Dismissed

M/S Garden City Education v. the Deputy Director

Karnataka HC28 Oct 2022ITA/66/2017

Case brief

AI extract

What is this about?

The High Court dismissed the taxpayer's appeal. The court held that the Tribunal was justified in denying tax exemption under Section 10(22) of the Income-tax Act because the Trust failed to prove its primary object was solely education, citing unexplained cash credits and funds used for non-educational purposes.

What did the court decide?

The appeal was dismissed; the question of law was answered in favour of the Revenue and against the assessee.

M/S Garden City Education Vs the Deputy… — Pension and Retirement Benefits | Karnataka HC (2022)

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I.T.A No.66/2017

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 28^TH DAY OF OCTOBER, 2022

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PRESENT

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THE HON’BLE MR. JUSTICE P.S. DINESH KUMAR

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AND

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THE HON’BLE MR. JUSTICE UMESH M. ADIGA

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I.T.A NO.66 OF 2017

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BETWEEN:

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M/s. GARDEN CITY EDUCATION TRUST NO.628/CIT(A), 11TH CROSS PRESENTLY AT: GCC HOUSE 340, 5TH MAIN INDIRANAGAR 1ST STAGE BANGALORE-560 038. REPRESENTED BY ITS VICE PRESIDENT-FINANCE MR. NAINAN P.OOMMEN AGED 68 YEARS S/O LATE MR. P.N. OOMMEN

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.…APPELLANT

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(BY SHRI. S. PARTHASARATHI, ADVOCATE)

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AND:

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THE DEPUTY DIRECTOR OF INCOME-TAX (EXEMPTIONS) CIRCLE 17(1) PRESENTLY AT 4TH FLOOR, UNITY BUILDING ANNEXE, MISSION ROAD BANGALORE-560 027. …RESPONDENT (BY SHRI. K.V. ARAVIND, ADVOCATE)

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I.T.A No.66/2017

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THIS ITA IS FILED UNDER SECTION 260-A OF THE INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED: 30.09.2016 PASSED IN ITA NOs.1298 TO 1301/Bang/2013, FOR THE ASSESSMENT YEAR 1995-96 TO 1998-99, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ETC.

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THIS ITA, HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 22.08.2022 COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, P.S. DINESH KUMAR J. , PRONOUNCED THE FOLLOWING:-

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JUDGMENT

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This appeal by the assessee challenging the order dated 30.09.2016 in ITA No.1298 to 1301/Bang/2013 for the A.Ys. 1995-96 to 1998-99 has been admitted to consider five questions raised by the assessee. After hearing the parties, in our view, the following question of law is relevant for consideration:

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"1. Whether the Tribunal was justified in holding that the Appellant was not entitled to the exemption under Section 10(22) of the Income-tax Act for the relevant assessment years? "

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Brief facts of the case pleaded in this

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appeal are, appellant's Trust was registered on February 27, 1992 with the primary object to

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I.T.A No.66/2017

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impart education. It claimed exemption under Section 10(22) and Section 11 of the Income Tax Act, 1961 ('the Act' for short) for the A.Ys. 1995-96 to 1998-99. The Assessing Officer did not allow exemption under Section 10(22) of the Act on the ground that that the assessee-Trust was not solely for the educational purposes, but the trust was making profits.

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It is the further case of the assessee that though the Trust Deed contained several objects, only the object to impart education was carried out. Assessee applied for amendment of the deed and obtained order dated March 24, 2012 from the City Civil Court, Bengaluru for deletion of the objects not related to education.

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With effect from April 1, 1999, by the Finance (No.2) Act, 1998, Section 10(22) stood deleted. Assessee had also sought exemption

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under Section 12A of the Act and recognition under Section 10(23C)(vi) of the Act. The registration under Section 12A of the Act was denied by the Commissioner of Income Tax and allowed by this Court vide Judgment dated July 15, 2009 in ITA No.57/2004.

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In this appeal, we are concerned with A.Ys. 1995-96 to 1998-99 for which, the Assessing Authority has denied exemption under Section 11 of the Act. Assessee challenged the orders passed by the Assessing Officer before CIT(A)¹ and the same were allowed vide order dated August 16, 2004. Revenue challenged CIT(A)'s order before the ITAT² and the same were dismissed. Revenue challenged CIT(A)'s order before this Court and vide order dated February 24, 2014, this Court restored the matter on the file of the ITAT. After the remand,

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1 Commissioner of Income-tax (Appeal)

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2 Income Tax Appellate Tribunal

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the ITAT has passed the impugned common order. Hence, this appeal.

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Shri. S. Parthasarathi, learned Advocate

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for the assessee submitted that though the assessee's Trust contained several objects, it has got removed all other objects, which are not connected with the education by an appropriate order of the City Civil Court, Bengaluru. The Assessing Officer denied the benefit/exemption under Section 10(22) of the Act mainly on two grounds. Firstly that, the Trust had shown the amounts received as Building and Development

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fund in the Balance Sheet as capital receipts and subsequently, as an after thought, shifted the same to Income and Expenditure Account in the name of 'Fee collections'. Secondly that, when Trust was asked to produce the details of the addresses of persons contributing to the Building Development Fund, the Trust has replied that the documents

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I.T.A No.66/2017

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relating to A.Y. 1995-96 to 1997-98 were lost and an FIR dated 08.03.2001 was filed with the Police.

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Shri. Parthasarathy argued that the Assessing Officer has denied the benefit on mere surmises. The Assessing Officer had demanded for the details of the persons who had contributed. Since the documents were not available, the same could not be produced before the Assessing Officer.

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Shri. Parthsarathy submitted that the Tribunal, without any cogent reasons has recorded a finding that the assessee does not fulfill the primary condition that it exists solely for the purpose of education.

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Thus, in substance, he contended that

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though the Trust had other objects, same have been deleted after obtaining order from the City Civil Court, Bengaluru. Even prior to deletion of

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I.T.A No.66/2017

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other objects, the Trust has not carried out any other objection other than education.

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Shri. Aravind for the Revenue submitted

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that;

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admittedly, the Trust Deed had several objects other than education. The Trust has collected funds from several persons. Though it is the contention of the assessee that contributions were collected only from the students, the assessee has failed to produce the documents on the ground that they were lost or misplaced;

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assessees had kept huge cash balance from time to time and the peak amount being Rs.1.30 Crores. In spite of having such big cash balance, Trust was drawing small amounts from Banks in cash on a daily basis, which proved that

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I.T.A No.66/2017

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the cash balance was being used for some other purpose;

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• the Trust was spending huge sums of money on expensive cars and automobiles. Assessee's contention that the cars were being used for the Trust is not tenable because, assessee had not made available any material to prove its stand.

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With above main submissions, Shri. Aravind prayed for dismissal of this appeal.

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We have carefully considered rival

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contentions and perused the records.

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The Assessing Officer has denied the benefit under Section 10(22) of the Act for following reasons. Firstly, that the objects of the Trust include commercial activity. Secondly, that Trust Deed provided for payment of Honorarium to the

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Trustees prohibited under Section 13(2) of the Act. Thirdly, that Trust collects abnormally high fees. Fourthly, for acquiring luxury vehicles. Fifthly, using the Trust funds for activities other than education. Sixthly, unexplained cash credit.

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It is recorded by the Assessing Officer that assessee had filed two sets of documents (Balance Sheet, Income and Expenditure Account and Receipt and Payments Account), one with the return of Income and other with the Director of Income Tax, Exemptions. In the Balance Sheet as on 31.03.1995 filed with the Director of Income Tax (Exemptions), a sum of Rs.13,10,843/- was shown as Building and Development Fund on liability side and it was not reflecting in the Balance Sheet filed along with return of income. The assessee, by its letter dated 07.03.2003 sought to explain that for A.Y. 1995-96 to 1997-98, it had shown Building and Development Fund of Rs.13,10,843/-,

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Rs.82,86,394/- and Rs.3,24,92,365 respectively. But the Data Entry Operator had wrongly mentioned under different heads as the Accounting package developed for some other Institution was used by the assessee.

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The Assessing Officer has not accepted the explanation on the ground that only upon the Department raising a query, the assessee had shifted the figures of Building and Development Fund to Income and Expenditure Account, as an after thought.

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The assessee was called upon to produce the details of the persons, who had contributed for Building and Development Fund. Assessee replied stating that the records were misplaced and an FIR dated 08.03.2001 was lodged. The Assessing Officer has also noticed that though the assessee had claimed that an FIR was lodged on 08.03.2001,

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I.T.A No.66/2017

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revised Balance Sheet, Income and Expenditure Account were drawn subsequently and filed along with an Audit Certificate, which was not possible without the Books of Accounts. In such circumstances, the Assessing Officer has treated the sum of Rs.13,10,843/- for A.Y. 1995-96 as unexplained Cash credit under Section 68 of the IT Act.

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Thus, the Stand taken by the assessee that contributions were received only from the students has been rightly rejected by the Assessing Officer. Further, the cash balance of Rs.1.30 Crores

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at the peak with petty cash being drawn on daily basis fortifies the view taken by the Assessing Officer that money was being utilized for some other purpose.

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In the circumstances, no exception can

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be taken to the view taken by the Assessing Officer and the ITAT.

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In the result, the following:

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ORDER

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(a) Appeal is dismissed .

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(b) The question of law is answered in

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favour of the Revenue and against the assessee.

No costs.

Sd/-

JUDGE

Sd/JUDGE

SPS

M/S Garden City Education v. the Deputy Director

Case brief

What is this about?

What did the court decide?

M/S Garden City Education v. the Deputy Director

Case brief

What is this about?

What did the court decide?

What the court decided

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Issues for consideration

Statutes considered

Parties & counsel

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