HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR (1) D.B. Income Tax Appeal No. 708 / 2008 CIT ----Appellant Versus M/S Mahima Shiksha Samiti ----Respondent Connected With (2)D.B. Income Tax Appeal No. 107 / 2009 CIT ----Appellant Versus M/S Mahima Shiksha Samiti ----Respondent (3) D.B. Income Tax Appeal No. 67 / 2010 C I T Jaipur ----Appellant Versus M/S Mahima Shiksha Samiti Jaipur ----Respondent (4) D.B. Income Tax Appeal No. 68 / 2010 C I T Jaipur ----Appellant Versus M/S Mahima Shiksha Samiti Jaipur ----Respondent (5) D.B. Income Tax Appeal No. 70 / 2010 C I T Jaipur ----Appellant Versus (2 of 14) [ITA-708/2008] M/S Mahima Shiksha Samiti Jaipur ----Respondent (6) D.B. Income Tax Appeal No. 126 / 2011 C I T Jaipur ----Appellant Versus M/S Mahima Shiksha Samiti ----Respondent (7) D.B. Income Tax Appeal No. 118 / 2012 C I T Jaipur ----Appellant Versus Mahima Shiksha Samiti ----Respondent (8) D.B. Income Tax Appeal No. 235 / 2012 C I T Jaipur-Ii ----Appellant Versus M/S Mahima Shiksha Samiti ----Respondent (9) D.B. Income Tax Appeal No. 101 / 2014 C I T Jaipur Ii Jaipur ----Appellant Versus M/S Mahima Shiksha Samiti ----Respondent (10) D.B. Income Tax Appeal No. 115 / 2014 C I T Jaipur Ii Jaipur ----Appellant (3 of 14) [ITA-708/2008] Versus M/S Mahima Shiksha Samiti ----Respondent For Appellant(s) : Mr. R.B. Mathur with Mr. K.D. Mathur For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE DR. JUSTICE VIRENDRA KUMAR MATHUR Judgment 23/05/2017 1. In all these appeals identical questions of law and facts are involved, hence these appeals are decided by this common judgment. 2. By way of these appeals, appellant has challenged judgment of Tribunal whereby Tribunal has dismissed appeals of Department. 2.1 While admitting appeal, this Court framed following substantial question of law: 1. Appeal No. 708/2008 (i) Whether in facts and circumstances of case Tribunal was justified in law and has acted perversely in allowing benefit of section 11(1) as charitable trust to assessee despite of fact that huge surpluses earned was withdrawn by way of payments to persons referred u/s 13(3) of I.T. Act. (ii) Whether, in facts and circumstances of case Tribunal was justified in law in allowability of depreciation of assets u/s 32 even where same had already been claimed as application of income in previous years. (4 of 14) [ITA-708/2008] (iii) Whether, in facts and circumstances of case Tribunal was justified in law in deleting addition made for foreign travelling expenses u/s 37 of Act despite of fact that assessee failed to prove justification of these expenses. (iv) Whether, in facts and circumstances of case Tribunal was justified in law and has acted perversely in deleting addition of disallowance of interest u/s. 36(1)(iii) despite of fact that assessee failed to discharge its onus of furnishing evidence of use of assets. (2) Appeal No. 107/2009 (i) Whether in facts and circumstances of case Tribunal was justified in law and has acted perversely in allowing benefit of section 11(1) as charitable trust to assessee despite of fact that huge surpluses earned was withdrawn by way of payments to persons referred u/s 13(3) of I.T. Act. (ii) Whether, in facts and circumstances of case Tribunal was justified in law in allowability of depreciation of assets u/s 32 even where same had already been claimed as application of income in previous years. (iii) Whether, in facts and circumstances of case Tribunal was justified in law in deleting addition made for foreign travelling expenses u/s 37 of Act despite of fact that assessee failed to prove justification of these expenses. (iv) Whether, in facts and circumstances of case Tribunal was justified in law and has acted perversely in deleting addition of disallowance of interest u/s. 36(1)(iii) despite of fact that assessee failed to discharge its onus of furnishing evidence of use of assets. (3) Appeal No. 67/2010 (i) Whether in facts and circumstances of case Tribunal was justified in law and has acted perversely in allowing benefit of section 11(1) as charitable trust to assessee despite of fact that huge surpluses earned was withdrawn by way of payments to persons referred u/s 13(3) of I.T. Act. (ii) Whether, in facts and circumstances of case Tribunal was justified in law in allowability of depreciation of assets u/s 32 even where same had already been claimed as application of income in (5 of 14) [ITA-708/2008] previous years. (iii) Whether, in facts and circumstances of case Tribunal was justified in law in deleting addition made for foreign travelling expenses u/s 37 of Act despite of fact that assessee failed to prove justification of these expenses. (iv) Whether, in facts and circumstances of case Tribunal was justified in law and has acted perversely in deleting addition of disallowance of interest u/s. 36(1)(iii) despite of fact that assessee failed to discharge its onus of furnishing evidence of use of assets. (4) Appeal No. 68/2010 (i) Whether in facts and circumstances of case Tribunal was justified in law and has acted perversely in allowing benefit of section 11(1) as charitable trust to assessee despite of fact that huge surpluses earned was withdrawn by way of payments to persons referred u/s 13(3) of I.T. Act. (ii) Whether, in facts and circumstances of case Tribunal was justified in law in allowability of depreciation of assets u/s 32 even where same had already been claimed as application of income in previous years. (iii) Whether, in facts and circumstances of case Tribunal was justified in law in deleting addition made for foreign travelling expenses u/s 37 of Act despite of fact that assessee failed to prove justification of these expenses. (iv) Whether, in facts and circumstances of case Tribunal was justified in law and has acted perversely in deleting addition of disallowance of interest u/s. 36(1)(iii) despite of fact that assessee failed to discharge its onus of furnishing evidence of use of assets. (5) Appeal No. 70/2010 (i) Whether in facts and circumstances of case Tribunal was justified in law and has acted perversely in allowing benefit of section 11(1) as charitable trust to assessee despite of fact that huge surpluses earned was withdrawn by way of payments to persons referred u/s 13(3) of I.T. Act. (ii) Whether, in facts and circumstances of case Tribunal was justified in law in allowability of depreciation of assets u/s 32 even where same (6 of 14) [ITA-708/2008] had already been claimed as application of income in previous years. (iii) Whether, in facts and circumstances of case Tribunal was justified in law in deleting addition made for foreign travelling expenses u/s 37 of Act despite of fact that assessee failed to prove justification of these expenses. (iv) Whether, in facts and circumstances of case Tribunal was justified in law and has acted perversely in deleting addition of disallowance of interest u/s. 36(1)(iii) despite of fact that assessee failed to discharge its onus of furnishing evidence of use of assets. (6) Appeal No. 126/2011 (i) Whether in facts and circumstances of case Tribunal was justified in law and has acted perversely in allowing benefit of section 11(1) as charitable trust to assessee despite of fact that huge surpluses earned was withdrawn by way of payments to persons referred u/s 13(3) of I.T. Act. (ii) Whether, in facts and circumstances of case Tribunal was justified in law in allowability of depreciation of assets u/s 32 even where same had already been claimed as application of income in previous years. (iii) Whether, in facts and circumstances of case Tribunal was justified in law in deleting addition made for foreign travelling expenses u/s 37 of Act despite of fact that assessee failed to prove justification of these expenses. (iv) Whether, in facts and circumstances of case Tribunal was justified in law and has acted perversely in deleting addition of disallowance of interest u/s. 36(1)(iii) despite of fact that assessee failed to discharge its onus of furnishing evidence of use of assets. (7) Appeal No. 118/2012 (i) Whether in facts and circumstances of case Tribunal was justified in law and has acted perversely in allowing benefit of section 11(1) as charitable trust to assessee despite of fact that huge surpluses earned was withdrawn by way of payments to persons referred u/s 13(3) of I.T. Act. (ii) Whether, in facts and circumstances of case Tribunal was justified in law in allowability of (7 of 14) [ITA-708/2008] depreciation of assets u/s 32 even where same had already been claimed as application of income in previous years. (iii) Whether, in facts and circumstances of case Tribunal was justified in law in deleting addition made for foreign travelling expenses u/s 37 of Act despite of fact that assessee failed to prove justification of these expenses. (iv) Whether, in facts and circumstances of case Tribunal was justified in law and has acted perversely in deleting addition of disallowance of interest u/s. 36(1)(iii) despite of fact that assessee failed to discharge its onus of furnishing evidence of use of assets. (8) Appeal No. 235/2012 (i) Whether in facts and circumstances of case ITAT was justified in law and has acted perversely in allowing benefit of section 11(1) as charitable trust to assessee despite of fact that huge surpluses earned was withdrawn by way of payments to persons referred u/s 13(3) of I.T. Act. (ii) Whether, in facts and circumstances of case ITAT was justified in law in allowability of depreciation of assets u/s 32 even where same had already been claimed as application of income in previous years. (iii) Whether, in facts and circumstances of case ITAT was justified in law in deleting addition made for foreign travelling expenses u/s 37 of Act despite of fact that assessee failed to prove justification of these expenses. (iv) Whether, in facts and circumstances of case ITAT was justified in law and has acted perversely in deleting addition of disallowance of interest u/s. 36(1)(iii) despite of fact that assessee failed to discharge its onus of furnishing evidence of use of assets. (v) Whether on facts and in circumstances of case, ITAT was justified in holding that provisions of Section 60 of Income Tax Act, 1961 cannot be invoked in present case despite fact that referred society, i.e., Ankur Udhodhak Samiti was not filing returns of income and was not registered under Section 12A of Act? (9) Appeal No. 101/2014 (i) Whether, in facts and circumstances of (8 of 14) [ITA-708/2008] case Tribunal was justified in law in directing to grant approval u/s 80G(5) holding that activities of society as charitable despite of fact that society is controlled and managed by one family and motive is to earn profit which cannot be held to be charitable as defined u/s.2(15) of Act. (10) Appeal No. 115/2014 (i) Whether in facts and circumstances of case Tribunal was justified in law and has acted perversely in allowing benefit of section 11(1) as charitable trust to assessee despite of fact that huge surpluses earned was withdrawn by way of payments to persons referred u/s 13(3) of I.T. Act. (ii) Whether, in facts and circumstances of case Tribunal was justified in law in allowability of depreciation of assets u/s 32 even where same had already been claimed as application of income in previous years. (iii) Whether, in facts and circumstances of case Tribunal was justified in law in deleting addition made for foreign travelling expenses u/s 37 of Act despite of fact that assessee failed to prove justification of these expenses. 3. issues if read in tabular form reads as under:- Issue No. Issue 1. Whether in facts and circumstances of case Tribunal was justified in law and in allowing benefit of section 11(1) of IT Act without considering huge surpluses being by society which was being withdrawn by way of payments made to persons referred to u/s 13(3) of I.T. Act. 2. Whether, in facts and circumstances of case Tribunal was justified in law in confirming decision of CIT(A) with regard to allowability of depreciation on assets u/s 32 even where same had already been claimed as application of income in previous years. 3. Whether, in facts and circumstances of case Tribunal was justified in deleting addition made for foreign travelling expenses u/s 37 of Act despite of fact that assessee failed to prove justification of these expenses. (9 of 14) [ITA-708/2008] 4. Whether, in facts and circumstances of case Tribunal was justified in law and has acted perversely in deleting addition of disallowance of interest u/s. 36(1)(iii) despite of fact that assessee failed to discharge its onus of furnishing evidence of use of assets. 5. Whether, in facts and circumstances of case Tribunal was justified in law in directing to grant approval u/s 80G(5) holding that activities of society as charitable despite of fact that society is controlled and managed by one family and motive is to earn profit which cannot be held to be charitable as defined u/s.2(15) of Act. 6. Whether in facts and circumstances of case tribunal was justified in law and holding that payments made to family members and trustees who are covered u/s 13(3) of Act as reasonable despite fact that there was sharp rise in payment to these persons in comparison to earlier years? 4. Heard learned counsel for parties. 5. Counsel for appellant contended that issue is required to be viewed seriously inasmuch as tours and other expenditure which are made are not in consonance with object of Trust. 6. Counsel for respondent has relied upon observations made by Tribunal in para 10, 17, and 19 which reads as under: 10. ld A/R submitted that legislature is not averse to earning of income by charitable institutions bu desires that if income is earned through pursuing charitable objects, such income should be re-applied into charitable objects and for charitable purpose so that society and nation can enjoy larger benefits from such charitable institutions. logic behind devising such scheme is that even after collection of taxes Government applies same towards public charitable purposes (10 of 14) [ITA-708/2008] therefore why to at all collect tax from such institutions which are themselves utilizing their incomes for charitable purposes. Therefore to all those charitable institutions, which plough back their earnings for charitable purposes, fiscal incentive of exemption under section 11 is allowed and no tax is being charged. 17. ld. A/R pointed out that appellant society was granted registration under section 12A, as charitable institution, by ld. Commissioner of Income Tax after considering and examining objects and activities of society. This registration under section 12A/12AA is in force even as on date. Therefore, ld. AO is not entitled to raise questions in relation to charitable purpose which appellant is persuading consistently for past several years. There is no denial to fact that AO is entitled to examine application of income for charitable purpose and can also examine breach of any condition/falling into any disqualification criteria under section 13 but he cannot be allowed to go into existence of trust for charitable purpose . This is for reason that else it would imply that subordinate authority has set at naught judgment of superior authority. This is against principles of Administrative law as well as jurisprudence. charitable Purpose can be questioned only by Commissioner and he has been granted statutory powers even to cancel registration if doubt arises about charitable purpose subsequent to granting of registration. 19. Without prejudice to above, reliance is placed on decision of Hon ble Rajasthan High Court in case of Deputy Commissioner Income-Tax v. Cosmopolitan Education Society 244 ITR 494 where appeal of department was rejected by affirming finding of ld. Income Tax Appellate Tribunal and ld. Commissioner of Income-Tax Appeals that in case there was any misutilisation of funds of society or mismanagement of activities of society, action could be taken against members of society as per provisions of various statues governing society. However, even such misutilisation or mismanagement by members could not be basis of rejection of claim of exemption ot assessee educational society. Special Leave Petition against this judgment also stood dismissed vide 241 ITR (St) 132. Therefore, these grounds of disallowance of exemption are not sustainable in law. 6.1 He also relied upon following decisions:- (11 of 14) [ITA-708/2008] 3.3(i) In Queen s Education Society vs. CIT reported in (2015) 372 ITR 699 (SC), Supreme Court held as under:- 19. It is clear, therefore, that Uttarakhand High Court has erred by quoting non existent passage from applicable judgment, namely, Aditanar and quoting portion of property tax judgment which expressly stated that rulings arising out of Income Tax Act would not be applicable. Quite apart from this, it also went on to further quote from portion of said property tax judgment which was rendered in context of whether educational society is supported wholly or in part by voluntary contributions, something which is completely foreign to Section 10(23C) (iiiad). final conclusion that if surplus is made by educational society and ploughed back to construct its own premises would fall foul of Section 10(23C) is to ignore language of Section and to ignore tests laid down in Surat Art Silk Cloth case, Aditanar case and American Hotel and Lodging case. It is clear that when surplus is ploughed back for educational purposes, educational institution exists solely for educational purposes and not for purposes of profit. In fact, in S.RM.M.CT.M. Tiruppani Trust v. Commissioner of Income Tax MANU/SC/0107/1998 : (1998) 2 SCC 584, this Court in context of benefit claimed Under Section 11 of Act held: 9. In present case, Assessee is not claiming any benefit Under Section 11(2) as it cannot; because in respect of this assessment year, Assessee has not complied with conditions laid down in Section 11(2). Assessee, however, is entitled to claim benefit of Section 11(1)(a). In present case, Assessee has applied Rs. 8 lakhs for charitable purposes in India by purchasing building which is to be utilised as hospital. This income, therefore, is entitled to exemption Under Section 11(1). In addition, Under Section 11(1)(a), Assessee can accumulate 25% of its total income pertaining to relevant assessment year and claim exemption in respect thereof. Section 11(1)(a) does not require investment of this limited accumulation in government securities. balance income of Rs. 1,64,210.03 constitutes less than 25% of income for Assessment Year 1970-71. Therefore, Assessee is entitled to accumulate this income and claim exemption from income tax Under Section 11(1)(a). (12 of 14) [ITA-708/2008] We set aside judgment of Uttarakhand High Court dated 24th September, 2007. reasoning of ITAT (set aside by High Court) is more in consonance with law laid down by this Court, and we approve its decision. (ii) In Chief Commissioner of Income Tax, Chandigarh vs. St. Peter s Education Society (2016) 385 ITR 66 (SC), Supreme Court observed as under:- We may record at this stage that there was difference of opinion among various High Courts on aforesaid issue. While summarizing law, this Court approved judgments of Punjab and Haryana High Court, Delhi and Bombay High Courts and reversed view taken by Uttarakhand High Court. In so far as judgment of Punjab and Haryana High Court is concerned, it was given in case of Pinegrove International Charitable Trust v. Union of India MANU/PH/0146/2010 : [2010] 327 ITR 73 (P&H). relevant para in this behalf which also states as to how such cases are to be dealt with reads as under: "25. We approve judgments of Punjab and Haryana, Delhi and Bombay High Courts. Since we have set aside judgment of Uttarakhand High Court and since Chief Commissioner of Income- tax's orders cancelling exemption which were set aside by Punjab and Haryana High Court were passed almost solely upon law declared by Uttarakhand High Court, it is clear that these orders cannot stand. Consequently, Revenue's appeals from Punjab and Haryana High Court's judgment dated January 29, 2010, and judgments following it are dismissed. We reiterate that correct tests which have been culled out in three Supreme Court judgments stated above, namely, Surat Art Silk Cloth, Aditanar and American Hotel and Lodging, would all apply to determine whether educational institution exists solely for educational purposes and not for purposes of profit. In addition, we hasten to add that 13th proviso to Section 10(23C) is of great importance in that assessing authorities must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with law laid down. Further, it is of great importance that activities of such institutions be looked at carefully. If (13 of 14) [ITA-708/2008] they are not genuine, or are not being carried out in accordance with all or any of conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn. All these cases are disposed of making it clear that Revenue is at liberty to pass fresh orders if such necessity is felt after taking into consideration various provisions of law contained in Section 10(23C)read with Section 11 of Income-tax Act." In all those appeals which have come from High Court of Punjab and Haryana and filed by Department of Income-tax except one from Gujarat High Court, High Court has followed its aforesaid judgment in Pinegrove International Charitable Trust. Since this view stands approved, all these appeals are dismissed. We, however, make it clear that observations made in para. 25, reproduced above, shall apply in these cases. One appeal is from Gujarat High Court which has also followed view taken by Punjab and Haryana High Court in Pinegrove International Charitable Trust, which also stands dismissed. We also make it clear that observations made in para. 25 in Queen's Educational Society v. CIT MANU/SC/0287/2015 : [2015] 8 SCC 47 : [2015] 372 ITR 699, 729 (SC) shall be followed. 6.2 He strongly relied on decision of this Court in case of Jhunjhunu Academy Sammittee Vs. Income Tax Officer Jhunjhunu, D.B. Income Tax Appeal No. 123/2006, decided on 8 th February, 2017, this Court while considering identical question observed as under: 15. Before coming to basic contentions, it is not in dispute that appellant is as by name itself suggests that it is academic Samiti carrying on activities of educational purpose for establishing any educational institution. There is need of infrastructure and expansion of every activity whether it is residential accommodation or physical or competitive requirement or other requirement and also maintenance of institution is mandatory for which one has to collect funds. (14 of 14) [ITA-708/2008] 16. From record it seems that endeavour is made that during relevant year they have surplus fund which is prescribed or described by authority as profit and compared to expenses or other income which has been received as 34,91,251/-. Thus, it has been stated that there is profit of 33 per cent. 17. In our view, any educational institution which is required to be run they have to have surplus fund for educational activity to sustain consistency in efficiency and very purpose of collecting donation is to sustain activity of institution. Merely, because surplus fund it cannot be envisaged as profit, institution has not crossed one crore limit and they are well within their prescribed limit. income was received by trust which is reflected in books of accounts. 18. In our view, view taken by authority is required to be reversed and it is required to be looked into foundation of ratio laid down by Supreme Court in case of Queen s Education Society (supra) where funds which has been surplus is within corpus fund and it has been kept as reserve fund which is not in dispute and they have not crossed limit of one crore. 19. Taking into consideration aforesaid, we are of opinion that contention raised by Mr. Jhanwar is required to accepted. 20. Therefore, first question, we answering in favour of assessee that it is income entitled for exemption under Section 23C(iiiad) of Act. 7. Thus, in view of above, all issues are required to be answered in favour of assessee and against Department. All appeals are dismissed. copy of this judgment be placed in each file. (VIRENDRA KUMAR MATHUR),J. (K.S. JHAVERI),J. /bm gandhi 42-51 CIT v. Mahima Shiksha Samiti