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Income Tax Appellate Tribunal, DELHI BENCH “B” BENCH NEW DELHI
Before: SHRI N.K. SAINI & SHRI AMIT SHUKLA
Assessee by: Sh.K.Sampath,Advocate Sh. Raju Kumar, Advocate Revenue by: Sh. H.K. Chaudhary, CIT DR Date of hearing 17/04/2017 Date of pronouncement 27 /04/2017 ORDER
PER AMIT SHUKLA, JUDICIAL MEMBER:
The aforesaid appeal has been filed by the assessee againstimpugned order dated 13.8.2014, passed by the ld. Commissioner of Income Tax, Hisar cancelling the registration u/s 12AA(3) which was granted to the assessee vide certificate dated 30.9.2002. The ground raised by the assessee reads as under:- “That on the facts and in the circumstances of the case and in law the action of the learned Commissioner of Income Tax in passing order u/s 12AA(3) of the Act and therefore cancelling the registration retrospectively is most arbitrary, palpably Page 1 of 20
erroneous and grossly unjust. It is prayed that this action must be quashed with directions to retain the registration as granted.”
The brief facts of the case are that the assessee is a society registered with Registrar of Societies vide certificate dated 5.2.1988. It is running a school under the name of “New Yashoda Pubic School Society” at Hisar Haryana. Since it was running an educational institution, therefore, it had sought registration u/s 12AA. Looking to its objects of carrying out educational activities as defined u/s 2(15) of the Act, registration was granted by the Learned CIT, u/s 12AA vide order dated 30.9.2002. Since then all its income and expenditure were subject to computation under sections 11 to 13. As mentioned in the impugned order, a Tax Evasion Petition (TEP) was received in the office of the ld. CIT on 31.1.2012, wherein the complaint was made on following allegations:- “(a) That the school was granted exemption from payment of Road Tax by the RTA, Hisar on the plying of buses on the basis that these are owned by the Principal of the school and the school will not charge any money in lieu of lifting the students in the buses. However, the school is charging transport charges from the students. Further, it has been alleged that in the Income Tax Returns filed by the school, it has been shown that the buses are owned by the persons other than Principal and money charged has been transferred to the other persons in lieu of expenses of buses. It has also been alleged that the bus- charges are collected by one Sh. Ram Avtar Sharma, clerk in the school but no receipt is issued.
(b) That the school is running class LKG as well as UKG for more than 20 years but in order to evade Income tax, the fee received from students of LKG as well as UKG is not shown in the cash books, Moreover, in the details being sent to CBSE time to time, the above school mentions that no LKG and UKG classes are being run in the school. (c) That as per section 7(2) of Chapter II of CBSE Affiliation Bye Laws, no part of school income can be diverted to any person in the Trust / Society / School Managing Committee but the above school is violating the clause as a major part of the school income is being diverted to members of school Society namely Mr. K.P. Mathur, Mr. AjitTwickley, Ms. AnjanaTwickley etc. That the above school crossed all parameters to evade Income Tax. Mr. Ajit Twickley is acting as regular Principal of Yashoda Co Educational School, Mori Gate, Hisar, but in order to cheat income tax officials, New Yashoda Public School, Urban Estate-ll, Hisar showed Mr. Ajit Twickley as regular employee and showed salary given to him just to evade Income Tax. It means Mr. Ajit Twickley simultaneously worked as Principal of Yashoda Co Educational School, Mori Gate, Hisar as well as employee in New Yashoda Public School, Urban Estate-II, Hisar which is not feasible as one person cannot work on two different places in the same timings. (d) That the above school is running 7 buses to lift the students but in the staff statement sent to CBSE, EPF Authority and ESI Authority, nothing is mentioned about Page 3 of 20 drivers and the salary being paid to them. This puts a big question mark.It also indicates that drivers are being paid by using the means for which rules do not permit.”
In view of the aforesaid TEP, a show cause notice was issued by Ld. CIT to the assessee as to why the registration granted to the assessee society should not be cancelled. On all the allegations made in the TEP; observations and finding of the ld. CIT as well as the assessee’s reply as dealt in the impugned order are discussed in brief as under:- A. Salary/remuneration paid to Secretary of the Society, Shri Ajit Twickley and Mr. K.P. Mathur:- The Learned CIT noted that Shri Ajit Twickley is a life member and Secretary of the assessee’s Society since the beginning and during the course assessment proceedings for the A.Y. 2009-10 it was revealed that he was paid salary of Rs. 1,25,130/-. Further he is also a husband of Smt. Anjana Twickley, Principal of ‘New Yashoda Public School’ run by the society and he is also a Principal of ‘Yashoda Co-ed High School’ another school run by the same management. In the TEP it was alleged that as per clause 5 of Memorandum of Association of the school, no remuneration shall be given to any member of the institution or governing body for his appointment as the Member of the Institution of Government Body. Thus, the school is giving remuneration to the Secretary without any legal basis. A reference has also been made for an enquiry conducted by the authorities of Education Department of Haryanathat he is also drawing salary from New Yashoda Public School despite that he is working as Principal of Yashoda Co-ed High School. In this manner the funds of the Page 4 of 20
institution has been diverted to Member of the Trust/Society/School Management Committee which is against the bye laws of CBSE. Further similar payment has been made to Mr. K.P. Mathur who was also an office bearer and member of the school society.
� Assessee’s reply: -In response to the show cause notice, the assessee submitted that the payment to these two persons are made in accordance with the Memorandum of Association of the Society and specifically in terms of para 5 which says that remuneration will be paid to the members of the institution or governing body if he is appointed as an officer of the school. Once the payment has been made in accordance with the memorandum then no adverse inference should be drawn. Further in the Income Tax assessment orders of the society passed u/s 143(3) right from the A.Y. 2006-07 to AY 2009-10, such payments made to specified u/s 13(3) has been discussed in detail and has been allowed. It was also pointed out that Shri Ajit Twickley was looking after the supervision of the building, construction, repairing and maintenance for the school and looking to his work profile he was paid salary which is quite reasonable. Once the remuneration is paid to the officials of the society based on their services rendered/provided to the school, then there is no bar in the rules if the same have been given within reasonable limit. It was further brought to the notice of the Learned CIT that so called enquiry committee constituted by District Education Officer the same standswithdrawn by Director General Secondary Education, Haryana after considering the submissions made by the society. Page 5 of 20
� Finding of Ld. CIT: - However the ld. CIT held that it is an undisputed fact that salary has been paid to office bearer of the society especially Shri Ajit Twickley for supervising the building construction/repairing and maintenance. This defies normal prudence especially when he is occupying an important administrative post of Principal of another institution. The onus cast upon the assessee to prove and substantiate that he was appointed by following fair and transparent procedure and he has actually performed duties and services which has added value to the school, has not been discharged. The assessee could not show from any record of minutes as to how he was allowed to work and how much hours have been put in for supervision /building maintenance /construction/repairing and maintenance. He was simply paid the salary only for being Secretary of the assessee’s society and hence, such payment of salary is in violation of section 7(2) Chapters II of the CBSE Affiliation Laws and also the Memorandum of Association. Regarding the withdrawal of show cause by the Director General of Secondary Education, he observed that the same is not very helpful to the assessee, because it was not dealing with the diversion of income by making payment of salary of Shri Ajit Twickley. Regarding payment of salary to Shri K.P. Mathur, Learned CIT observed that he was a real brother of Yashoda Mathur who was Founder and Director of the school and he has been shown working as Joint Director. The assessee’s case was that he was getting gross salary of Rs. 35,156/- per month plus perquisites for looking after administration and working of the school other than teaching. Regarding his payment also Learned CIT observed that the assessee could not show that any proper and transparent procedure was followed for his appointment and whether he has actually performed duties/services which could be said to add values to the assessee’s society has not been demonstrated. Thus, payment of salary to two these persons show that these activities are not carried out properly as per its object.
B. Bus Charges: - The Learned CIT noted that the assessee society owns number of buses which is used to ferry students to and fro to school for obtaining a license to ply these buses it was required to pay passenger tax. However the assessee society has claimed exemption from payment of passenger tax by the Regional Transport Authority (RTA) on the basis of affidavit filed by the assessee that the society will not charge transport charges/bus fees from the students. The affidavit filed by the Principal in this regard has also been incorporated in the impugned order passed by the Learned CIT.
� Assessee’s reply: - In response to show cause notice issued, the assessee submitted that the school has been charging bus fee from students who avail the facility and the same has been dully accounted for in the books of account of the society and the affidavit was given only by way of procedural requirement of the local authorities. The benefit of concession of passenger tax and road tax has been given to the students while fixing the transportation charges from the students availing the facilities. The bus facility is only given to the students to facilitate the Page 7 of 20 children for picking and dropping of students at a nominal charge.
� Finding of Ld. CIT: - However the Ld. CIT held that the charging of bus fees from the students is in violation of undertaking given in the affidavit before the RTA and by doing so the assessee society has evaded payment of passenger tax which was legally payable to the state government. This affidavit has been filed by the none other than the Principal of the school. Further the bus fee charges are fixed taking into concession of road tax or passenger tax will not help the assessee because, it is a clear violation of law. The Ld. CIT has further noted that the assessee society has awarded contract operation of these buses to Dr. Anjana Twickely and Sh. Ajit Twickely who are not only the members of the society but also the principal of two different schools managed by the society.
� To clarify this point the assessee had pointed out that the school owns six buses and all the buses are hired on monthly charges. For running and maintenance of the buses, no expenditure like salary to drivers, conductors, diesel expenses, repairing and maintenance etc. have been incurred by the school. All the bus fees have collected from the students which have been properly recorded in the books of account. As regard plying of buses owned by the office bearers, the assessee before the Ld. CIT submitted the extracts of meeting of governing body held on 21.3.2006 and also filed written quotations from other bidders for plying of buses which were called upon for same routes. When the bidder showed their inability to procure the buses on Page 8 of 20 some of the routes after the opening of the tender, then in such situations, it was decided that school will purchase its own buses and the bidder has consented to run the school buses on various terms which has been elaborated at page 10 the order. For some of the routes the governing body authorized the school to award operation of buses to Dr. Anjana Twickely on the same rate which was quoted by the various parties for the routes. Apart from, all the running and maintenance was done by the service provider (Dr. Anjana Twickley) who shall reimburse the school for insurance, registration charges and any other taxes levied by state government and also require depositing of certain amount as an advance. This was done so because bus could not be registered in the name of Society, therefore, it was decided that office bearer will purchase the buses and give to the contractors for running. The assessee’s detail explanation in this regard has been dealt with and incorporated at length by Learned CIT at pages 10 to 12 of the order.
� Ld CIT held that is against the normal prudence that office bearers will decide a case for awarding the contracts to themselves being a interested party. Office bearers have been making profits for the contracts awarded to them which is evident from the fact that Dr. Anjana Twickely has shown income at Rs. 32,178/- to 39,158/- for A.Y. 2012-13 and 2013- 14, respectively from plying of bus. On this count also the Learned CIT has drew the adverse influence.
C. Parallel Register of annual general meeting:- The Learned CIT has noted that the assessee has presented two parallel registers which has records on annual general meeting/ school meetings, the details of which has been incorporated by him at pages 13 and 14 of his order. In this regard the assessee’s submission was that, one register was misplaced and therefore, another register was started. However the Learned CIT pointed out certain discrepancies in the notings of the various dates and observed that the plea taken by the assessee is not tenable, because the manner in which the proceedings have been recorded erodes the confidence of the record presented by the society.
On these grounds Learned CIT canceled the registration u/s 12AA after observing and holding as under:- “In view of the factsand circumstances of the case, itis establishedthat theactivities of the assessee society are neither being carriedout genuinelynortheactivities are being carried out in accordance with the objects/other clauses of Memorandum of Association of the society. The appointment of Shri K.P. Mathur is from 01.04.2001 i.e. before the date of granting registration u/s 12AA of the Income Tax Act, 1961. The society has not produced (and provided copies of) Minutes book having record of meetings of the AGM / Governing Committee of the society from beginning. However, Shri Ajit Twickley is Life Member as well as ‘Secretary’ of the Governing Body of the society from beginning as made out from Memorandum of Association. Page 10 of 20
Therefore, it seems that Shri Ajit Twickley is drawing salary for purported 'supervision of Building / Construction / Repair & Maintenance’ ‘after office hours’ from a date prior to the granting ofregistration u/s 12AA. Therefore, undersigned is satisfied that the activities of the assessee society are neither being carried out genuinely nor the activities are being carried out in accordance with the objects and other clauses of the Memorandum of Association of the society, since date of granting registration u/s 12AA (w.e.f.01.04.2001). 8.2 In view of the above, it is a fit case where registration already granted to the society is liable to be cancelled under section 12AA(3) of the Income Tax Act, 1961 with effect from the date of initially granting the registration u/s 12AA of the Income Tax Act, 1961. As a result, in exercise of powers conferred upon the undersigned by the law, the registration granted to the society under F.No.CIT/HSR/Tech./12AA/2002-03/5019- 22 dated 27/30.09.2002 is hereby cancelled w.e.f. 01.04.2001 onwards (the date of effect of initially granting the registration to the society).”
Before us the Ld. Sr. counsel, Shri K. Sampath after explaining the entire facts of the case as discussed above, submitted that after the cancellation of registration, assessments which were completed under 143(3) accepting the genuineness of activities and the income and expenditure account right from the A.Ys. 2009-10 to 2013-14, were reopened and reassessments have been framed. In all these Page 11 of 20 reassessment orders, the Assessing Officer has agreed that the assessee is running a school and it is entire activity relates to imparting of education. The additions which have been made are only taxing of surplus income and no other adverse inference has been drawn on any of the allegations made in the order of CIT cancelling the registration or any further additions have been made. This shows that the none of the activities carried out by the assessee society have been found to be non-genuine during the detailed scrutiny of assessment proceedings post cancellation registration u/s 12AA(3). The only adverse effect of the cancellation which has taken by the various Assessing Officers is that, they have denied the exemption benefit u/s 11 and thereby computing the income under the normal provision. Even prior to cancellation of registration, the assessments have been completed u/s 143(3) wherein after detailed scrutiny the ld Assessing Officer has accepted that its entire activities is for educational purposes and therefore, benefit of section 11 should be granted to the assessee.
He further submitted that the entire allegations which have been made by the Ld. CIT do not warrant cancellation of registration u/s 12AA (3) albeit they can be subject matter of scrutiny/disallowance during the assessment proceedings if they are found to be true. Regarding payment of salary to the office bearers, he submitted that the clause 5 of MOA which have been relied upon by the Ld. CIT, itself provides that the remuneration will be paid to the members if they are appointed as an officer of the school. Here in this case Sh. Ajit Twickely was appointed as an officer of the school for looking after the construction, repairs and maintenance and overall superintendence of the school building for which a very paltry Page 12 of 20 sum of 10,000/- to 15,000/- as per month has been paid which cannot be held to be excessive at all. As far as the payment of a salary of Sh. K.P. Mathur is concerned, Ld. Counsel submitted that he was the Joint Director and looking after the entire administration of the school. Mr. Mathur was having huge experience of 38 years for being an Executive Director in a leading PSU. So far as the allegation of bus charges are concerned, Ld. Counsel submitted that, once the bus fees are dully recorded in the books of account and no funds whatsoever has been diverted to the officer bearers and the entire expenditure of the buses has not been borne by the school, then there is question of drawing any adverse inference. Similarly, with regard to the maintenance of parallel register also no adverse influence can be drawn as it is not a case of Ld. CIT that it has any adverse impact either to implicate that the assessee’s activities are not genuine or there is some violation of objects or any kind of law. The assessee’s explanation that one of the register was misplaced and therefore, the other register was prepared, hence, this should not be taken as an adverse point. Thus, the reasoning given by the Learned CIT for cancellation the registration u/s 12AA(3) cannot be upheld. In support of his contention he had also relied upon various decisions like:- (i) CIT, Faridabad vs. Indicula Trust Society Faridabad (2014) 45 taxman.com 158 (ii) Kaliga Institute of Industrial Technology vs. CIT (2008) 23 SDT 74 Cuttuck. (iii). CIT vs. Janki Ji Educational, Society (2013) 39 taxman.com 2
On the other hand the ld. CIT DR strongly relied upon the order of the Ld. CIT and submitted that all the allegations which have been made by the Ld. CIT in the impugned order has not been properly rebutted by the assessee either before the Ld. CIT or before this Tribunal. Making a reference to the subsequent assessment orders as made by Ld. Counsel is not relevant, because the impugned order which has cancelled the registration should be taken into consideration. Here in this case, it is an undisputed fact that salary paid to two persons were the office bearers of the society and such distribution of funds to office bearers is clearly in violation of section 13 and also the bye laws of CBSE as pointed out by the Learned CIT(Appeals). Regarding bus charges the affidavit filed by the Principal before the RTA giving an undertaking for free lift of the students but still school fees is being charged goes to show that its activities are not genuine and violates the law. Thus the reasons given by the Ld. CIT the registration should be upheld.
We have heard the rival submissions, perused the relevant findings givens in the impugned order as well as the material referred to before us. The assessee’s society has been running the school in the name of ‘New Yashoda Public School’. Looking to its educational activities carried on by it which falls within the ambit of “charitable purposes”, the registration u/s 12AA was granted by Ld. CIT way back in the year 2002. Since then, the assessee has been claiming benefit of exemption u/s 11 and consequently all its income and expenditure was subject to computation under sections 11 to 13. Based on some TEP complaint the Ld. CIT has taken an adverse view that the assessee’s activities cannot be held to be genuine or being carried out in accordance with the objects of the society. The Page 14 of 20 three main allegations as discussion above are that, firstly, salary have been paid to specified persons in violation of clause 5 of the Memorandum of Association, because these two persons were also the office bearers of the society; secondly, the assessee has been charging bus fees from the students despite an undertaking by the Principal to the Road Transport Authority that no bus charges would be taken from the students and on this basis exemption from passenger tax has been sought for and buses belonging to office bearer have been plied; and lastly, the assessee has been found to maintained two parallel registers for annual general meeting for certain period. Section 12AA(3) provides that the registration granted u/s 12AA can be cancelled by the Commissioner only if either of twin conditions or both are satisfied; firstly, that the activities of such trust/institutions are not genuine, or secondly, the activities of the trust or institution are not being carried out in accordance with the objects of trust/institutions. Here in this case, there is absolutely no allegation or any finding that there is any change in the objects of the society post granting of registration u/s 12AA to the assessee vide certificate dated 30.9.2002.
Now coming to the various allegation/charges on which registration has been cancelled, as discussed above in detail, it is seen that so far as the first allegation that the assessee has paid salary to the office bearers in violation of clause 5, we find that the said clause itself provides that remuneration can be paid to any members of the institution if he is appointed as officer of the school. The relevant clause reads as under:-
“5. No remuneration shall be given by the institution to any member of the institution or governing body for his appointment as member of the institution or governing body except repayment of out of pocket expenses and interest on money lent or rent for premises / demises or other assetsto the Institution, However, remuneration will be paid to the members of the Institution or Governing body - if any is appointed as an officer of the school.” Shri Ajit Twickely who is a Secretary of the society has been stated to be paid salary for looking after supervision of the school building, construction, repairs and maintenance of the school. The payment of such salary has to be viewed from the context of section 13(3) read with clause (c) of section 13(2) which envisages that, if any payment by way of salary, allowance or otherwise during the previous year has been given from the resources or fund of the trust to any person specified in sub section (3) of section 13, then it needs to be examined whether the payment which has been made for the services rendered by such person is an excess of what may be reasonably paid for such services or not. Shri Ajit Twickely has been stated to have been given salary of Rs. 1,25,130/- during the A.Y. 2009-10, as noted by the Ld. CIT in the impugned order, however it has not been stated by the Ld. CIT as to whether such a payment of salary is an excess of what may be reasonably paid for such service to some other persons or not. Strong reference has been made by the Ld. CIT on some the report of an enquiry committee that payment of salary to the office bearers is in violation of bye laws of CBSE, however such an enquiry report alleging violation of some by laws may be relevant such other laws but so far as the issue of genuineness of the activities of institution is concerned the same has to be seen whether such a payment is in violation of any of the objects; or it tantamount to giving of benefit in terms of section 13; or indicates that the assessee’s activities are not genuine. Even if the said enquiry report has been turned down by the Director General of Secondary Education but still this fact does not warrant any cancellation of registration u/s 12AA (3). Similarly with regard to the payment of Sh. K. P. Mathur, it has been stated that he has been paid gross salary of Rs. 35,156/- per month who was appointed as the Joint Director looking after the administration work of the school. Such a payment again has not been held to be excessive under the terms of section 13(2)(c) read with section 13(3) in order to show that the payment of salary is in violation of section 13. It is incumbent that certain bench marking vis-a-vis some comparable instances should be brought on record to show that if these services would have been rendered by the person from outside he would have been paid lesser amount. Thus such a payment cannot lead to any adverse inference for doubting the genuineness of the activities carried out by the assessee’s society. So far as the observation of the Ld. CIT that their appointment cannot be said to be fair and transparent, this again is a very general proposition, because unless it is pointed out that the payment made to such person falls within the realm of diversion of funds or giving undue benefit to the persons specified u/s 13(3), no adverse inference can be drawn. Even if it is held that no salary at all was required to be paid to these persons, then also after invoking the provisions of section 13, the entire surplus can be taxed. Thus, these allegations do not hold ground for the cancellation of registration within the scope of section 12AA (3) albeit it could be subject matter of scrutiny and addition or forfeiting Page 17 of 20 of surplus amount during the course of assessment proceedings and in terms of section 13 the entire surplus of the assessee can be taxed if the assessee’s society is being found to be violating the conditions laid down in various clauses of section 13.
Now coming to the allegation regarding bus charges, it is an undisputed fact that the bus fees collected by the school has been dully accounted for in the books of the account and constitutes part of the income and expenditure account. Providing of bus facilities to students and charging fees is directly related to the objects of the society, i.e. imparting education to the students and facilitating the students for picking and dropping to and from the school. Even if certain buses plied were belonging to the office bearers then also no adverse inference can be drawn on the facts of the present case for the reason that none of the expenditure relating to buses have been borne by the school and again nothing has been brought on record that any payment for plying of bus or the fees charged for the bus fees violates the concept of reasonableness as enshrined in section 13(2)(c). As regards the filing of an affidavit of the Principal before the RTA that bus charges will not be charged from the students, then again it cannot be point of adverse inference to doubt the genuineness of the activities of the assessee albeit it can be some kind of violation under Road Transport Laws which is not relevant for the conditions laid in section 12AA (3). Again this is subject matter of scrutiny during the assessment proceedings and from the perusal of the reassessment orders passed in the subsequent to the cancellation of the registration it is seen no adverse inference with regard to the bus charges or for violation of any law has been drawn. Page 18 of 20 Lastly, regarding maintenance of two parallel registers again it does not lead to any adverse inference because it is neither in violation of any of the objects nor leads to any inference regarding non genuine activity if any carried out by the assessee, because nothing incriminating is indicated from such parallel register maintained for the brief period.
Thus, the aforesaid reasons assigned by the Learned CIT does not lead to any conclusion that the assessee’s activities are not genuine or are not in accordance with the objects which is imparting of education and carrying out educational activities. Accordingly, the order of the Learned CIT is set aside and registration granted u/s 12AA is hereby is restored.
In the result appeal of the assessee is allowed. Order pronounced in the open court on 27.04.2017.