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TMI Blog2015 (1) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... e part of its land to its sister concern M/s. ABL for establishing RMC Plant with the understanding that the RMC would be supplied to it at concessional rates and on priority basis, does not establish the case of the CIT that the assessee had allowed M/s. ABL to use its property for its benefit. Relying upon Orpat Charitable Trust Versus Commissioner of Income-Tax [2001 (12) TMI 36 - GUJARAT High Court] - where the assessee was engaged in promotion of educational activities, which with within the domain of being charitable, the CIT at the time of grant of extension of exemption u/s 80G(5) of the Act was not empowered to deny the exemption to the assessee on the ground that it had violated the provisions of section 13(1) - the arrangement entered into by the assessee with M/s. ABL was a beneficial arrangement and was for the purpose of carrying on the activities of the trust by way of construction of the buildings of the educational institutes to be run by the assessee, and where there was benefit to the assessee by way of such arrangement, the same does not establishes that the assessee was not engaged in providing charitable activities i.e. education – thus, the Commissioner is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trust's reply dt. 15.07.2009. Therefore, it is prayed to annul the proceedings for cancellation u/s 12AA(3). 2.1 The learned CIT-I, Nashik, fails to appreciate that on the appointed date of hearing assessee's representative C.A. Shri Praveen Rathi went to CIT's office but the learned CIT was out of Nashik and Shri Praveen Rathi was informed that he would be given next date of hearing but without such hearing the leaned CIT erred in passing the Order u/s 12AA(3) of the Income Tax Act,1961. (To substantiate the claim C.A. Shri Praveen Rathi is ready to submit an affidavit during the hearing before ITAT, Pune.) 2.2 The Order u/s 12AA(3) is null void and be declared as bad in law, as it violates the principles of natural justice by not allowing a real opportunity of hearing. 3. Under the facts, circumstances of the case and the provisions of law, the learned CIT I erred in canceling the certificate issued in the name of appellant trust u/s 12AA(1) by use of powers vested in him u/s 12AA(3) of the IT. Act, 1961. Therefore, it is prayed to cancel the order passed by the CIT-I, Nashik, u/s 12AA(3). 4. The learned CIT- I, erred in holding that, the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of Directors in M/s. ABL. During the course of enquiry, it was further noticed that M/s. ABL was awarded contract work order from Nashik Municipal Corporation on 22.02.2007 for ₹ 5.67 crores for construction of college road in Nashik. Thereafter, a Ready Mix Concrete (in short RMC) Plant was set up on 6000 sq. mtrs. of land belonging to the assessee. The RMC Plant started supplying material for the construction of college road which was to be completed within time schedule. The Assessing Officer further reported that the RMC Plant was still operational even after the expiry of two years from the date of installation. The RMC Plant established on the trust land, was found to be supplying Ready Mix Concrete to M/s. ABL and also for sale of concrete to outside parties. The Assessing Officer of the assessee foundation took the photos of RMC Plant which have been scanned and made part of the order of CIT at pages 4 and 5. The CIT vide para 4 noted that the objects of the assessee trust were for the promotion of educational activities and nowhere in the Memorandum of Association, there was any mention of an object for promoting industrial activities like installation of RMC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s Permission, (b) The agreement since not registered under state law, is neither valid nor reliable, (c) The dominant purpose in allowing M/s ABL to set up RMC was not educational but for facilitating M/s. ABL's contract work awarded by NMC as would be apparent from the hurried conduct of the Trustees to jump all proceedings of obtaining charity Commissioner's approval, what to speak of NMC and environmental clearance, (d) Construction of school building had started in phases long before February 2007. Installation of RMC plant m February / March, 2007 on school land coincides with the award of contract to M/s. ABL, the company in which the Trustees are interested. The very timing of award of contract to M/s ABL and setting up of RMC Plant is a sordid reminder that the Trustee's sole intention was to benefit their company M/s. ABL. (e) No publicity / advertisement calling for the highest bidder for lease of land was given, and no permission is taken from the Authorities concerned. The provisions of The Bombay Public Trust Act are directly impinged upon, (f) The Nashik Municipal Corporation, a statutory local Authority is taken to Court for having issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and transportation cost of Ready Mix Concrete was ₹ 40,35,826/-, as per the details filed at page 115 of the Paper Book. In case the said land had been rented out, then at best, the assessee was entitled to rental of ₹ 4,62,000/- for a period of five years and for a period of two years worked out to ₹ 1,84,800/-. On the other hand, the compensation of concession received by the assessee was more than ₹ 40,00,000/-. The learned Authorized Representative for the assessee referred to the order of CIT and stated that the renewal of exemption under section 80G(5) of the Act was not allowed to the assessee since the permission of the charity commissioner was not taken. It was pointed out by him that the understanding between the assessee and M/s. ABL was only a lease, for which no permission was required to be taken. Even otherwise, no approval from the charity commissioner does not violate the provisions of section 80G(5) of the Act. Further, the plea of the assessee was that the said piece of land was given to sister concern, who was to vacate the premises in 2-3 years. In any case, there was no violation of the provisions of section 13 of the Act. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of six months would not result in any deemed grant of registration. Reliance was placed upon the decision in CIT Vs. Muzafar Nagar Development Authority (2013) 38 taxmann.com 21 (Allahabad). The learned Departmental Representative for the Revenue pointed out that in case of registration under section 12A of the Act, the period of 12 months was directory and not mandatory. Further with regard to the grant of exemption under section 80G(5) of the Act, the learned Departmental Representative for the Revenue pointed out that investigation was conducted in the case of assessee and there were many hearings, in which the assessee had sought adjournments and eventually, an order was passed on 15.04.2009. With regard to the merits of the case, the learned Departmental Representative for the Revenue pointed out that when there was material change in the objects of the society and where the CIT becomes aware of it, then the renewal of exemption under section 80G(5) of the Act could be denied. Reliance was placed on the ratio laid down in CIT Vs. O.P. Jindal 290 taxmann.com 70 (P H) that the objects of the trust are required to be gone through at the time of grant of exemption under section 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution or the fund, he shall record the satisfaction and grant approval to the institution or fund, satisfying the assessment year(s), for which the approval is valid, as per Rule 11AA(4) of the Rules. In any case, where the commissioner is satisfied that one or more of the conditions laid down in clauses (i) to (vi) to section 80G(5) are not fulfilled, then he shall reject the application for approval after recording reasons for such rejection in writing. The said power is enshrined in CIT vide Rule 11AA(5) of the Rules. Further, it is provided that no order of rejection of the application shall be passed without giving reasonable opportunity of hearing to the institution or the fund. Under sub-rule (6) to Rule 11AA of the Rules, the time limit within which the commissioner has to pass an order of either granting the registration or rejecting the application shall not exceed six months from the date on which the application was made. Further, it is provided that in computing the period of six months, any time taken by the applicant in not complying with the directions of Commissioner under sub-rule (3), shall be excluded. The CIT is to look into the activities of the institution fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Government or by a University established by law, or affiliated to any University established by law, or is an institution financed wholly or in part by the Government or a local authority; (vi) in relation to donations made after the 31st day of March, 1992, the institution or fund is for the time being approved by the Commissioner in accordance with the rules made in this behalf. 18. In the facts of the present case before us, the assessee was running schools, vocational courses, colleges, etc. and as per the list annexed at page 3 of the Paper Book, which read as under:- Name Activity Ashoka Universal School Pre-primary, Primary Secondary Schools (ICSE Govt of Maharashtra recognized) Ashoka International Centre for Educational Studies Research B. Ed College (SNDT, NCTE Govt. of Maharashtra recognised) Ashoka Institute of Management Technology Master of Computer Mgmt PG Diploma in Computer Mgmt (Pune University Govt. of Maharashtra re cognized) Ashoka Institute of Management Research ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Paper Book. The assessee thereafter, had applied for renewal of exemption under section 80G(5) of the Act. However, the same was denied by the CIT on the premise that the assessee had handed over portion of its land to M/s. ABL without taking any permission from the charity commissioner and / or in allowing M/s. ABL to set up plant in its land i.e. the trust property was used for the benefit of M/s. ABL, who were selling the RMC not only to the assessee but to outside parties also. The CIT was of the view that such arrangements were hit by the provisions of section 13(1)(c) of the Act and consequently, the conditions prescribed under section 80G(5) of the Act were not satisfied. In view thereof, the renewal of registration under section 80G(5) of the Act was denied to the assessee trust. 21. While granting the exemption or renewal of exemption under section 80G(5) of the Act, the role of CIT is limited to look into the nature of activities being carried on by the institution or fund and the violation if any, of the provisions of section 13 of the Act and its various subsections are to be looked into by the Assessing Officer while deciding the issue of grant of deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of benefit to a person under section 13(3) of the Act and hence, the assessee society was held to be hit by the provisions of section 13(1)(c) of the Act, does not entitle the CIT to deny the exemption of income claimed under section 11 of the Act. 24. The Delhi Bench of the Tribunal in Aggarwal Mitra Mandal Trust Vs. DIT (Exemption) (supra) held that while granting registration under section 12A of the Act, the CIT is to satisfy himself about the genuineness of activities and objects of the trust and as such, the scope of his powers was limited in this regard to make such enquiries as he deemed to, in respect of these two aspects. It was further held that if the Commissioner had not doubted the genuineness of the activities of the trust, he could not refuse the grant of registration under section 12A of the Act. The provisions of section 13(1) of the Act would be applied or invoked only at the time of computation of total income of the previous year of the person who was claiming deduction under section 11 or 12 of the Act, by the Assessing Officer and not by the CIT, while considering the application for registration under section 12A of the Act. 25. Following the above ..... X X X X Extracts X X X X X X X X Extracts X X X X
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