GATTI VALLEY EDUCATIONAL FOUNDATION,BENGALURU V. COMMISSIONER OF INCOME (EXEMPTIONS), BENGALURU

ITA 421/BANG/2025

AI Insights

The case involves M/s Gatti Valley Educational Foundation, an educational institution, appealing against the decision of the Commissioner of Income (Exemption), Bengaluru, which had rejected their registration under section 12AB of the Income Tax Act. The rejection was based on the grounds that the assessee's activities were not genuine, as they primarily involved acquiring shares and not engaging in direct charitable activities. The Tribunal examined the activities of the assessee, including the acquisition of land through shares and the establishment of educational institutions, and found that these actions were in line with the charitable objectives stated in their bylaws.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 361309 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2020-2021
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRINANDINI DAS
• Assessee Lawyers: APRAMEYA K; VIRTUE OF ITS
• Keywords: Set aside
• Section: 12AA; 10B

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No. 421/Bang/2025 Assessment Year: NA M/s Gatti Valley Educational Foundation, B-1404 Nagarjuna Aster Park, Yelahanka New Town, Bengaluru – 560 064. PAN – AAGCG 7926 E Vs. The Commissioner of Income (Exemption), Bengaluru. . APPELLANT RESPONDENT Assessee by : Shri Aprameya K. Advocate Revenue by : Smt. Srinandini Das, CIT (DR) Date of hearing : 01.05.2025 Date of Pronouncement : 20.05.2025 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: This is an appeal filed by the assessee against the order passed by the Ld. CIT(E), Bengaluru dated 31/12/2024 in DIN No. ITBA/EXM/F/ EXM50/2024-25/1071736445(1). 2. The solitary issue raised by the assessee is that the ld. CIT(E) erred in rejecting the registration certificate granted u/s 12AB of the Act on the reasoning that the activities of the assessee are not genuine. ITA No.421/Bang/2025 Page 2 of 8 . 3. Briefly stated facts are that the assessee in the present case is an educational institution and sponsoring to an organization viz. Bharatiya Engineering Science and Technology Innovation University (BESTIU) being a private university engaged in spreading the education. The assessee in the assessment year 2020-21 has moved an application for condonation for the delay in filing Form 10B which was rejected by the ld. CIT(E) vide order dated 12/08/2022. 3.1 However, the ld. CIT(E) while dealing with the condonation petition filed by the assessee, observed certain facts as detailed below: (i) The assessee has acquired shares of private limited companies which were also holding the shares in another company and such another company was holding a piece of land. Eventually, the assessee became the owner of such piece of land by virtue of acquiring the shares as donation effective from the financial year 2019-20. However, the ld. CIT(E) found that there was no activity carried on by the assessee on such piece of land till the date of passing of the order. (ii) There was some mismatch in the value of the shares claimed by the assessee vis-z-vis the investment shown by the companies and the share capital of another company. (iii) According to the ld. CIT(E), the shares of private limited companies would not serve any charitable objects of the assessee. ITA No.421/Bang/2025 Page 3 of 8 . (iv) There was no charitable activity carried out by the assessee so as to achieve its objects except claiming the expenditure under the head ‘legal expenses’ amounting to Rs. 12,09,735/- only. 4. In view of the above, the ld. CIT(E) concluded that the assessee is not carrying out any genuine charitable activity and, therefore, he rejected the registration already granted u/s 12AA of the Act effective from assessment year 2022-2023 to 2024-25. 5. Being aggrieved by the order of ld. CIT(E), the assessee is in appeal before us. 6. The ld. AR before us filed a written submission running from pages 1 to 12 and the case law compilation from pages 1 to 79. It was contended by the ld. AR of the assessee that the assessee became the owner of the piece of land by acquiring shares of the companies in pursuance to the memorandum of understanding dated 29/06/2019. As per the memorandum of understanding, the impugned land was to be used in achieving the objects of the society. The assessee has also been registered by the gazette notification of the Government of Andhra Pradesh for carrying out educational activity. 7. The ld. AR also submitted a letter has been issued by the Government of AP Higher Education Department dated 10/05/2018 for recognizing the object of the assessee. ITA No.421/Bang/2025 Page 4 of 8 . 8. As per the ld. AR, the registration and recognition from the department under AP strongly suggests that the assessee is in the process of perusing its objects. However, for constructing the building on the piece of land requires huge amount, which is to be used only for the purpose of construction. In view of the above, the ld. AR submitted that the assessee has strong case on merit and, therefore, it is eligible for registration u/s 12AA of the Act. 9. On the other hand, the Ld. DR vehemently supported the order of the authorities below. 10. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the assessee was granted registration under section 12AA of the Act vide order dated 28 June 2019. The registration was granted by the learned CIT (Exemptions), subject to various conditions. Among these conditions, one was that the assessee had to carry out its activities genuinely, as reflected in the objects of its bylaws. 10.1 However, the learned CIT (Exemptions), while considering the assessee’s application for the late filing of Form 10B for the assessment year 2020–21, observed certain facts as detailed below: i. The assessee had acquired shares of companies namely, Sparkle Commotrade Pvt. Ltd. and Combined Tracom Private Limited as donations. Both of these companies were holding shares in another company namely M/s Gladiator Commodities Private Limited, which owned a piece of land. In other words, by accepting the donation of these companies in the form of ITA No.421/Bang/2025 Page 5 of 8 . shares, the assessee became the owner of the impugned piece of land. ii. The learned CIT (Exemptions) observed a mismatch in the number of shares held by these two companies in GCPL vis-à- vis the investments shown in their respective books of accounts. 10.2 Besides the above, the learned CIT (Exemptions) during the proceedings also found that: a. The land acquired by the assessee during the assessment year 2020–21 had not been used for any charitable activity up to the date of the order. b. It was unclear how the acquisition of the shares would serve the assessee's stated educational purpose. c. The assessee claimed having carried out charitable activities in the field of education by establishing a PU College and Best Innovation University, as reflected in the main object clause of the assessee company. However, no approval was furnished by the assessee from any concerned authority for the establishment of the university. d. The assessee did not carry out any activity toward achieving its objects since the assessment year 2020-21, except for claiming a major expense of ₹12,69,735 under the head \"Legal Expenses.\" 10.3 In view of the above, the learned CIT (Exemptions) concluded that the assessee had not furnished any evidence suggesting the genuineness of its activities for achieving its charitable objects. Hence, the learned CIT (Exemptions) canceled the registration certificate granted under section 12AA of the Act. ITA No.421/Bang/2025 Page 6 of 8 . 10.4 Now, the issue before us is whether the act of receiving the donation in the form of shares amounts to a non-charitable activity on the part of the assessee. The shares were received by the assessee through a Memorandum of Understanding (MoU) between the assessee and the parties holding the shares of the aforementioned companies. This understanding, dated 29 June 2019, is placed on record. It is also an admitted fact that the land was held by the aforementioned company and eventually came into the possession of the assessee by virtue of its shareholding. 10.5 Thus, what transpires is that it was not the shares per se that were acquired by the assessee, but a piece of land intended to be used for educational activities. This fact can be verified from the MoU available on record. Accordingly, it is inappropriate to state that the shares of companies would not serve the purpose of achieving the assessee's objects. In addition, we also note that the assessee is in the process of achieving its objectives, as detailed below: • Best Innovation University has been duly recognized by the office of the Andhra Pradesh government, as placed in the appeal file as Annexure C. • A letter of intent was issued by the Higher Education (EC) Department of the Government of Andhra Pradesh, for establishing Best Innovation University (placed as an annexure F to the appeal). ITA No.421/Bang/2025 Page 7 of 8 . • A letter was also issued by the University Grants Commission recognizing Best Innovation University as a private university for imparting education. 10.6 A conjoint reading of all the above documents reveals that the assessee has commenced its activities by obtaining approval from government agencies. There is no allegation by the ld. CIT (Exemptions) that these approvals were subsequently withdrawn. Therefore, no adverse inference can be drawn against the assessee holding that the assessee has not commenced any charitable activities. 10.7 It is also worth mentioning that establishing a university is not a trivial task. It is a time-consuming process. Furthermore, it was submitted by the learned AR during the hearing that the assessee is in the process of raising funds to construct buildings on the acquired land. Based on the above, we conclude that it cannot be alleged that the assessee has not carried out any activity of a charitable nature, as claimed by the learned CIT (Exemptions). 10.8 We also note that although there was some mismatch recorded by the CIT (Exemptions) regarding the shares held by the companies vis-à-vis the investments shown in their respective books of accounts, this cannot be a basis for drawing adverse conclusions against the assessee. In this appeal, we are dealing with the issue of cancellation of a registration certificate that was granted subject to certain conditions and such mismatch as discussed above cannot be ground for canceling the registration. Thus, we set aside the findings of the learned CIT (Exemptions) and direct that the registration certificate be granted to the ITA No.421/Bang/2025 Page 8 of 8 . assessee in accordance with the law, based on the discussion above. Accordingly, the appeal of the assessee is hereby allowed. 11. In the result, the appeal filed by the assessee is hereby allowed. Order pronounced in court on 20th day of May, 2025 Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 20th May, 2025 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore "