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TMI Blog2019 (8) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... y making such a huge payment to the specified persons from assessment year 2009 10, no benefit has accrued to the specified persons as envisaged u/s 13 (1) - set aside to the file of the learned CIT exemption for fresh determination about withdrawal of registration u/s 12 AA (3) r.w.s. 12 AA (4) with effect from assessment year 2009 10. Appeal of the assessee partly allowed for statistical purposes. - ITA No. 4760 & 2371/Del/2015, 1997/Del/2016, ITA No. 3660/Del/2015 & 3307/Del/2016 - - - Dated:- 30-7-2019 - Shri H. S. Sidhu, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Shri Rakesh K. Sehgal, CA For the Revenue : Shri Munish Kumar Gupta, CIT DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This is a bunch of five appeals pertaining to one assessee M/s Carrier Launcher Education Foundation, involving similar issues for two assessment Years i.e. AY 2010-11 and 2011-12 , they were argued together and disposed of by this common order. 2. First, we deal with ITA number 4760/Del/2015. It is preferred by assessee against order of Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registration. Paragraph number 2 of order describes various opportunities given to assessee to explain its case. However, assessee filed a final reply on 11/8/2014 stating that assessee has as per letter dated 23/4/2014 already indicated to surrender its registration, as it is not carrying out any Charitable activity . However, as show cause notice intended to withdraw registration from earlier date, a further opportunity was granted as per letter dated 24/2/2015 and 8/4/2015 asking assessee to explain as to why registration granted u/s 12 A be not withdrawn with effect from 1/4/2006 instead of with effect from 1/4/2014 as surrendered by assessee. Assessee submitted its reply on 21/4/2015 reiterating that it has already surrendered its registration with effect from 1/4/2014 and requested that it may not be withdrawn with effect from 1/4/2006. Assessee further submitted that it is carrying on activities of running management of school and is engaged in educational activities. With respect to allegation of diversion of fund by making payment to associated entities by assessee trust, it was submitted that payments were made by assessee to those associated entities for services render ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also submitted copies of agreement. Learned CIT exemption examined all these agreements and found that governing body of recipient of fees as well as of assessee, trust is common and therefore they are main beneficiaries of income of trust and are covered under category of specified persons. 5. The learned CIT E, further noted that assessee trust is running a school under name and style of Indus word business school at greater Noida and running courses of MBA. It is charging huge amount from student as fees that comes to around ₹ 8 10 lakhs per annum. Assessee s institutes are not recognized by any government authority. Therefore he applied ratio laid down by honourable Supreme Court in case of Lok Shiskhan Trust vs CIT 101 ITR 234, and held that assessee is not carrying on educational activities as covered under provisions of section 2 (15) of income tax act as educational activities. learned CIT E further noted that, even if it is presumed that activities of society comes under expression of general public utility, it is hit by proviso to section 2 (15) of The Act, because charging fees exceeding sum of INR 1,000,000 would be hit by that proviso as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A (3) of the act was initiated on 13/05/2010 could not be carried on without any limitation of time, but had to be concluded within time as provided under law. If, no specific time is provided, then it should be passed within a reasonable time. Therefore, order passed on 19/05/2015 after a period of almost 5 years from its initiation is unlawful and hence liable to be quashed. Assessee submitted that though assessee trust was registered on 20/4/2006 and was granted registration u/s 12 A of income tax act as per certificate dated 23/05/2006. It was also approved under section 80 G (5) of income tax act. Assessee sought renewal of registration on 5/11/2009, which was rejected by CIT (exemption) as per his order, dated 7/05/2010. Based on an order in proceedings for renewal of recognition u/s 80 G (5), withdrawal of registration u/s 12 AA (3) were initiated on 13/05/2010. Meanwhile, against order of rejecting recognition u/s 80 G assessee preferred an appeal before coordinate bench, coordinate bench passed an order on 10/2/2012 cancelling order of CIT exemption and directed the learned CIT E to grant approval u/s 80 G of act to assessee. Against this order of coordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it needs to be noted that the proceedings though started on 13/5/2010 however on most of the occasion the assessee either filed part reply or did not attend the proceedings. Suddenly now the assessee is taking a cause that CIT exemption kept dumb silence from 10/01/2012 to 18/03/2014. To this, there is a reply available in the order of the CIT exemption itself in para number 2.1 wherein it is held that the authorised representative of the assessee though appeared and filed letter along with the documents but could not produce the supporting documents in support of its contention and claim. Further, on reading of the order of the CIT exemption it is apparent that assessee has not complied or not responded to the various notices issued. Even after 2014, the assessee kept on delaying the matter, which is evident on reading of para number 2.2 of the order. Even on 24/6/2014, the authorised representative promise to file written submission by 30/6/2014, which was not filed, and assessee was given further opportunities. The assessee was given umpteen numbers of opportunities to respond however, the assessee failed to respond in time and in its completeness. Therefore, now assessee canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he registration of the trust is also attributable to the assessee. 10. The second ground of the appeal argued by the learned authorised representative is that the cancellation of the order under subsection (4) of section 12 AA can be passed only with effect from 1/10/2014 that is for assessment year 2014 15 and not for earlier years. The learned authorised representative has submitted that the power under subsection (4) is not with retrospective effect and therefore the power can only be exercised with effect from assessment year 2014 15 but not for earlier years. To support its contention he relied upon the decision of the honourable Supreme Court in case of appeal number 6262 of 2010 in case of industrial infrastructure development Corp (Gwalior) MP Ltd vs CIT Gwalior and honourable Delhi High Court in case of appeal number 830/2017 in case of UP distillers Association vs CIT. 11. The learned departmental representative vehemently opposed the arguments of the authorised representative. It was stated that the learned authorised representative submitted that the withdrawal of registration could only be made with effect from 1/10/2014. It was fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) any income or property of the trust is applied for benefit of specified persons like author of trust, trustees etc. ; or (iv) its funds are invested in prohibited modes, The Principal Commissioner or the Commissioner may cancel the registration if such trust or institution does not prove that there was a reasonable cause for the activities to be carried out in the above manner. Apparently in this case the order was passed by CIT exemption on 19/5/2015 i.e. only after the amendment with effect from 1/10/2014. Further, the amendment made with effect from 1/10/2014 is not speaking that such violation should have occurred only after that date and there is no power available to cancel the registration of the trust if such violation is found prior to 1/10/2014 is devoid of any merit. In view of this, we also dismiss this argument of the assessee that the amendment with effect from 1/10/2014 giving a power for withdrawal of registration u/s 12 AA of the act, applies only if the violation of the respective provisions of the income tax act is post 01/10/2014. The honourable Bombay High Court in 343 ITR 23 in Sinhga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ria different. Therefore, any observation made by the coordinate bench cannot be implied for the provisions of section 12 AA of the act. He further stated that the learned CIT exemption has given a categorical finding that there is a violation of the provisions of section 12 AA of the income tax act and therefore there is a withdrawal of the registration. Even otherwise, he submitted that the order of the coordinate bench has been challenged by the revenue before the honourable High Court and therefore it does not have any impact on the issue in this appeal. 15. We have carefully considered the rival contention and perused the orders of the lower authorities on this count. It is further to that cancellation of the registration u/s 12 AA of the act was initiated only based on the order of the director of income tax (exemption), New Delhi dated 7/5/2010 the copy of the same is placed at page number 1 of the paper book filed by the assessee. The assessee challenged the above order before the coordinate bench in ITA number 2849 (Del) 2010. The coordinate bench passed in order dated 10/2/2012 wherein in para number 33 it has been held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncel the registration only if either or both of the above conditions were satisfied, and not otherwise. 9.2 There have been cases where trusts, particularly in the year in which they had substantial income claimed to be exempt under other provisions of the Income-tax Act though they deliberately violated the provisions of section 13 of the said Act by investing in modes other that specified modes, etc. Similarly, there have been cases where the income is not properly applied for charitable purposes or is diverted for the benefit of certain interested persons. However, due to restrictive interpretation of the powers of the Commissioner under the said section 12AA, registration of such trusts or institutions continued to be in force and these institutions continued to enjoy the beneficial regime of exemption. 9.3 Whereas under section 10( 23C ) of the Income-tax Act, which also allows similar benefits of exemption to a fund, Institution, University etc, the power of withdrawal of approval is vested with the prescribed authority if such authority is satisfied that such entity has not applied income or made investment in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charitable purpose . It includes advancement of any other object of general public utility provided it does not involve carrying on of any activity in the nature of trade, commerce or business etc. for financial consideration. The 2nd proviso to said section, introduced w.e.f. 1-4-2009 vide Finance Act 2010, provides that in case where the activities of any trust or institution is of the nature of advancement of any other object of general public utility and it involves carrying on of any activity in the nature of trade, commerce or business; but the aggregate value of receipts from such commercial activities does not exceed ₹ 25,00,000/- in the previous year, the purpose of such trust/institution shall be deemed as charitable despite it deriving consideration from such activities. However, if the aggregate value of these receipts exceeds the specified cut-off, the activity would no longer be considered as charitable and the income of the trust/institution would not be eligible for tax exemption in that year. Thus an entity, pursuing advancement of object of general public utility, could be treated as a charitable institution in one year and not a charitable instituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted income. The field authorities are, therefore, advised not to cancel the registration of a charitable institution granted u/s 12AA just because the proviso to section 2(15) comes into play. The process for cancellation of registration is to be initiated strictly in accordance with section 12AA (3) and 12AA (4) after carefully examining the applicability of these provisions. 6. The above may be brought to the notice of all concerned. 17. Further as per circular number 1/2015 as per para number 9.2 it specifically provides that there are cases where the trust, particularly year in which they had substantial income claimed to be exempt under the provisions of the income tax act, there have been cases where the income is not properly applied for charitable purposes or is diverted for the benefit of certain interested persons. Therefore, to invoke the above provision the learned CIT exemption has to first ascertain that there is a benefit to specified persons. In the present case, the CIT exemption has merely alleged as per paragraph number 3.1 of the order that the activities of the assessee trust are not in the nature of education and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to INR 8 727000/ and INR 7 500000/ respectively. For all these three transactions, the assessee has not stated before the CIT exemption that how these sums have been paid to specified persons and what is the market rate of the services. Naturally, it is for the assessee to benchmark that there is no benefit to the specified persons and therefore assessee is eligible for exemption on the whole of the sum u/s 11 and 12 of the income tax act. This exercise has not been carried out by the assessee before the CIT exemption in spite of specific queries raised by him. Further, the learned CIT exemption also presumed that whole of the sum paid by the assessee is a benefit accruing to a specified person. Such finding of fact cannot be reached unless the true value of the services (fair market value of the services, if any) is derived first. In the present case, no attempt has been made by the assessee to substantiate before the CIT exemption with respect to the fair market value of the services nor the CIT exemption provided to determine the value of benefit derived by the specified persons. Merely submissions of the agreement by the assessee did not prove that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised following grounds of appeal in ITA No. 2371/Del/2015 for Assessment Year 2010-11:- 1. Disallowance by Commissioner of Income Tax (Appeals) of expenses or payments of ₹ 32,54,467/- @ 25% of total expenses or payments of ₹ 1,30,17,870/- made to related concerns is arbitrary, without any finding ofAssessing Officer or of Commissioner of Income Tax (Appeals) that expenses or payments made to related concerns are in excess of market price and is based on mere assumption that payments made to related parties are excessive. Disallowance is contrary to facts and law and therefore is liable to be deleted. 21. The revenue raised following grounds of appeal in ITA No. 3660/Del/2016 for Assessment Year 2010-11:- 1. On facts and in circumstances of case and in law, Ld.CIT(A) has erred in holding that assessee society is a charitable organization despite fact that assessee society was doing business within meaning of amended provisions of section 2(15) of Act. 2 On facts and in circumstances of case and in law, Ld. CIT(A) has erred in directing to allow benefits of section 11 12 of Income Tax Act igno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nableness for making the above payment. It was further noted by the AO that the payments are in violation of the provisions of section 13 (1) of the act. Therefore, the assessee was directed to show cause as to why the benefit of exemption u/s 11 and 12 of the act should not be denied. The AO further noted that assessee is running a business school, which is neither recognized and not affiliated, to any appropriate authority and assessee is charging use fees for rendering of the services and all the activities are being running on commercial line and no charity is undertaken. The assessee replied and stated that though these persons are covered under provisions of section 13 (3) of the act but such payments are not bad at such payment should not be for the benefit of such persons. The learned assessing officer rejected the contentions of the assessee and held that though those the payments have been made to the party specified in section 13 (1) of the act and the trustees are having the direct control over the facts of this company due to their majority shareholding on these companies benefit of these payments also amended to the person specified therein. Therefore he held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the entire expenditure has been disallowed and accordingly the addition of the disallowance to the extent of the estimated expenditure at the rate of 25% i.e. INR 3 25 1st 467/ is confirmed and the balance addition of INR 9 763403/ (INR 1 3017870/ -INR 3 254467/ ) is deleted. 23. Thus the assessee is agreed with the order of the learned assessing officer in confirming the disallowance to the extent of 25% of those expenditure and the learned assessing officer is aggrieved with the order of the learned CIT A in deleting the disallowance of INR 9 763403/ and allowing the exemption u/s 11 (1) of the act to the assessee and therefore both are in appeal before us. 24. The learned authorised representative submitted that the assessee is carrying on the educational activities and therefore is entitled to the benefit of the provisions of section 11 (1) of the income tax act. It was further stated that the assessee is eligible to claim exception u/s 11 and 12 of the income tax act as its registration u/s 12 A of the income tax act has not been withdrawn till date. It was further stated that when the registration u/s 12 A of the income tax act is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... file of the learned assessing officer accordingly. Hence, appeals of the assessee as well as of the revenue are allowed for statistical purposes. 29. Now we come to the appeal of the assessment year 2011 12. The assessee has filed appeal in ITA number 1997/del/2016 and the learned assessing officer has filed appeal in ITA number 3307/del/2016 against the order of the Commissioner of income tax (appeals) 40, New Delhi dated 10/3/2016. 30. The assessee raised following grounds of appeal in ITA No. 1997/Del/2016 for Assessment Year 2011-12:- 1. Disallowance by Commissioner of Income Tax (Appeals) of expenses or payments of ₹ 1,67,47,700/- @ 25% of total expenses or payments of ₹ 6,69,90,800/- made to related concerns is arbitrary, without any finding ofAssessing Officer or of Commissioner of Income Tax (Appeals) that expenses or payments made to related concerns are in excess of market price and is based on mere assumption that payments made to related parties are excessive. Disallowance is contrary to facts and law and therefore is liable to be deleted. 31. The revenue raised following grounds of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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