In the ITAT,
Additional Director of Income-tax (Exemption)
v.
Manav Bharati Child Institute & Child Pschology
P.N. PARASHAR, JUDICIAL MEMBER
AND DEEPAK R. SHAH, ACCOUNTANT MEMBER
IT APPEAL NO. 512 (
C.O. NO. 131 (
[Assessment year 2001-02]
September 28, 2007
Section 11 read with sections 12 and 13 of the Income-tax
Act, 1961 - Charitable or religious trust - Exemption of income from property
held under - Assessment year 2001-02 - Whether so long as objects of a society
are for charitable purposes, merely because there is some surplus in activities
carried out by society it would not disentitle it to claim exemption under
sections 11 and 12 - Held, yes - Assessee-society was running an educational
institution and was enjoying exemption under section 10(22) in past - During
relevant year, assessee claimed exemption under sections 11 and 12 - Assessing
Officer denied exemption by holding that there was infringement of provisions
of section 13(1)(c) as financial benefits were provided to relatives of
chairman, member of governing board and members of society - On appeal,
Commissioner (Appeals) found that payments made to persons were for their
service rendered by them and same was not undue or unreasonable - He further
held that assessee society existed solely for educational purposes and all
receipts of society had been exclusively used for purpose of society and
surplus generated had also been applied for construction of new blocks for
educational activities and no part of it had been applied for any personal
purposes generated had not been applied for any personal purposes, he,
therefore, allowed exemption to assessee - Whether order of Commissioner
(Appeals) was justified - Held, yes
Section 11 of the Income-tax Act, 1961 - Charitable or
religious trust - Exemption of income from property held under - Assessment
year 2001-02 - Whether though filing of Form No. 10 in respect of accumulation
of income is mandatory to claim exemption under sections 11 and 12 but same can
be filed at any time during pendency of assessment proceedings - Held, yes -
Whether if Form No. 10 is so filed benefit of accumulation of income for
charitable purpose cannot be denied - Held, yes
FACTS
The
assessee-society was running an educational institution and was enjoying
exemption under section 10(22) in the
past. During the relevant assessment
year, the assessee filed an application for registration under section 10(23C)(vi)
during the pendency of which, the assessee claimed exemption under sections 11
and 12. The Assessing Officer found that
financial benefits were provided to the relatives of the Chairman, Members of
Governing Board and Members of the society.
He, also observed that huge surplus arose to the assessee during the
year which showed that activities of the assessee was profit earning activity
and not entirely for educational purposes. On these basis, the Assessing
Officer held that the assessee had infringed the provisions of section 13(1)(c) and, hence, benefit of exemption
under sections 11 and 12 would not be allowed to it. The other reason for
denying the exemption under sections 11 and 12 was that the assessee had not
filed Form No. 10 in respect of surplus of income while claiming exemption. On appeal, the Commissioner (Appeals) found
that the payments were made to the members of the society for the services
rendered by them. He further found that
the assessee-society existed solely for educational purposes since 1972 and was
running two schools. All the receipts of
the society had been exclusively used for the purpose of society and the
surplus generated had also been applied for construction of new blocks for
educational activities which was the main object of the society and there was
no finding of the Assessing Officer that surplus had been utilized for any non
charitable activity or any other object.
The profit/surplus which had been generated had not been applied for any
personal purposes. Therefore, considering the said fact, he held that the
exemption under sections 11 and 12 could not be denied and directed the
Assessing Officer to compute income under sections 11 and 12 till the decision
on application under section 10(23C)
(vi).
In the instant
appeal, filed by the revenue the assessee raised a cross objection that form
No. 10 can be filed at any time during pendency of assessment proceedings.
HELD
The first
thing to be noted in the instant case was that all along the assessee had been
claiming and being allowed exemption under section 10(22) which can be allowed only when the assessee is an educational
institution and existing solely for educational purposes and not for the
purpose of profit. Thus, the contention
of the Assessing Officer that huge surplus was accruing to the assessee and
exemption under sections 11 and 12 was not admissible was devoid of
merits. So long as the object are for
charitable purposes, merely because there is some surplus in the activities
carried out by the society same would not disentitle its to claim exemption
under sections 11 and 12. Such exemption
under sections 11 and 12 can be denied provided there is violation as
contemplated in section 13. Under
section 13(1)(c) only where the income or property is used for applying
directly or indirectly for the benefit of any person like author of the trust
or the person who has made substantial contribution or any trustee or manager
or any relative of such aforesaid person, etc., is given. As found by the Commissioner (Appeals), the
payments made to person referred to in sub-section (3) of section 13 were for
the services rendered by those persons and which was commensurate with the
nature of services rendered. There is no
prohibition in the Act to remunerate the interested person but such
remuneration should be commensurate with the services rendered by them. If so found, it cannot be said that
provisions of section 13(1)(c) are
attracted so as to deny benefit of exemption under section 11 and 12. Since it
was found by the Commissioner (Appeals) that payment was not undue or unreasonable,
the exemption under sections 11 and 12 could not be denied. Accordingly, there was no ground to deny the
benefit of sections 11 and 12. [
As regards,
the cross objection of the assessee in respect of filing of Form No. 10,
various courts have time and again held that though filing of Form No. 10 in
respect of accumulation of income is mandatory to claim exemption under
sections 11 and 12, the same can be filed at any time during the pendency of
assessment proceedings. If the Form No.
10 is so filed the benefit of accumulation of income for charitable purpose
cannot be denied. Accordingly, the
Assessing Officer was to be directed to compute the income after allowing
exemption under section 11 and 12 and also considering the application in Form
No. 10 regarding accumulation of surplus income for the purpose of objects of
trust. [
In the result,
the appeal of the revenue was dismissed and the cross objection of the assessee
was allowed.