9911796707
TMI Blog2017 (2) TMI 689X X X X Extracts X X X X X X X X Extracts X X X X ..... ng grounds:- ''1. On the facts and in the circumstances of the case and in law, the worthy CIT (Exemption), Jaipur, has grossly erred in rejecting the application in form No. 10A filed on 31/3/2015 for seeking registration under Section 12AA of the Income Tax Act, 1961 and erred in holding that the activities of the society are not for charitable purpose as defined u/s 2(15) of Income Tax Act. 2. That the order of the worthy CIT (Exemption), Jaipur rejecting the application of assessee seeking registration of society U/s 12AA of Income Tax Act is arbitrary, whimsical, capricious, perverse and against the law and facts of the case. The order of the CIT-Exemption, Jaipur in this regard deserves to be set aside and direction be given for grant of registration to the Society u/s 12AA of Income Tax Act." 2.1 Brief facts of the case are that the assessee filed the application on 31-03-2015 in Form No. 10A seeking registration u/s 12AA of the Income Tax Act, 1961. To this effect, the ld. CIT (Exemptions) issued letter/ Notice No. 1824 dated 31-03-2015 at the assessee's address requiring the assessee to submit certain documents/ explanation by 13-04- 2015 alongwith original Trus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. CIT (Exemptions) vide letter No. 2444 dated 24-09-2015 required the assessee society to file certain information which was submitted by the assessee vide letter dated 28-09-2015 and 8-05- 2015 to the ld. CIT (Exemptions) and the same is available at page 3 and 4 of ld. CIT (Exemptions) order. The ld. CIT (Exemptions) after taking into consideration the reply of the assessee society noticed that the assessee society had taken land on lease from M/s. Gopi Bai Foundation Trust on lease rent of ₹ 25,000/- per month which pertained to Gopi Bai Foundation Trust, Kota and there is no change of the ownership. It is further noted that on this leased land, M/s. Career Point Ltd. had constructed a building investing huge amount. The justification for constructing a building on land belonging to other trust goes beyond understanding. As per ld. CIT (Exemptions), no business undertaking will invest huge amount without protection of title unless some benefits are ensured. It is further noted that a building constructed by M/s. Career Point Ltd. had been taken on lease by the assessee society by paying rent of ₹ 6.00 lacs per month during the F.Y. 2013-14 for 1,00,000 sq. ft @ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Specialized Training (class-X) 20,000 per student Specialized Training (class-XII) 24,000 per student Specialized Training (Faculty) 1,50,000 per batch All other services On mutual agreement basis. The ld CIT(E) observed that all the education as well as administrative activities had been run by the Career Point Ltd., a public Ltd. company, which has expertise in coaching to the students for preparing for various competitive examinations like Engineer, Medical etc.. M/s Career Point Ltd. is a profit making company where profit is distributed to the shareholders. For a charitable Trust, all the profits generated, should be used towards object of the society and no profit should be distributed to any of stake holders, but in the assessee's case, whole fund has been diverted to M/s Career Point Ltd., and basic purpose of charitable activity would itself be lost. It is against the basic norms of Section 2(15) of the Act and such activities cannot be held as genuine charitable activities. Therefore, ld. CIT (Exemptions) rejected the assessee's application for registration u/s 12AA of the Act by observing as under:- ''12. From the discussions made in preceding paragra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the society in previous years was running of school which was mainly run and managed by fees receipt from students. Thus there is no doubt that the activities of the society are in the nature of Charitable activities covered in the definition 2(15) of the Income Tax Act. This issue is not in dispute as the CIT(E) also admits that the assessee society is running a school which is providing the education to students as per rules & regulations of government. The Group summary of Gross Receipts in the books of account of assessee showing class wise breakup of fees for FY 2012- 13, FY 2013-14 and FY 2014-15 is at PB pg 136-138 (Vol-II). This conclusively proves that the assessee is not carrying out any activities other than normal schooling. 2) The only reason for not considering the activities of the society as charitable because of high payment to M/s Career Point Limited by way of rent of building and in the form of service providing fees. In this regard first of all this is to submit that M/s Career Point Limited is not an person covered u/s 13(3) of Income Tax Act, 1961 for assessee trust and this company is no way related to assessee trust. This fact was brought in knowl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also not in dispute. Why M/s Career Point Ltd agreed to construct the building on the lands owned by other is purely decision of M/s Career Point Ltd and the assessee is nothing to do in this regard. Further the assessment of M/s Career Points Ltd for AY 2012-13 and AY 2013-14 were completed u/s 143(3) and the AO of M/s Career Point Ltd has not objected over the construction of building by M/s Career Point Ltd. The copy of assessment orders of M/s Career Point Ltd is at PB pg 145-152. ii) It is admitted fact that the assessee society is not owing its own building and for expansion of its schooling activities the assessee society requiring the building. Therefore the assessee has taken the land on lease, on which the school building is being run, from Gopi Bai Foundation Trust, Kota for lease rent of ₹ 25,000/- P.M. The building on leased land was constructed by Career Point Limited and in FY 2013-14 and 1,00,000 sq. feet constructed area was taken on rent from Career Point Ltd for a rent of ₹ 6 per sq. feet per month i.e. ₹ 6,00,000/- per month. In FY 2014-15 (from July 2014) the part of building was vacant by the assessee as the entire building could not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed lower fixed deposit rate from the Bank. 12. For multiple reasons, this was not a correct approach. First, we are trying to ascertain whether the trust was paying the interest at the rate higher than the market rate. What the trustees could have got from the Bank was not correct comparison. Secondly, the trustees were offering unsecured loan, which with inherent risks, invites higher interest than the bank loans. Last but not the least, if the trustees had parked their money in the Bank fixed deposits, the liquidities and security of such investment would be much higher than lending substantial amount to the trust without a collateral security. 13. Section 13(1)(c) of the Act does not prohibit normal transactions between the trust and the persons referred to in sub-section (3) of the Act. What is relevant is the use or application of any part of the income of the trust directly or indirectly for the benefits of any such person referred to in subsection (3). Mere payment of lease rent or interest on borrowed funds, without there being any element of such payments being excessive or unreasonable compared to the normal rates prevailing, would not fall within the mischief of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver 10 Crores (PB pg 143) and if this amount would have been invested by the assessee society in construction of building by taking the funds from market and if the reasonable cost of interest on finance is assumed @ 12% then the assessee society would have to pay interest of 1.47 crores PA against which the rent payment in FY 2013-14 was ₹ 72,00,000/- (@ ₹ 6,00,000/- PM) and in FY 2014-15 ₹ 27,00,000/- (@ 6,00,000/- PM for first three month and @ 1,00,000/- PM for rest of year). Thus the assessee society paid very nominal rent to the Career Point Ltd in comparison to financial cost that would involve if the same building would have been constructed by the assessee itself. Thus this is not a case where the assessee society has diversified its income to M/s Career Point Ltd in the shape of rent but it is the case where assessee obtained the building of M/s Career Point Ltd for very nominal financial cost in the shape of rent. v) The ld. CIT (Exemption) has held that the against the fess receipt of ₹ 81,39,100/- the society is paying ₹ 75,00,000/- as rent. Thus the society has taken a space for so called the charitable activities beyond its financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of the school to this company. The management of the society is with the executive body listed at PB pg 69. The findings of ld CIT(E) is not based on inquiry, evidence but on surmises and conjectures. The management of the society and Career Point Ltd is separate and no intermixing, inter lacing affairs are there. The society entered into agreement with this company for only for providing certain specified services, as listed in Annexure-A of the agreement (Copy at PB Page 103 to 104) and mention in page 6 to 7 of the order and in lieu of such services certain charges was paid to this company. The management of the school was not transferred to this company. All the staff of the school was employed by the assessee society, the management of the school was with assessee society and entire activities of the school were being governed by the assessee society. There was payment of only ₹ 6,00,000/- to M/s Career Point Ltd against the auxiliary Educational Services out of total expenses of ₹ 1,58,22,404/- in Financial Year 2013-14. ii) The agreement was made with the Career Point Ltd because the assessee society was new in the CBSE schooling and it was not having re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained by it and that too at fair market value. This is not a case where the tax free funds are passed on in the hands of M/s Career Point Limited. Whatever payment made to this company has been subject to tax and this cannot be said to be part of diversion of tax free funds from one hand to another hands. 7) The ld CIT has unjustified in rejecting the application filed by the assessee in violation of the plain and simple procedures laid down in section 12AA. At the time of considering the application for grant of registration u/s. 12A, the CIT was not required to examine the application of income or carrying on of any activity by the Trust or who are the trustees of the Trust. The CIT has to look into the object of the Trust and genuineness of the activities of the Trust. In this regard the reliance is placed on the decision of Hon'ble Rajasthan High Court in the case of CIT vs Vijay Vargiya Vani Charitable Trust (2014) 369 ITR 0360 (Raj) PB pg 153-159. The relevant findings are as under:- "8. In our view, the object of section 12AA is to examine the genuineness of the objects of the trust but not the income of the trust for charitable or religious purpose. The Commissioner c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in the case of the assessee, accordingly, order of the ld CIT is set aside the directed to grant registration from the financial year 2012-13 as per application filed in the Form 10A." 8) Additional documents and grounds taken by ld CIT (DR) During the course of last hearing of the case, the ld CIT -DR has filed printouts taken from http://www.cpgurukul.com which were additional documents and also raised certain additional oral grounds. In this regard, we submit as under:- 8.1 As per Rule 29 of ITAT Rules 1963, no party can produce additional evidence either oral or documentary before the Tribunal. Further, no application was filed by ld DR for admission of additional evidence. Therefore, these desire to be rejected in limine. 8.2 Ld CIT-DR argued that the appellant is dummy school and running coaching classes for imparting ITI Coaching. The ld CIT(E) has examined the records of the assessee and no where he made such findings. However, the ld CIT-DR argued this additional ground for rejection of application u/s 12AA. In this regard, we deny the allegation. The allegation is on surmises, conjectures and without making any proper inquiry. The appellant has filed Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects. That being the case, it cannot be said that the assessee is not imparting education. The term 'education' in our view would mean training and developing the skill, knowledge, mind and character of students which the assessee is actually carrying on. 8.3) As regard to printout taken from site of Gurukul.com we submit that Gurukul is a name of campus where the assessee provides the schooling and Career Point Ltd provides the hostel and Coaching. The assessee and M/s Career Point Ltd have separate building, separate staff and separate management. There is no intermixing or interlacing affairs. It is not a case where the building occupied by the appellant is used for coaching. 8.4) Affiliation from CBSE was obtained by misrepresentation of facts:- In this regard we submit as under:- (i) The ld CIT-DR alleged that the appellant has obtained affiliation from CBSE by misrepresenting the facts. First of all this has no bearing with the object and genuineness of the society. If CBSE finds that the appellant has misrepresented the facts for obtaining the affiliation from CBSE, it would cancel the affiliation. But in fact, the affiliation is still going on. (ii) The appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts to do a charitable activity it should be in a fair manner. All the profit generated by charitable activity should be used towards the object of the society and no profit should be distributed to any of the stake holders. In the present situation the society in collaboration with M/s Career Point Limited has created a scheme where only the name of the society is being used and the funds of the society is reaching in the hands of M/s Career Point Limited and the same will be distributed as profit to the share holders of the company. If such scheme is allowed to function, the basis purpose of the charitable activity will itself be lost. Whether the society and M/s Career Point Limited are connected directly or indirectly has no impact in deciding the charitable nature of the activities because as discussed in the preceding paragraphs, the funds of the society are being diverted and distributed to the shareholders of the company i.e. M/s Career Point Limited, which is against the basic norms of section 2(15) of the IT Act, 1961 and such activity cannot be held as genuine charitable activity.'' It is further noted form the available records that J.B.S. Shikshan Sanstha was formed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and there is no reason before the ld. CIT(E) that activities carryout by the assessee are not genuine. On perusal of the order of the ld. CIT(Exemptions), it is also observed that he has not given any finding about the object of the society whether any aims and objects are not charitable in nature. It is noted that Hon'ble Allahabad High Court in the case of Fifth General Education Society vs. CIT , 185 ITR 634 had also opined that at the time of considering the application for grant of registration u/s 12A, the ld. CIT was not required to examine the application of income or carrying on of any activity by the trust. The Court further held that the CIT may at this stage examine whether the application was made in accordance with the requirement of Section 12A r.w.rule 17A, and Form 10A was properly filled alongwith the determination whether the objects of the trust were charitable or not. It is also observed that Hon'ble Delhi High Court in the case of Director of Income Tax vs. Foundation of Ophthalmic and Optometry Research Education Centre (2013) 355 ITR 361 held as under:- ''The Director of Income-tax (Exemption) refused to grant registration to the assessee on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
