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TMI Blog2017 (5) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... e observation of the Ld. CIT that their appointment cannot be said to be fair and transparent, this again is a very general proposition, because unless it is pointed out that the payment made to such person falls within the realm of diversion of funds or giving undue benefit to the persons specified u/s 13(3), no adverse inference can be drawn. Even if it is held that no salary at all was required to be paid to these persons, then also after invoking the provisions of section 13, the entire surplus can be taxed. Thus, these allegations do not hold ground for the cancellation of registration within the scope of section 12AA (3) albeit it could be subject matter of scrutiny and addition or forfeiting of surplus amount during the course of assessment proceedings and in terms of section 13 the entire surplus of the assessee can be taxed if the assessee’s society is being found to be violating the conditions laid down in various clauses of section 13. Assessee has been charging bus fees from the students - Held that:- Providing of bus facilities to students and charging fees is directly related to the objects of the society, i.e. imparting education to the students and facilitating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act and therefore cancelling the registration retrospectively is most arbitrary, palpably erroneous and grossly unjust. It is prayed that this action must be quashed with directions to retain the registration as granted. 2. The brief facts of the case are that the assessee is a society registered with Registrar of Societies vide certificate dated 5.2.1988. It is running a school under the name of New Yashoda Pubic School Society at Hisar Haryana. Since it was running an educational institution, therefore, it had sought registration u/s 12AA. Looking to its objects of carrying out educational activities as defined u/s 2(15) of the Act, registration was granted by the Learned CIT, u/s 12AA vide order dated 30.9.2002. Since then all its income and expenditure were subject to computation under sections 11 to 13. As mentioned in the impugned order, a Tax Evasion Petition (TEP) was received in the office of the ld. CIT on 31.1.2012, wherein the complaint was made on following allegations:- (a) That the school was granted exemption from payment of Road Tax by the RTA, Hisar on the plying of buses on the basis that these are owned by the Principal of the school and the schoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ety should not be cancelled. On all the allegations made in the TEP; observations and finding of the ld. CIT as well as the assessee s reply as dealt in the impugned order are discussed in brief as under:- A. Salary/remuneration paid to Secretary of the Society, Shri Ajit Twickley and Mr. K.P. Mathur :- The Learned CIT noted that Shri Ajit Twickley is a life member and Secretary of the assessee s Society since the beginning and during the course assessment proceedings for the A.Y. 2009-10 it was revealed that he was paid salary of ₹ 1,25,130/-. Further he is also a husband of Smt. Anjana Twickley, Principal of New Yashoda Public School run by the society and he is also a Principal of Yashoda Co-ed High School another school run by the same management. In the TEP it was alleged that as per clause 5 of Memorandum of Association of the school, no remuneration shall be given to any member of the institution or governing body for his appointment as the Member of the Institution of Government Body. Thus, the school is giving remuneration to the Secretary without any legal basis. A reference has also been made for an enquiry conducted by the authorities of Education Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , has not been discharged. The assessee could not show from any record of minutes as to how he was allowed to work and how much hours have been put in for supervision /building maintenance /construction/repairing and maintenance. He was simply paid the salary only for being Secretary of the assessee s society and hence, such payment of salary is in violation of section 7(2) Chapters II of the CBSE Affiliation Laws and also the Memorandum of Association. Regarding the withdrawal of show cause by the Director General of Secondary Education, he observed that the same is not very helpful to the assessee, because it was not dealing with the diversion of income by making payment of salary of Shri Ajit Twickley. Regarding payment of salary to Shri K.P. Mathur, Learned CIT observed that he was a real brother of Yashoda Mathur who was Founder and Director of the school and he has been shown working as Joint Director. The assessee s case was that he was getting gross salary of ₹ 35,156/- per month plus perquisites for looking after administration and working of the school other than teaching. Regarding his payment also Learned CIT observed that the assessee could not show that any prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see had pointed out that the school owns six buses and all the buses are hired on monthly charges. For running and maintenance of the buses, no expenditure like salary to drivers, conductors, diesel expenses, repairing and maintenance etc. have been incurred by the school. All the bus fees have collected from the students which have been properly recorded in the books of account. As regard plying of buses owned by the office bearers, the assessee before the Ld. CIT submitted the extracts of meeting of governing body held on 21.3.2006 and also filed written quotations from other bidders for plying of buses which were called upon for same routes. When the bidder showed their inability to procure the buses on some of the routes after the opening of the tender, then in such situations, it was decided that school will purchase its own buses and the bidder has consented to run the school buses on various terms which has been elaborated at page 10 the order. For some of the routes the governing body authorized the school to award operation of buses to Dr. Anjana Twickely on the same rate which was quoted by the various parties for the routes. Apart from, all the running and maintenance wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, Shri Ajit Twickley is Life Member as well as Secretary of the Governing Body of the society from beginning as made out from Memorandum of Association. Therefore, it seems that Shri Ajit Twickley is drawing salary for purported 'supervision of Building / Construction / Repair Maintenance after office hours from a date prior to the granting ofregistration u/s 12AA. Therefore, undersigned is satisfied that the activities of the assessee society are neither being carried out genuinely nor the activities are being carried out in accordance with the objects and other clauses of the Memorandum of Association of the society, since date of granting registration u/s 12AA (w.e.f.01.04.2001). 8.2 In view of the above, it is a fit case where registration already granted to the society is liable to be cancelled under section 12AA(3) of the Income Tax Act, 1961 with effect from the date of initially granting the registration u/s 12AA of the Income Tax Act, 1961. As a result, in exercise of powers conferred upon the undersigned by the law, the registration granted to the society under F.No.CIT/HSR/Tech./12AA/2002-03/5019- 22 dated 27/30.09.2002 is hereby cancelled w.e.f. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be held to be excessive at all. As far as the payment of a salary of Sh. K.P. Mathur is concerned, Ld. Counsel submitted that he was the Joint Director and looking after the entire administration of the school. Mr. Mathur was having huge experience of 38 years for being an Executive Director in a leading PSU. So far as the allegation of bus charges are concerned, Ld. Counsel submitted that, once the bus fees are dully recorded in the books of account and no funds whatsoever has been diverted to the officer bearers and the entire expenditure of the buses has not been borne by the school, then there is question of drawing any adverse inference. Similarly, with regard to the maintenance of parallel register also no adverse influence can be drawn as it is not a case of Ld. CIT that it has any adverse impact either to implicate that the assessee s activities are not genuine or there is some violation of objects or any kind of law. The assessee s explanation that one of the register was misplaced and therefore, the other register was prepared, hence, this should not be taken as an adverse point. Thus, the reasoning given by the Learned CIT for cancellation the registration u/s 12AA(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re also the office bearers of the society; secondly , the assessee has been charging bus fees from the students despite an undertaking by the Principal to the Road Transport Authority that no bus charges would be taken from the students and on this basis exemption from passenger tax has been sought for and buses belonging to office bearer have been plied; and lastly, the assessee has been found to maintained two parallel registers for annual general meeting for certain period. Section 12AA(3) provides that the registration granted u/s 12AA can be cancelled by the Commissioner only if either of twin conditions or both are satisfied; firstly, that the activities of such trust/institutions are not genuine, or secondly, the activities of the trust or institution are not being carried out in accordance with the objects of trust/institutions. Here in this case, there is absolutely no allegation or any finding that there is any change in the objects of the society post granting of registration u/s 12AA to the assessee vide certificate dated 30.9.2002. 9. Now coming to the various allegation/charges on which registration has been cancelled, as discussed above in detail, it is see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been turned down by the Director General of Secondary Education but still this fact does not warrant any cancellation of registration u/s 12AA (3). Similarly with regard to the payment of Sh. K. P. Mathur, it has been stated that he has been paid gross salary of ₹ 35,156/- per month who was appointed as the Joint Director looking after the administration work of the school. Such a payment again has not been held to be excessive under the terms of section 13(2)(c) read with section 13(3) in order to show that the payment of salary is in violation of section 13. It is incumbent that certain bench marking vis-a-vis some comparable instances should be brought on record to show that if these services would have been rendered by the person from outside he would have been paid lesser amount. Thus such a payment cannot lead to any adverse inference for doubting the genuineness of the activities carried out by the assessee s society. So far as the observation of the Ld. CIT that their appointment cannot be said to be fair and transparent, this again is a very general proposition, because unless it is pointed out that the payment made to such person falls within the realm of diversi ..... 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