria Holdings Co., to refund a sum of Rs.70 lakhs out of the earlier advance of Rs. 1,57,00,000/- so as to enable the assessee to continue with its development programme and sought time for 3 months to discharge the balance consideration of Rs.20,24,500/-. The assessee received Rs.70 lakhs on 14.07.2003 from Atria Holdings P. Ltd out of the sale advance of Rs.1.57 crores.

6. According to the assessee, on account of severe crunch of funds, it could not fulfill its obligation to remit the balance of Rs.20,24,500/- within the period of 3 months from 01.04.2003. Further there was no response from the eligible members of the teaching faculty to take up accommodation and therefore, the assessee cancelled the sale agreement dated.01.04.2003 by executing deed of cancellation on 31.03.2005 with Atria Holdings P. Ltd., In terms of clause no.2 of page no.2 of the said cancellation deed the sale advance of Rs.87 lakhs was adjusted against the following liability of the assessee :

The above persons are the directors of Atria Holdings P. Ltd and also members of Board of trustees of the assessee. Further the assessee owed the following amounts to the following persons including Atria Holding P. Ltd.,:

In terms of clause no.2 of the cancellation deed executed 31.03.2005, Atria Holdings P. Ltd, let go the above claim of Rs. 16,74,864/- and further took over the liabilities of the persons listed as (b) to (d) as above, as payment of compensation of Rs.22,24,864/- to the trust as on 31.03.2005. This compensation amount was declared as income by the trust for the assessment year 2005-06 wherein the return of income was filed on 31.10.2005.

7. The assessee had submitted form No.56D - application for grant of exemption or continuance thereof u/s. 10(23C)(vi) and (via) on 27.10.2004, for which there was no response. The assessee also sought registration u/s.12AA of the Act which, after long term litigation before the Commissioner of Income-tax (Appeals) and ITAT was granted on 30.11.2006, w.e.f.01.04.2002.

8. On the above facts the question before the AO was as to (a) the Assessee was entitled to exemption u/s.10(23)(iiiad) of the Act in respect of income of ASKBV and exemption u/s. 10(23 )(vi) in respect of its income from AIT. (b) If the Assessee was not entitled to exemption as above, whether the income of the Assessee would be exempt u/s. 11 of the Act.

9. The Assessing Officer rejected exemption u/s. 10(23)(iiiad) as well as 10(23)(vi) of the Act for the reason that the required approval of the concerned authority was not obtained by the Assessee. This will hold good only for exemption u/s. 10(23)(vi) of the Act, because it is only that section which prescribes approval of the authority. There are no reasons given by the AO for not allowing exemption u/s. 10(23)(iiiad) of the Act.

10. With regard to the exemption u/s. 11 of the Act, the AO denied exemption u/s.11 of the Act to the assessee primarily on three grounds, viz.,

For the above three reasons, the Assessing Officer did not allow the claim of the assessee for exemption u/s. 11 of the Act.

11. Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the Commissioner of Income-tax (Appeals). In response to the conclusion of the Hon'ble Assessing Officer that the trust had not filed form no.10B, the assessee submitted that the form which was received from the auditors during October, 2004 was submitted to the Assessing Officer on 11.12.2006 before conclusion of the assessment proceedings on 11.12.2006. The assessee submitted that it was entitled for exemption u/s.11 though the audit report was not filed along with the return of income, as it was filed before the conclusion of the assessment order. The Assessee relied on the decision of the Hon'ble Karnataka High Court in ITO v. Smt. Mandira D. Vakharia [2001] 250 ITR 432/117 Taxman 236, wherein it was held that if certificate (in Form No.10B) is furnished subsequently with application for rectification, the assessee is entitled to deduction in terms of CBDT Circular nos.669 & 689, dated.25.10.1993 and 24.08.1994 respectively.
12. The assessee further submitted before the Commissioner of Income-tax (Appeals) that the conclusion of the Assessing Officer in respect of violation of section 13, were not correct. The Assessee pointed out that facts relating to advance for purchase of flats and submitted that as on 1.4.2003, the first date of the previous year, the sum of Rs. 1,57,00,000 was lying as advance for purchase of flat and not as share application money so as to invoke the provisions of Sec.13(1)(d)(i) of the Act. The following revised account copy of flat advance - Atria Holding Pvt Ltd., was furnished :

It was submitted that from a perusal of the above account copy, the balance brought forward to 01.04.2003 of Rs. 1,57,00,000/- represented advance for purchase of flats. Further out of the said amount, in response to the request of the trust a sum of Rs.70,00,000/- was returned by Atria Holdings P. Ltd., on 14.07.2003. The residual amount of Rs.87,00,000/- continued as flat advance upto 31.03.2004. It was submitted that the Assessing had proceeded on the basis that a sum of Rs. 1,57,00,000/- was share application money stands invested in Atria Holdings P. Ltd., even as on 01.04.2003. It was submitted that factually it was not correct. It was submitted that money lying with Atria Holdings P. Ltd., not as money lent nor as advance made nor as share application money, but as flat advance made and therefore the provisions of section 13(1)(d)(i) is not applicable as the funds were neither invested or deposited, but represents "advance" which does not come within the play of the said section.

13. The Commissioner of Income-tax (Appeals) called for a remand report on the submissions made by the assessee. In his remand report, apart from reiterating the stand taken by the Assessing Officer in the order of assessment, the Assessing Officer pointed out that in the books of A. S. K. Atria Park Co., as on 31.03.2003 in the balance sheet, the narration is "share application money" and not "flat advance".

14. The Commissioner of Income-tax (Appeals) on a consideration of the rival submissions, firstly came to the conclusion that the audit report was filed by the assessee on 11.12.2006 along with the application for registration u/s.12AA of the Act. Since the audit report in form no. 10B was filed before conclusion of the assessment proceedings, the Commissioner of Income-tax (Appeals) was of the view that as laid down by the Karnataka High Court in the case of Smt. Mandira D. Vakharia (supra), the Assessing Officer was bound to examine the audit report and cannot refuse to examine the claim of the assessee for exemption u/s.11 of the Act on the ground that form no. 10B was not filed along with the return of income.

15. Thereafter the Commissioner of Income-tax (Appeals), examined the claim of the assessee with regard to exemption u/s. 11 of the Act. The first conclusion of the Commissioner of Income-tax (Appeals) that the fact of the share application money having got converted into an advance for purchase of flat, by virtue of agreement dated. 18.07.2000 was not a contention that was put forth by the assessee before the Assessing Officer. Similarly, the deed of cancellation dated.01.04.2003 was also not furnished during the course of the assessment proceedings before the Assessing Officer.

Thereafter, the Commissioner of Income-tax (Appeals) held as follows :
"7.4 It is observed that the facts regarding conversion on 18.07.2000, the share application money of Rs. 1,57,00,000/- into advance for purchase of flats was not brought to the notice of the Assessing Officer. The appellant has financial crunch and non inclination of the faculty members to accept the accommodation offered led to the cancellation deed dt 01.04.2003. This fact is not before the Assessing Officer for his consideration. It is a fact that the fund stands invested in Atria Holdings P. Ltd as share application money. It is seen from the balance sheet of A.S.K. Atria Park Company that as a proprietary concern of A.S. Kupparaju & Bros. Charitable Foundation Trust as on 31.03.2003, a sum of Rs. 1,57,00,000 was lying with atria Holdings P. Ltd., as share application money. The appellant's contention is that out of 1.57 crores, a sum of Rs.87 lakhs is converted into flat advance is also not acceptable as the appellant did not take possession of the flat within 12 months i.e., as on 31.03.2004. It is a fact that the trustees are directors of Atria Holdings P. Ltd., If the appellant's intention was to acquire the flat and not shares, the narration in the balance sheet as on 31/03/2003 would be 'flat advance' and not share application. This shows that the sum of Rs. 70 lakhs standing invested in the company Atria Holdings Pvt Ltd., which the trustees are having substantial interest without adequate consideration and security. As per provisions of sub-clause (iii) of clause (d) of sub-section (1) of section 13, the appellant is not expected to invest in shares of any company other than public sector company. Now it is seen from the balance sheet as on 01.04.2003 that there was share application money with Atria Holdings Pvt Ltd., as the appellant has intentionally invested for acquiring shares of Atria Holdings Pvt. Ltd., which is violation of the sub-clause (d) of sub-sec (1) of section 13, therefore, exemption u/s.11 was rightly denied. Once it receives advance towards sale of portion of land, it becomes the funds of the trust and the appellant should have invested in National Banks or any other manner prescribed in section 11(5) of the Act. As the appellant has intentionally invested these amounts on 01.04.2003 and up to 31.07.2003 with Atria Holdings Pvt. Ltd., which is a sister concern of the appellant it is not entitled for exemption u/s.ll of the IT Act. The sale agreement deed dt 18.07.2000 and the cancellation deed dt 01.04.2003 were not registered before the government authority to be held as authentic and genuine deeds. The genuineness of the said deeds is doubtful and not acceptable at this stage. On the facts of the case, I am of the view that the Assessing Officer's denial of appellant's claim of exemption u/s.11 is as per law and correct and the same is confirmed accordingly."

16. In brief the conclusion of the CIT(A) was that the claim of the Assessee that share application money given by APC to Atria Holdings Pvt. Ltd. and its subsequent conversion as advance for purchase of flat were all after thought and not genuine claim and therefore the conclusions of the AO regarding violation of Sec. 13(1)(d)(i) of the Act, were to be upheld. Aggrieved by the order of the Commissioner of Income-tax (Appeals), the assessee has preferred the present appeal before the Tribunal.
17. We have heard the rival submissions. The following issues arise for consideration in this appeal:

18. In respect of issues (i) and (ii), the facts that are not disputed are that the assessee enjoys registration u/s.l2AA of the Act. The assessee carries on three distinct activities viz., (1) A. S. Kuppuraju & Brothers Vidyaniketan ('ASKBV' for short), which runs a school for students pursuing classes from nursery to X standard; (2) Atria Institute of Technology ('AIT' for short) for students pursuing studies in engineering subjects; and (3) Atria Park Co., ('APC' for short), which is engaged in raising resources for putting of necessary infrastructure for imparting higher education in fields of medicine and engineering, by selling land of the assessee earmarked for the said purpose. Separate books of accounts are maintained by the assessee for the each of the aforesaid activities. For financial year relevant to assessment year 2004-05 APC had no income, whereas ASK and ATI had excess of income over expenditure of Rs.2,45,240/- and Rs.69,30,025/- respectively. The consolidated income over expenditure of ASKBV and AIT were Rs.71,27,265/-. For A. Y. 2004-05, the assessee filed return of income on 30.10.2004 declaring nil income. In the note annexed to statement of total income, the assessee claimed that its income from ASKBV is exempt u/s.10(23C)(iiiad) and its income from AIT was exempt (vi) of the Act, as follows:

'NOTE ON EXCLUSION

The source of the income of the Trust, is from imparting of education from running of primary, middle and high school under the name, A. S. Kupparaju & Bros. Vidyanikethan and from College of Engineering under the name, Atria Institute of Technology, from its own premises located at A. S. K. B. Campus, I Main Road, AGS Colony, Anandanagar, Bangalore 560 024. The institutions "A. S. Kupparaju & Bros. Vidyanikethan and Atria Institute of Technology" exists solely for imparting education. The income of A.S. Kupparaju & Bros Vidyanikethan is exempted u/s.10(23C(iiiad) of the Act and the income of Atria Institute of Technology is exempted u/s. 10(23C)(vi) of the Act.'

18.1 As far as exemption u/s. 10(23)(iiiad) is concerned, the requirement for claiming exemption is that income should be received by any person on behalf of any university or educational institution existing solely for purpose of education and not for profit and the aggregate annual receipt of such university or educational institution should not exceed the prescribed limit. The limit prescribed was Rs.1 crore. The annual receipts of ASKBV was admittedly Rs. 1 crore (annual receipt was Rs. 11,75,946/-). It is not disputed that ASKBV existed solely for the purpose of education and not for profit. Therefore, there should not be any difficulty in allowing exemption to ASKBV u/s. 10(23C)(iiiad) of the Act. The Revenue authorities rejected the claim for exemption u/s.10(23C)(iiiad) of the Act for the reason that there was no approval by the prescribed authority. Such approval was necessary only u/s.10(23C)(vi) of the Act and not u/s.10(23C)(iiiad) of the Act. U/s.10(23C)(vi) of the Act, income received by any person on behalf of any university or other educational institution for purposes of profits, other than those mentioned in section 10(23)(iiiab) and 10(23C)(iiiad) of the Act, which is approved by the prescribed authority is exempt.

19. The question that would arise for consideration is as to whether the receipts from ASKBV alone should be considered for the purpose of section 10(23C)(iiiad) of the Act or should receipts from AIT should also be considered. On this issue, the learned counsel for the assessee had placed reliance on the decision of the ITAT, Bangalore Bench in the case of Childrens' Education Society [IT Appeal No.1291(Bang.) of 2003, dated 23-02-2006], wherein identical issue had come up for consideration. The facts of the case were that the assessee in that case was running several educational institutions. The assessee claimed exemption u/s.10 (23C)(iiiad) in respect of each of the educational institution, as on a stand alone basis, each of the educational institution satisfied the criteria of annual receipts being less than Rs.1 crore. The Revenue took a stand that the limit of Rs.1 crore had to be reckoned with respect to the aggregate annual receipts of all institutions run by the assessee. The Tribunal held as follows :

'The language of section 10(23C) is plain and simple and the construction placed by the assessee on the said provisions are consistent with the scheme of the Act and to give effect to the plain meaning of the statute. All that is provided is that income received by a person on behalf of educational institution is exempt subject to certain conditions mentioned in the relevant clauses. The point considered by the learned Commissioner of Income-tax (Appeals) for holding that the educational institution are to be separate and distinct etc., is directly contradictory to the ratio of the decision of the Hon'ble Karnataka High Court in the case of CIT v. Academy of General Education reported in 150 ITR 135. At page 139 of the aforesaid decision the Hon 'ble Karnataka High Court observed that:

"We may state at the outset that the assessee in order to claim the benefit of section 10(22) of the I.T. Act, 1961 need not necessarily be a school or college where education is imparted. Nor such school or college should be different from the assessee who claims benefit of section 10(22). That would be clear if we peruse the provisions of various sub-section of sections 10 viz., ss.10(3), 10(4), 10(4A),.... 10(22A) and 10(23)."

16. From the above observation of the Hon'ble jurisdictional High Court it is very clear that the assessee claiming exemption u/s. 10(22) need not be a school or educational institution, nor that, the educational institution should be a different and separate legal entity from the assessee claiming the exemption. Although the said decision is in the context of section 19(22) it is to be seen that the ratio of the said decision would squarely apply in the context of section 10(23C) as well, especially on account of the fact that the Hon'ble court has drawn support from the language of other clauses of section 10, which are worded in the manner similar to clause (23C) of section 10 of the Act.
17. The authorities below have not disputed that the assessee society is running several educational institutions each of which are different and distinct from one another even though they are run and controlled by the same assessee in the sense that, different, training is imparted in different institutions. Thus, the learned Commissioner of Income-tax (Appeals) fell in error when he upheld the denial of exemption to the assessee on the ground that the various educational institutions run by the assessee are not separate legal entities by themselves.'

20. The aforesaid view of the Tribunal has been approved by the Hon'ble High Court of Karnataka in CIT v. Children's Education Soceity [2013] 358 ITR 373/34 taxmann.com 285 Substantial question of law 3 and 4 in the said decision was as follows:

"3. Whether the Tribunal is correct in holding that the exemption in terms of section 10(23c)(iii)(ad) of Income tax Act, 1961 is allowable ?

4. Whether, on the facts of the case the tribunal is correct in deleting the addition made in respect of grant of subsidy and advancement of unsecured loans to persons connected with the, Chairman of the society under various agreements ? "
The Hon'ble Karnataka High Court on the above question held as follows :

'20. Now, we are concerned with the meaning to be attached to the word "aggregate annual receipt". The argument is, other educational institution referred to in the said sub-clause refers to all educational institutions run by the assessee and aggregate annual receipts of such other educational institutions means the aggregate of annual receipts of all such educational institutions put together. Otherwise, the use of the word "aggregate" loses its meaning. We find it difficult to accept the said argument.

21. Firstly, if the word "aggregate annual receipts" of other educational institution is to be understood as clubbing of annual receipts of all educational institutions run by an assessee-society, then it will also include the annual receipts of an educational institution which is wholly or substantially financed by the Government. If that was intention of the Legislature, they would not have introduced separate sub-clauses as (iiiab) and (iiiad). If such interpretation is placed, sub-clause (iiiab) becomes otiose. Therefore, it is not possible to place such an interpretation. If an assessee society is running several educational institutions, if some of them are wholly or substantially financed by the Government in terms of sub-clause (iiiab), the income on behalf of such educational institution received by the assessee is exempted from being computed the total income of the assessee. If the assessee is running other educational institutions which are not wholly or substantially financed by the Government, then the benefit of that exemption is also extended to the income derived from such educational institutions and received by the assessee under sub-clause (iiiad) reading with sub-clause (iiiad) along with rule 2BC. It was contended, the Legislature used the word "aggregate annual receipt" and "amount of annual receipts" and, therefore, the provisions are not one and the same. The word "aggregate" has been defined in Chambers 21st Century Dictionary as under :

"Aggregate - noun = a collection of separate units brought together, a total taken altogether, bring together."

In Wharton's Law Lexicon, it is defined as thus : "a collocation of individuals, units or things in order to form a whole."

22. Similarly, relying on the judgment of the apex court in the case of Aditanar Educational Institution v. Addl. CIT, it was contended the words "other educational institution" refers to the assessee society and not to the individual educational institution. If the intention of the Legislature was to club the annual receipts of all educational institutions run by the assessee society, they could have said so in clear terms. On contrary what is stated in the said section is the aggregate annual receipts of such university or such educational institution referring to other educational institution. Other educational institution is to be understood with the context of the first word, i.e., the university. Both in the university and any educational institutions, education is imparted. The university is a statutory body. But there are a number of educational institutions which are not run by a statutory authority which are imparting education, the word "other educational institution" has to be understood in the context of other than any university. If so understood, all that it means is every educational institution existing solely for educational purpose and not for the purpose of profit, if the aggregate annual receipts of such educational institution exceeds Rs. 1 crore, then the income from such educational institution received by the assessee is excluded from his total income. In an educational institution the amount are calculated periodically. It may be calculated under different heads. All such amounts received constituted receipts and those receipts may be received throughout the year. Therefore, the word "annual" has been inserted. But to be eligible for exemption, aggregate of annual receipts should not exceed Rs. 1 crore, i.e., the total annual receipts of a year if it does not exceed Rs. 1 crore, then the income derived from such educational institution in the hands of the assessee cannot betaken into consideration to compute the income of the assessee.

23. No doubt, education has become a business, a very profitable business also. But it requires huge investment. It is the duty of the Government to provide education to all its citizens, as the Government is not able to shoulder the responsibility completely. Therefore, the field of education is now thrown open to private organizations. But for throwing open the field to the private operators, probably, the country would not have achieved in the field of education what it has achieved. Therefore, lot of funds are invested in running these educational institutions, either by creating a society or a trust. In course of time, they have expanded their activity providing course in various subjects at various levels and for that purpose they have established more than one educational institution. Each educational institution is a separate entity controlled under various statutes for various purposes. May be the management of these educational institutions would be in the hands of the societies or the trust, but for all other purposes they are different, independent entities. That is the reason why section 10(23C) is worded as under:

"any income received by any person on behalf of..."

Here "any person" refers to the assessee and "on behalf of refers to such institutions. It may be an university, it may be an educational institution, it may be a hospital or other institutions of similar nature. As all such institutions are independent entities and they generate income and when that income is received by the assessee, it becomes the income in the hands of the assessee and it is such income which is sought to be excluded while computing the total income of the assessee under section 10. The test prescribed under the aforesaid provision is not the income of the educational institution. It is the aggregate annual receipts of such educational institution that is prescribed at Rs. 1 crore. Therefore, irrespective of the expenditure incurred, by those institutions, the exemption is based on the total receipts. Even if the word "aggregate" has to be understood as suggested by the Revenue as the annual receipts of such educational institutions put together, probably, the said provision regarding exemption would be of no use at all. Especially, if the society is running a medial college or any engineering college or other professional courses, then the annual receipt of each institution would run to a few crores and, therefore, the very object of granting exemption to such genuine institution would be lost. Therefore, the words "aggregate annual receipt" has to be understood with the context in which it is used and the purpose for which the said provision was inserted, keeping in mind, the scheme of the Act. Therefore, if an assessee is running several educational institutions, if any of them is wholly or substantially financed by the Government, then the income from such educational institution received by the assessee is not included while computing his total income. Similarly, income from each educational institution if they are not receiving any aid from the Government wholly or substantially in respect of which the aggregate annual receipt do not exceed Rs. 1 crore received by the assessee, is also not included while computing annual total income of the assessee.

24. Clause (vi) makes it clear that if educational institution do not fall under either of those two categories and still such educational institutions are also entitled to the exemption, provided such institutions are approved by the prescribed authority. Therefore all these three provisions apply under three differed spheres. Otherwise, there was no necessity for the Legislature to introduce these three provisions. In that view of the matter, the finding recorded by the Tribunal that aggregate annual receipt of other educational institution means, total annual receipt of each educational institution, is correct and it does not call for any interference. Therefore the substantial questions of law No. 2 and 3 is answered in favour of the assessee and against the revenue.'

In view of the aforesaid decision of the Hon'ble Karnataka High Court, the income of ASKBV has to be held as exempt u/s.10(23c)(iiiad) of the Act. Thus issue no. 1 is decided in favour of the assessee.

21. On the issue no.2 in respect of the claim of the assessee for exemption u/s.10(23c)(vi) of the Act, because annual receipt of AIT was above Rs.1 crore, the learned counsel for the assessee submitted that the assessee had made necessary application to the prescribed authority for grant of approval u/s.10(23c)(vi) of the Act, but the prescribed authority has not acted on the said application and, therefore, the necessary permission should be deemed to have been granted to the assessee. This argument cannot be accepted. The provisions of section 10(23c)(vi) of the Act as it existed for A.Y.2004-05 contemplated approval of the prescribed authority as a condition precedent for grant of exemption u/s.10(23c)(vi) of the Act. In the absence of such approval the assessee cannot claim exemption u/s.10(23c)(vi) of the Act. Consequently, issue no.2 is decided against the assessee. We may also add that the learned counsel for the assessee submitted that by virtue of a statutory amendment to section 10(23c)(vi) of the Act, w.e.f.01.04.2006, a time limit for passing orders by the prescribed authority had been laid down and that such amendment being procedural in nature should be considered as having retrospective operation. Therefore, he submitted that permission by the prescribed authority should be deemed to have been granted. In this regard he also placed reliance on Special Bench decision of ITAT in the case of Bhagwad Swarup Shri Shri Devraha Baba Memorial Shri Hari Parmarth Dham Trust v. CIT [2002] 111 ITD 175 (Delhi), wherein the Special Bench took the view in the context of section 12AA, for grant of registration that the registration would be deemed to have been granted if orders are not passed within the time frame prescribed. We are of the view that grant of registration u/s.12AA cannot be equated with grant of exemption u/s.10(23c)(vi) of the Act. Apart from the above, the Hon'ble Madras High Court has in the case of CIT v. Sheela Christian Charitable Trust [2013] 354 ITR 478/214 Taxman 551/32 taxmann.com 242 taken a contrary view and held that there cannot be any automatic approval.

22. We will now take up the third issue for consideration. Before we deal with the third issue, we may have to highlight certain statutory provisions which govern the grant of exemption to a charitable trust u/s. 11. of the Act. Income of a trust or charitable institution referred to in section 11(1)(a) to (d) of the Act will not be included in the total income. The above rule is subject to statutory conditions prescribed in the Act. Section 11(2) lays down that 85% of the income of the trust has to be applied for charitable purpose and 15% can be accumulated for applying for charitable purpose in future. Such accumulated income can be invested only in the mode specified in section 11(5) of the Act. Section 13(1)(d)(i) of the Act provides that exemption u/s. 11 or 12 of the Act will not be available in respect of its income, if during the financial year the trust invests any of its funds otherwise than in anyone of the modes specified in section 11(5) of the Act. It is in this background of the law that we need to examine the third issue.

23. The Assessing Officer rejected the claim of the assessee for exemption u/s.11 of the Act. U/s.12A(b) of the Act, one of the condition for availing exemption u/s.11 and 12 of the Act is that the assessee has to get its books audited by a chartered accountant and file a report of such audit in form no.10B along with the return of income. The assessee originally claimed exemption u/s.10(23c)(iiiad) and 10(23c)(vi) of the Act and therefore did not file report in form no.10B. However, in the course of assessment the assessee filed form no.10B of the Act under cover of its letter dt 11.12.2006. The Assessing Officer however took the view that filing form no.10B along with the return of income was mandatory and therefore held that the assessee was not entitled to exemption u/s.11 and 12 of the Act. On this issue the Commissioner of Income-tax (Appeals) accepted the plea of the assessee that filing of form no.10B along with return of income was directory and not mandatory. The relevant observation of Commissioner of Income-tax (Appeals) were as follows :

"7.1 The alternative claim of the appellant is that the appellant is entitled for exemption u/s.11. In this regard, the DIT(E) granted registration u/s.12AA on 30.11.2006. The Assessing Officer also treated the appellant's status as charitable trust. The Assessing Officer did not allow exemption u/s.11 on the reason that audit report no. 10B was not filed along with the return. The appellant filed audit report on 11.12.06 along with the copy of DIT(E)'s registration order u/s. 12AA. The appellant asked for condonation of the delay in submitting the report in granting the exemption u/s.11 of the Act. The appellant relied on the decision of the Karnataka High Court in the case of ITO v. Mandira D. Vakharia, 250 ITR 432. In view of this and respectfully following the judicial pronouncement in the case of Mandira D. Vakharia (supra), the Assessing Officer cannot deny exemption u/s. 11 to the appellant. The Assessing Officer is directed to accept and consider the audit report in form no. 10B filed on 11.12.06 before him and allow the exemption u/s. 11 accordingly."

Therefore, this issue no longer requires our consideration. However in revised ground no.4, the assessee has raised this issue which in our view does not require any consideration.

24. The second reason given by the Assessing Officer for denying exemption u/s. 11 of the Act was that there was violation of the provisions of section 13(1)(d)(i) of the Act, r.w.s. 11(5) of the Act. The facts with regard to this addition are already set out in the earlier part of this order and are not being repeated. The contentions of the learned counsel for the assessee and the learned DR before us was also identical to the one raised before the lower authorities. The question is whether the claim of the Assessee regarding the investment in Atria Holdings Pvt.Ltd.(AHPL) as share application money continued to remain as share application money or was it converted into an advance for purchase of flat and later on refunded to the Assessee on cancellation of the agreement to purchase flats.

25. First let us examine the sequence of events in this case. The assessee filed return of income for A.Y.2004-05 on 30.10.2004. In the return of income so filed the assessee did not claim exemption u/s.11 and 12 of the Act. The assessee did not file the required form no.10B for claiming deduction u/s. 11 and 12 of the Act. For the first time the assessee made the claim for exemption u/s.11 and 12 of the Act vide assessee's letter dt 11.12.2006. On the issue of investment in share application money in AHPL, the assessee in response to a query of the Assessing Officer regarding advance for purchase of residential flat, submitted copy of the agreement dt 01.04.2003. The assessee further submitted that the sum of Rs.1.57 lakhs which was given as share application money in AHPL, was converted as an advance for purchase of residential flats. The assessee had also submitted that the cost of four residential flats at Rs. 1,07,24,500/- and Rs.87 lakhs was adjusted out of share application money lying with the company. Rs.70 lakhs was asked as fund from AHPL leaving a balance of Rs.27,24,500/- to be paid by the assessee to AHPL for purchase of flats. The assessee also submitted that the share application money was converted to flat advance in middle of 2004-05. In form no.10B dt 11.10.2004 filed along with letter dt 11.12.2006 in col.5.3 it gave the following information :

In the agreement dt 01.04.2003, there is no reference to an earlier agreement dt 18.07.2000 whereby the share application money was converted as an advance for purchase of six flats. Similarly, in form no.10B dt 11.10.04 filed for AY 2003-04 (Copy is at page.446 of the paper book.) In col.5, the factum of agreement of 18.07.2000 is not found. In the balance sheet of APC as on 31.03.2001, 31.03.2002 and 31.03.2003, the sum of Rs. 1.57 crores is shown as share application money in AHPL. These balance sheets are at pages 354,400 and 448 respectively of the assessee's paper book.

26. For the first time before CIT(A) the Assessee claimed that the share application money got converted into an advance for purchase of flats under an agreement dated 18.7.2000 between the Assessee AHPL. The agreement dt 18.07,2000 never surfaced before the Assessing Officer and was filed for the first time before the Commissioner of Income-tax (Appeals) in the letter dt 11.12.2006, the assessee says that the share application money of Rs. 1.57 crores got converted into advance for purchase of flat in 2003-04. In the statement of facts before the Commissioner of Income-tax (Appeals), it is claimed that the conversion took place on 18.07.2000 under clause (ia), of agreement of 18.07.2000. The books of account of APC shows advance for purchase of flat of Rs. 1.57 crores only in the balance sheet as on 31.03.2004. As already seen, form no.10B for A.Y.2004-05 along with annexure, was filed for the first time before the Assessing Officer on 11.12.2006.

27. If according to the assessee, the amount of Rs. 1.57 crores given as share application money to AHPL got converted into an advance for purchase of flat under an agreement dated 01.04.2003, there is no explanation as to why the said sum is reflected as share application money in the balance sheet of APC.

28. The above sequence of events clearly show that the agreement dated 18.07.2000 and 1.4.2003 was brought about only to get over the rigours of section 13(l)(d)(i) of the Act. The above contradictions in the stand of the assessee and the manner in which and the time at which the stand was taken by the assessee only go to show that these agreements were brought about for the occasion and were not contemporaneous documents. Though the Commissioner of Income-tax (Appeals) has not given any valid reasons as to why he has not considered these documents as not genuine, for the reasons given by us as above, we uphold the conclusions of the Commissioner of Income-tax (Appeals). We may add that the plea put forth by the assessee lacks bonafides. Since there was a violation of the condition laid down u/s.13(1)(d)(i) of the Act, the assessee will not be entitled to the exemption u/s.11 of the Act.

29. In ground no.6, the assessee has taken the following stand :

"6. Without prejudice to the above, even in extreme case for argument's sake of any such violation only income from violated investments alone could be taxed and not the other income and since there was no income derived from the alleged violated investments u/s.11(5) read with section 13(l)(d)(i) of the Act, the income of the trust is to be exempted u/s.11 and further cannot be taxed at maximum marginal rate."

30.On the issue raised by the assessee in the aforesaid ground, we find that section 13(1)(d)(i) reads as follows :
"13. Section 11 not to apply in certain cases.—

(1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt there of—
(d) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof if for any period during the previous year—
(i) any funds of the trust or institution are invested or deposited after the 28th day of February, 1983, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11;"

The use of the expression "any income thereof followed by the words "if for any period during the previous year", clearly shows that violation of section 13(1)(d)(i) of the Act will result in "any income of the previous year loosing the benefit of section 11 under the Act". Therefore, the argument advanced in ground no.6 in our view is without any merit and therefore, dismissed.

31. In ground nos.7 and 8 of the revised grounds, the assessee has taken the following stand:

"7. Without prejudice to the above, the learned Commissioner of Income-tax (Appeals) is not justified in confirming the disallowance of a sum of Rs. 5,076/- being the donations debited in the Income & Expenditure Account of M/s. ASK Brothers Vidyaniketan, as the said donations amounts to application of income for charitable purposes and therefore, ought not to have been disallowed.

8. Without prejudice to the above, the learned CIT(A) ought to have considered a sum of Rs. 1,57,66,324/- being the capital expenditure incurred during the previous year as application of income for charitable purposes, while computing the total income of-the Trust."

32. In our view, the assessee has not produced any evidence to show that Rs.5,076/- was donation given for charitable purpose and hence, there is no merit in ground no.7 raised by the assessee.

With regard to ground to ground no.8, once it is held that the assessee is not entitled to exemption u/s.11, then the question of application of income for charitable purpose has no relevance. The excess of income over expenditure in AIT has to be brought to tax. Ground no.8 is accordingly dismissed.

34. The other grounds are consequential and the Assessing Officer is directed to give consequential relief.

35. In the result, the appeal is partly allowed.