9911796707
TMI Blog2017 (6) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961. In its appeal the assessee has taken the following ground of appeal:- 1 The Learned Commissioner of Income Tax (Exemptions), Jaipur has erred on facts and in law in withdrawing the approval of exemption granted to the assessee u/s 10(23C)(vi) of the Income Tax Act, 1961 by holding that assessee has been constituted not for sole and exclusive purpose of education and it has incurred the expenses with the sole motive of benefit to the trustees by: a) paying rent to the trustees and their daughter for their house and thus providing undue benefit to the trustees, b) paying personal travelling expenses of Ms Priyanksha Mishra and Aryan Mishra, and c) advancing funds in forms other than that specified u/s 11(5) of the Act and for personal benefit of the trustees. 2. Briefly, the facts of the case are that the assessee society was granted approval u/s 10(23C)(vi) of the Act by CCIT, Jaipur, vide notification No. No. 20/2010-11 dated 27-12-2010 for AY 2011-12 and onwards. Thereafter, during the assessment proceedings for AY 2013-14, the Assessing officer moved a proposal for withdrawal of the aforesaid exemption vide his letter dated 28.03.2016 as he ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT (E) basis which the exemption under section 10(23C)(vi) has been withdrawn and the submission of the assessee in that regard: 3.1 Rent paid for the property 219/5, Sardarpura, Udaipur property 12/493, Indira Nagar, Lucknow Findings of the ld CIT(E) : From the Memorandum of the Trust, submitted during the course of assessment proceedings, vide submission dated 21.08.2015 it has been noted that following persons are the members of governing body of the trust Name Occupation Designation 1. Shri Sangam Mishra Educationist Chairman/Secretary/Director 2. Smt. Lily (Lakshyajaya Mishra) Service Treasurer And further, information received from the District Election Officer u/s 133(6) of the I.T. Act vide his letter dated 27.01.2016 during the course of assessment proceedings, it has been gathered that Miss Priyakanksha Mishra Mr. Aryan Mishra are children of Shri Sangam Mishra. On going through the details furnished during assessment proceedings, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of another property House No. 12/493, Indira Nagar, Sector-9, Lucknow. However, no lease agreement has been furnished in this regard. So, it is clear that the funds of the trust are being used for the benefit of trustees. It is evident from the above that the undue benefit was taken by the trustees of the trust on account of rent receipts in respect of such property which is utilized by themselves only. Accordingly, show cause was given to assessee on this account and submissions of the A/R dated 28-09-2016 was considered but not found tenable as the payment of rent to the trustee itself for the property, which is being used by trustees for residential purpose is clearly an arrangement of siphoning of the funds of the trust. In no manner it can be justified to provide rent free accommodation to the trustee, the accommodation which itself has been taken on rent from the same trustee. The above flowchart clearly establish the manipulation done by trustee to avail maximum benefit of the funds of the trust and in dual capacity the same person and his family members have been benefited. Further the reply of the A/R is not convincing on the following grounds:- 1. As per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The observation of the Inspector that the first and second floor are used only as a residence of Shri Sangam Mishra and his family is incorrect and this fact has been verified. Has no worth as the same have been furnished for sake of the arguments only. The residence area, more particularly say drawing room of director s house, if used, apart from attending personal guests, to hold meeting with the persons concerned with school work, it cannot be said that floor has been used for trust purpose. Being director of the trust, it is quite natural to meet the people at home for the school relevant issued also but that does not mean that that floor has been used by trust exclusively for which it has to pay rent for complete floor. Similarly, if on the second floor, Mr. Sangam Mishra, do kept the files other important documents, including trust related documents, it cannot be held that floor has been used by trust exclusively for which it has to pay rent for complete floor. In fact, serving these kinds of arguments is just and eyewash only and hold no footing. However, submission is silent about use of first floor and garden area and parking area, which has been used exclusively by tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration, the trust has paid rent of ₹ 3,99,600/- to Ms. Priyakanksha Mishra, Daugther of Sh. Sangam Mishra, Director/Chairman of the trust in respect of property House No. 12/493, Indira Nagar, Lucknow. During assessment proceedings the assessee was asked to produce lease agreement for the same property but he did not produce lease agreement. However, the same has been furnished during rescinding proceedings, and it was submitted that this property is in front of Indira Nagar, Lucknow, school of the trust. The contention of A/R is not acceptable for the reasons below- (i) first of all the rent deed agreement dated 19.10.12 has no evidential value being neither notarized nor witnessed by anyone and secondly if assessee is having the same in its possession that why the same has not been furnished before A.O. during assessment proceeding upto 31st March 2016, in spite of specifically asked. (ii) The contention of A/R is also not correct that this property is in front of Indira nagar, Lucknow, school of the trust. As the address of schools at Lucknow are as under- Central Academy Sr. Sec. School, Indira Nagar, Sector-9, near water tank, Lucknow, The school is situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipur having common boundary wall with opening to the school. This property was taken on rent by the assessee society long back. As per lease deed dated 26.03.-2009, the monthly rent of this property w.e.f. 01.04.2008 was fixed at ₹ 25,000/- each to Shri Sangam Mishra and Smt. Lily Mishra for a period of five year with a condition to increase the rent at the rate of 10% per year. Accordingly, the rent was paid to both the trustees from financial year 2008-09 and onward. During the year, assessee society got determined the fair rent of the premises from the registered valuer. The registered valuer has determined the fair rent of the left part of this plot at ₹ 6.53 lakhs per annum and the right part of this plot at ₹ 2.61 lakhs per annum aggregating to ₹ 9.14 lakhs against which assessee has paid rent of ₹ 4.80 lakhs to Smt. Lily Mishra and ₹ 2.28 lakhs to Shri Sangam Mishra aggregating to ₹ 7.08 lakhs. Thus, the rent paid of this premises is reasonable. The above property is taken by the society on rent for carrying out its object. As stated above, this property is situated just adjacent to its school at Sardarpura, Udaipur. The baseme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorrectly assumed that he is utilising 2/3rd part of the premises and therefore, ₹ 4,72,000/- should has been taxed in his hands. These observations are superfluous as the valuation of rent free accommodation is required to be done as per section 17 as per Rule 3(1) of Income tax Rules. In any case, once it is accepted that assessee has provided rent free accommodation to the trustees and the salary paid to him is accepted, the perquisite value is to be determined as per Rules and not in the manner in which it is projected by the Ld. CIT(E). From the above discussion, it is established that assessee society has paid rent to the trustee in lieu of the premise being used for its activity, the rent paid is reasonable and therefore no undue benefit is passed on to the trustee. Here it is pertinent to mention that in earlier years, the rent so paid has been accepted as reasonable in the assessment framed u/s 143(3) of the Act. Rent payment of ₹ 3,99,600/- in respect of property 12/493, Indira Nagar, Sector 9, Lucknow: This premise is owned by Ms. Priyakanksha Mishra, daughter of Shri Sangam Mishra, trustee. The plot area of this property is 288 sq. mtr i.e. 309 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablished that assessee society has paid rent to Ms. Priyakanksha Mishra, daughter of trustee in lieu of the premise being used for its activity, the rent paid is reasonable and therefore no undue benefit is passed on to the trustee. Here it is pertinent to mention that in earlier years, the rent so paid has been accepted as reasonable in the assessment framed u/s 143(3) of the Act. 3.2 Travelling Expenses: Findings of ld CIT(E): The findings of ld CIT(E) which are under challenge before us are as under: During the course of assessment proceedings, supporting documents in respect of travelling expenses claimed were called for and it has been observed that the payment made to M/s Blue Chip Services are related to travel performed by Sh. Sangam Mishra and his family members. Perusal of details produced of travelling expenses, it has also been gathered that family members of Sh. Sangam Mishra, Ms. Priyakanksha Mishra and Mr. Aryan Mishra had also performed travel by Air for various places during the financial year 2012-13 for which expenditure was incurred by the trust. Some of them are as under for ready reference: SI. No, Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee trust. It shows that they went to USA and various places for their personal purposes in their personal capacity and not for the trust purposes and they have debited their personal expenses in trust s accounts in various names like travelling expenses, social welfare expenses etc. From the above discussion, it appears that the trust funds are utilized for trustees and their family to cater to their luxurious life. A/R was asked to show cause in this regard. In response, reply vide letter dated 28.09.2016 was submitted but not found tenable in view of the discussion made as under:- The claim of the trust is that the a course in dramatic in NYFA ( New York Film Academy) is for skill development of a particular employee [here this employee is no one but daughter of chairman of trust, therefore covered u/s 13(3)] so that the skills development by her can be used for organizing various social cultural programmes in the schools run by the trust. The contention that her skill development will help to promote education and will help the schools in various ways is also not acceptable. As many other activities like travelling is itself an education because as a result of travelling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontentions: Per contra, the ld AR submitted that Ms. Priyakanksha Mishra is Post Graduate in Mass Communication working as administrator of the society since July, 2005 and is paid salary since then. In financial year 2012-13, she was paid salary of ₹ 4,28,572/-. Salary paid to her in earlier year has been accepted by the department. She travels to the various schools of the society for managing the administration, literary, cultural, sports games activities and therefore her travel is for the purpose of society. Her travel to Mumbai is to get an insight to latest development in the field of education so that same can be implemented in the various schools run by society. In this travel she visited many schools like JB Pant High School for girls, Jamna Bai Nursery School, Seven Square Academy, etc. to get an exposure towards the evolving methods of education so that the same can be implemented in the schools run by the assessee society. So far as her travel on 03-11-2012 from JKF Delhi is concerned, the society has sent her to USA to undergo a course in dramatic in NYFA (New York Film Academy) so that the skills developed by her can be used for organizing various s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of transfer the entry in the name of Scholars Education Amount of Transfer 1. Central Academy, Hiran Magri 40,00,000 30,00,000 - 31.03.2014 70,00,000 2. Central Academy, Chittorgarh 10,00,000 - 20,00,000 31.03.2014 30,00,000 3. Central Academy, Bapu Nagar, Bhilwara. 15,00,000 - 20,00,000 31.03.2014 35,00,000 5. Central Academy, Sardaroura 15,00,000 50,00,000 - 31.03.2014 65,00,000 6. Central Academy, Indira Nagar 1,05,00,000 49,80,000 - - 1,54,80,000 Similar observation was made in respect of other parties also. The details are as under:- Sr. No. Name of par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trust have given advance to Saluja Constriction Pvt. Ltd., New Delhi in earlier years and also in FY 13-14 aggregating to ₹ 3,54,80,000/-. The trust has purchased a flat at Safdarjung Enclave, New Delhi from Saluja Construction Pvt. Ltd. for which a sale deed is executed on 20.11.2013. Copy of sale deed is enclosed.Accordingly, the amount given by various schools was transferred to the account of the trust where it is capitalized as fixed assets. Regarding use of flat at New Delhi, it is submitted that this fiat is used as a guest house for the trust. Various staff members and trustees stay in the flat whenever they visit Delhi for CBSE work, training programme, conferences other allied work Besides this two of staff members for certain regulatoty work are sitting at this office, The above reply of AR is not acceptable as from the sale deed agreement it has been noticed that the flat is situated in very posh area of Delhi i.e. Safdarjung, Delhi and the flat is actually a 3BHK with attached Toilets, one Kitchen, one Drawing Dining, Entrance Lobby, Family Lounge, Front Rear Balconies and also Entire Terrace over and above the Entire Third Floor of the said property, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trust, therefore, AR was asked to furnished details of further corresponding regarding conversion of plot/land with JDA or any other respective authority but assessee has failed to submit single document in this regard. On the name of corresponsing details made with 2nd party whatever furnished by AR is all the receipt of payment made on various date and nothing else. Even upto 31st March, 2016, after passing almost 5 years, no efforts/corresponding has been made by the assessee with regard to said plot, which shows that the said investment was never intended to be used for object of trust. Further, as evident from the letter dt. 26-03-2011 that provisional allotment was made by the 2nd Party to the trust but still trust has continued to show the advance to Shri Salasar Overseas Pvt. Ltd. Of amounting 35 lacs upto 314 March, 2013 even. Specific query was made to assessee vide order sheet entry dt. 30-10-2013. In response AR submitted that :- Regarding query that Plot No. 61-1001 61-1002 Narayan Vihar, Ajmer Road, Jaipur have been handed over to trust in 2011 itself than why advance is appearing in March 2013 Balance Sheet, it is submitted that provisional allotment le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the funds of the trust for personal benefit of the trustees and the funds of the trust have been misused. As this advance was made not as per the objects of the trust and further remained unverifiable therefore, it is held that these are the investments which are not in the prescribed modes as per section 11(5) and it attracts proviso 13 of section 10(23C) (vi) r.w. subclause (b) of 3rd proviso of section 10(23C) (vi) of the I.T. Act, 1961. Assessee s contentions: Per contra, on each of the three matters, the ld AR has submitted as under: Advance to Saluja Construction Pvt. Ltd: The various school of the society have given advance to Saluja Construction Pvt Ltd., New Delhi in earlier years and also in FY 13-14 aggregating to ₹ 3,54,80,000/-. The society has purchased a flat at Safdarjung Enclave, New Delhi from Saluja Construction Pvt. Ltd. for which a sale deed is executed on 20.11.2013. Accordingly, the amount given by various schools was transferred to the account of the society where it is capitalized as fixed assets. This flat is used as guest house of the society. Various staff members trustee whenever visit Delhi for CBSE work, training programme, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject of the trust particularly when investment in immovable property is one of the modes of investment u/s 11(5). The terms and condition of the allotment is already mentioned on the back of the provisional allotment letter. The scheme under which the plot is provisionally allotted to the assessee, is already approved by the Jaipur Development Authorities but since the JDLC (Camp) for issue of patta is still pending, the construction activities could not be yet started. Further, passing the accounting entry by transferring this advance to land account on 31.03.2014 does not make any difference so far as such investment is concerned and therefore, for this reason no adverse view can be taken so as to presume that the investment is not for the object of the trust. Advance of ₹ 30 lakhs was given to Shalu Construction, New Delhi - Advance has been given in the year 2009-2010 towards purchase of flat at New Delhi. However because of delay, the builder did not give the flat in time and therefore, the society purchased the flat from M/s Saluja Construction Pvt. Ltd. as stated above. Society is negotiating with the builder for refund of amount. The Ld. CIT(E) has observed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the property has been taken and used for the objects of the assessee society, rent paid is reasonable and no undue benefit is provided to the trustees. 4.1 In our view, in respect of this property at Sardarpura, there are two transactions which are under consideration before us. First is the transaction relating to the subject property taken on rent by the assessee society from the trustees. The question is whether there is any bar in the law which prohibits such transactions at first place saying that there cannot be any transactions between the assessee society and the trustees. In our mind, there is no such bar. At the same time, given that such transactions are with the persons who are themselves managing the affairs of the assessee society, there should be an element of reasonableness and fairness in such transactions. Since ld CIT(E) has invoked the provisions of section 13 to refer to the trustees as interested persons, it would equally be relevant to refer to various situations and the related transactions which have been envisaged in section 13(2) to define the transactions entered into with related persons and how the same would be construed as providing benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights to provide such an accommodation to the said trustee for smooth and efficient discharge of his official functions as well as to provide residential accommodation. In this regard, we again refer to clause (c) of section 13(2) of the Act which provides that if any amount is paid by way of salary, allowance or otherwise during the previous year out of the resources of the trust or institution for services rendered by an interested person to such trust or institution and the amount so paid is not in excess of what may be reasonably paid for such services, the same shall be held in compliance with the said provisions. The emphasis, therefore, is on provision of services by the interested person to the trust and the salary and allowances/perks should be paid/provided which is commensurate to provisions of such services. In the instant case, there is no dispute that Shri Sangam Mishra is managing the affairs of the assessee society and where the assessee society has decided to provide him a rent free accommodation in lieu of such services, no fault can be found in such a decision which is anyway best left to the assessee society. 4.3 Now, coming to a related issue regarding ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able as the same is undated. In our view, where the Revenue has some prima facie concern regarding the reliability of the valuation report, it can get the rent valuation carried out through its own valuation officers which has not happened in the instant case. In absence of sufficient material on record, we deem it fit to set-aside the matter to the file of the ld CIT(E) to examine the same a fresh taking into consideration the valuation report submitted by the assessee society and to carry out independent valuation through its valuation officers with an appropriate opportunity to the assessee society. The assessee shall be at liberty, to support its contentions by bringing appropriate evidence on record, to the satisfaction of the ld CIT(E). 4.5 The next issue is regarding travel expenses borne by the assessee society of Priyakansha Mishra and Aryan Mishra as to whether the said expenses have been incurred for the purposes of object of the trust or personal benefit of these two persons who are related to the trustees of the assessee society. In our view, what is relevant to note is that Ms. Priyakanksha Mishra, besides being the daughter of one of the trustees of the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether a particular skill is beneficial to an organisation is a question which to be decided by that organisation itself as it is best suited to determine the same. In this background, in the present case, what is to be seen is that whether a course in dramatics will aid and support the successful discharge of the functions and role and responsibilities entrusted to Priyakanksha Mishra and in the overall activities of the assessee society. Besides academics, there is greater emphasis these days on extracurricular activities in the school for overall development of a student and as part of that, the students attend to regular classes in the field of dance, music, dramatics, and participate in various programmes throughout their academic year. These activities help in overall development of students. Therefore, being an administrator of the assessee society and having an additional skill in dramatics will surely help her in overseeing and supervising such activities more effectively being undertaken by teachers across various schools being run by the assessee society. In any case, the course fee has not been borne by the assessee society and it is only the travel expenditure which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t at Safdarjung Enclave, New Delhi was for the purposes of objects of the trust for imparting education or for the personal use/benefit of the trustees. There should be a reasonable nexus between the objects of the imparting education and the said investment as well as its ultimate utilisation. Where the investment in immovable property is envisaged initially for the purposes of the assessee trust and later on, it is found that the immovable property is made available and utilised for personal use/benefit of the trustees without charging adequate rent and other related compensation, it would still be a case where the property of the assessee trust is used and applied for benefit of the trustees. As per the ld CIT(E), going by the specifications of the flat, it indicates that the flat has been purchased for personal use of trustees and not for the use of staff as no trust will invest such a high amount of ₹ 3,80,00,000/- for a flat with such luxury facilities for the staff purpose only. Per contra, the ld AR contended that this flat is used as guest house of the society and various staff members trustee whenever visit Delhi for CBSE work, training programme, conferences ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and the same should be looked into. From perusal of the provisional allotment letters dated 26.03.2011 in respect of Plot No. GH- 1 GH-2 and the provisional site plan available at APB 75-91, it is not clear that the said plots are for the purpose of setting up any education school/institution and earmarked for such purposes. The ld AR has submitted that scheme under which the subject plots have been provisionally allotted to the assessee trust is already approved by JDA. The said approval granted by the JDA will actually help determine whether such plots are earmarked for education purposes but the said approval is not on record. The matter therefore need further examination and the same is also set-aside to the file of the ld CIT(E) to examine the same a fresh in light of above discussions and by bringing on record appropriate evidence. The assessee shall be at liberty, to support its contentions by bringing the approval granted by the JDA to the scheme under which the plots have been provisionally allotted and other appropriate evidence on record, to the satisfaction of the ld CIT(E). 4.9 Now coming to matter relating to advance of ₹ 30 lacs given to Shalu Constructi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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