DY. COMMISSIONER OF INCOME TAX (E)-2(1), MUMBAI, MUMBAI vs. THE CATHEDRAL VIDYA TRUST, MUMBAI

Brief facts of the case are that the assessee is a charitable Trust registered under Bombay Public Trust Act and registered as a charitable organization with Charity Commissioner and CIT(E), Mumbai u/s 12A of the Act. The trust filed its return of income on 30.09.2014 for the A.Y. 2014-15 declaring a deficit of Rs.83,01,632/-. The trust is running an international school in the name of Cathedral Vidya at Lonavala. The case was selected for scrutiny and assessment was finalized at an income of Rs.2,05,45,635/- vide order u/s.143(3) dated 05.10.2016. The AO denied the exemption u/s 11 of the Act after holding that charging of huge fees for imparting education cannot be considered to be a charitable activity. The trust is also making payment of lease rent of Rs.3,00,00,000/- to a company M/s Vidya Education Investment Pvt. Ltd. in which trustees are Directors and the same was considered unreasonable.

Aggrieved by the assessment order, the trust filed appeal before the Ld. CIT(A), who has passed order on 28.07.2023 allowing relief to the assessee following the decision of the Tribunal in its own case for A.Y. 2011-12 and 2012-13. Ld. CIT(A) has deleted the additions made by the AO and allowed the claim of exemption u/s 11 of the Act.

Before us, Ld. AR for the trust has requested for relief on the ground that these issues have been decided by the coordinate bench of this Tribunal in favour of the trust in its own cases in ITA No. 4958/Mum/2015 for A.Y.2011-12 & ITA No. 6997/Mum/2016 for A.Y. 2012-13. The relevant portion of the order for A.Y. 2012-13 is reproduced here under:

We have heard the Id. Authorized Representative (AR) and Id. Departmental Representative (DR) for the Revenue and perused the material available on record. The Id. AR of the assessee argued that assessee Trust has set up its International Residential School in the name of Cathedral Vidya School at Lonawala. The assessee is imparting education from Std. IV to Std. XII and Certain Diploma Courses. The assessee-Trust is duly registered under section 12AA vide Registration dated 31.03.2009. The assessee is registered with Charity Commissioner under Bombay Public Trust Act vide Registration dated 30.07.2008. One of the objects of assessee is to promote educational activity by setting up and running School and allied charitable objects, the copy of registration of Trust and certificate under section 12AA is filed on record. During the assessment proceeding, the AO issued show-cause notice as to why the exemption claimed under section 11 be not denied to the assessee. The AO objected on the ground that (i) the object of the Trust are solely for education purpose, however, the Trust is running lavish International School and charging heavy fees on commercial line and therefore, the Trust is setup for the purpose of profit, (ii) No charitable benefit is available to poor and needy students as a fee waiver, or scholarship etc. The activities of institution are not charitable and commercial in nature.

On the other hand, the ld. DR for the Revenue supported the order of authorities below. It was argued that the assessee-Trust is running an International School. The assessee is charging heavy fees on commercial lines and earning exorbitant profit. The assessee is making payment of lease rent to a Company in which Trustees of assessee are Directors, the rent paid by assessee is not reasonable. The assessee-Trust and the lesser company are managed by the same person. The lease agreement on behalf of lesser as well as lessee is signed by the same person.

We have considered the rival submissions of Id. AR of the parties and have gone through the orders of authorities below. We have also perused the material and the two decision mainly relied by Id AR for the assessee before us. The assessee-Trust was registered on 21.02.2008. The settler of Trust is Vineet Nayyar. The other trustee in the trust is Reva Nayyar. The address of both the trustee in the trust-deed are of 5A, Friends Colony (W), Mathura Road, Delhi-65. The initial corpus fund of Rs.1100/- was contributed by settler. The name of the Trust was given as "The Cathedral Vidya Trust". The registered office of the Trust is mentioned as 6, Purushottamdas Thakurdas Marg, Fort Mumbai-400001. Further, the membership of the Trust was restricted to minimum one and not more than three. There is further provision in the trust-deed that the trustee shall be entitled to appoint the additional trustee as and when they deem fit as per Clause-6 of Trust-Deed. It is mentioned in the trust-deed that trustee shall immediately form a Private Limited Company under the provisions of Companies Act and will appoint the Trust-company as sole trustee of the Trust. The assessee Trust got registration under section 12A of the Act on 31.03.2009. The assessee has placed on record a copy of lease agreement with Vidya Education Investment Pvt. Ltd. having its registered office at 5C, Old Friends Colony (W), Mathura Road, New Delhi-65 dated 14.06.2008. The lease deed was executed initially for nine years commenced from 01.06.2008. The lease-deed is signed by Vineet Nayyar on behalf of lesser as well as lessee. During the AY, the assessee has paid rent of Rs.2.75 Crore to lesser i.e. M/s Vidya Education Investment Pvt. Ltd. on account of Annual rent which is one of the subject matter of impugned assessment.

During the assessment proceeding, the AO issued show cause notice under section 142(1) seeking explanation from assessee with regard to (i) that assessee is running a Lavish International School, charging heavy fees from the students on commercial lines. The assessee is charging fee of Rs.4,65,000/- p.a. from Class-IV to Class-VIII, Rs.4,65,000/- for IGCSE students and Rs.5,65,000/- from I.B ( no details of abbreviations is available is recond). (ii) No charitable benefit is available to poor and needy students as a fee waiver, or scholarship etc. The activities of Institution are not charitable and commercial in nature, (iii) the assessee Trust has made the payment of Rs.2.75 Crore to M/s Vidya Education Pvt. Ltd. which is an excluded person under section 13(3) of the Act. The assessee was asked to justify the reasonableness of the said payment in term of provision of section 13(2) failing which it can be presumed that this just a tool for diversion of fund in the hand of excluded person and therefore, exemption under section 11 shall be denied and income shall be mosessed disallowing the payment of Rs.2.75 Crore. The assessee filed its reply vide reply dated 13.03.2014. In the reply, the assessee contended that the assessee-trust is duly registered under section 12A. As per the trust- deed, the object of trust is to promote educational activities by setting up and running school and allied charitable objects. The assessee has been promoting educational activities since inception, no other activities has been carried by the assessee till date. During the AY 2010-11, the AO has also observed that the object of trust is to promote educational activities by setting up and running school and granted exemption under section 11. For fees structure, the assessee contended that the school was established and started from 03.08.2008 and imparting education from Std. IV to Std. X1 and Diploma courses. The assessee is imparting world class education with strong Indian Tradition and values with advance school of modern technology. In order to get the Teachers and Faculties for imparting good education, the assessee is require to pay high amount of remuneration to Teachers of that calibre. There were 300 students and 65 teaching staff and administrative support staff. The school is not added by the Government support and entire expenditure is incurred from the fees that are charged from the students. The fee structure as compared to the other International School, the fee of the assessee is on lower side. The assessee specifically contended that no profit motive embedded in the charging of fees. For payment of lease rent at the rate of Rs.25,00,000/- per month, the assessee contended that trust is paying lease rent to Vidya Education Investment Pvt. Ltd. for the plot of land measuring 16.93 acre. The lease deed was executed on 01.06.2008 for a period of nine years. Initially the rent was fixed at Rs.5,00,000/- per month which was gradually increased from time to time and at present the assessee making payment of rent of Rs.25,00,000/- per month. The assessee also filed a report of Valuer dated 10.01.2014. The assessee contended that as per the Valuation Report the lease rent of the leased land is around Rs.32.31 Lakhs per month. The assessee also contended that for preceding AY 2008-09, assessee-trust has not paid the lease rent which was waived by the lesser company because of financial difficulties faced by the assessee. The total cost of the land and school is Rs.43,46,75917/- which is funded by Vidya Education Investment Pvt. Ltd. (VEIPL). The VEIPL has also provided furniture and fixture, computer, books, office equipment etc. required for school and further incurred a cost of Rs.300 lakhs. Thus, in sum and substances the assessee claimed that the payment of lease rent is reasonable. The contention raised by assessee in its reply was not accepted by AO. The AO concluded that the assessee is charging huge fee for educational activity which cannot be considered and treated as charitable. There is no co- relation of fee charged and the expenses incurred. The excessive fee is charged to generate huge surplus to fund the liability of rent of Rs.2.75 Crore to a Private limited company owned and managed by excluded person. The assessee urged the similar contention before ld. Commissioner (Appeals). The Id CIT(A) confirmed the order of assessing officer holding that during the course of submission it was disclosed by the representative of the assessee that they are giving free education to One student, however the details of the student was not furnished. For charging of the high amount of fee the. Id Commissioner (Appeals) concluded that no authentic data is provided. For payment of lease rent to the excluded person the Id. CIT(A) concluded that neither the decision of Supreme Court in case of Queen's Educational Society (319 ITR 160) relied on behalf of assessee nor the order of CIT(A) for AY 2010-11 is helpful to the assessee. The decision in Queen's Educational Society relates to section 10(23C), however the case of the assessee is hit by section 13 of the Act. Further, the issue in AY 2010-11 may be relevant for the conditions of section 13(2) (c), however the provision of section 13(2)(g) are applicable in the year under consideration. Moreover, the principles of resjudicata are not applicable in the income tax proceedings.

In our view, the only question for our consideration is whether the payment of rent/ lease rent paid to the related party is reasonable or excessive. The exemption under section 11 can only be denied when the income of the trust is diverted during the previous year in favour of any person referred in section13(3). Section 13(2) (g) specifically provides that when the income of the trust is diverted during the previous year in favour of any concern as provided under section 13(3)(e) the assessee would not be entitled for exemption if the rent paid is unreasonable one.

The perusal of the lease deed reveals that initially the rent was payable at the rate of Rs.5,00,000/- p.m. The lease deed was executed on 01.06.2008. The assessee has debited the rent of Rs.2,75,00,000/- in its P/L account. Thus, the assessee claimed the payment of rent at the rate of Rs.25,00,000/0 per month to the Company owned and managed by the Trustees. Though, the assessee within four years from the execution of lease deed increased the rent from Rs.5.00 lacks to Rs.25.00 lacks per month. There is no dispute about the status of trustee in assessee trust and the Directors in the lesser company. The assessee has placed on record the copy of valuation report about the rental value of the leased asset dated 10.01.2014 and certified that this document was filed before lower authorities. In the valuation report the monthly rental value is assessed as Rs.32,31,367/-. The area of leased land is in this report is referred only 10 acre, however in the reply before assessing officer the area of land was claimed as 16.93 acre (page 8 para II of AO order). The assessing officer has not given any finding on this document. Similarly, the assessing officer has not brought any evidence on record about any valuation of comparable property. Similarly, the Id. Commissioner (Appeals) has not made any comment on the valuation report furnished by the assessee. In our view this documentary evidence furnished by assessee is not controverted by assessing officer by bringing any incriminating evidence on record. Thus in our view in absence of any incriminating evidence the payment of rent to the related party during the year under consideration is reasonable one."

In view of the decisions of the coordinate benches of ITAT, Mumbai in ITA No. 4958/Mum/2015 for A.Y.2011-12 and ITA No. 6997/Mum/2016 for A.Y. 2012-13 in assessee trust's own case, the grounds of appeal of the revenue are hereby rejected.

In the result, the appeal filed by the revenue is dismissed