2015 Supreme(Del) 2649

IN THE HIGH COURT OF DELHI
S.MURALIDHAR AND VIBHU BAKHRU, JJ.
DIRECTOR OF INCOME TAX (EXEMPTION) - Appellant
Versus
ALL INDIA PERSONALITY ENHANCEMENT & CULTURAL CENTRE FOR SCHOLARS AIPECCS SOCIETY - Respondent
ITA 705/2008, 924/2009 WITH W.P.(C) 3797/2011
Decided On : 07.10.2015

Headnote:

The income of All India Personality Enhancement and Cultural Centre for Scholars AIPECCS Society (hereafter the ‘Assessee’) is exigible to tax under the Act. The surplus reflected by the Assessee in its Books of Accounts maintained in the normal course could not be considered as undisclosed income earned during the block period.

Fact of the Case:

The Assessee is a Society and was registered under the Societies Registration Act, 1860 on 26th December, 1980. The aims and objects of the Assessee as specified in its memorandum of association read as under: a) To establish schools in India and provide good quality education to all without distinction of race or creed or caste or social status with a view to help the Government which is unable to cope with providing education to all. b) To organize special education for Gifted Children which does not exist in specific form anywhere in the country and because of which, there is crisis of leadership in most walks of life. c) To arrange and provide for scholarship for education to meritorious children of limited means. d) To organize and conduct other activities, which further the cause of education, particularly at school level, and specifically for Gifted Children. e) To promote progress, prosperity and welfare of the Gifted Children. f) For the above purpose, the Society may raise funds by various means, acquire premises, buildings and other property on rent/lease, by way of gift/donation, by purchase, anywhere in India or abroad and all other things which it may consider in its opinion required for the furtherance of the above aims, objects and purposes. g) To do all other acts, as are incidental and conducive to the attainment of the above aims and objects.

Finding of the Court:

The predominant object of the Assessee was not to impart education but to generate profits. The activity of running and managing educational institutions was carried on, predominantly, with the object of generating profits. The Assessee had consistently generated surpluses after meeting its revenue and capital expenditure and this indicated that the pre-dominant object of the Assessee was not to impart education but to generate profits. The institutions managed and run by the Assessee were affiliated to the Central Board of Secondary Education (CBSE) and as per the prevalent rules, affiliation could be granted only to non-profit institutions/societies. Mr Vohra submitted that the Assessee had existed solely for educational purposes and not for the purposes of profit. He submitted that merely because the Assessee had generated surpluses in certain years, the same would not indicate that the Assessee was not existing solely for educational purposes. He referred to the decisions of the Supreme Court in Queens Educational Society v. CIT: (2015) 372 (ITR) 699 (SC); Indian Chamber of Commerce v. CIT: (1975) 101 ITR 796 (SC); Aditanar Educational Institution v. CIT: (1997) 224 ITR 310 (SC) and Oxford University Press v. CIT: (2001) 247 ITR 658 (SC) in support of his contention that the pre-dominant purpose test must be used to determine whether the Assessee was existing only for educational purposes.

Issues: A. Whether the Revenue is entitled to challenge the order dated 4th August, 2006 passed by the Tribunal in this appeal? B. If the answer to question (A) is in favour of the Revenue, whether on the facts of the present case, the Tribunal was correct in law in recalling its order dated 25th June, 2004? C. Whether, in the given facts and circumstances, an assessment under section 158BC could be made in respect of the income of Assessee as recorded in its books maintained in the regular course treating the same as ‘undisclosed income’? D. Whether the Tribunal was correct in law in holding that the Assessee was entitled to the benefit of exemption under Section 10(22) of the Act? E. Whether the Tribunal was correct in deleting the penalty imposed on the Assessee?

Ratio Decidendi: The expression ‘undisclosed income’ would connote assets or income, which the Assessee believes to be taxable and seeks to conceal the same from the Income Tax Authorities. The surpluses, which are recorded by the Assessee in its books of accounts maintained in the normal course and which according to the Assessee are not chargeable to tax cannot be assumed to be ‘undisclosed income’ only for the reason that a return of income surrendering the said surpluses to tax has not been filed; particularly, where the Assessee, for bona fide reason, subscribes to the view that he is not required to file his return of income.

Final Decision: The appeal preferred by the Revenue being ITA 705/2008 is dismissed. Consequently, the Revenue’s appeal being ITA 924/2009, directed against the Tribunal’s order dated 6th June, 2008 setting aside the penalty imposed on the Assessee, is also dismissed.