1. Appeal ITA No. 68 by the Revenue is against order of the CIT(A) dt.
12th Nov., 1993 whereby he, after following the orders of his predecessor for asst. yrs. 1985-86, 1986-87 and 1988-89 upheld the assessee's claimed that it was an institution for education and was for no profit and granted the exemption under Section 10(22) of the IT Act, 1961 (hereinafter referred to as Act).
ITA No. 633 is also appeal by the Revenue against the order of the CIT(A), dt. 22nd Feb., 1994 passed in assessee's appeal against order of the AO passed under Section 251/143(3)/147--giving effect to the order of the CIT(A) dt. 12th Nov., 1993. The cross-objection is by the assessee.
2. For the sake of convenience we have decided to decide both the appeals as well as the assessee's cross-objection by this consolidated order.
"1. The CIT(A) has erred in law and on facts of the case in directing the AO to allow exemption under Section 10(22) of IT Act, 1961 merely placing reliance on the appellate order of asst. yr.
1985-86 which is sub judice before Tribunal.
2. The CIT(A) has erred in law and on facts in arriving to the conclusion that as interest amounting to Rs. 2,46,016 has been charged on debit balances of Mr. Bakhat the assessee was entitled to exemption under Section 10(22), ignoring the discussions in the assessment order that the landlords are getting enriched by paying nothing and just merely book entries were passed in the account books of the school." 4. The assessee had furnished various Paper Books one of which was filed on 18th July, 2001 and contains 120 pages. At the time of hearing of the appeal the counsel for the assessee Sh. S.K. Garg specifically submitted that the paper book furnished on 16th July, 2001 alone should be considered and all other paper books or letters should be taken as withdrawn and be ignored. Consequently, the paper book furnished on 18th July, 2001 and other details asked for the Bench after 18th July, 2001 are being taken into account.
5. We have heard the learned Departmental Representative as well as the counsel for the assessee but before referring to their arguments we are of the opinion that we should record the brief facts, which have been revealed from the record before us and are necessary for the decision of the appeal, as follows.
5.1. The assessee has been claiming itself to be a society registered under the Registration of Societies Act, with the Registrar of Societies, Uttar Pradesh since 1983.
5.2. In consequence upon proceedings initiated under Section 147 of the Act, the assessee's assessments for asst. yrs. 1985-86 and 1986-87 were completed on 30th Jan., 1989. Assessments for asst. yrs. 1987-88 and 1988-89 were completed on 28th Feb., 1989. The assessee's claim of exemption under Section 10(22) of the Act was disallowed for asst. yrs.
1985-86, 1986-87 and 1988-89 holding that the assessee was not for education and was for profit.
5.3. On appeal by the assessee the CIT(A) granted exemption under Section 10(22) for asst. yrs. 1985-86, 1986-87 and 1988-89. The order of the CIT(A) was appeal against by. the Revenue before the Tribunal but the Tribunal Allahabad dismissed the Revenue's appeal and confirmed the order of the C!T(A) granting exemption under Section 10(22) of the Act vide order dt. 30th Aug.; 1996. The Revenue's reference under Section 256(1) of the Act was also rejected by Tribunal, Allahabad.
5.4. Assessment for asst. yr. 1989-90 (under appeal) was completed under Section 143(3)7147 of the Act on 30th March, 1993 in which the AO again disallowed the assessee's claim of exemption under Section 10(22) of the Act by holding that the assessee was not for education and was also for profit.
5.5. On appeal by the assessee the CIT(A), relying on the orders of his predecessor in assessee's case for asst. yrs. 1985-86, 1987-88 and 1988-89 allowed the assessee's claim of exemption under Section 10(22) of the Act and hence the Revenue is in appeal. The relevant part of his order reads as under : "5. According to the AO, Shri H.R.A. Bakhat is the Secretary of the society who is drawing as annual remuneration of Rs. 35,000. The executive committee consists of 10 members of which the said Shri Bakhat is the general secretary and his wife Smt. Ruquia Begum is the Vice President. The AO observed that anybody could become a member of the society but the secretary has absolute power to reject the admission of persons as the member of the society which employee that the secretary has the absolute control over the society. The remaining members of the executive committee' stayed outside Allahabad which also means by implication that the said Shri Bakhat who stayed at Allahabad can manage the affairs of the society in a manner he deems proper. According to the AO, the building in which the school is being run is owned by the secretary and his mother Smt. Ruquia Begum but additions to the said building are being made by withdrawing from the funds of the school whereby the landlords are becoming richer day-by-day by making additions to the building.
A sum of Rs. 1,89,300 was incurred on repairs and maintenance of the building which includes residential portion in which Shri Bakhat is residing. The AO on going through the management of the institution was of the opinion that the society has not been established solely for the purpose of education. The society went on debiting, the account of the landlord resulting into debit balance but no interest was charged, from the landlords. There were other objections as detailed in the assessment order and for those reasons, the exemption under Section 10(22) was denied.
6. The learned representative of the appellant had filed written note of compilation containing 73 pages during the course of hearing before me which was sent to the Asstt. CIT for his comments. These comments were received vide letter dt. 27th July, 1993, a copy of which, was given to the representative of the appellant.
6.1. It has been submitted that the issue of granting exemption to the income of society was examined in detail in the asst. yrs.
1984-85 to 1988-89 and the object clause of the society, the activities, utilisation/application of funds were examined in detail and after such thorough examination, exemption under Section 10(22) was allowed for the asst. yrs. 1984-85 and 1987-88 whereas for the asst. yrs. 1985-86, 1986-87 and 1988-89 such exemption was denied but subsequently the CIT(A) had allowed the appeals and held the appellant entitled to such exemption and such orders of the CIT(A) had not yet been . reversed by the Hon'ble Tribunal. It has been submitted that there are no other fresh facts for this year or reasons which would entitle the AO to hold that the appellant was not entitled for such exemption.
6.2 The AO in his report dt. 27th July, 1993 reiterated more or less whatever has been given in the assessment order and has observed that second appeals before the Tribunal were pending against the orders of the CIT(A) for the asst. yrs. 1985-86, 1986-87 and 1988-89. His report is however, silent as to how and why if appeals for these years were filed before the Hon'ble Tribunal, no remedial action was taken in the asst. yrs. 1984-85 and 1987-88 wherein at the assessment stage itself exemption under Section 10(22) have been allowed.
I have considered the submissions and also perused the records. A cursory look at the reasons advanced by the AO for denying exemption under Section 10(22) for this year indicates that these are the same as for the asst. yr. 1988-89 when such exemption was denied but allowed in appeal.
For the asst. yrs. 1980-81, 1981-82, 1982-83 the income of the society has been held to be exempt under Section 10(22) vide order dt. 27th Nov., 1982 and for the asst. yr. 1984-85 when the proceedings were taken under Section 148, vide order dt. 30th Jan., 1989 the income was held to be exempt under Section 10(22). However, for the asst. yr. 1985-86 vide order dt. 30th Jan., 1989 for the asst. yr. 1986-87 vide order of the same date such exemption was not allowed by the AO but for the asst. yr. 1987-88 again such exemption was allowed vide order of later date i.e., 28th Feb., 1989. Again for the asst. yr. 1988-89 vide order dt. 28th Feb., 1989 the exemption was denied. I have before me the benefit of the appellate orders for the asst. yrs. 1985-86, 1986-87 and 1988-89 bearing Appeal Nos. 106/Asst. CTT/Cm. I/All/1988-89, dt. 30th May, 1990, 105/Asst. CIT/Cir, I/A11./1988-89 dt. 30th May, 1990 and 96/Asst.
CIT/Cir-I, All/1988-89, dt. 30th May, 1990 respectively according to which the exemption under Section 10(22) has been directed to be allowed. In Para 2.2 of the appellate order for the asst. yr.
1985-86 my predecessor in office has discussed in detail the reasons as to why the exemption was denied. After discussing in detail the arguments and after giving reasons, the CIT(A) in para 2.22 held as under: 2.22 For the reasons aforesaid, the denial of exemption to the appellant-society under Section 10(22) of the Act for the asst. yrs.
1985-86, 1986-87 and 1988-89 is not justified. The Asst. CIT is directed to grant exemption to the appellant-society under Section 10(22) of the Act. All the grounds of appeal relating to the denial of exemption under Section 10(22) of the Act in all the three years are, therefore, decided in favour of the appellant.' 7.1. In view of the above reasons coupled with the facts that the AO's objection in not charging interest on debit balances of Mr.
Bakhat was effectively met vide appellant's letter dt. 27th Feb., 1993 before him wherein it was stated that interest amounting to Rs. 2,46,016 had been charged leads me to the conclusion that the appellant is entitled to exemption under Section 10(22) of the IT Act, 1961. The AO is directed to allow the same." 5.6. The some of the other facts, as have been revealed from the statement of assets & liabilities and balance sheet for the asst. yrs.
1989-90 to 2000-2001 and report of the Valuation Officer for valuing the market value of the Property No. 13, Kamla Nehru Road, Allahabad which is a residential property and is claimed to be co-owned by Mr.
H.R.A. Bakhat who is claiming himself to be the secretary of the assessee his mother--Mrs. Requiya, are as under : (i) The Property No.--13, Kamla Nehru Road, Allahabad is a residential property and is co-owned by Mr. H.R.A. Bakhat and his mother--Mrs. Requiya.
(ii) In the garb of tax planning these co-owners claim to have formed a partnership and had given a portion of property No. 13 on rent to this partnership which in turn has rented out that portion of the property on a monthly rent of Rs. 10,000 to the assessee.
(iii) The assessee did not file the copy of partnership deed even on requisition by the Bench on the plea that the same was not tracable.
(iv) The assessee did not produce the books of account, receipts for fee charged from the students and also the details of "heads" under which the fees was charged as well as the basis on the pretext that the assessee has destroyed the same.
(v) From the copies of Valuation Reports it is revealed that there was addition to the extent of Rs. 56,126, Rs. 67,632 and Rs. 65,103 during the periods upto 31st March, 1994, 1st April, 1984 to 31st March, 1985 and 1st April, 1986 to 31st March, 1987 respectively by way of construction by the assessee in the residential portion of the property No. 13.
(vi) From the copies of income and expenditure account it is revealed that the assessee has been having surplus/profit to the extent as detailed below--year after year : The surplus/profit for the asst. yrs. 1987-88 and 1988-89 was Rs. 5,49,423 and Rs. 6,80,953 respectively.
(vii) The assessee has incurred expenditure on account of repairs to the building owned by the secretary and his mother and also has paid rent to the alleged partnership--which ultimately is to be shared by the secretary Mr. H.R.A. Bakhat and his mother Mrs. Requiya as detailed below : When the assessee was asked as to whether there was any agreement with the landlords to meet the liability on account of repairs to the building and was asked to produce the lease deed the assessee expressed its inability to produce the same on the plea that there was no lease deed. In view of this facts it has to be taken that the expenditure incurred by the assessee on account of repairs to the building was without any liability to do so and in a sense was a benefit extended to the landlords one of whom happens to be the secretary of the assessee.
(viii) It is also revealed from the balance sheet that the huge amounts were taken away by the landlords from the assessee and there was no agreement as to when it was to be repaid. The yearwise balance outstanding against the Landlords is as under: In financial years 1998-99 and 1999-2000 the assessee seems to have adopted a mischievous terminology and instead of showing the amounts due from the landlords has shown the amounts of Rs. 26,04,656 and of Rs. 32,15,548 under the "head" security deposit. Since the assessee has not explained as for what purpose and with whom the amount in question were as security and the fact that the assessee under normal circumstances was not supposed to deposit any security with any Government Department it is nothing but the amount with the landlords.
(ix) The assessee is having a car but has not explained as to for what purpose the car was maintained. It is also not the assessee's case that the car was provided to any teacher. Under these circumstances the fact is that the car maintained by the assessee was used by the secretary or his family members.
(x) Two residential properties--one at Bombay and one at Lucknow have been purchased in the personal name of Mr. H.R.A. Bakhat.
(xi) Personal legal expenses of Mr. H.R.A. Bakhat and the landlords have been met with by the assessee as is evident from the details appearing at pp. 74 and 75 of the baper book for example case No. 196 of 1987 against Vivekanand Srivastva was for his eviction from the property No. 13, expenses relating to FIR No. 221/87 were in connection with criminal complaint under Section 147/ 452/383 of the CRCP/CPG/IPC Act against H.R.A. Bakhat, Writ No. 2490/88 was for seeking stay against arrest of Mr. Bakhat, miscellaneous bail application 1928/88 was for bail of Mr. Bakhat, Writ No. 1091 of 1988 against order of the Asstt. CIT was against attachment of bank a/c of Mr. Bakhat, Case No. 711/88 and 261/88 against trespassers and by the trespassers relates to property No. 13, writ No. 7812 of 88 was against order of DM freezing the bank a/c of the assessee as well as Mr. Bakhat and writ No, 12767/88 was against the order of city magistrate under Section 144 of CrPC against the assessee as well as Mr. Bakhat. Similarly, writ No. 23043/88 and 23783 of 88 were by the trespassers to property No. 13, and criminal revision petition by trespassers was also against property No. 13.
(xii) From copies of Smirtipatra and Niymawali (memorandum of association and rules), which have been claimed to be basis of seeking registration with the Registrar of Co-operative Society Uttar Pradesh dt. 14th June, 1983 it is revealed that though there is a provision in the memorandum or the rules as to what will happen to the assets belonging to the assessee, if any, upon the dissolution of the assessee (alleged society) or upon closure of its activities, but the assessee having not filed the amended copy of memorandum and bye-laws executed in the year 1988 and 1989 in spite of directions of the Bench given at the time of hearing on 6th Sept., 2001, the observations of the AO in the assessment order to the effect that Mr. Bakhat has absolute powers to reject the admission of any person as member of the society and that there were no checks and balances on his powers have to be taken to be correct.
(xiii) Mr. H.R.A. Bakhat is being paid an yearly salary of Rs. 35,000.
(xiv) During the course of assessment proceedings the assessee's counsel Mr. Vijay Aggarwal, C.A. had appeared before the AO and admitted that the secretary and the president have the powers to reject the admission of any person as member of the society, as is evident from order-sheet entry dt. 28th Jan., 1993. When the assessee was called upon to file the amended memorandum and rules, the assessee filed the list of Executive Committee members for the years 1987-88 and 1988-89 but did not file the amended memorandum and rules. The assessee's failure leads to conclusion that what Mr.
Vijay Aggarwal, C.A. had admitted on 28th Jan., 1993 was correct.
The assessee has not furnished any evidence to counter this admission.
(xv) From pp. 14 and 17 of the paper book being balance-sheets as at 31st March, 1995 and 31st March, 1996 respectively it is revealed that the closing balance under the fund account as on 31st March, 1995 was Rs. 76,75,548.63 whereas, the opening balance as on 1st April, 1995 has been taken at Rs. 71,61,687 which has resulted in misappropriation of assessee's funds to the extent of Rs. 5,13,861.
(xvi) From the Sch. A of fixed assets annexed to the balance-sheet as at 31st March, 1996 (P. 19 of the paper book), it is revealed that building worth Rs. 17,89,000 had been sold as against total worth of building as on 1st April, 1995 at Rs, 10,62,704 and building worth Rs. 2,73,704 has been shown balance as on 31st March, 1996.
In this way the assessee had earned a gain of Rs. 9,00,000 (17,89,000--8,89,000 (10,62,704--2,73,704), which has not been accounted for either in the income and expenditure account or in the balance-sheet and the same seems to have been appropriated by Mr.
Bakhat and his family member.
6. The learned Departmental Representative, while defending the order of the AO, submitted that in view of the admitted fact that the properties at Bombay and Lucknow were purchased in the name of Mr.
H.R.A. Bakhat in his personal capacity--according to him it is not the case where the properties are purchased for and on behalf of the institution or through its administrator or manager or the secretary; abnormal high rent was paid for the building owned by Sh. H.R.A. Bakhat and his mother Mrs. Requiya, Mr. H.R.A. Bakhat was drawing a salary from the assessee and was using the assessee's car, the personal expenses of the landlords, i.e., Mr. Bakhat and his mother were being met by the assessee, additions and repairs were made by the assessee to the building owned by Mr. Bakhat and his mother, there being no provision for recovery of amounts due from landlords, recovery of buildings in the name of Mr. H.R.A. Bakhat and there being no provision as to what will happen to the assets owned by the assessee in case of its dissolution or closure, it is crystal clear that the assessee was not a "institution for education" as envisaged by the provision of Section 10(22) of the Act, rather was in the nature of a personal commercial concern control by Mr. Bakhat and his family members for earning profit and to earn their livelihoods. He therefore, strongly pleaded that assessee was not entitled to exemption under Section 10(22) of the Act and pleaded that the order of the CIT(A) may be set aside and assessment order be restored.
7. The counsel for the assessee Sh. S.K. Garg, after referring to the documents placed in paper book filed on 16th July, 2001 submitted that so far as purchase of immovable properties in the name of Mr. Bakhat was concerned, the same were purchased after having been authorised by the assessee by way of a resolution and were appearing in the assessee's balance-sheet as assets, which clearly goes to show that the properties were owned by the assessee and not Mr. Bakhat. It was further submitted that the property at Lucknow was used for few years for running the school whereas, the property in Bombay was purchased in the name of Mr. Bakhat because under Maharashtra's laws a society could not purchase a residential property for running his school. It was further submitted that ultimately both these properties were sold out in the year 1995. The counsel further submitted that all these issues were involved for considerations of various authorities in asst. yrs.
1985-86 to 1988-89 and except asst. yr. 1987-88 where the exemption under Section 10(22) was allowed by the AO himself, the assessee's claim of exemption under Section 10(22) was refused by the AO. On appeal by the assessee, the CIT(A) had allowed the assessee's claim for these three years also and the order of the CIT(A) was upheld by the Tribunal, Allahabad. In view of these facts Mr. Garg submitted that since the facts and circumstances of the case and grounds for rejecting assessee's claim of exemption under Section 10(22) of the Act by the AO are same as were for assessment years (supra) therefore, in the interest of justice and consistency the present Bench should follow the order of the Tribunal (supra) in assessee's own case and sustain the order of the CIT(A) which is in favour of the assessee. It was further submitted that so far as immovable properties are concerned the ownership under the law vests with the person making investment and not with the person in whose name it has been registered and therefore, this is not relevant for refusing the assessee's claim. With regards to repairs and legal expenses the counsel submitted that these expenses were incurred only to safeguard the interest of the assessee. The counsel further submitted that for asst. yr. 1987-88 the exemption was allowed even after taking action under Section 147 of the Act which clearly goes to show that the assessee was entitled to exemption Coming to the asst. yr. 1989-90, the counsel submitted that by the time notice under Section 148 was issued for this assessment year i.e., by 19th July, 1990 the CIT(A) had already decided the assessee's appeal for the asst. yrs. 1985-86, 1986-87 and 1988-89 (13th May, 1990) and therefore, notice under Section 148 was issued on the same basis as was for earlier assessment years and consequently, the issues involved for the asst. yr. 1989-90 are same as were in the earlier years. The counsel therefore, submitted that the Tribunal having allowed the assessee's claim of exemption for earlier years it should be allowed for the asst.
yr. 1989-90 also, In support of these submissions reliance was placed on the decision of the Hon'ble Supreme Court in case of CYT v. Sun Engg. Works (P) Ltd (1992) 198 ITR 297 (SC) and of Allahabad High Court in case of KM. Bansal v. CYT (1992) 195 ITR 247 (All). It was further submitted that in view of above facts and circumstances the AO could not go beyond the subject-matter of reasons recorded for issuing notice under Section 148 arid consequently, his order is liable to be set aside. Reliance was placed on the decision in case CYT v. Kunju (1997) 228 ITR 147 (Ker). With regards to legal expenses it was submitted that the same were incurred to defend the assessee's interest and therefore, were allowable in view of decision of Calcutta High Court as Ananda Marga Pracharaka Sangha v. CIT (1994) 76 Taxman 88 (Cal). The counsel further submitted that the interest on the amount outstanding against the landlords for the asst. yrs. 1983-84 to 1989-90 was provided for during the period relevant to asst. yr. 1990-91 and therefore, the Revenue's claim that assessee's funds have been used by the landlords without interest do not survive. Concluding his submissions the learned counsel relied on another decision of Supreme Court Aditanai Educational Institution v. Addl. CYT (1997) 224 ITR 310 (SC), order of Tribunal, Allahabad in case of City Montessory School (IT Appeal No.1680/All/1994 dt. 31st Jan., 1996) and of Hon'ble Supreme Court reported as 217 ITR p. 4 (sic).
8. We have considered the rival submissions, facts and circumstances of the case, provisions of Section 10(22) of the Act and the various decisions relied upon the parties with utmost care and are of the opinion that to decide this appeal it is desirable to consider the provisions of Section 10(22) of the Act, which are in the following terms : "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 a university or other educational institution, existing solely for educational purpose and not for purposes of profit" 9.1. After careful analysis of the provisions of Section 10(22) and the context as well as the intention of the legislature while enacting separate provisions for educational institutions then the provisions for charitable and religious Institutions, we are of the opinion that for the income of an institution to be exempt under Section 10(22) of the IT Act, 1961 (hereinafter called the Act) only and the only requirement is that the institution should not carry on any kind of activity, except incidentally, other than the activity falling within the ambit of 'education' and it should not be for the purpose of profit. Meaning thereby that for exemption under Section 10(22) of the Act the institution should qualify and pass, positively and cumulatively the following three tests; (i) The institution should be for and only for education purpose, and (ii) The educational activities are not for the purpose of profit i.e., do not result in profit except as an exception or by incident, and (iii) The profit/surplus, if any, arising even by incident, as a result of such educational or incidental activities is not for the purpose of use by any of the person having any interest in the institution.
9.2. To find as to whether an institution is only for education purpose or not one has to go to the actual working of the institution and the intention of the founders and the persons as well as their relatives or friends having any kind of interest--whether directly or indirectly; and the consideration charged thereof for imparting the education. All these three tests are to be satisfied simultaneously i.e., all these three tests are commulative and failure to meet or satisfy any one or more of these tests is sufficient to hold an institution "as not for education" and/or "for profit" as intended by legislature while providing exemption under Section 10(22) of the Act.
(Ai) So far as first test is concerned, one has to dive deep into the actual affairs of the institution because applicability of this test cannot be verified just by seeing or considering the upper surface of the activities. It is not necessary that an institution which is holding classes of the students in classrooms or imparting education should necessarily be an "educational institution or an institution for education as envisaged in the provisions of Section 10(22) of the Act.
For example, a person either individually or through an institution by employing more than one person imparts education--generally called tuitions coaching; and earns his livelihood from that then the person may be one carrying on the educational activities but can't be called as "an institution for education". Similarly, if the quantum of fee charged is not commensurate to the quality of the education and the expenditure to be incurred for running the institution, the institution cannot be said to be for the purpose of "education" and it is so because the activity of imparting the education as envisaged in the provisions of Section 10(22) of the Act is, in a sense, in the nature of "a charitable or a religious" activity and not a commercial one. The section itself speaks of this aspect when it says that for income of an institution to be exempt it should be for education but not for the purpose of profit. The only exception to the above requirement being that educational institution may not be wholly charitable or religious and can charge the fee commensurate to the expenditure likely to be incurred for such services subject however, to occasional or casual surplus/profit.Mohini Jain v. State of Karnataka AIR 1992 SC 1858, while considering the justification of State Government Notification permitting the Medical Colleges of the State to charge capitation fee from the students held that the activity of importing education is in the nature of charity and religious and charging of capitation fee infracts Article 14 of the Indian Constitution. The relevant observations of the Hon'ble Supreme Court find place in Para Nos. 9, 13, 14, 17, 18, 19, 20 & 21 of the order which are in the following terms : "The directive principles which are fundamental in the governance of the country cannot be isolated from the fundamental rights guaranteed under Part III. These principles have to be read into the fundamental rights. Both are supplementary to each other. The State is under a constitutional mandate to create conditions in which the fundamental rights guaranteed to the individuals under Part in could be enjoyed by all. Without making 'right to education' under Article 41 of the Constitution on reality the fundamental rights under Chapter II shall remain beyond the reach of large majority which is illiterate. The fundamental rights guaranteed under Part III of the Constitution of India including the rights to freedom of speech and expression and other rights under Article 19 cannot be appreciated and fully enjoyed unless a citizen is educated and is conscious of his individualistic dignity.
The 'right to education', therefore, is concomitant to the fundamental rights enshrined under Part E of the Constitution. The State is under a constitutional-mandate to provide educational institutions at all levels for the benefit of the citizens. The educational institutions must function to the best advantage of the citizens. Opportunity to acquire education cannot be confined to the richer section of the society." "Every citizen has a 'right to education' under the Constitution.
The State is under an obligation to establish educational institutions to enable the citizens to enjoy the said right. The State may discharge its obligation through State-owned or State-recognized educational institutions. When the State Government grants recognition to the private educational institutions it creates an agency to fulfil its obligation under the Constitution.
The students are given admission to the educational institutions whether State-owned or State-recognized--in recognition of their 'right to education' under the Constitution. Charging capitation fee in consideration of admission to educational institutions, is a patent denial of a citizen's right to education under the Constitution." "Indian civilization recognizes education as one of the pious obligations of the human society. To establish and administer educational institutions is considered a religious and charitable object. Education in India has never been a commodity for sale.
Looking at the economic front, even forty-five years after achieving independence, thirty per cent of the population is living below poverty-line and the bulk of the remaining population is struggling for existence under poverty conditions. The preamble of Constitution promises and the directive principles are a mandate to the State to eradicate poverty so that the poor of this country can enjoy the right to life guaranteed under- the Constitution. The State action or inaction which defeats the constitutional mandate is per se arbitrary and cannot be sustained. Capitation fee makes the availability of education beyond the reach of the poor. The state action in permitting capitation fee to be charged by state-recognized educational institutions is wholly arbitrary and as such violative of Article 14." "The capitation fee brings to the fore a clear class bias. It enables the rich to take admission whereas the poor has to withdraw due to financial inability. A poor student with better merit cannot get admission because he has no money whereas the rich can purchase the admission. Such a treatment is patently unreasonable, unfair and unjust. There is, therefore, no escape from the conclusion that charging of capitation fee in consideration of admission to educational institutions is wholly arbitrary and as such infracts Article 14" "It cannot be said that the management of the private educational institution has a right to admit non-meritorious candidates by charging capitation fee as a consideration. This practice strikes at the very root of the constitutional scheme and our educational system. Restricting admission to non-meritorious candidates belonging to the richer section of society and denying the same to poor meritorious is wholly arbitrary against the constitutional scheme and as such cannot be legally permitted. Capitation fee in any form cannot be sustained in the eye of law. The only method of admission to the medical colleges in consonance with fairplay an equity is by way of merit and merit alone. Therefore charging of capitation fee by the private educational institutions as a consideration for admission is wholly illegal."--[AIR 1955 SC 334, distinguished"].
If the observations of the Hon'ble apex Court (supra), which of course are with respect to the charging of capitation fee, are considered keeping in view the concept and the underlining principle, one will come to the conclusion that charging of abnormal high fee which, in a sense, if is not capitation fee in the strict term but, at least, is akin to the capitation fee (being not commensurate to nature of education imparted/services rendered or the expenditure likely to be incurred for imparting the education) and if not violative of the Article 14 of the Indian Constitution, is an activity not thought of by the provisions of Section 10(22) of the Act, because, just as charging of. capitation fee divides the society (students) in two categories--one consisting of competent/intelligent students but having no capacity to pay the capitation fee and the other consisting of incompetent/unintelligent students but having the capacity to pay the capitation fee, the institutions, such as the assessee and other so-called Convent/English schools charging abnormal high fee divide the society (Students) categories--one having capacity to pay abnormal high fee and other having no capacity to pay abnormal high fee. Such an institution, therefore, cannot claim itself to be solely for the purpose of education as intended by the legislature and the provisions of Section 10(22) of the Act.
(ii) If we consider the facts and circumstances of the present case, such as the charging abnormal high fee year after year which is not commensurate to the education imparted/services rendered as well as the expenditure incurred--the excess fee charged over the expenditure (except the rent paid to Mr. Bakhat and his mother and repairs) for the years 1987-88 to 2000-2001 which as per details filed by the assessee is Rs. 1,12,34,628 and apply the aforesaid tests it gets clearly confirmed that the assessee is imparting education not to achieve the objects required to be achieved by the provisions of Section 10(22) of the Act and also as intended by the legislature, rather is carrying on the commercial activities solely for the benefit of Mr. Bakhat and his family members.
Simply because an institution or a person is imparting education or carrying on educational activities it cannot be said that they are the institutions as envisaged in the provisions of Section 10(22) of the Act because, had it been so then every person or institution giving tuition or coaching and are making their livelihoods from the fees charged from the students will also falls within the category of "institution for education" and will qualify for the exemption under Section 10(22) of the Act but this is neither the import of the provisions nor the intention of the legislature.
There is no dispute regarding the proposition that exemption under Section 10(22) of the Act cannot be denied simply because there is surplus but there is also no dispute that if the surplus is as a regular feature and as a result of intentional charging of abnormal high fee, other than donations for corpus, not commensurate to the expenditure there is no question of granting of the exemption. If any surplus results incidentally it will not cease to be the one existing solely for education purpose, since in such eventuality the object could not be for making profit [please see 'Aditanar Educational Institution's case (supra)]. Conversely, if the surplus is not incidental but a regular feature then the institution shall definitely be out of the ambit of the definition of "educational institution" as envisaged in the provisions of Section 10(22) of the Act.
(iii) In view of above facts and circumstances we are of the opinion that the assessee's activities do not fall within the concept of "solely for education" and therefore, the assessee is not an educational institute as envisaged in the provisions of Section 10(22) of the Act.
(Bi) For an institution to satisfy tests at Sr. No. (ii) above, we are of the opinion that first of all it is desirable to consider as to what the term "for profits" stands for.
(ii) The word "profit" having been not defined in the Act--one is to go by the meaning of the word as understood in the common parlances or the dictionary meaning, whichever is more rational.
So far as the meaning of the word "profit", as understood in the common parlances, is that one receives an amount more than the cost of the goods supplied/sold or of the services rendered, as the case may be and such excess receipt is available for the personal use of the person concerned in anyway he likes.
So far as the dictionary meaning of the word is concerned the various dictionaries define the word "profit" as under: "(i) In Black's Law Dictionary, Sixth Edition-reprint 1997 the meaning of the word "profit" has been given as under: --Most commonly, the gross proceeds of business transaction Jess the costs of the transaction, i.e., net proceeds.
--Gain realized from business or investment over and above expenditure.
--Profit, means accession of goods, valuable results, useful consequences, avail, gain, as an office of profit, excess of returns over expenditure or excess of income over expenditure, U.S. v. Mintzes, D.C. Md. 304 F. Supp. 1305. 1312.
--The benefit, advantage, or pecuniary gain occurring to the owner or the occupant of land from its actual use; as in the familiar phrase "rents, issues and profits" or in the expression "mes ne profits".
(ii) In another publication styled as "Complete Word Finder" published by Header's Digest-Oxford the word 'profit' has been defined as under: From the Dictionary meaning, as above, and as understood by a common man the word "profit" refers to surplus/excess over the price/investment/cost of services as a result of charging of intentional high price for goods or services and therefore, once there is surplus or excess it has to be held to be "profit".
(iii) It is also a fact that for the purpose ot Act income and profit are different not only in terminology but in essence also because, it is not necessary that wherever there is a profit there has to be an income. It is however, true that wherever there is an income there has to be profit. [Rani Amrit Kunwar v. CIT (1946) 14 ITR 561 (All)].
(iva) The term "not for profit" in our opinion does not mean that there should not be any surplus, i.e., does not mean that the receipts of an educational institution should match the expenditure incurred during the year but at the same time it also does not mean that the receipts of the educational institution can be abnormally more than the yearly expenditure. The Surplus should be an exception and not as a matter of rule. In other words the surplus should be in exceptional circumstances or by incident and not as a rule.
(ivb) Secondly the surplus should be used for the purpose of educational activities.
(ivc) Thirdly such surplus should never and by no means be used for the personal purpose of any person having control or interest in control over the running of the institution.
(v) From the aforesaid concept composed by us what comes out is that if there is an abnormal surplus year after year or as a matter of rule and such surplus is enjoyed by any of the person having control of the institution or interest in the control over the institution then it cannot be said that the institution is not for the purpose of the profit and if the institution happens to carry on educational activities than it cannot be said that the institution is carrying on the educational activities not for the purpose of profit.
(vi) If any of the person having interest in the institution derives/enjoys any benefit from the surplus/profit or the assets of the institution in cash or in kind, directly or indirectly or by way of any fee or remuneration etc. in lieu of any kind of services rendered by such individual irrespective of the nature of the qualification or the extent of services rendered by such' person(s), the institution has to be held to be for the purpose of "profit".
(vii) If we see the scheme of exemption allowed to a charitable institution under Section 11 of the Act and to an educational institution under Section 10(22) of the Act, the only difference, in our opinion, is that the charity is done without any consideration whereas education is to be imparted though of course as charity but, subject, however to the exception that the institution may or may not charge fee from the students but, this freedom/exception in such cases is only to the extent of charging of the fees commensurate to the quality of the education and the expenditure thereon. If it is not the case then the individuals or the institutions, who are giving tuition or coaching and are meeting their livelihood from the fee/charges so charged, will also qualify for the exemption under Section 10(22) of the Act--a situation or a concept, which is neither the import of the provisions nor the intention of the legislature. For the income of an institution to be exempt under Section 10(22) of the Act another requirement is that the surplus/profit should not be used for the personal benefit of any of the person or their relatives having any kind of interest in or connection with such institution, otherwise the activity of such institution has to be held to have been carried on for the purpose of "profit". In other words deriving/availing of any kind of benefit--in cash or in kind or otherwise, from or out of activities of the institution; by any or more of the persons having interest in the affairs of the institution or their relatives, irrespective of the nature and extent of their involvement or services or help--monetary or manual or mental; or in whatever capacity such as chairman or president or secretary or principal or teacher or in other capacity; will certainly bring the, institution in the category of institutions existing for 'profit'.
Consequently, for an institution carrying on the educational activities not for the purpose of profit, the aforesaid tests have to be strictly adhered to.
10. So far as the present institution styled as M/s Bal Bharti Nursery School, is concerned, the admitted facts, which the assessee has not been able to dispute are; (i) Under the Section 14 of the U.P. Societies Act the assets of a society on its dissolution or on closure of the activities have to be transferred to another society register under the U.P. Societies Act. So far the present assessee is concerned, though the assessee has been registered as society under the U.P. Societies Act but having not filed the amended memorandum of association and the rules framed thereunder the AO's findings that Mr. H.R.A. Bakhat had absolute powers to refuse admission of any person as member of the assessee and there were no checks and balances for the recovery of amounts due from landlord, has to be taken as correct.
(ii) From the income and expenditure account for the periods relevant to asst. yrs. 1987-88 till 2000-2001 placed on record it is quite clear that the society is having surplus over the expenditure year after year and is in the increasing scenario as is evident from details in Para No. 5.6(vi) above, which clearly confirms that the institution's intention is to have surplus which in turn shows that the institution is charging fee from the students not in keeping the yearly expenditure to be incurred in view but with an clear-cut intention to earn profit. Here it is important to mention that during the course of hearing of the appeal the assessee was specifically asked to explain the basis and quantum of fees charged from the students but learned counsel for the assesses, after consulting Mr. Bakhat, alleged secretary of the society who was present during the hearing, avoided the details by pleading that the. society has destroyed all its books of account and other relevant documents prior to six previous years i.e. prior to previous year 1994-95.
(iii) Since the AO has mentioned in the body of the assessment order the secretary of the assessee's society has. absolute powers to deny the membership of the society to anybody he, likes, the assessee was asked to furnish a copy of society's rules and regulations, in response to which the assessee furnished a certified copy of the same (in Hindi) along with two lists in English showing the names of the member of the society during the year. 1987-88 and 1988-89.
Since the Hindi version the rules and regulations was found silent with regard to the absolute powers of the secretary, the learned Departmental Representative was directed to produce the relevant assessment records and assessee was directed to produce the amended bye laws, etc: if any. The assessee denied the availability of any amended bye laws but the learned Departmental Representative produced the assessment records of the assessee for the assessment year under appeal. It was found from the order-sheet entry dt. 28th Jan., 1993 that the assessee's counsel Mr. Vinay Aggarwal, C.A. had appeared before the AO and agreed that the secretary has the absolute powers to deny membership of the society to any person. A copy of the order--sheet was procured and is placed on record. When the assessee was apprised of this admission the assessee simply disputed the availability of such powers to the secretary, but has not produced any evidence in this respect.
(iv) The surplus i.e. the profit earned by the alleged society has been, year after year used for and by Mr. Bakhat and his family members who happens to be the sole beneficiary of the society. To be precise the utilization of surplus/profit is by and for the benefit of Mr. H.R.A. Bakhat his mother and other family members, who have the sole control over the affairs as well as the finance of the assesse.
(a) By way of payment ,of abnormally high rent for a portion of the premises to Mr. Bakhat and his mother. Here it is important to mention that the owners of the property, who are the sole beneficiary of the institution and have absolute control over it, have tried to evade this aspect of the matter under the garb of tax planning by first forming a partnership between the mother (owner of the property) and the son for showing the letting out the part of the property-- since used by the society; on a nominal rent to the said partnership firm and then allowing that firm to let out the same property at an abnormal high rent to the society.
If this modus operandi of the landlady and her son who is the secretary of the society is looked into by lifting the corporate veil in the light of the decision of the Hon'ble Supreme Court of India in case of McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC) then it will be seen that the profits earned by the Society has been passed on to the persons interested in the affairs of the society.
(b) For meeting the personal, such as litigation expenses and repair of the building expenses of the landlady and the secretary.
(c) By passing an almost whole of the surplus of the profit year after year to the secretary or the landlady (having control over the affairs) and utilization of the same by them for there personal benefit either by way of purchasing immovable properties in their names or accumulating wealth of their own.
Here it is important to mention that the assessee has pleaded that the immovable properties purchased in the individual name of the secretary having been shown in its balance-sheet it cannot be said that the profits had gone to the secretary. Similarly, the society has pleaded that the loans given to the secretary or the landlady also appear in the balance-sheet as receivable and the society has charged the interest for all the years i.e., 1983-84 to 1989-90 in the year 1995.
(d) The surplus/profit of the society has been enjoyed by the secretary by drawing a monthly amount of Rs. 35,000 under the garb of salary.
11. In view of the totality of the above facts and circumstances, we are of the opinion that so-called society, its activities and the surplus/profits derived by it are for the sole enjoyment of Mr. Bakhat and his family members and consequently, in view of this conclusion and for the reasons stated hereinafter, we are of the opinion that the activity of the alleged society are for the purpose of profit and therefore, its income/surplus/profit, by whatever name we may call is not entitled to exemption available under Section 10(22) of the Act.
(i) The assessee having failed to furnish any evidence with regard to checks and balances for recovery of amounts due from landlords and the immovable properties purchased in the name of Mr. H.R.A. Bakhat, we are of the opinion that all affairs of the assessee have been arranged in such a way that no law of the land could recover the immovable properties purchased in name of Mr. Bakhat as well as the amounts due from landlords, This concept propounded by us is not only a hypothesis but is theoretical and in fact is a reality as is evident from the fact that: (a) Immovable properties having been purchased in the name of Mr.
H.R.A. Bakhat in his personal name and not in fiduciary capacity, nobody on this earth and under any law of the land could recover the properties from him.
The assessee's plea that the investment in properties is appearing in the balance-sheet is of no use because at the relevant time. The Benami Transactions (Prohibition) Act, 1988 was inforce which prohibited the investments in Benami names. Making of investments in benami names was not only a criminal offence but the property itself was liable to be taken over by the Government. The Transfer of Immovable Properties Act also makes a person, in whose name the property is registered, the owner of the property for all intent and purposes.
The relevant provisions of Benami Transactions (Prohibition) Act, 1988 reads as under: 2. Definitions.--In this Act, unless the context otherwise requires,-- (a) "benami transaction" means any transaction in which property is transferred to a person fof a consideration paid or provided by another person; (c) "property" means property of any kind, movable or immovable, tangible or intangible, and includes any right or interest in such property, 3. Prohibition of benami transactions.--(1) No person shall enter into any benami transaction.
(2) Nothing in Sub-section (1) shall apply to the purchase of property by any person in the name of his wife or unmarried daughter and it shall be presumed unless the contrary is proved, that the said property had been purchased for the benefit of the wife or unmarried daughter.
(3) Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both.
(4) Notwithstanding anything contained in the CrPC, 1973 (Act No. 2 of 1974), an offence under this section shall be non-cognizable and bailable.
4. Prohibition of the right to recover property held benami--(1) No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property.
(2) No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property.
(a) Where the person in whose name the property is held is a coparcener in an HUF and the property is held for the benefit of the coparceners in the family; or (b) Where the person in whose name the property is held is a trustee or other person standing in a fiduciary capacity, and the property is held for the benefit of another person for whom he is a trustee or towards whom he stands in such capacity.
5. Property held benami liable to acquisition.--(1) All properties held benami shall be subject to acquisition by such authority, in such manner and after following such procedure, as may be prescribed, (2) For the removal of doubts, it is hereby declared that no .
amount shall be payable for the acquisition of any property under Sub-section (1)." In view of the aforesaid provisions of the Benami Transactions (Prohibition) Act, 1988 it is quite clear that once a property is purchased in the name of a person other than the wife or unmarried daughter or in the fiduciary capacity of someone else, the person making the investment ceases to have any legal right to recover the same. Consequently, the fact that the memorandum and the bye-laws governing the assessee's activities provide for compliance to Section 14 of the Registration of Societies Act and the assessee's claim that the investment in immovable properties at Bombay and Lucknow purchased in the personal name of Mr. Bakhat (not in a fiduciary capacity) have been shown as assets in its balance-sheet or the fact that property at Lucknow was being used for running a- school cannot legally entitle the assessee either to claim the ownership of the same or to recover the same under any law of the land. That being the case the question of recovery or compliance to provisions of Section 14 of Registration of Society Act do not arise at all--is a farce, only to befool the authorities and evade lawful tax liabilities.
Similarly, the assessee's claim that the properties were subsequently sold in 1995 (as per balance sheet the properties seem to have been sold in 1997) is also of no help to the assessee because, as has been held by the Hon'ble Supreme Court in. case of Aditnar Educational Institution (supra), the claim of exemption under Section 10(22) should be evaluated each year, to find out whether the institution existed during the relevant year solely for educational purposes and not for the purpose of profit and consequently, the events in subsequent years are of no use to the assessee--so far as the present year is concerned.
(b) Mr. H.R.A. Bakhat was enjoying a part of surplus/profit for his personal use in the garb of salary which, as we have already held, amounts to a benefit prohibited for securing exemption under Section 10(22) of the Act.
(ii) The part of the surplus of the profit has been passed on to the landlady and Mr. Bakhat in the garb of rent paid to a partnership.
As already held the said modus operandi adopted by Mr. Bakhat and the landlady is nothing but to enjoy the surplus/profit which is enjoyed any individual by giving tuition or coaching.
(iii) A part of the surplus/profit has been used for the personal use of Mr. Bakhat and his mother by way of meeting personal litigation expenses and repairs to the residential portion of the property owned by the Bakhat's mother and use of resident for both.
(iv) A part of the surplus/profit has been used for making construction in the residential portion of the building owned by Mr.
Bakhat and his mother and used for residence by them.
(v) An amount of Rs. 32,15,548, shown as security deposit has been given to Mr. Bakhat for his personal use. The fact that the amount has been shown in the assessee's balance sheet for the financial years 1999-2000 and 2000-2001 as security deposit do not disprove the over all intention and factual position that the amount in question has gone to the secretary and since it is the secretary who is having absolute powers, the amount is absolutely irrecoverable.
Similarly, the assessee's claim that it has charged interest for all the years is also of no use because, first it has been done, after coming of the income-tax noose against the assessee's neck and secondly the interest has also not been actually received. Simply making of the provisions in assessee's books or showing the amount as receivable or showing the investments in immovable properties in its balance sheet, in absence of any safeguard such as pro-note, agreement or undertaking, etc., do not support the assessee's claim.
For all intents and purposes the properties as well as the cash were in the complete possession of Mr. Bakhat and assessee could not recover the same, (vi) The assessee has not produced the books of account and the relevant documents and also the details regarding the basis for charging fees from the students.
(vii) As stated in the Para No. 5.6(xv) above, the assessee's funds to extent of Rs. 5,13,861 and Rs. 9,00,000 have been misappropriated during the years ending 31st March, 1996.
12. In view of totality of the facts and circumstances and the discussion, we are of the opinion that the assessee, though is imparting education, is existing solely for the purpose of commercial consideration and not solely 'for education' as envisaged "in the provisions of Section 10(22) of the Act. We are, further of the opinion, that the institution is existing for making commercial profits for the personal enjoyment of Mr. Bakhat and his family members and consequently, not entitled to the exemption under Section 10(22) of the Act. The order of the CIT(A) is set aside and that of AO is restored.
13. Since it is settled law that question of admissibility of exemption under Section 10(22) of the Act is to be evaluated each year Aditnar Educational Institution's case (supra) this decision will be applicable for the asst. yr. 1989-90 only. So far as other assessment years are concerned the Department as well as the assessee will be free to contest/support/defend their respective stands in the light of facts and circumstances for respective years.
14. So far as decision of the Tribunal in assessee's own case for asst.
yrs. 1985-86, 1986-87 and 1988-89, on which the assessee has heavily relied, is concerned, we find ourselves unable to follow the same, because, in those appeals the Hon'ble Bench had not considered the issue relating to profit motive, from the angle we have considered. For example the issue of salary drawn by the secretary has been considered from the angle of justification of quantum with reference to the nature of services rendered and not from the angle that such person cannot derive any benefit irrespective of rendering of any kind of service.
Similarly the issue relating to the immovable properties, which were in the name of secretary as individual and not in the fiduciary capacity had been considered only in the light of assessee's claim that the investment in such properties was appearing in the assessee's balance sheet and the Section 14 of the Registration of Societies Act, but not in the light of Prohibition of Benami (Properties) Act or The Transfer of Property Act. Similarly the expenditure incurred by way of repairs to residential portion of the building, addition to the residential portion of the building owned by secretary's mother and enjoyed by both, meeting the personal litigation and other expenses of the secretary and his mother, allowing the secretary to take away the surplus of the profit in cash have been considered only from the angle of assessee's claim that all these have been shown as receivable in the balance sheet of the assessee The issue as to whether there was any authority to recover the same or who will recover or when it will be recovered or will it be recovered at all or not seems to have escaped the consideration of the Bench. In view of these facts and circumstances we, with all respect to the Hon'ble Bench, are of the opinion that the assessee's case is not covered by that decision. With regard to the assessee's plea that facts and circumstances for the year under appeal are the same and therefore the present appeal is covered in assessee's favour and against the Revenue by the order of the Tribunal, we are of the opinion that a decisions is not comprised only of the facts and circumstances. It is comprised of facts, pleadings, consideration of various decisions and the provisions of law in the contexts of legislative intent; and the application of the judicious mind of the Bench or the Court, as the case may be; and that is the reason that, on the 'Similar facts and on the same issue, there have been and are conflicting decisions up to all levels of the judiciary.
In view of this concept we are of the opinion that a Bench or a Court can deviate from its own previous order/decision or the decision of other Bench, though ofcourse within the parameter of the concept relating to "judicial property" and "binding nature", if a strong distinguishable case has been made out. So far as the present case is concerned, we, in view of our earlier observations and the fact that the decision of the Hon'ble Bench is distinguishable, are not in a position to follow the decision of the Tribunal in assessee's own case.
The assessee's plea is therefore, rejected. Similarly the other case laws relied upon by the assessee are found to be not applicable to the present case because the same are distinguishable on facts as well as in law.
15. In view of above facts and circumstances we set aside the order of the CIT(A) and restore the order of the AO.This appeal is against the order of the CIT(A) dt. 21st Feb., 1994 passed in assessee's appeal against order of the AO dt. 2nd Dec., 1993 under Section 251/143(3)/147 of the Act passed for giving effect to the order of the CIT(A) dt. 12th Nov., 1993 which has been separately under appeal before the Tribunal. The ground taken by the Revenue in this appeal reads as under: "That the CIT(A) erred in law and on facts in holding that the income of the assessee is exempt under Section 10(22) of the Act, following the CIT(A)'s order for the asst. yr. 1989-90 which has not been accepted by the Department and is still sub judice before Tribunal." 2. We have heard the learned Departmental Representative as well as the counsellor the assessee.
3. Since the order of the CIT(A) dt. 12th Nov., 1993, which has given rise to the present appeal has been set aside and the issue relating to the exemption under Section 10(22) of the Act has been decided in favour of the Revenue and against the assessee as per our order of the even date in revenue's ITA No. 68/A11/94, the order of the CIT(A) no more survive and consequently, the same is set aside, and order of AO is restored and confirmed.
Through this cross-objection, which is time-barred by 2452 days, the assessee has sought the permission for condonation of delay in furnishing the cross-objection and has prayed for the consideration of following objection.
"Because, the proceedings under Section 148 have not been validly initiated and the AO, on the facts and circumstances of the case, cannot be said to have validly assumed jurisdiction to pass an order in the case of the respondent-assessee." 2. We have heard the counsel for the assessee as well as the learned Departmental Representative.
3. The counsel for the assessee first of all submitted that the assessee had taken a similar ground before the CIT(A) but had not pressed the same when the appeal was heard. According to him this does not bar the assessee from taking the same ground before the Tribunal either in appeal or by way of cross-objection.
Mr. S.K. Garg further submitted that in view of the provisions of Section 253 of the Act, Rule 47 of ITAT Rules and the decisions of Hon'ble Supreme Court in case of Union of India v. A Sanyasi Rao (1993) 202 ITR 584 (SC) the Tribunal has got inherent powers to condone the delay and admit the same in the interest of justice.
Coming to the reasons for delay Mr. Garg submitted that the delay was caused due to the fact that the assessee had not been advised of its rights to file a cross-objection. It was further submitted that the maxim that "Ignorance of Law is not an excuse", as has been held by the Hon'ble Supreme Court, is not known to Fiscal Laws and therefore, the delay be condoned.
4. The learned Departmental Representative on the other hand; left the matter to be decided on merits in accordance with law by the tribunal saying that there is no provision for condonation of delay in furnishing cross-objection and the reasons for delay stated by the assessee are not sufficient and reasonable for condoning the delay.
5. After having considered the rival submissions, facts and circumstances of the case and various decisions relied upon by the counsel for the assessee we are of the opinion that assessee has not explained any reasonable cause which could be said to be beyond its control. Simply saying that it was not advised of its right to file cross-objection is neither sufficient nor has been proved, because the facts speak otherwise.
From the record it is revealed that the CIT(A) had decided the assessee's appeal for asst. yr. 1989-90 on 12th Nov., 1993 whereas the Revenue had furnished appeals for the asst. yrs. 1985-86, 1986-87 and 1988-89 in 1990 and were decided by the Tribunal on 30th Aug., 1996, which clearly was before the time for furnishing the cross-objection.
The appeals for the asst. yr, 1989-90 were filed on 12th Jan., 1994 and 29th April, 1994 whose intimation was sent to the assessee under registered letter on 12th Sept., 1994 and 6th May, 1994.
5.1. From the above facts it is clear that the assessee was well aware of the provisions relating to the appeals before the Tribunal in 1990 itself when the Revenue had filed appeals for the asst, yrs. 1985-86, 1986-87 and 1988-89, Presuming that it was not known to the assessee at that time then at least, the assessee was well aware of the fact of revenue having furnished appeals for the asst. yr. 1989-90--intimation of which was given in 1994 itself; and since it is settled law that the party claiming condonation of delay must explain the delay of each day, the assessee was under obligation to explain delay after 16th May, 1994 by reasonable cause, because the plea that it was not advised of its right to file cross-objection can, at the most, hold good upto 16th May, 1994 and not thereafter, but the assessee had failed to explain the same to our satisfaction.
5.2. In view of above facts and circumstances We do not find any merit in assessee's claim for condonation and consequently the same is rejected. 6. In the result assessee's cross-objection is dismissed in limine.