ITO (EXEMPTIONS), NEW DELHI vs. CAREER LAUNCHER EDUCATION FOUNDATION, NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “A”: NEW DELHI BEFORE SHRI H. S. SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 4760 & 2371/Del/2015, 1997/Del/2016 (Assessment Year: 2010-11, 2011-12) Career Launcher Education Vs. ITO(E) Foundation, R-90, 1st Floor, Trust Ward-III, Greater Kailash-I, New Delhi New Delhi PAN: AAATC7406Q (Appellant) (Respondent)

ITA No. 3660/Del/2015 & 3307/Del/2016 (Assessment Year: 2010-11 & 2011-12) ITO(E) Vs. Career Launcher Education Trust Ward-III, Foundation, R-90, 1st Floor, New Delhi Greater Kailash-I, New Delhi PAN: AAATC7406Q (Appellant) (Respondent)

Assessee by : Shri Rakesh K. Sehgal, CA Revenue by: Shri Munish Kumar Gupta, CIT DR Date of Hearing 07/05/2019 Date of pronouncement 30/07/2019

O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is a bunch of five appeals pertaining to one assessee M/s Carrier Launcher Education Foundation, involving similar issues for two assessment Years i.e. AY 2010-11 and 2011-12 , they were argued together and disposed of by this common order. 2. First, we deal with ITA number 4760/Del/2015. It is preferred by assessee against order of Commissioner Of Income Tax (Exemption), NEW Delhi dated 19/05/2015 passed u/s 12 AA (3) read with section 12 AA (4) of Income Tax Act 1961 (Act). In That order it is held that activities carried out by assessee are neither genuine nor as per its objects and are solely governed by commercial consideration. Thus, registration granted u/s 12 A per order dated 23/05/2006 is withdrawn with effect from assessment year Page | 1

2009 – 10. Assessee has raised following grounds of appeal in ITA NO. 4760/Del/2015 filed u/s 12AA:- “1. That proceedings initiated for withdrawal u/s 12AA(3) initiated on 13.05.2010 could not be carried on without any limitation of time and had to be concluded within time as provided under law or within a reasonable period of time and therefore, order framed on 19.05.2015 after a period of almost 5 years from its initiation is unlawful and therefore, is liable to be quashed. 2. Withdrawal of registration granted u/s 12A to appellant trust by CIT(Exemptions), New Delhi vide her order dated 19.05.2015 issued u/s 12AA(3) w.e.f. A.Y. 2009-10 is contrary to facts and law and therefore, order is liable to be cancelled or quashed.” 3. Brief fact shows that assessee is a trust registered on 20/4/2006 and registered u/s 12 A of The Act as per certificate issued dated 23/5/2006. It had also approval u/s 80 G (5) for period 23/11/2005 to 31/12/2007 per order dated 23/5 /2006. Assessee made an application on 5/11/2009 for seeking renewal approval u/s 80 G (v) of the Act. It was rejected by The Commissioner of Income Tax (Exemption) as per his order dated 7/5/2010. The ground for rejection was that it is no longer engaged in charitable activities and is carrying out commercial activities with main object to divert funds of trust for benefit of specified persons and claiming benefit of exemption of income under section 11 of the Act. He further held that assessee is not carrying out any genuine charitable activity. According to him all its expenses are in nature of establishment expenses and further it is hit by the proviso to section 2 (15) as it is charging fees for rendering of services and same exceed threshold limit of INR 1,000,000 as given in 2nd proviso to section 2 (15) of the act. Therefore, based on above order, show cause notice was issued to assessee on 13/05/2010 for withdrawal of registration. Paragraph number 2 of order describes various opportunities given to assessee to explain its case. However, assessee filed a final reply on 11/8/2014 stating that assessee has as per letter dated 23/4/2014 already indicated to surrender its registration, as it is not carrying out any „Charitable activity‟. However, as show cause notice intended to withdraw registration from earlier date, a further opportunity was granted as per letter dated 24/2/2015 and 8/4/2015 asking assessee to explain as to why registration granted u/s 12 A be not withdrawn with effect from 1/4/2006 instead of with effect from 1/4/2014 as surrendered by assessee. Assessee submitted its reply on 21/4/2015 reiterating that it has already Page | 2

surrendered its registration with effect from 1/4/2014 and requested that it may not be withdrawn with effect from 1/4/2006. Assessee further submitted that it is carrying on activities of running management of school and is engaged in educational activities. With respect to allegation of diversion of fund by making payment to associated entities by assessee trust, it was submitted that payments were made by assessee to those associated entities for services rendered by them and there is no finding of revenue on any record, that payments made were in excess of market value of services obtained. Further, it was stated that coordinate bench in case of assessee trust in respect of appeal against approval not granted u/s 80 G of act has categorically held that there is no material to show that payment made was not commensurate in with nature of services rendered by specified persons. 4. The learned Commissioner of Income Tax (Exemption) was not satisfied with explanation of assessee. He analyzed financial statement of assessee for financial year 2007 – 08 and 2008 – 09 and held that that activity of assessee is generating of income through admission fees, sale of books etc., and meting regular expenditure. However, for financial year 2007 – 08, assessee has made a payment for infrastructure fee and license fee as per agreement with carrier launcher education foundation and carrier launcher (India) Ltd a sum of Rs. 1 crore and also paid license fees to 2 organizations namely carrier launcher (India) Ltd for trademark and carrier launcher education infrastructure and services Ltd for education soft skills of INR 8727000/– and INR 7,500,000 respectively. On questioned, assessee submitted that infrastructure fee of Rs. 1 crore paid to M/s carrier launcher India Ltd is a concern covered under provisions of clause (c) of subsection 3 of section 13 of income tax act. Further justification of payment, assessee submitted that that company is having a land of 5 acres at Greater Noida wherein it is constructing a building and part of building shall be provided to trust for earning of its business school. Therefore, trust has entered into an agreement with said company for providing infrastructure for school. With respect to license fee of INR 16,200,000 paid to carrier launcher India Ltd and carrier launcher education infrastructure and services Ltd, it was submitted that payment has been made by trust for use of its brand name.

„Carrier Launcher‟, which is a registered Trademark and was having goodwill of more than 10 years infield of education. With respect to payment to carrier launcher education infrastructure and services Ltd it was stated that it is having an experience in providing education soft skills and therefore as per agreement above sums have been paid. Assessee also submitted copies of agreement. Learned CIT exemption examined all these agreements and found that governing body of recipient of fees as well as of assessee, trust is common and therefore they are main beneficiaries of income of trust and are covered under category of specified persons. 5. The learned CIT – E, further noted that assessee trust is running a school under name and style of Indus word business school at greater Noida and running courses of MBA. It is charging huge amount from student as fees that comes to around Rs. 8 – 10 lakhs per annum. Assessee‟s institutes are not recognized by any government authority. Therefore he applied ratio laid down by honourable Supreme Court in case of Lok Shiskhan Trust vs CIT 101 ITR 234, and held that assessee is not carrying on educational activities as covered under provisions of section 2 (15) of income tax act as educational activities. learned CIT – E further noted that, even if it is presumed that activities of society comes under expression of general public utility, it is hit by proviso to section 2 (15) of The Act, because charging fees exceeding sum of INR 1,000,000 would be hit by that proviso as it is carrying on commercial activities which is not eligible for exemption u/s 11 of income tax act. He further referred to annual accounts of assessee that shows that it is generating huge systematic profits year after year. He further noted that that assessee trusts has made violation of provisions of section 13 of income tax act as it has applied its income for making payment to various specified concerns. On these bases, he concluded that assessee is no longer carrying out its activities as per its objects and is no longer charitable in nature. With respect to order of coordinate bench passed in proceedings for granting of recognition u/s 80 G of income tax act, where assessee has contested that same order cannot be basis for cancellation of registration u/s 12 AA (3) of income tax act, he held that such order has not been accepted by Department and revenue is in appeal before honourable High Court. He further mentioned that decision of

coordinate bench has been challenged on several counts and he mentioned each of them and stated that coordinate bench has not appreciated fact that advantage has been given to trustees in conduct of activities of trust. He further referred to amendment made under provisions of section 12 AA (3) and (4) which are introduced with effect from 1/10/2014 and referred to explanatory memorandum of those amendments. Thereafter he held that there is a violation of provisions of section 13 (1) by assessee trust and further applicant itself has requested for cancellation of registration, he held that it is a fit case for cancellation of registration with effect from year of violation assessment year 2009 – 10. He further dealt with argument of assessee that revenue cannot raise issue of cancellation of registration after 2 years of filing of reply of assessee, he held that matter was kept pending primarily because issue of denial of approval u/s 80 G was pending before coordinate bench and later before honourable High Court. Further, assessee did not file complete details and therefore order is passed after 2 years of filing of reply of assessee. He thus cancelled registration granted u/s 12 A to assessee with effect from assessment year 2009 – 10. Assessee aggrieved with that order has preferred this appeal before us. 6. First ground of appeal of assessee is that proceedings for withdrawal of registration u/s 12 AA (3) of the act was initiated on 13/05/2010 could not be carried on without any limitation of time, but had to be concluded within time as provided under law. If, no specific time is provided, then it should be passed within a reasonable time. Therefore, order passed on 19/05/2015 after a period of almost 5 years from its initiation is unlawful and hence liable to be quashed. Assessee submitted that though assessee trust was registered on 20/4/2006 and was granted registration u/s 12 A of income tax act as per certificate dated 23/05/2006. It was also approved under section 80 G (5) of income tax act. Assessee sought renewal of registration on 5/11/2009, which was rejected by CIT (exemption) as per his order, dated 7/05/2010. Based on an order in proceedings for renewal of recognition u/s 80 G (5), withdrawal of registration u/s 12 AA (3) were initiated on 13/05/2010. Meanwhile, against order of rejecting recognition u/s 80 G assessee preferred an appeal before coordinate bench, coordinate bench passed an order on 10/2/2012 cancelling order of CIT exemption and

directed the learned CIT – E to grant approval u/s 80 G of act to assessee. Against this order of coordinate bench, revenue preferred appeal before honourable Delhi High Court, which is pending. Further due to closure of charitable activities, appellant trust as per letter dated 23/4/2014, has surrendered its registration u/s 12 A of act. Main grievance of assessee is that proceedings initiated by Department for withdrawal of registration on 13/05/2010 were carried on until 10/1/2012 and further no notices were issued up to 18/3/2014 and then again started above proceedings by issue of notice on 18/3/2014 and ultimately on 19/05/2015 registration granted to assessee was withdrawn. Therefore, the order passed by the learned adjudicating authority after the considerably long time is not valid. To support his proposition the learned authorised representative relied upon the decision of the honourable Delhi High Court in 305 ITR 137 CIT vs NHK Japan broadcasting Corp. 7. Against this, the learned departmental representative submitted that delay in adjudicating the whole issue is resting on the shoulder of the assessee. He referred to page number 1 of the order of the CIT – exemption wherein he has mentioned the complete chronology of events wherein the delay is solely rests on the shoulder of the assessee. He further referred to para number 2.2 to show that as per letter dated 23/4/2014 the assessee himself kept on requesting the adjudicating authority to postpone the hearing in the matter. He further submitted that assessee has failed to reply the show cause notices in time and now assessee is taking cover under the pretext of crossing of the time limit by the adjudicating authority in passing the order. 8. We have carefully considered the rival contentions and perused the facts stated in the order of the adjudicating authority. The main ground of the assessee is that proceedings for withdrawal of registration u/s 12 AA (3) were initiated on 13/05/2010 and carried on till 10/1/2012. Further, no notices were issued to the assessee from 10/1/2012 to 18/3/2014 and then on 19/05/2012 the registration was withdrawn. In paragraph number 2, the learned CIT exemption has given the complete chronology of the events. However, the only grievance of the assessee is that that from 10/1/2012 to 18/3/2014 there was a silence on the proceedings from the side of the CIT exemption. In this regard, it needs to be noted that the proceedings though

started on 13/5/2010 however on most of the occasion the assessee either filed part reply or did not attend the proceedings. Suddenly now the assessee is taking a cause that CIT exemption kept dumb silence from 10/01/2012 to 18/03/2014. To this, there is a reply available in the order of the CIT exemption itself in para number 2.1 wherein it is held that the authorised representative of the assessee though appeared and filed letter along with the documents but could not produce the supporting documents in support of its contention and claim. Further, on reading of the order of the CIT exemption it is apparent that assessee has not complied or not responded to the various notices issued. Even after 2014, the assessee kept on delaying the matter, which is evident on reading of para number 2.2 of the order. Even on 24/6/2014, the authorised representative promise to file written submission by 30/6/2014, which was not filed, and assessee was given further opportunities. The assessee was given umpteen numbers of opportunities to respond however, the assessee failed to respond in time and in its completeness. Therefore, now assessee cannot take the plea that delay was because of the adjudicating authority. Further paragraph number 5 of the order of the adjudicating authority gives a clear-cut finding that matter was also kept pending because the action was initiated on the basis of the order refusing to grant recognition to the assessee u/s 80 G (5) of the act, the appeals for which were pending before the coordinate bench. It also mentions that the assessee did not file the complete details in time. In view of this, we do not find any merit in the argument of the assessee that there was inordinate delay in passing of the order and therefore it deserves to be quashed. 9. For the proposition the assessee has strongly relied on the decision of the honourable Delhi High Court in case of NHK Japan broadcasting Corp in 305 ITR 137. On careful consideration of the facts before the honourable Delhi High Court, it is apparent that there was a delay in initiation of the proceedings. However, in the present case the initiation of the proceedings was immediate on adjudicating authority incoming to know that assessee is carrying on certain object, which is not educational, and further there are payments to the specified persons, which deserves the cancellation of registration. Further, on the issue of initiation the provisions of section 201

of the act at that time did not prescribe any limitation period for declaring the assessee as an assessee in default. Such is not the case before us. Further, in the present case also there is no grievance of the assessee that initiation of proceedings for withdrawal of registration of the trust is after inordinate delay. The grievance is that it continued for a long period. Therefore, the reliance placed by the assessee on the decision of the honourable Delhi High Court is misplaced. All other decisions relied upon were also perused however in view of the peculiar circumstances in the case where primarily the delay rests on the assessee in non-compliance and part compliance, further, pendency of the order before the coordinate bench based on which the initiation of process of withdrawal of the registration started, they do not apply to the facts of the case. In view of this, we reject the ground number 1 of the appeal of the assessee and are of the views that delay in withdrawing the registration of the trust is also attributable to the assessee. 10. The second ground of the appeal argued by the learned authorised representative is that the cancellation of the order under subsection (4) of section 12 AA can be passed only with effect from 1/10/2014 that is for assessment year 2014 – 15 and not for earlier years. The learned authorised representative has submitted that the power under subsection (4) is not with retrospective effect and therefore the power can only be exercised with effect from assessment year 2014 – 15 but not for earlier years. To support its contention he relied upon the decision of the honourable Supreme Court in case of appeal number 6262 of 2010 in case of industrial infrastructure development Corp (Gwalior) MP Ltd vs CIT Gwalior and honourable Delhi High Court in case of appeal number 830/2017 in case of UP distillers Association vs CIT. 11. The learned departmental representative vehemently opposed the arguments of the authorised representative. It was stated that the learned authorised representative submitted that the withdrawal of registration could only be made with effect from 1/10/2014. It was further stated that the decisions relied upon by the learned authorised representative pressing the argument that registration can be withdrawn only from assessment year 2014 – 15, it was stated that that honourable Supreme Court and

honourable Delhi High Court have upheld that registration can be withdrawn from retrospective date of 1/10/2014 that is the date on which subsection 3 of section 12 AA was introduced, wherein the CIT was given power to cancel the registration which was granted under clause (b) of subsection (1) of section 12 AA of the act. The learned departmental representative further relied upon the decision of the coordinate bench in case of Indian medical trust vs principal Commissioner of income tax 99 taxmann.com 273 wherein it has been held that withdrawal can be made from retrospective date if the evidences and material has been found about the non-genuineness of the activities of the trust. It was further submitted that since in the case of the assessee there are specific material and evidences to show that the assessee‟s activities from assessment year 2009 – 10 onwards has been on genuine and therefore cancellation order of approval should be done from assessment year 2009 – 10 onwards. Therefore, the learned DR vehemently stated that that issue is squarely covered on this issue in favour of the revenue. 12. We have carefully considered the rival contention and perused the order of the learned CIT exemption, which was passed on 19/05/2015 cancelling the registration u/s 12 AA of the act of the assessee with effect from assessment year 2009 – 10. The provisions of subsection for of section 12 AA has been inserted with effect from 01/10/2014. This sub-section (4) in section 12AA provides with effect from October 1, 2014 that where a trust or an institution has been granted registration, and subsequently it is noticed that its activities are being carried out in such a manner that the provisions of sections 11 and 12 do not apply to exclude either whole or any part of the income of such trust or institution due to operation of sub-section (1) of section 13, namely, (i) its income does not inure for the benefit of general public ; (ii) it is for benefit of any particular religious community or caste (in case it is established after commencement of the Act) ; (iii) any income or property of the trust is applied for benefit of specified persons like author of trust, trustees etc. ; or

(iv) its funds are invested in prohibited modes, The Principal Commissioner or the Commissioner may cancel the registration if such trust or institution does not prove that there was a reasonable cause for the activities to be carried out in the above manner. Apparently in this case the order was passed by CIT exemption on 19/5/2015 i.e. only after the amendment with effect from 1/10/2014. Further, the amendment made with effect from 1/10/2014 is not speaking that such violation should have occurred only after that date and there is no power available to cancel the registration of the trust if such violation is found prior to 1/10/2014 is devoid of any merit. In view of this, we also dismiss this argument of the assessee that the amendment with effect from 1/10/2014 giving a power for withdrawal of registration u/s 12 AA of the act, applies only if the violation of the respective provisions of the income tax act is post 01/10/2014. The honourable Bombay High Court in 343 ITR 23 in Sinhgad Education Society Vs Commissioner Of Income Tax had an occasion to consider the powers conferred u/s 12 AA (3) for cancellation of the registration of the trust where the issue was the cancellation of the registration of the about trust with effect from assessment year 99 – 2000, though the amendment came with effect from finance act 2010 applicable from 01/06/2010. The honourable court held that as a result of the amendment of section 12 AA (3) of the income tax act 1961 by the finance act 2010 with effect from 01/06/2010, the commissioners has been specifically empowered to cancel the registration obtained u/s 12 A, as it is to prior to its amendment by the Finance (No 2) Act 1996. The effect of the provision is to empower the Commissioner to cancel the registration of a trust where he is satisfied that the activities of the trust are not genuine or not being carried out in accordance with the object of the trust or institution. This cannot be regarded as a retrospective alteration of the law. Similarly, in the present case the amendment made with effect from 01/10/2014 empowers Commissioner to cancel the registration of the trust on violation of certain provisions of the law. Therefore, the argument of the assessee that the order passed by the learned CIT exemption is contrary to law is devoid of any merit.

been held that that when the assessee is holding registration u/s 12 A of the act, which has not been withdrawn, the revenue cannot contest that activities of the assessee are not charitable in nature. It has been held that that once the registration u/s 12 A of the act stands granted, the charitable character of the activities of the trust cannot be challenged/doubted. Therefore, in the assessment proceedings, the revenue is not entitled to hold the objects of the assessee to be not charitable in nature. Therefore on the finding of the coordinate bench also it was necessary to withdraw the registration granted to the assessee u/s 12 A of the act. To support this finding the coordinate bench referred to the decision of the honourable Supreme Court in case of assistant Commissioner of income tax vs Surat state Gymkhana 170 taxman 612 (SC) where the issue was with respect to the assessment proceedings. However, we are here to find out whether independently the registration granted to the assessee trust can be withdrawn or not. Circular No 1/2015 Provides the methodology of cancellation of the registration with effect from 1/10/2014 as under:- Finance (No. 2) Act, 2014 – Circular No. 1/2015, dated 21-1-2015

withdrawal of approval is vested with the prescribed authority if such authority is satisfied that such entity has not applied income or made investment in accordance with provisions of said section 10(23C) or the activities of such entity are not genuine or are not being carried out in accordance with all or any of the conditions subject to which it was approved. 9.4 Therefore, in order to rationalise the provisions relating to cancellation of registration of a trust, section 12AA of the Income-tax Act has been amended to provide that where a trust or an institution has been granted registration, and subsequently it is noticed that its activities are being carried out in such a manner that,— (i) its income does not enure for the benefit of the public; (ii) it is for benefit of any particular religious community or caste (in case it is established after commencement of the Income-tax Act, 1961); (iii) any income or property of the trust is used or applied directly or indirectly for the benefit of specified persons like author of trust, trustees etc.; or (iv) its funds are not invested in specified modes, then the Principal Commissioner or the Commissioner may cancel the registration, if such trust or institution does not prove that there was a reasonable cause for the activities to be carried out in the aforesaid manner.

CIRCULAR NO.21/2016 [F.NO.197/17/2016-ITA-I], DATED 27-5-2016 Sections 11 and 12 of the Income-tax Act, 1961 ('Act') exempt income of charitable trusts or institutions, if such income is applied for charitable purpose and such institution is registered under section 12AA of the Act. 2. Section 2(15) of the Act provides definition of "charitable purpose". It includes "advancement of any other object of general public utility" provided it does not involve carrying on of any activity in the nature of trade, commerce or business etc. for financial consideration. The 2nd proviso to said section, introduced w.e.f. 1-4-2009 vide Finance Act 2010, provides that in case where the activities of any trust or institution is of the nature of advancement of any other object of general public utility and it involves Page | 13

carrying on of any activity in the nature of trade, commerce or business; but the aggregate value of receipts from such commercial activities does not exceed Rs. 25,00,000/- in the previous year, the purpose of such trust/institution shall be deemed as "charitable" despite it deriving consideration from such activities. However, if the aggregate value of these receipts exceeds the specified cut-off, the activity would no longer be considered as charitable and the income of the trust/institution would not be eligible for tax exemption in that year. Thus an entity, pursuing advancement of object of general public utility, could be treated as a charitable institution in one year and not a charitable institution in the other year depending on the aggregate value of receipts from commercial activities. The position remains similar when the first and second provisos of section 2(15) get substituted by the new proviso introduced w.e.f. 1-4-2016 vide Finance Act, 2015, changing the cut-off benchmark as 20% of the total receipts instead of the fixed limit of Rs.25,00,000/- as it existed earlier. 3. The temporary excess of receipts beyond the specified cut-off in one year may not necessarily be the outcome of alteration in the very nature of the activities of the trust or institution requiring cancellation of registration already granted to the trust or institution. Hence, section 13 of the Act has been amended vide Finance Act, 2012 by inserting a new sub-section (8) therein to provide that such organization would not get benefit of tax exemption in the particular year in which its receipts from commercial activities exceed the threshold whether or not the registration granted is cancelled. This amendment has taken effect retrospectively from 1st April, 2009 and accordingly applies in relation to the assessment year 2009-10 onwards. 4. In view of the aforesaid position, it is clarified that it shall not be mandatory to cancel the registration already granted u/s 12AA to a charitable institution merely on the ground that the cut-off specified in the proviso to section 2(15) of the Act is exceeded in a particular year without there being any change in the nature of activities of the institution. If in any particular year, the specified cut-off is exceeded, the tax exemption would be denied to the institution in that year and cancellation of registration would not be mandatory unless such cancellation becomes necessary on the ground(s) prescribed under the Act. 5. With the introduction of Chapter XII-EB in the Act vide Finance Act, 2016, prescribing special provisions relating to tax on accreted income of certain trusts and institutions, cancellation of registration granted u/s 12AA may lead to a charitable institution getting hit by sub-section (3) of section 115TD and becoming liable to tax on accreted income. The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an assessee institution due to attraction of tax- liability on accreted income. The field authorities are, therefore, advised not to cancel the registration of a charitable institution granted u/s 12AA just because the proviso to section 2(15) comes into play. The process for cancellation of registration is to be initiated strictly in accordance with section 12AA (3) and 12AA (4) after carefully examining the applicability of these provisions. 6. The above may be brought to the notice of all concerned.

not properly applied for charitable purposes or is diverted for the benefit of certain interested persons. Therefore, to invoke the above provision the learned CIT – exemption has to first ascertain that there is a benefit to specified persons. In the present case, the CIT exemption has merely alleged as per paragraph number 3.1 of the order that the activities of the assessee trust are not in the nature of education and can at the most be termed as of general public utility. Further the assessee has violated the provisions of section 13 (1) © of the act. Further in the decision of the coordinate bench in assessee‟ own case also held that merely because there is a payment to a related party it cannot be inferred that there is „benefit‟ to that specified person. To ascertain the benefit one has to arrive and ascertain the market value of such services and if the payment is found in, excess of the market value, then only it can be said that there is a benefit enuring to the specified person. Unless, this exercise is carried out, it is not possible to ascertain that whether there is any violation of provision of section 13 (1) (c) of the act. During the course of hearing assessee has submitted a chart for 5 financial years starting from 2007 – 8 to 2011 – 12 demonstrating that excluding the expenditure that has been held by the revenue has payment made to specified persons and hit by the provisions of section 13 of the income tax act, the assessee has incurred huge deficit for all these years. Therefore, the contention of the assessee is that there is no diversion of moneys by the assessee for the payment persons. However on careful analysis of the above chart it is apparent that out of the gross income of INR 2 65598314 financial year 2009 – 10 relevant to assessment year 2010 – 11, the assessee has made a payment of INR 1 3017870/– to specified persons. Further for financial year 2010 – 11, relevant to assessment year 2011 – 12, the assessee has earned gross income of Rs. 4 7164812/–, out of which the assessee has paid expenses to specified persons of Rs. 66990800/–. Further for financial year 2011 – 12 relevant to assessment year 2012 – 13, out of the total income earned of INR 3 9430640/– the assessee has made payment to specified person of INR 7 8657639. These facts in figure are also to be correlated with the ultimate result that the assessee trust has surrendered its registration u/s 12 A of the income tax act on its own. Further, the learned CIT exemption has

noted that the assessee has paid a sum of Rs. one crore is infrastructure fee to Messer‟s career launcher India Ltd and also license fee to 2 different organizations namely carrier launcher India Ltd for trademark and carrier launcher education infrastructure and services Ltd for education soft skills amounting to INR 8 727000/– and INR 7 500000/– respectively. For all these three transactions, the assessee has not stated before the CIT exemption that how these sums have been paid to specified persons and what is the market rate of the services. Naturally, it is for the assessee to benchmark that there is no benefit to the specified persons and therefore assessee is eligible for exemption on the whole of the sum u/s 11 and 12 of the income tax act. This exercise has not been carried out by the assessee before the CIT exemption in spite of specific queries raised by him. Further, the learned CIT exemption also presumed that whole of the sum paid by the assessee is a benefit accruing to a specified person. Such finding of fact cannot be reached unless the true value of the services (fair market value of the services, if any) is derived first. In the present case, no attempt has been made by the assessee to substantiate before the CIT exemption with respect to the fair market value of the services nor the CIT exemption provided to determine the value of benefit derived by the specified persons. Merely submissions of the agreement by the assessee did not prove that the services are at fair market value and no benefit of accrued to the specified persons. For the CIT exemption, merely reproducing the clauses of the agreement also does not justify that there is any benefit accrued to the specified persons. Further, there is no reason to hold that in absence of any benefit to the specified persons, the registration granted to the assessee trust can be drawn. Further if the benefit is granted to the specified persons, then after 01/10/2014, the CIT exemption is empowered to withdraw the registration u/s 12 AA of the income tax act. In view of this we set aside the whole issue back to the file of the learned CIT exemption with a direction to the assessee to substantiate before him that by making such a huge payment to the specified persons from assessment year 2009 – 10, no benefit has accrued to the specified persons as envisaged under section 13 (1) of the act. Accordingly, ground number 2 of the appeal is set aside to the file of the learned CIT exemption for fresh determination about

withdrawal of registration u/s 12 AA (3) read with section 12 AA (4) of the income tax act with effect from assessment year 2009 – 10. As the fate of the appeals for assessment year 2010 – 11 and 2011 – 12 filed by the assessee as well as the learned assessing officer largely depends upon the order of the learned CIT exemption with respect to the cancellation of registration u/s 12 A of the income tax act in the hands of the assessee, we direct the assessee to submit the requisite detail including the fair market value of the services rendered by the specified persons to the assessee and whether any benefit has accrued to the specified persons are not within 3 months from the date of this order and the learned CIT exemption is also directed to preferably dispose of the matter of the cancellation of the registration within 2 months after the assessee submits the complete detail. 18. Accordingly, appeal of the assessee in ITA number 4760/del/2015 is partly allowed for statistical purposes. 19. Now we come to the appeals for assessment year 2010 – 11. The assessee has filed appeal in ITA number 2371/del/2015 and the learned assessing officer has filed the appeal in ITA number 3660/del/2015 against the order of the Commissioner of income tax (appeals) – 40, New Delhi dated 16/3/2015. 20. The assessee raised following grounds of appeal in ITA No. 2371/Del/2015 for Assessment Year 2010-11:- “1. Disallowance by Commissioner of Income Tax (Appeals) of expenses or payments of Rs 32,54,467/- @ 25% of total expenses or payments of Rs.1,30,17,870/- made to related concerns is arbitrary, without any finding ofAssessing Officer or of Commissioner of Income Tax (Appeals) that expenses or payments made to related concerns are in excess of market price and is based on mere assumption that payments made to related parties are excessive. Disallowance is contrary to facts and law and therefore is liable to be deleted.” 21. The revenue raised following grounds of appeal in ITA No. 3660/Del/2016 for Assessment Year 2010-11:- “1. On facts and in circumstances of case and in law, Ld.CIT(A) has erred in holding that assessee society is a charitable organization despite fact that assessee society was doing business within meaning of amended provisions of section 2(15) of Act. 2 On facts and in circumstances of case and in law, Ld. CIT(A) has erred in directing to allow benefits of section 11&12 of Income Tax Act ignoring fact that assessee society has violated provisions of section Page | 17

13(1 )(c) of Act by providing financial benefit to person specified u/s 13(3) of Act. 3. On facts and in circumstances of case and in law, Ld. CIT(A) has erred in Allowing expenses of Rs. 97,63,403/- on estimated basis disregarding fact that assessee failed to justify payment made to concerned persons/entities.” 22. Brief facts of the case shows that assessee filed its return of income on 15/10/2010 declaring nil income along with the necessary audit report is annexures. The assessment proceedings were initiated as the assessee was having registration u/s 12 A of the income tax act. The learned assessing officer noted that assessee has made payment to C L Educate Ltd (formerly known as carrier launcher India Ltd in the form of infrastructure fees of Rs. 33090000/–, interest on loan of INR 28 9143/–, centre establishment fee of Rs. 1103000/–, website development expenditure of Rs. 551500/– and project management cost of INR 2 305088/–. It was further noted that trustee of the appellant is having a shareholding ratio of 29.16% in the recipient company as well as the trustees of the trust are also the director in the above company. The assessee has also made payments to carrier launcher education infrastructure and services limited for soft skill charges of INR 1 233215/–, interest on loan INR 5 341075/– and license fee of INR 5 40470/–. The AO noted that C L Educate Ltd is having a shareholding of 65.76 percentage and the trustee is also having a shareholding of INR 0.36 percentage. Further, the trustees are also the directors of the said company. AO further noted that assessee has made payment of Kestone integrated marketing services private limited of INR 8 20974/– in form of mobilization expenditure and INR 8 33405/– as recruitment expenses. Further, the directors of that company are also trustee in this appellant trust. Further, the recipient of the above sum is a subsidiary of CL Educate Ltd. Therefore the learned AO asked that the company and its directors are covered under the provisions of section 13 (3) of the income tax act and the above payment has been made and thereafter the total income of the assessee is Rs. to 6559831/– only. Assessee was directed to justify the above payment with sufficient detailed and reasonableness for making the above payment. It was further noted by the AO that the payments are in violation of the provisions of section 13 (1) © of the act. Therefore, the assessee was directed to show cause as to why the benefit of exemption u/s Page | 18

11 and 12 of the act should not be denied. The AO further noted that assessee is running a business school, which is neither recognized and not affiliated, to any appropriate authority and assessee is charging use fees for rendering of the services and all the activities are being running on commercial line and no charity is undertaken. The assessee replied and stated that though these persons are covered under provisions of section 13 (3) of the act but such payments are not bad at such payment should not be for the benefit of such persons. The learned assessing officer rejected the contentions of the assessee and held that though those the payments have been made to the party specified in section 13 (1) © of the act and the trustees are having the direct control over the facts of this company due to their majority shareholding on these companies benefit of these payments also amended to the person specified therein. Therefore he held that the provisions of section 13 (1) (c) of the act are clearly attracted. He further held that in view of this benefit of section 1112 of the act is not available to the assessee. He further held that the income of the assessee is also a business income as the assessee is imparting education for a particular class of public and not to general public and thus it is not for a charitable purpose within the proviso of section 2 (15) of the act therefore he denied the benefit of section 11 and 12 of the act on the whole of the income of the assessee. He further noted that the assessee has already been under the process of withdrawal of registration u/s 12 A of the income tax act 1961. Accordingly he determined the total income of the assessee at (-) 17659588/– and passed the assessment order u/s 143 (3) of the income tax act on 20/3/2013. The assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned CIT – A. The learned CIT – A partly allowed the appeal of the assessee holding as under:- “4.5 I have considered the order of the AO and the submission of the assessee and I find considerable merit in the submission of the assessee that apparently the assessee is not involved in any trade, commerce or business to attract the mischief of the proviso to section 2 (15) and as such the assessee is eligible for exemption u/s 11 (1). However, it is also apparent that assessee has made the payment to its own sister concern unrelated concerns to the extent of INR 1

3017870/– and the AO has disallowed the entire expenditure as being excessive under section 13 (2). It is apparent that it is unreasonable to disallow the entire expenditure even though there is enough scope to suggest that there may be excessive payment to its own related concerns which are basically private limited companies like CL educate Ltd, carrier launcher education and infrastructure and services Ltd and Kestone integrated marketing services private limited wide the order of the AO. After considering all the facts and circumstances of the case, I am of the view that the assessee is eligible for exemption u/s 11 (1) has mischief of proviso to section 2 (15) is not applicable and accordingly the AO is directed to allow the exemption u/s 11 (1) but the expenses of payments related concerns are on the higher side as the entire expenditure has been disallowed and accordingly the addition of the disallowance to the extent of the estimated expenditure at the rate of 25% i.e. INR 3 25 1st 467/– is confirmed and the balance addition of INR 9 763403/– (INR 1 3017870/– -INR 3 254467/–) is deleted.” 23. Thus the assessee is agreed with the order of the learned assessing officer in confirming the disallowance to the extent of 25% of those expenditure and the learned assessing officer is aggrieved with the order of the learned CIT – A in deleting the disallowance of INR 9 763403/– and allowing the exemption u/s 11 (1) of the act to the assessee and therefore both are in appeal before us. 24. The learned authorised representative submitted that the assessee is carrying on the educational activities and therefore is entitled to the benefit of the provisions of section 11 (1) of the income tax act. It was further stated that the assessee is eligible to claim exception u/s 11 and 12 of the income tax act as its registration u/s 12 A of the income tax act has not been withdrawn till date. It was further stated that when the registration u/s 12 A of the income tax act is intact, not withdrawn, the assessee cannot be denied of the benefit u/s 11 and 12 of the income tax act. 25. Further with respect to the payment made to specified person u/s 13 (1) of the income tax act it was stated that there is no benefit to those persons and therefore the disallowance of the whole expenditure and even restriction

of disallowance to the extent of only 25% by the learned CIT – A is devoid of any merit. 26. The learned departmental representative vehemently supported the order of the learned assessing officer and stated that assessee is carrying on the business activities and therefore the provisions of section 11 and 12 does not apply to the facts of the case. Even otherwise he submitted that the assessee has made payment to the several specified persons under section 13 (1) of the income tax act and therefore the violation of the provisions of section 13 (1) (C) of the act has occurred and therefore the benefit u/s 11 and 12 of the income tax act also does not apply to the facts of the case. He further stated that now the registration to the assessee has already been withdrawn by the CIT exemption and therefore assessee is not entitled to the exemption u/s 11 and 12 of the income tax act. 27. We have carefully considered the rival contention and perused the orders of the lower authorities. Apparently in this case the mood issue that arises is whether the assessee is holding the benefit of registration u/s 12A of the income tax act or not. Apparently the registration has been cancelled by the CIT exemption and appeal of the assessee on the similar point has been decided by us by this order wherein we have set aside the whole issue back to the file of the learned CIT exemption with a direction to the assessee to show that the payment made to the specified persons by the assessee does not enure any benefit to the related parties. As the issue of registration to the assessee has been set aside to the file of the learned CIT – exemption, in all fairness, both the appeals of the assessee as well as the revenue should also go back to the assessing officer with a direction to decide the issue about the taxability in the hands of the assessee after the fate of registration to the assessee u/s 12 A of the income tax act. 28. In view of this, we set aside both the appeals back to the file of the learned assessing officer accordingly. Hence, appeals of the assessee as well as of the revenue are allowed for statistical purposes. 29. Now we come to the appeal of the assessment year 2011 – 12. The assessee has filed appeal in ITA number 1997/del/2016 and the learned assessing officer has filed appeal in ITA number 3307/del/2016 against the order of

the Commissioner of income tax (appeals) – 40, New Delhi dated 10/3/2016. 30. The assessee raised following grounds of appeal in ITA No. 1997/Del/2016 for Assessment Year 2011-12:- “1. Disallowance by Commissioner of Income Tax (Appeals) of expenses or payments of Rs 1,67,47,700/- @ 25% of total expenses or payments of Rs.6,69,90,800/- made to related concerns is arbitrary, without any finding ofAssessing Officer or of Commissioner of Income Tax (Appeals) that expenses or payments made to related concerns are in excess of market price and is based on mere assumption that payments made to related parties are excessive. Disallowance is contrary to facts and law and therefore is liable to be deleted.” 31. The revenue raised following grounds of appeal in ITA No. 3307/Del/2016 for Assessment Year 2011-12:- “1. Whether on facts and in circumstances of case and in law, Ld. CIT(A) is right in holding that activities of assessee are charitable in nature and not in nature of trade, business or commerce specifically when institute is charging huge fees from students and not even recognized/ affiliated to any statutory body/ authority/ university. 2. Whether on facts and in circumstances of case and in law, Ld. CIT.(A) is right in deleting 75% disallowances out total expenses of Rs. 6,69,90.800/- paid to sister concerns of assessee which were rightly disallowed by AO.” 32. Briefly stated the facts of the case show that assessee filed its return of income on 21/10/2011 declaring nil income. As identical payments as in assessment year 2010 – 11 with different amounts were made to CL Educate Ltd, carrier launcher education infrastructure and services Ltd and kestone integrated marketing services private limited. The findings of the assessing officer are similar to the findings given by him in assessment year 2010 – 11. Accordingly he passed an assessment order u/s 143 (3) of the income tax act on 03/03/2014 determining assessed loss of the assessee at INR 3 4256428/– denying the benefit of section 11 and 12 to the assessee. Assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned CIT – A who held that the assessee is eligible for exemption u/s 11 (1) of the act but disallowed the 25% of the total expenditure of INR 6 6990800/– amounting to INR 1 6747700/– and deleted the balance disallowance of INR 5 0243100/–. The learned CIT – A gave similar reasons as per his order for assessment year 2010 – 11. Therefore, both the parties are in appeal before us. Page | 22