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Rajasthan High Court · body

2016 DIGILAW 1330 (RAJ)

Central Academy Education Society v. UOI

2016-09-09

AJAY RASTOGI, JAINENDRA KUMAR RANKA

body2016
JUDGMENT : 1. Instant income tax appeal U/S. 260A of the Income Tax Act (in short, the Act’) is directed against the order dated 31.10.2000 passed by the Income Tax Appellate Tribunal, Jaipur (in short ‘the Tribunal’) & it relates to the assessment year 1991-92. 2. The present appeal was admitted by this Court on the following substantial question of law- “Whether in the facts and circumstances of the case it can be said that appellant society is entitled for exemption under Section 10(22) of the Income Tax Act.?” 3. The brief facts noticed for disposal of the appeal are that the appellant claims to be a registered society, being registered under the Rajasthan Society Act and claims to have primary objects of imparting education. The appellant society had 23 branches in various parts of the State in the year under appeal and it was inter-alia claimed that the main and primary object of the society is imparting education only and as per provisions of section 10 (22) of the Income Tax Act, 1961 (in short ‘the Act’), the assessee is entitled for exemption as it is not being run for the motive to earn profit & in the past years all along exemption U/Sec. 10 (22) of the Act has been allowed. 4. Survey operation came to be conducted U/Sec. 133A of the Act on 23.09.1991 on the Appellant Society at Jaipur, Jodhpur & Ajmer and in addition therto officer of the DDIT (Investigation) conducted discrete enquiries at Jodhpur where statements of 17 teachers were recorded U/Sec. 131 by visiting their residences situate at different places of the city. The statements of the teachers were recorded and on analysing the statement viz-a-viz a salary paid and shown in the books of accounts, showed wide discrepancy. The Assessing Officer came to the conclusion that the salary almost to the tune of Rs. 7,00,000/- was inflated by the managing committee/appellant. The survey resulted into noticing several discrepancies/deficiencies and misappropriation of funds of the appellant-society and it was found noticed that the assessee had received amount from various persons exceeding over ; Rs. 1,00,000/- and on an enquiry, creditors were unable to prove the source of amount having been deposited. 7,00,000/- was inflated by the managing committee/appellant. The survey resulted into noticing several discrepancies/deficiencies and misappropriation of funds of the appellant-society and it was found noticed that the assessee had received amount from various persons exceeding over ; Rs. 1,00,000/- and on an enquiry, creditors were unable to prove the source of amount having been deposited. The survey also revealed that some of the members of the society were residing in the building owned by the assessee at A-3, Sunder Path, Bani Park and no rent was received by the society and in addition to that, water, electricity, telephone, conveyance and other facilities were provided to the members of the managing committee free. The enquiry also resulted into, donations have been received by the Society but no proper records of donation was maintained by the school/society. The enquiry resulted into, purchases of school clothes, sarees, watch, Dry fruits etc. and these were found to have been used for personal purposes. In addition to that number of discrepancies were noticed and show cause notice was issued as to why exemption U/Sec. 10 (22) of the Act be not denied to the assessee and the expenses being not disallowed. 5. It was contended on behalf of the assessee that the society exist solely for the purpose of education and 23 branches are running throughout Rajasthan and is imparting education only and the exemption U/Sec. 10 (22) of the Act cannot be denied. It was also contended that all along in the past society has been held to be enuring for exemption U/Sec. 10 (22) of the Act However, the claim was not accepted by the Assessing Officer. 6. An appeal was filed by the assessee assailing the said order of C (A). However, the CIT (A) examined the issue and in the light of the judgment of this Court in the case of Deputy Commissioner of Income Tax v. Cosmopolitan Education Society (2000) vol. 244 ITR 494 he found identical facts thus the claim U/Sec. 10 (22) of the Act was allowed by the CIT (A), the CIT (A) was of the opinion that action on account of misappropriatioi deserves to be taken in individual cases and to bring such amount to taxation in their respective hands and in so far as the appellant is concerned, held that exemption U/Sec. 10 (22) is allowable and allowed the appeal. 7. 7. The Revenue being not satisfied with the said order preferred appeal before the Tribunal. The Tribunal went into the issue elaborately held that the order of the Assessing Officer was just and proper and held the assessee society does not exist solely for the purpose of education in the year under appeal, but it exists for the purpose of profit and has not all the conditions laid down U/Sec. 10 (22) of the Act. Accordingly, reversed the finding of the CIT (A) and upheld the order of the Assessing Officer. 8. Mr. Anant Kasliwal, learned counsel for the appellant contended that the appellant society is running several educational institutions at various places and at least 23 branches are being run and the object of the assesses is to impart education and once there is a finding that the institution established and imparting education, exemption U/Sec. 10 (22) of the Acts imperative & that cannot be denied and the claim of the appellant deserves acceptance. He further contended that in so far as the assessee-society concerned, it is not running for the purpose to earn profit and assessee-society cannot be penalized for the ill deeds, if any, of few members and no inference can be drawn that the institution is running to earn profit. 9. Learned counsel submits that the society never mis - utilized funds except that the members of the society or the secretary may have done something wrong which should not deviate the assessee imparting education and therefore, the CIT (A) was just and proper in holding that the assessee being a society and an educational institution as envisaged U/Sec. 10 (22) the Act, cannot be denied exemption. 10. Per contra, learned counsel for the revenue contended that there are glaring examples of the mis-deeds which came to light on account of survey being conducted and the discrete enquiry conducted by the officers of the revenue revealing mis-deeds/bungling/misappropriation and there is a unique case where innumerable documents, evidences came on record and has not been denied by the assessee before any of the authorities rather admitted, if the society as claimed is running for educational purposes but the facts revealed that it was it was for the purposes of profit, as even the Secretary and so called members had inflated almost all expenses for their personal gains. 11. 11. Learned counsel further contended that the survey conducted at three places namely; Jaipur, Ajmer & Jodhpur revealed examples of siphoning of money from the accounts of the society for the benefit of members of the managing committee and to the detriment of the assessee. The society is being run by a single family where most of the family members are benefited in the shape of residing in a bungalow built by the society, most of the children of family members of the managing committee are studying in the schools and huge salary being drawn by the family members of the managing committee in the name of being teachers or otherwise with no educational background. He further contended that the Tribunal as well as the Assessing Officer have gone elaborately and recorded a finding of fact and the order of the Tribunal is just and proper. He also relied upon judgment of this Court in the case of cosmopolitan Educational Society (supra) which was relied by the learned counsel for the assessee as well. He also relied upon judgment of the Apex Court in the case of Aditanar Educational Institution v. Additional Commissioner of Income Tax reported in (1997) 224 ITR 310 and judgment of Andhra Pradesh High Court in the case of Action for Welfare and Awakening in Rural Environment (Aware) v. Deputy Commissioner of Income Tax : (2003) 263 ITR 12 (AP). 12. We have heard learned counsel for the parties and have perused the impugned order so also the other material available on record and the judgments. 13. Admittedly, the appellant is a registered society under the Society Registration Act and aims and object do suggest that the appellant society has been formed with the object of imparting education without any discrimination to the students having 23 branches of the institution including at Jaipur, Ajmer & Jodhpur etc. and there can be no two opinion that the legislature intended & granted certain manifold benefits to a society or an institution who intends to exist for the purpose of imparting education and not to earn profit. It would be appropriate to quote Section 10 (22) of the Act which reads as under: “any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit.” 14. It would be appropriate to quote Section 10 (22) of the Act which reads as under: “any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit.” 14. The substantial question arises for consideration as noticed herein above is whether the appellant can be denied exemption U/S. 10 (22) of the Act, particularly when the assessee as an institution/society is imparting education but is involved in misappropriation of funds by the secretary/members of the managing committee. 14.1 It remain indisputed that the secretary/members of the managing committee who are running the society/institution are involved in misappropriation & inflating expenses to the detriment of the society. 14.2 We have taken note of the following facts to which there was no rebuttal and admitted by the society even - (i) inflation of salary to the teachers as enquiry revealed that statements of 17 teachers were recorded, who conveyed that they had signed on blank receipts and were not aware as to what was written in the final receipt (inflation to the extent of Rs. 6,98,640/-). (ii) Payment has been made to a tent decorator of pandal having been constructed to the extent of 10,000 Sq. feet, of an annual function at Ajmer amounting to Rs. 42,000/- but on an enquiry showed that only a sum of Rs. 6,149/- was paid to the tent decorator and even no pandal to such a huge extent of 10,000 Sq. feet was constructed. (iii) Scientific instruments and maps were purchased from M/s. Nirmal Prakashan, New Delhi for Rs. 93,000/-, however, statements of Mr. Inder Pal Ghai, prop, of M/s. Nirmal Prakashan, revealed that no such instruments were sold to the appellant and the sale was only to the extent of only Rs. 5,000/-. Mr. Inder Pal Ghai also revealed that some blank copies of bills were given to Mr. B.D. Sharma representative of the assessee on this request but no scientific instruments and maps to the extent of Rs. 93,000/- were supplied by his firm. (iv) Second hand bus bearing No.RNP-1260 has been purchased from one Shri R.K. Jain for an amount of Rs. 1,55,000/-. However, Shri R.K. Jain also denied about the signatures on the cash vouchers. (v) Tyre to the extent of Rs. 93,000/- were supplied by his firm. (iv) Second hand bus bearing No.RNP-1260 has been purchased from one Shri R.K. Jain for an amount of Rs. 1,55,000/-. However, Shri R.K. Jain also denied about the signatures on the cash vouchers. (v) Tyre to the extent of Rs. 11,500/- were shown to have been purchased for second hand Bus from New Good Luck Tyres Jaipur, however, Shri Sakur prop, of the above said concern denied any sale of tyres to the appellant. (vi) T.N. Mishra secretary had made purchases of clothes, sarees, watches, dry fruits which have been used for personal purposes. (vii) T.N. Mishra has also purchased stationary books and uniform in the name of distributing amongst the children but no record of the same was found of purchases of the said items and as to whom it was given. (viii) Perusal of the books of account revealed that squarred up accounts in the name of one Shri V. Vyas had peak credits of Rs. 2,22,830/-. (ix) Smt. Padma Mishra W/o of Shri D.N. Mishra had peak credit of Rs. 1,87,000/-. (x) Shri Murli Mathur had total peak credit of Rs. 1,35,000/- (Statements had been recorded by the DDIT wing of Jodhpur where the creditors were not able to satisfactorily prove the amount being advanced to the appellant that too by cash on various dates. 15. Admittedly, even after such indisputed facts came to light neither the appellant nor any one else including the secretary lodged a complaint or an FIR against such erring members who were found involved in misappropriation & inflating expenses to the detriment of the society. It could have been a different case where a criminal complaint or FIR was lodged by the Society against such members of the managing committee but counsel for the appellant could also show no light as to whether anything of the sort happened which proves that the society had implied consent and members of the managing committee in connivance with the society were indulged in earing profit or personal,gains from the society to its detriment. Admittedly, in the instant case, the motto appears to earn profits by inflating the expenses or misappropriating the funds to the detriment/interest of the institution. 16. Admittedly, in the instant case, the motto appears to earn profits by inflating the expenses or misappropriating the funds to the detriment/interest of the institution. 16. The Act grants innumerable benefits and total exemptions to the societies/trusts/institutions who come forward to do good and laudable acts for the benefit to larger segment of people, needly and downtrodden in the field of Education, Medical and various other fields and the Government/Revenue has full faith and hardly interferes in the affaris of such instituting and invariably accepts what is being shown in the books of accounts and other activities but if the society/institution or the secretary and members of the managing committee who represent the society before public at large indulge in such affairs exemption can be denied. 17. The office bearers including the secretary plays a pivotal role in an institution and because of members of high repute, the parents in particular repose faith and confidence in such institutions and if such are the members who starts misappropriation/mis-utilization as noticed hereinbefore then people loose faith in such institutions. If the members of the managing committee starts misappropriation of funds, starts inflating expenses, starts obtaining bogus bills, and starts indulging in affairs which is detrimental to the society/institution an enquiry, cannot escape from the clutches of law, as in the instant case, as everything has been unearthed on the basis of survey conducted simultaneously at all the three places namely; Jaipur, Jodhpur & Ajmer which we have already described herein before. Certainly on the facts found noticed the society/institution has to suffer as a whole and no purpose would be served, if action is taken on the secretary/members of the managing committee and not taking action against the society itself & shifting burden from the assessee. On the facts found noticed the society becomes dis-entitled to claim exemption U/Sec. 10 (22) of the Act. 18. Learned counsel for the appellant as well as Revenue relied on the judgment of this Court in the case of M/s. Cosmopolitan Educational Society, Jaipur (supra). On the facts found noticed the society becomes dis-entitled to claim exemption U/Sec. 10 (22) of the Act. 18. Learned counsel for the appellant as well as Revenue relied on the judgment of this Court in the case of M/s. Cosmopolitan Educational Society, Jaipur (supra). However the facts in the said case is that it was found that CIT (A) & Tribunal had recorded a finding of fact that it was not known that any part of the income of the assessee was mis-utilized and the appellate authority referred to the balance sheet and other factors whereas this Court did not find any substantial question of law arising out of the order of the Tribunal and found that is a finding of fact but in the instant case there is a categorical finding by the Assessing Officer confirmed by the Tribunal that there was mis-utilization and mis-management of huge funds on the basis whereof the substantial funds were diverted/siphoned by the members of the managing committee/secretary who are none other than the family members and knowing fully well, the society did not take any remedial measure in recovering the said amount, even at a later stage. 19. In the case of Aditanar Educational Institution (supra), relied on by the learned counsel for the Revenue, the apex Court has observed as under- “We may state that the language of section 10 (22) of the Act is plain and clear and the availability of the exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for purposes of profit. After meeting the expenditure, if any surplus results in identally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely or educational purposes since the object is not one to make profit. The decisive or acid test is whether on an overall view of the matter, the object is to make profit. In evaluating or appraising the above, one should alsom bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity.” 20. The decisive or acid test is whether on an overall view of the matter, the object is to make profit. In evaluating or appraising the above, one should alsom bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity.” 20. The argument of the learned counsel for the appellant that in the earlier and in the subsequent years, the institution has been held eligible for exemption U/Sec. 10 (22) of the Act and for the assessment year in question it has been arbitrarily denied in without substance for the reason that each assessment year is required to be taken into consideration and on perusal of the facts noticed, the institution has been found to be involved based on a concurrent finding in fulfillment of the object in making profits. 21. The Andhra Pradesh High Court judgment in the case of Action for weiffare and Awakening in Rural Environment (Aware) (supra) relied on by the learned counsel for the Revenue has held that there were glaring examples of mis-utilization of funds by the society and several irregularities were found in that case and it was also noticed that though the society was aware of such mis-utilization when it was noticed that the Chairman of the Society (AWARE) obtained a loan of Rs. 12,00,000/- from Andhra Bank, Saifabad, Hyderbad, in the name of the Chairman, against pledge of FDR’s of AWARE worth Rs. 16,00,000/-. In a given case, enquiries were not conducted even at the instance of the Delhi High Court and as per the report of Batliboi and Company, glaring examples were found of mis-utilization of the funds and loan having been taken in utilizing the fund of the trust for personal use/gain, it had also been found that Babu Reddy who is employee of the society was made a Scapegoat to cover up the mis-deeds of the Chairman of the society of misusing the trust funds. The Court found that the whole transaction was within the personal knowledge of the trustees and there is no scope to infer that the chairman and other trustees are not aware of the same and proceeding on finding of fact that it is a case where the funds are diverted and mis-utilized deliberately, thus held denial of exemption U/Sec. 10 (22) was just and proper in the case of society. 21.1 In the case of CIT v. Sir M. Visveswaraya Educational Trust reported in [2009] 319 ITR 425 (KAR) the issue before the Karnataka High Court was. identical to the present issue inasmuch as in that case there was a finding about the misuse of funds, payment had been made to family members, remuneration and electricity bill were borne by the Educational Institution, Chairman, his wife and sons were running the instutution as a family concern and not for the sole purpose of education but also for profit. 21.2 It was contended in that case before the Tribunal by the Revenue that the remuneration paid to the wife and children or the managing trustee of the Trust and the electricity bills towards the residence was certainly misutilisation of funds, which the Tribunal ignored and came to a different conclusion. The fact noticed in that case was that an amount of Rs. 5 lac was paid by the chairman of the Trust out of the funds of the Trust to purchase the property in his name. It was also contended on behalf of the Revenue in that case that Managing Trustee and his wife and sons were running the Institution as their personal business in order to make profit to themselves and, therefore, the exemption U/S 10(22) was not allowable. 21.3 It may be observed that in that case also a survey was conducted by the Revenue on 9.3.1998, and certain important documents were impounded and statements on oath of Sri P. Sadasivan, Chairman-Cum-Managing Trustee was recorded. The AO noticed mis-appropriation of Trust Fund and unexplained withdrawals from the account of the Trust. Payments were made to the Chairman-Cum-Managing Trustee and the Legal Advisor of the Trust and the family members to purchase dental equipments and towards electricity charges of Chairman’s House. 21.4 It is a finding of fact that the receipts in the name of the Trust amounts to profit making and it was also noticed that the purchase of dental equipments for the College are not supported by valid receipts and documents, and taking into consideration, the Court denied the benefit U/S. 10(22) of the Act. 21.4 It is a finding of fact that the receipts in the name of the Trust amounts to profit making and it was also noticed that the purchase of dental equipments for the College are not supported by valid receipts and documents, and taking into consideration, the Court denied the benefit U/S. 10(22) of the Act. When we peruse the facts of the present appeal vis-a-vis then facts of the case supra, they are almost identical and rather in the present appeal the misappropriation and misutilisation is much large and it supports the contention of the Revenue that exemption U/S. 10(22) can be denied because of misappropriation/ misutilisation of funds and it can be a good reason to disallow exemption U/S. 10(22) of the Act. 22. In view of what we have noticed herein before in our considered view, the Tribunal has rightly found the assessee not entitled for exemption U/Sec. 10 (22) of the Act and we uphold the view expressed by the Tribunal. 23. In the result the question is answered in favour of the revenue and against the assessee, with the dismissal of the appeal, the interim protection granted to the appellant on 19.09.2001 of stay of recovery of the amount as per demand notice stands vacated. 30 24. Accordingly, the present appeal is dismissed in the terms indicated above with no order as to costs.