IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad SMC ‘A‘ Bench, Hyderabad
ITA Nos.1444 & 1445/Hyd/2014 (Assessment years: 2004-04 and 2004-05)

Dy. Director of Income Tax (Exemptions) (Appellant) vs Good Shepherd Educational Society (Respondent)
Date of Order: 09-10-2015
ORDER

Both are Revenue appeals for the A.Ys 2003-04 and 2004- 05 respectively. In both these appeals, common issues raised by the Revenue are that the learned CIT (A) has erroneously granted relief to the assessee by holding that the assessee is eligible for exemption u/s 10(23C)(iiiad) of the I.T. Act.

2. Brief facts of the case are that the assessee society filed its return of income for the relevant A.Y claiming exemption u/s 11 of the Act. The assessee is running an educational institution. During the course of the assessment proceedings, the AO required the assessee to produce its books of accounts and other details. Assessee produced the same and on verification of the said details, the AO observed that the assessee society has constructed a school building on the land owned by the Treasurer of the Society, Smt. T. Mary Philip. The assessee’s authorized representative admitted that the so called lease deed was in fact an agreement for the lease executed on a Rs.50/- stamp paper and that the same was not registered. In view of this admission of the representative of the assessee, the AO came to the conclusion that the funds of the society were given away to the Treasurer of the Society without any security. He also observed that the Municipal sanction for the school building was obtained by the land owner Smt. T. Mary Philip. Thus, he observed that in the absence of legally enforceable lease agreement, there is no security for the funds made over by the society to the land owner and there is no way the continued user of the building could be legally enforced by the society , nor for the return of the society’s huge funds. He, therefore, held that the unauthorized action of the society attracts the provisions of section 13(1)(c) of the Act. Further he observed that the affairs of the society are being run as if it is a family concern and for the benefit of the family members of the Treasurer as the members of the society are close blood relations. Further he observed that the exemption provisions contained in sections 10(23C)(iiiad) and (vi) are applicable only when the institutions are run with a no profit motive. Since according to him, the entire income of the society including that of the school looses the benefit of exemption u/s 11 of the I.T. Act, the assessee is not eligible for exemption u/s 11 and u/s 10(23C)(iiiad) of the Act also for the income of the school. The assessment was accordingly concluded by disallowing the exemption as well as the claim of depreciation on the building not owned by the Society. Aggrieved, the assessee preferred an appeal before the CIT (A), who allowed the same and the Revenue is in appeal before us.

3. The learned DR relied upon the order of the AO and submitted that the society is formed by the family members of Smt. T. Mary Philip who is the Treasurer of the Society. He submitted that the land of the Treasurer was allegedly taken on lease by the assessee society and a school building was constructed thereon by utilization of huge funds of the Society. He submitted that there was no security for the amount advanced to the Treasurer of the Society for construction of the building and therefore, the provisions of section 131(C) of the Act are applicable and therefore, the assessee is not eligible for exemption u/s 11 of the Act. He further submitted that the assessee society was not established solely for the purpose of education and therefore, the assessee was not eligible for exemption u/s 10(23C)(iiiad) of the I.T. Act as well . He submitted that the CIT (A), on an erroneous appreciation of facts, has allowed the claim of the exemption u/s 10(23C)(iiiad) of the Act, even though the assessee has not raised any ground of appeal before the CIT (A) on this issue. Thus according to him the order of the CIT (A) is to be set aside.

4. The learned Counsel for the assessee, on the other hand, supported the order of the learned CIT (A) and reiterated the submissions made by the assessee before the authorities below. The learned Counsel for the assessee has also filed a paper book containing pages 1 to 48 in support of his contentions and has drawn my attention to the lease deeds executed on 1.4.2000 and 13.06.2006 respectively and also the Memorandum of Understanding executed on 10.04.2001. Copy of the Registration certificate u/s 12AA of the Act, dated 25.11.2002 is also filed before me.

5. Having regard to the rival contentions and material on record, I find that the assessee is a registered society, vide certificate No.GI/Nil/2004 dated 26.03.2004 issued by the District Registrar (Registration and Stamps: Kurnool). Vide order dated 25.11.2002, the assessee is also granted registration u/s 12AA of the I.T. Act and therefore, it is clear that the Revenue is satisfied about the charitable activities of the society. The society had entered into a lease agreement with the Treasurer of the Society, Smt. T. Mary Philip by executing a lease deed on 1.4.2000 in order to take the land of the land owner on lease for a period of one year on a monthly rent of Rs.8000 with permission to construct a school building thereon. Further I also find that the assessee and Smt. T. Mary Philip have entered into Memorandum of Understanding (MoU) on 10.04.2001 to clarify with regard to the cost of construction of the structures raised or to be raised on the part of the said land. The clause No.2 of the MoU was that the landlord accepts that she would reimburse the cost of the construction of the structures to the society, in case the society vacates the property either on its own or at the instance of the land owner on account of breach of any of the terms and conditions of the lease agreement, while clause 3 mentions that the market value of the structures as on the date of vacating the premises as fixed by the Registered Valuer would be the amount to be reimbursed by the land owner to the society. Accordingly, the assessee has constructed the building on the said land. Assessee has also further executed another lease deed on 13.06.2006 for taking the constructed school building on rent on a monthly rent of Rs.10,000/-. Clause No.14 thereof also specifies that the lessor agrees to pay the amount or money for the value of the structures/building constructed by the society (Cessee) at the time of vacation of premises by the society, as per the market value prevailing at the time of vacation of the scheduled property or as per the value arrived at by both the parties by mutual consent. Thus, from the above clauses of the agreements, it is clear that the assessee had acquired the permission to construct the structures on the leasehold land and that the lessor has also agreed for the return of the value of the structures at the time of vacation of the building. I also find from the balance sheet of the assessee that the buildings are shown to be owned by the assessee itself. In view of the same, I am of the opinion that the funds advanced by the assessee society to its treasurer are secured by the above agreements and hence there is no violation of any provisions of the Income Tax Act and that the provisions of section 131(C) are not attracted. Further I also find from the objectives and aims of the society which are reproduced by the CIT (A) at Para 7.4 of its order that the aims and objectives of the society are running of an educational institution and carrying on of ancillary activities. The CIT (A) has further held that the profit and loss account of two years also shows that the assessee is only in the activity of running of the educational institutions. The learned DR has not been able to bring on record any material evidence to rebut this finding of the CIT (A). That being the case, I am also of the opinion that the assessee is eligible for exemption u/s 10(23C)(iiiad) of the Act. On going through Form No.35 and the grounds of appeal raised by the assessee before the CIT (A), I find that the assessee had not raised any grounds of appeal before the CIT (A) for exemption u/s 10(23C)(iiiad) of the Act. However, the powers of the CIT (A) are co-terminus with the powers of the AO and the CIT (A) u/s 251 has the power either quash the assessment or enhance the assessment. U/s 251, the CIT (A) is empowered to confirm, reduce, enhance or annul the assessment. Sub-section (5) of section 250 provides that the CIT (A) may, at the time of appeal, allow the appellant to go into any ground of appeal not specified in the grounds of appeal, if the CIT (A) is satisfied that the omission of that ground in the form of appeal was not willful or unreasonable. I find that the assessee’s claim u/s 10(23C)(iiiad) was made before the AO, but the AO has denied the said exemption. During the appellate proceedings, the entire claim of the assessee is before the CIT (A) and therefore, the CIT (A) has the power to consider entire claim of the assessee i.e. exemption u/s 11 or u/s 10(23C)(iiiad) of the Act. Therefore, the CIT (A) has the power to consider the assessee’s alternative claim of exemption u/s 10(23C)(iiiad) of the Act, even though the assessee has not specifically raised the ground of appeal in Form No.35 of the Act. Therefore, since the assessee is entitled to the deduction u/s 10(23C)(iiiad) of the Act and also u/s 11 of the I.T. Act, I do not see any reason to interfere with the order of the CIT (A).

6. In the result, Revenue’s appeals for both the A.Ys are dismissed.

Order pronounced in the Open Court on 9th October, 2015.

Sd/-
(P. Madhavi Devi)
Judicial Member
Hyderabad, dated 9th October, 2015.