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TMI Blog2017 (12) TMI 1475X X X X Extracts X X X X X X X X Extracts X X X X ..... roup then it cannot be considered as undue benefit only one i.e. Director. It is not a case of the Department that all 23 persons are falling in the category of the specified persons. We find that only the Director namely Shri Vaibhav Singh was considered by the ld. CIT(E) as specified persons while raising the objection of payment of salary. Therefore, out of the group of 23 persons, the Director cannot be picked out to invoke the provisions of section 13(3) of the Income Tax Act. Further it is not the finding of the ld. CIT(E) that the tour was undertaken for their personal trip then the education tour by the teaching staff along with the Director has to be considered as one event and expenditure. Hence, we are of the view that the expenditure incurred on this tour of group of teacher along with Director cannot be held as undue benefit to one person. In view of the above facts and circumstances of the case as discussed above the impugned order passed by the ld. CIT(E) is set aside and consequently the approval u/s 10(23C)(vi) granted to the assessee is restored. - Decided in favour of assessee. - ITA No. 1118/JP/2016 - - - Dated:- 20-12-2017 - SHRI VIJAY PAL RAO, JM AND SH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- 3. Ambience Land Developer 60,07,953/- 4. Surendra Kumar Meena 3,00,00,000/- Thus, the first violation was found by the ld. CIT(Exemptions) being loans and advances given to four persons which are not as per modes specified u/s 11(5) of the Act and hence in view of the ld. CIT(Exemptions) the assessee not fulfilled the conditions as provided u/s 10(23C)(vi) of the Act. The second violation noted by the ld. CIT(Exemptions) is regarding the undue benefit given to the specified persons in the form of salary as well as foreign travelling expenses incurred on the tours of specified persons. The details of the salaries paid to the specified persons as given by the ld. CIT(Exemptions) are as under:- 6. Undue benefit given to the specified persons:- ( A) Salary paid to the specified persons:- The society has following office bearers:- 1. Mr. U.S. Suri President 2. Ms. S. Saxena Vice President 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom AO based on incorrect and premature hypothesis. 5. That on the facts and in the circumstances of the case and in law the Ld. CIT erred in interpreting section-11(5), which is confined to 'investment' or 'deposit' and word 'advances is conspicuously missing from the same. 6. That on the facts and in the circumstances of the case and in law the Ld. CIT erred in making perverse observations for Undue benefit given to the specified persons which is totally against the facts of the case. The assessee has also raised the additional ground which reads as under:- That impugned order passed by CIT(E), Jaipur is bad in law as show cause notice dated 08.07.2016, u/s 10(23C)(vi) is signed by the DCIT (Hqr.) as it should have been signed by CIT himself. Since, the assessee has raised a legal issue in the additional ground challenging the validity of show cause notice and consequential impugned order which goes to the root of the matter therefore, we first take up the issue raised in the additional ground. 4. The ld. AR of the assessee has submitted that the additional ground is legal in nature and all relevant facts are available on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l ground was required to be filed because of the reason that the assessee could not raise the same in the form 36 along with the memo of appeals. Therefore, it is only matter of revising the grounds as this issue was raised in the additional ground which was missed in the original grounds. Accordingly, in the facts and circumstances of the case when the additional ground raised by the assessee is purely legal in nature and does not require any new facts to be examined or further enquiry to be conducted for adjudication of this issue, then in view of the decision of Hon ble supreme Court in case of National Thermal Power Co. Ltd. vs. CIT(supra) we admit the additional ground raised by the assessee for adjudication. 7. On the validity of show cause notice issued u/s 10(23C)(vi)of the Act, the ld. AR of the assessee has submitted that the show cause notice dated 08.07.2016 has been issued and signed by DCIT(Hqr.) and not by ld. CIT(E). Therefore, show cause notice was not issued by the competent authority and the proceedings best on the illegal show cause notice and consequential order passed by the ld. CIT(E) are not valid and hence liable to be quashed. As per the provisions of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of power the Government the delegated authority has no power to issue a notification with retrospective effect. Therefore, in the absence of any provision contained in legislative Act the delegatee cannot make a delegated legislation with retrospective effect. The ld. AR has thus contended that when no power has been conferred by the Act on the competent authority to withdraw the approval retrospectively, then the withdraw of the approval u/s 10(23C)(vi) of the Act can only be prospective. 9. On other hand, the ld. DR has submitted that the show cause notice is issued by the CIT(E) and the DCIT(Hqr.) has signed the same for and on behalf of the CIT(E). Hence, no fault can be found in the show cause notice issued u/s 10(23C)(vi) r.w.s. 13 proviso. The decision relied upon by the ld. AR are not applicable in this case because in those cases it was show cause notice issued u/s 263 for revision of the order of the Assessing Officer whereas in the case of the assessee it was for withdrawal of the approval granted u/s 10(23C)(vi) by the same authority. Thus, the ld. DR has contended that mere signing of the show cause notice by DCIT(Hqr.) would not render it invalid when it is issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity or other educational institution or any hospital or other medical institution and to the Assessing Officer The 13th proviso to section 10(23C)(vi) confers the power/ jurisdiction to withdraw the approval to the Government or the prescribed authority. It further postulates that the prescribed authority, if satisfied that such fund or institution has not complied with the conditions as provided thereunder, can withdraw the approval. For Initiation of proceedings to withdraw the approval the mandatory pre-condition is the satisfaction of the prescribed authority. Undisputedly the prescribed authority is the ld. CIT(E) and the satisfaction of the prescribed authority is a must before issuing the show cause notice for withdrawal of the approval granted u/s 10(23C)(vi) of the Act. Therefore, what is material and mandatory condition is the satisfaction of the prescribed authority and non else. In case in hand the impugned show cause notice dated 08.07.2016 was signed by the DCIT (Hqr.) and issued as per directions of the ld. CIT(E). In paras 2 and 6 Of the show cause notice in our opinion are relevant to the issue and the same are reproduced as under:- 2. In this regard, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Trumurti Colonisers Builders Pvt. Ltd. 1,38,00,000/- 2. A.K. Education Welfare Society 1,00,00,000/- 3. Ambience Land Developer 60,07,953/- 4. Surendra Kumar Meena 3,00,00,000/- 5.1 M/s Trimurti Colonizers Builders Pvt. Ltd.: On perusal of ledger accounts of M/s Trimurti Colonizers Builders Pvt. Ltd produced during the course of assessment proceedings, it has been revealed that the balance as on 31.03.2013 was of ₹ 1,38,00,000-. The balance advances as on 31.03.2014 in the name of aforesaid company is also shown as ₹ 1,38,00,000/-. The society has submitted that it has given advances to aforesaid company for purchasing of land and society has not charged any interest on such advances. Perusal of 'Application Form' submitted by the assessee in respect of allotment of plot, it has been revealed that date, amount and place etc. are not mentioned on the said form. As per submission of the society, even till today any land/immovable proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d u/s 263 of the Act when the show cause notice u/s 263 of the Act is not signed and issued by C.I.T. and had come for consideration before this Tribunal in the case of Bardhman Co-op Milk Producers Union Ltd. Vs CIT, Burdwan (supra). This Tribunal on identical facts as in the present case has held as follows :- 4. We have carefully considered the submissions and perused the record and we find that delay of 290 days in filing in these cases has been attributed to mistake on the part of assessee s counsel. The counsel has clearly admitted the mistake on his part. When the delay in filing of these appeals is attributed to the mistake of the consultant, in our considered opinion, assessee should not be penalized on this count. The case law referred by the Ld. counsel for the assessee also supports this proposition. Accordingly, we condone the delay. 5. As regards the matter in appeal, we note that the same is against order passed by the Ld. CIT u/s. 263 of the Act. At the outset, in this case, Ld. counsel for the assessee pointed out that the notice to the assessee u/s. 263 of the Act in these case, was issued by letter dated 06-03-2007. The said notice was signed by ACIT, Hqrs., Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t reads as under:- 6. On perusal of the aforesaid provisions, it will be abundantly clear that the provisions of Section 299-BB deals with the procedure for service of notice and in case, there is a defective service of notice, it provides that if the assessee has cooperated, it will not be open for him to raise the plea, whereas in the instant case, it is not the case of the service of notice, but the initial issuance of notice, which has not been signed by the competent authority as a finding has been recorded by the Tribunal that the notice has been issued under the signature of Income-tax (technical), whereas in view of the provisions of powers under Section 263(1), it is only the Commissioner of Income-tax to issue notice. It is also relevant to add that pleas can be raised only out of the judgment passed by the Tribunal or other authorities, but the plea, which was not raised at any stage, cannot be raised for the first time before this Court. No other arguments have been advanced in respect of other questions framed in the memo of appeal. 8. Similarly, we note that in the case of Satish Kr. Keshari (supra), the Tribunal had held that when the notice u/s. 263 of the Act was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment or reassessment. Thus, it is settled proposition of law that the notice issued by the authority other than the prescribed authority is not valid and consequential order passed by the ld. CIT(E) is without jurisdiction. The show cause notice confers the jurisdiction to proceed and to pass the order. In case the notice itself is not valid then the jurisdiction assumed by the prescribed authority based on the invalid notice become invalid and consequential order passed by the authority is invalid and void abinitio for want of jurisdiction. Further, invalid show cause notice vitiates the proceeding and consequential order. Hence, we are of the considered opinion that the impugned order passed by the ld. CIT(E) is invalid and liable to quash on this ground. 11. On merits of withdrawal of approval granted u/s 10(23C)(vi) of the Act the ld. AR of the assessee has submitted that the assessee after successful running the school at Kota decided to establish a new school in Jaipur. The assessee applied for allotment of land by the Rajasthan Housing Board and was allotted vide allotment letter dated 23.07.2007. The plot of land measuring 9050 sq. ft. in school Sector7, Ship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved back the advance amount of ₹ 1,38,00,000/-. 12. As regards the advance of ₹ 60,07,953/- given to Ambience Land Developer for purchase of two flats the ld. AR of the assessee has submitted that after the allotment of the land by the Rajasthan Housing Board the assessee acquire the flat for the office staff to stay their during the construction and further the flat was purchased for the purpose of ensuring the school come into existence. It was also proposed to be used for residence of the Principal of the School. Therefore, it was not an investment or diversion of fund but the flat was purchase to facilitate the accommodation for the office bearers visiting to Jaipur to supervise and overseeing the construction work. The ld. AR has further submitted that though the initially the assessee proposed to purchase two flats however, finally one flat was purchased for a sum of ₹ 92,05,000/- on 29.03.2013. The advance of ₹ 1,50,00,000/- was given to the developer for purchase of two flats and when the transaction was finally concluded the assessee purchase only one flat and the balance amount was received back. Hence, he has contended that it is not in violati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and establish schools at different cities. The salary paid was commensurate to the qualification and experience and was as per the need of the assessee society. Once services rendered by these persons are not denied then the payment of salary cannot be termed as undue benefit. He has further contended in the earlier assessment year a similar remuneration paid to these persons was found to be reasonable by the AO while completing the assessment u/s 143(3). Therefore, the department is expected to adopt consistency in its approach and cannot take a opposite view that the salary paid to these persons is undue benefit. In support of his contention he has relied upon the following decision:- Radhasoami Satsang v. CIT 193 ITR 321 (SC) ACIT(E) v. Mahima Shiksha Samiti [2017] 79 taxmann.com 38 (Jaipur Trib.) Thus, the ld. AR of the assessee has submitted that this Tribunal in case of Mahima Shiksha Samiti has analyzed the issue of payment of salaries and held that the qualification and experience of persons and their services to manage the affairs of the society since inception as well as managing day to day affairs, the salary and allowances paid to them is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this amount to Trimurty Colonizers Builders Pvt. Ltd. without charging interest. Though the assessee has claimed that this amount was given as an advance payment for purchase of additional plot however, since May, 2011 neither any plot was purchased by the assessee society nor any interest has been received on such advances. Therefore, even if it is not an investment by the assessee the same is in-contravention of the provisions of Section 11(5) as well as the conditions of granting approval u/s 10(23C)(vi). When the assessee has not received any reciprocal benefit over the period on this advance then it is a clear case of diversion of fund. He has relied upon the impugned order of the ld. CIT(E). 19. As regards the payment to A.K. Education Welfare Society the said payment was given in the financial year 2010-11 and the assessee has shown the balance advances even as on 31.03.2014. Thus, the assessee has given interest free funds to the said society out of the capital of the trust which cannot be accepted as a charitable activity. The assessee explained that this amount was given to the A.K. Education Welfare Society for starting and running a school in Bharatpur however, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and submitted that the payment given to these persons is not justified when the assessee society is doing a charitable activity. Apart from the salary the assessee has also incurred expenditure on the foreign tour of specified persons. The expenditure incurred on the tour cannot be treated as expenditure incurred for educational purpose and therefore, it is in violation of the provisions of Section 13(3) as well as 3rd proviso to Section 10(23C)(vi) of the Income Tax Act. Thus, the ld. DR has submitted that there are multiple violations of provisions of Sections 11(5), 13(3) as well as section 10(23C)(vi) r.w. proviso 3rd and 13th and therefore, the ld. CIT(E) is justified in withdrawing approval granted U/s 10(23C)(vi) of the Income Tax Act. 22. We have considered the rival submissions as well as relevant material on record. The ld. CIT(E) withdrew the approval primarily on two grounds viz (i) investments/deposits of fund not in prescribed mode and (ii) undue benefit given to the specified persons as per Section 13(3) of the I.T. Act. First we will deal with the issue of investments/ deposits in violation of the provisions of section 11(5) of the Income Tax Act. The details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icates Act, 1959 (46 of 1959), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government; ( ii) deposit in any account with the Post Office Savings Bank; ( iii) deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank). Explanation.-In this clause, scheduled bank means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934); ( iv) investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); ( v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, solid waste management, roads, bridges and flyovers or urban transport;] ( x) investment in immovable property. Explanation.- Immovable property does not include any machi-nery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the earth;] 57[(xi) deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964);] 58[(xii) any other form or mode of investment or deposit as may be prescribed.59] In light of the requirement of the provisions of law we will examine each of this transactions one by one Advance given to Trimurty Colonizers Builders Pvt. Ltd. the assessee explained the purpose and intent for giving the said amount of ₹ 1,38,00,000/- to purchase education plot for construction of school. It is not in dispute that the said payment was made under an agreement to purchase which was executed on 27.05.2011 for purchase of educational plot of measuring 9680 yards. This amount was paid as booking advances to the builder. The assesse ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry case of investment the intention and positive act on part of the investor to earn such income, return, profit. The word deposit does not cover transaction of loan being the advance given for purchase of asset. Further, in the absence of the intention to earn the income out of such transaction the same cannot be termed as investments/ deposits. Therefore, when the advance was paid for purchase of education plot for construction and running of school which is in accordance with the objects and purpose of the assessee society then, the same cannot be treated as investments or deposits and therefore, there is no violation of provisions of section 11(5) of the Income Tax Act. 23. Similarly the payment of ₹ 1 Crore A.K. Education Welfare Society it is not disputed by the department that the said society is duly registered under the provisions of Rajasthan Society Act and also granted registration u/s 12AA of the Income Tax Act. The assessee filed a copy of order of granting registration U/s 12AA dated 16.12.2016. The objection of the ld. CIT(E) regarding this payment is that despite the laps of consideration time no school was started at Bharatpur as claimed by the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation which is the primary object of the assessee society. Hence, this transaction cannot be termed either investments or deposits and therefore, there is no violation of provisions of section 11(5) of the I.T. Act. 25. The payment to Shri Surendra Kumar Meena: The assessee has made an advance of ₹ 3,00,00,000/- to one Shri Surendra Kumar Meena for purchase of land in Jaipur vide agreement dated 04.04.2007. It is clear that the said land was to be purchased for the purpose of construction and running of a new school. Subsequently when the land was not converted to non agricultural use for the purpose of education as there was a public interest litigation filed against the said land then, the assessee decided to cancel the said agreement and received back the amount. The agreement dated 04.04.2007 is not in dispute. It is also a matter of fact and record that a public interest litigation was filed in the Hon ble High Court challenging the use of land other than the agricultural purpose and thus until and unless the land was finally converted for non agricultural use the assessee could not acquire the same. After waiting for a reasonable period, the assessee finally received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),- ( a) if any part of the income or property19 of the trust or institution is, or continues to be, lent19 to any person referred to in subsection (3) for any period during the previous year without either adequate security19 or adequate interest or both; ( b) if any land, building or other property19 of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation; ( c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section ( 3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; ( d) if the services of the trust or institution are made available to any person referred to in sub-section (3) du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem is reasonable visa- vis legitimate needs of the assessee society and benefit derived or accruing to the assessee society. We do not see any justifiable reason to disturb the decision which has been taken by the management of the assessee society in terms of determining the appropriate remuneration payable to these persons. The only scenario where one can think of disturbing the said decision taken by the management of the assessee society is where people holding similar position and having similar experience and qualification have been drawing lesser remuneration compared to what has been paid to these persons by the assessee society. In other words, the test of reasonableness can be invoked where there is contemporary data in terms of identifiable third party transactions in similar area of operation of education. In the instant case, the revenue has not brought on record any such contemporary data in terms of other educational institutions of same scale-and size and having similar strength of student and infrastructure wherein keep managerial person having been paid lesser salary. Further the Courts have held from time to time that the reasonableness of the expenditure is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibhav Singh Director 2 Sunita Bali Vice Principal 3 SN Vaishav Post Graduate Teacher 4 RK Jain Post Graduate Teacher 5 Satish Gosain Trained Graduate Teacher 6 Arun Sahoo Trained Graduate Teacher 7 Ravina Anand Trained Graduate Teacher 8 Mona Jain Trained Graduate Teacher 9 Reva Jain Primary Teacher 10 Usha Gosain Primary Teacher 11 Pratima Dhar Trained Graduate Teacher 12 Alka Sharma Trained Graduate Teacher 13 Neelam Madan Trained Graduate Teacher 14 Asha Singh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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