JUDGMENT
Phool Singh, J.M.
1. This appeal of the assessee is directed against order dt….. (illegible) of the learned CIT(A)-I, Lucknow.
2. The facts giving rise to this appeal are that assessee-Society is a registered society in the name of “U.S. Srivastava Memorial Educational Society” (hereinafter referred to as Society) as per registration No. 97786, dt. 9th Feb., 1989, issued by the Registrar of Societies. The objects of the Society are given in the “Smriti Patra” and perusal thereof reveal that its main object was to establish Central School for development of education and social as well as spiritual development and to carry out proceedings for achieving the same. Other objects were also there, but it has been the contention of the assessee that it was pursuing the main object of providing education though its school namely, “Sherwood Academy”. It has also recorded that assessee started with a junior section and later on the institution got affiliation from Council for the Indian School Certificate Examination w.e.f. 26th Oct., 1992, as per certificate issued by the Council for the Indian School Certificate Examination, the copy of which is appearing at p. 21 of the paper book. The contention of the assessee was that at present there were 1,200 students getting education in the said school upto 12th standard.
3. For asst. yr. 1996-97, the year under consideration, the assessee filed return showing Nil income as the Society claimed the benefit of Section 10(22) of the-IT Act, 1961 (hereinafter referred to as the Act). The assessment, however, was completed at an income of Rs. 3,56,650 under Section 143(3) of the Act. It transpires from the record that CIT, Lucknow called for the record of the assessee for asst. yr. 1996-97 and observed that assessee had not filed “Smriti Patra” containing the object of the Society. The AO, without having examined as to whether the assessee-Society fulfilled the condition of Section 10(22) of the Act, had concluded that the income of the Society was exempted under that section. It was further noted that several persons have made deposits in cash (in two cases by cheque) and total thereof was Rs. 57,65,193, but some of the depositors denied to have made deposit with the society and AO without examining the said fact, accepted the genuineness of the deposits. On the basis of these two facts, the CIT, Lucknow, was of the view that assessment framed by the AO is erroneous and prejudicial to the interest of the Revenue and he issued notice under Section 263 of the Act on 7th July, 1999, calling upon the assessee as to why assessment order should not be set aside as the same is erroneous so far as it was prejudicial to the interest of the Revenue. The assessee submitted its reply and it appears that on the date of hearing, none appeared on behalf of the assessee and CIT vide order dt. 3rd March, 2000, cancelled the assessment order with the direction to the AO to reframe the same de novo after taking care of the observations made in the notice under Section 263 of the Act.
4. In the second innings, the AO proceeded to frame assessment and called upon the assessee as to why the assessment should not be made treating the activities of the Society as normal business activities and to be taken in the status of AOP. The assessee replied vide letter dt. 7th March, 2002, in which it was stated that the assessee-Society was running school in the name of “Sherwood Academy” which was affiliated to CBSE, Delhi. Around 1,200 students were enrolled in the year under consideration and 50 teachers were associated with the Society. The very purpose of the Society was to provide education and development of the students. It was also specifically mentioned that there was no other work or project undertaken by the assessee-Society except running the said “Sherwood Academy”. The AO noted that the Society was known as educational institution even though it runs an educational institution. It was also opined by the AO that memorandum of association of the assessee-Society shows that it has got multifarious objects and it was concluded that the Society does not exists solely for educational purposes. It was also noted that the Society was not registered under Section 12A nor any of the conditions for exemption under Section 11 was fulfilled and it is not eligible for exemption under Section 11 also. The AO, in the end, concluded that assessee is not entitled for claiming exemption under Section 10(22) of the Act and AO proceeded to complete the assessment of the assessee-Society in the status of an AOP. Proceeding further the AO was of the view that the assessee-Society had claimed depreciation to the extent of Rs. 38,865 which was not allowable to the assessee. Addition of Rs. 6,50,925 appearing in the balance sheet of the assessee-Society was also made. Three deposits of Rs. 20,000 received from Shri Brijesh Agarwal, Rs. 35,000 received from Shri Hitesh Agarwal and Rs. 15,000 received from Shri Ramesh Agarwal were treated as unexplained making an addition of Rs. 70,000. The AO also noted that assessee had shown Rs. 9,04,946 as interest given to depositors while total of the interest given to the depositors was Rs. 7,22,599 and the excess of Rs. 1,82,346 was added as excessive claim by the assessee. Rs. 68,490 was added which were claimed by the assessee as honorarium in respect of the director of the academy Shri K.B. Lal. Rs. 84,018 was added to the total income by invoking provisions of Section 43B of the Act and in all total income was assessed at Rs. 21,10,360.
5. Before the learned CIT(A), several pleas were raised and after considering all the facts, the learned CIT(A) noted that assessee was not entitled for exemption under Section 10(22) of the Act as there was surplus of income at Rs. 10,22,926 and no information regarding the utilization of surplus income or expenditure was given by the assessee nor assessee-Society was found running educational institution alone. The learned CIT(A) confirmed the disallowance by Rs. 38,865 made by the AO out of depreciation claimed and Rs. 6,50,925 which was in respect of development charges received by the assessee-Society from students towards building expenses. However, learned CIT(A) noted that assessee had been able to prove the genuineness of cash credit of Rs. 70,000 and directed the AO to delete the said addition which he made on account of unexplained deposits in respect of three persons. The other additions were also confirmed and appeal was disposed of accordingly, against which the assessee is in appeal.
6. The contention of the learned counsel is that assessee was an educational institution and its main purpose was to run school for imparting education to students and for the year under consideration, the assessee-Society had been found running only one school in the name of “Sherwood Academy”. The assessee also submitted that as per audited income and expenditure account submitted along with return, there was surplus of Rs. 10,22,926, but Form No. 10B of the audit report submitted along with return of income shall reveal that funds spent for educational purposes during the year under consideration was Rs. 1,26,36,471 out of which Rs. 40,63,143 was revenue expenditure for providing education during the year as stated in the audited income and expenditure account and Rs. 85,73,328 was on account of capital expenditure being construction of school building and purchase of plant and machinery for educational purpose. The copies of Form No. 10B and other documents relating to audit report are appearing at pp. 34 to 71 of the paper book. On the basis of the audit report, the learned counsel submitted that only source of income of the institution is from realization of fees from students and expenditure incurred by the assessee-Society was only for educational purposes. The AO and the learned CIT(A), the learned counsel for the assessee submitted, have nowhere found that assessee-Society was carrying on any other work except running the school or was associated with any object other than running the said school. The learned counsel also submitted that no doubt, there were other objects of the assessee-Society, but all were related to development of the students and villagers, but those other objects were not pursued by the assessee-Society except running the institution for education of students.
7. Referring to the provisions of Section 10(22) of the Act, learned counsel submitted that the only two requirements to be established for claiming the exemption under this section and one out of them is that educational institution should exist solely for educational purposes. The second requirement is that it must not be for the purpose of profit. The learned counsel, placed reliance on the decision of the Hon’ble Supreme Court of India in the case of Aditanar Educational Institution v. Asstt. CIT (1997) 224 ITR 310 (SC), in which it was laid down that in case an educational institution is formed for sole purpose of establishing, running, managing or assisting schools and colleges, then the institution is to be extended the benefit of exemption under Section 10(22) of the Act irrespective of the surplus over expenditure. The other decision cited by the learned counsel is that of CIT v. A.M.M. Arunachalam Educational Society (2000) 243 ITR 229 (Mad) in which the institution was found running and maintaining school and the view of the Tribunal was confirmed that the Society was an educational institution within the scope of Section 10(22) and its income was exempted. The learned counsel, on the same point, referred to the decision of the jurisdictional High Court in the case of Katra Education Society v. ITO (1978) 111 ITR 420 (All) in which it was laid down that word “institution” appearing in Section 10(22) of the Act has not been defined in the Act, but there was no reason why an educational society cannot be regarded as an educational institution if that educational society is running educational institution.
8. The next reliance of the leaned counsel was on the decision of the Hon’ble Gujarat High Court in the case of Gujarat State Co-operative Union v. CIT (1992) 195 ITR 279 (Guj) in which the assessee union was found imparting education to members of the union of the co-operative societies and to workers in the co-operative movement and also found running library and publishing journals. His Lordship concluded that assessee was entitled to exemption under Section 10(22) of the Act. Two decisions of the Tribunal, Allahabad Bench in the case of Maharishi Institute of Creative Intelligence v. Asstt. CIT in ITA No. 1508/All/96 rendered on 18th Dec., 1996, and ITA No. 1680/All/94 in the case of City Montessori School v. Asstt. CIT rendered on 31st Jan., 1996, the copies thereof are appearing at pp. 96 to 123 of the paper book and 124 to 144 of the paper book, respectively, had been referred to for the same proposition. The learned counsel submitted that AO and learned CIT(A) have nowhere pointed out that assessee was found engaged in any other activity except running a school or was associated with any other object except running educational institution. It was also pointed out that AO or learned CIT(A) nowhere mentioned that assessee had been running educational institution to earn profit and thus assessee was entitled for exemption under Section 10(22) of the Act.
9. The alternative plea raised before the learned CIT(A) and also before us through ground No. 2 which had also been reiterated through additional ground which was allowed by us on 8th July, 2003. The contention of the assessee is that assessee-Society is also registered under Section 12A of the Act. The assessee-Society had received during the year Rs. 63,30,308 as fees from the students and has incurred total expenditure of Rs. 1,26,36,471 and there was deficit/shortfall of Rs. 63,06,163 which is also proved from the audited income and expenditure account and balance-sheet. Once the registration has been granted by the CIT under Section 12A as is evident from copy of certificate granting registration under Section 12A by the CIT appearing at p. 22 of the paper book, the assessee cannot be denied the benefit of exemption of its income under Section 11 of the Act as laid down by the Hon’ble Madhya Pradesh High Court in the case of Madhya Pradesh Madhyam v. CIT and Anr. (2002) 256 ITR 277 (MP) in which it was laid down that IT authorities are bound by registration and once they have registered an institution as charitable, they cannot go behind the registration in the assessment proceedings. They are bound prima facie by such registration. However, the right to conduct the proceedings of cancellation in accordance with law cannot be denied to the Department.
10. The other point argued by the learned counsel is that in the case in hand, the assessment as to be framed as per direction of the CIT made in the order recorded under Section 263 of the Act and AO had raised different points which were not in accordance with the direction of the CIT as he has made disallowance of depreciation, made addition of Rs. 6,50,925 on account of development charges, the amount of interest was also added and other additions were made. The contention is that such action taken by the AO was beyond his jurisdiction as CIT while passing the order under Section 263 has made it specific that AO will reframe the assessment keeping in view the observations made in the said order and there were two points, on which examination was to be conducted by the AO. The first was to examine as to whether assessee-Society had fulfilled the conditions of Section 10(22) of the Act and the second was to examine the genuineness of the deposit below Rs. 50,000. The AO had travelled beyond his jurisdiction in making the above referred to disallowances/additions. To substantiate this, learned counsel placed reliance on the decision of the jurisdictional High Court in the case of Cawnpore Chemicals Works (P) Ltd. v. CIT (1992) 197 ITR 296 (All), in which it was laid down by the Lordship that ITO cannot go beyond the direction of the AAC. Identical view was laid down in the case of CIT v. Late Jawahar Lal Nagpal (1988) 171 ITR 136 (MP), in which it was laid down that ITO has no jurisdiction to add new source of income. The other decision on the point is that of Kartar Singh v. CIT (1978) 111 ITR 184 (P&H) and the decision of Tribunal, Lucknow Bench in the case of ITO v. Suresh Behari & Co. in ITA No. 2160/Alld/93 rendered on 22nd May, 2001, copy appearing at pp. 156 to 159 of the paper book.
11. On merit, learned counsel submitted that learned CIT(A) had already deleted addition made by the AO in respect of unexplained deposit. The other additions were also unwarranted as the amount of development fees is part of fee structure of the assessee college and the AO was not justified to make the addition. About the interest excessively claimed by the assessee learned counsel for the assessee submitted that the amount claimed was Rs. 9,04,946 and not Rs. 7,22,599. The details of the same had been furnished which are appearing at pp. 34 to 44 of the paper book of the Department and assessee has also compiled the same in additional paper book and the same are appearing at pp. 15 to 30 of the paper book. The AO committed totalling mistake as such details are duly audited and there was no element of profit. The amount of Rs. 68,490 was in respect of expenses incurred about the guest-house which was being managed by Shri K.B. Lal, director of the academy and it cannot be said that director was using that amount for his own purposes and additions were unwarranted.
12. On the basis of factual as well as legal position, learned counsel submitted that matter was not properly looked into by the AO and the learned CIT(A) as assessee has fulfilled all the requirements for claiming exemption under Section 10(22) of the Act and in alternative under Section 11 of the Act.
13. As against it, the learned Departmental Representative reiterated the same submission and submitted that assessee had not been able to prove on record that it was meant solely for educational purposes as it was having multifarious objects as laid down in “Smriti Patra”. The learned Departmental Representative submitted further that granting of registration under Section 12A of the Act will not extend the benefit to the assessee who is not found engaged in the educational purpose or for charity purposes. The additions which were made were justified and the view taken by the AO, the learned CIT(A) was justified and appeal is liable to be dismissed.
14. We have considered the rival submissions and perused the record as well as gone through the relevant case laws to which our attention was drawn during the course of hearing.
15. The main point which requires scrutiny is as to whether assessee is entitled for exemption under Section 10(22) of the Act or not. The provisions of Section 10(22) read as under :
“10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included– ……..
(22) Any income of University or other educational institution, existing solely for educational purposes and not for the purposes of profit.”
16. The above provision consists of two limbs. First the assessee, who wants to claim benefit under this section, has to prove that its educational institution exists solely for educational purposes. Secondly, the assessee has to prove that the existence of the Society is not for the purposes of profit.
17. If we examine the case of the assessee in the light of above requirements, it is to be noted that assessee has filed the copy of “Smriti Patra” which is containing the object of the society and the first object of the same is as under:
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18. The other objects are also there, but most of them are also relating to educational purposes of villages, children and others. The fact remains that assessee’s case is that it was not pursuing every object mentioned in the “Smriti Patra”, but was running educational institution. It has not been disputed that assessee-Society was registered with the Registrar of Societies since 9th Feb., 1989. Further, it was found running a school in the name of “Sherwood Academy”, which was initially upto junior section and w.e.f. 26th Oct., 1992, the institution got affiliation from Council for the Indian School Certificate Examination. All the relevant papers are on record. The contention of the assessee is that no other object or activity was carried out by the assessee for the year under consideration except running the institution from 1989 onwards. The assessee school has about 1,200 students which is upto 12th standard. These facts have not been disputed by the Department. The contention of the assessee that it was not carrying on any other object had not been challenged by the learned Departmental Representative nor AO or learned CIT(A) had got any material on record to the effect that assessee was found engaged in other activities or objectives or object except running the school in the name of “Sherwood Academy” Once these are the facts, then the only conclusion is that assessee-Society was solely existing for running the educational institution. We may refer to the decision of Hon’ble Calcutta High Court in the case of Birla Vidhya Vihar Trust v. CIT (1982) 136 ITR 445 (Cal) referred to by Tribunal, Allahabad Bench in the case of Maharishi Institute of Creative Intelligence v. Asstt. CIT (supra), in which the Lordships have concluded that assessee may have objects other than educational object, but that will not be of any material effect. The reasoning is fully applicable to the facts of the case in hand as no doubt that assessee-Society was having other objects, but these objects are not relevant particularly when none of these except relating to running the school was being pursued by the assessee during the year under consideration.
19. The books of account of the assessee-Society were audited and audit report is on record. The only source of income of the assessee is fees from students and expenditures indicate that the same was for running school. The learned Departmental Representative had not been able to point out any other source of income was there, or any expenditure shown in the P&L a/c, etc., was not related to the educational institution. The cumulative effect of the above is that the assessee-Society was solely pursuing the object of imparting education to students and can be called educational institution and the same is reflected even from its name which is known as “U.S. Srivastava Memorial Educational Society.”
20. The law as laid down in the case of Aditanar Educational Institution v. Asstt CIT (supra) and other cases referred to by the learned counsel are also to the same effect that if the Society is running educational institution alone, then the same is entitled for exemption under Section 10(22) of the Act and those case laws as referred to above are squarely applicable to the case as the Department has not been able to prove on record that assessee was found engaged in any other activity other than running the educational institution in the name of “Sherwood Academy”.
21. It is also to be noted that assessee-Society had been registered under Section 12A of the Act by learned CIT and copy of that certificate dt. 2nd Dec., 1994, is appearing on p. 22 of the paper book which shows that assessee-Society is registered under Section 12A from 1st April, 1992. Once that certificate is issued, then the Department is bound to give effect to the same as laid down by the Hon’ble Madhya Pradesh High Court in the case of Madhya Pradesh Madhyam v. CIT and Anr. (supra). It is also material that in case the CIT or the Departmental authorities concluded in any subsequent year that assessee-Society had violated provisions of Section 12A, then they can cancel the said registration, but till it exists, benefit thereof cannot be denied to the assessee. Further, assessee had proved on record that funds utilized for educational purposes during the year under consideration was Rs. 1,26,36,471 as against total fund received during the year at Rs. 63,30,308. This fact has not been controverted by the Department and it is also not the case of the Department that assessee had not spent Rs. 85,73,308 for raising construction of school building and purchases of plant and machinery as evident from copies of balance sheet and P&L a/c, which are part of audit report. So, assessee is also entitled to get benefit of registration under Section 12A.
22. It is also settled proposition of law that AO cannot travel beyond the direction passed by the CIT under Section 263 of the Act. One direction was relating to making enquiry about the claim of the assessee for exemption under Section 10(22) of the Act, and the other was in respect of examination of deposits below Rs. 50,000 and other deposits. The AO examined the deposits and made addition in respect of three depositors of Rs. 70,000 only and these deposits have been found explained by the learned CIT(A). The conclusion is that one of the directions of the CIT carry no weight as all the deposits as per the Department are genuine. About examination of claim for exemption under Section 10(22) of the Act, we have already concluded that assessee was entitled to exemption under Section 10(22) of the Act. Both the directions of the CIT stand fulfilled and so far as the disallowances/additions made by the AO in respect of other factual position, the same were outside the jurisdiction of the AO as the same was not directed to be made by the CIT, as the direction of the CIT was specific in respect of two points alone which have been referred to above. On the basis of this, the other additions were also uncalled for and AO was not justified to make the disallowances/additions in respect of several heads.
23. On the basis of what has been discussed above, we are of the considered view that assessee was entitled for exemption under Section 10(22) of the Act as assessee established on record that it is a Society which is solely existing for educational purposes and element of profit was also not proved on record. The result is that assessee was justified in filing the return showing Nil income as the same was exempted under that section.
24. We accordingly set aside the order of the AO and learned CIT(A) and direct the AO to extend benefit of Section 10(22) of the Act to the assessee.
25. Appeal is allowed accordingly.