2023 (3) TMI 95 - AT - Income Tax

Withdrawal approval granted u/s 10(23C)(vi) - Retrospective withdrawal of the exemption approval - Whether the perquisite towards residential accommodation has been rightly determined by the assessee society in the hands of the Chairperson or not? - HELD THAT - Hon ble Rajasthan High Court in case of Indian Medical Trust 2019 (6) TMI 996 - RAJASTHAN HIGH COURT has taken a similar view and held that the provisions of section 12AA (3) empowers the Commissioner to initiate steps for cancellation of the registration of a Trust, but the legislation had no intention of giving the said provision a retrospective effect and for in such a situation, the same would have been clearly specified in the said provision. It was held by the Hon ble Rajasthan High Court that the interpretation of the said provision has to be harmonious rather than being prejudicial to the institutions as it would instigate and create a fear of the Income Tax Department and has referred to earlier decisions of the Hon ble Allahabad High Court in case of Oxford Academy for Career Development and Agra Development Authority 2008 (12) TMI 192 - ALLAHABAD HIGH COURT In the instant case, we, therefore, find that as far as assumption of jurisdiction by the ld PCIT(Central) is concerned, the same is clearly in the capacity of prescribed authority as per amended Rule 2C vide CBDT Notification dated 05/11/2019 and pursuant to transfer of jurisdiction and order passed u/s 127 dated 15/12/2020 and there is no dispute in this regard. At the same time, it is noted that on assumption of jurisdiction, the show-cause notice has been issued by the ld PCIT(Central) on 15/06/21 and thereafter, he has passed the impugned order dated 21/10/21 withdrawing the approval retrospectively that too with effect from A.Y 2003-04. In light of aforesaid rulings as discussed supra where the Courts and various Benches of the Tribunal have consistently held that the exercise of power of withdrawal cannot be done retrospectively and in absence of any contrary authority brought to our notice, we are of the considered view that the PCIT(Central) was not legally correct in withdrawing the approval u/s 10(23C)(vi) retrospectively and such approval can only be withdrawn from the date of issuance of the show cause notice dated 15/06/21 that is, with effect from A.Y 2022-23 and subsequent years. Conditions so specified for withdrawal of approval u/s 10(23C)(vi) - utilization of the two immovable property of the assessee society - whether the usage of the assessee s society property by the Chairperson is in violation of objectives or not? - Approval u/s 10(23C)(vi) was granted by the ld CCIT on 14/02/2007. We therefore find that the matter relating to residential accommodation provided by the assessee society to its then chairman Mr S.S Khanna and Mrs Patricia Khanna, Principal was duly examined while grant of initial approval and the same was clearly as per the objects of the assessee society and it is also manifest from the records that rent was recovered from them. It is also a matter of record that Mrs Patricia Khanna has since taken over from Mr S.S Khanna and is rendering services as the chairperson of the assessee society and as part of her services, she has been allowed by the assessee society to retain and occupy the said residential accommodation and there is thus no dispute in this regard that a facility by way of residential accommodation has been provided by the assessee society to the Chairperson in lieu of her services. Whether the same has been considered as perquisite in her hands by the assessee society for tax purposes and/or any rent has been recovered from her? - Form 16s and personal tax returns were available but for some reasons, the same couldn t be brought on record resulting in aforesaid findings of the PCIT(Central). The same can be verified and examined by the Assessing officer during the course of assessment proceedings to determine whether the perquisite towards residential accommodation has been rightly determined by the assessee society in the hands of the Chairperson or not and take appropriate steps and decide as per law while framing the assessment. In light of aforesaid discussions, we are of the considered view that the same cannot be a reason for withdrawal of exemption u/s 10(23C)(vi) as the residential accommodation has been provided to the Chairperson in furtherance of the society s educational objectives and in pursuance of her services to the assessee s society. Fleet of luxury cars which were owned by the assessee society and used by the Chairperson and other members of the society for personal purposes - Whether these vehicles have been provided by the assessee society to the chairperson and other members of the society for the purposes of rendering services to the assessee society or exclusively for their personal use? - In our understanding, these vehicles have been provided to the respective members of the assessee society for discharge of their services to the assessee society as it evident from the record when the matter was initially enquired by the ld CCIT(Chandigarh) and at the same time, given that these vehicles are at the exclusive disposal of the individual members, possibly, some personal usage cannot be ruled out and it thus gives an impression that these vehicles have been provided to them exclusively for personal usage. The exclusive disposal of vehicle vis- -vis exclusive personal usage thus seems to be have created the present situation which has led to the impugned findings of the ld PCIT(Central). Basis the material available on record, we believe that not enough evidence has been brought on record by the Revenue to hold that these vehicles have been provided exclusively for personal purposes of members of the assessee society and funds to that extent have been diverted for personal benefit - we believe that the AO is not precluded from examining the said matter during the course of regular assessment proceedings as to whether the vehicles have been used for official purposes alone or besides the official purposes, whether there is any personal usage as well and take appropriate action as per law. At the same time, in light of aforesaid discussions and in the entirety of facts and circumstances of the case and taking into consideration the decision of the Coordinate Mumbai Benches referred supra which support the case of the assessee, we are of the considered view that the provision of vehicles per se to the members of the assessee society cannot be a reason for withdrawal of exemption u/s 10(23C)(vi). Payment of lower salary to the employees and misappropriating the excess amount for use of the members of the assessee society - We are of the considered view that basis material available on record and carefully analysis thereof, it cannot be held that there is misappropriation of society s funds all these years by way of inflating salary expenditure and withdrawing money from the respective teachers bank accounts and that too, for benefit of Chairperson and members of the assessee s society. This is however subject to part of salary withdrawn in respect of aforesaid two teachers and who have confirmed that they have parted with their salary. In respect of part of salary so withdrawn in respect of these two teachers, the Assessing officer is directed to verify the same and take appropriate action as per law in regular assessment proceedings in the hands of the assessee society for the years involved. Loose papers don t establish that the activities of assessee society are not genuine and are not carried out in accordance with the objects and thus the same cannot form the basis for withdrawal of exemption. At the same time, it was further held by the Coordinate Bench that where there are allegations that funds of the assessee society have been misappropriated or there is any ambiguity in the claim of expenses, the same can be taken up during the assessment proceedings. We find that the facts in the instant case are similar where there are allegation of misappropriation of assessee society s fund by inflating the salary expenditure and withdrawal from teachers s bank account and the registration has been cancelled with retrospective effect though there is nothing on record wherein the genuineness of the activities of the assessee society has been challenged in terms of imparting education to school children. In light of aforesaid discussions and in the entirety of facts and circumstances of the case, we are of the considered view that the same cannot form the basis for withdrawal of exemption u/s 10(23C)(vi). Funds diverted for benefit of Chairperson - PCIT has held that the value of the property at Sector 18 has been artificially enhanced without any basis over and above the collector rate and the differential consideration received in cash was misappropriated and not accounted for in the books of account of the assessee society and the funds so received were diverted for the benefit of the Chairperson and members of the assessee society - HELD THAT - We are of the considered view that basis aforesaid discussion, the same cannot lead to a situation where the approval granted u/s 10(23C)(vi) can be withdrawn and that too, from a retrospective effect. We find that similar view has been taken in case of Shri Jairam Education Society vs PCIT (Central) 2021 (10) TMI 911 - ITAT INDORE Further, we draw support from the decisions of Hon ble Rajasthan High Court in case of DCIT vs. Cosmopolitan education Society 1999 (8) TMI 13 - RAJASTHAN HIGH COURT wherein the Hon ble High Court affirming the finding of the Tribunal held that where there is allegation of misutilisation of the funds of the Society or mismanagement of the activities of the Society, the action could be taken against the members of the society as per the provision of governing the Society. However, even such misutilisation and mismanagement by the members could not be the basis of rejection of the claim of exemption to the assessee education Society and the SLP against the judgement stood dismissed by Hon ble Supreme Court. The order passed by the ld PCIT(Central) withdrawing the approval u/s 10(23C)(vi) is set-aside and the original approval is revived from the date of withdrawal of such approval. Appeal of the assessee society is allowed.

Summary

Issues Involved:
1. Retrospective Withdrawal of Exemption Approval
2. Utilization of Immovable Properties
3. Ownership and Usage of Luxury Cars
4. Payment of Lower Salary and Misappropriation of Funds
5. Exchange Deed and Alleged Misappropriation of Sale Consideration

Detailed Analysis:

1. Retrospective Withdrawal of Exemption Approval:
The Assessee Society contested the retrospective withdrawal of exemption under Section 10(23C)(vi) by the PCIT(Central), Gurgaon. The Tribunal referred to various judicial precedents, including the decisions of the Hon'ble Allahabad High Court in Agra Development Authority and the Hon'ble Rajasthan High Court in Indian Medical Trust, which held that the cancellation of registration or exemption should be prospective and not retrospective. The Tribunal concluded that the PCIT(Central) was not legally correct in withdrawing the approval retrospectively and such approval can only be withdrawn from the date of issuance of the show cause notice dated 15/06/21, i.e., with effect from A.Y 2022-23 and subsequent years.

2. Utilization of Immovable Properties:
The PCIT(Central) alleged that two properties owned by the Assessee Society were used by the Chairperson and her family members for personal residence, which was against the society's objectives. The Tribunal noted that the usage of the property by the Chairperson was examined at the time of the initial grant of approval under Section 10(23C)(vi) and found to be in line with the society's objectives. The Tribunal also found that the perquisite value of the accommodation was reflected in the Chairperson's income tax returns. Therefore, the Tribunal held that the provision of residential accommodation to the Chairperson in furtherance of the society's educational objectives cannot be a reason for withdrawal of exemption.

3. Ownership and Usage of Luxury Cars:
The PCIT(Central) found that the Assessee Society owned luxury cars used by the Chairperson and other members for personal purposes. The Tribunal noted that the vehicles were registered in the name of the society and used for official purposes. The Tribunal referred to the decision of the Coordinate Mumbai Benches in ITO vs. Cancer Aid & Research Foundation, which held that the provision of vehicles to trustees for official purposes cannot be a ground for cancellation of registration. The Tribunal concluded that the provision of vehicles per se to the members of the society cannot be a reason for withdrawal of exemption under Section 10(23C)(vi).

4. Payment of Lower Salary and Misappropriation of Funds:
The PCIT(Central) alleged that the Assessee Society paid lower salaries to employees and misappropriated the excess amount. The Tribunal found that out of thirty teachers whose statements were recorded, only two teachers stated that they parted with a portion of their salary. The Tribunal held that negative statements (denial of handing over signed cheques) by the majority of teachers cannot be disregarded. The Tribunal also noted that the statement of Mr. Mohan, who allegedly encashed the cheques, was not recorded. The Tribunal concluded that the allegation of misappropriation of funds by inflating salary expenditure was not established and cannot form the basis for withdrawal of exemption.

5. Exchange Deed and Alleged Misappropriation of Sale Consideration:
The PCIT(Central) alleged that the Assessee Society received unaccounted cash as part of the consideration for an exchange deed executed for properties. The Tribunal noted that the exchange deed was registered, and the transaction value was accepted by the stamp duty authority. The Tribunal found that the PCIT(Central) did not refer the matter to a Valuation Officer to verify the alleged over-valuation. The Tribunal held that the exchange deed, being a written contract, cannot be contradicted by rough note pad entries. The Tribunal concluded that the allegation of receiving unaccounted cash was not substantiated and cannot be a reason for withdrawal of exemption.

Conclusion:
The Tribunal set aside the order passed by the PCIT(Central) withdrawing the approval under Section 10(23C)(vi) and revived the original approval from the date of withdrawal. The appeal of the Assessee Society was allowed.