M/S. NABADIGANT EDUCATIONAL TRUST,BHUBANESWAR vs. ITO, WARD-2(1), BHUBANESWAR, BHUBANESWAR

आयकर अपीऱीय अधिकरण, कटक न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI C.M. GARG, JM & SHRI ARUN KHODPIA, AM आयकर अपीऱ सं./ITA No.03/CTK/2015 & आयकर अपीऱ सं./ITA No.137/CTK/2016 (नििाारण वषा / Assessment Year :2009-2010 & 2011-2012) M/s Nabadigant Educational Trust, Vs ITO, Ward-2(1), Bhubaneswar Plot No.N.2/17, IRC Village, Bhubaneswar-751015 PAN No. : AAATN 3196 L (अऩीलाथी /Appellant) (प्रत्यथी / Respondent) .. ननधाारिती की ओर से /Assessee by : Shri B.R.Pattnaik, AR िाजस्व की ओर से /Revenue by : Shri M.K.Goutam, CIT-DR सुनवाई की तािीख / Date of Hearing : 07/03/2022 घोषणा की तािीख/Date of Pronouncement : 17/05/2022 आदेश / O R D E R Per C.M.Garg, JM: These two appeals filed by the assessee against the order dated 27.10.2014, passed by the CIT(A), Berhampur (Camp : Bhubaneswar) and against the order dated 25.01.2016, Bhubaneswar for A.Y. 2009- 2010 & 2011-2012. 2. Since the issues involved in both the appeals are identical and similar, therefore, for the sake of convenience, both the appeals were heard together and decided by this consolidated order. First we shall take up appeal of the assessee in IT No.03/CTK/2015 for the A.Y.2009-2010, wherein the assessee has taken the following grounds :- 1. Because that the Ld. Commissioner of Income Tax (Appeals), erred in law as well as in facts by upholding the action of the Ld. Assessing officer which is unjust, arbitrary and bad in law. 2. Because that the Ld. Commissioner of Income Tax (Appeals), erred in law as well as in facts by upholding the action of the Ld. Assessing officer for invoking Section 13 for the fact that the

2 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 trust has advanced interest bearing loans to a Company in which the trustees are interested and to Managing Trustee of the trust. 3. Because that the Ld. Commissioner of Income Tax (Appeals), erred in law as well as in facts by upholding the observation of the Ld. Assessing officer that the institutions run by trust are collecting fees over and above the admission fees prescribed by BPUT as well as the Government for that matter is not eligible for exemption U/s 11 of The IT. Act,1961. 4. Because that the Ld. Commissioner of Income Tax (Appeals), erred in law as well as in facts by upholding the conclusion of the Ld. Assessing officer that the trust is not imparting education but running the institutions as a business activity for profit. 5. Because that the Ld. Commissioner of Income Tax (Appeals), erred in law as well as in facts by upholding the action of the Ld. Assessing officer for taxing the total income of the trust whereas the income has been applied as per Section 11 of The IT. Act. 6. Because that the Ld. Commissioner of Income Tax (Appeals), erred in law as well as in facts by observing that the trust has violated Section 13(1)(d) for loans advanced to a company though the same is allowable U/s 13(2)(a) of The Act. 3. As per the statement of facts mentioned along with Form No.35 of assessee, the assessee is a trust registered u/s.12A and 80G of the Income Tax Act, 1961( in short ‘the Act’). The return of income of the trust for the impugned assessment year was selected for scrutiny u/s.143(2) of the Act and the assessment order u/s.143(3) of the Act was passed on 30.12.2011. in this case the assessee has claimed exemption u/s.11 & 12 of the Act. The AO doubted the genuineness of the activities of the trust and invoked section 13 of the Act and denied benefit u/s.11 of the Act by taxing the total surplus as per the Income & Expenditure Account of the Trust as income chargeable to tax.

3 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 4. Aggrieved with the order of AO, the assessee carried the matter before the CIT(A) in the first appeal but the was dismissed by observing that the advance of loan is in violation of Section 13(1)(c) of the Act and deposit of the amount is in violation of Section 13(1)(d) of the Act and, therefore, the trust is not entitled for exemption u/s.11 & 12 of the Act. Ld. CIT(A) upheld the assessment order by concluding that the AO was right in bringing to tax the surplus income over expenditure and the first appeal was dismissed. 5. Now, the assessee is before this Tribunal with the grounds as noted above. 6. Undisputedly rather admittedly the assessee trust having registration u/s.12A of the Act w.e.f.07.10.1997 and it was granted registration u/s.80G of the Act for A.Ys.2009-10, 2010-11 & 2011-12. 7. Ld. AR submitted that the assessee trust has been established for the purpose of imparting educations as per the charitable objective clause and in pursuant to that the assessee trust is running colleges where seven professional/educational courses such as B. Tech, M.Tech, M.Pharma and taught to the students. Ld. AR submitted that the AO has made baseless formula and incorrect allegations to deny benefit of Section 11 of the Act to the assessee and for invoking provisions of Section 13(1)(d) & 13(1)(c) of the Act. Ld. AR submitted that the AO has made incorrect observations in para 4.1 at page 5 of the assessment order to observe that the assessee collects money over and above the fees prescribed by the Government, it amounts to selling the education

4 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 and the element of charity no longer remain in the activities of the assessee. Therefore, the assessee trust is not eligible for exemption u/s 11 of the Act. Ld. AR drew our attention towards the order of ITAT Cuttack Bench in the case of Indus Educational & Charitable Trust Vs. ITO, ITA No.19/CTK/2020, order dated 14.10.2020 to submit that the surplus fund arising out of receipts from students are utilized for expansion of educational infrastructure by the Trust, for carrying of educational activities cannot be treated as profit motive earnings. In such a situation, the application of surplus or extra amount of fees over and above the Government prescribed fees cannot be taken to establish profit motive of the assessee trust. 8. Ld. AR submitted that in para 5.1, the AO has made allegations that the surplus derived out of the fees collected from the students are applied for the benefit in subsequent years and this is nothing but profit of the assessee. The ld. AR submitted that if the surplus is utilised for the benefit and development of infrastructural facility of the trust, this cannot be held to be a commercial activities in the present case. It is not the case of the AO that the surplus or extra collected fees been siphoned or utilised for the purpose other than the charitable objects of the trust, therefore, the presumption of the AO in this regard are baseless. He also submitted that in para 5.2, in spite of the fact that the AO noted that the fees structure for each institute must be fixed keeping in mind the infrastructure and facilities available, the investment made, salaries paid to the teachers and staff, future plans for expansion and/or betterment of the institution etc.,

5 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 he denied benefit of section 11 of the Act on account of small and pity issues, which is not a justified and reasonable approach. The AO has to see totality of the facts and circumstances wherein fees has been collected and its utilisation should also be considered at the time of adjudicating the issues but the AO has failed to undertake such exercise. The ld. AR submitted that the AO has made unnecessary allegation in para 5.2 by observing that the imparting of education is essentially charitable in nature, therefore, the surplus/profit that can be generated must be only for the benefit/use of that educational institution. The profits/surplus cannot be diverted for any other use or purpose and cannot be used for personal gain or benefit of the persons specified in section 13(3) of the Act or for any other business enterprise or entity which comes within scope of this said provision. Ld. AR also drew our attention towards written submissions and submitted that the ld. CIT(A) wrongly observed that if the assessee is extending loan then Section 11(5) of the Act is applicable. 9. Ld. AR placing reliance on the decision in the case of CIT Vs. St. Peter’s Educational Society [2016] 70 taxmann.com 171 (SC) to submit that where a surplus was made by educational institution which was ploughed back for educational purposes, said institution was to be held to be existed solely for educational purpose and not for purpose of profit. Further placing reliance on the decision of Hon’ble Supreme Court in the case of Queen’s Educational Society Vs. CIT [2015] 55 taxmann.com 255 (SC), ld. AR submitted that where surplus was made by educational

6 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 institutions for educational purpose, the said institution was to be held existed solely for educational purpose and not for purpose of profit. Ld. AR also drew our attention towards CBDT instruction No.1132, dated 5-1- 1978 to submit that the payment of a sum by one charitable trust to another for utilisation by the done trust towards its charitable objects is proper application of income for charitable purpose in the hands of the done trust; and the donor trust will not lose exemption under section 11 of the Income-tax Act, 1961, merely because the done trust did not spend the donation during the year of receipt itself. Ld.AR lastly submitted that there is no violation of any sub-clause of Section 13 of the Act as the surplus and extra fees received by the trust have been utilised or ploughed back for the purpose of charitable objects of the trust and there is no use of funds beyond a the scope of charitable objects. Ld. AR submitted that the donation to the similar kind of trust having similar charitable objects is also an application of income and the benefit of Section 11 cannot be denied to the assessee trust. Ld. AR also submitted that the foreign travel of the trustee of Shri Prabhat Ranjan Mallick was for the purpose of securing collaboration and educational exchange procurement with the universities at USA, therefore, the expenditure has been incurred for the growth and progress of the trust and benefit of Section 11 of the Act cannot be denied to the assessee. Ld.AR also submitted that the interest amount on the loan given to the managing trustee of the trust and the company where the trustee of the trust engaged as directors/shareholders was advanced at the generalize

7 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 interest rate and the interest was paid thereon during the subsequent years merely the interest was not paid during the relevant financial period, it cannot be presumed that the loan has been advanced to the entities in violation of section 13(3) of the Act. Ld. AR lastly prayed that the AO should be directed to allow exemption u/s.11 of the Act by allowing appeal of the assessee. 10. Replying to the above, ld. CIT-DR placing reliance on the decision of the Hon’ble Delhi High Court in the case of DIT(Exemption) Vs. Charanjiv Charitable Trust (2014) 223 Taxman 71 (Del) submitted that if there is one instance of application or use of the income or property of the trust directly or indirectly for the benefit of any prohibited person, the trust will lose the exemption in respect of its entire income. Further placing reliance on the order of the ITAT Ahmedabad Bench of the Tribunal in the case of Surat Tennis Club Vs. ACIT, [200] 75 ITD 362 (AHD), the CIT-DR submitted that any income which has been applied or diverted for non- charitable purpose during the year under consideration will have to be brought to tax and in that case the correct rate of tax is to be applied under the provisions of section 164(2) of the Act. 11. Ld. CIT-DR submitted that though the trust has charged interest on loan/advances to the company, but in reality no interest has been recovered from the above said company by the assessee-trust at any point of time. Therefore, it is a clear violation of Section 13(2)(c) of the Act. Ld. CIT-DR also submitted that there is no evidence to show that the expenditure incurred on account of foreign tour of Shri Prabhat Ranjan

8 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 Mallick/Managing Trustee of the trust is for the charitable objects of the assessee to obtain or secure collaboration and educational exchange programmes from the universities in USA, which is also a violation of Section 13 of the Act. He also drew our attention towards last page of first appellate order and submitted that the CIT(A) has upheld the findings of the AO and has categorically held that the advance of loan has been made in violation of Section 13(1)(c) of the Act, therefore, the assessee is not entitled exemption u/s.11 & 12 of the Act. 12. Ld.CIT-DR also submitted that for collecting outside training fees no purpose has been established and it has also not been established that the extra fees was for outside training fees so collected was utilised for the charitable purpose or improvement of infrastructure of the trust, therefore, the benefit of the case laws relied on by the ld. AR is not applicable for the trust. Ld. CIT-DR also submitted that the case laws relied on the by the ld. AR of the assessee in the written submission at page 11 & 12 of the Act are not applicable in the present facts of the case as in the present case the AO has subsequently demonstrated that there is diversion of funds without receiving any interest, therefore, the authorities below were rightly held that the assessee is not entitled to the benefit u/s.11 & 12 of the Act. Ld. CIT-DR also submitted that the benefit of the order of ITAT Cuttack Bench in the case of Indus Educational & Charitable Trust (supra) is also not applicable to the case of the assessee as the writ petition is pending before the Hon’ble High Court of Orissa regarding extra charged fees but in the present case no writ petition is

9 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 pending before any authority or Hon’ble High Court of Orissa. Ld. CIT-DR also submitted that the reliance placed on by the ld. AR in the case of St. Peter’s Educational Society and Queens’s Marry Educational Society (supra) are not applicable to the present case as the assessee has not established or substantiated that the surplus has been used by the educational institution and was ploughed back for educational purpose to establish that the trust existed solely for educational purpose and not for the purpose of profit. 13. Placing rejoinder to the above, ld. AR submitted that even if there is a single instance of violation of provisions of Section 13 of the Act, then also as per the provisions of Section 164(2) of the Act as already relied on by the ld. CIT-DR by placing reliance on the decision of Ahmedabad Bench of the Tribunal at para 12 in the case of Surat Tennis Club (supra) that any part of the income which has been applied or diverted for non- charitable purpose during the year under consideration will have to be brought to tax and in that case the correct rate of tax is to be applied under the provisions of Section 164(2) of the Act. 14. On careful consideration of the above rival submissions and from the assessment order, we observe that the AO has denied benefit of Section 11 of the Act to the assessee by observing at paras 3.1 to 5.2 as under :- 3.1 'Diversion of Trust property' On going through the copy of ledger account of M/s Koustav Metals Pvt. Ltd. it is found that there is an opening balance of Rs.10,00,000/- as on 01.04.2008. During the previous year 2008- 09, the assessee-trust had paid a sum of Rs.91,07,000/- to the

10 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 above company and at the end of the accounting year there is a debit balance of Rs.75,85,740/- after charging of interest of Rs.9,51,773/-. During the course of assessment proceedings, the A.R. was requested to furnish the copy of ledger account of M/s Koustav Metals Pvt. Ltd. for the last year and to state the name and address of the directors of the said company along with their percentage of share holding. The A.R. replied that Shri Pravat Ranjan Mallik and Smt. Namita Mallik are the directors of M/s Koustav Metals Pvt. Ltd. Further, on going through the copy of ledger account, it is found that though the trust has charged interest on loan/advances to the company, but in reality no interest has been recovered from the above said company at any point of time. Shri Pravat Ranjan Mallik is the Managing Trustee of the trust, so also Smt. Namita Mallik is a trustee of the trust. Both the trustees have held 100% share in the company viz. Mls Koustav Metals Pvt. Ltd. In view of this matter, Mls Koustav Metals Pvt. Ltd. is a person having substantial interest in the Trust as per the provisions of section 13(2)(f) of the Act. According to the provisions of section 13, substantial interest means a person is deemed to have a substantial interest In-a concern in the following circumstances: 1) Where the concern is a' company, if its equity shares carrying atleast 20% of the voting power are owned by him or along with one or more of the person specified in section 13(3) in aggregate at 'any time during the year, or ; 2) In case of any other concern, if he or along with one or more. of the persons specified u/s. 13(3) in aggregate is entitled to at least 20% of the concern. In view of the above, M/s. Koustav Metal Pvt. Ltd. is an interested person in the trust as per the provisions of section 13(3) of the Act. , 3.2 On perusal of the copy of ledger account, it is noted that opening balance of Rs.13,42,401/- is shown against Sri Prabhat Ranjan Mallick, the Managing Trustee of the Trust towards loan. During the F.Y. 2008-09, a total payment of Rs.39,77,169/- was made to Sri Prabhat Ranjan Mallick by the Trust. At the end of the accounting year, after adjustment of some expenses, the closing balance is shown at Rs.31, 95,442/- including charging of interest of Rs.3,45,268/-, On a close reading of the copy of ledger account, it revealed that certain expenditure which was claimed to have been incurred by Sri Mallick on account of trust includes, his visit to USA. The expenditure on account of his visit to USA amounts to Rs.4,08,500/-. This amount also included loss on foreign currency exchange. In the course of assessment proceeding, the A.R of the assessee was asked to furnish the purpose of visit of Sri Mallick to USA and the correspondences made with the parties at USA. It was

11 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 explained by the A.R that Sri Mallick was on tour to USA in connection with securing technical tie up with Stanford University and other LJnil(ersities.,rIowever, he could not submit any documentary evidence so as to prove that the visit to USA by Sri P.R. Mallick, Managing Trustee of the Trust was in connection with the activities related to the aims and objectives of the Trust. It is also evident from the copy of ledger account that the Trust is going on charging interest on the balance amount standing as at the end of the accounting year interest was paid/collected from the creditor, i. e. Sri Mallick. So, this method is followed by the assessee in order to avoid the mischief of section 13ffi(c) of the I. T.Act.1961. Section 13(1 )(c)(ii) of the Act states that nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof if any part of such income or any property of the trust or the institution(whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section(3). By advancing loan/advance to the specified persons( Ire. Sri Prabhat Ranjan Mallik and M/s. Koustav Metals Pvt. Ltd.) as stated above, the trust violates the provision of section 13(1 )(c) read with section 13(2)(b) of the I. T.Act, 1961. 3.3 In the case of Action for Welfare & Awakening in Rural Environment (AWARE) Vs. DCIT (263 ITR 13) (A.P), the Hon'ble Court has observed that the entire transaction was within the personal knowledge of the trustees. It could be said that funds of assessee were diverted and misutilized. On facts, the assesee had violated the provisions of section 13(1 )(c)(ii) read with section 13(2)(b). In the case of Skin Institute Et Public Services Charitable Trust VS. AQIT (Exemption) (ITAT,Delhi) (65 ITD 125), the Tribunal held that a part of trust income was being used directly or indirectly for the benefits of its founder and Managing Director - No exemption u/s. 11 or 10(22). 3.4 In view of the discussions made above and since the assessee trust violates the provisions of section 13(l)(c) read with section 13(2)(b) of the Act, it is not eligible to get the benefit of exemption u/s. 11 of the Act. 4.1 'Outside Training Fees' On examination of the audited accounts of the Trust, it is revealed that the Trust has shown receipt of ‘outside training fees’ to the tune of Rs.3,03,76,721/- from the students admitted under Koustav Institute of Self Domain and College of Engineering, Bhubaneswar.

12 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 The A. R of the assessee was asked to explain the nature and purpose of receipt of such training fees and to furnish a copy of ledger account in respect of the above receipt. 4.2 The A.R filed a copy of ledger account and also submitted a list of few students containing the name &: addresses showing the receipt of fees. A copy of the list is attached to this order as Annexure-I. It was explained by the A.R that 'the outside training fees has been received from the students of both colleges. The numbers of students from which the said fees have been received are around 1500 students. We are preparing the details i.e. a statement showing the names and address of such students. Since this is a voluminous job, kindly allow us one week time to submit the same'. It was also explained by the A.R that all the fees were received in cash from the students of the respective colleges and included in the income &: expenditure account. The related expenditure for providing training has been included in the administrative expenses of both the colleges'. However, the A.R could not furnish any details regarding the nature and purpose of receipt of such training fees from the students. 4.3 In absence of any evidence from the assesee trust, it can be inferred that the outside training fees are nothing but these are receipts from the students over and above the admission fees prescribed by the BPUT as well as the Government. In the case of Vodithala Education Society Vs. ADIT(Exem) (ITAT, Hyd) 20 SOT 353, the Tribunal held that when the asse'ssee collects money over and above the fees prescribed by the Government, it amounts to selling the education and the element of charity no longer remain in the activities of the assessee. Therefore, the assessee trust is not eligible for exemption u/s 11 of the Act. 5.1 'Donation paid to Charitable Institutions' In the course of hearing, the assessee was asked to furnish the details of donations paid to charitable institutions. A list was submitted by the A.R which shows that the Trust has paid donation of Rs.2,17,00,000/- to M/s. Koustuv Technological Foundation and Rs.32,03.350/· to Nabakalebar Charitable Trust. The registered office of both the institutions are claimed to be at N·2/17, IRC Village, Nayapalli, Bhubaneswar. The registered office of the assessee-Trust is also at N-2/17, IRC Village, Nayapalli, Bhubaneswar. In both the institutions to whom the assessee trust has paid donations, Sri Prabhat Ranjan Mallick is also the trustee/member of the institutions. It was further found from the Schedule-8 forming part of the balance sheet of the trust as at 31.03.2009 that the Trust has advanced loans to the charitable Trusts amounting to Rs.3,94,65,532/-. It is further noticed that a sum of Rs.31,00,000/- was paid to Sri

13 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 Debashis Rath as advance for training & placement expenses. This fact shows that the assessee trust is having sufficient profit in its hand so as to advance its funds to others. The society is an educational institution; it earns its income from admission and readmission fees from the students. The fees collected from the students were meant for utilization by the trust towards the educational activities of the trust and for benefit of education of the students, whereas from the above it is seen that the trust is diverting its funds to other institutions which was collected from the students under the guise of education. The fees collected from the students in excess of the expenses incurred by the trust towards imparting the course are certainly part of the assessee's fund and if utilized for the purpose of acquisition of capital asset , paying donations to others and advancing loans to other institutions, the benefit derived therefrom if any is not going to the students from whom the fees have been collected. Rather it will go to the benefit of the Trust. In other words, the surplus derived out of the fees collected from the students are applied for the benefit in subsequent year5s and this is nothing but profit of the assessee. The assesssee does not have any other source to expand or invest and the same is being done by collecting excess fees from the students for whom the services provided by the assessee is less than fees paid by the students. . As the term 'education' has not been defined under the I.T.Act, its natural meaning has to be followed while interpreting the word 'education'. Nowhere, it has been defined that teaching students for a particular course or subject against collecting fees will be called as education, as claimed by the assessee. The process that has been followed the assessee- trust is nothing but business activity. The subsequent application of the surplus to capital investments and by way of advancing loans & advances to others has nothing to do with the retaining the surplus from the fees of the students. At the first instance by creating huge surplus from the fees paid by the students are sufficient to prove that the running of the institution is to earn the profit and nothing else. The Trust is created with the objective of charitable purpose for which the trust is claiming exemption u/s.11 of the Act and not for the purpose of earning profit. 5.2 In the case of T.M.A. Pai Foundation Vs. State of Karnataka (2002) 8 SCC 481, it has been categorically laid down that the decision on the fees to be charged must necessarily be left to the private educational institutions that d not seek and which are not dependent upon any funds from the Government. Each institute will be entitled to have its own fee structure. The fee structure for each institute must be fixed keeping in mind the infrastructure and facilities available, the investment made, salaries paid to the

14 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 teachers and staff, future plans for expansion and/or betterment of the institution etc. Of course there can be no profiteering and capitation fees. It thus Reeds to be emphasized that as per the majority judgment, imparting of education is in nature. Thus, the surplus/profit that can be generated must be only for the benefit/use of that educational institution. Profits/surplus cannot be diverted for any other use or purpose and cannot be used for personal gain or for any other business or enterprise. In this aspect also, the assessee-trust is not eligible to get benefit of exemption u/s 11 of the Act. 15. Against the above observations of the AO, the assessee carried the matter before the CIT(A) in the first appeal and the CIT(A) dismissed the appeal of the assessee affirming the findings of the AO. The relevant part of the first appellate order as under :- "5.3.1 Coming to the merits of the case, it is a settled law that when a surplus, which is otherwise taxable, is exempted from tax by the legislature then, the concern availing the benefit of such exemption must rigorously comply with the provisions applicable to such exemptions. In fact, the Courts have held that the Revenue Authorities are under obligation to ensure that such assessees are complying with the provisions of the Act. In Budha Vikash Samiti v. CIT[2011] 11 taxmann.com 234 (Patna)I[201,l] 199 Taxman 395, (Patna)I[2011] 242 CTR 324 (Patna)the Hon'ble Patna High Court held as under:

"The authorities under the Act should have been mindful of the position that registration of an organization as a charitable institution under the provisions of section 12A leads to exemption from payment of Income-tax. Therefore, it goes without saying that such an organization will have to measure up to the strict parameters laid down in the Act to continue to enjoy the benefit of exemption from payment of Income-tax, failing which it may be deprived of its registration as a charitable institution and the benefit of exemption from payment of Income-tax. The authorities under the Act were not mindful of their responsibility, resulting in abdication of essential duties and Junctions, causing recurring loss of revenue".

One of the condition which a charitable trust claiming exemption u/s.11 has to comply with is that it cannot advance any lean without interest or security to any concern in which the specified persons u/s.13(3) are interested. In the instant case, it is not in dispute that the appellant-trust advanced an amount of Rs.91,07,000/- to M/s. Koustuv Metal Pvt. Ltd., in which the Managing Trustee and the

15 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 Trustee of the -appellant own the entire 100% share capital and are Directors of the company. A similar issue came up before the Hon'ble Allahabad High Court in CIT v. Audh Educational Society (2011) 203 Taxman 166 (All.). In this decision, examining the relevant provisions of the statute relating to advancement of loan by a trust in which the specified persons u/s.13 hold substantial interest, the Hon'ble Court held as under:- "The relevant provisions in the Income-tax Act are as under: Section 13(1)(c):- "(c) In the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof (i) If such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income ensures, or (ii) If any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied. directly or indirectly for the benefit of any person referred to in sub- section (3)" Section 13(2):- "(2) Without prejudice to the generality of the provisions of clause (c) [and clause (d)] of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3). " Section 13(2)(a):- "(a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub- section (3)for any period during the previous year without either adequate security or adequate interest or both; " Section 13 (3):- (3) The persons referred to in clause (c) of sub-section (1) of sub-section (2) are the following namely :- (a) the author of the trust or the founder of the institution; (b) any person who has made a substantial contribution to the trust or institution, [that is to say, any person whose total- contribution up to the end of the relevant previous year exceeds [fifty] thousand rupees]; (c) where such author, founder or person is a Hindu undivided family, a member of the family; (cc) any trustee of the trust or manager (by whatever name called) of the institution;

16 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 (d) any relative of any such author, founder, person, [member, trustee or manager, as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), (c) [(cc)] and (d) has a substantial interest." 8. It may be mentioned that clause (c) of section 13(1) renders the entire income of trust or charitable institution liable to tax even if only part of income is directed to be applied for the benefit of the specified persons. The Legislature, however, also creates a fiction and enumerates in clauses (a) to (h) of sub- section (2) a list of circumstances in which the income shall be deemed to have been used or applied for the benefit of the specified persons. These clauses' comprehend various types of benefits such as by way of interest free loans, loans without security, permission or licence to use land or other property without charging adequate recompense, excessive payment for service, sale of property for inadequate consideration and investment of the trust funds in concern belonging to the specified person or in which he has substantial interest as observed in the case of Tekprolu Bapanaiah, Vidyadharma Nidhi Trust v. CIT [1987J 167 ITR 482 / 31 Taxman 399 (AP). In the instant case, the beneficiary is not covered by the list of persons mentioned in section 13 (3) of the Act. " The matter also came up before Hon'ble Delhi High Court in Kanahyalal Punj Charitable Trust v. DIT(Exemp.) (2008 297 ITR 66(Del.) wherein the Hon'ble Court held: "6. The basic requirement for the availability for exemption under. sections 11 and 12 of the Act is that if any money is lent to an interested party as defined in section 13 (3) of the Act for any period" during the previous year, then the trust should charge "adequate interest" and there should be an "adequate security". 7. If the contention of the assessee is accepted that the payments were in the nature of earnest money for purchase of land, and the whole exercise was of a commercial nature, it cannot be .explained why interest-free advances should be given. The Act requires very strictly that the trust should u.se their funds only for the charitable objects for which they have been set up and they cannot be permitted to loan or deposit funds available with them without interest as in the present case. Further, in the present case, not only interest was not charged,even adequate security was also not taken. 8. Section 13 (1)(c ) of the Act speaks of "any income" which has been used to benefit "directly or indirectly" any person referred to in section 13(3). The plain reading of this section would show that the Act is intended to eliminate any possibility

17 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 of the trust's fund being used for the benefit of any interested person. In the present case, it cannot be denied that a benefit has "directly or indirectly" reached the interested person, namely M/s. Punj Lloyd Ltd. and thus, there is a clear violation of sections 13(1)(c) and 13(2)(a) of the Act. 9. The Tribunal in its order has noted that once there is a violation of provision, of section 13(3) read with section 13(1)(c), the provisions of sections 11 and 12 of the Act shall not operate so as to exclude the income of the trust from the total income of the previous year. According to sections 11 and 12 of the Act, the voluntary contribution made with specific direction that they shall form part of the corpus of the trust or institution, shall not be included in the total income of the previous year of the trust. But once the exemption under sections 11. and 12 is denied, the assessee would not get any protection from sect tons 11 and 12 and the voluntary contribution would be treated as income, as per the definition of income given in section 2(24) of the Act, according to which income includes the voluntary contribution receipts by a trust credited wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes meaning thereby once the exemption under sections 11 and 12 of the Act is withdrawn all the receipts of the trust either by voluntary contribution or income derived from its property would be an income of the trust in a normal course and is chargeable to tax. " It has been also held in DIT(Exemp.) v. Chranjiv Charitable Trust (2014) 223 Taxman 71 (Del.)/ 43 taxmann.com 300(Del.) that in case of a charitable trust if it' is found that provisions of section 13(1)(c)(ii) read with section 13(3) are not followed, trust would lose its .exemption in entirety, with result that assessment of its income will be made according to provisions of Act.

As can be clear from the above judicial decisions, any advancement of loan without adequate interest or adequate security to a concern in which the persons mentioned at section 13(3) are interested will result in denial of exemption u/s.11. In the instant case, there is no dispute that the advance was made to a company by the Trust in which the Managing Trustee holds controlling interest. It is also an admitted fact that no security was obtained by the trust in respect of this advance/deposit. Under the statute, any advance without adequate security to a concern in which a specified person is interested shall be deemed to have been applied for the benefit of a person u/s.13(3). In addition, as has bee-n brought out by the AO though the interest was apparently charged in effect no interest was received.

Further, as has been brought out by the AO in the remand report, advance. was also paid to the Managing Trustee, Shri Prabhat

18 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 Ranjan Mallick. The appellant's contention that the said advance was given to Shri Malllck in connection with his tour to USA for a technical tie up with Stanford University has not been substantiated either before the AO or before me. The fact remains that substantial amounts of advance in. excess of. Rs. 30 lakhs remained outstanding with Shri Mallick even after accounting for the tour to USA. Thus, in other words, Shri Maliick, who is a specified person u/s.13(3) did derive benefit from the funds of the trust.

In view of the above facts and relying on the decisions referred above, it is clear that provisions of section 13(1)(c) read with 13(3) are attracted and, thus, the denial of exemption by the AO is perfectly in order.

5.3.2 There is another important aspect to the matter. It is not the case of the appellant that the advance was given to M/s Koustav Metals in furtherance of the charitable objective of the trust. In effect, this is an investment by the trust not connected with its charitable activities and again admittedly is not an investment approved u/s. 11(5) of the Act. Therefore, the provisions of section 13(1}(d) are clearly attracted in this case and based on the same, the trust is liable to lose the entire exemption and the surplus is to be brought to tax. When this fact was brought to the notice of the Ld.-ARJ he argued that the provisions of section 13(1)(d) are not attracted as the trust has made the advance after expending 85% of the gross receipt for charitable activities. It was argued that the provision of section 13(1)(d) do not apply to the surplus of 15% permitted in the statute. This view has no legal basis because section 13(1)(d) does not make any exception. Reliance in this regard is placed inthe decision of Hon'ble Kerala High Court in Mundakapadam Mandirams Society v, CIT (2002) 258 ITR 395 (Ker.) wherein the Hon'ble Court held as under:

"The scheme of section 11 provides for exemption of the income to the 'extent it is spent for charitable purposes during the relevant previous year. Though the eligibility for exemption is available only if 75 per cent of the income is spent for charity, there is an exception provided in sub-section (2) of' section 11, which enables the petitioner to get exemption by carrying over any shortage in the expenditure below 75 per cent to the next year after issuing notice to the Department under section 11(2). The further condition under section 11(2)(b) is that the difference between the actual amount spent and 75 per cent of the income should be invested in any of the modes provided under section 11(5). So much so, so far as the petitioner was concerned, the argument that there was no violation of section 11(2) was correct because the petitioner spent 75 per cent of the income for charity during the year. However, the matter did not end there because section 13 introduces a further condition that section 13(1)(d ) which has

19 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 overriding effect makes it mandatory for the trust to invest the entire left over funds after meeting the expenditure in any of the modes of investments provided under section 11(5). Even in a case where 75 per cent is spent by the trust and balance 25 per cent is carried over, such 25 per cent should be invested only in any of the modes provided under section 11(5) and if there is a violation, then section 13 puts a bar on exemption under section 11. In other words, while the difference between actual expenditure and 75 per cent of the income is covered by section 11(2)(b), read with section 11(5), section 13(1)(d) provides that the entire balance unspent income left in the hands of the trust has to be invested in any of the authorised securities provided under section 11(5). In fact, after introduction of section 13(1)(d), section 11(2)(b) has become redundant and unnecessary because section 13(1)(d) speaks about any funds of the trust or institution that take in not only the remaining 25 per cent but the unspent amount below 75 per cent a/so. In other words, there is absolute prohibition by virtue of section 13(1)(d) against any charitable institution investing any amount at any point of time in any investments or mode of investments other than those narrated in section 11(5)."

5.3.3 So far as outside training fees is concerned, again the appellant is on a stickier wicket. As has been mentioned by the AO, no details were furnished before him to explain the nature of these outside training fees and whether the same are in accordance with the prescribed rules and regulations. In the absence of any details before me, I am inclined to agree with the AO that this collection of fees is indeed a collection over and above the prescribed fees and, thus, amount to collection of capitation fees by the institution for which the trust is not entitled for exemption. Similarly, the huge diversion of funds to trust and institutions in which the Managing Trustees hold controlling interest is again indicative of lack of charitable objective of the trust and generation of profits which are diverted to those funds.

5.3.4 In view of the above discussion and more particularly, considering the advance of loan in violation of section 13(1)(c) and deposit of the amount in violation of section 13(1)(d), I am of the considered view that the trust is not entitled for exemption u/s.11 and 12. The action of the AO, therefore, in bringing to tax the surplus of income over expenditure amounting to Rs.12,88,62,900/- is, accordingly, confirmed and the grounds are dismissed. "

20 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 provisions of Section 13(1)(c) & 13(1)(d) of the Act, which can be summarised as follows :- i) The assessee trust has given loan to M/s Kaustuv Metals Pvt. Ltd., wherein managing trustee Shri Prabhat Ranjan Mallick and trustee Smt. Namita Mallick are the directors and there was debit of Rs.75,85,740/- after charging of interest of Rs.9,51,773/-. He also noted that though the trust has charged interest on loan advanced to the company but in reality no interest has been recovered from the said company at any point of time. Thus, it is a clear violation of provisions of Section 13(2) of the Act. The AO further observed that the total payment of Rs.39,77,169/- has been made to Shri Prabhat Ranjan Mallick and at the end of the accounting year after adjustment of some expenses, the closing balance has been shown at Rs.31,95,442/- including charging of interest of Rs.3,45,268/-. The AO also noted that the expenses claimed by Shri Mallick including expenditure of his visit to USA amounting to Rs.4,08,500/- which also includes loss of foreign currency exchange but the assessee failed to explain the purpose of this foreign travel towards the educational and charitable objects of the trust, therefore, these transactions of the managing trustee of the assessee are violative of Section 13(1)(c)(ii) r.w.s.13(2)(v) of the Act; ii) The AO further noted that the assessee has received outside the training fees from the students admitted in Koustuv Institute of

21 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 Self Domain and College of Engineering, Bhubaneswar and submitted that the assessee was not found to be correct and the AO inferred that the outside training fees are nothing but receipts from the students over and above the admission fees prescribed by the Biju Pattnaik University of Technology and the Government of Odisha, therefore, the assessee trust is selling the education and the element of charity not longer remain in the activities of the assessee. Therefore, the assessee trust is not eligible for exemption u/s.11 of the Act. iii) The AO further noticed that the assessee has made donations to other charitable institutions, the surplus derived out of the fees collected from the students has to be applied for the benefit in subsequent years and this is nothing but profit of the assessee. The assessee does not have any other source to expand or invest and the same is being done by collecting excess fees from the students for whom the services provided by the assessee is less than fees paid by the students, therefore, the assessee is not entitled for exemption u/s.11 of the Act. These observations of the AO has been confirmed by the CIT(A) after considering the reply of the assessee by observing that the collection of capitation fees by the institution for which the trust is not entitled for exemption. iv) He also noted that the huge diversion of funds to trust and institutions in which the Managing Trustees hold controlling

22 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 interest is again indicative of lack of charitable objective of the trust and generation of profits which are diverted to those funds. The ld. CIT(A) also observed that the advance of loan in violation of section 13(1)(c) and deposit of the amount is in violation of section 13(1)(d) of the Act and the assessee is also not entitled for exemption u/s.11 & 12 of the Act. Therefore, the AO was right denying the exemption for both the assessment years. 17. Now, we proceed to adjudicate the issues, which was raised by the AO and confirmed by the CIT(A) for denying benefit of Section 11 of the Act to the assessee trust. Regarding first issue, we are of the considered view that the ld. AR has not controverted the fact that the expenditure of visit to USA of Shri Prabhat Ranjan Mallick amounting to Rs.4,08,500/- which also includes loss of foreign currency exchange has been reimbursed and claimed as expenditure in the income and expenditure account of the trust. The assessee trust is consistently explaining that the visit to USA was made to secure educational exchange programmes from the university situated at USA but there is nothing on record to show that the travel of Shri Mallick to USA was for the purpose of assessee’s trust and he went there to secure educational exchange programmes and other academic support from the university situated at USA. In absence of such positive evidence supporting the stand and explanation of the assessee, we are compelled to hold that the claim of travel expenses of Shri Mallick to USA was utilised directly to benefit the managing trustee Shri Prabhat Ranjan Mallick who enjoyed the trip on the expenditure incurred by the

23 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 trust. Thus, we hold that this expenditure has been made by the assessee trust in violation of Section 13(1)(c)(ii) r.w.s.13(2) of the Act. Therefore, the conclusion drawn by the AO and confirmed by the CIT(A) is quite correct and justified. 18. So far as the issue of loan advanced to Shri Mallick is concerned, there was a debit of Rs.31,95,442/- including interest of Rs.3,45,268/-. The AO noted that on this loan the accounts show charging of interest but in fact we are unable to see any evidence establishing that the interest was paid by the managing trustee and his company on the loans given by the trust and merely accounting entry does not substantiate actual payment of interest. Therefore, these loans to managing trustee and his company are also hit by the provisions of Section 13(1)(c) of the Act. In this regard, we are of the considered view that on being asked by the bench the ld. AR vehemently contended that the assessee trust has charged and actually received interest from Shri Mallick and from M/s Koustav Metals Pvt. Ltd. in the subsequent years but we are unable to see any evidence whatsoever in the form of confirmation, ledger account, bank statement or any other possible evidence to show that the interest charged from Shri Mallick and M/s Koustav Metals Pvt. Ltd. was actually paid to the assessee trust during the subsequent financial period. In absence of such evidence, we are compelled to hold that the loans have been advanced to M/s Koustav Metals Pvt. Ltd. and Shri Mallick who are interested person in the trust as per the provisions of Section 13(3) of the

24 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 Act and, therefore, these transactions are hit by the provisions of Section 13(1)(c) of the Act. 19. The next issue for adjudication is outside training fees charged by the assessee. Undisputedly, the assessee trust has received outstanding training fees from students admitted in Koustuv Institute of Self Domain, College of Engineering, Bhubaneswar, it was explained before the AO that the fees were received in cash from the students of the respective colleges and included in the income and expenditure account and related expenditure for providing training has also been included in the administrative expenses of both the colleges. Ld. AR submitted that the surplus accrued to the assessee out of outside training fees has been utilised for the development of educational infrastructure of the institutions working under the management of the assessee trust cannot be allowed as profit motive activities to deny the benefit u/s.11 of the Act. In this regard, we are of the considered view that the ld. AR placed vehement reliance on the various decisions to contend that if the surplus fees has been utilised for infrastructure development and was ploughed back for educational purpose then it has to be held that the educational institution was existed solely for educational purposes and not for the purpose of profit. We are in complete agreement with the contention of the ld. AR and also take respectfully cognizance of the judgement of the Hon’ble Supreme Court in the case of St. Peter’s Educational Society (supra) and Queens Educational Society (supra). However, to avail the benefit of proposition rendered by the Hon’ble Supreme Court it is the duty on the

25 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 shoulders of the assessed trust to show that the surplus of the profit shows from outside tuition fee has been utilised or ploughed back for educational purposes of the assessee trust within the scope of its charitable objects. We are unable to see any plausible explanation and sustainable evidence on record from the assessee to establish that the surplus accrued to the trust from outside training fees has been utilised or ploughed back for the charitable objects of the assessee trust. Onus was on the trust to show that the surplus from outside training fees has been properly utilised for the charitable objects of the trust but this onus has not been discharged, therefore, we respectfully hold that the benefit of the proposition rendered by the Hon’ble Supreme Court in the case of St. Peter’s Educational Society and Queens’ Marry Educational Society (supra) is not available for the assessee in the present case having dissimilar facts and circumstances from those cases. 20. The last issue for adjudication is as to whether the assessee trust has made donations to other charitable trust and entities in violation of provisions of the Act amounting to Rs.3,94,65,532/-. In this regard, ld. AR has submitted that the donations to the other institutions/trust having similar charitable objects of imparting education is also an application of income in view of the several judgments of the Hon’ble High Courts and coordinate bench of the Tribunal, he has placed strong reliance on the CBDT Instruction No. 1132 dated 5-1-1978 to submit that the payment of non-utilisation by the done trust towards charitable object is proper application of income for charitable purpose in the hands of the done trust

26 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 but we are unable to see any detailed document, copies of the trust deeds of donee to establish that they were having similar charitable objects and the purpose of donation was to utilise or use the sum for charitable purpose and development of education. Further, we are also unable to see any details or documents or trust deeds or utilisation of money by the donee to substantiate the explanation of the assessee-donor enabling the assessee-trust to get the benefit of proposition rendered by the Hon’ble High Courts, coordinate benches of the Tribunal and CBDT instruction No.1132 dated 5-1-1978 (supra), therefore, failure on the part of the assessee to substantiate its explanation supports the action of the AO, denying exemption u/s.11 of the Act to the assessee trust. 21. In view of the above foregoing discussion, we reached to the logical conclusion that the assesee’s funds/surplus has been utilised and diverted in violation of several provisions of Section 13(1) & 13(2) of the Act, therefore, the AO was quite correct and justified in denying exemption u/s.11 of the Act to the assessee trust and the CIT(A) was also correct in confirming the findings of the AO and upholding the scrutiny assessment order. 22. Since the facts and circumstances of assessment year 2011-2012 are almost similar to the facts and circumstances of present assessment year 2009-2010, therefore, our conclusion given for assessment year 2009-2010 would apply mutatis mutandis to appeal No.137/CTK/2016 for A.Y.2011-2012 and we conclude that the AO was right in denying exemption u/s.11 of the Act for A.Y.2011-2012 also.

27 ITA No.03/CTK/2015 & ITA No.137/CTK/2016 23. In the result, both appeals of the assessee are dismissed. Order pronounced in the open court on 17/05/2022. Sd/- Sd/- (ARUN KHODPIA) (C.M.GARG) ऱेखा सदस्य / ACCOUNTANT MEMBER न्यानयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनाांक Dated 17/05/2022 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीलाथी / The Appellant- 1. M/s Nabadigant Educational Trust, Plot No.N.2/17, IRC Village, Bhubaneswar-751015 प्रत्यथी / The Respondent- 2. ITO, Ward-2(1), Bhubaneswar आयकि आयुक्त(अऩील) / The CIT(A), 3. आयकि आयुक्त / CIT 4. ववभागीय प्रनतननधध, आयकि अऩीलीय अधधकिण, कटक / DR, 5. ITAT, Cuttack गार्ा पाईल / Guard file. 6. आदेशािुसार/ BY ORDER, सत्यावऩत प्रनत //True Copy// (Assistant Registrar) आयकर अपीऱीय अधिकरण, कटक/ITAT, Cuttack