M/S. RISHIRAJ K.M.B. EDUCATION SOCIETY,BHOPAL vs. THE CIT, BHOPAL

आयकर अपील�य अ�धकरण, इ�दौर �यायपीठ, इ�दौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE

BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER

ITA No.434/Ind/2014 Assessment Year: NA

Rishiraj K.M.B. Education CIT Society, Bhopal बनाम/ T-15, Third Floor, City Centre, Vs. Plot No.1, Press Complex, M.P. Nagar Zone 1, Bhopal (Appellant) (Revenue ) P.A. No.AAAAR6178B

Appellant by Shri S.S. Deshpande, CA Respondent by Shri Lal Chand, CIT-DR Date of Hearing: 10.07.2018 Date of Pronouncement: 21.08.2018 आदेश / O R D E R PER KUL BHARAT, J.M: This appeal is filed by the assessee against the order of Commissioner of Income Tax (appeals), Bhopal, dated 29.04.2014. The assessee has raised following grounds of appeal:

Rishiraj K.M.B Education Society

Rishiraj K.M.B Education Society

assessment order u/s 153A r.w.s. 143(3) for A.Ys. 2004-05 to 2009-10 and assessment order u/s 143(3) for A.Y. 2010- 11 on 13.08.2011. In the assessment orders for A.Ys. 2004-05 to 2010-11, the AO disallowed the claim of the assessee for exemption u/s 11 and assessed the total income. In this background the Ld. CIT observed that the assessee society had violated the provisions of sections 11 & 12 of the Act and proceeded to cancel the registration granted u/s 12AA of the Act. 3. Aggrieved by this the assessee is in present appeal. 4. Ld. Counsel for the assessee reiterated the submissions as made in the written submissions. The submissions of the assessee are as under: “The assessee Society is a registered society carrying on the activity of running colleges. The Society is running Engineering College. The Society is registered u/s 12AA of the Income Tax Act, vide order dated. 28/03/2008 (Page. 24 of PB-2). The Society is a regular income tax assessee and has been filing its return u/s 139 along with the audited accounts. There has been no change in the objects of the society since then. The registration was granted to the Society by the Ld. CIT after verifying all the accounts up till that date and after satisfying himself regarding the objects of the Society and genuineness of the activities of the Society as required by the provisions of section 12AA(1) of the Act. Thereafter from the period of 29.03.2008 there is no change in the objects or the activities of the Society. Thus it cannot be said that the assessee has carried on activities which are not in accordance with its object.

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During the course of assessment proceedings the AO has also verified all the books of accounts and other supporting documents regarding the activities of the Society and has not found any defect which would have warranted an adverse comment or finding on the activities or the objects of the Society. Three groups of persons established various Trust/ Societies for the purpose of imparting education. These Societies were mostly running the Engineering/ B. Ed /MBA/Pharmacy/MCAColleges. Only in one Society there was a Dental College. The groups were- Chouksey Group, Dhakre Group and Keer Group. The following Societies were established. 1. H.K Kalchuri Education Trust, Bhopal. 2. Hai Hay Khestriya Education Society, Bhopal 3. Jai Narain Shiksha Samiti, Bhopal 4. Rishiraj Memorial Education Welfare Society, Bhopal 5. Rishiraj Singh Memorial Education Welfare Society, Bhopal 6. Sardar Harnam Singh Keer Public Welfare Trust, Bhopal 7. Rishiraj KMB Education Institution, Bhopal

In the first three Institutions the Chouksey group was running the colleges. In other Institutions the three groups were running the Engineering/ Pharmacy colleges. All these trusts/societies were granted the registration u/s 12A/12AA. Some dispute about the administration of various colleges arose between these groups and it was decided to separate the administration of various colleges to be conducted by each group. Accordingly the management of the trusts/societies were modified and individual trust/societies were made part of the respective groups for administration. Last two trusts have came in the management of Keer group. The agreement was entered into on 13/07/2008 (Page 30 of PB-2). It was agreed between the various groups that, for running the colleges smoothly the financial assistance would be given. A hand written understanding was found during the course of search at the premises of Chouksey Group which stated that the Chouksey group would pay the necessary amount to the trust of Keer group. Accordingly the assessee Society and Sardar Harnam

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Singh Keer Public Welfare Trust received donation from the other group persons and institutions.

A search was conducted u/s 132(1) in the cases of Chouksey group on 23/07/2009. During the course of search certain documents were found in respect of these charitable institutions. On the basis of the search the notices u/s 153C were issued in the case of the assessee. During the course of the assessment the Ld. A.O observed that the assessee Society has given advances to certain persons who were connected with the office bearers and as such the transaction are covered u/s 13(2)/13(3). It was accordingly held by him (Para 6.8 page 4 of the assessment order) “.........in advancing such amounts the trust has completely acted as a private discretionary trust and such activity cannot be said to be carried out in accordance with the objects of the trust and cannot be said to be genuine as well”. Accordingly exemption to the assessee u/s 11/12 was denied by the AO.

Relying on the observations of the Ld. A.O in the assessment, the Ld. CIT Bhopal issued show cause notices to the assessee for cancelling the registration granted u/s 12AA(3). Vide order dated 29/04/2014 the Ld. CIT cancelled the registration granted to the above Society. While passing the cancellation order the Ld. CIT has totally relied on the assessment order passed by the Ld. AO u/s 153C. From page 3 onwards to last page the conclusions of the Ld. A.O have been reproduced including the hand written Memorandum of understanding seized during the course of the search. After reproducing the observation in Para 17 the Ld. CIT cancelled the registration by concluding in four lines as under:- In view of the facts discussed above , I am satisfied that the activities of the assessee Society are not genuine and are not being carried out in accordance with the object of the Society, hence the registration of the Society is cancelled with effect from 01/04/2007. While passing the order u/s 153C the Ld. A.O has given the following reasoning.

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I (Para.8): Advances are given to the various parties which are related. 5, 00,000/- H.S Bagga. 7, 00,000/- Advance for building construction. 15,00,000/- Advance for site development. It was submitted before the Ld. A.O and also before the Ld. CIT that the advances under consideration were given out of interest free unsecured loans received from the members and not out of any income or funds of the Society. It may be mentioned that during the year(A.Y 2009-10) in which such advances were given there was an increase in interest free unsecured loan from members of Rs. 47,60,000/-. Out of this unsecured loan a sum of Rs. 6,70,000/-(total loan up till the year end Rs. 9,70,000/-) was received from Mr. G.S.Keer who is the Managing Director of Upkar Construction Co to whom advances of Rs. 7,00,000/- was given during the year. During the period under consideration the construction of college building at Jabalpur was undertaken construction for which some advances were given. The assessee has given advance of Rs. 27,00,000/- to various concerns during A.Y 2009-10, as detailed below: Advance to Upkar Construction Co P Ltd Rs. 7, 00,000/- Advance to H.S. Bagga Rs. 5, 00,000/- Advance for site development Rs. 15, 00,000/-

In this regards the assessee has to submit as under: Upkar Construction Co P Ltd. Rs. 7,00,000/- The assessee Society has given an advance for construction to the said company and as such it has not made any lending to any concern and hence provisions of section 13(2) (a) has no applicability to the case of the assessee. Further it may be mentioned that the assessee Society has received unsecured loan from Mr. G.S.Keer out of which Rs. 9,70,000/- were outstanding as on 31.3.2009. Shri. G.S. Keer is the Managing Director and substantial share holder of Upkar Construction Co P Ltd. The advance of Rs.7 lakh was given against the security of this unsecured loan and as the loan

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received from him was interest free, as such no interest was charged on this account. Advance to H.S.Bagga Rs. 5, 00,000/- The said person is not related to the Society in any manner and is not covered by the provisions of section 13(3). The said advance was given for purchase of office premises for the assessee Society at M.P Nagar. It may be mentioned that the assessee has already received the possession of the said office. However the balance payment and the registry has not been done due to some pending legal disputes in regards to the building in which the said office is situated. Advance for site development Rs. 15,00,000/- The assessee Society was constructing a college building at Jabalpur. Advances were paid to Mr. Mohd Rafiq, Jagdish Purehra and Suraj Purehara who were contractors at the site, and pending receipt/ finalization of the construction bills were debited to Advance for site development. Copy of ledger account is enclosed. It may be mentioned that none of the above persons are related to the Society or its office bearers in any manner and as such the said advances are not covered by the provisions of section 13(3) of the Act. Thus all the above advances were given for the achieving the objects of the Society and were largely given as advances to unrelated parties. Advance in one case given to a related party was also well secured and without any financial loss to the Society. Thus it cannot be said that the assessee by giving of the above advances has passed on any benefits to any of the persons covered u/s13(3). It may further be mentioned that even if it is presumed that the Society has given advance to related parties, the said defaults would not result in the denying of exemption u/s 12AA for the relevant year. However such default cannot result in cancellation of the registration u/s 12AA. The second objection by the Ld. A.O was that a sum of Rs.1,00,00,000/- received as a corpus donation has been credited to the corpus fund in the balance sheet and has not been routed through Income & Expenditure A/c. It was submitted before the Ld. A.O that the receipt of donation is to 7

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the corpus fund and under the law is not includable as an Income of the trust. The Ld. A.O further remarked that the donations received are for the consideration for leaving the management in the other trust of Chouksey group. The Ld. A.O has drawn attention to page no.52 of LPS 29 which is a hand written Memorandum stating that Chouksey group will pay to the various institutions a sum of Rs.17 Crores. The Ld. A.O further stated that the payment of Rs.1 Crore has been made by Chouksey group to the assessee Society without mentioning the specific purpose. Further the other payments have been made to the societies controlled by the Keer group. The Ld. A.O observed that Mr. T.S Keer did not attend in post search inquires since he was under the medical treatment for cancer, however Shri. G.S Keer, other trustee attended before the department and clearly stated that these payments were made to the societies as corpus donations. The Ld. A.O further remarked that the explanations given by the assessee is vague and general and no documentary evidence was produced. He ultimately concluded that all these payments to the assessee trust are a part of the deal executed for the sale between Chouksey group and Keer group. It was submitted before the Ld. A.O that all these payments have been received through banking channel and majority of the payments have been received by the trust. The assessee Society has received the corpus donations and has not given any payment to the connected persons mentioned u/s 13. All the receipts have been utilized for the object of the trust and there is no infringement of any of the provisions of section 11 to 13. A trust can always receive donation for the objects of the trust and it would be seen that all amounts received have been utilized for the objects of the trust. The Ld. A.O. further in Para 14 mentioned that the assessee has received loans from various persons. All the creditors are Income Tax assessee’s and have substantial capital and substantial Income. The remark that unexplained credits are not proved is totally contrary to the evidence on record. In any case the loans have been utilized for the objects of the trust and there is no infringement of any of the provisions of the Income Tax law. 8

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Submissions of the Assessee:- The assessee is a charitable Society formed for doing the activity of education. The objects of the assessee Society are purely charitable and there is no distribution of any profit to anyone. The Society has been granted registration u/s 12A/12AA by the Ld. CIT after scrutinizing the accounts and verifying the objects of the Society. There is no change in the object clause since the inception. The Society has not infringed any of the provisions of section 11 to 13. The funds including the borrowed funds have been utilized for the objects of the trust. The trust has not given any advance in contravention to provision of section 13. The advances have been given for the construction of the property to the unrelated person except in the case of Upkar Construction Pvt Ltd in which one of the office bearer is a director. However the Society has substantial credit balance in the account of the director. Even this fund has been advanced for the building construction. Thus there is no infringement of any of the provisions of section 11 to 13. The arrangement between the members of the society for management is not adverse to the charitable object and it is between the members and not between the assessee societies. The assessee Society has received donations to the corpus fund and has not distributed any fund to anybody. It has utilized all the funds for the charitable objects of the Society. Thus the conclusion drawn by the Ld. A.O and the Ld. CIT about the genuineness of the activity are perverse and contrary to the fact on record. The rejection of the registration is thus bad in law and without jurisdiction. It is further submitted that sub section 4 to section 12AA was introduced w.e.f 01/10/2014 for cancellation of the registration if it is noticed that the activity of trust are not being carried out in the manner that the provision of section 11 and 12 do not apply to exclude the income of the institution due to operation of sub section 1 of section 13. This is not retrospective provision. Subsection 3 of section 12AA as it stood on 01/10/2004 provided the power of cancellation of registration on two conditions i.e. the activity of the trust is not genuine or are not being carried out in accordance with the objects of the trust. It is submitted that none of these two conditions are satisfied, the 9

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Society is genuinely carrying out the educational activities as per the objects of the Society. Thus the Ld. CIT has no power to cancel the registration under sub section 3 of section 12AA. The Ld. CIT on the basis of the papers and identical facts had cancelled the registration of 5 connected trusts which are listed above. The rejection was challenge before the Hon’ble Tribunal. The Hon’ble Tribunal vide its order dated 17/05/2016 in ITA No. 386 to 390 has cancelled the order of the Ld. CIT and allowed the registration. In Para 15 to 19 the Hon’ble Tribunal discussed the provision of section 12AA and the powers of the Ld. CIT about the cancellation of registration and in Para 20 the Hon’ble Tribunal observed as under. We, respectfully, following the above decisions, and on the basis of CBDT circular are of the view that in the present case, CIT had no powers to cancel the registration, hence we allow the appeal of the assessee and hold that CIT had unlawfully cancel the registration. Hence, we allow the appeal on this ground. In Para 21 the Hon’ble Tribunal discussed about the transaction of 17 Crore and held that the payment have been made through cheque due to dispute among the office bearers to continue to run the charitable entities where 100 of students are being imparted education. It is important to note that the payments were not made to any individual office bearer. At page 67 the Hon’ble Tribunal concluded “In view of the above, in our opinion it cannot be said that the activities of the assessee are not charitable or not genuine or are not being carried out in accordance with the object of the assessee Society. If there is any contravention of section 11 and 13 it is too be considered by the A.O at the stage of the assessment. The registration of the institution u/s 12A cannot be cancelled”. The Hon’ble Tribunal discussed many cases on this point from page 68 to page 76 and held that the cancellation of registration is not justified. We rely on all the case laws mentioned in the said order. It is humbly submitted that all the registrations of various societies were cancelled on the same facts and at the same time. The registration of the other societies managed by the other group who have paid the monies has been restored by the 10

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Hon’ble Tribunal. Thus it is humbly prayed that the cancellation of the registration in the present case be set aside and the trust be granted the registration.

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cancelled if it is found that the assessee society had violated the terms for registration and the provisions of law. He submitted in the present case there is a finding of the Ld. CIT(A) that the assessee trust had violated the provisions of section 11 & 12 of the Act. He submitted that the advances have been made to the related parties, without charging any interest. Under these facts he submitted that the case laws as relied by the Ld. Counsel for the assessee are not applicable. 8. We have heard the rival contention perused the material available on records. The assessee society was registered on 24.10.2007 with following objectives: 1. इंजी�नय�रंग कॉलेज, फाम�सी कॉलेज, डे�टल कॉलेज, मे�डकल कॉलेज के साथ-साथ �ेजुएट एवं पो�ट �ेजुएट कॉलेज, न�स�ग कॉलेज, पॉ�लटेि�नक औषधालय, मेटर�नट� होम, �ाथ�मक �च�क�सा के��, बाल क�याण के�� सेनेट�रंग औषधीय एवं हब�ल अनुसंधान के�� रोजगारो�मुख सं�थाएं एवं ��श�ण के��, नशाबंद� के�� मनोवै�ा�नक के��, प�रवार क�याण के��, आमोद �मोद के��, योगा एवं �ाकृ�तक �च�क�सा के��, नेचर के�� तथा कृ�ष एवं पशु �च�क�सालय कृ�ष के �े� म� तथा पशुओं के इलाज से संबं�धत �श�ा के�� एवं छा�ावास खोलना या खोले जाने म� सहायता करना साथ ह� इस उ�े�य क� अ�य सं�थाओं क� मदद करना या अ�य सं�थाओं के सहयोग से चलाना । 2. ब�च� के �लए उ�च �तर�य अंतरा���य �तर का शै��णक �व�यालय खोलना के.जी से हायर सेक�डर� �कूल खोलना, �फिजकल �े�नंग ह�तकला/ ह�त�श�प प�टंग तथा इसी �कार के मह�व के �वषय� से संबं�धत रोजगारो�मुखी सं�थाएं लोग� क� भलाई के �लए चलाना एवं शासन के बु�नयाद� �श�ा के काय�म को ग�त �दान करना ।

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Rishiraj K.M.B Education Society

having violated the provisions of sections 11 & 12 of the Act. For the sake of clarity section 11 & 12 of the Act are reproduced as under: Income from property held for charitable or religious purposes

11(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income-

(a) Income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty- five percent of the income from such property; (b) Income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of twenty five percent of the income from such property; (c) Income derived from property held under trust- (i) Created on or after the 1st day of April, 1952 , for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii)For charitable or religious purposes, created before the 1st day of April, 1952 , to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income;

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(d) income in the form of Voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.]

Explanation – for the purposes of clauses (a) and (b)-

(1) in computing the {fifteen} per cent of the icome which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income; (2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of {eighty-five} per cent of the income derived during that year from property held under trust, or as the case may be, held under trust in part, by any amount- (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason then- (a) in the case referred to in sub-clause(i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount and (b) in the case referred to in sub-clause(ii) so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount.

Income of trusts or institutions from contributions 12 (1). Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for

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charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly.] (2) The value of any services, being medical or educational services, made available by any charitable or religious trust running a hospital or medical institution or an educational institution, to any person referred to in clause(a) or clause(b) or clause (c) or clause (cc) or clause(d) or sub-section (3) of section13, shall be deemed to be income of such trust or institution derived from property held under trust wholly for charitable or religious purposes during the previous year in which such services are so provided and shall be chargeable to income tax notwithstanding the provisions of sub-section (1) of section 11.] Explanation- for the purposes of this sub-section, the expression “value” shall be the value of any benefit or facility granted or provided free of cost or at concessional rate to any person preferred to in clause(a) or clause(b) or clause (c) or clause (cc) or clause(d) or sub-section (3) of section 13.] 3. Notwithstanding anything contained in section 11, amount of donation received by the trust or institution in terms of clause(d) of sub-section (2) of section 80G { in respect of which accounts of income and expenditure have not been rendered to the authority prescribed under clause(v) of sub-section (5C) of that section, in the manner specified in that clause, or] which has been utilized for purposes other than providing relief to the victims of earthquake in Gujarat or which remains unutilized in terms of sub-section (5C) of section 80G and not transferred to the Prime Minister’s National Relief Fund on or before the 31st day of March, [2004] shall be deemed to be the income of the previous year and shall accordingly be charged to tax.

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Memorial Society and such other institutions. It is noteworthy that the registration u/s 12AA of the Act makes the assessee society is eligible for benefit of exemption provided u/s 11 & 12 of the Act in terms of section 12A. However, the commissioner is empowered u/s 12(3) of the Act if he satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be. 11. Ld. counsel for the assessee vehemently argued that on the basis of cancellation of registration stated by the Ld. CIT(A) is that the assessee society has violated the provisions of sections 11 & 13 of the Act. He submitted that the amendment brought out in the Act by inserting section 12(4) of the Act is not applicable in the year under appeal. He, therefore, submitted that the impugned order may be quashed. We are unable to accept this argument of the Ld. Counsel for the assessee. We have gone through the objects of the society, provisions of the Act. In the present case the assessee has not demonstrated that during the year under appeal it has carried its activities in accordance with the objects of the society. It is on record that the assessee society has accepted the donation of Rs.1 crore 17

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without specifying the objects. Further certain advances have been given to the related persons without charging interest. The assessee has not brought any material on record suggesting that it has carried out other activities as mandated by the objects of the assessee society. Under these facts, we are unable to interfere in the order of the Ld. CIT(A), same is hereby upheld. Grounds raised in this appeal are dismissed. 12. In the result, the appeal filed by the assessee is

dismissed. Order was pronounced in the open court on 21 .08.2018.

Sd/- Sd/- (MANISH BORAD) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER

Indore; �दनांक Dated : 21/ 08/2018 ctàxÄ? P.S/.�न.स.

Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order Private Secretary/DDO, Indore