MODERN SCHOOL SOCIETY,DELHI vs. CIT (EXEMPTION), JAIPUR

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.”

The language and tenor of the show cause notice do not exhibit any

thought process of ld. CIT(E) but it reveals it was issued and signed by

DCIT(Hqr.) as per instructions and directions of ld. CIT(E). The matter

would have been different if the show cause notice brings out the

thought process and application of mind by the ld. CIT(E) but was only

signed by the DCIT (Hqr.). In case in hand it is apparent that the ld.

CIT(E) delegated its powers to DCIT (Hqr.) to issue show cause notice

and therefore, it is based on the satisfaction of the DCIT (Hqr.) and not

of ld. CIT(E). para 2 and 6 of the impugned show cause notice clearly

manifest that it was issued by the DCIT (Hqr.) and not by the CIT(E).

The language of the show cause notice does not give any impression or inference that it is an expression of the satisfaction of ld. CIT(E). The

Kolkata Bench of this Tribunal in case of Arun Kanti vs. CIT (supra)

while considering the issue of validity of show cause notice issued u/s

263 of the Act not signed by the ld. CIT has observed in para 5 and 5.1

as under:-

5.1 M/s Trimurti Colonizers & Builders Pvt. Ltd.: On perusal of ledger accounts of M/s Trimurti Colonizers & Builders Pvt. Ltd produced during the course of assessment proceedings, it has been revealed that the balance as on 31.03.2013 was of Rs. 1,38,00,000-. The balance advances as on 31.03.2014 in the name of aforesaid company is also shown as Rs. 1,38,00,000/-. The society has submitted that it has given advances to aforesaid company for purchasing of land and society has not charged any interest on such advances. Perusal of 'Application Form' submitted by the assessee in respect of allotment of plot, it has been revealed that date, amount and place etc. are not mentioned on the said form. As per submission 15 of the society, even till today any land/immovable property was not purchased out of these advances. On giving show cause in this regard vide its reply dated 25.07.2016, the A/R of the assessee submitted as under: i) Advance given to Trimurti Colonizers & Builders Pvt. Ltd- The society has given advances to Trimurti Colonizers & Builders Pvt. Ltd. for purchasing of land at The Future city at phagi Jaipur. The advance was given for setting up an educational institution at Jaipur. M/s Trimurti Colonizers & Builders could not give us converted land because they could not get land converted. Your good self has mentioned that this advance given cannot be said for charitable activities and there is violation of section 11(5) of the IT Act, 1961. Sir, this advance is given for acquisition of land for opening of school and in accordance with the sole object of the society. Further clause (x) of the section 11(5) permits “investment in immovable property” as one of the modes of investment of funds, so there is no violation of section 11(5) of the Act. Further vide reply dated 10.08.2015 submitted as under: “The above party has informed us the final hearing of Gutab Kothari V/s State has completed and they are waiting for decision, however we have informed them that either they should give us land by end of this month or return our money. Please note that they are no way connected to us or neither we have any business relation with them except for this particular deal.” Further vide reply dated 02.09.2016 submitted as under:- Regarding outstanding amount as informed in our letter dated 10.08.2016 that we had given time to party either to give land or refund the money before the end of August, 2016, now they have requested that the present time is very bad for construction industries and they wanted time till end of this year. They assured us that they will certainly fulfill their commitment. In fact we also do not have any other option to wait till year end, or to file a case against them.”

A similar view was taken by the Kolkata Bench of this Tribunal in case

of M/s Assam Bangal Carriers vs. CIT (supra) in paras 7 and 8 as

under:-

“7. We have considered the rival submissions. A perusal of the records shows that the show cause notice u/s 263 of the Act dated 26.02.2013 was signed by A.C.I.T.(HQ)-XXI, Kolkata and not by C.I.T. The question regarding validity of the order passed u/s 263 of the Act when the show cause notice u/s 263 of the Act is not signed and issued by C.I.T. and had come for consideration before this Tribunal in the case of Bardhman Co-op Milk Producers’ Union Ltd. Vs CIT, Burdwan (supra). This Tribunal on identical facts as in the present case has held as follows :- “4. We have carefully considered the submissions and perused the record and we find that delay of 290 days in filing in these cases has been attributed to mistake on the part of assessee’s counsel. The counsel has clearly admitted the mistake on his part. When the delay in filing of these appeals is attributed to the mistake of the consultant, in our considered opinion, assessee should not be penalized on this count. The case law referred by the Ld. counsel for the assessee also supports this proposition. Accordingly, we condone the delay. 5. 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). ITA No.706/Kol/2013 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 no reason to set aside the order u/s. 263 of the Act, on this account. 7. 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 18 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 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.” 8. Similarly, we note that in the case of Satish Kr. Keshari (supra), the Tribunal had held that when the notice u/s. 263 of the Act was not under the seal and signature of Ld. CIT and suffered for want of details on the basis of which Ld. CIT came into conclusion that the order of Assessing Officer is erroneous and prejudicial to the interest of Revenue, assumption of jurisdiction u/s. 263 of the Act by the Ld. CIT was invalid. ITA No.706/Kol/2013 M/s. Assam Bengal Carriers. A.Yr.2008-09 5 9. From the above discussion regarding the provision of law and the case law in this regard, it is clear that for a valid assumption of the jurisdiction u/s. 263 of the Act, the notice issued u/s. 263 of the Act should be issued by the Ld. CIT. In this case, it is undisputed that notice was issued by ACIT, Hqrs, Burdwan who is not competent to assume jurisdiction u/s. 263 of the Act. Hence, the notice was not under the seal and signature of Ld. CIT. Hence, as per the precedents referred to above, the assumption of jurisdiction u/s. 263 of the Act in this case is not valid. Accordingly, the order u/s. 263 of the Act passed in these cases are quashed.” 8. 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 19 is accordingly quashed and the appeal of the assessee is allowed. In view of the above conclusion, the other grounds of appeal are not taken into consideration.” The Hon’ble Allahabad High Court in case of CIT vs. Rajesh Kumar

Pandey (supra) while dealing with the validity of notice and applicable

of the provisions of section 299BB has observed as under:-

“299BB Notice deemed to be valid in certain circumstances— Where as assessee has appeared in any proceeding or co- operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under the Act that the notice was-- (a) not served upon him; or (b) not served upon time in time; or (c) served upon him in an improper manner; Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment.”

Thus, it is settled proposition of law that the notice issued by the

authority other than the prescribed authority is not valid and

consequential order passed by the ld. CIT(E) is without jurisdiction. The

show cause notice confers the jurisdiction to proceed and to pass the

order. In case the notice itself is not valid then the jurisdiction assumed

by the prescribed authority based on the invalid notice become invalid and consequential order passed by the authority is invalid and void

abinitio for want of jurisdiction. Further, invalid show cause notice

vitiates the proceeding and consequential order. Hence, we are of the

considered opinion that the impugned order passed by the ld. CIT(E) is

invalid and liable to quash on this ground.

the Act the ld. AR of the assessee has submitted that the assessee after

successful running the school at Kota decided to establish a new school

in Jaipur. The assessee applied for allotment of land by the Rajasthan

Housing Board and was allotted vide allotment letter dated 23.07.2007.

The plot of land measuring 9050 sq. ft. in school Sector7, Shipra Path,

Mansarovar was allotted to the assessee. The assessee deposited a sum

of Rs. 3,48,91,144/- and took the possession of the said land from the

Rajasthan Housing Board. However, at the time of handing over the

possession, Rajasthan Housing Board (hereinafter referred to as the

‘RHB’) imposed the condition restricting the construction of building

subject to the final decision of the Government regarding the ‘nallah’.

Thus until and unless the government finalized the decision regarding

the ‘nallah’ the assessee could not construct the school building on the

said plot of land. The assessee accordingly approached the Hon’ble Rajasthan High Court by way of a writ petition against the said

restriction imposed by the Rajasthan Housing Board. The Hon’ble High

Court vide order dated 12.01.2010 in writ petition No. CW570 of 2010-R

698/2010 modified the restriction and allowed the society to carry on

the construction. Thereafter the assessee constructed the school and

started the same in the academic year 2017-18. The ld. AR of the

assessee has explained that due to the said restriction imposed by the

Rajasthan Housing Board assessee was not sure when it would be able

to construct the school on the said plot of land and therefore, the

assessee to safeguard the interest. The assessee had entered into an

agreement to purchase a land from M/s Trimurty Colonirsers & Builders

Pvt. Ltd. for construction of school and accordingly made payment to

the tune of Rs. 1,38,00,000/-. The ld. CIT(E) has objected the said

payment and held that this is an investment or diversion of fund not as

per the mode prescribed under the Act. The ld. AR of the assessee has

submitted that this is not an investment nor diversion of fund but the

assessee society made banafide efforts for acquiring another piece of

land which is wrongly being termed by the ld. CIT(E) as investment in

violation of section 11(5) of the Act. After the commencement of

construction on the plot of land allotted by the Rajasthan Housing Board pursuant to the order of Hon’ble High Court the assessee received back

the said amount of Rs. 1,38,00,000/- from the builder on 10.10.2016.

The ld. AR has further pointed that since the builder could not get the

land use changed to institutional purpose, therefore, even otherwise the

said land could not have purchased by the assessee and accordingly the

assessee received back the advance amount of Rs. 1,38,00,000/-.

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 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.

1,00,00,000/- :- The ld. AR of the assessee has submitted that A.K.

Education Welfare Society is dully registered Society under the

provisions of Rajasthan Societies Registration Act, 1958. The said

society was having objects of imparting education and is granted

registration u/s 12AA of the Income Tax Act, 1961 on 16.12.2016. The

assessee gave advance to A.K. Education Welfare Society to establish a

school at Bharatpur in collaboration and in the name of Modern School.

He has pointed out that presently A.K. Education Welfare Society runs

“Modern School” at Bharatpur under franchisee from the assessee

society. Therefore, this amount was given to another education society

for establishing a school at Bharatpur which is very much in accordance

with the object of the assessee society and cannot be said in violation

of the provisions of section 11(5) of the Act or any other provisions.

assessee has submitted that the assessee society also purposed to open

another school in Jaipur at a different location of the city. In pursuit of

that, to acquire property in North Jaipur the assessee entered into an

agreement with Surendra Kumar Meena for purchase of land for the

purpose of construction of school however, the said transaction could

not materialized and the entire money given as advance of Rs. 3

Crores was received back in the financial year 2014-15. The ld. AR of

the assessee has referred to the agreement for purchase of the land

from Surendra Kumar Meena under which the said advance was paid.

Thus, he has contended that this payment was made for purchase of

land for constructions and running the school and cannot be termed as

investment or diversion of fund.

Salary paid to specified persons:- The ld. AR of the assessee

has submitted that the salary was paid to the persons who are duly

qualified and have requisite experience in the field of education and

therefore, the salary was paid for the services rendered by these

persons. He has further contended that due to the efforts of these

persons the assessee society could grow and establish schools at different cities. The salary paid was commensurate to the qualification

and experience and was as per the need of the assessee society. Once

services rendered by these persons are not denied then the payment of

salary cannot be termed as undue benefit. He has further contended in

the earlier assessment year a similar remuneration paid to these

persons was found to be reasonable by the AO while completing the

assessment u/s 143(3). Therefore, the department is expected to adopt

consistency in its approach and cannot take a opposite view that the

salary paid to these persons is undue benefit. In support of his

contention he has relied upon the following decision:- • Radhasoami Satsang v. CIT 193 ITR 321 (SC) • ACIT(E) v. Mahima Shiksha Samiti [2017] 79 taxmann.com 38

(Jaipur Trib.)

Thus, the ld. AR of the assessee has submitted that this Tribunal in case

of Mahima Shiksha Samiti has analyzed the issue of payment of salaries

and held that the qualification and experience of persons and their

services to manage the affairs of the society since inception as well as

managing day to day affairs, the salary and allowances paid to them is

reasonable vis-a-vis legitimate needs of the assessee society. Thus, the

ld. AR of the assessee has submitted that the salary paid these persons who were rendering the services and managing affairs of the assessee

society cannot be held to be undue benefit.

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 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).

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.

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 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).

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.

an advance of Rs. 1.5 Crores to Ambience Land Developer India Pvt.

Ltd. for purchase of two flats however, the assessee has purchased only one flat for Rs. 92,05,000/- on 29.03.2013, therefore, the balance

amount of Rs. 60,07,953/- is nothing but diversion of fund without

charging any interest. He has relied upon the finding of the ld. CIT(E)

and submitted that the flat was purchased for the personal purpose of

office bearer of the assessee society and not for the society purpose.

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.

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 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.

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 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 32 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

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 33 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 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 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;] 35 (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 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, inrespect 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 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.

Society it is not disputed by the department that the said society is duly

registered under the provisions of Rajasthan Society Act and also

granted registration u/s 12AA of the Income Tax Act. The assessee

filed a copy of order of granting registration U/s 12AA dated

16.12.2016. The objection of the ld. CIT(E) regarding this payment is

that despite the laps of consideration time no school was started at

Bharatpur as claimed by the assessee however, the assessee has

produced the browser as well as admission application form and

submitted that a Modern School has been dully started in Bharatpur in

the collaboration and under the franchise of the assessee. The

assessee has given this amount to start a school in Bharatpur and A.K.

Education Welfare Society has now started the school which is fully

functional and imparting education. Thus, this payment made only for

achieving the objects imparting education. We find That the school at

Bharatpur is also in the name of “Modern School” as the other schools

of the assessee society. Therefore, when the payment was given to the

education society which was granted registration u/s 12AA and “Modern School” has been started in Bharatpur under the franchise of

the assessee and in the collaboration with A.K. Education Welfare

Society then the said payment cannot be held as an investment or

expenditure other than the expenditure laid down for achieving the

objects of the assessee. Hence, there is no violation of section 11(5) as

regards this payment of Rs. 1 crore was made to the A.K. Education

Welfare Society.

Ltd.:- The ld. CIT(E) noted that the assessee initially paid an advance

of Rs. 1.5 Crores to the developer for purchase two flats however,

finally the assessee purchase only one flat of Rs. 92,05,000/-, therefore

the balance Rs. 60,07,953/- was treated as diversion of fund in violation

of Section 11(5) of the Income Tax Act. It is not in dispute that the said

payment of Rs. 1.5 Crores was paid under the agreement to purchase

two flats. The assessee has explained that the assessee acquired the

flat at Jaipur so that the office bearers visiting to Jaipur for supervising

and overseeing can stay there, the flat was finally to be used for

residence of the principal of the school. Therefore, even if the assess as

originally proposed to purchase two flats and subsequently acquired

only one flat the excess amount paid at the time of initial agreement cannot be treated as investment or deposit in violation of the

provisions of section 11(5) of the IT Act. Though the ld. CIT(E) doubted

the use of the flat, however when the flat was finally used for the

residence of principal of the school then it cannot be treated as

diversion of fund but the fund was applied only for the purpose of

education which is the primary object of the assessee society. Hence,

this transaction cannot be termed either investments or deposits and

therefore, there is no violation of provisions of section 11(5) of the I.T.

Act.

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 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.

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:-

Sl. Name of person Salary Amount Qualification Duties Assigned No. 1. Dr. Deepak Singh 48,78,418/- B.SC., M.A. Director/Treasurer Phd., B.Ed. 2. 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

doubteded 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 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 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 45 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 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- 46 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.”

Thus, when the qualification and experience of the persons who were

managing the affairs of the society and also involved in the day to day

affairs and teaching work is not denied then salaries and allowances or

remuneration paid to these persons cannot be held as unreasonable or

excessive. Following the decision of the Coordinate Benches of this

Tribunal (Supra) we hold that the payment is made on account of salary

against the services rendered by these persons and not merely on

account of their status then the same cannot be said to be a undue

benefit to attract the provisions of Section 13(3) of the Income Tax

Act.

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 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, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 20/12/2017 Sd/- Sd/- ¼Hkkxpan ½ ¼fot; iky jko½ (Bhagchand) (Vijay Pal Rao) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 20/12/2017. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Modern School society, Delhi. 2. izR;FkhZ@ The Respondent- CIT (E), Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 1118/JP/2016} vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत 49