INCOME TAX OFFICER (EXEMPTION), WARD-2, Jaipur V. VIDYA BHARTI SAMITI, Sikar

ITA 1063/JPR/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 3784 (ITAT-JAIPUR)
• Duration Of Justice: 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 12-09-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BK GUPTA
• Assessee Lawyers: S SRIRAM; JAIDEEP SINGH ADV DH R
• Keywords: Question of law; Reassessment proceedings; Set aside
• Section: 12AA; 11

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S,B JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 1063/JP/2018 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2012-13 THE ITO(EXEMPTION), WARD-2, JAIPUR. CUKE VS. M/S VIDYA BHARTI SAMITI WARD NO. 35, CIVIL LINES, SIKAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAAAV 9106 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY : SHRI B.K. GUPTA (CIT) FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : MR. S. SRIRAM (ADV.) & MR. JAIDEEP SINGH (ADV.) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 29/07/2019 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 08/08/2019 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 21.06.2018 OF THE LD. CIT (A)-1, JHODHPUR (CA MP AT JAIPUR) FOR THE ASSESSMENT YEAR 2012-13. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN; ITA NO. 1063/JP/2018 ITO(E) M/S VIDYA BHARTI SAMITI 2 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 8,13,29,766/- MADE ON ACCOUNT OF RECEIPTS RECEIVED FROM THEAL WIT HOUT APPRECIATING THE FACTS THAT SUCH AMOUNT WAS RECEIVE D BY THE ASSESSEE SOCIETY ON ACCOUNT OF TRANSFER OF RIGHTS E XCLUSIVELY TO THE THEAL (TREE HOUSE EDUCATION AND ACCESSORIES LTD. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN HOLDING THE AMOUNT RECEIVED FROM THEAL AS REPAYABLE LIABILITY INSTEAD OF RECEIPTS IN LIEU OF SURRENDERING EXCLUSIVE RIGHTS IGNORING THE FACT MENTIONED BY THE AO THAT THERE WAS NO RECOVERY CLAUSE MENTIONED IN AGREEMENT DATE 28.03.2011 HELD BETWEEN THE ASSESSEE SOCIETY AND THEAL THAT TH E SUM IS REFUNDABLE TO THE THEAL. 3. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) HAS ERRED IN HOLDING THE AMOUNT RECEIVED FROM THEAL AS SECURITY DEPOSIT INSTEAD OF BUSINESS COMMERCIAL RECEIPTS (BCR) WITHOUT APPRECIATING THE DETAILED REASONING G IVEN BY THE AO IN RESPECT OF BCR IN ASSESSMENT ORDER. 4. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN ALLOWING EXEMPTION U/S 10(2 3C)(IIIAD) IGNORING THE FACT THAT THE ASSESSEE EXCEEDS PRESCR IBED LIMIT FOR GROSS RECEIPTS OF 1 CRORE DURING THE YEAR UNDER CON SIDERATION. 5. ANY OTHER QUESTION OF LAW AS DEEMED FIT IN THE F ACTS AND CIRCUMSTANCES OF THE CASE MAY ALSO BE FRAMED BEFORE THE HONBLE TRIBUNAL IN THE INTEREST OF JUSTICE. 2. THE ASSESSEE IS A SOCIETY AND RUNNING TWO SCHOOL S IN THE NAME TREE HOUSE HIGH SCHOOL FOR GIRLS AND TREE HOUSE HIG H SCHOOL FOR BOYS BOTH IN JAIPUR. THE ASSESSEE SOCIETY APPLIED FOR RE GISTRATION U/S 12AA OF THE ACT VIDE APPLICATION DATED 22.06.2011 WHICH WAS REJECTED BY THE LD. CIT(E) ON THE GROUND THAT THE ASSESSEE SOCIETY HAD NOT COMMENCED ITS ITA NO. 1063/JP/2018 ITO(E) M/S VIDYA BHARTI SAMITI 3 ACTIVITY OF IMPARTING EDUCATION DURING THE FINANCIA L YEAR 2010-11. SUBSEQUENTLY THE TRIBUNAL VIDE ORDER DATED 20.05.20 13 DIRECTED THE LD. CIT(A) TO RECONSIDER THE APPLICATION OF THE ASSESSE E SOCIETY HOWEVER, TILL THE DATE NO ORDER HAS BEEN PASSED BY THE LD. CIT(A) U/S 12AA OF THE ACT. THE ASSESSEE FILED ITS RETURN OF INCOME FOR TH E YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME AT NIL AFT ER CLAIMING THE EXEMPTION U/S 11 OF THE ACT. DURING THE SCRUTINY AS SESSMENT THE AO HAS MADE ADDITION OF RS. 8,13,29,766/- ON ACCOUNT O F TRANSFER RIGHTS AND AFTER GIVING BENEFIT OF EXPENSES AT RS. 1,11,33 ,258/- A TOTAL INCOME OF THE ASSESSEE WAS COMPUTED AT RS. 7,14,56,68/-. T HE AO DENIED THE BENEFIT OF SECTION 11 OF THE ACT AS THE REGISTRATIO N U/S 12AA OF THE ACT WAS NOT GRANTED TO THE ASSESSEE. THE AO ALSO REJECT ED THE CLAIM OF EXEMPTION U/S 10(23C)(IIIAD) OF THE ACT. THE ASSESS EE FILED THE APPEAL BEFORE THE LD. CIT(A) AND CONTENDED THAT THE ASSESS EE SOCIETY IS EXISTED SOLELY FOR THE EDUCATION AND THEREFORE, THE BENEFIT OF SECTION 10(23C)(IIIAD) IS AVAILABLE TO THE ASSESSEE. THE LD . CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEE AND DELETED THE ADDITION MADE BY THE AO. 3. BEFORE US, THE LD. DR HAS SUBMITTED THAT THE ASS ESSEE HAS ENTERED INTO AN AGREEMENT/JOINT VENTURE WITH TREE H OUSE EDUCATION AND ACCESSORIES LIMITED (HEREINAFTER REFERRED TO AS TH EAL) UNDER WHICH THE ITA NO. 1063/JP/2018 ITO(E) M/S VIDYA BHARTI SAMITI 4 ASSESSEE AGREED TO PAY 50% OF THE GROSS RECEIPT FOR THE PERIOD TO THEAL. FURTHER, THE ASSESSEE HAS ALSO ENTERED INTO SEPARATE AGREEMENTS WITH ARIHANT ENTERPRISES AND UNITED DEVE LOPS UNDER WHICH THE ASSESSEE HAS TAKEN THE SCHOOL BUILDINGS ON RENT AND MADE A DEPOSIT OF RS. 5 CRORES AND RS. 2 CRORES RESPECTIVELY FOR T AKING SCHOOL BUILDINGS ON LEASE. IT IS ALSO AGREED BY THE ASSESSEE THAT MI NIMUM 30% OF THE GROSS RECEIPT ARE TO BE PAID AS RENT FROM WHICH CER TAIN FIXED AMOUNT IS ADJUSTED AGAINST SECURITY DEPOSIT. THUS, THE LD. DR HAS SUBMITTED THAT 80% OF THE GROSS RECEIPT HAS TO GO TO THESE PARTIES AND ONLY LESS THAN 20% WOULD BE IN THE HAND OF THE ASSESSEE. THUS THE INTENT AND OBJECT OF RUNNING THESE SCHOOLS IS NOT FOR DOING ANY ACTIV ITY EXCLUSIVELY FOR THE EDUCATION BUT THESE ARE ONLY TO FACILITATE THE BUSI NESS OF THE OTHER 3 PARTIES NAMELY THEAL, ARIHANT ENTERPRISES AND UNITE D DEVELOPERS. THUS THE ASSESSEE IS NOT EXISTED SOLELY FOR THE EDUCATIO N BUT THE SOLE PURPOSE IS TO EARN THE PROFIT THROUGH THESE ACTIVITIES FOR THESE THREE OTHER ENTITIES. THE DR HAS FURTHER CONTENDED THAT THE PAY MENT OF 50% OF THE GROSS RECEIPT TO THEAL AND 30% OF THE GROSS RECEIPT TO ARIHANT ENTERPRISES AND UNITED DEVELOPERS IS NOTHING BUT FO R SHARING THE INCOME OF THE ASSESSEE WITH THESE BUSINESS ENTITIES AND TH EREFORE, THE ASSESSEE IS NOT SOLELY EXISTED FOR THE EDUCATION. THE ENTIRE ARRANGEMENT IS TO ITA NO. 1063/JP/2018 ITO(E) M/S VIDYA BHARTI SAMITI 5 CARRY OUT THESE ACTIVITIES FOR TRANSFERRING THE PRO FIT TO THESE ENTITIES. THE LD. DR HAS REFERRED TO THE SEBI ORDERS DATED 07.03. 2018 AND 16.11.2018 WHEREBY THEAL ALONG WITH DIRECTOR/PROMOT ER OF SHRI RAJESH BHATIA, SHRI VISHAL SHAH AND SHRI HINTEN TRIVEDI WE RE RESTRAINED FROM ACCESSING SCRUTINY MARKET AND ALSO PROHIBITED THERE FROM BUYING SELLING OR OTHERWISE DEALING IN SECURITY ANY MANNER EITHER DIRECTLY AND INDIRECTLY. THE SEBI FOUND THAT THESE PERSONS INVOL VED THE ACTIVITY OF PURCHASE AND SALE OF SECURITY IN VIOLATION OF THE S EBI RULES. THEY WERE ALSO FOUND INVOLVED IN SOME DUBIOUS TRANSACTIONS WI TH RELATED PARTIES BY CREATING THROUGH SOME TRUST THEREFORE, THE SEBI HAS ALSO ORDERED FOR FORENSIC AUDITED OF THEAL. HE HAS CONTENDED THAT TH E ASSESSEE IS ALSO PAYING INTEREST TO THE THEAL AS STATED IN PARA 4.3. 1 OF THE LD. CIT(A). THUS, THE LD. DR HAS SUBMITTED THAT THE AO HAS RIGH TLY MADE THE ADDITION AND TREATING THE SAID AMOUNT OF RS. 8,13,2 9,766/- RECEIVED FROM THEAL AS PART OF THE GROSS RECEIPT OF THE SCHO OLS. THEREFORE, WHEN THE GROSS RECEIPT IS MORE THAN RS. 1 CRORE THE PROV ISIONS U/S 10(23C)(IIIAD) ARE NOT APPLICABLE IN THE CASE OF T HE ASSESSEE. 4. ON THE OTHER HAND, THE LD. AR HAS SUBMITTED THAT THE AO HAS TREATED THE SECURITY DEPOSIT MADE BY THEAL AS INCOM E OF THE ASSESSEE WHEREAS THE SAID DEPOSIT IS REFUNDABLE AT THE END O F THE TENURE BY THE ITA NO. 1063/JP/2018 ITO(E) M/S VIDYA BHARTI SAMITI 6 AGREEMENT OR TERMINATION OF THE AGREEMENT. THE LD. AR HAS FURTHER CONTENDED THAT THE AGREEMENT WITH THEAL WAS ENTERED INTO FOR THE SERVICES TO BE PROVIDED BY THE THEAL IN RUNNING OF THE SCHOOLS INCLUDING MANAGEMENT, CURRICULUM AND OTHER ACCESSOR IES. THUS, THIS ARRANGEMENT IS MADE TO MOBILIZE THE FUND TO RUN THE INTERNATIONAL STANDARD SCHOOLS. THE PAYMENT OF SECURITY TO ARIHAN T ENTERPRISES AND UNITED DEVELOPERS IS A TRANSACTION WITH THIRD PARTY AND NOT A TRANSACTION WITH THE SPECIFIED PERSONS U/S 13(3) OF THE INCOME TAX ACT. HE HAS REFERRED THE PARTICULARS OF THE TRUSTEES OF THE ASS ESSEE SOCIETY AND SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION NONE OF THESE TRUSTEES WERE HAVING ANY RELATION WITH THESE OTHER PARTIES NAMELY THEAL, ARIHANT ENTERPRISES OR UNITED DEVELOPERS. TH E DETAILS PRODUCE BY THE AO IS NOT CORRECT AS THE ASSESSEE HAS PRODUC ED THE DETAILS OF THE TRUSTEES IN THE RETURN OF INCOME ITSELF. THE ASSESS EE HAS ENTERED INTO AGREEMENT WITH THEAL FOR PROVIDING THE NECESSARY SE RVICES TO ACHIEVE THE OBJECTS OF HIGHEST STANDARDS OF EDUCATION IN TH E SCHOOLS MANAGED BY THE ASSESSEE. THE THEAL ENGAGED IN THE BUSINESS OF SETTING UP, DEVELOPING PRE SCHOOLS AND ALSO PROVIDING THE SERVI CES IN RUNNING THE SCHOOLS. THUS AS PER FACILITATION AGREEMENT THE THE AL WAS TO PROVIDE FACILITATION SERVICES TO THE ASSESSEE SOCIETY WHICH INCLUDES PROVIDING ITA NO. 1063/JP/2018 ITO(E) M/S VIDYA BHARTI SAMITI 7 CURRICULUM AND TEACHING AIDS, EDUCATION IMPARTING M ETHODS FOR OPTIMUM UTILIZATION OF RESOURCES. THIS AGREEMENT IS FOR A P ERIOD OF 30 YEAR UNDER WHICH THE THEAL HAS PROVIDED INTEREST FREE REFUNDAB LE SECURITY DEPOSIT OF RS. 8.13,29,766/-. SINCE THE ASSESSEE WAS NOT HA VING ITS OWN BUILDING, THE ASSESSEE HAS TAKEN THE SCHOOL BUILDIN G FROM THE DEVELOPERS NAMELY ARIHANT ENTERPRISES AND UNITED DE VELOPERS ON LEASE AND AGREED TO PAY THE RENT NOT LESS THAN 30% OF THE GROSS RECEIPT OF EACH SCHOOL. THE PAYMENT TO THE THEAL IS ALSO A SUM EQUAL TO 50% OF GROSS AVERAGE FEE PER CHILD. THE LD. AR HAS SUBMITT ED THAT THE FACILITATION AGREEMENT WITH RESPECT TO PROVIDE SERV ICE TO THE ASSESSEE AND IS NOT AN AGREEMENT FOR TRANSFER OF EXCLUSIVE R IGHT AND THEREFORE, THE AO HAS FAILED TO APPRECIATE THE CORRECT FACTS B Y TREATING THE SECURITY DEPOSIT AS INCOME OF THE ASSESSEE FOR TRANSFER OF E XCLUSIVE RIGHT. THE ASSESSEE HAS SHOWN THIS AMOUNT IN THE BALANCE SHEET AS LIABILITY THEREFORE, THIS CANNOT BE TREATED AS INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. THUS THE LD. AR HAS SUBMITTED THAT THE SECURITY DEPOSIT WAS ONLY TO ENSURE THE DUE PERFORMANCE OF F ACILITATION OF SERVICES WHICH IS NOT TRANSFERRED OF RIGHT. THE LD. AR HAS FURTHER POINTED THAT IN THE YEAR UNDER CONSIDERATION THE ASSESSEE S OCIETY HAS RECEIVED A SUM OF RS. 2 CRORES FOR TRANSFER OF BUSINESS COMMER CIAL RIGHTS HOWEVER, ITA NO. 1063/JP/2018 ITO(E) M/S VIDYA BHARTI SAMITI 8 DUE TO SOME CLERICAL ERROR THE SAME WAS NOT RECORDE D IN THE BOOKS OF THE ASSESSEE AND IT WAS NOTICED WHILE PREPARING THE ACCOUNTS OF THE SUBSEQUENT YEAR. THIS RECEIPT OF RS. 2 CRORES WAS T HEN TREATED AS INCOME IN REASSESSMENT PROCEEDINGS WHICH HAS NOT BE EN CHALLENGED BY THE ASSESSEE SOCIETY. THE LD. AR HAS REFERRED TO TH E VARIOUS CLAUSES OF THE AGREEMENT AND SUBMITTED THAT SECURITY DEPOSIT I S REFUNDABLE ON TERMINATION OF AGREEMENT AND THEREFORE, THE SAME CA NNOT BE TREATED AS INCOME. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE FOLLOWING DECISIONS:- 1. SIDDHESHWAR SAHAKARI SAKHAR KARKHANA LTD. VS. CIT 2 70 ITR 1 (SC). 2. HIGH RANGE FOODS (P.) LTD. VS. DCIT 15 TAXMANN.COM 332 (COCHIN) 3. PR. CIT VS. GULMOHAR GREEN GOLF & COUNTRY CLUB LTD. 77 TAXMANN.COM 68 (GUJARAT). THUS, HE HAS CONTENDED THAT EACH AND EVERY RECEIPT CANNOT BE TREATED AS INCOME. DEPOSIT RECEIVED BY THE ASSESSEE AS SECU RITY UNDER THE AGREEMENT WHICH IS LIABLE TO BE REFUNDED ON TERMINA TION OF THE AGREEMENT CANNOT BE CHARACTERIZED AS INCOME OF THE ASSESSEE. THE LD. AR HAS SUBMITTED THAT THE AO AS DENIED THE EXEMPTS U/S 10(23C)(IIIAD) OF THE ACT DUE TO MONITORY LIMIT OF MORE THAN RS. 1 CRORE. ONCE THE INCOME OF THE ASSESSEE IS NOT BREACHING THE MONITOR Y LIMIT, THE BENEFIT ITA NO. 1063/JP/2018 ITO(E) M/S VIDYA BHARTI SAMITI 9 OF SECTION 10(23C)(IIIAD) OF THE ACT IS AVAILABLE T O THE ASSESSE. HE HAS SUPPORTED THE IMPUGNED ORDER THE LD. CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE ENTIRE CONTROVERSY IN THIS CASE IS REVOLVING AROUND THE ARRANGEMENT MADE BY THE ASSESSEE WITH TH EAL VIDE AGREEMENT DATED 20.03.2011 UNDER WHICH THE ASSESSEE AGREE TO RECEIVE THE SERVICES FROM THEAL FOR PROVIDING FACILITY IN R UNNING THE SCHOOLS. THE ASSESSEE HAS ALSO RECEIVED A TOTAL SUM OF RS. 8 .25 CRORES FROM TRUST UNDER THE AGREEMENT AND IN RETURN THE PARTIES AGREED THAT THE ASSESSEE WILL SHARE 50% OF THE SCHOOLS REVENUE WITH THEAL. THE ASSESSEE HAS ALSO TAKEN THE SCHOOL BUILDINGS ON LEA SE FROM ARIHANT ENTERPRISES AND UNITED DEVELOPERS FOR EACH SCHOOL. THE 30% OF THE RECEIPT OF THE SCHOOLS WOULD BE PAID AS RENT TO THE SE ENTERPRISES APART FROM SECURITY DEPOSIT OF RS. 5 CORES AND RS. 2 CROR ES EACH TO THESE ENTITIES. THUS OUT OF THE TOTAL RECEIVED FROM THE A CTIVITY OF RUNNING OF THE SCHOOLS THE ASSESSEE HAS TO PAY 50% TO THEAL AN D 30% TO THESE TWO LANDLORDS NAMELY ARIHANT ENTERPRISES AND UNITED DEVELOPERS. THE BALANCE RECEIPT OF 20% REMAINED WITH THE ASSESSEE T O MEET THE EXPENSES OF SALARY AND ELECTRICITY AND OTHER EXPENS ES OF RUNNING THE SCHOOLS. THE AMOUNT OF RS. 8.25 CRORES RECEIVED BY THE ASSESSEE FROM ITA NO. 1063/JP/2018 ITO(E) M/S VIDYA BHARTI SAMITI 10 THEAL WAS USED IN FURNISHING THE DEPOSIT UNDER THE LEASE AGREEMENT TO THE TUNE OF RS. 7 CRORES WHICH INCLUDING RS. 5 CROR ES TO ARIHANT ENTERPRISES AND RS. 2 CRORES TO UNITED DEVELOPERS. THUS THE SAID AMOUNT OF RS. 8.25 CRORES RECEIVED BY THE ASSESSEE FROM THEAL WAS USED FOR MAKING THE DEPOSIT WITH THE LANDLORD FROM WHOM THE SCHOOLS WERE TAKEN ON LEASE. THE ASSESSING OFFICER IN THE A SSESSMENT ORDER DENIED THE CONTENTION OF THE ASSESSEE THAT THE AMOU NT RECEIVED FROM THEAL IS LOAN AND HELD THAT THE ASSESSEE RECEIVED T HIS AMOUNT UNDER THE AGREEMENT AND AGAINST THE TRANSFER OF SPECIFIC RIGHTS IN FAVOUR OF THEAL. ACCORDINGLY, THE AO TREATED THE SAID RECEIPT AS PART OF THE REVENUE RECEIVED BY THE ASSESSEE DURING THE YEAR FR OM TWO SCHOOLS NAMELY TREE HOUSE HIGH SCHOOL FOR GIRLS AND TREE HO USE HIGH SCHOOL FOR BOYS BOTH IN JAIPUR AND COMPUTED GROSS RECEIPT TOTAL INCOME OF THE ASSESSEE AT RS. 8,25,89,946/-. THE RELEVANT COMPUTA TION MADE BY THE AO AS UNDER:- IN VIEW OF FOREGOING DISCUSSION IN SECTION-II THE INSTITUTE WISE INCOME OF THE ASSESSEE SOCIETY ARE:- TREE HOUSE HIGH SCHOOL FOR BOYS INCOME SHOWN IN I/E A/C OF THE SCHOOL RS. 9,96,37 0/- ADD, RECEIPTS AS SHOWN IN BALANCE SHEET ON ACCOUNT OF TRANSFER RIGHTS RS. 1,18,23,250/- TOTAL RS. 1,28,19,620/- TREE HOUSE HIGH SCHOOL FOR GIRLS ITA NO. 1063/JP/2018 ITO(E) M/S VIDYA BHARTI SAMITI 11 INCOME SHOWN IN I/E A/C OF THE SCHOOL RS. 2,63,81 0- ADD, RECEIPTS AS SHOWN IN BALANCE SHEET ON ACCOUNT OF TRANSFER RIGHTS RS. 6,95,06,516/- TOTAL RS. 6,97,70,326/- GROSS TOTAL INCOME RS. 8,25,89,946/- SINCE INCOME OF ASSESSEE HAS CROSSED THE PRESCRIBE D LIMITED OF RUPEES ONE CRORE AND ALSO INDIVIDUALLY FOR EACH INSTITUTE. HENCE, THE ASSESSEE- SOCIETY IS NOT COVERED UNDER PROVISIONS OF SECTION 10(23C)(IIIAD) OF THE ACT. THEREFORE NO EXEMPTION U/S 10(23C)(IIIAD) OF T HE ACT IS ALLOWED. HAVING DECIDED THE ISSUE OF EXEMPTION TO THE ASSES SEE SOCIETY IN NEGATIVE. THE INCOME OF THE ASSESSEE IS ASSESSED UN DER THE HEAD INCOME FROM BUSINESS & PROFESSION TREATING ITS ST ATUS AS AOP. GROSS TOTAL INCOME RS. 8,25,89,946/- LESS, EXPENSES CLAIMED RS. 1,11,33,258/- ASSESSED INCOME RS. 7,14,56,686/- THE AO HAS DENIED THE EXEMPTION U/S 10(23C)(IIIAD) ON THE GROUND THAT THE GROSS TOTAL RECEIPT OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION IS MORE THAN RS. 8,25,89,946/-. THE A SSESSEE SOCIETY CONTENDED BEFORE THE LD. CIT(A) THAT THE SAID AMOUN T OF RS. 8,13,29,766/- RECEIPT UNDER THE AGREEMENT AS A SECU RITY DEPOSIT AND CANNOT BE TREATED AS INCOME OF THE ASSESSEE. THE LD . CIT(A) ACCEPTED THE SAID CONTENTION AND ALLOWED THE CLAIM OF THE AS ESSEE. AT THE TIME OF THE HEARING, THE LD. AR OF THE ASSESSEE HAS CLEARLY ADMITTED THAT THERE WAS A RECEIPT OF RS. 2 CRORES BY THE ASSESSEE DURIN G THE YEAR UNDER CONSIDERATION FOR TRANSFER OF BUSINESS/ COMMERCIAL RIGHTS WHICH WERE NOT RECORDED IN THE BOOKS OF THE ASSESSEE DUE TO CERTAI N CLERICAL ERROR. ITA NO. 1063/JP/2018 ITO(E) M/S VIDYA BHARTI SAMITI 12 HOWEVER, THE AO HAS REOPENED THE ASSESSMENT AND TRE ATED THE SAID AMOUNT OF RS. 2 CRORES AS INCOME OF THE ASSESSEE IN THE REASSESSMENT PROCEEDINGS WHICH HAS NOT BEEN CHALLENGED BY THE AS SESSEE SOCIETY IN VIEW OF THIS UNDISPUTED FACT THAT THERE WAS RECEIPT OF RS. 2 CRORES APART FROM THE ADMITTED RECEIPT BY THE ASSESSEE FROM TWO SCHOOLS AT RS. 9,96,370/- AND RS. 2,63,810/- TOTAL RS. 12,60,180/- , THE TOTAL UNDISPUTEDLY RECEIVED FOR THE YEAR UNDER CONSIDERAT ION IS RS. 2,12,60,000/-. HENCE, EVEN AS PER THE ADMITTED GROS S RECEIPTS FOR THE YEAR UNDER CONSIDERATION BREACHES THE LIMIT PROVIDE D U/S 10(23C)(IIIAD) OF THE ACT AND THEREFORE, THE SAID BENEFIT OF PROVI SIONS OF SECTION 10(23C)(IIIAD) WOULD NOT AVAILABLE TO THE ASSESSE. ACCORDINGLY TO THAT EXTENT WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE ORDER OF THE ASSESSING OFFICER FOR DENYING THE CLAIM OF EXEM PTION U/S 10(23C)(IIIAD) OF THE ACT. 5.1 AS REGARDS TREATING THE RECEIPT OF RS. 8.13,29, 766/- FROM THEAL IT IS PERTINENT TO NOTE THAT THE ENTIRE ARRANGEMENT BE TWEEN THE ASSESSEE SOCIETY AND THEAL IS IN THE NATURE OF JOINT VENTURE FOR 30 YEARS. THE AGREEMENT IN QUESTION IS IRREVOCABLE AS THE PARTIES TO THE AGREEMENT HAVE NO RIGHT TO TERMINATE THE AGREEMENT ACCEPT FUL FILLMENT OF TERMS ITA NO. 1063/JP/2018 ITO(E) M/S VIDYA BHARTI SAMITI 13 AND CONDITIONS AS PROVIDED UNDER CLAUSE 7.1 TO 7.5 WHICH READS AS UNDER:- 7.1 EITHER PARTY (THE TERMINATING PARTY) SHALL B E ENTITLED TO TERMINATE THIS AGREEMENT IF: (II) THE OTHER PARTY (DEFAULTING PARTY) SHALL NEG LECT OR FALL TO PERFORM ANY OF ITS OBLIGATIONS OR CONDITIONS UNDERT AKEN UNDER THIS AGREEMENT OR UNDER THE AGREEMENT, OR (II) IF ANY OF THE STATEMENT/S AS CONTAINED IN THIS AGREEMENT OR THE AGREEMENT AND ATTRIBUTABLE TO THE DEFAULTING PA RTY IS/ARE FALSE, MISLEADING OR UNTRUE IN ANY MANNER WHATSOEVE R; ANT THE DEFAULTING PARTY FAILS TO REMEDY SUCH DEFAU LT, NEGLECT OR FAILURE TO THE REASONABLE SATISFACTION OF THE TERMI NATING PARTY WITHIN 30 DAYS OF THE RECEIPT BY THE DEFAULTING PAR TY OF WRITTEN NOTICE THEREOF FROM THE TERMINATING PARTY. 7.2 NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE 7. 1 ABOVE, IN THE CASE OF PERSISTENT NEGLECT OR FAILURE OF THE IN STITUTION TO PERFORM ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT OR UNDER THE AGREEMENT, THE INSTITUTION SHALL NOT BE ENTITLED TO ANY FURTHER PERIOD OF GRACE WITHIN WHICH TO REMEDY ANY SUCH NEG LECT, DEFAULT OR FAILURE. 7.3 NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE 7. 1 ABOVE THE PROVIDER SHALL HAVE THE RIGHT TO TERMINATE THIS AGR EEMENT, FORTHWITH BY NOTICE IN WRITING TO THE INSTITUTION, WITHOUT PREJUDICE TO ITS OTHER RIGHTS UNDER THIS AGREEMENT, IF; I. THE INSTITUTION CEASES, OR TAKES ANY STEPS OF CE ASE, THE RUNNING OF THE NEW EDUCATIONAL INSTITUTES OR ANY OR ALL OF THE EDUCATIONAL INSTITUTES WHICH ARE ALL RUN AND MANAGED UNDER THE SAME MANAGEMENT OF THE INSTITUTION; II. THERE IS A CHANGE IN THE MANAGEMENT OR CONTROL OF THE INSTITUTION OR A CHANGE IN THE CONSTITUTION OR IDEN TIFY OF THE INSTITUTION WITHOUT PRIOR CONSULTATION WITH THE PRO VIDER; III. THE INSTITUTION CHALLENGES THE PROVIDERS OWNE RSHIP OF THE INTELLECTUAL PROPERTY; ITA NO. 1063/JP/2018 ITO(E) M/S VIDYA BHARTI SAMITI 14 IV. THE INSTITUTION ENGAGES IN ANY CONDUCT PREJUDIC IAL TO THE GOODWILL OF FACILITATION SERVICES PROVIDED BY THE P ROVIDER; 7.4 ON THE TERMINATION OF THIS AGREEMENT IN TERMS O F THIS CLAUSE, THE PROVIDER SHALL IN ADDITION TO THE AMOUNTS PAYAB LE TO IT UNDER CLAUSE 12.4 OF THE AGREEMENT, BE ENTITLED TO, WITHO UT PREJUDICE TO ANY OTHER REMEDY AVAILABLE TO IT IN LAW FOR THE BRE ACH OF THIS AGREEMENT, BE LIABLE TO PAY A COMPENSATION AS PER M UTUALLY AGREED TERMS. THE INSTITUTE SHALL BE UNDER AN OBLIG ATION TO REPAY THE SAID AMOUNTS WITHIN 60 DAYS OF TERMINATION OF T HIS AGREEMENT. FURTHER, THE INTEREST FREE REFUNDABLE SE CURITY DEPOSIT AMOUNT SHALL BE REFUNDED ON EARLIER TERMINATION AS MENTIONED IN THIS AGREEMENT. 7.5 NOTWITHSTANDING THAT ANY PARTY HERETO MAY EXERC ISE ITS RIGHT OF TERMINATION DURING THE COURSE OF ANY ACADEMIC YE AR OF THE SCHOOL TERMINATION OF THE AGREEMENT SHALL BECOME EF FECTIVE AND TAKEN EFFECT ONLY AT THE END OF THE ACADEMIC YEAR D URING WHICH THE RIGHT OF TERMINATION IS EXERCISED, WITH A VIEW THAT THERE SHALL NOT BE ANY DISRUPTION OF THE EDUCATION OF THE STUDE NTS OF SCHOOL IN THE MIDDLE OF AN ACADEMIC YEAR. THEREFORE, ONLY ON DEFAULT ON THE PART OF A PARTY T HE AGREEMENT CANNOT BE TERMINATED AND NOT ON WILL BY GIVING A NOTICE TO OTHER PARTY. IN SUBSTANCE THE THEAL HAS MADE AN INVESTMENT MORE THA N RS. 8 CRORES AND IN RETURN WAS ENTITLED TO 50% OF THE GROSS RECE IPTS FROM RUNNING OF THE SCHOOLS. THEREFORE, THIS ARRANGEMENT IS NOT TO PROVIDE THE FACILITY OF RUNNING OF THE SCHOOLS BUT IT IS FOR SHARING THE PR OFIT OF THE INCOME FROM ACTIVITY OF RUNNING THE SCHOOL. SIMILARLY THE ASSES SEE HAS TAKEN THE SCHOOL BUILDINGS ON LEASE WITH THE CONDITIONS THAT THE MINIMUM 30% OF ITA NO. 1063/JP/2018 ITO(E) M/S VIDYA BHARTI SAMITI 15 THE RECEIPT WILL BE PAID FOR EACH SCHOOLS AS RENT T O THE PARTIES FROM WHOM THE SCHOOLS WERE TAKEN ON LEASE. THERE IS A FU RTHER RIDER IN PAYMENT OF RENT IN CASE OF 30% OF RECEIPT IS LESS T HAN RS. 6 LACS PER ANNUM, THE MINIMUM WILL BE PAID AS RENT. THUS, IT I S CLEAR THAT THE ASSESSEE IS NOT EXISTED SOLELY FOR EDUCATION PURPOS E BUT FOR THE PURPOSE OF PROFIT. THE PRE DOMINATE PURPOSE IS TO RUN THE S CHOOLS IN THE CAPACITY OF INTERMEDIARY AND TO SERVE THE COMMERCIAL INTERES TS OF THEAL UNDER THE ARRANGEMENTS VIDE AGREEMENT DATED 20.03.2011. S IMILARLY THE RENT PAYABLE TO THE ARIHANT ENTERPRISES AND UNITED DEVEL OPERS IS ALSO IN THE NATURE OF SHARING THE INCOME. THEREFORE, IN SUBSTAN CE THE ARRANGEMENT BETWEEN THE PARTIES AND THE ACTIVITY CARRIED OUT BY THE ASSESSEE ARE TO EARN THE PROFIT FROM THE ACTIVITY AND THEN TRANSFER THE SAME IN THE RATIO AS PER THE AGREEMENT TO THE OTHER PARTIES. THE OTHE R ENTITIES ARE UNDISPUTED EXISTED SOLELY FOR THE COMMERCIAL ACTIVI TY AND FOR EARNING THE PROFIT AND NOT INVESTED IN THE ASSESSEE FOR ANY CHA RITABLE PURPOSE. THUS THE SHARING OF THE PROFIT OR INCOME UNDER THE AGREE MENT AND 80% OF THE INCOME IS GOING TO THE COMMERCIAL ENTITIES CLEA RLY ESTABLISHED THE INTENTION OF THE PARTIES IN THIS ARRANGEMENTS BEING FOR PROFIT ARE NOT SOLELY FOR PROVIDING EDUCATION. FURTHER, FROM THE F ACTS AND CIRCUMSTANCES OF THE CASE THERE IS NO INTENTION OF GENERATING ANY ITA NO. 1063/JP/2018 ITO(E) M/S VIDYA BHARTI SAMITI 16 INCOME TO BE APPLIED FOR EDUCATION PURPOSES AND TO MEET THE REQUIREMENT OF FUTURE EXPENSES, MODERNIZATION OR TO PROVIDE LATEST FACILITY OR INFRASTRUCTURE TO THE STUDENT. THE INCO ME GENERATED FROM THE ACTIVITY OF RUNNING THE SCHOOL IS SUBSTANTIALLY GOI NG IN THE HAND OF THE COMMERCIAL ENTITIES UNDER THESE AGREEMENTS. HENCE, IN OUR CONSIDERED VIEW THE ASSESSEE IS NOT EXISTED SOLELY FOR EDUCATI ON PURPOSE AND CONSEQUENTLY THE BENEFIT OF SECTION 10(23C)(IIIAD) OF THE ACT IS OTHERWISE NOT AVAILABLE TO THE ASSESSEE. IN VIEW OF THE ABOVE DISCUSSION WE SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) A ND RESTORE THE ORDER OF THE ASSESSING OFFICER. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 08/08/2019. SD/- SD/- FOE FLAG ;KNO FOT; IKY JKO (VIKRAM SINGH YADAV) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 08/08/2019. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- ITO(E), WARD-2, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- M/S VIDYA BHARTI SAMITI, SIKAR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) ITA NO. 1063/JP/2018 ITO(E) M/S VIDYA BHARTI SAMITI 17 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 1063/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR