Career Launcher Education Foundation, New Delhi V. DIT(E), Delhi

ITA 2849/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58641 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-12-2011
• Assessment Year: misc
• Appeal Filed On: 08-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SHIKHA SHARMA
• Keywords: Gift; Depreciation; Charitable institution; Corroborative evidences; Cancellation of registration
• Section: 80G; 12A; 12AA; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B DELHI) BEFORE SHRI A.D. JAIN AND SHRI A.N. PAHUJA ITA NO. 2849(DEL)2010 ASSESSMENT YEAR: CAREER LAUNCHER EDUCATION DIRECTOR OF I NCOME TAX(EXEMPTIONS) FOUNDATION, R-90, GREATER V. LAXMI NAGAR DISTRICT CENTRE, DELHI. KAILASH I, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI AJAY VOHRA & MS. SHIKHA SHARMA , ADV. RESPONDENT BY: SHRI ROHIT GARG, SR . DR ORDER PER A.D. JAIN, J.M . THIS IS ASSESSEES APPEAL AGAINST THE ORDER DATED 07.05.2010 PASSED BY THE DIT(EXEMPTIONS), NEW DELHI, U/S 80G (5)(VI) OF THE INCOME TAX ACT READ WITH RULE 11 AA OF THE I.T. RULES. THE FOLLO WING GROUNDS HAVE BEEN TAKEN:- 1. THE ORDER OF REJECTION OF APPLICATION FOR RENEW AL OF EXEMPTION U/S 80G OF THE INCOME TAX ACT, 1961 OF THE TRUST HAS BE EN PASSED BEYOND A PERIOD OF SIX MONTHS FROM THE DATE ON WHICH THE A PPLICATION FOR RENEWAL WAS MADE AND THEREFORE, THE ORDER VIOLATES THE PROVISIONS OF SUB-RULE (6) OF RULE 11AA OF THE INCOME TAX ACT, 19 61 AND THEREFORE, THE ORDER PASSED IS WITHOUT JURISDICTION AND THEREF ORE LIABLE TO BE QUASHED. ITA 2849(DEL)2010 2 2. THE FINDINGS OF THE DIRECTOR OF INCOME TAX(EXEM PTIONS) IN HIS ORDER DATED 07.05.2010 THAT THE ACTIVITIES OF THE TRUST ARE NOT CHARITABLE WITHIN THE PROVISIONS OF SECTION 2(15) OF THE INCOME TAX ACT, 1961 AND ALSO THAT THE TRUST DOES NOT SATISFY THE CONDITIONS LAID OUT U/S 80G(5) OF THE INCOME TAX ACT, 1961 ARE CONT RARY TO FACTS AND LAW AND THEREFORE, THE REJECTION OF APPLICATION FOR RENEWAL OF EXEMPTION U/S 80 G OF THE INCOME TAX ACT, 1961 OF T HE TRUST IS ARBITRARY AND UNLAWFUL AND THEREFORE, IS LIABLE TO BE QUASHED AND THE RENEWAL OF EXEMPTION BE GRANTED TO THE TRUST U/S 80 G OF THE INCOME TAX ACT, 1961. 2. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSES SEE STATES AT THE BAR THAT GROUND NO.1 IS NOT PRESSED. REJECTED AS NOT PRESS ED. 3. APROPOS GROUND NO.2, THE FACTS ARE THAT THE ASS ESSEE FILED AN APPLICATION DATED 5.11.09 IN FORM NO.10 G, SEEKING RENEWAL OF EXEMPTION U/S 80G OF THE INCOME TAX ACT. THE DIT(EXEMPTIONS ) ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE. THE SAID SHOW CAUSE NOTIC E, AS REPRODUCED AT PAGES 2 AND 3 OF THE IMPUGNED ORDER, READS AS FOLLOWS:- TO THE PRINCIPAL OFFICER, CAREER LAUNCHER EDUCATION FOUNDATION, R-90, GREATER KAILASH-1, NEW DELHI-110048. SIR, SUBJECT:- RENEWAL FOR EXEMPTION U/S 80G OF THE I. T. ACT,1961- REGARDING- ITA 2849(DEL)2010 3 PLEASE REFER TO YOUR APPLICATION IN FORM NO. 10G FI LED ON 5.11.2009 FOR RENEWAL OF EXEMPTION U/S 80G. IN THI S REGARD, I AM DIRECTED TO REQUEST YOU TO PRODUCE THE FOLLOWING DO CUMENTS:- 1. PLEASE FILE A COPY OF FORM NO. 10B FOR F.Y. 2006 -07, 2007-08 AND 2008-09. PLEASE ALSO INTIMATE WHETHER THE SAM E WAS DULY FILED ALONG WITH THE RETURN OF INCOME OR NOT. 2. IT IS SEEN FROM A/CS THE INFRASTRUCTURE FEE OF ` 1 CRORE HAS BEEN PAID TO CAREER LAUNCHER(INDIA)LTD. PLEASE INTIMAT E WHETHER THIS PARTY IS COVERED BY PROVISION OF SECTION 13. YOU A RE REQUIRED TO FURNISH THE NAME OF THE DIRECTOR OF THE CO. YOU AR E ALSO REQUIRED TO JUSTIFY THE PAYMENT MADE TO THE ABOVE PARTY ALONG W ITH NECESSARY EVIDENCES. 3. SIMILARLY LICENCE FEE OF ` 1.62 CRORE HAS BEEN PAID TO CAREER LAUNCHER(INDIA)LTD. AND CAREER LAUNCHER EDUCATION I NFRASTRUCTURE & SERVICES LTD. YOU ARE REQUIRED TO JUSTIFY THE P AYMENTS MADE TO THOSE PARTIES. PLEASE ALSO GIVE DETAILS AS TO THE OTHER PARTIES TO WHOM LICENCE FEES HAS BEEN SOLD BY THESE TWO PARTIES. 4. IT IS SEEN THAT PAYMENT OF SERVICE TAX HAS BEEN ALLOWED TO CL(I)LTD. ON LICENCE FEE WHEREAS NO SUCH AMOUNT HAS BEEN PAID TO CLEIS LTD. ON SIMILAR PAYMENT. PLEASE EXPLAIN WITH SUPPORTING EVIDENCE. 5. IT IS SEEN THE DEPRECIATION HAS BEEN CLAIMED IN INFRASTRUCTURE FEE AND LICENCE FEE ALSO. PLEASE EXPLAIN UNDER WHI CH SECTION OF INCOME TAX ACT PROVIDES TO DEPRECIATION ON THESE PO INTS. YOU ARE ALSO REQUIRED TO JUSTIFY THE RATE ON 25% TAKEN ON T HESE ITEMS. YOU ARE REQUIRED TO PRODUCE COMPLETE BOOKS OF ACCOU NT, BILLS, VOUCHER ETC. FOR THE F.Y. 2006-07, 2007-08 AND 2008-09. Y OUR CASE IS FIXED FOR HEARING ON 8.4.2010 BEFORE THE DIT(E) IN ROOM N O. 301 AT 12.30 PM IN CASE OF NON-COMPLIANCE YOUR CASE WILL BE DECI DED ON MERIT. ITA 2849(DEL)2010 4 4. IN RESPONSE, THE ASSESSEE FILED ITS INCOME AND E XPENDITURE ACCOUNT FOR THE PERIOD ENDING 31.3.2009. FURTHER, LETTERS DA TED 5.3.2010 AND 13.4.2010 WERE FILED, FURNISHING THE INFORMATION CALLED FOR B Y THE DIT(E). 5. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. DIT(E) REJECTED THE APPLICATION FILED BY THE ASSESSEE. THE LD. DIT(E), WHILE DOING SO, OBSERVED, INTER ALIA, THAT THE EXAMINATION OF THE AGREEMENT, BETWEEN CLEIS AND THE ASSESSEE (CLEF) REVEALED THAT CERTAIN CLAUSES THERE IN SHOWED THAT THE ASSESSEES INTENTION WAS SOLELY TO ENGAGE IN COMMER CIAL/BUSINESS ACTIVITIES WITH THE MOOT OBJECT TO EARN PROFIT; THAT THE ASSES SEES ACTIVITIES WERE AGAINST THE AIMS AND OBJECTS FOR WHICH PUBLIC CHARITABLE TR UST ARE CREATED; THAT THE TWO DIRECTORS OF CLEIS CAME UNDER THE CATEGORY OF THE SPECIFIED PERSONS WITHIN THE MEANING OF SECTION 13(3) OF THE ACT; THA T THE TRADE MARK LICENSING AGREEMENT ENTERED INTO BY THE ASSESSEE WI TH CAREER LAUNCHER (INDIA)LTD. WAS A REVOCABLE AGREEMENT; THAT THE SIG NATORIES OF BOTH THE PARTIES TO THIS AGREEMENT WERE SPECIFIED PERSONS; THAT THE AGREEMENT FOR FRESH INFRASTRUCTURE ENTERED INTO BY THE ASSESSEE WITH CLEIS SHOWED THAT THE LICENSOR HAD GIVEN LICENCE TO THE LICENCEE TO RUN A ND MANAGE A BUSINESS SCHOOL IN THE NAME OF INDUS WORLD BUSINESS SCHOOL A T NOIDA; THAT AS PER THE CLAUSES OF THIS AGREEMENT, THE CHAIRMAN AND VICE CH AIRMAN OF THE GOVERNING BODY OF THE ASSESSEE TRUST WERE THE NOMI NEES OF THE LICENSOR AND ITA 2849(DEL)2010 5 THE MAIN ACTIVITIES WERE TO BE DEALT WITH BY THE GO VERNING BODY AND THE BANK COLLECTION ACCOUNTS WERE TO BE OPERATED BY THE SAID CHAIRMAN OR THE VICE CHAIRMAN OF THE GOVERNING BODY, WHO WERE NONE OTHER THAN THE NOMINEES OF THE LICENSOR; THAT THIS PROVED THAT TH E ENTIRE AFFAIRS HAD BEEN ARRANGED BETWEEN THE LICENSOR AND THE LICENCEE TO D EVIATE THE FUNDS OF THE ASSESSEE AND TO GET THE INCOME OF THE ASSESSEE EXEM PTED UNDER THE INCOME TAX PROVISIONS; THAT THIS ALSO PROVED THAT THE MAIN TRUSTEES, I.E., NIKHIL MAHAJAN AND GAUTAM PURI WERE THE MAIN BENEFICIARIES OF THE INCOME OF THE TRUST AND THEY CAME UNDER THE CATEGORY OF SPECIFI ED PERSONS; THAT THE ASSESSEE WAS RUNNING MBA COURSES IN ITS BUSINESS SC HOOL, CHARGING HUGE AMOUNTS OF ` 8 TO 10 LAKHS ANNUALLY AS FEES, ETC., FROM STUDENT S; THAT THE INSTITUTION WAS NOT RECOGNIZED BY ANY GOVERNMENT AU THORITIES, BUT WAS BEING RUN FROM F.Y. 2007-08; THAT WITHOUT SUCH RECO GNITION, THE SCHOOL WAS NOT AUTHORIZED TO TAKE FEES/CHARGES FROM STUDENTS; THAT THESE ILLEGAL ACTIVITIES WERE AGAINST THE NATURE AND OBJECTS OF THE SOCIETY AND THE SCHOOL WAS BEING RUN ON COMMERCIAL LINES; THAT IT ALSO STOOD PROVED THAT THE ASSESSEES CASE DID NOT COME UNDER THE EXPRESSION EDUCATION WITHIN TH E MEANING OF SECTION 2(15) OF THE I.T ACT, AS ELUCIDATED UPON IN SOLE T RUSTEES, LOKA SHIKSHANA TRUST V. CIT, 101 ITR 234(SC); THAT EVEN IF IT WAS TO BE ASSUMED THAT THE ACTIVITIES OF THE ASSESSEE CAME UNDER THE EXPRESSIO N GENERAL PUBLIC UTILITY, ITA 2849(DEL)2010 6 THE TRUST WAS HIT BY THE PROVISO TO SECTION 2(15) O F THE ACT BECAUSE IT WAS CHARGING FEE AND ITS RECEIPTS, EXCEEDING ` 10 LAKHS, WERE NOT ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT; THAT THE ASSESSEES AC COUNTS SHOWED THAT IT HAD BEEN GENERATING HUGE SYSTEMATIC PROFITS YEAR AFTE R YEAR; THAT SO, THE RATIO OF THE HONBLE UTTARAKHAND HIGH COURT IN CIT, HALDWAN I V.M/S. QUEEN EDUCATIONAL SOCIETY, NAINITAL AND ST.PAUL SENIOR SECONDARY SCHOOL, KATHGODAM, NAINITAL, WAS SQUARELY APPLICABLE; THA T THE ASSESSEE HAD VIOLATED THE PROVISIONS OF SECTION 13 OF THE ACT BY APPLYING ITS INCOME FOR MAKING PAYMENT TO CAREER LAUNCHER (INDIA)LTD. AND C LEIS AS LICENCE FEE AND INFRASTRUCTURE FEE; THAT THE TWO DIRECTORS OF T HE SAID COMPANIES, NAMELY, NIKHIL MAHAJAN AND GAUTAM PURI, WHO WERE HOLDING TH E POSTS OF SECRETARY- CUM-TREASURER AND MANAGING TRUSTEE RESPECTIVELY, CA ME UNDER THE CATEGORY OF SPECIFIED PERSONS WITHIN THE MEANING OF SECTIO N 13A OF THE ACT; AND THAT THE ASSESSEE HAD VIOLATED THE PROVISIONS OF SE CTION 13(1)(C) OF THE ACT. 6. CHALLENGING THE SAID ORDER OF THE LD. DIT(E), TH E LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED BY VIRTUE OF HIS ORAL AG REEMENT AS WELL AS WRITTEN SUBMISSIONS, THAT THE ASSESSEE IS A TRUST INCORPORA TED VIDE TRUST DEED DATED 20.04.2006 FOR PURSUING THE MAIN OBJECT OF ESTABLIS HING, RUNNING AND MANAGING SCHOOLS/COLLEGES TO PROVIDE EDUCATION OF A LL TYPES. THE ASSESSEE IS ALSO RUNNING A BUSINESS SCHOOL IN THE NAME OF INDU S WORLD SCHOOL OF ITA 2849(DEL)2010 7 BUSINESS AT GREATER NOIDA; THAT THE ASSESSEE IS RE GISTERED UNDER SECTION 12A VIDE ORDER DATED 23.05.2006. THE ASSESSEE WAS ALSO GRANTED APPROVAL UNDER SECTION 80G OF THE ACT FOR THE PERIOD FROM 23.11.20 05 TO 31.12.2007 VIDE ORDER DATED 23.05.2006; THAT THE ASSESSEE FILED AN APPLICATION IN FORM NO.10G ON 05.11.2009, BEFORE THE DIT (EXEMPTIONS) S EEKING RENEWAL OF APPROVAL UNDER SECTION 80G(VI) OF THE ACT; THAT IN THE IMPUGNED ORDER DATED 07.05.2010 PASSED BY THE DIT(E) UNDER SECTION 80G(V I) OF THE ACT, THE DIT(E) REJECTED THE APPLICATION FILED BY THE ASSESS EE.. THE DIT(E) HAS PRIMARILY HELD THAT THE ACTIVITIES OF THE ASSESSEE ARE NOT CHARITABLE IN NATURE AND THEREFORE, THE ASSESSEE IS NOT ENTITLED TO GRAN T OF APPROVAL UNDER SECTION 80G(VI) OF THE ACT; THAT THE AFORESAID ACTION OF TH E DIT(E) IS, PATENTLY ERRONEOUS, SINCE SECTION 11 OF THE ACT EXEMPTS INCO ME OF A `PERSON DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABL E OR RELIGIOUS PURPOSE; AND THAT IN ORDER TO CLAIM EXEMPTION UNDER THE SAID SECTION, THE ASSESSEE HAS TO GET ITSELF REGISTERED UNDER SECTION 12A BY FOLLO WING THE PROCEDURE PRESCRIBED IN SECTION 12AA OF THE ACT. 7. THE LD. DR, ON THE OTHER HAND, HAS STAUNCHLY SUP PORTED THE IMPUGNED ORDER. REITERATING THE CONTENTS THEREOF, IT HAS B EEN URGED THAT THE LD. DIT(E) HAS CORRECTLY REJECTED THE APPLICATION FOR RENEWAL OF EXEMPTION U/S 80G OF THE ACT; THAT IT IS ABSOLUTELY CLEAR FROM THE AGREE MENT BETWEEN CLEIS AND ITA 2849(DEL)2010 8 THE ASSESSEE THAT THE ASSESSEES INTENTION WAS NOTH ING OTHER THAN OF ENGAGING IN COMMERCIAL/BUSINESS ACTIVITIES SO AS TO EARN PRO FIT; THAT THEREFORE, THE MOTIVE OF THE ASSESSEE WAS BUT PROFIT MOTIVE; THAT AS SUCH, THERE WAS NO ELEMENT OF CHARITY INVOLVED; THAT NIKHIL MAHAJAN AN D GAUTAM PURI, THE TWO DIRECTORS OF CLEIS WERE UNDISPUTEDLY SPECIFIED PER SONS AS DEFINED BY SECTION 13(3) OF THE ACT; THAT BESIDES, THE TRADE M ARK LICENSING AGREEMENT BETWEEN THE ASSESSEE AND CAREER LAUNCHER (INDIA)LTD . WAS A REVOCABLE AGREEMENT, THE SIGNATORIES WERE OF SUCH SPECIFIED PERSONS, I.E., NIKHIL MAHAJAN AND GAUTAM PURI; THAT EVEN THE AGREEMENT FO R INFRASTRUCTURE BETWEEN THE ASSESSEE AND CLEIS WAS MERELY A FAADE, WHEREBY LICENCE STOOD GIVEN BY THE LICENSOR TO THE LICENCEE TO RUN A BUSINESS SCHOOL AT GREATER NOIDA; THAT IT WAS JUST AN ARRANGEMENT BETW EEN THE LICENSOR AND THE LICENCEE FOR MANAGING THE AFFAIRS SO THAT THE FUNDS OF THE ASSESSEE GOT DEVIATED AND EXEMPTION WAS OBTAINED QUA THE INCOME OF THE ASSESSEE UNDER THE PROVISIONS OF THE I.T. ACT; THAT IN FACT, IT WA S THE SAID NIKHIL MAHAJAN AND GAUTAM PURI, WHO WERE THE MAIN TRUSTEES, WHO STOOD PROVED TO BE THE MAIN BENEFICIARIES OF THE INCOME OF THE TRUST; THAT IN T HE BUSINESS SCHOOL RUN BY THE ASSESSEE TRUST, HUGE SUMS, AMOUNTING TO ` 8 TO ` 10 LAKHS WERE BEING CHARGED ANNUALLY AS FEES ETC., FROM STUDENTS; THAT THIS, DESPITE THE FACT THAT THE SAID SCHOOL HAD NOT BEEN ACCORDED ANY LEGAL AUT HORIZATION BY ANY ITA 2849(DEL)2010 9 GOVERNMENT AUTHORITY AND SO, IT WAS DEBARRED FROM C HARGING SUCH HEAVY FEES, DUE TO WHICH, THE FEE CHARGED WAS UNAUTHORISE D AND ILLEGAL; THAT IN THE FACE OF THESE UNDENIED FACTS, THE SCHOOL WAS BEING RUN SOLELY ON A COMMERCIAL BASIS; THAT THE ACTIVITIES OF THE ASSESS EE THUS DID NOT AT ALL FALL WITHIN THE EXPRESSION EDUCATION, AS CONTAINED IN SECTION 2(15) OF THE ACT; THAT THE LD. DIT(E) HAS CORRECTLY HELD THE CASE OF THE ASSESSEE TO BE FALLING SQUARELY WITHIN THE RATIO OF THE DECISION OF THE HO NBLE SUPREME COURT IN SOLE TRUSTEES, LOKA SHIKSHANA TRUST V. CIT(SUPRA) ; THAT FURTHER-MORE, UNDISPUTEDLY, AT BEST, ACCEPTING FOR THE SAKE OF AR GUMENT ONLY; THAT THE ACTIVITIES OF THE ASSESSEE FALL WITHIN THE EXPRESSI ON GENERAL PUBLIC UTILITY, THE PROVISO TO SECTION 2(15) OF THE ACT IS DIRECTLY ATTRACTED, SINCE THE RECEIPTS OF THE ASSESSEE BY WAY OF FEE CHARGED, ARE OF MORE THAN ` 10 LAKHS AND THE EXEMPTION U/S 11 OF THE ACT IS NOT AVAILABLE TO SUC H RECEIPTS; THAT THE LD. DIT(E) HAS ALSO RIGHTLY HELD THE RATIO IN M/S. QUE EN EDUCATIONAL SOCIETY, NAINITAL (SUPRA), TO BE DIRECTLY APPLICABLE, SINCE HUGE SYSTEMATIC PROFITS WERE BEING GENERATED BY THE ASSESSEE REPEATEDLY YEA R AFTER YEAR; THAT THE ASSESSEE HAD ALSO CONTRAVENED THE PROVISIONS OF SEC TION 13 OF THE ACT; THAT AS SUCH, THE ORDER PASSED BY THE LD. DIT(E), BEING A W ELL VERSED, REASONED ELABORATE ORDER, CALLS FOR NO INTERFERENCE AT OUR H ANDS; THAT THE GRIEVANCE SOUGHT TO BE RAISED BY THE ASSESSEE, PER CONTRA, IS NOT SUSTAINABLE IN FACE OF ITA 2849(DEL)2010 10 THE SPECIFIC FINDINGS OF FACT RECORDED BY THE LD. D IT(E); AND THAT THEREFORE, THE APPEAL OF THE ASSESSEE BE DISMISSED WHILE UPHOL DING THE ORDER UNDER APPEAL. 8. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE M ATERIAL ON RECORD. THE ISSUE IS AS TO WHETHER THE APPLICATION FILED BY THE ASSESSEE FOR RENEWAL OF GRANT OF EXEMPTION U/S 80 G OF THE ACT HAS RIGHTLY BEEN REJECTED BY THE LD. DIT(E). 9. AT THE OUTSET, IT WOULD BE APPROPRIATE TO REITER ATE HERE THE AIMS AND OBJECTS OF THE ASSESSEE TRUST:- 4.. AIMS & OBJECTS: - THAT THE OBJECTS FOR WHICH THIS TRUST IS ESTABL ISHED ARE: 4A.1 TO ESTABLISH, OPEN, DEVELOP, RUN, SUPPORT, MAINTAIN SCHOOLS, COLLEGES, HOSTELS, TRAINING & CAREER COUNSELING CENTERS TO PROVIDE EDUCATION OF ALL TYPES (I.E. BAS IC, PROFESSIONAL, TECHNICAL OR NON- TECHNICAL). 4A.2 TO ESTABLISH, RUN,SUPPORT AND GRANT AID OR OTHER FINANCIAL ASSISTANCE TO SCHOOLS , COLLEGES, HOSTELS, LIBRARIES, READING ROOMS, UNIVERSITIES, LABORATORIE S, RESEARCH AND OTHER INSTITUTIONS OF THE LIKE NATURE IN INDIA, FOR USE OF THE STUDENTS, STAFF AND GENERAL PUBLIC A ND ALSO FOR THE DEVELOPMENT AND ADVANCEMENT OF EDUCATION, RESEARCH AND DIFFUSION OF KNOWLEDGE AMONGST THE PUB LIC IN GENERAL. 4A.3 TO DO OR CAUSE TO DO SUCH ACTS & DEEDS TO PROMOTE EDUCATION BY ESTABLISHING, MAINTAIN AND RUN STUDENTSHIPS, SCHOLARSHIPS AND RENDER OTHER KIND OF AID TO ITA 2849(DEL)2010 11 STUDENTS INCLUDING SUPPLY OF BOOKS, STIPENDS, TRANSPORATION FACILITIES AND OTHER INCENTIVES TO ST UDY FOR NEEDY CHILDREN, WITHOUT ANY DISTINCTION AS TO CASTE , COLOUR, RACE, CREED OR SEX. 4A.4 TO PROMOTE, ESTABLISH, SUPPORT, MAINTAIN OR GRANT A ID ETC. TO INSTITUTIONS FOR THE PROMOTION OF SCIENCE, LITERATURE, MUSIC, DRAMA AND FINE ARTS, FOR THE PRESERVATION OF HISTORICAL MONUMENTS AND FOR THE RESEARCH AND TO THE INSTITUTIONS IN INDIA, HAVING S IMILAR OBJECTS FOR THE BENEFIT OF THE PUBLIC IN GENERAL. 4A.5 TO ORGANIZE AND RUN THE COACHING CLASSES, LIBRARY, READING ROOM AND OTHER LIKE ACTIVITIES EITHER INDEPENDENTLY OR JOINTLY WITH OTHERS. 4A.6 TO CAUSE THE DIFFUSION OF KNOWLEDGE AND INFORMATION BY BRINGING OUT THE PERIODIC NEWSLETTER, JOURNAL OR SO UVENIR ETC. EITHER MONTHLY, QUARTERLY, YEARLY OR OTHERWISE UNDER THE SUITABLE NAME AND TAKE THE SUBSCRIPTION ETC. IN SUCH JOURNAL AND SOUVENIR. 4A.7 TO RUN, MAINTAIN AND ESTABLISH SPORTS ACADEMIC S FOR THE STUDENTS OF THE SCHOOL RUN BY IT AND OTHERS. (B) GENERAL 4B.1 TO ACQUIRE AND TAKE OVER ALL OR ANY PART OF MO VABLE OR IMMOVABLE PROPERTIES OF ANY SIMILAR TRUST, SOCIETY OR INSTITUTION OR ANY ONE ELSE WHOSOEVER MAY BE FOR TH E PURPOSE OF THE TRUST AND TO MAINTAIN SUCH ASSETS. 4B.2 TO RAISE FUNDS, TROUGH GRANTS, AIDS, DONATIONS , SUBSCRIPTIONS, SPONSORSHIP, PRESENTS, RENT, GIFTS A ND LOANS OR ANY ASSISTANCE IN OTHER FORM ETC. FOR THE FULFIL LMENT OF AIMS & OBJECTS OF THE TRUST. 4B.3 TO RECEIVE FINANCIAL AND NON FINANCIAL ASSISTA NCE FROM ANY GOVERNMENT AND NON GOVERNMENT ORGANIZATIONS, INTERNATIONAL AGENCIES/ORGANIZATION, BANKS AND OTHE R LEGAL ENTITIES OR INDIVIDUALS, AS PERMITTED BY RULE S OF THE GOVERNMENT OF INDIA. ITA 2849(DEL)2010 12 4B.4 TO MANAGE, SELL, TRANSFER, PLEDGE, DISPOSE OF OR DEAL WITH MOVABLE AND IMMOVABLE PROPERTIES OF THE TRUST KEEPI NG IN VIEW OF THE AIMS AND OBJECTS OF THE TRUST. 4B.5 TO INVEST FUNDS AND HELP INVESTMENT OF ANY FUN DS IN THE MODES OF INVESTMENTS FROM TIME TO TIME WHICH IS IN TERMS OF INCOME TAX ACT 1961 OR ANY OTHER LAW FOR THE TIM E BEING IN FORCE AND SUBSEQUENT AMENDMENTS THEREOF FR OM TIME TO TIME. 4B.6 TO ASSIST AND COOPERATE THE TRUST/ASSOCIATIONS/ORGANIZATIONS ETC. WHOSE AIMS AR E SAME LIKE THIS TRUST APART FROM. 4B.7 TO ESTABLISH AND MANAGE BRANCHES AND CENTERS O F TRUST IN OTHER PARTS OF THE COUNTRY. 4B.8 ALL THE ACTIVITIES OF THE TRUST SHALL BE NON- PROFITABLE. 4B.9 TO DO AND CAUSE TO DO ALL SUCH ACTS, DEEDS AND TAKE SUCH STEPS WHICH ARE IN ACCORDANCE WITH THE SPIRIT AND PRINCIPLES OF THE TRUST AS MAY BE ANCILLARY OR INCI DENTAL AND CONDUCIVE TO THE ATTAINMENT AND PURSUIT OF ITS AIMS AND OBJECTIVES OF THE TRUST. (EMPHASIS SUPPLIED) 10. A PERUSAL OF THE ABOVE AIMS AND OBJECTS OF THE ASSESSEE TRUST SHOWS THAT THE MAIN OBJECT OF THE TRUST IS TO SET UP AND MANAGE EDUCATIONAL INSTITUTIONS, I.E., SCHOOLS/COLLEGES AND TRAINING A ND NOT ONLY CENTRES TO IMPART EDUCATION TO ALL KINDS AND TO MAKE AVAILABLE AND PROPER FINANCIAL ASSISTANCE TO SCHOOLS AND COLLEGES FOR ADVANCEMENT OF EDUCATION AND RESEARCH AND FOR DISPERSAL OF KNOWLEDGE AMONGST THE PUBLIC. A COPY OF THE TRUST DEED DATED 20.4.06 OF THE ASSESSEE TRUST HAS BEEN PLACED AT PAGES 49 ITA 2849(DEL)2010 13 TO 63 OF THE ASSESSEES PAPER BOOK (APB FOR SHORT ). AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE, ARTICLE 13.3 THEREOF STIPULATES THAT 13.3 THE TRUST FUND SHALL NOT BE APPLIED FOR ANY PURPOSE OTHER THAN THOSE SPECIFIED IN ARTICLE 4 HEREINABOVE . (EMPHASIS SUPPLIED) 1. FURTHER, IN TERMS OF CLAUSE 18 OF THE TRUST DEED (REFER PAGE 62 OF THE PAPER BOOK) NO PART OF THE INCOME/FUNDS OF THE APPELLANT CAN BE DISTRIBUTED AMONGST ITS MEMBERS AS PROFIT AN D IN THE EVENT OF DISSOLUTION OF THE APPELLANT, ANY SURPLUS SHALL VEST IN ANY OTHER TRUST HAVING SIMILAR OBJECTS AS THAT OF T HE APPELLANT AS PER THE TRUST DEED AND APPROVED UNDER SECTION 12A O F THE ACT. THE SAID CLAUSE IS REPRODUCED HEREUNDER: 18. APPLICATION OF FUNDS IT IS EXPRESSLY DECLARED THAT NO PART OF THE TRUST PROPERTY OR ITS INCOME OR ANY ACCRETION THERETO SHALL BE APPLIED FO R ANY PURPOSE OUTSIDE INDIA OR FOR ANY PURPOSE WHICH IS N OT A CHARITABLE PURPOSE IN LAW, AND ALL PROVISIONS HEREO F SHALL BE CONSTRUED ACCORDINGLY. ON THE DISSOLUTION OF THE TRUST ALL THE FUNDS OF TH E TRUST ALONG WITH ALL THE ASSETS AND LIABILITIES SHALL BE TRANSF ERRED TO ANY OTHER TRUST WITH SIMILAR OBJECT APPROVED UNDER SECT ION 12A OF THE INCOME TAX ACT, 1961 . (EMPHASIS SUPPLIED) 11. THE TRUST FUNDS SHALL NOT BE APPLIED FOR ANY P URPOSE OTHER THAN THOSE SPECIFIED IN ARTICLE 4 REPRODUCED HEREINABOVE. AR TICLE 4 IS NOTHING OTHER THAN THE AIMS AND OBJECTS OF THE ASSESSEE TRUST, AS REPRODUCED HEREINABOVE. ITA 2849(DEL)2010 14 SO, THE TRUST FUND CAN BE APPLIED ONLY FOR THE ADVA NCES SPECIFIED IN ARTICLE 4. APPLICATION OF THE TRUST FUND FOR ANY OTHER PUR POSE STANDS SPECIFICALLY FORBIDDEN BY ARTICLE 13 OF THE TRUST DEED. 12. THEN, ARTICLE 18 (AT APB 62) OF THE TRUST DEED PRESCRIBES THE APPLICATION OF THE FUNDS OF THE TRUST, DECLARING TH AT NO PART OF THE TRUST PROFIT OR ITS INCOME OR ANY ACCRETION THERETO SHALL BE APP LIED FOR ANY PURPOSE OUTSIDE INDIA OR FOR ANY PURPOSE WHICH IS NOT A CHA RITABLE PURPOSE IN LAW. AS SUCH, THE INCOME/FUNDS OR ANY PART THEREOF HAVE BE EN FORBIDDEN FROM BEING DISTRIBUTED AS PROFIT AMONGST THE MEMBERS OF THE TR UST. ARTICLE 18 FURTHER PROVIDES THAT IN THE EVENT OF DISSOLUTION OF THE TR UST, ALL ITS FUNDS ALONG WITH ITS ASSETS AND LIABILITIES SHALL BE TRANSFERRED TO ANY OTHER TRUST WITH SIMILAR OBJECT APPROVED U/S 12A OF THE I.T. ACT. 13. IT WAS ON THE BASIS OF THE ABOVE, THAT REGISTRA TION U/S 12A OF THE ACT WAS GRANTED TO THE ASSESSEE VIDE ORDER DATED 23.5.2 006. ALSO, VIDE ORDER DATED 23.5.06, APPROVAL U/S 80 G OF THE ACT WAS ACC ORDED TO THE ASSESSEE TRUST FOR THE PERIOD FROM 23.11.05 TO 31.12.07. 14. APROPOS THE OBJECTIONS RAISED BY THE DIT(E) IN THE IMPUGNED ORDER, THE LEARNED COUNSEL FOR THE ASSESSEE HAS MAINTAINED THAT ONCE REGISTRATION U/S 12A OF THE ACT STANDS GRANTED, THE CHARITABLE CHARA CTER OF THE ACTIVITIES OF THE TRUST CANNOT BE CHALLENGED/DOUBTED. IN THIS REGAR D, RELIANCE HAS BEEN ITA 2849(DEL)2010 15 PLACED ON ACIT V. SURAT STATE GYMKHANA, 170 TAXMA NN 612(SC), HOLDING THAT THE AO, IN THE ASSESSMENT PROCEEDINGS, IS NOT ENTITLED TO HOLD THE OBJECTS OF THE ASSESSEE TO BE NOT CHARITABLE IN NAT URE, ONCE REGISTRATION GRANTED U/S 12A OF THE ACT DOES NOT STAND WITHDRAWN . 15. IT IS SEEN THAT VIDE ORDER DATED 23.5.06 (COPY AT APB 102), THE ASSESSEE WAS GRANTED REGISTRATION U/S 12A OF THE AC T. AGAIN, VIDE ORDER DATED 23.5.06 (COPY AT APB 101), THE ASSESSEE WAS G RANTED APPROVAL U/S 80G OF THE ACT FOR THE PERIOD FROM 23.11.05 TO 31.12.07 . THE REGISTRATION MEANS THAT IT STOOD ACCEPTED THAT THE ASSESSEE HAD BEEN C ONSTITUTED FOR EDUCATIONAL PURPOSES, FALLING WITHIN CHARITABLE PURPOSE U/S 2 (15) OF THE ACT. IT ALSO STOOD ACCEPTED THEREBY THAT THE FUNDS OF THE ASSESS EE WERE, IN THEIR ENTIRETY, AS THE ASSESSEE WAS LEGALLY OBLIGED TO DO, TO BE AP PLIED SOLELY FOR THE PRIMARY OBJECTS OF THE TRUST AND FOR NO OTHER PURPOSES. T HEREFORE, THE PROPERTIES HELD BY THE TRUST WERE HELD ONLY FOR CHARITABLE PUR POSES. THE LD. DIT(E) HAS REMAINED OBLIVIOUS OF THIS POSITION WHILE PASSING THE IMPUGNED ORDER. HE FAILED TO CONSIDER THAT THE ONLY OBJECT OF THE ASSE SSEE WAS THAT OF IMPARTING EDUCATION BY WAY OF BASIC PROFESSIONAL, TECHNICAL A ND VOCATIONAL TRAINING TO THE GENERAL PUBLIC. SO AS TO FOLLOW THE SAID OBJE CT, VARIOUS ACTIVITIES WERE CARRIED OUT BY THE ASSESSEE TRUST. THIS INCLUDED P ROVIDING SKILL DEVELOPMENT AND UNDERTAKING VOCATIONAL TRAINING PROGRAM FOR RUR AL YOUTH IN RAJASTHAN ITA 2849(DEL)2010 16 AND U.P. AND THEREBY IMPARTING EDUCATION AND TRAINI NG, IDENTIFYING POTENTIAL ACTIVITIES AND BENEFICIARIES AND FACILITATORS/TRAIN EES AND MONITORING THE PROGRAMS, TOWARDS WHICH END, A MEMORANDUM OF UNDERS TANDING DATED 11.6.09 (COPY AT APB 1 TO 12) WAS ENTERED INTO WITH THE EDUCATIONAL INSTITUTE OF RURAL DEVELOPMENT (NIRD), FOR SKILL DE VELOPMENT OF RURAL YOUTH, AND RUNNING AND MANAGING A BUSINESS SCHOOL U NDER THE NAME OF INDUS WORLD BUSINESS SCHOOL AT GREATER NOIDA AND THEREBY IMPROVING UPON THE EDUCATIONAL/MANAGEMENT SKILLS OF THE STUDE NTS. THE ASSESSEE TRUST ENTERED INTO AN AGREEMENT DATED 1.2.08 (COPY AT APB 13 TO 29) WITH CAREER LAUNCHER EDUCATION INFRASTRUCTURE AND SERVICES LTD. (CLEIS FOR SHORT). IT WAS AS PER THE SAID AGREEMENT THAT THE ASSESSEE WAS GRANTED A NON- EXCLUSIVE LICENCE FOR THE USE OF THE NAME INDUS WO RLD BUSINESS SCHOOL AND EDUCATIONAL SOFT SKILLS FOR RUNNING AND MANAGI NG THE BUSINESS SCHOOL, BY CLEIS. ANOTHER AGREEMENT, A COLLABORATION AG REEMENT DATED 1.11.07 (COPY AT APB 39 TO 48) WAS ENTERED INTO BY THE ASSE SSEE TRUST WITH CAREER LAUNCHER INDIA LIMITED OR CLIL. THE ASSESSEE PA ID INFRASTRUCTURE FEE TO CLIL IN LIEU OF SERVICES RENDERED BY CLIL. THESE SERVICES WERE THE SERVICES ENUMERATED IN ANNEXURE A (COPY AT APB 47 T O 48 TO THE SAID COLLABORATION AGREEMENT) TO THE SAID AGREEMENT. T HESE SERVICES ARE AS FOLLOWS:- ITA 2849(DEL)2010 17 ANNEXURE A SERVICE TO BE OFFERED BY CL FOR CARRYING ON ACTIVIT IES(SERVICES) 1) BUSINESS DEVELOPMENT SERVICES: DATABASE SERVICES: DATABASE OF MORE THAN 40 K PROSPECTIVE STUDENTS FOR POST GRADUATE PROGRAM, WHO HAVE PREPARED WITH CL FOR THEIR UNDERG RADUATE ENTRANCE TESTS. DATABASE OF MORE THAN 5K PROSPECTIVE STUDENTS FOR I TS BBA EXAMINATION, WHO HAVE PREPARED WITH CL FOR THEIR UNDERGRADUATE E NTRANCE TESTS. SHARING DATABASE, WHICH WAS COLLECTED AT CL FOR ITS OWN MARKETING ACTIVITIES (IN EXCESS OF 1.2 LAKHS) WHO ARE ACTIVELY LOOKING F OR MBA AND BBA AS THEIR CAREER OPTIONS. THIS DATABASE GETS BUILT UP ROUND THE YEAR DUE TO O NGOING SALES PROMOTION ACTIVITIES BY A SALES FORCE OF MORE THAN 150 PERSON S AT MORE THAN 80 LOCATIONS ALL ACROSS INDIA. 2). ORGANISING SEMINAR/ROAD SHOWS: ORGANISING MORE THAN 50 SEMINARS/ROAD SHOWS AT ITSO WN CENTER/FRANCHISEE CENTER LOCATION FOR PROCURING STUDENTS. 3). MARKETING SERVICES: BRAND RELATED SERVICES: ENGAGING ADVERTISING AGENCY FOR CREATING BRAND STRA TEGY AND CONTINUOUSLY IMPROVING ON THE SAME. CREATING BRAND COLLATERAL IN TERMS OF ADVERTISEMENT CREATIVE ON VARIOUS MEDIA SUCH AS PRINT, TV ETC. ADVERTISING AND PR RELATED SERVICES: ITA 2849(DEL)2010 18 ENGAGING MEDIA AGENCY FOR SELECTION OF BEST MEDIA V EHICLE AND EXECUTION OF MEDIA PLAN. ENGAGING PR AGENCY FOR IMPLEMENTING EFFECTIVE PR. CREATING EFFECTIVE REGULAR SALES RELATED COLLATERAL IN TERMS OF POSTERS, BANNERS, PRINT AD CREATIVE, AND TV COMMERCIALS. 4). CONTENT SERVICES: PROVIDING SERVICES IN TERMS MANAGING DTP, PRINTING AND PUBLISHING SERVICES FOR THE ACADEMIC MATERIAL. PROVIDING WAREHOUSING AND DISPATCH SERVICES FOR THE ACADEMIC AND SALES COLLATERAL. 5) HUMAN RESOURCE SERVICES: SERVICES RELATED TO RECRUITMENT AND INDUCTION ASSISTANCE IN TRAINING AND RETENTION 6) AMENITIES SERVICES: USAGE BY CLEF OF BUILDING WITH OFFICE EQUIPMENTS FO R CONDUCTING CLASSES AND STUDENTS STAY, AS MAY BE AGREED BETWEEN THE PAR TIES FROM TIME TO TIME. 7). TECH SERVICES: USAGE BY CLEF OF PACKAGES RELATED TO PAYROLL, ATTEN DANCE, SCHEDULING AND FACULTY LOGINS USAGE BY CLEF OF SIS MODULE, A WEB BASSED LEARNING MANAGEMENT SERVICES MODULE. 8) LEGAL SERVICES: SERVICES RELATED TO LEGAL COMPLIANCES 9) ANY OTHER SERVICE: ITA 2849(DEL)2010 19 CL SHALL PROVIDE ANY OTHER SERVICE, NOT PROVIDED IN THIS AGREEMENT BUT DESIRED BY CLEF FOR THE BUSINESS SCHOOL ON PAYMENT OF FEE AND CHARGES TO BE MUTUALLY DECIDED BETWEEN CL AND CLEF. 16. AS EVIDENT, THESE SERVICES WERE FOR THE EFFECTI VE RUNNING AND MANAGEMENT OF INDUS WORLD BUSINESS SCHOOL. ANOTHE R AGREEMENT, I.E., TRADE MARK LICENCE AGREEMENT DATED 1.11.07 (COPY AT APB 30 TO 38) WAS ENTERED INTO BETWEEN THE ASSESSEE AND CLIL. UNDER THIS AGREEMENT, A LICENCE FEE WAS PAID BY THE ASSESSEE TRUST TO CLIL. THIS PAYMENT WAS FOR GRANT OF A NON-EXCLUSIVE LICENCE TO THE ASSESSEE TO USE THE TRADE MARK CAREER LAUNCHER. UNDER THE AGREEMENT, FIXED LICE NCE FEE AND CONTINUING LICENCE FEE, BASED ON NET REVENUE, WERE TO BE PAID TO CLIL. THE LD. DIT(E) HAS FAILED TO APPRECIATE THESE FACTS AND HAS GONE WRONG IN OBSERVING THAT THE ASSESSEES INTENTION WAS SOLELY TO ENGAGE IN COMMER CIAL AND BUSINESS ACTIVITIES SO AS TO EARN PROFIT AND THAT THE ASSESS EES ACTIVITIES WERE AGAINST THE AIMS AND OBJECTS FOR WHICH PUBLIC CHARITABLE TR USTS ARE CREATED. THE LD. DIT(E) FURTHER ERRED IN OBSERVING THAT IT WAS EVIDE NT FROM THE AGREEMENT FOR INFRASTRUCTURE BETWEEN THE ASSESSEE AND CLEIS THAT THE ENTIRE AFFAIRS OF THE ASSESSEE TRUST HAD BEEN SO ARRANGED BETWEEN THE LIC ENSOR AND THE LICENCEE, AS TO DEVIATE THE FUNDS OF THE ASSESSEE TRUST AND T O GET THE INCOME OF THE ASSESSEE EXEMPTED UNDER THE INCOME TAX PROVISIONS, WHEREAS THE MAIN BENEFICIARIES OF THE INCOME WERE THE TWO MAIN TRUST EES, I.E., NIKHIL MAHAJAN ITA 2849(DEL)2010 20 AND GAUTAM PURI, WHO WERE SPECIFIED PERSONS WITHI N THE MEANING OF SECTION 13(3) OF THE ACT. 17. IT REMAINS UNDISPUTED THAT THE ASSESSEE HAS BEE N PROVIDING FORMAL EDUCATION IN INDUS WORLD BUSINESS SCHOOL. THE LD. DIT(E) HAS QUESTIONED THE CHARGING OF FEES BY THE SCHOOL FROM ITS STUDENT S, ALLEGING THAT SUCH FEE WAS HEAVY FEE AND AS THE INSTITUTE WAS NOT RECOGNIZ ED BY ANY GOVERNMENT AUTHORITY, THE CHARGING OF SUCH HEAVY FEE WAS ILLEG AL. IN THIS REGARD, IT IS SEEN THAT THE ASSESSEE TRUST CONTINUES TO ENJOY REG ISTRATION U/S 12A OF THE ACT. THOUGH IN THE IMPUGNED ORDER, IN PARA 15, TH E LD. DIT(E) HAS, INTER ALIA, OBSERVED THAT ..IN FACT, AFTER REVEALI NG ALL FACTS AS ABOVE, THE ASSESSEES TRUST DOES NOT EVEN QUALIFY FOR CONT INUOUS OF REGISTRATION UNDER SECTIONS 12A/12AA AND SEPARATE PROCEEDINGS NE ED TO BE INITIATED FOR CANCELLATION OF THE SAME, NO SUCH CANCELLATION OF REGISTRATION HAS BEEN SHOWN TO HAVE BEEN BROUGHT ABOUT, THEREBY RE-ENFORC ING THE ASSERTION THAT THE ASSESSEE TRUST IS A CHARITABLE TRUST. IN ACI T V. SURAT CITY GYMKHANA(SUPRA), IT HAS BEEN HELD THAT ONCE REGIST RATION U/S 12A OF THE ACT HAS BEEN MAINTAINED, IT IS NOT OPEN FOR THE AO IN T HE ASSESSMENT PROCEEDINGS, TILL THE REGISTRATION IS WITHDRAWN, TO HOLD THAT THE OBJECTS OF THE TRUST ARE NOT CHARITABLE IN NATURE. ITA 2849(DEL)2010 21 18. IN SONEPAT HINDU EDUCATIONAL CHARITABLE SOCIET Y V. CIT, 278 ITR 262(P&H), IT WAS HELD, INTER ALIA, THAT THE REGISTR ATION OF AN INSTITUTION U/S 12A OF THE ACT IS SUFFICIENT PROOF OF THE FACT THA T THE TRUST OR INSTITUTION CONCERNED IS CREATED OR ESTABLISHED FOR CHARITABLE OR RELIGIOUS PURPOSES. 19. IN GAUR BRAHMIN VIDYA PRACHARINI SABHA V. CIT , 34 SOT 371(DEL), HELD THAT ALL CONDITIONS LAID DOWN IN SECTION 80G(5 ) (II) TO (VI) STOOD FULFILLED; AND THAT GRANT OF REGISTRATION U/S 12AA OF THE ACT WAS THE TESTIMONY TO THE FACT THAT THE TRUST WAS ESTABLISHE D FOR CHARITABLE PURPOSES. THIS DECISION OF THE TRIBUNAL HAS SINCE BEEN AFFIRM ED BY THE HONBLE HIGH COURT IN CIT V. GAUR BRAHMIN VIDYA PRACHARINI SABH A, 15 TAXMANN 250(P&H), DISMISSING THE DEPARTMENTS APPEAL AND HO LDING THAT THE TRUST WAS ELIGIBLE FOR REGISTRATION U/S 80G (VI) OF THE A CT. 20. IN SONEPAT HINDU EDUCATIONAL CHARITABLE SOCIE TY V. CIT (SUPRA), VIDE OUR ORDER DATED 27.5.2011 (COPY AT APB 103 TO 107) PASSED IN ITA NO. 1928(DEL)2010, IT HAS BEEN HELD THAT AT THE TIME OF GRANT OF REGISTRATION U/S 12A OR APPROVAL U/S 80G(5) OF THE ACT, THE AOS EXE RCISE TO BE CARRIED OUT WHILE MAKING ASSESSMENT, CANNOT BE DONE, AND THAT THE MATTER CAN BE REVIEWED ONLY IF THE REGISTRATION GRANTED TO THE AS SESSEE IS WITHDRAWN. 21. IN ITO V. MRS. DWARIKA PRASAD TRUST, 30 ITD 8 4 (DEL)(TM), IT HAS BEEN HELD, INTER ALIA, THAT GRANT OF REGISTRATION U /S 12A CANNOT BE BY-PASSED ITA 2849(DEL)2010 22 AS MERELY AN IDLE FORMALITY; AND THAT ONCE A CERTIF ICATE U/S 12A OF THE ACT STANDS ISSUED, IT IS NOT OPEN TO THE AO TO ENQUIRE INTO THE CHARACTER OF THE INSTITUTION AND TO DENY EXEMPTION U/S 11 OF THE ACT . 22. IN STOCK EXCHANGE, AHMEDABAD V. ACIT, 74 ITD 1(AHD), IT HAS BEEN HELD, INTER ALIA, THAT ONCE AN INSTITUTION HA S BEEN REGISTERED U/S 12A, IT IS FOR THE AO TO FIND OUT WHETHER THE INCOME OF THE INSTITUTION HAS BEEN APPLIED FOR THE OBJECTS OF THE INSTITUTION AND THE STATUTORY CONDITIONS LAID DOWN IN SECTIONS 11 TO 13 ARE FULFILLED BY THE ASSE SSEE; AND THAT THE AO HAD NO JURISDICTION TO REJECT THE CLAIM OF EXEMPTION U/ S 11 OF THE ACT BY LOOKING INTO THE OBJECTS OF THE ASSOCIATION AND HOLDING THE M TO BE NON-CHARITABLE IN NATURE. 23. THE FOLLOWING ARE THE OTHER DECISIONS TO THE SA ME EFFECT:- 1. DCIT V. RAJNEESH FOUNDATION, 280 ITR 553(BOM); 2. N.N. DESAI CHARITABLE TRUST V. CIT , : 246 ITR 4 52 (GUJ.) ; 3. ORPAT CHARITABLE TRUSTS V. CIT,: 256 ITR 690 (GUJ .); 4. UMAID CHARITABLE TRUST VS. UNION OF INDIA & ORS, 307 ITR 226 (RAJ); 5. ITO V TRILOK TIRATH VIDYAVATI CHUTTANI CHARITABLE TRUST, 90 ITD 569 (CHD); 6. ANANDA MARGA PRACHARAKA SANGHA V. CIT,: 218 ITR 2 54 (CAL) . 24. IN VIEW OF THE ABOVE, THE OBSERVATIONS OF THE L D. DIT(E) ARE NOT SUSTAINABLE. ITA 2849(DEL)2010 23 25. APROPOS THE OBJECTION OF THE LD. DIT(E) THAT TH E ACTIVITIES OF THE ASSESSEE DO NOT COME WITHIN THE EXPRESSION EDUCATI ON AS CONTAINED IN SECTION 2(15) OF THE ACT, IT IS SEEN THAT THE LD. D IT(E) PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN LOK SHIK SHANA TRUST V. CIT (SUPRA). HOWEVER, WE ARE UNABLE TO GATHER AS TO HO W THAT DECISION IS DETRIMENTAL TO THE FACTS OF THE PRESENT ASSESSEE. THEREIN, THE FACTS WERE ENTIRELY DIFFERENT. THE ASSESSEE IN THAT CASE WAS PUBLISHING AND SUPPLYING NEWS PAPER AND IT WAS ON THE BASIS OF THIS THAT THE CLAIM OF THE ASSESSEE WAS NOT APPROVED, HOLDING THAT EDUCATION MUST INVOLVE S YSTEMATIC INSTRUCTION, SCHOOLING OR TRAINING AND DEVELOPING THE KNOWLEDGE, SKILL, MIND AND CHARACTER OF STUDENTS. IT HAS NOT BEEN SHOWN BY TH E DEPARTMENT AS TO HOW THE ACTIVITIES CARRIED OUT BY THE ASSESSEE DO NOT C ONSTITUTE EDUCATION AS SUCH. IT DOES INVOLVE SYSTEMATIC INSTRUCTION, SCH OOLING AND TRAINING AND IT DEVELOPS THE KNOWLEDGE, SKILL, MIND AND CHARACTER O F THE STUDENTS. LOK SHIKSHANA TRUST V. CIT (SUPRA), THEREFORE, GOES TO SUPPORT RATHER THAN PREJUDICE THE ASSESSEES CASE. 26. THE LD. DIT(E) HAS FURTHER SOUGHT TO COVER THE ACTIVITIES OF THE TRUST UNDER THE EXPRESSION GENERAL PUBLIC UTILITY AS CO NTAINED IN SECTION 2(15) OF THE ACT AND HAS HELD THAT SINCE THE ASSESSEE TRU ST IS CHARGING FEE FROM ITS STUDENTS, THE PROVISO TO SECTION 2(15) GETS ATTRACT ED AND THE ASSESSEE TRUST ITA 2849(DEL)2010 24 CEASES TO BE CHARITABLE. HOWEVER, IT IS SEEN THAT THE PROVISO TO SECTION 2(15) OF THE ACT IS APPLICABLE ONLY TO THOSE INSTITUTIONS /TRUSTS, WHOSE MAIN OBJECT IS THAT OF ADVANCEMENT OF ANY OTHER OBJECT OF PUBLI C UTILITY. THE ASSESSEE TRUST, ON THE OTHER HAND, IS ENGAGED, AS SEEN, IN C HARITABLE ACTIVITIES AND SO, THE PROVISO TO SECTION 2(15) IS NOT AT ALL APPLICAB LE HERETO, NONE OF THE ACTIVITIES OF THE ASSESSEE TRUST BEING IN THE NATUR E OF TRADE, COMMERCE OR BUSINESS. EVEN THE AGREEMENTS ENTERED INTO BY THE ASSESSEE THAT CLEIS AND CLIL WERE INCIDENTAL TO THE ATTAINMENT OF THE ASSES SEES MAIN OBJECT OF IMPARTING EDUCATION. THEREFORE, IT CANNOT AT ALL BE SAID THAT ANY OF THE ACTIVITIES COME WITHIN GENERAL PUBLIC UTILITY. 27. THE OBJECTION OF THE LD. DIT(E) REGARDING CHARG ING OF FEE BY THE SCHOOL CANNOT BE MADE THE BASIS OF HOLDING THAT THE ACTIVITY WAS A COMMERCIAL ONE. IN THIS REGARD, RELIANCE HAS RIGH TLY BEEN PLACED BY THE ASSESSEE ON THE FOLLOWING CASE LAWS:- 1. CIT VS. KRISHI UTPADAN MANDI SAMITI, PURVAO, 186 TAXMAN 460 (ALL.); 2. ICAI ACCOUNTING RESEARCH FOUNDATION V. DGIT(E) & O RS., 321 ITR 73 (DEL.); 3. GAUR BRAHMIN VIDYA PRACHARINI SABHA VS. CIT, ITA NO. 1905/DEL/2009: 34 SOT 371 (DEL.) AFFIRMED BY THE PUNJAB AND HARYANA HIGH COURT IN 15 TAXMANN 250. 4. CIT V. PULIKKAL MEDICAL FOUNDATION (P.) LTD., [19 94] 210 ITA 2849(DEL)2010 25 ITR 299 KER.); 5. INDO AMERICAN SOCIETY VS. ADIT, 96 ITD 61 (MUM.); 6. ITO VS KAUSHALYA MEDICAL FOUNDATION, (2009) 31 SO T 119 (MUM.); 7. CIT VS. SURJI DEVI KUNJI LAL JAIPURIA CHARITABLE T RUST (NO.1), 186 ITR 728 (ALL.); 8. HIRALAL BHAGWATI VS. CIT, 246 ITR 188 (GUJ.); 28. THE OBJECTION OF THE LD. DIT(E) REGARDING THE A SSESSEE HAVING EARNED HUGE SURPLUS IN ASSESSMENT YEARS 2007-08 TO 2009-20 10 IS ALSO NOT OF ANY CONSEQUENCE. FIRSTLY, THE LEARNED COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE AUDITED ANNUAL ACCOUNTS FOR THE SA ID PERIOD, SHOWING THAT NO PROFITS WERE EARNED IN THE SAID PERIOD. RATHER , THE ASSESSEE HAD INCURRED DEFICITS WHICH ARE TABULATED AS UNDER:- FINANCIAL YEAR DEFICIT (IN RS.) 2006-07 18,66,158.00 2007-08 1,19,33,876.08 2008-09 3,59,63,000.77 ITA 2849(DEL)2010 26 29. MOREOVER, THIS ISSUE CANNOT PREJUDICE THE CASE OF THE ASSESSEE EVEN AS AN ASIDE, SINCE IT IS THE OBJECTS OF THE TRUST AND NOT THE SURPLUS AMOUNT, WHICH IS OF CONSIDERATION. ALSO, MERELY BECAUSE T HE TRUSTEES WERE INCIDENTALLY BENEFITTED, AS HELD IN ACIT V. SURAT ART SILK, 121 ITR 1(SC), THE TRUST DOES NOT CEASE TO BE A CHARITABLE TRUST. THE TEST TO BE APPLIED IS AS TO WHETHER THE OBJECT ALLEGED TO BE A NON-CHARITABL E OBJECT IS OR IS NOT THE MAIN OBJECT AND AS TO WHETHER IT IS INCIDENTAL TO T HE DOMINANT CHARITABLE OBJECT. HEREIN, AS SEEN ABOVE, THE MAIN OBJECT, I. E., EDUCATION IS A CHARITABLE OBJECT. IN THIS REGARD, RELIANCE HAS BE EN CORRECTLY PLACED ON THE FOLLOWING CASE LAWS:- 2. SOLE TRUSTEE, LOKA SIKHSHANA TRUST'S CASE [1975] 101 ITR 234(SC); 3. AMERICAN HOTEL LODGING ASSOCIATION EDUCATION INSTI TUTE V. CBDT, 301 ITR 86 (SC); 4. CIT V. ANDHRA PRADESH STATE ROAD TRANSPORT CORPORA TION, 159 ITR 1 (SC); 5. CIT V. BAR COUNCIL OF MAHARASTHRA, 130 ITR 28 (SC ); 6. THIAGARAJAR CHARITIES V. ADDL. CIT, 225 ITR 1010, 1026 (SC); 7. SAMARITAN SOCIETY VS. CIT, 225 ITR 652 ( SC ); 8. ADITANAR EDUCATIONAL INSTITUTION V. ACIT, 224 ITR 310; 9. CIT V LAGAN KALA UPVAN, 259 ITR 489 (DEL); 10. CIT V DELHI KANNADA EDUCATION SOCIETY, 246 ITR 73 1(DEL.). ITA 2849(DEL)2010 27 30. SOFAR AS REGARDS RELIANCE BY THE LD. DIT(E) ON THE DECISION IN QUEEN EDUCATIONAL SOCIETY (SUPRA), IT HAS RIGHTLY BEEN AVERRED ON BEHALF OF THE ASSESSEE THAT THAT DECISION IS NOT APPLICABLE ON F ACTS. THEREIN, THE ASSESSEE HAD SHOWN NET SURPLUS IN TWO ASSESSMENT YEARS, WHIC H WAS HELD NOT HAVING BEEN TAKEN INTO ACCOUNT BY THE TRIBUNAL, CONCLUDING THAT THE CURRENT PROFIT OF THE ASSESSEE HAD NOT BEEN APPRECIATED BY THE TRIBUN AL AND DEDUCTION U/S 10(23 C) OF THE ACT HAD WRONGLY BEEN ALLOWED. HER EIN, HOWEVER, THERE IS NO ISSUE OF EXEMPTION U/S 10 (23 C) OF THE ACT. R ATHER, IT IS U/S 80G OF THE ACT THAT THE EXEMPTION WAS GRANTED TO THE ASSESSEE AND THE ASSESSEE SEEKS CONTINUATION OF SUCH EXEMPTION. 31. QUEEN EDUCATIONAL SOCIETY (SUPRA), THEN, HAS BEEN DISSENTED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN PINEGROVE I NTERNATIONAL CHARITABLE TRUST V. UNION OF INDIA, 327 ITR 73(P&H ) AND BY THE HONBLE BOMBAY HIGH COURT IN VANITA VISHRAM TRUST V. CIT, 327 ITR 121(BOM), WHEREIN PINEGROVE INTERNATIONAL CHARITABLE TRUST (SUPRA) WAS FOLLOWED. 32. THE OBJECTION OF THE LD. DIT(E) REGARDING THE A LLEGED VIOLATION OF THE PROVISIONS OF SECTION 13(3) OF THE ACT BY THE ASSES SEE ALSO HOLDS NO WATER. THE LD. DIT(E) HAS FAILED TO CONSIDER THAT WHAT IS MATERIAL IN THIS REGARD IS THAT IF THE PAYMENT MADE WAS COMMENSURATE WITH THE NATURE OF THE SERVICES RENDERED BY SPECIFIED PERSON, THE CHARITABLE NATU RE OF THE TRUST CANNOT BE ITA 2849(DEL)2010 28 DOUBTED, WHICH PROPOSITION ALSO FINDS SUPPORT FROM ADIT V. MANAV BHARTI CHILD AND CHILD PSYCHOLOGY, 20 SOT 517(DEL), WHERE IN IT HAS BEEN HELD, IN THE CONTEXT OF SECTIONS 11/12 OF THE ACT, INTER ALI A, THAT IN THE ACT, THERE IS NO PROHIBITION TO REMUNERATE THE INTERESTED PERSON, TH AT SUCH REMUNERATION SHOULD BE COMMENSURATE WITH THE SERVICES RENDERED B Y THEM AND IF IT IS SO FOUND, IT CANNOT BE SAID THAT THE PROVISIONS OF SEC TION 13(1)(C) OF THE ACT ARE ATTRACTED. THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF PARIVAR SEVA SANSTHAN, 254 ITR 268(DEL) IS ALSO T O THE SAME EFFECT. THE LD. DIT(E) DOES NOT QUESTION THE PAYMENTS MADE BY T HE ASSESSEE TO EITHER CLEIS OR CLIL AS NOT BEING AT ARMS LENGTH AND THE ONLY BASIS OF ATTACK IS THAT THE PAYMENTS WERE MADE TO THE SPECIFIED PERSO NS , WHICH BASIS, AS SEEN, IS NOT AVAILABLE, MUCH LESS SUSTAINABLE. 33. THUS, CONSIDERED FROM ANY ANGLE, THE ACTION OF THE LD. DIT(E) IN REFUSING GRANT OF CONTINUATION OF APPROVAL U/S 80 G OF THE ACT TO THE ASSESSEE TRUST IS ILLEGAL, IRREGULAR, ARBITRARY AND UNSUSTAI NABLE IN THE EYE OF LAW. THE GRIEVANCE OF THE ASSESSEE IN THIS REGARD IS JUSTIFI ED AND IS ACCEPTED AS SUCH. THE ORDER PASSED BY THE LD. DIT(E) IS CANCELLED AND HE IS DIRECTED TO GRANT THE APPROVAL U/S 80 G OF THE ACT TO THE ASSESSEE, A S REQUESTED BY THE ASSESSEE. ITA 2849(DEL)2010 29 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.02.2012. SD/- SD/- (A.N. PAHUJA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10.02.2012 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER ASSISTANT REGISTRAR