Agnel Charities Vs. Income-tax Officer - Court Judgment

Excerpt:
1. this appeal by the assessee is directed against the order of the commissioner of income-tax who passed an order under section 263 of the income-tax act for the assessment year 1982-83. the assessee is assessed in the status of an association of persons and is a charitable body. it runs a school. the assessee had claimed before the income-tax officer that the income should be exempt under section 10(22) of the income-tax act. the income-tax officer, 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 section 10(22) of the income-tax act. the income-tax officer, however, held that the objects of the trust were charitable and, he, therefore, computed the income by.....

Judgment:
1. This appeal by the assessee is directed against the order of the Commissioner of Income-tax who passed an order under Section 263 of the Income-tax Act for the assessment year 1982-83. The assessee is assessed in the status of an Association of Persons and is a charitable body. It runs a school. The assessee had claimed before the Income-tax Officer that the income should be exempt under Section 10(22) of the Income-tax Act. The Income-tax Officer, 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 Section 10(22) of the Income-tax Act. The Income-tax Officer, however, held that the objects of the trust were charitable and, he, therefore, computed the income by applying the provisions of Section 11 of the Income-tax 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 Income-tax Officer regarding inapplicability of Section 10(22) had gone against the assessee.

2. The Commissioner of Income-tax 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 advertisements collection and other collections and coats funds which had not been included in the income of the assessee while computing it under Section 11. He noted that a drama had been organised and in that connection a souvenir had been published. In that connection, some advertisement charges 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 Commissioner of Income-tax 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 advertisements. 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 Income-tax Officer to recompute the income of the society after including the above amounts as income of the society and then finalise 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 Section 10(22) of the Income-tax Act. He submitted that though the Income-tax Officer 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 Section 263, the assessee had drawn his attention to the assessee's claim under Section 10(22). It was stated that under this Section the whole income is exempt under Section 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 on 30-1-1985 has 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 Section 10(22). In that situation the Commissioner could not take any action under Section 263. He pointed out that in the case of an educational institution to which Section 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 Section 11 of the Income-tax Act. The learned Counsel also submitted that even though the Commissioner had taken action under Section 263 he was bound to consider the plea of the assessee under Section 10(22) before he proceeded to consider the order of the Income-tax Officer 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 Section 10(22) of the Income-tax 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 Section 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 Xavier Pillar India, at Bandra in Bombay has been granted exemption under Section 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 Section 10(22).

5. Regarding the Commissioner's directions for including certain receipts as income while computing the income under Section 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 had 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 boats funds it was submitted that the receipt was towards the ancillary purpose and the assessee could not have utilised it for any other purpose. The departmental representative relied on the order of the Commissioner and sub-mitted that there was nothing to show that these donations were towards corpus. Regarding the claim under Section 10(22) it was submitted that the assessee could have filed an appeal when the Income-tax Officer had rejected its plea. It was submitted that the Commissioner could not consider this plea of the assessee in proceedings under Section 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 Income-tax Officer the Commissioner should have also considered the other plea of the assessee that its income was exempt under Section 10(22) of the Income-tax Act. In case this request was accepted, there would have been no occasion for interfering with the order of the Income-tax Officer where he had computed the income by applying the provisions of Section 11. The provisions of Section 263 are no doubt for enabling the Commissioner to interfere with the orders of the Income-tax Officer 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 Income-tax Act, and, therefore, the question of taking action under Section 263 should not arise, the Commissioner cannot ignore that plea and thus interfering with the order of the Income-tax Officer with reference to the assessee's basic plea. We say so as the whole question of computing income under Section 11 could have become academic if the basic plea of the assessee for being recognised under Section 10(22) was accepted. It has been shown before us that in Bombay the parent-society have been so recognised. It is no doubt for the revenue authorities to consider the claim for exemption under Section 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 nobody'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 Vidhya Vihar Trust v. CIT [1982] 136 ITR 445 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 Section 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 Section 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 Section 263. As the revenue authorities have yet not applied their minds to grant of exemption under Section 10(22), we would consider it proper to modify the order of the Commissioner and direct the Income-tax Officer that along with other points he should also consider the plea of the assessee under Section 10(22) of the Income-tax 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 Section 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 or 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 along with 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 the 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 Income-tax Officer to consider the above observations and consider the assessee's plea under Section 10(22) as well as the other aspects arising in the assessment of the assessee.