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Income Tax Appellate Tribunal, JODHPUR BENCH,
IN THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER ITA No. 44/JODH/2020 (Assessment Year ………..) M/s Rajasthan Vikas Sansthan, Vs. C.I.T.(E) Teesra Prahsar Bhawan, 1st A Jaipur. Road, Sardarpura, Jodhpur. PAN No. AAATR 3975 P Assessee by Shri P.C. Parwal (CA) Revenue by Shri K.C. Badhok, CIT-DR Date of Hearing 04.11.2020 Date of Pronouncement 01/02/2021 O R D E R PER: BENCH This is the appeal filed by the assessee against the order of the ld. CIT(E), Jaipur dated 03/01/2020 passed U/s 12AA(3) of the Income Tax Act, 1961 (in short, the Act). In this appeal, the assessee has raised the following grounds of appeal: “1. The ld. CIT(E) has erred on facts and in law in cancelling the registration granted to the assessee u/s 12AA of the Income Tax Act, 1961 by incorrectly holding that funds of the trust has been diverted for purchase of personal property of the trustees and in form of highly unreasonable security deposits given to the trustees without charging interest, thereby violating the provisions of section 13(1)(c)(ii) r.w.s. 13(2)(a) and 13(2)(g) 1.1 The ld. CIT(E) has erred on facts and in law in cancelling the registration granted u/s 12AA of the Income Tax Act, 1961 by not considering the decision of Hon’ble ITAT in assessee’s own case whereby vide order dated 16/12/2011 in ITA No. 11/Jodh/2011 it was held that it case the trust fails to comply with the requirements as mentioned in section 11 & 13 of the Act, then exemption can be denied but registration cannot be cancelled.
2 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) 1.2 The ld. CIT(E) has erred on facts and in law in cancelling the registration granted U/s 12AA with retrospective effect from AT 2002-03 by ignoring that in assessee’s own case the earlier cancellation u/s 12AA was restored by Hon’ble ITAT as mentioned in Ground No. 1.1 and by not considering the decision of Hon’ble Rajasthan high Court in case of India Medical Trust Vs PCIT & Anr. (2019) 182 DTR 252 where it was held that order u/s 12AA(3) cancelling registration of charitable trust cannot be given retrospective effect.” 2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.
We have gone through the orders of authorities below and considered the rival contentions. The facts in brief are that the assessee M/s Rajasthan Vikas Sansthan, Jodhpur is a society registered under Rajasthan Society Registration Act, 1958 vide Registration No. 105/Jodhpur/99-00 dated 23rd September, 1999. The main object of the society is to impart education. The society was granted registration u/s 12AA of the Act by Ld. CIT, Jodhpur vide its order dt. 08.01.2002 w.e.f. 07.03.2001. Thereafter, assessee society applied for exemption u/s 10(23C)(vi) on 23.03.2005 for AY 2005-06 onwards but the same in an ex-parte order was denied by Ld. CCIT, Jodhpur vide order dt. 27.07.2009 observing that assessee has violated the provisions of section 11 to 13, audited accounts are defective, person connected with the management have got the benefit from the society fund and it is having adequate surplus balances every year which is siphoned off by the office bearers or the person nearer to them. After the Ld. CCIT, Jodhpur denied the exemption u/s 10(23C)(vi), a show cause notice dt. 22.09.2009 was issued by Ld. CIT, Jodhpur for cancelling the registration
3 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) granted u/s 12AA and the registration was cancelled vide order passed u/s 12AA(3) dt. 27.12.2010 w.e.f. AY 2002-03.
Against the above order cancelling the registration, an appeal was filed before the Hon’ble ITAT. In the meanwhile assessee society again moved an application u/s 10(23C)(vi) on 13.09.2010 for grant of exemption from AY 2007- 08. The Ld. CCIT after taking into consideration the objections raised in the earlier order denying the exemption as well as the order of Ld. CIT withdrawing the registration granted u/s 12AA, granted the exemption u/s 10(23C)(vi) vide order dt. 06.09.2011 for AY 2007-08 onwards. Thereafter, the Hon’ble ITAT vide its order dt. 16.12.2011 in ITA No.11/Jodh/2011 cancelled the order passed by Ld. CIT withdrawing the registration u/s 12AA(3) by giving the following findings:- “2.7 We have heard both the parties. It is nowhere provided that the trust cannot be constituted by a family and it is also not provided under the Act that trust will not have number of institutions. The surplus being generated is utilized for the purpose of objects of the trust. In the case of the trust, one has to ascertain the receipt and payment account. In case the assessee trust raises loan then repayment of loan is also an application of income. It is nowhere provided in the trust deed that at the time of dissolution of the trust, the funds will vest in Vyas family. The registration can be canceled on the ground that the activity of the trust are not genuine or are not being carried out in accordance with the object of the trust. In case there are violations as mentioned in Section 11 and 13 of the Act. Thus the AO while making assessment can deny the exemption to the trust. For getting the exemption u/s 11, registration is
4 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) pre-requisite. However, registration is not a guarantee for exemption. In case the Trust fails to comply with the requirements as mentioned in Section 11 and 13 of the Act then exemption can be denied. In respect of failure mentioned in Section 11 and 13 in a particular year, it cannot be said that registration is to be cancelled. Surplus in educational activities is not relevant for cancelling the registration. The education itself is charitable object and if the surplus is utilized for the purpose of charitable activities then it cannot be said that registration is to be disallowed. The ground on which the registration cannot be refused, cannot be considered as a ground for cancelling the registration. The ITAT Pune Bench in the case of Maharashtra Academy of Engineering & Educational Research vs CIT 133 TTJ 706 had an occasion to consider the issue of cancellation of registration where it was alleged that the society was receiving donations and capitation fees for admission. It was held in that case that ld. CIT has to consider the genuineness of the activities of the Trust and not to consider the source of income. The profit earning and misuse of the income derived by the Trust from its charitable activities may be ground for refusing the exemption only with respect to that part of income but cannot be taken to be synonymous to the genuineness of the activities. A worth-noting observation was made by the Hon'ble Courts that if establishing and running of school is the object of the society as given in its bye-laws then it has satisfied that the society has established the school where education is imparted as per rule of factum of establishing and running of school is genuine activity. The enquiry regarding genuineness of the activities cannot be stretched beyond this. The provisions of Section 13© can be invoked only at the time of computation of total income in the case of a person who is claiming exemption u/s 11 or 12 by the AO and not by the ld. CIT. While considering the application for registration u/s 12AA. The ITAT Delhi Bench in the case of Aggarwal Mitra Mandal Trust vs DIT (Exemption) 109 TTJ 128 observed that it is not the legislative intention as reflected in the scheme laid down in Section 11,
5 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) 12, 12A, 12A and 13 of the Act. In cancelling registration when genuineness of the activities and nature of the object being charitable are not in doubt, the valuation of Section 13 is in the domain of the AO while making the assessment. The Jurisdictional High Court in the case of DCIT vs Cosmopolitan Education Society, 244 ITR 494 had an occasion to consider as to whether any misutilisation or mismanagement can be considered as a ground for refusing the registration. The Hon'ble High Court held that if there is any misutilisation or mismanagement then action can be taken against the member of the society. If the fund of the society has been utilized for educational purposes then registration should not be refused and overall view is to be taken without being hyper technical in granting exemption including the objects of the society. Similar finding has been given by the ITAT Hyderabad Bench in the case of 49 TTJ 146.
2.8 The ITAT Lucknow bench in the case of Chaturvedi har Prakash Educational Society vs CIT, 134 TTJ 781 had an occasion to consider as to whether the cancellation of registration u/s 12AA(3). It has been observed by the ITAT Lucknow Bench that CIT cannot refuse the order of his predecessor once the registration has been granted. It means that the objects of the Trust are charitable. The ITAT Lucknow bench has gone to the extent to say that ld. CIT becomes fructuous officio and therefore, the order u/s 12AA(3) is illegal and unsustainable.
2.9 We have also noticed that ld. CCIT, Jodhpur has allowed exemption u/s 10(23)© of the Act. Before the ld. CCIT, it was pointed out that registration was cancelled u/s 12AA(3) by the ld. CIT. The ld. CCIT has allowed the registration which means tht the activity of the Trust are genuine and as per its object. The advertisement expenses if genuine and have been paid to son of the seller of the society then this cannot be made a ground for disallowing exemption. Reference is made to the order of the ITAT Chandigarh Bench in the case of Young Scholars Educational
6 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) Society vs ITO 12 ITR (Tribunal) 640. In respect of the payment made to the persons covered u/s 13(3), the assessee has already explained the reasonableness. The reasonableness is actually to be seen by the AO and not be the ld. CIT while allowing registration or canceling the registration. Thus looking to the above discussions, we hold that the ld. CIT was not justified in cancelling the registration. The order passed by the ld. CIT u/s 12AA(3) is cancelled and appeal is allowed.” Thus, the registration granted u/s 12AA vide order dt. 08.01.2002 w.e.f. 07.03.2001 continued.
The Ld. CIT(E), Jaipur again vide order dt. 01.07.2019 has withdrawn the approval granted u/s 10(23C)(vi) dt. 06.09.2011 from AY 2007-08 for the reason that (i) trust has diverted its funds for the purchase of personal properties of Sh. Manish Vyas, Trustee and (ii) trust has given its properties to other associate concern at a nominal rent and at the same time has taken on rent the properties of the trustees by paying higher rent and also giving substantial security deposit to the trustees in lieu of taking these properties on rent and thus there is violation of section 13(1)(c) r.w.s. 13(2)(a)/ 13(2)(b)/13(2)(g). Against this order assessee has filed an appeal before the Hon’ble ITAT, Jodhpur Bench on 31.07.2019. The Hon’ble ITAT vide order dt. 26.05.2020 in ITA No.255/Jodh/2019 held that the order passed by Ld. CIT(E) withdrawing the approval granted to assessee u/s 10(23C)(vi) of IT Act, 1961 is not tenable and thus, restored back the approval granted u/s 10(23C).
7 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) 6. After rescinding the notification u/s 10(23C)(vi) dt. 06.09.2011 from AY 2007-08 onwards, the Ld. CIT(E) issued show cause notice dt. 18.10.2019 for withdrawal of approval granted u/s 12AA by the Ld. CIT vide order dt. 07.10.2014 for the same reason for which the notification u/s 10(23C)(vi) has been rescinded. After considering the reply filed by the assessee vide letter dt. 22.11.2019, the Ld. CIT(E) by the impugned order held that provisions of section 12AA(4) is applicable since there is violation of section 13(1)(c)(ii) r.w.s. 13(2)(a) & 13(2)(g) and thereby cancelled the registration granted u/s 12AA of the Act.
We have considered the rival contentions and also deliberated on the judicial pronouncements cited by the Ld. A/R and Ld. D/R during the course of hearing before us in the context of factual matrix of the case. From the record we found that the assessee society solely exists for charitable purpose and not for the purpose of profit. In pursuance to these objects, society at present is running 9 higher educational institutes for BDS/MDS/B.Tech/MBA/PGDM/Nursing/B.Ed/ B.Sc. Nursing/ BBA/B.Com where more than 3500 students are imparted education. The name of these institutes, courses offered, approving authority and the date of commencement of these colleges is as under:-
S. Name of Course Approval Authority Year of No. Institutes Offered Start 1. Vyas Nursing G.N.M Indian Nursing Council, 2001
8 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) Institute (Nursing) Govt. of India, & Intake: 60 students Rajasthan Nursing Council, Duration: Three Jaipur Year 2. Vyas Dental College B.D.S, Dental Council of India, 2006 & Hospital M.D.S. Ministry of Health & Intake: 100 Family Welfare, New Delhi students, Duration: & RUHS, Jaipur Four Year, 27 MDS 3. Vyas Institute of Full Time All India Council of 2006 Management M.B.A Technical Education, New Intake: 90 students PGDBM Delhi (AICTE) & RTU, Kota Duration: Two Year 4. Vyas Institute of Engg. All India Council of 2007 Engg. & Technology Degree Technical Education, New Intake: 384 Delhi (AICTE) & RTU, Kota students Duration: Four Year 5. Vyas B.Ed. College B.Ed. National Council for 2007 Intake: 200 Teacher Education (NCTE) students & J.N. Vyas University, Duration: Two Year Jodhpur 6. Vyas College of B.Tech All India Council of 2008 Engg. & Technology Technical Education, New Intake: 360 Delhi (AICTE) & RTU, Kota Students Duration: Four Year 7. Vyas College of B.B.A/ Govt. of Rajasthan & 2008 Commerce & Buss. B.Com J.N. Vyas University, Adm. (Hons) Jodhpur Intake: 500 students Duration: Three Year 8. Vyas PG Dental M.D.S Dental Council of India, 2011 College PG Ministry of Health & For Nine Branches College Family Welfare, New Delhi Intake: 27 students & RUHS, Jaipur Duration: Three Year 9. Vyas College of B.Sc Indian Nursing Council, 2011 Nursing (Nursing) Govt. of India, & Intake: 40 students Rajasthan Nursing Council, Duration: Four Year Jaipur & RUHS, Jaipur
9 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) There is no dispute as to the fact that assessee is solely engaged in providing education without any profit motive. What has been observed by the Ld. CIT(E) is that there is diversion of funds of society for the purchase of personal property of Sh. Manish Vyas, trustee by way of (i) payment to Rajasthan Housing Board for purchase of flat amounting to Rs.52,69,856/- (ii) advance to Sh. Lohiya for purchase of flat amounting to Rs.55,01,345/- (iii) payment to Rajasthan Engineering College for placement of students amounting to Rs.15 lacs (iv) amount paid to RVS Co. Rs.9 lacs and (v) property of assessee has been given on lease at lower rent whereas property of the trustees has been taken at higher rent and higher security deposit is also paid. Thus, there is violation of section 12AA(4) of the Act.
For better understanding of law, it would be relevant to reproduce section 12AA(4) as applicable at the relevant time which reads as under:- “Without prejudice to the provisions of sub-section (3), where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently it is noticed that the activities of the trust or the institution are being carried out in a manner that the provisions of sections 11 and 12 do not apply to exclude either whole or any part of the income of such trust or institution due to operation of sub-section (1) of section 13, then, the Principal Commissioner or the Commissioner may by an order in writing cancel the registration of such trust or institution:
10 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) Provided that the registration shall not be cancelled under this sub-section, if the trust or institution proves that there was a reasonable cause for the activities to be carried out in the said manner.”
From the plain reading of section 12AA(4) it is evident that this section can be invoked if there is operation of section 13(1) meaning thereby that (i) income does not ensures for the benefit of general public (ii) is for benefit of particular religious community or caste (iii) the income or property is applied for benefit of specified persons or (iv) funds are invested in violation of section 11(5).
All the above reasons for which registration has been cancelled u/s 12AA(4) of the Act by Ld. CIT(E) has been considered by the Tribunal in assessee’s own case in ITA No.225/Jodh/2019 dt. 26.05.2020 with reference to withdrawal of exemption u/s 10(23C)(vi) of the Act. Para 7 to 21 of the said order is reproduced as under:- “7. There is no dispute about the genuineness of activities carried out by the assessee or the fulfillment of condition subject to which it was notified. What has been disputed is that assessee has not applied its income for the objects or has invested the funds in the mode other than that specified in section 11(5) for the reason that funds of the assessee has been diverted to the trustees and that the property of the trustees has been taken by paying higher rent/ security deposit whereas the property of trust has been let out at lower rent. Though for these reasons it cannot be said that the activities of the trust is not genuine or not carried out in accordance with the conditions subject to which it was notified or that income is not applied for its objects or invested in modes other than that specified u/s 11(5) of the Act.
11 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) 8. Now we deal with each and every objection of Ld. CIT(E). The first objection relates to imprest to Sh. Manish Vyas. In this regard, from the record we observed that as per the imprest agreement dt. 06.03.2013 the assessee society has agreed to provide imprest of Rs.100 lacs to Manish Vyas from time to time to be utilized for the object of the trust and against the security for such imprest Sh. Manish Vyas had already mortgaged his commercial building at Teesra Prahar Bhawan, I-A Road, Sardarpura, Jodhpur to Canara Bank as a security for the term loan sanctioned to the society. As on 01.04.2013 Sh. Manish Vyas has credit balance of Rs.40,13,609/- with the assessee but thereafter in pursuance to the aforesaid agreement assessee society has provided imprest to Sh. Manish Vyas from time to time for the various purpose of society as is reflected in the statement of affairs of Sh. Manish Vyas as on 31.03.2018 on which date he has debit balance of Rs.1,51,04,438/- which is subsequently liquidated and as on 31.03.2019, Manish Vyas has credit balance of Rs.33,408/-. Thus, it is not a case of diversion of fund for the benefit of Sh. Manish Vyas rather it is in the nature of current account where the amount has been provided to him for the object of trust and utilized for its objects/ paid back by him when could not be utilized for its objects. The individual explanation of the utilisation of imprest amount received by Sh. Manish Vyas from the assessee is as under:-
(i) Objection of CIT(E) was regarding utilization of imprest for payment to RHB- Rs.52,69,856/-.
In this regard we found from the record that the executive body of assessee society has passed a resolution dt. 08.10.2014 to make an application with Rajasthan Housing Board (RHB) for allotment of a flat in its proposed scheme in the name of ‘Udyan Apartment’ and for this purpose Sh. Manish Vyas was authorised to sign necessary application/ document. Accordingly, Sh. Manish Vyas applied to RHB on behalf of Rajasthan Vikas Sansthan for allotment of flat under the lottery scheme. The flat was allotted by RHB but by mistake the allotment was made in the name of Sh. Mainsh Vyas instead of the assessee society. Accordingly, a request was made to RHB but it was informed by RHB
12 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) that it will be done after complete payment and on execution of lease deed. Therefore, as per resolution of executive body of society dt. 20.04.2015 it was decided that payment to RHB shall be done as per the schedule of RHB and the payment was made directly by society to RHB for the flat allotted at Udyan Apartment, 21E/H-904, Sector -21, CHB, Jodhpur. However, the assessee society has debited such payment to the imprest account of Sh. Manish Vyas in the books of accounts pending the transfer of lease deed in favour of society. In FY 2015-2016, Rs.31.69 lacs was paid directly by society vide DD No.10017 & 10018 on 28.03.2016 out of bank account of society and in the year 2016- 17, Rs.15.91 lacs has been given for the flat by society.
After the complete payment Sh. Manish Vyas approached the RHB for transfer of the title of the above property in the name of society but RHB has informed that due change of rules the said flat in housing board scheme cannot be transferred to in the name of any organization or society and addition of name is also not possible though the said flat was used by the society for residential purpose of its staff member.
Since RHB denied transfer the flat in the name of society, the amount given by the society to Sh. Manish Vyas was called back and the same was returned by Sh. Manish Vyas by 14.08.2018.
However, the Ld. CIT(E) has not accepted the explanation of assessee solely for the reason that RHB has clarified vide its letter dt. 15.05.2019 that they have not received any letter dt. 20.04.2015 for change in the name of allottee nor the assessee society or Sh. Manish Vyas have ever requested for such change. Even if it is so, it has no impact on registration granted u/s 12AA in as much as the amount has subsequently been returned back and the flat is being utilised for the residence of the staff member of society.
13 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) 10. The Ld. CIT(E) has also objected to payment made to Sh. Ashok Lohiya amounting to Rs.55,01,345/- for purchase of flat. In this regard, from the record, we observe that Sh. Manish Vyas out of the imprest amount received from the assessee society has made the said payment to Sh. Ashok Lohiya from time to time in FY 2014-15 to 2017-18 for arrangement of accommodation in a good and suitable locality for the staff member of samiti on lease or sale basis. He also helped in searching such properties which were ultimately taken by the assessee society on rent. However, he could not arrange for the flat and therefore, ultimately the amount so advanced by Manish Vyas out of the imprest received from the assessee society was returned back to the society by 14.08.2018. Thus, there is no violation of 3rd proviso to section 12AA(4) as the amount given to Smt. (Sh.) Manish Vyas as imprest has been utilised for the purpose of assessee society and ultimately the same has been returned back.
The next grievance of Ld. CIT(E) relates to payment to Rajasthan College of Engineering for Women for placement of students at Rs.15 lacs.
In this regard from the record we observed that Rajasthan College of Engineering for Women is an educational institute imparting education in the field of engineering under Chandravati Education Society, Jaipur. This society is registered u/s 12AA of the Act. The assessee society is also running two engineering college. In order to mutually carry out various programmes of placement of the students, the assessee society has advanced Rs.15 lacs to this college through the imprest account of Sh. Manish Vyas. Therefore, utilization by Sh. Manish Vyas of the funds received in imprest from the assessee society is for the object of society and thus, there is no violation of 3rd proviso section 12AA(4) more particularly when subsequently the entire amount lying in the imprest of Sh. Manish Vyas has been returned back by him by 14.08.2018.
The next grievance of Ld. CIT(E) relates to amount of Rs.9 lacs paid to RVS Company. In this regard we observed that RVS Company, i.e. Rajasthan Vikas
14 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) Sansthan, Company is a charitable company registered u/s 25 of the Companies Act, 1956 and also registered u/s 12AA of the Act. To meet the requirement of funds, Sh. Manish Vyas has paid Rs.9 lacs to RVS Co. on 07.11.2016 out of the imprest amount received by him from the assessee society. One of the objects of assessee society is to provide financial help to new educational institution. The assessee society could have given such amount directly from its bank account but since it has already given imprest to Sh. Manish Vyas, on its direction, Sh. Manish Vyas paid this amount to RVS Co. Thus, there is no violation of 3rd proviso. In any case the entire amount standing in the imprest account of Sh. Manish Vyas has been returned back by him by 14.08.2018 and as on 31.03.2019 an amount of Rs.33,408/- is due to Sh. Manish Vyas from the assessee society. Hence, for this reason, notification issued u/s 10(23C)(vi) of the Act cannot be withdrawn.
From the record we observed that the imprest amount given by the assessee society to Sh. Manish Vyas has been utilised for the purpose and object of the trust. Moreover, the imprest so received by Manish Vyas from the assessee society has been subsequently returned back by him to the society as explained above and as on 31.03.2019 an amount of Rs.33,408/- is receivable by Manish Vyas from the society. In these circumstances the imprest given by the assessee society to Sh. Manish Vyas cannot be said to be diversion of the fund of the society for personal benefit of Sh. Manish Vyas and thus, there is no violation of 3rd proviso of the Act. Further, against the aforesaid imprest, the society has taken adequate security from Manish Vyas by way of his property being mortgaged to the bank against the loan sanctioned by Canara Bank to the assessee society and it is utilised for the purpose of assessee society.
The next grievance of Ld. CIT(E) relates to the property given on rent and property of trustees taken on rent.
With regard to the land of assessee society given on lease to RVS Company, we observed that the assessee society owns a plot measuring 24,481.29 sq. mt. at
15 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) village Jhalamand, District Jodhpur. This land was acquired by the assessee society on 13.11.2006 for Rs.51 lacs for establishing of educational institution. This land was converted for institutional use on 08.12.2010. However, the same was lying unutilised. In the meanwhile RVS Company incorporated on 02.02.2012 in pursuance to license u/s 25 of the Companies Act, 1956 dt. 01.02.2012 by Registrar of Companies with the object of imparting education and registered u/s 12AA of the Act vide approval dt. 07.10.2014 to be effective from 02.02.2012 approached the assessee to give on lease the said land so that it can establish an educational institute on the said land. Accordingly, a lease agreement dt. 21.06.2013 was entered into according to which the said land was given on lease to RVS Company at a rent of Rs.1,80,000/- p.a. It may be noted that one of the object of the assessee samiti is to promote the new educational institution by providing financial & technical support. After the lease of the land, RVS Company established a school in the name of Delhi Public School affiliated with CBSE Board and also approved by District Education Officer vide letter dt. 10.05.2013. Subsequently, the CBSE Board vide letter dt. 24.04.2017 upgraded the school to Senior Secondary Level where at present more than 1500 students are imparted education. In this letter it is specifically mentioned that area of the school campus is 24,481.29 sq. mt. Thus, providing land by the assessee samiti to RVS Company registered u/s 12AA of the Act is as per its object and does not violate 3rd/ 14th proviso to section 10(23C) of the Act.
With regard to property taken on rent from Sh. Manish Vyas and security deposit given to him against such property, we observed that Sh. Manish Vyas owned a plot of land at 7, Teesra Prahar Bhawan, I-A Road, Sardarpura, Jodhpur measuring 305.55 sq. yd. This plot was acquired by him in the year 1990 though its registry was executed in his favour on 24.10.2005. The total constructed area on this plot of land comprising of basement, ground floor and four floors thereon is 16,250 sq. ft. As per lease agreement dt. 14.06.2013 the assessee samiti is to pay rent of Rs.18 lacs p.a. and to provide security deposit of Rs.270 lacs to Sh. Manish Vyas. This property is also mortgaged to the bank by Sh. Manish Vyas as collateral security
16 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) against the loan obtained by assessee samiti from Canara Bank as is evident from the latest sanction letter dt. 11.11.2019. The market value of this property as on 12.08.2017 has been determined by the registered valuer at Rs.545.50 lacs and this value is also reflected in the sanction letter. Thus, the yield of rent is only 3.3% of the present value which cannot be said to be unreasonable or excessive considering that for similar type of commercial property, the rent is ranging from Rs.30 to Rs.35 per sq. ft. per month, i.e. Rs.58.50 lacs to Rs.68.25 lacs p.a. Further, when the entire property has been mortgaged to the bank against the loan obtained by the assessee society, the refundable security deposit of Rs.270 lacs also cannot be said to be unreasonable. Therefore, rent and the security deposit paid by the assessee samiti to Sh. Manish Vyas against this property is neither unreasonable nor excessive nor in violation of 3rd/ 14th proviso to section 10(23C) of the Act.
The Ld. CIT(E) has also objected the property taken on rent from Smt. Asha Vyas and security deposit given to her against such property.
We have gone through the complete record and found that Smt. Asha Vyas owned a residential plot no.45, ‘Roop Rajat Sarovar’, Opposite Preksha Hospital, Pal Road, Jodhpur measuring 200 sq. yd. This plot was acquired by her on 05.09.2011. The total constructed area on this plot of land comprising of ground floor, first floor and second floor is 2,975 sq. ft. The entire property was given by Smt. Asha Vyas to the assessee society on lease. As per lease agreement dt. 14.06.2013 the assessee samiti is to pay rent of Rs.2.40 lacs p.a. and to provide security deposit of Rs.60 lacs to Smt. Asha Vyas. The market value of this property as on 18.01.2017 has been determined by the registered valuer at Rs.1,31,51,500/-. Thus, the yield of rent is only 1.82% which cannot be said to be unreasonable or excessive considering that for similar type of residential property, the rent is ranging from Rs.10 to Rs.12 per sq. ft. per month, i.e. Rs.3.54 lacs to Rs.4.25 lacs p.a. Further, the refundable security deposit of Rs.60 lacs cannot be said to be unreasonable considering the market value of property. Therefore, rent and the security deposit paid by the
17 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) assessee samiti to Smt. Asha Vyas against this property is neither unreasonable nor excessive nor in violation of 3rd/ 14th proviso to section 10(23C) of the Act.
It is relevant to mention that Sh. Manish Vyas, Chairman of the society and Smt. Asha Vyas, Vice Chairman of the society are fully devoted to the administration and management of 9 institutions run by the assessee society. The annual receipt of the assessee society during FY 2014-15 to 2018-19 is ranging between Rs.30.70 crore to Rs.31.02 crore. More than 3,500 students are imparted education by the society. There are 5 hostels and one hundred bedded hospital required for running the dental college. Managing the entire activity is a huge task. However, for looking after the administration, managerial, academic, funding, obtaining approval/ renewal/ affiliation from the regulatory authorities, huge time and effort is required but for such effort, Sh. Manish Vyas and Smt. Asha Vyas have not been paid any remuneration. The assessee society has paid salary of approximately Rs.12 lacs per annum to the Principals/ professors of various educational institutions run by it. Therefore, even at a lower side considering the reasonable salary of Rs.18 lacs and Rs.15 lacs per annum of Sh. Manish Vyas and Smt. Asha Vyas respectively, the remuneration foregone by these persons is much more than the imprest advance given to Sh. Manish Vyas and the security deposit given to them against the property leased by them. Hence, it cannot be presumed that (i) assessee has not apply its income for the objects for which it is established (ii) invested the funds in any mode other than that specified in section 11(5) (iii) activities of the trust is not found to be genuine (iv) activities of the trust are not carried out in accordance with the conditions subject to which it was notified. Thus, there is no violation of 3rd/ 14th proviso to section 10(23C). In this connection reliance is placed on the following decisions:-
Modern School Society Vs. CIT (2018) 63 ITR(Trib.) 399 (Jaipur) (Trib.)
In this decision it was held that for exercising power under 13th proviso to section 10(23C)(vi) prescribed authority had to satisfy itself about existence of
18 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) default/ violation committed by assessee as contemplated under clause (i)(B) of said proviso. Said requirement was mandatory for invoking jurisdiction and powers provided under 13th proviso to section 10(23C)(vi). In this case the assessee has given advance of Rs.1.38 crores to Trimurti Colonisers & Builders Pvt. Ltd. for purchase of land, Rs.60,07,953/- to Ambience Land Developer for purchase of land for the stay of office staff, Rs.1 crore to A.K. Education Welfare Society, a society having object of imparting education registered u/s 12AA of the Act to establish a school in collaboration and in the name of Modern School and advance of Rs.3 crores to Sh. Surendra Kumar Meena for purchase of land at different location of city for construction of school but since the transaction could not materialize, the advance was received back subsequently. The Hon’ble ITAT after considering the purpose for which advance was given held that the said payment do not fall in the category of investment or loan or deposit and not hit by provisions of section 11(5) of the Act and thus, the approval granted u/s 10(23C)(vi) was directed to be restored.
St. Wilfred Educational Society Vs. PCIT (2019) 176 ITD 675 (Jaipur) (Trib.)
In this case the Ld. PCIT withdrew the exemption granted u/s 10(23C)(vi) and cancelled the registration granted u/s 12AA of the Act on the ground that there is diversion of funds of the assessee for personal purpose, there is non genuine claim of scholarship expenses and payment made to Rajasthan Housing Board is in contravention to section 11(5). The Hon’ble ITAT after considering the entire facts of the case held as under:-
“Diversion of funds for personal purposes in violation of sec. 13— For applicability of sec. 13(1)(c), there has to be actual utilization or application of funds for the benefit of the related person and does not contemplate a situation of intended or future application of such funds for the benefit of such person. Funds belonging to assessee society physically found in strong room of bank and
19 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) having not been utilised directly or indirectly by related person, provision of sec. 13(1)(c) could not be availed for in invoking s. 12AA(3) for cancelling registration of assessee-society.
Non-genuine scholarship expenses—Assessee having produced documentary evidence establishing payment of scholarship to 301 regular students, Principal CIT acting on the preliminary findings of AO pending assessment, could not have come to a conclusion that funds of assessee were misused under the guide of scholarship and thereby cancelling registration under s. 12AA(3)—Principal CIT was guided by the findings of the AO and such findings which have even not attained finality as far as passing of the assessment order for asst. yr. 2014-15 is concerned which was passed subsequent to passing of the impugned order— Without considering the documents produced by assessee, mere non-appearance of certain students for verification cannot be a sole basis to raise a question mark on the whole scheme and genuineness of scholarship payments to over 301 students on a sample survey size of around 8 per cent and basis the same, to arrive at a finding that the assessee has misused funds which were claimed as expenses in the guise of scholarship payments.
Violation of s. 11(5) r/w s. 13(1)(c)—Assessee having entered into agreement with AGV society for transfer of immovable property which was taken on lease by AGV from Rajasthan Housing Board, payment made by assessee to Housing Board on behalf of AGV was for acquiring immovable property, hence Principal CIT was not justified in cancelling registration of assessee under s. 12AA(3) for violation of s. 11(5) r/w s. 13(3)—In the absence of any material to show that the three common members hold substantial interest in the related entity in their own right either individually or collectively and that too, by entitlement to not less than 20 per cent of profits in such related entity provision of s. 13(3) were not attracted—Registration of assessee under s. 12AA and notification u/s 10(23C)(vi) restored.”
20 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) It may be noted that for AY 2007-08 to 2009-10, AO vide order dt. 30.11.2011 passed u/s 147 assessed the income of assessee at Nil considering the exemption granted u/s 10(23C)(vi). Thereafter in AY 2013-14, AO vide order u/s 143(3) dt. 19.02.2016 assessed the income at Nil considering the exemption granted u/s 10(23C)(vi). The Ld. CIT(E) has now withdrawn the approval granted vide Notification dt. 06.09.2011 from AY 2007-08, i.e. since the AY from which the approval was granted. This is against the provisions of the Act in as much as the various observations made by CIT(E) has no relevance to AY 2007-08 to 2013-14. All his observations relate to AY 2014-15 and onwards. Therefore, the notification withdrawn from AY 2007-08 is illegal & bad in law.
In view of above discussion, we are of the considered opinion that the order passed by Ld. CIT(E) withdrawing approval granted to assessee u/s 10(23C)(vi) of the Act is not tenable both on facts and law. Accordingly, the same is set aside.
Thus, we find that all the issues raised for cancelling the registration granted to the assessee u/s 12AA of the Act are same for withdrawing the approval granted to the assessee u/s 10(23C)(vi) of the Act. Therefore, following the decision of ITAT in assessee’s own case, the cancellation of registration u/s 12AA(4) of the Act is not tenable both on facts and in law. Accordingly, the same is set aside.
The assessee has also taken a ground challenging the withdrawal of registration u/s 12AA with retrospective effect from AY 2002-03. We note that when Hon’ble ITAT vide its order dt. 16.12.2011 has already cancelled the order passed by Ld. CIT withdrawing the registration u/s 12AA(3) w.e.f. 2002-03, again withdrawing the registration from AY 2002-03 is not tenable. Further
21 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) Hon’ble Rajasthan High Court in case of Indian Medical Trust Vs. PCIT & Anr. (2019) 182 DTR 252 where the CIT(E) withdrew the registration u/s 12AA(3) video order dt. 16.01.2018 w.e.f. 01.04.2006 at Para 43 held as under:- “43. The cancellation of the registration of the petitioner Trust under section 12A of the Act of 1961, with retrospective effect; is arbitrary and contrary to the provisions of the Act of 1961. The Commissioner of Income Tax has been empowered to initiate the steps for cancellation of the registration of a Trust in terms of text of section 12AA (3) of the Act of 1961, but the legislation had no intention of its applicability with retrospective effect otherwise that would have been clearly specified in the said provision. The interpretation of the said provision has to be harmonious rather than being vindictive or instigating or creating fear in the assessees qua the Income Tax Department. Be thus as it may, in the matter at hand, the order dated 16th Jan, 2018, passed by the Commissioner of Income Tax, appears to be more vindictive, as the order dated 30th June, 2017, of the Income Tax Settlement Commission went against them. Cancellation was required to be made according to the due process of law.”
In view of the above facts and circumstances as well as considering the judicial pronouncements referred by the parties, we allow the grounds taken by the assessee. 12. In the result, appeal of the assessee is allowed. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962 by placing the details on the notice board.
Sd/- Sd/- (MANOJ KUMAR AGGARWAL) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER Jodhpur
22 ITA 44/Jodh/2020 M/s Rajasthan Vikas Sansthan Vs CIT(E) Dated 01/02/2021 *Ranjan Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT (A) 5. The DR 6. Guard File
Assistant Registrar Jodhpur Bench