M/s Confrere Education Society, Noida V. ACIT, Noida

CO 388/DEL/2010

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6585 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 19-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 03-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Keywords: Depreciation; Charitable institution; Principle of natural justice; Wrong claim; Revenue expenditure
• Section: 12; 11

Judgement Text

ITA NO. 4763 & CO 388/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, JUDICIAL MEMBER I.T.A. NO. 4763/DEL/2010 A.Y. : 2005-06 ADDL. COMMISSIONER OF INCOME TAX, NOIDA RANGE, NOIDA, 2 ND FLOOR, G-BLOCK, SHOPPING COMPLEX, SECTOR-20, NOIDA-201301 (UP) VS. M/S CONFRERE EDUCATION AL SOCIETY, C-56-A/28, SECTOR-62, NOIDA (PAN/GIR NO. : AAATC4508K) AND C.O. NO. 388/DEL/2010 (IN ITA NO. 4763 /DEL/2010) A.Y. 2005-06 M/S CONFRERE EDUCATIONAL SOCIETY, VS. ACIT, C-56-A/28, SECTOR-62, NOIDA RANGE, NOIDA, 2 ND FLOOR, NOIDA G-BLOCK, SHOPPING COMPLEX, (PAN/GIR NO. : AAATC4508K) SECTOR-20, NOIDA-20130 1 (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. RANJAN CHOPRA, CA DEPARTMENT BY : MS. Y. KAKKAR, SR. D.R. ORDER ORDER ORDER ORDER PER PER PER PER SHAMIM YAHYA SHAMIM YAHYA SHAMIM YAHYA SHAMIM YAHYA : : : : A AA AM MM M THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONE R OF INCOME TAX (APPEALS) DATED 19.8.2010 AND PERTAIN TO ASSESSMENT YEAR 2005-06. 2. THE GROUNDS RAISED IN THE REVENUES APPEAL READ AS UNDER:- ITA NO. 4763 & CO 388/DEL/2010 2 (I) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, BY ALLOWING PROPORTIONATE SALARY OF ` 12,88,800/- IN THE CASE O F M/S IT BREAK COM (P) LTD. AND ` 5,95,081/- IN THE CASE OF M/S SILICON AGRO RESEARCH (P) LTD. TOTALING TO ` 18,83,8 81/- WITHOUT APPRECIATING THAT THESE PAYMENTS WERE MADE TO THE MEMBERS OF THE SOCIETY IN CONTRAVENTION OF SECTION 13 OF THE INCOME TAX ACT AND HENCE NO SUCH PAYMENTS SECTION 1 1 AND 12 WILL NOT BE OPERATIVE. (II) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE C ASE, IN ALLOWING 1/3 RD EXPENSES AMOUNTING TO ` 99,948/- OF M/S IT BREAK COM. PVT. LTD. AND ` 2,32,750/- OF M/S SILICON A GRO RESEARCH (P) LTD. AS EXPENDITURE RELATABLE TO COURSE MATERIAL AND DEVELOPMENT CHARGES WHEREAS THE ASSESSI NG OFFICER HAS RIGHTLY HELD THAT THE ENTIRE EXPENSES WERE BOGUS. (III) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE C ASE IN HOLDING THAT DEPRECATION AMOUNTS TO APPLICATION U/ S. 11 OF THE INCOME TAX ACT, WITHOUT APPRECIATING THAT DEPR ECIATION IS ONLY A NOTIONAL EXPENDITURE WHICH HAS ACTUALLY N OT BEEN INCURRED AND HENCE FOR THE PURPOSES OF APPLICATION OF INCOME, CANNOT BE ALLOWED TO BE DEBITED AS AN EXPE NDITURE IN THE HANDS OF THE SOCIETY. ITA NO. 4763 & CO 388/DEL/2010 3 (IV) THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DESERVERS TO BE SET ASIDE AND THE ORDER OF THE ASSE SSING OFFICER BE RESTORED. 3. THE GROUNDS RAISED IN THE ASSESSEES CROSS OBJECT ION READ AS UNDER:- (I) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND J OINT COMMISSIONER OF INCOME TAX, NOIDA HAVE ERRED IN LAW AND ON FACTS IN HOLDING THAT ONLINE SYSTEM OR DISTANCE LEARNING EDUCATION SYSTEM CANNOT COVERED UNDER THE DEFINITIO N OF EDUCATIONAL INSTITUTE AND THAT THE ASSESSEE WAS NOT ELIGIBLE FOR EXEMPTION U/S. 10(23C)(IIIAD) OF THE INCOME TAX A CT, 1961. (II) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND JOINT COMMISSIONER OF INCOME TAX, NOIDA HAVE ERRED IN LAW AND ON FACTS IN IGNORING THE FACT THAT PRESCRIBED APPL ICATION FILED BY THE RESPONDENT WITH THE PRESCRIBED AUTHORITY FOR GRANT OF EXEMPTION U/S 10(23C)(VI) OF THE ACT ON 20.01.2005 W HICH WAS BEFORE THE CLOSE OF FINANCIAL YEAR. (III) THAT IN CONTEXT OF THE CLAM OF THE APPELLANT U /S 10(23)(IIIAD) OF THE INCOME TAX ACT, 1961, LD. COMMISSIONER OF INCO ME TAX (APPEALS) AND JOINT COMMISSIONER OF INCOME TAX, N OIDA, HAVE ERRED IN LAW AND ON FACTS IN DETERMINING THE ASSESSABLE INCOME U/S. 11/12 OF THE ACT BY APPLYING THE PROVISIONS OF SECTION 13 OF THE ACT. (IV) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND JOINT COMMISSIONER OF INCOME TAX, NOIDA HAVE ERRED IN LAW AND ITA NO. 4763 & CO 388/DEL/2010 4 ON FACTS IN DISALLOWING EXPENDITURE INCURRED BY THE SOCIETY ON MERE ASSUMPTIONS AND WITHOUT ANY BASIS. (V) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA VE ERRED IN LAW AND ON FACTS IN ONLY PARTIALLY ALLOWING THE PAYMENT OF ` 31,90,706/- MADE TO COMPANIES M/S IT BREAK COM. PVT. LTD. AND SILICON ARGO RESEARCH PVT. LTD. BY RESPONDE NT FOR DEVELOPING COURSES STUDY MATERIAL FOR ITS VARIOUS STUDENTS ENROLLED WITH THE SOCIETY. IT IS WORTH MENTIONING HERE THAT THERE WAS NO VIOLATION OF SECTION 13 OF THE IT ACT , 1861. (VI) THAT THE ORDERS PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND JOINT COMMISSIONER OF INCOME TAX, NOIDA ARE AGAINST THE PRINCIPLES OF NATURAL JUSTICE. (VII) THAT THE RESPONDENT PRAYS FOR LEAVE TO ADD, A LTER, AMEND OR DELETE THE ABOVE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING. 4. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT HE SH ALL NOT BE PRESSING GROUND NOS. (I) TO (III) OF CROSS OBJECTI ON. HENCE, THE GROUND NOS. (I) TO (III) RAISED BY THE ASSESSEE ARE DISMISS ED AS NOT PRESSED. THE OTHER GROUNDS RAISED BY THE REVENUE AND THE REM AINING GROUNDS OF THE ASSESSEE ARE INTER-CONNECTED, HENCE, THEY AR E TAKEN TOGETHER FOR OUR DECISION:- 5. IN THIS CASE DURING THE YEAR, AS PER INCOME AND E XPENDITURE ACCOUNT, THE ASSESSEE HAS SHOWN GROSS INCOME AT ` 2 ,47,31,998/- AGAINST WHICH A SUM OF ` 2,36,15,992/- HAS BEEN CLA IMED AS REVENUE EXPENDITURE / APPLICATION OF INCOME. THE EXPENDITU RE CLAIMED INCLUDES COURSE MATERIAL COLLECTION AND DEVELOPMENTAL CHARGE S AMOUNTING TO ` ITA NO. 4763 & CO 388/DEL/2010 5 31,90,706/- AND DEPRECIATION AMOUNTING TO ` 15,29.39 9/- DEBITED TO P&L A/C. FOR THE YEAR UNDER CONSIDERATION, THE NE T INCOME WAS WORKED OUT BY THE ASSESSEE AT ` 12,21,500/- AND TH E ENTIRE INCOME WAS CLAIMED EXEMPT U/S. 10(23C)(IIIAD). 5.1 THE ASSESSING OFFICER NOTED THAT THE EDUCATION AL INSTITUTION SHOWING GROSS RECEIPTS ABOVE ` 1 CRORE IS NOT EN TITLED FOR EXEMPTION U/S 10(23C)(IIIAD) BUT IS ENTITLED FOR EXEMPTION U/S 10(23C)(VI) OF THE ACT SUBJECT TO GRANT OF EXEMPTION BY THE APPROPRIA TE AUTHORITY, WHICH, IN ASSESSEES CASE HAS NOT BEEN GRANTED. 5.2 WHEN REQUIRED TO JUSTIFY ITS CLAIM OF EXEMPTION , THE ASSESSEE, VIDE LETTER DATED 19.3.2007, STATED BEFORE THE ASS ESSING OFFICER THAT MENTIONING OF EXEMPTION U/S 10(23C)(IIIAD) IS A TYPOG RAPHICAL MISTAKE AND THAT THE EXEMPTION IS CLAIMED U/S 10(23C)(VI), FOR WHICH NECESSARY APPLICATION WAS FILED TO THE APPROPRIATE AUTHORITY ON 20.1.2005. 5.3 AFTER EXAMINING THE CLAIM OF THE ASSESSEE, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE ASSESSEE WAS NOT I MPARTING EDUCATION, THEREFORE, IS NOT ENTITLED FOR EXEMPTION U/S. 10(23C)(VI) OF THE ACT. THE ASSESSING OFFICER DISALLOWED THE C LAIM ON THE GROUND THAT ON LINE OR DISTANCE LEARNING EDUCATION SYSTE M PROVIDED BY THE ASSESSEE HAS NO RELATIONSHIP OF TEACH AND TAUGHT AN D, THEREFORE, THERE WAS NO IMPARTING OF EDUCATION. HOWEVER, SINCE THE ASSESSEE WAS REGISTERED U/S. 12A(A) OF THE ACT, THE ASSESSING OF FICER APPLIED THE PROVISION OF SECTION 11/12 TO DETERMINE THE INCOME OF THE ASSESSEE. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE A SSESSEE HAS MADE BOGUS CLAIM OF EXPENDITURE TO THE EXTENT OF ` 31,90 ,706/- TO THE COMPANIES, NAMELY M/S IT BREAK CO. PVT. LTD. (` 17,00,7 00/-) AND M/S SILICON AGRO RESEARCH PVT. LTD. (` 14,90,006/-) FOR THE PURPOSE OF ITA NO. 4763 & CO 388/DEL/2010 6 DEVELOPMENT OF COURSE MATERIAL. THE ASSESSING OFFI CER HELD THAT THESE COMPANIES WERE NOT RENDERING ANY SERVICES AS STIPULA TED AND WERE ONLY COMPANIES SET UP BY THE ASSESSEE TO SIPHON OF THE FUNDS OF THE SOCIETY AS THAT THE COMPANIES PAID SALARY TO CERTAIN PERSONS WHO WERE RELATED TO THE MEMBERS OF THE SOCIETY. THE ASSES SING OFFICER THEN, APPLYING THE PROVISIONS OF SECTION 13 OF THE IT AC T, MADE DISALLOWANCE OF THE SAID AMOUNT. BESIDES THE ABOVE, THE ASSESS ING OFFICER ALSO HELD THAT THE DEPRECIATION DEBITED TO P&L A/C AMOUNT ING TO ` 15,29,399/- CANNOT BE ALLOWED AS APPLICATION OF INC OME. THE ASSESSING OFFICER ACCORDINGLY DETERMINED THE TAXABL E INCOME OF THE ASSESSEE AT ` 31,90,710/-. 6. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT SIMILAR ISSUES WERE ALREADY AD JUDICATED IN EARLIER YEAR BY HIS PREDECESSOR IN A.Y. 2004-05. LD. COMMI SSIONER OF INCOME TAX (APPEALS) HELD THAT HE AGREED WITH THE SAME. A CCORDINGLY, LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT OUT O F THE ADDITION OF ` 31,90,706/-, THE ASSESSEE GETS RELIEF OF ` 22,16, 579/-. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER HELD T HAT ASSESSEE WAS ENTITLED FOR DEPRECIATION AND DIRECTED THAT THE A SSESSEES CLAIM OF DEPRECIATION AMOUNTING TO ` 15,29,399/- BE ALLOWED. 7. AGAINST THE ABOVE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), REVENUE AND ASSESSEE ARE IN CROSS APPEA LS BEFORE US. 8. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. LD. COUNSEL O F THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 27/DEL/ 2011 FOR ASSESSMENT YEAR 2006-07. ITA NO. 4763 & CO 388/DEL/2010 7 8.1 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAN D CONTENDED THAT THE DECISION OF THE TRIBUNAL WILL NOT BE APPLI CABLE. FOR THIS PROPOSITION, SHE REFERRED THE DECISION OF THE HON BLE PATNA HIGH COURT IN MISCELLANEOUS APPEAL NO. 594 OF 2007 IN THE CASE OF BUDHA VIKAS SAMITY VS. C.I.T-I, PATNA ORDER DATED 28.4.2011. SH E FURTHER REFERRED THE DECISION OF THE HONBLE ANDHRA PRADESH HIGH COU RT IN THE CASE OF NEW NOBLE EDUCATIONAL SOCIETY VS. CHIEF COMMISSIONER OF INCOME TAX 334 ITR 0303. 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION AND PERUSED THE RECORDS. WE FIND THAT THE TRIBUNAL IN ASSESSEES OWN CASE HAS DECIDED IDENTICAL ISSUE IN ASSESSEES FAVOUR VIDE ORDER DAT ED 29.7.2011 IN ASSESSEES OWN CASE. THE RELEVANT PORTION OF THE T RIBUNAL ORDER ARE AS UNDER:- 17. ON PERUSAL OF THE AOS ORDER, WE FIND NO MATER IAL OR BASIS TO HOLD THAT THE AFORESAID TWO COMPANIES NAMELY M/S. I.T. B REAK.COM PVT. LTD. AND M/S. SILICON AGRO RESEARCH PVT. LTD. ARE BOGUS COMP ANIES. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE PRODUCED THE I NCOME-TAX RETURN ALONG WITH BALANCE-SHEET AND PROFIT AND LOSS ACCOUN T OF THE ABOVE SAID COMPANIES. IT IS NOT IN DISPUTE THAT THE MEMBERS O F THE ASSESSEE SOCIETY ARE DIRECTORS IN M/S. I.T. BREAK.COM PVT. LTD. BUT THE AO HAS NOT BROUGHT ITA NO. 4763 & CO 388/DEL/2010 8 ANY MATERIAL ON RECORD OR ANY COMPARABLE CASES TO S HOW THAT THE PAYMENT HAS NOT BEEN MADE AT ARMS LENGTH OR ANY EXCESSIVE PAYMENT HAS BEEN MADE TO THESE PARTIES. THE AO HAS ALSO NOT BEEN AB LE TO DISPUTE THE ASSESSEES CLAIM THAT THE ASSESSEE HAS PURCHASED CO URSE MATERIALS IN THE SHAPE OF BOUND PRINTED BOOKS AND ELECTRONIC CDS FRO M THE SAID TWO COMPANIES. THE IDENTICAL DISALLOWANCE HAS BEEN MAD E BY THE AO IN THE ASSESSMENT YEAR 2004-05 AS SO STATED BY THE AO IN T HE ASSESSMENT ORDER ITSELF. THE AO FURTHER STATED IN THE ASSESSMENT OR DER THAT IN ASSESSMENT YEAR 2004-05, THE LEARNED CIT(A) HAS ALLOWED PARTIA L RELIEF TO THE ASSESSEE BUT THE ORDER OF THE LEARNED CIT(A) HAS NOT BEEN AC CEPTED BY THE DEPARTMENT AND A SECOND APPEAL HAS BEEN FILED BEFOR E THE TRIBUNAL. IN THE ASSESSMENT YEAR 2004-05 BOTH THE ASSESSEE AND REVEN UE WERE IN APPEAL AND AFTER HEARING BOTH THE PARTIES, THE TRIBUNAL DI SMISSED THE REVENUES APPEAL AND ALLOWED THE APPEAL FILED BY THE ASSESSEE . THE TRIBUNAL IN ASSESSMENT YEAR 2004-05 HAS HELD AND OBSERVED AS UN DER:- 5. THE SECOND QUESTION IS WHETHER THE ASSESSEE IS ENTITLED TO FULLY DEDUCT THE AMOUNT OF RS. 18,13 ,780/- PAID TO IT BVREAK.COM PVT. LTD. FOR DEVELOPING ITS COURSE STUDY MATERIAL, WHICH IS USED FOR THE PURPOSE OF IMPAR TING EDUCATION. THE AO HAS DISALLOWED THIS AMOUNT B Y INVOKING THE PROVISION CONTAINED IN SECTION 13(1)(C)(II) BY HOLDING THAT ITA NO. 4763 & CO 388/DEL/2010 9 A PART OF INCOME OR PROPERTY OF THE INSTITUTION HAS BEEN USED OR APPLIED IN THIS YEAR DIRECTLY OR INDIRECTLY F OR THE BENEFIT OF THE PERSONS REFERRED TO IN SECTION 13(3). IN THE CASE OF LUCKNOW DIOCESAN TRUST ASSOCIATION (SUPRA), THE QUESTION BEFORE THE HONBLE ALLAHABAD HIGH COURT WAS-WHET HER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS CORRECT IN ALLOWING THE PAYMENT OF RS.10,000/- MADE BY THE TRUST TO ITS TRUSTEES AS AN ADMISSIBLE D EDUCTION? THE TRIBUNAL HAD GIVEN A FINDING OF FACT THAT THE TR UST WAS GOVERNED BY CHARITABLE AND RELIGIOUS TRUSTS ACT, 1922 AND NOT BY THE INDIAN TRUSTS ACT, 1882. IT COULD NOT BE SHOWN THAT THERE IS ANY RESTRICTION PLACED IN THE CHARITA BLE AND RELIGIOUS TRUSTS ACT, 1922, IN THE MATTER OF PAY MENT OF REMUNERATION BY THE TRUST TO THE TRUSTEES. IT W AS HELD THAT ON THESE FACTS THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE AMOUNT OF RS.10,000/- WAS AN ADMISSIBLE DEDUCTI ON. HAVING CONSIDERED THIS CASE, WE ARE OF THE VIEW THAT ISSUE INVOLVED IN OUR CASE IS SOMEWHAT DIFFERENT, NAMELY, AS TO WHETHER ANY BENEFIT HAS BEEN PASSED TO THE MEMBERS OF THE SOCIETY INDIRECTLY SO AS TO ATTRACT THE PROVISION CONTAIN ED IN SECTION 13(1)(C)(II) READ WITH SECTION 13(2) OF THE IN COME-TAX ACT, 1961. HOWEVER, THIS DECISION DOES LEAD TO THE INFERENCE THAT REMUNERATION PAID TO DIRECTORS MAY BE AD MISSIBLE. THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELO W:- AS NOTED ABOVE, THE FACTS, FOUND BY THE TRIBUN AL WERE THAT THE ASSESSEE IS A CHARITABLE AND RELIGIO US TRUST AND IS GOVERNED BY THE CHARITABLE AND RELIGIOUS T RUST ACT, 1922, AND NOT BY THE INDIAN TRUSTS ACT, 18 82. IT COULD NOT BE SHOWN TO US THAT THERE IS ANY REST RICTION PLACED IN THE CHARITABLE AND RELIGIOUS TRUSTS ACT , 1922, IN THE MATTER OF PAYMENT OF REMUNERATION BY THE TRUST TO THE TRUSTEES. IT WAS FURTHER FOUND AND IT I S NOT ITA NO. 4763 & CO 388/DEL/2010 10 DISPUTED THAT THE LUCKNOW DIOCESAN TRUST ASSOCI ATION MANAGES THE AFFAIRS OF THE ASSESSEE AND THIS PAY MENT WAS MADE TO THEM FOR THE SERVICES RENDERED AND THAT IT WAS CLEARLY FOR THE PURPOSE OF THE TRUST. ON THESE FACTS, THE TRIBUNAL WAS RIGHT IN HOLDING THAT TH IS AMOUNT OF RS. 10,000/- WAS AN ADMISSIBLE DEDUCT ION. 5.1 IN THE CASE OF PARIWAR SEWA SANSTHAN (SUPRA), THE QUESTION BEFORE THE HONBLE DELHI HIGH COURT WA S-WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE TRIBUNAL WAS CORRECT IN ALLOWING THE BENEFIT U/S 11 OF THE INCOME-TAX ACT, 1961, WITHOUT APPRECIATING THAT THE ASSESSEE HAD VIOLATED THE PROVISIONS OF SECTIONS 13(1)(C) AND 13(1)(D) OF THE ACT? THE HONBLE COURT MENTIONED THAT TYAGI FOUNDATION WAS A SEPARATE REGISTERED SOCIETY ENGA GED IN SIMILAR CHARITABLE ACTIVITIES AND THE ALLEGATI ON OF THE AO ABOUT THIS SOCIETY BEING CONTROLLED BY MRS. SUD HA TEWARI WAS WRONG AND IRRELEVANT. NO MATERIAL WAS BR OUGHT TO SHOW THAT TYAGI FOUNDATION WAS NOT A GENUINE RE GISTERED SOCIETY ENGAGED IN SIMILAR CHARITABLE ACTIVITIES. THE LOAN WAS GIVEN BY THE ASSESSEE TO TYAGI FOUNDATION IN PURS UANCE OF ITS OBJECTS TO PROMOTE CHARITABLE ACTIVITIES. IT W AS NOT THE CASE THAT TYAGI FOUNDATION HAS MISUSED THE AMOUNT OF LOAN AND UTILIZED IT FOR NON-CHARITABLE PURPOSES. THE L OAN WAS FULLY SECURED BY MORTGAGE DEED AND IN SUBSEQUENT Y EAR ON NON-PAYMENT OF THE LOAN, THE PROPERTY REVERTED T O THE ASSESSEE-SOCIETY. THEREFORE, IT WAS HELD THAT TH E LD. CIT(A) WAS JUSTIFIED IN REJECTING THE CASE OF THE AO. W E FIND THAT THE FACTS OF THIS CASE ARE SOMEWHAT DIFFERENT. THE CASE DEALT WITH A LOAN OF TYAGI FOUNDATION SECURED BY MOR TGAGE. ON NON-PAYMENT OF THE LOAN, THE PROPERTY REVERTED TO THE ASSESSEE-SANSTHAN. IN THE CASE AT HAND, THE A SSESSEE HAD PAID CERTAIN AMOUNTS TO IT BREAK.COM PVT. LTD. IT IS NOT A ITA NO. 4763 & CO 388/DEL/2010 11 LOAN. FURTHER, THERE IS NOTHING ON RECORD TO SH OW THAT IT BREAK.COM PVT. LTD. IS AN EDUCATIONAL INSTITUTIO N. THEREFORE, THE RATIO OF THIS CASE IS NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. HOWEVER, FOR READY REFERENCE, THE RELEVANT PARAGRAPH FROM THE JUDGMENT IS REPRODUCED BELOW:- AGAIN, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE ASSESSING OFFICER AND THE LD. COMMISSIONER O F INCOME-TAX (APPEALS) FOR THE ASSESSMENT YEARS 1 995- 96 AND 1996-97 ON THE ISSUE OF LOAN TO TYAGI FOUNDATION AND CONSIDERED THE SUBMISSIONS AND CONTENTIONS MADE BY THE LEARNED AUTHORISED REPRESENTATIVES OF BOTH THE SIDES. WE ARE OF THE VIEW THAT THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) WAS JUSTIFIED IN HOLDING THAT THERE WAS NO VIOLATI ON OF THE PROVISIONS OF SECTION 13(5) IN GIVING THE LOAN TO TYAGI FOUNDATION. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) FOUND THAT TYAGI FOUNDATION WAS A SEP ARATE REGISTERED SOCIETY ENGAGED IN SIMILAR CHARITABLE ACTIVITIES AND THE ALLEGATION OF THE ASSESSING OFFICER OF THIS SOCIETY BEING CONTROLLED BY MRS. SUDHA TEWA RI AND OTHERS WAS WRONG AND IRRELEVANT. NO MATERIAL WAS BROUGHT TO SHOW THAT TYAGI FOUNDATION WAS NOT A GENUINE REGISTERED SOCIETY ENGAGED IN SIMILAR CHARITABLE ACTIVITIES. THE LOAN GIVEN BY THE ASSESSEE TO TYAGI FOUNDATION WAS OUT OF THE OBJECT OF THE ASSESSEE-SOCIETY TO PROMOTE ITS CHARITABLE ACTI VITIES. IT WAS NOT A CASE THAT TYAGI FOUNDATION HAD MIS USED THE AMOUNT OF LOAN AND UTILIZED IT FOR NON-CHARI TABLE PURPOSES. NO MATERIAL WAS PLACED TO SHOW THAT THE PURCHASE OF THE PROPERTY AND UTILIZATION OF THE PROPERTY BY TYAGI FOUNDATION WAS FOR PURPOSES OTHER TH AN ITS CHARITABLE PURPOSES. MOREOVER, THE LOAN GIVEN W AS ITA NO. 4763 & CO 388/DEL/2010 12 FULLY SECURED BY MORTGAGE DEED AND IN FACT I N THE SUBSEQUENT YEAR ON NON-PAYMENT OF THE LOAN THE PROPERTY WAS REVERTED TO THE ASSESSEE-SOCIETY. N O MATERIAL WAS PLACED TO SHOW THAT THERE WAS AN Y NON- CHARITABLE ACTIVITIES CONNECTED WITH THE PRO PERTY IN QUESTION. ON THE FACTS AND IN THE CIRCUMSTAN CES OF THE CASE, THEREFORE, WE HOLD THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WAS JUSTIFIE D IN REJECTING THIS GROUND AS WELL AS FOR THE REJECTIO N OF THE CLAIM OF EXEMPTION UNDER SECTION 11 OF THE ACT B Y THE ASSESSING OFFICER. 5.2 IN THE CASE OF SURAT CITY GYMKHANA (SUPRA), THE QUESTION BEFORE HONBLE GUJARAT HIGH COURT WAS REGARDING THE ONUS FOR INVOKING THE PROVISION CONTAINED IN SECTION 13(1)(C). IT IS MENTIONED THAT THE REVENUE MAKE S AVERMENT ABOUT THE APPLICABILITY OF THIS PROVISION AND HENCE THE ONUS IS ON IT TO ESTABLISH THE FAILURE, IF ANY. THE RELEVANT PORTION OF THE JUDGMENT AT PAGE NO. 743 OF THE REPORT REA DS AS UNDER:- EVEN OTHERWISE, THE PROVISIONS OF SECTION 13 O PEN WITH A NON OBSTANTE CLAUSE AND HENCE BY VIRTUE OF THE SAID PROVISIONS EXCEPTION TO THE EXEMPTION PR OVIDED BY SECTION 11 IS CARVED OUT AND AN ASSESSEE I S DENIED THE EXEMPTION UNDER SECTION 11 OF THE ACT IN A CASE WHERE THE INCOME OR PROPERTY OF THE TRUST IS U SED OR APPLIED OR ENURES FOR THE BENEFIT OFF ANY PERSON RE FERRED ITA NO. 4763 & CO 388/DEL/2010 13 TO IN SECTION 13(3) OF THE ACT. IN THE PRESENT CASE, IT IS THE RESPONDENT WHO AVERS APPLICABILITY OF PROVIS ION OF SECTION 13(1)(C) AND HENCE THE ONUS IS ON HIM TO ESTABLISH THE FAILURE, IF ANY. FROM THE REASON S RECORDED IT IS APPARENT THAT HE IS OF THE OPINI ON THAT THE TRIBUNAL HAS SPECIFICALLY DIRECTED THE RESP ONDENT TO INITIATE ACTION AS THERE IS FAILURE OF THE P RESCRIBED CONDITION OR THAT SOME PORTION OF THE PROPERTY OR INCOME OF THE PETITIONER-TRUST ENURES FOR THE BEN EFIT OF THE PROHIBITED CATEGORY OF PERSONS OR SOME PORTI ON OF THE PROPERTY OR INCOME IS APPLIED OR USED FOR TH E BENEFIT OF THE PROHIBITED CATEGORY OF PERSONS SP ECIFIED IN SECTION 13(3) OF THE ACT. THE LAW IS WELL SE TTLED, A PERSON WHO MAKES A POSITIVE AVERMENT IS REQUIR ED TO ESTABLISH THE SAME. IT IS NOT FOR THE PERSON A GAINST WHOM THE AVERMENT IS MADE TO ESTABLISH NEGATIVE LY THAT THE STATE OF AFFAIRS AVERRED BY THE OTHER PERSON DOES NOT EXIST. FURTHERMORE, THE TRIBUNAL NOWH ERE STATES THAT THE PROVISIONS OF SECTION 13 OF TH E ACT ARE APPLICABLE. ALL THAT IS STATED IS TO GRANT EX EMPTION UNDER SECTION 11 OF THE ACT SUBJECT TO THE OTH ER CONDITIONS BEING FULFILLED. 5.3 IT IS SEEN THAT THE PAYMENT HAS BEEN MADE IN RE SPECT OF DEVELOPMENT OF STUDY MATERIAL, WHICH IS USED BY T HE ASSESSEE- SOCIETY FOR IMPARTING EDUCATION. THEREFORE, THERE IS A QUID PRO QUO IN THE PAYMENT AND IT IS NOT A GRATIS PAYMENT. IN OTHER WORDS, THE PAYMENT HAS BEEN MADE FOR THE WORK DONE BY THAT COMPANY FOR THE ASSESSEE-SOCIETY. NO C OMPARABLE INSTANCE HAS BEEN BROUGHT ON RECORD TO SHOW THAT T HE PAYMENT HAS NOT BEEN MADE AT ARMS LENGTH OR ANY EXCESSIVE PAYMENT HAS BEEN MADE. WHILE THE AO HAS ADDED THE WHOLE AMOUNT, THE LD. CIT(APPEALS) HAS DONE SOM E ITA NO. 4763 & CO 388/DEL/2010 14 HYPOTHETICAL CALCULATION FOR MAKING DISALLOWANCE. THE DECISION IN THE CASE OF SURAT CITY GYMKHANA (SUP RA) IS TO THE EFFECT THAT THE PROVISION CONTAINED IN SECTION 1 3(1)(C) CAN BE APPLIED WHEN THE INCOME OR PROPERTY OF THE TRUST IS USED OR APPLIED OR ENURES FOR THE BENEFIT OF ANY PER SON REFERRED TO IN SECTION 13(3). A PAYMENT MADE FOR THE WORK DONE CANNOT BE EQUATED WITH USE OR APPLICATION OF FU NDS FOR THE BENEFIT OF THE PAYEE. FURTHER, THERE IS NO OBJECT IVE EVIDENCE ON RECORD BY WAY OF COMPARABLE CASES THAT THE PAYMENT IS MORE THAN ARMS LENGTH PAYMENT. THEREFORE, WE ARE OF THE VIEW THAT THE LD. CIT(APPEALS) ERRED IN PARTLY DISALLOWING A SUM OF RS. 4,76,583/- FROM THE OVERALL PAYMENT O F RS. 18,13,780/- TO IT BREAK.COM PVT. LTD. FOR DEVEL OPMENT OF COURSE STUDY MATERIAL. IN THIS VIEW OF THE MATTE R, THERE COULD HAVE ALSO BEEN NO QUESTION REGARDING DISALLOWANC E OF THE WHOLE OF THE AMOUNT OF RS. 18,13,780/-. 18. RESPECTFULLY FOLLOWING THE TRIBUNALS ORDER IN THE ASSESSMENT YEAR 2004-05, WE HOLD THAT THERE COULD HAVE ALSO BEEN NO QUESTION REGARDING PART DISALLOWANCE OUT OF THE WHOLE AMOUNT OF RS.28, 46,950/-. THEREFORE, THE WHOLE DISALLOWANCE MADE BY THE ASSESSING OFFICE R TO THE EXTENT OF RS.28,46,950/- STANDS DELETED. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND THAT OF THE REVENUE IS DISMISSED. 10. WE FIND THAT THE ISSUE IN THE PRESENT APPEAL A RE IDENTICAL TO THE ISSUE DEALT WITH BY THE TRIBUNAL IN THE AFORESAID O RDER. THE CASE LAWS RELIED UPON BY THE LD. DEPARTMENTAL REPRESENTATIVE A RE NOT APPLICABLE ON THE FACTS OF THE CASE. RESPECTFULLY FOLLOWING THE TRIBUNALS ORDER FOR ITA NO. 4763 & CO 388/DEL/2010 15 A.Y. 2006-07, WE HOLD THAT THERE COULD HAVE ALSO BE EN NO QUESTION REGARDING PART DISALLOWANCE OUT OF THE WHOLE AMOUNT OF ` 30,90,706/-. THEREFORE, THE WHOLE DISALLOWANCE MADE BY THE ASSESS ING OFFICER TO THE EXTENT OF ` 31,90,706/- STANDS DELETED. 11. IN THE RESULT, THE CROSS OBJECTION FILED BY TH E ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUES APPEAL STANDS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/10/2011. SD/- SD/- [ [[ [I.P. BANSAL] I.P. BANSAL] I.P. BANSAL] I.P. BANSAL] [ [[ [SHAMIM YAHYA SHAMIM YAHYA SHAMIM YAHYA SHAMIM YAHYA) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 28/10/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES