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TMI Blog2023 (7) TMI 504X X X X Extracts X X X X X X X X Extracts X X X X ..... o M/s. Avinash Builders, Raipur was clear case of violation of law - The land in question granted on lease to the assessee society by the State Government of Madhya Pradesh only for educational purposes, had thereafter been exploited by the latter as per terms of the lease deed after obtaining the requisite approvals from the government authorities and, the said activities being clearly in conformity with its object clause of running a educational institution i.e. Rajkumar College, a public school at Raipur, thus, could not have been held to have been used for a purpose other than that for which, it was granted on lease to it nor in violation of any law as observed by the CIT(Exemption), Bhopal. We, thus, not being able to concur with the view taken by the CIT(Exemption) that the assessee society had violated any law by using the land in question for a purpose other than education purpose, vacate the same. Assessee society had not accounted for the rental income from sub-lessee in its return of income - Considering the fact that the assessee society had terminated the sub-lease with M/s Avinash Builders vide its legal notice for multi-facet reasons as culled out by us herein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the CIT(Exemption), Bhopal, therefore, on the said count also, we find substance in the claim of the Ld. AR that there was no justifiable reason for his predecessor to have withdrawn the registration that was earlier granted to the assessee society vide order u/s. 10(23C)(vi) of the Act dated 29.02.2008 on the basis of the impugned order of withdrawal dated 02.12.2019. We are unable to concur with the observations of the CIT(E), Bhopal, on the basis of which, he had vide order passed u/s. 10(23C)(vi) of the Act dated 02.12.2019 withdrawn the registration that was earlier granted to the assessee society - Decided in favour of assessee. - ITA No. 09/RPR/2020 - - - Dated:- 10-7-2023 - Shri Ravish Sood, Judicial Member And Shri Arun Khodpia, Accountant Member For the Assessee : Shri Jehangir D. Mistry, Sr. Advocate a/b S/ssh. Madhur Agrawal, Advocate, Praveen Khandelwal, CA Praveen Goyal, CA For the Revenue : Smt. Ila M. Parmar, CIT-DR ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee society is directed against the order passed by the Commissioner of Income-Tax (Exemption), Bhopal u/s. 10(23C)(vi) of the Income Tax Act, 1961 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrued during the year under consideration. 2. Succinctly stated, the assessee society which runs colleges and schools at Raipur was granted registration u/s. 10(23C)(vi) of the Act vide order bearing F.No.CCIT/Tech/23(C)(vi)/41/07-08 dated 29.02.2008 by the Chief Commissioner of Income Tax, Raipur. 3. During the course of the assessment proceedings for A.Y. 2016-17, it was observed by the A.O that the assessee society had violated terms and conditions on which approval was granted to it u/s. 10(23C)(vi) of the Act. On the basis of the report submitted by the A.O, the CIT(Exemption), Bhopal called upon the assessee to show cause as to why the registration granted to it u/s. 10(23C)(vi) of the Act may not be withdrawn. On a perusal of the records, it transpires that the registration granted to the assessee society u/s. 10(23C)(vi) of the Act was sought to be withdrawn for the following reasons: 1. As per sub-lease deed furnished by the assessee, the assessee society has sub-leased leasehold nazul land comprised in Block No.27 Plot No.8, Block No.30 Plot No.2 Block No.31 Plot No.2 admeasuring 40 ft. X 2080 ft. equivalent to 83,200 Sq.ft. which is referred to as the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of clause (a) of the third proviso where it has been provided that the income has been accumulated or applied for the purpose otherwise than wholly and exclusively to the objects of the institution for which it is established; or (B) That the institution has not invested or deposited its funds in accordance with the provisions of clause (b) of the third proviso. (C) And that the activities of institution are not genuine; or (D) Such activities of institution are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved. It was the claim of the assessee society that its case did not fall within the realm of either of the aforesaid situations which would have justified cancellation of the registration granted to it u/s. 10(23C)(vi) of the Act. Apart from that the assessee society came forth with an explanation on each of the specific issues, on the basis of which, its registration u/s. 10(23C)(vi) of the Act was sought to be withdrawn, therein, stating as under: (ii) We further submit our, explanation on the basis of facts on each specific issue referred by you, in the show cause notice which is as follows- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no violation of Section 11(1), 11(2) r.w.s. 11(3) of Income Tax, Act as claimed in the show cause notice. It is also submitted that this proceeding is in respect to 10(23C)(vi) and not in respect to section 11. We have deposited this surplus in modes or the assets as specified in section 11(5). So therefore, surplus can be accumulated and the period of accumulation is 5 years and A.Y. 2016-17 was the first year in which surplus more than 15% occurred. Your kind attention is drawn to Audit Report 10BB vide with the department which also confirms that no portion of surplus was invested in the modes of investments other than those specified in section 11(5) of the Income Tax, Act. Your kind attention is drawn to Para 15(a) of audit report in form 10BB. (vi) On the basis of above facts, no conditions of Section 10(23C)(vi) are violated by the assessee, and on cancelling the exemption of the assessee will cause undue hardship on it. Hence, the benefit of the exemption shall not be cancelled. However, the aforesaid explanation of the assessee did not find favour with the CIT(Exemption). The CIT(Exemption) holding a conviction that the assessee society had violated the conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... July 1996 that the land will be used only for educational purposes. The term used in the renewal of lease agreement is Kewal Shikshan Sanstha Hetu . (D) It is also necessary to mention here that the property sub-leased by the assessee society is bad in law for the reason that the said property is not the personal property of the assessee society. There is no right of the assessee society to sub-lease the same. In this regard, only right was of the then M. P. Govt. to lease the said property (Nazul land), if any, to M/s Avinash Builders. As such, the Nazul land sub-leased by the assessee society to M/s Avinash Builders is not correct and a violation of law. At present, on subleased property owned by M/s Avinash Builders, a commercial complex is running in the name style Maruti Business Park . (E) Assessee in its reply dated 10.01.2019 has accepted that, the old management had taken an inappropriate decision of sub leasing the land of the 80,000 sq. Ft. The submission that the society has subsequently cancelled the said sub lease agreement with M/s Avinash Builders is also not acceptable. It is a fact that the society had passed a resolution dated 04th 5th 09.1994, to aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the approval given u/s. 10(23C)(vi). F. Regarding the suppression of interest income of Rs. 27,12,186/-, it is stated to be an omission by it. However, it is not acceptable. The society being enjoyed the benefit of exemption does not allow the society not to maintain its account properly. The society is audited by C.A. and Auditors, having special knowledge in accounts. Hence, cannot take the excuse that, such income was not intimated by Bank. Now a day such interest incomes from Banks are visible and accessible to the assessee online. Moreover, had there been no scrutiny by the AO, such irregularities would never come to light. This shows that the society has not carried out its activities in accordance with law. 6. The matter being so, the approval already granted under section 10(23C)(vi) can be withdrawn as the authority is satisfied that the activities of the assessee are not being carried out in accordance with all or any of the conditions subject to which it was approved. 5. The CIT(Exemption) on the basis of his aforesaid observations was of the view, viz. (i) that the activities of the assessee society were not being carried out in accordance with all or any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to the Collector setting forth the names and description of the parties to every such assignment and the particulars and elect thereof. Considering the aforesaid facts, we are of the considered view that the observation of the CIT(Exemption), Bhopal that the assessee society was not vested with any right to sub-lease the property in question, i.e. Nazul land to M/s. Avinash Builders and thus, by so doing had violated the law, is found to be misconceived and incorrect. Apart from that, a perusal of the extract of the minutes of the ordinary meeting of the assessee society held on 04/05.09.1994, Page 3 of APB, reveals that the managing committee was duly authorized and empowered to apply to the Collector/State Government for granting of permission to explore the possibility of disposing off the land in question, inter alia, by lease at the prevailing market rates. For the sake of clarity the extract of aforesaid minutes dated 04/05.09.1994 are culled out as under: It was unanimously resolved that in order to generate funds for implementing the Astro-Turf project to provide more hostel accommodation to the Girls of the school and also to provide adequate safe guard again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Avinash Builders under Section 21 of the Said Act, has been granted under following terms. Copy of the resolution passed on 4/5 September 94 by the General Assembly be sent. 1. The amount so received on the lease of land, will be expended by the Society for use of the College. 2. Land or any part thereof, be used for the same purpose, for which it is giving on lease. The ownership right should remain with the Society itself. 3. The rate of lease shall not be less than the present market rate. 4. Copy of the lease dead will be sent to Registrar, wherein all the terms should be mentioned. 5. Permission by the competent authority should be taken for construction of building etc. over this land. Sd/- Registrar Firms Society, Madhya Pradesh 11. On the basis of the aforesaid facts, we are of the considered view that the CIT(Exemption), Bhopal had wrongly observed that the assessee society had in violation of law sub-leased the property i.e. Nazul land to M/s. Avinash Builders. In our considered view, as can safely be gathered on a perusal of the aforesaid documents, as the assessee society remaining well within its rights, had sub-leased the property, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annoyance or offence to them, requires the lessee to do so within such time as may be fixed in the requisition. On the basis of aforesaid conditional vesting of right with the lessee i.e. the assessee society to carry on the demised premises any trade, business or activity, clearly reveals that carrying out of the said activity was permitted on the same. At this stage, we may herein observe, that a perusal of the objects of the assessee society, Page 50 of APB reveals that the same, inter alia, included controlling and administering movable or immovable property belonging to the assessee society to raise funds; and acquire such property and to do all acts which are incidental and conducive to the attainment of the primary objects of the society i.e. maintaining and managing the institution run by it, viz. Rajkumar College , a public school at Raipur. For the sake of clarity, the objects of the assessee society as gathered from its by-laws are culled out, as under: (a) to maintain and manage the institution known as the Rajkumar College as a public school at Raipur which will be open to all without distinction of race or creed or caste or special status with a view to dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring its movable property a/w. garnering of funds, which as per the pressing financial needs were at the relevant point of time required for smooth functioning of its institution. Apart from that, we find on a perusal of the letter issued by the Office of the Joint Director, Town Country Planning, Raipur (MP) dated 23.01.1998, Page 28 to 31 of APB that permission was granted to the assessee society for construction of shops on 20,000 sq.ft land (out of land admeasuring 540612 lacs sq.ft.) which though were to be used only for the requirements of integrated residential school, i.e. for stationary, medical stores, counter articles stores, sports articles, laundry and general stores etc. Further, the letter dated 06.06.1998 of the Municipal Corporation, Raipur, Page 32 to 35 of APB reveals that sanction was granted for construction of a building on the demised premises. In fact, the Municipal Corporation (Building Construction Permission Division), Page 36 of APB, had clearly stated in its letter that shops proposed to be constructed were only to be used for the requirements of integrated residential school, i.e. for stationary, medical stores, counter articles stores, sports articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the CIT(Exemption) that the assessee society had violated any law by using the land in question for a purpose other than education purpose, vacate the same. C). Re: Assessee society had not accounted for the rental income from sub-lessee in its return of income 16. On a perusal of the order of the CIT(Exemption), Bhopal u/s. 10(23C)(vi) of the Act, we find that he had, inter alia, based the withdrawal of the registration of the assessee society for the reason that though the demised premises was sub-leased to M/s. Avinash Builders on 09.09.1999 for a premium of Rs. 24 lacs and annual rent of Rs. 12 lacs for a period of 27 years 02 months but no such income was accounted for by the assessee society during the year under consideration. Apart from that, it was observed by him that a perusal of the income and expenditure account of the assessee society revealed that it had accounted for an amount of Rs. 65.40 lacs [lease premium: Rs. 24 lacs (+) rent Rs. 41.40 lacs] in the F.Y.2007-08. On the basis of the aforesaid facts and figures, it was observed by the CIT(Exemption) that as the sub-lessee i.e. M/s. Avinash Builders was put into possession of the demised premises from 09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh Builders, therefore, as stated by the ld. AR and, rightly so, no rent would have been received and accounted for by the assessee as its income for the period subsequent thereto. 19. We, thus, in terms of our aforesaid observations, are unable to concur with the observation of the CIT(Exemption) that there is failure on the part of the assessee society to account for the lease rent with respect to the property sub-leased by it to M/s. Avinash Builders. D). Re: Suppression of interest income of Rs. 27,12,186/- by the assessee society 20. On a perusal of the order of the CIT(Exemption), Bhopal, it transpires that it was observed by him, that while for the assessee society had during the year received interest from State Bank of India amounting to Rs. 1,48,81,709/-, but as per its income and expenditure statement, it had accounted for interest income on fixed deposits and savings bank account of Rs. 1,17,38,298/- and Rs. 4,31,225/-/-, therein aggregating to Rs. 1,21,69,523/- only. Accordingly, it was observed by the CIT(Exemptions) that the assessee society had suppressed its interest income to the tune of Rs. 27,12,186/-. 21. On being confronted with the aforesaid facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax, Raipur marked as F. No. CCIT/Tech/10(23C)(vi)/41/07-08 dated 29.02.2008 on the basis of fraud or misrepresentation of facts. We, say so, for the reason, that the issue that had weighed in the mind of the CIT(Exemption) to support his aforesaid claim was that the assessee society while obtaining the registration/approval, had not brought the complete facts to the knowledge of the concerned authority who had granted the approval u/s. 10(23C)(vi) of the Act, i.e. the fact that the assessee society s land was being used for commercial purposes. On a perusal of the financial statements of the assessee society, as were brought to our notice by the Ld. AR, it transpires that it had in its balance sheet for the last three years viz. F.Y.2003-04, F.Y.2004-05 and F.Y.2005-06 as were appended a/w. the application in Form 56D dated 19.02.2007 duly disclosed the deposits for sub-lease of land to M/s. Avinash Builders, Raipur , Page 127 to 157 of APB. Apart from that, on a perusal of the subsequent details filed by the assessee a/w. requisite annexures in Form 56D, Page 112 to 114 of APB, does neither reveal any such details which were wrongly filed or misrepresented ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out as under: 16. The application for registration u/s. 10(23C)(vi) of the Act filed by the applicant society has never been rejected by the department. However, the registration granted u/s. 10(23C)(vi) of the Act before 01.04.2021 was cancelled by the CIT(E), Bhopal vide its order dated 02.12.2019, the copy of the order is enclosed herewith. The applicant society has filed an appeal before the Hon ble ITAT Raipur Bench, Raipur against the cancellation order and the case of the applicant society is pending before the Hon ble Bench. 27. Our attention was drawn by Shri. JD Mistri, Ld. Senior Advocate to the documents which were filed by the assessee society with the CIT(Exemption), Bhopal a/w. with its letter dated 15,12,2022 which, inter alia, included copy of the order of cancellation of registration granted u/s. 10(23C)(vi) of the Act dated 02.12.2019, Page 171 of APB. Further, it transpires on a perusal of the records that the CIT(Exemption), Bhopal vide his letter dated 01.02.2023, Page 172 of APB had after taking cognizance of the fact that the registration granted to the assessee society u/s. 10(23C)(vi) of the Act was cancelled on the ground that the government s la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uilders, was factually incorrect. In support of its aforesaid contention, it was stated by the assessee society that the Government of Madhya Pradesh which had granted lease of land to the assessee society in itself had had changed the usage of the 20,000 sq. ft. from educational to commercial and vehicle parking etc. which, thereafter, was approved by the competent authority and permission was granted to construct a commercial building on the said site. Carrying the issue further, it was stated by the assessee society that it had though fairly exercised its right to sub-lease the property but on failure on the part of the sub-lessee i.e. M/s. Avinash Builders to pay rent, the said sub-lease agreement was, thereafter, terminated by it. For the sake of clarity, the relevant extract of the aforesaid letter dated 16.02.2023 is culled out as under: 3. The copy of sub-lease agreement with Avinash Builders is enclosed herewith. The sub-lease agreement with the Avinash Builders was operative and valid till 31/03/2022, however, the assessee society has initially terminated the sub-lease deed on 19/03/2008, the copy of legal notice of termination is enclosed herewith. Further, as on dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the stage of granting of registration u/s. 10(23C)(vi) of the Act vide order of the CIT(Exemption), Bhopal dated 20.02.2023 r.w. order dated 23.02.2023, therefore, on the said count also, we find substance in the claim of the Ld. AR that there was no justifiable reason for his predecessor to have withdrawn the registration that was earlier granted to the assessee society vide order u/s. 10(23C)(vi) of the Act dated 29.02.2008 on the basis of the impugned order of withdrawal dated 02.12.2019. 31. We, thus, on the basis of our aforesaid deliberations, are unable to concur with the observations of the CIT(Exemption), Bhopal, on the basis of which, he had vide his order passed u/s. 10(23C)(vi) of the Act dated 02.12.2019 withdrawn the registration that was earlier granted to the assessee society vide order bearing FNo.CCIT/Tech/23(C)(vi)/41/07-08 dated 29.02.2008. Accordingly, we herein set-aside the order of the CIT(Exemption) passed u/s. 10(23C)(vi) of the Act 15th proviso , dated 02.12.2019. Thus, the grounds of appeal raised by the assessee are allowed in terms of our aforesaid observations. 32. In the result, appeal of the assessee is allowed in terms of our aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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