THE CORBETT EDUCATIONAL SOCIETY,UTTRAKHAND vs. CIT, HALDWANI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘H’: NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA No. 5581/Del/2014 Assessment Year: Nil The Corbett Educational Society, Vs. Commissioner of Income Tax, Hariyawala Chowk, Kashipur, Khurana Complex, Nainital Road, Distt.- Udham Singh Nagar, Haldwani. Uttarakhand. (PAN: AABTT2988H ) (Appellant) (Respondent)

Appellant by Sh. K. Sampath, Advocate Respondent by Sh. Amit Mohan Govil, CIT (DR) Date of hearing 15.02.2016 Date of pronouncement 30.03.2016 ORDER PER O.P. KANT, A.M.: This appeal of the assessee is directed against order dated 11/09/2014 of the Commissioner of Income Tax, Haldwani, rejecting the registration under section 12AA of the Income-tax Act, 1961. The ground of appeal raised by the assessee is as under: “That on the facts and in the circumstances of the case and in law the action of the Ld. Commissioner of income tax in refusing to grant registration under section 12AA of the Income-tax Act, 1961 is most arbitrary, palpably erroneous and grossly unjust. It is prayed that this action must be quashed with the direction to grant the registration as sought.”

2 ITA No. 5581/Del.2014, The Corbett Education Society assessee society applied to the Commissioner of income tax, Haldwani, for granting registration under section 12AA of Income- tax Act, 1961 (in short the ‘Act’) on 16/04/2014. The Commissioner of Income Tax refused to grant registration to the society on the ground that members of the management committee were found to be violating the primary object of the society that it was not for profit motive. The Commissioner of Income Tax in his order observed that a survey under section 133A of the Act was conducted on 04/08/2010 and in the course of survey, it was found that four ladies, which were family members of the management committee, were paid salaries without rendering any services. The Commissioner of Income Tax also noted that the assessee society was rejected approval under section 10(23C)(vi) of the Act by the Chief Commissioner of Income Tax, Dehradun vide his order dated 29th March 2011. Aggrieved with refusal to grant registration under Section 12AA of the Act by the Commissioner of Income Tax, the assessee is in appeal before the Tribunal. 3. The Ld. Authorized Representative of the assessee submitted that the assessee fulfils both the conditions i.e. the charitable object and genuineness of its activities, for granting registration under section 12AA of the Act. He submitted that the assessee society is engaged in providing education which is one of the charitable object as defined in section 2(15) of the Act. The Ld. Authorized Representative, submitted a list of cases relied upon by him in support of his contention.

3 ITA No. 5581/Del.2014, The Corbett Education Society 4. On the other hand, the Ld. Commissioner of Income-tax (Departmental Representative), relied on the finding of the Commissioner of Income-tax, Haldwani and submitted that the assessee society has become a means of siphoning money by the society members and thus objects and activity of the society are no longer genuine, and hence the Commissioner of income tax has rightly refused to grant registration to the assessee. 5. We have heard the rival submissions and perused the material on record. The Commissioner of Income-tax while refusing the registration, noted as under: “2. It runs an educational institution in the name of Tempton college at Kashipur. In the past, it had made application before the Chief Commissioner of income tax, Dehradun seeking approval under section 10 (23C)(vi) of the IT Act, 1961 (on 29/03/2011). The same was rejected by the order dated 28/03/2012, holding that its activities appeared to be non-genuine and commercial in nature. In this case, survey under section 133A of the IT Act, 1961 was conducted on 4th August 2010. It was found that 4 ladies, being family members of the members of the management committee were being paid salaries without rendering any services. On being asked about this, the accountant had stated that they were family members or close relations of the members of the management committee and, hence they could not be compelled to sign the attendance register. Eventually, it was held by the AO in the course of assessment that the assessee had given undue benefit to the persons specified in section 13(3) of the IT Act ,1961 read with Explanation-12 that section. There is nothing on record to suggest that the adverse finding has been overturned by any appellate authority. 3. The essence of ‘trust’ is complete absence of private profit. The assessee was formed a society, promising that there was no such profit motive. But, in practice, the members of the management committee were found to be violating this solemn commitment. This is not a curable defect. Therefore, even though the finding relates to the financial year 2010-11, I am not satisfied with the activities of the assessee being charitable in nature and refused to register it under section 12 AA of the IT Act, 1961.”

4 ITA No. 5581/Del.2014, The Corbett Education Society 6. The facts gathered during the course of survey under section 133A of the Act and explanation submitted by the assessee in this respect are mentioned in detail in para 4 of the assessment order of the assessee society for assessment year 2011-12, which is reproduced as under: “4. Facts gathered during the course of survey proceedings: At the time of survey proceedings, an attendance register of all the teachers was examined and on examination, it was noticed that the most of the teachers had put their signatures on the attendance register whereas the four lady teachers did not sign on the attendance register and the column for signature was left blank right from the month of April 2010 till the date of survey on 04.08.2010. The names of the lady teachers are as under: 1. Smt. Sonal Agarwal 2. Smt. Prachi Agarwal 3. Smt. Kamlesh Agarwal 4. Smt. Shruti Agarwal Even all of the four lady teachers were found absent from duty on the day of survey. The Principal of the school Mr. Ashok Batsar was present there in the school at the time of survey. In the statement on oath of the principal recorded during the course of survey proceedings, he was required to explain the reason about the absence of the four lady teachers and produced the leave application if any given by them. But only it has been stated by the Principal in his statement on oath that the employees were on leave but he could produce any leave application under the plea that the application may be made available only after the teachers join the school. 4.1 The Accountant of the school who used to manage all the accounts and financial affairs was also asked in his statement on oath to explain the reason as to why the four lady teachers have not put their signature in the attendance register. The Accountant had stated in his statement on oath as under: “उपरो�त चार� ह� कम�चार� हमार� मैनेजम�ट के सद�य� के या तो पा�रवा�रक सद�य ह� या उनके कर�बी �र�तेदार ह� इस�लए उनके ह�ता�र करने के �लए बा�य नह�ं �कया जाता ह� I”

5 ITA No. 5581/Del.2014, The Corbett Education Society

On query about the salary paid to the four lady teachers, the Accountant stated in his state on oath as under: “�ीमती सोनल अ�वाल को �पए २२,०००/- (��त माह ), �ीमती �ाची अ�वाल को �पए १७,०००/- (��त माह ), �ीमती कमलेश अ�वाल को �पए १५,०००/- (��त माह ) एवं �ीमती �ु�त अ�वाल को �पए १५,०००/- (��त माह ) का भुगतान �कया जाता ह� I जून २०१० तक का भुगतान कुल चार� कम�चा�रय� का �पए २,०७,०००/- �कया जा चूका ह�.” Further query about the education qualification of the four ladies and method of appointment and produce their appointment letters, the Accountant has stated as under: “उपरो�त चार� अ��श��त �ेजुएट ह� I सभी के डोिजयर बने ह� ले�कन अभी नह�ं �मल पा रहे ह�I” On examination of the pay scales of all the teachers, it was also noticed that the four lady teachers were being paid more salary in comparison to the other trained graduate and experienced teachers. The Accountant during the course of statement on oath was required to explain the reason of making payment of more salary to the untrained four lady teachers. The Accountant in his statement of oath has explained as under: “वेतन का �नधा�रण �कूल क� मैनेजम�ट कमेट� का �वारा �कया जाता ह�, अतः म� इस स�ब�ध म� कुछ नह�ं बता सकता I इस स�ब�ध म� �धानाचाय� ह� बेहतर बता सकते ह� I म� इस स�ब�ध म� कुछ नह�ं कह सकता I” On the basis of facts and findings during the course of survey proceedings as well as during the course of assessment proceedings of the case, it has been established that all the four lady teachers were actually not employed nor they performed any teaching activity in the college. As such, it was confirmed that there was diversion/concealment of the income of the society by way of showing payment of salary to the following family members and close relatives of the members/chairman of the society. S. Name of the family Relation with Amount of No. member member/chairman salary paid (per month) 1. Smt. Sonal Agarwal Wife of society Rs. 22,000/- member 2. Smt. Prachi Agarwal Wife of society Rs. 17,000/- member 3. Smt. Kamlesh Sister-in-law of Rs. 15,000/-

6 ITA No. 5581/Del.2014, The Corbett Education Society Agarwal society member 4. Smt. Shruti Agarwal Daughter-in-law of Rs. 15,000/- society member Total Rs. 69,000/-

7 ITA No. 5581/Del.2014, The Corbett Education Society 1. Fifth General Education Society versus CIT (1990) 185 ITR 634 2. DCIT versus Cosmopolitan Educational Society (2000) 244 ITR 494 (Raj) 3. DIT versus Parivar Sewa Sansthan (2002) 254 ITR 268 (Del) 4. Orpat charitable trust versus CIT (2002) 256 ITR 690 (Guj) 5. Guru Govind Singh Education Society versus CIT (2009) 118 ITD 207 (ASR) 6. CIT versus Spring Dale education society (2011) 204 Taxmann 11 (P & H) 7. DIT versus JITO Channai chapterr (2012) 204 Taxmann 157 (Madras) 8. CIT versus Bharat Sewa Sansthan (2013) 217 Taxmann 337 (All) 9. CIT versus State Urban Development Agency (2013)218 Taxman 146(All) 10. CIT versus RS Bajaj society (2014) 222 Taxmann 111(All) 7. In the case of Fifth-Generation Education Society (supra), the Hon’ble High Court of Allahabad in the writ petition of the assessee society, who did not carry out any charitable activity, held that “merely because the objects of a charitable trust are general, they do not cease to be charitable. It is also not the requirement of section 12A that any activity should be carried on by the charitable Society for obtaining registration.” 8. In the case of assessee in hand, the activities were carried for a long time and registration has been refused on the ground of non genuineness of the objects/activities of the assessee and thus the facts of the case in hand are different from the facts of the above cited case and thus the ratio laid down is not applicable over the facts of the assessee. 9. In the case of DCIT versus Cosmopolitan Education Society(supra), the Assessing Officer refused to grant exemption under section 10(22) of the Act to the assessee society on the ground that income funds of the Society was not used for educational purpose, however the first appellate authority referring to the balance sheet of the assessee found that it was not known that any part of the

8 ITA No. 5581/Del.2014, The Corbett Education Society income of the assessee was mis-utilized and Tribunal confirmed the finding of the first appellate authority. The Hon’ble High Court having regard to the finding of the facts recorded held that no substantial question of law arose from the order of the Tribunal. Since the Hon’ble High Court has not decided any question of law in the case, the reliance placed by the assessee is not helpful. Moreover in the present case the misappropriation and siphoning of funds has been established and thus facts of the present assessee are different from the facts of the case of DCIT versus Cosmopolitan Educational Society (supra). 10. In the case of DIT versus Parivar Sewa Sansthan (supra), the claim of the assessee for exemption under section 11 of the Act as charitable trust was rejected by the Assessing Officer on ground of violation of section 13(1)(c) and (d) of the Act, however the Tribunal found that salary, rent, etc, paid to Chief Executive Officer and Project Coordinator were not excessive and the loan allowed to certain foundation was for promotion of its charitable objective and the expenditure incurred on conference and clinic was part of charitable activities and, therefore, there was no violation of provisions of section 13(1)(c) and (d) of the Act and the assessee was entitled to exemptions under section 11 of the Act. The Hon’ble High Court held that above findings were essentially factual giving rise to no question of law. Since in the case no legal issue has been decided by the court, the reliance placed by the assessee is of no assistance. The facts of the case are different from the facts of the present assessee as salary etc. paid to Chief Executive Officer and Project coordinator has not been found

9 ITA No. 5581/Del.2014, The Corbett Education Society to be excessive, whereas in the present case not only the salary has been found excessive but it has been paid to family members of the management committee even without rendering any services. 11. In the case of Orpat Charitable Trust versus Commissioner of income tax (supra) the issue of refusal to grant approval to assessee trust under section 80G(5) of the Act on the ground that the assessee trust had acted in contravention of section 11(5) of the Act was not held to be justified. Since the issue in dispute in the present case is registration under section 1 AA of the Act, the ratio of the cited judgments is not applicable over the facts of the assessee. 12. In the case of Guru Gobind Singh Educational Society versus Commissioner of income tax (supra) the assessee was an educational society and was granted registration under section 12AA(3) of the Act, however subsequently the Commissioner found various irregularities in activities of the assessee society, mainly (i) assessee had opened bank accounts in the names of its members with the motive of transferring concealed business income from its books to bank accounts of members, (ii) there was dispute amongst members of society regarding management of society, (iii) assessee had debited a sum of Rs. 49 Lacs in its books of accounts as advance for land without furnishing complete details , and in view of these irregularities, he cancelled registration granted to the assessee under section 12 AA of the Act. The Tribunal found from records that the amounts deposited in the bank accounts of the members of the assessee society had not been utilized by the members for their personal use

10 ITA No. 5581/Del.2014, The Corbett Education Society and no proof had been brought to show any concealed income of assessee society and siphoning of its income in manner alleged and further dispute between members had no effect on objects and activities of the assessee society and further amount debited in books of assessee were used either for purchase of land and for further enhancement of the object of the society and that affidavits of the persons concerned who advanced said sum had been furnished by the assessee. In view of the said facts, the Tribunal held that no case of personal benefits to members of assessee prompting cancellation of registration had been made out and the Commissioner was not justified in cancellation of registration already granted to the assessee. The facts of the cited case are different from the facts of the assessee. In the cited case no misappropriation or siphoning off of income of the Society was established, whereas in the present case siphoning of income of the society by the family members of the members of the management committee has been duly established, and therefore the ratio of the said decision is not applicable over the facts of the case of the assessee. 13. In the case of Commissioner of Income Tax-1, Ludhiana versus Spring Dale Educational Society (supra), the Hon’ble court has held that while examining application seeking registration under section 12AA of the Act, manner of application of funds of trust do not fall within the purview of the Commissioner and Commissioner should only satisfy himself about the genuineness of the aims and objects of the trust / institution and genuineness of its activities as enumerated in clause (b) of subsection (1) of section 12AA of the

11 ITA No. 5581/Del.2014, The Corbett Education Society Act. In the present case, the Commissioner of income tax has refused registration as he did not find the activities of the Society as genuine, thus, the facts of the present case are different from the facts of that cited case, hence ratio of the said case is not applicable over the present case. 14. In the case of Director of Income-Tax (Exemptions) vs. JITO Channai chapterr that registration under section 12 AA of the act was refused on the ground that object clause of the deed contained provision for domestic and overseas markets and also for settlement of disputes by arbitration and therefore assessee’s object was not charitable in accordance with section 2(15) of the Act, however the Hon’ble court has held that object of the society was to propagate nonviolence and tenets of truth and to encourage universal spiritual upliftment as preached by Tirthankar Bhagwants and what was stated about settlement of dispute was only incidental thereto which could not be stated to be commercial in nature and thus the assessee was entitled for registration under section 12AA of the Act. The facts of the present case are different from the facts of the cited case. 15. In the case of Commissioner of Income Tax versus Bharat Sewa Sansthan (supra) the assessee, a Society registered under section 12A of the Act, was denied exemption by the Assessing Officer observing that (i) huge amounts spent by the assessee and passed on to two other organization had no obvious link with charitable purpose and their immediate hidden purpose was to benefit members of the society and (ii) President and Treasurer of society had occupied

12 ITA No. 5581/Del.2014, The Corbett Education Society a building, which was owned by assessee sister concern at a nominal rent however the Hon’ble Court has held that the Assessing Officer had not mentioned anywhere that funds were misappropriated and were not utilized for objects of the society and therefore in view of the aforesaid position, the Assessing Officer was wrong in denying exemption to the assessee. In the cited case the Assessing Officer has not found misappropriation of funds, whereas in the present case the Commissioner of Income-tax has brought on record misappropriation or siphoning off income by the family members of the members of the Society, and thus the ratio laid down in the cited case is not applicable over the facts of the present case. 16. In the case of Commissioner of income tax versus State Urban Development Agency (supra) it was held by the Hon’ble High court that non- maintenance of accounts properly particularly when accounts, management, control etc of assessee were fully controlled by the state government or non- utilization of fund and keeping in bank would not attract cancellation of registration of society. As the facts of present case are different from the facts of the case cited, and thus the ratio of the cited case is not applicable over the facts of the case of the assessee. 17. In the case of Commissioner of Income Tax versus RS Bajaj society the Hon’ble High Court has held that the registration under section 12AA cannot be refused on the ground that trust had not yet commenced charitable or religious activity and only genuineness of the objects was to be tested at the time of

13 ITA No. 5581/Del.2014, The Corbett Education Society registration and not activities which was not commenced by that time. Whereas in the present case the activities started long ago, and therefore facts of the present case being different from the cited case, the ratio of the cited case is not applicable over the facts of the case. 18. In the light of above discussion, we are of considered opinion that the members of the management committee has siphoned off or misappropriated the income of the Society and thus the activity of the Society, cannot be termed as genuine and the Society in the garb of charitable activity of education, is engaged in enriching its members through undue means. It is evident that the Commissioner of Income Tax has not found the object of the society and genuineness of its activities as satisfactory, and refused the registration as per section 12AA(1)(b)(ii) of the Act. Accordingly, we hold that the Commissioner of Income Tax has rightly refused to grant the registration to the assessee society. The ground of the appeal is dismissed. 19. In the result, the appeal of the assessee is dismissed. The decision is pronounced in the open court on 30th March, 2016. Sd/- Sd/- (H.S. SIDHU) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 30th March, 2016. Laptop/computer Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi