DEPUTY COMMISSIONER OF INCOME TAX (EXEMPTION), CIRCLE, JAIPUR vs. MODERN SCHOOL SOCIETY, KOTA

2 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society 2. All these three appeals of the Revenue have common issues; therefore, all were heard together and for the sake of convenience, a common order is being passed.

The hearing of the appeals was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.

Since, common issues have been involved in all these appeals of the revenue, therefore, for deciding the appeal, we take for the A.Y. 2012-13 as a lead case. In this appeal, the Revenue has taken following grounds of appeal: “1. On the facts and the circumstances of the case and in law the Ld. CIT (Appeals) has erred in allowing exemption u/ s 11 of the I.T. Act, 1961 to the assessee without appreciating the fact that the assessee trust has provided undue benefit to the Persons Specified u/s 13(3) of the I.T. Act, 1961 in lieu of the salary and thus provisions of Section13(1)(c)(ii)r.w.s13(2)(c) of the Income Tax Act, 1961 were clearly attracted in this case.

On other hand, the ld. DR has submitted that the show cause notice is issued by the CIT(E) and the DCIT(Hqr.) has signed the same for and on behalf of the CIT(E). Hence, no fault can be found in the show cause notice issued u/s 10(23C)(vi) r.w.s.

We have considered the rival submissions as well relevant material on record. The first objection of the assessee is regarding the validity of show cause notice that it was not signed by the competent authority and therefore, it is invalid. The power and jurisdiction to withdraw the approval granted u/s 10(23C)(vi) of the Act is provided under 13th proviso to the said section which reads as under:- “Provided also that where the fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) is notified by the Central Government 7[or is approved by the prescribed authority, as the case may be,] or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), is approved by the prescribed authority and subsequently that Government or the prescribed authority is satisfied that— (i) such fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not— 10 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society (A) applied its income in accordance with the provisions contained in clause (a) of the third proviso; or (B) invested or deposited its funds in accordance with the provisions contained in clause (b) of the third proviso; or (ii) the activities of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution— (A) are not genuine; or (B) are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved, it may, at any time after giving a reasonable opportunity of showing cause against the proposed action to the concerned fund or institution or trust or any university or other educational institution or any hospital or other medical institution, rescind the notification or, by order, withdraw the approval, as the case may be, and forward a copy of the order rescinding the notification or withdrawing the approval to such fund or institution or trust or any university or other educational institution or any hospital or other medical institution and to the Assessing Officer” The 13th proviso to section 10(23C)(vi) confers the power/ jurisdiction to withdraw the approval to the Government or the prescribed authority. It further postulates that the prescribed authority, if satisfied that such fund or institution has not complied with the conditions as provided thereunder, can withdraw the approval. For Initiation of proceedings to withdraw the approval the mandatory pre-condition is the satisfaction of the prescribed authority. Undisputedly the prescribed authority is the ld. CIT(E) and the satisfaction of the prescribed authority is a must before issuing the show cause notice for withdrawal of the approval granted u/s 10(23C)(vi) of the Act. Therefore, what is material and mandatory condition is the satisfaction of the prescribed authority and non else. In case in hand the impugned show cause notice 11 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society dated 08.07.2016 was signed by the DCIT (Hqr.) and issued as per directions of the ld. CIT(E). In paras 2 and 6 Of the show cause notice in our opinion are relevant to the issue and the same are reproduced as under:- “2. In this regard, I am directed to state that your institution/society has violated the provisions of Section 10(23C)(vi) of the Act in respect of following issues:- xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 6. Your case is fixed for hearing before the Commissioner of Income Tax (Exemptions), Jaipur on 25.07.2016 at 12.30 P.M. in the Income Tax office (Exemptions) room No. 303, 3rd floor, Kailash Heights, Lal Kothi, Tonk Road, Jaipur. You may attend either personally or through an authorized representative in this behalf (holding valid Power of Attorney). Any failure to comply may lead to the conclusion that the assessee has nothing further to say from his side in this regard, and the case may therefore, be accordingly decided.”

As regards the matter in appeal, we note that the same is against order passed by the Ld. CIT u/s. 263 of the Act. At the outset, in this case, Ld. counsel for the assessee pointed out that the notice to the assessee u/s. 263 of the Act in these case, was issued by letter dated 06-03-2007. The said notice was signed by ACIT, Hqrs., Burdwan for Commissioner. Referring to this aspect, the Ld. counsel for the assessee pleaded that Section 263 of the Act provides for notice and adjudication by the Ld. CIT. Ld. counsel for the assessee claimed that since notice u/s. 263 of the Act has not been signed by the Ld. Commissioner. The jurisdiction assumed is defective and the order u/s 263 of the Act, is liable to be quashed on this ground itself. In this regard, Ld. counsel for the assessee referred to the decision of Hon’ble Allahabad High Court in the course of cit v. Rajesh Kumar Pandey (2012) 25 taxmann.com 242 (All.). The Ld. counsel for the assessee further referred to the decision of the Tribunal in the case of Satish Kumar Kashri v. ITO 104 ITD 382 (Pat). M/s. Assam Bengal Carriers. A.Yr.2008-09 4 6. Ld. DR on the other hand submitted that above is not the material defect and he submitted that there is 15 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society no reason to set aside the order u/s. 263 of the Act, on this account.

We have carefully considered the submissions and perused the record. We find that Section 263(1) of the Act provides as under:- “The CIT may call for and examine the record of any proceeding under this Act, and if he considers that any order passed by the AO is erroneous insofar as it is prejudicial to the interest of Revenue he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing fresh assessment.” Now we can also refer to the notice u/s. 263 of the Act issued to the assessee. This notice was signed as under:- “ Yours faithfully Sd/- Vikramaditya (Vikramaditdya) ACIT, Hqrs., Burdwan, For Commissioner.” From the above, it is clear that the said notice u/s. 263 of the Act ha s not been signed by the “Commissioner of Income Tax” rather it has been signed by ACIT, Hqrs., Burdwan. The Hon’ble Allahabad High Court in the case of Rajesh Kumar Pandey (supra) has expounded that when the Ld. CIT has not recorded his satisfaction, but it was the satisfaction of the Income Tax Officer (Technical) who is not competent to revise his order u/s. 263 of the Act, the order passed was liable to be set aside. The relevant portion of the order of Hon’ble Allahabad High Court reads as under:- “6. On perusal of the aforesaid provisions, it will be abundantly clear that the provisions of Section 299-BB deals with the procedure for service of notice and in case, there is a defective service of notice, it provides that if the assessee has cooperated, it will not be open for him to raise the plea, whereas in the instant case, it is not the case of the service of notice, but the initial issuance of notice, which has not been signed by the competent authority as a finding has been recorded by the Tribunal that the notice has been issued under the signature of Income-tax (technical), whereas in view of the provisions of powers under Section 263(1), it is only the Commissioner of Income-tax to issue notice. It is also relevant to add that pleas can be raised only out of the judgment passed by 16 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society the Tribunal or other authorities, but the plea, which was not raised at any stage, cannot be raised for the first time before this Court. No other arguments have been advanced in respect of other questions framed in the memo of appeal.”

Facts of the present case being identical to the case referred to above, respectfully following the aforesaid decision we hold that the assumption of jurisdiction u/s 263 of the Act in the present case is not valid. Order u/s 263 of the Act is accordingly quashed and the appeal of the assessee is allowed. In view of the above conclusion, the other grounds of appeal

As regards the advance of Rs.60,07,953/- given to Ambience Land Developer for purchase of two flats the ld. AR of the assessee has submitted that after the allotment of the land by the Rajasthan Housing Board the assessee acquire the flat for the office staff to stay their during the construction and further the flat was purchased for the purpose of ensuring the school come into existence. It was also proposed to be used for residence of the Principal of the School. Therefore, it was not an investment or diversion of fund but the flat was purchase to facilitate the accommodation for the office bearers visiting to Jaipur to supervise and overseeing the construction work. The 20 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society ld. AR has further submitted that though the initially the assessee proposed to purchase two flats however, finally one flat was purchased for a sum of Rs. 92,05,000/- on 29.03.2013. The advance of Rs. 1,50,00,000/- was given to the developer for purchase of two flats and when the transaction was finally concluded the assessee purchase only one flat and the balance amount was received back. Hence, he has contended that it is not in violation of the provisions of Section 11(5) of the Act but the flat was purchased only for the purpose of running the school and residential purpose of school principal.

Undue benefit given to the specified persons:-

Expenses incurred on the tours of specified persons: The ld. AR of the assessee has submitted that the assessee society sent a group of staff for study tour to Dubai. This Group of staff consists of 23 persons out of which 21 are teachers of the assessee society only and two are Director and Vice Principal. The said visit was to enhance the teaching skill and 23 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society administrative capacity of the staff also to update them about the latest development in the field of education. Thus, the ld. AR of the assessee has submitted that it is not the case of travelling of specified persons alone but it is a group of 23 persons mostly teachers except one sent for study tour and therefore, the same cannot be held as undue benefit. He has relied upon the decision of the Coordinate Benches in case of ACIT(E) v Mahima Shiksha Samiti (supra).

Thus, the ld. AR has submitted that when the assessee has not violated any provisions or conduction prescribed u/s 11 & 13 of the IT Act or the conditions of granting approval u/s 10(23C)(vi) of the Act then, withdrawal of the approval is patently illegal. He has relied upon the decision of Hon’ble Delhi High Court in case of DCIT vs. Alarippu 244 ITR 358 as well as Baidya Nath Plastic Industries (P.) Ltd. vs. K.L. Anand, Income Tax Officer 230 ITR 522 and submitted that the Hon’ble Delhi High Court has defined expression investment, deposit and loan and held that these words have different meanings. The advance given resulting no income or return cannot be termed as investment or loan it cannot be said to be deposited as it is not made for safe keeping or earning any interest income. Thus, the ld. AR has submitted that the impugned order is not sustainable and the same may be set aside.

On the other hand, ld. DR has submitted that the assessee has given a sum of Rs. 1,38,00,000/- to Trimurty Colonizers & Builders Pvt. Ltd. without charging any interest. The ld. CIT(E) has examined the record and found that this amount was 24 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society shown in the balance sheet as on 31.03.2013 and it remained outstanding even on 31.03.2014 thus, the assessee has diverted its fund for giving this amount to Trimurty Colonizers & Builders Pvt. Ltd. without charging interest. Though the assessee has claimed that this amount was given as an advance payment for purchase of additional plot however, since May, 2011 neither any plot was purchased by the assessee society nor any interest has been received on such advances. Therefore, even if it is not an investment by the assessee the same is in-contravention of the provisions of Section 11(5) as well as the conditions of granting approval u/s 10(23C)(vi). When the assessee has not received any reciprocal benefit over the period on this advance then it is a clear case of diversion of fund. He has relied upon the impugned order of the ld. CIT(E).

As regards the payment to A.K. Education Welfare Society the said payment was given in the financial year 2010-11 and the assessee has shown the balance advances even as on 31.03.2014. Thus, the assessee has given interest free funds to the said society out of the capital of the trust which cannot be accepted as a charitable activity. The assessee explained that this amount was given to the A.K. Education Welfare Society for starting and running a school in Bharatpur however, no such education activities were started by the said society till the end of 2016. Therefore, this is also a diversion of fund of the assessee in contravention of the provisions of Section 11(5) as well as other conditions of granting approval u/s 10(23C(vi) of the Income Tax Act.

The ld. DR has submitted that the assessee has also given an amount of Rs. 3,00,00,000/- to Shri Surendra Kumar Meena during the financial year 2007-08 in the garb of purchase of some land however, no land was purchased by the assessee till date and therefore, this amount was given free of interest in violation of provisions of Section 11(5) till it was received back by the assessee in the Financial Year 2014-15. It is a clear case of diversion of fund for non charitable or education purpose. These advances are clearly in violation of section 11(5) of the Income Tax Act as well as in violation of the conditions subject to which the approval u/s 10(23C)(vi) was granted. Thus, these violations itself are sufficient for invoking the provisions of 13th proviso to section 10(23C)(vi) for withdrawal of the approval.

As regards undue benefit given to the specified persons, the ld. DR has contended that the assessee society has paid salary to the persons which are covered u/s 13(3) of the I.T. Act. Therefore, this payment on account of salary is unreasonable benefit given to the specified persons. The ld. CIT(E) has given 26 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society finding that the Director/Chairman and other trustee performed only supervising and managerial role to the public service and therefore, this high payment given as salary is nothing but giving undue benefit to the specified persons in violations of the provisions of Section 13(3) r.w. the provisions of Section 10(23C)(vi) 3rd proviso and 13th proviso. He has relied upon the finding of the ld. CIT(E) and submitted that the payment given to these persons is not justified when the assessee society is doing a charitable activity. Apart from the salary the assessee has also incurred expenditure on the foreign tour of specified persons. The expenditure incurred on the tour cannot be treated as expenditure incurred for educational purpose and therefore, it is in violation of the provisions of Section 13(3) as well as 3rd proviso to Section 10(23C)(vi) of the Income Tax Act. Thus, the ld. DR has submitted that there are multiple violations of provisions of Sections 11(5), 13(3) as well as section 10(23C)(vi) r.w. proviso 3rd and 13th and therefore, the ld. CIT(E) is justified in withdrawing approval granted U/s 10(23C)(vi) of the Income Tax Act.

We have considered the rival submissions as well as relevant material on record. The ld. CIT(E) withdrew the approval primarily on two grounds viz (i) investments/deposits of fund not in prescribed mode and (ii) undue benefit given to the specified persons as per Section 13(3) of the I.T. Act. First we will deal with the issue of investments/ deposits in violation of the provisions of section 11(5) of the Income Tax Act. The 27 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society details of such deposits are given by the ld. CIT(E) in para 5 of the impugned order as under:- S.No. Name Amount 1. Trumurti Colonisers & Builders 1,38,00,000/- Pvt. Ltd. 2. A.K. Education Welfare Society 1,00,00,000/- 3. Ambience Land Developer 60,07,953/- 4. Surendra Kumar Meena 3,00,00,000/- Thus, there are four transactions of alleged investments/deposits. Before we proceed to examine each of these transactions the relevant provisions of the I.T. Act are required to be analyzed. For exercising the power under 13th proviso to Section 10(23C)(vi) the prescribed authority has to satisfy itself about the existence of the default/ violation committed by the assessee as contemplated under clause (i) B of the said proviso. The said requirement is mandatory for invoking the jurisdiction and powers provided under 13th proviso to Section 10(23C)(vi) of the I.T. Act. The violation and defaults as alleged by the ld. CIT(E) in the impugned order fall under clause (i) sub clause A and B of the said proviso to Section 10(23C)(vi) of the I.T. Act. There is no allegation of the activity of the assessee society are not charitable or not genuine or not carried out in accordance with all or any of the conditions subject to which it was granted approval. The Two grounds on which the ld. CIT(E) withdrew the approval are falling under clause (i) of the 13th proviso. To bring the case of investments/ deposits of fund in the purview of clause (i) B of 13th proviso to Section 10(23C)(vi) of the I.T. Act It is primary condition there must be an investment or 28 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society deposit of funds of the institution. Therefore in order to ascertain whether such investment/ deposit is in violation of the mode prescribed u/s 11(5) of the I.T. Act there must be investment or deposit of funds. For ready reference we quote the provisions of section 11(5) as under:- “[(5) The forms and modes of investing or depositing the money referred to in clause (b) of sub-section (2) shall be the following, namely :— (i) investment in savings certificates as defined in clause (c) of section 250 of the Government Savings Certificates Act, 1959 (46 of 1959), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government; (ii) deposit in any account with the Post Office Savings Bank; (iii) deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank). Explanation.—In this clause, "scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934); (iv) investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); (v) investment in any security for money created and issued by the 29 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society Central Government or a State Government; (vi) investment in debentures issued by, or on behalf of, any company or corporation both the principal whereof and the interest whereon are fully and unconditionally guaranteed by the Central Government or by a State Government; (vii) investment or deposit51 in any 52[public sector company]: 53[Provided that where an investment or deposit in any public sector company has been made and such public sector company ceases to be a public sector company,— (A) such investment made in the shares of such company shall be deemed to be an investment made under this clause for a period of three years from the date on which such public sector company ceases to be a public sector company; (B) such other investment or deposit shall be deemed to be an investment or deposit made under this clause for the period up to the date on which such investment or deposit becomes repayable by such company;] (viii) deposits with or investment in any bonds issued by a financial corporation which is engaged in providing long-term finance for industrial development in India and 54[which is eligible for deduction under clause (viii) of sub-section (1) of section 36]; (ix) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and 54[which is eligible for deduction under clause (viii) of sub-section (1) of section 36]; 55[(ixa) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for 30 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society urban infrastructure in India. Explanation.—For the purposes of this clause,— (a) "long-term finance" means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years; (b) "public company" shall have the meaning assigned to it in section 356 of the Companies Act, 1956 (1 of 1956); (c) "urban infrastructure" means a project for providing potable water supply, sanitation and sewerage, drainage, solid waste management, roads, bridges and flyovers or urban transport;] (x) investment in immovable property. Explanation.—"Immovable property" does not include any machi- nery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the earth;] 57[(xi) deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964);] 58[(xii) any other form or mode of investment or deposit as may be prescribed.59]” In light of the requirement of the provisions of law we will examine each of this transactions one by one Advance given to Trimurty Colonizers & Builders Pvt. Ltd. the assessee explained the purpose and intent for giving the said amount of Rs. 1,38,00,000/- to purchase education plot for construction of 31 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society school. It is not in dispute that the said payment was made under an agreement to purchase which was executed on 27.05.2011 for purchase of educational plot of measuring 9680 yards. This amount was paid as booking advances to the builder. The assesse has explained that since Rajasthan Housing Board restrain the assessee from constructing the school building and put a condition that the assessee society can carry out the construction subject to the decision to be taken by the Government, in respect of Nallah. Therefore, due to the uncertainty of construction of the school building on the plot allotted by the Rajasthan Housing Board the assessee took the decision in the best interest of the institution and for achieving the objects of the society. The facts explained by the assessee are not in dispute that after the allotment of the land for new school the assessee challenged the conditions imposed by the Rajasthan Housing Board before the Hon’ble High Court and only after the order of the Hon’ble High Court modifying the said conditions, the assessee was allowed to start the construction work on the allotted site. Therefore, the allotment of site itself was under dispute and to safeguard the interest of the assessee institution in the eventuality of any adverse outcome of the litigation and dispute regarding the plot allotted by the Rajasthan Housing Board the assessee made these arrangements of acquiring a substitute plot of land vide agreement dated 27.05.2011. Thus, this payment for purchase of educational plot for construction of the school as per agreement cannot be regarded as an investments or deposits but the same was payment for purchase of land in accordance with the objects and 32 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society purpose of the assessee society. The payment under the agreement is not in dispute but the long duration for which this amount remained with other party was the reason for considering the same as investments/ deposits in violation of provisions of section 11(5) of the Act while passing the impugned order by the ld. CIT(E). It is also not in dispute that the said agreement was consequently cancelled and this amount was received back by the assessee on cancellation of the agreement, therefore, until and unless the agreement dated 27.05.2011 is held as bogus or non-est the payment under the said agreement cannot be considered as an investments or deposits. The Hon’ble Delhi High Court in case of DCIT vs. Alarippu (supra) has observed that the investment means to lay down money in business with a view to obtain an income or profit or the said amount should be capable of result of income, return or profit to the investor. In every case of investment the intention and positive act on part of the investor to earn such income, return, profit. The word deposit does not cover transaction of loan being the advance given for purchase of asset. Further, in the absence of the intention to earn the income out of such transaction the same cannot be termed as investments/ deposits. Therefore, when the advance was paid for purchase of education plot for construction and running of school which is in accordance with the objects and purpose of the assessee society then, the same cannot be treated as investments or deposits and therefore, there is no violation of provisions of section 11(5) of the Income Tax Act.

The payment to Shri Surendra Kumar Meena: The assessee has made an advance of Rs. 3,00,00,000/- to one Shri Surendra Kumar Meena for purchase of land in Jaipur vide agreement dated 04.04.2007. It is clear that the said land was to 35 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society be purchased for the purpose of construction and running of a new school. Subsequently when the land was not converted to non agricultural use for the purpose of education as there was a public interest litigation filed against the said land then, the assessee decided to cancel the said agreement and received back the amount. The agreement dated 04.04.2007 is not in dispute. It is also a matter of fact and record that a public interest litigation was filed in the Hon’ble High Court challenging the use of land other than the agricultural purpose and thus until and unless the land was finally converted for non agricultural use the assessee could not acquire the same. After waiting for a reasonable period, the assessee finally received back the amount and cancelled the agreement. The intent and purpose for the payment was acquisition of the land for opening a new school cannot be doubted as the assesses entered into agreement dated 04.04.2007 and thereafter subsequent agreement on 18.03.2008. These payments were made on two occasions at the time of these two agreements and therefore, the said payment for acquiring the land will not fall in the category of investment or loan or deposit. Hence, the said payment is not hit by the provisions of Section 11(5) of the Income Tax Act.

Undue Benefit given to the specified persons: The ld. CIT(E) noted that the assessee made payment on account of salary to the persons allegedly covered u/s 13(3) of the Act. The details of the payments are given in para 6.1 of the impugned order as under:-

Dr. Deepak Singh 48,78,418/- B.SC., M.A. Director/Treasurer Phd., B.Ed.

Seema ‘D’ Singh (wife of 10,84,775/- B.A., B.Ed. Teacher Deepak Singh 3. Vaibhav Singh 9,52,831/- M.A. Secretary/Principal There is no dispute that these payments are not made first time during the year under consideration but are regular payments of salary to these persons from the financial years 2008-09 to 2012- 13. The Assessing Officer while completing the assessment u/s 143(3) never doubted or question these payments as excessive or unreasonable as it is clear from the facts that these payments are remuneration paid to these persons for rendering services and not merely payments for being the specified persons. Once the qualification of these persons and rendering of service by them is not in dispute then the quantum as per provisions of Section 13(2) can be examined to ascertain that there are not excessive payment to these persons. For ready reference we quote section 13(2) as under:- “(2) Without prejudice to the generality of the provisions of clause (c) 17[and clause (d)] of sub-section (1), the income or the property18 of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub- section (3),— (a) if any part of the income or property19 of the trust or institution is, or continues to be, lent19 to any person referred to in sub-section (3) for any period during the previous year without either adequate security19 or adequate interest or both; (b) if any land, building or other property19 of the trust or institution is, or continues to be, made available for the use of any person 37 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation; (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; (d) if the services of the trust or institution are made available to any person referred to in sub-section (3) during the previous year without adequate remuneration or other compensation; (e) if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in sub-section (3) during the previous year for consideration which is more than adequate; (f) if any share, security or other property is sold by or on behalf of the trust or institution to any person referred to in sub-section (3) during the previous year for consideration which is less than adequate; 20[(g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3): Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property, so diverted does not exceed one thousand rupees;] (h) if any funds21 of the trust or institution are, or continue to remain, invested21 for any period during the previous year (not being a period before the 1st day of January, 1971), in any concern21 in which any person referred to in sub-section (3) has a substantial 38 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society interest.” As per Section 12(2) (c) of the IT Act only when an amount is paid by way of salary, allowance or otherwise to any person specified in sub-section (3) the amount so paid in excess of what may be reasonably paid for such services would be deemed to have been used or applied for the benefit of such specified persons. The ld. CIT(E) has not given a finding that the payment of salary to these persons is more than the fair market price of the services rendered by them, though the justification of payment is questioned by the ld. CIT(E). Further, the salary in question were being paid since long time and reasonableness was not question by the AO while completing the scrutiny assessment for the earlier years as well as subsequent year i.e. 2013-14. The Coordinate Bench of this Tribunal in case of ACIT(E) v. Mahima Shiksha Samiti (Supra) has held in para 73 as under:- “73. In our view, given the qualification and the experience of these persons and the fact that these persons have managed the affairs of the society since its inception and they are closely and actively involve in management and day to affairs of the assessee society, the salary and allowances paid to them is reasonable vis-a- vis legitimate needs of the assessee society and benefit derived or accruing to the assessee society. We do not see any justifiable reason to disturb the decision which has been taken by the management of the assessee society in terms of determining the appropriate remuneration payable to these persons. The only scenario where one can think of disturbing the said decision taken by the management of the assessee society is where people holding similar position and having similar experience and qualification have been drawing lesser remuneration compared to what has been paid to these persons by the assessee society. In other words, the test of reasonableness can be invoked where 39 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society there is contemporary data in terms of identifiable third-party transactions in similar area of operation of education. In the instant case, the revenue has not brought on record any such contemporary data in terms of other educational institutions of same scale-and size and having similar strength of student and infrastructure wherein keep managerial person having been paid lesser salary. Further the Courts have held from time to time that the reasonableness of the expenditure is to be adjudged from the point of view of an business man and not of the Revenue. In other words, the reasonableness has to be seen vis-a-vis legitimate needs of the assessee society and benefit derived or accruing to the assessee society and as determined by the assessee society. It is also noted that in the past consistently over the years, the matter relating to reasonableness of the salary paid to the members of the Bakshi family have been raised by the Revenue and the Coordinate Benches have consistently held in favour of the assessee society and have not seen any justifiable basis for such action on the part of the revenue. For one of the years i.e. A.Y. 2009-10, the Revenue has accepted the order of the Ld. CIT(A) upholding the salary paid to these persons. In the entirety of the facts and circumstances of the case, we are of the view that the salary paid to the members of Bakshi family are commensurate with qualifications and experience as well as area of their responsibility in terms of management and day to day affairs of the assessee society and commensurate vis-a- vis legitimate needs of the assessee society and benefit derived or accruing to the assessee society. In the result, we do not see any violation in terms of section 13 and the disallowance made by the A.O. which has been deleted by the ld. CIT(A) is upheld.In the result, ground No.3 of the Revenue is dismissed.”

Next undue benefit was considered on account of the expenditure incurred on foreign tour of specified persons. The assessee furnished the details of 23 persons who have gone on education tour. The list of these persons is as under: - S.No. Name of Staff Post 1 Vaibhav Singh Director 2 Sunita Bali Vice Principal 3 SN Vaishav Post Graduate Teacher 4 RK Jain Post Graduate Teacher 5 Satish Gosain Trained Graduate Teacher 6 Arun Sahoo Trained Graduate Teacher 7 Ravina Anand Trained Graduate Teacher 8 Mona Jain Trained Graduate Teacher 9 Reva Jain Primary Teacher 10 Usha Gosain Primary Teacher 11 Pratima Dhar Trained Graduate Teacher 12 Alka Sharma Trained Graduate Teacher 13 Neelam Madan Trained Graduate Teacher 14 Asha Singh Trained Graduate Teacher 15 Deep Mala Trained Graduate Teacher 16 Lla Singh Trained Graduate Teacher 17 Kalpna Ojha Trained Graduate Teacher 18 H Rautela Primary Teacher 19 R Kukreti Primary Teacher 20 ZU Khan Post Graduate Teacher 21 Madi Modi Primary Teacher 22 Rekha Vajpai Trained Graduate Teacher 23 Anil Trained Graduate Teacher It is apparent from the list that except one person,all others are the teachers of the assessee society and not falling in the category of specified persons as per section 13(3). When the 41 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society expenditure was incurred for the tour of the entire group then it cannot be considered as undue benefit only one i.e. Director. It is not a case of the Department that all 23 persons are falling in the category of the specified persons. We find that only the Director namely Shri Vaibhav Singh was considered by the ld. CIT(E) as specified persons while raising the objection of payment of salary. Therefore, out of the group of 23 persons, the Director cannot be picked out to invoke the provisions of section 13(3) of the Income Tax Act. Further it is not the finding of the ld. CIT(E) that the tour was undertaken for their personal trip then the education tour by the teaching staff along with the Director has to be considered as one event and expenditure. Hence, we are of the view that the expenditure incurred on this tour of group of teacher along with Director cannot be held as undue benefit to one person. In view of the above facts and circumstances of the case as discussed above the impugned order passed by the ld. CIT(E) is set aside and consequently the approval u/s 10(23C)(vi) granted to the assessee is restored.”

In the result, this appeal of the revenue stands dismissed.

In the result, all these three appeals of the revenue are dismissed. Order pronounced in the open court on 18th January, 2021. Sd/- Sd/- ¼foØe flag ;kno½ ¼lanhi x®lkÃa½ (VIKRAM SINGH YADAV) (SANDEEP GOSAIN) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 18/01/2021 *Ranjan 46 ITA 1361 & 1362/JP/2018 & 357/JP/2019_ DCIT(E) Vs M/s Modern School Society आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- The DCIT(E), Circle, Jaipur. 1. izR;FkhZ@ The Respondent- M/s Modern School Society, Kota. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 1361 & 1362/JP/2018 & 6. 357/JP/2019) vkns'kkuqlkj@ By order,