SRSL CHARITABLE TRUST ,UDAIPUR vs. CIT(E), JAIPUR

IN THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER ITA No. 58/JODH/2020 (Assessment Year ………..) SRSL Charitable Trust, Vs. C.I.T.(E) SRSL House, Pulla Bhuwana Jaipur. Road, National Highway No. 8, Udaipur. PAN No. AAATS 3819 F 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 02/01/2020 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 activities carried out by the assessee are not genuinely charitable and also not carried out in accordance with the objects of the trust. 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 making various incorrect and irrelevant observations particularly holding that rental income received from letting out the properties stated to be acquired for the purpose of providing educational services to the students is an activity of commercial in nature hit

2 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) by proviso to Section 2(15) of the Act and not as per the object of the assessee.” 2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.

3 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) 01.09.1999 whereby ownership of land and building continued with the assessee trust but the running and development of the school was the responsibility of SRSL Educational Society. Consequent to these changes, the District Education Officer, Dungarpur gave recognition to the school from the year 2000-01 Also the school was given recognition by Central Board of Secondary Education, New Delhi w.e.f. 01.04.2002 vide letter dt. 08.05.2002. The assessee after the school run by SRSL Educational Society become self-reliant, in order to develop more infrastructure facility in the school building started charging rent from it for use of land and building owned by it from 01.04.2007. Initially the rent was fixed at Rs.75,000/- p.m. and security deposit of Rs.25 lacs which was increased from time to time in order to create more infrastructure facility. As on 01.04.2012 the rent was Rs.1,37,812/- p.m. which was increased from time to time and as on 01.01.2017 it was Rs.6 lacs p.m.

4 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) Society. The assessee trust was receiving rent of Rs.1,37,812/- p.m. in AY 2013- 14 which exponentially increased to Rs.4 lacs p.m. in AY 2015-16 and to Rs.6,30,000/- p.m. in AY 2019-20. Besides it also received a hefty amount as security deposit in connection with the lease of aforesaid school. The assessee trust is not doing any charitable activity as per the objects narrated in the trust deed and only giving a nominal amount of donations to other organizations. Further the assessee has purchased a residential flat in New Delhi for consideration of Rs.3.20 crores and in Mumbai for Rs.1.50 crore from M/s Shree Rajasthan Syntex Ltd., Udaipur in which some of the trustees are directors. Both these flats are continuously being used by M/s Shree Rajasthan Syntex Ltd. as before the sale to assessee trust and the assessee is getting very little amount as rent from the company. Thus, the purchase of flat is nothing but an unscrupulous arrangement for siphoning of the funds of the trust to a company in which trustees have substantial interest. Therefore, provision of section 13(1) of IT Act is clearly attracted in this case. Accordingly, he sought explanation from the assessee as to why the registration granted u/s 12AA should not be cancelled u/s 12AA(3) & 12AA(4). In response to same, assessee submitted the reply vide letter dt. 17.12.2019 but the same was not found sufficient by Ld. CIT(E) for continuing the registration u/s 12AA by assigning the following reasons:-

5 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) (a) The Income & Expenditure A/c shows that the only income earning activity of the trust is to receive rent from the school building as well as rent from residential flat in Mumbai & Delhi.

(b) The assessee is claiming to be engaged in carrying out educational activities which in fact is carried out by SRSL Educational Society. The trust deed of the assessee trust contains 17 objects which are charitable in nature and include the object of providing education. However, the assessee is not following any of its objects since the only activity which the assessee is carrying out is income from rent. Therefore, the activities of trust are not in accordance with the object and hit by section 12AA(3).

(c) The case of assessee falls under the last limb of section 2(15), i.e. advancement of any other object of general public utility. Thus, proviso to section 2(15) applies to assessee. As per the first limb of proviso, such commercial activity should only be an incidental activity and not the main activity by itself. However, in the case of assessee, the commercial activity of earning rent is the main activity as evident from the Income & Expenditure A/c. The second limb of the proviso stipulates that receipts from such commercial activity should not exceed 20% of total receipts, however, in the case of assessee the commercial activity is the main activity and exceeds 80% of the receipts in all the years. Thus, the assessee contravenes the conditions laid by the proviso and is therefore, not engaged in charitable purpose as per the proviso.

(d) The assessee has also argued that since all its receipts are being applied for the purpose of imparting education, it is engaged in charitable activities. This argument is flawed on various counts. Firstly, the receipts of assessee are not being applied for the purpose of imparting education since it is only SRSL Educational Society which is engaged in imparting education. The assessee’s

6 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) receipts are in fact being applied only for the purpose of enhancing its rent- earing apparatus. Further, as per proviso to section 2(15) what is relevant is nature of income earning activity of assessee and not the use or application of its funds. Therefore, even if assessee is applying its funds for any charitable purpose, which it is not, then also the fact would be irrelevant for the purpose of section 2(15) read with the proviso.

(e) The assessee has stated that Delhi and Mumbai premises were acquired for providing education services to its students for which letters from M/s Avanti Learning Centre Pvt. Ltd. was submitted is only an attempt to justify the use of its premises for education purpose but the fact is that since inception these premises are used by M/s Shree Rajasthan Syntex Ltd., Udaipur as its guest house for which rent is received which is not a charitable activity. Otherwise also, M/s Avanti Learning Centre Pvt. Ltd. is engaged in preparing the students for competitive exams which does not fall under the ambit of education.

In view of above, the Ld. CIT(E) held that there is violation of section 12AA(3) or section 12AA(4) and thus, its registration is liable to be cancelled. It will be at liberty to reapply for registration in future if it comes with clean hands and does not violate any provision of the Act. However, as of now assessee has not carried out any genuine charitable activities in accordance with its objects and therefore, registration granted to the trust vide order dt. 28.03.1988 is cancelled.

7 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) 12AA(4) of the Act. The A/R of the assessee filed a written submission which is reproduced as under:-

(a) In course of survey which was carried subsequent to assessment order for AY 2016-17 dt. 22.12.2018 no incriminating material was found to allege that the activities of trust are not genuine or are not being carried out in accordance with the objects of the trust. It may be noted that there is no dispute as to the fact that the assessee trust started a school in the name of Dungarpur Public School (DPS) in the year 1995 at Dungarpur, a scheduled backward area of the state of Rajasthan but because of certain restrictions in relation to recognition of this school from Joint Director (Primary & Middle Education),

8 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) Rajasthan, management of the school was given to SRSL Educational Society which is also registered u/s 12AA of the Act w.e.f. 01.04.2007 (PB 49). One of the object of the assessee as per clause 11(iv) of the trust deed (PB 6) is advancement, promotion and spread of education- general including establishment, maintenance and support of school. Further as per clause 11(x) as amended in the meeting of the trustees dt. 08.04.1998, the another object of assessee is to assist, help and establish any society or association for spread of education any nature viz. academic, social, spiritual, technical, scientific etc. to children/ people irrespective of their sex, caste, creed, religion or faith. Therefore, if the assessee has established a school but for technical reason as stated above, the land and building of the school owned by it is given to another educational society, the same would still fall within the ambit of ‘education’. Reliance in this connection is placed on the decision of Bombay High Court in case of DIT(E) Vs. Lala Lajpatrai Memorial Trust (2016) 136 DTR 233/ 240Taxman 557 where at Para 15 & 16 it was held as under:-

“15. We may observe that the premises of the assessee were let out to Lala Lajpatrai Institute to conduct junior college, senior college, Law College and a Management Institution which is indisputedly an educational purpose. This is also in consonance with the objects of the assessee trust which is to conduct colleges and schools and achieve 'advancement of education.' It is further an admitted position that these premises were let out on a nominal rent. The objection of the Director of IT (Exemption) that the 6th and 7th floors rendered an income of Rs. 12 lacs from the Institution of Management by way of service charges which according to the Director of IT (Exemption) indicated that the assessee was involved in carrying out activities in the nature of trade, commerce or business, amounting to the assessee deviating from its object of 'advancement of education'. In our opinion, considering the facts, this conclusion of the Director of IT (Exemption) is not well founded.

9 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) The Director of IT (Exemption) has overlooked that the principal purpose for which the premises were let out was for conducting an educational activity namely the Management Institution. There is no material before the Director of IT (Exemption) to show that the 6th and 7th floors were used for purposes other than the Management Institution or for any other purpose which is not an educational purpose. First Proviso to s. 2(15) of the Act would also not be attracted in this situation. As regards the auditorium the same was also part of the building housing these colleges conducted by Lala Lajpatrai Institute which was used by the colleges for 209 days and it was vacant for 76 days and was let out only for 80 days only when it was not needed by the colleges. In the course of this letting out the assessee had incurred expenses for electricity and air conditioners. Letting out of the auditorium was not the dominant object of the trust and admittedly the auditorium was incidentally let out to outsiders for commercial purpose. It thus cannot be said that such letting out would fall within the first proviso to s. 2(15) of the Act.

It may also be pointed out that this was also an issue for denying the exemption u/s 11 to the assesse trust for AY 2016-17 but the Ld. CIT(A) after detailed discussion and considering the proviso to section 2(15), budget speech of Finance Minister for introducing the proviso, CBDT Circular No.11/2008 dt. 19.12.2008 and decision of Hon’ble Supreme Court in case of

10 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) Surat Art Silk Cloth Manufactures Association (1980) 121 ITR 1, at Para 6 to 8 (PB 86-93) held as under (PB 93):-

“In view of the above decision, it is evident that the real intention of the appellant is discernible from the nature of activities undertaken by it in pursuance of the charitable object of imparting education. This intention has not been in dispute and doubt. Once it is established that activities conducted by the appellant trust are only promoting education within the ambit of section 2(15) of the Act, then simply on the basis of investing in immovable property it cannot be validly held that there was violation of provision of sec.2(15) of the Act.”

In view of above, assessee is not hit by proviso to section 2(15) since receipt of rent of school premises is in furtherance of its objects of spread of education by establishing and providing support of school.

(b) It may also be noted that the school building comprise of more than 50 classrooms, sophisticated computer labs, well equipped science laboratories, large playground and eco-friendly school campus. The market value of land & building owned by assessee is around Rs.20 crores (PB 61). Therefore, the security deposit received and the rent charged from SRSL Educational Society between Rs.4 lacs p.m. to Rs.6.3. lacs p.m. during FY 2014-15 to 2017-18 is quite reasonable. Such letting is as per the object of assessee and not a business activity as alleged by Ld. CIT(E). The income so generated has again been used for making investment as per its objects. Hence, for this reason the registration withdrawn by Ld. CIT(E) is not as per law. (c) So far as purchase of residential flat in New Delhi and in Mumbai from M/s Shree Rajasthan Syntex Ltd., Udaipur is concerned it is submitted that such investment is in consonance with section 11(5) of the Act and in furtherance of its objects of imparting education. The detailed submission in this

11 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) connection was made in reply dt. 17.12.2019 (PB 31-35) but only partly reproduced at Para 8 of the order of CIT(E). In fact the assessee in the year 2015 envisaged a vision that it should also focus on higher education for the children of Dungarpur which could be achieved only by exploring bigger cities and experiencing the competitive environment for professional/ vocational training courses. To achieve this object assessee trust purchased property in New Delhi for consideration of Rs.3.20 crores and in Mumbai for Rs.1.50 crore from M/s Shree Rajasthan Syntex Ltd., Udaipur. As the trust needed time to execute its plans it was decided that these properties should be given on rent on temporary basis so that regular income is received and the property is maintained. Meanwhile in the year 2016-17 assessee approached M/s Avanti Learning Centres Pvt. Ltd. (ALC), a Delhi based NGO working in the field of preparing students for competitive exams mainly in the field of engineering. ALC after being convinced of trusts presence in Delhi and Mumbai and its seriousness on the vision analysed that in Phase I they need to start the coaching in Dungarpur itself to raise the existing standard of the education level for higher studies and in Phase II to specialized courses at their centers in Delhi/ Mumbai for higher studies in educational institutes in India. Accordingly, a MOU was entered between Dungarpur Public School and ALC (PB 66-68) and a centre was opened in Dungarpur in April 2017 and since then over 200 students has been trained by ALC at highly subsidized coaching fees. Few of the results of FY 2017-18 & 2018-19 is at PB 69-70. As a part of the plan it was decided that in April, 2020 the students would be sent to Delhi/ Mumbai centres for specialized training for competitive exams. Copy of letter dt. 01.12.2019 by ALC to assessee trust regarding imparting expert coaching to students of Dungarpur at their Delhi/ Mumbai Centre is at PB 72. The trust has the target to send at least 10-15 students every year starting from the year 2021 to the best engineering colleges including IITs/ NIITs which would be possible only by giving them exposure and training in bigger cities like Delhi and Mumbai. The property of the trust will play a key

12 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) role in executing this vision and thus, the trust got the property vacated w.e.f. 01.04.2019 so that the students can be provided accommodation facility. Also the trust has written a letter dt. 10.07.2019 to Housing Society, Kalwa Devi Road, Mumbai (PB 71) seeking NOC for running training and counseling centre at the flat located therein. Thus, the property at Delhi and Mumbai was acquired in furtherance of its objects of imparting the education. Only because till date the property couldn’t be used for the aforesaid purpose cannot be a ground to cancel the registration u/s 12AA of the Act. The Hon’ble Karnataka High Court in case of DIT(E) Vs. D.R. Ranka Charitable Trust (2019) 260 Taxman 139 has held that where assessee trust did not carry any charitable activity during relevant period, then it could not be a ground to cancel registration granted earlier u/s 12AA. The head note of this judgment is as under:-

“Charitable Trust—Conditions as to registration of trusts, etc.—Assessee filed return of income—Assessee was granted registration under Ss 12A and 80G— On an application for renewal, DIT(E) found that assessee had not carried out charitable activities during FYs 2005-2006, 2006-2007, 2007-2008 except for a negligible amount of donations made to other persons—Hence, application for renewal was rejected—ITAT remanded matter—Consequently, Commissioner cancelled registration u/s 12A—ITAT held that DIT(E) was not right in withdrawing registration granted u/s 12A—It was also held that whether assessee was involved in a charitable activity or not could be considered in an assessment proceeding—Held, two relevant considerations were that authority should firstly satisfy itself that objects of Trust should be in nature of charitable purposes and secondly whether activities of Trust were genuine—ITAT was justified in concluding that so far as factum of assessee being involved in any charitable activities or not, whether income so derived had to be apportioned towards any other purpose or not, could be considered only during assessment proceedings—Considering of application was quite

13 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) different from assessment of income of assssee—Therefore, at this stage, it was sufficed to hold that conditions for grant of exemption were satisfied by assessee—ITAT was justified on facts and in law to pass impugned order— Revenue’s appeal dismissed.”

The observation of Ld. CIT(E) that letters from M/s Avanti Learning Centre Pvt. Ltd. is only an attempt to justify the use of its premises for education purpose is without any basis and only on surmises. Further the observation of Ld. CIT(E) that preparing the students for competitive exams does not fall under the ambit of education is also incorrect. The Hon’ble ITAT Hyderabad Bench in case of ACIT(E) Vs. Hyderabad Study Circle (2015) 38 ITR(Trib.) 293 at Para 8 held as under:-

“8. The A.O. while examining the books of accounts and other information available on record has not found any material to suggest that assessee has undertaken activities contrary to its aims and objects. The only reason on which the A.O. has come to conclusion that it is not eligible for exemption under section 10(23C)(iiiad) is that since the assessee is engaged in coaching students for competitive examination, the said activity does not partake the nature of imparting education. Hence, is not within the meaning of charitable purpose under section 2(15) of the Act. The A.O. has also observed that assessee cannot be classified as charitable institution for that very reason. However, on examination of the definition ‘charitable purpose’, it is clear that education is one of the activities coming within the meaning of charitable purpose. Though it is a fact that the Hon’ble Supreme Court in the case of Sole Trustee, Loka Shikshana Trust vs. CIT (supra) has observed that ‘education’ as used in section 2(15) of the Act cannot be construed to be in a very wide and extended sense but the said decision cannot be interpreted in a manner to mean that the expression education envisaged under section 2(15) has to be given a restricted meaning and would only

14 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) mean the education as imparted in schools and colleges. Therefore, if education is considered to mean training and developing the skill, knowledge, mind and character of students, then the activity of the assessee can be termed to be coming within the expression ‘education’ as used in section 2(15) of the Act.”

The Ld. CIT(E) in the show cause notice has observed that purchase of flat is nothing but an unscrupulous arrangement for siphoning of the funds of the trust to a company in which trustees have substantial interest and thus, provision of section 13(1) of IT Act is attracted. However, after considering the detailed reply at Para 5 (PB 33-38), this observation has been dropped as the Ld. CIT(E) has not found that the property purchased by the assessee is for a consideration which is more than adequate or that any part of the income or property of the trust has been used or applied directly or indirectly for the benefit of any person referred in section 13(3). Otherwise also, only on account of fact that assessee had made investment in purchase of immovable property cannot be a ground for cancellation of registration as held by Hon’ble Bombay High Court in case of DIT Vs. Abul Kalam Islamic Awakening (2013) 215 Taxman 148 (Magz.) where it was held that registration granted to assessee u/s 12A cannot be cancelled on the ground that assessee had invested in commercial property which was not for a charitable purpose as the assessee was entitled u/s 11(5)(x) to invest its surplus funds in immovable property and in the absence of any evidence on part of the department that assessee had applied the rent received from commercial property for non charitable purpose, registration u/s 12A could not have been cancelled.

15 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E)

(i) The activities of the trust or institution are not genuine (ii) The activities are not carried out in accordance with its object (iii) There is operation of section 13(1) meaning thereby that income does not ensures for the benefit of general public and is for benefit of particular religious community or caste or the income or property is applied for benefit of specified persons or funds are invested in violation of section 11(5).

In the present case, activities carried by the trust is genuine, the same is in accordance with its objects, income of the trust is not applied for the benefit of specified persons and the investment of funds are in accordance with section 11(5). The Ld. CIT(E) has infact withdrawn the registration only for the reason that the substantial income of assessee is from rent but in section 12AA(3) or 12AA(4) there is no such condition to empower the Ld. CIT(E) to withdraw the registration. Further when Ld. CIT(E) has himself stated that assessee is at liberty to reapply for registration in future if it does not violate any provisions of Act as far as any of its activates are concerned itself shows that object of assessee and its activities are genuine. If there is any violation as alleged, then exemption u/ 11 can be denied in that year but registration granted u/s 12A(a)/ 12AA cannot be withdrawn as held in the following cases:-

CIT Vs. Islamic Academy of Education (2015) 229 Taxman 274 (Kar.) (HC) Where assessee trust was fulfilling its main object of imparting education by establishing educational institution and taking admission of students every year, only on the basis that trustees were misappropriating the funds of the said trust, registration of trust could not be cancelled. If the trustees are misappropriating the funds or if they are maintaining false accounts, it is open to the authorities to deny the benefit u/s 11 but that is not a ground for cancellation of registration itself.

16 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E)

Tamil Nadu Cricket Association Vs. DIT (Exemptions) & Ors. (2014) 98 DTR 299 (Mad.) (HC) For cancellation of registration u/s 12AA(3) all that it is insisted upon is the satisfaction as to whether the activities of the trust or institution are genuine or not and whether the activities are being carried on in accordance with the objects of the trust. If a particular activity of the institution appeared to be commercial in character and it is not dominant, then it is for the AO to consider the effect of sec. 11 in the matter of granting exemption on a particular head of the receipt and the mere fact that the said income does not fit in with sec. 11 would not by itself lead to the conclusion that the registration granted u/s 12AA is bad and hence, to be cancelled.

In view of above, order passed by the Ld. CIT(E) cancelling the registration u/s 12AA(3) of the Act be vacated.

17 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) the state of Rajasthan. It is registered u/s 12A(a) of the Act by CIT, Jodhpur vide order no. 182 dt. 28.03.1988. In pursuance to these objects, the assessee started a school in the name of Dungarpur Public School (DPS) from rented premises in the year 1995. Thereafter, the assessee applied for allotment of land and was allotted 16.12 bigha of land at Dungarpur vide order dt. 14.04.1997 by Government of Rajasthan to have its own premises to run the school. Thereafter, assessee constructed a school building on the said land and shifted from the rented premises to its own premises. The assessee trust thereafter applied for permanent recognition of school run by it from Joint Director (Primary & Middle Education), Rajasthan. However, vide letter dt. 23.10.1997 it was informed that the school cannot be given recognition since it is not registered under Rajasthan Societies Registration Act, 1958. In view of such restriction, an education society in the name of SRSL Educational Society was constituted on 30.07.1999 duly registered under Rajasthan Societies Registration Act, 1958 with the object of imparting education.

18 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) order to create more infrastructure facility. As on 01.04.2012 the rent was Rs.1,37,812/- p.m. which was increased from time to time and as on 01.01.2017 it was Rs.6 lacs p.m. The Ld. CIT(E) issued show cause notice dated 19.11.2019 to the assessee stating that during course of assessment proceedings for AY 2016-17 and survey u/s 133A dt. 12.02.2019 it is found that the land & building owned by assessee trust has been given to SRSL Educational Society, Udaipur for running a school in the name of Dungarpur Public School. The assessee is not doing any charitable activities as per its objects but is only earning rental income. He further observed that trustees of the assessee trust are also members in SRSL Educational Society. The assessee trust was receiving rent of Rs.1,37,812/- p.m. in AY 2013-14 which exponentially increased to Rs.4 lacs p.m. in AY 2015-16 and to Rs.6,30,000/- p.m. in AY 2019-20. Besides it also received a hefty amount as security deposit in connection with the lease of aforesaid school. Both these flats are continuously being used by M/s Shree Rajasthan Syntex Ltd. as before the sale to assessee trust and the assessee is getting very little amount as rent from the company. Thus, the purchase of flat is nothing but an unscrupulous arrangement for siphoning of the funds of the trust to a company in which trustees have substantial interest. Therefore, provision of section 13(1) of the Act is clearly attracted in this case. Accordingly, he sought explanation from the assessee as to why the registration granted u/s 12AA should not be cancelled u/s 12AA(3) & 12AA(4). In response to same,

19 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) assessee submitted the reply vide letter dt. 17.12.2019 which is at page No. 25- 44 of the paper Book.

20 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) Mumbai for Rs.1.50 crore from M/s Shree Rajasthan Syntex Ltd., Udaipur. As the trust needed time to execute its plans it was decided that these properties should be given on rent on temporary basis so that regular income is received and the property is maintained. Meanwhile in the year 2016-17 assessee approached M/s Avanti Learning Centres Pvt. Ltd. (ALC), a Delhi based NGO working in the field of preparing students for competitive exams mainly in the field of engineering. ALC after being convinced of trusts presence in Delhi and Mumbai and its seriousness on the vision analysed that in Phase 1 they need to start the coaching in Dungarpur itself to raise the existing standard of the education level for higher studies and in Phase 11 to specialized courses at their centers in Delhi/ Mumbai for higher studies in educational institutes in India. Accordingly, a MOU was entered between Dungarpur Public School and ALC and a centre was opened in Dungarpur in April 2017 and since then over 200 students has been trained by ALC at highly subsidized coaching fees. As a part of the plan it was decided that in April, 2020 the students would be sent to Delhi/ Mumbai centres for specialized training for competitive exams. The trust has the target to send at least 10-15 students every year starting from the year 2021 to the best engineering colleges including IIT/NIITs which would be possible only by giving them exposure and training in bigger cities like Delhi and Mumbai. The property of the trust will play a key role in executing this vision and thus, the trust got the property vacated w.e.f. 01.04.2019 so that the students can be

21 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) provided accommodation facility. Thus, the property at Delhi and Mumbai was acquired in furtherance of its objects of imparting the education. Only because till date the property couldn't be used for the aforesaid purpose cannot be a ground to cancel the registration u/s 12AA of the Act. In this regard, the ld AR has relied on the decision of Hon'ble Karnataka High Court in case of DIT(E) Vs. D.R. Ranka Charitable Trust (2019) 260 Taxman 139 wherein it has been held that where assessee trust did not carry any charitable activity during relevant period, then it could not be a ground to cancel registration granted earlier u/s 12AA. The head note of this judgment is as under:-

"Charitable Trust—Conditions as to registration of trusts, etc.---Assessee filed return of income—Asse,ssee was granted registration under Ss 12A and 806"---On an application for renewal, DIT(E),found that assessee had not carried out charitable activities during 1,17s 2005-2006, 2006-2007, 2007- 2008 except for a negligible amount of donations made to other persons— Hence, application. renewal was rejected—ITAT' remanded matter— Consequently, Commissioner cancelled registration u/s 12A--17AT held that DIT(E) was not right in withdrawing registration granted u/s 12A—It was also held that whether assessee was involved in a charitable activity or not could be considered in an assessment proceeding-----Held, two relevant considerations were that authority should firstly satisfy itself that objects of Trust should he in nature of charitable purposes and secondly whether activities of Trust were genuine—HAT was justified in concluding that so far as factum of assessee being involved in any charitable activities or not, whether income so derived had to be apportioned towards any other

22 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) purpose or not, could be considered only during assessment proceedings— Considering of application was quite different from assessment of income of assssee—Therefore, at this stage, it was sufficed to hold that conditions Pr grant of exemption were satisfied by assessee—ITAT was justified on facts and in law to pass impugned order—Revenue's appeal dismissed"

The Coordinate Bench of the ITAT Hyderabad Bench in the case of ACIT(E) Vs. Hyderabad Study Circle (2015) 38 ITR(Trib.) 293 has held as under:-

"8. The A.O. while examining the books of accounts and other information available on record has not found any material to suggest that assessee has undertaken activities contrary to its aims and objects. The only reason on which the A.O. has come to conclusion that it is not eligible for exemption under section 10(23C)(iiiad) is that since the a.ssessee is engaged in coaching students for competitive examination, the said activity does not partake the nature of imparting education. Hence, is not within the meaning of charitable purpose under section 2(15) of the Act. The A.O. has also observed that assessee cannot be classified as charitable institution for that very reason. However, on examination of the definition 'charitable purpose', it is clear that education is one of the activity corning within the meaning of charitable purpose. Though it is a fact that the Hon'ble Supreme Court in the case of Sole Trustee, Loka Shikshana Trust vs. CIT (supra) has observed that 'education' as used in section 205) of the Act cannot be construed to be in a very wide and extended sense but the said decision cannot be interpreted in a manner to mean that the expression education envisaged under section 2(15) has to be given a restricted meaning and would only mean the education as imparted in schools and colleges. 'Therefore, if education is considered to mean training and developing the skill, knowledge, mind and character of

23 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) students, then the activity of the assessee can be termed to be coming within the expression 'education' as used in section 2(15) of the Act." 10. We note that the impugned order has been passed in consequence of survey u/s 133A of the Act at the office premises of assessee on 12.12.2019 and also the finding given by the AO in assessment proceedings for AY 2016-17 based on which it is stated that assessee is receiving huge rent of land and building owned by it which has been given on rent to SRSL Education Society but not doing any charitable activity accept some donation given to other organizations and purchase of residential flat at New Delhi and at Mumbai. Therefore, the moot question is whether the rent/ security deposit received by the assessee from SRSL Educational Society is as per its objects or not and whether investment in purchase of flat at New Delhi and Mumbai is in furtherance of its objective or not.

24 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) by it is given to another education society, the same would fall within the ambit of education as held by Bombay High Court reported in 136 DTR 233 (supra) where it was held that where the principal purpose for which the premises were let out was for conducting an educational activity, the first proviso to section 2(15) of the Act would not be attracted. In this case also the assessee constructed the school building in which the educational activity was carried out by running a school but subsequently to meet the technical requirement of Joint Director (Primary & Middle Education), Rajasthan, management of school was given to SRSL Educational Society which is also registered u/s 12AA would show that letting of the school building to another educational society is in pursuance of its objects of establishment of educational institutions which per se is education in itself. Therefore, the receipt of rent of school premises is a part of education and not hit by proviso to section 2(15). So far as security deposit and rent charged from SRSL Educational Society is concerned, considering the market value of land and building of Rs.20 crores, the same is reasonable.

25 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) reproduced supra. We are of the view that registration u/s 12AA can be cancelled only when there is violation of section 12AA(3) or 12AA(4), i.e. where the activity of the trust is not genuine or not carried out in accordance with its objects or there is operation of section 13(1) or the investment is in violation of section 11(5). In this case we find that activities carried by the trust is genuine, the same is in accordance with its objects, income of the trust is not applied for the benefit of specified persons and the investment of funds are in accordance with section 11(5). The Ld. CIT(E) has infact withdrawn the registration only for the reason that the substantial income of assessee is from rent but in section 12AA(3) or 12AA(4) there is no such condition to empower the Ld. CIT(E) to withdraw the registration. Further when Ld. CIT(E) has himself stated that assessee is at liberty to reapply for registration in future if it does not violate any provisions of Act as far as any of its activates are concerned itself shows that object of assessee and its activities are genuine. If there is any violation as alleged, then exemption u/s 11 can be denied in that year but registration granted u/s 12A(a)/ 12AA cannot be withdrawn . Therefore, the cancellation of registration u/s 12AA(3)/ 12AA(4) is not as per law. The Coordinate Bench of the ITAT Chennai Bench in the case of DDIT(E) Vs Willingdon Charitable Trust (2007) 106 TTJ (Chennai) 1121 has held as under:

“The expression, 'for the purpose of the trust' means that the trust is empowered to construct any buildings, inter alia, to achieve the objects of the

26 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) trust as enumerated in sub-clauses 1 to 12 above. The expression, 'for the purpose of the trust' would include construction of buildings ultimately in order to attain other objects of the trust and this expression would only amount to empowerment of the assessee for constructing building for its own use directly to achieve the objects of the trust. After going through the records including that of the Assessing Officer , it is observed that the Assessing Officer was of the view that if the vacant land in the property has been used for construction of an educational institution, which would be run by the trust, then it would be in order, whereas the construction of auditoriums and running of the same is not in order. It is not denied by the revenue that excess of income over expenditure from the activity of letting out the auditoriums is being used by the assessee towards the main object. There is no finding by the authorities below that the assessee is not carrying on charitable activities. The only dispute is regarding running of auditoriums and a ladies hostel and collecting rent and donations. This income was utilized by the assessee for the charitable activities and the assessee has fulfilled all the conditions as enumerated in s. 11(5) of the Act. Further, sub-clause 3(12) shows that the founders of the trust did visualize future needs of the trust by way of unspecified 'lawful acts' and 'things' as may be 'necessary or incidental or conducive' to the attainment of the aims and objects of the trust. Since the assessee developed the property received from the erstwhile "The Willingdon" towards the achievement of the objects for which it was set up, the auditoriums held by the assessee are 'property held in trust' for the purposes of s. 11 of the Act. The Hon'ble Apex Court in Thanthi Trust's case (supra) has dealt with the issue regarding the applicability and scope of sub -section (4A) of s. 11 as amended with effect from 1st April, 1992 and the Hon'ble Apex Court has held that provision is more beneficial to the trust or institution than was the scope of the section before the amendment with effect from 1st April, 1992. After the amendment of this section, it requires for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of objectives of the trust or institution. The income from the business which is utilized by the trust or institution for the purposes of achieving the objectives of the trust or the institution is, surely a business which is incidental to the attainment of the objectives of the trust or institution. This view has clearly been expressed by the Hon'ble Apex Court as narrated above. In the present case in hand, the only issue is as to whether the income from these two auditoriums and ladies hostel including the rent, amenities and donations is for the purpose of achieving the objects of the trust or incidental to the objects of

27 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) the trust. We are of the considered view that these incomes are for the attainment of the objects of the trust and these incomes are arising out the properties held in trust. These properties are held as trust property and in no way this can be termed as profits and gains of the business which are not for the attainment of objects of the trust. In view of these facts and circumstances of the case, we feel that with effect from 1st April, 1992, even after amendment in s. 11(4A) of the Act, the assessee is entitled to exemption from excess income over expenditure from these two auditoriums and ladies hostel on account of rent, donations and amenities.” 13. In view of above discussion as well as respectfully following the similar related judicial pronouncements, we are of the considered opinion that the order passed by Ld. CIT(E) withdrawing approval granted to the assessee u/s 12AA of the Act is not tenable both on facts and in law. Accordingly, the same is set aside.

Sd/- Sd/- (MANOJ KUMAR AGGARWAL) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER Jodhpur Dated 01/02/2021 *Ranjan Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT (A)

28 ITA 58/Jodh/2020 SRSL Charitable Trust Vs CIT(E) 5. The DR 6. Guard File

Assistant Registrar Jodhpur Bench