1988-VIL-70-ITAT-DEL

Equivalent Citation: TTJ 031, 160,

Income Tax Appellate Tribunal DELHI

Date: 10.03.1988

AGNEL CHARITIES.

Vs

INCOME TAX OFFICER.

BENCH

Member(s)  : K. C. SRIVASTAVA., F. C. RUSTAGI.

JUDGMENT

This appeal by the assessee is directed against the order of the CIT who passed an order under s. 263 of the IT Act for the asst. yr. 1982-83. The assessee is assessed in the status of an AOP and is a charitable body. It runs a school. The assessee had claimed before the ITO that the income should be exempt under s. 10(22) of the IT Act. The ITO, however, referred to the main objects of the assessee and held that it did not exist solely for the purpose of education and it was, therefore, not entitled to benefit under s. 10(22) of the IT Act. The ITO however, held that the objects of the trust were charitable and, he, therefore, computed the income by applying the provisions of s. 11 of the IT Act. The net income of the assessee was determined at Rs. 7,560 which was below the taxable limit. As no demand was raised the assessee did not appeal against this assessment order though the finding of the ITO regarding inapplicability of s. 10(22) had gone against the assessee.

2. The CIT was, however, of the view that the assessment made was erroneous insofar as it was prejudicial to the interests of the Revenue. He found that there were certain receipts like souvenir advertisement collection and other collections and coats funds which had not been included in the income of the assessee while computing it under s. 11. He noted that a drama had been organised and in that connection a souvenir had been published. In that connection, some advertisement had been collected and the balance of Rs. 79,529 was taken directly to the balance-sheet. The case of the assessee was that the drama was held for collecting certain funds for the building of the school and, therefore, donations received in this regard should be considered as corpus donation. The CIT did not accept this plea as there was no subsequent mention of its being the donation towards corpus. The payment had been made in consideration of the advertisement. In the same way, he found that there was a receipt of Rs. 30,495 which had been collected from the students under the head building funds. According to the assessee, this was also meant to be used for the construction of the building and was, therefore, towards the corpus. This was also not accepted by the Commissioner. The third receipt was small amount of Rs. 3,680 which was towards coats funds which are given to priests of the society for prayers made by them and these amounts were to be utilised only when the priests will be unable to make prayer in their old age. These were also claimed to be donation towards corpus, but this plea was also not accepted by the Commissioner. The Commissioner directed the ITO to recompute the income of the society after including the above amounts as income of the society and then finalised its assessment.

3. It has been submitted before us by the learned Counsel for the assessee that the case of the assessee from the beginning had been that it should get exemption under s. 10(22) of the IT Act. He submitted that though the ITO had rejected this plea of the assessee, the assessee had not filed any appeal in view of the fact that there was no tax demand against the assessee. He pointed out that the Commissioner issued notice to the assessee stating that he intended to take action under s. 263, the assessee had drawn his attention to the assessee's claim under s. 10(22). It was stated that under this section the whole income is exempt under s. 10(22) and in those circumstances the question of going into the nature of these receipts would not arise. The copy of the assessee's letter filed before the Commissioner, on30th Jan., 1985has been filed before us. It is submitted that the Commissioner did not give any consideration to this basic plea of the assessee and had he done it, he could have come to the conclusion that the income of the assessee is exempt under s. 10(22). In that situation the Commissioner could not take any action under s. 263. He pointed out that in the case of an educational institution to which s. 10(22) applied, the whole income is exempt and one has not to go into the question of the application of income and other considerations which are relevant for s. 11 of the IT Act. The learned Counsel also submitted that even though the Commissioner had taken action under s. 263 he was bound to consider the plea of the assessee under s. 10 (22) before he proceeded to consider the order of the ITO to be erroneous in so far as it was prejudicial to the interests of the Revenue. It was contended that it is open to the assessee to raise this question in these proceedings as the whole action by the Commissioner would become meaningless if the basic plea of the assessee was accepted.

4. Making the plea for being considered under s. 10(22) of the IT Act it was submitted that the only activity which was subject matter of consideration was the running of the school known as Fr. Agnel. It was pointed out that there was no other activity of the assessee and the school which is run by the Agnel Charities fulfils all the conditions which are given in s. 10 (22). In this connection, he referred to the registration of the school by the Registrar of Societies of the Delhi Administration. It was further submitted that though in the Memorandum there are other objects mentioned but the question of income-tax assessment has arisen only because the school was being run and some finances were required for its running. It was also submitted that the main society which was in Bombay which was being assessed as Society of St. Frances Xavior Pillar India, at Bandra in Bombay has been granted exemption under s. 10 (22) though the missions and objects are similar. The learned Counsel, therefore, submitted that the order of the Commissioner should be set aside as he has not considered the basic contention under s. 10(22).

5. Regarding the Commissioner's direction for including certain receipts as income while computing the income under s. 11 it was submitted that certain receipts had been there for a specific purpose of constructing the building of the school. The receipts from advertisements in Souvenir was one such source and it has been made clear in the letter which had been issued for staging of the Hindi drama named, 'Mukhya Mantri' that the proceeds of the show would go towards the school building fund. People were requested that they should contribute towards the establishment of public charitable and social complex of the school. It was, therefore, contended that the basic requirement of the school was a building and from its very nature whatever income was received for constructing that building was a donation towards corpus. Regarding the collection made in the name of the building fund, it was submitted that there also the parents were requested to contribute towards building and, therefore, it was contribution towards corpus. Regarding the coats funds it was submitted that the receipt was towards the ancillary purpose and the assessee could not have utilised for any other purpose. The Departmental Representative relied on the order of the Commissioner and submitted that there was nothing to show that these donations were towards corpus. Regarding the claim under s. 10(22) it was submitted that the assessee could have filed an appeal when the ITO had rejected its plea. It was submitted that the Commissioner could not consider this plea of the assessee in proceedings under s. 263.

6. We have considered the facts of the case and the rival submissions. We are of the view that while considering the assessment which had been made by the ITO the Commissioner should have also considered the other plea of the assessee that its income was exempt under s. 10(22) of the IT Act. In case this request was accepted, there would have been no occasion for interfering with the order of the ITO where he had computed the income by applying the provisions of s. 11. The provisions of s. 263 are no doubt for enabling the Commissioner to interfere with the orders of the ITO where some loss of revenue has resulted by some error committed in the making of the assessment. However, where an assessee raises the plea that his income is exempt or his income is not taxable under any provision of the IT Act, and therefore, the question of taking action under s. 263 should not arise, the Commissioner cannot ignore that plea and thus interfering with the order of the ITO with reference to the assessee's basic plea. We say so as the whole question of computing income under s. 11 could have become academic if the basic plea of the assessee for being recognised under s. 10(22) was accepted. It has been shown before us that inBombaythe parent's society have been so recognised. It is no doubt for the Revenue authorities to consider the claim for exemption under s. 10(22) after considering the circumstances which include the major activity of the assessee, which prima facie was running school. From the accounts it appears that there was no other activity and even if it was there it was negligible. It is no body's case that any activity was an activity for profit. It was submitted before us that under similar circumstances the Calcutta High Court had held in the case of Birla Vidya Vihar Trust vs. CIT (1981) 24 CTR (Cal) 307 :(1982) 136 ITR 445 (Cal) that the institution must be held to be solely for educational purposes. If an institution is run by a trust, there cannot be any difficulty in recognising that trust as an institution under s. 10(22). In that case also it was held that the application of income from the school for non-education purpose in a prior year was not very material and the fact that the assessee does have objects other than educational objects was also not material. The Trust was granted exemption under s. 10(22).

7. The submission of the assessee has force and the main plea of the assessee should not be brushed aside even in proceedings under s. 263. As the Revenue authorities have yet not applied their minds to grant of exemption under s. 10(22), we would consider it proper to modify the order of the Commissioner and direct the ITO that alongwith other points he should also consider the plea of the assessee under s. 10(22) of the IT Act in the light of such recognition granted to a sister trust and also the decision of the Calcutta High Court, referred to above. Only in case this plea of the assessee was not accepted, that the question of computing the income under s. 11 will arise. For completeness of the order, we would certainly make some remarks about the receipts which have been directed to be included in the income of the assessee. As regards the receipts on the occasion of the staging of drama for construction of the building was concerned, it is clear from the circular letter issued by the school that they had invited subscriptions and donations for the sake of school building. In such circumstances, the plea of the assessee that it should be taken as a donation towards the corpus is reasonable. We, however, do not consider that the same can be said about the building fund received alongwith fees paid by the students, it is difficult to accept that a part of the fees was a donation as it is a compulsory payment by all the students. As regards the receipts towards coat funds the plea of the learned Counsel for assessee that this was not a receipt having the nature of income as from the beginning it was intended to be used for a specific purpose, is acceptable and this small amount, therefore, can be left out of consideration in computing the assessee's income.

8. Subject to the above clarification, we modify the order of the Commissioner and direct the ITO to consider the above observations and consider the assessee's plea under s. 10(22) as well as the other aspects arising in the assessment of the assessee.

9. The appeal is allowed in part.

 

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